- Quarterly Report (10-Q)

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, 2012

[ ] 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 [X] 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 Exchange Act).

YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of August 6, 2012.

Common Stock, no par value – 3,420,879 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 Other Comprehensive Income (Loss)	5

Condensed Consolidated Statements of Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	34

Item 4. Controls and Procedures	34


PART II. OTHER INFORMATION

Item 1. Legal Proceedings	35

Item 1A Risk Factors	35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3. Defaults Upon Senior Securities	35

Item 4. Mine Safety Disclosures	35

Item 5. Other Information	35

Item 6. Exhibits	35

Signatures	36

Exhibit Index	37

-2-

INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	June 30,			December 31,
	2012			2011
Assets:	(unaudited)
Cash and due from banks	$	15,889		$	20,683
Interest bearing demand deposits		380			278
Federal funds sold		78,354			19,634
Cash and cash equivalents		94,623			40,595
Securities available for sale at fair value (amortized cost $155,978 and $178,300)		159,699			180,770
Loans held for sale (fair value $19,677 and $6,617)		19,540			6,464
Portfolio loans:
Commercial and commercial mortgage loans		431,751			517,970
Residential mortgage loans		89,001			93,757
Second and home equity loans		79,342			86,059
Other consumer loans		8,853			9,533
Total portfolio loans		608,947			707,319
Unearned income		(190	)		(233	)
Allowance for loan losses		(20,016	)		(14,984	)
Portfolio loans, net		588,741			692,102
Premises and equipment		15,286			16,617
Accrued interest receivable		2,845			3,085
Other assets		55,336			44,974
TOTAL ASSETS	$	936,070		$	984,607

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Demand	$	110,291		$	103,864
Interest checking		189,135			222,314
Savings		56,498			52,181
Money market		227,357			222,229
Certificates of deposits		239,826			262,653
Retail deposits		823,107			863,241
Public fund certificates		107			102
Wholesale deposits		107			102
Total deposits		823,214			863,343

Junior subordinated debt		15,464			15,464
Other liabilities		14,443			17,666
Total liabilities		853,121			896,473

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		21,321			21,265
No par common stock; Authorized: 15,000,000 shares
Issued and outstanding: 3,420,879 and 3,422,379 shares		21,857			21,735
Retained earnings, restricted		37,954			44,127
Accumulated other comprehensive income, net		1,817			1,007

Total shareholders' equity		82,949			88,134
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	936,070		$	984,607

See notes to condensed consolidated financial statements

-3-

INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)		Three Months Ended						Six Months Ended
(unaudited)		June 30,						June 30,
		2012			2011			2012		2011
Interest Income:
Short term investments	$	32		$	14		$	37	$	19
Securities		923			1,481			1,909		2,790
Commercial and commercial mortgage loans		6,382			7,264			13,172		14,889
Residential mortgage loans		942			1,041			1,945		2,098
Second and home equity loans		913			1,050			1,860		2,122
Other consumer loans		157			208			326		427
Total interest income		9,349			11,058			19,249		22,345

Interest Expense:
Checking and savings accounts		278			437			576		833
Money market accounts		250			362			495		715
Certificates of deposit		908			1,454			1,938		3,034
Total interest on retail deposits		1,436			2,253			3,009		4,582

Public funds		0			4			1		11
Total interest on wholesale deposits		0			4			1		11
Total interest on deposits		1,436			2,257			3,010		4,593

FHLB advances		0			261			2		521
Other borrowings		0			1			37		4
Junior subordinated debt		83			76			168		152
Total interest expense		1,519			2,595			3,217		5,270

Net interest income		7,830			8,463			16,032		17,075
Provision for loan losses		8,273			2,689			16,012		4,247
Net interest income after provision for loan losses		(443	)		5,774			20		12,828

Non-Interest Income:
Gain on sale of loans		446			350			1,045		746
Gain on securities		0			10			0		194
Other than temporary impairment losses		0			(7	)		0		(7	)
Service fees on deposit accounts		1,509			1,543			2,925		2,911
Loan servicing income, net of impairment		109			135			216		246
Net gain(loss) on real estate owned		15			(24	)		23		(411	)
Trust and asset management fees		340			306			673		598
Increase in cash surrender value of life insurance		123			132			249		264
Miscellaneous		294			251			573		496
Total non-interest income		2,836			2,696			5,704		5,037

Non-Interest Expenses:
Compensation and employee benefits		3,715			3,865			7,740		7,892
Occupancy and equipment		1,008			958			1,974		1,980
Service bureau expense		664			499			1,206		984
FDIC premium		303			330			618		876
Marketing		127			265			270		486
Professional fees		191			208			377		404
Loan expenses		263			306			448		521
Real estate owned expenses		113			172			185		295
Communication expenses		116			154			239		282
Merger expenses		219			0			721		0

-4-

Miscellaneous		558			593		1,147			1,199
Total non-interest expenses		7,277			7,350		14,925			14,919

Income (loss) before income taxes		(4,884	)		1,120		(9,201	)		2,946
Income tax provision (credit)		(2,014	)		275		(3,689	)		765
Net Income (Loss)	$	(2,870	)	$	845	$	(5,512	)	$	2,181

Basic earnings (loss) per common share	$	(0.94	)	$	0.16	$	(1.80	)	$	0.47
Diluted earnings (loss) per common share	$	(0.94	)	$	0.16	$	(1.80	)	$	0.47

Basic weighted average number of common shares		3,383,379			3,364,079		3,383,379			3,364,079
Dilutive weighted average number of common shares		3,383,379			3,367,966		3,383,379			3,367,535
Dividends per common share	$	0.010		$	0.010	$	0.020		$	0.020

See notes to condensed consolidated financial statements


INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(unaudited)	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012			2011		2012			2011
Net Income (Loss)	$	(2,870	)	$	845	$	(5,512	)	$	2,181
Other Comprehensive Income
Unrealized gains on available for sale securities:
Unrealized holding gains		889			2,755		1,251			3,833
Reclassification adjustments for gains included in net income		0			3		0			187
Other comprehensive income, before income taxes		889			2,752		1,251			3,646
Less: Income tax expense related to other comprehensive income		308			990		441			1,327
Total Other Comprehensive Income	$	581		$	1,762	$	810		$	2,319



Comprehensive Income (Loss)	$	(2,289	)	$	2,607	$	(4,702	)	$	4,500

See notes to consolidated financial statements

-5-

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		Total Shareholders' Equity

Balance at December 31, 2011		3,422,379		$	21,265	$	21,735	$	44,127		$	1,007	$	88,134

Net loss									(5,512	)				(5,512	)
Change in unrealized gain on securities available for sale												810		810

Restricted stock compensation expense							122							122
Restricted stock forfeited		(1,500	)
Amortization of discount on preferred stock					56				(56	)				0
Common stock cash dividends									(68	)				(68	)
Preferred stock cash dividends									(537	)				(537	)
Balance at June 30, 2012		3,420,879		$	21,321	$	21,857	$	37,954		$	1,817	$	82,949


	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

Net income									2,181						2,181
Change in unrealized gain on securities available for sale												2,319			2,319

Common stock compensation expense							2								2
Restricted stock compensation expense							238								238
Restricted stock non vested shares issued		36,300
Restricted stock forfeited		(2,000	)
Amortization of discount on preferred stock					54				(54	)					0
Common stock cash dividends									(68	)					(68	)
Preferred stock cash dividends									(538	)					(538	)
Balance at June 30, 2011		3,419,379		$	21,210	$	21,470	$	48,713		$	1,390		$	92,783

See notes to condensed consolidated financial statements

-6-

INDIANA COMMUNITY BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)	Six Months Ended
(unaudited)	June 30,
	2012			2011
Cash Flows From Operating Activities:
Net income (loss)	$	(5,512	)	$	2,181
Adjustments to reconcile net income (loss) to net cash from operating activities:
Accretion of discounts, amortization and depreciation		1,998			2,940
Provision for loan losses		16,012			4,247
Stock based compensation expense		122			240
Provision/(benefit) for deferred income taxes		(2,677	)		149
Net gain from sale of loans		(1,045	)		(746	)
Gain on securities		0			(194	)
Other than temporary impairment losses		0			7
Net (gain)/loss from real estate owned		(23	)		411

Loan fees recognized, net		(45	)		(27	)
Proceeds from sale of loans held for sale		42,787			34,468
Origination of loans held for sale		(40,338	)		(28,497	)
(Increase) decrease in accrued interest and other assets		(4,769	)		4
Decrease in other liabilities		(2,217	)		(549	)
Net Cash From Operating Activities		4,293			14,634

Cash Flows From / (Used In) Investing Activities:
Net principal received on loans		68,266			6,662
Proceeds from:
Maturities/repayments of:
Securities available for sale		29,763			35,874
Sales of:
Securities available for sale		816			32,397
Real estate owned and other assets		2,030			1,485
Federal Home Loan Bank stock		0			944
Loans transferred to held for sale		3,472			0
Purchases of:
Loans		(2,260	)		(199	)
Securities available for sale		(10,686	)		(83,640	)
Federal Home Loan Bank stock		(529	)		0
Acquisition of property and equipment		(442	)		(1,402	)
Disposal of property and equipment		5			0
Net Cash From (Used In) Investing Activities		90,435			(7,879	)

Cash Flows From / (Used In) Financing Activities:
Net decrease in deposits		(40,129	)		(2,792	)
Proceeds from advances from FHLB		10,000			0
Repayment of advances from FHLB		(10,000	)		0
Net repayments of overnight borrowings		0			(783	)
Payment of dividends on preferred stock		(537	)		(538	)
Payment of dividends on common stock		(34	)		(68	)
Net Cash Used In Financing Activities		(40,700	)		(4,181	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		54,028			2,574
Cash and cash equivalents, beginning of period		40,595			13,063
Cash and Cash Equivalents, End of Period	$	94,623		$	15,637

Supplemental Information:
Cash paid for interest	$	3,233		$	5,273
Cash paid for income taxes	$	564		$	1,070
Non cash items:
Assets acquired through foreclosure	$	3,392		$	2,498
Transfer from loans receivable to loans held for sale	$	17,996		$	0
Transfer from property to property held for sale	$	1,158		$	0
Dividends Payable	$	34		$	0

See notes to condensed consolidated financial statements

-7-

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, 2012, and for the three and six month periods ended June 30, 2012 and 2011, 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 and six months period ended June 30, 2012, 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, 2011 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 Form 10-K for the year ended December 31, 2011.

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
	2012		2011		2012		2011
Basic EPS:
Weighted average common shares		3,383,379		3,364,079		3,383,379		3,364,079

Diluted EPS:
Weighted average common shares		3,383,379		3,364,079		3,383,379		3,364,079
Dilutive effect of stock options		0		3,887		0		3,456
Weighted average common and incremental shares		3,383,379		3,367,966		3,383,379		3,367,535

Anti-dilutive options		170,586		280,422		170,586		280,422

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,
	2012			2011		2012			2011

Net income (loss)	$	(2,870	)	$	845	$	(5,512	)	$	2,181
Less preferred stock dividend		268			269		537			538
Less restricted stock dividend		1			0		1			1
Less amortization of preferred stock discount		28			27		56			54
Net income (loss) available to common shareholders	$	(3,167	)	$	549	$	(6,106	)	$	1,588

Basic Earnings per Common Share	$	(0.94	)	$	0.16	$	(1.80	)	$	0.47
Diluted Earnings per Common Share	$	(0.94	)	$	0.16	$	(1.80	)	$	0.47

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

-8-

3. 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.

4. Pension and Other Retirement Benefit Plans

Prior to April 1, 2008, the Company participated in the Pentegra Defined Benefit Plan for Financial Institutions (the “Pentegra Plan”), a noncontributory multi-employer pension plan covering all qualified employees. The Company chose to freeze its defined benefit pension plan effective April 1, 2008. The trustees of the Financial Institutions Retirement Fund administer the Pentegra Plan, employer identification number 13-5645888 and plan number 333. The Pentegra Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra Plan.

The Company recorded pension expenses of $275,000 and $212,000 for the three months ended June 30, 2012 and 2011, respectively. The Company recorded pension expenses of $550,000 and $424,000 for the six months ended June 30, 2012 and 2011, respectively. Company cash contributions to the multi-employer pension plan for the six months ended June 30, 2012 were $842,000. No cash contributions were made to the multi-employer pension plan for the six months ended June 30, 2011.

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 and six months ended June 30, 2012 and 2011, is estimated as follows: (dollars in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Components of Net Periodic Benefit Cost	2012		2011		2012		2011

Service cost	$	21	$	28	$	43	$	56
Interest cost		53		53		106		107
Amortization of prior service cost		14		14		27		27
Amortization of actuarial losses		10		0		20		1
Net periodic benefit cost	$	98	$	95	$	196	$	191

The Company previously disclosed in its financial statements for the year ended December 31, 2011, that it expected to pay benefits of $246,000 in 2012. As of June 30, 2012, the Bank has paid $136,000 in benefits and presently anticipates paying an additional $121,000 in fiscal 2012, provided however that under the Company's merger agreement with Old National Bancorp, these agreements are to be terminated and cashed out at the merger closing.

5. Repurchases of Company Common Stock

During the six months ended June 30, 2012 and 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 June 30, 2012, there are 156,612 common shares remaining to be repurchased under this program.

6. 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.

7. 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, 2012 and December 31, 2011, these contingent obligations were approximately $17.3 million and $30.2 million, respectively. Management believes it is remote that, as of June 30, 2012 the Company would have to repurchase these obligations and therefore no reserve has been established for this purpose.

-9-

8. 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. 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 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 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, 2012 and December 31, 2011. (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, 2012
Municipal bonds	$	0	$	45,824	$	0	$	45,824
Collateralized mortgage obligations issued by:
GSE agencies		0		21,773		0		21,773
Private label		0		36,298		0		36,298
Mortgage backed securities issued by agencies		0		54,203		0		54,203
Corporate debt		0		1,526		0		1,526
Equity securities		0		0		75		75
Securities available for sale	$	0	$	159,624	$	75	$	159,699

December 31, 2011
Municipal bonds	$	0	$	46,313	$	0	$	46,313
Collateralized mortgage obligations issued by:
GSE agencies		0		27,766		0		27,766
Private label		0		49,399		0		49,399
Mortgage backed securities issued by agencies		0		55,817		0		55,817
Corporate debt		0		1,400		0		1,400
Equity securities		0		0		75		75
Securities available for sale	$	0	$	180,695	$	75	$	180,770

-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, 2012 and 2011. (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	2012		2011		2012		2011
Beginning Balance	$	75	$	75	$	75	$	75
Purchases		0		0		0		0
Settlements		0		0		0		0
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, 2012 and 2011.

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, 2012 and December 31, 2011. (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, 2012
Impaired loans (collateral dependent)		0		0		13,084	13,084

December 31, 2011
Impaired loans (collateral dependent)		0		0		24,879	24,879
Other real estate owned		0		0		295	295

At June 30, 2012, collateral dependent impaired loans which had an evaluation adjustment during 2012 had an aggregate cost of $19.0 million and had been written down to a fair value of $13.1 million measured using Level 3 inputs within the fair value hierarchy. At December 31, 2011, collateral dependent impaired loans which had an evaluation adjustment during 2011 had an aggregate cost of $25.4 million and had been written down to a fair value of $24.9 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.

The significant unobservable inputs (Level 3) used in the fair value measurement for collateral dependent impaired loans included in the table above relate primarily to customized discounting criteria applied to the customer’s collateral. The amount of the collateral discount depends upon the marketability of the underlying collateral and the age of the last independent evaluation. Less marketable collateral would receive a larger discount. As of June 30, 2012, collateral discounts ranged from zero to 31% for real estate collateral, 20% for accounts receivable and 50% for inventory and equipment.

At December 31, 2011, other real estate owned was reported at fair value less cost to sell of $295,000 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 30, 2012										December 31, 2011
	Carrying Value		Fair Value			Level 1		Level 2		Level 3	Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	94,623	$	94,623	$	94,623	$	0	$	0	$	40,595	$	40,595
Securities available for sale		159,699		159,699				159,624		75		180,770		180,770
Loans held for sale		19,540		19,677				19,677		0		6,464		6,617
Loans, net		588,741		595,597						595,597		692,102		699,191
Accrued interest receivable		2,845		2,845				2,845				3,085		3,085
Federal Home Loan Bank stock		7,092		7,092				7,092				6,563		6,563

Liabilities:
Deposits		823,214		827,000				827,000				863,343		863,322
Junior subordinated debt		15,464		12,309						12,309		15,464		10,628
Advance payments by borrowers for taxes and insurance		358		358				358				325		325
Accrued interest payable		45		45				45				61		61

Cash, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance and Accrued Interest Payable

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

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.

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 June 30, 2012. 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.

9. Securities

Securities are summarized as follows: (in thousands)

-12-

	June 30, 2012									December 31, 2011
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		(Losses)			Value		Cost		Gains		(Losses)			Value
Available for Sale:
Municipal bonds	$	43,103	$	2,725	$	(4	)		45,824	$	44,094	$	2,255	$	(36	)	$	46,313
Collateralized mortgage obligations issued by:
GSE agencies		21,302		471		0			21,773		27,354		422		(10	)		27,766
Private label		35,842		462		(6	)		36,298		49,156		319		(76	)		49,399
Mortgage backed securities
issued by agencies		53,686		567		(50	)		54,203		55,652		277		(112	)		55,817
Corporate debt		1,970		0		(444	)		1,526		1,969		0		(569	)		1,400
Equity securities		75		0		0			75		75		0		0			75
Total Available for Sale	$	155,978	$	4,225	$	(504	)	$	159,699	$	178,300	$	3,273	$	(803	)	$	180,770

No securities were pledged at the Federal Reserve as of June 30, 2012 and December 31, 2011. Certain securities, with amortized cost of $12.4 million and fair value of $12.7 million at June 30, 2012 and amortized cost of $16.6 million and fair value of $16.9 million at December 31, 2011, were pledged as collateral for borrowing purposes at the Federal Home Loan Bank of Indianapolis.

The amortized cost and fair value of securities at June 30, 2012 by contractual maturity are summarized as follows: (dollars in thousands)

	Available for Sale
	Amortized Cost		Fair Value		Yield

Municipal bonds:
Due in one year or less	$	1,539	$	1,552		5.92	%
Due after 1 year through 5 years		13,726		14,431		5.18	%
Due after 5 years through 10 years		26,243		28,121		3.99	%
Due after 10 years		1,595		1,720		4.16	%
Collateralized mortgage obligations issued by:
GSE agencies		21,302		21,773		2.58	%
Private label		35,842		36,298		3.83	%
Mortgage backed securities issued by agencies		53,686		54,203		2.14	%
Corporate debt:
Due after 10 years		1,970		1,526		1.19	%
Equity securities		75		75		0	%
Total	$	155,978	$	159,699		3.23	%

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,
	2012		2011		2012		2011
Proceeds from sales	$	0	$	17,218	$	816	$	32,397
Gross gains on securities		0		103		0		398
Gross losses on securities		0		93		0		204
Other than temporary impairment losses		0		7		0		7


Tax expense on realized security gains/losses		0		4		0		77

-13-

During 2011 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 on the Company’s analysis of expected cash flows. Therefore, no amounts were recognized in other comprehensive income.

10. 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,

In reviewing its available for sale securities at June 30, 2012, for other than temporary impairment, management considered the change in market value of the securities in the first six months of 2012, 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 other than temporary impairment (“OTTI”) charge was required.

At June 30, 2012, the Company had two corporate debt securities with a face amount of $2.0 million and an unrealized loss of $444,000, which was an improvement of $125,000 over the December 31, 2011 unrealized loss. These two securities are rated A2 and BA1 by Moodys indicating these securities are considered of 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.

Investments that have been in a continuous unrealized loss position as of June 30, 2012 and December 31, 2011 are summarized as follows: (dollars in thousands)

As of June 30, 2012	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Collateralized mortgage obligations issued by:
Private Label	$	605	$	(1	)	$	1,522	$	(5	)	$	2,127	$	(6	)
Mortgage backed securities issued by agencies		10,340		(50	)		0		0			10,340		(50	)
Corporate debt		0		0			1,526		(444	)		1,526		(444	)
Municipal bonds		196		(4	)		0		0			196		(4	)
Total Temporarily Impaired Securities	$	11,141	$	(55	)	$	3,048	$	(449	)	$	14,189	$	(504	)

As of December 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
Collateralized mortgage obligations issued by:
GSE agencies	$	1,637	$	(10	)	$	0	$	0		$	1,637	$	(10	)
Private Label		6,079		(59	)		3,911		(17	)		9,990		(76	)
Mortgage backed securities issued by agencies		27,956		(112	)		0		0			27,956		(112	)
Corporate debt		0		0			1,400		(569	)		1,400		(569	)
Municipal bonds		983		(32	)		397		(4	)		1,380		(36	)
Total Temporarily Impaired Securities	$	36,655	$	(213	)	$	5,708	$	(590	)	$	42,363	$	(803	)

-14-

11. 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.

Late in March 2012 and continuing in the second quarter, the Company made the decision to pursue the sale of certain loans with balances totaling $23.5 million. Negotiations began in the second quarter of 2012 led to certain loans being identified for sale. These loans were written down to fair value upon transfer to loans held for sale. A charge off of $5.5 million was recorded in connection with the transfer. The Company has no current intent to sell additional “special loans” as defined by the merger agreement with ONB.

At June 30, 2012 and December 31, 2011, deposit overdrafts of $142,000 and $134,000, respectively, were included in portfolio loans.

The following tables present, by portfolio segment, the activity in the allowance for loan losses for the three months and six months ended June 30, 2012 and 2011. (dollars in thousands)

	Commercial and commercial mortgage loans			Residential mortgage loans		Second and home equity loans			Other consumer loans			Total
Three months ended June 30, 2012
Allowance for loan losses:
Balance at beginning of period	$	16,997		$	484	$	479		$	177		$	18,137
Provision for loan losses		8,195			133		(62	)		7			8,273
Loan charge-offs		(6,422	)		0		(11	)		(57	)		(6,490	)
Recoveries		42			0		9			45			96
Balance at End of Period	$	18,812		$	617	$	415		$	172		$	20,016

	Commercial and commercial mortgage loans			Residential mortgage loans			Second and h ome equity loans			Other consumer loans			Total
Three months ended June 30, 2011
Allowance for loan losses:
Balance at beginning of period	$	12,758		$	754		$	777		$	289		$	14,578
Provision for loan losses		2,704			(11	)		(25	)		21			2,689
Loan charge-offs		(3,068	)		(99	)		(163	)		(78	)		(3,408	)
Recoveries		114			1			11			38			164
Balance at End of Period	$	12,508		$	645		$	600		$	270		$	14,023

	Commercial and c ommercial mortgage loans			Residential mortgage loans		Second and home equity loans			Other consumer loans			Total
Six months ended June 30, 2012
Allowance for loan losses:
Balance at beginning of period	$	13,691		$	504	$	556		$	233		$	14,984
Provision for loan losses		16,095			113		(144	)		(52	)		16,012
Loan charge-offs		(11,381	)		0		(18	)		(113	)		(11,512	)
Recoveries		407			0		21			104			532
Balance at End of Period	$	18,812		$	617	$	415		$	172		$	20,016

-15-

	Commercial and commercial mortgage loans			Residential mortgage loans			Second a nd home equity loans			Other consumer loans			Total
Six months ended June 30, 2011
Allowance for loan losses:
Balance at beginning of period	$	12,640		$	799		$	858		$	309		$	14,606
Provision for loan losses		4,300			(16	)		(74	)		37			4,247
Loan charge-offs		(4,617	)		(139	)		(202	)		(159	)		(5,117	)
Recoveries		185			1			18			83			287
Balance at End of Period	$	12,508		$	645		$	600		$	270		$	14,023

The follow tables present, by portfolio segment, 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 June 30, 2012 and December 31, 2011. (dollars in thousands)

	Commercial and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
As of June 30, 2012
Allowance for loan losses:
Balance at End of Period	$	18,812	$	617	$	415	$	172	$	20,016
Ending balance: individually evaluated for impairment	$	5,948	$	0	$	0	$	0	$	5,948
Ending balance: collectively evaluated for impairment	$	12,864	$	617	$	415	$	172	$	14,068
Loans:
Balance at End of Period	$	431,751	$	89,001	$	79,342	$	8,853	$	608,947
Ending balance: individually evaluated for impairment	$	38,236	$	0	$	0	$	0	$	38,236
Ending balance: collectively evaluated for impairment	$	393,515	$	89,001	$	79,342	$	8,853	$	570,711

	Commerci al and commercial mortgage loans		Residential mortgage loans		Second and home equity loans		Other consumer l oans		Total
As of December 31, 2011
Allowance for loan losses:
Balance at End of Period	$	13,691	$	504	$	556	$	233	$	14,984
Ending balance: individually evaluated for impairment	$	545	$	0	$	0	$	0	$	545
Ending balance: collectively evaluated for impairment	$	13,146	$	504	$	556	$	233	$	14,439
Loans:
Balance at End of Period	$	517,970	$	93,757	$	86,059	$	9,533	$	707,319
Ending balance: individually evaluated for impairment	$	41,075	$	0	$	0	$	0	$	41,075
Ending balance: collectively evaluated for impairment	$	476,895	$	93,757	$	86,059	$	9,533	$	666,244

-16-

The risk characteristics of each loan portfolio segment are as follows:

Commercial and Commercial Mortgage (including commercial construction loans)

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial mortgage loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial mortgage lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial mortgage loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s nonresidential and multi-family real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates these loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied real estate loans versus non-owner occupied loans.

Commercial mortgage construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential mortgage, Seconds, Home Equity and Consumer

With respect to residential loans that are secured by one-to-four family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance (“PMI”) if that ratio is exceeded. Second and home equity loans are typically secured by a subordinate interest in one-to-four family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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 June 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (dollars in thousands)

-17-

As of June 30, 2012	Commercial and commercial mortgage loans		Construction loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Rating:
Pass	$	356,389	$	24,156	$	84,503	$	78,812	$	8,797	$	552,657
Special mention		11,160		0		522		302		0		11,984
Substandard		37,619		4,878		1,525		228		56		44,306
Balance at End of Period	$	405,168	$	29,034	$	86,550	$	79,342	$	8,853	$	608,947

As of December 31, 2011	Commercial and commercial mortgage loans		Construction loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Rating:
Pass	$	435,266	$	32,825	$	87,278	$	85,751	$	9,462	$	650,582
Special mention		9,521		0		313		44		0		9,878
Substandard		37,856		7,951		717		264		71		46,859
Balance at End of Period	$	482,643	$	40,776	$	88,308	$	86,059	$	9,533	$	707,319

The following tables present the Company’s loan portfolio aging analysis as of June 30, 2012 and December 31, 2011: (dollars in thousands)

As of June 30, 2012	Commercial and commercial mortgage loans		Construction loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Loans:
30 to 59 days past due	$	1,993	$	0	$	341	$	566	$	34	$	2,934
60 to 89 days past due		0		0		0		269		3		272
Past due 90 days or more and accruing		65		0		296		18		0		379
Nonaccrual (1)		26,355		3,753		1,754		245		52		32,159
Total Past Due		28,413		3,753		2,391		1,098		89		35,744
Current		376,755		25,281		84,159		78,244		8,764		573,203
Total Loans	$	405,168	$	29,034	$	86,550	$	79,342	$	8,853	$	608,947

Loans held for sale include $4.4 million of nonaccrual loans excluded from the table as they are not part of portfolio loans

As of December 31, 2011	Commercial and commercial mortgage loans		Construction loans		Residential mortgage loans		Second and home equity loans		Other consumer loans		Total
Loans:
30 to 59 days past due	$	479	$	0	$	874	$	526	$	109	$	1,988
60 to 89 days past due		0		0		0		44		1		45
Past due 90 days or more and accruing		0		0		87		0		0		87
Nonaccrual		25,962		6,826		849		264		70		33,971
Total Past Due		26,441		6,826		1,810		834		180		36,091
Current		456,202		33,950		86,498		85,225		9,353		671,228
Total Loans	$	482,643	$	40,776	$	88,308	$	86,059	$	9,533	$	707,319

-18-

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 (including construction 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.

The following is a summary by class of information pertaining to impaired loans as of June 30, 2012 and December 31, 2011: (dollars in thousands)

As of June 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses
Impaired Loans with No Related Allowance Recorded (1):
Commercial and commercial mortgage loans	$	19,094	$	28,655	$	0
Construction loans		3,753		3,753		0
Total Impaired Loans with No Related Allowance Recorded	$	22,847	$	32,408	$	0


Impaired Loans with an Allowance Recorded:
Commercial and commercial mortgage loans	$	14,264	$	14,264	$	5,850
Construction loans		1,125		1,125		98
Total Impaired Loans with an Allowance Recorded	$	15,389	$	15,389	$	5,948


Impaired Loans:
Commercial and commercial mortgage loans	$	33,358	$	42,919	$	5,850
Construction loans		4,878		4,878		98
Total Impaired Loans	$	38,236	$	47,797	$	5.948

1)	Residential mortgages of $127,000 and consumer loans of $331,000 all individually less than $200,000 are not individually reviewed and are excluded from the table as they were deemed not significant to the financial statements.

As of December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses
Impaired Loans with No Related Allowance Recorded(1):
Commercial and commercial mortgage loans	$	29,829	$	41,381	$	0
Construction loans		6,826		9,276		0
Total Impaired Loans with No Related Allowance Recorded	$	36,655	$	50,657	$	0


Impaired Loans with an Allowance Recorded:
Commercial and commercial mortgage loans	$	3,295	$	3,295	$	447
Construction loans		1,125		1,125		98
Total Impaired Loans with an Allowance Recorded	$	4,420	$	4,420	$	545


Impaired Loans:
Commercial and commercial mortgage loans	$	33,124	$	44,676	$	447
Construction loans		7,951		10,401		98
Total Impaired Loans	$	41,075	$	55,077	$	545

1)	Residential mortgages of $128,000 and consumer loans of $145,000 all individually less than $130,000 are not individually reviewed and are excluded from the table as they were deemed not significant to the financial statements.

-19-

The following is a summary by class of information related to the average recorded investment and interest income recognized on impaired loans for the three months and six months ended June 30, 2012 and 2011: (dollars in thousands)

	Three Months Ended				Three Months Ended
	June 30, 2012				June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired Loans:
Commercial and commercial mortgage loans	$	37,532	$	128	$	49,737	$	459
Construction loans		5,644		15		9,293		74
Total Impaired Loans	$	43,176	$	143	$	59,030	$	533
Commercial and commercial mortgage loans cash basis interest included above			$	134			$	2

	Six Months Ended				Six Months Ended
	June 30, 2012				June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired Loans:
Commercial and commercial mortgage loans	$	36,063	$	240	$	48,403	$	1,010
Construction loans		6,413		29		9,100		129
Total Impaired Loans	$	42,476	$	269	$	57,503	$	1,139
Commercial and commercial mortgage loans cash basis interest included above			$	221			$	40

Troubled Debt Restructurings

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In restructuring the loan, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan. For all loan classes, any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay based on their current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. Also, additional collateral, a co-borrower, or a guarantor is often requested. If such efforts by the Company do not result in a satisfactory arrangement, foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment plan.

It is the Company’s practice to have any restructured loan which is on nonaccrual status prior to being restructured remain on nonaccrual status until three months of satisfactory borrower performance at which time management would consider its return to accrual status. The balance of nonaccrual restructured loans, which is included in nonaccrual loans, was $1.5 million and $1.2 million at June 30, 2012 and December 31, 2011, respectively. If the restructured loan is on accrual status prior to being restructured, it is reviewed to determine if the restructured loan should remain on accrual status. The balance of accruing restructured loans was $3.5 million and $3.1 million at June 30, 2012 and December 31, 2011, respectively.

Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or greater than 90 days delinquent as of the end of the most recent quarter. All TDRs are considered impaired by the Company, unless it is determined that the borrower has met the three month satisfactory performance period under modified terms. On a quarterly basis, the Company individually reviews all TDR loans to determine if a loan meets this criterion.

Performing commercial TDR loans at June 30, 2012 consist of four commercial real estate loans totaling $3.0 million of which $2.4 million are interest only. The Company does not generally forgive principal or interest on restructured loans. However, when a loan is restructured, income and principal are generally received on a delayed basis as compared to the original repayment schedule. The Company generally receives more interest than originally scheduled, as the loan remains outstanding for longer periods of time, sometimes with higher average balances than originally scheduled. The average yield on modified commercial loans was 5.1%, compared to 5.8% earned on the entire commercial loan portfolio in the second quarter of 2012.

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Performing consumer TDR loans at June 30, 2012 consist of seven retail loans including one residential and three second mortgages which comprise $440,000 of the total retail TDR balance of $458,000. The consumer TDR loans have been restructured at less than market terms and include rate modifications, extension of maturity, and forbearance. The average yield on modified residential mortgage and second mortgage loans was 8.0%, compared to 4.7% earned on the entire residential mortgage loan and second mortgage portfolios in the second quarter of 2012.

With regard to determination of the amount of the allowance for credit losses, all accruing restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed above.

A home equity loan was newly classified as a troubled debt restructuring for the three months and six months ended June 30, 2012 for $194,000. This home equity TDR combined two home equity loans of the customer into one home equity loan that is interest only and which exceeded the Company’s criteria for loan to value. For the three months and six months ended June 30, 2011, a commercial mortgage was newly classified as a troubled debt restructuring for $1.4 million. This $1.4 million TDR loan was restructured as an interest only note, as cash flow projections did not support an amortizing payment. No troubled debt restructurings subsequently defaulted in the six months ended June 30, 2012 and 2011.

Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. The Company defines default for the above disclosure as generally greater than ninety days past due. In certain circumstances the Company may consider default to have occurred prior to being ninety days past due, if the Company believes payments in the near term are uncertain.

Allowance for Loan Losses Methodology and Related Policies

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. Factors considered by management in determining impairment include the probability of collecting scheduled principal and interest payments when due based on the loan’s current payment status and the borrower’s financial condition including source of cash flows. All commercial and commercial real estate impaired loans, as well as impaired residential mortgages and consumer loans over $250,000, 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.

Currently the Company’s loans individually evaluated for impairment are all in the commercial and commercial real estate segment. In general the Company acquires updated appraisals on an annual basis for commercial and commercial real estate impaired loans, exclusive of performing TDRs. Based on historical experience these appraisals are discounted ten percent to estimate the cost to sell the property. If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of comparable values or other reasons, a 20% discount, based on historical experience is applied to the appraised value. The discount may be increased due to area economic factors, such as vacancy rates, lack of sales, and condition of property.

The Company promptly charges off commercial loans, or portion thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to: a) the deteriorating financial condition of the borrower; b) declining collateral values, and/or c) legal action, including bankruptcy that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

For all loan classes, when cash payments are received on impaired loans, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms. For impaired loans where the Company utilizes the present value of expected future cash flows to determine the level of impairment, the Company reports the entire change in present value as bad-debt expense. The Company does not record any increase in the present value of cash flows as interest income.

Consistent with regulatory guidance, charge-offs for all loan segments are taken when specific loans, or portions thereof, are considered uncollectible and of such little value that their continuance as assets is not warranted. The Company promptly charges these loans off in the period the uncollectible loss amount is reasonably determined. The Company charges off consumer related loans which include 1-4 family first mortgages, second and home equity loans and other consumer loans or portions thereof when the Company reasonably determines the amount of the loss. However, the charge offs generally are not made earlier than the applicable regulatory timeframes. Such regulatory timeframes provide for the charge down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge off of unsecured open end loans when the loan is 180 days past due and charge down to the net realizable value when other secured loans are 120 days past

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due. For all loan classes, the entire balance of the loan is considered delinquent if the minimum payment contractually required to be paid is not received by the contractual due date.

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.

For all loan segments, 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. Commercial and commercial real estate loans are individually risk rated pursuant to the loan policy. Specific reserves are assigned on impaired loans based on the measurement criteria noted above. 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, and those loans included on the Asset Watch List but not deemed impaired, 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 June 30, 2012, the time frame used to determine charge off percentages was July 1, 2009 through June 30, 2012.

In addition to the specific reserves and the allocations based on historical loss rates, qualitative/environmental factors are used to recognize estimated incurred losses inherit in the portfolio not reflected in the historical loss allocations utilized. The qualitative/environmental factors include considerations such as 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, examination results from bank regulatory agencies and the Company’s credit review function. The qualitative/environmental portion of the 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.

12. Acquisition Update

In a press release dated January 25, 2012, Old National Bancorp announced its intent to acquire the Company in an all stock transaction. Under the terms of the merger agreement, which was approved by the boards of both companies, Company shareholders will receive 1.90 shares of Old National Bancorp common stock for each share of Company common stock held by them. As provided in the merger agreement, the exchange ratio is subject to certain adjustments (calculated prior to closing) under circumstances where the consolidated shareholders’ equity of the Company is below a specified amount, the loan delinquencies of Indiana Community Bancorp exceed a specified amount or the credit mark for certain “Special Loans” of the Company (as defined in the merger agreement) falls outside a specified range. If the exchange ratio were measured as of May 31, 2012, including additional changes to the credit mark for Special Loans (as defined in the merger agreement) for information (such as appraisals, loan sales and refinancings) through June 18, 2012, no adjustments to the 1.90 exchange ratio would be required as a result of the shareholders’ equity, delinquent loan, or credit mark levels and the exchange ratio would be 1.90 shares of Old National Bancorp common stock for each share of Indiana Community Bancorp common stock. It is important to note, however, that the exchange ratio may be adjusted up or down between May 31, 2012, and 10 days before the closing of the merger based on further changes in the credit mark for the Special Loans. The transaction is expected to close in the third quarter of 2012, subject to approval by federal and state regulatory authorities and the Company's shareholders and the satisfaction of the closing conditions provided in the merger agreement. In connection with the Merger, executive officers covered by Supplemental Executive Retirement Agreements will receive payment for amounts previously earned. Additionally, outstanding employee options and restricted shares will be vested and converted to Old National Bancorp shares. As a result of the merger, two employees will have their change in control agreements assumed and paid by Old National Bank.

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13. New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”)," which results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The application of fair value measurements is not changed as a result of this amendment. Some of the amendments provide clarification of existing fair value measurement requirements while other amendments change a particular principal or requirement for measuring fair value or disclosing information about fair value measurements. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011. Management had determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-5, “Presentation of Comprehensive Income,” which improves comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement will present total net income and its components followed consecutively by a second statement that will present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011; however, certain provisions related to the presentation of reclassification adjustments have been deferred by ASU 2011-12 “Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” as further discussed below. Management had determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011. Management had determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

14. Subsequent Event

In the third quarter, the Company repurchased four branch buildings sold in 2007 as part of a sale lease back transaction. The purchase price of the four buildings was $3.7 million.

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

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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.

RECENT DEVELOPMENTS

New Proposed Capital Rules . On June 7, 2012, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The FDIC and the Office of the Comptroller of the Currency subsequently approved these proposed rules on June 12, 2012. The proposed rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements. The proposed rules are subject to a comment period running through September 7, 2012.

The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to the Company and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the proposed rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Company and the Bank. The proposed rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which would be phased out over time.

The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions would take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

The proposed rules set forth certain changes for the calculation of risk-weighted assets, which we would be required to utilize beginning January 1, 2015. The standardized approach proposed rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) a proposed alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.

Based on our current capital composition and levels, we believe that we would be in compliance with the requirements as set forth in the proposed rules if they were presently in effect.

CRITICAL ACCOUNTING POLICIES

The notes to the consolidated financial statements contain a summary of the Company’s significant accounting policies presented on pages 32 through 48 of the Company’s annual report on Form 10-K for the year ended December 31, 2011. 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.

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Allowance for Loan Losses Methodology and Related Policies

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included on the Asset Watch List but not deemed impaired, 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 June 30, 2012, the time frame used to determine charge off percentages was July 1, 2009 through June 30, 2012.

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 June 30, 2012 Compared to Quarter Ended June 30, 2011

General

The Company reported a net loss of $2.9 million for the quarter ended June 30, 2012 compared to net income of $845,000 for the quarter ended June 30, 2011. Basic and diluted earnings / (loss) per common share were $(0.94) and $0.16, for the quarters ended June 30, 2012 and 2011, respectively. The primary reason for the net loss in the quarter ended June 30, 2012, was the $8.3 million provision for loan losses.

Net Interest Income

Net interest income before provision for loan losses decreased $633,000 or 7.5% to $7.8 million for the quarter ended June 30, 2012, as compared to $8.5 million for the quarter ended June 30, 2011. The primary reason for the decrease in net interest income was a net decrease in interest earning assets less interest bearing liabilities of $23.1 million for the quarter ended June 30, 2012, as compared to the quarter ended June 30, 2011. A factor offsetting the impact of the net decrease in interest earning assets less interest bearing liabilities on net interest income is the 21 basis points increase in the net interest margin of 3.49% for the quarter ended June 30, 2011 to 3.70% for the quarter ended June 30, 2012. The increase in the net interest margin was due to the rates paid on interest bearing liabilities declining more rapidly, by 38 basis points, than the rates earned on interest bearing assets, which declined 14 basis points, for the two comparative quarters.

Provision for Loan Losses

The provision for loan losses increased $5.6 million to $8.3 million for the quarter ended June 30, 2012, compared to $2.7 million for the quarter ended June 30, 2011. Net charge offs were $6.4 million for the current quarter compared to $3.2 million for the second quarter of 2011. During the second quarter, the Company resolved eight problem loan relationships including seven relationships from the list of Special Loans, being monitored for purposes of determining adjustments to the exchange ratio in the merger of the Company with Old National Bancorp (the “Special Loans”). The seven relationships from the list of Special Loans had total balances at the beginning of 2012 of approximately $33 million and resulted in charge offs during the second quarter of $4.3 million. The Company was able to resolve these relationships through a combination of sale of the underlying collateral and customers refinancing with other banks. In addition, the Company recorded a charge off during the second quarter of $1.4 million on a multipurpose commercial real estate development loan based on an updated appraised value. As mentioned in the previous quarter, the Company was informed by one of its largest customers at the end of the first quarter that fraudulent financial information and borrowing base certificates had been provided to the Company throughout 2011. During the second quarter,

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further investigation and forensic accounting work was done relative to the accounts receivable and inventory of the company and updated appraisals were obtained for the equipment and facilities which serve as collateral for the loan. Based on this updated information, the Company increased the specific reserve by $2.75 million to $5.85 million at the end of the second quarter to recognize the collateral shortfall on this relationship.

The Company’s allowance for loan losses increased, $1.9 million to $20.0 million, during the second quarter of 2012. The ratio of allowance for loan losses to nonperforming loans increased from 40.3% at December 30, 2011 to 55.6% at June 30, 2012. The ratio of the allowance for loan losses to total loans increased to 3.29% at June 30, 2012, from 2.12% at December 31, 2011 primarily due to the large specific reserve noted above. 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 allowance for loan loss for the three months ended June 30, 2012 and 2011 is as follows:

Quarter ended June 30: (in thousands)	2012			2011

Allowance beginning balance	$	18,137		$	14,578
Provision for loan losses		8,273			2,689
Charge-offs		(6,490	)		(3,408	)
Recoveries		96			164
Allowance ending balance	$	20,016		$	14,023

See “Asset Quality” section for further discussion including specific discussion of the coverage ratio (allowance to non-performing loans).

Net interest income after provision for loan losses was a loss of $443,000 for the three month period ended June 30, 2012; a decrease of $6.2 million as compared to net interest income after provision for loan losses of $5.8 million for the three month period ended June 30, 2011.

Interest Income

Total interest income for the three months ended June 30, 2012 decreased $1.7 million or 15.5% from $11.1 million for the quarter ending June 30, 2011 to $9.3 million for the quarter ending June 30, 2012. Three factors impacting the decrease in interest income are; 1) the $121.8 million decrease in average interest earning assets. The average balances of loans decreased $84.8 million for the quarter ended June 30, 2012, as compared to the quarter ended June 30, 2011, as the Company worked to reduce the balance of Special Loans, as defined in the merger agreement with Old National Bancorp. Additionally, average balances of securities available for sale decreased $68.5 million in the second quarter of 2012 compared to the second quarter of 2011. The Company sold approximately $71.0 million investment securities in the third quarter of 2011 using the funds to prepay $55.0 million of FHLB advances; 2) the average balance of nonaccrual loans for the second quarter 2012 was $37.4 million as compared to the average balance of nonaccrual loans for the second quarter 2011 of $23.6 million and 3.) a 14 basis point decline in the interest earned on average interest earning assets for the two comparative quarters.

Interest Expense

Total interest expense for the three months ended June 30, 2012 decreased $1.1 million or 41.5% as compared to the same period a year ago. The weighted average interest rates paid on average interest bearing liabilities decreased 38 basis points, from the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011. The decrease in rates paid on interest bearing liabilities resulted primarily from the changing mix of demand and interest bearing liabilities. The average balances of demand accounts, which currently do not earn interest increased $14.9 million. The decrease in average balances of higher costing certificates of deposit was $57.9 million for the second quarter of 2012 as compared to the second quarter of 2011. The average rate paid on all retail deposits decreased approximately 36 basis points over the comparative periods. In addition, the prepayment of $55.0 million of FHLB advances during the third quarter of 2011 accounted for $261,000 of the decrease in interest expense.

Non-Interest Income

Total non-interest income increased $140,000 or 5.2% to $2.8 million for the quarter. This increase was primarily due to a $96,000 or 27.4% increase in the gain on sale of loans. In the current low rate environment the Company received an additional $4.8 million from proceeds on loan sales for the quarter ended June 30, 2012, as compared to the same quarter of the prior year.

Various other categories of non-interest income posted small increases and decreases which netted to a $44,000 increase in non-interest income.

Non-Interest Expenses

Non-interest expenses remained fairly static decreasing 1.0% or $73,000 to $7.3 million for the quarter. The decrease was the net result of increases in merger expenses of $219,000, as well as increased service bureau expenses of $165,000. Offsetting these

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increases in non-interest expense were decreases in compensation and employee benefits of $150,000, due primarily to a reduction in personnel as a result of merger related attrition, as well as decreases in marketing expenses of $138,000. Various other categories of non-interest expense posted small increases and decreases which netted to a $169,000 decrease in these items of non-interest expense.

Taxes

Pretax loss for the quarter ended June 30, 2012 was $4.9 million compared to pretax income of $1.1 million for the quarter ended June 30, 2011. In the quarter ended June 30, 2012, the Company’s pretax loss of $4.9 million resulted in a tax credit of $2.0 million after considering permanent federal and state tax differences of approximately $20,000 and $170,000, respectively. In the quarter ended June 30, 2011, the Company recorded pretax income of $1.1 million resulting in a tax expense of $275,000 after considering federal and state permanent tax differences of approximately $208,000 and $1.1 million, respectively. As of June 30, 2012, the Company had a deferred tax asset of $10.5 million. Based on proforma core earnings of the Company in combination with anticipated charge offs, management anticipates generating sufficient pretax income over the next four years which would result in the realization of the deferred tax asset. Therefore, no valuation allowance was established for the deferred tax asset. Additionally, current expectations are that the combined income of the merged companies will generate sufficient income in future years to realize the deferred tax asset.

RESULTS OF OPERATIONS:

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

General

The Company reported a net loss of $5.5 million for the six months ended June 30, 2012 compared to net income of $2.2 million for the six months ended June 30, 2011. Basic and diluted earnings / (loss) per common share were $(1.80) and $0.47, for the six months ended June 30, 2012 and 2011, respectively. The primary reason for the net loss in the six months ended June 30, 2012, was the $16.0 million provision for loan losses.

Net Interest Income

Net interest income before provision for loan losses decreased $1.0 million or 6.1% to $16.0 million for the six months ended June 30, 2012, as compared to $17.1 million for the six months ended June 30, 2011. The primary reason for the decrease in net interest income was a net decrease in interest earning assets less interest bearing liabilities of $19.1 million for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011. A factor offsetting the impact of the net decrease of interest earning assets less interest bearing liabilities on net interest income, is the 19 basis points increase in the net interest margin to 3.56% for the six months ended June 30, 2011 compared to 3.75% for the six months ended June 30, 2012. The increase in the net interest margin was due to the rates paid on interest bearing liabilities declining more rapidly, by 37 basis points, than the rates earned on interest bearing assets, which declined 15 basis points, for the two comparative six months.

Provision for Loan Losses

The provision for loan losses increased $11.8 million to $16.0 million for the six months ended June 30, 2012, compared to $4.2 million for the same period ended June 30, 2011. Net charge offs were $11.0 million for the 2012 year to date period compared to $4.8 million for the 2011 year to date period. Beginning in late March and continuing through the second quarter, the Company resolved nine problem loan relationships from the list of Special Loans, being monitored for purposes of determining adjustments to the exchange ratio in the merger of the Company with Old National Bancorp (the “Special Loans”). The nine relationships from the list of Special Loans had total balances at the beginning of 2012 of approximately $42 million and resulted in charge offs during the first half of 2012 totaling $7.1 million. As mentioned in the previous quarter, the Company was informed by one of its largest customers at the end of the first quarter that fraudulent financial information and borrowing base certificates had been provided to the Company throughout 2011. During the second quarter, further investigation and forensic accounting work was done relative to the accounts receivable and inventory of the company and updated appraisals were obtained for the equipment and facilities which serve as collateral for the loan. Based on this updated information, the Company increased the specific reserve by $2.75 million to $5.85 million at the end of the second quarter to recognize the collateral shortfall on this relationship. In addition, the Company had charge offs on three loans secured by real estate totaling $2.4 million based on updated appraisals.

The Company’s allowance for loan losses increased $5.0 million to $20.0 million at June 30, 2012. The ratio of allowance for loan losses to nonperforming loans increased from 40.3% at December 30, 2011, to 55.6% at June 30, 2012. The ratio of the allowance for loan losses to total loans increased to 3.29% at June 30, 2012, from 2.12% at December 31, 2011 primarily due to the large specific reserve noted above. 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 allowance for loan loss for the six months ended June 30, 2012 and 2011 is as follows:

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Six months ended June 30: (in thousands)	2012			2011

Allowance beginning balance	$	14,984		$	14,606
Provision for loan losses		16,012			4,247
Charge-offs		(11,512	)		(5,117	)
Recoveries		532			287
Allowance ending balance	$	20,016		$	14,023

See “Asset Quality” section for further discussion including specific discussion of the coverage ratio (allowance to non-performing loans).

Net interest income after provision for loan losses was $20,000 for the six month period ended June 30, 2012; a decrease of $12.8 million as compared to net interest income after provision for loan losses of $12.8 million for the six month period ended June 30, 2011.

Interest Income

Total interest income for the six months ended June 30, 2012 decreased $3.1 million or 13.9% from $22.3 million for the six months ending June 30, 2011 to $19.2 million for the six months ending June 30, 2012. Factors impacting the decrease in interest income are; 1) a net $108.2 million decrease in average interest earning assets. The decrease in average interest earning assets was due to a $68.5 million decrease in the average balance of available for sale securities in the second quarter of 2012 compared to the second quarter 2011. The Company sold approximately $71.0 million investment securities in the third quarter of 2011 using the funds to prepay $55.0 million of FHLB advances; 2) the average balances of loans decreased $84.5 million for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011; 3) cash and cash equivalents, a relatively low earning asset, increased $31.5 million over the two comparative periods; 4) the average balance of nonaccrual loans for the 2012 year to date period was $37.4 million as compared to the average balance of nonaccrual loans for the 2011 year to date period of $23.6 million; and 5) a 19 basis point decline in the interest earned on average interest earning assets for the two comparative six months.

Interest Expense

Total interest expense for the six months ended June 30, 2012 decreased $2.1 million or 38.9% as compared to the same period a year ago. The weighted average interest rates paid on average interest bearing liabilities decreased 37 basis points, from the six month period ended June 30, 2012 compared to the six month period ended June 30, 2011. The decrease in rates paid on interest bearing liabilities resulted primarily from the changing mix of demand and interest bearing liabilities. The average balances of demand accounts, which currently do not earn interest increased $15.6 million. Average consumer interest checking balances increased $26.7 million, while public fund interest checking balances decreased $21.3 million. The decrease in average balance of money market accounts was $4.8 million. The decrease in average balances of higher costing certificates of deposit was $55.5 million for the second six months of 2012 as compared to the second six months of 2011. The average rate paid on all retail deposits decreased approximately 36 basis points over the comparative periods. In addition, the prepayment of $55.0 million of FHLB advances during the third six months of 2011 accounted for $521,000 of the decrease in interest expense.

Non-Interest Income

Total non-interest income increased $667,000 or 13.2% to $5.7 million for the six months ended June 30, 2012 compared to $5.0 million for the six months ended June 30, 2011. This increase was due primarily to three net factors; a) an $299,000 increase on the gain on sale of loans; b) a $434,000 increase in net gain/(loss) on real estate owned; and c) a $194,000 decrease in gain on securities. The increase in gain on sale of loans resulted from an increase of $11.8 million in proceeds from loan sales and a 11 basis point increase in the return on loan sales. A $482,000 write down on real estate owned, (REO), due to sales negotiations, resulted in a net loss on REO of $411,000 in the six month period ended June 30, 2011. In comparison there was very minimal activity in REO sales in the six months period ended June 30, 2012. Non-interest income decreased $194,000 for gains on the sale of securities that occurred in the six months year to date of 2011 while no gains were reported for the six months year to date of 2012. Various other categories of non-interest income posted small increases and decreases which netted to a $128,000 increase in non-interest income.

Non-Interest Expenses

Total non-interest expenses remained constant at $14.9 million for six month periods ended June 30, 2012 and 2011, however there were significant fluctuations within various categories of non-interest expense. Compensation and employee benefits decreased $152,000 due to employee attrition associated with the pending merger, as well as decreased bonus and restricted stock expenses. FDIC insurance expense decreased $258,000. Effective April 1, 2011, the Federal Deposit Insurance Corporation, (FDIC) changed to an asset based assessment from a deposit based assessment for the calculation of FDIC insurance premiums. The Company benefitted from the change in the assessment base, which reduced its deposit premiums. Marketing expense decreased $216,000 compared to the prior year’s six month period, as marketing efforts of the Company are being led by

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ONB. Real estate owned expenses decreased $110,000, as the Company was involved in building out unfinished condos in 2011 and has not engaged in that activity in 2012. Merger expenses in 2012 are $721,000, which are primarily related to professional fees and data conversion activities.

Taxes

Pretax loss for the six months ended June 30, 2012 was $9.2 million compared to pretax income of $2.9 million for the six months ended June 30, 2011. In the six months ended June 30, 2012, the Company’s pretax loss of $9.2 million resulted in a tax credit of $3.7 million after considering permanent federal and state tax differences of approximately $209,000 and $1.0 million, respectively. In the six months ended June 30, 2011, the Company recorded pretax income of $2.9 million that resulting in a tax expense of $765,000 after considering federal and state permanent tax differences of approximately $298,000 and $2.3 million, respectively. As of June 30, 2012, the Company had a deferred tax asset of $10.5 million. Based on proforma core earnings of the Company in combination with anticipated charge offs, management anticipates generating sufficient pretax income over the next four years which would result in the realization of the deferred tax asset. Therefore, no valuation allowance was established for the deferred tax asset. Additionally, current expectations are that the combined income of the merged companies will generate sufficient income in future years to realize the deferred tax asset.

Asset Quality

The following table sets forth information concerning non-performing assets of the Company. Real estate owned includes property acquired in settlement of foreclosed loans that is carried at net realizable value. (dollars in thousands)

As of	June 30,			December 31,
	2012			2011
Non-accruing loans
Residential mortgage loans	$	1,754		$	849
Commercial and commercial real estate loans		30,108			32,788
Second and home equity loans		245			264
Other consumer loans		52			70
Total		32,159			33,971

90 days past due and still accruing loans
Residential mortgage loans		296			87
Commercial and commercial mortgage loans		65			0
Second and home equity loans		18			0
Total		379			87
Troubled debt restructured loans		3,455			3,082
Total non performing loans		35,993			37,140
Real estate owned		7,121			5,736
Loans held for sale		4,373			0
Total non-performing assets	$	47,487		$	42,876
Non-performing assets to total assets		5.07	%		4.35	%
Non-performing loans to total loans		5.91	%		5.25	%
Allowance for loan losses to non-performing loans		55.61	%		40.34	%

Nonperforming assets totaled $47.5 million at June 30, 2012 compared to $42.9 million at December 31, 2011. The increase in nonperforming assets is related primarily to the migration into nonperforming loans of a large commercial customer that was the victim of internal fraud partially offset by charge offs. The ratio of nonperforming assets to total assets was 5.07% at June 30, 2012 compared to 4.35% at December 31, 2011.

The total amount of TDR loans was $5.0 million as of the June 30, 2012. Of these loans, $1.5 million were on non accrual status and were classified as non accrual loans within non performing loans. The remaining TDR loans total $3.5 million. TDRs at June 30, 2012 included two commercial loans which totaled $2.1 million, or 61%, of total TDRs. Both of these loans represent the smaller portion or “B” note of larger relationships. In both relationships, the larger or “A” note requires both principal and interest payments while the “B” note receives interest only payments. Two other TDR loans totaling $897,000 have been modified to interest only loans as the current cash flow position of the borrower does not support amortizing payments. The TDR loans as listed in the table are paying interest in accordance with modified terms. Comparatively, the total amount of TDR loans was $4.2 million as of the December 31, 2011. Of these loans $1.2 million were on non accrual status and were classified as non accrual loans within non performing loans. The remaining TDR loans totaled $3.0 million represent relationships described above.

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The Company does not generally forgive principal or interest on restructured loans. However, when a loan is restructured, income and principal are generally received on a delayed basis as compared to the original repayment schedule. The Company generally receives more interest than originally scheduled, as the loan remains outstanding for longer periods of time, sometimes with higher average balances than originally scheduled. The average yield on modified commercial loans was 5.1%, compared to 4.2% earned on the entire commercial loan portfolio as of June 30, 2012.

Performing consumer TDR loans at June 30, 2012 consist of seven retail loans including one residential and three second mortgages which comprise $440,000 of the total retail TDR balance of $458,000. The consumer TDR loans have been restructured at less than market terms and include rate modifications, extension of maturity, and forbearance. The average yield on modified residential mortgage and second mortgage loans was 8.0%, compared to 4.2% earned on the entire residential mortgage loan and second mortgage portfolios as of June 30, 2012.

When considering the restructuring of a loan, when the borrower is having financial difficulty, the Company performs a complete analysis and underwrites the loan as it would any new origination. The analysis and underwriting considers the most recent debt service coverage analysis, pro forma financial projections prepared by the borrower, evaluation of cash flow and liquidity available from other sources tied to the credit and updated collateral valuations. Upon completion of the detailed analysis and underwriting of the credit, the Company determines whether there is a loan structure that can be supported by the current and projected operations of the borrower. The Company also considers whether the changes necessary to accomplish the pro forma financial projections appear reasonable and achievable. This determination is based on discussions with the borrower to review the plan and to understand the financial projections. Additionally, the Company considers and reviews those portions of the plan that may already have been implemented. The Company will modify the original terms of the loan agreement only when there is evidence that the plan and financial projections are achievable and that these improvements will allow for repayment of the debt in the future. Such loans are then accounted for as TDRs. The key factor the Company considers when determining whether a loan is classified as an accruing TDR or should be included as a nonaccrual loan is whether the loan is expected to be able to perform according to the restructured terms. The primary factor for determining if a loan will perform under the restructured terms is an analysis of the borrower’s current cash flow projections and current financial position to verify the borrower can generate adequate cash flow to support the restructured debt service requirements. The Company sometimes restructures non accrual loans to improve its collateral position. A non accrual loan that is restructured would continue to be classified as non accrual until such time that there is no longer any doubt as to the collection of all principal and interest owed under the contractual terms of the restructured agreement. The Company generally requires all non accrual loans to perform under the terms of the restructured agreement for a period of not less than three months before returning to accrual status. All loans the Company classifies as TDR are performing according to their restructured terms. TDR loans are analyzed for non accrual status using the same criteria as other loans in the Company’s portfolio. Prior to being classified as TDR loans an immaterial amount was charged off. No loans modified and classified as TDR loans have had any charge offs. There is currently no specific allowance allocated to TDR loans. For additional information regarding TDR loans see note 12 to the financial statements.

The allowance for loan losses increased $5.0 million to $20.0 million as of June 30, 2012, from $14.9 million as of December 31, 2011. The ratio of the allowance for loan losses to total loans was 3.29% at June 30, 2012 compared to 2.12% at December 31, 2011. See further discussion in the Critical Accounting Policies.

The allowance for loan losses consists of three components. The amount of reserves assigned based on historical loss rates, specific reserves assigned to individual loans and the qualitative/environmental allocation. Please see note 11 to the financial statements for a discussion of each of these components. The following table indicates the portion of the allowance for loan loss management has allocated, by component, to each loan type. (dollars in thousands)

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As of	June 30,		December 31,
	2011		2011
Residential mortgage loans
Allowance based on historical loss rates	$	604	$	496
Specific allowance assigned to individual loans		0		0
Qualitative/environmental allowance		13		8
Total allowance for residential mortgages		617		504


Commercial and commercial mortgage loans
Allowance based on historical loss rates		10,185		10,507
Specific allowance assigned to individual loans		5,948		545
Qualitative/environmental allowance		2,679		2,639
Total allowance for commercial and commercial mortgage loans		18,812		13,691


Second and home equity loans
Allowance based on historical loss rates		407		555
Specific allowance assigned to individual loans		0		0
Qualitative/environmental allowance		8		1
Total allowance for second and home equity loans		415		556


Other consumer loans
Allowance based on historical loss rates		100		136
Specific allowance assigned to individual loans		0		0
Qualitative/environmental allowance		72		97
Total allowance for other consumer loans		172		233
Total Allowance for Loan Losses	$	20,016	$	14,984

Management reassigned all of the qualitative/environmental allowance to the commercial and commercial mortgage loan category based on a review of the past two years and current year to date net charge off history. This review indicated that the allowance based on historical loss rates for the residential mortgage loans, second and home equity loans and other consumer loans categories should be adequate. Net recoveries for residential mortgages and second and home equity loans are $0 and $3,000, respectively, for the six months ended June 30, 2012. Net charge offs for other consumer loans and commercial and commercial real estate loans are $9,000 and $11.0 million, respectively for the same period.

The $8.3 million increase in nonperforming assets quarter over quarter resulted in a corresponding $1.9 million increase in the allowance for loan losses due to the increase in the specific reserve of $2.75 million for the customer who experienced fraudulent activity as discussed in the provision for loan losses section.

The Company has 46.1% of its assets in commercial installment and commercial real estate loans. The following table segregates the commercial installment and commercial real estate portfolio by property type, where the total of the property type exceeds 1% of Bank assets as of June 30, 2012. (dollars in thousands)

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Property Description	BALANCE		PERCENTAGE OF BANK ASSETS
Accounts Receivable, Inventory, and Equipment		57,639		6.16	%
Shopping Center		45,447		4.86	%
Manufacturing Business/Industrial		37,552		4.02	%
Office Building		34,226		3.66	%
Medical Building		31,093		3.32	%
Warehouse		29,475		3.15	%
Land Only		28,668		3.07	%
Apartment Building		26,467		2.83	%
Motel		25,661		2.74	%
Retail Business Store		23,054		2.47	%
Athletic/Recreational/School		11,882		1.27	%
Restaurant		11,651		1.25	%
Other		10,842		1.16	%
Non-Margin Stock		9,887		1.06	%

FINANCIAL CONDITION:

Total assets as of June 30, 2012, were $936.1 million, a decrease of $48.5 million or 4.9% from December 31, 2011, total assets of $984.6 million. Portfolio loans decreased $98.4 million from December 31, 2011. Commercial and commercial real estate loans have decreased $86.2 million in 2012. Commercial and commercial mortgage loan charge offs of $11.4 million, driven partially by activities designed to reduce balances of Special Loans identified in the merger agreement, accounted for 13.2% of the decreased balance in this loan segment. Additionally transfers of certain Special Loans to the held for sale category totaled $18.0 million in 2012. Of this $18.0 million, $3.5 million was sold during the 2012. Seconds and home equity loan balances have declined $6.7 million partially due to customers taking advantage of low rates and refinancing these loans into first mortgages. The Company currently sells the vast majority of residential first mortgages it originates in the secondary market. Certificates of deposits decreased $22.8 million year to date as the Company does not negotiate rates for single service certificate of deposit customers. Higher rate public fund and commercial interest checking decreased $35.9 million while retail interest checking increased $2.7 million resulting in a net decrease in interest checking of $33.2 million. Demand deposits and savings and money market accounts have increased $6.4 million, $4.3 million and $5.1 million, respectively. This increase in transaction account balances is a reflection of the Company’s current marketing and sales activities focus on transaction accounts aimed at attracting new customers and expanding relationships with existing customers.

Shareholders' equity decreased $5.2 million during the first six months of 2012. Retained earnings decreased $5.5 million from net loss, decreased $605,000 for dividend payments on common and preferred stock, and $56,000 for the amortization of the discount on preferred stock. Common stock increased $122,000 from recognition of compensation expense associated with restricted stock issued. Additionally, the Company had other comprehensive income from unrealized gains in its securities available for sale portfolio, net of tax, of $810,000 for the six months ended June 30, 2012.

At June 30, 2012, 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, 2012
Total risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	99,662		13.78	%	$	57,843		8.0	%	$	72,304		10.0	%
Indiana Community Bancorp Consolidated	$	100,074		13.82	%	$	57,918		8.0	%	$	72,397		10.0	%
Tier 1 risk-based capital
(to risk-weighted assets)
Indiana Bank and Trust Company	$	90,448		12.51	%	$	28,922		4.0	%	$	43,383		6.0	%
Indiana Community Bancorp Consolidated	$	90,889		12.55	%	$	28,959		4.0	%	$	43,438		6.0	%
Tier 1 leverage capital
(to average assets)
Indiana Bank and Trust Company	$	90,488		9.60	%	$	37,685		4.0	%	$	47,106		5.0	%
Indiana Community Bancorp Consolidated	$	90,889		9.64	%	$	37,722		4.0	%	$	47,153		5.0	%

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See “Recent Developments – New Proposed Capital Rules” for a description of the new capital ratios that are to be phased in beginning in 2013.

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 Company 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. The Company’s primary source of funding is its base of core customer deposits. Core deposits consist of non-interest bearing, checking, savings and money market deposits and certificate accounts of $100,000 or less. Other sources of funds are certificate accounts greater than $100,000 and public funds certificates. 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 Company may borrow from the FHLB of Indianapolis. At June 30, 2012, the Company had no FHLB advances outstanding. The Company does have a $15.0 million overdraft line of credit with the FHLB which had no balance as of June 30, 2012. The Company was eligible to borrow from the FHLB additional amounts up to $65.2 million at June 30, 2012. Certificates of deposit represent an important source of funds for the Company. Historically, the Company has been able to retain certificate balances by providing competitive pricing in line with rates offered by other institutions in the Company’s market area. During periods of low interest rates, customer preferences shift from certificates to interest bearing transaction accounts. Of the $156.4 million in certificate accounts maturing in 2012, $25.6 million are at rates of 2.0% or greater which is higher than rates currently available. As a result the Company anticipates that the rollover of certificates will be lower than historical levels. The expected result is a continued downward trend in certificate balances. However, the Company expects that a portion of these balances will be converted to or deposited in existing interest bearing transaction accounts with the Company. The Company’s total transaction accounts decreased 2.9 % during the six months ended June 30, 2012 following a 19.9% increase during 2011. Certificate accounts decreased 8.7% for the six months ended June 30, 2012 after decreasing 22.6% in 2011. The certificates maturing in the next twelve months as a percentage of total certificates were 65.1% for the six months ended June 30, 2012 compared to 59.5% at December 31, 2011. The Company continually monitors balance trends along with customer preferences and competitive pricing within the Company’s market footprint to manage this critical liquidity component.

In addition at June 30, 2012, the Company had commitments to purchase loans of $3.6 million, as well as commitments to fund loan originations of $23.0 million, unused home equity lines of credit of $37.7 million and unused commercial lines of credit of $44.8 million, as well as commitments to sell loans of $18.9 million. Generally, a significant portion of amounts available in lines of credit will not be drawn. Commitments to borrow or extend credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon. Commitments to fund lines of credit and undisbursed portions of loan in process have remained relatively steady at 32.2% and 31.8% of the total credit at June 30, 2012 and December 31, 2011, respectively. In the opinion of management, the Company has sufficient cash flow and borrowing capacity to meet current and anticipated funding commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

(a)

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

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(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, 2011.

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, 2012.

	(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 2012		0	$	00.00		0		156,612
May 2012		0	$	00.00		0		156,612
June 2012		0	$	00.00		0		156,612
Second Quarter		0	$	00.00		0		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.

Item 3. Defaults Upon Senior Securities

N/A

Item 4. Mind Safety Disclosures

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:	August 14, 2012
		/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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INCB Indiana Community Bancorp (MM)

Notícias

Seu Histórico Recente

Empresa

Negócios

Popular

Obter o aplicativo