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 SEPTEMBER 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 September 30, 2000 was 6,562,380.
<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 6
Comprehensive Income (Loss)
Consolidated Condensed Statement of 7
Shareholders' Equity
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. 11
Item 3. Quantitative and Qualitative Disclosures 14
about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<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
<TABLE>
<CAPTION>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheet
(Unaudited)
September 30, December 31,
2000 1999
--------------------------------------
Assets
<S> <C> <C>
Cash and due from banks $ 2,068,942 $ 2,576,080
Interest-bearing demand deposits in other banks 3,635,807 8,242,552
--------------------------------------
Cash and cash equivalents 5,704,749 10,818,632
Interest-bearing deposits 1,386,972
Investment securities
Available for sale 142,713,108 145,875,328
Held to maturity 500,000 500,000
--------------------------------------
Total investment securities 143,213,108 146,375,328
Loans 321,706,562 234,760,885
Allowance for loan losses 2,331,037 1,760,706
--------------------------------------
Net Loans 319,375,525 233,000,179
Premises and equipment 5,745,225 3,672,650
Investments in limited partnerships 1,755,770 2,063,661
Federal Home Loan Bank stock 6,673,400 5,446,700
Interest receivable 2,899,757 2,246,870
Core deposit intangibles and goodwill 2,003,770
Other assets 9,802,015 7,204,023
--------------------------------------
Total assets $ 498,560,291 $ 410,828,043
======================================
Liabilities
Deposits
Noninterest-bearing $ 3,053,216 $ 3,395,618
Interest-bearing 248,095,391 201,586,609
--------------------------------------
Total deposits 251,148,607 204,982,227
Securities sold under repurchase agreements 4,600,000 4,600,000
Federal Home Loan Bank advances 138,164,121 103,937,608
Note payable 1,225,501 1,714,001
Interest payable 1,419,000 1,096,519
Other liabilities 5,292,090 2,754,552
--------------------------------------
Total liabilities 401,849,319 319,084,907
--------------------------------------
Commitments and Contingent Liabilities
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 - 6,562,380 shares
and 6,308,325 shares 64,348,069 61,853,916
Retained earnings 44,692,503 43,575,208
Accumulated other comprehensive loss (4,163,524) (5,065,649)
Unearned recognition and retention plan ("RRP") shares (3,247,493) (3,407,119)
Unearned employee stock ownership plan ("ESOP") shares (4,918,583) (5,213,220)
--------------------------------------
Total shareholders' equity 96,710,972 91,743,136
--------------------------------------
Total liabilities and shareholders' equity $ 498,560,291 $ 410,828,043
======================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------
Interest Income
<S> <C> <C> <C> <C>
Loans, including fees $ 5,164,054 $ 4,294,314 $ 14,688,338 $ 12,412,863
Investment securities 2,528,469 2,627,842 7,593,330 7,580,413
Deposits with financial institutions 50,594 40,403 267,895 207,158
Dividend income 121,903 109,830 338,586 325,907
-----------------------------------------------------------
Total interest and dividend income 7,865,020 7,072,389 22,888,149 20,526,341
-----------------------------------------------------------
Interest Expense
Deposits 2,794,393 2,353,282 7,907,055 7,170,558
Short term borrowings 74,507 59,835 210,266 130,077
Federal Home Loan Bank advances 1,770,122 1,157,295 4,759,312 2,885,832
-----------------------------------------------------------
Total interest expense 4,639,022 3,570,412 12,876,633 10,186,467
-----------------------------------------------------------
Net Interest Income 3,225,998 3,501,977 10,011,516 10,339,874
Provision for loan losses 119,316 58,851 168,467 290,015
-----------------------------------------------------------
Net Interest Income After Provision for Loan Losses 3,106,682 3,443,126 9,843,049 10,049,859
-----------------------------------------------------------
Other Income
Net realized and unrealized gains (losses) on loans 1,488 (9,705) 1,488 2,910
Net realized losses on sales of available-for-sale securities (3,904)
Equity in losses of limited partnerships (102,630) (71,541) (307,890) (240,894)
Other income 279,873 244,583 765,616 687,710
-----------------------------------------------------------
Total other income 178,731 163,337 459,214 445,822
-----------------------------------------------------------
Other Expenses
Salaries and employee benefits 1,398,689 1,099,021 3,769,056 2,774,124
Net occupancy expenses 114,996 96,504 313,445 251,923
Equipment expenses 133,950 88,008 405,569 354,533
Deposit insurance expense 11,994 33,983 35,572 116,289
Data processing fees 207,696 117,169 614,444 472,740
Professional fees 64,333 52,010 243,773 141,172
Director and committee fees 50,357 75,516 148,640 149,613
Mortgage servicing rights amortization 36,729 44,116 118,647 76,406
Other expenses 357,916 308,175 1,038,432 902,111
------------- --------------- -------------- --------------
Total other expenses 2,376,660 1,914,502 6,687,578 5,238,911
-----------------------------------------------------------
Income Before Income Tax 908,753 1,691,961 3,614,685 5,256,770
Income tax expense 254,605 546,740 962,017 1,854,929
-----------------------------------------------------------
Net Income $ 654,148 $ 1,145,221 $ 2,652,668 $ 3,401,841
===========================================================
Basic earnings per share $ .13 $ .19 $ .52 $ .54
===========================================================
Diluted earnings per share .13 .19 .52 .54
===========================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 654,148 $1,145,221 $2,652,668 $ 3,401,841
Other comprehensive income, net of tax
Unrealized losses on securities available for
sale
Unrealized holding gains (losses) arising
during the period, net of tax expense
(benefit) of $1,093,472, $(710,227),
$591,707 and $(3,637,143) 1,667,124 (1,082,822) 902,125 (4,545,243)
Less: Reclassification adjustment for losses
included in net income, net of tax benefit
of $1,546. (2,358)
-------------------------------------------------------------
1,667,124 (1,082,822) 902,125 (4,542,885)
-------------------------------------------------------------
Comprehensive income (loss) $2,321,272 $ 62,399 $3,554,793 $(2,141,044)
=============================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
(Unaudited)
Common Stock Accumulated
--------------------------- Other Unearned
Shares Retained Comprehensive Unearned ESOP
Outstanding Amount Earnings Income (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 2,652,668 2,652,668
Unrealized losses on
securities, net of
reclassification 902,125 902,125
adjustment
Purchase of common stock (630,832) (6,308,320) (224,492) (6,532,812)
ESOP shares earned 43,274 294,637 337,911
Amortization of unearned
Compensation expense (26,554) 464,786 438,232
Shares issued in
acquisition, net of
costs 884,887 8,802,473 (305,160) 8,497,313
Cash dividends ($.24 per
share) (1,327,601) (1,327,601)
-------------------------------------------------------------------------------------------------------
Balances, September 30, 200 6,562,380 $ 64,348,069 $ 44,692,503 $(4,163,524) $ (3,247,493) $ (4,918,583) $ 96,710,972
======================================================================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
----------------------------------
2000 1999
----------------------------------
Operating Activities
<S> <C> <C>
Net income $ 2,652,668 $ 3,401,841
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Provision for loan losses 168,467 290,015
Gain on sale of foreclosed real estate (13,653) (9,449)
(Gain) loss on disposal of premises and equipment 5,867 4,219
Investment securities accretion, net (290,230) (288,495)
Investment securities losses 3,904
Equity in losses of limited partnerships 307,890 240,894
Amortization of net loan origination fees (223,064) (250,487)
Depreciation and amortization 335,740 301,637
ESOP shares earned 337,911 331,524
Amortization of unearned compensation expense 438,232 154,929
Net change in:
Interest receivable (176,965) (612,791)
Interest payable 87,284 (36,611)
Other adjustments 1,022,521 1,163,181
----------------------------------
Net cash provided by operating activities 4,652,668 4,694,311
----------------------------------
Investing Activities
Purchases of securities available for sale (3,619,149) (64,794,311)
Proceeds from sales of securities available for sale 10,259,375
Proceeds from maturities of securities available for sale 8,800,202 16,433,504
Proceeds from maturities of securities held to maturity 750,000
Net change in loans (29,396,899) (25,386,504)
Purchases of loans (1,116,350) (6,173,548)
Purchases of premises and equipment (1,323,536) (728,421)
Purchase of FHLB stock (500,200)
Net cash paid in acquisition (7,695,505)
Proceeds from sale of foreclosed real estate 191,434 54,907
Other investing activities (5,718)
----------------------------------
Net cash used by investing activities (34,665,721) (69,584,998)
----------------------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand,
money market and savings deposits 6,285,080 8,554,082
Certificates of deposit 6,574,961 (12,966,740)
Short-term borrowings 4,600,000
Proceeds from FHLB advances 123,000,000 71,000,000
Repayment of FHLB advances (103,000,000) (10,000,000)
Payment on note payable to limited partnership (488,500) (488,500)
Contribution of unearned compensation (3,725,828)
Purchase of common stock (6,532,812) (8,672,592)
Cash dividends (1,303,612) (841,110)
Additional conversion costs (7,320)
Net change in advances by borrowers for taxes and insurance 364,053 515,255
----------------------------------
Net cash provided by financing activities 24,899,170 47,967,247
----------------------------------
Net Change in Cash and Cash Equivalents (5,113,883) (16,923,440)
Cash and Cash Equivalents, Beginning of Period 10,818,632 22,907,357
----------------------------------
Cash and Cash Equivalents, End of Period $ 5,704,749 $ 5,983,917
==================================
Additional Cash Flows and Supplementary Information
Interest paid $ 12,789,349 $ 10,223,078
Income tax paid 1,036,500 971,250
Loan balances transferred to foreclosed real estate 318,486 164,039
</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 the 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 the 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 September 30, 2000,
and for the nine and three months ended September 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 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 ("ESOP") shares have been excluded from the
computation of average common shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $ 654,148 4,989,966 $ .13 $ 2,652,668 5,064,971 $ .52
===== =====
Effect of dilutive RRP awards
and stock options 702 234
---------------------- -------------------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $ 654,148 4,990,668 $ .13 $ 2,652,668 5,065,205 $ .52
=================================== ====================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $1,145,221 6,053,751 $ .19 $3,401,841 6,322,917 $ .54
===== =====
Effect of dilutive RRP awards
and stock options
---------------------- -------------------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $1,145,221 6,053,751 $ .19 $ 3,401,841 6,322,917 $ .54
=================================== ====================================
</TABLE>
Note 3: Business Combination
-----------------------------
On September 26, 2000, the Company acquired Citizens Bancorp ("Citizens"), the
holding company of Citizens Savings Bank of Frankfort ("Citizens Savings"), a
federally chartered savings bank. Citizens was merged into the Company and
Citizens Savings was merged into Lincoln Federal. Citizens Loan and Service
Corporation, an Indiana corporation and wholly owned subsidiary of Citizens
Savings ("CLSC") will continue as a subsidiary of Lincoln Federal.
On September 26, 2000, shareholders of Citizens received .9375 shares of the
Company's common stock and $9.375 in cash for each share of Citizens' common
stock. The Company issued 884,887 shares of its common stock at a cost of
$8,802,000, net of registration costs of $102,000, and assumed Citizens'
unearned Recognition and Retention Plan liability. The Company paid $8,854,000
in cash to Citizens' shareholders. The Company paid an additional $72,000 in
merger expenses and $99,000 for Citizens common stock purchased by the Company
during 2000 and cancelled as part of this transaction.
The combination was accounted for under the purchase method of accounting, and
accordingly, the net assets were recorded at their estimated fair values at date
of acquisition. Fair value adjustments on the assets and liabilities purchased
are being amortized over the estimated lives of the related assets and
liabilities. The excess of the purchase price over the estimated fair value of
the underlying net assets of $1,022,000 was allocated to goodwill and is being
amortized over 20 years using the straight-line method. Additionally, core
deposit intangibles of $982,000 were recognized and are being amortized over 10
years using the 125% declining balance method. Citizens Bancorp's results of
operations and financial position were included in the Company's consolidated
financial statements beginning September 27, 2000.
<PAGE>
The following pro forma information, including the effect of the purchase
accounting adjustments, depicts the results of operations as though the merger
had taken place at the beginning of each period.
Nine Months Ended
September 30,
2000 1999
---- ----
( in thousands)
Net Interest Income $ 11,928 $ 12,263
Net Income $ 1,584 $ 3,949
Net Income Per Share
.........Basic $ .27 $ .55
.........Diluted $ .27 $ .55
The pro forma results of operations do not purport to be indicative of the
results which would actually have been obtained had the merger occurred on the
date indicated or which may be obtained in the future.
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
all of the outstanding 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. The Company acquired all of the
outstanding common stock of Citizens in a transaction that closed on September
26, 2000. In the transaction, Citizens was merged with and into the Company, and
Citizens Savings was merged with and into Lincoln Federal. Following the merger,
CLSC became a subsidiary of Lincoln Federal.
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 eight
full-service offices located in Hendricks, Montgomery, Clinton, Johnson and
Morgan Counties, Indiana, with its main office located in Plainfield. Lincoln
Federal opened an office in Avon, Indiana in January, 1999, in Mooresville,
Indiana in April, 1999 and its newest office in Greenwood, Indiana in September,
2000. The merger of Citizens Savings into Lincoln Federal resulted in a second
branch location in Frankfort, Indiana. 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 two subsidiaries, 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") , and its
investment in CLSC, which develops land for residential housing. 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 $498.6 million at September 30, 2000, an increase from December
31, 1999 of $87.7 million of which Citizens added $66.6 million. Net loans were
$319.4 million, an increase of $86.4 million from December 31, 1999 of which
Citizens added $56.1 million. Loan growth was reflected in every major category
of loans. Loan growth was funded primarily by growth of deposits, cash flow from
investments and increases in borrowings from the Federal Home Loan Bank.
Deposits totaled $251.1 million at September 30, 2000, an increase of $46.2
million from December 31, 1999 of which Citizens added $33.3 million. The
majority of this growth was in public fund certificates of deposit which
increased $7.7 million. Federal Home Loan Bank advances and repurchase
agreements increased $34.2 million to $142.8 million of which Citizens added
$14.2 million.
Shareholders' equity increased $5.0 million from $91.7 million at December 31,
1999 to $96.7 million at September 30, 2000. Shareholders' equity increased $8.5
million due to the acquisition of Citizens. Shareholders' equity also increased
due to net income for the nine months ended September 30, 2000 of $2.7 million,
Employee Stock Ownership Plan ("ESOP") shares earned of $338,000, unearned
compensation amortization of $438,000 and a $902,000 reduction in unrealized
losses on investment securities available for sale. These increases were offset
by stock repurchases of $6.5 million and cash dividends of $1.3 million.
Comparison of Operating Results for the Three Months Ended September 30, 2000
and 1999
Net income for the three months ended September 30, 2000 was $654,000, or $.13
for both basic and diluted earnings per share. This compared to net income for
the comparable period in 1999 of $1,145,000, or $.19 for both basic and diluted
earnings per share. Return on assets was .61% and return on equity was 3.00% for
the third quarter of 2000 compared to 1.16% and 4.63%, respectively, for the
same period in 1999.
Net interest income for the second quarter of 2000 was $3.2 million compared to
$3.5 million for the same period in 1999. Net interest margin was 3.06% for the
three-month period ended September 30, 2000, compared to 3.55% for the same
period in 1999. The average yield on earning assets increased .28% from the
third quarter of 1999 to the third quarter of 2000 while the average cost of
interest-bearing liabilities increased .72% from the third quarter of 1999 to
the third quarter 2000. This reduced the spread from 2.31% to 1.87%, or 44 basis
points.
Lincoln Bancorp's provision for loan losses for the three-month period ended
September 30, 2000 was $119,000 compared to a provision expense of $59,000 for
the same period in 1999. Nonperforming loans to total loans at September 30,
2000 were .36% compared to .47% at December 31, 1999 while nonperforming assets
to total assets were .28%, unchanged from December 31, 1999. The allowance for
loan losses as a percentage of loans at September 30, 2000 was .72% compared to
.75% at December 31, 1999. The reduction in the allowance as a percentage of
total loans was the result of adding the Citizens loans that required an
allowance at a lower percentage rate than the Lincoln Bancorp loans.
Other income for the three months ended September 30, 2000 was $179,000 compared
to $163,000 for the same quarter of 1999. Equity in losses of limited
partnerships increased to $103,000 from $72,000 during the third quarter of 1999
due to the operating results of the limited partnerships.
Other expenses were $2.4 million for the three months ended September 30, 2000
compared to $1.9 million for the comparable three months of 1999. The increase
in expenses was primarily the result of additional costs associated with key
management and staff additions and costs associated with the opening of a new
branch office in Greenwood, Indiana.
Income taxes were 28% of pretax income for the third quarter of 2000 compared to
an income tax effect of 32% for the same period in 1999. This decline was the
result of 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.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
1999
Net income for the nine-month period ended September 30, 2000 was $2,653,000, or
$.52 for both basic and diluted earnings per share. This compared to $3,402,000,
or $.54 for both basic and diluted earnings per share for the same period of
1999. Return on assets was .84% and return on equity was 4.05% for the nine
months ended September 30, 2000 compared to 1.15% and 4.36%, respectively, for
the nine months ended September 30, 1999.
Net interest income year-to-date through September 30, 2000 was $10.0 million
compared to $10.3 million for the same period in 1999. Net interest margin was
3.22% through September 30, 2000 down from 3.61% from a year ago. Continued
pressure on net interest margin was partially the result of the purchase of
Lincoln Bancorp stock as part of the stock repurchase program, but more from
reduced spreads, down 27 basis points.
Lincoln Bancorp's provision for loan losses for the nine months ended September
30, 2000 was $168,000 compared to a provision expense of $290,000 for the same
period in 1999.
Other income for the nine months ended September 30, 2000 was $459,000 compared
to $446,000 for the same period last year. Equity in losses of limited
partnerships increased to $308,000 for the nine months ended September 30, 2000
from $241,000 during comparable period in 1999 due to the operating results of
the limited partnerships.
For the nine months ended September 30, 2000, other expenses were $6.7 million
compared to $5.2 million for the same period in 1999. Expenses were up for
similar reasons as for the third quarter mentioned above as well as the fact
that two new branches that opened in the first half of 1999 had only a partial
year of expenses in 1999 versus a full year in 2000. Additionally, the
Recognition and Retention Plan of the Company only came into existence during
the third quarter of 1999 while the Company recognized a full nine months of
expense during 2000, an increase of $292,000.
Income taxes were 27% of pretax income for the nine months ended September 30,
2000 and 35% during the same period in 1999. This decline was the result of 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 and recognized as a single adjustment 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 $3.3 million of loans classified as special mention as of
September 30, 2000 and no loans classified as special mention as of December 31,
1999. The increase in the loans classified as special mention was attributable
to four commercial loan relationships. In addition, Lincoln Federal had $1.3
million and $1.1 million of loans classified as substandard at September 30,
2000 and December 31, 1999, respectively. At September 30, 2000 and December 31,
1999, no loans were classified as doubtful or loss. At September 30, 2000, and
December 31, 1999, respectively, non-accrual loans were $1.2 million and $1.1
million. The allowance for loan losses was $2.3 million or .72% of loans at
September 30, 2000 and $1.8 million or .7% of loans at 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
September 30, 2000, Lincoln Federal had liquid assets of $290.9 million and a
liquidity ratio of 32.5%.
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 September, 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.
<TABLE>
<CAPTION>
September 30, 2000
------------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
-------- -------- --------- ------- --------- ------
<S><C> <C> <C> <C> <C> <C>
+300 bp $54,736 -36,528 -40% 12.10% -628 bp
+200 bp 66,642 -24,622 -27% 14.28% -410 bp
+100 bp 78,857 -12,407 -14% 16.38% -200 bp
0 bp 91,264 18.38%
-100 bp 100,283 9,019 10% 19.72% +134 bp
-200 bp 105,219 13,955 15% 20.38% +200 bp
-300 bp 108,057 16,793 18% 20.69% +231 bp
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 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> <C>
+300 bp $46,296 $-31,634 -41% 12.61 -655 bp
+200 bp 56,837 -21,094 -27% 14.95 -421 bp
+100 bp 67,707 -10,224 -13% 17.19 -195 bp
0 bp 77,930 19.16
-100 bp 85,837 7,906 10% 20.55 +140 bp
-200 bp 89,753 11,823 15% 21.14 +198 bp
-300 bp 91,601 13,671 18% 21.32 +216 bp
</TABLE>
The analysis at September 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.
<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 a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule
(b) The Registrant filed a report on Form 8-K on September 27,
2000 reporting the consummation of the merger of Citizens
Bancorp with and into the Registrant on September 26, 2000,
and which included as Exhibit 99.2 thereto Unaudited Pro
Forma Condensed Combined Financial Information of the
Registrant as of June 30, 2000 for the six-month period
ended June 30, 2000 and for the year ended December 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: November 14, 2000 By:/s/ T. Tim Unger
----------------- ---------------------------------------
T. Tim Unger
President and Chief Executive Officer
Date: November 14, 2000 By:/s/ John M. Baer
----------------- ---------------------------------------
John M. Baer
Treasurer
