SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 333-63373
LINCOLN BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-2055553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1121 East Main Street
Plainfield, Indiana 46168-0510
(Address of principal executive offices, including Zip Code)
(317) 839-6539
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of March 31, 1999 was 7,009,250.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
FORM 10-Q
INDEX
Page No.
FORWARD LOOKING STATEMENT 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
as of March 31, 1999 and December 31, 1998
(Unaudited) 4
Consolidated Condensed Statement of Income for
the three months ended March 31, 1999 and 1998
(Unaudited) 5
Consolidated Condensed Statement of Comprehensive
Income for the three months ended March 31, 1999
and 1998 (Unaudited) 6
Consolidated Condensed Statement of Shareholders'
Equity for the three months ended March 31, 1999
(Unaudited) 7
Consolidated Condensed Statement of Cash Flows
for the three months ended March 31, 1999 and 1998
(Unaudited) 8
Notes to Unaudited Consolidated Condensed
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
FORM 10-Q
FORWARD LOOKING STATEMENT
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined in the notes to the
consolidated condensed financial statements), its directors or its officers
primarily with respect to future events and the future financial performance of
the Company. Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors include changes in
interest rates; loss of deposits and loan demand to other financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; or regulatory changes.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------- --------------------
Assets
<S> <C> <C>
Cash and due from banks $ 1,892,231 $ 4,245,128
Interest-bearing demand deposits in other banks 6,833,602 18,662,229
--------------------- --------------------
Cash and cash equivalents 8,725,833 22,907,357
Investment securities
Available for sale 166,690,406 129,275,575
Held to maturity 750,000 1,250,000
--------------------- --------------------
Total investment securities 167,440,406 130,525,575
Loans 212,558,554 197,432,997
Allowance for loan losses 1,542,204 1,512,205
--------------------- --------------------
Net Loans 211,016,350 195,920,792
Premises and equipment 3,667,993 3,379,460
Investments in limited partnerships 2,304,523 2,386,994
Federal Home Loan Bank stock 5,446,700 5,446,700
Interest receivable 2,196,793 1,773,063
Other assets 3,952,875 4,108,163
--------------------- --------------------
Total assets $ 404,751,473 $ 366,448,104
===================== ====================
Liabilities
Deposits
Noninterest-bearing $ 2,872,950 $ 2,484,444
Interest-bearing 203,610,461 209,525,347
--------------------- --------------------
Total deposits 206,483,411 212,009,791
Short term borrowings 4,600,000
Federal Home Loan Bank advances 81,263,455 33,263,455
Note payable 1,714,001 2,202,501
Due to broker 10,025,000
Interest payable 1,053,485 1,108,514
Other liabilities 3,119,803 1,731,061
--------------------- --------------------
Total liabilities 298,234,155 260,340,322
--------------------- --------------------
Commitments and Contingent Liabilities
<PAGE>
Shareholders' Equity
Preferred stock, without par value
Authorized and unissued - 2,000,000 shares
Common stock, without par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,009,250 shares 68,875,521 68,879,373
Retained earnings 43,371,973 42,548,260
Accumulated other comprehensive income (221,321) 287,549
Unearned employee stock ownership plan ("ESOP") shares (5,508,855) (5,607,400)
--------------------- --------------------
Total shareholders' equity 106,517,318 106,107,782
--------------------- --------------------
Total liabilities and shareholders' equity $ 404,751,473 $ 366,448,104
===================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------- -------------------
1999 1998
------------------- -------------------
Interest Income
<S> <C> <C>
Loans, including fees $ 3,985,924 $ 4,908,953
Investment securities 2,273,162 658,172
Deposits with financial institutions 107,206 113,508
Dividend income 107,442 107,442
------------------- -------------------
Total interest and dividend income 6,473,734 5,788,075
------------------- -------------------
Interest Expense
Deposits 2,460,864 2,618,420
Short term borrowings 11,056
Federal Home Loan Bank advances 655,802 830,136
------------------- -------------------
Total interest expense 3,127,722 3,448,556
------------------- -------------------
Net Interest Income 3,346,012 2,339,519
Provision for loan losses 31,050 45,369
------------------- -------------------
Net Interest Income After Provision for Loan Losses 3,314,962 2,294,150
------------------- -------------------
Other Income
Net realized and unrealized gains on loans 2,835 32,360
Net unrealized losses on sales of available-for-sale (3,904)
securities
Equity in losses of limited partnerships (82,471) (115,000)
Other income 232,923 177,144
------------------- -------------------
Total other income 149,383 94,504
------------------- -------------------
Other Expenses
Salaries and employee benefits 803,358 663,384
Net occupancy expenses 73,313 58,397
Equipment expenses 143,783 149,907
Deposit insurance expense 47,671 46,314
Data processing fees 164,277 151,258
Professional fees 33,063 43,007
Director and committee fees 37,948 42,100
Mortgage servicing rights amortization (17,084) 56,154
Other expenses 233,289 157,851
------------------- -------------------
Total other expenses 1,519,618 1,368,372
------------------- -------------------
Income Before Income Tax 1,944,727 1,020,282
Income tax expense 700,459 289,736
------------------- -------------------
Net Income $ 1,244,268 $ 730,546
=================== ===================
Basic earnings per share $ .19
===================
Diluted earnings per share .19
===================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
$ 1,244,268 $ 730,546
Net Income
Other comprehensive income, net of tax
Unrealized losses on securities available for sale
Unrealized holding losses arising during the period, net of
tax benefit of $335,316 and $21,541 (511,228) (32,842)
Less: Reclassification adjustment for losses included in net (2,358)
income, net of tax benefit of $1,546
------------------ ------------------
(508,870) (32,842)
------------------ ------------------
Comprehensive income $ 735,398 $ 697,704
================== ==================
</TABLE>
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
---------------------------- Other Unearned
Shares Retained Comprehensive ESOP
Outstanding Amount Earnings Income Shares Total
------------ --------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 7,009,250 $ 68,879,373 $ 42,548,260 $ 287,549 $ (5,607,400) $ 106,107,782
Net income for the period 1,244,268 1,244,268
Unrealized losses on securities,
net of reclassification adjustment (508,870) (508,870)
ESOP shares earned 9,854 98,545 108,399
Additional conversion costs (13,706) (13,706)
Cash dividends ($.06 per share) (420,555) (420,555)
------------ --------------- -------------- ----------------- -------------- --------------
Balances, March 31, 1999 7,009,250 $ 68,875,521 $ 43,371,973 $ (221,321) $ (5,508,855) $ 106,517,318
============ =============== ============== ================= ============== ==============
</TABLE>
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------- -------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
Operating Activities
Net income $ 1,244,268 $ 730,546
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Provision for loan losses 31,050 45,369
Gain on sale of foreclosed real estate (9,449) (1,629)
Loss on disposal of premises and equipment 4,219 6,856
Investment securities accretion, net (63,604) (4,704)
Investment securities (gains) losses 3,904
Equity in losses of limited partnerships 82,471 115,000
Amortization of net loan origination fees (97,066) (113,297)
Depreciation and amortization 107,488 116,884
Deferred income tax benefit 461,773 (53,617)
ESOP shares earned 108,399
Net change in:
Interest receivable (423,730) 138,161
Interest payable (55,029) (24,661)
Other assets (221,183) (169,273)
Other liabilities 23,572 28,596
Income taxes receivable/payable 529,017 343,363
-------------------- -------------------
Net cash provided (used) by operating activities 1,726,100 1,157,594
-------------------- -------------------
Investing Activities
Purchases of securities available for sale (64,794,311)
Proceeds from sales of securities available for sale 10,259,375
Proceeds from maturities of securities available for sale 6,312,166 1,467,155
Proceeds from maturities of securities held to maturity 500,000 4,135,000
Net change in loans (10,978,307) 4,669,881
Purchases of loans (3,993,635)
Purchases of property and equipment (400,240) (220,025)
Proceeds from sale of foreclosed real estate 54,907 33,600
Contribution to limited partnership (195,000)
-------------------- -------------------
Net cash provided (used) by investing activities (63,040,045) 9,890,611
-------------------- -------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand,
money market and savings deposits 3,511,779 2,187,032
Certificates of deposit (9,038,159) 5,219,124
Short-term borrowings 4,600,000
Proceeds from FHLB advances 55,000,000
Repayment of FHLB advances (7,000,000) (18,000,000)
Payment on note payable to limited partnership (488,500) (488,500)
Additional conversion costs (13,706)
Net change in advances by borrowers for taxes and insurance 561,007 825,215
-------------------- -------------------
Net cash provided (used) by financing activities 47,132,421 (10,257,129)
-------------------- -------------------
Net Change in Cash and Cash Equivalents (14,181,524) 791,076
Cash and Cash Equivalents, Beginning of Period 22,907,357 18,957,681
-------------------- -------------------
Cash and Cash Equivalents, End of Period $ 8,725,833 $ 19,748,757
==================== ===================
Additional Cash Flows and Supplementary Information
Interest paid $ 3,182,751 $ 3,473,217
Income tax paid --- ---
Loan balances transferred to foreclosed real estate --- 63,480
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1: Basis of Presentation
The consolidated financial statements include the accounts of Lincoln Bancorp
(the "Company"), its wholly owned subsidiary, Lincoln Federal Savings Bank, a
federally chartered savings bank ("Lincoln Federal"), and Lincoln Federal's
wholly owned subsidiary, L-F Service Corporation ("L-F Service"). A summary of
significant accounting policies is set forth in Note 1 of Notes to Financial
Statements included in the December 31, 1998 Annual Report to Shareholders. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
The interim consolidated financial statements at March 31, 1999, and for the
three months ended March 31, 1999 and 1998, have not been audited by independent
accountants, but reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for such periods.
Note 2: Earnings Per Share
Earnings per share have been computed based upon the weighted average common and
common equivalent shares outstanding during the period subsequent to Lincoln
Federal's conversion to a stock savings bank on December 30, 1998. Unearned
Employee Stock Ownership Plan shares have been excluded from the computation of
average common shares outstanding. For the three months ended March 31, 1999,
weighted average shares outstanding for basic and diluted earnings per share
were 6,453,437.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Lincoln Bancorp, an Indiana corporation (the "Company"), was organized in
September, 1998. On December 30, 1998, it acquired the common stock of Lincoln
Federal Savings Bank ("Lincoln Federal") upon the conversion of Lincoln Federal
from a federal mutual savings bank to a federal stock savings bank.
Lincoln Federal was originally organized in 1884 as Ladoga Federal Savings and
Loan Association, located in Ladoga, Indiana. In 1979 Ladoga Federal merged with
Plainfield First Federal Savings and Loan Association, a federal savings and
loan association located in Plainfield, Indiana which was originally organized
in 1896. Following the merger, the Bank changed its name to Lincoln Federal
Savings and Loan Association and, in 1984, adopted its current name, Lincoln
Federal Savings Bank. Lincoln Federal currently conducts its business from six
full-service offices located in Hendricks, Montgomery, Clinton and Morgan
Counties, Indiana, with its main office located in Plainfield. Lincoln Federal
opened an office in Avon, Indiana in January, 1999 and its newest office in
Mooresville, Indiana in April, 1999. The Bank's principal business consists of
attracting deposits from the general public and originating fixed-rate and
adjustable-rate loans secured primarily by first mortgage liens on one- to
four-family residential real estate. Lincoln Federal's deposit accounts are
insured up to applicable limits by the SAIF of the FDIC.
Lincoln Federal offers a number of financial services, including: (I) one-to
four-family residential real estate loans; (ii) commercial real estate loans;
(iii) real estate construction loans; (iv) land loans; (v) multi-family
residential loans; (vi) consumer loans, including home equity loans and
automobile loans; (vii) commercial loans; (viii) money market demand accounts
("MMDAs"); (ix) savings accounts; (x) checking accounts; (xi) NOW accounts; and
(xii) certificates of deposit.
Lincoln Federal currently owns one subsidiary, L-F Service corporation ("L-F
Service"), whose assets consist of an investment in Family Financial Life
Insurance Company ("Family Financial") and in Bloomington Housing Associates,
L.P. ("BHA"). Family Financial is an Indiana stock insurance company that
primarily engages in retail sales of mortgage and credit insurance products in
connection with loans originated by its shareholder financial institutions. BHA
is an Indiana limited partnership that was organized to construct, own and
operate a 130-unit apartment complex in Bloomington, Indiana (the "BHA
project"). Development of the BHA Project has been completed and the project is
performing as planned.
Lincoln Federal's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and investments, and costs incurred with
respect to interest-bearing liabilities, primarily deposits and borrowings.
Results of operations also depend upon the level of Lincoln Federal's
non-interest income, including fee income and service charges, and the level of
its non-interest expenses, including general and administrative expenses.
Financial Condition
Total assets increased $38.3 million, or 10.5% at March 31, 1999, compared to
December 31, 1998. The increase was primarily in investment securities available
for sale and net loans. Investment securities available for sale increased $37.4
million, or 28.9%. Net loans increased $15.1 million, or 7.6% due primarily to
the funding of one-to four-family residential mortgage loans that were in
process at December 31, 1998 and the purchase of approximately $4.0 million of
one-to four-family residential mortgage loans from another financial
institution. These increases were offset by a decrease in cash and cash
equivalents. Cash and cash equivalents decreased by $14.2 million, or 61.9%.
These balance sheet changes were a result of a leverage strategy to increase net
interest income and improve the Company's return on average assets and equity.
Deposits decreased $5.5 million to $206.5 million during the first quarter of
1999. The decline in deposits was primarily a result of the run-off of maturing
certificates of deposit specials.
Total borrowed funds increased $52.1 million from December 31, 1998 to March 31,
1999. The increase in total borrowed funds was comprised of an increase in FHLB
advances of $48.0 million, an increase in repurchase agreements of $4.6 million
and a decrease in the note payable to a limited partnership of $489,000. The
increase in total borrowings reflects the Company's decision to leverage its
earning assets when appropriate. The proceeds from borrowings were used
primarily to fund investments in mortgage-backed and other investment grade
securities available for sale.
Stockholders' equity increased $410,000 from $106.1 million at December 31, 1998
to $106.5 million at March 31, 1999. The increase was due to net income for the
quarter ended March 31, 1999 of $1.2 million and Employee Stock Ownership Plan
("ESOP") shares earned of $108,000. A cash dividend declared of $421,000 and
additional stock conversion costs recorded in the first quarter of 1999 of
$14,000 offset these increases.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
Net income increased $514,000, or 70.3%, from $731,000 for the three months
ended March 31, 1998 to $1.2 million for the three months ended March 31, 1999.
The increase was primarily due to an increase in net interest income offset by
increases in noninterest expenses and income tax expense. The return on average
assets was 1.34% and .93 % for the three months ended March 31, 1999 and 1998,
respectively.
Interest income increased $686,000, or 11.8%, from $5.8 million for the three
months ended March 31, 1998 to $6.5 million for the same period in 1999.
Interest expense decreased $321,000, or 9.3%, from $3.5 million for the three
months ended March 31, 1998 to $3.1 million for the same period in 1999. As a
result, net interest income for the three months ended March 31, 1999 increased
$1.0 million or 43.0%, compared to the same period in 1998. The increase in net
interest income was due primarily to an increase in the volume of average
investment securities available for sale. The increase in average investment
securities available for sale was primarily attributable to the proceeds
received in conjunction with the Company's stock issuance. Net proceeds of the
Company's stock issuance, after costs and excluding the shares issued for the
ESOP, were $61.3 million.
The Company's provision for loan losses for the three months ended March 31,
1999 was $31,000 compared to $45,000 for the same period in 1998. Net
charge-offs were $1,000 and $14,000, respectively.
Noninterest income increased $55,000, or 58.1%, for the three months ended March
31, 1999 compared to the same period in 1998 primarily due to an increase in
other income of $56,000 and decreased losses of $33,000 from the investment in a
low-income housing limited partnership. The increase in other income was due to
increases in a variety of other income categories and was not attributable to
any one item. These increases were partially offset by a $30,000 decrease in net
realized and unrealized gains on loans.
Noninterest expense increased $151,000, or 11.1%, for the three months ended
March 31, 1999 compared to the same period in 1998. Salaries and employee
benefits were $803,000 for the three months ended March 31, 1999 compared to
$663,000 for the 1998 period, an increase of $140,000, or 21.1%. This increase
resulted primarily from $108,000 of compensation expense related to the ESOP.
Also, the Company's compensation expense increased as a result of additional
staffing for the two branches opened in 1999. Other expenses also increased
$75,000 for the three months ended March 31, 1999 compared to the same period in
1998. The increase in other expenses resulted from nominal increases in a
variety of expense categories. These increases in salaries and employee benefits
and other expenses were offset by a decrease in mortgage servicing rights
amortization of $73,000. The decline in mortgage servicing rights amortization
was primarily a result of a change in the prepayment speeds of loans serviced
for others.
Income tax expense increased $411,000 for the three months ended March 31, 1999
compared to the same period in 1998. The increase was a result of an increase in
taxable income for the period and a decrease in low income tax credits
available. The Company has two low-income housing partnerships of which the
final tax credits for one of the two partnerships were used in 1998.
Asset Quality
Lincoln Federal currently classifies loans as special mention, substandard,
doubtful and loss to assist management in addressing collection risks and
pursuant to regulatory requirements, which are not, necessarily consistent with
generally accepted accounting principles. Special mention loans represent
credits that have potential weaknesses that deserve management's close
attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects or Lincoln Federal's credit position at
some future date. Substandard loans represent credits characterized by the
distinct possibility that some loss will be sustained if deficiencies are not
corrected. Doubtful loans possess the characteristics of substandard loans, but
collection or liquidation in full is doubtful based upon existing facts,
conditions and values. A loan classified as a loss is considered uncollectible.
Lincoln Federal had no loans classified as special mention as of March 31, 1999
and December 31, 1998. In addition, Lincoln Federal had $1.2 million and
$905,000 of loans classified as substandard at March 31, 1999 and December 31,
1998, respectively. The increase in loans classified as substandard was
primarily attributable to an increase in mortgage loans past due greater than
ninety days but not on non-accrual status. Lincoln Federal reviews all loans on
an individual basis when the loan reaches ninety days past due to determine
whether non-accrual status in necessary. At March 31, 1999 and December 31,
1998, no loans were classified as doubtful or loss. At March 31, 1999, and
December 31, 1998, respectively, non-accrual loans were $764,000 and $959,000.
The allowance for loan losses was $1.5 million or approximately .7% of net loans
at March 31, 1999 and December 31, 1998.
Liquidity and Capital Resources
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision regulation at 4%. As of March
31, 1999, Lincoln Federal had liquid assets of $100.7 million and a liquidity
ratio of 53.8%.
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including the Company.
The address is (http://www.sec.gov).
Year 2000 Compliance
The Company's lending and deposit activities depend significantly upon computer
systems to process and record transactions. Management is aware of the potential
Year 2000 related problems that may affect the operating systems that control
the Company's computers as well as those of its third-party data service
providers that maintain many of its records. In 1997, management began the
process of identifying any Year 2000 related problems that may affect the
Company's computer systems, and management is closely monitoring the data
service providers' progress in making they systems Year 2000 compliant.
Management currently expects to complete testing for Year 2000 compliance by the
second quarter of 1999.
Management has contacted the approximately 20 companies that supply or service
the Company's material operations requesting that they certify that they have
plans to make their respective computer systems Year 2000 compliant. Management
established a December 31, 1998 deadline for these companies to provide this
certification and, as of that date, approximately 90% of these companies had
responded to this inquiry. The Company has delivered a second notice to the
service providers who did not respond to the first inquiry and has established a
deadline of June 30, 1999 for these companies to respond. Once a certification
is received from a service provider, management intends to continuously monitor
the progress that the service provider makes in meeting the Company's targeted
schedule for becoming Year 2000 compliant. The Company's electronic data service
provider, whose services are integral to its operations, has provided
certification to management that its computer systems are Year 2000 compliant.
The Company is currently testing the data that is maintained on its electronic
data service provider's system and will continue testing throughout 1999 to
ensure that the system is Year 2000 compliant. The deadline that management has
established for the Company's remaining service providers to certify that their
systems are Year 2000 compliant should provide management sufficient time to
identify and contract with alternative service providers to replace any provider
that cannot certify that it is, or soon will be, Year 2000 compliant. Management
does not expect the expense of such changes in suppliers or services to be
material to its operations, financial condition or results. Notwithstanding the
efforts management has made, no assurances can be given that the systems of its
service providers will be timely renovated to address the Year 2000 issue.
In addition to possible expenses related to the Company's own systems and those
of its service providers, the Company could incur losses if Year 2000 problems
affect any of its significant borrowers or impair the payroll systems of large
employers it is market area, either of which could delay loan payments by the
Company's borrowers. Management has contacted the approximately 23 commercial
borrowers with outstanding loans in excess of $300,000 to request that they
certify by the end of November, 1998 that their computer systems were, or soon
would be, Year 2000 compliant. In addition, the Company currently requires that
borrowers under new commercial loans that it originates to certify that they are
aware of the Year 2000 issue and will give all necessary attention to insure
that their information technology will be Year 2000 compliant. Because the
Company's loan portfolio to individual borrowers is diversified and its market
area does not depend significantly upon one employer or industry, the Company
does not expect any significant or prolonged Year 2000 related difficulties that
will affect net earnings or cash flow. Management believes that the Company's
expenses related to upgrading its systems and software for Year 2000 compliance
will not exceed $300,000. At March 31, 1999, the Company had spent approximately
$102,000 in connection with Year 2000 compliance.
Management does not consider the additional cost of these efforts to be
significant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Presented below, as of March 31, 1999 and 1998, is an analysis performed by the
OTS of Lincoln Federal's interest rate risk as measured by changes in Lincoln
Federal's net portfolio value ("NPV") for instantaneous and sustained parallel
shifts in the yield curve, in 100 basis point increments, up and down 300 basis
points.
<TABLE>
<CAPTION>
March 31, 1999
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
-------- -------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
+300 bp 53,590 -33,117 -38% 14.45% -657 bp
+200 bp 64,978 -21,730 -25% 16.88% -414 bp
+100 bp 76,289 -10,419 -12% 19.12% -191 bp
0 bp 86,707 21.02%
- -100 bp 95,401 8,694 10% 22.48% +146 bp
- -200 bp 102,729 16,022 18% 23.62% +260 bp
- -300 bp 111,367 24,660 28% 24.91% +389 bp
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
-------- -------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
+300 bp 31,010 -18,128 -37% 10.57% -485 bp
+200 bp 37,667 -11,470 -23% 12.46% -296 bp
+100 bp 43,979 -5,159 -10% 14.14% -128 bp
0 bp 49,137 15.42%
- -100 bp 51,925 2,788 +6% 16.02% +60 bp
- -200 bp 51,910 2,772 +6% 15.88% +46 bp
- -300 bp 51,788 2,650 +5% 15.71% +29 bp
</TABLE>
The analysis at March 31, 1999 indicates that there have been no material
changes in market interest rates or in Lincoln Federal's interest rate sensitive
instruments which would cause a material change in the market risk exposures
which affect the quantitative and qualitative risk disclosures as presented in
Item 7A of the Company's Annual Report on Form 10-K for the period ended
December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINCOLN BANCORP
Date: May 14, 1999 By: /s/ T. Tim Unger
------------ --------------------
T. Tim Unger
President and Chief Executive
Officer
Date: May 14, 1999 By: /s/ John M. Baer
------------ --------------------
John M. Baer
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's unaudited consolidated financial statements for the three months
ended March 31, 1999 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0001070259
<NAME> Lincoln Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 1,892
<INT-BEARING-DEPOSITS> 6,834
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 750
<INVESTMENTS-MARKET> 754
<LOANS> 212,558
<ALLOWANCE> 1,542
<TOTAL-ASSETS> 404,751
<DEPOSITS> 206,483
<SHORT-TERM> 5,414
<LIABILITIES-OTHER> 4,174
<LONG-TERM> 82,163
<COMMON> 68,876
0
0
<OTHER-SE> 37,641
<TOTAL-LIABILITIES-AND-EQUITY> 404,751
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<EXPENSE-OTHER> 1,520
<INCOME-PRETAX> 1,945
<INCOME-PRE-EXTRAORDINARY> 1,244
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<CHANGES> 0
<NET-INCOME> 1,244
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 3.75
<LOANS-NON> 0
<LOANS-PAST> 1,216
<LOANS-TROUBLED> 0
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</TABLE>
