UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 December 31, 2009

¨	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: 0-51800

United Community Bancorp

(Exact name of registrant as specified in its charter)

United States of America	36-4587081
(State or other jurisdiction of incorporation or	(I.R.S.Employer Identification No.)
organization)

92 Walnut Street, Lawrenceburg, Indiana	47025
(Address of principal executive offices)	(Zip Code)

(812) 537-4822

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company 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

As of February 10, 2010, there were 7,845,554 shares of the registrant’s common stock outstanding.

UNITED COMMUNITY BANCORP

Table of Contents

		Page No.
Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition at December 31, 2009 and
	June 30, 2009	1

	Consolidated Statements of Income for the Three and Six Month Periods Ended
	December 31, 2009 and 2008	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Month
	Periods Ended December 31, 2009 and 2008	3

	Consolidated Statements of Cash Flows for the Six Month Periods Ended
	December 31, 2009 and 2008	4

	Notes to Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

Part II. Other Information

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

Signatures		27

Part I. Financial Information

Item 1. Financial Statements

UNITED COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share amounts)	December 31, 2009			June 30, 2009
Assets

Cash and due from banks	$	18,616		$	27,004
Investment securities:
Securities available for sale - at estimated market value		46,474			46,769
Securities held to maturity - at amortized cost		675			175
Mortgage-backed securities available for sale - at estimated market value		37,523			29,713

Loans receivable, net		270,512			272,270
Loans available for sale		440			2,193

Property and equipment, net		6,038			6,011
Federal Home Loan Bank stock, at cost		2,016			2,016
Accrued interest receivable:
Loans		1,136			1,259
Investments and mortgage-backed securities		585			486
Other real estate owned, net		789			1,940
Cash surrender value of life insurance policies		6,966			6,826
Deferred income taxes		2,719			2,700
Prepaid expenses and other assets		3,886			2,217
Total assets	$	398,375		$	401,579

Liabilities and Stockholders' Equity

Deposits	$	336,917		$	339,616
Advance from FHLB		3,333			3,833
Accrued interest on deposits		12			15
Accrued interest on FHLB advance		8			8
Advances from borrowers for payment of insurance and taxes		170			179
Accrued expenses and other liabilities		2,599			2,849
Total liabilities		343,039			346,500

Commitments and contingencies

Stockholders' equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued		--			--
Common stock, $0.01 par value; 19,000,000 shares authorized, 8,464,000 shares issued and 7,846,574 shares outstanding at December 31, 2009 and 8,464,000 shares issued, and 7,857,974 shares outstanding at June 30, 2009		36			36
Additional paid-in capital		36,938			36,791
Retained earnings		28,357			28,204
Less shares purchased for stock plans		(3,140	)		(3,254	)
Treasury Stock, at cost - 617,426 and 606,026 shares at December 31, 2009 and June 30, 2009, respectively		(7,047	)		(6,974	)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net of income taxes		192			276

Total stockholders' equity		55,336			55,079

Total liabilities and stockholders' equity	$	398,375		$	401,579

See accompanying notes to the consolidated financial statements.

UNITED COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except share amounts)

	For the three months ended December 31,					For the six months ended December 31,
	2009		2008			2009		2008
Interest income:
Loans	$	3,997	$	4,559		$	8,158	$	9,127
Investments and mortgage - backed securities		714		471			1,374		1,047
Total interest income		4,711		5,030			9,532		10,174
Interest expense:
Deposits		1,560		2,055			3,235		4,325
Borrowed funds		28		36			58		74
Total interest expense		1,588		2,091			3,293		4,399

Net interest income		3,123		2,939			6,239		5,775

Provision for loan losses		324		396			946		731

Net interest income after provision for loan losses		2,799		2,543			5,293		5,044

Other income:
Service charges		514		446			996		930
Gain on sale of loans		110		3			196		21
Gain (loss) on sale of investments		51		(75	)		39		(33	)
Income from Bank Owned Life Insurance		82		65			139		130
Other		185		63			258		150
Total other income		942		502			1,628		1,198

Other expense:
Compensation and employee benefits		1,441		1,415			2,912		2,891
Premises and occupancy expense		278		286			554		545
Deposit insurance premium		193		66			413		129
Advertising expense		85		71			176		148
Data processing expense		64		55			120		112
ATM service fees		110		107			217		215
Provision for loss on sale of other real estate owned		200		--			300		69
Other operating expenses		698		639			1,252		1,123
Total other expense		3,069		2,639			5,944		5,232

Income before income taxes		672		406			977		1,010

Provision for income taxes		196		144			279		361

Net income	$	476	$	262		$	698	$	649

Basic and diluted earnings per share	$	0.06	$	0.03		$	0.09	$	0.09

See accompanying notes to the consolidated financial statements.

UNITED COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	For the three months					For the six months
	ended December 31,					December 31,
	2009			2008		2009			2008

Net income	$	476		$	262	$	698		$	649

Other comprehensive income (loss), net of tax Unrealized gain (loss) on available for sale securities		(528	)		733		(61	)		651

Reclassification adjustment for (gains) losses on available for sale securities included in income		(31	)		45		(23	)		20

Total comprehensive income (loss)	$	(83	)	$	1,040	$	614		$	1,320

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

	(Unaudited)
	Six months ended
	December 31,
(In thousands)	2009			2008
Operating activities:
Net income	$	698		$	649
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		231			237
Provision for loan losses		946			731
Provision for loss on sale of real estate acquired through foreclosure		300			--
Deferred loan origination costs		(5	)		(30	)
Amortization of premium on investments		(24	)		42
Proceeds from sale of loans		17,376			2,265
Loans disbursed for sale in the secondary market		(15,427	)		(2,244	)
Gain on sale of loans		(196	)		(21	)
(Gain) loss on the sale of available for sale securities		(39	)		33
ESOP shares committed to be released		72			66
Stock-based compensation expense		189			281
Deferred income taxes		36			235
Gain on sale of other real estate owned		(20	)		(30	)
Increase in cash surrender value of life insurance		(140	)		(131	)
Effects of change in operating assets and liabilities:
Accrued interest receivable		24			60
Prepaid expenses and other assets		(1,669	)		210
Accrued interest on advances from Federal Home Loan Bank		--			(1	)
Accrued interest on deposits		(3	)		(54	)
Accrued expenses and other		(250	)		193

Net cash provided by operating activities		2,099			2,491

Investing activities:
Proceeds from maturity of available for sale investment securities		4,890			765
Proceeds from the sale of available for sale investment securities		3,498			1,551
Proceeds from the sale of mortgage-backed securities		5,350			--
Proceeds from repayment of mortgage-backed securities available for sale		4,554			2,081
Proceeds from sale of other real estate owned		1,759			524
Purchases of available for sale investment securities		(8,713	)		(2,697	)
Purchases of mortgage-backed securities		(17,670	)		(4,056	)
Net increase in loans		(71	)		(5,129	)
Capital expenditures		(258	)		(61	)

Net cash used in investing activities		(6,661	)		(7,022	)

Financing activities:
Net decrease in deposits		(2,699	)		(10,059	)
Repayments of Federal Home Loan Bank advances		(500	)		(500	)
Dividends paid to stockholders		(545	)		(486	)
Repurchases of common stock		(73	)		(204	)
Net decrease in advances from borrowers for payment of insurance and taxes		(9	)		(106	)

Net cash used in financing activities		(3,826	)		(11,355	)

Net decrease in cash and cash equivalents		(8,388	)		(15,886	)

Cash and cash equivalents at beginning of period		27,004			35,710

Cash and cash equivalents at end of period	$	18,616		$	19,824

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION- United Community Bancorp (the “Company”), a Federally-chartered corporation, is the mid-tier holding company for United Community Bank (the “Bank”), which is a Federally-chartered, FDIC-insured savings bank. The Company was organized in conjunction with the Bank’s reorganization from a mutual savings bank to the mutual holding company structure on March 30, 2006. United Community MHC, a Federally-chartered corporation, is the mutual holding company parent of the Company. United Community MHC owns 59% of the Company’s outstanding common stock and must always own at least a majority of the voting stock of the Company. The Company, through the Bank, operates in a single business segment providing traditional banking services through its office and branches in southeastern Indiana. UCB Real Estate Management Holding, LLC is a wholly-owned subsidiary of United Community Bank. The entity was formed for the purpose of holding assets that are acquired by the Bank through, or in lieu of, foreclosure.

The accompanying unaudited financial statements were prepared in accordance with the instructions for Form 10-Q and Regulation S-X and therefore do not include all information or footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America. However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. No other adjustments have been included. The results for the three and six month periods ended December 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes thereto for the year ended June 30, 2009, which are included on the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 28, 2009. In connection with the preparation of the accompanying financial statements, the Company evaluated events and transactions through February 12, 2010, which is the date the financial statements are issued.

2. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) – As of December 31, 2009 and June 30, 2009, the ESOP owned 230,897 and 245,262 shares, respectively, of the Company's common stock, which were held in a suspense account until released for allocation to participants.

3. EARNINGS PER SHARE (EPS) – In June 2008, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 260-10-65-2, Transition Related to FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. This guidance concludes that non-vested shares with non-forfeitable dividend rights are considered participating securities and, thus, subject to the two-class method pursuant to ASC 260, Earnings per Share, when computing basic and diluted EPS. This guidance became effective for the Company on July 1, 2009. The Company’s restricted share awards contain non-forfeitable dividend rights but do not contractually obligate the holders to share in the losses of the Company. Accordingly, during periods of net income, unvested restricted shares are included in the determination of both basic and diluted EPS. During periods of net loss, these shares are excluded from both basic and diluted EPS.

Basic EPS is based on the weighted average number of common shares and unvested restricted shares outstanding, adjusted for ESOP shares not yet committed to be released. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. For the three and six month periods ended December 31, 2009 and 2008, 346,304 outstanding stock option awards were excluded from the computation of diluted weighted average outstanding shares as their effect would have been anti-dilutive. The following is a reconciliation of the basic and diluted weighted average number of common shares outstanding:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2009		2008		2009		2008

Basic weighted average outstanding shares		7,608,208		7,581,164		7,610,139		7,557,218
Effect of dilutive stock options		-		-		-		-
Diluted weighted average outstanding shares		7,608,208		7,581,164		7,610,139		7,557,218

4. STOCK-BASED COMPENSATION – The Company applies the provisions of ASC 718-10-35-2, Compensation-Stock Compensation, to stock-based compensation, which requires the Company to measure the cost of employee services received in exchange for awards of equity instruments and to recognize this cost in the financial statements over the period during which the employee is required to provide such services. The Company has elected to recognize compensation cost associated with its outstanding stock-based compensation awards with graded vesting on an accelerated basis pursuant to ASC 718-10-35-8. The expense is calculated for stock options at the date of grant using the Black-Scholes option pricing model. The expense associated with restricted stock awards is calculated based upon the value of the common stock on the date of grant.

5. DIVIDENDS – On July 23, 2009, October 22, 2009, and January 28, 2010, the Board of Directors of the Company declared cash dividends on the Company’s outstanding shares of stock of $0.10 per share. United Community MHC, which owns 4,655,200 shares of the Company’s common stock, waived receipt of the dividends. The dividends were paid on August 31, 2009 and November 30, 2009. The third dividend will be paid on or around February 26, 2010. Accordingly, cash dividends, net of unvested shares held in ESOP, approximating $545,000 were paid to shareholders during the six month period ended December 31, 2009. United Community MHC has waived its right to receive cash dividends of approximately $931,000 on its owned shares of Company common stock.

6. SUPPLEMENTAL CASH FLOW INFORMATION

	Six Months Ended
	December 31,
	2009			2008
	(In thousands)
Supplemental disclosure of cash flow information is as follows:
Cash paid during the period for:
Income taxes	$	-		$	10
Interest	$	3,296		$	4,454

Supplemental disclosure of non-cash investing and financing activities is as follows:
Unrealized gains (losses) on securities designated as available for sale, net of tax	$	(84	)	$	671
Transfers of loans to other real estate owned	$	888		$	583

7. TROUBLED DEBT RESTRUCTURINGS - From time to time, as part of our loss mitigation process, loans may be renegotiated in a troubled debt restructuring when we determine that greater economic value will ultimately be recovered under the new terms than through foreclosure, liquidation, or bankruptcy. We may consider the borrower’s payment status and history, the borrower’s ability to pay upon a rate reset on an adjustable rate mortgage, size of the payment increase upon a rate reset, period of time remaining prior to the rate reset, and other relevant factors in determining whether a borrower is experiencing financial difficulty. At December 31, 2009, the Bank had eleven loans totaling $8.6 million that qualified as troubled debt restructurings. One loan, secured by multifamily residential real estate for $1.5 million, had an additional $84,000 available to borrow. At December 31, 2009, the Bank has no other commitments to lend on its loans already restructured under troubled debt. At June 30, 2009, the Bank had five loans totaling $4.5 million that qualified as troubled debt restructurings. The amount of impairment recorded on troubled debt restructurings was $979,000 at December 31, 2009.

8. DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

In accordance with ASC 825-10-50-10, for financial instruments where quoted market prices are not available, fair values are estimated using present value or other valuation methods.

The following methods and assumptions are used in estimating the fair values of financial instruments:

Cash and due from banks, accrued interest receivable, and accrued interest payable

The carrying values presented in the consolidated statements of position approximate fair value.

Investments and mortgage-backed securities

Fair values for investment securities (debt instruments) and mortgage-backed securities classified as available for sale are determined based upon ASC 820-10-50-2, and are discussed later in this footnote. For securities that are held to maturity, the carrying values presented in the consolidated statements of position approximate fair value.

Loans receivable

The fair value of the loan portfolio is estimated by evaluating homogeneous categories of loans with similar financial characteristics. Loans are segregated by types, such as residential mortgage, commercial real estate, and consumer. Each loan category is further segmented into fixed and adjustable rate interest, terms, and by performing and non-performing categories. The fair value of performing loans, except residential mortgage loans, is calculated by discounting contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loan. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources. The fair value for significant non-performing loans is based on recent internal or external appraisals. Assumptions regarding credit risk, cash flow, and discount rates are judgmentally determined by using available market information.

Federal Home Loan Bank stock

The carrying values presented in the consolidated statements of position approximate fair value.

Deposits

The fair value of passbook accounts, NOW accounts, and money market savings and demand deposits approximates their carrying values. The fair value of fixed maturity certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently offered for deposits of similar maturities.

Advance from Federal Home Loan Bank

The fair value is calculated using rates available to the Company on advances with similar terms and remaining maturities are used to estimate fair value.

Off-balance sheet items

Carrying value is a reasonable estimate of fair value. These instruments are generally variable rate or short-term in nature, with minimal fees charged. Off-balance sheet items at December 31, 2009 are comprised solely of loan commitments.

The estimated fair values of the Company's financial instruments at December 31, 2009 and June 30, 2009 are as follows:

	December 31, 2009				June 30, 2009
	Carrying Amounts		Fair Value		Carrying Amounts		Fair Value
	(In thousands)
Financial assets:
Cash and due from banks	$	18,616	$	18,616	$	27,004		27,004
Investment securities available for sale		46,474		46,474		46,769		46,769
Investment securities held to maturity		675		675		175		175
Mortgage-backed securities		37,523		37,523		29,713		29,713
Loans receivable and loans receivable held for sale		270,952		269,352		274,463		270,760
Accrued interest receivable		1,721		1,721		1,745		1,745
Investment in FHLB stock		2,016		2,016		2,016		2,016

Financial liabilities:
Deposits	$	336,917	$	338,917	$	339,616		341,322
Accrued interest payable		20		20		23		23
FHLB advance		3,333		3,379		3,833		3,856

Effective January 1, 2008, the Company adopted ASC 820-10-50-2, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820-10-50-2 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.

ASC 820-10-50-2 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 1	Quoted prices in active markets for identical assets or liabilities.

	Level 2	Observable 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 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value methods and assumptions are set forth below for each type of financial instrument measured at fair value in the accompanying consolidated statements of financial condition. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 2 securities include U.S. Government and agency mortgage-backed securities, U.S. Government agency bonds, municipal securities, and other real estate owned. If quoted market prices are not available, the Bank utilizes a third party vendor to calculate the fair value of its available for sale securities. The third party vendor uses quoted prices of securities with similar characteristics when available. If such quotes are not available, the third party vendor uses pricing models or discounted cash flow models with observable inputs to determine the fair value of these securities. For other real estate owned, the Bank utilizes appraisals obtained from independent third parties to determine fair value. At December 31, 2009, the Company had $37.5 million in mortgage-backed securities, $36.0 million in U.S. Government agency bonds, $10.4 million in municipal bonds, and $790,000 in other real estate owned. At June 30, 2009, the Company had $29.7 million in mortgage-backed securities, $39.6 million in U.S. Government agency bonds, $7.0 million in municipal bonds, and $1.9 million in other real estate owned. The valuations for these securities were obtained from the third party vendor to our custodian without adjustment by the Bank. Management obtains and reviews the third party vendor’s Statement of Auditing Standard No. 70 (SAS 70) examination report to evaluate the valuation methodologies and ensure that reported fair values are consistent with the requirements of ASC 820, including proper classification within the fair value hierarchy.

In certain cases where there is limited activity or less transparency around inputs to the valuation, financial instruments are classified within Level 3 of the valuation hierarchy. Financial instruments classified within Level 3 include mortgage servicing rights and loans held for sale.

The Company is predominately an asset-based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 2 inputs.

Fair value measurements for certain assets and liabilities measured at fair value on a recurring basis:

	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)
	(In thousands)
December 31, 2009:
Mortgage-backed securities	$	37,523		-	$	37,523		-
U.S. Government corporations and agencies		35,971		-		35,971		-
Municipal bonds		10,375		-		10,375		-
Other equity securities		128		128		-		-
June 30, 2009:
Mortgage-backed securities	$	29,713		-	$	29,713		-
U.S. League intermediate-term portfolio		47		-		47		-
U.S. Government corporations and agencies		39,641		-		39,641		-
Municipal bonds		6,952		-		6,952		-
Other equity securities		129		129		-		-

Fair value measurements for certain assets and liabilities measured at fair value on a nonrecurring basis:

	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)
	(In thousands)
December 31, 2009:
Other real estate owned	$	789		-		789		-
Loans held for sale	$	440		-		440		-
Impaired loans	$	11,785		-		11,785		-
June 30, 2009:
Other real estate owned	$	1,940		-		1,940		-
Loans held for sale	$	2,193		-		2,193		-
Impaired loans	$	7,512		-		7,512		-

Investment securities available for sale at December 31, 2009 consist of the following:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(In thousands)

Mortgage-backed securities	$	37,128	$	553	$	158	$	37,523
U.S. Government corporations and agencies		35,929		161		120		35,971
Municipal bonds		10,408		70		102		10,375
Other equity securities		211		-		83		128
	$	83,676	$	784	$	463	$	83,997

Investment securities held to maturity at December 31, 2009 consist of the following:

Gross

Estimated

Amortized

Unrealized

Market

Cost

Gains

Losses

Value

(In thousands)

Municipal bonds

675

Investment securities available for sale at June 30, 2009 consist of the following:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
	(In thousands)

Mortgage-backed securities	$	29,144	$	619	$	50	$	29,713
U.S. League Intermediate - Term Portfolio		60		-		13		47
U.S. Government corporations and agencies		39,515		218		92		39,641
Municipal bonds		7,091		-		139		6,952
Other equity securities		211		-		82		129
	$	76,021	$	837	$	376	$	76,482

Investment securities held to maturity at June 30, 2009 consist of the following:

Gross

Estimated

Amortized

Unrealized

Market

Cost

Gains

Losses

Value

(In thousands)

Municipal bonds

175

The mortgage-backed securities, U.S. Government agency bonds and municipal bonds available for sale have the following maturities at December 31, 2009:

	Amortized		Estimated
	cost		market value
	(In thousands)

Due or callable in one year or less	$	10,094	$	10,123
Due or callable in 1 - 5 years		25,835		25,847
Due or callable in 5 - 10 years		8,088		8,346
Due or callable in greater than 10 years		39,448		39,553
Total debt securities	$	83,465	$	83,869

The table below indicates the length of time individual investment securities and mortgage-backed securities have been in a continuous loss position at December 31, 2009:

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. League Intermediate - Term Portfolio & Callable Government agencies	$	7,474		120		-		-		7,474		120
Mortgage-backed securities	$	2,152		26		14,824		132		16,976		158
Municipal bonds		2,326		44		3,106		58		5,432		102
Other equity securities		-		-		128		83		128		83
	$	11,952		190		18,058		273		30,010		463
Number of investments		11				13				24

Securities available for sale are reviewed for possible other-than-temporary impairment on a quarterly basis. During this review, Management considers the severity and duration of the unrealized losses as well as its intent and ability to hold the securities until recovery, taking into account balance sheet management strategies and its market view and outlook. Management also assesses the nature of the unrealized losses taking into consideration factors such as changes in risk-free interest rates, general credit spread widening, market supply and demand, creditworthiness of the issuer or any credit enhancement providers, and the quality of the underlying collateral. Management has the intent to hold these securities into the foreseeable future, and the decline in market value is due to changes in market interest rates. The fair values are expected to recover as the securities approach maturity dates.

9. SUBSEQUENT EVENT

In February, 2010, United Community Bank (“United”), a wholly-owned subsidiary of United Community Bancorp, entered into a definitive agreement to purchase three banking offices of Integra Bank Corporation’s wholly-owned bank subsidiary, Integra Bank N.A. (“Integra”). The offices are located in Milan, Osgood and Versailles, Indiana. In addition, United has agreed to acquire a group of commercial and residential mortgage loans from Integra. United will assume approximately $54.4 million of deposit liabilities related to the three branches, as well as $38.6 million of branch loans and $12.3 million of additional commercial and residential mortgage loans selected by United that were originated in other Integra offices. The transaction is subject to regulatory approval and other customary closing conditions.

10. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued Codification Accounting Standards Update No. 2010-06 (ASU No. 2010-06), Improving Disclosure about Fair Value Measurements, under Topic 820, Fair value Measurements and Disclosures, to improve and provide new disclosures for recurring and nonrecurring fair value measurements under the three-level hierarchy of inputs for transfers in and out of Levels 1 and 2, and activity in Level 3. This update also clarifies existing disclosures of the level of disaggregation for the classes of assets and liabilities and the disclosure about inputs and valuation techniques. ASU No. 2010-06 is effective for the interim period December 31, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The adoption of ASU No. 2010-06 is not expected to have a material impact on our consolidated financial statements.

In January 2010 the FASB issued ASU 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, under Topic 505, which amends the Codification to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 codifies the consensus reached in EITF Issue No. 09-E, “Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash.” ASU 2010-01 is effective for the interim annual period ending December 31, 2009, and should be applied on a retrospective basis. There was no material impact on the Company’s financial statements as a result of the adoption of ASU 2010-01 for per share or dividends paid amounts disclosed.

In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, Generally Accepted Accounting Principles, as the single source of authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 were effective for interim and annual periods ending after September 15, 2009 and, accordingly, were effective for the Company for the quarter ended September 30, 2009. The adoption of this pronouncement did not have an impact on the Company’s financial condition or results of operations, but will impact the Company’s financial reporting process by eliminating all references to pre-codification standards. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative.

FASB ASC Topic 820 (ASC 820), Fair Value Measurements and Disclosures, clarifies the definition of fair value, provides a framework for the measurement of fair value, and expands disclosure requirements about fair value measurements. ASC 820 was effective as of July 1, 2008 for financial assets and liabilities. The Company had only partially applied the provisions of ASC 820 as Management elected the deferral provisions of ASC 820-10-65-1, Transition Related to FASB Staff Position FAS 157-2, as it applies to non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. ASC 820-10-65-1 delayed the effective date of ASC 820 for non-financial assets and liabilities that are not measured at fair value on a recurring basis (at least annually) until July 1, 2009 for the Company. Fair value measurements of non-financial assets and non-financial liabilities are used primarily in the impairment analyses of long-lived assets, goodwill and other intangible assets. There was no material impact on the Company’s financial statements as a result of the adoption of ASC 820 for non-financial assets and liabilities.

In April 2009, the FASB issued ASC 320-10-65, Transition Related to FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The Company adopted the provisions of ASC 320-10-65 on July 1, 2009. ASC 320-10-65 amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The adoption of this standard did not have a material impact on the Company’s financial statements.

In April 2009, the FASB issued ASC 820-10-65-4, Transition Related to FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. ASC 820-10-65-4 is an amendment of ASC 820-10, Fair Value Measurements. ASC 820-10-65-4 applies to all assets and liabilities and provides guidance on measuring fair value when the volume and level of activity has significantly decreased and guidance on identifying transactions that are not orderly. ASC 820-10-65-4 requires interim and annual disclosures of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, that occurred during the period. The Company adopted ASC 820-10-65-4 on July 1, 2009. ASC 820-10-65-4 did not have a material impact on the Company’s financial statements.

In June 2008, the FASB issued ASC 260-10-65-2, Transition Related to FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This guidance concludes that non-vested shares with non-forfeitable dividend rights are considered participating securities and, thus, subject to the two-class method pursuant to ASC 260, Earnings per Share, when computing basic and diluted EPS. This guidance became effective for the Company on July 1, 2009. Because the Company’s restricted share awards contain non-forfeitable dividend rights, the provisions of this guidance must be applied. Upon adoption, the Company was required to adjust all prior period EPS data on a retrospective basis to conform with the provisions of this guidance. The impact on basic and diluted weighted average shares outstanding and EPS for the fiscal year ended June 30, 2009 is as follows:

	Basic Weighted Average Common Shares Outstanding				Basic Earnings per Share					Diluted Weighted Average Common Shares Outstanding				Diluted Earnings per Share
	Previously Reported		Adjusted		Previously Reported			Adjusted		Previously Reported		Adjusted		Previously Reported		Adjusted
Quarter ended September 30, 2008		7,486,298		7,533,272	$	0.05		$	0.05		7,517,916		7,533,272	$	0.05	$	0.05

Quarter ended December 31, 2008		7,470,354		7,581,164	$	0.04		$	0.03		7,512,020		7,581,164	$	0.03	$	0.03

Six months ended December 31, 2008		7,478,326		7,557,218	$	0.09		$	0.09		7,514,968		7,557,218	$	0.09	$	0.09

Quarter ended March 31, 2009		7,541,869		7,624,977	$	0.05		$	0.05		7,541,869		7,624,977	$	0.05	$	0.05

Nine months ended March 31, 2009		7,499,198		7,579,475	$	0.13		$	0.13		7,523,805		7,579,475	$	0.13	$	0.13

Quarter ended June 30, 2009		7,538,175		(1)	$	(0.04	)		(1)		(1)		(1)		(1)		(1)

Year ended June 30, 2009		7,508,916		7,589,898	$	0.10		$	0.09		7,533,230		7,589,898	$	0.10	$	0.09

_________________

(1)	Due to the net loss for the three month period ended June 30, 2009, no adjustments were made for outstanding stock options and unearned restricted shares as such effect would be anti-dilutive.

The Codification does not modify existing GAAP or any guidance issued by the SEC. Nonauthoritative accounting literature is excluded from the Codification. To improve usability, the Codification does include certain SEC guidance. GAAP accounting standards used to populate the Codification are superseded, with the exception of certain standards yet to be codified as of September 30, 2009, including SFAS 166 and 167 described subsequently.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140, and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). These Statements modify the accounting for transfers of financial assets and the determination of what entities must be consolidated, and will have a significant effect on securitizations and special-purpose entities. We adopted these Statements effective July 1, 2009, as required. The adoption of these standards did not have a material impact on the Company’s financial statements.

Item 2. Management Discussion and Analysis

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank’s market area, changes in real estate market values in the Bank’s market area, and changes in relevant accounting principles and guidelines. Additionally, other risks and uncertainties may be described in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 28, 2009 and the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 16, 2009, which is available through the SEC’s website at www.sec.gov, as well as under “Part II - Item 1A. Risk Factors” of this Form 10-Q. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: allowance for loan losses and deferred income taxes.

ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the OTS, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see notes 1 and 5 of the notes to the consolidated financial statements included in Item 8 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2009.

DEFERRED INCOME TAXES - We use the asset and liability method of accounting for income taxes as prescribed in ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.

INVESTMENT SECURITIES - Investments are reviewed quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, Management evaluates, among other factors, the expected cash flows of the security, the duration and extent to which the fair value of an investment is less than its cost, the historical and implicit volatility of the security and intent and ability to hold the investment until recovery, which may be maturity. Investments with an indicator of impairment are further evaluated to determine the likelihood of a significant adverse effect on the fair value and amount of the impairment as necessary. Once the other-than-temporary impairment is recorded, when future cash flows can be reasonable estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security.

Comparison of Financial Condition at December 31, 2009 and June 30, 2009

Total assets were $398.4 million at December 31, 2009, compared to $401.6 million at June 30, 2009. The decrease is primarily due to an $8.4 million decrease in cash and equivalents, and a $1.8 million decrease in loans receivable, partially offset by an $8.0 million increase in investments. The decrease in cash and equivalents is due to the purchase of investment securities since June 30, 2009. The decrease in loans receivable is the result of more loans being sold to Freddie Mac and tighter lending standards that have been implemented over the last two years.

Total liabilities were $343.0 million at December 31, 2009, compared to $346.5 million at June 30, 2009. The decrease in total liabilities is primarily due to a decrease of $20.8 million in municipal deposits in the current year, partially offset by an $18.1 million increase in other deposits. The decrease in municipal deposits reflects the cyclical nature of municipal deposits, which are affected by the timing of receipt of tax revenues and spending for ongoing civil projects. The increase in other deposits is the result of increased marketing and promotional efforts in our market area.

Total stockholders’ equity was $55.3 million at December 31, 2009, compared to $55.1 million at June 30, 2009. The increase in total stockholders’ equity is due to net income of $698,000, and stock-based compensation and ESOP shares committed to be released totaling $261,000, partially offset by $545,000 in dividends paid to shareholders, and an $84,000 decrease in unrealized gains on available for sale securities, net of income taxes.

Comparison of Operating Results for the Three and Six Months Ended December 31, 2009 and 2008

General. Net income was $476,000 for the three months ended December 31, 2009, compared to net income of $262,000 for the three months ended December 31, 2008. Net income was $698,000 for the six months ended December 31, 2009, compared to net income of $649,000 for the six months ended December 31, 2008.

The following table summarizes changes in interest income and interest expense for the three and six months ended December 31, 2009 and 2008.

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2009		2008		% Change		2009		2008		% Change
	(Dollars in thousands)
Interest income:
Loans	$	3,997	$	4,559		(12.3)%	$	8,158	$	9,127		(10.6)%
Investment and mortgage backed securities		711		445		59.8		1,368		904		51.3
Other interest-earning assets		3		26		(88.5)		6		143		(95.8)
Total interest income		4,711		5,030		(6.3)		9,532		10,174		(6.3)

Interest expense:
NOW and money market deposit accounts		197		490		(59.7)		454		1,108		(59.0)
Passbook accounts		33		93		(64.5)		65		204		(68.1)
Certificates of deposit		1,330		1,472		(9.6)		2,716		3,013		(9.9)
Total interest-bearing deposits		1,560		2,055		(24.1)		3,235		4,325		(25.2)
FHLB advances		28		36		(22.2)		58		74		(21.6)
Total interest expense		1,588		2,091		(24.1)		3,293		4,399		(25.1)
Net interest income	$	3,123	$	2,939		6.3	$	6,239	$	5,775		8.0

Net Interest Income. Net interest income increased $184,000, or 6.3%, in the quarter ended December 31, 2009, as compared to the prior year quarter. The increase in net interest income is primarily attributable to a $43.7 million increase in the average balance of investment securities for the quarter ended December 31, 2009, when compared to the prior year quarter, which was greater than the $32.8 million increase in the average balance of time deposits over the same period.

Net interest income increased $464,000, or 8.0%, in the six months ended December 31, 2009, as compared to the same period in the prior year. The increase is primarily the result of a decrease in the average interest rate paid on interest bearing liabilities from 2.71% to 1.90%, partially offset by a decrease in the average rate of interest earning assets from 5.67% to 5.00%. The decrease in rates has been driven by continued lower market rates in the current year.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three and six months ended December 31, 2009 and 2008. For the purposes of this table, average balances have been calculated using month-end balances, and nonaccrual loans are included in average balances only. Yields are not presented on a tax equivalent basis.


	Three Months Ended December 31,														Six Months Ended December 31,
	2009							2008							2009							2008
			Interest							Interest							Interest							Interest
	Average		and		Yield/			Average		and		Yield/			Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost			Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans		271,979		3,997		5.88	%	$	288,058	$	4,559		6.33	%		272,664		8,158		5.98	%	$	286,392	$	9,127		6.37	%
Investment and mortgage backed securities		82,727		711		3.44			39,058		445		4.56			80,888		1,368		3.38			38,438		904		4.70
Other interest-earning assets		28,814		3		0.04			31,667		26		0.33			27,442		6		0.04			33,867		143		0.84
		383,520		4,711		4.91			358,783		5,030		5.61			380,994		9,532		5.00			358,697		10,174		5.67
Noninterest-earning assets		23,658							23,773							23,545							23,971
Total assets		407,178						$	382,556							404,539						$	382,668