LaPorte Bancorp, Inc. - FORM 10-K

LaPorte Bancorp, Inc. - FORM 10-K - March 23, 2011

Attached files

Attached files

LaPorte Bancorp, Inc. Reports

file	filename
EX-13 - CONSOLIDATED FINANCIAL STATEMENTS - LaPorte Bancorp, Inc.	dex13.htm
EX-23 - CONSENT OF CROWE HORWATH LLP - LaPorte Bancorp, Inc.	dex23.htm
EX-32 - SECTION 906 CEO AND CFO CERTIFICATION - LaPorte Bancorp, Inc.	dex32.htm
EX-21 - SUBSIDIARIES OF REGISTRANT - LaPorte Bancorp, Inc.	dex21.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - LaPorte Bancorp, Inc.	dex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - LaPorte Bancorp, Inc.	dex311.htm

SECURITIES AND EXCHANGE COMMISSION

100 F Street NE

Washington, D.C. 20549

FORM 10-K

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

for the Fiscal Year Ended December 31, 2010

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

For the transition period from to

Commission File No. 001-33733

LaPorte Bancorp, Inc.

(Exact name of registrant as specified in its charter)


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

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

(219) 362-7511

(Registrant’s telephone number)

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


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

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

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

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

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

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨

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

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

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

As of March 21, 2011, there were issued and outstanding 4,586,363 shares of the Registrant’s Common Stock.

As of June 30, 2010, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $34,168,404.

DOCUMENTS INCORPORATED BY REFERENCE

•

Annual Report to Stockholders of the Registrant for the Fiscal Year Ended December 31, 2010 (Part II).

•

Proxy Statement for the 2011 Annual Meeting of Stockholders of the Registrant (Part III).

TABLE OF CONTENTS


PART I		1

Item 1.	Business	1
Item 1A.	Risk Factors	38
Item 1B.	Unresolved Staff Comments	43
Item 2.	Properties	44
Item 3.	Legal Proceedings	44

PART II		45

Item 4.	(Removed and Reserved)	45
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45
Item 6.	Selected Financial Data	47
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 8.	Financial Statements and Supplementary Data	65
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	66
Item 9A.	Controls and Procedures	66
Item 9B.	Other Information	66

PART III		67

Item 10.	Directors, Executive Officers and Corporate Governance	67
Item 11.	Executive Compensation	67
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	67
Item 13.	Certain Relationships and Related Transactions, and Director Independence	67
Item 14.	Principal Accountant Fees and Services	67

PART IV		67

Item 15.	Exhibits, Financial Statement Schedules	67

SIGNATURES		69

PART I

Item 1.

Business

Forward Looking Statements

This Annual Report (including information incorporated by reference) contains, and future oral and written statements of LaPorte Bancorp, Inc. (“LaPorte Bancorp” or the “Company”) and its management may contain, forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of LaPorte Bancorp. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of LaPorte Bancorp’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and LaPorte Bancorp undertakes no obligation to update any statement in light of new information or future events. By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include those discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. 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: (1) changes in consumer spending, borrowing and savings habits; (2) the financial health of certain entities, including government sponsored enterprises, the securities of which are owned or acquired by the Company; (3) adverse changes in the securities market; and (4) the costs, effects and outcomes of existing or future litigation. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

LaPorte Savings Bank, MHC

LaPorte Savings Bank, MHC is our federally-chartered mutual holding company parent. As a mutual holding company, LaPorte Savings Bank, MHC is a non-stock company. As of December 31, 2010, LaPorte Savings Bank, MHC owned 54.99% of LaPorte Bancorp’s common stock. As long as LaPorte Savings Bank, MHC exists, it is required to own a majority of the voting stock of LaPorte Bancorp and, through its board of directors, will be able to exercise voting control over most matters put to a vote of shareholders. LaPorte Savings Bank, MHC does not engage in any business activity other than owning a majority of the common stock of LaPorte Bancorp.

LaPorte Bancorp, Inc.

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

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

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

The LaPorte Savings Bank

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

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

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

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

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

The consideration paid in the City Savings Bank Merger consisted of 961,931 shares of LaPorte Bancorp’s common stock and $9.6 million in cash. The Company sold 1,299,219 shares of common stock at $10.00 per share in a subscription and community offering which resulted in gross proceeds of $12,992,190.

As of March 21, 2011, LaPorte Savings Bank, MHC held 2,522,013 shares, or 54.99%, of LaPorte Bancorp’s outstanding common stock.

Market Area

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

We further increased our market presence in LaPorte County with the opening of our Westville, Indiana full-service banking office in July 2008. As of December 31, 2010, the Westville office had total deposits of $7.6 million.

Because of its location at the southern tip of Lake Michigan, LaPorte County is a major access point to the Chicago market for both rail and highway. LaPorte County is the second largest county in Indiana. The southern part of the county is rural and agricultural in nature. The northern part of the county is where LaPorte and Michigan City are located and the majority of the population is centered. The economy of LaPorte and Michigan City were once built around large manufacturing, however both have made the transition to light industry and service industry. Michigan City because of its location on Lake Michigan has seen a growth in tourism. As of June 30, 2010, The LaPorte Savings Bank had a deposit market share of approximately 19.54% in LaPorte County, which represented the second largest share in LaPorte County of any FDIC insured financial institution.

Both land and labor costs in LaPorte County have remained below the surrounding market areas, while the population has remained stable and historically property values have not experienced large increases. We experienced declining property values in certain areas of LaPorte County in 2009 and 2010.

Porter County to the west has seen much higher growth because of its proximity to the Chicago market. As a result of the acquisition of City Savings Financial we acquired a branch in Chesterton in Porter County. As of June 30, 2010, the LaPorte Savings Bank had a deposit market share of approximately 1.13% in Porter County. We experienced declining property values in certain areas of Porter County in 2010.

Lending Activities

Historically, our principal lending activity has been the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real property. During the past several years, we have increased our originations of commercial real estate loans in an effort to increase interest income and reduce our one- to four-family residential loan portfolio as a percentage of our total loans. In addition, in May 2009 we introduced a new mortgage warehouse lending line of business, headed up by an individual whom we hired with an extensive background in this field.

In the future, we intend to continue to originate fixed rate one- to four-family residential loans for sale into the market, and to originate adjustable rate mortgages for our portfolio, subject to market demand. We also intend to maintain and potentially increase our mortgage warehouse lending line of business. Finally, we expect to maintain our commercial real estate lending and do not expect to experience a significant increase in the near future due to current economic conditions.

Except as noted herein, we do not intend any other dramatic change in our loan composition.

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

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

Our mortgage warehouse loan approval process is intended to minimize potential risk by establishing desirable relationships with experienced and well managed Mortgage Companies (participants). The LaPorte Savings Bank is relying primarily upon the mortgagor to repay the loan or extension of credit, but the Mortgage Participant and their principal owners are guaranteeing the performance of those loans or extension of credits they have originated. All residential mortgage loans in excess of an individual warehouse staff member’s loan authority must be approved by two members of the Officer Loan Committee. The Officer Loan Committee consists of the President, Executive Vice President – Credit, Senior Vice President – Mortgage Warehousing, Senior Vice President Commercial Lending and Executive Vice President/Chief Financial Officer. We have also established limits on outstanding lines to each participant. A maximum limit of $20.0 million has been established for a single participant and a $25.0 million combined limit has been established for participants with common ownership. The Officer Loan Committee has the authority to increase these limits up to 20%.

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


	December 31,
	2010						2009						2008						2007						2006
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate:
One- to four-family	$	57,144			20.64	%	$	70,126			27.08	%	$	84,706			38.10	%	$	93,439			42.05	%	$	63,973			46.72	%
Five or more family		11,586			4.18			6,743			2.60			5,200			2.34			712			0.32			204			0.15
Commercial		79,807			28.82			75,506			29.16			65,078			29.27			59,332			26.70			35,578			25.98
Construction		6,832			2.47			5,420			2.09			7,736			3.48			11,268			5.07			2,578			1.88
Land		10,795			3.90			11,753			4.54			11,016			4.95			4,829			2.17			74			0.06

Total real estate		166,164			60.01			169,548			65.48			173,736			78.14			169,580			76.32			102,407			74.79

Mortgage warehouse		69,600			25.13			43,765			16.90			—			—			—			—			—			—

Consumer and other loans:
Home equity		14,187			5.12			15,704			6.06			15,579			7.01			16,996			7.65			7,303			5.33
Commercial		17,977			6.49			18,122			7.00			19,390			8.72			17,356			7.81			9,569			6.99
Automobile and other loans ⁽¹⁾		8,985			3.24			11,790			4.55			13,622			6.13			18,276			8.22			17,650			12.89

Total consumer and other loans		41,149			14.86			45,616			17.62			48,591			21.86			52,628			23.68			34,522			25.21


Total loans	$	276,913			100.00	%	$	258,929			100.00	%	$	222,327			100.00	%	$	222,208			100.00	%	$	136,929			100.00	%


Net deferred loan costs		133						122						111						86						189
Allowance for loan losses		(3,943	)					(2,776	)					(2,512	)					(1,797	)					(1,041	)

Total loans, net	$	273,103					$	256,275					$	219,926					$	220,497					$	136,077

(1)

Includes $3,390 of indirect automobile and $5,595 of direct automobile and other loans at December 31, 2010, $4,780 of indirect automobile and $7,010 of direct automobile and other loans at December 31, 2009, $6,041 of indirect automobile and $7,581 of direct automobile and other loans at December 31, 2008, $9,604 and $8,672 at December 31, 2007, and $14,091 and $3,559 at December 31, 2006.

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2010. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.


	One- to Four-Family					Five or More Family					Commercial Real Estate					Mortgage Warehouse
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)

Due During the Years Ending December 31,
2011	$	1,774		6.66	%	$	1,176		4.26	%	$	11,183		5.26	%	$	69,600		6.58	%
2012		716		6.09			15		5.00			1,513		5.90			—		—
2013		1,928		5.69			1,541		6.20			16,677		6.19			—		—
2014 to 2015		3,943		5.77			8,532		5.63			26,988		6.08			—		—
2016 to 2020		10,325		5.75			154		5.75			15,044		5.88			—		—
2021 to 2025		6,730		5.72			—		—			4,566		6.08			—		—
2026 and beyond		31,728		5.99			168		6.63			3,836		6.99			—		—


Total	$	57,144		5.91	%	$	11,586		5.58	%	$	79,807		5.99	%	$	69,600		6.58	%


	Commercial Non-Real Estate					Construction and Land					Home Equity, Automobile and Other					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)

Due During the Years Ending December 31,
2011	$	7,576		5.15	%	$	9,881		5.95	%	$	1,416		4.43	%	$	102,606		6.21	%
2012		1,456		6.08			1,668		5.85			2,538		5.26			7,906		5.73
2013		1,427		5.81			762		6.40			3,325		5.67			25,660		6.07
2014 to 2015		6,623		6.73			4,372		5.78			8,008		5.70			58,466		5.99
2016 to 2020		666		4.35			661		5.17			5,928		5.92			32,778		5.80
2021 to 2025		229		7.00			283		5.37			1,745		6.67			13,553		5.98
2026 and beyond		—		—			—		—			212		9.28			35,944		6.12


Total	$	17,977		5.86	%	$	17,627		5.88	%	$	23,172		5.73	%	$	276,913		6.07	%

The following table sets forth the contractual maturities of fixed- and adjustable-rate loans at December 31, 2010 that are due after December 31, 2011.


	Due After December 31, 2011
	Fixed		Adjustable		Total
	(In thousands)

Real Estate:
One- to four-family	$	43,870	$	11,500	$	55,370
Five or more family		9,769		641		10,410
Commercial		35,452		33,172		68,624
Construction		1,270		—		1,270
Land		3,736		2,740		6,476

Total real estate loans		94,097		48,053		142,150

Mortgage warehouse		—		—		—

Consumer and other loans:
Home equity		2,473		10,858		13,331
Commercial		8,317		2,084		10,401
Automobile and other		8,243		182		8,425

Total consumer and other loans		19,033		13,124		32,157


Total loans	$	113,130	$	61,177	$	174,307

One- to Four-Family Residential Loans. At December 31, 2010, approximately $57.1 million, or 20.64% of our loan portfolio, consisted of one- to four-family residential loans. The majority of the one- to four-family residential mortgage loans we originate are conventional, but we also offer FHA and VA loans. The Bank does not, nor has it ever engaged in subprime lending, defined as mortgage loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Our one- to four-family residential mortgage loans are currently originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, although loans may be made with higher loan-to-value ratios at a higher interest rate to compensate for the increased credit risk. Private mortgage insurance is generally required on loans with a loan-to-value ratio in excess of 80%. Fixed-rate loans are originated for terms of 10 to 40 years. Depending on market conditions, we generally sell a majority of our fixed rate one- to four-family loans as part of our asset/liability management strategy. At December 31, 2010, our largest loan secured by one- to four-family real estate had a principal balance of approximately $914,000 and was secured by a single family residence. This loan was performing in accordance with its repayment terms at December 31, 2010.

We also offer, to a lesser extent, adjustable rate mortgage loans with fixed terms of one, three, five, seven or ten years before converting to an annual adjustment schedule based on changes in a designated United States Treasury index. We originated $0 of adjustable rate one- to four-family residential loans during the year ended December 31, 2010 and $0 during the year ended December 31, 2009. The adjustable rate mortgage loans that we originate provide for maximum rate adjustments of 200 basis points per adjustment, with a lifetime maximum adjustment of 600 basis points, and amortize over terms of up to 30 years.

Adjustable rate mortgage loans help decrease the risk associated with changes in market interest rates by periodically repricing. However, adjustable rate mortgage loans involve other risks because, as interest rates increase, the interest payments on the loan increase, which increases the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents, and therefore, is potentially limited in effectiveness during periods of rapidly rising interest rates. At December 31, 2010, $11.5 million, or 20.77%, of our one- to four-family residential loans contractually due after December 31, 2011 had adjustable rates of interest.

We acquired a substantial amount of our adjustable rate one- to four-family residential mortgage loans in connection with our acquisition of City Savings Bank in 2007. At December 31, 2010, $16.0 million of our one- to four-family residential loans were acquired from City Savings Bank, of which $9.6 million were adjustable rate loans. Most of City Savings Bank’s adjustable rate loans were originated with rates that were fixed for an initial term of five years and then adjust on an annual basis thereafter, pegged to the one-year United States Treasury index. These loans also provide for a maximum interest rate adjustment of 200 basis points over a one-year period and a maximum adjustment of 600 basis points over the life of the loan, and are amortized over terms up to 30 years.

At December 31, 2010, $1.2 million of our one- to four-family residential mortgage loans were classified as non-performing. $453,000, or 37.01%, of these nonperforming loans were acquired in connection with the City Savings Bank Merger, and all are adjustable rate loans.

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

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

Mortgage Warehouse Lending. In May of 2009, we introduced a mortgage warehousing lending line of business, headed up by an individual brought into the organization with an extensive background in this field. Under this program, we provide financing to approved mortgage companies for the origination and sale of residential mortgage loans. Each individual mortgage is assigned to us until the loan is sold to the secondary market by the mortgage company. We take possession of each original note, or in some instances a third party custodian takes possession, and forwards such note to the end investor once the mortgage company has sold the loan. These individual loans are typically sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and fee income for each loan sold is collected when the loan is sold. Agency eligible, governmental (FHA insured or VA guaranteed) and jumbo residential mortgage loans that are secured by mortgages placed on existing one-to four-family dwellings may be purchased and placed in the warehouse line.

As of December 31, 2010, the Bank had repurchase agreements with 9 mortgage companies and held $69.6 million of warehoused loans. Since beginning the warehousing business in May 2009, the approved mortgage companies have originated $3.2 billion in mortgage loans and sold $3.2 billion in mortgage loans. We recorded interest income of $5.3 million, mortgage warehouse loan fees of $1.1 million and wire transfer fees of $339,000.

Commercial Real Estate Loans. At December 31, 2010, $79.8 million, or 28.82% of our total loan portfolio consisted of commercial real estate loans. Our commercial real estate loans are secured by retail, industrial, warehouse, service, medical and other commercial properties. Because, on average, our commercial real estate loans have a shorter term to repricing and a higher yield than our residential loans, such loans can be a helpful asset/liability management tool.

We originate both fixed- and adjustable-rate commercial real estate loans. Our originated fixed-rate commercial real estate loans generally have initial terms of up to five years, with a balloon payment at the end of the term. Our originated adjustable-rate commercial real estate loans generally have an initial term of three- to five-years and a repricing option. Our originated commercial real estate loans generally amortize over 15 to 20 years. The maximum loan-to-value ratio of our commercial real estate loans is generally 80%. At December 31, 2010, our largest commercial real estate loan balance was $3.7 million, and was secured by a hotel and medical complex. At December 31, 2010, this loan was performing in accordance with its repayment terms.

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

We acquired a number of commercial real estate loans as a result of the acquisition of City Savings Bank. The majority of these loans were adjustable-rate commercial real estate loans generally having terms no greater than 20 years. Acquired loans that showed evidence of credit deterioration on the date of the City Savings Bank acquisition were recorded at an allocated fair value. Since the date of acquisition we have not recorded any specific reserves related to these loans. At December 31, 2010, the balance of these loans acquired with City Savings Bank was $962,000. For further information about the accounting treatment of purchased loans, see Note 3 to Consolidated Financial Statements included in Part IV hereof.

Loans secured by commercial real estate generally are considered to present greater risk than one- to four-family residential loans. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including today’s economic crisis and declining real estate values. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate and more vulnerable to adverse economic conditions.

Set forth below is information regarding our commercial real estate loans at December 31, 2010.


Industry Type	Number of Loans		Balance
			(Dollars in thousands)

Real estate development and rental		158	$	22,685
Health care and social		14		4,282
Retail trade		37		7,441
Accommodation and food		33		15,642
Other services		44		5,818
Manufacturing		29		6,481
Construction		55		9,940
Other miscellaneous		61		7,518

		431	$	79,807

At December 31, 2010, $2.8 million of our commercial real estate loans were classified as non-performing. $878,000, or 31.15%, of these loans were acquired from City Savings Bank.

During recent years, we have increased our emphasis on commercial real estate lending. However, we do not expect to experience a significant increase in the near future due to current economic conditions.

Construction and Land Loans. At December 31, 2010, $17.6 million, or 6.37%, of our total loan portfolio consisted of construction and land loans. A majority of our mortgage construction loans are for the construction of residential properties and carry fixed rates. Most of our current residential construction loan originations are structured for permanent mortgage financing once the construction is completed. At December 31, 2010, our largest residential construction loan balance was $1.3 million, and was secured by the construction of a one- to four-family residence. At December 31, 2010 this loan was performing in accordance with its terms.

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

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

We also occasionally make loans to builders and developers “on speculation” to finance the construction of residential property where justified by an independent appraisal. Whether we are willing to provide permanent takeout financing to the purchaser of the home is determined independently of the construction loan by a separate underwriting process. At December 31, 2010, we had no construction loans outstanding secured by one- to four-family residential property built on speculation. Given the current state of the economy and overall concerns with the construction development industry, we have significantly reduced our exposure in this type of lending and do not anticipate a change in this strategy in the near future.

We also make commercial land development and residential land loans. The growth in this area has been primarily from loans to real estate developers for the acquisition and development of one- to four-family residential developments. These loans generally have an interest-only phase during construction then convert to permanent financing. The maximum loan-to-value ratio applicable to these loans is generally 80%. At December 31, 2010, our total balance of commercial land development and residential land loans was $10.8 million, and the balance of such loans acquired with City Savings Bank was $3.3 million. At December 31, 2010, our largest commercial real estate development loan balance was $1.2 million, and was secured by land development. At December 31, 2010, this loan was considered a nonperforming loan.

We also make construction loans for commercial development projects such as multi-family, apartment and small retail and office buildings. These loans generally have an interest-only phase during construction then convert to permanent financing. Disbursements of construction loan funds are at our discretion based on the progress of construction. The maximum loan-to-value ratio limit applicable to these loans is generally 80%. At December 31, 2010, we had construction loans with an outstanding aggregate balance of $4.9 million and $233,000 of undrawn commitments which were secured by multi-family residential or commercial property. At December 31, 2010, our largest commercial construction loan balance was $4.6 million, and was secured by the construction of a multi-family apartment complex. At December 31, 2010, this loan was performing in accordance with its terms.

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

The table below sets forth, by type of collateral property, the number and amount of our construction and land loans at December 31, 2010, all of which are secured by properties located in our market area. Loans acquired with City Savings Bank represent $1.2 million or 47.81% of the non-performing construction and land loans.


	Net Principal Balance		Non-Performing
	(Dollars in thousands)

One- to four-family construction	$	1,885	$	—
Multi-family construction		4,608		—
Commercial construction		339		—
Land		10,795		2,468


Total construction and land loans	$	17,627	$	2,468

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

Commercial Loans. At December 31, 2010, $18.0 million, or 6.49% of our total loan portfolio consisted of commercial loans, of which $257,000 of such commercial loans were acquired in the City Savings Bank merger. Purchased loans that showed evidence as of the date of acquisition of credit deterioration since their origination were recorded at an allocated fair value.

Commercial credit is offered primarily to small business customers, usually for asset acquisition, business expansion or working capital purposes. Current term loan originations generally have a three- to five-year term with a balloon payment. Current term loan originations will not exceed 15 years without approval from the board. The maximum loan-to-value ratio of our current commercial loan originations is generally 80%. The extension of a commercial credit is based on the ability and stability of management, whether cash flows support the proposed debt repayment, earnings projections and the assumptions for such projections and the volume and marketability of any underlying collateral. At December 31, 2010, our largest commercial loan balance was $2.4 million, and was secured by a trust security portfolio. At December 31, 2010, this loan was performing in accordance with its terms.

Set forth below is information regarding The LaPorte Savings Bank’s commercial business (non-real estate) loans at December 31, 2010.


Industry Type	Number of Loans		Balance
			(Dollars in thousands)

Real estate development and rental		25	$	3,855
Health care and social		9		377
Retail trade		46		782
Accommodation and food		9		3,526
Other services		15		809
Manufacturing		26		3,105
Construction		41		1,788
Other miscellaneous		51		3,735

		222	$	17,977

Commercial loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which may be highly vulnerable to changes in general economic conditions (including the current recession). Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. We seek to minimize these risks through our underwriting standards. At December 31, 2010, $0 of our commercial loans were classified as nonperforming.

Home Equity Loans and Lines of Credit. We originate fixed and variable rate home equity loans and variable rate home equity lines of credit secured by a lien on the borrower’s residence. The home equity products we originate generally are limited to 80% of the property value less any other mortgages. During 2009, we lowered the maximum loan to value ratio to 70% from 80% for the interest only home equity loans we originate. The variable interest rates for home equity loans and lines of credit are determined by the Wall Street Journal prime rate and may not exceed a designated maximum over the life of the loan. Our home equity lines of credit have an interest rate floor and at December 31, 2010 a majority of these loans’ interest rates were at their floor. We currently offer home equity loans with terms of up to 10 years with principal and interest paid monthly from the closing date. Our home equity lines of credit provide for an initial draw period of up to 10 years, and payments include principal and interest calculated based on 2% of the outstanding principal balance. We offer interest-only home equity loans up to a five year term with payments of monthly interest. At the end of the initial term, the line must be paid in full or renewed.

Home equity loans acquired in connection with the City Savings Bank merger were $2.3 million at December 31, 2010, of which $1.3 million of these loans were interest only home equity loans with principal to be repaid at maturity.

At December 31, 2010, $14.2 million or 5.12% of our total loan portfolio consisted of home equity loans and lines of credit. At December 31, 2010, our largest home equity loan balance was $377,000. This loan was secured by a single family residence and was considered a nonperforming loan. This loan was acquired in connection with the City Savings merger and is an interest only loan.

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

At December 31, 2010, $377,000 of our home equity loans were classified as non-performing. All of these loans were acquired with City Savings Bank.

Automobile and Other Loans. We offer a variety of loans that are either unsecured or secured by property other than real estate. These loans include loans secured by deposits, recreational vehicles or boats, personal and bond loans and indirect and direct automobile loans. At December 31, 2010, these consumer and other loans totaled $9.0 million, or 3.24% of the total loan portfolio. We acquired a significant portfolio of these loans in connection with the City Savings Bank merger. At December 31, 2010, we had $1.8 million of such loans acquired with the City Savings Bank merger. At December 31, 2010, $3.4 million or 1.22% of our total loan portfolio consisted of indirect automobile loans, down from $4.8 million of such loans at December 31, 2009.

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

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are likely to be affected by adverse personal circumstances and the overall economy, including the current economic downturn. Furthermore, the application of various state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. In view of the possible increase in the amount and scope of our consumer lending activities, there can be no assurance that charge offs and delinquencies in our consumer loan portfolio will not increase in the future.

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

From time to time, we purchase loans from third parties to supplement loan production. In particular, we may purchase loans of a type that are not available, or that are not available with as favorable terms, in our own market area. We generally use the same underwriting standards in evaluating loan purchases as we do in originating loans. During 2010, we did not purchase any additional loans from third parties. At December 31, 2010, $1.9 million, or less than 1% of our portfolio consisted of purchased loans. At December 31, 2010, all of our purchased loan portfolio was serviced by others.

We often sell some of our originated loans in the secondary market. We generally make decisions regarding the amount of loans we wish to sell based on interest rate and/or credit risk management considerations. For instance, during 2010, we sold a significant portion of our fixed rate residential loan production as the low rate environment made such loans attractive to consumers but unattractive to us as long-term investment. In addition, we occasionally sell participation interests in our large, multi-family and commercial real estate loans in order to diversify our risk. At December 31, 2010, we serviced $66.0 million of loans for others, the majority of which were mortgage loans serviced for Freddie Mac.

The following table shows our loan origination, sale and principal repayment activities during the periods indicated. No loans were purchased during the periods indicated.


	Years Ended December 31,
	2010			2009			2008
	(In thousands)

Total loans at beginning of period	$	258,929		$	222,327		$	222,208

Loans originated:
Real estate:
One- to four-family		45,217			58,815			29,310
Five or more family		5,408			5,033			5,873
Commercial		18,778			25,527			31,444
Construction		6,549			3,916			10,273
Land		2,558			4,369			6,825
Mortgage warehouse		2,636,203			607,755			—
Consumer and other loans:
Home equity		2,194			3,825			5,876
Commercial		4,072			9,074			14,550
Automobile and other		2,410			3,911			3,252

Total loans originated		2,723,389			722,225			107,403

Loans sold:
Real estate:
One- to four-family		(40,762	)		(53,254	)		(21,883	)
Five or more family		—			—			—
Commercial		—			—			—
Construction		—			—			—
Land		—			—			—
Consumer and other loans:
Home equity		—			—			—
Commercial		—			—			—
Automobile and other		—			—			—

Total loans sold		(40,762	)		(53,254	)		(21,883	)

Deduct:
Principal repayments		(2,664,643	)		(632,369	)		(85,401	)

Net loan activity		17,984			36,602			119

Total loans at end of period (excluding net deferred loan fees and costs)	$	276,913		$	258,929		$	222,327

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


	At December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Nonaccrual loans:
Real estate:
One- to four- family (1)	$	1,224		$	1,059		$	449		$	186		$	241
Five or more family		—			—			—			—			—
Commercial (2)		2,819			3,854			3,036			1,061			74
Construction		—			858			1,588			—			—
Land		2,468			1,169			—			—			—

Total real estate	$	6,511		$	6,940		$	5,073		$	1,247		$	315
Consumer and other loans:
Home equity (3)		377			392			121			299			—
Commercial (4)		—			381			1,535			50			—
Automobile and other		4			3			21			28			5

Total consumer and other loans		381			776			1,677			377			5

Total nonaccrual loans	$	6,892		$	7,716		$	6,750		$	1,624		$	320


Troubled debt restructured commercial real estate		—			—			—		$	462		$	517

Total troubled debt restructured		—			—			—		$	462		$	517

Loans greater than 90 days delinquent and still accruing:
Real estate:
One- to four- family	$	—		$	—		$	—		$	—		$	—
Five or more family		—			—			—			—			—
Commercial		—			—			—			—			—
Construction		—			—			—			—			—
Land		—			—			—			—			—

Total real estate	$	—		$	—		$	—		$	—		$	—

Consumer and other loans:
Home equity		—			—			—			—			—
Commercial		—			—			—			—			—
Automobile and other		—			—			—			—			—

Total consumer and other loans	$	—		$	—		$	—		$	—		$	—


Total nonperforming loans	$	6,892		$	7,716		$	6,750		$	2,086		$	837


Foreclosed assets:
One- to four- family	$	596		$	399		$	917		$	—		$	—
Five or more family		—			—			—			—			—
Commercial		530			155			—			268			453
Construction		—			—			—			150			—
Land		390			—			4			36			—
Consumer		—			—			—			—			—
Business assets		—			—			—			—			—

Total foreclosed assets	$	1,516		$	554		$	921		$	454		$	453


Total nonperforming assets	$	8,408		$	8,270		$	7,671		$	2,540		$	1,290


Ratios:
Nonperforming loans to total loans		2.49	%		2.98	%		3.04	%		0.94	%		0.61	%
Nonperforming assets to total assets		1.89	%		2.04	%		2.08	%		0.69	%		0.48	%

(1)	$0, $120,000 and $135,000 of the nonaccrual one- to four-family loans at December 31, 2010, 2009 and 2008 were loans acquired with credit deterioration from the acquisition of City Savings Bank.

(2)	$155,000, $0 and $191,000 of the nonaccrual commercial real estate loans at December 31, 2010, 2009 and 2008 were loans acquired with credit deterioration from the acquisition of City Savings Bank.

(3)	$0, $16,000 and $21,000 of the nonaccrual home equity loans at December 31, 2010, 2009 and 2008 were loans acquired with credit deterioration from the acquisition of City Savings Bank.

(4)	$0, $0 and $0 of the nonaccrual commercial loans at December 31, 2010, 2009 and 2008 were loans acquired with credit deterioration from the acquisition of City Savings Bank.

Total nonperforming loans decreased $824,000 from $7.7 million at December 31, 2009 to $6.9 million at December 31, 2010. At December 31, 2010, $2.9 million of our nonperforming loans were originated by City Savings Financial prior to the acquisition in the fourth quarter of 2007.

For the years ended December 31, 2010 and 2009, contractual gross interest income of $202,000 and $252,000, respectively, would have been recorded on non-performing loans if those loans had been current in accordance with their original terms and been outstanding throughout the respective period or since origination. For the years ended December 31, 2010 and 2009, gross interest income that was recorded related to such non-performing loans totaled $284,000 and $94,000, respectively.

Troubled Debt Restructurings: At December 31, 2010 and 2009, we had no loans classified as troubled debt restructurings.

For the years ended December 31, 2010 and 2009, gross interest income that would have been recorded had our troubled debt restructurings been current in accordance with their original terms was $0 and $46,000, respectively. For the year ended December 31, 2010 and 2009, gross interest income that was recorded related to our troubled debt restructurings totaled $0 and $0, respectively.

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

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

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

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

Delinquencies. The following table sets forth certain information with respect to our loan portfolio delinquencies by type and amount at December 31, 2010.


	Loans Delinquent For
	30-59 Days				60-89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
Real estate:
One- to four-family		16	$	1,200		—	$	—		11	$	1,021		27	$	2,221
Five or more family		1		48		—		—		—		—		1		48
Commercial		6		1,328		—		—		9		1,580		15		2,908
Construction		—		—		—		—		—		—		—		—
Land		1		44		—		—		2		220		3		264

Total real estate		24		2,620		—		—		22		2,821		46		5,441
Consumer and other loans:
Home equity		—		—		1		377		—		—		1		377
Commercial		—		—		1		35		—		—		1		35
Automobile and other		7		184		—		—		3		4		10		188

Total consumer and other loans		7		184		2		412		3		4		12		600

Total		31	$	2,804		2	$	412		25	$	2,825		58	$	6,041

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

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

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

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

On the basis of management’s review of its assets, at December 31, 2010, we classified approximately $6.6 million of our assets as special mention, $10.3 million as substandard, and $1.2 million as doubtful, of which $945,000 were originated by City Savings Bank. At December 31, 2010, none of our assets were classified as loss.

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

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


	At December 31,
	2010		2009		2008
	(In thousands)

Special mention	$	6,593	$	9,092	$	5,164
Substandard		10,272		13,590		13,023
Doubtful		1,215		—		250
Loss		—		—		—


Total classified and special mention assets	$	18,080	$	22,682	$	18,437

Other than as provided above, there are no potential problem loans that are accruing but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms.

Allowance for Loan Losses

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

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

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

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

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

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

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


	At or For the Years Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)

Balance at beginning of period	$	2,776		$	2,512		$	1,797		$	1,041		$	1,064


Charge-offs:
Real estate:
One- to four- family		(172	)		(213	)		(130	)		—			(11	)
Five or more family		—			—			—			—			—
Commercial		(1,107	)		(1	)		—			(8	)		—
Construction		(558	)		(30	)		—			—			—
Land		—			—			—			—			—

Total real estate		(1,837	)		(244	)		(130	)		(8	)		(11	)
Consumer and other loans:
Home equity		(105	)		(28	)		(35	)		—			—
Commercial		(313	)		(268	)		(222	)		—			(97	)
Automobile and other		(78	)		(100	)		(96	)		(157	)		(134	)

Total consumer and other loans		(496	)		(396	)		(353	)		(157	)		(231	)

Total charge-offs		(2,333	)		(640	)		(483	)		(165	)		(242	)

Recoveries:
Real estate:
One- to four- family		—			—			1			6			—
Five or more family		—			—			—			—			—
Commercial		—			—			—			—			—
Construction		—			—			—			—			—
Land		—			—			—			—			—

Total real estate		—			—			1			6			—
Consumer and other loans:
Home equity		—			1			2			1			—
Commercial		—			9			5			15			—
Automobile and other		28			43			65			59			76

Total consumer and other loans		28			53			72			75			76

Total recoveries		28			53			73			81			76

Net (charge-offs) recoveries		(2,305	)		(587	)		(410	)		(84	)		(166	)
Provision for loan losses		3,472			851			1,125			64			143
Allowance acquired through merger (general reserve only)		—			—			—			776			—


Balance at end of year	$	3,943		$	2,776		$	2,512		$	1,797		$	1,041


Ratios:
Net charge-offs to average loans outstanding		0.87	%		0.25	%		0.19	%		0.05	%		0.12	%
Allowance for loan losses to nonperforming loans at end of period		57.21	%		35.98	%		37.21	%		86.15	%		124.37	%
Allowance for loan losses to total loans at end of period		1.42	%		1.07	%		1.13	%		0.81	%		0.76	%

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


	At December 31,
	2010							2009
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Real estate:
One- to four- family	$	389	$	57,144		20.64	%	$	378	$	70,126		27.08	%
Five or more family		216		11,586		4.18			77		6,743		2.60
Commercial		2,311		79,807		28.82			1,300		75,506		29.16
Construction		108		6,832		2.47			46		5,420		2.09
Land		185		10,795		3.90			221		11,753		4.54

Total real estate		3,209		166,164		60.01			2,022		169,548		65.48

Mortgage warehouse		139		69,600		25.13			176		43,765		16.90

Consumer and other:
Home equity		142		14,187		5.12			215		15,704		6.06
Commercial		344		17,977		6.49			238		18,122		7.00
Automobile and other		109		8,985		3.24			125		11,790		4.55

Total consumer and other		595		41,149		14.86			578		45,616		17.62


Total loans (excluding net deferred loan fees and costs)	$	3,943	$	276,913		100.00	%	$	2,776	$	258,929		100.00	%


	At December 31,
	2008							2007
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Real estate:
One- to four- family	$	372	$	84,706		38.10	%	$	124	$	93,439		42.05	%
Five or more family		55		5,200		2.34			—		712		0.32
Commercial		933		65,078		29.27			886		59,332		26.70
Construction		52		7,736		3.48			80		11,268		5.07
Land		138		11,016		4.95			—		4,829		2.17

Total real estate		1,550		173,736		78.14			1,090		169,580		76.32

Mortgage warehouse		—		—		—			—		—		—

Consumer and other:
Home equity		86		15,579		7.01			15		16,996		7.65
Commercial		747		19,390		8.72			357		17,356		7.81
Automobile and other		129		13,622		6.13			335		18,276		8.22

Total consumer and other		962		48,591		21.86			707		52,628		23.68


Total loans (excluding net deferred loan fees and costs)	$	2,512	$	222,327		100.00	%	$	1,797	$	222,208		100.00	%


	At December 31, 2006
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Real estate:
One- to four- family	$	141	$	63,973		46.72	%
Five or more family		—		204		.15
Commercial		373		35,578		25.98
Construction		9		2,578		1.88
Land		—		74		0.06

Total real estate		523		102,407		74.79

Mortgage warehouse		—		—		—

Consumer and other:
Home equity		9		7,303		5.33
Commercial		283		9,569		6.99
Automobile and other		226		17,650		12.89

Total consumer and other		518		34,522		25.21


Total loans (excluding net deferred loan fees and costs)	$	1,041	$	136,929		100.00	%

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

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

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

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

Securities Activities

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

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

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

Until July 30, 2008, a significant portion of our investment securities were held by our subsidiary LPSB Investments Ltd., Cayman (“LPSB Ltd.”). LPSB Ltd., a wholly-owned subsidiary of The LaPorte Savings Bank, began operations in 2002 when The LaPorte Savings Bank received approval from the Federal Deposit Insurance Corporation to form the subsidiary in the Cayman Islands. Because LPSB Ltd. was located in the Grand Cayman Islands, the earnings attributable on such securities were not taxable to us for Indiana state income tax purposes. Investment decisions with respect to LPSB Ltd. were made by the members of its Board of Directors which consisted of three members of our Board, as well as a dual-employee of LPSB Ltd. and Wilmington Trust. In general, the directors of LPSB Ltd. utilized investment guidelines similar to ours. On July 30, 2008 the securities held and managed by LPSB Ltd. were transferred to the Bank. Due to the substantial state income tax net operating loss carry forward brought over from City Savings Bank, in addition to the operating costs of maintaining the subsidiary, management made the decision to dissolve LPSB Ltd. LPSB Ltd. was deemed to be dissolved on March 17, 2009.

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

At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale are reported at fair value, while securities held-to-maturity are reported at amortized cost. Some of our securities are callable by the issuer or contain other features of financial engineering. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by the issuer prior to maturing in the event general interest rates decline. At December 31, 2010, we had $39.7 million of securities which were subject to redemption by the issuer prior to their stated maturity.

In part as a result of their attractive after tax yields, we recently increased our acquisitions of state and municipal securities. We generally apply the following procedures and standards in making investment decisions with respect to such securities. Permissible municipal investments include both general obligation and revenue issues which are rated in one of the four highest rating categories by a nationally recognized statistical rating organization. Investment in local non-rated municipal securities shall be considered only after the creditworthiness of the issuer has been analyzed. We also invest in taxable municipal securities. At December 31, 2010, we held $4.0 million in taxable municipal securities.

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

Investments in mortgage-backed securities involve a risk that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield on such securities. We review prepayment estimates for our mortgage-backed securities at the time of purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments.

Collateralized mortgage obligations are also backed by mortgages; however, they differ from mortgage-backed securities because the principal and interest payments of the underlying mortgages are financially engineered to be paid to the security holders of pre-determined classes or tranches of these securities at a faster or slower pace. The receipt of these principal and interest payments, which depends on the proposed average life for each class, is contingent on a prepayment speed assumption assigned to the underlying mortgages. Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities. To quantify and mitigate this risk, we undertake a high level of payment analysis before purchasing these securities. We invest in CMO classes or tranches in which the payments on the underlying mortgages are passed along at a pace fast enough to provide an average life of two to four years with no change in market interest rates. At December 31, 2010, our CMO portfolio had a fair value of $33.0 million.

We hold Federal Home Loan Bank of Indianapolis common stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of Indianapolis advance program. There is no trading market for the Federal Home Loan Bank of Indianapolis stock. The aggregate carrying value of our Federal Home Loan Bank of Indianapolis stock as of December 31, 2010 was $4.0 million based on its par value. No unrealized gains or losses have been recorded because we have determined that the par value of the Federal Home Loan Bank of Indianapolis stock represents its carrying value. However, there can be no assurance that the value of such securities will not decline in the future. We owned shares of Federal Home Loan Bank of Indianapolis stock at December 31, 2010 with a par value that was more than we were required to own to maintain our membership in the Federal Home Loan Bank System and to be eligible to obtain advances. We are required to purchase additional stock if our outstanding advances increase.

We review equity and debt securities with significant declines in fair value on a periodic basis to determine whether they should be considered temporarily or other than temporarily impaired. In making these determinations, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) our intent not to sell the security and whether it is more likely than not that we will be required to sell the debt security before its anticipated recovery. For fixed maturity investments with unrealized losses due to interest rates where we have the intent it is more likely than not that we will be required to sell the debt security before its anticipated recovery, declines in value below cost are not assumed to be other than temporary. If a decline in the fair value of a security is determined to be other than temporary, we are required to reduce the carrying value of the security to its fair value and record a non-cash impairment charge for the amount of the decline, net of tax effect, against our current income.

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


	December 31,
	2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

Securities available-for-sale:
U.S. Treasury and federal agency	$	20,950	$	21,080	$	13,112	$	12,972	$	10,855	$	11,035
State and municipal		39,779		39,828		24,761		25,264		6,293		6,200
Mortgage-backed securities - residential		25,009		25,430		29,732		31,082		51,928		52,958
Government agency sponsored collateralized mortgage obligations		32,943		33,009		25,755		26,574		23,839		23,863
Privately held collateralized mortgage obligations		29		30		1,077		1,068		1,903		1,736
Corporate debt securities		—		—		4,993		5,135		6,042		5,649
Fannie Mae and Freddie Mac preferred stock		—		—		—		—		10		10

Total securities available-for-sale	$	118,710	$	119,377	$	99,430	$	102,095	$	100,870	$	101,451

At December 31, 2010, we had no investments in a single entity (other than United States government or agency sponsored securities) that had an aggregate book value in excess of 10% of our shareholders’ equity.

The composition and contractual maturities of the investment securities portfolio at December 31, 2010 are summarized in the following table. Mortgage-backed securities are anticipated to be repaid in advance of their contractual maturities as a result of projected mortgage loan prepayments. In addition, under the structure of some of our CMOs, the short- and intermediate-tranche interests have repayment priority over the longer term tranches of the same underlying mortgage pool. Finally, some of our U.S. Treasury and other securities are callable at the option of the issuer.


	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)

Securities available-for-sale:
U.S. Treasury and federal agency	$	—		—	%	$	16,310		1.99	%	$	1,550		1.91	%	$	3,090		2.00	%	$	20,950	$	21,080		1.99	%
State and municipal		—		—			2,725		3.17			5,578		3.73			31,476		4.23			39,779		39,828		4.09
Mortgage-backed securities - residential		—		—			—		—			1,627		4.43			23,382		3.74			25,009		25,430		3.78
Government agency sponsored collateralized mortgage obligations		—		—			757		3.71			2,076		2.75			30,110		3.41			32,943		33,009		3.38
Privately held collateralized mortgage obligations		—		—			—		—			29		5.22			—		—			29		30		5.22

Total securities available-for-sale	$	—		—	%	$	19,792		2.22	%	$	10,860		3.39	%	$	88,058		3.74	%	$	118,710	$	119,377		3.46	%

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


	For the years ended December 31,
	2010			2009			2008
	(In thousands)

Total at beginning of period	$	56,564		$	77,670		$	56,151
Purchases of:
Mortgage-backed securities - residential		19,509			6,202			24,374
Government agency sponsored collateralized mortgage obligations		24,062			10,400			9,821
Privately held collateralized mortgage obligations		—			—			465
Deduct:
Principal repayments		(16,558	)		(18,470	)		(10,544	)
Sales of:
Mortgage-backed securities - residential		(14,548	)		(17,554	)		(2,597	)
Government agency sponsored collateralized mortgage obligations		(10,423	)		(1,580	)		—
Privately held collateralized mortgage obligations		(625	)		(104	)		—

Net activity		1,417			(21,106	)		21,519

Total at end of period	$	57,981		$	56,564		$	77,670

Sources of Funds

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

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

At December 31, 2010, our deposits totaled $317.3 million. Interest-bearing NOW, regular and other savings and money market deposits totaled $133.8 million at December 31, 2010. At December 31, 2010, we had a total of $148.5 million in certificates of deposit and individual retirement accounts. Non-interest bearing demand deposits totaled $35.0 million. Although we have a significant portion of our deposits in shorter-term certificates of deposit, we monitor activity on these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

Our deposits are obtained predominantly from the areas in which our branch offices are located. We rely on our favorable locations, customer service and competitive pricing to attract and retain these deposits. While we accept certificates of deposit in excess of $100,000 for which we may provide preferential rates, we generally do not solicit such deposits as they are more difficult to retain than core deposits. At December 31, 2010, we held $16.2 million in brokered certificates of deposits through the Certificate of Deposit Registry Service (CDARS) program and pre-approved brokers. During the fourth quarter of 2009, we acquired $10.8 million in floating rate CDARS funds and took out a $10.3 million fixed rate interest rate swap for five years in order to address the potential for rising interest rates. During the third quarter of 2010, we acquired $5.3 million in fixed rate individual time deposit accounts through a pre-approved broker. These time deposits will mature in September 2020, however, they have the option to be called monthly beginning on September 15, 2012. We took out a $5.0 million variable rate fair value swap with matching maturity and call terms to these individual time deposits. Brokered certificates of deposits are purchased only through CDARS and pre-approved brokers.

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


	At December 31,
	2010								2009
	Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate
	(Dollars in thousands)

Noninterest-bearing demand	$	34,999		11.03	%		—	%	$	34,066		12.46	%		—	%
Money market/NOW accounts		87,271		27.50			0.74			51,099		18.69			0.84
Regular savings		46,563		14.67			0.11			43,832		16.03			0.11

Total transaction accounts		168,833		53.20			0.41			128,997		47.18			0.37

CDs and IRAs		148,505		46.80			2.38			144,411		52.82			2.92

Total deposits	$	317,338		100.00	%		1.33	%	$	273,408		100.00	%		1.72	%


	At December 31,
	2008
	Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Noninterest-bearing demand	$	27,584		11.75	%		—	%
Money market/NOW accounts		36,812		15.68			0.79
Regular savings		42,775		18.21			0.15

Total transaction accounts		107,171		45.64			0.33

CDs and IRAs		127,643		54.36			3.62

Total deposits	$	234,814		100.00	%		2.12	%

The following table sets forth the amount and maturities of time certificates and IRA deposits at December 31, 2010.


	Less Than One Year		Over One Year to Two Years		Over Two Years to Three Years		Over Three Years		Total		Percentage of Total Certificate Accounts
	(Dollars in thousands)
Interest Rate:
Less than 2.00%	$	37,116	$	5,822	$	7,629	$	4,911	$	55,478		37.36	%
2.00% - 2.99%		4,654		23,401		1,872		5,040		34,967		23.55
3.00% - 3.99%		11,645		4,596		2,009		21,600		39,850		26.83
4.00% - 4.99%		13,707		534		194		502		14,937		10.06
5.00% - 5.99%		359		967		1,194		660		3,180		2.14
6.00% - 6.99%		69		4		—		—		73		0.05
7.00% - 7.99%		3		—		—		—		3		0.00
8.00% and over		14		3		—		—		17		0.01


Total	$	67,567	$	35,327	$	12,898	$	32,713	$	148,505		100.00	%

As of December 31, 2010, the aggregate amount of our outstanding time certificates and IRA deposits in amounts greater than or equal to $100,000 was approximately $45.0 million. The following table sets forth the maturity of these certificates as of December 31, 2010.


	At December 31, 2010
	(In thousands)

Three months or less	$	17,369
Over three months through six months		1,889
Over six months through one year		6,160
Over one year		19,545


Total	$	44,963

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


	Years Ended December 31,
	2010		2009		2008
	(Dollars in thousands)

Beginning balance	$	273,408	$	234,814	$	246,271
Net deposits (withdrawals) before interest credited		40,183		34,555		(16,495	)
Interest credited		3,747		4,039		5,038

Net increase (decrease) in deposits		43,930		38,594		(11,457	)

Ending balance	$	317,338	$	273,408	$	234,814

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


	At December 31,
	2010		2009		2008
	(In thousands)
Interest Rate:
Less than 2.00%	$	55,478	$	47,823	$	6,292
2.00% - 2.99%		34,967		16,208		29,400
3.00% - 3.99%		39,850		41,459		35,823
4.00% - 4.99%		14,937		28,632		39,508
5.00% - 5.99%		3,180		10,188		16,524
6.00% - 6.99%		73		81		76
7.00% - 7.99%		3		3		3
8.00% and over		17		17		17

Total	$	148,505	$	144,411	$	127,643

Borrowings

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

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

Our borrowings at December 31, 2010 consisted of advances and overnight borrowings from the Federal Home Loan Bank of Indianapolis. At December 31, 2010, we had access to additional Federal Home Loan Bank advances of up to $14.9 million and access to additional overnight borrowings of up to $11.7 million at the Federal Reserve Bank discount window. The following table sets forth information concerning balances and interest rates on our borrowings at the dates and for the periods indicated. For additional information, see Note 9 of the notes to our consolidated financial statements.


	At or For the Years Ended December 31,
	2010			2009			2008
	(Dollars in thousands)

FHLB Advances:
Balance at end of period	$	61,675		$	52,773		$	78,728
Average balance during period		53,288			62,111			67,153
Maximum outstanding at any month end		78,946			70,429			78,728

Weighted average interest rate at end of period		1.94	%		4.47	%		4.08	%
Average interest rate during period		3.93	%		4.56	%		4.80	%

FRB Discount Window:
Balance at end of period	$	—		$	16,675		$	650
Average balance during period		1,457			3,252			2
Maximum outstanding at any month end		15,655			17,740			650

Weighted average interest rate at end of period		0.00	%		0.50	%		0.50	%
Average interest rate during period		0.74	%		0.49	%		0.50	%

In 2007, LaPorte Bancorp, Inc. assumed subordinated debentures as a result of the City Savings Financial acquisition. In 2003, City Savings Financial formed the City Savings Bank Statutory Trust I (the “Trust”) and the trust issued 5,000 floating Trust Preferred Securities with a liquidation amount of $1,000 per preferred Security in a private placement to an offshore entity for an aggregate offering price of $5,000,000. The proceeds of the $5,000,000 were used by the Trust to purchase $5,155,000 in Floating Rate Subordinated Debentures from City Savings Financial Corporation. The Debentures and Securities have a term of 30 years and carry an interest rate adjusted quarterly of three month LIBOR plus 3.10%. At December 31, 2010, this rate was 3.40%.

On April 15, 2009 the Company executed an interest rate swap against the $5.0 million floating rate debentures for five years at an effective fixed rate of 5.54%.

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

In February 2010, the 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.

Competition

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

We seek to meet this competition by the convenience of our branch locations, emphasizing personalized banking and the advantage of local decision-making in our banking business. Specifically, we promote and maintain relationships and build customer loyalty within the communities we serve by focusing our marketing and community involvement on the specific needs of our local communities. As of June 30, 2010, The LaPorte Savings Bank had the 2nd largest deposit market share in LaPorte County, Indiana. As of June 30, 2010, The LaPorte Savings Bank had the 9th largest deposit market share in Porter County, Indiana. We do not rely on any individual, group, or entity for a material portion of our deposits.

Employees

As of December 31, 2010, we had 103 full-time employees and 6 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.

Subsidiary Activities

The Company has one subsidiary, The LaPorte Savings Bank. The LaPorte Savings Bank has no subsidiaries.

SUPERVISION AND REGULATION

General

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

LaPorte Savings Bank, MHC and LaPorte Bancorp are nondiversified savings and loan holding companies within the meaning of the Home Owners’ Loan Act. As such, LaPorte Savings Bank, MHC and LaPorte Bancorp are registered with the Office of Thrift Supervision and are subject to Office of Thrift Supervision regulations, examinations, supervision and reporting requirements. In addition, the Office of Thrift Supervision has enforcement authority over LaPorte Bancorp and LaPorte Savings Bank, MHC, and their subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

As further described below under “The Dodd-Frank Act”, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the powers and duties of the Office of Thrift Supervision with respect to savings and loan and mutual holding companies will be transferred to the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) by July 21, 2011, unless extended by up to six months. At that time, LaPorte Bancorp will be subject to the supervision, of the Federal Reserve Board. LaPorte Bancorp is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

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

The Dodd-Frank Act

The Dodd-Frank Act will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate the primary federal regulator for LaPorte Bancorp and LaPorte Savings Bank, MHC, the Office of Thrift Supervision, and will authorize the Federal Reserve Board, to supervise and regulate all savings and loan holding companies, such as LaPorte Bancorp and LaPorte Savings Bank, MHC, in addition to bank holding companies, which it currently regulates. The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. Bank holding companies and savings and loan holding companies with assets of less than $500 million are exempt from these capital requirements. Savings and loan holding companies are subject to a five year transition period before the holding company capital requirement will apply. The Dodd-Frank Act also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months. These new leverage and capital requirements must take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

Under the the Dodd-Frank Act, LaPorte Savings Bank, MHC will require the approval of the Federal Reserve Board before it may waive the receipt of any dividends from LaPorte Bancorp, and there is no assurance that the Federal Reserve Board will approve future dividend waivers or what conditions it may impose on such waivers. See “The Dodd-Frank Act may have an adverse effect on our ability to pay dividends, which would adversely affect the value of our common stock,” in the Risk Factors section of this Annual Report.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as The LaPorte Savings Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives the state attorneys general the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act authorized, for the first time, the payment of interest on commercial checking accounts effective July 1, 2011.

The Dodd Frank Act also broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act will increase stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation (although this vote would not apply to smaller reporting companies such as LaPorte Bancorp until annual meetings held after January 21, 2013) and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

Further, the Dodd-Frank Act requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination. Many of the provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. Accordingly, it will be some time before management can assess the full impact on operations. However, there is a significant possibility that the Dodd-Frank Act will, at a minimum, result in an increased regulatory burden and compliance, operating and interest expense for The LaPorte Savings Bank and LaPorte Bancorp.

Savings Bank Regulation

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

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

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

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

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

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

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

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

Federal Deposit Insurance. The Federal Deposit Insurance Corporation, or FDIC, insures deposits at FDIC insured financial institutions such as The LaPorte Savings Bank. Deposit accounts in The LaPorte Savings Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund.

As part of its plan to restore the Deposit Insurance Fund in the wake of the large number of bank failures following the financial crisis, the FDIC imposed a special assessment of 5 basis points for the second quarter of 2009. In addition, the FDIC has required all insured institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. As part of this prepayment, the FDIC assumed a 5% annual growth in the assessment base and applied a 3 basis point increase in assessment rates effective January 1, 2011.

In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefines the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments will be based on an institution’s average consolidated total assets minus average tangible equity as opposed to total deposits. In addition, the final rule eliminates the adjustment for secured borrowings and makes certain other changes to the impact of unsecured borrowings and brokered deposits on an institution’s deposit insurance assessment. The rule also revises the assessment rate schedule to provide assessments ranging from five to 45 basis points.

The Dodd-Frank Act also extended the unlimited deposit insurance on non-interest bearing transaction accounts through December 31, 2012. Unlike the FDIC’s Temporary Liquidity Guarantee Program, the insurance provided under the Dodd-Frank Act does not extend to low-interest NOW accounts, and there is no separate fee assessment on covered accounts.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. During the year ended December 31, 2010, we paid $31,000 in fees related to the FICO.

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

FDIC Temporary Liquidity Guarantee Program. On October 14, 2008, the FDIC announced a new program – the Temporary Liquidity Guarantee Program (“TLGP”). One part of the TLGP guarantees newly issued senior unsecured debt of the participating organizations, up to certain limits established for each institution, issued between October 14, 2008 and October 31, 2009. The FDIC will pay the unpaid principal and interest on an FDIC-guaranteed debt instrument upon the uncured failure of the participating entity to make a timely payment of principal or interest in accordance with the terms of the instrument. The guarantee will remain in effect until June 30, 2012 (or until December 31, 2012 for debt issued after March 17, 2009). In return for the FDIC’s guarantee, participating institutions will pay the FDIC a fee based on the amount and maturity of the debt. The Company opted to participate in this component of the TLGP, and on February 11, 2009, it issued approximately $5 million of FDIC guaranteed debt due in February 2012.

Federal Home Loan Bank System. The LaPorte Savings Bank is a member of the Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the Federal Home Loan Bank system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank. As a member, The LaPorte Savings Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Indianapolis in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its outstanding advance from the Federal Home Loan Bank. At December 31, 2010, The LaPorte Savings Bank was in compliance with this requirement.

Regulatory Guidance to Subprime Lending. The federal bank regulatory agencies have issued regulatory guidance relating to the examination of financial institutions that are engaged in significant subprime lending activities. The regulatory guidance emphasizes that the federal banking agencies believe that responsible subprime lending can expand credit access for consumers and offer attractive returns for the savings institution. The guidance is applicable to savings institutions that have subprime lending programs greater than or equal to 25% of core capital. As part of the regulatory guidance, examiners must provide greater scrutiny of (i) an institution’s ability to administer its higher risk subprime portfolio, (ii) the allowance for loan losses to ensure that the portion of the allowance allocated to the subprime portfolio is sufficient to absorb the estimated credit losses for the portfolio, and (iii) the level of risk-based capital that the savings institution has to ensure that such capital levels are adequate to support the savings institution’s subprime lending activities. We do no offer subprime loans.

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

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

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

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

Holding Company Regulation

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

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

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

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

Capital. Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities wil no longer be includable as Tier 1 capital as is currently the case with bank holding companies. Instruments issued by May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies.

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

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

As noted above under “—The Dodd-Frank Act,” pursuant to the Dodd-Frank Act, LaPorte Savings Bank, MHC will require the approval of the Federal Reserve Board before it may waive the receipt of any dividends from LaPorte Bancorp and there is no assurance that the Federal Reserve Board will approve future dividend waivers or what conditions it may impose on such waivers. See “The Dodd-Frank Act may have an adverse effect on our ability to pay dividends, which would adversely affect the value of our common stock,” in the Risk Factors section of this Annual Report.

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

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

FEDERAL AND STATE TAXATION

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

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

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

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

Item 1A.

Risk Factors

The United States economy remains weak and unemployment levels are high. The prolonged economic downturn will adversely affect our business and financial results.

The United States experienced a severe economic recession beginning in 2008 and continuing into 2009 and 2010. While economic growth has resumed recently, the rate of growth has been slow and unemployment remains at very high levels and is not expected to improve in the near future. Loan portfolio quality has deteriorated at many financial institutions reflecting, in part, the weak U.S. economy and high unemployment. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. The continuing real estate downturn also has resulted in reduced demand for the construction of new housing and increased delinquencies in construction, residential and commercial mortgage loans. Bank and bank holding company stock prices have declined substantially, and it is significantly more difficult for banks and bank holding companies to raise capital or borrow in the debt markets.

Negative developments in the financial services industry and the domestic and international credit markets may significantly affect the markets in which we do business, the market for and value of our loans and investments, and our ongoing operations, costs and profitability. Moreover, declines in the stock market in general, or stock values of financial institutions and their holding companies specifically, could adversely affect our stock performance.

The Dodd-Frank Act will, among other things, eliminate the Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

The recently enacted Dodd-Frank Act will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate the primary federal regulator for LaPorte Bancorp and LaPorte Savings Bank, MHC, the Office of Thrift Supervision, and will authorize the Federal Reserve Board, to supervise and regulate all savings and loan holding companies, such as LaPorte Bancorp and LaPorte Savings Bank, MHC, in addition to bank holding companies, which it currently regulates. The Dodd-Frank Act requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository institutions, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. Bank holding companies and savings and loan holding companies with assets of less than $500 million are exempt from these capital requirements. Savings and loan holding companies are subject to a five year transition period before the holding company capital requirement will apply. The Dodd-Frank Act also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act authorizes, for the first time, the payment of interest on commercial checking accounts effective July 1, 2011.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as The LaPorte Savings Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The Dodd-Frank Act also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

In addition, the Dodd-Frank Act will increase stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation (although this vote would not apply to smaller reporting companies such as LaPorte Bancorp until annual meetings held after January 21, 2013) and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Further, the Dodd-Frank Act requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination. Many of the provision of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. Accordingly, it will be some time before management can assess the full impact on operations. However, there is a significant possibility that the Dodd-Frank Act will, at a minimum, result in an increased regulatory burden and compliance, operating and interest expense for The LaPorte Savings Bank and LaPorte Bancorp.

The Dodd-Frank Act may have an adverse effect on our ability to pay dividends, which would adversely affect the value of our common stock.

To date, LaPorte Bancorp has not paid any dividend to its shareholders. LaPorte Bancorp’s ability to pay dividends to its shareholders in the future is subject to numerous factors, including the ability of The LaPorte Savings Bank to make capital distributions to LaPorte Bancorp, and also to the availability of cash at the holding company level in the event earnings are not sufficient to pay dividends. Moreover, our ability to pay dividends and the amount of any such dividends is affected by the ability of LaPorte Savings Bank, MHC, our mutual holding company, to waive the receipt of dividends declared by LaPorte Bancorp. If LaPorte Savings Bank, MHC waives its right to receive any dividends on its shares of LaPorte Bancorp in the future, LaPorte Bancorp would have more cash resources to pay dividends to our public stockholders than if LaPorte Savings Bank, MHC accepted such dividends.

LaPorte Savings Bank, MHC is required to obtain Office of Thrift Supervision approval before it may waive its receipt of dividends. Office of Thrift Supervision regulations allow federally chartered mutal holding companies to waive dividends without taking into account the amount of waived dividends in determining an appropriate exchange ratio in the event of a conversion of a mutual holding company to stock form. However, under the recently enacted Dodd-Frank Act, the powers and duties of the Office of Thrift Supervision will be eliminated. Accordingly, the Federal Reserve Board will become the new regulator of LaPorte Bancorp and LaPorte Savings Bank, MHC. The Dodd-Frank Act also provides that a mutual holding company will be required to give the Federal Reserve Board notice before waiving the receipt of dividends, and sets forth the standards for granting a waiver, including a requirement that waived dividends be considered in determining an appropriate exchange ratio in the event of a conversion of the mutual holding company to stock form. The Federal Reserve Board historically has generally not allowed mutual holding companies to waive the receipt of dividends, and there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on any future dividend waiver request by LaPorte Savings Bank, MHC.

A continued downturn in the local economy or a decline in real estate values could hurt our profits.

Nearly all of our real estate loans are secured by real estate in LaPorte County. As a result of this concentration, a continued downturn in the local economy could cause significant increases in non-performing loans, which would hurt our profits. Additionally, a decrease in asset quality could require additions to our allowance for loan losses through increased provisions for loan losses, which would hurt our profits. A decline in real estate values could cause some of our mortgage loans to become inadequately collateralized, which would expose us to a greater risk of loss. In addition, because we have a significant amount of commercial real estate loans, decreases in tenant occupancy may also have a negative effect on the ability of many of our borrowers to make timely repayments on their loans, which would have an adverse impact on our earnings.

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

In order to enhance the yield and shorten the term-to-maturity of our loan portfolio, we have expanded our commercial real estate lending during recent years. In addition, we acquired a significant portfolio of such loans in the City Savings Bank merger in 2007. Commercial real estate lending has increased as a percentage of our total loan portfolio from 18.5% at December 31, 2002 to 28.8% at December 31, 2010.

Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. In addition, our commercial real estate loan portfolio is not as seasoned as the loan portfolios of some of our competitors. During 2008, we began to experience an increase in nonperforming commercial real estate loans, which continued during 2009 and into 2010. In light of the current weakness in the real estate market and economy, we may continue to experience increases in nonperforming loans and provisions for loan losses.

Our mortgage warehousing line of business may be subject to a higher risk than our residential lending operations.

We operate a mortgage warehousing line of business. Under this program, we provide financing to approved mortgage companies for the origination and sale of residential mortgage loans. Each individual mortgage is assigned to us until the loan is sold to the secondary market by the mortgage company. We take possession of each original note and forward such note to the end investor once the mortgage company has sold the loan. Because we rely on the mortgage companies to make and document the loans, we have less control over the quality of the underlying loans and the creditworthiness of the borrowers.

If our mortgage warehousing customers are negatively affected by regulatory changes or increased competition, our earnings could decrease.

New rules issued by the Board of Governors of the Federal Reserve System regarding the compensation received by mortgage originators may impact the way some of the mortgage companies with which we conduct our mortgage warehousing business structure their business operations. In addition, in November 2010, the Department of Housing and Urban Development stated that it was considering issuing guidance under the Real Estate Settlement Procedures Act to address possible changes in warehouse lending and other financing mechanisms used to fund federally related mortgage loans. It also remains unclear at this time whether our mortgage warehousing business will be impacted by rules issued under the Dodd-Frank Act, including rules that will require that certain persons involved in the organization of loans for securitization retain an economic interest in the credit risk of such loans. Furthermore, the U.S. Congress is considering a series of reforms to the federal government’s support of residential lending which will affect our mortgage banking customers. Finally, the settlements being negotiated in connection with the foreclosure crisis could also impact our mortgage banking customers.

Competition in warehouse lending has recently increased on a national level as lenders such as GMAC, BB&T Corporation, Citigroup Inc., JPMorgan Chase & Co. and Sterling Warehouse Lending have begun entering the mortgage warehouse business. If regulatory changes or increased competition negatively affect our mortgage warehousing line of business, our earnings could decrease.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance. While our allowance for loan losses was 1.42% of total loans at December 31, 2010, material additions to our allowance could materially decrease our net income. In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations.

Changing interest rates may hurt our profits and asset values.

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

•

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

•

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

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

Changes in interest rates also affect the current market value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. As December 31, 2010, the fair value of our securities classified as available for sale totaled $119.4 million. Unrealized net gains on available-for-sale securities totaled $667,000 at December 31, 2010 and are reported, net of tax, as a separate component of shareholders’ equity. However, a rise in interest rates could cause a decrease in the fair value of securities available for sale in future periods which would have an adverse effect on shareholders’ equity.

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

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

Economic and population growth within our market area has for several decades been below the national average. Management believes that these factors have adversely affected our profitability and our ability to increase our loans and deposits. Our acquisition of City Savings Financial Corporation facilitated our entrance into the Michigan City and Chesterton, Indiana markets, which are growing more rapidly than Eastern LaPorte County. However, these markets have experienced a significant decline in real estate values and economic activity as a result of the current recession.

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

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

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

We are subject to extensive regulation, supervision and examination by the Federal Deposit Insurance Corporation, as insurer of our deposits, and by the Indiana Department of Financial Institutions as our primary regulator. LaPorte Savings Bank, MHC and LaPorte Bancorp are subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of The LaPorte Savings Bank rather than for holders of LaPorte Bancorp common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations including compliance costs.

If the Federal Home Loan Bank of Indianapolis continues to pay a reduced dividend, our earnings will be negatively affected.

We own common stock of the Federal Home Loan Bank of Indianapolis (“FHLBI”) to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the FHLBI’s advance program. There is no market for our FHLBI common stock. Since the fourth quarter of 2008, the FHLBI has paid a reduced dividend on its stock due to losses in its securities portfolio. As a result, we received approximately $130,000 and $88,000 less from FHLBI dividends in 2010 and 2009, respectively, compared to 2008. If the FHLBI continues to pay a reduced dividend, our earnings will be negatively affected.

Stock price may be volatile due to limited trading volume.

LaPorte Bancorp, Inc.’s common stock is traded on the NASDAQ Capital Market. However, the average daily trading volume in the Stock Company’s common stock has been relatively small, averaging less than approximately 2,158 shares per day during the month of December 2010 and approximately 1,430 shares per day during the year of 2010. As a result, trades involving a relatively small number of shares may have a significant effect on the market price of the common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.

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

LaPorte Bancorp, Inc.’s holding company, LaPorte Savings Bank, MHC owns approximately 54.99% of its common stock, as of December 31, 2010. Directors and executive officers own or control approximately 3.03% of the common stock. The same directors and executive officers that manage LaPorte Bancorp, Inc., also manage LaPorte Savings Bank, MHC. Public stockholders who are not associated with the MHC or LaPorte Bancorp, Inc. own approximately 41.98% of the common stock. The Board of Directors of LaPorte Savings Bank, MHC will be able to exercise voting control over most matters put to a vote of stockholders because the MHC owns a majority of LaPorte Bancorp, Inc.’s common stock. For example, LaPorte Savings Bank, MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium for their shares or to approve employee benefit plans.

We could potentially recognize goodwill impairment charges.

In connection with our acquisition of City Savings Financial, we recorded goodwill equaling $8.4 million. LaPorte Bancorp annually measures the fair value of its investment in The LaPorte Savings Bank to determine that such fair value equals or exceeds the carrying value of its investment, including goodwill. If the fair value of our investment in The LaPorte Savings Bank does not equal or exceed its carrying value, we will be required to record goodwill impairment charges which may adversely affect future earnings. The fair value of a banking franchise can fluctuate downward based on a number of factors that are beyond management’s control, (e.g. adverse trends in the general economy or interest rates). As a result of impairment testing performed as of September 30, 2010, no impairment charge was recorded by the Company. There can be no assurance that our banking franchise value will not decline in the future to a level necessitating goodwill impairment charges to operations that could be material to our results of operations.

Item 1B.

Unresolved Staff Comments

None

Item 2.

Properties

As of December 31, 2010, the net book value of our properties was $8.9 million. The following is a list of our offices:


Location	Leased or Owned		Year Acquired or Leased		Square Footage		Net Book Value of Real Property
							(In thousands)
Main Office: (including land)

710 Indiana Avenue La Porte, Indiana 46350		Owned		1916		57,000	$	3,169

Full Service Branches: (including land)

6959 W. Johnson Road La Porte, Indiana 46350		Owned		1987		3,500		303

301 Boyd Blvd. La Porte, Indiana 46350		Owned		1997		4,000		1,134

1222 W. State Road #2 La Porte, Indiana 46350		Owned		1999		2,200		396

2000 Franklin Street Michigan City, Indiana 46360		Owned		2007		5,589		816

851 Indian Boundary Road Chesterton, Indiana 46304		Owned		2007		7,475		1,195

101 Michigan Street Rolling Prairie, Indiana 46371		Owned		2007		1,850		107

1 Parkman Drive Westville, Indiana 46390		Owned		2006		4,000		1,392

Lots Owned:

1201 E. Lincolnway Valparaiso, Indiana 46383		Owned		2006		N/A		385

The net book value of our furniture, fixtures and equipment (including computer software) at December 31, 2010 was $1.4 million.

Item 3.

Legal Proceedings

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

PART II

Item 4.

(Removed and Reserved)

Item 5.

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

Our shares of common stock are traded on the NASDAQ Capital Market under the symbol “LPSB”. The approximate number of holders of record of LaPorte Bancorp, Inc.’s common stock as of December 31, 2010 was 696. Certain shares of LaPorte Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly market information for LaPorte Bancorp, Inc.’s common stock for each quarter during 2009 and 2010, as reported on the NASDAQ Capital Market.


	High		Low		Dividends
2009
Quarter ended March 31, 2009		6.00		3.85		—
Quarter ended June 30, 2009		5.15		4.20		—
Quarter ended September 30, 2009		5.24		4.21		—
Quarter ended December 31, 2010		5.00		4.14		—

2010
Quarter ended March 31, 2010		6.35		4.45		—
Quarter ended June 30, 2010		8.04		6.00		—
Quarter ended September 30, 2010		7.96		6.00		—
Quarter ended December 31, 2010		9.40		7.34		—

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

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

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

Under several of the banking reform proposals being discussed by the United States Congress, the Federal Reserve Board would become the regulator of LaPorte Bancorp, Inc. and LaPorte Savings Bank, MHC. While such legislation may contain a limited grandfather clause protecting LaPorte Savings Bank, MHC’s ability to waive dividends from the Company, the Federal Reserve Board’s current policy does not permit the waiver of such dividends.

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

At December 31, 2010, there were no compensation plans under which equity securities of LaPorte Bancorp, Inc. were authorized for issuance other than the Employee Stock Ownership Plan.

The following table presents a summary of the Company’s share repurchases during the quarter ended December 31, 2010.


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ⁽¹⁾		Maximum number of shares that may yet be purchased under the plans or programs ⁽¹⁾
October 1 – October 31		—		—		—		14,100
November 1 – November 30		—		—		—		14,100
December 1 – December 31		—		—		—		14,100

Total		—	$	—		—		14,100

(1)

On November 13, 2009, the Company commenced a stock repurchase program pursuant to which the Company intends to repurchase, in the open market and in privately negotiated transactions, up to 3 percent (approximately 63,400 shares) of the Company’s outstanding public shares. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity requirements and alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Item 6.

Selected Financial Data

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


	At December 31,
	2010		2009		2008			2007		2006
	(In thousands)

Selected Financial Condition Data:

Total assets	$	444,270	$	405,827	$	368,558		$	367,260	$	266,472
Cash and cash equivalents		5,868		6,000		5,628			9,937		21,047
Investment securities		119,377		102,095		101,451			96,048		88,538
Federal Home Loan Bank stock		4,038		4,206		4,206			4,187		2,661
Loans held for sale		4,156		981		124			—		—
Loans, net		273,103		256,275		219,926			220,497		136,077
Deposits		317,338		273,408		234,814			246,271		201,859
Federal Home Loan Bank of Indianapolis advances and other long-term borrowings		71,746		62,780		83,883			71,671		36,500
Short-term borrowings		—		16,675		650			—		—
Shareholders’ equity		50,048		49,872		46,142			46,705		26,386

	At December 31,
	2010		2009		2008			2007		2006
	(In thousands)
Selected Operating Data:

Interest and dividend income	$	20,180	$	19,000	$	19,357		$	15,244	$	13,585
Interest expense		7,268		8,265		9,432			8,135		6,945

Net interest income		12,912		10,735		9,925			7,109		6,640
Provision for loan losses		3,472		851		1,125			64		143

Net interest income after provision for loan losses		9,440		9,884		8,800			7,045		6,497
Noninterest income		4,505		4,211		879			2,857		1,956
Noninterest expense		10,809		11,158		10,621			8,917		7,093

Income (loss) before income taxes		3,136		2,937		(942	)		985		1,360
Income tax expense (benefit)		545		425		(542	)		268		243

Net income (loss)	$	2,591	$	2,512	$	(400	)	$	717	$	1,117


	At or For the Years Ended December 31,
	2010			2009			2008			2007			2006

Selected Financial Ratios and Other Data:
Performance Ratios:

Return on assets (ratio of net income (loss) to average total assets)		0.61	%		0.65	%		(0.11	)%		0.26	%		0.43	%
Return on equity (ratio of net income (loss) to average equity)		5.12	%		5.25	%		(0.86	)%		2.32	%		4.44	%
Interest rate spread ⁽¹⁾		3.10	%		2.80	%		2.74	%		2.39	%		2.44	%
Net interest margin ⁽²⁾		3.38	%		3.13	%		3.08	%		2.86	%		2.85	%
Efficiency ratio ⁽³⁾		62.06	%		74.66	%		98.31	%		89.47	%		82.52	%
Noninterest expense to average total assets		2.56	%		2.90	%		2.91	%		3.22	%		2.76	%
Average interest-earning assets to average interest-bearing liabilities		114.97	%		113.49	%		111.72	%		114.57	%		113.56	%
Loans to deposits		87.26	%		94.75	%		94.68	%		90.23	%		67.83	%

Asset Quality Ratios:

Nonperforming assets to total assets		1.89	%		2.04	%		2.08	%		0.69	%		0.48	%
Nonperforming loans to total loans		2.49	%		2.98	%		3.04	%		0.94	%		0.61	%
Allowance for loan losses to nonperforming loans		57.21	%		35.98	%		37.21	%		86.15	%		124.37	%
Allowance for loan losses to total loans		1.42	%		1.07	%		1.13	%		0.81	%		0.76	%

Capital Ratios:

Average equity to average assets		11.96	%		12.44	%		12.75	%		11.19	%		9.78	%
Equity to total assets at end of period		11.27	%		12.29	%		12.52	%		12.72	%		9.90	%
Total capital to risk-weighted assets ⁽⁴⁾		15.25	%		15.30	%		16.50	%		17.50	%		17.70	%
Tier 1 capital to risk-weighted assets ⁽⁴⁾		14.00	%		14.30	%		15.40	%		16.70	%		17.00	%
Tier 1 capital to average assets ⁽⁴⁾		9.90	%		10.40	%		10.40	%		11.60	%		10.20	%

Other Data:

Number of full service offices		8			8			8			7			4

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

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

(3)

Represents noninterest expense divided by the sum of net interest income and noninterest income. The efficiency ratio presented above includes other than temporary impairment losses on investments totaling $0, $0, $1,711, $228 and $0 for 2010 through 2006, respectively. The efficiency ratio excluding these losses would be 62.06%, 74.66%, 84.87%, 87.47% and 82.52% for 2010 through 2006, respectively.

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

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

Critical Accounting Policies

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

Securities. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost and further review will be performed for all securities that have been in a loss position for greater than one year and at a current loss of 10% or more, (2) the financial condition and near term prospects of the issuer and whether it has the ability to pay all amounts due according to the contractual terms of the debt security, (3) whether the market decline was affected by macroeconomic conditions and (4) The LaPorte Savings Bank’s intent not to sell the security and whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery.

Management completes an extensive review of whole loan collateralized mortgage obligations on a quarterly basis. We obtain a third party review of our whole loan collateralized mortgage obligations, which helps to identify impairment of these securities. The review includes information on each security, including the security’s rating, credit risk profile, weighted average FICO score, weighted average loan to value ratio and delinquency ratio.

Management reviews a performance report issued by a third party on each of its mortgage-backed securities on a quarterly basis. This review includes information on each security, including the overall credit score and loan to value ratios for the underlying mortgage of these securities.

Management completes a quarterly review of its corporate bond portfolio. The third party review report includes each bond’s investment grade. We continue to closely monitor the corporate bonds due to ongoing economic concerns and spreads on these securities.

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

A loan is impaired with specific allowance amounts allocated, if applicable, when based on current information and events it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired. Loans included for analysis for potential impairment are all commercial and commercial real estate loans classified by The LaPorte Savings Bank as Substandard, Doubtful or Loss. Such loans are analyzed to determine if specific allowance allocations are required under either the fair value of collateral method, for all collateral dependent loans, or using the present value of estimated future cash flows method, using the loan’s existing interest rate as the discount factor. Other factors considered in the potential specific allowance allocation measurement are the timing and reliability of collateral appraisals or other collateral valuation sources, the confidence in The LaPorte Savings Bank’s lien on the collateral, historical losses on similar loans, and any other factors known to management at the time of the measurement that may affect the valuation. Based on management’s consideration of these factors for each individual loan that is reviewed for potential impairment, a specific allowance allocation is assigned to the loan, if applicable, and such allocations are periodically monitored and adjusted as appropriate.

Non-specific general allowance amounts are allocated to all other loans not considered in the specific allowance allocation analysis described above. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly they are not separately identified for impairment disclosures. A minimum and maximum allowance allocation estimate is determined for each general loan category or loan pool based on the current three year historical average annual loss ratios as well as consideration of significant recent changes in annual historical loss ratios, classified loan trends by category, delinquency ratios and inherent risk factors attributable to current local and national economic conditions.

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

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

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

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

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

At December 31, 2010, the Company had core deposit intangibles of $675,000 subject to amortization and $8.4 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets arising from the acquisition of City Savings Financial in 2007. Accounting standards require an annual evaluation of goodwill for potential impairment using various estimates and assumptions. The Company became a publicly traded entity in October 2007 and due to the deteriorating financial environment that began at that time, the Company’s common stock has traded below book value since origination. The market price of the Company’s common stock at the close of business on December 31, 2010 was $9.04 per common share, compared to a book value of $10.91 per common share. Management believes the lower market price in relation to book value of the Company’s common stock is due to the overall decline in the financial industry sector and is not specific to the Company. Further, the Company engaged an independent third party specialist to perform an impairment test of its goodwill. The evaluation included three approaches: 1) income approach using a discounted cash flow analysis based on earnings capacity, 2) comparable sales transactions approach and 3) control premium price to book value ratios. Approaches 2 and 3 used median results from 8 bank sale transactions announced since January 1, 2010. The selling banks ranged in size from $50 million to $1 billion. The impairment test was performed as of September 30, 2010 and resulted in an implied fair value for the Company sufficiently above the book value of its common stock to support the carrying value of goodwill.

Based on the annual evaluation performed as of September 30, 2010 and completed in February 2011, management determined that the fair value of the reporting unit, which is defined as the Company as a whole, exceeded the carrying value of the goodwill, based on the opinion of the independent third party specialist that a control premium would be paid by a potential acquirer, such that the Company’s sale price per common share would exceed its book value per common share. Accordingly, no goodwill impairment was recognized in 2010. As the Company’s stock price per common share is currently less than its book value per common share, it is reasonably possible that management may conclude that goodwill, totaling $8.4 million at December 31, 2010, is impaired as a result of a future assessment. If our goodwill is determined to be impaired, the related charge to earnings could be material.

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

Business Strategy

Our business strategy is to enhance operations by:

•

Increasing Commercial Real Estate Lending. In order to increase the yield of and reduce the term to repricing of our loan portfolio, we have increased our originations and, to a lesser extent, purchases of commercial real estate loans. However, we do not expect significant growth in such lending until economic conditions begin to improve.

•

Maintaining a Portfolio of Residential Loans. Although we have reduced to an extent the percentage of our loan portfolio consisting of residential loans, in view of the generally high credit quality of such assets, and in order to maintain close ties with our customers, we intend to devote a significant amount of our assets to one- to four-family and home equity loans.

•

Building, Subject to Market Conditions, Mortgage Warehouse Lending. In order to increase the yield and balance of our loan portfolio and increase other noninterest income, during May 2009 we introduced the mortgage warehouse line of business. We intend to maintain and possibly increase the activity in this division.

•

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

•

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

•

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

•

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

Our strategy is subject to changes necessitated by future market conditions and other factors.

Comparison of Financial Condition at December 31, 2010 and December 31, 2009

General: Total assets increased $38.4 million, or 9.5%, to $444.3 million at December 31, 2010 from $405.8 million at December 31, 2009. The increase was primarily due to an increase in net loans of $16.8 million attributable to the increase in mortgage warehouse loans, as well as an increase in securities available for sale of $17.3 million. Total deposits increased $43.9 million, or 16.1%, which assisted in funding the increase in loans and securities. The Company experienced an increase in all deposit categories. The largest increase was attributable to an increase in deposits from local public fund entities in Porter County of approximately $22.0 million, primarily in money market accounts.

Investment Securities: Total securities available for sale increased $17.3 million, or 16.9%, to $119.4 million at December 31, 2010 from $102.1 million at December 31, 2009 primarily due to an increase in deposits. We have increased the percentage of government agency bonds, government agency CMOs and tax exempt securities owned and have reduced the exposure in mortgage backed securities and privately held CMOs when compared to December 31, 2009. During the same time period, we eliminated our exposure in corporate bonds.

As of December 31, 2010, management reviewed the securities portfolio for possible other-than-temporary impairment and determined there were no impairment charges to be recorded. At December 31, 2010, the total available for sale securities portfolio reflected a net unrealized gain of $667,000 compared to a net unrealized gain of $2.7 million at December 31, 2009.

Loans Held for Sale: Loans held for sale increased $3.2 million to $4.2 million at December 31, 2010 compared to $981,000 at December 31, 2009 primarily due to the increased volume of one-to-four family residential loans being sold to the secondary market during the 4^th quarter of 2010.

Net Loans: Net loans increased $16.8 million, or 6.6%, to $273.1 million at December 31, 2010 compared to $256.3 million at December 31, 2009. This increase is primarily attributable to an increase in mortgage warehouse lending over the same time period. We continued to see increased refinance activity throughout 2010, particularly on the east and west coasts of the country, which contributed to the growth in this division. Commercial business and commercial real estate loans remained relatively flat during 2010, with demand slow due to the current economic environment. We did see an increase in five or more family residential lending during 2010, particularly in apartment complex financing. We continued to see a decrease in one-to four-family residential loans during 2010 due to the increased refinance activity and also because we continue to sell the majority of the loans we originate into the secondary market. Consumer lending remains slow due to the current economic environment and limited equity available for home equity financing.

There was no material change in commercial business loans at December 31, 2010 compared to December 31, 2009, primarily attributable to the overall national and local economic concerns. During the second quarter of 2009, management revised the Bank’s loan policy increasing the required debt service coverage ratio for loans secured by equipment, accounts receivable and inventory.

Commercial real estate loans increased 5.7%, or $4.3 million, to $79.8 million at December 31, 2010 compared to $75.5 million at December 31, 2009. The increase in the portfolio was primarily attributable to the financing of a business complex in Michigan City, Indiana which houses a hotel and medical office.

We have seen a significant increase in the five or more family residential loans during 2010, resulting in an increase of $4.8 million, or 71.82%, to $11.6 million at December 31, 2010 compared to $6.7 million at December 31, 2009. This increase was primarily due to the addition of $5.4 million in loans secured by two established apartment complex facilities in South Bend, Indiana.

Total construction loans increased $1.4 million, or 26.1%, to $6.8 million at December 31, 2010 compared to $5.4 million at December 31, 2009, primarily due to a $4.6 million loan for the construction of an apartment complex in La Porte, Indiana. At December 31, 2010 unused commitments on construction loans totaled $3.0 million.

Mortgage warehouse loans increased $25.8 million, or 59.0%, to $69.6 million at December 31, 2010 compared to $43.8 million at December 31, 2009. The program has grown since its inception as we have added additional mortgage companies and also due to the increase in refinance activity during 2010, particularly on the east and west coasts.

One-to four-family residential loans decreased $13.0 million, or 18.5%, to $57.1 million at December 31, 2010 compared to $70.1 million at December 31, 2009, primarily attributable to the continued refinance activity during 2010. The Bank has continued sell the majority of its fixed rate one-to four-family residential real estate loans originated, which along with the normal repayment and refinance activity has accounted for the decrease. Management expects to continue to sell a majority of these loans originated during 2011. The increase in the mortgage warehouse loan portfolio during 2010 has also helped to offset the continued decrease in our one-to four-family residential loans, without the interest rate exposure of fixed rate long term mortgages remaining on the balance sheet.

Home equity loans and lines of credit decreased $1.5 million, or 9.7%, to $14.2 million at December 31, 2010 compared to $15.7 million at December 31, 2009, primarily due to the lack of demand and the continued decline in home values. We do not anticipate a significant increase in home equity loans until such time home values recover or stabilize. Other consumer loans, including indirect automobile loans, decreased $2.8 million, or 23.8%, during 2010. This decrease is primarily attributable to the competitive pricing for indirect lending as well as the bank’s decision to decrease its exposure in indirect automobile lending several years ago.

The allowance for loan losses balance increased $1.2 million, or 42.0%, to $3.9 million at December 31, 2010 compared to $2.8 million at December 31, 2009. The allowance for loan losses to total loans ratio was 1.42% at December 31, 2010 compared to 1.07% at December 31, 2009. The increase in the allowance for loan losses is primarily related to an increase in the general reserves for the commercial real estate portfolio based on the most recent twelve month historical loss ratio. During 2010, total charge-offs equaled $2.3 million, including $1.1 million of commercial real estate loans. The allowance for loan losses to non-performing loans was 57.2% at December 31, 2010 compared to 36.0% at December 31, 2009, while total nonperforming loans were $6.9 million at December 31, 2010 compared to $7.7 million at December 31, 2009.

Other Real Estate: Other real estate owned increased $962,000, or 173.7%, to $1.5 million at December 31, 2010 compared to $554,000 at December 31, 2009, primarily due to the transfer of an asset previously classified as land as well as an increase in foreclosed one-to four-family residential properties. The Company acquired a piece of land in Michigan City, Indiana through the acquisition of City Savings Bank in 2007, which was being held for future branch development by City Savings Bank. During the third quarter of 2010 management elected to transfer this property into other real estate owned at its current market value due to the fact that the land is not going to be developed into an additional branch location, and will be sold in the future. The market value transferred into other real estate for this property was $390,000.

Goodwill and Other Intangible Assets: The Company’s goodwill totaled $8.4 million at December 31, 2010 and at December 31, 2009. Accounting standards require goodwill to be tested for impairment on an annual basis, or more frequently if circumstances indicate than an asset might be impaired, by comparing the fair value of such goodwill to its recorded or carrying amount. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. The annual impairment review of the $8.4 million of goodwill previously recorded was performed in the fourth quarter of 2010. As a result of the impairment testing performed, no impairment charge was recorded by the Company.

The fair value of goodwill was estimated using a number of measurement methods. These included the application of various metrics from bank sale transactions for institutions comparable to La Porte Bancorp, Inc. including the application of market-derived multiples of tangible book value and earnings, as well as estimations of the present value of future cash flows. Based on this evaluation completed in January 2011, management determined that the fair value of the reporting unit, which is defined as the Company as a whole, exceeded the carrying value of the goodwill, based on the opinion of an independent third party specialist that a control premium would be paid by a potential acquirer, such that the sale price per common share of the Company would exceed its book value per common share. Accordingly, no goodwill impairment was recognized in 2010. As the Company’s market price per common share is currently trading close to or below its tangible book value per common share, it is reasonably possible that management may conclude that goodwill, totaling $8.4 million at December 31, 2010, is impaired as a result of a future assessment. If our goodwill is determined to be impaired, the related charge to earnings could be material.

Premises and Equipment: Net premises and equipment decreased $818,000, or 7.3%, to $10.3 million at December 31, 2010 compared to $11.2 million at December 31, 2009, primarily attributable to the transfer of land into other real estate owned during 2010 as well as ongoing depreciation. There were no significant capital expenditures made during 2010.

Deposits: Total deposits increased $43.9 million, or 16.1%, to $317.3 million at December 31, 2010 compared to $273.4 million at December 31, 2009, attributable to increases in both interest and noninterest bearing deposits. Money market accounts increased $31.6 million, or 184.2%, to $48.7 million at December 31, 2010 compared to $17.1 million at December 31, 2009. The majority of this increase was attributable to new public fund deposits from Porter County, Indiana. The increase in these deposits was used to help fund the increase in the mortgage warehouse loans. We also continued to see an increase in core retail and commercial deposit growth in both interest and noninterest bearing checking accounts. Interest-bearing checking accounts increased $4.6 million, or 13.5% and noninterest bearing checking accounts increased $933,000, or 2.7% during 2010

Total certificates of deposit and IRAs increased $4.1 million, or 2.8%, to $148.5 million at December 31, 2010 compared to $144.4 million at December 31, 2009. This growth was in certificates of deposit and IRAs greater than $100,000, which increased $1.2 million, as well as brokered certificates of deposit which increased $4.9 million. There was a decrease in certificates of deposit and IRAs less than $100,000 of $2.1 million over the same time period. Interest rates offered on these deposits have remained competitive; however management has not offered what we consider to be excessive rates of interest on these types of deposits when compared to other sources of funding. As a result of the lower interest rates offered on certificates of deposit, we have seen an increase in money market accounts.

Borrowed Funds: Total borrowed funds decreased $7.7 million, or 9.7%, to $71.7 million at December 31, 2010 compared to $79.5 million at December 31, 2009. The decrease was primarily attributable to a reduction of $16.7 million in Federal Reserve Bank Discount Window borrowings. We utilized brokered certificates of deposit and internal core deposit growth to reduce the amount of borrowings with the Federal Reserve Bank Discount Window. We had been utilizing the Federal Reserve discount window for our overnight borrowings until the second quarter of 2010 when they announced that they would be returning to their original intent to be a “lender of last resort”. We returned to the FHLBI for overnight borrowing needs at that time and maintain the ability to borrow at the Federal Reserve if needed.

Total Shareholders’ Equity: Total shareholders’ equity increased $176,000, or less than 1%, to $50.0 million at December 31, 2010 compared to $49.9 million at December 31, 2009, due to an increase in retained earnings of $2.6 million offset by a decrease in other comprehensive income (loss) of $2.4 million. The other comprehensive income (loss) on securities available for sale decreased $1.3 million over the same time period primarily due to a decrease in the fair values on municipal and mortgage-backed securities held in the Company’s available-for-sale investment portfolio. The Company booked $1.1 million in security gains permanently into income over that time period. There was a decrease of $1.0 million in other comprehensive income (loss) related to the interest rate swaps the Company has entered into as of December 31, 2010 compared to December 31, 2009, primarily attributable to the continued decline in interest rates and the impact this had on the fair value of these swaps. The interest rates are tested monthly by an independent third party for effectiveness and at December 31, 2010 all of the interest rate swaps were effective. During 2010, the Company repurchased $111,000 of its stock.

Comparison of Operating Results For the Years Ended December 31, 2010 and December 31, 2009

Net Income: Net income increased $79,000, or 3.1%, to $2.6 million for the year ended December 31, 2010 compared to $2.5 million for the year ended December 31, 2009. Net interest income increased $2.2 million, or 20.3%, during 2010 primarily due to the increase in the mortgage warehouse loan portfolio as well as a substantial decrease in the interest expense on long term FHLBI borrowings. Noninterest income increased $294,000, or 7.0% during the same time period and the Company also had a decrease in noninterest expense of $351,000, or 3.2%, during 2010 which contributed to the increase in net income. Offsetting the increases in net income was an increase in the provision for loan losses in 2010 of $2.6 million, or 308%, over the same time period. The Company has continued to add to its allowance for loan losses during the challenging economic conditions our customers have experienced.

Net Interest Income: Net interest income increased $2.2 million, or 20.3%, for the year ended December 31, 2010 compared to the prior year period, primarily due to an increase in the net interest spread of 29 basis points to 3.10% from 2.81%. The improvement in the net interest spread is primarily due to the increase in the average mortgage warehouse loans of $36.1 million, which had an annualized average yield of 7.01% compared to the annualized average yield on total interest-earning assets of 5.29% for the year ended December 31, 2010. Also contributing to the improvement in the net interest spread is the continued decrease in the average cost of FHLBI advances compared to the prior year period.

Interest and Dividend Income: Interest and dividend income increased $1.2 million, or 6.2%, for the year ended December 31, 2010 compared to the prior year, primarily attributable to the increase in the mortgage warehouse loan income. The warehouse program originated in May of 2009 and therefore is not fully reflected in the prior year. This resulted in an increase in interest income on mortgage warehouse loans of $2.4 million for the year ended December 31, 2010 compared to the prior year period. Partially offsetting this increase was a decrease in interest income on one-to four-family residential loans of $828,000 due to the decrease in the average outstanding balances. The annualized average loan yield increased 12 basis points during 2010 to 6.19% from 6.07% in 2009. This increase was primarily attributable to the increase in the mortgage warehouse loans.

Interest income from taxable securities decreased $1.3 million, or 33.6%, for the year ended December 31, 2010 compared to the prior year period, primarily due to a decrease in the annualized average yield of 126 basis points as well as a decrease in the average balance of $6.7 million. This is primarily due to the company restructuring and selling some of its taxable securities during 2010 and reinvesting into tax exempt securities and shorter taxable securities and at the same time recording securities gains. The decrease in the interest income from taxable securities was partially offset by an increase in income on tax exempt securities of $573,000 over the same time period. The average balance of tax exempt securities increased $15.3 million over the same time period. The company expects to reduce its income tax expense as a result of the increase in tax exempt securities income.

Dividend income from Federal Home Loan Bank of Indianapolis (“FHLBI”) stock decreased $42,000, or 34.7%, for the year ended December 31, 2010 compared to the same prior year period, attributable to the decrease in the annualized average yield to 1.89% from 2.88%. The dividend paid had declined consistently due to impairment charges the FHLBI has recorded. However, the dividend paid in the 4^th quarter of 2010 increased to 2.00% from 1.50% in the previous quarter.

Interest Expense: Interest expense decreased $997,000, or 12.1%, for the year ended December 31, 2010 compared to the same prior year period. The annualized average cost of interest-bearing liabilities decreased 54 basis points to 2.19% during 2010 from 2.73% for the same prior year period, resulting in a decrease in interest expense. The decrease is primarily attributable to a decrease in interest rates paid on certificates of deposit and IRA time deposits as well as a decrease in the average cost of borrowed funds. The annualized average cost of certificates of deposit and IRA time deposits decreased 56 basis points, and the annualized average cost of savings, money market and NOW accounts remained relatively unchanged during 2010 when compared to the prior year end. The Company has continued to offer competitive interest rates on money market accounts in order to attract relatively low cost funds to help fund its mortgage warehouse division.

Interest expense on FHLBI advances decreased 63 basis points to 3.93% for the year ended December 31, 2010 from 4.56% compared to the same prior year period. This is primarily due to approximately $18.0 million in advances that matured during 2010 at an average cost of 5.9%, which were replaced at a significantly lower cost of funding.

Provision for Loan Losses: The Bank recognizes a provision for loan losses, which is charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loan loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. After an evaluation of these factors, management recognized a provision for loan losses of $3.5 million for the year ended December 31, 2010 compared to $851,000 for the same prior year period.

The increase in the provision for loan losses during 2010 was primarily attributable to two commercial loan relationships. The relationship attributing most heavily to the reserve in 2010 was acquired in the City Savings Bank acquisition in 2007 and is secured by a chemical manufacturing facility, equipment and inventory and a personal guarantee. The loan has been in foreclosure since 2008 and the owner since passed away. There was also a ruling made by the courts in favor of a subcontractor involved with the original construction of the underlying collateral. The original loan balance was $3.3 million and over the life of the loan we have made specific reserves and charge offs totaling $1.8 million, of which $1.6 million occurred in 2010. The remaining balance is $358,000 at December 31, 2010 for which we have a full specific reserve. We are pursuing a personal guarantee and any proceeds will be applied as a recovery. The second relationship consisted of one commercial real estate loan in the amount of $350,000 with a 50% SBA guarantee as well as a commercial business loan in the amount of $400,000 secured by inventory, accounts receivable and equipment. This resulted in specific reserves and charge-offs of $511,000 during 2010 and the remaining balance on the loan, net of reserves, is $65,000.

In addition to the specific reserves discussed, there was an increase in the general loan pool allocation due to the increase in the one year historical loss ratios for commercial loans used for the general loan pool allocations, as a result of the significant increase in charge offs during 2010.

Net charge-offs for the 2010 and 2009 periods were $2.3 million and $587,000, respectively. Commercial loan net charge-offs during 2010 totaled $2.0 million, $172,000 of one-to four-family residential loans, $105,000 of home equity loans, and $50,000 of consumer loans including indirect car loans. There have been no charge-offs for mortgage warehouse loans.

Non-performing loans totaled $6.9 million at December 31, 2010 compared to $7.7 million at December 31, 2009. As a percentage of total loans, non-performing loans were 2.49% on December 31, 2010 compared to 2.98% on December 31, 2009.

Noninterest Income: Noninterest income increased $294,000, or 7.0%, in 2010 compared to 2009, primarily attributable to an increase in mortgage warehouse loan fees and wire transfer fees of $528,000 and $197,000, respectively. There was also an increase in net gains on securities of $361,000 over the same time period, primarily due to gains taken during the first quarter of 2010. Management’s analysis determined that market conditions provided the opportunity to sell a number of securities and add these gains to capital permanently without a negative impact to long-term earnings. ATM and debit card fees increased $50,000, or 15.8%, attributable to increased activity as well as an increase in late 2009 to the foreign ATM card transaction fee the bank charges.

Partially offsetting these increases in noninterest income was a decrease of $436,000, or 98.9%, in life insurance death benefit proceeds received during 2009 from two insurance policies as part of the Company’s bank owned life insurance plan. Trust fees decreased $164,000, or 96.5%, attributable to the closing of the trust department in early 2010. Service charges on deposit accounts decreased $127,000, or 14.9%, during 2010 compared to the prior year period, primarily attributable to a decrease in overdraft charges of $124,000. The new regulations governing overdraft activity have affected the Bank’s ability to charge for this service and management expects this will continue in the future. Mortgage banking activity decreased $129,000, or 13.6%, during 2010 primarily in the first half of the year. Refinance activity significantly increased in the last six months of 2010.

Noninterest Expense: Noninterest expense decreased $349,000, or 3.1%, in 2010 compared to 2009. This decrease is primarily due to the $427,000 prepayment penalty fee assessed to retire the FHLBI advance in 2009, as well as a decrease in the FDIC insurance expense of $138,000. In 2009 there was a special assessment of 5 basis points assessed on total assets less tier 1 Capital as of June 30, 2009. The special assessment resulted in an expense of $176,000 which was not applicable in 2010. Amortization of intangibles decreased $69,000, or 20.7%, since the core deposit intangible asset is amortized into expense on an accelerated basis. Occupancy expense decreased $64,000, or 3.4%, primarily due to a decrease in depreciation expense of $74,000. Advertising expense decreased $44,000, or 18.3%, primarily attributable to a decrease in promotions expense compared to the prior year.

Partially offsetting these decreases in noninterest expense over the same time period was an increase in salaries and employee benefits of $325,000, or 5.9%. This was primarily attributable to the termination of one of the Bank’s post retirement life insurance benefit plans and a one-time reversal of the related liability during 2009, resulting in a $161,000 decrease in the expense during 2009 when compared to 2010. There was also an increase in commission payroll expense of $126,000, primarily due to the change in the pay structure of the retail mortgage division during 2010. Other operating expenses increased $51,000, or 4.6%, during 2010 primarily attributable to an increase in insurance expense of $61,000, primarily due to a full year of the mortgage warehouse coverage compared to the prior year.

Income Taxes: Income tax expense increased $120,000, or 28.2%, for 2010 compared to 2009, primarily due to the beneficial tax treatment of the reversal of the post retirement life insurance plan expense as well as the favorable treatment of the death benefit proceeds from the Company’s bank owned life insurance policies during 2009 when compared to the current year. We also had an increase in income before taxes of $199,000 for the year ended December 31, 2010 compared to the same prior year period. The effective tax rate was 17.4% for 2010 compared to 14.5% in 2009.

Interest Rate Margin Analysis

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


	Years Ended December 31,
	2010							2009							2008
	Average Outstanding Balance		Interest		Yield/Cost			Average Outstanding Balance		Interest		Yield/Cost			Average Outstanding Balance		Interest		Yield/Cost
	(Dollars in thousands)
Assets:
Loans	$	264,594	$	16,371		6.19	%	$	237,837	$	14,431		6.07	%	$	217,102	$	14,210		6.55	%
Taxable securities		78,287		2,564		3.28			85,033		3,862		4.54			91,881		4,649		5.06
Tax exempt securities		29,320		1,155		3.94			14,005		582		4.16			5,751		212		3.69
Federal Home Loan Bank of Indianapolis stock		4,186		79		1.89			4,206		121		2.88			4,187		209		4.99
Fed funds sold and other interest-bearing deposits		5,183		11		0.21			1,952		4		0.20			3,842		77		2.00

Total interest-earning assets		381,570		20,180		5.29	%		343,033		19,000		5.54	%		322,763		19,357		6.00	%
Noninterest-earning assets		41,332							41,630							42,800

Total assets	$	422,902						$	384,663						$	365,563


Liabilities and equity:
Savings deposits	$	45,363		51		0.11	%	$	43,918		52		0.12	%	$	43,625		111		0.25	%
Money market/NOW accounts		73,119		643		0.88			42,505		352		0.83			37,195		418		1.12
CDs and IRAs		148,585		3,985		2.68			141,029		4,568		3.24			135,774		5,354		3.94

Total interest bearing deposits		267,067		4,679		1.75			227,452		4,972		2.19			216,594		5,883		2.72
FHLB advances		53,288		2,096		3.93			62,111		2,833		4.56			67,153		3,220		4.80
Subordinated debentures		5,155		281		5.45			5,155		267		5.18			5,155		329		6.38
FDIC guaranteed unsecured borrowings		4,883		201		4.12			4,287		177		4.13			—		—		—
Other secured borrowings		1,493		11		0.74			3,252		16		0.49			2		—		—

Total interest-bearing liabilities		331,886		7,268		2.19	%		302,257		8,265		2.73	%		288,904		9,432		3.26	%

Noninterest-bearing demand deposits		35,865							31,081							26,948
Other liabilities		4,561							3,467							3,111

Total liabilities		372,312							336,805							318,963
Equity		50,590							47,858							46,600

Total liabilities and equity	$	422,902						$	384,663						$	365,563


Net interest income			$	12,912						$	10,735						$	9,925

Net interest rate spread						3.10	%						2.81	%						2.74	%
Net interest-earning assets	$	49,684						$	40,776						$	33,859

Net interest margin						3.38	%						3.13	%						3.08	%
Average of interest-earning assets to interest-bearing liabilities						114.97	%						113.49	%						111.72	%

Rate/Volume Analysis

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


	Years Ended December 31, 2010 vs. 2009									Years Ended December 31, 2009 vs. 2008
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	1,651		$	289		$	1,940		$	1,301		$	(1,080	)	$	221
Taxable securities		(287	)		(1,011	)		(1,298	)		(332	)		(455	)		(787	)
Tax exempt securities		605			(32	)		573			340			30			370
Federal Home Loan Bank of Indianapolis stock		(1	)		(41	)		(42	)		1			(89	)		(88	)
Fed funds sold and other interest-bearing deposits		7			—			7			(26	)		(47	)		(73	)

Total interest-earning assets		1,975			(795	)		1,180			1,284			(1,641	)		(357	)


Interest-bearing liabilities:
Savings deposits		2			(3	)		(1	)		1			(60	)		(59	)
Money market/NOW accounts		268			23			291			54			(120	)		(66	)
CDs and IRAs		235			(818	)		(583	)		201			(987	)		(786	)
FHLB advances and federal funds purchased		(374	)		(363	)		(737	)		(235	)		(152	)		(387	)
Subordinated debentures		—			14			14			—			(62	)		(62	)
Other secured borrowings		(11	)		6			(5	)		16			—			16
FDIC guaranteed borrowings		25			(1	)		24			177			—			177

Total interest-bearing liabilities		145			(1,142	)		(997	)		214			(1,381	)		(1,167	)

Change in net interest income	$	1,830		$	347		$	2,177		$	1,070		$	(260	)	$	810

Management of Interest Rate Risk

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

Historically, we have relied on funding longer term higher interest-earning assets with shorter term lower interest-bearing deposits to earn a favorable net interest rate spread. As a result, we have been vulnerable to adverse changes in interest rates. Over the past several years, management has implemented an asset/liability strategy to manage, subject to our profitability goals, our interest rate risk. Among the techniques we are currently using to manage interest rate risk are: (i) selling on the secondary market the majority of our originations of long-term fixed-rate one- to four-family residential mortgage loans; (ii) subject to market conditions and consumer demand, originating residential adjustable rate mortgages for our portfolio; (iii) expanding, subject to market conditions, our commercial real estate loans and mortgage warehousing loans as they generally reprice more quickly than residential mortgage loans; (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 a decreasing 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 and the economic value of our equity will remain vulnerable to increases in interest rates and to declines in the difference between long- and short-term interest rates.

Quantitative Analysis. The table below sets forth, as of December 31, 2010, the estimated changes in the economic value of equity that would result from the designated changes in the United States Treasury yield curve over a 12 month non-parallel ramp 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.


			Estimated Increase (Decrease) in EVE						EV as Percentage of Economic Value of Assets ⁽³⁾
Changes in Interest Rates (basis points) ⁽¹⁾	Estimated EVE ⁽²⁾		Amount			Percent			EV Ratio			Changes in Basis Points
	(Dollars in thousands)
+300	$	54,488	$	(5,722	)		(9.50	)%		12.75	%		(0.61	)%
+200		58,276		(1,934	)		(3.21	)		13.40			0.04
+100		59,415		(795	)		(1.32	)		13.42			0.06
0		60,210		—			—			13.36			—
-100		59,251		(959	)		(1.59	)		12.98			(0.38	)
-200		57,377		(2,833	)		(4.71	)		12.46			(0.90	)
-300		55,398		(4,812	)		(7.99	)		11.93			(1.43	)

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

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

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

The table above indicates that at December 31, 2010, in the event of a 100 basis point decrease in interest rates over a 12 month non-parallel ramp, we would experience a 1.59% decrease in net portfolio value. In the event of a 100 basis point increase in interest rates over a 12 month non-parallel ramp, the economic value would decrease 1.32% in net portfolio value.

As a result of the current interest rate environment, the table above reflects a greater exposure to increasing interest rates in the event of a 200 and 300 basis point movement in interest rates over a 12 month non-parallel ramp.

The Company is also continuing to take 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%. 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 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 a majority of the fixed rate one-to-four family residential real estate loans originated and continuing to originate the majority of commercial real estate loans at a variable rate with interest rate floors attached.

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

Liquidity and Capital Resources

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

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

A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At December 31, 2010, $5.9 million of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the maturities of securities, principal repayments of mortgage-backed securities and increases in deposit accounts. Short-term investment securities (maturing in one year or less) totaled $0 at December 31, 2010, not including scheduled or pre-payments from mortgage backed securities and CMOs. As of December 31, 2010, we had $61.7 million in borrowings outstanding from the Federal Home Loan Bank of Indianapolis and we have access to additional Federal Home Loan Bank advances of up to approximately $14.9 million. As of December 31, 2010, we had $0 in borrowings from the Federal Reserve Bank discount window and access to additional borrowings of up to approximately $11.7 million. During the third quarter of 2010, the Company was extended an accommodation from First Tennessee Bank National Association to borrow federal funds up to the amount of $15.0 million. This federal funds accommodation is not and shall not be a confirmed line or loan, and First Tennessee Bank National Association may cancel such accommodation at any time, in whole or in part, without cause or notice, in its sole discretion. At December 31, 2010, the Company’s borrowings from First Tennessee Bank National Association totaled $0. The market value of unpledged available for sale securities which could be pledged for additional borrowing purposes was $36.6 million at December 31, 2010.

At December 31, 2010, we had $35.4 million in loan commitments outstanding, of which $16.7 million was committed to originate unused home equity lines of credit, $3.0 million was committed to originate commercial lines of credit, $2.4 million was committed to originate unused commercial standby letters of credit, $11.7 million was committed to unused overdraft lines of credit and $1.6 million was committed to originate commercial real estate loans. Certificates of deposit and IRAs due within one year of December 31, 2010 totaled $67.6 million, or 45.5% of certificates of deposit and IRAs. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit, IRAs and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2010. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $3.7 million and $1.7 million for years ended December 31, 2010 and December 31, 2009, respectively. Net cash used in investing activities was $39.8 million and $34.6 million during the years ended December 31, 2010 and 2009. Investment securities cash flows had the most significant effect, as net cash from sales and maturities amounted to $81.2 million and $58.7 million and net cash utilized in purchases amounted to $99.4 million and $56.6 million during the years ended December 31, 2010 and December 31, 2009, respectively. During 2010, we used $111,000 to purchase treasury stock. Net cash provided by financing activities was $36.0 million for the year ended December 31, 2010. Deposit and borrowing cash flows have comprised most of our financing activities in 2010 and 2009. The net effect of our operating, investing and financing activities was to decrease our cash and cash equivalents from $6.0 million at the beginning of fiscal year 2009 to $5.9 million at December 31, 2010.

We also have obligations under our post retirement plans as described in Notes 12 and 13 of the Notes to Consolidated Financial Statements. The post retirement benefit plans will require future payments to eligible plan participants. We contributed $52,000 to our 401(k) plan in 2010 and $72,000 in 2009. In addition, as part of the reorganization and offering, the employee stock ownership plan trust borrowed funds from LaPorte Bancorp and used those funds to purchase shares to be allocated to participants in our ESOP.

Off-Balance-Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and standby letters of credit. For information about our loan commitments, letters of credit and unused lines of credit, see Note 18 of the Notes to Consolidated Financial Statements.

For the years ended December 31, 2010 and 2009, we did not engage in any off-balance-sheet transactions other than loan origination commitments, unused lines of credit and standby letters of credit in the normal course of our lending activities.

Recent Accounting Pronouncements

FASB ASC 860

In June 2009, the FASB issued new guidance impacting FASB ASC 860, Transfers and servicing (Statement No. 166—Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140). The new guidance removes the concept of a qualifying special-purpose entity and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The new standard became effective for the Company on January 1, 2010 and did not have a material impact on the Company’s consolidated financial condition or results of operations.

FASB ASC 810-10

In June 2009, the FASB issued new guidance impacting FASB ASC 810-10, which amended guidance for consolidation of variable interest entities by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. This new guidance became effective for the Company on January 1, 2010 and did not have a material impact on the Company’s consolidated financial condition or results of operations.

FASB ASC 310

In April 2009, the FASB issued an update (ASU No. 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That is Accounted for as a Single Asset) impacting FASB ASC 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under the amendments, modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This update was effective for the Company for the interim reporting period beginning after June 15, 2010. The adoption of this updated did not have a material impact on the Company’s consolidated financial condition or results of operations.

FASB ASU 2010-06

In January 2010, the FASB issued FASB Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (ASC 820). This Update amended existing guidance for fair value measurements and disclosures which requires disclosures for transfers in and out of Levels 1 and 2 fair value measurements and activity in Level 3 fair value measurements. The amendments in the guidance also clarify existing disclosures for level of disaggregation and disclosures about inputs and valuation techniques. The amendments in the guidance also include conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. The guidance was effective for interim and annual report periods beginning after December 15, 2009, except for the disclosures about activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The effect of adopting this new guidance did not have any material effect on the Company’s consolidated financial condition or results of operations.

FASB ASC 820-10

In July 2010, the FASB issued an update (ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses). The objective of the update is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. This update provides a list of amendments to exiting disclosures about financing receivables on a disaggregated basis with two levels—portfolio segment and class of financing receivable, as well as a list of additional disclosures about financing receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB temporarily delayed the effective date of the disclosures about troubled debt restructurings. Those disclosures are anticipated to be effective for interim and annual reporting periods ending after June 15, 2011. The Company is currently evaluating the impact of adopting this standard on the consolidated financial statements, however, it does not expect to have a material effect on the Company’s consolidated financial condition or results of operations.

Impact of Inflation and Changing Prices

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

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 8.

Financial Statements and Supplementary Data

The information regarding financial statements is incorporated herein by reference to LaPorte Bancorp’s 2010 Annual Report to Stockholders in the Financial Statements and the Notes thereto.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable

Item 9A.

Controls and Procedures

(a)

Evaluation of disclosure controls and procedures

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

(b)

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, and management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 based upon the criteria set forth in a report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, the Company’s management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2010.

(c)

Changes in internal controls

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

Item 9B.

Other Information

Not Applicable

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The “Proposal I—Election of Directors” section of the Company’s definitive proxy statement for the Company’s 2011 Annual Meeting of Stockholders (the “2011 Proxy Statement”) is incorporated herein by reference.

Item 11.

Executive Compensation

The “Proposal I—Election of Directors” section of the Company’s 2011 Proxy Statement is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The “Proposal I—Election of Directors” section of the Company’s 2011 Proxy Statement is incorporated herein by reference.

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

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The “Transactions with Certain Related Persons” section of the Company’s 2011 Proxy Statement is incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services

The “Proposal III—Ratification of Appointment of Independent Registered Public Accounting Firm” Section of the Company’s 2011 Proxy Statement is incorporated herein by reference.

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)(1)

Financial Statements

The following are filed as a part of this report by means of incorporation by reference to LaPorte Bancorp’s 2010 Annual Report to Stockholders:

(A)

Report of Independent Registered Public Accounting Firm

(B)

Consolidated Balance Sheets—at December 31, 2010 and 2009

(C)

Consolidated Statements of Income—Years ended December 31, 2010 and 2009

(D)

Consolidated Statements of Changes In Shareholders’ Equity—Years ended December 31, 2010 and 2009

(E)

Consolidated Statements of Cash Flows—Years ended December 31, 2010 and 2009

(F)

Notes to Consolidated Financial Statements.


(a)(2)		Financial Statement Schedules

		None.

(a)(3)		Exhibits



3.1		Charter of LaPorte Bancorp, Inc. (1)

3.2		Bylaws of LaPorte Bancorp, Inc. (1)

4		Form of Common Stock Certificate of LaPorte Bancorp, Inc. (1)

10.1		Form of Employment Agreements for Lee A. Brady and Michele M. Thompson (1)

10.2		First Amendment to the Employment Agreement for Lee A. Brady (2)

10.3		First Amendment to the Employment Agreement for Michele M. Thompson (2)

10.4		Employment Agreement between Patrick W. Collins and The LaPorte Savings Bank (3)

10.5		Amended and Restated Supplemental Executive Retirement Plan for Lee A. Brady (4)

10.6		Amended and Restated Supplemental Executive Retirement Plan for Russell L. Klosinski (4)

10.7		Supplemental Executive Retirement Agreement between Michele M. Thompson and The LaPorte Savings Bank (4)

10.8		Supplemental Executive Retirement Agreement by and between Patrick W. Collins and The LaPorte Savings Bank (3)

10.9		Split Dollar Agreement by and between Patrick W. Collins and The LaPorte Savings Bank (3)

10.10		Split Dollar Agreement by and between Michele M. Thompson and The LaPorte Savings Bank (4)

10.11		Deferred Compensation Agreement (1)

10.12		First Amendment to the Deferred Compensation Agreement (2)

10.13		Employee Stock Ownership Plan and Trust (1)

13		Consolidated Financial Statements

21		Subsidiaries of Registrant

23		Consent of Crowe Horwath LLP

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

(2)	Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Commission on March 31, 2009.

(3)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on December 28, 2010.

(4)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on October 26, 2010.

SIGNATURES

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


	LAPORTE BANCORP, INC.

Date: March 22, 2011	By:	/s/ Lee A. Brady
		Lee A. Brady
		Chief Executive Officer and President
		(Duly Authorized Representative)

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


Signatures	Title	Date

/s/ Lee A. Brady	President and Chief Executive Officer (Principal Executive Officer)	March 22, 2011
Lee A. Brady

/s/ Michele M. Thompson	Executive Vice President, Chief Financial Officer	March 22, 2011
Michele M. Thompson	(Principal Financial and Accounting Officer)

/s/ Paul G. Fenker	Chairman of the Board	March 22, 2011
Paul G. Fenker

/s/ Mark A. Krentz	Secretary of the Board	March 22, 2011
Mark A. Krentz

/s/ Ralph F. Howes	Director	March 22, 2011
Ralph F. Howes

/s/ L. Charles Lukmann, III	Director	March 22, 2011
L. Charles Lukmann, III

/s/ Jerry L. Mayes	Vice Chairman of the Board	March 22, 2011
Jerry L. Mayes

/s/ Robert P. Rose	Director	March 22, 2011
Robert P. Rose

/s/ Dale A. Parkison	Director	March 22, 2011
Dale A. Parkison

/s/ Thomas D. Sallwasser	Director	March 22, 2011
Thomas D. Sallwasser

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company