Lincoln Bancorp /IN/ - Annual Report (10-K)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		for the Fiscal Year Ended December 31, 2007

		or

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

000-25219

Commission File Number

LINCOLN BANCORP
(Exact name of registrant as specified in its charter )

Indiana		35-2055553
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

905 Southfield Drive, Plainfield, Indiana		46168
(Address of principal executive offices)		(Zip Code)

(317) 839-6539

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common Stock	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
	Large Accelerated Filer o	Accelerated Filer ý
	Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).			Yes o No ý

The number of shares of the Registrant’s Common Stock, without par value, outstanding as of February 25, 2008, was 5,312,981 shares.

Documents Incorporated by Reference

Portions of the Annual Report to Shareholders for the year ended December 31, 2007, are incorporated into Part II. Portions of the Proxy Statement for the 2008 Annual Meeting of Shareholders are incorporated into Part I and Part III.

The aggregate market value of the Registrant’s voting stock held by non-affiliates, as of June 30, 2007, was $81,007,687.

LINCOLN BANCORP

FORM 10-K

INDEX

FORWARD-LOOKING STATEMENTS	4

PART I	4
Item 1. Business	4
Item 1A. Risk Factors.	29
Item 1B. Unresolved Staff Comments.	30
Item 2. Properties.	31
Item 3. Legal Proceedings.	32
Item 4. Submission of Matters to a Vote of Security Holders.	32
Item 4.5. Executive Officers of the Registrant.	32

PART II	33
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	33
Item 6. Selected Financial Data.	33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.	33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.	33
Item 8. Financial Statements and Supplementary Data.	34
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	34
Item 9A. Controls and Procedures.	34
Item 9B. Other Information.	36

PART III	36
Item 10. Directors, Executive Officers and Corporate Governance.	36
Item 11. Executive Compensation.	36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	36
Item 13. Certain Relationships and Related Transactions, and Director Independence.	37
Item 14. Principal Accountant Fees and Services.	37

PART IV	38
Item 15. Exhibits and Financial Statement Schedules.	38

FORWARD -LOOKING STATEMENTS

This Annual Report on Form 10-K (“Form 10-K”) 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-K and include statements regarding the intent, belief, outlook, estimate or expectations of the Holding Company (as defined below), or its directors or officers primarily with respect to future events and the future financial performance of the Holding Company. Readers of this Form 10-K 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-K identifies important factors that could cause such differences. These factors include changes in interest rates; larger than expected loan losses; loss of deposits and loan demand to other savings and financial institutions; substantial changes in financial markets; changes in real estate values and the real estate market; regulatory changes; or unanticipated results in pending legal proceedings.

PART I

IT EM 1. BUSINESS

BUSINESS

GENERAL

Lincoln Bancorp (the “ Holding Company”) is an Indiana corporation that owns all of the issued and outstanding capital stock of Lincoln Bank (“Lincoln Bank” or the “Bank” and together with the Holding Company, the “Company”). Effective November 1, 2006, the Bank converted from a federal savings bank charter to the charter of an Indiana commercial bank and the Holding Company became a bank holding company under the Bank Holding Company Act of 1956, as amended.

The Holding Company was organized in September 1998 to become a savings and loan holding company upon its acquisition of all the issued and outstanding capital stock of Lincoln Federal Savings Bank, which was renamed Lincoln Bank on September 1, 2003, in connection with the Bank’s conversion from mutual to stock form. The Holding Company became the Bank’s holding company on December 30, 1998. Lincoln Bank was originally organized in 1884 as Ladoga Federal Savings and Loan Association (“Ladoga Federal”), 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, changed its name to Lincoln Federal Savings Bank. 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 the Bank. Citizens Loan and Service Corporation (“CLSC”), an Indiana corporation and wholly-owned subsidiary of Citizens Savings, continues as a subsidiary of the Bank. On August 2, 2004, the Holding Company completed the acquisition of First Shares Bancorp, Inc. (“First Shares”) and its wholly-owned subsidiary First Bank, an Indiana commercial bank (“First Bank”). First Shares was merged into the Holding Company and First Bank was merged into Lincoln Bank.

All of the Holding Company’s revenues are derived from customers located in, and all of its assets are located in, the United States. At December 31, 2007, Lincoln Bank conducted its business from 17 full service offices located in Hendricks, Montgomery, Clinton, Johnson, Brown and Morgan Counties, Indiana, one loan production office in Hamilton County, Indiana and one loan production office in Johnson County, Indiana, with its main office located in Plainfield in Hendricks County.

Lincoln Bank provides full banking services in a single significant business segment. The Bank’s principal business consists of attracting deposits from the general public and originating various types of consumer and commercial loans in the communities that we serve. Lincoln Bank’s deposit accounts are insured up to applicable limits required by the Deposit Insurance Fund of the FDIC. Lincoln Bank 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, recreational vehicles and automobile

loans; (vii) commercial loans; (viii) money market demand accounts (“MMDAs”); (ix) savings accounts; (x) checking accounts; (xi) NOW accounts; (xii) certificates of deposit; and (xiii) financial planning.

LENDING ACTIVITIES

During the first quarter of 2007 the Company initiated a restructuring of its balance sheet that included the sale of certain securities as well as a portion of the Bank’s fixed rate mortgage loan portfolio. The restructuring was completed during the second quarter.

The sale of mortgage loans continued the process of transforming the balance sheet from a traditional thrift asset and liability mix to a commercial bank structure. In addition, the reinvestment into securities allowed the Bank to structure expected cash flows that will support its planned increase in commercial and commercial real estate lending. Both the mortgages and the securities sold were generally those of lower yield in our portfolio of assets. The Company expects to realize immediate benefit in current earnings as a result of reinvesting in the new securities and additional benefit as cash flows from the new securities are received over the next several years, providing funding for our expected commercial growth. Lastly, the sale of mortgages and the reinvestment into securities should have a risk based capital benefit, helping offset some of the capital pressures caused by our current commercial growth.

The loan portion of the restructuring included the securitization and sale of approximately $44.2 million of residential mortgage loans with an average yield of approximately 5.01%. The loans were transferred from our held for investment portion of our loan portfolio to held for sale at the lower of cost or market. We recognized a pretax loss of $1,327,000 in the quarter ending March 31, 2007 when we marked the loans to market value. An additional market value loss of $753,000 was recognized in the quarter ending June 30, 2007. Ultimately, held for sale loans totaling $3.58 million were transferred back into loans held for investment at their fair market value of $3.46 million. The securitized loans had an original maturity of 10 and 15 years and were seasoned an average of nearly 3 years. Total proceeds from the sale of the securitized loans were approximately $37.3 million. Of these proceeds, approximately $33.8 million was reinvested into available-for-sale securities with a weighted average yield of approximately 5.60%. The remainder of the proceeds were used to fund commercial loan growth. A gain on sale totaling $303,000, net of costs, was recognized when the securitized loans were sold.

Including the restructuring, gross loans grew $21.0 million. Of this growth $13.8 million is yet to be disbursed We experienced solid growth in our construction, commercial real estate and multi-family classes of loans of $28.1 million, $42.0 million and $2.0 million or 46.7%, 23.0% and 30.5% respectively. This was a continuing direct result of our 2006 effort noted last year where we reshaped our commercial lending group, adjusting staffing where necessary and adding several experienced lenders from outside the organization. Competition for the level of creditworthy borrowers that we target remains high in the markets that we serve. Our growth has been, and will continue to be, constrained by our underwriting standards. The restructuring allowed us to increase the percentage mix of commercial and consumer loans retained in our loan portfolio while decreasing the percentage of one- to four-family real estate mortgage loans.

The Bank continues to sell substantially all of the one- to four-family mortgages it originates.

During 2007 the Bank maintained its consumer loan portfolio, generally replacing runoff including certain high quality consumer loans collateralized by recreational vehicles and boats. The majority of these loans were originated through our indirect loan channel and our recreational and boat dealer network. These loans are subjected to in-house underwriting standards that include high minimum credit ratings, strict debt to income ratios and specific emphasis on job and residence stability.

One- to four-family loans represented 22.5% of the total loan portfolio as of December 31, 2007. Other consumer loans were 21.0% of total loans at December 31, 2007. Commercial real estate loans and construction loans increased from $182.9 million and $47.7 million at December 31, 2006 to $225.0 million and $69.9 million at December 31, 2007 as efforts to expand our growth in this area were successful. Commercial loans increased from $47.7 million to $50.6 million. Competition remains high in our market for the best credits and our potential growth remains constrained by our underwriting standards. Our intent is to expand both the commercial real estate and commercial portfolios in 2008 through increased emphasis and increases in sales staff. Our intent is to hold our consumer portfolio constant and to allow our one- to four-family portfolio to decline as the majority of our production will be sold into the secondary market.

Loan Portfolio Data . The following table sets forth the composition of Lincoln Bank’s loan portfolio (including loans held for sale) by loan type and security type as of the dates indicated, including a reconciliation of gross loans receivable after consideration of the allowance for loan losses, deferred loan fees and loans in process. Reclassifications of certain amounts in the table presented have been made to conform to the 2007 presentation.

	At December 31,
	2007						2006						2005						2004						2003
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total

TYPE OF LOAN
Real estate mortgage loans:
One-to-four-family residential	$	147,941			22.47	%	$	198,990			31.22	%	$	191,540			31.66	%	$	187,040			32.04	%	$	215,754			47.27	%
Multi-family		8,742			1.33			6,697			1.05			5,220			0.86			5,797			0.99			5,301			1.16
Commercial real estate		224,972			34.17			182,931			28.70			166,348			27.50			164,975			28.26			96,079			21.05
Construction		69,947			10.63			47,691			7.48			35,507			5.87			42,592			7.30			50,580			11.08
Land		17,717			2.69			13,553			2.13			13,017			2.15			14,547			2.49			6,518			1.43
Commercial		50,615			7.69			47,655			7.48			52,566			8.69			60,630			10.39			37,081			8.12
Consumer loans:
Home equity and second mortgages		58,619			8.90			54,905			8.61			58,273			9.63			59,835			10.25			38,747			8.49
Other		79,794			12.12			84,967			13.33			82,472			13.64			48,367			8.28			6,374			1.40
Gross loans receivable	$	658,347			100.00	%	$	637,389			100.00	%	$	604,943			100.00	%	$	583,783			100.00	%	$	456,434			100.00	%

TYPE OF SECURITY
One-to-four-family residential real estate	$	218,632			33.21	%	$	266,036			41.74	%	$	264,987			43.81	%	$	274,647			47.05	%	$	284,194			62.26	%
Multi-family real estate		8,741			1.33			6,697			1.05			5,220			0.86			5,797			0.99			5,301			1.16
Commercial real estate		282,848			42.97			218,480			34.27			186,680			30.86			179,794			30.80			116,967			25.63
Land		17,717			2.69			13,553			2.13			13,017			2.15			14,547			2.49			6,518			1.43
Deposits		--			--			--			--			929			0.15			1,044			0.18			499			0.11
Auto		15,421			2.34			20,644			3.24			21,850			3.61			15,313			2.62			4,666			1.02
Other security		107,721			16.36			110,608			17.35			111,142			18.38			91,467			15.67			37,987			8.32
Unsecured		7,267			1.10			1,371			.22			1,118			0.18			1,174			0.20			302			0.07
Gross loans receivable	$	658,347			100.00		$	637,389			100.00		$	604,943			100.00	%	$	583,783			100.00	%	$	456,434			100.00	%
Deduct:
Allowance for loan losses		6,582			1.00	%		6,129			0.96	%		5,843			0.97			5,701			0.98			3,532			0.77
Deferred loan costs		(2,967	)		(0.45	)		(3,111	)		(0.49	)		(2,865	)		(0.47	)		(1,543	)		(0.26	)		(213	)		(0.05	)
Loans in process (undisbursed)		18,898			2.87			5,088			.80			7,419			1.23			12,442			2.13			15,088			3.31
Net loans receivable	$	635,834			96.58	%	$	629,283			98.73	%	$	594,546			98.27	%	$	567,183			97.15	%	$	438,027			95.97	%
Mortgage Loans:
Adjustable-rate	$	333,629			63.19	%	$	268,141			53.12	%	$	255,017			54.27	%	$	270,271			56.80	%	$	132,024			31.93	%
Fixed-rate		194,308			36.81			236,625			46.88			214,887			45.73			205,558			43.20			281,455			68.07
Total	$	527,937			100.00	%	$	504,766			100.00	%	$	469,904			100.00	%	$	475,829			100.00	%	$	413,479			100.00	%

The following table sets forth certain information at December 31, 2007, regarding the dollar amount of loans maturing in Lincoln Bank’s loan portfolio based on the contractual terms to maturity. Demand loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less. This schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses. Management expects prepayments will cause actual maturities to be shorter.

			Due During Years Ended December 31,
	Balance Outstanding at December 31, 2007		2008		2009		2010		2011 to 2012		2013 to 2017		2018 to 2022		2023 and following
	(In thousands)
Real estate mortgage loans:
One-to-four-family residential loans	$	147,941	$	200	$	182	$	203	$	991	$	6,285	$	15,494	$	124,586
Multi-family loans		8,742		2,636		818		6		1,614		2,421		1,246		--
Commercial real estate loans		224,972		52,313		30,297		10,506		26,413		43,371		21,711		40,361
Construction loans		69,947		50,025		3,690		7,035		1,439		3,767		135		3,857
Land loan		17,717		5,857		2,774		8,354		50		528		154		--
Commercial loans		50,615		16,605		4,371		3,811		17,754		5,151		2,723		200
Consumer loans:
Installment loans		79,794		6,127		2,062		4,430		12,579		18,522		32,486		3,587
Loans secured by deposits		--
Home equity loans and second mortgages		58,619		589		568		527		6,205		42,691		7,766		273
Total consumer loans		138,413		6,716		2,630		4,957		18,784		61,213		40,252		3,860
Total	$	658,347	$	134,352	$	44,762	$	34,872	$	67,045	$	122,736	$	81,715	$	172,864

The following table sets forth, as of December 31, 2007, the dollar amount of all loans due after one year that have fixed interest rates and floating or adjustable interest rates.

	Due After December 31, 2008
	Fixed Rates		Variable Rates		Total
	(In thousands)
Real estate mortgage loans:
One-to-four-family residential loans	$	86,029	$	61,713	$	147,742
Multi-family loans		3,997		2,108		6,105
Commercial real estate loans		56,703		115,956		172,659
Construction loans		6,285		13,638		19,923
Land loan		5,871		5,989		11,860
Commercial loans		17,036		16,974		34,010
Consumer loans:
Installment loans		72,497		1,169		73,666
Loans secured by deposits		--		--		--
Home equity loans and second mortgages		21,165		36,865		58,030
Total consumer loans	$	93,662	$	38,034	$	131,696
Total	$	269,582	$	254,412	$	523,994

One- to Four-Family Residential Loans . Lincoln Bank’s lending activities include the origination of one- to four-family residential mortgage loans secured by property located in its primary market area. Lincoln Bank generally does not originate one- to four-family residential mortgage loans if the ratio of the loan amount to the lesser of the current cost or appraised value of the property (the “Loan-to-Value Ratio”) exceeds 95%. Lincoln Bank generally requires private mortgage insurance on loans with a Loan-to-Value Ratio in excess of 80%. The cost of such insurance is factored into the annual percentage rate on such loans.

Lincoln Bank’s underwriting criteria for one- to four-family residential loans include the value of the underlying collateral, income, debt-to-income ratio, stability of earnings and past credit history of a potential borrower. These underwriting criteria are based upon FNMA/FHLMC lending guidelines. The Bank offers fixed-rate loans which provide for the payment of principal and interest over a period of up to 40 years.

Lincoln Bank also offers adjustable-rate mortgage (“ARM”) loans pegged to the one-, three-, five- and seven-year U.S. Treasury/LIBOR securities yield adjusted to a constant maturity. Lincoln Bank may offer discounted initial interest rates on ARM loans, but requires that the borrower qualify for the loan at the fully-indexed rate (the index rate plus the margin). A substantial portion of the ARM loans in the Bank’s portfolio at December 31, 2007 provide for maximum rate adjustments per year and over the life of the loan of 2% and 6%, respectively. Lincoln Bank’s residential ARM loans are generally amortized over terms up to 30 years.

Lincoln Bank has previously originated certain fixed-rate one- to four-family residential loans with the intent of pooling these loans into FHLMC mortgage-backed securities. Lincoln Bank did not securitize any residential loans during 2006, but did securitize loans during 2007 in conjunction with the restructuring discussed previously. At December 31, 2007, Lincoln Bank continued to hold in its investment portfolio approximately $0.5 million (amortized cost) of these securities that are backed by fixed-rate mortgage loans that it originated.

Lincoln Bank determines when it originates a one- to four-family residential loan whether it intends to hold the loan until maturity or sell it in the secondary market. Depending on the asset liability position of the Bank, its current loan demand and management’s assessment of interest rate trends the Bank determines whether to sell any or all of the loans that it originates that are written to FNMA/FHLMC standards. Management monitors closely the amount of longer term fixed rate loans included in the portfolio and adjusts its hold policy as conditions warrant. Lincoln Bank retained the servicing rights on nearly all the loans that it sold prior to the acquisition of First Bank in August 2004. Currently, the majority of loans sold are sold with servicing released. Customers are given an option to have local servicing, but at a slightly higher note rate.

ARM loans decrease the risk associated with changes in interest rates by periodically repricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower can also increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime interest rate adjustment permitted by the loan documents, and, therefore, is potentially limited in effectiveness during periods of rapidly rising interest rates. At December 31, 2007, approximately 41.8% of Lincoln Bank’s one- to four-family residential loans had adjustable rates of interest.

All of the one- to four-family residential mortgage loans that Lincoln Bank originates include “due-on-sale” clauses, which give Lincoln Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. However, Lincoln Bank occasionally permits assumptions of existing residential mortgage loans on a case-by-case basis.

At December 31, 2007, approximately $147.9 million, or 22.5% of Lincoln Bank’s portfolio of loans, consisted of one- to four-family residential loans. Approximately $479.0, or 0.32% of total residential loans, were included in non-performing assets as of that date.

Commercial Real Estate and Multi-Family Loans . Lincoln Bank’s commercial real estate loans are secured by churches, warehouses, office buildings, hotels, retail centers and other commercial properties. Lincoln Bank generally issues commercial real estate loans as either five-year balloon loans amortized over a 15- or 20-year period, with a fixed interest rate, or as three- or five-year variable rate loans with a final maturity of fifteen to twenty years. At December 31, 2007, Lincoln Bank had $233.7 million in outstanding commercial and multi-family real estate. Lincoln Bank generally requires a Loan-to-Value Ratio of at least 80% on commercial real estate loans, although it may make loans with a higher Loan-to-Value Ratio on loans secured by retail centers, owner-occupied commercial real estate or by multi-family residential properties. Commercial real estate loans generally are larger than one- to four-family residential loans and involve a greater degree of risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on results of operations and management of the properties and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of the loans makes them more difficult for management to monitor and evaluate. In addition, balloon loans may involve a greater degree of risk to the extent the borrower is unable to obtain financing or cannot repay the loan when the loan matures and the balloon payment is due.

At December 31, 2007, Lincoln Bank’s largest commercial real estate borrower had a single loan outstanding in the amount of $10.6 million which was secured by a hotel property in Lafayette, Indiana. At December 31, 2007, approximately $225.0 million, or 34.2% of Lincoln Bank’s total loan portfolio, consisted of commercial real estate loans. On the same date, there were $1.2 million in commercial real estate loans included in non-performing assets.

At December 31, 2007, approximately $8.7 million, or 1.3% of Lincoln Bank’s total loan portfolio, consisted of multi-family loans (those consisting of more than four units). Lincoln Bank writes multi-family loans on terms and conditions similar to its commercial real estate loans. The largest multi-family loan as of December 31, 2007, was $2.4 million and

was secured by an apartment complex in Greenwood, Indiana. On the same date, there were $1.9 million multi-family loans included in non-performing assets.

Multi-family loans, like commercial real estate loans, generally involve greater risk than do one- to four-family residential loans.

Construction Loans . Lincoln Bank offers construction loans to developers for the acquisition and development of residential and nonresidential real estate and to builders of one- to four-family residential properties. A significant portion of these loans are made on a speculative basis ( i.e ., before the builder/developer obtains a commitment from a buyer). At December 31, 2007, approximately $69.9 million, or 10.6% of Lincoln Bank’s total loan portfolio, consisted of construction loans. Of these loans, approximately $12.5 million were for the acquisition and development of residential housing developments, $12.1 million financed the construction of one- to four-family residential properties and $45.3 million financed the construction of commercial real estate. As of December 31, 2007, Lincoln Bank’s largest construction loan relationship had a balance of $7.5 million and was secured by a hotel in Fishers, Indiana. Also on that date, $1.1 million construction loans were included in non-performing assets.

Construction loans on residential properties where the borrower has entered into a verifiable sales contract to a non-related party to purchase the completed home may be made with a maximum Loan-to-Value Ratio of 90% of the price stipulated in the sales contract or 80% of the appraised value of the property. With respect to residential properties constructed on a speculative basis, Lincoln Bank generally requires a Loan-to-Value Ratio of 75% of the “as completed” appraised value of the property. Although speculative loans make up a significant percentage of Lincoln Bank’s construction loan portfolio, Lincoln Bank generally will finance only two speculative construction projects per builder. Residential construction loans are generally written with a fixed rate of interest and for an initial term of nine months. Lincoln Bank generally offers construction loans on commercial land development projects with a maximum Loan-to-Value Ratio of 75% of the appraised value of the property or 80% of the property’s cost plus 80% of the cost of verifiable improvements to the property. The term of construction loans on commercial real estate properties generally do not exceed 12 months.

Construction loans provide a comparable, and in some cases higher, yield than a conventional mortgage loan, however, they also involve a higher degree of risk. For example, if a project is not completed and the borrower defaults, Lincoln Bank may have to hire another contractor to complete the project at a higher cost. Also, a project may be completed, however, it may not be salable, which might cause the borrower to default on the loan and require Lincoln Bank to take title to the project.

Land Loans . At December 31, 2007, approximately $17.7 million, or 2.7% of Lincoln Bank’s total loan portfolio, consisted of mortgage loans secured by undeveloped real estate. For commercial developer loans, Lincoln Bank will loan 65% Loan-to-Value on raw land purchases where there are no immediate plans for development. We will loan 75% on development loans where the land will be immediately used for commercial or residential development. Lincoln Bank writes these loans for a maximum term of 12 months. For the consumer residential lot loan program, loans for single family residential platted subdivision lots may be made up to 100% loan to value to the lesser of purchase price or appraisal amount. Lincoln Bank writes these loans for a maximum term of three years with a balloon payment and a fifteen year amortization. At December 31, 2007, the Bank’s largest land loan relationship totaled $5.3 million and was secured by land in Noblesville, Indiana There were $2.5 million of land loans included in non-performing assets at December 31, 2007.

Land loans present greater risk than conventional loans since land development borrowers who are over budget may divert the loan funds to cover cost-overruns rather than direct them toward the purpose for which such loans were made. In addition, land loans are more difficult to monitor than conventional mortgage loans. As such, a defaulting borrower could cause Lincoln Bank to take title to partially improved land that is unmarketable without further capital investment.

Consumer Loans . Lincoln Bank’s consumer loans consist of variable- and fixed-rate home equity loans; lines of credit; automobile, recreational vehicle, boat and motorcycle loans; and loans secured by deposits. Consumer loans remained virtually unchanged between 2007 and 2006. Home equity loans increased nearly 7% and other consumer loans decreased by 6.1%. As noted above Lincoln substantially increased its indirect loan portfolio during 2005. The majority of the growth was in loans secured by recreational vehicles and boats. Given the nature of this collateral some of the loans were for terms up to 15 years. At December 31, 2007, Lincoln Bank’s consumer loans including indirect loans aggregated

approximately $138.4 million, or 21.0% of Lincoln Bank’s total loan portfolio. Included in consumer loans at December 31, 2007 were $36.9 million of variable-rate home equity lines of credit.

Lincoln Bank’s home equity lines of credit and fixed-term loans may be written for up to 100% of the appraised value of the property (less any first mortgage amount). Lincoln Bank’s home equity and second mortgage loans were $58.6 million, or 8.9% of total loans at December 31, 2007. Lincoln Bank generally will write automobile loans for up to the lesser of 100% of the Manufacturers Suggested Retail Price less any rebates plus sales tax or up to 125% of Dealer Invoice. New car loans are written for terms of up to 72 months and used car loans are written for terms up to 72 months, depending on the age of the car and up to 125% of the National Automobile Dealers Association guide (“NADA”) trade in value, not to exceed NADA retail value.

Loans for new recreational vehicles and boats are written for no more than 125% of the Dealer Invoice, for a maximum term of 180 months. New motorcycle loans are written for no more than 100% of the list price with a term not to exceed 72 months. All of Lincoln Bank’s consumer loans have a fixed rate of interest except for home equity lines of credit, which are offered at a variable rate. At December 31, 2007, consumer loans in the amount of $0.5 million, .39% of total consumer loans, were included in non-performing assets.

Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. Further, any repossessed collateral under a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Commercial Loans . Lincoln Bank offers commercial loans, which consist primarily of loans to businesses that are secured by assets other than real estate. As of December 31, 2007, commercial loans amounted to $50.6 million or 7.7% of Lincoln Bank’s total loan portfolio. Commercial loans generally bear greater risk than real estate loans, depending on the ability of the underlying enterprise to repay the loan. Although commercial loans have not historically comprised a large portion of Lincoln Bank’s loan portfolio, Lincoln Bank has increased the amount of loans it has made to small businesses in order to increase its rate of return and diversify its portfolio. As of December 31, 2007, $132,000 of Lincoln Bank’s commercial loans were included in non-performing assets.

Origination, Purchase and Sale of Loans . Historically, Lincoln Bank has confined its loan origination activities primarily to Hendricks, Hamilton, Montgomery, Clinton, Johnson, Brown, Marion and Morgan Counties. Lincoln Bank may from time to time make mortgage loans secured by property located outside of Indiana. Lincoln Bank’s loan originations are generated from referrals from existing customers, real estate brokers, newspaper and periodical advertising.

Lincoln Bank’s loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the property that will secure the loan. To assess the borrower’s ability to repay, the Bank evaluates the employment and credit history and information on the historical and projected income and expenses of its borrowers.

Lincoln Bank generally requires appraisals on all real property securing its first-mortgage loans and requires title insurance and a valid lien on the mortgaged real estate. Appraisals for all real property securing first-mortgage loans are performed by independent appraisers who are state-licensed. Lincoln Bank requires fire and extended coverage insurance in amounts at least equal to the principal amount of the loan and also requires flood insurance to protect the property, which secures its interest, if the property is in a flood plain. Lincoln Bank also generally requires private mortgage insurance for all residential mortgage loans with Loan-to-Value Ratios of greater than 80%. Lincoln Bank generally requires escrow accounts for insurance premiums and taxes for residential mortgage loans with Loan-to-Value Ratios of greater than 80%.

Lincoln Bank’s underwriting standards for consumer loans are intended to protect against some of the risks inherent in making consumer loans. Borrower character, paying habits, length of employment and financial strengths are important considerations.

Lincoln Bank occasionally purchases participation interests in loans originated by other financial institutions in order to diversify its portfolio, supplement local loan demand and to obtain more favorable yields. The participations that Lincoln

Bank purchases normally represent a portion of residential or commercial real estate loans originated by other Indiana financial institutions, most of which are secured by property located in Indiana. As of December 31, 2007, Lincoln Bank had $20.3 million of commercial loan participations in its asset portfolio.

The Bank occasionally sells participation interests in loans it originates in order to limit the risk on a specific credit or industry type or to remain within its legal lending limit to a single borrower. As of December 31, 2007, Lincoln Bank had $10.8 million of commercial loan participations sold.

The following table shows loan origination and repayment activity for Lincoln Bank during the periods indicated:

	Year Ended December 31
	2007			2006			2005
	(In thousands)

Gross loans receivable at beginning of period	$	637,388		$	604,943		$	583,783
Loans Originated:
Real estate mortgage loans:
One-to-four-family loans (1)		88,128			83,612			83,401
Multi-family loans		3,139			1,934			--
Commercial real estate loans		148,213			107,541			69,650
Construction loans		48,800			33,518			33,668
Land loan		9,991			7,269			13,731
Commercial loans		72,245			77,002			67,399
Consumer loans		16,271			28,101			52,298
Total originations		386,787			338,977			320,147
Purchases (sales) of participation loans, net		(53,684	)		(36,460	)		(61,779	)
Reductions:
Repayments and other deductions		311,463			268,952			236,425
Transfers from loans to real estate owned		681			1,120			783
Total reductions		312,144			270,072			237,208
Total gross loans receivable at end of period	$	658,347		$	637,388		$	604,943

(1) Includes certain home equity loans.

Lincoln Bank’s total loan originations during the year ended December 31, 2007 totaled $386.8 million, compared to $339.0 million during the year ended December 31, 2006, and $320.1 million during the year ended December 31, 2005.

Origination and Other Fees . Lincoln Bank realizes income from late charges, checking account service charges, loan servicing fees and fees for other miscellaneous services. Late charges are generally assessed if a loan payment is not received within a specified number of days after it is due. The grace period depends on the individual loan documents. The Bank also receives a loan servicing fee of ¼% on fixed-rate loans and 3/8% on ARM loans that it services for others.

NON-PERFORMING AND PROBLEM ASSETS

After a mortgage loan becomes 17 days past due, Lincoln Bank delivers a delinquency notice to the borrower. When loans are 30 to 60 days in default, Lincoln Bank sends additional delinquency notices and telephone calls are placed with the borrower to establish an acceptable repayment schedule. When loans become 60 days in default, Lincoln Bank again contacts the borrower to establish an acceptable repayment schedule. When a mortgage loan is 90 days delinquent, Lincoln Bank will have either entered into a workout plan with the borrower or referred the matter to its attorney for collection. Management is authorized to commence foreclosure proceedings for any loan upon making a determination that it is prudent to do so.

Lincoln Bank reviews mortgage loans on a regular basis and places one- to four-family residential loans on a non-accrual status when they become 120 days delinquent. Other loans are placed on a non-accrual status when they become 90 days delinquent. Generally, when loans are placed on a non-accrual status, unpaid accrued interest is written off.

Non-performing Assets . At December 31, 2007, $8.5 million, or .95%, of Lincoln Bank’s total assets, were non-performing (including loans past due 90 days or more, non-accruing loans and foreclosed assets) compared to $2.8 million, or .31%, of its total assets at December 31, 2006. At December 31, 2007, non-performing assets included residential loans of $479,000 commercial real estate loans of $1.2 million, construction loans of $1.1 million, multifamily

loans of $1.9 million, commercial loans of $132,000, land loans of $2.5 million and consumer loans of $534,000. Lincoln Bank had real estate owned (“REO”) properties in the amount of $571,000 as of December 31, 2007.

The table below sets forth the amounts and categories of Lincoln Bank’s non-performing assets (non-performing loans, foreclosed real estate and troubled debt restructurings) for the last five years. It is Lincoln Bank’s policy that earned but uncollected interest on all loans be reviewed monthly to determine if any portion thereof should be classified as uncollectible for any loan past due in excess of 90 days. Lincoln Bank deems any delinquent loan that is 90 days or more past due to be a non-performing asset. Additionally, loans less than 90 days past due may be non-performing if they are not accruing interest.

	At December 31
	2007			2006			2005			2004			2003
	(In thousands)
Non-performing assets:
Non-performing loans	$	7,900		$	2,458		$	3,541		$	5,084		$	1,903
Troubled debt restructurings		--			--			--			--			--
Total non-performing loans		7,900			2,458			3,541			5,084			1,903
Foreclosed real estate		571			305			247			1,804			825
Total non-performing assets	$	8,471		$	2,763		$	3,788		$	6,888		$	2,728
Non-performing loans to total loans		1.20	%		.38	%		.59	%		.87	%		.43	%
Non-performing assets to total assets		.95	%		.31	%		.45	%		.85	%		.46	%

Interest income of $403,000 for the year ended December 31, 2007, was recognized on the non-performing loans summarized above. Interest income of $572,000 for the year ended December 31, 2007, would have been recognized under the original loan terms of these loans.

At December 31, 2007, Lincoln Bank held loans delinquent from 30 to 89 days totaling $8.6 million. As of that date, Lincoln Bank was not aware of any other loans in which borrowers were experiencing financial difficulties and was not aware of any assets that would need to be disclosed as non-performing assets.

Delinquent Loans . The following table sets forth certain information at December 31, 2007, 2006 and 2005, relating to delinquencies in Lincoln Bank’s portfolio. Delinquent loans that are 90 days or more past due are considered non-performing assets.

	At December 31, 2007									At December 31, 2006									At December 31, 2005
	30-89 Days				90 Days or More					30-89 Days				90 Days or More					30-89 Days				90 Days or More
	Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans
	(Dollars in Thousands)
Residential mortgage loans		31	$	1,622		7	$	363			30	$	1,629		12	$	677			48	$	1,890		19	$	1,420
Commercial real estate loans		4		717		9		1,065			9		734		6		1,235			1		183		6		842
Multi-family mortgage loans		1		1,935		-		-			-		-		-		-			-		-		-		-
Construction loans		3		3,130		2		192			1		800		-		-			-		-		-		-
Land loans		1		17		2		282			-		-		-		-			4		243		1		20
Commercial loan		8		622		1		129			3		179		-		-			7		1,235		8		860
Consumer loans		34		560		28		531			33		402		28		356			55		939		37		389
Total		82	$	8,603		49	$	2,562			76	$	3,744		46	$	2,268			115	$	4,490		71	$	3,531
Delinquent loans to total loans								1.70	%								0.96	%								1.35	%

Classified Assets . Federal regulations and Lincoln Bank’s Asset Classification Policy provide for the classification of loans and other assets such as debt and equity securities considered to be of lesser quality as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values,

“highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

An insured institution is required to establish general allowances for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Lincoln Bank regularly reviews its loan portfolio to determine whether any loans require classification in accordance with applicable regulations.

On March 10, 2008 we became aware of circumstances surrounding one of our major borrowers and another financial institution. We believe our well collateralized position regarding the performing loans the borrower has with our Company has not changed; however, we will continue to monitor the borrower closely. This event has not changed our position that no specific reserves should be established on our Company’s loans to this borrower at this time.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained through the provision for loan losses, which is charged to earnings. The allowance for loan losses is determined in conjunction with Lincoln Bank’s review and evaluation of current economic conditions (including those of its lending area), changes in the character and size of its loan portfolio, loan delinquencies (current status as well as past and anticipated trends) and adequacy of collateral securing loan delinquencies, historical and estimated net charge-offs, and other pertinent information derived from a review of the loan portfolio. In management’s opinion, Lincoln Bank’s allowance for loan losses is adequate to absorb probable losses inherent in the loan portfolio at December 31, 2007. However, there can be no assurance that regulators, when reviewing the Bank’s loan portfolio in the future, will not require increases in its allowances for loan losses or that changes in economic conditions will not adversely affect its loan portfolio. For more discussion on the allowance for loan losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Annual Report to Shareholders for the year ended December 31, 2007.

Summary of Loan Loss Experience . The following table analyzes changes in the allowance during the past five fiscal years ended December 31, 2007.

	Year Ended December 31,
	2007			2006			2005			2004			2003
	(Dollars in Thousands)

Balance at beginning of period	$	6,129		$	5,843		$	5,701		$	3,532		$	2,932
Acquisition of First Bank								--			1,757			--
Charge-offs:
One- to four-family residential mortgage loans		(49	)		(104	)		(75	)		(5	)		(22	)
Commercial real estate mortgage loans		(140	)		(44	)		(311	)		--			--
Commercial loans		(105	)		(148	)		(1,922	)		(25	)		(20	)
Consumer loans		(343	)		(388	)		(287	)		(251	)		(202	)
Total charge-offs		(637	)		(684	)		(2,595	)		(281	)		(244	)
Recoveries:
One- to four-family residential mortgage loans		6			--			--			1			22
Commercial real estate mortgage loans		40			3			3			3			3
Commercial loans		14			25			17			--			--
Consumer loans		73			58			75			34			66
Total recoveries		133			86			95			38			91
Net charge-offs		(504	)		(598	)		(2,500	)		(243	)		(153	)
Provision for losses on loans		957			884			2,642			655			753
Balance end of period	$	6,582		$	6,129		$	5,843		$	5,701		$	3,532
Allowance for loan losses as a percent of total loans outstanding		1.00	%		.96	%		.97	%		.98	%		.77	%
Ratio of net charge-offs to average loans outstanding		.08	%		.10	%		.42	%		.05	%		.04	%

Allocation of Allowance for Loan Losses . The following table presents an analysis of the allocation of Lincoln Bank’s allowance for loan losses at the dates indicated.

	At December 31,
	2007					2006					2005					2004					2003
	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans
	(Dollars in Thousands)
Balance at end of period applicable to:
Real estate mortgage loans:
One- to four-family residential mortgage loans	$	853		22.47	%	$	1,278		31.22	%	$	835		31.66	%	$	568		32.04	%	$	717		47.27	%
Multi-family		378		1.33			35		1.05			32		.86			58		0.99			53		1.16
Commercial		1,803		34.17			1,841		28.70			1,683		23.48			2,024		24.72			999		21.05
Construction loans		980		10.63			238		7.48			359		6.47			484		9.02			526		11.08
Land loans		209		2.69			92		2.13			127		2.29			210		2.57			89		1.43
Commercial loans		1,053		7.69			1,342		7.48			934		11.97			991		12.13			385		8.12
Consumer loans		1,306		21.02			1,303		21.94			1,836		23.27			1,365		18.53			619		9.89
Unallocated		-		-					-			37		-			1		-			144		-
Total		6,582		100.00	%	$	6,129		100.00	%	$	5,843		100.00	%	$	5,701		100.00	%	$	3,532		100.00	%

INVESTMENTS

Investments . The Company has adopted an investment policy that authorizes investments in U.S. Treasury securities, securities guaranteed by the Government National Mortgage Association (“GNMA”), securities issued by agencies of the U.S. Government, mortgage-backed securities issued by the FHLMC or the Federal National Mortgage Association (“FNMA”) and in highly-rated mortgage-backed securities, collateralized mortgage obligations and investment-grade corporate debt securities. This policy permits the Company’s management to react quickly to market conditions. At December 31, 2007 all of the securities in its portfolio are considered available-for-sale. At December 31, 2007, the Company’s investment portfolio consisted of investments in mortgage-backed securities, corporate securities, federal agency securities, municipal securities, FHLB stock and an investment in Bloomington Housing Associates, L.P. See “-Investment in Multi-Family, Low- and Moderate-Income Housing Project.” At December 31, 2007, approximately $161.0 million, or 18.1%, of the Company’s total assets consisted of such investments. The Company also had $2.0 million of federal funds sold and $7.2 million in interest-earning deposits with other financial institutions as of that date. As of that date, the Company had pledged as collateral investment securities with a carrying value of $59.3 million.

Investment Securities . The following table sets forth the amortized cost and the market value of the Company’s investment portfolio at the dates indicated.

	At December 31,
	2007					2006					2005
	Amortized Cost		Market Value			Amortized Cost		Market Value			Amortized Cost		Market Value
	(In thousands)
Investment securities available for sale:
Federal agencies	$	24,824	$	24,835		$	53,553	$	52,968		$	45,019	$	44,617
Mortgage-backed securities		88,603		89,160			64,663		64,301			70,510		70,374
Corporate debt obligations		13,416		12,279			13,432		13,193			14,442		14,091
Marketable equity securities		223		257			222		249			222		240
Municipal securities		23,845		23,875			20,622		20,526			22,650		22,243
Total investment securities available for sale		150,911		150,406			152,492		151,237			152,843		151,565
Investment in limited partnerships		1,237		(1	)		1,252		(1	)		1,161		(1	)
Investment in insurance company		--		--			--		--			650		(1	)
FHLB stock (2)		8,808		8,808			8,808		8,808			10,648		10,648
Total investments	$	160,956				$	162,552				$	165,302

(1) Market values are not available.

(2) Market value is based on the price at which the stock may be resold to the FHLB of Indianapolis.

The following table sets forth the amount of investment securities (excluding mortgage-backed securities and marketable equity securities) which mature during each of the periods indicated and the weighted average tax equivalent yields for each range of maturities at December 31, 2007.

	Amount at December 31, 2007 which matures in
	Less Than One Year					One Year to Five Years					Five to Ten Years					After Ten Years
	Amortized Cost		Average Yield			Amortized Cost		Average Yield			Amortized Cost		Average Yield			Amortized Cost		Average Yield
	(Dollars in thousands)

Federal agency securities − available for sale	$	--		--	%	$	4,495		5.33	%	$	10,304		5.13	%	$	10,025		6.53	%
Corporate securities − available for sale		--		--			--		--			--					13,416		5.82
Municipals – available for sale		216		5.15			800		5.01			9,658		5.32			13,171		5.74

At December 31, 2007, the Company had no corporate investments which exceeded 10% of its equity capital.

Mortgage-backed Securities . The following table sets forth the composition of the Company’s mortgage-backed securities portfolio at December 31, 2007 and 2006.

	December 31, 2007							December 31, 2006
	Amortized Cost		Percent of Total			Market Value		Amortized Cost		Percent of Total			Market Value
	(Dollars in thousands)

Federal National Mortgage Association	$	31,282		35.3	%	$	31,468	$	10,255		15.9	%	$	10,221
Federal Home Loan Mortgage Corporation		40,237		45.4			40,668		15,961		24.7			15,821
Government National Mortgage Association		425		.5			442		512		.8			525
Collateralized Mortgage Obligations		16,659		18.8			16,582		37,935		58.6			37,734
Total Mortgage-Backed Securities	$	88,603		100.0	%	$	89,160	$	64,663		100.0	%	$	64,301

At December 31, 2007, mortgage-backed securities having an amortized cost of $0.1 million mature in one to five years and have a weighted average yield of 7.07%. Mortgage backed securities having an amortized cost of $2.6 million mature in five to ten years and have a weighted average yield of 5.66%, and mortgage backed securities having an amortized cost of $85.9 million mature after ten years and have a weighted average yield of 5.57%

The following table sets forth the changes in the Company’s mortgage-backed securities portfolio for the years ended December 31, 2007, 2006 and 2005.

	For the Year Ended December 31,
	2007			2006			2005
	(Dollars in thousands)

Beginning balance	$	64,301		$	70,374		$	45,894
Securitization of loans		37,298			-			-
Purchases		56,632			22,302			64,042
Monthly repayments		(10,312	)		(17,240	)		(11,645	)
Proceeds from sales		(59,801	)		(10,955	)		(26,996	)
Net accretion (amortization)		65			81			(8	)
Gains (losses) on sales		59			(36	)		25
Change in unrealized gain on securities available for sale		918			(225	)		(938	)
Ending balance	$	89,160		$	64,301		$	70,374

INVESTMENTS IN MULTI-FAMILY, LOW AND MODERATE INCOME HOUSING PROJECTS

Lincoln Bank holds an investment in a multi-family, low- and moderate-income housing project through its wholly-owned subsidiary, LF Service Corporation (“LF”). LF has invested in Bloomington Housing Associates, L.P. (“BHA”), which is an Indiana limited partnership that was organized to construct, own and operate a 130-unit apartment complex in Bloomington, Indiana (the “BHA Project”). The BHA Project has been completed and the project has performed as planned. LF has invested approximately $4.9 million in BHA since the inception of the BHA Project in August 1992.

A low- and moderate-income housing project qualifies for certain federal income tax credits if (i) it is a residential rental property, (ii) the units are used on a nontransient basis, and (iii) 20% or more of the units in the project are occupied by tenants whose incomes are 50% or less of the area median gross income, adjusted for family size, or alternatively, at least 40% of the units in the project are occupied by tenants whose incomes are 60% or less of the area median gross income. Qualified low income housing projects generally must comply with these and other rules for fifteen years, beginning with the first year the project qualified for the tax credit, or some or all of the tax credit together with interest may be recaptured. The tax credit is subject to the limitations on the use of general business credit, but no basis reduction is required for any portion of the tax credit claimed. As of December 31, 2007, 90% of the units in the BHA Project were occupied and the project complied with the low income occupancy requirements described above.

The Company records its equity in the net income or loss of the partnership based on the Company’s interest in the partnership, which is 99 percent in Bloomington Housing Associates L.P. (Bloomington Housing). In addition to recording its equity in the income or losses of the partnerships, the Company has recorded the benefit of a low income housing tax credit of $150,000, $148,000 and $150,000 for the years ended December 31, 2007, 2006 and 2005. At December 31, 2007, LF’s investment in BHA was $1,237,000.

SOURCES OF FUNDS

General . Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities. In addition to deposits, the Company derives funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings, income on earning assets and borrowings. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Borrowings from the FHLB of Indianapolis have been used to compensate for reductions in deposits or deposit inflows at less than projected levels.

Deposits . The Company attracts consumer and commercial deposits principally from within Hendricks, Montgomery, Clinton, Johnson, Brown, Marion and Morgan Counties through the offering of a broad selection of deposit instruments, including noninterest bearing checking, passbook accounts, NOW accounts, variable rate money market accounts, fixed-term certificates of deposit, individual retirement accounts and savings accounts. The Company does not actively solicit or advertise for deposits outside of Hendricks, Montgomery, Clinton, Johnson, Brown and Morgan Counties, and substantially all of the Company’s depositors are residents of those counties. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds remain on deposit and the interest rate. The Company may sometimes accept brokered deposits and bids for public deposits and it held $4.0 million and $23.0 million of such funds, or 0.6% and 3.5% of its total deposits, at December 31, 2007. The Company regularly runs specials on certificates of deposit with specific maturities.

The Company establishes the interest rates paid, maturity terms, service fees and withdrawal penalties on a periodic basis. Determination of rates and terms are predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals, and applicable regulations. The Company relies, in part, on customer service and long-standing relationships with customers to attract and retain its deposits. The Company also closely prices its deposits to the rates offered by its competitors.

Approximately 50.2% of the Company’s deposits consist of certificates of deposit, which generally have higher interest rates than other deposit products that it offers. Certificates of deposit have decreased 5.1% during the year ended December 31, 2007. Money market accounts represent 26.4% of the Company’s deposits and have grown 21.5% during the year ended December 31, 2007. Savings accounts represent 8.1% of deposits and have declined 21.9% since December 31, 2006. Non-interest bearing demand accounts declined $5.1 million, or 10.0%, during the year ended December 31, 2007. The Company offers special rates on certificates of deposit with maturities that fit its asset and liability strategies.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts that the Company offers has allowed it to compete effectively in obtaining funds and to respond with flexibility to changes in consumer demand. The Company has become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. The Company manages the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, management believes that the Company’s noninterest bearing checking, savings accounts, NOW and MMDAs are relatively stable sources of deposits. However, the ability to attract and maintain certificates of deposit, and the rates the Company pays on these deposits, have been and will continue to be significantly affected by market conditions.

An analysis of the Company’s deposit accounts by type and maturity at December 31, 2007, is as follows:

Type of Account	Minimum Opening Balance		Balance at December 31, 2007		% of Deposits			Weighted Average Rate
	(Dollars in thousands)
Withdrawable:
Savings accounts	$	25	$	53,349		8.13	%		2.39	%
Money market		1,000		173,331		26.41			3.67
Interest-bearing demand accounts		200		54,180		8.25			1.52
Non-interest bearing demand accounts		50		45,955		7.00			----
Total withdrawable				326,815		49.79			2.60

Certificates (original terms):
3 months or less		1,000		406		0.06	%		3.54	%
6 months		1,000		45,968		7.00			4.57
12 months		1,000		15,471		2.36			4.65
18 months		1,000		121,921		18.57			5.01
24 months		1,000		73,998		11.27			5.07
30 months		1,000		14,679		2.24			4.63
36 months		1,000		6,795		1.04			4.27
48 months		1,000		4,732		0.72			4.31
60 months		1,000		18,625		2.84			4.32

Public fund and brokered certificates				26,995		4.11			4.72
Total certificates				329,590		50.21			4.84
Total deposits			$	656,405		100.00	%		3.72

The following table sets forth by various interest rate categories the composition of the Company’s time deposits at the dates indicated:

	At December 31,
	2007		2006		2005
	(In thousands)

Less than 2.00%	$	2,002	$	146	$	3,130
2.00 to 2.99%		312		4,504		54,872
3.00 to 3.99%		21,608		41,201		127,551
4.00 to 4.99%		149,744		117,056		113,029
5.00 to 5.99%		155,803		183,842		9,691
6.00 to 6.99%		121		381		923
7.00 to 7.99%		--		--		5
Total	$	329,590	$	347,130	$	309,201

The following table represents, by various interest rate categories, the amounts of time deposits maturing during each of the three years following December 31, 2007. Matured certificates, which have not been renewed as of December 31, 2007, have been allocated based upon certain rollover assumptions.

	Amounts at December 31, 2007, Maturing In
	One Year or Less		Two Years		Three Years		Greater Than Three Years
	(In thousands)

Less than 2.00%	$	2,002	$	--	$	--	$	--
2.00 to 2.99%		312		--		--		--
3.00 to 3.99%		17,069		4,395		144		--
4.00 to 4.99%		100,880		33,696		10,929		4,238
5.00 to 5.99%		122,019		32,615		825		345
6.00 to 6.99%		--		--		121		--
Total	$	242,282	$	70,706	$	12,019	$	4,583

The following table indicates the amount of the Company’s other certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2007.

	At December 31, 2007
Maturity Period	(In thousands)

Three months or less	$	47,952
Greater than three months through six months		13,837
Greater than six months through twelve months		18,918
Over twelve months		24,626
Total	$	105,333

	DEPOSIT ACTIVITY
	Balance at December 31, 2007		% of Deposits			Increase (Decrease) from 2006			Balance at December 31, 2006		% of Deposits			Increase (Decrease) from 2005			Balance at December 31, 2005		% of Deposits
	(Dollars in thousands)
Withdrawable:
Savings accounts	$	53,349		8.13	%	$	(14,924	)	$	68,273		10.41	%	$	15,626		$	52,647		8.77	%
Money market accounts		173,331		26.41			30,614			142,717		21.77			8,301			134,416		22.38
Interest-bearing demand accounts		54,180		8.25			7,698			46,482		7.09			(4,096	)		50,578		8.42
Noninterest-bearing demand accounts		45,955		7.00			(5,107	)		51,062		7.79			(2,668	)		53,730		8.95
Total withdrawable		326,815		49.79			18,281			308,534		47.06			17,163			291,371		48.52
Certificates (original terms):
91 Days		406		0.06			(229	)		635		0.10			(1,295	)		1,930		0.32
6 months		45,968		7.00			(196	)		46,164		7.04			27,141			19,023		3.17
12 months		15,471		2.36			(22,255	)		37,726		5.75			(23,045	)		60,771		10.12
18 months		121,921		18.57			24,468			97,453		14.86			72,583			24,870		4.14
24 months		,73,998		11.27			24,812			49,186		7.50			(17,608	)		66,794		11.12
30 months		14,679		2.24			(9,846	)		24,525		3.74			112			24,413		4.06
36 months		6,795		1.04			(8,996	)		15,791		2.41			(4,827	)		20,618		3.43
48 months		4,732		0.72			1,030			3,702		0.56			(3,072	)		6,774		1.13
60 months		18,625		2.84			(6,605	)		25,230		3.85			(6,622	)		31,852		5.30
Public fund and brokered certificates		26,995		4.11			(19,723	)		46,718		7.13			(5,438	)		52,156		8.69
Total certificates		329,590		50.21			(17,540	)		347,130		52.94			37,929			309,201		51.48
Total deposits	$	656,405		100.00	%	$	741		$	655,664		100.00	%	$	55,092		$	600,572		100.00	%

Total deposits at December 31, 2007 were approximately $656.4 million, compared to approximately $655.7 million at December 31, 2006. The Company’s deposit base depends somewhat upon the manufacturing sector of Hendricks, Montgomery, Clinton, Johnson, Brown and Morgan Counties. Although the manufacturing sector in these counties is relatively diversified and does not significantly depend upon any industry, a loss of a material portion of the manufacturing workforce could adversely affect the Company’s ability to attract deposits due to the loss of personal income attributable to the lost manufacturing jobs and the attendant loss in service industry jobs.

In the unlikely event of the Bank’s liquidation, all claims of creditors (including those of deposit account holders, to the extent of their deposit balances) would be paid first followed by distribution of the liquidation account to certain deposit account holders, with any assets remaining thereafter distributed to the Holding Company as the sole shareholder of Lincoln Bank.

Borrowings . Lincoln Bank focuses on generating high quality loans and then seeking the best source of funding from deposits, investments or borrowings. At December 31, 2007, Lincoln Bank had borrowings in the amount of $109.1 million from the FHLB of Indianapolis which bear fixed and variable interest rates and which are due at various dates through 2014. Lincoln Bank is required to maintain eligible loans and investment securities in its portfolio of at least 145% and 115%, respectively, of outstanding advances as collateral for advances from the FHLB of Indianapolis. As an additional funding source, Lincoln Bank has also sold securities under repurchase agreements. Lincoln Bank had $16.8 million of overnight securities sold under repurchase agreement at December 31, 2007. The Company does not anticipate any difficulty in obtaining advances and other borrowings appropriate to meet its requirements in the future.

The following table presents certain information relating to Lincoln Bank’s borrowings at or for the years ended December 31, 2007, 2006 and 2005.

	At or for the Year Ended December 31,
	2007			2006			2005
	(Dollars in thousands)
Outstanding at end of period
Securities sold under repurchase agreements	$	16,767		$	16,864		$	10,064
FHLB advances		108,052			103,608			127,072
Notes Payable		1,125			--			--
Average balance outstanding for period
Securities sold under repurchase agreements		15,344			11,722			8,303
FHLB advances		88,989			102,060			148,509
Notes payable		222			559			452
Maximum amount outstanding at any month-end during the period securities sold under repurchase agreements		17,106			16,864			11,215
FHLB advances		109,552			117,071			174,829
Notes payable		1,250			2,100			3,000
Weighted average interest rate during the period
Securities sold under repurchase agreements		4.05	%		4.14	%		2.50	%
FHLB advances		4.76			4.74			4.68
Notes payable		5.83			7.55			4.16
Weighted average interest rate at end of period
Securities sold under repurchase agreements		3.25			4.27			3.32
FHLB advances		4.42			4.68			4.61
Notes payable		6.75			--			--

SERVICE CORPORATION SUBSIDIARIES

Effective November 1, 2006, the Bank changed its charter from a federal savings bank charter to an Indiana commercial bank charter. Unlike federal savings banks, commercial banks are not permitted to participate in real estate development joint ventures. Under terms of the approval granted by the Federal Reserve Bank of Chicago the Company agreed to cause Lincoln Bank to conform the existing direct and indirect nonbanking activities and investments conducted by Citizens Loan and Service Corporation, including by divestiture if necessary, to the requirements of the Bank Holding Company Act within two years of the consummation of the charter conversion.

Lincoln Bank currently owns three subsidiaries, LF Service Corporation (“LF”), Citizens Loan and Service Corporation (“CLSC”) and LF Portfolio Services, Inc. (“Portfolio”). LF’s assets consist of an investment in BHA. See “- Investment in Low- and Moderate-Income Housing Project.” Previously LF invested in Family Financial Holdings Inc. (“Family Financial”). LF redeemed this investment in 2006.

CLSC primarily engages in the purchase and development of tracts of undeveloped land. As noted above the Company has agreed to cease these non-permissible activities within two years of its conversion date. FDIC regulations prohibited Lincoln Bank from including its investment in CLSC in its calculation of regulatory capital and as such this amount of approximately $611,000 is excluded when calculating the risk based capital ratio requirements for regulatory capital. CLSC purchases undeveloped land, constructs improvements and infrastructure on the land, and then sells lots to builders, who construct homes for sale to home buyers. CLSC ordinarily receives payment when title is transferred.

Portfolio is a Delaware corporation with its principal place of business in Nevada. Portfolio holds and manages a significant portion of Lincoln Bank’s investment portfolio. As of December 31, 2007, Portfolio had investments available for sale,and federal funds sold of $114.8 million, total assets of $115.8 million, and during the fiscal year ended December 31, 2007, had net income of $3.7 million.

EMPLOYEES

As of December 31, 2007, the Company employed 225 persons on a full-time basis and 21 on a part-time basis. None of the Company’s employees are represented by a collective bargaining group and management considers employee relations to be good.

Employee benefits for the Company’s full-time employees include, among other things hospitalization/major medical insurance, dental insurance, long-term disability insurance, company sponsored life and accidental death insurance, Employee Assistance Program, participation in the Lincoln Bank Employee Stock Ownership and 401(k) Plan, which are administered by McCready and Keene and a Pentegra Group (formerly known as Financial Institutions Retirement Fund)

defined benefit pension plan which is a noncontributory, multiple-employer comprehensive pension plan (the “Pension Plan”) for employees. The pension plan was frozen to new participants as well as for additional years of service for existing participants in June, 2004.

The Company considers its employee benefits to be competitive with those offered by other financial institutions and major employers in its area. See “Compensation Discussion and Analysis,” “Executive Compensation,” “Option Plans,” “Recognition and Retention Plan,” “401(k) Plan,” “Grants of Plan-Based Awards for 2007,” “Outstanding Equity Awards,” “Pension Benefits for 2007,” and “Employment Agreements” in the Company’s Proxy Statement for the 2008 Annual Meeting of Shareholders for additional discussions of this matter.

COMPETITION

Lincoln Bank originates most of its loans to and accepts most of its deposits from residents of Hendricks, Montgomery, Clinton, Johnson, Brown and Morgan Counties, Indiana. Lincoln Bank is subject to competition from various financial institutions, including state and national banks, state and federal savings banks and associations, credit unions, and certain nonbanking consumer lenders that provide similar services in those counties with significantly larger resources than are available to Lincoln Bank. Lincoln Bank also competes with money market funds and insurance companies with respect to deposit accounts and individual retirement accounts.

The primary factors influencing competition for deposits are interest rates, service and convenience of office locations. Lincoln Bank competes for loan originations primarily through the efficiency and quality of the services that it provides borrowers and through interest rates and loan fees charged. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels, and other factors that management cannot readily predict.

REGULATION

GENERAL

On November 1, 2006, the Bank began operation as an Indiana state-chartered commercial bank and the Company became a registered bank holding company under the Bank Holding Company Act of 1956. As a state chartered commercial bank, Lincoln Bank is subject to extensive regulation by the Indiana Department of Financial Institutions (the “IDFI”) and the Federal Deposit Insurance Corporation (the “FDIC”). For example, Lincoln Bank must obtain IDFI approval before it may engage in certain activities and must file reports with the both the FDIC and the IDFI regarding its activities and financial condition. The IDFI and the FDIC periodically examine Lincoln Bank’s books and records and, in certain situations, have examination and enforcement powers. This supervision and regulation are intended primarily for the protection of depositors and federal deposit insurance funds.

Lincoln Bank is also subject to federal and state regulation as to such matters as loans to officers, directors, or principal shareholders, required reserves, limitations as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuances or retirements of Lincoln Bank’s securities, and limitations upon other aspects of banking operations. In addition, Lincoln Bank’s activities and operations are subject to a number of additional detailed, complex and sometimes overlapping federal and state laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Community Reinvestment Act, anti-redlining legislation, antitrust laws and regulations protecting the confidentiality of consumer financial information.

Both the Company and the Bank operate in highly regulated environments and are subject to supervision, examination and regulation by several governmental regulatory agencies, including the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the FDIC, and the IDFI. The laws and regulations established by these agencies are generally intended to protect depositors, not shareholders. Changes in applicable laws, regulations, governmental policies, income tax laws and accounting principles may have a material effect on the Company’s business and prospects. The following summary is qualified by reference to the statutory and regulatory provisions discussed.

LINCOLN BANCORP

The Bank Holding Company Act . The Company owns all of the outstanding capital stock of the Bank and is registered as a bank holding company under the federal Bank Holding Company Act of 1956. The Company is subject to periodic examination by the Federal Reserve and required to file periodic reports of its operations and any additional information that the Federal Reserve may require.

Investments, Control, and Activities . With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before acquiring another bank holding company or acquiring more than 5% of the voting shares of a bank (unless it already owns or controls the majority of such shares).

Bank holding companies are prohibited, with certain limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks. They are also prohibited from acquiring or retaining direct or indirect ownership or control of voting shares or assets of any company which is not a bank or bank holding company, other than subsidiary companies furnishing services to or performing services for their subsidiaries, and other subsidiaries engaged in activities which the Federal Reserve determines to be so closely related to banking or managing or controlling banks as to be incidental to these operations. The Bank Holding Company Act does not place territorial restrictions on such nonbank activities.

Effective March 11, 2000, the Gramm-Leach Bliley Act of 1999, which was signed into law on November 12, 1999, allows a bank holding company to qualify as a “financial holding company” and, as a result, be permitted to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company Act of 1956 to include a list of activities that are financial in nature, and the list includes activities such as underwriting, dealing in and making a market in securities, insurance underwriting and agency activities and merchant banking. The Federal Reserve is authorized to determine other activities that are financial in nature or incidental or complementary to such activities. The Gramm-Leach-Bliley Act also authorizes banks to engage through financial subsidiaries in certain of the activities permitted for financial holding companies.

In order for a bank holding company to engage in the broader range of activities that are permitted by the Gramm-Leach-Bliley Act (1) all of its depository institutions must be well capitalized and well managed and (2) it must file a declaration with the Federal Reserve that it elects to be a “financial holding company.” In addition, to commence any new activity permitted by the Gramm-Leach-Bliley Act, each insured depository institution of the financial holding company must have received at least a “satisfactory” rating in its most recent examination under the Community Reinvestment Act. The Company has not elected to be a financial holding company.

Dividends . The Federal Reserve’s policy is that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

Source of Strength . In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which the Company might not otherwise do so.

LINCOLN BANK

General Regulatory Supervision . As an Indiana commercial bank, the Bank is subject to examination by the IDFI and the FDIC. The IDFI and the FDIC regulate or monitor virtually all areas of the Bank’s operations. The Bank must undergo regular on-site examinations by the FDIC and IDFI and must submit periodic reports to the FDIC and the IDFI.

Lending Limits . Under Indiana law, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and unimpaired surplus. Additional amounts may be lent, not in excess of 10% of unimpaired capital and unimpaired surplus, if such loans or extensions of credit are fully secured by readily marketable collateral, including certain debt and equity securities but not including real estate. At December 31,

2007, the Bank did not have any loans or extensions of credit to a single or related group of borrowers in excess of its lending limits.

Transactions with Affiliates and Insiders . The Bank is subject to limitations on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. Compliance is also required with certain provisions designed to avoid the acquisition of low quality assets. The Bank is also prohibited from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

Extensions of credit by the Bank to its executive officers, directors, certain principal shareholders, and their related interests must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and not involve more than the normal risk of repayment or present other unfavorable features.

Dividends . Under Indiana law, the Bank is prohibited from paying dividends in an amount greater than its undivided profits, or if the payment of dividends would impair the Bank’s capital. Moreover, the Bank is required to obtain the approval of the IDFI for the payment of any dividend if the aggregate amount of all dividends paid by the Bank during any calendar year, including the proposed dividend, would exceed the sum of the Bank’s retained net income for the year to date combined with its retained net income for the previous two years. For this purpose, “retained net income” means the net income of a specified period, calculated under the consolidated report of income instructions, less the total amount of all dividends declared for the specified period.

Federal law generally prohibits the Bank from paying a dividend to its holding company if the depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice.

Branching and Acquisitions . Branching by the Bank requires the approval of the FDIC and the IDFI. Under current law, Indiana chartered banks may establish branches throughout the state and in other states, subject to certain limitations. Congress authorized interstate branching, with certain limitations, beginning in 1997. Indiana law authorizes an Indiana bank to establish one or more branches in states other than Indiana through interstate merger transactions and to establish one or more interstate branches through de novo branching or the acquisition of a branch. There are some states where the establishment of de novo branches by out-of-state financial institutions is prohibited.

Capital Regulations . The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for off-balance sheet items. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk weighted categories of 0%, 20%, 50%, or 100%, with higher levels of capital being required for the categories perceived as representing greater risk. The capital guidelines divide a bank holding company’s or bank’s capital into two tiers. The first tier (“Tier I”) includes common equity, certain non-cumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and purchased credit card relationships, subject to certain limitations). Supplementary (“Tier II”) capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Banks and bank holding companies are required to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier I capital. The federal banking regulators may, however, set higher capital requirements when a bank’s particular circumstances warrant. Banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

Also required by the regulations is the maintenance of a leverage ratio designed to supplement the risk-based capital guidelines. This ratio is computed by dividing Tier I capital, net of all intangibles, by the quarterly average of total assets. The minimum leverage ratio is 3% for the most highly rated institutions, and 1% to 2% higher for institutions not meeting

those standards. Pursuant to the regulations, banks must maintain capital levels commensurate with the level of risk, including the volume and severity of problem loans, to which they are exposed.

As of December 31, 2007, the Company and Bank were categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Company and Bank must maintain capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Company and Bank’s category.

The Company and Bank’s actual capital amounts and ratios under the state charter are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007
Total Capital (to Risk-Weighted Assets)
Consolidated	$	79,276		11.3	%	$	56,223		8.0	%	$	—		N/A
Bank		79,016		11.3			56,117		8.0			70,150		10.0	%

Tier I Capital (to Risk-Weighted Assets)
Consolidated		72,693		10.3			28,112		4.0			—		N/A
Bank		72,434		10.3			28,059		4.0			42,090		6.0

Tier I Capital (to Average Assets)
Consolidated		72,693		8.4			34,432		4.0			—		N/A
Bank		72,434		8.4			34,369		4.0			42,961		5.0

Prompt Corrective Regulatory Action. Federal law provides the federal banking regulators with broad powers to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and, ultimately, appointing a receiver for the institution. At December 31, 2007, the Bank was categorized as “well capitalized,” meaning that the Bank’s total risk-based capital ratio exceeded 10%, the Bank’s Tier I risk-based capital ratio exceeded 6%, the Bank’s leverage ratio exceeded 5%, and the Bank was not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure.

Other Regulations . Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s loan operations are also subject to federal laws applicable to credit transactions.

State Bank Activities. Under federal law, as implemented by regulations adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law, as implemented by FDIC regulations, also prohibits FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and could continue to meet, its

minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. Impermissible investments and activities must be divested or discontinued within certain time frames set by the FDIC. It is not expected that these restrictions will have a material impact on the operations of the Bank.

Enforcement Powers . Federal regulatory agencies may assess civil and criminal penalties against depository institutions and certain “institution-affiliated parties,” including management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs. In addition, regulators may commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance. Furthermore, regulators may issue cease-and-desist orders to, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the regulator to be appropriate.

Effect of Governmental Monetary Policies . The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

FEDERAL HOME LOAN BANK SYSTEM

The Bank is a member of the FHLB of Indianapolis, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. The FHLB is funded primarily from funds deposited by banks and savings associations and proceeds derived from the sale of consolidated obligations of the FHLB system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. All FHLB advances must be fully secured by sufficient collateral as determined by the FHLB. The Federal Housing Finance Board (“FHFB”), an independent agency, controls the FHLB System, including the FHLB of Indianapolis.

As a member of the FHLB, the Bank is required to purchase and maintain stock in the FHLB of Indianapolis in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts, or similar obligations at the beginning of each year. At December 31, 2007, the Bank’s investment in stock of the FHLB of Indianapolis was $8.8 million. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate-related collateral to 30% of a member’s capital and limiting total advances to a member. Interest rates charged for advances vary depending upon maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the borrowing. The FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. For the year ended December 31, 2007, dividends paid by the FHLB of Indianapolis to the Bank totaled approximately $403,000, for an annualized rate of 4.6%.

LIMITATIONS ON RATES PAID FOR DEPOSITS

Regulations promulgated by the FDIC place limitations on the ability of insured depository institutions to accept, renew or roll over deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in the institution’s normal market area. Under these regulations, “well-capitalized” depository institutions may accept, renew or roll such deposits over without restriction, “adequately capitalized” depository institutions may accept, renew or roll such deposits over with a waiver from the FDIC (subject to certain restrictions on payments of rates) and “undercapitalized” depository institutions may not accept, renew or roll such deposits over. The regulations contemplate that the definitions of “well-capitalized,” “adequately-capitalized” and “undercapitalized” will be the same as the definition adopted by the agencies to implement

the corrective action provisions of federal law. Management does not believe that these regulations will have a materially adverse effect on the Bank’s current operations.

FEDERAL SECURITIES LAW

The shares of Common Stock of the Company are registered with the Securities and Exchange Commission, (the “SEC”) under the Securities Exchange Act of 1934 (the “1934 Act”). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the 1934 Act and the rules of the SEC thereunder. If the Company has fewer than 300 shareholders, it may deregister its shares under the 1934 Act and cease to be subject to the foregoing requirements.

Shares of Common Stock held by persons who are affiliates of the Company may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933 (the “1933 Act”). If the Company meets the current public information requirements under Rule 144, each affiliate of the Company who complies with the other conditions of Rule 144 (including a holding period for restricted securities and conditions that require the affiliate’s sale to be aggregated with those of certain other persons) will be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) l % of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.

INSURANCE OF DEPOSITS

The Bank’s deposits are insured to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), which was signed into law in February 2006, has resulted in significant changes to the federal deposit insurance program:

Effective March 31, 2006, the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) were merged to create a new fund, called the Deposit Insurance Fund (“DIF”)

The current $100,000 deposit insurance coverage is subject to adjustment for inflation beginning in 2010 and every succeeding five years

Deposit insurance coverage for individual retirement accounts and certain other retirement accounts has been increased from $100,000 to $250,000 and also will subject to adjustment for inflation

Pursuant to the Reform Act, the FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.5% of estimated insured deposits and the FDIC has been given discretion to set assessment rates according to risk regardless of the level of the fund reserve ratio. On November 2, 2006, the FDIC adopted final regulations that set the designated reserve ratio for the DIF at 1.25% beginning January 1, 2007.

Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the BIF or SAIF. In 2006, the Bank was notified that its one-time credit of $398,000 will be applied against future assessments.

Also on November 2, 2006, the FDIC adopted final regulations that establish a new risk-based premium system. Under the new system, the FDIC will evaluate each institution’s risk based on three primary sources of information: supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have such ratings. An institution’s assessments will be based on the insured institution’s ranking in one of four risk categories. Effective January 1, 2007, well-capitalized institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and will be assessed for deposit insurance at an annual rate of between five and seven cents for every $100 of domestic deposits. Institutions in Risk Categories II, III and IV will be assessed at annual rates of 10, 28 and 43 cents, respectively. An increase in assessments could have a material adverse effect on the Company’s earnings.

FDIC-insured institutions remain subject to the requirement to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017. For the quarter ended

December 31, 2007, the FICO assessment rate was equal to 1.14 cents for each $100 in domestic deposits maintained at an institution.

RECENT LEGISLATION AND REGULATORY CHANGES

Sarbanes-Oxley Act of 2002

The Holding Company is subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act’s stated goals include enhancing corporate responsibility, increasing penalties for accounting and auditing improprieties at publicly traded companies and protecting investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the Securities and Exchange Commission under the 1934 Act.

Among other things, the Sarbanes-Oxley Act creates the Public Company Accounting Oversight Board as an independent body subject to SEC supervision with responsibility for setting auditing, quality control and ethical standards for auditors of public companies. The Sarbanes-Oxley Act also requires public companies to make faster and more-extensive financial disclosures, requires the chief executive officer and chief financial officer of public companies to provide signed certifications as to the accuracy and completeness of financial information filed with the SEC, and provides enhanced criminal and civil penalties for violations of the federal securities laws.

The Sarbanes-Oxley Act also addresses functions and responsibilities of audit committees of public companies. The statute makes the audit committee directly responsible for the appointment, compensation and oversight of the work of the company’s outside auditor, and requires the auditor to report directly to the audit committee. The Sarbanes-Oxley Act authorizes each audit committee to engage independent counsel and other advisors, and requires a public company to provide the appropriate funding, as determined by its audit committee, to pay the company’s auditors and any advisors that its audit committee retains. The Sarbanes-Oxley Act also requires public companies to include an internal control report and assessment by management, along with an attestation to this report prepared by the company’s registered public accounting firm, in their annual reports to stockholders.

Although the Holding Company has and will continue to incur expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on the Holding Company’s results of operations or financial condition.

Fair Credit Reporting Act Amendment

The Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) was signed into law by President Bush on December 4, 2003. The FACT Act amends the Fair Credit Reporting Act and makes permanent certain federal preemptions that form the basis for a national credit reporting system. The FACT Act is also intended to (i) address identity theft, (ii) increase access to credit information, (iii) enhance the accuracy of credit reporting, (iv) facilitate the opt-out by consumers from certain marketing solicitations, (v) protect medical information, and (vi) promote financial literacy. The statute will affect credit reporting agencies (commonly referred to as “credit bureaus”), financial institutions, other users of credit reports and those who furnish information to credit bureaus. The Bank does not anticipate that this legislation will have a significant adverse effect on its business.

Predatory Lending

The Federal Reserve Board issued a regulation that became effective on October 1, 2002 that is aimed at curbing “predatory lending.” The term “predatory lending” encompasses a variety of practices, but the term generally is used to refer to abusive lending practices involving fraud, deception or unfairness. Predatory lending typically involves one or more of the following: (i) making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation (“asset-based lending”); (ii) inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (“loan flipping”); or (iii) engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower. The Federal Reserve Board’s new regulation, which amends Regulation Z, broadens the scope of loans subject to the protections of the Home Ownership and Equity Protection Act of 1994 (“HOEPA”). Among other things, the regulation brings within the scope of HOEPA first-lien mortgage loans with interest rates that are at least 8 percentage points above Treasury securities having

a comparable maturity. In addition, the regulation requires that the cost of optional insurance and similar debt protection products paid by a borrower at closing be included in calculating the finance charge paid by the borrower. HOEPA coverage is triggered if such finance charges exceed 8% of the total loan. Finally, the regulation restricts creditors from engaging in repeated refinancings of their own HOEPA loans over a short time period when the transactions are not in the borrower’s interest. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid. The Bank does not anticipate that these provisions, or any similar state predatory lending regulations, will materially affect its financial condition or results of operation.

USA PATRIOT Act of 2001

The USA PATRIOT Act of 2001 (the “PATRIOT Act”) is intended to strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The PATRIOT Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes. Many of the provisions in the PATRIOT Act were to have expired December 31, 2005, but the U.S. Congress authorized renewals that extended the provisions until March 10, 2006. In early March 2006, the U.S. Congress approved the USA PATRIOT Improvement and Reauthorization Act of 2005 (the “Reauthorization Act”) and the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006 (the “PATRIOT Act Amendments”), and they were signed into law by President Bush on March 9, 2006. The Reauthorization Act makes permanent all but two of the provisions that had been set to expire and provides that the remaining two provisions, which relate to surveillance and the production of business records under the Foreign Intelligence Surveillance Act, will expire in four years. The PATRIOT Act Amendments include provisions allowing recipients of certain subpoenas to obtain judicial review of nondisclosure orders and clarifying the use of certain subpoenas to obtain information from libraries. The Holding Company does not anticipate that these changes will materially affect its operations.

TAXATION

FEDERAL TAXATION

Historically, savings associations, such as Lincoln Bank prior to its conversion to an Indiana commercial bank effective November 1, 2006, were permitted to compute bad debt deductions using either the bank experience method or the percentage of taxable income method. However, for years beginning after December 31, 1995, no savings association could use the percentage of taxable income method of computing its allowable bad debt deduction for tax purposes. Instead, all savings associations were required to compute their allowable deduction using the experience method. The pre-1988 reserve, for which no deferred taxes have been recorded, need not be recaptured into income unless (i) the savings association no longer qualifies as a bank under the Internal Revenue Code of 1986, as amended (the “Code”), or (ii) the savings association pays out excess dividends or distributions. Although Lincoln Bank does have some reserves from before 1988, Lincoln Bank is not required to recapture these reserves.

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

For federal income tax purposes, the Company has been reporting its income and expenses on the accrual method of accounting. The Company’s federal income tax returns were audited in 2000 and no adjustments were made.

STATE TAXATION

The Company is subject to Indiana’s Financial Institutions Tax (“FIT”), which is imposed at a flat rate of 8.5% on “apportioned adjusted gross income.” “Apportioned adjusted gross income,” for purposes of FIT, begins with taxable income as defined by Section 63 of the Code and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications. Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes.

The Company’s state income tax returns for 2002, 2003 and 2004 were audited in 2006 and adjustments totaling $33,000 including penalties and interest were made.

ITEM 1A. RISK FACTORS.

Investors should consider carefully the risks and uncertainties described below, which are some of the factors that could adversely affect our operating results and financial condition.

An economic slowdown in Central Indiana could hurt our business.

Because we focus our business in central Indiana, an economic slowdown in this area could hurt our business. An economic slowdown could have the following consequences:

	·	Loan delinquencies may increase;
	·	Problem assets and foreclosures may increase;
	·	Demand for the products and services of Lincoln Bank may decline; and
	·	Collateral for loans made by Lincoln Bank may decline in value, in turn reducing customers’ borrowing power, and making existing loans less secure.

The Company has not experienced many of the challenges facing the banking industry as a whole due in large part to its policy of not investing in sub-prime mortgage loans or any (so-called “off-balance sheet”) activity related to the structuring and sale of such loans. As the economy worsens some of the Company’s customers will experience stress, in some cases severe enough to impact their ability to repay loans in a timely manner. Our plan is to work closely with our customers to help them work through the stress if possible and, where necessary, to liquidate the credit. Our policy of requiring prudent underwriting and the fact that Midwest property values have not been as severely impacted as other areas of the country should help mitigate the level of losses that the Company may incur. Property values have remained relatively stable in central Indiana throughout the huge swings up and back down experienced in California, Florida and isolated other parts of the country.

Changes in market interest rates could adversely affect our financial condition and results of operations.

Our financial condition and result of operations are significantly affected by changes in market interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. Our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets. If rates increase rapidly as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments reprice, resulting in a negative impact on interest spreads and net interest income. The impact of rising rates could be compounded if deposit customers move funds from savings accounts to higher rate certificate of deposit accounts. Conversely, should market interest rates fall below current levels, our net interest margin could also be negatively affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments and curtailments on assets may continue. Such movements may cause a decrease in our interest rate spread and net interest margin.

Other, primarily money center, financial institutions have experienced a tightening of liquidity as various sectors of the economy have contracted and certain financing alternatives available to these banks have been curtailed or eliminated. The Company has been affected by this tightening, not necessarily through reduced liquidity since the Company did not

rely on these same sources for its liquidity, but through pricing for retail deposits. The Company has several wholesale alternatives available to it and weighs the cost of these alternatives against consumer market rates, especially in single service households.

We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. The severity of the impact of market interest rate changes on our business would tend to increase if rates moved more rapidly as compared to gradual, measured changes.

Under direction from our Board of Directors management has implemented certain measurements designed to monitor the interest rate risk exposure inherent in our business. Through the use of periodic modeling management manages the balance sheet to ensure that our interest rate sensitivity does not exceed Board approved limits.

Our commercial real estate, commercial business and construction loans expose us to increased credit risks.

At December 31, 2007, our portfolio of commercial real estate loans totaled $225.0 million, 34.2 % of total loans, our commercial business loan portfolio totaled $50.6 million, or 7.7%, and our portfolio of construction loans totaled $78.0 million, or 11.8% of total loans. We plan to continue to emphasize the origination of these types of loans. Commercial real estate, commercial business and construction loans generally have greater credit risk than one-to four-family residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers. These loans typically have larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Many of our borrowers also have more than one commercial real estate, commercial business or construction loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss, compared to an adverse development with respect to a one- to four-family residential mortgage loan.

We maintain an allowance for loan losses at a level to absorb the losses that we believe are probable in our portfolio. Potentially, this allowance may not be adequate to absorb the losses that we actually incur. Should this occur our earnings could be negatively impacted.

We are subject to extensive regulation and legislative or regulatory changes could adversely affect our business.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on them. Policies adopted or required by these governmental authorities can affect our business operations and the availability, growth and distribution of Lincoln Bank’s investments, borrowings and deposits. In addition, the FDIC and IDFI periodically conducts examinations of the Holding Company and Lincoln Bank and may impose various requirements or sanctions.

Proposals to change the laws governing financial institutions are frequently raised in Congress and before bank regulatory authorities. Changes in applicable laws or policies could materially affect our business, and the likelihood of any major changes in the future and their effects are impossible to determine. Moreover, it is impossible to predict the ultimate form any proposed legislation might take or how it might affect us.

ITEM 1 B. UNRESOLVED STAFF COMMENTS.

None

ITE M 2. PROPERTIES.

The following table provides certain information with respect to Lincoln Bank’s offices as of December 31, 2007:

Description and Address	Owned or Leased	Year Opened	Total Deposits	Net Book Value of Property, Furniture & Fixtures	Approximate Square Footage

905 Southfield Drive Plainfield, IN 46168	Owned	2004	$35,019	$4,376	24,500
1121 East Main Street Plainfield, IN 46168	Owned	1970	120,815	753	9,925
134 South Washington Street Crawfordsville, IN 47933	Owned	1962	60,662	354	9,340
1900 East Wabash Street Frankfort, IN 46041	Owned	1974	24,210	248	2,670
60 South Main Street Frankfort, IN 46041	Owned	2000	87,445	582	11,750
975 East Main Street Brownsburg, IN 46112	Owned	1981	67,420	417	2,890
7648 East U.S. Highway 36 Avon, IN 46123	Owned	1999	37,251	725	2,800
1010 N. Old State Road 67 Mooresville, IN 46158	Owned	2007	24,832	1,865	3,758
1250 N. Emerson Avenue Greenwood, IN 46143	Land Leased Building Owned	2007	13,686	968	3,758
18 Providence Drive Greenwood, IN 46143	Owned	2002	9,427	915	2,800
250 N. State Road 135 Bargersville, IN 46106	Leased	2004	5,198	30	1,100
2259 N. Morton Franklin, IN 46131	Owned	2003	33,551	1,118	3,750
1275 US Hwy 31 Greenwood, IN 46142	Leased	1999	15,985	565	2,150
996 S. State Road 135 Greenwood, IN 46143	Leased	2000	38,417	274	5,000
180 W. Washington Street Morgantown, IN 46160	Owned	1894	31,799	474	4,000
189 Commercial Drive Nashville, IN 47448	Leased	2001	28,088	53	3,000
110 N. State Road 135 Trafalgar, IN 46181	Owned	1997	22,600	388	1,100

Loan Production Offices :
10333 N. Meridian St. Three Meridian Plaza Ste. 111 Indianapolis, IN 46290	Leased	2006	N/A	66	2,100
648 Treybourne Drive Greenwood, IN 46142	Owned	2000	N/A	1,444
Land - Unimproved
580 Three Notch Road Bargersville, IN	Owned	N/A	N/A	186	N/A

Description and Address	Owned or Leased	Year Opened	Total Deposits	Net Book Value of Property, Furniture & Fixtures	Approximate Square Footage

1.181 Acres in Anson Business District Boone County, IN	Owned	N/A	N/A	1,477	N/A
Franklin Point Lot 2 Marion County Indianapolis, IN	Owned	N/A	N/A	808	N/A

Lincoln Bank owns computer and data processing equipment which it uses for transaction processing, loan origination, and accounting. The net book value of Lincoln Bank’s electronic data processing equipment was approximately $370,000 at December 31, 2007. This equipment is also listed in the totals by location above.

Lincoln Bank currently operates 18 automatic teller machines (“ATMs”), with one ATM located at its main office and each of its branch offices plus one at the loan production office on N. Meridian Street, Indianapolis. Lincoln Bank’s ATMs participate in the Star® network.

Lincoln Bank has also contracted for data processing, item processing, electronic banking and ATM processing with Fidelity Information Services, located in Plano, Texas. The cost of these services is approximately $162,000 per month.

ITEM 3. LEGAL PROCEEDINGS.

Although the Holding Company and Lincoln Bank are involved, from time to time, in various legal proceedings in the normal course of business, there are no material legal proceedings to which they presently are a party or to which any of the Holding Company’s or Lincoln Bank’s property is subject.

I TEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of the Company’s shareholders during the quarter ended December 31, 2007.

ITEM 4.5. EXECUTIVE OFFICERS OF THE REGISTRANT.

The executive officers of the Holding Company are identified below. The executive officers are elected annually by the Holding Company’s Board of Directors and the Bank’s Board of Directors.

Jerry R. Engle (age 63) served as the Executive Vice President and Chief Operating Officer of the Bank, and Vice Chairman of the Board of Directors of the Holding Company, since the merger of First Shares in August 2004, until June 1, 2005, when he became President and Chief Executive Officer of the Holding Company and the Bank and Chairman of the Board of Directors of the Holding Company. Formerly, he was the President and Chief Executive Officer of First Shares and First Bank from March 1999 until joining the Holding Company. Prior to that time, he was Chief Executive Officer of Citizens Bank of Central Indiana, a position he assumed in 1992 when Indiana Bancshares, Inc., of which he was Chief Executive Officer, merged into CNB Bancshares, Inc., the holding company for Citizens Bank.

John M. Baer (age 59) has served as the Holding Company’s Secretary and Treasurer since December 1998 and as Lincoln Bank’s Senior Vice President, Chief Financial Officer, Secretary and Treasurer since June 1997. From October 1989 through June 1996 he served as Senior Vice President and Chief Financial Officer of Bank One, Merrillville, NA, in Merrillville, Indiana. From June 1996 to June 1997 he served as Vice President of Bank One, Indiana. He has served the banking industry since 1978.

James Douglas Bennett (age 51) joined the Bank as Senior Vice President, Business Development on August 7, 2006. From May, 2003 until August, 2006, he was a partner with Equity + , LLC, a consulting firm providing services to the financial institution industry. Prior to that, from 2002 to 2003, he served as the Senior VP of Retail Services/Marketing for Monroe Bank in Bloomington, Indiana.

John B. Ditmars (age 51) was promoted to Executive Vice President, Chief Operating Officer effective August 7, 2006, and has served the Bank as the Senior Vice President of Administration since the merger of First Shares in August 2004. Prior to that time, he served from March 1999 until the merger as Executive Vice President of First Bank. Prior to First Bank, Mr. Ditmars was a Senior Commercial Lender at Citizens Bank of Central Indiana, a position he assumed in 1992 when Indiana Bancshares, Inc., of which he was Senior Commercial Lender, merged into CNB Bancshares, Inc., the holding company for Citizens Bank. He has served the banking industry since 1979.

Jonathan D. Slaughter (age 57) has served the Bank as the Senior Vice President, Credit Administration, since June 2004. Prior to that time, he served First Bank as a Senior Vice President and Commercial Loan Manager from April 2003 until June 2004, as a Market President for Irwin Financial for two years and CNB Bancshares for five years. He has served the banking industry for over 28 years.

Bryan Mills (age 49) was appointed Senior Vice President, Mortgage Lending Manager of Lincoln Bank on April 19, 2005. Prior to that date, he was Vice President of Mortgage Lending for First Bank since March 1999. Mr. Mills owned a mortgage origination business from 1991 to 1999. Prior to owning his own business he was in banking from 1981 to 1991.

PART II

IT EM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Except for the information below on repurchases, the information required by this item is contained in the material under the heading “Shareholder Information” on page 49 of the Holding Company’s 2007 Shareholder Annual Report (the “Shareholder Annual Report”), which is incorporated herein by this reference.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares Yet to Be Purchased Under the Plan

October 1-31, 2007	62,500	$ 16.75	62,500	-0-
November 1-30, 2007	-0-		-0-	265,600
December 1-31, 2007	-0-		-0-	265,600
Total	62,500	$ 16.75	62,500	265,600

_____________________________

(1)

On April 23, 2003, Lincoln Bancorp announced a plan to repurchase up to 222,591 shares of the its outstanding shares of common stock. Repurchases began Monday, April 28, 2003. All purchases have been in the open-market. The plan was completed on October 29, 2007. All prior repurchase plans have been completed.

(2)

On November 26, 2007, Lincoln Bancorp announced a plan to repurchase up to 265,600 shares of its outstanding shares of common stock. No shares have been repurchased under this plan.

ITE M 6. SELECTED FINANCIAL DATA.

The information required by this item is contained in the material under the heading “Selected Consolidated Financial Data” on pages 8 and 9 of the Shareholder Annual Report, which is incorporated herein by this reference.

IT EM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

The information required by this item is contained on pages 10 through 24 of the Shareholder Annual Report, which is incorporated herein by this reference.

ITE M 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information required by this item is contained on pages 23 and 24 of the Shareholder Annual Report, which is incorporated herein by this reference.

ITE M 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Holding Company’s Consolidated Financial Statements and Notes thereto contained on pages 26 through 45 in the Shareholder Annual Report are incorporated herein by reference. The Company’s unaudited quarterly results of operations contained on page 45 in the Shareholder Annual Report are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Holding Company’s management, including its Chief Executive Officer and Treasurer, of the effectiveness of the Holding Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the fourth quarter of the 2007 fiscal year covered by this report. Based on their evaluation, the Holding Company’s Chief Executive Officer and Treasurer, who is the Holding Company’s principal financial officer, have concluded that the Holding Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Holding Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Controls

The Holding Company’s management, including its Chief Executive Officer and Treasurer, also have concluded that during the Holding Company’s fiscal quarter ended December 31, 2007, there were no changes in the Holding Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The management of Lincoln Bancorp is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13A-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

	·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

	·	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

	·	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, management believes that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on our assessment of the Company’s internal control over financial reporting. This report follows.

Independent Registered Public Accounting Firm Report

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Shareholders

Lincoln Bancorp

Plainfield, Indiana

We have audited Lincoln Bancorp’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) . The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Lincoln Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Lincoln Bancorp and our report dated March 5, 2008, expressed an unqualified opinion thereon.

/s/ BKD LLP

Indianapolis, Indiana

March 5, 2008

ITEM 9B. OTHER INFORMATION.

None.

PART III

Certain information in this Part III is incorporated by reference to the Holding Company’s Proxy Statement for its Annual Meeting of Shareholders to be held April 15, 2008, which will be filed within 120 days after the year ended December 31, 2007 (the “2008 Proxy Statement”).

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item with respect to directors is incorporated by reference to the section of the 2008 Proxy Statement with the caption “Proposal I - Election of Directors.” Information concerning the Registrant’s executive officers is included in Item 4.5 in Part I of this report. Information with respect to corporate governance is incorporated by reference to the section of the 2008 Proxy Statement with the caption “Corporate Governance.” nformation regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference to the section of the 2008 Proxy Statement captioned “Section 16(a) Beneficial Ownership Reporting Compliance.”

The Company has adopted a code of ethics that applies, among other persons, to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of that Code of Ethics is posted on Lincoln’s website at www.lincolnbankonline.com (under “Investor Relations” click on “Corporate Governance”).

ITE M 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference to the sections of the 2008 Proxy Statement with the captions “Corporate Governance,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Option Plans,” “Recognition and Retention Plan,” “401(k) Plan,” “Grants of Plan-Based Awards for 2007,” “Outstanding Equity Awards,” “Pension Benefits for 2007,” “Employment Agreements,” “Compensation of Directors” and “Stock/Compensation Committee Report.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information, as of December 31, 2007, regarding the securities authorized for issuance under the Company’s equity compensation plans.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c)

Equity compensation plans approved by security holders		695,372	$	13.83		90,934

Equity compensation plans not approved by security holders		21,330				17,637

Total		716,702	$	13.83		108,571

(1)	The Lincoln Bancorp 1999 and the 2005 Stock Option Plan combined.

(2)	The Lincoln Bancorp Recognition and Retention Plan and Trust (“RRP”). Column (a) includes 21,330 shares granted to management that have not yet vested.

(3)	The total in column (b) includes only the weighted-average price of stock options, as the restricted shares awarded under the RRP have no exercise price.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The information on the security ownership of management and certain beneficial owners is incorporated by reference to the sections of the 2008 Proxy Statement with the captions “Principal Holders of Common Stock” and “Proposal I - Election of Directors.”

ITE M 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item is incorporated by reference to the sections of the 2008 Proxy Statement with the captions “Corporate Governance” and “Transactions with Related Persons.”

ITE M 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item is incorporated by reference to the sections of the 2008 Proxy Statement with the captions “Accountants” and “Accountant’s Fees.”

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1.	Financial Statements :
	Report of Independent Registered Public Accounting Firm	See Shareholder Annual Report Page 25
	Consolidated Balance Sheets at December 31, 2007 and 2006	See Shareholder Annual Report Page 26
	Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005	See Shareholder Annual Report Page 27
	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005	See Shareholder Annual Report Page 28
	Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005	See Shareholder Annual Report Page 29
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005	See Shareholder Annual Report Page 30
	Notes to Consolidated Financial Statements	See Shareholder Annual Report Page 31

2.	Financial Statement Schedules:

3.	Exhibits:
	The exhibits listed in the Exhibit Index are filed with or incorporated herein by reference.

(b) The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index .

(c) All schedules are omitted as the required information either is not applicable or is included in the Consolidated Financial Statements or related notes.

SI GNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf of the undersigned, thereto duly authorized.

		LINCOLN BANCORP

Date: March 14, 2008	By:	/s/ Jerry R. Engle
		Jerry R. Engle, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 14th day of March 2008.

	Signatures	Title		Date

(1)	Principal Executive Officer:		)
			)
	/s/ Jerry R. Engle		)
	Jerry R. Engle	President and Chief Executive Officer	) )	March 14, 2008
			)
(2)	Principal Financial and Accounting Officer:		) )
			)
	/s/ John M. Baer		)
	John M. Baer	Secretary and Treasurer	)	March 14, 2008
			)
(3)	The Board of Directors:		)
			)
	/s/ Lester N. Bergum, Jr.		)
	Lester N. Bergum, Jr.	Director	)	March 14, 2008
			)
			)
			)
	Dennis W. Dawes	Director	)	March ___, 2008
			)
			)
	/s/ Jerry R. Engle		)
	Jerry R. Engle	Director	)	March 14, 2008
			)
			)
	/s/ W. Thomas Harmon		)
	W. Thomas Harmon	Director	)	March 14, 2008
			)
			)
	/s/ Jerry R. Holifield		)
	Jerry R. Holifield	Director	)	March 14, 2008
			)
			)
	/s/ David E. Mansfield		)
	David E. Mansfield	Director	)	March 14, 2008

		)
		)
		)
R.J. McConnell	Director	)	March ___, 2008
		)
/s/ Patrick A. Sherman		)
Patrick A. Sherman	Director	)	March 14, 2008
		)
		)

Exhibit Index

Exhibit No.		Description

3(1)		Registrant’s Articles of Incorporation (incorporated by reference to Exhibit (1) to the Registrant’s Registration Statement on Form S-1 filed with the Commission on September 14, 1998 (the “S-1 Registration Statement”)).
3(2)		Registrant’s Amended and Restated Code of By-Laws is incorporated by reference to Exhibit 3.1 to the Form 8-K filed on November 27, 2007.
10(1)*		Lincoln Bancorp Stock Option Plan (incorporated by reference to Exhibit 10(2) to the S-1 Registration Statement).
10(2)*		Lincoln Federal Savings Bank Recognition and Retention Plan and Trust (incorporated by reference to Exhibit 10(3) to the S-1 Registration Statement).
10(3)*		Lincoln Federal Savings Bank Employee Stock Ownership Plan and Trust Agreement (incorporated by reference to Exhibit 10(5) to the S-1 Registration Statement).
10(4)*		ESOP Loan Commitment by Lincoln Bancorp and Exempt Loan and Share Purchase Agreement, effective as of July 1, 1998, between Trust under Lincoln Bancorp Exempt Stock Ownership Plan and Trust Agreement and Lincoln Bancorp (incorporated by reference to Exhibit 10(6) to the S-1 Registration Statement).
10(5)*		Unfunded Deferred Compensation Plan for the Directors of Lincoln Federal Savings Bank (as Amended and Restated Effective January 1, 1999) (incorporated by reference to Exhibit 10(7) to the Registrant’s Registration Statement on Form S-4 filed with the Commission on June 21, 2000 (the “S-4 Registration Statement”)).
10(6)*		Lincoln Federal Savings Bank Deferred Director Supplemental Retirement Plan (Effective December 1, 1997) (incorporated by reference to Exhibit 10(8) to the S-1 Registration Statement).
10(7)*		First Amendment to the Lincoln Federal Savings Bank Employee Stock Ownership Plan and Trust Agreement (incorporated by reference to Exhibit 10(a) to the S-4 Registration Statement).
10(8)*		Second Amendment to the Lincoln Federal Savings Bank Employee Stock Ownership Plan and Trust Agreement (incorporated by reference to Exhibit 10(10) to the S-4 Registration Statement).
10(9)*		First Amendment to Restated Lincoln Bank Deferred Director Supplemental Retirement Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on March 21, 2005).
10(10)*		Unfunded Deferred Compensation Plan for the Directors of Lincoln Bank (As Amended and Restated Effective January 1, 2005) (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Commission on March 21, 2005).
10(11)*		Form of Incentive Stock Option Agreement Under the Lincoln Bancorp Stock Option Plan is incorporated by reference to Exhibit 10(16) to the Form 10-K filed with the Commission on March 31, 2005.
10(12)*		Form of Non-Qualified Stock Option Agreement Under the Lincoln Bancorp Stock Option Plan is incorporated by reference to Exhibit 10(17) to the Form 10-K filed with the Commission on March 31, 2005.

Exhibit No.		Description

10(13)*		Form of Award Notification Under the Lincoln Federal Savings Bank Recognition and Retention Plan and Trust is incorporated by reference to Exhibit 10(18) to the Form 10-K filed with the Commission on March 31, 2005.
10(14)*		First Amendment to Restated Lincoln Bank Deferred Director Supplemental Retirement Plan is incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Commission on March 21, 2005.
10(15)*		Unfunded Deferred Compensation Plan for the Directors of Lincoln Bank (As Amended and Restated Effective January 1, 2005) is incorporated herein by reference to Exhibit 10.2 to the Form 8-K filed with the Commission on March 21, 2005.
10(16)*		Fifth Amendment to the Lincoln Federal Savings Bank Employee Stock Ownership Plan and Trust Agreement is incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Commission on April 25, 2005.
10(17)*		Lincoln Bancorp 2005 Stock Option Plan is incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Commission on September 9, 2005.
10(18)*		Form of Incentive Stock Option Agreement is incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Commission on September 9, 2005.
10(19)*		Form of Non-Qualified Stock Option Agreement for Employees is incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the Commission on September 9, 2005.
10(20)*		Form of Non-Qualified Stock Option Agreement for Directors is incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Commission on September 9, 2005.
10(21)*		Lincoln Bancorp Incentive Plan is incorporated by reference to the Form 8-K filed with the Commission on April 21, 2006.
10(22)*		Unfunded Deferred Compensation Plan for the Directors of Lincoln Bank (as amended and restated effective January 1, 2005) is incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 20, 2007.
10(23)*		Lincoln Bank Deferred Director Supplemental Retirement Plan (as amended and restated effective January 1, 2005) is incorporated by reference to Exhibit 10.2 to the Form 8-K filed on September 20, 2007.
10(24)*		Amended and Restated Employment Agreement (Jerry R. Engle) is incorporated by reference to Exhibit 10.1 to the Form 8-K filed on October 4, 2007.
10(25)*		Amended and Restated Employment Agreement (John B. Ditmars) is incorporated by reference to Exhibit 10.2 to the Form 8-K filed on October 4, 2007.
10(26)*		Amended and Restated Employment Agreement (Jonathan D. Slaughter) is incorporated by reference to Exhibit 10.3 to the Form 8-K filed on October 4, 2007.
10(27)*		Amended and Restated Employment Agreement (John M. Baer) is incorporated by reference to Exhibit 10.4 to the Form 8-K filed on October 4, 2007.
10(28)*		Amended and Restated Employment Agreement (Bryan Mills) is incorporated by reference to Exhibit 10.5 to the Form 8-K filed on October 4, 2007.
10(29)*		Amended and Restated Employment Agreement (J. Douglas Bennett) is incorporated by reference to Exhibit 10.6 to the Form 8-K filed on October 4, 2007.

Exhibit No.		Description

10(30)*		Amended Lincoln Bancorp Incentive Plan is incorporated by reference to Exhibit 10.1 to the Form 8-K filed on August 8, 2007.
13		2007 Shareholder Annual Report.
21		Subsidiaries of Registrant.
23		Consent of Independent Registered Public Accounting Firm.
31(1)		Certification.
31(2)		Certification.
32		Certification.

*	Compensation plans or arrangements in which directors or executive officers are eligible to participate.

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