UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D. C. 20549



FORM
10-Q



(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES
EXCHANGE ACT OF 1934

For
the Quarterly Period Ended: June 30, 2008



(
) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES
EXCHANGE ACT OF 1934

For
the transition period from ____________ to ____________



Commission
File Number:  000-25219



LINCOLN
BANCORP

(Exact
name of registrant as specified in its charter)



Indiana

(State
or other jurisdiction of incorporation or organization)

35-2055553

(I.R.S.
Employer I.D. No.)



905
Southfield Drive, Plainfield, Indiana 46168

(Address
of principal executive offices)



(317)
839-6539

(Registrants
telephone number, including area code)



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.



YesxNo|_|



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 Securities Exchange Act of 1934).
(Check One):



Large
accelerated filer|_|Accelerated filerxNon-accelerated
filer|_| Smaller reporting company|_|(do not check if smaller
reporting company)

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act
of 1934).



Yes|_|Nox



The
number of shares of the Registrants common stock, without par value, outstanding as of June 30, 2008 was
5,319,731.






LINCOLN
BANCORP AND SUBSIDIARYFORM 10-QINDEX



|                                                                                              | Page No.
|--------------------------------------------------------------------------------------------- | --------
|                                                                                              |         
|FORWARD-LOOKING STATEMENTS                                                                    | 3       
|                                                                                              |         
|PART I. FINANCIAL INFORMATION                                                                 | 4       
|Item 1. Financial Statements                                                                  | 4       
|Consolidated Condensed Balance Sheets                                                         | 4       
|Consolidated Condensed Statements of Income                                                   | 5       
|Consolidated Condensed Statements of Comprehensive Income/Loss                                | 6       
|Consolidated Condensed Statement of Shareholders Equity                                      | 7       
|Consolidated Condensed Statements of Cash Flows                                               | 8       
|Notes to Unaudited Consolidated Condensed Financial Statements                                | 10      
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 17      
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            | 27      
|Item 4. Controls and Procedures                                                               | 29      
|                                                                                              |         
|PART II. OTHER INFORMATION                                                                    | 30      
|Item 1. Legal Proceedings                                                                     | 30      
|Item 1A. Risk Factors                                                                         | 30      
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           | 30      
|Item 3. Defaults Upon Senior Securities                                                       | 30      
|Item 4. Submission of Matters to a Vote of Security Holders                                   | 30      
|Item 5. Other Information                                                                     | 30      
|Item 6. Exhibits                                                                              | 30      
|                                                                                              |         
|SIGNATURES                                                                                    | 31      
|                                                                                              |         
|EXHIBIT INDEX                                                                                 | 32      



2





FORWARD-LOOKING
 STATEMENTS



This
 Quarterly Report on Form 10-Q (Form 10-Q) contains statements that constitute forward-looking
 statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in
 a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or
 expectations of the Company (as defined in the notes to the consolidated condensed financial statements), its
 directors or its officers primarily with respect to future events and the future financial performance of the
 Company. Readers of this Form 10-Q are cautioned that any such forward-looking statements are made as of the date
 of this report and are not guarantees of future events or performance and involve risks and uncertainties, and
 that actual results may differ materially from those in the forward-looking statements as a result of various
 factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause
 such differences. These factors include changes in interest rates; loss of deposits and loan demand to other
 financial institutions; substantial changes in financial markets; changes in real estate values and the real
 estate market; or regulatory changes. We do not undertake to update any forward-looking statement that we may
 make in this Form 10-Q.



3





PART
 I FINANCIAL INFORMATION

Item
 1.     Financial Statements

LINCOLN
 BANCORP AND SUBSIDIARY

Consolidated
 Condensed Balance Sheets

|                                                                     | June 30, 2008(Unaudited) |             | December 31,2007 |  
|-------------------------------------------------------------------- | ------------------------ | ----------- | ---------------- | -
|Assets                                                               |                          |             |                  |  
|Cash and due from banks                                              | $                        | 3,712,318   |                  | $
|Federal funds sold                                                   |                          | 1,706,823   |                  |  
|Interest-bearing demand deposits in other banks                      |                          | 13,512,200  |                  |  
|Cash and cash equivalents                                            |                          | 18,931,341  |                  |  
|Investment securities available for sale                             |                          | 133,336,698 |                  |  
|Loans held for sale                                                  |                          | 3,456,116   |                  |  
|Loans, net of allowance for loan losses of $8,192,603 and $6,581,860 |                          | 626,606,930 |                  |  
|Premises and equipment                                               |                          | 17,545,868  |                  |  
|Investments in limited partnerships                                  |                          | 1,206,339   |                  |  
|Federal Home Loan Bank stock                                         |                          | 8,808,200   |                  |  
|Interest receivable                                                  |                          | 4,802,194   |                  |  
|Goodwill                                                             |                          | 23,906,877  |                  |  
|Core deposit intangible                                              |                          | 1,927,694   |                  |  
|Cash value of life insurance                                         |                          | 21,460,514  |                  |  
|Other assets                                                         |                          | 7,908,793   |                  |  
|Total assets                                                         | $                        | 869,897,564 |                  | $
|                                                                     |                          |             |                  |  
|Liabilities                                                          |                          |             |                  |  
|Deposits                                                             |                          |             |                  |  
|Noninterest-bearing                                                  | $                        | 47,293,670  |                  | $
|Interest-bearing                                                     |                          | 584,697,351 |                  |  
|Total deposits                                                       |                          | 631,991,021 |                  |  
|Securities sold under repurchase agreements                          |                          | 13,283,368  |                  |  
|Borrowings                                                           |                          | 119,511,869 |                  |  
|Interest payable                                                     |                          | 1,791,667   |                  |  
|Other liabilities                                                    |                          | 6,720,722   |                  |  
|Total liabilities                                                    |                          | 773,298,647 |                  |  
|                                                                     |                          |             |                  |  
|Commitments and Contingencies                                        |                          |             |                  |  
|                                                                     |                          |             |                  |  
|Shareholders Equity                                                 |                          |             |                  |  
|Common stock, without par value                                      |                          |             |                  |  
|Authorized - 20,000,000 shares                                       |                          |             |                  |  
|Issued and outstanding - 5,319,731 and 5,312,981 shares              |                          | 61,827,971  |                  |  
|Retained earnings                                                    |                          | 39,885,664  |                  |  
|Accumulated other comprehensive loss                                 |                          | (2,766,838  |                  |  
|Unearned employee stock ownership plan (ESOP) shares                 |                          | (2,347,880) |                  |  
|Total shareholders equity                                           |                          | 96,598,917  |                  |  
|Total liabilities and shareholders equity                           | $                        | 869,897,564 |                  | $



See
 notes to consolidated condensed financial statements.

4







LINCOLN
 BANCORP AND SUBSIDIARY

Consolidated
 Condensed Statements of Income(Unaudited)

|                                                                  | Three Months EndedJune 30, | Six Months EndedJune 30,
|----------------------------------------------------------------- | -------------------------- | ------------------------
|Interest Income                                                   | 2008                       | 2007                    
|Loans receivable, including fees                                  | $9,830,858                 |                         
|Investment securities                                             | 1,682,428                  |                         
|Federal funds sold                                                | 7,700                      |                         
|Deposits with financial institutions                              | 11,743                     |                         
|Dividend income                                                   | 125,641                    |                         
|Total interest and dividend income                                | 11,658,370                 |                         
|Interest Expense                                                  |                            |                         
|Deposits                                                          | 4,350,960                  |                         
|Short-term borrowings                                             | 65,911                     |                         
|Federal Home Loan Bank advances                                   | 1,174,948                  |                         
|Total interest expense                                            | 5,591,819                  |                         
|Net Interest Income                                               | 6,066,551                  |                         
|Provision for loan losses                                         | 298,493                    |                         
|Net Interest Income After Provision for Loan Losses               | 5,768,058                  |                         
|Other Income                                                      |                            |                         
|Service charges on deposit accounts                               | 695,809                    |                         
|Net gains (losses) on sales of loans                              | 333,240                    |                         
|Net realized and unrealized gains (losses) on sales of securities | -0-                        |                         
|Point of sale income                                              | 297,200                    |                         
|Loan servicing fees                                               | 92,221                     |                         
|Increase in cash value of life insurance                          | 205,417                    |                         
|Gain on termination of forward commitment                         | --                         |                         
|Other income                                                      | 229,559                    |                         
|Total other income                                                | 1,853,446                  |                         
|Other Expenses                                                    |                            |                         
|Salaries and employee benefits                                    | 3,274,733                  |                         
|Net occupancy expenses                                            | 611,942                    |                         
|Equipment expenses                                                | 411,516                    |                         
|Data processing fees                                              | 708,118                    |                         
|Professional fees                                                 | 214,935                    |                         
|Director and committee fees                                       | 99,196                     |                         
|Advertising and business development                              | 239,349                    |                         
|Core deposit intangible amortization                              | 120,644                    |                         
|Other expenses                                                    | 770,826                    |                         
|Total other expenses                                              | 6,451,259                  |                         
|Income (Loss) Before Income Tax                                   | 1,170,245                  |                         
|Income tax expense (benefit)                                      | 207,455                    |                         
|Net Income                                                        | $962,790                   |                         
|Basic Earnings per Share                                          | $0.19                      | $0.16                   
|Diluted Earnings per Share                                        | $0.19                      | $0.15                   
|Dividends per Share                                               | $0.14                      | $0.14                   



See
 notes to consolidated condensed financial statements.

5







LINCOLN
 BANCORP AND SUBSIDIARY

Consolidated
 Condensed Statements of Comprehensive Income/Loss (Unaudited)

|                                                                                                                                                                          | Three Months EndedJune 30, | Six Months EndedJune 30,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------
|                                                                                                                                                                          | 2008                       | 2007                    
|                                                                                                                                                                          |                            |                         
|Net Income                                                                                                                                                                | $    962,790               |                         
|Other comprehensive income (loss), net of tax                                                                                                                             |                            |                         
|Unrealized losses on securities available for sale                                                                                                                        |                            |                         
|Unrealized holding losses arising during the period, net of tax benefit of  $1,200,552, $631,959, 1,245,432 and $493,735                                                  | (2,259,182)                |                         
|Less: Reclassification adjustment for realized gains (losses) included in net income, net of tax expense (benefit) of $-0-, $141,987, 27,664, and $(4,329)                | -0-                        |                         
|Reclassification adjustment for amortization of additional pension liability recognized in expense under FAS 158, net of tax benefit of $2,923, $3,748, 25,615 and $7,496 | 4,458                      |                         
|                                                                                                                                                                          | (2,254,724)                |                         
|Comprehensive loss                                                                                                                                                        | $   (1,291,934)            |                         



See
 notes to consolidated condensed financial statements.



6





LINCOLN
 BANCORP AND SUBSIDIARY

Consolidated
 Condensed Statement of Shareholders EquityFor the Six Months Ended June 30, 2008(Unaudited)



|                                                                      |  | Common Stock       |           |        |   | Accumulated Other
Comprehen- sive Loss |  |   |             |                      |  
|--------------------------------------------------------------------- |  | ------------------ | --------- | ------ | - | -------------------------------------- |  | - | ----------- | -------------------- | -
|                                                                      |  | Shares Outstanding |           | Amount |   | Retained Earnings                      |  |   |             | Unearned ESOP Shares |  
|                                                                      |  |                    |           |        |   |                                        |  |   |             |                      |  
|Balances, January 1, 2008                                             |  |                    | 5,312,981 |        | $ | 61,720,988                             |  | $ | 40,190,154  |                      | $
|                                                                      |  |                    |           |        |   |                                        |  |   |             |                      |  
|Net income for the period                                             |  |                    |           |        |   |                                        |  |   | 1,144,070   |                      |  
|Unrealized losses on securities, net of reclassification adjustment   |  |                    |           |        |   |                                        |  |   |             |                      |  
|Stock options exercised                                               |  |                    | 6,750     |        |   | 39,082                                 |  |   |             |                      |  
|Stock option expense                                                  |  |                    |           |        |   | 34,217                                 |  |   |             |                      |  
|ESOP shares earned                                                    |  |                    |           |        |   |                                        |  |   | 34,006      |                      |  
|Amortization of unearned compensation expense                         |  |                    |           |        |   | 33,684                                 |  |   | 6,486       |                      |  
|Amortization of additional pension liability recognized under FAS 158 |  |                    |           |        |   |                                        |  |   |             |                      |  
|Cash dividends ($.28 per share)                                       |  |                    |           |        |   |                                        |  |   | (1,489,052) |                      |  
|                                                                      |  |                    |           |        |   |                                        |  |   |             |                      |  
|Balances, June 30, 2008                                               |  |                    | 5,319,731 |        | $ | 61,827,971                             |  | $ | 39,885,664  |                      | $



See
 notes to consolidated condensed financial statements.

7







LINCOLN
 BANCORP AND SUBSIDIARY

Consolidated
 Condensed Statements of Cash Flows(Unaudited)

|                                                                                           |  | Six Months Ended |             
|------------------------------------------------------------------------------------------ |  | ---------------- | ------------
|                                                                                           |  | June 30,         |             
|                                                                                           |  | 2008             |             
|Operating Activities                                                                       |  |                  |             
|Net income                                                                                 |  | $                | 1,144,070   
|Adjustments to reconcile net income to net cash provided by (used in) operating activities |  |                  |             
|Provision for loan losses                                                                  |  |                  | 1,805,542   
|Investment securities amortization (accretion), net                                        |  |                  | (1,834)     
|Investment securities (gains) losses                                                       |  |                  | (70,126)    
|Loans originated for sale                                                                  |  |                  | (47,091,718)
|Proceeds from sale of loans and payments received on loans held for sale                   |  |                  | 48,330,042  
|Net realized and unrealized (gains) losses on loans held for sale                          |  |                  | (789,939)   
|Amortization of net loan origination costs                                                 |  |                  | 368,918     
|Amortization of purchase accounting adjustments                                            |  |                  | 185,901     
|Depreciation and amortization                                                              |  |                  | 872,397     
|Amortization of unearned compensation expense                                              |  |                  | 40,170      
|ESOP shares earned                                                                         |  |                  | 177,186     
|Net change in:                                                                             |  |                  |             
|Interest receivable                                                                        |  |                  | 331,293     
|Interest payable                                                                           |  |                  | (518,960)   
|Other adjustments                                                                          |  |                  | (525,547)   
|Net cash provided by operating activities                                                  |  |                  | 4,257,395   
|                                                                                           |  |                  |             
|Investing Activities                                                                       |  |                  |             
|Purchases of securities available for sale                                                 |  |                  | (10,476,929)
|Proceeds from maturities of securities available for sale                                  |  |                  | 23,973,343  
|Proceeds from sales of securities held for trading                                         |  |                  | --          
|Proceeds from maturities of securities held for trading                                    |  |                  | --          
|Net change in loans                                                                        |  |                  | 6,497,106   
|Purchases of property and equipment                                                        |  |                  | (333,115)   
|Proceeds from sales of foreclosed real estate                                              |  |                  | 410,872     
|Other investing activities                                                                 |  |                  | --          
|Net cash provided by (used in) investing activities                                        |  |                  | 20,071,277  
|                                                                                           |  |                  |             
|Financing Activities                                                                       |  |                  |             
|Net change in                                                                              |  |                  |             
|Noninterest-bearing, interest-bearing demand, money market and savings deposits            |  |                  | (19,783,947)
|Certificates of deposit                                                                    |  |                  | (4,629,577) 
|Short term borrowings                                                                      |  |                  | (17,366,837)
|Proceeds from FHLB advances                                                                |  |                  | 41,350,000  
|Repayment of FHLB advances                                                                 |  |                  | (17,125,000)
|Dividends paid                                                                             |  |                  | (1,488,107) 
|Purchase of common stock                                                                   |  |                  | --          
|Exercise of stock options                                                                  |  |                  | 39,082      
|Net change in advances by borrowers for taxes and insurance                                |  |                  | 491,786     
|Net cash provided by (used in) financing activities                                        |  |                  | (18,512,600)
|                                                                                           |  |                  |             



8







|                                                                           |  | Six Months Ended |           
|-------------------------------------------------------------------------- |  | ---------------- | ----------
|                                                                           |  | June 30,         |           
|                                                                           |  | 2008             |           
|                                                                           |  |                  |           
|Net Change in Cash and Cash Equivalents                                    |  |                  | 5,816,072 
|Cash and Cash Equivalents, Beginning of Period                             |  |                  | 13,115,269
|Cash and Cash Equivalents, End of Period                                   |  | $                | 18,931,341
|                                                                           |  |                  |           
|Additional Cash Flows and Supplementary Information                        |  |                  |           
|Interest paid                                                              |  | $                | 12,804,732
|Income tax paid                                                            |  |                  | 700,000   
|Loan balances transferred to foreclosed real estate                        |  |                  | 604,045   
|Transfer of loans to held for sale loans - net                             |  |                  | --        
|Transfer of investment securities available for sale to trading securities |  |                  | --        
|Securitization of loans                                                    |  |                  | --        



See
 notes to consolidated condensed financial statements.

9







LINCOLN
 BANCORP AND SUBSIDIARY

Notes
 to Unaudited Consolidated Condensed Financial Statements

Note
 1: Basis of Presentation



The
 consolidated financial statements include the accounts of Lincoln Bancorp (the Company), its wholly
 owned subsidiary, Lincoln Bank, a state chartered commercial bank (Lincoln or the Bank),
 and Lincolns wholly owned subsidiaries, LF Service Corporation (LF Service) and Citizens Loan
 and Service Corporation (CLSC), both Indiana corporations, and LF Portfolio Services, Inc. (LF
 Portfolio), a Delaware corporation. A summary of significant accounting policies is set forth in Note 1 of
 Notes to Financial Statements included in the December 31, 2007 Annual Report to Shareholders. All significant
 intercompany accounts and transactions have been eliminated in consolidation.  The interim
 consolidated financial statements have been prepared in accordance with instructions to Form 10-Q, and therefore
 do not include all information and footnotes necessary for a fair presentation of financial position, results of
 operations and cash flows in conformity with generally accepted accounting principles.  The interim
 consolidated financial statements at June 30, 2008 and for the three months and six months ended June 30, 2008
 and 2007, have not been audited by independent accountants, but reflect, in the opinion of management, all
 adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position,
 results of operations and cash flows for such periods. The results of operations for the three-month period and
 six month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the
 entire year. The consolidated condensed balance sheet of the Company as of December 31, 2007 has been derived
 from the audited consolidated balance sheet of the Company as of that date.  Reclassifications of
 certain amounts in the 2007 consolidated financial statements have been made to conform to the 2008 presentation.

Note
 2: Earnings Per Share



Earnings
 per share have been computed based upon the weighted-average common shares outstanding. Unearned Employee Stock
 Ownership Plan shares have been excluded from the computation of average common shares outstanding.



|                                                                |  | Three Months EndedJune 30, 2008 |         | Three Months EndedJune 30 , 2007 | 
|--------------------------------------------------------------- |  | ------------------------------- | ------- | -------------------------------- | 
|                                                                |  | Income                          |         | Weighted Average Shares          | 
|Basic earnings per share                                        |  |                                 |         |                                  | 
|Income available to common shareholders                         |  | $                               | 962,790 |                                  | 
|                                                                |  |                                 |         |                                  | 
|Effect of dilutive RRP awards and stock options                 |  |                                 |         |                                  | 
|Diluted earnings per share                                      |  |                                 |         |                                  | 
|Income available to common shareholders and assumed conversions |  | $                               | 962,790 |                                  | 



10







|                                                                |  | Six Months EndedJune 30, 2008 |           | Six Months EndedJune 30 , 2007 | 
|--------------------------------------------------------------- |  | ----------------------------- | --------- | ------------------------------ | 
|                                                                |  | Income                        |           | Weighted Average Shares        | 
|Basic earnings per share                                        |  |                               |           |                                | 
|Income available to common shareholders                         |  | $                             | 1,144,070 |                                | 
|                                                                |  |                               |           |                                | 
|Effect of dilutive RRP awards and stock options                 |  |                               |           |                                | 
|Diluted earnings per share                                      |  |                               |           |                                | 
|Income available to common shareholders and assumed conversions |  | $                             | 1,144,070 |                                | 



Options
 to purchase 483,622 shares of common stock at exercise prices of $11.91 to $19.40 per share were outstanding at
 June 30, 2008, but were not included in the computation of diluted earnings per share because the options were
 anti-dilutive. Options to purchase 8,500 shares of common stock at exercise prices of $17.69 to
 $19.15 per share were outstanding at June 30, 2007, but were not included in the computation of diluted earnings
 per share because the options were anti-dilutive.

Note
 3: Disclosures About Fair Value of Assets and Liabilities

Effective
 January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,Fair
 Value Measurements (FAS 157).  FAS 157 defines fair value, establishes
 a framework for measuring fair value and expands disclosures about fair value measurements.  FAS 157 has
 been applied prospectively as of the beginning of the period. FAS 157 defines fair value as the price
 that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
 participants at the measurement date.  FAS 157 also establishes a fair value hierarchy which requires an entity
 to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
 The standard describes three levels of inputs that may be used to measure fair value:

Level
 1Quoted prices in active markets for
 identical assets or liabilities

Level
 2Observable inputs other than Level 1
 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
 other inputs that are observable or can be corroborated by observable market data for substantially the full term
 of the assets or liabilities

Level
 3Unobservable inputs that are supported
 by little or no market activity and that are significant to the fair value of the assets or liabilities

11







Following
 is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis
 and recognized in the accompanying balance sheet, as well as the general classification of such instruments
 pursuant to the valuation hierarchy.

Available-for-sale
 Securities



Where
 quoted market prices are available in an active market, securities are classified within Level 1 of the
 valuation hierarchy.  If quoted market prices are not available, then fair values are estimated by using pricing
 models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2
 securities include certain collateralized mortgage obligations, mortgage backed securities, corporate trust
 preferred notes and certain municipal securities.  In certain cases where Level 1 or Level 2 inputs are not
 available, securities are classified within Level 3 of the hierarchy and include certain trust preferred stock
 pools and structured government agency securities which are less liquid securities.

Loans
 Held for Sale



Loans
 held for sale are initially recorded at cost and evaluated for lower of cost or fair value at each reporting
 period. As of June 30, 2008 the fair value of loans held for sale approximated cost and as such no fair value
 disclosure is included on these loans in the tables below.  The following table presents the fair
 value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value
 on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements
 fall at June 30, 2008.

|                              |                       | Fair Value Measurements Using                                
|----------------------------- | --------------------- | -------------------------------------------------------------
|                              | Fair Value            | Quoted Prices in Active Markets for Identical Assets(Level 1)
|                              |                       |                                                              
|Available-for-sale securities | $         133,336,698 |                                                              



12





The
 following is a reconciliation of the beginning and ending balances of recurring fair value measurements
 recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for the period
 April 1, 2008 through June 30, 2008:

|                                                                                                                                                                                        | Available-for-sale securities              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------
|                                                                                                                                                                                        |                                            
|Beginning balance at March 31, 2008                                                                                                                                                     | $                             7,095,572    
|                                                                                                                                                                                        |                                            
|Total realized and unrealized gains and losses                                                                                                                                          |                                            
|Amortization included in net income                                                                                                                                                     | (562)                                      
|Unrealized losses included in other comprehensive income                                                                                                                                | (499,213)                                  
|Purchases, issuances and settlements including paydowns                                                                                                                                 | (8,803)                                    
|Transfers in and/or out of Level 3                                                                                                                                                      | -0-                                        
|                                                                                                                                                                                        |                                            
|Ending balance at June 30, 2008                                                                                                                                                         | $                            6,586,994     
|                                                                                                                                                                                        |                                            
|Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date | $                                       -0-



Realized
 and unrealized gains and losses included in net income for the period April 1, 2008, through June 30, 2008, are
 reported in the consolidated statements of income as follows:

|                                                                                             | Operating Income      | Other Income (Expense)
|-------------------------------------------------------------------------------------------- | --------------------- | ----------------------
|                                                                                             |                       |                       
|Total gains and losses                                                                       | $                 -0- |                       
|Change in unrealized gains or losses relating to assets still held at the balance sheet date | $                 -0- |                       



13





The
 following is a reconciliation of the beginning and ending balances of recurring fair value measurements
 recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for the period
 January 1, 2008 through June 30, 2008:

|                                                                                                                                                                                        | Available-for-sale securities               
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------
|                                                                                                                                                                                        |                                             
|Beginning balance at December 31, 2007                                                                                                                                                  | $                             7,185,799     
|                                                                                                                                                                                        |                                             
|Total realized and unrealized gains and losses                                                                                                                                          |                                             
|Amortization included in net income                                                                                                                                                     | (4,796)                                     
|Unrealized losses included in other comprehensive income                                                                                                                                | (578,113)                                   
|Purchases, issuances and settlements including paydowns                                                                                                                                 | (15,896)                                    
|Transfers in and/or out of Level 3                                                                                                                                                      | -0-                                         
|                                                                                                                                                                                        |                                             
|Ending balance at June 30, 2008                                                                                                                                                         | $                             6,586,994     
|                                                                                                                                                                                        |                                             
|Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date | $                                        -0-



Realized
 and unrealized gains and losses included in net income for the period from January 1, 2008, through June 30,
 2008, are reported in the consolidated statements of income as follows:

|                                                                                             | Operating Income      | Other Income (Expense)
|-------------------------------------------------------------------------------------------- | --------------------- | ----------------------
|                                                                                             |                       |                       
|Total gains and losses                                                                       | $                 -0- |                       
|Change in unrealized gains or losses relating to assets still held at the balance sheet date | $                 -0- |                       



Following
 is a description of the valuation methodologies used for instruments measured at fair values on a non-recurring
 basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments
 pursuant to the valuation hierarchy.

14







The
 following table presents the fair value measurements of assets and liabilities recognized in the accompanying
 balance sheet measured at fair value on a non-recurring basis and the level within the FAS 157 fair value
 hierarchy in which the fair value measurements fall at June 30, 2008 (In Thousands).

|                          |                            | Fair Value Measurements Using                                
|------------------------- | -------------------------- | -------------------------------------------------------------
|                          | Fair Value                 | Quoted Prices in Active Markets for Identical Assets(Level 1)
|                          |                            |                                                              
|Impaired loans            | $                    6,600 |                                                              
|Mortgage Servicing Rights | 52                         |                                                              
|                          |                            |                                                              



Impaired
 Loans



Loan
 impairment is reported when full payment under the contractual loan terms is not expected.  Impaired loans
 are carried at the present value of estimated future cash flows using the loans existing rate, or the fair
 value of collateral if the loan is collateral dependent.  Loans are evaluated for impairment quarterly.  During
 the first six months of 2008, the Bank evaluated $8.6 million of loans for impairment and determined specific
 impairment on these loans totaling $2.0 million. Certain of these impaired loans were impaired for the first
 time, partially charged-off or re-evaluated, resulting in a remaining balance for these loans, net of specific
 allowance, of $6.6 million. This valuation would be considered Level 3.  Level 3 inputs for impaired loans
 included current and prior appraisals, discounting factors, the borrowers financial results and other
 considerations including expected cash flows.

Mortgage
 Servicing Rights



Mortgage
 servicing rights are initially recorded at fair value and are subsequently reported at amortized cost and
 periodically evaluated for impairment as described in (SFAS) No. 156,Accounting
 for Servicing of Financial Assets-an amendment of FASB Statement No. 140.New
 mortgage servicing rights recorded during the current accounting period are recorded at fair value and are
 disclosed as a nonrecurring measurement.

15







Mortgage
 servicing rights recorded as an asset and into income during the three months ended March 31, 2008 totaled
 $42,000 and $52,000 for the six months ended June 30, 2008. Mortgage servicing rights do not trade in an active,
 open market with readily observable prices.  Accordingly, fair values of new mortgage servicing rights are
 estimated using discounted cash flow models.  Due to the nature of the valuation inputs, recording initial
 mortgage servicing rights are classified within Level 3 of the hierarchy.

Note
 4: Recent Accounting Pronouncements



In
 September 2006, the FASB issued Statement No. 157, Fair Value Measurements.  This statement defines
 fair value, establishes a framework for measuring fair value and expands disclosures about fair value
 measurements.  This Statement establishes a fair value hierarchy about the assumptions used to measure fair value
 and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.  The
 standard is effective for fiscal years beginning after November 15, 2007.  In February 2008, the FASB issued
 Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157.  This FSP delays the effective date of FAS
 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
 fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and
 interim periods within those fiscal years.  The impact of the adoption was not material. In February
 2006, FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities (SFAS
 159). Adoption of SFAS 159 is required for January 1, 2008. This statement allows, but does not require,
 companies to record certain assets and liabilities at their fair value. The fair value determination is made at
 the instrument level, so similar assets or liabilities could be partially accounted for using the historical cost
 method, while other similar assets or liabilities are accounted for using the fair value method. Changes in fair
 value are recorded through the income statement in subsequent periods. The statement provides for a one time
 opportunity to transfer existing assets and liabilities to fair value at the point of adoption with a cumulative
 effect adjustment recorded against equity. After adoption, the election to report assets or liabilities at fair
 value must be made at the point of their inception. The adoption of this statement did not have a material impact
 on the Companys consolidated financial statements. Financial Accounting Standards Board
 Statement No. 141 (SFAS 141R), Business Combinations (Revised 2007), was issued in December 2007 and
 replaces SFAS 141 which applies to all transactions and other events in which one entity obtains control over one
 or more other businesses.  SFAS 141R requires an acquirer, upon initially obtaining control of another entity, to
 recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the
 acquisition date.  Contingent consideration is required to be recognized and measured at fair value on the date
 of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a
 reasonable doubt.  This fair value approach replaces the cost allocation process required under SFAS 141 whereby
 the cost of an acquisition was allocated to the individual asset acquired and liabilities assumed based on their
 estimated fair value.  SFAS 141R requires acquirers to expense acquisition-related costs as incurred rather than
 allocating such costs to the assets acquired and liabilities assumed.   Under SFAS 141R, the
 requirements of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, would
 have to be met in order to accrue for a restructuring plan in purchase accounting.  Pre-acquisition contingencies
 are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize,
 in which case, nothing should be recognized in purchase accounting.  Instead, that contingency would be subject
 to the probable and estimable recognition criteria under SFAS 5, Accounting for Contingencies.  The
 Company is evaluating the requirements of SFAS 141R to determine if it will have a significant impact on the
 Companys financial condition or results of operations. This statement is effective for business
 combinations for which the acquisition date is on or after the beginning of the first annual reporting period
 beginning on or after December 15, 2008 with early adoption prohibited.

16









Financial
 Accounting Standards Board Statement No. 160 (SFAS 160), Noncontrolling Interest in Consolidated Financial
 Statements, an amendment of ARB Statement No. 51, was issued in December 2007 and establishes accounting
 and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
 subsidiary.  SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to
 as a minority interest, is an ownership interest in the consolidated entity that should be reported as a
 component of equity in the consolidated financial statements.  Among other requirements, SFAS 160 requires
 consolidated net income to be reported at amounts that are attributable to both the parent and the
 non-controlling interest.  It also requires disclosure, on the face of the consolidated income statement, of the
 amounts of consolidated net income attributable to the parent and to the non-controlling interest.  SFAS 160 is
 effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Companys
 financial statements. Financial Accounting Standards Board Statement No. 161 (SFAS 161), Disclosures
 About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133, was issued in
 March 2008 and amends and expands the disclosure requirements of SFAS 133 to provide greater transparency about
 (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items
 are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and
 related hedged items affect an entitys financial position, results of operations and cash flows.  To meet
 those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using
 derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and
 disclosures about credit-risk-related contingent features in derivative agreements.  SFAS 161 is effective for
 the Company on January 1, 2009 and is not expected to have a significant impact on the Companys financial
 statements.

Item
 2: Managements Discussion and Analysis of Financial Condition and Results of Operations General



The
 Company was organized in September 1998. On December 30, 1998, it acquired the common stock of Lincoln upon the
 conversion of Lincoln from a federal mutual savings bank to a federal stock savings bank. The Bank converted from
 a federal thrift charter to a state commercial bank charter on November 1, 2006. Lincoln Bank was
 originally organized in 1884 as Ladoga Federal Savings and Loan Association, located in Ladoga, Indiana. In 1979
 Ladoga Federal merged with Plainfield First Federal Savings and Loan Association, a federal savings and loan
 association located in Plainfield, Indiana, which was originally organized in 1896. Following the merger, the
 Bank changed its name to Lincoln Federal Savings and Loan Association and, in 1984, adopted the name, Lincoln
 Federal Savings Bank. On September 1, 2003, the Bank adopted the name Lincoln Bank. On August 2, 2004, the
 Company acquired First Shares Bancorp, Inc., the holding company of First Bank, an Indiana commercial bank. First
 Shares was merged with and into the Company and immediately thereafter, First Bank was merged into Lincoln Bank.
 As noted above, the Bank converted from a federal thrift charter to a state commercial bank charter on November
 1, 2006, and provides full banking services in a single significant business segment. As a state chartered bank,
 the Bank is subject to regulation by the Department of Financial Institutions, State of Indiana and the Federal
 Deposit Insurance Corporation.

17









Lincoln
 currently conducts its business from 17 full-service offices located in Hendricks, Johnson, Morgan, Clinton,
 Montgomery, and Brown Counties, Indiana, with its main office located in Plainfield. The Bank also has 2 loan
 production offices located in Carmel and Greenwood, Indiana. Lincoln offers a variety of lending, deposit and
 other financial services to its retail and commercial customers. The Banks principal business consists of
 attracting deposits from the general public and originating fixed-rate and adjustable-rate loans secured by
 commercial real estate, inventory, accounts receivable as well as first mortgage liens on one- to four-family
 residential real estate. Lincolns deposit accounts are insured up to applicable limits by the Deposit
 Insurance Fund of the Federal Deposit Insurance Corporation. Lincoln offers a number of financial services, which
 include: (i) one-to-four-family residential real estate loans; (ii) commercial real estate loans; (iii) real
 estate construction loans; (iv) land loans; (v) multi-family residential loans; (vi) consumer loans, including
 home equity loans and automobile loans; (vii) commercial loans; (viii) money market demand accounts; (ix) savings
 accounts; (x) checking accounts; (xi) NOW accounts; (xii) certificates of deposit; and (xiii) financial planning. Lincoln
 currently owns three subsidiaries. First, LF Services assets consist of an investment in Bloomington
 Housing Associates, L.P. (BHA). BHA is an Indiana limited partnership that was organized to
 construct, own and operate a 130-unit apartment complex in Bloomington, Indiana (the BHA Project).
 Development of the BHA Project was completed in 1993 and the project is performing as planned. Second, Citizens
 Loan and Service Corporation (CLSC) primarily engages in the purchase and development of tracts of
 undeveloped land. Because CLSC engages in activities that are not permissible for a national bank, FDIC
 regulations prohibit Lincoln from including its investment in CLSC in its calculation of regulatory capital. CLSC
 purchases undeveloped land, constructs improvements and infrastructure on the land, and then sells lots for
 residential home construction. Third, LF Portfolio, which is located in Nevada, holds and manages a significant
 portion of Lincolns investment portfolio. As noted above, 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 CLSC, 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s results of operations depend primarily upon the level of net
 interest income, which is the difference between the interest income earned on interest-earning assets, such as
 loans and investments, and costs incurred with respect to interest-bearing liabilities, primarily deposits and
 borrowings. Results of operations also depend upon the level of Lincolns non-interest income, including fee
 income and service charges and the level of its non-interest expenses, including general and administrative
 expenses.



As
 noted in our 2007 Annual Report on Form 10-K, 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



18







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.

Critical
 Accounting Policies



Note
 1 to the consolidated financial statements contains a summary of the Companys significant accounting
 policies presented on pages 31 through 33 of the Annual Report to Shareholders for the year ended December 31,
 2007, which was filed on Form 10-K with the Securities and Exchange Commission on March 14, 2008. Certain of
 these policies are important to the portrayal of the Companys financial condition, since they require
 management to make difficult, complex or subjective judgments, some of which may relate to matters that are
 inherently uncertain. Management believes that its critical accounting policies include determining the allowance
 for loan losses, the valuation of mortgage servicing rights, and the valuation of intangible assets.

Allowance
 for loan losses



The
 allowance for loan losses represents managements estimate of probable losses inherent in the Companys
 loan portfolios. In determining the appropriate amount of the allowance for loan losses, management makes
 numerous assumptions, estimates and assessments.  The Companys strategy for credit risk
 management includes conservative, centralized credit policies, and uniform underwriting criteria for all loans as
 well as an overall credit limit for each customer below legal lending limits. The strategy also emphasizes
 diversification on a geographic, industry and customer level, regular credit quality reviews and quarterly
 management reviews of large credit exposures and loans experiencing deterioration of credit quality. A standard
 credit scoring system is used to assess credit risks during the loan approval process of all consumer loans while
 commercial loans are individually reviewed by a credit analyst with formal presentations to the Banks Loan
 Committee.  The Companys allowance consists of three components. The Company estimates probable
 losses from individual reviews of specific loans and probable losses from historical loss rates. Also, factors
 affecting probable losses resulting from economic or environmental factors that may not be captured in the first
 two components of the allowance are considered. Larger commercial loans that exhibit probable or
 observed credit weaknesses are subject to individual review. Where appropriate, reserves are allocated to
 individual loans based on managements estimate of the borrowers ability to repay the loan given the
 availability of collateral, other sources of cash flow and legal options available to the Company. Included in
 the review of individual loans are those that are impaired as provided in SFAS No. 114, Accounting by
 Creditors for Impairment of a Loan. Any allowances for impaired loans are measured based on the present value
 of expected future cash flows discounted at the loans effective interest rate or fair value of the
 underlying collateral.

19









The
 Company evaluates the collectability of both principal and interest when assessing the need for a loss accrual.
 Estimated loss rates are applied to other commercial loans not subject to specific reserve allocations. Homogenous
 loans, such as consumer installment and residential mortgage loans are not individually risk graded. Rather,
 standard credit scoring systems are used to assess credit risks. Loss rates are based on the average net
 charge-off estimated by loan category. Allowances on individual loans and historical loss rates are reviewed
 quarterly and adjusted as necessary based on changing borrower and/or collateral conditions. The
 Companys primary market area for lending is central Indiana. When evaluating the adequacy of the allowance,
 consideration is given to this regional geographic concentration and the closely associated effect changing
 economic conditions have on the Companys customers. The Company has not substantively changed any aspect to
 its overall approach in the determination of the allowance for loan losses. There have been no material changes
 in assumptions or estimation techniques as compared to prior periods that impacted the determination of the
 current period allowance.

Mortgage
 servicing rights



The
 Company recognizes the rights to service sold mortgage loans as separate assets in the consolidated balance
 sheet. The total cost of loans when sold is allocated between loans and mortgage servicing rights based on the
 relative fair values of each. Mortgage servicing rights are subsequently carried at the lower of the initial
 carrying value, adjusted for amortization, or fair value. Mortgage servicing rights are evaluated for impairment
 based on the fair value of those rights.  Factors included in the calculation of fair value of the
 mortgage servicing rights include, estimating the present value of future net cash flows, market loan prepayment
 speeds for similar loans, discount rates, servicing costs, and other economic factors. Servicing rights are
 amortized over the estimated period of net servicing revenue. It is likely that these economic factors will
 change over the life of the mortgage servicing rights, resulting in different valuations of the mortgage
 servicing rights. The differing valuations will affect the carrying value of the mortgage servicing rights on the
 consolidated balance sheet as well as the amounts recorded in the consolidated income statement. See Note 3 for a
 discussion of (SFAS) No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No.
 140.

Intangible
 assets



Management
 periodically assesses the impairment of its goodwill and the recoverability of its core deposit intangible.
 Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. If
 actual external conditions and future operating results differ from managements judgments, impairment
 and/or increased amortization charges may be necessary to reduce the carrying value of these assets to the
 appropriate value.

20









Financial
 Condition



Assets
 totaled $869.9 million at June 30, 2008, a decrease from December 31, 2007 of $19.4 million.  The net decrease in
 assets occurred primarily in investment securities available for sale, down $17.1 million and net loans including
 loans held for sale, down $9.7 million.  Investments declined as several callable securities were called as
 interest rates declined. The proceeds of these securities were used to reduce certificates of deposit including
 public funds.  The largest components of the decline in loans occurred in residential real estate mortgages, down
 $11.7 million and indirect consumer loans, down $6.6 million. Both of these declines are in line with managements
 expectations. The majority of our fixed rate mortgage product is currently being sold in the secondary market and
 indirect activity has been substantially reduced due to competition.  Home equity loans increased by $8.0 million
 and commercial loans increased by $6.0 million from December 31, 2007.  The increase in allowance for loan losses
 accounted for $1.6 million of the decline in net loans. Total deposits were $632.0 million at June
 30, 2008, a decline of $24.4 million since December 31, 2007.  The decline occurred primarily in money market
 deposits down $40.9 million and certificates of deposit, down $4.6 million.  The decline in money market deposits
 was due to the outflow of public fund deposits as local governments paid bills as well as sought higher interest
 rate alternatives.  Growth occurred in noninterest-bearing and interest-bearing demand deposit accounts, up $1.3
 million and $13.5 million, respectively, and savings accounts, up $6.2 million from December 31, 2007.
 Borrowings increased by $10.3 million from year end 2007 to $119.5 million at June 30, 2008 as wholesale
 borrowing costs declined below competitive rates for public funds and certain single service certificate of
 deposit customers.  Shareholders equity declined by $2.4 million from $99.0 million at December
 31, 2007 to $96.6 million at June 30, 2008.  The majority of the decline was the result of recording the decline
 in the fair market value of available-for-sale securities as of June 30, 2008. This decline offset
 net income for the period resulting in an other comprehensive loss for the quarter. Managements review of
 available-for-sale securities in a loss position determined that the impairments were not other-than-temporary
 impairment because the fluctuation in values was primarily the result of changes in interest rates.  As of
 June 30, 2008 management has both the ability and the intent to hold these securities until recovery. 
 Management does classify these securities as available-for-sale under the definition of Statement of
 Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities so
 certain circumstances, such as changes in market interest rates and related changes in the securitys
 prepayment risk, needs for liquidity (for example, due to the withdrawal of deposits, increased demand for
 loans), changes in the availability of and the yield on alternative investments or changes in funding sources and
 terms could change managements assessment of its ability and intent to hold these securities.

Comparison
 of Operating Results for the Three Months Ended June 30, 2008 and 2007



Net
 income for the quarter ended June 30, 2008 was $963,000, or $.19 for both basic and diluted earnings per share.
 This compared to net income for the comparable period in 2007 of $803,000, or $.16 for basic and $.15 for diluted
 earnings per share.  The second quarter of 2007 included income related to the balance sheet restructuring that
 began in the first quarter of 2007 and concluded in the second quarter of 2007.  The income related to the
 balance sheet restructuring totaled $165,000 after tax in the second quarter of 2007.  A table summarizing the
 effect of the balance sheet restructuring in 2007 is presented as a part of the noninterest income discussion.
 Excluding this restructuring benefit net income increased by 51% when comparing the second quarter of 2007
 adjusted results of $638,000 to the second quarter results of 2008 totaling $963,000.

21









Net
 interest income for the second quarter of 2008 was $6,067,000 compared to $5,337,000 for the same period in 2007.
 Net interest margin improved to 3.05% for the three-month period ended June 30, 2008 compared to 2.57% for the
 same period in 2007. The average yield on earning assets declined only 62 basis points for the second quarter of
 2008 compared to the same period in 2007 while the average cost of interest-bearing liabilities declined 125
 basis points in 2008 compared to 2007.  Interest rate spread increased from 2.10% for the quarter ending June 30,
 2007 to 2.73% for the like quarter in 2008. Falling rates have allowed the Bank to benefit from a liability
 sensitive position.  In addition, a more normal, positively sloped yield curve has allowed the Bank
 to support slightly longer asset maturities with cheaper, somewhat shorter term, liabilities. Our deposit
 environment has been one where competition has kept certain types of interest bearing deposit account costs
 higher than wholesale funding that has been available.  We have deliberately reduced certain higher cost funding
 sources, primarily public fund certificates and certain single service customer certificate relationships in
 areas where competition seems irrational. As noted above, maturities of investments, a slight decline in loans
 and growth in certain other deposit categories has provided the funding for this strategy. The Banks
 provision for loan losses for the second quarter of 2008 was $298,000 compared to $100,000 for the same period in
 2007. The increase in the provision expense was primarily the result of continued concern about the economy and
 its effect on our borrowers as well as slight increases in nonperforming assets. Much of the nonperforming
 increase had been expected and taken into account in our large provision recorded in the first quarter of 2008.
 At this time, no charge-offs are deemed necessary for these credits. Non-performing loans to total loans at
 June 30, 2008 were 2.10% compared to 1.22% at December 31, 2007, while non-performing assets to total assets were
 1.63% at June 30, 2008 compared to 0.95% at December 31, 2007. The allowance for loan losses as a percent of
 loans was 1.28% at June 30, 2008 and 1.02% at December 31, 2007. During the second quarter of 2008, the Bank
 incurred $94,000 in net charged off loans compared to net charged off loans in the same quarter of 2007 totaling
 $82,000. Although management believes the allowance for loan losses is appropriate to absorb probable future
 losses inherent in the portfolio as of June 30, 2008, further deterioration in either the economy or our borrowers
 individual financial conditions may necessitate additional provision expense in the future.

22









Other
 income for the three months ended June 30, 2008 was $1,853,000 compared to a $1,884,000 for the same quarter of
 2007 or a decrease of $31,000.  The 2007 results were affected by a balance sheet restructuring that began in
 March of 2007.  This restructuring resulted in certain mortgage loans and securities being transferred to loans
 held for sale and trading securities.  These transfers resulted in various entries affecting noninterest income
 for both the quarter ending June 30, 2007 as well as the year-to-date results ending June 30, 2007. A summary of
 those transactions is presented below. All of these transactions affected noninterest income in 2007. Excluding
 these transactions other income for the three months ending June 30, 2007 would have been $1,616,000 compared to
 $1,853,000 for the three months ending June 30, 2008 or an increase of 15%.  The following
 comparisons have been adjusted for the 2007 restructuring income benefit where applicable. These are notable
 differences and are not meant to be an inclusive list of every change within total noninterest income. Service
 charges on deposit accounts and point of sale income increased $51,000 and $63,000, respectively, over the same
 quarter in 2007 as the results of our efforts to increase the number of checking account customers continues.
 Net realized gains on loans held for sale increased from an adjusted $290,000 in the second quarter of 2007 to
 $333,000 in the second quarter of 2008. We continue to see steady production of traditional, conforming mortgage
 loans with the majority of those loans being sold into the secondary market. Loan servicing fees have increased
 from $75,000 for the second quarter of 2007 to $92,000 for the second quarter of 2008 as a result of loans sold
 in the restructuring where servicing was retained.  Other income increased from $162,000 in the second quarter of
 2007 to $230,000 in the same quarter of 2008.  Various smaller increases made up this difference.  Net realized
 gains on securities were $366,000 for the quarter ended June 30, 2007 but all of this gain was related to the
 balance sheet restructuring.  No gains were recognized for the quarter ended June 30, 2008. The
 following table summarizes by quarter the final results of the balance sheet restructuring transaction and the
 financial statement income line affected.

|Restructuring item                                                | Included in incomestatement line                   | Quarter ending June 30, 2007 | Quarter ending March 31, 2007 | Year-to-date June 30, 2007
|----------------------------------------------------------------- | -------------------------------------------------- | ---------------------------- | ----------------------------- | --------------------------
|                                                                  |                                                    |                              |                               |                           
|Loans loss on mark-to- market and reclassification to securities | Net gains (losses) on loans held for sale          | $   (752,776)                |                               | $   (1,327,359)           
|Loans securitized and sold  establish mortgage servicing right   | Net gains (losses) on loans held for sale          | 296,352                      |                               | -0-                       
|Subtotal                                                          | Net gains (losses) on  loans held for sale         | (456,424)                    |                               | (1,327,359)               
|Sale of securitized mortgage loan security                        | Net realized gains (losses) on sales of securities | 303,100                      |                               | -0-                       
|Gains (losses) on trading securities                              | Net realized gains (losses) on sales of securities | 62,672                       |                               | (418,723)                 
|Subtotal                                                          | Net realized gains (losses) on sales of securities | 365,772                      |                               | (418,723)                 
|Income related to forward sale contract termination               | Gain on termination of forward commitment          | 358,750                      |                               | -0-                       
|Subtotal of restructuring effect on pre-tax net income            |                                                    | 268,098                      |                               | (1,746,082)               
|Tax effect on above transactions                                  |                                                    | 103,276                      |                               | (671,944)                 
|Net income effect of restructuring                                |                                                    | $    164,822                 |                               | $   (1,074,138)           



23







Other
 expenses were $6,451,000 for the three months ended June 30, 2008, a $257,000 or 4% increase compared to
 $6,194,000 for the same three months of 2007.  The following are notable differences and are not meant to be an
 inclusive list of every change within total noninterest expense. The increase in salary and benefits of $205,000
 to $3,275,000 from the three months ended June 30, 2007 to the three months ended June 30, 2008 included an
 increase in salaries, commissions and overtime of $203,000. This increase represented normal annual increases as
 well as the addition of several new positions in key areas, including business development, brokerage, mortgage
 lending and commercial Lending. Full-time equivalent employees were 243 for the second quarter of 2008 compared
 to 232 for the same quarter in 2007.  Data processing fees totaled $708,000 for the second quarter of 2008 or
 $34,000 more than the same quarter in 2007 as a result of additional services as well as additional activity
 relating to new deposit accounts opened. Advertising and business development expenses declined from $297,000 for
 the second quarter of 2007 to $239,000 in the quarter ended June 30, 2008. Much of this decline is due to the
 timing of certain campaigns as well as an increased focus on cost control in this area.  Professional fees
 increased $38,000 compared to the second quarter of 2007 to $215,000 in the second quarter of 2008 due to
 increased loan collection efforts.  Income tax expense for the three months ended June 30, 2008 was
 $207,000. This compares to income tax of  $123,000 for the quarter ended June 30, 2007. The difference between
 the actual rate recorded and the statutory rates was primarily due to permanent, non-taxable income recorded such
 as qualifying municipal interest and increases in cash value of life insurance.

Comparison
 of Operating Results for the Six Months Ended June 30, 2008 and 2007



Net
 income for the six month period ended June 30, 2008 was $1,144,000, or $.23 for both basic and diluted earnings
 per share. This compared to net income for the comparable period in 2007 of $378,000 or $.07 for both basic and
 diluted earnings per share.  As noted above, during the first quarter of 2007, the Bank began a strategy to
 restructure its balance sheet and, as a result, incurred a first quarter after-tax loss.  The total year-to-date
 effect of the restructuring was a net loss of $909,000, or $.18 for both basic and diluted earnings per share. Net
 interest income year-to-date through June 30, 2008 increased by $1,208,000 from $10,697,000 year-to-date 2007 to
 $11,905,000 year-to-date in 2008. Generally the Bank has been in a liability sensitive position and falling
 interest rates have allowed the Bank to re-price its liabilities at a faster rate than it has had to re-price its
 assets.  Net interest margin increased to 2.97% for the six-month period ended June 30, 2008 compared to 2.58%
 for the same period in 2007. The average yield on earning assets decreased 41 basis points for the six month
 period ending June 30, 2008 compared to the same period in 2007 while the average cost of interest-bearing
 liabilities decreased 92 basis points in 2008 compared to 2007. This improved interest rate spread from 2.12% for
 the 2007 period to 2.63% for the 2008 period, or 51 basis points.

24









The
 Banks provision for loan losses year-to-date through June 30, 2008 was $1,806,000 compared to $307,000 for
 the same period in 2007.  A provision of $1,507,000 was taken during the first quarter of 2008. The increased
 provision in the first quarter of 2008 was made for several reasons.  After the Bank reviewed annual financial
 statements of certain of its loan customers it was determined that the customers financial conditions had
 declined and warranted downgrades of the credits.  These loans were primarily development and commercial
 real estate loans affected by the downturn in the economy.  The downgraded credits affected the outcome of
 the Banks consistently applied methodology for determining loan loss allowances and resulted in a required
 increase to the allowance for loan losses.  Although management believes the allowance for loan losses is
 appropriate to absorb future losses inherent in the portfolio as of June 30, 2008, further deterioration in
 either the economy or our borrowers individual financial conditions may necessitate additional provision
 expense in the future.   Other income year-to-date through June 30, 2008 was $3,799,000 compared to
 income of $1,704,000 for the same period of 2007.  As noted above the 2007 results are affected by a balance
 sheet restructuring that was initiated in the first quarter of 2007. Other income for the period ended June 30,
 2007 included a net $1,478,000 of net losses related to the balance sheet restructuring discussed above.  This is
 illustrated in the table presented above. Excluding the balance sheet restructuring charges other income would
 have increased $617,000 to $3,799,000. The following comparisons have been adjusted for the 2007 restructuring
 effect where applicable. These are notable differences and are not meant to be an inclusive list of every change
 within total noninterest income.  Net gains on sale of loans increased $179,000 to $790,000 for the six month
 period ended June 30, 2008. We continue to sell the majority of our fixed rate mortgage production and realize
 gains on those sales. Service charges on deposit accounts and point of sale income have both been positively
 affected by our continued marketing program to attract new deposit customers. They increased by $151,000 and
 $132,000 respectively through the six months ending June 30, 2008 as compared to the same period in 2007. We
 recognized gain on sales of securities totaling $70,000 as certain callable securities were called during the
 first quarter of 2008.  This compares to no gains on securities for the same period in 2007 after adjusting for
 the effect of the balance sheet restructuring.  Loan servicing fees increased by $34,000 to $186,000 for the six
 months ending June 30, 2008.  This increase is due to the loans that were sold with servicing retained during the
 balance sheet restructuring.  Other income increased from an adjusted $382,000 in the six months ending June 30,
 2007 to $447,000 for same period in 2008. Various smaller increases made up this difference.   Other
 expenses for the six month period ended June 30, 2008 were $12,801,000, an increase of $669,000 over the same
 period in 2007.  Most of the increase was in salaries and employee benefit costs, up $463,000 (7.5%), data
 processing costs up $167,000 (13.8%) and professional fees, up $107,000 (33.3%) for essentially the same reasons
 mentioned for the quarter and described above.  Occupancy costs also increased from $1,137,000 to $1,257,000
 primarily from the addition of new branches in Greenwood and Mooresville in high traffic areas to replace
 existing offices in those communities.  Advertising and business development costs for the six months ended June
 30, 2008 decreased $111,000 to $468,000 for essentially the same reasons as discussed in the quarterly results
 above. Income tax benefit for the six months ended June 30, 2008 was $46,000 on $1,098,000 of pre-tax
 income. This compares to $416,000 of benefit on $38,000 of loss before income tax expense for the like period in
 2007. The difference between the actual rate recorded and the statutory rates was primarily due to permanent,
 non-taxable income recorded such as qualifying municipal interest and increases in cash value of life insurance
 and the benefit of a low income housing tax credit for the 2007 periods.



25







Asset
 Quality



The
 Company currently classifies loans as special mention, substandard, doubtful and loss to assist management in
 addressing collection risks and pursuant to regulatory requirements. Special mention loans represent credits that
 have potential weaknesses that deserve managements close attention. If left uncorrected, these potential
 weaknesses may result in deterioration of the repayment prospects or Lincolns credit position at some
 future date. Substandard loans represent credits characterized by the distinct possibility that some loss will be
 sustained if deficiencies on the loans are not corrected. Doubtful loans possess the characteristics of
 substandard loans, but collection or liquidation in full is doubtful based upon existing facts, conditions and
 values. A loan classified as a loss is considered uncollectible. Lincoln had $8.6 million and $13.7 million of
 loans classified as special mention as of June 30, 2008 and December 31, 2007, respectively. In addition, Lincoln
 had $28.1 million and $8.5 million of loans classified as substandard at June 30, 2008 and December 31, 2007,
 respectively. Loans classified as doubtful totaled $.2 million at June 30, 2008 and $.7 million at December 31,
 2007. At June 30, 2008 and December 31, 2007 there were no loans classified as loss.  The increases in classified
 loans occurred primarily in the first quarter of 2008 after loan officers of the Bank reviewed annual financial
 statements of certain of its loan customers as they became available and determined that the customers
 financial conditions had declined and warranted downgrades of the credits.  These loans were primarily
 development and commercial real estate loans affected by the downturn in the economy.  Loans that were
 downgraded totaled over $30 million and spanned over a dozen relationships.  Nonperforming assets of the Bank
 increased to $13.4 million at June 30, 2008 from $7.9 million at December 31, 2007. More than half of this
 increase was related to one specific relationship that had been considered in our analysis of the allowance for
 loan losses at March 31, 2008 and provided accordingly through additional provision at that time.  Conservative
 underwriting should allow appropriate resolution of this relationship in the near future.

At
 June 30, 2008, and December 31, 2007, non-accrual loans were $9.9 million and $7.7 million respectively. At June
 30, 2008 and December 31, 2007, respectively, accruing loans delinquent 90 days or more totaled $3.5 million and
 $192,000. A substantial portion of this increase was related to one specific relationship that had been
 considered in our analysis of the allowance for loan losses at March 31, 2008 and provided accordingly through
 additional provision at that time.  Conservative underwriting should allow appropriate resolution of this
 relationship in the near future.  At June 30, 2008 and December 31, 2007, the allowance for loan losses was $8.2
 million and $6.6 million, respectively or 1.28% of total loans including loans held for sale at June 30, 2008 and
 1.02% at December 31, 2007.

Liquidity
 and Capital Resources



The
 Companys primary sources of funds are deposits, borrowings and the proceeds from principal and interest
 payments on loans. In addition, securities maturities and amortization of mortgage-backed securities are
 structured to provide a source of liquidity. Sales of loans and available for sale securities can also provide
 liquidity should the need arise. While maturities and scheduled amortization of loans and mortgage-backed
 securities are a predictable source of funds, deposit flows and mortgage and mortgage-backed securities
 prepayments are greatly influenced by general interest rates, economic conditions and competition. Liquidity
 management is both a daily and long-term function of the Companys management strategy. In the event that
 the Company should require funds beyond its ability to generate them internally, additional funds are available
 through the use of FHLB advances, brokered deposits and federal funds purchased.

26









Quantitative
 measures established by regulation to ensure capital adequacy require the Company and the subsidiary bank to
 maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the
 regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as
 defined).  Management believes, as of June 30, 2008, that the Company and the Bank meet all capital
 adequacy requirements to which they are subject. 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                                                          
|As of June 30, 2008                      |         |                               |                                                                 
|Total Capital (to Risk-Weighted Assets)  |         |                               |                                                                 
|Consolidated                             | $81,068 |                               | 11                                                              
|Bank                                     | 82,184  |                               | 11                                                              
|                                         |         |                               |                                                                 
|Tier I Capital (to Risk-Weighted Assets) |         |                               |                                                                 
|Consolidated                             | 72,417  |                               | 10                                                              
|Bank                                     | 73,991  |                               | 10                                                              
|                                         |         |                               |                                                                 
|Tier I Capital (to Average Assets)       |         |                               |                                                                 
|Consolidated                             | 72,417  |                               | 8                                                               
|Bank                                     | 73,991  |                               | 8                                                               



Other

The
 Securities and Exchange Commission maintains a Web site that contains reports, proxy information statements, and
 other information regarding registrants that file electronically with the Commission, including the Company. The
 address is www.sec.gov.

Item
 3.     Quantitative and Qualitative Disclosures About Market Risk



An
 important component of Lincoln Banks asset/liability management policy includes examining the interest rate
 sensitivity of its assets and liabilities and monitoring the expected effects of interest rate changes on the
 economic value of its assets. An asset or liability is interest rate sensitive within a specific time period if
 it will mature or reprice within that time period. If Lincoln Banks assets mature or reprice more quickly
 or to a greater extent than its liabilities, economic value and net interest income would tend to increase during
 periods of rising interest rates, but decrease during periods of falling interest rates. Conversely, if Lincoln
 Banks assets mature or reprice more slowly or to a lesser extent than its liabilities, economic value and
 net interest income would tend to decrease during periods of rising interest rates but increase during periods of
 falling interest rates.

27









The
 Banks board of directors has delegated responsibility for the day-to-day management of interest rate risk
 to the Asset/Liability (ALCO) Committee. The ALCO Committee meets monthly to manage and review
 Lincoln Banks assets and liabilities. The ALCO Committee reviews interest rates for deposits and loan
 product pricing. The committee considers the Banks interest rate risk position, liquidity needs and
 competitive pricing. Presented below, as of June 30, 2008 is an analysis showing the present value
 impact of changes in interest rates, assuming a comprehensive mark-to-market environment. Noninterest sensitive
 assets and liabilities such as cash, accounts receivable, fixed assets, and other liabilities are excluded from
 the analysis.

|                                     |  | Economic Value                                             |          
|------------------------------------ |  | ---------------------------------------------------------- | ---------
|                                     |  | Present Value at June 30, 2008Change in Interest Rates of: |          
|                                     |  | -2%                                                        |          
|                                     |  | (In Thousands)                                             |          
|Interest Sensitive Assets            |  |                                                            |          
|Investments                          |  | $                                                          | 146,586  
|Loans                                |  |                                                            | 651,350  
|Total interest sensitive assets      |  |                                                            | 797,936  
|                                     |  |                                                            |          
|Interest Sensitive Liabilities       |  |                                                            |          
|Deposits                             |  |                                                            | (584,446)
|Borrowings and repurchase agreements |  |                                                            | (137,380)
|Total interest sensitive liabilities |  |                                                            | (721,826)
|                                     |  |                                                            |          
|Net market value as of June 30, 2008 |  | $                                                          | 76,110   
|Change from current                  |  | $                                                          | 3,707    



The
 same information as of December 31, 2007 is presented below.

|                                         |  | Economic Value                                                 |          
|---------------------------------------- |  | -------------------------------------------------------------- | ---------
|                                         |  | Present Value at December 31, 2007Change in Interest Rates of: |          
|                                         |  | -2%                                                            |          
|                                         |  | (In Thousands)                                                 |          
|Interest Sensitive Assets                |  |                                                                |          
|Investments                              |  | $                                                              | 163,320  
|Loans                                    |  |                                                                | 657,051  
|Total interest sensitive assets          |  |                                                                | 820,371  
|                                         |  |                                                                |          
|Interest Sensitive Liabilities           |  |                                                                |          
|Deposits                                 |  |                                                                | (613,495)
|Borrowings and repurchase agreements     |  |                                                                | (131,492)
|Total interest sensitive liabilities     |  |                                                                | (744,987)
|                                         |  |                                                                |          
|Net market value as of December 31, 2007 |  | $                                                              | 75,384   
|Change from current                      |  | $                                                              | 5,453    



28







Item
 4.     Controls and Procedures

(a)
      Evaluation of disclosure controls and procedures. The Companys chief
 executive officer and chief financial officer, after evaluating the effectiveness of the Companys
 disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the regulations promulgated
 under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the most
 recent fiscal quarter covered by this quarterly report (the Evaluation Date), have concluded that as
 of the Evaluation Date, the Companys disclosure controls and procedures are effective in ensuring that
 information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is
 recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
 Commissions 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 required
disclosure.



(b)
      Changes in internal control over financial reporting. There were no changes
 in the Companys internal control over financial reporting identified in connection with the Companys
 evaluation of controls that occurred during the Companys last fiscal quarter that have materially affected,
 or are reasonably likely to materially affect, the Companys internal control over financial reporting.



29







PART
 II. OTHER INFORMATION

Item
 1.     Legal Proceedings



Although
 the Company and its subsidiaries are involved, from time to time, in various legal proceedings arising in the
 ordinary course of business, there are no material legal proceedings to which they are a party or to which their
 property is subject.

Item
 1A. Risk Factors



There
 have been no material changes with respect to the risk factors disclosed in the Companys Annual Report on
 Form 10-K for the year ended December 31, 2007.

Item
 2.     Unregistered Sales of Equity Securities and Use of Proceeds



Not
 applicable

Item
 3.     Defaults Upon Senior Securities.



None

Item
 4.     Submission of Matters to Vote of Security Holders.



On April 15,
 2008, the Company held its Annual Meeting of Shareholders.  Two directors were elected to serve three-year terms
 expiring in 2011 as follows:



|Name               | Votes For | Votes Withheld
|------------------ | --------- | --------------
|Davie D. Mansfield | 4,114,869 | 391,713       
|Patrick A. Sherman | 4,137,022 | 369,561       



Item
 5.     Other Information.



None



Item
 6.     Exhibits



The
 response to this item is incorporated by reference from the attached Exhibit Index



30





SIGNATURES

Pursuant
 to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
 report to be signed on its behalf by the undersigned thereunto duly authorized.

|                       |     | LINCOLN BANCORP                      
|---------------------- | --- | -------------------------------------
|                       |     |                                      
|Date:  August 11, 2008 | By: | /s/ Jerry R. Engle                   
|                       |     | Jerry R. Engle                       
|                       |     | President and Chief Executive Officer
|                       |     |                                      
|                       |     |                                      
|Date:  August 11, 2008 | By: | /s/ John M. Baer                     
|                       |     | John M. Baer                         
|                       |     | Secretary and Treasurer              



31







EXHIBIT
 INDEX



|No.   |  | Description                                                                                                            |  | Location                                                                                                             
|----- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|3(i)  |  | Articles of Incorporation                                                                                              |  | Incorporated by reference to Exhibit (1) to the Companys Registration Statement on form S-1 filed September 14, 1998
|3(ii) |  | Amended and Restated Code of By-Laws                                                                                   |  | Incorporated by reference to Exhibit 3.1 to the Form 8-K filed November 27, 2007                                     
|31(1) |  | CEO Certification required by 17 C.F.R. Section 240.13a-14(a)                                                          |  | Attached                                                                                                             
|31(2) |  | CFO Certification required by 17 C.F.R. Section 240.13a-14(a)                                                          |  | Attached                                                                                                             
|32    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Attached