SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

or

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

SECURITIES EXCHANGE ACT OF 1934

Commission file number:  0-18847

INDIANA COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

                Indiana                                  35-1807839

(State or other Jurisdiction                 (I.R.S. Employer

of Incorporation or Organization)             Identification No.)

501 Washington Street, Columbus, Indiana              47201

     (Address of Principal Executive Offices)             (Zip Code)

                                                                                                   Registrant's telephone number including area code:  (812) 522-1592

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 to 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 [  ]                                           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 definitions of “large accelerated filer”, “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]                                                                                           Accelerated filer [  ]

Non-accelerated filer [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]

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

YES [  ]                      NO [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock

as of July 31, 2010.

Common Stock, no par value – 3,385,079 shares outstanding

INDIANA COMMUNITY BANCORP

FORM 10-Q

INDEX

	Page No.
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Shareholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations	17
Item 3.  Quantitative and Qualitative Disclosures About
Market Risk	23
Item 4T.  Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1.  Legal Proceedings	24
Item 1A  Risk Factors	24
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.  Defaults Upon Senior Securities	24
Item 4.  Removed and Reserved	24
Item 5.  Other Information	24
Item 6.  Exhibits	25
Signatures	26
Exhibit Index	27

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INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	June 30,			December 31,
	2010			2009
Assets:	(unaudited)
Cash and due from banks	$	12,845		$	10,808
Interest bearing demand deposits		4,792			41,253
Cash and cash equivalents		17,637			52,061
Interest bearing time deposits		410			410
Securities available for sale at fair value (amortized cost $229,344 and $149,031)		230,998			149,633
Securities held to maturity at amortized cost (fair value $0 and $3,392)		-			3,674
Loans held for sale (fair value $3,392 and $6,213)		3,295			6,075
Portfolio loans:
Commercial and commercial mortgage loans		548,320			527,946
Residential mortgage loans		93,169			97,551
Second and home equity loans		96,361			97,071
Other consumer loans		13,379			15,312
Unearned income		(174	)		(99	)
Total portfolio loans		751,055			737,781
Allowance for loan losses		(14,339	)		(13,113	)
Portfolio loans, net		736,716			724,668
Premises and equipment		16,156			15,151
Accrued interest receivable		3,980			3,533
Other assets		51,676			55,118
TOTAL ASSETS	$	1,060,868		$	1,010,323
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Demand	$	76,749		$	80,938
Interest checking		195,921			170,226
Savings		45,896			42,520
Money market		223,080			207,089
Certificates of deposits		333,540			339,025
Retail deposits		875,186			839,798
Public fund certificates		508			507
Wholesale deposits		508			507
Total deposits		875,694			840,305
FHLB advances		64,917			55,000
Junior subordinated debt		15,464			15,464
Other liabilities		17,631			14,630
Total liabilities		973,706			925,399
Commitments and Contingencies
Shareholders' equity:
No par preferred stock; Authorized:  2,000,000 shares
Issued and outstanding: 21,500 and 21,500 shares;  Liquidation preference $1,000 per  share		21,105			21,054
No par common stock; Authorized: 15,000,000 shares
Issued and outstanding: 3,385,079 and 3,358,079 shares		21,097			21,060
Retained earnings, restricted		44,309			42,862
Accumulated other comprehensive income/(loss), net		651			(52	)
Total shareholders' equity		87,162			84,924
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,060,868		$	1,010,323
See notes to condensed consolidated financial statements

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INDIANA COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)
(unaudited)	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Interest Income:
Securities and interest bearing deposits	$	1,448		$	839		$	2,539		$	1,667
Commercial and commercial mortgage loans		7,432			7,586			14,788			15,168
Residential mortgage loans		1,156			1,609			2,371			3,407
Second and home equity loans		1,141			1,253			2,308			2,531
Other consumer loans		279			369			574			759
Total interest income		11,456			11,656			22,580			23,532
Interest Expense:
Checking and savings accounts		519			352			975			625
Money market accounts		450			615			941			1,089
Certificates of deposit		2,285			2,745			4,717			5,513
Total interest on retail deposits		3,254			3,712			6,633			7,227
Brokered deposits		-			51			-			107
Public funds		2			18			4			70
Total interest on wholesale deposits		2			69			4			177
Total interest on deposits		3,256			3,781			6,637			7,404
FHLB advances		262			1,088			525			2,276
Other borrowings		-			1			-			1
Junior subordinated debt		76			112			150			248
Total interest expense		3,594			4,982			7,312			9,929
Net interest income		7,862			6,674			15,268			13,603
Provision for loan losses		1,496			6,788			3,591			8,886
Net interest income (loss) after provision for loan losses		6,366			(114	)		11,677			4,717
Non Interest Income:
Gain on sale of loans		429			674			786			1,736
Gain on securities		12			-			12			-
Other than temporary impairment losses		-			-			(55	)		-
Service fees on deposit accounts		1,698			1,594			3,182			3,048
Loan servicing income, net of impairment		121			140			236			273
Net gain\(loss) on real estate owned		(23	)		11			(361	)		14
Trust and asset management fees		300			117			582			239
Increase in cash surrender value of life insurance		151			131			286			246
Miscellaneous		244			69			427			223
Total non interest income		2,932			2,736			5,095			5,779
Non Interest Expenses:
Compensation and employee benefits		3,310			3,454			7,059			7,132
Occupancy and equipment		960			962			1,914			1,994
Service bureau expense		490			513			968			992
FDIC premium		528			775			1,035			1,075
Marketing		205			191			389			407
Professional fees		211			232			386			401
Loan expenses		251			503			458			956
Real estate owned expenses		137			32			314			85
Miscellaneous		816			803			1,493			1,656
Total non interest expenses		6,908			7,465			14,016			14,698
Income (loss) before income taxes		2,390			(4,843	)		2,756			(4,202	)
Income tax provision (credit)		705			(2,001	)		653			(1,800	)
Net Income (loss)	$	1,685		$	(2,842	)	$	2,103		$	(2,402	)
Basic earnings (loss) per common share	$	0.41		$	(0.93	)	$	0.45		$	(0.89	)
Diluted earnings (loss) per common share	$	0.41		$	(0.93	)	$	0.45		$	(0.89	)
Basic weighted average number of common shares		3,358,079			3,358,079			3,358,079			3,358,079
Dilutive weighted average number of common shares		3,358,079			3,358,079			3,358,079			3,358,079
Dividends per common share	$	0.010		$	0.120		$	0.020		$	0.24
See notes to condensed consolidated financial statements

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INDIANA COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(dollars in thousands except share data)

(unaudited)

	Common Shares Outstanding		Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at December 31, 2009		3,358,079	$	21,054	$	21,060	$	42,862		$	(52	)	$	84,924
Comprehensive income:
Net income								2,103						2,103
Change in unrealized loss  on securities available for sale, net of reclassification adjustment and tax effect of $349											703			703
Total comprehensive income														2,806
Common stock compensation expense						16								16
Restricted stock compensation expense						21								21
Restricted stock non vested shares issued		27,000
Amortization of discount on preferred stock				51				(51	)					-
Common stock cash dividends								(67	)					(67	)
Preferred stock cash dividends								(538	)					(538	)
Balance at June 30, 2010		3,385,079	$	21,105	$	21,097	$	44,309		$	651		$	87,162

	Shares Outstanding		Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at December 31, 2008		3,358,079	$	20,962	$	20,985	$	50,670		$	(605	)	$	92,012
Comprehensive income:
Net loss								(2,402	)					(2,402	)
Change in unrealized loss  on securities available for sale, net of reclassification adjustment and tax effect of $277											538			538
Total comprehensive loss														(1,864	)
Common stock compensation expense						45								45
Amortization of discount on preferred stock				43				(43	)					-
Common stock cash dividends								(806	)					(806	)
Preferred stock cash dividends			`					(457	)					(457	)
Balance at June 30, 2009		3,358,079	$	21,005	$	21,030	$	46,962		$	(67	)	$	88,930

See notes to condensed consolidated financial statements

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INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)	Six Months Ended
(unaudited)	June 30,
	2010			2009
Cash Flows From Operating Activities:
Net income (loss)	$	2,103		$	(2,402	)
Adjustments to reconcile net income to net cash from operating activities:
Accretion of discounts, amortization and depreciation		2,129			813
Provision for loan losses		3,591			8,886
Stock based compensation expense		37			45
Benefit for deferred income taxes		(626	)		(753	)
Net gain from sale of loans		(786	)		(1,736	)
Gain on securities		(12	)		-
Other than temporary impairment losses		55			-
(Income)/loss from joint ventures and net (gain)/loss from real estate owned		361			38
Loan fees deferred (recognized), net		90			(21	)
Proceeds from sale of loans held for sale		36,518			129,485
Origination of loans held for sale		(32,952	)		(130,004	)
(Increase) decrease in accrued interest and other assets		2,854			(2,263	)
Increase (decrease) in other liabilities		(311	)		2,681
Net Cash From Operating Activities		13,051			4,769
Cash Flows From / (Used In) Investing Activities:
Net principal received (disbursed) on loans		(16,396	)		29,107
Proceeds from:
Maturities/Repayments of:
Securities held to maturity		415			255
Securities available for sale		84,680			25,763
Sales of:
Securities available for sale		73,791			14,183
Real estate owned and other asset sales		1,128			1,093
Purchases of:
Loans		(404	)		(11,250	)
Securities held to maturity		(50	)		(310	)
Securities available for sale		(233,293	)		(74,926	)
Return of joint venture		-			671
Acquisition of property and equipment		(1,734	)		(395	)
Disposal of property and equipment		48			342
Net Cash Used In Investing Activities		(91,815	)		(15,467	)
Cash Flows From / (Used In) Financing Activities:
Net increase in deposits		35,389			60,491
Proceeds from advances from FHLB		67,012			-
Repayment of advances from FHLB		(55,000	)		(19,573	)
Prepayment penalty on modification of FHLB advances		(2,456	)		-
Net repayments of overnight borrowings		-			(4,713	)
Payment of dividends on preferred stock		(538	)		(457	)
Payment of dividends on common stock		(67	)		(806	)
Net Cash From Financing Activities		44,340			34,942
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(34,424	)		24,244
Cash and cash equivalents, beginning of period		52,061			22,586
Cash and Cash Equivalents, End of Period	$	17,637		$	46,830
Supplemental Information:
Cash paid for interest	$	7,390		$	9,941
Cash paid for income taxes	$	-		$	900
Non cash items:
Assets acquired through foreclosure	$	1,071		$	740
Transfer to securities available for sale from held to maturity	$	3,273		$	-
Securities trades not settled	$	3,312		$	-

See notes to condensed consolidated financial statements

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Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation 

The consolidated financial statements include the accounts of Indiana Community Bancorp (the "Company") and its wholly-owned subsidiary, Indiana Bank and Trust Company (the "Bank") and the Bank’s wholly-owned subsidiaries.  These condensed consolidated interim financial statements at June 30, 2010, and for the three and six month periods ended June 30, 2010 and 2009, have not been audited by an independent registered public accounting firm, but reflect, in the opinion of the Company’s management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations for such periods, including elimination of all significant intercompany balances and transactions.  The Company does not consolidate Home Federal Statutory Trust I (“Trust”), a wholly-owned subsidiary, that issues Trust preferred securities, as the Company is not a primary beneficiary of the Trust.  The results of operations for the three and six month periods ended June 30, 2010, are not necessarily indicative of the results which may be expected for the entire year. The condensed consolidated balance sheet of the Company as of December 31, 2009 has been derived from the audited consolidated balance sheet of the Company as of that date.

These statements should be read in conjunction with the consolidated financial statements and related notes, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

2. Earnings Per Share

The following is a reconciliation of the weighted average common shares for the basic and diluted earnings per share (“EPS”) computations:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Basic EPS:
Weighted average common shares		3,358,079		3,358,079		3,358,079		3,358,079
Diluted EPS:
Weighted average common shares		3,358,079		3,358,079		3,358,079		3,358,079
Dilutive effect of stock options		-		-		-		-
Weighted average common and incremental shares		3,358,079		3,358,079		3,358,079		3,358,079
Anti-dilutive options		300,965		393,278		300,965		393,278

The following is a computation of earnings per common share. (dollars in thousands, except per share amounts)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010		2009			2010		2009
Net income (loss)	$	1,685	$	(2,842	)	$	2,103	$	(2,402	)
Less preferred stock dividend		272		272			540		540
Less amortization of preferred stock discount		25		24			50		43
Net income (loss) available to common shareholders	$	1,388	$	(3,138	)	$	1,513	$	(2,985	)
Basic Earnings (Loss) per Common Share	$	0.41	$	(0.93	)	$	0.45	$	(0.89	)
Diluted Earnings (Loss) per Common Share	$	0.41	$	(0.93	)	$	0.45	$	(0.89	)

Unearned restricted and nonvested shares have been excluded from the computation of average shares outstanding.

- 7 -

3. Comprehensive Income

The following is a summary of the Company’s reclassification adjustments, related tax effects allocated to other comprehensive income as of and for the six month periods ended June 30, 2010 and 2009. (In thousands)

	Current Period Activity							Accumulated Balance
	Pretax		Tax Effect			Net		Pretax			Tax Effect			Net
Six months ended June 30, 2010
Unrealized gains/(losses) from    securities available for sale	$	1,052	$	(349	)	$	703	$	1,654		$	(557	)	$	1,097
Supplemental Retirement Plan    Obligations		-		-			-		(738	)		292			(446	)
Total accumulated other    Comprehensive income/(loss)	$	1,052	$	(349	)	$	703	$	916		$	(265	)	$	651
Six months ended June 30, 2009
Unrealized gains/(losses) from    securities available for sale	$	815	$	(277	)	$	538	$	955		$	(327	)	$	628
Supplemental Retirement Plan    Obligations		-		-			-		(1,151	)		456			(695	)
Total accumulated other    Comprehensive income/(loss)	$	815	$	(277	)	$	538	$	(196	)	$	129		$	(67	)

4. Segment Reporting

Management has concluded that the Company is comprised of a single operating segment, community banking activities, and has disclosed all required information relating to its one reportable segment.  Management considers parent company activity to represent an overhead function rather than an operating segment.  The Company operates in one geographical area and does not have a single customer from which it derives 10 percent or more of its revenue.

5. Pension and Other Retirement Benefit Plans

Prior to April 1, 2008 the Company participated in a noncontributory multi-employer pension plan covering all qualified employees.  The trustees of the Financial Institutions Retirement Fund administer the plan.  There is no separate valuation of the plan benefits or segregation of plan assets specifically for the Company, because the plan is a multi-employer plan and separate actuarial valuations are not made with respect to each employer.  The Company recorded pension expenses of $276,000 and $104,000 for the six months ended June 30, 2010, and 2009, respectively.  No cash contributions were made to the multi-employer pension plan for the six months ended June 30, 2010 and 2009, respectively. The Company chose to freeze its defined benefit pension plan effective April 1, 2008.

The Company has entered into supplemental retirement agreements for certain officers.  The net periodic pension cost, including the detail of its components for the six months ended June 30, 2010 and 2009, is estimated as follows: (dollars in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Components of Net Periodic Benefit Cost	2010		2009		2010		2009
Service cost	$	26	$	26	$	52	$	52
Interest cost		54		57		108		114
Amortization of prior service cost		14		14		27		27
Amortization of actuarial losses		-		9		-		18
Net periodic benefit cost	$	94	$	106	$	187	$	211

- 8 -

The Bank previously disclosed in its financial statements for the year ended December 31, 2009, that it expected to pay benefits of $264,000 in 2010.  As of June 30, 2010, the Bank has paid $127,000 in benefits and presently anticipates paying an additional $131,000 in fiscal 2010.

6. Goodwill and Other Intangible Assets

In accordance with generally accepted accounting principles, (“GAAP”), the Company evaluated goodwill for impairment as of September 30, 2009.  Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The guidance requires a two step impairment test as of the measurement date to; 1.) identify potential goodwill impairment and 2.) measure the amount of the goodwill impairment loss to be recognized, if applicable.  Management analyzed the estimated fair value of the Company using three methodologies; the comparable transactions approach, the control premium approach and the discounted cash flow approach.  Management determined from this analysis that the aggregate fair value of the Company was less than the carrying value.  Based on this conclusion, management prepared a step two analysis calculating the fair value of the Company’s financial assets and liabilities.  An application of the fair value of the Company as calculated in step one, and the fair value of the Company’s financial assets and liabilities as calculated in step two, resulted in an estimated negative fair value of goodwill.  Since management determined the fair value of goodwill was negative and therefore lower than the carrying value, a full impairment charge of $1.4 million was recorded in the third quarter of 2009.

7. Repurchases of Company Common Stock

During the six months ended June 30, 2010, the Company had no repurchases of Company common stock.  On January 22, 2008, the Board of Directors approved a stock repurchase program to repurchase on the open market up to 5% of the Company’s outstanding shares of common stock or 168,498 such shares.  Such purchases will be made in block or open market transactions, subject to market conditions.  The program has no expiration date.  As of June 30, 2010, there are 156,612 common shares remaining to be repurchased under this program.  The Company may not repurchase any such shares without the consent of the U. S. Department of Treasury while it holds the TARP Series A Preferred Stock until December 12, 2011.

8. Legal Proceedings

The Company and the Bank are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of business.  While the ultimate outcome of these proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these proceedings should not have a material effect on the Company’s consolidated financial position or results of operations.

9. Mortgage Banking Activities

The Bank is obligated to repurchase certain loans sold to and serviced by others if they become delinquent as defined by various agreements.  At June 30, 2010 and December 31, 2009, these contingent obligations were approximately $17.8 million and $2.1 million, respectively.  Management believes it is remote that, as of June 30, 2010, the Company would have to repurchase these obligations and therefore no reserve has been established for this purpose.

10. Fair Value of Financial Instruments

Fair value is defined 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.  GAAP established 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 and 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.

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

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Securities Available for Sale

When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Bond money market funds are included in Level 1.  If quoted market prices are not available, then fair values are estimated by using pricing models and quoted prices of securities with similar characteristics.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions.  Level 2 securities include collateralized mortgage obligations, mortgage backed securities, corporate debt, agency and municipal bonds.  In certain cases where Level 1 and Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and consist of equity securities.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2010 and December 31, 2009.  (dollars in thousands)

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2010
Municipal bonds	$	-	$	55,837	$	-	$	55,837
Asset backed securities		-		57		-		57
Collateralized mortgage obligations issued by:
Agencies		-		111,015		-		111,015
Private label		-		49,193		-		49,193
Mortgage backed securities issued by agencies		-		11,939		-		11,939
Corporate debt		-		1,414		-		1,414
Bond money market funds		1,468		-		-		1,468
Equity securities		-		-		75		75
Securities available for sale	$	1,468	$	229,455	$	75	$	230,998
December 31, 2009
Agency bonds	$	-	$	2,524	$	-	$	2,524
Municipal bonds		-		40,168		-		40,168
Collateralized mortgage obligations issued by:
Agencies		-		53,952		-		53,952
Private label		-		1,499		-		1,499
Mortgage backed securities issued by agencies		-		10,982		-		10,982
Corporate debt		-		1,408		-		1,408
Bond money market funds		39,025		-		-		39,025
Equity securities		-		-		75		75
Securities available for sale	$	39,025	$	110,533	$	75	$	149,633

- 10 -

The following table presents a reconciliation of the beginning and ending balances of recurring securities available for sale fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs for the three months and six months ended June 30, 2010 and 2009.  Activity in 2010 primarily relates to commercial paper which was classified as level 3. (dollars in thousands)

Total Fair Value Measurements	Available for Sale Debt Securities
	Three Months Ended					Six Months Ended
	June 30,					June 30,
Level 3 Instruments Only	2010			2009		2010			2009
Beginning Balance	$	27,775		$	75	$	75		$	75
Purchases		40,284			-		88,978			-
Settlements		(67,984	)		-		(88,978	)		-
Ending Balance	$	75		$	75	$	75		$	75

There were no realized and unrealized gains and losses recognized in the accompanying consolidated statement of operations using significant unobservable (Level 3) inputs for the three months and six months ended June 30, 2010 and 2009.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a non recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2010 and December 31, 2009.  (dollars in thousands)

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2010
Impaired loans		-		-		19,336		19,336
Other real estate owned		-		-		6,562		6,562
December 31, 2009
Impaired loans						25,205		25,205
Other real estate owned		-		-		2,081		2,081

At June 30, 2010, collateral dependent impaired loans which had an evaluation adjustment during 2010 had an aggregate cost of $21.9 million and had been written down to a fair value of $19.3 million measured using Level 3 inputs within the fair value hierarchy. At December 31, 2009, collateral dependent impaired loans which had an evaluation adjustment during 2009 had an aggregate cost of $27.3 million and had been written down to a fair value of $25.2 million measured using Level 3 inputs within the fair value hierarchy. Level 3 inputs for impaired loans included current and prior appraisals and discounting factors.

At June 30, 2010, other real estate owned was reported at fair value less cost to sell of $6.6 million measured using Level 3 inputs within the fair value hierarchy.  At December 31, 2009, other real estate owned was reported at fair value less cost to sell of $2.1 million measured using Level 3 inputs within the fair value hierarchy. Level 3 inputs for other real estate owned included third party appraisals adjusted for cost to sell.

- 11 -

The disclosure of the estimated fair value of financial instruments is as follows: (dollars in thousands)

	June 2010				December 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	17,637	$	17,637	$	52,061	$	52,061
Interest bearing time deposits		410		410		410		410
Securities available for sale		230,998		230,998		149,633		149,633
Securities held to maturity		-		-		3,674		3,392
Loans held for sale		3,295		3,392		6,075		6,213
Loans, net		736,716		758,174		724,668		735,599
Accrued interest receivable		3,980		3,980		3,533		3,533
Federal Home Loan Bank stock		8,329		8,329		8,329		8,329
Liabilities:
Deposits		875,694		882,208		840,305		845,691
FHLB advances		64,917		67,373		55,000		55,022
Junior subordinated debt		15,464		2,777		15,464		4,154
Advance payments by borrowers for taxes and insurance		150		150		157		157
Accrued interest payable		98		98		176		176

Cash, Interest-bearing Deposits, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance, Accrued Interest Payable and Short-term Borrowings

The carrying amount as reported in the Condensed Consolidated Balance Sheets is a reasonable estimate of fair value.

Securities Held to Maturity

Fair values are based on quoted market prices and dealer quotes.  If quoted market prices or dealer quotes are not available, fair value is determined based on quoted prices of similar instruments.

Loans Held for Sale and Loans, net

The fair value of loans is estimated by discounting the future cash flows using the current rates for loans of similar credit risk and maturities.  The estimate of credit losses is equal to the allowance for loan losses.  Loans held for sale are based on current market prices.

Federal Home Loan Bank Stock

The fair value is estimated to be the carrying value, which is par.

Deposits

The fair value of demand deposits, savings accounts and money market deposit accounts is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated, by discounting future cash flows, using rates currently offered for deposits of similar remaining maturities.

FHLB Advances

The fair value is estimated by discounting future cash flows using rates currently available to the Company for advances of similar maturities.

Junior Subordinated Debt and Long Term Debt

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.  Fair value of Junior Subordinated Debt is based on quoted market prices for a similar liability when traded as an asset in an active market.

The fair value estimates presented herein are based on information available to management at June 30, 2010.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

- 12 -

11. Securities

Securities are summarized as follows: (in thousands)

	June 30, 2010									December 31, 2009
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		(Losses)			Value		Cost		Gains		(Losses)			Value
Held to Maturity:
Municipal bonds	$	-	$	-	$	-		$	-	$	775	$	1	$	-		$	776
Asset backed securities		-		-		-			-		98		-		(11	)		87
Collateralized mortgage obligations issued by:
Agencies		-		-		-			-		561		19		(2	)		578
Private label		-		-		-			-		1,373		31		(360	)		1,044
Mortgage backed securities issued by agencies		-		-		-			-		867		40		-			907
Total Held to Maturity	$	-	$	-	$	-		$	-	$	3,674	$	91	$	(373	)	$	3,392
Available for Sale:
Agency bonds	$	-	$	-	$	-		$	-	$	2,504	$	20	$	-		$	2,524
Municipal bonds		54,351		1,576		(90	)		55,837		39,261		1,073		(166	)		40,168
Asset backed securities		99		-		(42	)		57		-		-		-			-
Collateralized mortgage obligations issued by:
Agencies		109,955		1,142		(82	)		111,015		53,772		259		(79	)		53,952
Private label		49,666		109		(582	)		49,193		1,523		-		(24	)		1,499
Mortgage backed securities issued by agencies		11,764		181		(6	)		11,939		10,906		118		(42	)		10,982
Corporate debt		1,966		-		(552	)		1,414		1,965		-		(557	)		1,408
Bond money market funds		1,468		-		-			1,468		39,025		-		-			39,025
Equity securities		75		-		-			75		75		-		-			75
Total Available for Sale	$	229,344	$	3,008	$	(1,354	)	$	230,998	$	149,031	$	1,470	$	(868	)	$	149,633

Certain securities, with amortized cost of $432,000 and fair value of $468,000 at June 30, 2010, and amortized cost of $591,000 and fair value of $627,000 at December 31, 2009 were pledged as collateral for the Bank's treasury, tax and loan account at the Federal Reserve.  Certain securities, with amortized cost of $2.4 million and fair value of $2.5 million at June 30, 2010, and amortized cost of $4.7 million and fair value of $4.8 million at December 31, 2009 were pledged as collateral for borrowing purposes at the Federal Home Loan Bank of Indianapolis.

During the second quarter of 2010, securities classified as held to maturity with an amortized cost of $345,000 were transferred to available-for-sale securities and subsequently sold.  The proceeds received on these sales totaled $349,000 and gains of $4,000 were realized on these sales.  Management decided to transfer and sell these securities, as they believed that the investment strategy originally employed regarding these securities had changed.  In conjunction with the transfer and sale of these securities, the Company transferred the remaining held-to-maturity securities with an amortized cost of $2.9 million and a fair value of $2.7 million to available-for-sale securities.

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The amortized cost and fair value of securities at June 30, 2010 by contractual maturity are summarized as follows: (dollars in thousands)

	Available for Sale
	Amortized Cost		Fair Value
Municipal bonds:
Due in one year or less	$	2,772	$	2,799
Due after 1 year through 5 years		10,174		10,643
Due after 5 years through 10 years		34,492		35,355
Due after 10 years		6,913		7,040
Asset back securities		99		57
Collateralized mortgage obligations issued by:
Agencies		109,955		111,015
Private label		49,666		49,193
Mortgage backed securities issued by agencies		11,764		11,939
Corporate debt:
Due after 10 years		1,966		1,414
Bond money market funds		1,468		1,468
Equity securities		75		75
Total	$	229,344	$	230,998

Activities related to the sales of securities available for sale and other realized losses are summarized as follows: (dollars in thousands)

	Three months ended				Six months ended
	June 30,				June 30,
	2010		2009		2010			2009
Proceeds from sales	$	25,414	$	2,477	$	73,791		$	14,183
Gross gains on securities		12		-		12			-
Other than temporary impairment losses		-		-		55			-
Tax expense/benefit on realized security gains/losses		5		-		(17	)		-

For the quarter ended June 30, 2010, $55,000 of other than temporary impairment was recorded on held to maturity securities.  The entire unrealized loss was considered to be related to credit and the cost basis of these investments was reduced to zero based on the Company’s analysis of expected cash flows.  Therefore, no amounts were recognized in other comprehensive income.

12. Impairment of Investments

Management reviews its investment portfolio for other than temporary impairment on a quarterly basis.  The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer, and the timely receipt of contractual payments.  Additional consideration is given to the fact that it is not more-likely-than-not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity,

At June 30, 2010, the Company had two corporate bonds in the available for sale portfolio with a face amount of $2.0 million and an unrealized loss of $552,000.  These two securities are rated A2 and BAA3 by Moodys indicating these securities are considered to represent low to moderate credit risk.  The issuers of the two securities are two well capitalized banks.  Management believes that the decline in market value is due primarily to the interest rate and maturity as these securities carry an interest rate of LIBOR plus 55 basis points with maturities beyond ten years.

- 14 -

In reviewing the majority of available for sale securities at June 30, 2010, for other than temporary impairment, management considered the change in market value of the securities in the first two quarters of 2010, the expectation for the security’s future performance based on the receipt, or non receipt, of required cash flows and Moody’s and S&P ratings where available.  Additionally, management considered that it is not more-likely-than-not that the Company would be required to sell a security before the recovery of its amortized cost basis.  Based on this criteria management concluded that no OTTI charge was required.

Additionally, the Company had 38 securities in the available for sale portfolio with an amortized cost of $949,000 and an unrealized loss of $260,000.  These securities consisted of small balances ranging from $1,000 to $177,000, with an average balance of $25,000.  Management believes the small illiquid nature of these securities has resulted in a depressed market value.  As of June 30, 2010, all required cash flows had been received on each of the 38 securities, an indication for receiving future expected cash flows.

Investments that have been in a continuous unrealized loss position as of June 30, 2010 and December 31, 2009 are summarized as follows: (dollars in thousands)

June 30, 2010	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Asset backed securities	$	22	$	(30	)	$	35	$	(12	)	$	57	$	(42	)
Collateralized mortgage obligations issued by:
Agencies		8,768		(82	)		-		-			8,768		(82	)
Private label		28,357		(345	)		2,569		(237	)		30,926		(582	)
Mortgage backed securities issued by agencies		1,604		(6	)		-		-			1,604		(6	)
Corporate debt		-		-			1,414		(552	)		1,414		(552	)
Municipal bonds		4,916		(66	)		640		(24	)		5,556		(90	)
Total Temporarily Impaired Securities	$	43,667	$	(529	)	$	4,658	$	(825	)	$	48,325	$	(1,354	)

December 31,  2009	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Asset backed securities	$	63	$	(6	)	$	24	$	(5	)	$	87	$	(11	)
Collateralized mortgage obligations issued by:
Agencies		10,450		(80	)		11		(1	)		10,461		(81	)
Private label		1,558		(31	)		902		(353	)		2,460		(384	)
Mortgage backed securities issued by agencies		8,375		(42	)		26		-			8,401		(42	)
Corporate debt		-		-			1,408		(557	)		1,408		(557	)
Municipal bonds		10,188		(140	)		638		(26	)		10,826		(166	)
Total Temporarily Impaired Securities	$	30,634	$	(299	)	$	3,009	$	(942	)	$	33,643	$	(1,241	)

14. Subsequent Events

Subsequent events have been evaluated through the date the financial statements were issued.  As of that date, the Company did not have any subsequent events to report.

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15. New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures About Fair Value Measurements,” which added disclosure requirements about transfers in and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of valuation techniques and inputs used to measure fair value was required for recurring and nonrecurring Level 2 and 3 fair value measurements.

Management has determined the adoption of these provisions of this ASU only affected the disclosure requirements for fair value measurements and as a result did not have a material effect on the Company’s financial position or results of operations.  See Note 10 to the Consolidated Financial Statements for the disclosures required by this ASU.  This ASU also requires that Level 3 activity about purchases, sales, issuances and settlements be presented on a gross basis rather than as a net number as currently permitted.  This provision of the ASU is effective for the Company’s reporting period ending March 31, 2011.  Management has determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In June 2009, the FASB issued new accounting guidance related to accounting for transfers of financial assets.  The Board’s objective in issuing this new guidance is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets.  This guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  This guidance must be applied to transfers occurring on or after the effective date.  Management has determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In June 2009, the FASB issued new accounting guidance on consolidation of variable interest entities, which include: 1) the elimination of the exemption for qualifying special purpose entities, 2) a new approach for determining who should consolidate a variable interest entity, and 3) changes to when it is necessary to reassess who should consolidate a variable interest entity.  This new guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited.  Management has determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In July 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses which added disclosure requirements about an entity’s allowance for loan losses and the credit quality of its financing receivables.      The required disclosures include a roll forward of the allowance for credit losses on a portfolio segment basis and information about modified, impaired, non-accrual and past due loan and credit quality indicators.  ASU 2010-20 will be effective for the Company’s reporting period ending December 31, 2010, as it relates to disclosures required as of the end of a reporting period.

Recent Legislation

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Doss-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry.  The Dodd-Frank Act includes provisions affecting large and small financial institutions alike, including several provisions that will profoundly affect how community banks, thrifts, and small and regional bank and thrift holding companies will be regulated in the future.  Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies.  The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks.  Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payments.  The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may have an impact on the operating environment of the Company in substantial and unpredictable ways.  Consequently, the Dodd-Frank Act is likely to affect the Company’s cost of doing business, it may limit or expand the Company’s permissible activities, and it may affect the competitive balance within the Company’s industry and market areas.  The nature and extent of future legislative and regulatory changes affecting financial institutions, including as a result of the Dodd-Frank Act is very unpredictable at this time.  The Company’s management is actively reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on the business, financial condition, and results of operations of the Company.  However, the ultimate effect of the Doss-Frank Act on the financial services industry in general, and the Company in particular, is uncertain at this time.

- 16 -

Part I, Item 2:  Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the Company (as defined below), 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, charge-offs and loan loss provisions, 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, regulatory changes, turmoil and governmental intervention in the financial services industry, changes in the financial condition of issuers of the Company’s investments and borrowers, changes in economic condition of the Company’s market area, increases in compensation and employee expenses, or unanticipated results in pending legal proceedings or regulatory proceedings.

Indiana Community Bancorp (the "Company") is organized as a bank holding company and owns all the outstanding capital stock of Indiana Bank and Trust Company (the "Bank").  The business of the Bank and, therefore, the Company, is to provide consumer and business banking services to certain markets in the south-central portions of the State of Indiana.  The Bank does business through 19 full service banking branches.

The Company filed an application under the Troubled Asset Relief Program Capital Purchase Program with the U. S. Department of Treasury seeking approval to sell $21.5 million in preferred stock to the Treasury, and issued 21,500 shares of Fixed Rate Cumulative Preferred Stock, Series A on December 12, 2008 pursuant to that program.  The Company also issued a ten year warrant to purchase 188,707 shares of the Company’s common stock for an exercise price of $17.09 per share to the Treasury Department.

CRITICAL ACCOUNTING POLICIES

The notes to the consolidated financial statements contain a summary of the Company’s significant accounting policies presented on pages 27 through 49 of the Company’s annual report on Form 10-K for the year ended December 31, 2009.  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, and the valuation of securities.

Allowance for Loan Losses

A loan is considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.  Impaired loans are measured based on the loan’s discounted cash flow or the estimated fair value of the collateral if the loan is collateral dependent.  The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses. Loan losses are charged against the allowance when management believes the loans are uncollectible.  Subsequent recoveries, if any, are credited to the allowance.  The allowance for loan losses is maintained at a level management considers to be adequate to absorb estimated incurred loan losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans.  The allowance is based on ongoing assessments of the estimated incurred losses inherent in the loan portfolio.  The Company’s methodology for assessing the appropriate allowance level consists of several key elements, as described below.

All delinquent loans that are 90 days past due are included on the Asset Watch List.  The Asset Watch List is reviewed quarterly by the Asset Watch Committee for any classification beyond the regulatory rating based on a loan’s delinquency.

Commercial and commercial real estate loans are individually risk rated pursuant to the loan policy.  Homogeneous loans such as consumer and residential mortgage loans are not individually risk rated by management.  They are pooled based on historical portfolio data that management believes will provide a reasonable basis for the loans' quality.  For all loans not listed individually on the Asset Watch List, historical loss rates based on the last two years are the basis for developing expected charge-offs for each pool of loans.

- 17 -

Historical loss rates for commercial and homogeneous loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  Factors which management considers in the analysis include the effects of the local economy, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and the Company’s credit review function.

Finally, a portion of the allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating allowances for individual loans or pools of loans.  This unallocated allowance is based on factors such as current economic conditions, trends in the Company’s loan portfolio delinquency, losses and recoveries, level of under performing and non-performing loans, and concentrations of loans in any one industry.  The unallocated allowance is assigned to the various loan categories based on management’s perception of estimated incurred risk in the different loan categories and the principal balance of the loan categories.

Valuation of Securities

Securities are classified as held-to-maturity or available-for-sale on the date of purchase.  Only those securities classified as held-to-maturity are reported at amortized cost.  Available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income, net of related deferred income taxes, on the consolidated balance sheets.  The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments.  Realized securities gains or losses are reported within non interest income in the condensed consolidated statements of operations.  The cost of securities sold is based on the specific identification method.  Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment.  The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the present value of expected future cash flows, and the creditworthiness of the issuer.  Based on the results of these considerations and because the Company does not intend to sell investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other than temporarily impaired.  When a decline in value is considered to be other-than-temporary, the cost basis of the security will be reduced and the credit portion of the loss is recorded within non interest income in the consolidated statements of operations.

RESULTS OF OPERATIONS:

Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009

General

The Company reported net income of $1.7 million for the quarter ended June 30, 2010, compared to net loss of $2.8 million for the quarter ended June 30, 2009, an increase of $4.5 million or 159.3%.  Basic and diluted earnings per common share for the current quarter were $0.41 compared to a loss of $0.93 for the quarter ended June 30, 2009.  The primary reason for the increase in net income in the second quarter of 2010 was the $5.3 million reduction in the provision for loan losses.

Net Interest Income

Net interest income before provision for loan losses increased $1.2 million or 17.8% to $7.9 million for the quarter ended June 30, 2010, as compared to $6.7 million for the quarter ended June 30, 2009.  The net interest margin increased 40 basis points from 2.88% for the quarter ended June 30, 2009 to 3.28% for the quarter ended June 30, 2010.  The increase in the net interest margin was primarily due to the result of the Company’s balance sheet repositioning which was executed in December 2009 and January 2010.  The prepayment and restructuring of the FHLB advances aided in reducing the Company’s overall cost of interest bearing liabilities by 72 basis points in the second quarter of 2010 compared to the second quarter of 2009.

Provision for Loan Losses

The provision for loan losses decreased $5.3 million to $1.5 million for the second quarter of 2010, compared to $6.8 million for the second quarter of 2009.  Net charge offs were $1.8 million for the current quarter compared to $5.6 million for the second quarter of the prior year.  In the quarter ended June 30, 2010, $1.2 million of charge offs were related to two condominium loans that had established specific reserves from previous quarters.  The allowance for loan losses decreased $256,000 during the second quarter. See the Critical Accounting Policies, Allowance for Loan Losses section for a description of the systematic analysis the Bank uses to determine its allowance for loan losses.

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The change to the loan loss allowance for the three month periods ended June 30, 2010 and 2009 is as follows:

Quarter ended June 30: (in thousands)	2010			2009
Allowance beginning balance	$	14,595		$	8,927
Provision for loan losses		1,496			6,788
Charge-offs		(1,809	)		(5,654	)
Recoveries		57			59
Allowance ending balance	$	14,339		$	10,120
Allowance to Total Loans		1.91	%		1.31	%
Allowance to Nonperforming Loans		63	%		36	%

Net interest income after provision for loan losses was $6.4 million for the three month period ended June 30, 2010; an increase of $6.5 million, compared to a loss of $114,000 for the three month period ended June 30, 2009.

Interest Income

Total interest income for the three month period ended June 30, 2010, decreased $200,000 or 1.7% from $11.7 million for the quarter ending June 30, 2009 to $11.5 million for the quarter ending June 30, 2010.  The primary factor influencing the interest income reduction is the changing mix of interest earning assets.  The composition of interest earning assets for the second quarter of 2010, as compared to the second quarter of 2009, saw a decrease of $50.7 million in the average balance of the higher yielding loan portfolio and a increase of $83.0 million in the average balance of the securities portfolio.

Interest Expense 

Total interest expense for the three month period ended June 30, 2010 decreased $1.4 million or 27.9% as compared to the same period a year ago.  The weighted average interest rates paid on average interest bearing liabilities decreased 72 basis points, from the three month period ended June 2009 to the three month period ended June 2010.  The decrease in rates paid on interest bearing liabilities resulted from the changing mix of interest bearing liabilities.  Due to the restructuring transaction discussed previously the average of FHLB advances decreased $60.4 million in the current quarter as compared to the same quarter of the prior year.  Additionally, average balances of public funds and brokered deposits decreased $5.5 million and $4.5 million, respectively.  Increases in average balances of lower cost interest checking, money market accounts and certificates of deposits were $70.1 million, $37.1 million and $10.2 million, respectively.

Non Interest Income

Total non interest income increased $196,000 or 7.2% to $2.9 million for the quarter.  This increase was the net result of four primary factors; 1) a decrease in the gain on sale of loans of $245,000; 2) an increase of $183,000 in trust and asset management fees; 3) an increase of $175,000 in miscellaneous income and 4) an increase of $104,000 in service fees on deposit accounts.  The decrease in gain on sale of loans was the result of increased originations and subsequent sales in the secondary market of loans during the refinance boom of 2009.  In the three month periods ended June 30, 2010 and June 30, 2009, originations of loans held for sale were $19.6 million and $29.6 million, respectively.  Trust and asset management fees increased $183,000 or 156.4% for the three months ended June 30, 2010 compared to $117,000 for the three months ended June 30, 2009 due to the hiring of an investment management consultant in May of 2009.  The increase in miscellaneous income primary relates to the loss on sale of assets in the second quarter of 2009.  The increase in service fees on deposit accounts mirrors the growth in deposit accounts the Company experienced due to the market disruption that occurred in its primary market.

Non Interest Expenses

Non interest expenses decreased $557,000 or 7.5% to $6.9 million for the quarter.  This decrease was also the net result of four primary factors; 1) compensation and employee benefits decreased $144,000; 2) FDIC insurance expense decreased $247,000; 3) loan expenses decreased $252,000 and 4) REO expenses increased $105,000.  Compensation and employee benefits decreased due primarily to a decrease in bonus expense and mortgage commissions of $347,000 and $165,000, respectively.  These decreases in compensation and employee benefits were partially offset by increases in the employee retirement and benefit plans.  Employee retirement and benefit plans increased $114,000 due primarily to additional funding requirements for the Company’s retirement plan.  FDIC insurance expense decreased for the second quarter of 2010, as compared to the second quarter of 2009, due to the

special assessment that was accrued in the second quarter of 2009.  Loan expenses decreased due to a reduction in expenses associated with problem loan workouts in the second quarter of 2010, as compared to the second quarter of 2009.  REO expenses increased due primarily to taxes and repairs and maintenance associated with the commercial real estate property currently owned by the Company.  The balance in commercial real estate owned property was $10.8 million and $2.5 million, as of June 30, 2010 and June 30, 2009, respectively.

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Taxes

A tax expense of $705,000 was recorded for the second quarter ended June 2010 while a tax credit of $2.0 million was recorded for the second quarter ended June 2009.  In the quarter ended June 2010, the Company recorded pretax income of $2.4 million resulting in a tax expense of $705,000 after considering permanent tax differences.  In the quarter ended June 2009, the Company recorded pretax loss of $4.8 million resulting in tax credit of $2.0 million.  The tax calculation for the quarters ended June 30, 2010 and 2009 includes the benefit of approximately $354,000 and $347,000 of tax-exempt income, respectively.

RESULTS OF OPERATIONS:

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

General

The Company reported net income of $2.1 million for the six months ended June 30, 2010, compared to net loss of $2.4 million for the six months ended June 30, 2009, a increase of $4.5 million or 187.6%.  Basic and diluted earnings per common share for the six months ended June 31, 2010 were $0.45 compared to a loss of $0.89 for the six months ended June 30, 2009.

Net Interest Income

Net interest income before provision for loan losses increased $1.7 million or 12.2% to $15.3 million for the six months ended June 30, 2010, as compared to $13.6 million for the six months ended June 30, 2009.  The net interest margin increased 27 basis points from 3.00% for the six months ended June 30, 2009 to 3.27% for the six months ended June 30, 2010.  The increase in the net interest margin was primarily due to the result of the Company’s balance sheet repositioning which was executed in December 2009 and January 2010.  The prepayment and restructuring of the FHLB advances aided in reducing the Company’s overall cost of interest bearing liabilities by 59 basis points in the first six months of 2010 compared to the first six months of 2009.

Provision for Loan Losses

The $3.6 million provision for loan losses for the six months ended June 30, 2010 was a decrease of 5.3 million or 59.6% from $8.9 million for the six months ended June 30, 2009.  Net charge offs were $2.4 million for the six months ended June 30, 2010 compared to $7.4 million for the six months ended June 30, 2009.  The $3.6 million provision for loan losses in the six months ended June 30, 2010 resulted from management’s analysis which increased net reserves on impaired loans $1.1 million and charged off $2.4 million of loans in the current year.  The increase in reserves on impaired loans related to three commercial loans which are having cash flow concerns.  The allowance for loan losses increased $1.1 million during the first six months of 2010 related primarily to the increases in reserves on impaired loans.  See the Critical Accounting Policies, Allowance for Loan Losses section for a description of the systematic analysis the Bank uses to determine its allowance for loan losses.

The change to the loan loss allowance for the six month periods ended June 30, 2010 and 2009 is as follows:

Six months ended June 30: (in thousands)	2010			2009
Allowance beginning balance	$	13,113		$	8,589
Provision for loan losses		3,591			8,886
Charge-offs		(2,488	)		(7,488	)
Recoveries		123			133
Allowance ending balance	$	14,339		$	10,120
Allowance to Total Loans		1.91	%		1.31	%
Allowance to Nonperforming Loans		63	%		36	%

Net interest income after provision for loan losses was $11.7 million for the six month period ended June 30, 2010; an increase of $7.0 million or 147.6%, compared to $4.7 million for the six month period ended June 30, 2009.

Interest Income

Total interest income for the six month period ended June 30, 2010, decreased $952,000 or 4.1% from $23.5 million for the six month period ended June 30, 2009 to $22.6 million for the six month period ended June 30, 2010.  The primary factor influencing the interest income reduction is the changing mix of interest earning assets.  The composition of interest earning assets for the first six months of 2010, as compared to the first six months of 2009, saw a decrease of $57.4 million in the average balance of the higher yielding loan portfolio and a increase of $85.2 million in the average balance of the securities portfolio.

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Interest Expense

Total interest expense for the six month period ended June 30, 2010 decreased $2.6 million or 26.4% as compared to the same period a year ago.  The weighted average interest rates paid on average interest bearing liabilities decreased 59 basis points, from the six month period ended June 2009 to the six month period ended June 2010.  The decrease in rates paid on interest bearing liabilities primarily resulted from the restructuring transaction discussed previously with the average of FHLB advances decreasing $66.5 million for the six month period ended June 30, 2010, as compared to the same six month period of the prior year.  Additionally, average balances of public funds and brokered deposits decreased $8.2 million and $4.7 million, respectively.  Increases in average balances of lower cost interest checking, money market accounts and certificates of deposits were $64.3 million, $42.2 million and $15.3 million, respectively.

Non Interest Income

Total non interest income decreased $684,000 or 11.8% to $5.1 million for the six months.  The primary reason for the decrease in non interest income was the $950,000 decrease in gain on sales of loans.  The year to date results in 2009 were the result of increased refinance activity. In the six month periods ended June 30, 2010 and June 30, 2009, originations of loans held for sale were $33.0 million and $130.0 million, respectively.  Another factor adding to the decrease in non interest income was the $375,000 decrease in net gain (loss) on real estate owned.  This decrease was primarily due to a $400,000 write down, taken in the first quarter of 2010, on real estate owned property based on negotiations related to the sale of the property.  Factors offsetting the decrease in non interest income include the $343,000 gain in trust and asset management fees, as well as the $134,000 or 4.4% increase in service fees on deposit accounts.  As mentioned in the quarterly analysis, trust and asset management fees increased due to the hiring of an investment management consultant in May of 2009.  The increase in service fees on deposits also mirrors the quarterly analysis, as the increase in service fees on deposit accounts mirrors the growth in deposit accounts.

Non Interest Expenses

Non interest expenses decreased $682,000 or 4.6% to $14.0 million for the six months.  The primary reason for the decrease in non interest expenses were decreased loan expenses of $498,000 or 52.1% resulting from a reduction of $482,000 in the expenses associated with problem loan workouts.  While loan expenses decreased, REO expenses increased $229,000 due to an $8.2 million increase in the average balance of REO properties for the six month period ended June 30, 2010 compared to the six month period ended June 30, 2009.  Another factor affecting the decrease in non interest expenses was the $163,000 or 9.8% decrease in miscellaneous expense.  Miscellaneous expenses decreased for various reasons including the Company’s cost control efforts which resulted in a $92,000 decrease in communication expenses related to rebates negotiated with various carriers.

Taxes

A tax expense of $653,000 was recorded for the six months ended June 2010, while a tax credit of $1.8 million was recorded for the six months ended June 2009.  In the six months ended June 2010, the Company recorded pretax income of $2.8 million resulting in a tax expense of $653,000 after considering permanent tax differences.  In the six months ended June 2009, the Company recorded a pretax loss of $4.2 million resulting in a tax credit of $1.8 million.  The tax calculation for the six months ended June 30, 2010 and 2009 includes the benefit of approximately $698,000 and $677,000 of tax-exempt income, respectively.

Asset Quality

Nonperforming assets to total assets decreased to 3.26% at June 30, 2010 from 3.41% at December 31, 2009.  In addition, the Company received a signed letter of intent for the purchase of its largest other real estate owned property.  The Company does not anticipate recording a loss on the sale of this property.  Management expects the sale to close in the fourth quarter of 2010.  The Bank does not anticipate financing the transaction, although there can be no guarantee that the transaction will close on such terms.  Nonperforming loans to total gross loans increased slightly to 3.05% at June 30, 2010 from 2.95% at December 31, 2009.  Total non-performing loans increased $1.1 million year-to-date to $34.6 million at June 30, 2010.  The increase in nonperforming loans primarily relates to a $3.2 million restructured commercial loan that allows the borrower to pay a reduced principal payment, but requires all interest due on a monthly basis.  The allowance for loan losses increased to $14.3 million as of June 30, 2010 compared to $13.1 million at December 31, 2009.  The ratio of the allowance for loan losses to total loans was 1.91% at June 30, 2010 compared to 1.78% at December 31, 2009.  See further discussion in the Critical Accounting Policies.

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The Company has 51.7% of its assets in commercial and commercial real estate loans.  The following table segregates the commercial and commercial real estate portfolio by property type, where the total of the property type exceeds 1% of bank assets as of June 30, 2010. (dollars in thousands)

Property Description	BALANCE	PERCENTAGE OF BANK ASSETS
Accounts Receivable, Inventory, and Equipment	65,497	6.18%
Land Only	48,899	4.61%
Shopping Center	44,771	4.22%
Office Building	39,646	3.74%
Retail Business Store	38,121	3.60%
Manufacturing Business/Industrial	36,938	3.49%
Medical Building	31,912	3.01%
Warehouse	31,732	2.99%
Land Development Business	26,574	2.51%
Motel	22,560	2.13%
Apartment Building	18,720	1.77%
Life Insurance	15,607	1.47%
Other	13,293	1.25%
1-4 Family Investment	13,011	1.23%
Non-Margin Stock	12,678	1.20%
Athletic/Recreational/School	12,404	1.17%

FINANCIAL CONDITION:

Total assets as of June 30, 2010, were $1.1 billion, an increase of $50.5 million or 5.0% from December 31, 2009, total assets of $1.0 billion.  The most significant change in the balance sheet was the $81.4 million increase in securities available for sale that was primarily funded by the $35.4 million growth in deposits and the $34.4 million decrease in cash and cash equivalents.  The increase in securities available for sale was the result of management’s decision to reduce the available amount of cash by investing in short term investments with higher yields to improve the net interest margin.  Of the retail deposits, interest checking, savings, and money markets all increased.  Interest bearing checking accounts increased $25.7 million.  Savings accounts increased $3.4 million.  Money market deposit accounts increased $16.0 million.  Retail demand accounts and certificates of deposit decreased $4.2 million and $5.5 million, respectively.

Shareholders' equity increased $2.2 million during the first six months of 2010.  Retained earnings increased $2.1 million from net income and decreased $605,000 for dividend payments on common and preferred stock, and $51,000 for the amortization of the discount on preferred stock.  Beginning in the third quarter ending September 30, 2009 the Company reduced its quarterly dividends from $.12 to $.01 per share.  Common stock increased $37,000 from recognition of compensation expense associated with restricted stock issued and the vesting of stock options.  Additionally, the Company had other comprehensive income from unrealized gains in its securities available for sale portfolio, net of tax, of $703,000 for the six months ended June 30, 2010.

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At June 30, 2010, the Company and the Bank exceeded all current applicable regulatory capital requirements as follows:

	Actual					For Capital Adequacy Purposes					To Be Categorized As “Well Capitalized” Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2010
Total risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	106,210		12.44	%	$	68,304		8.0	%	$	85,380		10.0	%
Indiana Community Bancorp Consolidated	$	110,666		12.95	%	$	68,384		8.0	%	$	85,480		10.0	%
Tier 1 risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	95,492		11.18	%	$	34,152		4.0	%	$	51,228		6.0	%
Indiana Community Bancorp Consolidated	$	99,936		11.69	%	$	34,192		4.0	%	$	51,288		6.0	%
Tier 1 leverage capital
(to average assets)
Indiana Bank and Trust Company	$	95,492		9.11	%	$	41,943		4.0	%	$	52,428		5.0	%
Indiana Community Bancorp Consolidated	$	99,936		9.52	%	$	41,971		4.0	%	$	52,464		5.0	%

Capital Resources

Tier I capital consists principally of shareholders’ equity including Tier I qualifying junior subordinated debt, but excluding unrealized gains and losses on securities available-for-sale, less goodwill and certain other intangibles. Tier II capital consists of general allowances for loan losses, subject to limitations. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics. Average assets for this purpose does not include goodwill and any other intangible assets that the Federal Reserve Board determines should be deducted from Tier I capital.

Liquidity Resources

Historically, the Bank has maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows.  Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.  Cash for these purposes is generated through the sale or maturity of investment securities and loan sales and repayments, and may be generated through increases in deposits.  Loan payments are a relatively stable source of funds, while deposit flows are influenced significantly by the level of interest rates and general money market conditions.  Borrowings may be used to compensate for reductions in other sources of funds such as deposits.  As a member of the Federal Home Loan Bank (“FHLB”) system, the Bank may borrow from the FHLB of Indianapolis.  At June 30, 2010, the Bank had $64.9 million in such borrowings.  In addition at June 30, 2010, the Bank had commitments to purchase loans of $3.1 million, as well as commitments to fund loan originations of $17.9 million, unused home equity lines of credit of $37.5 million and unused commercial lines of credit of $51.5 million, as well as commitments to sell loans of $13.1 million.  Generally, a significant portion of amounts available in lines of credit will not be drawn.  In the opinion of management, the Bank has sufficient cash flow and borrowing capacity to meet current and anticipated funding commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the opinion of management, the interest rate sensitivity results for the six months ended June 30, 2010 are not materially different from the results presented on page 12 of the Company’s annual report for the twelve month period ended December 31, 2009.

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Item 4T. 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 and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

(b)   Changes in internal controls 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

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

N/A

Item 1A. Risk Factors

There were no material changes in the Company’s risk factors from the risks disclosed in the Company’s Form 10-K for the year ended December 31, 2009.

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

The following table provides information on the Company’s repurchases of shares of its common stock during the three months ended June 30, 2010.

	(a)		(b)		(c)		(d)
Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)		Maximum number of shares that may yet be purchased under the plans or programs (1)
April 2010		-	$	00.00		-		156,612
May 2010		-	$	00.00		-		156,612
June 2010		-	$	00.00		-		156,612
Second Quarter		-	$	00.00		-		156,612

(1) On January 22, 2008, the Company announced a stock repurchase program to repurchase on the open market up to 5% of the Company’s outstanding shares of common stock or 168,498 such shares.  Such purchases will be made in block or open market transactions, subject to market conditions.  The program has no expiration date.  Any future stock repurchases will require the consent of the Treasury Department for a period of three years ended December 11, 2011, while the Treasury holds the Series A Preferred Stock.

Item 3. Defaults Upon Senior Securities

N/A

Item 4.  Removed and Reserved

N/A

Item 5.  Other information

N/A

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Item 6.  Exhibits

10.1   Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for John T Beatty (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed April 29, 2010)

10.2   Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for Harold Force (incorporated by reference to Exhibit 10.2 to the Company’s form 8-K filed April 29, 2010)

10.3   Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for David W. Laitinen (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed April 29, 2010)

10.4   Indiana Community Bancorp 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed April 29, 2010)

10.5   Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed April 29, 2010)

10.6   Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed April 29, 2010)

10.7   Form of Agreement for Restricted Stock Granted Under the Indiana Community Bancorp 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed April 29, 2010)

10.8   Form of Long-Term Restricted Stock Agreement Under the Indiana Community Bancorp 2010 Stock Option and Incentive Plan ((incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed April 29, 2010)

31(1)  Certification required by 12 C.F.R.  240.13a-14(a)

31(2)  Certification required by 12 C.F.R.  240.13a-14(a)

32 - Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002

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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 behalf of the undersigned thereto duly authorized.

		Indiana Community Bancorp
Date:	August 6,  2010
		/s/ Mark T. Gorski
		Mark T. Gorski, Executive Vice President,
		Treasurer, and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description	Location
10.1	Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for John T Beatty (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed April 29, 2010)
10.2	Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for Harold Force (incorporated by reference to Exhibit 10.2 to the Company’s form 8-K filed April 29, 2010)
10.3	Second Amendment to the Indiana Bank and Trust Company Director Deferred Fee Agreement dated April 27, 2010, for David W. Laitinen (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed April 29, 2010)
10.4	Indiana Community Bancorp 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed April 29, 2010)
10.5	Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed April 29, 2010)
10.6	Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed April 29, 2010)
10.7	Form of Agreement for Restricted Stock Granted Under the Indiana Community Bancorp 2010 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed April 29, 2010)
10.8	Form of Long-Term Restricted Stock Agreement Under the Indiana Community Bancorp 2010 Stock Option and Incentive Plan ((incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed April 29, 2010)
31(1)	Certification required by 12 C.F.R.  240.13a-14(a)	Attached
31(2)	Certification required by 12 C.F.R.  240.13a-14(a)	Attached
32	Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the    Sarbanes-Oxley Act of 2002	Attached

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