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 JUNE 30, 2000 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: 000-25219
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 June 30, 2000 was 5,677,493.
<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 4
Consolidated Condensed Statement of Income 5
Consolidated Condensed Statement of Comprehensive Income (Loss) 6
Consolidated Condensed Statement of Shareholders' Equity 7
Consolidated Condensed Statement of Cash Flows 8
Notes to Unaudited Consolidated Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
FORM 10Q
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>
June 30, December 31,
2000 1999
--------------------- --------------------
Assets
<S> <C> <C>
Cash and due from banks $ 1,265,795 $ 2,576,080
Interest-bearing demand deposits in other banks 4,274,740 8,242,552
--------------------- --------------------
Cash and cash equivalents 5,540,535 10,818,632
Investment securities
Available for sale 141,218,627 145,875,328
Held to maturity 500,000 500,000
--------------------- --------------------
Total investment securities 141,718,627 146,375,328
Loans 251,679,012 234,760,885
Allowance for loan losses 1,887,199 1,760,706
--------------------- --------------------
Net loans 249,791,813 233,000,179
Premises and equipment 4,514,922 3,672,650
Investments in limited partnerships 1,858,401 2,063,661
Federal Home Loan Bank stock 5,446,900 5,446,700
Interest receivable 2,463,645 2,246,870
Other assets 7,471,188 7,204,023
--------------------- --------------------
Total assets $ 418,806,031 $ 410,828,043
===================== ====================
Liabilities
Deposits
Noninterest-bearing $ 3,395,449 $ 3,395,618
Interest-bearing 211,376,581 201,586,609
--------------------- --------------------
Total deposits 214,772,030 204,982,227
Securities sold under repurchase agreements 4,600,000 4,600,000
Federal Home Loan Bank advances 107,937,608 103,937,608
Note payable 1,225,501 1,714,001
Interest payable 1,200,792 1,096,519
Other liabilities 2,963,076 2,754,552
--------------------- --------------------
Total liabilities 332,699,007 319,084,907
--------------------- --------------------
Commitments and Contingencies
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 - 5,677,493 and 6,308,325 shares 55,545,596 61,853,916
Retained earnings 44,506,466 43,575,208
Accumulated other comprehensive loss (5,830,648) (5,065,649)
Unearned recognition and retention plan ("RRP") shares (3,097,262) (3,407,119)
Unearned employee stock ownership plan ("ESOP") shares (5,017,128) (5,213,220)
--------------------- --------------------
Total shareholders' equity 86,107,024 91,743,136
--------------------- --------------------
Total liabilities and shareholders' equity $ 418,806,031 $410,828,043
===================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------- --------------- -------------- --------------
2000 1999 2000 1999
-------------- --------------- -------------- --------------
Interest Income
<S> <C> <C> <C> <C>
Loans, including fees $ 4,955,827 $ 4,132,625 $ 9,524,284 $ 8,118,549
Investment securities 2,532,149 2,679,409 5,064,861 4,952,571
Deposits with financial institutions 88,294 59,549 217,301 166,755
Dividend income 108,342 108,635 216,683 216,077
-------------- --------------- -------------- --------------
Total interest and dividend income 7,684,612 6,980,218 15,023,129 13,453,952
-------------- --------------- -------------- --------------
Interest Expense
Deposits 2,665,443 2,356,412 5,112,662 4,817,276
Short term borrowings 73,837 59,186 135,759 70,242
Federal Home Loan Bank advances 1,525,842 1,072,735 2,989,190 1,728,537
-------------- --------------- -------------- --------------
Total interest expense 4,265,122 3,488,333 8,237,611 6,616,055
-------------- --------------- -------------- --------------
Net Interest Income 3,419,490 3,491,885 6,785,518 6,837,897
Provision for loan losses 71,023 200,114 49,151 231,164
-------------- --------------- -------------- --------------
Net Interest Income After Provision for Loan Losses 3,348,467 3,291,771 6,736,367 6,606,733
-------------- --------------- -------------- --------------
Other Income
Net realized and unrealized gains on loans 9,780 12,615
Net realized losses on sales of available-for-sale securities (3,904)
Equity in losses of limited partnerships (102,630) (86,882) (205,260) (169,353)
Other income 273,881 210,204 485,743 443,127
-------------- --------------- -------------- --------------
Total other income 171,251 133,102 280,483 282,485
-------------- --------------- -------------- --------------
Other Expenses
Salaries and employee benefits 1,203,264 871,745 2,370,367 1,675,103
Net occupancy expenses 99,192 82,106 198,449 155,419
Equipment expenses 134,082 122,742 271,619 266,525
Deposit insurance expense 11,610 34,635 23,578 82,306
Data processing fees 201,726 191,294 406,748 355,571
Professional fees 84,759 56,099 179,440 89,162
Director and committee fees 50,358 36,149 98,283 74,097
Mortgage servicing rights amortization 39,000 49,374 81,918 32,290
Other expenses 349,497 360,647 680,516 593,936
-------------- --------------- -------------- --------------
Total other expenses 2,173,488 1,804,791 4,310,918 3,324,409
-------------- --------------- -------------- --------------
Income Before Income Tax 1,346,230 1,620,082 2,705,932 3,564,809
Income tax expense 278,063 607,730 707,412 1,308,189
-------------- --------------- -------------- --------------
Net Income $ 1,068,167 $ 1,012,352 $ 1,998,520 $ 2,256,620
============== =============== ============== ==============
Basic earnings per share $ .22 $ .16 $ .39 $ .35
============== ============== ============== ==============
Diluted earnings per share .22 .16 .39 .35
============== =============== ============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Comprehensive Income (Loss)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income $1,068,167 $1,012,352 $1,998,520 $2,256,620
Other comprehensive loss, net of tax
Unrealized losses on securities available for sale
Unrealized holding losses arising during the
period, net of tax benefit of $71,691 $1,935,697,
$501,765 and $2,271,013 (109,301) (2,951,193) (764,999) (3,462,421)
Less: Reclassification adjustment for losses
included in net income, net of tax benefit of
$1,546 (2,358)
---------------- --------------- ---------------- ----------------
(109,301) (2,951,193) (764,999) (3,460,063)
---------------- --------------- ---------------- ----------------
Comprehensive income (loss) $ 958,866 $(1,938,841) $1,233,521 $(1,203,443)
================ =============== ================ ================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
-------------------------- Other Unearned
Shares Retained Comprehensive Unearned ESOP
Outstanding Amount Earnings Loss Compensation Shares Total
------------ ------------- ------------- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 6,308,325 $ 61,853,916 $ 43,575,208 $ (5,065,649) $ (3,407,119) $(5,213,220) $ 91,743,136
Net income for the period 1,998,520 1,998,520
Unrealized losses on
securities, net of
reclassification
adjustment (764,999) (764,999)
Purchase of common stock (630,832) (6,308,320) (224,492) (6,532,812)
ESOP shares earned 18,737 196,092 214,829
Amortization of unearned
compensation expense (17,702) 309,857 292,155
Cash dividends ($.16
per share) (843,805) (843,805)
------------ ------------- ------------- ---------------- --------------- ------------- -------------
Balances, June 30, 2000 5,677,493 $55,545,596 $44,506,466 $(5,830,648) $(3,097,262) $(5,017,128) $86,107,024
============ ============= ============= ================ =============== ============= =============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
2000 1999
------------ ------------
Operating Activities
<S> <C> <C>
Net income $ 1,998,520 $ 2,256,620
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 49,151 231,164
(Gain) loss on sale of foreclosed real estate 1,416 (9,449)
Loss on disposal of premises and equipment 4,219
Investment securities accretion, net (201,181) (176,495)
Investment securities (gains) losses 3,904
Equity in losses of limited partnerships 205,260 169,353
Amortization of net loan origination fees (151,295) (174,123)
Depreciation and amortization 215,647 202,225
Amortization of unearned compensation expense 292,155
ESOP shares earned 214,829 214,828
Net change in:
Interest receivable (216,775) (522,936)
Interest payable 104,273 (110,343)
Other adjustments 584,097 294,541
------------ ------------
Net cash provided by operating activities 3,096,097 2,383,508
------------ ------------
Investing Activities
Purchases of securities available for sale (2,585,354) (64,794,311)
Proceeds from sales of securities available for sale 10,259,375
Proceeds from maturities of securities available for sale 6,176,472 12,646,463
Proceeds from maturities of securities held to maturity 750,000
Net change in loans (15,733,458) (19,827,014)
Purchases of loans (1,116,350) (4,761,641)
Purchase of FHLB of Indianapolis stock (200)
Purchases of premises and equipment (1,057,919) (612,248)
Proceeds from sale of foreclosed real estate 93,675 54,907
------------ ------------
Net cash used by investing activities (14,223,134) (66,284,469)
------------ ------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand,
money market and savings deposits 3,908,553 6,850,440
Certificates of deposit 5,881,250 (14,455,616)
Short-term borrowings 4,600,000
Proceeds from FHLB advances 57,000,000 61,000,000
Repayment of FHLB advances (53,000,000) (10,000,000)
Payment on note payable to limited partnership (488,500) (488,500)
Dividends paid (891,118) (420,555)
Purchase of common stock (6,532,812)
Additional conversion costs (13,706)
Net change in advances by borrowers for taxes and insurance (28,433) (51,284)
------------ ------------
Net cash provided by financing activities 5,848,940 47,020,779
------------ ------------
Net Change in Cash and Cash Equivalents (5,278,097) (16,880,182)
Cash and Cash Equivalents, Beginning of Period 10,818,632 22,907,357
------------ ------------
Cash and Cash Equivalents, End of Period $ 5,540,535 $ 6,027,175
============ ============
Additional Cash Flows and Supplementary Information
Interest paid $ 8,133,338 $ 6,726,398
Income tax paid 836,500 771,250
Loan balances transferred to foreclosed real estate 160,318
</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, 1999 Annual Report to Shareholders. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim consolidated condensed 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 condensed financial statements at June 30, 2000, and
for the three and six months ended June 30, 2000 and 1999, 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
shares outstanding. Unearned Employee Stock Ownership Plan ("ESOP") shares have
been excluded from the computation of average common shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------- --------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $1,068,167 4,926,466 $ .22 $ 1,012,352 6,463,292 $ .16
=========== ===========
Effect of dilutive RRP awards
and stock options
------------- --------------- ---------------- --------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $1,068,167 4,926,466 $ .22 $ 1,012,352 6,463,292 $ .16
============= =============== =========== ================ ============== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $1,998,520 5,095,408 $ .39 $ 2,256,620 6,458,365 $ .35
=========== ===========
Effect of dilutive RRP awards
and stock options
------------- --------------- ---------------- --------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $1,998,520 5,095,408 $ .39 $ 2,256,620 6,458,365 $ .35
============= =============== =========== ================ ============== ===========
</TABLE>
Note 3: Business Combinations
On March 21, 2000, the Company signed a definitive agreement to acquire Citizens
Bancorp, Frankfort, Indiana. The acquisition will be accounted for under the
purchase method of accounting. Under the terms of the agreement, the Company
will exchange .9375 shares of the Company's common stock and $9.375 in cash for
each share of Citizens' common stock. The transaction is subject to approval by
shareholders of Citizens Bancorp and appropriate regulatory agencies. As of June
30, 2000, Citizens Bancorp had total assets and shareholders' equity of
$63,732,000 and $15,126,000 respectively.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The Company was organized in September, 1998. On December 30, 1998, it acquired
the common stock of Lincoln Federal Savings 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. Lincoln Federal'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, 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
Assets totaled $418.8 million at June 30, 2000, an increase from December 31,
1999 of $8.0 million. This growth occurred in net loans, up $16.8 million from
year-end 1999, and was reflected in every major category of loans, especially
commercial loans, up $7.3 million. Loan growth was funded primarily by growth of
deposits and cash flow from investments. Deposits totaled $214.8 million at June
30, 2000, an increase of $9.8 million from December 31, 1999. The majority of
this growth was in public fund certificates of deposit. Federal Home Loan Bank
advances and repurchase agreements increased $4.0 million to $112.5 million.
The book value of Lincoln Bancorp common stock was $15.17 per share at June 30,
2000 compared to $14.54 at December 31, 1999. The book value has been affected
positively by the repurchase of 630,832 shares of Lincoln Bancorp common stock
during the first and second quarters of 2000. Lincoln Bancorp successfully
completed its second 10% stock repurchase totaling 630,832 shares in April. This
brought total shares repurchased to 1,331,757 shares, or 19% of the original
shares issued in the stock conversion, which was consummated on December 30,
1998. The repurchase was accomplished from August 1999 through April 2000.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999
Net income for the three months ended June 30, 2000 was $1,069,000, or $.22 for
both basic and diluted earnings per share. This compared to net income for the
comparable period in 1999 of $1,012,000, or $.16 for both basic and diluted
earnings per share. Return on assets as 1.03% and return on equity was 4.97% for
the second quarter of 2000 compared to 1.00% and 3.79%, respectively, for the
same period last year.
Net interest income for the second quarter of 2000 was $3,419,000 compared to
$3,492,000 for the same period in 1999. Net interest margin was 3.32% for the
three-month period ended June 30, 2000, compared to 3.55% for the same period in
1999. The average yield on earning assets increased .36% in 2000 while the
average cost of interest-bearing liabilities increased .47% from the second of
1999 to the second quarter of 2000. This reduced spread from 2.28% to 2.16%, or
12 basis points.
Lincoln Bancorp's provision for loan losses for the three-month period ended
June 30, 2000 was $71,000 compared to a provision expense of $200,000 for the
same period in 1999.
Other income for the three months ended June 30, 2000 was $172,000 compared to
$133,000 for the same quarter in 1999. Equity in losses of limited partnerships
increased $15,000 from the second quarter of 1999 due to the operating results
of the limited partnerships. Service fee income on deposit accounts increased
$35,000 for the quarter over the same quarter last year.
Other expenses were $2,173,000 for the three months ended June 30, 2000 compared
to $1,805,000 for the comparable period in 1999. The increase in expenses was
primarily the result of additional costs associated with key management
additions and costs of the management recognition and retention plan not
incurred in the first half of 1999.
Income taxes were $278,000, or 21% of pretax income for the second quarter of
2000, compared to income taxes of $608,000, or nearly 38% of pretax income for
the same period in 1999. This decline resulted from a decrease in pretax income
and from a recent revision to the Indiana Code that permits financial
institutions incorporated in Indiana to apportion income in the same manner as
financial institutions incorporated in other states. This revision to the
statute was made retroactive to January 1, 1999. Lincoln Bancorp recognized a
single adjustment to its income tax expense in the second quarter of 2000.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
Net income for the six months ended June 30, 2000 was $1,999,000, or $.39 for
both basic and diluted earnings per share. This compared to $2,257,000, or $.35
for both basic and diluted earnings per share for the same period of 1999.
Return on assets was .96% and return on equity was 4.57% compared to 1.16% and
4.23%, respectively, for the same period ended June 30, 1999.
Net interest income for the six months ended June 30, 2000 was $6,785,000
compared to $6,838,000 for the same period in 1999. Net interest margin was
3.31% through June 30, 2000, which is a reduction from 3.64% for 1999. Continued
pressure on net interest margin was partially the result of the repurchase by
Lincoln Bancorp of its common stock pursuant to the Company's stock repurchase
program, and from the 18 basis point reduction in its interest rate spread.
Lincoln Bancorp's provision for loan losses for the six-month period ended June
30, 2000 was $49,000, compared to $231,000 for the same period during 1999.
Nonperforming loans to total loans at June 30, 2000 were .24% compared to .47%
at December 31, 1999 while nonperforming assets to total assets declined from
.28% at December 31, 1999 to .17% at the end of June, 2000. The allowance for
loan losses as a percentage of loans at June 30, 2000 and December 31, 1999 was
.8% and .7%, respectively.
Other income for the six months ended June 30, 2000 was $281,000 compared to
$282,000 for the same period last year.
For the six-month period ended June 30, 2000, other expenses were $4,311,000
compared to $3,324,000 for the same period in 1999. The increase in expenses was
primarily the result of additional costs associated with key management
additions and costs of the management recognition and retention plan not
incurred in the first half of 1999.
Income tax expense for the six-month period ended June 30, 2000 was $707,000, a
decrease of $601,000, or 46% for the same period during 1999. This decrease
resulted from a decrease in pretax income and from a recent revision to the
Indiana Code that permits financial institutions incorporated in Indiana to
apportion income in the same manner as financial institutions incorporated in
other states. This revision to the statute was made retroactive to January 1,
1999. Lincoln Bancorp recognized a single adjustment to its income tax expense
in the second quarter of 2000.
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 $3.4 million of loans classified as special mention as of
June 30, 2000 and no loans classified as special mention as of December 31,
1999. The increase in loans classified as special mention was attributable to
four commercial loan relationships. In addition, Lincoln Federal had $1.1
million of loans classified as substandard both at June 30, 2000 and December
31, 1999. At June 30, 2000 and December 31, 1999, no loans were classified as
doubtful or loss. Lincoln Federal reviews all loans on an individual basis when
the loan reaches ninety days past due to determine whether non-accrual status is
necessary. At June 30, 2000, and December 31, 1999, respectively, non-accrual
loans were $594,000 and $1.1 million. The allowance for loan losses was $1.9
million and $1.8 million, or approximately .8% and .7% of net loans at June 30,
2000 and December 31, 1999.
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 June
30, 2000, Lincoln Federal had liquid assets of $84.4 million and a liquidity
ratio of 32.2%.
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).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Presented below, as of June, 2000 and 1999, 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.
June 30, 2000
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
-------- -------- --------- ------- --------- ------
+300 bp 45,012 -32,138 -42% 11.87% -661 bp
+200 bp 55,416 -21,733 -28% 14.15% -433 bp
+100 bp 66,306 -10,844 -14% 16.39% -209 bp
0 bp 77,150 18.47%
-100 bp 86,656 9,506 12% 20.18% +171 bp
-200 bp 92,067 14,917 19% 21.06% +258 bp
-300 bp 94,630 17,480 23% 21.40% +292 bp
June 30, 1999
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
-------- -------- --------- ------- --------- ------
+300 bp $51,476 $31,079 38% 14.03% -629 bp
+200 bp 62,130 20,426 25% 16.34% -398 bp
+100 bp 72,781 9,774 12% 18.49% -183 bp
0 bp 82,555 20.33%
-100 bp 89,561 7,006 8% 21.52% +120 bp
-200 bp 92,508 9,952 12% 21.91% +158 bp
-300 bp 94,590 12,035 15% 22.12% +180 bp
The analysis at June 30, 2000 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, 1999.
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 a Vote of Security Holders
On April 18, 2000, the Company held its Annual Meeting of the
Shareholders. A total of 4,599,433 shares were represented in
person or by proxy at the meeting. Lester N. Bergum, Jr. was
elected to the Board of Directors for a three-year term expiring
in 2003. 4,455,641 shares were voted in favor of the election of
the nominee and there were 143,792 votes withheld. Dennis W.
Dawes was elected to the Board of Directors for a three-year term
expiring in 2003. 4,403,213 shares were voted in favor of the
election of the nominee and there were 196,220 votes withheld.
The terms of office of the following directors of Lincoln Bancorp
continued after the Annual Shareholder Meeting:
Name Term Expires In
---- ---------------
W. Thomas Harmon 2001
Jerry R. Holifield 2001
David E. Mansfield 2002
John C. Milholland 2001
T. Tim Unger 2002
John L. Wyatt 2002
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27. Financial Data Schedule
(b) None.
<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: August 14, 2000 By: /s/ T. Tim Unger
--------------- --------------------
T. Tim Unger
President and Chief Executive
Officer
Date: August 14, 2000 By: /s/ John M. Baer
--------------- --------------------
John M. Baer
Treasurer
