INDIANA COMMUNITY BANCORP - FORM 10-Q

Attached files

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EX-32 - CERTIFICATION - INDIANA COMMUNITY BANCORP	ex32.htm
EX-31.(1) - CERTIFICATION - INDIANA COMMUNITY BANCORP	ex31_1.htm
EX-31.(2) - CERTIFICATION - INDIANA COMMUNITY BANCORP	ex31_2.htm

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 March 31, 2011

[ ] 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 May 2, 2011.

Common Stock, no par value – 3,422,379 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 Income	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	20

Item 3. Quantitative and Qualitative Disclosures About
Market Risk	25

Item 4T. Controls and Procedures	25


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	26

Item 3. Defaults Upon Senior Securities	26

Item 4. Removed and Reserved	26

Item 5. Other Information	26

Item 6. Exhibits	26

Signatures	26

Exhibit Index	28

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INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	March 31,			December 31,
	2011			2010

Assets:	(unaudited)
Cash and due from banks	$	12,051		$	12,927
Interest bearing demand deposits		929			136
Federal funds sold		10,000			-
Cash and cash equivalents		22,980			13,063
Securities available for sale at fair value (amortized cost $232,851 and $227,331)		232,879			226,465
Loans held for sale (fair value $1,669 and $7,827)		1,620			7,666
Portfolio loans:
Commercial and commercial mortgage loans		550,586			550,686
Residential mortgage loans		92,413			92,796
Second and home equity loans		90,937			92,557
Other consumer loans		10,933			11,614
Total portfolio loans		744,869			747,653
Unearned income		(194	)		(252	)
Allowance for loan losses		(14,578	)		(14,606	)
Portfolio loans, net		730,097			732,795
Premises and equipment		15,972			16,228
Accrued interest receivable		3,946			3,785
Other assets		42,786			43,316
TOTAL ASSETS	$	1,050,280		$	1,043,318

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Demand	$	96,474		$	86,425
Interest checking		180,200			177,613
Savings		50,977			45,764
Money market		230,917			224,382
Certificates of deposits		308,449			313,854
Retail deposits		867,017			848,038
Public fund certificates		5,311			5,305
Wholesale deposits		5,311			5,305
Total deposits		872,328			853,343

FHLB advances		53,470			53,284
Short term borrowing		-			12,088
Junior subordinated debt		15,464			15,464
Other liabilities		18,668			20,490
Total liabilities		959,930			954,669

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		21,183			21,156
No par common stock; Authorized: 15,000,000 shares
Issued and outstanding: 3,419,379 and 3,385,079 shares		21,341			21,230
Retained earnings, restricted		48,198			47,192
Accumulated other comprehensive loss, net		(372	)		(929	)

Total shareholders' equity		90,350			88,649
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,050,280		$	1,043,318

See notes to condensed consolidated financial statements

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INDIANA COMMUNITY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)
(unaudited)	Three Months Ended
	March 31,
	2011			2010
Interest Income:
Short term investments	$	5		$	16
Securities		1,309			1,075
Commercial and commercial mortgage loans		7,625			7,356
Residential mortgage loans		1,057			1,215
Second and home equity loans		1,072			1,167
Other consumer loans		219			295
Total interest income		11,287			11,124

Interest Expense:
Checking and savings accounts		396			456
Money market accounts		353			491
Certificates of deposit		1,580			2,432
Total interest on retail deposits		2,329			3,379

Public funds		7			2
Total interest on wholesale deposits		7			2
Total interest on deposits		2,336			3,381

FHLB advances		260			263
Other borrowings		3			-
Junior subordinated debt		76			74
Total interest expense		2,675			3,718

Net interest income		8,612			7,406
Provision for loan losses		1,558			2,095
Net interest income after provision for loan losses		7,054			5,311

Non Interest Income:
Gain on sale of loans		396			357
Gain on securities		184			-
Other than temporary impairment losses		-			(55	)
Service fees on deposit accounts		1,368			1,484
Loan servicing income, net of impairment		111			115
Net loss on real estate owned		(387	)		(338	)
Trust and asset management fees		292			282
Increase in cash surrender value of life insurance		132			135
Miscellaneous		245			183
Total non interest income		2,341			2,163

Non Interest Expenses:
Compensation and employee benefits		4,027			3,749
Occupancy and equipment		1,022			954
Service bureau expense		485			478
FDIC premium		546			507
Marketing		221			184
Professional fees		196			175
Loan expenses		215			207
Real estate owned expenses		123			177
Communication expenses		128			128
Miscellaneous		606			549
Total non interest expenses		7,569			7,108

Income before income taxes		1,826			366
Income tax provision (credit)		490			(52	)
Net Income	$	1,336		$	418

Basic earnings per common share	$	0.31		$	0.04
Diluted earnings per common share	$	0.31		$	0.04

Basic weighted average number of common shares		3,364,079			3,358,079
Dilutive weighted average number of common shares		3,367,105			3,358,079
Dividends per common share	$	0.010		$	0.010

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, 2010		3,385,079		$	21,156	$	21,230	$	47,192		$	(929	)	$	88,649

Comprehensive income:
Net income									1,336						1,336
Change in unrealized gain on securities available for sale, net of reclassification adjustment for realized gains of $111 and tax effect of $337												557			557
Total comprehensive income															1,893

Common stock compensation expense							1								1
Restricted stock compensation expense							110								110
Restricted stock non vested shares issued		36,300
Restricted stock forfeited		(2,000	)
Amortization of discount on preferred stock					27				(27	)					-
Common stock cash dividends									(34	)					(34	)
Preferred stock cash dividends									(269	)					(269	)
Balance at March 31, 2011		3,419,379		$	21,183	$	21,341	$	48,198		$	(372	)	$	90,350


	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								418						418
Change in unrealized gain on securities available for sale, net of reclassification adjustment and tax effect of $95											192			192
Total comprehensive income														610

Common stock compensation expense						11								11
Amortization of discount on preferred stock				25				(25	)					-
Common stock cash dividends								(34	)					(34	)
Preferred stock cash dividends								(269	)					(269	)
Balance at March 31, 2010		3,385,079	$	21,079	$	21,071	$	42,952		$	140		$	85,242

See notes to condensed consolidated financial statements

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INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)	Three Months Ended
(unaudited)	March 31,
	2011			2010
Cash Flows From Operating Activities:
Net income	$	1,336		$	418
Adjustments to reconcile net income to net cash from operating activities:
Accretion of discounts, amortization and depreciation		1,497			980
Provision for loan losses		1,558			2,095
Stock based compensation expense		111			11
Benefit for deferred income taxes		(241	)		(802	)
Net gain from sale of loans		(396	)		(357	)
Gain on securities		(184	)		-
Other than temporary impairment losses		-			55
Net (gain)/loss from real estate owned		387			(71	)
Loan fees deferred, net		(52	)		2
Proceeds from sale of loans held for sale		18,789			17,426
Origination of loans held for sale		(12,347	)		(13,398	)
Decrease in accrued interest and other assets		808			2,193
Decrease in other liabilities		(1,628	)		(712	)
Net Cash From Operating Activities		9,638			7,840

Cash Flows From / (Used In) Investing Activities:
Net principal disbursed on loans		(210	)		(4,724	)
Proceeds from:
Maturities/repayments of securities held to maturity		-			300
Maturities/repayments of securities available for sale		20,712			27,635
Sale of securities available for sale		15,179			48,377
Real estate owned and other asset		601			477
Purchases of:
Loans		(121	)		(232	)
Securities held to maturity		-			(50	)
Securities available for sale		(42,392	)		(125,129	)
Acquisition of property and equipment		(84	)		(495	)
Disposal of property and equipment		-			41
Net Cash Used In Investing Activities		(6,315	)		(53,800	)

Cash Flows From / (Used In) Financing Activities:
Net increase in deposits		18,985			16,207
Proceeds from advances from FHLB		-			55,000
Repayment of advances from FHLB		-			(55,000	)
Prepayment penalty on modification of FHLB advances		-			(2,456	)
Net repayments of overnight borrowings		(12,088	)		-
Payment of dividends on preferred stock		(269	)		(269	)
Payment of dividends on common stock		(34	)		(34	)
Net Cash From Financing Activities		6,594			13,448

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9,917			(32,512	)
Cash and cash equivalents, beginning of period		13,063			52,061
Cash and Cash Equivalents, End of Period	$	22,980		$	19,549

Supplemental Information:
Cash paid for interest	$	2,669		$	3,718
Non cash items:
Assets acquired through foreclosure	$	1,523		$	258
Securities trades not settled	$	(194	)	$	-

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 March 31, 2011, and for the three month periods ended March 31, 2011 and 2010, 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 the primary beneficiary of the Trust. The results of operations for the three month period ended March 31, 2011, 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, 2010 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, 2010.

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
	March 31,
	2011		2010
Basic EPS:
Weighted average common shares		3,364,079		3,358,079

Diluted EPS:
Weighted average common shares		3,364,079		3,358,079
Dilutive effect of stock options		3,026		-
Weighted average common and incremental shares		3,367,105		3,358,079

Anti-dilutive options		280,422		300,965

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

	Three Months Ended
	March 31,
	2011		2010

Net income (loss)	$	1,336	$	418
Less preferred stock dividend		269		269
Less restricted stock dividend		1		-
Less amortization of preferred stock discount		26		25
Net income (loss) available to common shareholders	$	1,040	$	124

Basic Earnings (Loss) per Common Share	$	0.31	$	0.04
Diluted Earnings (Loss) per Common Share	$	0.31	$	0.04

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 three month period ended March 31, 2011 and 2010. (In thousands)

	Current Period Activity
	Pretax		Tax Effect			Net
Three months ended March 31, 2011
Unrealized gains/(losses) from securities available for sale	$	894	$	(337	)	$	557
Supplemental Retirement Plan Obligations		-		-			-
Total accumulated other Comprehensive income/(loss)	$	894	$	(337	)	$	557

Three months ended March 31, 2010
Unrealized gains/(losses) from securities available for sale	$	287	$	(95	)	$	192
Supplemental Retirement Plan Obligations		-		-			-
Total accumulated other Comprehensive income/(loss)	$	287	$	(95	)	$	192

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 $212,000 and $138,000 for the three months ended March 31, 2011 and 2010, respectively. No cash contributions were made to the multi-employer pension plan for the three months ended March 31, 2011 and 2010, 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 three months ended March 31, 2011 and 2010, is estimated as follows: (dollars in thousands)

	Three Months Ended
	March 31,
Components of Net Periodic Benefit Cost	2011		2010
Service cost	$	28	$	26
Interest cost		54		54
Amortization of prior service cost		13		13
Amortization of actuarial losses		1		-

Net periodic benefit cost	$	96	$	93

- 8 -

The Bank previously disclosed in its financial statements for the year ended December 31, 2010, that it expected to pay benefits of $262,000 in 2011. As of March 31, 2011, the Bank has paid $66,000 in benefits and presently anticipates paying an additional $196,000 in fiscal 2011.

6. Repurchases of Company Common Stock

During the three month ended March 31, 2011, 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 March 31, 2011, 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.

7. 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.

8. 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 March 31, 2011 and December 31, 2010, these contingent obligations were approximately $17.9 million and $27.6 million, respectively. Management believes it is remote that, as of March 31, 2011, the Company would have to repurchase these obligations and therefore no reserve has been established for this purpose.

9. 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.

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.

- 9 -

The following table presents the fair value measurements of assets 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 March 31, 2011 and December 31, 2010. (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
March 31, 2011
Municipal bonds	$	-	$	58,732	$	-	$	58,732
Asset backed securities		-		9		-		9
Collateralized mortgage obligations issued by:
Agencies		-		50,702		-		50,702
Private label		-		99,802		-		99,802
Mortgage backed securities issued by agencies		-		17,774		-		17,774
Corporate debt		-		1,596		-		1,596
Bond money market funds		4,189		-		-		4,189
Equity securities		-		-		75		75
Securities available for sale	$	4,189	$	228,615	$	75	$	232,879

December 31, 2010
Municipal bonds	$	-	$	63,854	$	-	$	63,854
Asset backed securities		-		42		-		42
Collateralized mortgage obligations issued by:
Agencies		-		50,599		-		50,599
Private label		-		96,407		-		96,407
Mortgage backed securities issued by agencies		-		13,261		-		13,261
Corporate debt		-		1,459		-		1,459
Bond money market funds		768		-		-		768
Equity securities		-		-		75		75
Securities available for sale	$	768	$	225,622	$	75	$	226,465

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 ended March 31, 2011 and 2010. (dollars in thousands)

Total Fair Value Measurements	Available for Sale Debt Securities
	Three Months Ended
	March 31,
Level 3 Instruments Only	2011		2010
Beginning Balance	$	75	$	75
Purchases		-		-
Settlements		-		-
Ending Balance	$	75	$	75

- 10 -

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 ended March 31, 2011 and 2010.

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 March 31, 2011 and December 31, 2010. (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
March 31, 2011
Impaired loans		-		-		12,406		12,406
Other real estate owned		-		-		675		675

December 31, 2010
Impaired loans						33,170		33,170
Other real estate owned		-		-		1,602		1,602

At March 31, 2011, collateral dependent impaired loans which had an evaluation adjustment during 2011 had an aggregate cost of $14.6 million and had been written down to a fair value of $12.4 million measured using Level 3 inputs within the fair value hierarchy. At December 31, 2010, collateral dependent impaired loans which had an evaluation adjustment during 2010 had an aggregate cost of $36.3 million and had been written down to a fair value of $33.2 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 March 31, 2011, other real estate owned was reported at fair value less cost to sell of $675,000 thousand measured using Level 3 inputs within the fair value hierarchy. At December 31, 2010, other real estate owned was reported at fair value less cost to sell of $1.6 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.

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

	March 2011				Dec 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	22,980	$	22,980	$	13,063	$	13,063
Securities available for sale		232,879		232,879		226,465		226,465
Loans held for sale		1,620		1,669		7,666		7,827
Loans, net		730,097		757,614		732,795		761,838
Accrued interest receivable		3,946		3,946		3,785		3,785
Federal Home Loan Bank stock		7,507		7,507		7,507		7,507

Liabilities:
Deposits		872,328		879,371		853,343		861,739
FHLB advances		53,470		55,148		53,284		55,028
Junior subordinated debt		15,464		11,134		15,464		9,281
Short-term borrowings		-		-		12,088		12,088
Advance payments by borrowers for taxes and insurance		447		447		272		272
Accrued interest payable		90		90		84		84

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Cash, 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 Available for Sale

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 similar liabilities when traded as an asset in an active market.

The fair value estimates presented herein are based on information available to management at March 31, 2011. 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.

10. Securities

Securities are summarized as follows: (in thousands)

	March 2011									December 2010
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		(Losses)			Value		Cost		Gains		(Losses)			Value
Available for Sale:
Municipal bonds	$	57,694	$	1,499	$	(461	)	$	58,732	$	62,925	$	1,509	$	(580	)	$	63,854
Asset backed securities		100		-		(91	)		9		100		-		(58	)		42
Collateralized mortgage obligations issued by:
Agencies		50,771		284		(353	)		50,702		50,714		364		(479	)		50,599
Private label		100,144		363		(705	)		99,802		97,396		138		(1,127	)		96,407
Mortgage backed securities
issued by agencies		17,911		70		(207	)		17,774		13,386		107		(232	)		13,261
Corporate debt		1,967		-		(371	)		1,596		1,967		-		(508	)		1,459
Bond money market funds		4,189		-		-			4,189		768		-		-			768
Equity securities		75		-		-			75		75		-		-			75
Total Available for Sale	$	232,851	$	2,216	$	(2,188	)	$	232,879	$	227,331	$	2,118	$	(2,984	)	$	226,465

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Certain securities, with amortized cost of $376,000 and fair value of $406,000 at March 31, 2011, and amortized cost of $379,000 and fair value of $408,000 at December 31, 2010 were pledged as collateral for the Bank's treasury, tax and loan account at the Federal Reserve. Certain securities, with amortized cost of $24.1 million and fair value of $24.2 million at March 31, 2011, and amortized cost of $1.3 million and fair value of $1.4 million at December 31, 2010 were pledged as collateral for borrowing purposes at the Federal Home Loan Bank of Indianapolis.

The amortized cost and fair value of securities at March 31, 2011 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	$	2,287	$	2,307
Due after 1 year through 5 years		12,017		12,397
Due after 5 years through 10 years		34,578		35,295
Due after 10 years		8,812		8,733
Asset back securities		100		9
Collateralized mortgage obligations issued by:
Agencies		50,771		50,702
Private label		100,144		99,802
Mortgage backed securities issued by agencies		17,911		17,774
Corporate debt:
Due after 10 years		1,967		1,596
Bond money market funds		4,189		4,189
Equity securities		75		75
Total	$	232,851	$	232,879

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

	Three Months Ended
	March 31,
	2011		2010
Proceeds from sales	$	15,179	$	48,377
Gross gains on securities		295		-
Gross losses on securities		111		-
Other than temporary impairment losses		-		55
Tax expense/(benefit) on realized security gains/losses		73		(15	)

During 2010 other than temporary impairment was recorded on certain available for sale securities. The entire unrealized loss on these securities 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.

11. 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,

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In reviewing its available for sale securities at March 31, 2011, for other than temporary impairment, management considered the change in market value of the securities in the first quarter of 2011, 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. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if the market yields for such investments decline. Based on this criteria management concluded that no additional OTTI charge was required.

At March 31, 2011, the Company had two corporate debt securities with a face amount of $2.0 million and an unrealized loss of $371,000, which is an improvement of $137,000 over the prior quarter. 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.

Additionally, the Company had 21 private label CMO securities in the available for sale portfolio which have been in an unrealized loss position for greater than 12 months. These securities have an amortized cost of $375,000 and an unrealized loss of $158,000. All of these securities consisted of small balances ranging from $1,000 to $98,000, with an average balance of $18,000. Management believes the small illiquid nature of these securities has resulted in a depressed market value. As of March 31, 2011, all required cash flows had been received on each of the 21 securities, an indication for receiving future expected cash flows.

Investments that have been in a continuous unrealized loss position as of March 31, 2011 and December 31, 2010 are summarized as follows: (dollars in thousands)

As of March 31, 2011	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	$	2	$	(16	)	$	7	$	(75	)	$	9	$	(91	)
Collateralized mortgage obligations issued by:
Agencies		26,047		(353	)		-		-			26,047		(353	)
Private Label		53,125		(547	)		217		(158	)		53,342		(705	)
Mortgage backed securities issued by agencies		13,197		(207	)		-		-			13,197		(207	)
Corporate debt		-		-			1,596		(371	)		1,596		(371	)
Municipal bonds		10,130		(425	)		857		(36	)		10,987		(461	)
Total Temporarily Impaired Securities	$	102,501	$	(1,548	)	$	2,677	$	(640	)	$	105,178		(2,188	)

As of December 31, 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	$	15	$	(3	)	$	27	$	(55	)	$	42	$	(58	)
Collateralized mortgage obligations issued by:
Agencies		20,969		(479	)		-		-			20,969		(479	)
Private Label		69,290		(967	)		468		(160	)		69,758		(1,127	)
Mortgage backed securities issued by agencies		9,914		(232	)		-		-			9,914		(232	)
Corporate debt		-		-			1,459		(508	)		1,459		(508	)
Municipal bonds		12,841		(543	)		855		(37	)		13,696		(580	)
Total Temporarily Impaired Securities	$	113,029	$	(2,224	)	$	2,809	$	(760	)	$	115,838	$	(2,984	)

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12. Portfolio Loans and Allowance for Loan Losses

The Company originates both adjustable and fixed rate loans. The adjustable rate loans have interest rate adjustment limitations and are indexed to various indices. Adjustable residential mortgages are generally indexed to the one year Treasury constant maturity rate; adjustable consumer loans are generally indexed to the prime rate; adjustable commercial loans are generally indexed to either the prime rate or the one, three or five year Treasury constant maturity rate. Future market factors may affect the correlation of the interest rates the Company pays on the short-term deposits that have been primarily utilized to fund these loans.

The Company originates and purchases commercial and commercial mortgage loans, which totaled $550.6 million and $550.7 million at March 31, 2011 and December 31, 2010, respectively. These loans are considered by management to be of somewhat greater risk of collectability due to the dependency on income production or future development of the real estate. Collateral for commercial and commercial mortgage loans includes manufacturing equipment, real estate, inventory, accounts receivable, and securities. Terms of these loans are normally for up to ten years and have adjustable rates tied to the reported prime rate and Treasury indices. Generally, commercial and commercial mortgage loans are considered to involve a higher degree of risk than residential real estate loans. However, commercial and commercial mortgage loans generally carry a higher yield and are made for a shorter term than residential real estate loans.

At March 31, 2011 and December 31, 2010, deposit overdrafts of $146,000 and $145,000, respectively, were included in portfolio loans.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on the Company’s loan portfolio and impairment method as of March 31, 2011 and December 31, 2010. (dollars in thousands)

	Commercial and commercial mortgage loans			Residential mortgage loans			Second and home equity loans			Other consumer loans			Total
Three months ended March 31, 2011
Allowance for loan losses:
Balance at beginning of period	$	12,640		$	799		$	858		$	309		$	14,606
Provision for loan losses		1,596			(5	)		(49	)		16			1,558
Loan charge-offs		(1,549	)		(40	)		(39	)		(81	)		(1,709	)
Recoveries		71			-			7			45			123
Balance at End of Period	$	12,758		$	754		$	777		$	289		$	14,578
Ending balance: individually evaluated for impairment	$	4,010		$	-		$	-		$	-		$	4,010
Ending balance: collectively evaluated for impairment	$	8,748		$	754		$	777		$	289		$	10,568
Loans:
Balance at End of Period	$	550,586		$	92,413		$	90,937		$	10,933		$	744,869
Ending balance: individually evaluated for impairment	$	63,129		$	-		$	-		$	-		$	63,129
Ending balance: collectively evaluated for impairment	$	487,457		$	92,413		$	90,937		$	10,933		$	681,740

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	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
As of December 31, 2010
Allowance for loan losses:
Balance at End of Period	$	12,640	$	799	$	858	$	309	$	14,606
Ending balance: individually evaluated for impairment	$	3,455	$	-	$	-	$	-	$	3,455
Ending balance: collectively evaluated for impairment	$	9,185	$	799	$	858	$	309	$	11,151
Loans:
Balance at End of Period	$	550,686	$	92,796	$	92,557	$	11,614	$	747,653
Ending balance: individually evaluated for impairment	$	54,450	$	-	$	-	$	-	$	54,450
Ending balance: collectively evaluated for impairment	$	496,236	$	92,796	$	92,557	$	11,614	$	693,203

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans, such as commercial and commercial mortgage loans, with an outstanding balance greater than $750,000 individually by classifying the loans as to credit risk. Loans less than $750,000 in homogeneous categories that are 90 days past due are classified into risk categories. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:


Special Mention		Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard		Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans along with homogeneous loans that have not exhibited any delinquency. As of March 31, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (dollars in thousands)

As of March 31, 2011	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Rating:
Pass	$	471,731	$	90,917	$	90,248	$	10,830	$	663,726
Special mention		10,016		180		128		-		10,324
Substandard		68,839		1,316		561		103		70,819
Balance at End of Period	$	550,586	$	92,413	$	90,937	$	10,933	$	744,869

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As of December 31, 2010	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Rating:
Pass	$	472,375	$	91,094	$	91,790	$	11,342	$	666,601
Special mention		17,816		372		78		-		18,266
Substandard		60,495		1,330		689		272		62,786
Balance at End of Period	$	550,686	$	92,796	$	92,557	$	11,614	$	747,653

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2011 and December 31, 2010: (dollars in thousands)

As of March 31, 2011	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Loans:
30-59 days past due	$	1,986	$	1,045	$	551	$	63	$	3,645
60-89 days past due		2,779		-		128		17		2,924
Past due 90 days or more		-		87		-		-		87
Nonaccrual		14,841		1,236		561		86		16,724
Total Past Due		19,606		2,368		1,240		166		23,380
Current		530,980		90,045		89,697		10,767		721,489
Total Loans	$	550,586	$	92,413	$	90,937	$	10,933	$	744,869

As of December 31, 2010	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Loans:
30-59 days past due	$	2,770	$	1,447	$	687	$	68	$	4,972
60-89 days past due		-		-		78		21		99
Past due 90 days or more		-		92		-		-		92
Nonaccrual		18,082		1,412		678		106		20,278
Total Past Due		20,852		2,951		1,443		195		25,441
Current		529,834		89,845		91,114		11,419		722,212
Total Loans	$	550,686	$	92,796	$	92,557	$	11,614	$	747,653

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial and commercial mortgage loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

A reversal of accrued interest, which has not been collected, is generally provided on loans which are more than 90 days past due. The only loans which are 90 days past due and are still accruing interest are loans where the Company is guaranteed reimbursement of interest by either a mortgage insurance contract or by a government agency. If neither of these criteria is met, a charge to interest income equal to all interest previously accrued and unpaid is made, and income is subsequently recognized only to the extent that cash payments are received in excess of principal due. Loans are returned to accrual status when, in management's judgment, the borrower's ability to make periodic interest and principal payments returns to normal and future payments are reasonably assured.

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The following is a summary of information pertaining to impaired loans as of March 31, 2011 and December 31, 2010: (dollars in thousands)

As Of	Mar 2011		Dec 2010
Impaired loans with a valuation reserve	$	31,010	$	32,325
Impaired loans with no valuation reserve		32,119		22,125
Total Impaired Loans	$	63,129	$	54,450

Valuation reserve on impaired loans	$	4,010	$	3,455

As Of	Mar 2011		Dec 2010
Unpaid Principal Balance on:
Impaired loans with a valuation reserve	$	31,712	$	35,167
Impaired loans with no valuation reserve		36,909		24,288
Total Unpaid Principal Balance on Impaired Loans	$	68,621	$	59,455

The following is a summary of information pertaining to average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2011: (dollars in thousands)

Three month ended	March 31, 2011
Average impaired loans	$	58,789
Interest income recognized on impaired loans		606
Cash basis interest included above		38

13. 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.

14. 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 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 was 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.

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In January 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20” which temporarily delays the effective date of the disclosures about troubled debt restructuring in ASU 2010-20. This delay was intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring.

In April 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-01, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”) which provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Management is currently in the process of determining what effect the provisions of this statement will have on the Company’s financial position or results of operations.

Recent Legislation

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-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, are 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 Dodd-Frank Act on the financial services industry in general, and the Company in particular, is uncertain at this time.

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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 53 of the Company’s annual report on Form 10-K for the year ended December 31, 2010. 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 collectability 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.

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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 are the basis for developing expected charge-offs for each pool of loans. In December 2010, management determined to increase the timeframe of the historical loss rates from the last two years by one quarter, each quarter, until a rolling three years is reached. This was done to accurately reflect the risk inherent in the portfolio. Management continually monitors portfolio conditions to determine if the appropriate charge off percentages in the allowance calculation reflect the expected losses in the portfolio. As of March 31, 2011, the time frame used to determine charge off percentages was October 1, 2008 through March 31, 2011.

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 available-for-sale on the date of purchase. 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 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 March 31, 2011 Compared to Quarter Ended March 31, 2010

General

The Company reported net income of $1.3 million for the quarter ended March 31, 2011, compared to net income of $418,000 for the quarter ended March 31, 2010 an increase of $918,000 or 219.6%. Basic and diluted earnings per common share were $0.31 and $0.04, for the quarters ended March 31, 2011 and 2010, respectively. The primary reason for the increase in net income for the quarter ended March 31, 2011, was the $1.2 million increase in net interest income.

Net Interest Income

Net interest income before provision for loan losses increased $1.2 million or 16.3% to $8.6 million for the quarter ended March 31, 2011, as compared to $7.4 million for the quarter ended March 31, 2010. The net interest margin increased 38 basis points from 3.25% for the quarter ended March 31, 2010 to 3.63% for the quarter ended March 31, 2011. The increase in the net interest margin was due to the rates paid on interest bearing liabilities declining more rapidly, by 50 basis points, than the rates earned on interest bearing assets, which declined 13 basis points, for the two comparative quarters. The average rates paid for retail deposits decreased approximately 56 basis points for the quarter ended March 2011, as compared to the quarter ended March 2010. Another factor contributing to the increase in net interest income was the $15.3 million net increase in interest earning assets over interest bearing liabilities.

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Provision for Loan Losses

The provision for loan losses decreased $537,000 to $1.6 million for the quarter ended March 31, 2011, compared to $2.1 million for the quarter ended March 31, 2010. Net charge offs were $1.6 million for the current quarter compared to $613,000 for the first quarter of 2010. Two large charge off were taken in the quarter ended March 31, 2011. One was a $640,000 charge off related to a commercial real estate loan collateralized by a shopping center that continues to experience low occupancy rates. The other charge off was $540,000 related to a commercial loan to a leasing company that continues to experience slow activity.

The allowance for loan losses decreased $28,000 during the first 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.

The change to the loan loss allowance for the three month periods ended March 31, 2011 and 2010 is as follows:

Quarter ended March 31: (in thousands)	2011			2010

Allowance beginning balance	$	14,606		$	13,113
Provision for loan losses		1,558			2,095
Charge-offs		(1,709	)		(679	)
Recoveries		123			66
Allowance ending balance	$	14,578		$	14,595

Allowance to Total Loans		1.96	%		1.97	%
Allowance to Nonperforming Loans		55	%		68	%

Net interest income after provision for loan losses was $7.1 million for the three month period ended March 31, 2011; an increase of $1.7 million, as compared to net interest income of $5.3 million for the three month period ended March 31, 2010.

Interest Income

Total interest income for the three month period ended March 31, 2011 increased $163,000 or 1.5% from $11.1 million for the quarter ending March 31, 2010 to $11.3 million for the quarter ending March 31, 2011. The primary factor influencing the increase in interest income is the growth in interest earning assets for the two comparative quarters. Average balances of securities increased $50.8 million, while the rate earned on securities decreased 15 basis points. Average balances of commercial and commercial real estate increased $17.8 million while the rate earned on commercial and commercial real estate interest remained relatively stable increasing 2 basis points.

Interest Expense

Total interest expense for the three month period ended March 31, 2011 decreased $1.0 million or 28.1% as compared to the same period a year ago. The weighted average interest rates paid on average interest bearing liabilities decreased 50 basis points, from the three month period ended March 31, 2010 compared to the three month period ended March 31, 2011. The decrease in rates paid on interest bearing liabilities resulted from the changing mix of interest bearing liabilities. Increases in average balances of lower cost interest checking and money market accounts were $13.9 million and $16.4 million, respectively. The decrease in average balances of higher costing certificates of deposit was $30.6 million over the same two comparable periods. The average rate paid on all retail deposits decreased approximately 56 basis points over the same comparative periods.

Non Interest Income

Total non interest income increased $178,000 or 8.2% to $2.3 million for the quarter. The primary reason for this increase was due to an $184,000 increase in gain on sale of securities. The $184,000 increase in gain on sale of securities resulted from harvesting gains in the portfolio which were being repaid at par. Management reinvested the proceeds in agency mortgage backed securities with an average two to four year life. Offsetting this increase was a decrease in service fees on deposit accounts of $116,000 or 7.8%. The decrease in service fees on deposits was driven by a net reduction in overdraft privilege fees of $147,000 or 17.7%. In the third quarter of 2010, regulatory changes required customers to opt-in to the overdraft privilege protection program. Additionally, in the current challenging economy customers have developed more conservative spending habits, thereby avoiding overdraft fees. Negotiations in the first quarter of 2011, with a qualified borrower, resulted in a letter of intent to purchase a bank owned property that resulted in a $482,000 write down on real estate owned (REO). Offsetting this loss were small gains received on other REO property that sold during the quarter resulting in a net loss on REO of $387,000 for the quarter ended March 31, 2011.

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Non Interest Expenses

Non interest expenses increased $461,000 or 6.5% to $7.6 million for the quarter. Compensation and employee benefits accounted for the majority of the increase in non interest expense for the quarter increasing $278,000 or 7.4%. Compensation and employee benefits increased $110,000 due to new equity incentive plans, $74,000 due to costs related to funding for the Company’s frozen pension plan, as well as normal employee raises that were effective as of January 1, 2011.

Taxes

A tax expense of $490,000 was recorded for the first quarter ended March 31, 2011 while a tax credit of $52,000 was recorded for the first quarter ended March 31, 2010. In the quarter ended March 31, 2011, the Company recorded pretax income of $1.8 million resulting in a tax expense of $490,000 after considering permanent federal and state tax differences of approximately $243,000 and $1.2 million, respectively. In the quarter ended March 31, 2010, the Company recorded pretax income of $366,000 million that resulting in tax credit of $52,000 after considering federal and state permanent tax differences of approximately $288,000 and $1.0 million, respectively.

Asset Quality

Nonperforming assets to total assets decreased to 3.0% at March 31, 2011 from 3.3% at December 31, 2010. Nonperforming loans to total gross loans decreased to 3.6% at March 31, 2011 from 4.0% at December 31, 2010. Total non-performing loans decreased $3.5 million year-to-date to $26.5 million at March 31, 2011. The decrease in nonperforming loans is due primarily to three changes 1.) the two large charge offs described in the provision for loan losses section of $1.2 million; 2.) a $1.1 million relationship that moved from non-performing loans to REO and was subsequently written down $482,000 due to negotiations previously described with a qualified buyer and; 3) a $1.4 million relationship that was returned to performing status due to the borrowers improved position and the credit being current. The allowance for loan losses remained relatively constant at $14.6 million as of March 31, 2011 and December 31, 2010. The ratio of the allowance for loan losses to total loans was 1.96% at March 31, 2011 compared to 1.95% at December 31, 2010. See further discussion in the Critical Accounting Policies. Management anticipates asset quality to remain an area of focus for the foreseeable future. Management continues to anticipate future movements both up and down in the balance of nonperforming assets. Assets that are currently performing projects may become unviable in the continued sluggish economy or conversely, current problem asset situations may be resolved through improvements in sales, the disposition of the assets or future improvement of the economy.

The Company has 52.4% 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 March 31, 2011. (dollars in thousands)

Property Description	BALANCE	PERCENTAGE OF BANK ASSETS
Accounts Receivable, Inventory, and Equipment	70,440	6.71%
Land Only	53,664	5.11%
Office Building	46,226	4.41%
Shopping Center	43,549	4.15%
Manufacturing Business/Industrial	37,049	3.53%
Retail Business Store	33,927	3.23%
Warehouse	33,567	3.20%
Medical Building	32,665	3.11%
Apartment Building	22,702	2.16%
Motel	21,844	2.08%
Land Development Business	19,592	1.87%
Athletic/Recreational/School	17,531	1.67%
Life Insurance	14,228	1.36%
Non-Margin Stock	12,786	1.22%
1-4 Family Investment	11,748	1.12%

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FINANCIAL CONDITION:

Total assets as of March 31, 2011, were $1.05 billion, a small increase of $7,000 or 0.7% from December 31, 2010, total assets of $1.04 billion. While total assets remained fairly constant in the first quarter of 2011, various categories, primarily on the liability side of the balance sheet, experienced movement. Retail deposits increased in all categories except certificates of deposit, resulting in a net gain in retail deposits of $19.0 million. Certificates of deposits decreased $5.4 million as the Company does not negotiate rates for single service certificate of deposit customers. Demand deposits increased $10.0 million, with half of the growth coming from retail consumer demand accounts and the other half coming from commercial demand accounts. Additionally, the Company had increases in interest checking, savings and money market accounts of $2.6 million, $5.2 million and $6.5 million, respectively. While a portion of the increase is due to customers receiving tax refunds, the number of transaction accounts increased 325 in the first quarter of 2011 indicating sustainable growth in these accounts

The funds received from transaction account increases were used to pay off $12.1 million of short term borrowings the Company had at year end. Additionally, $10 million of the increase in transaction accounts were placed in fed funds, as it is anticipated customer tax payments due in April will result in a need for liquid funds. There was little change in the loan and securities portfolios as loans declined $2.8 million or .4% and securities increased $6.4 million or 2.8%.

Shareholders' equity increased $1.7 million during the first three months of 2011. Retained earnings increased $1.4 million from net income and decreased $303,000 for dividend payments on common and preferred stock, and $27,000 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 $111,000 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 $557,000 for the first three months ended March 31, 2011.

At March 31, 2011, 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 March 31 2010
Total risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	109,222		12.78	%	$	68,375		8.0	%	$	85,469		10.0	%
Indiana Community Bancorp Consolidated	$	113,244		13.24	%	$	68,447		8.0	%	$	85,559		10.0	%
Tier 1 risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	98,408		11.51	%	$	34,187		4.0	%	$	51,281		6.0	%
Indiana Community Bancorp Consolidated	$	102,418		11.97	%	$	34,223		4.0	%	$	51,335		6.0	%
Tier 1 leverage capital
(to average assets)
Indiana Bank and Trust Company	$	98,408		9.45	%	$	41,656		4.0	%	$	52,070		5.0	%
Indiana Community Bancorp Consolidated	$	102,418		9.83	%	$	41,687		4.0	%	$	52,109		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.

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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 March 31, 2011, the Bank had $53.5 million in such borrowings. In addition at March 31, 2011, the Bank had commitments to purchase loans of $9.4 million, as well as commitments to fund loan originations of $12.0 million, unused home equity lines of credit of $39.4 million and unused commercial lines of credit of $54.1 million, as well as commitments to sell loans of $7.9 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 three months ended March 31, 2011 are not materially different from the results presented on page 14 of the Company’s annual report for the twelve month period ended December 31, 2010.

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, 2010.

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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 March 31, 2011.

	(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)
January 2011		-	$	00.00		-		156,612
February 2011		-	$	00.00		-		156,612
March 2011		-	$	00.00		-		156,612
First 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

Item 6. Exhibits

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:	May 6, 2011
		/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
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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