**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 (Mark
        One)
 
 [X]
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
                  OR
 
 [   ]
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934 FOR THE TRANSITION PERIOD FROM
                  TO
 
 Commission
        file number:   000-25219
 
 LINCOLN
        BANCORP
 (Exact
        name of registrant specified in its charter)
 
 Indiana
              35-2055553(State
                  or other jurisdiction of incorporation or organization)
              (I.R.S.
                  Employer Identification Number)
 
 1121
        East
        Main Street
 Plainfield,
        Indiana 46168-0510
 (Address
        of principal executive offices, including Zip Code)
 
 (317)
        839-6539
 (Registrant’s
        telephone number, including area code)
 
 
 Indicate
        by check mark whether the Registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such report), and (2) has been subject to such filing requirements
        for
        the past 90
        days.  Yes [X]   No [   ]
 
 Indicate
        by check mark whether the Registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange
        Act).  Yes [   ]   No [X]
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange
        Act).  Yes [   ]   No [X]
 
 The
        number of shares of the Registrant’s common stock, without par value,
        outstanding as of September 30, 2005 was 5,402,453.
 
 
  1
  LINCOLN
        BANCORP AND SUBSIDIARY
 FORM
        10-Q
 
 INDEX
 
 
 Page
                  No.FORWARD
                  LOOKING STATEMENT
              3PART
                  I.
              FINANCIAL
                  INFORMATION
              4Item
                  1.
              Financial
                  Statements
              4Consolidated
                  Condensed Balance Sheets
              4Consolidated
                  Condensed Statements of Income
              5Consolidated
                  Condensed Statements of Comprehensive Income
              6Consolidated
                  Condensed Statement of Shareholders’ Equity
              7Consolidated
                  Condensed Statements of Cash Flows
              8Notes
                  to Unaudited Consolidated Condensed Financial Statements
              9Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              11Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              17Item
                  4.
              Controls
                  and Procedures
              18PART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              19Item
                  5.
              Other
                  Information
              19Item
                  6.
              Exhibits
              19SIGNATURES
              20EXHIBIT
                  INDEX
              21
  2
  
 **FORWARD
        LOOKING STATEMENT**
 
 This
        Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements which constitute
        forward looking statements within the meaning of the Private Securities
        Litigation Reform Act of 1995. These statements appear in a number of places
        in
        this Form 10-Q and include statements regarding the intent, belief, outlook,
        estimate or expectations of the Company (as defined in the notes to the
        consolidated condensed financial statements), its directors or its officers
        primarily with respect to future events and the future financial performance
        of
        the Company. Readers of this Form 10-Q are cautioned that any such forward
        looking statements are not guarantees of future events or performance and
        involve risks and uncertainties, and that actual results may differ materially
        from those in the forward looking statements as a result of various factors.
        The
        accompanying information contained in this Form 10-Q identifies important
        factors that could cause such differences. These factors include changes
        in
        interest rates; loss of deposits and loan demand to other financial
        institutions; substantial changes in financial markets; changes in real estate
        values and the real estate market; or regulatory changes.
 
  3
 **PART
        I FINANCIAL INFORMATION**
 Item
        1.  Financial
        Statements
 
 **LINCOLN
        BANCORP AND SUBSIDIARY**
 Consolidated
        Condensed Balance Sheets
 September
                  30,
                2005
              
              December
                  31,
                2004(Unaudited)**Assets**Cash
                  and due from banks
              
              $
              3,653,368
              
              $
              9,218,265Short-term
                  interest-bearing demand deposits in other banks
              
              
              22,674,780
              
              
              14,581,854Federal
                  funds sold
              
              
              --
              
              
              3,990,000Cash
                  and cash equivalents
              
              
              26,328,148
              
              
              27,790,119Interest-bearing
                  deposits
              
              
              --
              
              
              2,188,111Investment
                  securitiesAvailable
                  for sale
              
              
              132,934,004
              
              
              118,916,779Held
                  to maturity (market value $-0- and $1,745,000)
              
              
              --
              
              
              1,695,000Total
                  investment securities
              
              
              132,934,004
              
              
              120,611,779Loans
                  held for sale
              
              
              3,014,866
              
              
              8,820,890Loans,
                  net of allowance for loan losses of $5,805,895 and
                  $5,700,702
              
              
              598,066,447
              
              
              567,182,726Premises
                  and equipment
              
              
              14,172,368
              
              
              14,416,140Investments
                  in limited partnerships
              
              
              1,088,643
              
              
              1,024,777Federal
                  Home Loan Bank stock
              
              
              10,648,200
              
              
              10,427,000Interest
                  receivable
              
              
              3,827,144
              
              
              3,194,313Goodwill
              
              
              23,906,877
              
              
              23,906,877Core
                  deposit intangible
              
              
              3,459,641
              
              
              4,017,274Cash
                  surrender value life insurance
              
              
              18,261,080
              
              
              17,751,275Other
                  assets
              
              
              5,376,744
              
              
              7,635,652Total
                  assets
              
              $
              841,084,162
              
              $
              808,966,933**Liabilities**DepositsNoninterest-bearing
              
              $
              48,444,818
              
              $
              36,956,251Interest-bearing
              
              
              540,582,694
              
              
              479,372,500Total
                  deposits
              
              
              589,027,512
              
              
              516,328,751Securities
                  sold under repurchase agreement
              
              
              11,215,048
              
              
              6,500,277Borrowings
              
              
              132,075,929
              
              
              177,829,382Interest
                  payable
              
              
              1,797,475
              
              
              1,145,877Other
                  liabilities
              
              
              6,407,199
              
              
              5,407,828Total
                  liabilities
              
              
              740,523,163
              
              
              707,212,115**Commitments
                  and Contingencies****Shareholders’
                  Equity**Common
                  stock, without par valueAuthorized
                  - 20,000,000 sharesIssued
                  and outstanding - 5,402,453 and 5,366,563 shares
              
              
              63,943,607
              
              
              63,533,976Retained
                  earnings
              
              
              40,708,804
              
              
              42,092,418Accumulated
                  other comprehensive income (loss)
              
              
              (297,352
              )
              
              182,864Unearned
                  recognition and retention plan (RRP) shares
              
              
              (613,765
              )
              
              (632,420
              )Unearned
                  employee stock ownership plan (ESOP) shares
              
              
              (3,180,295
              )
              
              (3,422,020
              )Total
                  shareholders’ equity
              
              
              100,560,999
              
              
              101,754,818Total
                  liabilities and shareholders’ equity
              
              $
              841,084,162
              
              $
              808,966,933
  See
        notes
        to consolidated condensed financial statements.
 4
 **LINCOLN
        BANCORP AND SUBSIDIARY**
 Consolidated
        Condensed Statements of Income
 (Unaudited)
 
 Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,2005
              
              2004
              
              2005
              
              2004Interest
                  IncomeLoans,
                  including fees
              
              $
              9,614,846
              
              $
              8,022,734
              
              $
              27,699,064
              
              $
              21,313,964Investment
                  securities
              
              
              1,226,283
              
              
              992,319
              
              
              3,636,054
              
              
              2,287,644Deposits
                  with financial institutions and Federal Funds sold
              
              
              185,695
              
              
              79,097
              
              
              417,838
              
              
              105,173Dividend
                  income
              
              
              126,535
              
              
              113,692
              
              
              348,905
              
              
              324,908Total
                  interest and dividend income
              
              
              11,153,359
              
              
              9,207,842
              
              
              32,101,861
              
              
              24,031,689Interest
                  ExpenseDeposits
              
              
              3,702,798
              
              
              1,965,247
              
              
              9,387,479
              
              
              4,792,084Federal
                  Home Loan Bank advances
              
              
              1,526,333
              
              
              2,075,825
              
              
              5,460,275
              
              
              6,139,914Other
                  Borrowings
              
              
              63,560
              
              
              14,436
              
              
              176,792
              
              
              14,436Total
                  interest expense
              
              
              5,292,691
              
              
              4,055,508
              
              
              15,024,546
              
              
              10,946,434Net
                  Interest Income
              
              
              5,860,668
              
              
              5,152,334
              
              
              17,077,315
              
              
              13,085,255Provision
                  for loan losses
              
              
              145,249
              
              
              116,035
              
              
              2,074,480
              
              
              539,488Net
                  Interest Income After Provision for Loan Losses
              
              
              5,715,419
              
              
              5,036,299
              
              
              15,002,835
              
              
              12,545,767Other
                  IncomeService
                  charges on deposit accounts
              
              
              553,838
              
              
              495,576
              
              
              1,535,914
              
              
              1,014,566Net
                  realized and unrealized gains on loans
              
              
              194,261
              
              
              180,312
              
              
              571,221
              
              
              318,719Net
                  realized gains/(losses) on sales of available-for-sale
                  securities
              
              
              248,699
              
              
              --
              
              
              (43,721
              )
              
              --Point
                  of sale income
              
              
              156,644
              
              
              114,276
              
              
              425,398
              
              
              303,540Loan
                  servicing fees
              
              
              99,319
              
              
              96,099
              
              
              308,271
              
              
              260,805Increase
                  in cash value of life insurance
              
              
              165,956
              
              
              162,892
              
              
              514,349
              
              
              416,279Equity
                  in income/(losses) of limited partnerships
              
              
              42,535
              
              
              (33,000
              )
              
              63,866
              
              
              (99,000
              )Other
                  income
              
              
              125,328
              
              
              154,036
              
              
              509,900
              
              
              427,192Total
                  other income
              
              
              1,586,580
              
              
              1,170,191
              
              
              3,885,198
              
              
              2,642,101Other
                  ExpensesSalaries
                  and employee benefits
              
              
              2,568,002
              
              
              2,399,065
              
              
              8,102,104
              
              
              5,894,589Net
                  occupancy expenses
              
              
              499,450
              
              
              310,621
              
              
              1,434,446
              
              
              778,159Equipment
                  expenses
              
              
              323,541
              
              
              290,625
              
              
              1,105,737
              
              
              698,676Advertising
                  and business development
              
              
              186,430
              
              
              132,950
              
              
              574,296
              
              
              368,172Data
                  processing fees
              
              
              596,888
              
              
              439,398
              
              
              1,828,715
              
              
              1,175,853Professional
                  fees
              
              
              197,556
              
              
              118,995
              
              
              593,942
              
              
              353,582Director
                  and committee fees
              
              
              66,541
              
              
              88,671
              
              
              171,079
              
              
              179,061Core
                  deposit intangibles amortization
              
              
              172,348
              
              
              139,892
              
              
              557,633
              
              
              186,866Prepayment
                  fees on Federal Home Loan Bank advances
              
              
              --
              
              
              --
              
              
              1,621,813
              
              
              --Office
                  supplies
              
              
              102,613
              
              
              73,775
              
              
              377,384
              
              
              194,768Other
                  expenses
              
              
              779,698
              
              
              647,529
              
              
              2,312,849
              
              
              1,473,571Total
                  other expenses
              
              
              5,493,067
              
              
              4,641,521
              
              
              18,679,998
              
              
              11,303,297Income
                  Before Income Tax
              
              
              1,808,932
              
              
              1,564,969
              
              
              208,035
              
              
              3,884,571Income
                  tax expense (benefit)
              
              
              593,621
              
              
              379,964
              
              
              (346,941
              )
              
              951,619Net
                  Income
              
              $
              1,215,311
              
              $
              1,185,005
              
              $
              554,976
              
              $
              2,932,952Basic
                  earnings per share
              
              $
              .24
              
              $
              .26
              
              $
              .11
              
              $
              .70Diluted
                  earnings per share
              
              
              .24
              
              
              .25
              
              
              .11
              
              
              .68Dividends
                  per share
              
              
              .14
              
              
              .13
              
              
              .42
              
              
              .39
  See
        notes
        to consolidated condensed financial statements.
 5
  **LINCOLN
        BANCORP AND SUBSIDIARY**
 Consolidated
        Condensed Statements of Comprehensive Income
 (Unaudited)
 
 Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,2005
              
              2004
              
              2005
              
              2004Net
                  Income
              
              $
              1,215,311
              
              $
              1,185,005
              
              $
              554,976
              
              $
              2,932,952Other
                  comprehensive income (loss), net of taxUnrealized
                  gains (losses) on securities available for saleUnrealized
                  holding gains (losses) arising during the period, net of tax,
                  expense/(benefit) of $(81,541), $402,104, $(278,337), and
                  $302,969
              
              
              (172,717
              )
              
              714,282
              
              
              (528,842
              )
              
              521,717Less:
                  Reclassification adjustment for losses included in net loss, net
                  of tax
                  benefit of $99,186, -0-, 4,904 and -0-.
              
              
              149,512
              
              
              -0-
              
              
              (48,626
              )
              
              -0-(322,229
              )
              
              714,282
              
              
              (480,216
              )
              
              521,717Comprehensive
                  income
              
              $
              893,082
              
              $
              1,899,287
              
              $
              74,760
              
              $
              3,454,669
 
 
 
 See
        notes
        to consolidated condensed financial statements.
  6
  **LINCOLN
        BANCORP AND SUBSIDIARY**
 Consolidated
        Condensed Statement of Shareholders’ Equity
 For
        the
        Nine Months Ended September 30, 2005
 (Unaudited)
 
 
 Common
                  Stock
              
              
              
              Accumulated
                  Other
              
              
              
              UnearnedShares
                  Outstanding
              
              Amount
              
              Retained
                  Earnings
              
              Comprehensive
                  Income (Loss)
              
              Unearned
                  Compensation
              
              ESOP
                  Shares
              
              Total**Balances,
                  January 1, 2005**
              
              
              5,366,563
              
              $
              63,533,976
              
              $
              42,092,418
              
              $
              182,864
              
              $
              (632,420
              )
              $
              (3,422,020
              )
              $
              101,754,818Net
                  income for the period
              
              
              
              
              
              
              
              
              554,976
              
              
              
              
              
              
              
              
              
              
              
              554,976Unrealized
                  losses on securities, net of reclassification adjustment
              
              
              
              
              
              
              
              
              
              
              
              (480,216
              )
              
              
              
              
              
              
              
              (480,216
              )Stock
                  options exercised
              
              
              35,890
              
              
              409,631
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              409,631ESOP
                  shares earned
              
              
              
              
              
              
              
              
              182,101
              
              
              
              
              
              
              
              
              241,725
              
              
              423,826Amortization
                  of unearned compensation expense
              
              
              
              
              
              
              
              
              4,565
              
              
              
              
              
              18,655
              
              
              
              
              
              23,220Cash
                  dividends ($.42 per share)
              
              
              
              
              
              
              
              
              (2,125,256
              )
              
              
              
              
              
              
              
              
              
              
              (2,125,256
              )**Balances,
                  September 30, 2005**
              
              
              5,402,453
              
              $
              63,943,607
              
              $
              40,708,804
              
              $
              (297,352
              )
              $
              (613,765
              )
              $
              (3,180,295
              )
              $
              100,560,999
 
 
 
 See
        notes
        to consolidated condensed financial statements.
 
  7
  **LINCOLN
        BANCORP AND SUBSIDIARY**
 Consolidated
        Condensed Statements of Cash Flows
 (Unaudited)
 
 Nine
                  Months EndedSeptember
                  30,2005
              
              2004Operating
                  ActivitiesNet
                  income (loss)
              
              $
              554,976
              
              $
              2,932,952Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activitiesProvision
                  for loan losses
              
              
              2,074,480
              
              
              539,488Investment
                  securities accretion, net
              
              
              (66,223
              )
              
              351,165Investment
                  securities losses
              
              
              43,721
              
              
              --Loans
                  originated for sale in the secondary market
              
              
              (49,521,375
              )
              
              (22,915,420
              )Proceeds
                  from sale of loans in the secondary market
              
              
              49,976,889
              
              
              19,693,303Gain
                  on sale of loans
              
              
              (571,221
              )
              
              (318,719
              )Amortization
                  of net loan origination fees
              
              
              (235,605
              )
              
              (209,625
              )Amortization
                  of purchase accounting adjustment
              
              
              (26,898
              )
              
              9,518Depreciation
                  and amortization
              
              
              1,170,902
              
              
              639,200Amortization
                  of unearned compensation expense
              
              
              23,220
              
              
              271,625ESOP
                  shares earned
              
              
              423,826
              
              
              477,769Net
                  change in:Interest
                  receivable
              
              
              (632,831
              )
              
              69,757Interest
                  payable
              
              
              651,598
              
              
              209,529Other
                  adjustments
              
              
              600,058
              
              
              (1,510,798
              )Net
                  cash provided by operating activities
              
              
              4,465,517
              
              
              239,744Investing
                  ActivitiesPurchases
                  of securities available for sale
              
              
              (149,770,673
              )
              
              (86,893,910
              )Proceeds
                  from sales of securities available for sale
              
              
              79,391,563
              
              
              --Proceeds
                  from maturities of securities available for sale
              
              
              55,620,929
              
              
              104,987,196Proceeds
                  from maturities of securities held to maturity
              
              
              1,695,000
              
              
              50,000Net
                  change in loans
              
              
              (27,179,018
              )
              
              (21,383,619
              )Purchases
                  of property and equipment
              
              
              (1,156,872
              )
              
              (3,072,261
              )Net
                  cash received in acquisition of First Shares Bancorp
              
              
              --
              
              
              11,680,842Proceeds
                  from sale of foreclosed real estate
              
              
              2,161,761
              
              
              725,184Other
                  investing activities
              
              
              2,435,434
              
              
              1,365Net
                  cash provided by (used in) investing activities
              
              
              (36,801,876
              )
              
              6,094,797Financing
                  ActivitiesNet
                  change inNoninterest-bearing,
                  interest-bearing demand, money market and savings deposits
              
              
              1,461,826
              
              
              23,596,819Certificates
                  of deposit
              
              
              71,588,495
              
              
              9,319,611Short
                  term borrowings
              
              
              4,714,771
              
              
              1,292,458Proceeds
                  from FHLB advances
              
              
              13,000,000
              
              
              67,250,000Repayment
                  of FHLB advances
              
              
              (58,855,000
              )
              
              (85,300,000
              )Dividends
                  paid
              
              
              (2,119,581
              )
              
              (1,577,391
              )Exercise
                  of stock options
              
              
              409,631
              
              
              542,064Net
                  change in advances by borrowers for taxes and insurance
              
              
              674,246
              
              
              404,604Net
                  used in financing activities
              
              
              30,874,388
              
              
              15,528,165Net
                  Change in Cash and Cash Equivalents
              
              
              (1,461,971
              )
              
              21,862,706Cash
                  and Cash Equivalents, Beginning of Period
              
              
              27,790,119
              
              
              16,793,923Cash
                  and Cash Equivalents, End of Period
              
              $
              26,328,148
              
              $
              38,656,629Additional
                  Cash Flows and Supplementary InformationInterest
                  paid
              
              $
              14,372,948
              
              $
              10,736,906Income
                  tax paid/(refund received)
              
              
              (577,298
              )
              
              532,000Loan
                  balances transferred to foreclosed real estate
              
              
              562,611
              
              
              1,619,265Securitization
                  of loans
              
              
              --
              
              
              25,756,736Transfer
                  of loans held for sale to loans
              
              
              5,872,116
              
              
              --
 
 See
        notes
        to consolidated condensed financial statements.
  8
  **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 federally chartered
        savings 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, 2004 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 September 30, 2005, and for
        the
        three and nine months ended September 30, 2005 and 2004, 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 and nine-month
        periods ended September 30, 2005, are not necessarily indicative of the results
        which may be expected for the entire year. The consolidated condensed balance
        sheet of the Company as of December 31, 2004 has been derived from the audited
        consolidated balance sheet of the Company as of that date.
 
 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 Ended
                September
                  30, 2005
              
              Three
                  Months Ended
                September
                  30, 2004Income
              
              Weighted
                  Average Shares
              
              Per
                  Share Amount
              
              Income
              
              Weighted
                  Average Shares
              
              Per
                  Share AmountBasic
                  earnings per shareIncome
                  available to common shareholders
              
              $
              1,215,311
              
              
              5,030,934
              
              $
              .24
              
              $
              1,185,005
              
              
              4,610,144
              
              $
              .26Effect
                  of dilutive RRP awards and stock options
              
              
              
              
              
              102,307
              
              
              
              
              
              
              
              
              141,727Diluted
                  earnings per shareIncome
                  available to common shareholders and assumed conversions
              
              $
              1,215,311
              
              
              5,133,241
              
              $
              .24
              
              $
              1,185,005
              
              
              4,751,871
              
              $
              .25
 
  9
  
 Nine
                  Months Ended
                September
                  30, 2005
              
              Nine
                  Months Ended
                September
                  30, 2004Income
              
              Weighted
                  Average Shares
              
              Per
                  Share Amount
              
              Income
              
              Weighted
                  Average Shares
              
              Per
                  Share AmountBasic
                  earnings per shareIncome
                  available to common shareholders
              
              $
              554,976
              
              
              5,018,880
              
              $
              .11
              
              $
              2,932,952
              
              
              4,178,243
              
              $
              .70Effect
                  of dilutive RRP awards and stock options
              
              
              
              
              
              117,200
              
              
              
              
              
              
              
              
              141,552Diluted
                  earnings per shareIncome
                  available to common shareholders and assumed conversions
              
              $
              554,976
              
              
              5,136,080
              
              $
              .11
              
              
              2,932,952
              
              
              4,319,795
              
              $
              .68
 
 
 Note
        3:  Stock
        Options
 
 The
        Company has a stock-based employee compensation plan, which is described
        more
        fully in Notes to Financial Statements included in the December 31, 2004
        Annual
        Report to Shareholders. The Company accounts for this plan under the recognition
        and measurement principles of APB Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related interpretations. No stock-based employee compensation cost is reflected
        in net income, as all options granted under the plan had an exercise price
        equal
        to the market value of the underlying common stock on the grant date. The
        following table illustrates the effect on net income and earnings per share
        if
        the Company had applied the fair value provisions of Statement of Financial
        Accounting Standards (“SFAS”) No. 123, *Accounting
        for Stock-Based Compensation* ,
        to
        stock-based employee compensation.
  
  
   10
 Three
                  Months Ended
                September
                  30, 2005
              
              Three
                  Months Ended
                September
                  30, 2004
              
              Nine
                  Months Ended
                September
                  30, 2005
              
              Nine
                  Months Ended
                September
                  30, 2004Net
                  income, as reported
              
              $
              1,215,311
              
              $
              1,185,005
              
              $
              554,976
              
              $
              2,932,952Less:
                  Total stock-based employee compensation cost determined under the
                  fair
                  value based method, net of income taxes
              
              
              54,044
              
              
              24,173
              
              
              104,332
              
              
              40,501Pro
                  forma net income
              
              $
              1,161,267
              
              $
              1,160,832
              
              $
              450,644
              
              $
              2,892,451Earnings
                  per share:Basic
                  - as reported
              
              $
              .24
              
              $
              .26
              
              $
              .11
              
              $
              .70Basic
                  - pro forma
              
              $
              .23
              
              
              .25
              
              $
              .09
              
              
              .69Diluted
                  - as reported
              
              $
              .24
              
              
              .25
              
              $
              .11
              
              
              .68Diluted
                  - pro forma
              
              $
              .23
              
              
              .24
              
              $
              .09
              
              
              .67
 
  In
        December, 2004, the Financial Accounting Standards Board (FASB) issued an
        amendment to SFAS 123 (SFAS 123R) which eliminates the ability to account
        for
        share-based compensation transactions using Accounting Principles Board Opinion
        No. 25 and generally requires that such transactions be accounted for using
        a
        fair value-based method. SFAS 123R will be effective for the Company beginning
        January 1, 2006. SFAS 123R applies to all awards granted after the required
        effective date and to awards modified, repurchased, or cancelled after that
        date. The cumulative effect of initially applying this Statement, if any,
        is
        recognized as of the required effective date.
  As
        of the
        required effective date, the Company will apply SFAS 123R using either the
        modified version of prospective application or the modified version of
        retrospective application. Under the prospective transition method, compensation
        cost is recognized on or after the required effective date for the portion
        of
        outstanding awards for which the requisite service has not yet been rendered,
        based on the grant-date fair value of those awards calculated under SFAS
        123 for
        either recognition or pro forma disclosures. For periods before the required
        effective date, a company may elect to apply a modified version of retrospective
        application under which financial statements for prior periods are adjusted
        on a
        basis consistent with the pro forma disclosures required for those periods
        by
        SFAS 123.
  The
        Company is currently evaluating the effect of the recognition and measurement
        provisions of SFAS 123R but believes the adoption of SFAS 123R will not result
        in a material impact on the Company’s results of operations, cash flows or
        financial position.
  
 **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.
 
 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. 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.
  11
  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 Savings
        Association Insurance Fund of the Federal Deposit Insurance Corporation.
        Lincoln
        offers a number of financial services, which includes: (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, whose assets consist
        of an
        investment in Family Financial Holdings, Inc. (“Family Financial”) and in
        Bloomington Housing Associates, L.P. (“BHA”). Family Financial primarily engages
        in retail sales of insurance products in connection with loans originated
        by its
        shareholder financial institutions. BHA is an Indiana limited partnership
        that
        was organized to construct, own and operate a 130-unit apartment complex
        in
        Bloomington, Indiana (the “BHA Project”). Development of the BHA Project was
        completed in 1993 and the project is performing as planned. Second, Citizens
        Loan and Service Corporation (“CLSC”), which 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, OTS 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.
 
 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.
 
 **Critical
        Accounting Policies**
 
 Note
        1 to
        the consolidated financial statements contains a summary of the Company’s
        significant accounting policies presented on pages 27 through 29 of the Annual
        Report to Shareholders for the year ended December 31, 2004, which was filed
        on
        Form 10-K with the Securities and Exchange Commission on March 31, 2005.
        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 significantly 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: probable losses estimated
        from
        individual reviews of specific loans and probable losses estimated 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.
  12
  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. The Company
        evaluates the collectibility 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. Reserves are established for each category of loans
        based
        on the expected net charge-offs for one year. 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 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.
 
 *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.
 
  13
  **Financial
        Condition**
 
 Assets
        totaled $841.1 million at September 30, 2005, an increase from December 31,
        2004
        of $32.1 million. By the end of the third quarter, securities had increased
        by
        $12.3 million from yearend 2004. Continued strong deposit growth has supported
        the securities growth, in spite of the balance sheet restructuring during
        the
        second quarter which resulted in the sale of $37.5 million of lower yielding
        investments. The cash flow generated from this second quarter sale was used
        to
        extinguish certain higher cost advances from the Federal Home Loan Bank of
        Indianapolis totaling $33.9 million. Loans, including loans held for sale,
        grew
        $25.2 million when compared to December 31, 2004. Loan growth year to date
        was
        primarily in commercial and consumer lending, up $4.2 and $29.2 million,
        respectively. Residential mortgage loans declined $7.7 million from December
        31,
        2004.
 
 Deposits
        totaled $589.0 million at September 30, 2005, an increase of $72.7 million
        from
        December 31, 2004. Substantial growth from December 31, 2004 was experienced
        in
        noninterest bearing deposits, up $11.5 million, and certificates of deposit,
        up
        $71.2 million. There has been a shift in deposit mix as customers moved funds
        to
        high-rate money market deposits and shorter term certificates of deposit.
        The
        increase in noninterest bearing deposits was the result of our efforts to
        attract more commercial checking accounts. Borrowed funds and securities
        sold
        under agreement to repurchase declined by $41.0 million from year end 2004
        to
        $143.3 million at September 30, 2005, primarily as a result of the balance
        sheet
        restructuring during the second quarter of 2005 that involved the sale of
        low-yielding investments and the early retirement of high-cost Federal Home
        Loan
        Bank advances.
 
 Shareholders’
        equity decreased $1.2 million from December 31, 2004 to September 30, 2005.
        The
        decrease was a result of dividends paid of $2.1 million. This decrease was
        partially offset by current income, stock options exercised and employee
        stock
        ownership shares earned.
 
 **Comparison
        of Operating Results for the Three Months Ended June 30, 2005 and
        2004**
 
 Net
        income for the third quarter ended September 30, 2005 was $1,215,000, or
        $.24
        for both basic and diluted net income per share. This compared to net income
        for
        the comparable period in 2004 of $1,185,000 or $.26 for basic and $.25 for
        diluted earnings per share.
 
 Net
        interest income for the third quarter of 2005 was $5,861,000 compared to
        $5,152,000 for the same period in 2004. Net interest margin was 3.09% for
        the
        three-month period ended September 30, 2005 compared to 3.02% for the same
        period in 2004. The average yield on earning assets increased .48% for the
        third
        quarter of 2005 compared to the same period in 2004. The average cost of
        interest-bearing liabilities increased .50% from the third quarter of 2004
        to
        the second quarter of 2005. This decreased spread from 2.73% for the 2004
        period
        to 2.71% for the 2005 period, or .02%.
  The
        Bank’s provision for loan losses for the third quarter 2005 was $145,000
        compared to $116,000 for the same period in 2004. Non-performing loans to
        total
        loans at September 30, 2005 were .66% compared to .87% at December 31, 2004,
        while non-performing assets to total assets were .49% at September 30, 2005
        compared to .85% at December 31, 2004. The decrease in non-performing assets
        included a reduction in other real estate owned as one larger property was
        sold.
        In addition, a larger non-performing credit that made up nearly one-half
        of the
        non-performing assets at December 31, 2004 was paid off and partially
        charged-off.
  As
        filed
        July 12, 2005 on Form 8-K, the Company originally announced an additional
        $1.30
        million of provision was made during the second quarter of 2005 to the allowance
        for loan losses to cover the risk exposure for a specific loan. The Bank
        was
        informed that an electrical contractor (the "Borrower") in Indianapolis had
        filed for liquidation under Chapter 7 of the bankruptcy statutes. The Borrower
        and a related company have four commercial loans with the Bank totaling $2.18
        million. As previously disclosed, Bank management had estimated a loss of
        $1.55
        million on this credit. This amount was charged off to loss during the
        three-month period ended September 30, 2005. Management will continue to
        monitor
        the remaining balance and as the bankruptcy progresses re-evaluate the need
        for
        further write-downs.
  The
        Bank
        continues to pursue several possible courses of action to mitigate the ultimate
        losses on these loans. However, the success of these actions will not be
        known
        until the bankruptcy proceedings have concluded. The allowance for loan losses
        as a percentage of loans at September 30, 2005 was .96% compared to .98%
        at
        December 31, 2004.
   14
   Other
        income for the three months ended September 30, 2005 was $1,587,000 compared
        to
        $1,170,000 for the same quarter of 2004. The increase of $417,000 in other
        income was primarily from the increase in gain on sale of investment securities,
        up $249,000. This gain resulted from the sale of a single security held by
        the
        holding company. In addition, point of sale income increased $42,000, service
        charges on deposit accounts increased $58,000 and equity in income and losses
        of
        limited partnerships, up $76,000. Both point of sale income and service charge
        income were positively affected by the addition of First Bank in August of
        2004.
        In addition we continue to benefit from the Bank’s courtesy overdraft program,
        Lincoln Advantage, as additional customers were added to the product in the
        second quarter of 2005. The increase of equity in income and losses of limited
        partnerships was due to better performance of the partnership.
  Other
        expenses were $5,493,000 for the three months ended September 30, 2005 compared
        to $4,642,000 for the same three months of 2004. The primary reason for the
        increase in expenses was the acquisition of First Shares Bancorp as of August
        2,
        2004 and the inclusion of their expenses for the last two months of the quarter
        ended September 30, 2004 as compared to their inclusion for the entire quarter
        ended September 30, 2005. Full-time equivalent employees have increased from
        130
        at June 30, 2004 to 226 at September 30, 2005. Our branch locations have
        increased from nine to seventeen from the end of the second quarter in 2004
        to
        the end of the third quarter in 2005. All categories of expenses reflect
        the
        growth of our business from the acquisition. Specific areas of increase include
        salaries and employee benefits, $2,568,000, an increase of $169,000 over
        the
        same period in 2004, data processing fees, $597,000 an increase of $158,000
        over
        the like quarter in 2004 and net occupancy expense, $499,000 an increase
        of
        $189,000 over the quarter ended September 30, 2004. The addition of our
        Plainfield headquarters in late 2004, the lease of a new location that will
        ultimately replace one of our current locations as well as the First Bank
        acquisition are the primary reasons for this increase.
  The
        income tax benefit was approximately 33% of pretax income for the third quarter
        of 2005 as compared to income tax expense of approximately 24% of pretax
        income
        for the third quarter of 2004. The change in the effective tax rates from
        period
        to period resulted from a decline in tax credits available to the
        Company.
 
 **Comparison
        of Operating Results for the Nine Months Ended September 30, 2005 and
        2004**
 
 Net
        income for the nine-month period ended September 30, 2005 was $555,000, or
        $.11
        for both basic and diluted income per share. This compared to $2,933,000
        or $.70
        for basic and $.68 for diluted earnings per share for the same period of
        2004.
        As previously disclosed, 2005 earnings for the nine month period ending
        September 30, 2005 were affected by the increased provision for loan losses,
        the
        balance sheet restructuring and the recognition of contract costs discussed
        below related to the retirement of certain senior officers.
 
 Net
        interest income year-to-date through September 30, 2005 was $17,077,000 compared
        to $13,085,000 for the same period in 2004. Net interest margin was 3.00%
        through September 30, 2005 up from 2.91% for the same nine-month period one
        year
        ago. Net interest income was up from one year ago as a result of earning
        asset
        growth, the First Shares Bancorp acquisition and widening spreads. The average
        yield on earning assets increased .30% for the nine months ending September
        30,
        2005 compared to the same period in 2004. The average cost of interest-bearing
        liabilities increased .19% for the nine months ending September 30, 2005
        compared to same period in 2004. This increased spread from 2.56% for the
        2004
        period to 2.67% for the 2005 period, or .11%. As noted above, the acquisition
        of
        First Shares Bancorp, effective August 2, 2004, provided a boost to earning
        assets and net interest margin. The merger provided a greater mix of commercial
        and consumer loans with higher yields.
 
 The
        provision for the first nine months of 2005 was $2,074,000 compared to $539,000
        last year for the same nine-month period. As noted above, a specific troubled
        credit recognized during the second quarter of 2005 was responsible for the
        majority of the increase in provision.
  Other
        income for the nine months ended September 30, 2005 was $3,885,000 compared
        to
        $2,642,000 during the same period in 2004. The increase of $1,243,000 in
        other
        income was primarily from the increase in service charges on deposit accounts,
        up $521,000 and net realized and unrealized gains on sale of loans, up $252,000.
        The majority of the service charge increase was the result of the First Shares
        acquisition during the third quarter of 2004 and the implementation of the
        Bank’s courtesy overdraft program Lincoln Advantage during the second quarter
        of
        2004. Additional accounts qualified for Lincoln Advantage during the second
        quarter of 2005. This helped increase service charge revenue further. The
        increase in gain on sale of loans was the result of greater loan sale volume
        during 2005 versus the same period of 2004.
   15
 Other
        expenses for the nine months ended September 30, 2005 were $18,680,000 compared
        to $11,303,000 for the same period last year. The primary reason for the
        increase in expenses was the acquisition of First Shares Bancorp during the
        third quarter of 2004. Full-time equivalent employees have increased from
        130 at
        June 30, 2004 prior to the merger to 226 at September 30, 2005. Our branch
        locations have increased from nine to seventeen from the end of the second
        quarter in 2004 to the end of the quarter ended September 30, 2005. Also,
        as
        previously disclosed, the company undertook a restructuring of the balance
        sheet
        designed to strategically sell certain lower yielding investments totaling
        $37.5
        million during the second quarter and to utilize the cash flow generated
        from
        this sale to extinguish certain higher cost advances from the Federal Home
        Loan
        Bank of Indianapolis totaling $33.9 million. The Company evaluates all
        securities quarterly to determine if any unrealized losses are deemed to
        be
        other than temporary. In completing these evaluations the Company follows
        the
        requirements of paragraph 16 of SFAS No. 115, EITF 03-1 and Staff Accounting
        Bulletin 59. Additionally, for the quarter ended June 30, 2005 the Company
        considered the proposed FASB Staff Position FAS 115-1. Factors considered
        in our
        determination of impairment include the duration and severity of a security’s
        unrealized loss, the underlying cause of the unrealized loss (interest rate
        environment, credit rating changes, regulatory or other difficulties of the
        issuer, etc.), as well as the prospect for a change in market value within
        a
        reasonable period of time and our assessment as to whether we will be able
        to
        collect all amounts due according to the contractual terms of a debt security.
        The Company additionally recognized contract costs in the second quarter
        of 2005
        relating to the retirement of the Company’s Chief Executive Officer and another
        senior officer. T. Tim Unger, who retired as President and Chief Executive
        Officer of the Company and the Bank, and who will continue to serve on the
        Board
        of Directors until the next annual meeting of shareholders scheduled for
        April
        2006, is entitled to compensation and benefits through the end of 2005. Former
        Senior Vice President Rebecca J. Morgan, who left the Bank effective June
        1,
        2005, is entitled to compensation and benefits through January 15, 2006.
        Costs
        relative to the balance sheet restructuring, including prepayment charges,
        and
        the contract cost recognition added $1,870,000 to other expenses during the
        second quarter of 2005. All categories of expenses reflect the growth of
        our
        business from the acquisition and the restructuring costs mentioned
        previously.
  Non-taxable
        income when combined with available tax credits resulted in a tax benefit
        for
        the period ended September 30, 2005 of $347,000. For the period ended September
        30, 2004 income tax expense was approximately 25% of the pre-tax income for
        the
        nine months ended September 30, 2004.
  **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
        $12.5 million and $14.9 million of loans classified as special mention as
        of
        September 30, 2005 and December 31, 2004, respectively. In addition, Lincoln
        had
        $5.2 million and $5.7 million of loans classified as substandard at September
        30, 2005 and December 31, 2004, respectively. Loans classified as doubtful
        totaled $404,000 at September 30, 2005 and $233,000 at December 31, 2004.
        At
        September 30, 2005 and December 31, 2004, no loans were classified as loss.
        At
        September 30, 2005, and December 31, 2004, respectively, non-accrual loans
        were
        $3.8 million and $4.8 million. At September 30, 2005 and December 31, 2004,
        respectively, accruing loans delinquent 90 days or more totaled $240,000
        and
        $314,000. At September 30, 2005 and December 31, 2004, the allowance for
        loan
        losses was $5.8 million and $5.7 million, respectively or approximately .96%
        and
        .98% of loans, including loans held for sale, respectively.
 
 **Liquidity
        and Capital Resources**
 
 The
        Financial Regulatory Relief and Economic Efficiency Act of 2000, which was
        signed into law on December 27, 2000, repealed the former statutory requirement
        that all savings associations maintain an average daily balance of liquid
        assets
        in a minimum amount of not less than 4% or more than 10% of their withdrawable
        accounts plus short-term borrowings. The OTS adopted a rule that implemented
        this revised statutory requirement, although savings associations remain
        subject
        to the OTS regulation that requires them to maintain sufficient liquidity
        to
        ensure their safe and sound operation.
  16
 Pursuant
        to OTS capital regulations in effect at September 30, 2005, savings associations
        were required to maintain a 1.5% tangible capital requirement, a 4% leverage
        ratio (or core capital) requirement, and a total risk-based capital to
        risk-weighted assets ratio of 8%. At September 30, 2005, Lincoln’s capital
        levels exceeded all applicable regulatory capital requirements in effect
        as of
        that date.
 
 **Other**
 
 The
        Securities and Exchange Commission maintains a Web site that contains reports,
        proxy information statements, and other information regarding registrants
        that
        file electronically with the Commission, including the Company. The address
        is
        http://www.sec.gov.
 
 **Item
        3.**  **Quantitative
        and Qualitative Disclosures About Market Risk**
 
 Presented
        below, as of June 30, 2005 and 2004, is an analysis performed by the OTS
        of
        Lincoln’s interest rate risk as measured by changes in Lincoln’s net portfolio
        value (“NPV”) for instantaneous and sustained parallel shifts in the yield
        curve, in 100 basis point increments, up 300 basis points and down 200 basis
        points. As a result of low interest rates in 2004 the OTS had not presented
        the
        down 200 basis points scenario.
 
 June
        30, 2005
  Net
                  Portfolio Value
              
              
              NPV
                  as% of PV of AssetsChanges
                  In Rates
              $
                  Amount
              $
                  Change
              %Change
              NPV
                  Ratio
              Change(Dollars
                  in thousands)+300
              bp
              $48,461
              
              $(22,847
              )
              (32
              )%
              6.48
              %
              (262
              )bp+200
              bp
              57,333
              
              (13,976
              )
              (20
              )
              7.54
              
              (156
              )bp+100
              bp
              65,267
              
              (6,041
              )
              (8
              )
              8.45
              
              (65
              )bp0
              bp
              71,308
              
              
              
              
              
              9.10-100
              bp
              72,408
              
              1,100
              
              2
              
              9.14
              
              4
              bp-200
              bp
              70,106
              
              (1,202
              )
              (2
              )
              8.78
              
              (32
              )bp
  
 June
        30, 2004
 Net
                  Portfolio Value
              
              
              NPV
                  as% of PV of AssetsChanges
                  In Rates
              $
                  Amount
              $
                  Change
              %Change
              NPV
                  Ratio
              Change(Dollars
                  in thousands)+300
              bp
              $60,878
              
              $(18,642
              )
              (23
              )%
              10.71
              %
              (253
              ) bp+200
              bp
              68,018
              
              (11,502
              )
              (14
              )
              11.74
              
              (150
              ) bp+100
              bp
              74,561
              
              (4,959
              )
              (6
              )
              12.64
              
              (61
              ) bp0
              bp
              79,520
              
              
              
              
              
              13.24-100
              bp
              80,259
              
              739
              
              1
              
              13.20
              
              (5
              )bp
 
 Management
        believes at September 30, 2005 there have been no material changes in Lincoln’s
        interest rate sensitive instruments which would cause a material change in
        the
        market risk exposures which affect the quantitative and qualitative risk
        disclosures as presented in Item 7A of the Company’s Annual Report on Form 10-K
        for the period ended December 31, 2004.
 
  17
  **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 were effective in ensuring that information
        required to be disclosed by the Company in reports 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.
  (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.
  
 
 
  18
 **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
        2.  Unregistered
        Sales of Equity Securities and Use of Proceeds
 
 The
        Company announced a stock repurchase program on April 23, 2003, and up to
        127,963 additional shares may still be repurchased under that program. No
        shares
        were repurchased during the quarter ended September 30, 2005. The repurchase
        program does not have an expiration date.
 
 Item
        3.  Defaults
        Upon Senior Securities.
 
 None.
 
 Item
        4.  Submission
        of Matters to Vote of Security Holders.
 
 None.
 
 Item
        5.  Other
        Information.
 
 None.
 
 Item
        6.  Exhibits
 **No.**
                  **Description**3
                  Lincoln
                      Bancorp Code of By-Laws (as amended through October 18,
                      2005)10.1
                  Employment
                      Agreement, dated July 19, 2005, between Lincoln Bank and Jerry
                      R. Engle10.2
                  Lincoln
                      Bancorp 2005 Stock Option Plan10.3
                  Form
                      of Incentive Stock Option Agreement10.4
                  Form
                      of Non-Qualified Stock Option Agreement for Employees10.5
                  Form
                      of Non-Qualified Stock Option Agreement for Directors31.1
                  CEO
                      Certification required by 17 C.F.R. Section
                      240.13a-14(a)31.2
                  CFO
                      Certification required by 17 C.F.R. Section
                      240.13a-14(a)32
                  Certification
                      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                      Section 906 of
                      the Sarbanes-Oxley Act of 2002.
   
 19
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, as amended, the
        Registrant has duly caused this report to be signed on its behalf by the
        undersigned thereunto duly authorized.
 
 **LINCOLN
                  BANCORP**Date:  November
                  14, 2005
              By:
              /s/
                  Jerry R. EngleJerry
                  R. EnglePresident
                  and Chief Executive OfficerDate:  November
                  14, 2005
              By:
              /s/
                  John M. BaerJohn
                  M. BaerSecretary
                  and Treasurer
     20
  **EXHIBIT
        INDEX**
  **No.**
              
              **Description**
              
              **Location**3
              
              Lincoln
                  Bancorp Code of By-Laws (as amended through October 18,
                  2005)
              
              Attached10.1
              
              Employment
                  Agreement, dated July 19, 2005, between Lincoln Bank and Jerry
                  R.
                  Engle
              
              Incorporated
                  by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant
                  on
                  July 25, 200510.2
              
              Lincoln
                  Bancorp 2005 Stock Option Plan
              
              Incorporated
                  by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant
                  on
                  September 9, 200510.3
              
              Form
                  of Incentive Stock Option Agreement
              
              Incorporated
                  by reference to Exhibit 10.2 to the Form 8-K filed by the Registrant
                  on
                  September 9, 200510.4
              
              Form
                  of Non-Qualified Stock Option Agreement for Employees
              
              Incorporated
                  by reference to Exhibit 10.3 to the Form 8-K filed by the Registrant
                  on
                  September 9, 200510.5
              
              Form
                  of Non-Qualified Stock Option Agreement for Directors
              
              Incorporated
                  by reference to Exhibit 10.4 to the Form 8-K filed by the Registrant
                  on
                  September 9, 200531.1
              
              CEO
                  Certification required by 17 C.F.R. Section 240.13a-14(a)
              
              Attached31.2
              
              CFO
                  Certification required by 17 C.F.R. Section 240.13a-14(a)
              
              Attached32
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
              
              Attached
 
 
 
 
 21