UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington, DC 20549






FORM 10-K/A

(Amendment No. 1)

(Mark One)

| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------

For the fiscal year ended June 30,
2011

OR

| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

For the transition period from            
to

Commission file number: 0-51800










UNITED COMMUNITY BANCORP

---



(Exact name of registrant as specified
in its charter)



|United States                                                          |  | 36-4587081                                  
|---------------------------------------------------------------------- |  | --------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) |  | (I.R.S. Employer
        Identification No.)
|                                                                       |  |                                             
|92 Walnut Street, Lawrenceburg, Indiana                                |  | 47025                                       
|(Address of principal executive offices)                               |  | (Zip Code)                                  



Registrant’s telephone number,
including area code: (812) 537-4822

Securities registered pursuant to Section 12(b)
of the Act:



|Common Stock, par value $0.01 per share |  | Nasdaq Global Market                     
|--------------------------------------- |  | -----------------------------------------
|Title of Class                          |  | Name of each exchange on which registered



Securities registered pursuant to Section 12(g)
of the Act: None










Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. YES   ̈     NO  x



Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act. YES    ̈    NO  x



Indicate by check mark whether the registrant (l) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES  x    NO   ̈



Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files. YES   ̈    NO   ̈



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x



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



|Large Accelerated Filer |  ̈ | Accelerated Filer         |  ̈
|----------------------- | - | ------------------------- | -
|                        |   |                           |  
|Non-accelerated Filer   |  ̈ | Smaller Reporting Company | x



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES   ̈    NO  x



The aggregate market value of the voting and non-voting common
equity held by non-affiliates as of December 31, 2010 was $22.0 million. The number of shares outstanding of the registrant’s
common stock as of September 1, 2011 was 7,840,382 of which 4,655,200 shares were held by United Community MHC.























EXPLANATORY NOTE



This Amendment No. 1 on Form 10-K/A amends our Annual Report
on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on September 28, 2011 (the “Original Filing”)
to reflect the restatement of our consolidated financial statements for the years ended June 30, 2011 and 2010. Except as stated
herein, this Amendment does not reflect events occurring after the filing of the Original Filing and no attempt has been made in
this Annual Report on Form 10-K/A to modify or update other disclosures as presented in the Original Filing.



As previously discussed in a Form 8-K filed on March 29, 2012,
on March 28, 2012, the Board of Directors of United Community Bancorp (the “Company”) determined that the following
previously issued consolidated financial statements of the Company should no longer be relied upon: (i) the audited consolidated
financial statements at June 30, 2010 and 2011 and for the fiscal years then ended, as contained in the Annual Reports on Form
10-K for the fiscal years ended June 30, 2010 and June 30, 2011, and (ii) the unaudited consolidated financial statements at September
30, 2010, December 31, 2010, March 31, 2011 and December 31, 2011 and for the interim periods then ended, as contained in the Quarterly
Reports on Form 10-Q for the quarterly periods ended September 30, 2010, December 31, 2010, March 31, 2011 and December 31, 2011.



The Board of Directors arrived at this determination based on
the recommendation of the Audit Committee of the Board of Directors and management, in consultation with Clark, Schaefer, Hackett
& Co., the Company’s independent registered public accounting firm. The foregoing determination and consultation occurred
in connection with the SEC staff’s review of the Registration Statement on Form S-1, as amended, filed by United Community
Bancorp (an Indiana corporation), the proposed new holding company for United Community Bank (the “Bank”), in connection
with the second-step conversion of the Bank.



The restatements are the result of material weaknesses in internal control over financial reporting and
the related correction of an error in calculating the provision for loan loss for the periods ended June 30, 2010 and 2011. The
Company experienced control deficiencies in the monitoring of certain loans and loan relationships. These control deficiencies
resulted in the Company not properly identifying impaired loans and troubled debt restructurings under ASC 310-10-35 and ASC 310-40-35.
The Company also experienced deficiencies in measuring impairment on impaired loans and troubled debt restructurings under ASC
310-10-35. These deficiencies primarily related to the reliance on required personal cash infusions of co-borrowers who were experiencing
financial difficulties on troubled debt restructurings when determining the present value of future cash flows. For the year ended
June 30, 2010, as part of the Company’s process to measure impairment on certain impaired loans, management relied on required
personal cash infusions from co-borrowers that had been experiencing financial difficulties. See Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations under the section entitled “Analysis of Nonperforming and
Classified Assets” for additional information on the financial difficulties experienced by the co-borrowers. Management
has determined that relying on required personal cash infusions from co-borrowers who were experiencing financial difficulties
in these circumstances was inconsistent with U.S. generally accepted accounting principles. As a result of these deficiencies,
management, in consultation with Clark, Schaefer, Hackett & Co., determined that the Company had material weaknesses in internal
control over financial reporting as it relates to identifying troubled debt restructurings and impaired loans as well as the measurement
of impairment at each of the dates and periods that are being restated.



The portion of the loan loss provision being corrected
relates to five loan relationships comprising the most significant troubled debt restructurings effected by the Bank that
were restructured using a split note strategy in the March 31, 2011 quarter. In connection with the above referenced
consultations between management and Clark, Schaefer, Hackett & Co., management has determined that, in calculating the
future cash flows of these loan relationships, the Company should not have included required cash infusions from co-borrowers
who were experiencing financial difficulties. Because the required restatements relate to the timing and not the aggregate amount of the
loan loss provisions recorded during the periods being restated, no additional loan loss provisions were required for any of
these loan relationships during the periods being restated.



See Note 1 to the Company’s audited consolidated financial
statements for additional discussion.



i







INDEX



|           |                                                                                      |    | Page
|---------- | ------------------------------------------------------------------------------------ | -- | ----
|           |                                                                                      |    |     
|           | Part I                                                                               |    |     
|Item 1A.   | Risk Factors                                                                         |    | 3   
|           |                                                                                      |    |     
|           | Part II                                                                              |    |     
|           |                                                                                      |    |     
|Item 6.    | Selected Financial Data                                                              |    | 10  
|Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operation |    | 13  
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                           |    | 45  
|Item 8.    | Financial Statements and Supplementary Data                                          |    | 46  
|Item 9.    | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |    | 90  
|Item 9A.   | Controls and Procedures                                                              |    | 90  
|           |                                                                                      |    |     
|           | Part IV                                                                              |    |     
|           |                                                                                      |    |     
|Item 15.   | Exhibits and Financial Statement Schedules                                           |    | 92  
|SIGNATURES |                                                                                      | 94
|EXHIBITS   |                                                                                      |   



ii







Note on Forward-Looking Statements



This report, like many written and
oral communications presented by United Community Bancorp and our authorized officers, may contain certain forward-looking statements
regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995,
and are including this statement for purposes of said safe harbor provisions.



Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified
by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” “project,” “seek,” “strive,” “try,” or future or conditional
verbs such as “will,” “would,” “should,” “could,” “may,” or similar
expressions. Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. Accordingly,
actual results may differ materially from anticipated results.



There are a number of factors, many
of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described
in our forward-looking statements. These factors include, but are not limited to:



| | · | general economic conditions, either nationally or in some or all of the areas in which we and our customers conduct our
respective businesses;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                               

| | · | conditions in the securities markets and real estate markets or the banking industry;
| | - | -------------------------------------------------------------------------------------
| |   |                                                                                      

| | · | changes in interest rates, which may affect our net income, prepayment penalty income, and other future cash flows, or
the market value of our assets, including our investment securities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                            

| | · | changes in deposit flows and wholesale borrowing facilities;
| | - | ------------------------------------------------------------
| |   |                                                             

| | · | changes in the demand for deposit, loan, and investment products and other financial services in the markets we serve;
| | - | ----------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                       

| | · | changes in our credit ratings or in our ability to access the capital markets;
| | - | ------------------------------------------------------------------------------
| |   |                                                                               

| | · | changes in our customer base or in the financial or operating performances of our customers’ businesses;
| | - | --------------------------------------------------------------------------------------------------------
| |   |                                                                                                         

| | · | changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;
| | - | ----------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                 

| | · | changes in the quality or composition of our loan or securities portfolios;
| | - | ---------------------------------------------------------------------------
| |   |                                                                            

| | · | changes in competitive pressures among financial institutions or from non-financial institutions;
| | - | -------------------------------------------------------------------------------------------------
| |   |                                                                                                  

| | · | the ability to successfully integrate any assets, liabilities, customers, systems, and management personnel of any banks
we may acquire, into our operations, and our ability to realize related revenue synergies and cost savings within expected time
frames;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                 

| | · | our ability to retain key members of management;
| | - | ------------------------------------------------
| |   |                                                 

| | · | our timely development of new lines of business and competitive products or services in a changing environment, and the
acceptance of such products or services by our customers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                  

| | · | any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger,
deposit, loan, or other systems;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any interruption in customer service due to circumstances beyond our control;
| | - | -----------------------------------------------------------------------------
| |   |                                                                              

| | · | potential exposure to unknown or contingent liabilities of companies we have acquired or target for acquisition;
| | - | ----------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                 

| | · | the outcome of pending or threatened litigation, or of other matters before regulatory agencies, whether currently existing
or commencing in the future;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                         

| | · | environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the Company;
| | - | ----------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                 

| | · | operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes
in information technology systems, on which we are highly dependent;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                

| | · | changes in our estimates of future reserves based upon the periodic review thereof under relevant regulatory and accounting
requirements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                          

| | · | changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases,
among others;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



1







| | · | changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative
action, including, but not limited to, the effect of final rules amending Regulation E that prohibit financial institutions from
assessing overdraft fees on ATM and one-time debit card transactions without a consumer’s affirmative consent, the impact
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other changes pertaining to banking, securities, taxation,
rent regulation and housing, environmental protection, and insurance; and the ability to comply with such changes in a timely manner;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | · | additional FDIC special assessments or required assessment prepayments;
| | - | -----------------------------------------------------------------------
| |   |                                                                        

| | · | changes in accounting principles, policies, practices or guidelines;
| | - | --------------------------------------------------------------------
| |   |                                                                     

| | · | the ability to keep pace with, and implement on a timely basis, technological changes;
| | - | --------------------------------------------------------------------------------------
| |   |                                                                                       

| | · | changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the
Treasury and the Board of Governors of the Federal Reserve System;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                        

| | · | war or terrorist activities; and
| | - | --------------------------------
| |   |                                 

| | · | other economic, competitive, governmental, regulatory, and geopolitical factors affecting our operations, pricing, and
services.
| | - | --------------------------------------------------------------------------------------------------------------------------------



Additional factors that may affect
our results are discussed in this annual report on Form 10-K/A under “Item 1A. Risk Factors.” The Company wishes to
caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the
Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to
future periods in any current statements.



The Company does not undertake the
responsibility, and specifically disclaims any obligation, to publicly release the result of any revisions, which may be made to
any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.



2







PART I



Item 1A. Risk Factors



An investment in shares of our common
stock involves various risks. Before deciding to invest in our common stock, you should carefully consider the risks described
below in conjunction with the other information in this Annual Report on Form 10-K/A, including the items included as exhibits.
Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks that
have not been identified or that we may believe are immaterial or unlikely. The value or market price of our common stock could
decline due to any of these risks. The risks discussed below also include forward-looking statements, and our actual results may
differ substantially from those discussed in these forward-looking statements.



Our nonperforming assets have increased significantly and
expose us to increased risk of loss.



Our nonperforming assets have
increased as a result of the recent economic recession. At June 30, 2011, we had total nonperforming assets of $20.7
million, or 4.4% of total assets, a $3.1 million increase from $17.6 million at June 30, 2010. The increase in
nonperforming assets over this period is primarily the result of increases in troubled debt restructurings on nonaccrual
status from $9.6 million at June 30, 2010 to $16.2 million at June 30, 2011. Troubled debt restructurings are
considered to be impaired. The overall increase in troubled debt restructurings from June 30, 2010 to June 30, 2011
is related to continued weakness in the local economy. Our nonperforming assets adversely affect our net income in various
ways. We do not record interest income on non-accrual loans. We must reserve for probable losses, which are established
through a current period charge to income in the provision for loan losses, and from time to time, write down the value of
properties in our other real estate owned portfolio to reflect changing market values. Additionally, there are legal fees
associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related
to our other real estate owned. Further, the resolution of nonperforming assets requires the active involvement of
management, which can distract us from the overall supervision of operations and other income-producing activities of United
Community Bank. Finally, if our estimate of the allowance for loan losses is inadequate, we will have to increase the
allowance accordingly. At June 30, 2011, our allowance for loan losses amounted to $5.3 million, or 1.83% of total
loans and 25.9% of nonperforming loans, compared to $8.0 million, or 2.54% of total loans and 46.5% of nonperforming loans
June 30, 2010.



As a result of our controlled growth strategy, we expect
our weighted average yield on interest-earning assets will decrease in future periods.



We have implemented a strategy to control
the growth of our nonresidential real estate and multi-family real estate loan portfolios, particularly outside of Dearborn and
Ripley Counties in Indiana. We intend to continue this strategy until the local economy materially improves. As a result, we will
likely experience growth in our one- to four- family residential mortgage loan portfolio and in our investment securities portfolio.
At June 30, 2011, one- to four- family residential real estate mortgage loans totaled $131.2 million, or 27.8%, of our total
assets and our investment securities portfolio totaled $123.9 million, or 26.2%, of our total assets.



As a result, we expect that our weighted
average yield on interest-earning assets will decrease in future periods because one-to four-family mortgage loans and investment
securities generally yield less than nonresidential mortgage loans and multi-family real estate loans. We expect this strategy
will make us more reliant on our non-interest income in order to generate net income. While we have identified various strategies
that we are pursuing to improve earnings, including growing and diversifying our sources of non-interest income, these strategies
may not succeed in generating and increasing income. If we are unable to generate or increase income, our stock price may be adversely
affected. For more detail on our controlled growth strategy and our strategic initiatives to improve earnings, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Operating Strategy.”



3







Our multi-family, nonresidential real estate and land loans
expose us to increased lending risks.



At June 30, 2011, our nonresidential
real estate and multi-family real estate loan portfolios represented 22.4% and 15.9%, respectively, of our total loans outstanding,
compared to 24.5% and 13.5%, respectively at June 30, 2007 and nonresidential real estate and multi-family real estate loans
represented 22.7% and 58.4%, respectively, of our total nonperforming assets at June 30, 2011, compared to 69.2% and 0.0%,
respectively, at June 30, 2007. We have grown our loan portfolio in recent years, particularly with respect to multi-family
residential and nonresidential real estate and land loans, but our current strategy is to control the growth of these loans, particularly
those involving properties outside of our local market area until the local economy materially improves and the level of our nonperforming
assets in these loan portfolios materially declines. These types of loans generally expose a lender to greater risk of non-payment
and loss than one- to four-family mortgage loans because repayment of the loans often depends on the successful operation of the
property and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups
of related borrowers compared to one- to four-family mortgage loans. Also, many of our multi-family and nonresidential real estate
and land borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or
one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to
a one- to four-family mortgage loan.



The recent economic recession could further increase our
level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan
losses and lower earnings.



Our business activities and earnings are
affected by general business conditions in the United States and in our local market area. These conditions include short-term
and long-term interest rates, inflation, unemployment levels, monetary supply, consumer confidence and spending, fluctuations in
both debt and equity capital markets, and the strength of the economy in the United States generally and in our market area in
particular. The national economy has recently experienced a recession, with rising unemployment levels, declines in real estate
values and an erosion in consumer confidence. Dramatic declines in the U.S. housing market over the past few years, with falling
home prices and increasing foreclosures, have continued elevated levels of unemployment, further declines in the values of real
estate, or other events that affect household and/or corporate incomes could impair the ability of our borrowers to repay their
loans in accordance with their terms. Most of our loans are secured by real estate or made to businesses in Dearborn and Ripley
Counties, Indiana. As a result of this concentration, a prolonged or more severe decline in the local economy could result in significant
increases in nonperforming loans, which would negatively impact our interest income and result in higher provisions for loan losses,
which would hurt our earnings. The economic decline could also result in reduced demand for credit or fee-based products and services,
which would negatively impact our revenues.



Higher loan losses could require us to increase our allowance
for loan losses through a charge to earnings.



When we loan money we incur the risk that
our borrowers will not repay their loans. We reserve for loan losses by establishing an allowance through a charge to earnings.
The amount of this allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for determining
the amount of the allowance is critical to our financial results and condition. It requires subjective and complex judgments about
the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their
loans. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount reserved.
We might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers
with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who
are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. In addition,
when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially
in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies
of the areas in which our loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions
resulting in increased charge-off amounts and the need for additional loan loss provisions in future periods. In addition, our
determination as to the amount of our allowance for loan losses is subject to review by our primary regulator, the OCC, as part
of its examination process, which may result in the establishment of an additional allowance based upon the judgment of the OCC
after a review of the information available at the time of its examination. Our allowance for loan losses amounted to 1.83% of
total loans and 25.9% of nonperforming loans at June 30, 2011. Our allowance for loan losses at June 30, 2011 may not
be sufficient to cover future loan losses. A large loss could deplete the allowance and require increased provisions to replenish
the allowance, which would negatively affect earnings.



4







Our emphasis on one-to four-family mortgage loans exposes
us to lending risks.



At June 30, 2011, $131.2 million,
or 45.1%, of our loan portfolio consisted of one-to four-family mortgage loans, and $32.0 million, or 11.0%, of our loan portfolio
consisted of home equity loans and second mortgage loans. Because of our controlled growth strategy, we will likely experience
growth in one-to four-family mortgage loans. Recent declines in the housing market have resulted in declines in real estate values
in our market areas. These declines in real estate values could cause some of our mortgage and home equity loans to be inadequately
collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate
collateral.



Increases in the unemployment rate may
result in more borrowers being unable to repay their loans. As of June 30, 2011, U.S. Department of Labor statistics
reflected that Dearborn County and Ripley County had an unemployment rate of 8.3% and 9.0%, respectively, compared to Indiana and
national unemployment rates of 8.5% and 9.3%, respectively.



Our primary market area depends substantially on the gaming
industry and a decline in that industry could hurt our business and our prospects.



Our business is concentrated in the Lawrenceburg,
Indiana area. Since the mid-1990s, the economy in Lawrenceburg has been strengthened by the riverboat casino in Lawrenceburg whose
presence has supported the development of retail centers and job growth as well as an increase in housing development. Any event
that negatively and materially impacts the gaming and tourism industry will adversely impact the Lawrenceburg economy.



Gaming revenue is vulnerable to fluctuations
in the national economy. There has been a prolonged decline in the national economy; however, its impact on Lawrenceburg and its
gaming industry has not been as significant as in other parts of the country. Tax revenue from the gaming industry has decreased
over the last year, but not to the extent that it has affected civil services or other areas.



A continued deterioration in economic conditions
generally, and a slowdown in gaming and tourism activities in particular, could result in the following consequences, any of which
could adversely affect our business, financial condition, results of operations and prospects and expose us to a greater risk of
loss:



| | • | Loan delinquencies may increase;
| | - | --------------------------------



| | • | Problem assets and foreclosures may increase;
| | - | ---------------------------------------------



| | • | Demand for our products and services may decline; and
| | - | -----------------------------------------------------



| | • | Collateral for loans made by us may decline in value, reducing the amount of money that our customers may borrow against the
collateral, and reducing the value of assets and collateral associated with our loans.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The expansion of permissible gaming activities in other states,
particularly in Ohio and/or Kentucky, may lead to a decline in gaming revenue in Lawrenceburg, Indiana, which could hurt our business
and our prospects.



Lawrenceburg, Indiana competes with other
areas of the country for gaming revenue, and it is possible that the expansion of gaming operations in other states, as a result
of changes in laws or otherwise, could significantly reduce gaming revenue in the Lawrenceburg area. In 2009, a vote in the State
of Ohio approved casino gaming in several cities in the state, and the casinos are expected to open in 2012, including one in downtown
Cincinnati, Ohio. The establishment of casino gaming in Ohio could have a substantial adverse effect on gaming revenue in Lawrenceburg
which would adversely affect the Lawrenceburg economy and our business.



Changes in interest rates could adversely affect our results
of operations and financial condition.



Our primary source of income is net interest
income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans
and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily
of deposits and, to a lesser extent, wholesale borrowings).



The level of net interest income is a function
of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread
between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of
our interest-earning assets and our interest-bearing liabilities which, in turn, are affected by such external factors as the local
economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board
of Governors (the “FOMC”) and market interest rates.



5







The cost of our deposits and short-term
wholesale borrowings is largely based on short-term interest rates, the level of which is driven by the FOMC. However, the yields
on our loans and securities are typically based on intermediate-term or long-term interest rates, which are set by the market and
generally vary daily. The level of net interest income is therefore influenced by movements in such interest rates, and the pace
at which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest
rates on our interest-earning assets, the result could be a reduction in net interest income and with it, a reduction in our earnings.
Our net interest income and earnings would be similarly impacted were the interest rates on its interest-earning assets to decline
more quickly than the interest rates on our interest-bearing liabilities.



In addition, such changes in interest rates
could affect our ability to originate loans and attract and retain deposits, the fair value of our financial assets and liabilities,
and the average life of our loan and securities portfolios.



Changes in interest rates could also have
an effect on the slope of the yield curve. A flat to inverted yield curve could cause our net interest income and net interest
margin to contract, which could have a material adverse effect on our net income and cash flows and the value of our assets.



Changes in interest rates particularly
affect the value of our securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in
interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net
of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse
effect on stockholders’ equity. In addition, we invest in callable securities that expose us to reinvestment risk, particularly
during periods of falling market interest rates when issuers of callable securities tend to call or redeem their securities. Reinvestment
risk is the risk that we may have to reinvest the proceeds from called securities at lower rates of return than the rates earned
on the called securities.



A majority of our real estate loans held
for investment are adjustable-rate loans. Any rise in market interest rates may result in increased payments for borrowers who
have adjustable-rate mortgage loans, increasing the possibility of default. In addition, although adjustable-rate mortgage loans
help make our loan portfolio more responsive to changes in interest rates, the extent of this interest sensitivity is limited by
the annual and lifetime interest rate adjustment limits. At June 30, 2011, approximately 77.8% of our total loans had adjustable
rates of interest.



Municipal deposits are an important source of funds and a
reduced level of those deposits may hurt our profits. Securities we pledge as collateral for our municipal deposits may be subject
to risk of loss.



Historically, municipal deposits, consisting
primarily of tax revenues from the local river boat casino operations, have been a significant source of funds for our lending
and investment activities. At June 30, 2011, $111.3 million, or 26.9% of our total deposits, consisted of municipal deposits.
If our municipal deposits decrease to a level where we would need to resort to other sources of funds for our lending and investment
activities, such as borrowings from the Federal Home Loan Bank of Indianapolis, the interest expense associated with these other
funding sources may be higher than the rates we pay on the municipal deposits, which would hurt our profits. Since May, 2011, we
are required to pledge collateral to the Indiana Board of Depositories equal to 100% of the municipal deposits maintained at United
Community Bank as of December 31, 2010. The percentage that we are required to pledge as collateral will periodically vary
based on a number of financial factors. This collateral is used to insure the municipal deposits of all institutions who receive
deposits from Indiana municipalities, and, therefore, is subject to risk of loss if other such institutions fail and there are
insufficient Federal Deposit Insurance funds available to cover the liabilities of such institutions.



We are dependent upon the services of key executives.



We rely heavily on our President and Chief
Executive Officer, William F. Ritzmann and on our Executive Vice President and Chief Operating Officer, Elmer G. McLaughlin. The
loss of Mr. Ritzmann or Mr. McLaughlin could have a material adverse impact on our operations because, as a small company,
we have fewer management-level personnel that have the experience and expertise to readily replace these individuals. Changes in
key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business,
financial condition, and results of operations. We have employment agreements with Messrs. Ritzmann and McLaughlin.



6







Strong competition within our market areas could hurt our
profits and slow growth.



We face intense competition both in making
loans and attracting deposits. This competition has made it more difficult for us to make new loans and at times has forced us
to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying
more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits.
As of June 30, 2010, the most recent date for which information is available, we held 41.26% of the deposits in Dearborn County
and 9.47% of the deposits in Ripley County. Competition also makes it more difficult to hire and retain experienced employees.
Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer
services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological
changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued
ability to compete successfully in our market areas.



Recently enacted financial regulatory reform may have a material
impact on our operations.



On July 21, 2010, the President signed
into law the Dodd-Frank Act. The Dodd-Frank Act restructures the regulation of depository institutions. Under the Dodd-Frank Act,
the Office of Thrift Supervision, which formerly regulated the Bank, was merged into the Office of the Comptroller of the Currency.
Mutual holding companies and savings and loan holding companies, including United Community MHC and United Community Bancorp, are
regulated by the Board of Governors of the Federal Reserve Board System. Also included is the creation of a new federal agency
to administer consumer protection and fair lending laws, a function that was formerly performed by the depository institution regulators.
The federal preemption of state laws that was formerly accorded federally chartered depository institutions has been reduced as
well and State Attorneys General now have greater authority to bring a suit against a federally chartered institution, such as
United Community Bank, for violations of certain state and federal consumer protection laws. The Dodd-Frank Act also imposes consolidated
capital requirements on savings and loan holding companies effective in five years, which will limit our ability to borrow at the
holding company and invest the proceeds from such borrowings as capital in United Community Bank that could be leveraged to support
additional growth. The Dodd-Frank Act contains various other provisions designed to enhance the regulation of depository institutions
and prevent the recurrence of a financial crisis such as occurred in 2008-2009. The full impact of the Dodd-Frank Act on our business
and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act
may have a material impact on our operations, particularly through increased regulatory burden and compliance costs.



In addition to the enactment of the Dodd-Frank
Act, the federal regulatory agencies recently have begun to take stronger supervisory actions against financial institutions that
have experienced increased loan losses and other weaknesses as a result of the current economic crisis. The actions include the
entering into of written agreements and cease and desist orders that place certain limitations on their operations. Federal bank
regulators recently have also been using with more frequency their ability to impose individual minimal capital requirements on
banks, which requirements may be higher than those imposed under the Dodd-Frank Act or which would otherwise qualify the bank as
being “well capitalized” under the Office of the Comptroller of the Currency’s prompt corrective action regulations.
If we were to become subject to a supervisory agreement or higher individual capital requirements, such action may have a negative
impact on our ability to execute our business plans, as well as our ability to grow, pay dividends or engage in mergers and acquisitions
and may result in restrictions in our operations.



Our asset valuation may include methodologies, estimations
and assumptions that are subject to differing interpretations and could result in changes to asset valuations that may materially
adversely affect our results of operations or financial condition.



We must use estimates, assumptions, and
judgments when financial assets and liabilities are measured and reported at fair value. Assets and liabilities carried at fair
value inherently result in a higher degree of financial statement volatility. Fair values and the information used to record valuation
adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent
third-party sources, when available. When such third-party information is not available, we estimate fair value primarily by using
cash flows and other financial modeling techniques utilizing assumptions such as credit quality, liquidity, interest rates and
other relevant inputs. Changes in underlying factors, assumptions, or estimates in any of these areas could materially impact our
future financial condition and results of operations.



During periods of market disruption, including
periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to
value certain of our assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset
classes that were in active markets with significant observable data that become illiquid due to the current financial environment.
In such cases, certain asset valuations may require more subjectivity and management judgment. As such, valuations may include
inputs and assumptions that are less observable or require greater estimation. Further, rapidly changing and unprecedented credit
and equity market conditions could materially impact the valuation of assets as reported within our consolidated financial statements,
and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on our
results of operations or financial condition.



7







We rely on other companies to provide key components of our
business infrastructure.



Third party vendors provide key components
of United Community Bancorp’s business infrastructure such as internet connections, network access and fund distribution.
While United Community Bancorp has selected these third party vendors carefully, it does not control their actions. Any problems
caused by these third parties, including those which result from their failure to provide services for any reason or their poor
performance of services, could adversely affect United Community Bancorp’s ability to deliver products and services to its
customers and otherwise to conduct its business. Replacing these third party vendors could also entail significant delay and expense.



United Community MHC’s majority control of United Community
Bancorp’s common stock enables it to exercise voting control over most matters put to a vote of stockholders including preventing
sale or merger transactions or a second-step conversion transaction you may find advantageous.



United Community MHC owns a majority of
United Community Bancorp’s common stock and, through its board of directors, exercises voting control over most matters put
to a vote of stockholders. The same directors and officers who manage United Community Bancorp and United Community Bank also manage
United Community MHC. As a federally chartered mutual holding company, the board of directors of United Community MHC must ensure
that the interests of depositors of United Community Bank are represented and considered in matters put to a vote of stockholders
of United Community Bancorp. Therefore, the votes cast by United Community MHC may not be in your personal best interests as a
stockholder. For example, United Community MHC may exercise its voting control to defeat a stockholder nominee for election to
the board of directors of United Community Bancorp. In addition, stockholders are not able to force a merger or second-step conversion
transaction without the consent of United Community MHC. Some stockholders may desire a sale or merger transaction, since stockholders
typically receive a premium for their shares, or a second-step conversion transaction, since fully converted institutions tend
to trade at higher multiples than mutual holding companies.



Federal Reserve Board policy on remutualization transactions
could prohibit acquisition of United Community Bancorp, which may adversely affect our stock price.



Current Federal Reserve Board regulations
permit a mutual holding company to be acquired by a mutual institution in a remutualization transaction. The possibility of a remutualization
transaction has resulted in a degree of takeover speculation for mutual holding companies that is reflected in the per share price
of mutual holding companies’ common stock. However, United Community Bancorp’s former regulator, the OTS, had adopted
a policy statement indicating that it viewed remutualization transactions as raising significant issues concerning disparate treatment
of minority stockholders and mutual members of the target entity and raising issues concerning the effect on the mutual members
of the acquiring entity. The Federal Reserve Board has not adopted a similar policy statement or issued on the matter and future
Federal Reserve Board regulation may negatively affect United Community Bancorp. Under certain circumstances, the Federal Reserve
Board may give these issues special scrutiny and reject applications providing for the remutualization of a mutual holding company
unless the applicant can clearly demonstrate that the Federal Reserve Board’s concerns are not warranted in the particular
case. Should the Federal Reserve Board prohibit or otherwise restrict these transactions in the future, our per share stock price
may be adversely affected.



Anti-takeover provisions in our charter restrict the accumulation
of United Community Bancorp’s common stock, which may adversely affect our stock price.



United Community Bancorp’s charter
provides that, for a period of five years from the date of the reorganization, no person, other than United Community MHC, may
acquire directly or indirectly the beneficial ownership of more than 10.0% of any class of any equity security of United Community
Bancorp. In the event a person acquires shares in violation of this charter provision, all shares beneficially owned by such person
in excess of 10.0% will be considered “excess shares” and will not be counted as shares entitled to vote or counted
as voting shares in connection with any matters submitted to the stockholders for a vote. This provision makes it more difficult
and less attractive for stockholders to acquire a significant amount of our common stock, which may adversely affect our stock
price.



Federal Reserve Board regulations may restrict United Community
Bank’s ability to make capital distributions, which could limit our ability to pay dividends to our shareholders.



United Community Bank, our wholly-owned
subsidiary, is the primary source of cash with which we pay the cash dividend on our common stock. Federal Reserve Board regulations
impose limitations upon all capital distributions by a savings institution, including cash dividends. Under the regulations, a
notice must be filed with the Federal Reserve Board 30 days prior to declaring a dividend, with a notice to the OCC. The Federal
Reserve Board may disapprove a dividend notice if the proposed dividend raises safety and soundness concerns, the institution would
be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement
with the OCC. In the event United Community Bank’s capital falls below its regulatory requirements or the OCC notifies it
that it is in need of increased supervision, United Community Bank’s ability to make capital distributions, including cash
dividends, could be restricted, thereby eliminating the primary source of cash with which we pay our dividend to our shareholders.



8







Our ability to pay dividends is subject to the waiver of
dividends by United Community MHC.



The ability of United Community Bancorp
to pay dividends is subject to the waiver of dividends by United Community MHC.



United Community MHC owns a majority of
United Community Bancorp’s outstanding stock. United Community MHC waives its right to dividends on the shares that it owns,
which means the amount of dividends paid to public stockholders is significantly higher than it would be if United Community MHC
accepted dividends. United Community MHC is not required to waive dividends, but United Community Bancorp expects this practice
to continue. As such, United Community MHC is required to obtain a waiver from the Federal Reserve Board allowing it to waive its
right to dividends. The current waiver is effective for dividends paid for the quarter ended June 30, 2011. As of the filing
date of this Form 10-K we have applied for a waiver from the Federal Reserve Board for any dividends that may be paid for
the quarters ending September 30, 2011, December 31, 2011 and March 31, 2012. It is expected that United Community
MHC will continue to waive future dividends, except to the extent dividends are needed to fund United Community MHC’s continuing
operations, subject to the ability of United Community MHC to obtain regulatory approval of its requests to waive dividends.



The Federal Reserve Board has adopted an
interim final rule which requires United Community MHC to notify the Federal Reserve Board if it proposes to waive receipt of dividends
from United Community Bancorp. In addition, the interim final rule also requires that United Community MHC obtain the approval
of a majority of the eligible votes of members before it can waive dividends. The Federal Reserve Board reviews dividend waiver
notices on a case-by-case basis, and, the Federal Reserve Board may not object to such a waiver (i) if the mutual holding
company involved has, prior to December 1, 2009, reorganized into a mutual holding company structure, engaged in a minority
stock offering and waived dividends; (ii) the board of directors of the mutual holding company expressly determines that a
waiver of the dividend is consistent with its fiduciary duties to members and (iii) the waiver would not be detrimental to
the safe and sound operation of the savings association subsidiaries of the holding company.



While United Community MHC is grandfathered
for purposes of the Federal Reserve Board dividend waiver regulations, we cannot assure that the Federal Reserve Board will grant
a dividend waiver request and, if granted, there can be no assurance as to the conditions, if any, the Federal Reserve Board will
place on future dividend waiver requests by grandfathered mutual holding companies such as United Community MHC.



The Federal Reserve Board’s interim
final rule regarding dividend waiver requests is subject to comment and there can be no assurances as to the form of the final
dividend waiver regulations or their affect on United Community MHC’s ability to waive dividends.



Our mutual holding company structure limits our ability to
raise additional equity capital.



Even though we are already well capitalized,
our mutual holding company structure limits our ability to raise additional equity capital without undertaking a second-step conversion
transaction because we cannot issue stock in an amount that would cause United Community MHC to own less than a majority of our
outstanding shares. Currently, United Community MHC owns approximately 59% of our outstanding shares. In addition, any
stock issuance by us must be approved by the Federal Reserve Board and must be structured in a manner similar to a mutual to stock
conversion, including the stock purchase priorities accorded to members of the mutual holding company, unless otherwise approved
by the Federal Reserve Board. These requirements limit our ability to control the timing and structure of a stock offering.



9







PART II



Item 6. Selected Financial Data



|                                              |  | At June 30,            |        
|--------------------------------------------- |  | ---------------------- | -------
|                                              |  | 2011                   |        
|                                              |  | (As Restated)          |        
|                                              |  | (Dollars in thousands) |        
|Financial Condition Data:                     |  |                        |        
|Total assets                                  |  | $                      | 472,531
|Cash and cash equivalents                     |  |                        | 31,159 
|Securities held-to-maturity                   |  |                        | 564    
|Securities available-for-sale                 |  |                        | 49,230 
|Mortgage-backed securities available-for-sale |  |                        | 74,119 
|Loans receivable, net                         |  |                        | 285,877
|Deposits                                      |  |                        | 413,091
|Advances from Federal Home Loan Bank          |  |                        | 1,833  
|Stockholders’ equity                          |  |                        | 54,146 



10







|                                                    |  | For the Years Ended June 30, |       
|--------------------------------------------------- |  | ---------------------------- | ------
|                                                    |  | 2011                         |       
|                                                    |  | (As Restated)                |       
|                                                    |  | (Dollars in thousands)       |       
|Operating Data:                                     |  |                              |       
|Interest income                                     |  | $                            | 19,846
|Interest expense                                    |  |                              | 5,587 
|Net interest income                                 |  |                              | 14,259
|Provision for loan losses                           |  |                              | 4,140 
|Net interest income after provision for loan losses |  |                              | 10,119
|Other income                                        |  |                              | 4,038 
|Other expense                                       |  |                              | 12,486
|Income (loss) before income taxes                   |  |                              | 1,671 
|Provision (benefit) for income taxes                |  |                              | 501   
|Net income (loss)                                   |  | $                            | 1,170 
|                                                    |  |                              |       
|Per Share Data:                                     |  |                              |       
|Earnings (loss) per share, basic and diluted        |  | $                            | 0.15  



|                                                                        |  | At or for the Years Ended June 30, |       
|----------------------------------------------------------------------- |  | ---------------------------------- | ------
|                                                                        |  | 2011                               |       
|                                                                        |  | (As Restated)                      |       
|Performance Ratios:                                                     |  |                                    |       
|Return on average assets                                                |  |                                    | 0.24  
|Return on average equity                                                |  |                                    | 2.17  
|Interest rate spread (1)                                                |  |                                    | 3.04  
|Net interest margin (2)                                                 |  |                                    | 3.11  
|Noninterest expense to average assets                                   |  |                                    | 2.56  
|Efficiency ratio (3)                                                    |  |                                    | 68.24 
|Average interest-earning assets to average interest-bearing liabilities |  |                                    | 106.31
|Average equity to average assets                                        |  |                                    | 11.04 
|Dividend payout ratio (4)                                               |  |                                    | 115.98
|                                                                        |  |                                    |       
|United Community Bank Capital Ratios:                                   |  |                                    |       
|Tangible capital                                                        |  |                                    | 9.80  
|Core capital                                                            |  |                                    | 9.80  
|Total risk-based capital                                                |  |                                    | 17.47 
|                                                                        |  |                                    |       
|Asset Quality Ratios:                                                   |  |                                    |       
|Nonperforming loans as a percent of total loans                         |  |                                    | 7.08  
|Allowance for loan losses as a percent of total loans                   |  |                                    | 1.83  
|Allowance for loan losses as a percent of nonperforming loans           |  |                                    | 25.90 
|Net charge-offs to average outstanding loans during the period          |  |                                    | 2.30  
|                                                                        |  |                                    |       
|Other Data:                                                             |  |                                    |       
|Number of:                                                              |  |                                    |       
|Real estate loans outstanding                                           |  |                                    | 1,787 
|Deposit accounts                                                        |  |                                    | 32,544
|Offices                                                                 |  |                                    | 9     










| | NM | Not meaningful.
| | -- | ---------------



| | (1) | Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost
on average interest-bearing liabilities.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Represents net interest income as a percent of average interest-earning assets.
| | --- | -------------------------------------------------------------------------------



| | (3) | Represents other expense divided by the sum of net interest income and other income.
| | --- | ------------------------------------------------------------------------------------



11







| | (4) | Represents dividends declared (excluding waived dividends) divided by net income. A summary of the dividends declared and waived
(and thus not paid) dividends is set forth below:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  | For the Year Ended June 30, |      
|------------------------------ |  | --------------------------- | -----
|                               |  | 2011                        |      
|                               |  | (In thousands)              |      
|Dividends:                     |  |                             |      
|Paid to minority stockholders  |  | $                           | 1,357
|Waived by United Community MHC |  |                             | 1,955
|Total dividend                 |  | $                           | 3,312



12







Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations



Overview



Income.Our primary source
of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that
we earn on our loans and securities, and interest expense, which is the interest that we pay on our deposits and Federal Home Loan
Bank borrowings. Other significant sources of pre-tax income are service charges on deposit accounts and other loan fees. We also
recognize income or losses from the sale of investments in years that we have such sales.



Allowance for Loan Losses.
The allowance for loan losses is a valuation allowance for probable credit losses inherent in the loan portfolio. The allowance
is established through the provision for loan losses, which is charged to income. Management estimates the allowance balance required
using past loan loss experience, the nature and value of the portfolio, information about specific borrower situations, and estimated
collateral values, economic conditions, and other factors. The allowance is available for any loan that, in management’s
judgment, should be charged-off, and allocation of the allowance may be made for specific loans.



Expenses.The noninterest
expenses we incur in operating our business consist of salaries and employee benefits expenses, occupancy and equipment expenses,
advertising and public relations expenses, regulatory fees and deposit insurance premiums and various other miscellaneous expenses.



Salaries and employee benefits consist
primarily of salaries and wages paid to our employees, payroll taxes and expenses for health insurance and other employee benefits,
and stock-based compensation.



Occupancy and equipment expenses, which
are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, furniture and equipment
expenses, maintenance, real estate taxes, insurance and costs of utilities. Depreciation of premises and equipment is computed
using the straight-line method based on the useful lives of the related assets, which range from three to 40 years.



Advertising and public relations expenses
include expenses for print, radio and television advertisements, promotions, third-party marketing services and premium items.



Regulatory fees and deposit insurance premiums
are primarily payments we make to the FDIC for insurance of our deposit accounts.



Other expenses include expenses for supplies,
telephone and postage, data processing, expenses related to other real estate owned by the Bank, director and committee fees, professional
fees, insurance and surety bond premiums and other fees and expenses.



Noninterest expenses have also increased
as a result of our strategy to expand our branch network. These additional expenses consist of salaries and employee benefits and
occupancy and equipment expenses. Over time, we anticipate that we will generate sufficient income to offset the expenses related
to our new facilities and new employees, but we cannot assure you that our branch expansion will increase our earnings or that
it will increase our earnings within a reasonable period of time.



Critical Accounting Policies



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



13







Allowance for Loan Losses.
The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio
at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged
to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material
estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted
loans; and value of collateral. Inherent loss factors are then applied to the remaining loan portfolio. All of these estimates
are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision
for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors
related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish
the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially
from the assumptions used in making the evaluation. In addition, the OCC, as an integral part of its examination process, periodically
reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments
about information available to it at the time of its examination. A large loss could deplete the allowance and require increased
provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see notes 2 and 6 of
the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K/A.



Deferred Income Taxes. We
use the asset and liability method of accounting for income taxes as prescribed in Accounting Standards Codification (“ASC”)
740-10-50. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount
and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future
taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are
reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require
us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax
expense in the period, which would negatively affect earnings. The Company adopted the provisions of ASC 275-10-50-8 to account
for uncertainty in income taxes effective July 1, 2007. Implementation resulted in no cumulative effect adjustment to retained
earnings as of the date of adoption. The Company had no unrecognized tax benefits as of June 30, 2011 and 2010. The Company
recognized no interest and penalties on the underpayment of income taxes during fiscal years June 30, 2011 and 2010, and had
no accrued interest and penalties on the balance sheet as of June 30, 2011 and 2010. The Company has no tax positions for
which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase with the next twelve
months. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years
before 2006.



Fair Value Measurements.
ASC 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments, both assets
and liabilities, whether or not recognized in the consolidated balance sheet for which it is practicable to estimate the value.
For financial instruments where quoted market prices are not available, fair values are estimated using present value or other
valuation methods.



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



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



Investments and Mortgage-Backed Securities.For investment securities (debt instruments) and mortgage-backed securities, fair values are based on quoted market prices,
where available. If a quoted market price is not available, fair value is estimated using quoted market prices of comparable instruments.



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



Federal Home Loan Bank stock.
The Bank is a member of the Federal Home Loan Bank system and is required to maintain an investment based upon a pre-determined
formula. The carrying values presented in the consolidated statements of position approximate fair value.



14







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



Advance from Federal Home Loan Bank.The fair value is calculated using rates available to the Company on advances with similar terms and remaining maturities.



Off-Balance Sheet Items.Carrying
value is a reasonable estimate of fair value. These instruments are generally variable rate or short-term in nature, with minimal
fees charged.



Operating Strategy



Our mission is to operate and grow a profitable,
independent community-oriented financial institution serving primarily retail customers and small businesses in our market areas.
The following are key elements of our business strategy:



Continuing our community-oriented focus



As a community-oriented financial institution,
we emphasize providing exceptional customer service as a means to attract and retain customers. We deliver personalized service
and respond with flexibility to customer needs. We believe that our community orientation is attractive to our customers and distinguishes
us from the large banks that operate in our market area. Our ability to succeed in our communities is enhanced by the stability
of our senior management. Senior management has an average tenure with United Community Bank of over 33 years. Our community focus
is further supported by the community service activities of our employees and the charitable activities of the United Community
Bank Charitable Foundation. Established in 2006, the foundation provides funds to eligible nonprofit organizations with the goal
of enhancing the quality of life in the communities served by United Community Bank. We intend to continue to leverage these strengths
in our markets for the purpose of originating new deposits and loans, particularly through our new Ripley County branch offices,
while continuing to focus on profitability.



Implementing a controlled growth strategy
to prudently increase profitability and enhance stockholder value



Our primary lending activity is the origination
of one-to four family mortgage loans secured by homes in our local market area, particularly in Dearborn, Ripley, Franklin, Ohio
and Switzerland Counties, Indiana. Between 2006 and 2010, we expanded and diversified our lending activities by originating multi-family
and nonresidential real estate secured by properties in the metropolitan Cincinnati market area and, to a lesser extent, in northern
Kentucky and the Indiana counties outside of our local market area. These multi-family and nonresidential real estate loans comprise
the substantial majority of our nonperforming assets.



From June 30, 2006 until June 30,
2010, our multi-family real estate loans grew to $46.8 million, or 14.8% of our total loans outstanding from $20.3 million, or
8.2% of the total loan portfolio. In the Cincinnati and northern Kentucky markets, our multi-family loans grew from $15.5 million
to $32.8 million, and increased as a percentage of total nonperforming loans from 0.0% at June 30, 2006 to 49.6% at June 30,
2010.



During the same period, our non-residential
real estate loans grew to $77.6 million, representing 24.6%, of total loans outstanding from $65.6 million, or 26.5%,
of total loans outstanding. In the Cincinnati and northern Kentucky markets, our non-residential real estate loans increased to
$35.8 million from $21.7 million, and increased as a percentage of total nonperforming loans from 22.3% at June 30, 2006 to
33.2% at June 30, 2010.



As a result of the issues arising in our
multi-family and nonresidential real estate loan portfolios, in June, 2010, we implemented a strategy to control the growth of
our nonresidential real estate and multi-family real estate loan portfolios, particularly outside of Dearborn, Ripley, Franklin,
Ohio and Switzerland Counties, Indiana. As part of this strategy, we also amended our loan policy to reduce our concentration limits
for nonresidential real estate, multi-family real estate, construction and land loans to 175%, 125%, 10% and 10%, respectively,
of the sum of core capital plus our allowance for loan losses. As of June 30, 2011, these loans represented 127.94%, 90.90%,
2.13% and 7.82%, respectively, of the sum of core capital plus our allowance for loan losses.



We intend to continue this controlled growth
strategy for the foreseeable future until the local economy materially improves and the level of our nonperforming loans in these
loan portfolios materially declines. As a result, we will likely experience growth in our one-to-four family residential mortgage
loan portfolio and in our investment securities portfolio. Accordingly, we expect that our weighted average yield on interest-earning
assets will decrease in future periods because one-to-four family mortgage loans and investment securities generally yield less
than nonresidential and multi-family real estate loans. We believe our existing infrastructure and our recent expansion into Ripley
County, will enable us to originate new loans, subject to the foregoing strategy, both to replace existing loans as they are repaid
and prudently grow our loan portfolio.



15







Improving our asset quality



We recognize that high asset quality is
a key to long-term financial success. We have sought to grow and diversify the loan portfolio, while maintaining a high level of
asset quality and moderate credit risk, using underwriting standards that we believe are conservative. We also believe that we
have implemented and diligent monitoring and collection efforts. Historically, we had not incurred significant losses in our lending
operations. Beginning in the year ended June 30, 2008, we began to experience the adverse effects of the significant national
decline in real estate values and some of our borrowers’ ability to pay loans. Our nonperforming assets increased from $7.9
million, or 2.0% of total assets at June 30, 2010 to $17.6 million, or 3.6% of total assets as of June 30, 2010, to $20.7
million, or 4.4% of total assets at June 30, 2011. The consequences of this decline were generally evident in all portfolio
types, but were more pronounced in the multi-family and nonresidential real estate loans.



Our initial approach to resolving nonperforming
loans focused on foreclosure and liquidations in the year ended June 30, 2008 and the greater part of the year ended June 30,
2009. This manner of troubled asset resolution proved costly as a result of legal and other operating costs in the process. As
a result, beginning in the latter part of the year ended June 30, 2009, we placed more attention and resources on loan workouts
and initiated a troubled debt restructuring process initiative with respect to nonperforming loans that provided for either restructuring
the loan to the existing borrower in recognition of the lower available cash flows from the collateral properties or identification
of stronger borrowers to purchase the property and refinance the loan. Under troubled debt restructurings, borrowers are granted
limited rate concessions generally ranging from 100 to 300 basis below the then current market rate, for periods of up to three
years. If the loan performs in accordance with its restructured terms, then, at the end of the concession period, the loan is refinanced
to the then current market interest rate. Under either resolution alternative, we believe we have provided the necessary valuation
allowances or charge-offs to reflect the loans’ carrying amounts at fair value at the time of restructuring. Management works
closely with the Internal Asset Review Committee of the board of directors to resolve nonperforming assets in a manner most advantageous
to the Company.



Loan workouts and modifications are handled
by the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, and the Senior Vice President,
Lending, and are subject to approval by the Board of Directors. Delinquent or otherwise nonperforming mortgage loan and home equity
loan customers are asked to provide updated financial information and the reasons for their inability to pay or comply with the
contractual terms of the loans. Management ascertains the value of the underlying collateral, depending on the type of property,
through an independent appraisal or an in-house cash flow analysis of the property. If the Company determines that the ultimate
repayment of the loan will be derived from the sale of the property it is determined to be collateral dependent. If the repayment
will come from cash flows of the property the Company will determine the value of the loan using the present value of expected
cash flows. Once the value of collateral is established, management will treat as impaired the amount of any shortfall between
the collateral value and the outstanding principal loan balance. Management will then develop and pursue a workout plan with the
borrower. Once a workout plan is established and implemented, management monitors monthly performance of the loan at least until
it is removed from nonaccrual status. On an annual basis, management will conduct property inspections and review financial information
of the borrowers and any guarantors.



In situations where a collateral value
shortfall (i.e., the value of the underlying collateral of the loan is less than the outstanding principal balance of the loan)
is discovered on a previously existing loan, typically through an updated appraisal or collateral inspection, management will seek
to obtain additional collateral and/or a personal guaranty at that time. If no additional collateral or personal guaranty is available,
management will work with the borrower on a suitable workout arrangement that may include a troubled debt restructuring, or foreclose
on the collateral property. In determining the best suited workout arrangement, management reviews the financial condition of the
borrower, the cash flow of the collateral property and the value of the loan’s collateral.



If we obtain a personal guaranty or a co-borrower,
we assess the strength and value of the guaranty or co-borrower at the time the loan is closed and the guaranty granted and re-evaluate
it at least annually. The strength of each guaranty is determined by evaluating the guarantor’s net worth, liquid net worth,
debt-to-income ratio and credit score. In certain circumstances, we may deem it appropriate not to enforce a guaranty, such as
when it determines enforcing a guaranty could be detrimental to a larger banking relationship.



At June 30, 2011, approximately $16.2
million, or 78.4%, of our nonperforming loans were troubled debt restructurings. During the third quarter of the year ended June 30,
2011, we began restructuring loans into a Note A/Note B format. Upon performing a global analysis of the total lending relationship
with the involved borrower, the terms of Note A are calculated using current financial information to determine the amount of the
payment at which the borrower would have a debt service coverage ratio of 1.5x or better, which is more stringent than our current
underwriting standards, which typically require a debt service coverage ratio of 1.2x. That payment is calculated based upon a
30 year amortization period, then fixed for two years, with the loan maturing at the end of the two year period. The amount for
Note B is the difference between the amount of Note A and the original payoff amount to be refinanced, plus all other expenses
necessary to restructure the loans. Note B is given the same interest rate and balloon term as Note A, but no principal or interest
payments are due until maturity. While no amount of the original indebtedness of the borrower is forgiven through this process,
the full amount of Note B is charged-off at the time of issuance of Note B. Note A is treated as any other TDR and, generally,
may return to accrual status after a history of performance in accordance with the restructured terms of at least six consecutive
months is established.



16







The intended positive effect of employing
the Note A / Note B strategy is twofold. First, this restructuring and subsequent charge-offs to an “as is” fair value
determination enables the Company to expeditiously liquidate delinquent loan balances if the restructured loans experience further
delinquency. Second, the Company believes that, because of its implementation of this strategy and because the loans which needed
to be restructured in this manner represented a distinct identifiable pool of loans, the 30 to 89 day delinquent migration of nonresidential
and multi-family loans has slowed significantly. Specifically, as of June 30, 2011, these loan delinquencies declined to $1.0
million from $6.0 million at December 31, 2010 (prior to implementation of the split note strategy). While we note the higher
charge-offs encountered in one- to four-family and consumer loans in fiscal 2011, we do not view any further significant adverse
trends continuing with respect to these loan types that would require a material adjustment to our allowance for loan losses. For
additional information regarding our troubled debt restructurings, see “—Risk Management—Analysis of Nonperforming
and Classified Assets.”



We have implemented more stringent underwriting
standards for our residential lending programs. We have enhanced our document requirements and document review process. Residential
real estate mortgage applicants are required to have a higher credit score than previously required. We have reduced the maximum
loan-to-value ratio for consumer loans from 100% to 90%. Commercial and nonresidential real estate loan customers are required
to provide us with rent rolls, and financial statements for evaluation on a more frequent basis, and members of our loan department
are in more regular contact with these customers. Annually, every loan with an outstanding balance of at least $1.0 million is
reviewed by an independent third party loan reviewer. We have hired a credit analyst to perform an annual review of all commercial
loans having an outstanding balance of at least $1.0 million. As discussed above, we have also implemented a strategy to control
the growth of our nonresidential real estate and multi-family real estate loan portfolios. For additional information on this strategy,
see “—Implementing a controlled growth strategy to prudently increase profitability and enhance stockholder value.”



Improving our funding mix by attracting lower
cost core deposits



Core deposits include all deposit account
types except certificates of deposit and municipal deposits. Core deposits represent our best opportunity to develop customer relationships
that enable us to cross sell our full complement of products and services. Core deposits are our least costly source of funds which
improves our interest rate spread and also contributes non-interest income from account related services, and are generally less
sensitive to withdrawal when interest rates fluctuate. At June 30, 2011, core deposits represented 32.9% of our total deposits
compared to 31.8% at June 30, 2010. Municipal deposits represent tax and other revenues from the local gaming industry. Since
May, 2011, we have been required to pledge collateral to the Indiana Board of Depositories equal to 100% of the municipal deposits
maintained at United Community Bank. The percentage that we are required to pledge as collateral will periodically vary based on
a number of financial factors. In recent years, we have steadily decreased our reliance on municipal deposits as a percentage of
total deposits. At June 30, 2011, municipal deposits represented 26.9% of total deposits, compared to 47.9% of total deposits
at June 30, 2006. While we expect municipal deposits to continue to remain an important source of funding, we expect to continue
to improve our funding mix by marketing lower cost core deposits.



We aggressively market core deposits through
concentrated advertising and public relations. In recent years, we have significantly expanded and improved the products and services
we offer our retail and business deposit customers who maintain core deposit accounts and have improved our infrastructure for
critical electronic banking services, including online banking, bill pay, eStatements, merchant capture, and business online cash
management tools that include ACH origination, direct deposit, payroll, federal tax payment, wire transfer capabilities. The deposit
infrastructure we have established can accommodate significant increases in retail and business deposit accounts without additional
capital expenditure.



Continuing to increase noninterest income



Our earnings rely heavily on the spread
between the interest earned on loans and securities and interest paid on deposits and other borrowings. In order to decrease our
reliance on interest rate spread income, we have pursued initiatives to increase noninterest income. Our primary recurring source
of non-interest income has been service charges on deposit products and other services. However, recent regulatory changes have
restricted our ability to charge for other services and will increase the difficulty of expanding our service fee income. We have
also implemented, and realize fee income from, an overdraft protection program and from customer use of debit cards. We also have
a significant secondary mortgage operation, including loan servicing, and we continue to invest in personnel and systems to increase
our ability to sell one-to four-family mortgages in the secondary market to increase fee income and reduce interest rate risk through
the sale of conforming long-term fixed-rate one-to four-family residential mortgage loans. To date, all loans are sold without
recourse but with servicing retained. The volume of loans sold totaled $21.1 million and $25.1 million for the years ended June 30,
2011 and 2010, respectively. For the years ended June 30, 2011 and 2010, we earned $519,000 and $278,000, respectively, on
the sale of loans. We intend to continue to originate loans for sale in the secondary market to grow our servicing portfolio and
generate additional non-interest income. We continue to review programs to further enhance our service fee structure within the
new regulatory environment. We have also enhanced our ability to increase our non-interest income from the sale of non-deposit
investment and insurance products through Lincoln Financial Advisors, a third party registered broker-dealer, by adding two new
investment advisors to serve our branch offices.



17







Upgrading our existing branches, particularly
the branch offices we acquired in June, 2010



In an effort to retain customers and attract
new customers, we have, in recent years, significantly remodeled four of our offices to improve the décor and traffic flow
of the public spaces. Of these four, our Stateline Road branch office was almost doubled in size and significant office space was
added to our Aurora branch office, in each case to accommodate the growth we have experienced at those offices. We have also remodeled
those offices to improve the presentation of the products and services we are offering to our customers. We intend to continue
to upgrade our branch facilities, particularly the branch offices we recently acquired in Ripley County, Indiana. Total remodeling
expenses for fiscal 2011 approximated $250,000, all of which has been capitalized.



Expanding our geographic footprint



We consider our primary deposit and lending
market area to be Dearborn, Ripley, Franklin, Ohio and Switzerland Counties, Indiana. In recent years, we have expanded our lending
efforts in the Greater Cincinnati metropolitan area and northern Kentucky. Since 2005, we have grown our community banking franchise
organically through the addition of de novo branches in St. Leon and Aurora, Indiana, and through the strategic acquisition of
three branch offices in Ripley County, Indiana. As a result, we have increased our branch network from four to nine offices. We
plan to continue to seek opportunities to grow our business through a combination of de novo branching and complementary acquisitions
in our existing market and contiguous markets. We will consider acquisition opportunities that expand our geographic reach in banking,
insurance or other complementary financial service businesses, although we do not currently have any agreements or understandings
regarding any specific acquisition.



Balance Sheet Analysis



Total assets were $472.5 million at June 30,
2011, compared to $490.7 million at June 30, 2010. Total liabilities were $418.4 million at June 30, 2011, compared
to $436.6 million at June 30, 2010. Total stockholders’ equity was $54.1 million at June 30, 2011, compared to
$54.1 million at June 30, 2010. The decrease in assets was primarily due to a $21.4 million decrease in net loans, reflecting
the combined effect of the refinancing of $20.1 million of residential mortgage loans into lower fixed-rate loans which were sold
to Freddie Mac, and the prepayment of several large commercial loans aggregating $7.7 million in the current fiscal year. The decrease
in liabilities was primarily due to a $10.4 million decrease in municipal deposits and a $6.7 million decrease in other deposits
resulting from the Bank’s decision to reduce its reliance on municipal deposits and other higher cost deposits. At June 30,
2011, the Bank’s regulatory capital exceeded the levels required to be categorized as “well capitalized” under
applicable regulatory capital guidelines.



Loans.Our primary lending
activity is the origination of loans secured by real estate. We originate one- to four-family residential loans, multi-family and
nonresidential real estate loans and construction loans. To a lesser extent, we originate commercial and consumer loans. From time
to time, as part of our loss mitigation process, loans may be renegotiated in a troubled debt restructuring when we determine that
greater economic value will ultimately be recovered under the new terms than through foreclosure, liquidation, or bankruptcy. We
may consider the borrower’s payment status and history, the borrower’s ability to pay upon a rate reset on an adjustable
rate mortgage, size of the payment increase upon a rate reset, period of time remaining prior to the rate reset, and other relevant
factors in determining whether a borrower is experiencing financial difficulty. We do not offer, and have not previously offered,
subprime, Alt-A, low-doc, no-doc loans or loans with negative amortization and generally do not offer interest-only loans.



The largest segment of our loan portfolio
is one- to four-family residential loans. At June 30, 2011, these loans totaled $131.1 million, or 45.1% of total gross loans,
compared to $137.5 million, or 43.6% of total gross loans, at June 30, 2010. During the past two years, decreases in one-
to four-family mortgages due to customers refinancing into fixed-rate loans that are being sold to Freddie Mac have generally been
offset by the loans we acquired with the three Integra branch offices in June 2010 and by increased loan production in the two
de novo branches we have opened since 2005.



Multi-family and nonresidential real estate
and land loans totaled $115.4 million and represented 39.7% of total loans at June 30, 2011, compared to $129.7 million, or
41.1% of total loans, at June 30, 2010. While charge-offs have recently reduced these portfolios, they remain a substantial
segment of our loan portfolio. However, we have recently implemented a controlled growth strategy that is expected to reduce these
portfolios as a percentage of total loans.



Construction loans totaled $1.1 million,
or 0.4% of total loans, at June 30, 2011, compared to $1.6 million, or 0.5% of total loans, at June 30, 2010.



18







Commercial business loans totaled $4.9
million, or 1.7% of total loans, at June 30, 2011, compared to $5.5 million, or 1.8% of total loans, at June 30, 2010.



Consumer loans totaled $36.6 million, or
12.6% of total loans, at June 30, 2011, compared to $39.1 million, or 12.4% of total loans, at June 30, 2010. The decrease
in the consumer loan portfolio for the year ended June 30, 2011 is attributable to more customers refinancing their homes
into lower rate fixed mortgages and using some of those proceeds to pay off higher rate consumer loans.



Agricultural loans totaled $1.7 million,
or 0.5% of total loans, at June 30, 2011, compared to $1.8 million or 0.6% of total loans, at June 30, 2010. We did not
have any agricultural loans prior to our acquisition of the three branches from Integra Bank.



19







The following table sets forth the composition
of our loan portfolio at the dates indicated.



|                                        |  | At June 30,            |        
|--------------------------------------- |  | ---------------------- | -------
|                                        |  | 2011                   |        
|                                        |  | Amount                 |        
|                                        |  | (As Restated)          |        
|                                        |  | (Dollars in thousands) |        
|Residential real estate:                |  |                        |        
|One- to four-family                     |  | $                      | 131,153
|Multi-family                            |  |                        | 46,296 
|Construction                            |  |                        | 1,084  
|Nonresidential real estate              |  |                        | 65,156 
|Land                                    |  |                        | 3,985  
|Commercial business                     |  |                        | 4,860  
|Agricultural                            |  |                        | 1,661  
|Consumer:                               |  |                        |        
|Home equity                             |  |                        | 32,048 
|Auto                                    |  |                        | 2,275  
|Share loans                             |  |                        | 1,354  
|Other                                   |  |                        | 962    
|Total consumer loans                    |  |                        | 36,639 
|Total loans                             |  | $                      | 290,834
|Less (Plus):                            |  |                        |        
|Deferred loan costs, net                |  |                        | (711   
|Undisbursed portion of loans in process |  |                        | 333    
|Allowance for loan losses               |  |                        | 5,335  
|Loans, net                              |  | $                      | 285,877



Loan Maturity



The following table sets forth certain
information at June 30, 2011 and 2010 regarding the dollar amount of loan principal repayments becoming due during the periods
indicated. The table does not include any estimate of prepayments, which significantly shorten the average life of all loans and
may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments
and no stated maturity are reported as due in one year or less.



|                                            |  | Less Than One Year |         |  | More Than One Year  to Five Years |   |         | More Than Five Years |  |   | Total Loans | 
|------------------------------------------- |  | ------------------ | ------- |  | --------------------------------- | - | ------- | -------------------- |  | - | ----------- | 
|                                            |  | (In thousands)     |        
|At June 30, 2011                            |  |                    |         |  |                                   |   |         |                      |  |   |             | 
|One- to four-family residential real estate |  | $                  | 48,245  |  |                                   | $ | 60,631  |                      |  | $ | 22,277      | 
|Multi-family real estate                    |  |                    | 15,917  |  |                                   |   | 25,063  |                      |  |   | 5,316       | 
|Construction                                |  |                    | 489     |  |                                   |   | 346     |                      |  |   | 249         | 
|Nonresidential real estate                  |  |                    | 15,314  |  |                                   |   | 45,125  |                      |  |   | 4,717       | 
|Land                                        |  |                    | 1,600   |  |                                   |   | 1,926   |                      |  |   | 459         | 
|Consumer                                    |  |                    | 32,449  |  |                                   |   | 2,197   |                      |  |   | 1,993       | 
|Agricultural                                |  |                    | 1,354   |  |                                   |   | 300     |                      |  |   | 7           | 
|Commercial                                  |  |                    | 2,499   |  |                                   |   | 2,197   |                      |  |   | 164         | 
|Total                                       |  | $                  | 117,867 |  |                                   | $ | 137,785 |                      |  | $ | 35,182      | 



20







The following table sets forth the dollar
amount of all loans at June 30, 2011 that have either fixed interest rates or adjustable interest rates. The amounts shown
below exclude unearned interest on consumer loans and deferred loan fees.



|                                            |  | Fixed Rates    |        |  | Floating or Adjustable Rates |   |         | Total | 
|------------------------------------------- |  | -------------- | ------ |  | ---------------------------- | - | ------- | ----- | 
|                                            |  | (In thousands) |       
|At June 30, 2011                            |  |                |        |  |                              |   |         |       | 
|One- to four-family residential real estate |  | $              | 30,494 |  |                              | $ | 100,659 |       | 
|Multi-family real estate                    |  |                | 7,152  |  |                              |   | 39,144  |       | 
|Construction                                |  |                | 646    |  |                              |   | 438     |       | 
|Nonresidential real estate                  |  |                | 17,870 |  |                              |   | 47,286  |       | 
|Land                                        |  |                | 1,481  |  |                              |   | 2,504   |       | 
|Consumer                                    |  |                | 4,466  |  |                              |   | 32,173  |       | 
|Agricultural                                |  |                | 400    |  |                              |   | 1,261   |       | 
|Commercial                                  |  |                | 2,033  |  |                              |   | 2,827   |       | 
|Total                                       |  | $              | 64,542 |  |                              | $ | 226,292 |       | 



Loans Originated



The following table shows loan origination,
participation, purchase and sale activity during the periods indicated.



|                                                |  | Year
    Ended June 30, |        
|----------------------------------------------- |  | ----------------------- | -------
|                                                |  | 2011                    |        
|                                                |  | (In thousands)          |        
|                                                |  |                         |        
|Total loans
    at beginning of period          |  | $                       | 315,254
|Loans originated:                               |  |                         |        
|One- to four-family
    residential real estate |  |                         | 34,975 
|Land                                            |  |                         | 557    
|Multi-family residential
    real estate        |  |                         | 12,456 
|Nonresidential real
    estate                  |  |                         | 12,910 
|Construction                                    |  |                         | 1,450  
|Commercial business                             |  |                         | 1,472  
|Consumer                                        |  |                         | 2,164  
|Total
    loans originated                      |  |                         | 65,984 
|Loans purchased, at fair
    value              |  |                         | —      
|Deduct:                                         |  |                         |        
|Loan principal repayments                       |  |                         | 70,918 
|Loans disbursed for
    sale                    |  |                         | 19,486 
|Other repayments                                |  |                         | —      
|Net
    loan activity                           |  |                         | (24,420
|Total
    loans at end of period                |  | $                       | 290,834



Securities.Our securities
portfolio consists primarily of callable U.S. government agency bonds, U.S. government agency mortgage-backed securities, and municipal
bonds. As of June 30, 2011, our securities totaled $123.9 million, an increase of $3.9 million from $120.0 million at June 30,
2010. The increase is primarily the result of redeploying the proceeds from the sales of loans into higher yielding investment
securities. Our callable securities consist of U.S. government agency bonds and municipal bonds which contain either a one-time
call option or may be callable anytime after the first call date.



21







The following table sets forth the amortized
cost and fair values of our securities portfolio at the dates indicated.



|                               |  | At June 30,    |        
|------------------------------ |  | -------------- | -------
|                               |  | 2011           |        
|                               |  | Amortized Cost |        
|                               |  | (In thousands) |        
|Securities available-for-sale: |  |                |        
|U.S. government agency bonds   |  | $              | 28,817 
|Municipal bonds                |  |                | 19,744 
|Other equity securities        |  |                | 210    
|Mortgage-backed securities     |  |                | 73,827 
|Total                          |  | $              | 122,598
|Securities held-to-maturity:   |  |                |        
|Municipal bonds                |  | $              | 564    



At June 30, 2011 and 2010, we had
no investments in a single company or entity (other than U.S. Government-sponsored entity securities) that had an aggregate book
value in excess of 10% of our stockholders’ equity.



The following table sets forth the stated
maturities and weighted average yields of investment securities at June 30, 2011. Weighted average yields on tax-exempt securities
are not presented on a tax equivalent basis as the amount would be immaterial. Certain mortgage-backed securities have adjustable
interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the
table below.





|                                          |  | One Year or Less       |        |  | More than One Year to Five Years |  |      | More than Five Years to Ten Years |  |   | More than Ten Years    |  |  | Total          |     
|----------------------------------------- |  | ---------------------- | ------ |  | -------------------------------- |  | ---- | --------------------------------- |  | - | ---------------------- |  |  | -------------- | ----
|                                          |  | Carrying Value         |        |  | Weighted Average Yield           |  |      | Carrying Value                    |  |   | Weighted Average Yield |  |  | Carrying Value |     
|                                          |  | (Dollars in thousands) |       
|Securities available-for-sale:            |  |                        |        |  |                                  |  |      |                                   |  |   |                        |  |  |                |     
|U.S. government corporations and agencies |  | $                      | 21,633 |  |                                  |  | 0.90 | %                                 |  | $ | 7,223                  |  |  |                | 0.82
|Municipal bonds                           |  |                        | —      |  |                                  |  | —    |                                   |  |   | 180                    |  |  |                | 4.94
|Mortgage-backed securities                |  |                        | —      |  |                                  |  | —    |                                   |  |   | 74,119                 |  |  |                | 2.47
|Total                                     |  | $                      | 21,633 |  |                                  |  |      |                                   |  | $ | 81,522                 |  |  |                |     
|Securities held-to-maturity:              |  |                        |        |  |                                  |  |      |                                   |  |   |                        |  |  |                |     
|Municipal bonds                           |  | $                      | 43     |  |                                  |  | 3.77 | %                                 |  | $ | 327                    |  |  |                | 6.17



Mortgage-backed securities represent a
participation interest in a pool of one- to four-family or multi-family real estate mortgages. The mortgage originators use intermediaries
(generally U.S. Government agencies and government-sponsored enterprises) to pool and repackage the participation interests in
the form of securities, with investors receiving the principal and interest payments on the mortgages. Such U.S. Government agencies
and government-sponsored enterprises guarantee the payment of principal and interest to investors.



Mortgage-backed securities are typically
issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that
are within a range and have varying maturities. The underlying pools of mortgages, i.e., fixed-rate or adjustable-rate, as well
as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security approximates the
life of the underlying mortgages.





22









Our mortgage-backed securities consist
of Ginnie Mae securities, Freddie Mac securities and Fannie Mae securities. Ginnie Mae is a government agency within the Department
of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities
are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration. The timely payment
of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S.
Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates
backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return
of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to
establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae
securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government. In September
2008, the Federal Housing Finance Agency was appointed as conservator of Fannie Mae and Freddie Mac. The U.S. Department of the
Treasury agreed to provide capital as needed to ensure that Fannie Mae and Freddie Mac continue to provide liquidity to the housing
and mortgage markets.



Mortgage-backed securities generally yield
less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal
credit risk. In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be used to collateralize
our borrowings or other obligations.



Mortgage-backed securities generally increase
the quality of United Community Bancorp’s assets by virtue of the insurance or guarantees that back them, are more liquid
than individual mortgage loans and may be used to collateralize borrowings or other obligations of United Community Bancorp. At
June 30, 2011, approximately $39.2 million of our mortgage-backed and investment securities were pledged to secure various
obligations of United Community Bancorp. United Community Bancorp has not knowingly invested in subprime mortgage-backed securities.



The actual maturity of a mortgage-backed
security is typically less than its stated maturity due to prepayments of the underlying mortgages. Prepayments that are faster
than anticipated may shorten the life of the security and increase or decrease its yield to maturity if the security was purchased
at a discount or premium, respectively. The yield is based upon the interest income and the amortization of any premium or discount
related to the mortgage-backed security. In accordance with accounting principles generally accepted in the United States of America,
premiums and discounts are amortized over the estimated lives of the loans, which decrease and increase interest income, respectively.
The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield
of the mortgage-backed security, when premiums or discounts are involved, and these assumptions are reviewed periodically to reflect
actual prepayments. Although prepayments of underlying mortgages depend on many factors, including the type of mortgages, the
coupon rate, the age of mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general
levels of market interest rates, the difference between the interest rates on the underlying mortgages and the prevailing mortgage
interest rates generally is the most significant determinant of the rate of prepayments. During periods of falling mortgage interest
rates, if the coupon rate of the underlying mortgages exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security. Under such
circumstances, United Community Bancorp may be subject to reinvestment risk because to the extent that the mortgage-backed securities
amortize or prepay faster than anticipated, United Community Bancorp may not be able to reinvest the proceeds of such repayments
and prepayments at a comparable rate. During periods of rising interest rates, prepayment rates of the underlying mortgages generally
slow down when the coupon rate of such mortgages is less than the prevailing market rate. We may be subject to extension risk
when this occurs.



Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. The
evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable,
and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative
of an other-than-temporary impairment condition. This includes, but is not limited to, an evaluation of the type of security, length
of time and extent to which the fair value has been less than cost and near-term prospects of the issuers.



Marketable equity securities are evaluated
for other-than-temporary impairments based on the severity and duration of the impairment and, if deemed to be other-than-temporary,
the declines in fair value are reflected in earnings as realized losses. For debt securities, other-than-temporary impairment is
required to be recognized (1) if we intend to sell the security; (2) if it is “more likely than not” that
we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected
cash flows is not sufficient to recover the entire amortized cost basis.



Deposits. Our primary source
of funds is our deposit accounts, which are comprised of noninterest-bearing accounts, interest-bearing NOW accounts, money market
accounts, passbook accounts and certificates of deposit. These deposits are provided primarily by individuals within our market
areas. During the year ended June 30, 2011, our deposits decreased $17.1 million. The decrease in deposits was primarily due
to a $10.4 million decrease in municipal deposits and a $6.7 million decrease in other deposits resulting from the Bank’s
decision to reduce its reliance on municipal and other higher cost deposits. During the year ended June 30, 2010, our deposits
increased $90.6 million, or 26.7%, as a result of increases in NOW accounts and the previously mentioned acquisition of three branches
from Integra Bank National Association.



23







The following table sets forth the balances
of our deposit products at the dates indicated.





|                              |  | At June 30,    |        
|----------------------------- |  | -------------- | -------
|                              |  | 2011           |        
|                              |  | (In thousands) |        
|NOW accounts                  |  | $              | 112,228
|Passbook accounts             |  |                | 70,137 
|Money market deposit accounts |  |                | 34,386 
|Certificates of deposit       |  |                | 196,340
|Total                         |  | $              | 413,091










| | (1) | Includes $111.3 million in municipal deposits.
| | --- | ----------------------------------------------

| | (2) | Includes $121.6 million in municipal deposits.
| | --- | ----------------------------------------------



| | (3) | No investments were pledged to secure municipal deposits. The municipal deposits are insured by the Public Deposit Insurance
Fund administered by the Indiana Board for Depositories.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | $55.7 million in investments are pledged to secure the municipal deposits at June 30, 2011.
| | --- | -------------------------------------------------------------------------------------------





The following table indicates the amount
of jumbo certificates of deposit by time remaining until maturity as of June 30, 2011. Jumbo certificates of deposit require
minimum deposits of $100,000. We did not have any brokered deposits as of June 30, 2011 and 2010.



|Maturity Period                |  | Certificates of Deposit |       
|------------------------------ |  | ----------------------- | ------
|                               |  | (In thousands)          |       
|At June 30, 2011               |  |                         |       
|Three months or less           |  | $                       | 19,131
|Over three through six months  |  |                         | 13,251
|Over six through twelve months |  |                         | 22,032
|Over twelve months             |  |                         | 37,358
|Total                          |  | $                       | 91,772



The following table sets forth the time
deposits classified by rates at the dates indicated.



|             |  | At June 30,    |        
|------------ |  | -------------- | -------
|             |  | 2011           |        
|             |  | (In thousands) |        
|0.00 - 1.00% |  | $              | 41,785 
|1.01 - 2.00% |  |                | 87,581 
|2.01 - 3.00% |  |                | 46,134 
|3.01 - 4.00% |  |                | 14,083 
|4.01 - 5.00% |  |                | 6,176  
|5.01 - 6.00% |  |                | 581    
|6.01 - 7.00% |  |                | —      
|Total        |  | $              | 196,340

24







The following table sets forth the amount
and maturities of time deposits classified by rates at June 30, 2011.



|             |  | Amount Due             |         |  |                                      |   |        |                                        | 
|------------ |  | ---------------------- | ------- |  | ------------------------------------ | - | ------ | -------------------------------------- | 
|             |  | Less Than
    One Year |         |  | More Than
    One Year  to Two Years |   |        | More Than
    Two Years to Three Years | 
|             |  | (Dollars in thousands) |        
|0.00 – 1.00% |  | $                      | 36,535  |  |                                      | $ | 5,199  |                                        | 
|1.01 – 2.00% |  |                        | 57,631  |  |                                      |   | 28,972 |                                        | 
|2.01 – 3.00% |  |                        | 15,550  |  |                                      |   | 11,300 |                                        | 
|3.01 – 4.00% |  |                        | 5,923   |  |                                      |   | 2,062  |                                        | 
|4.01 – 5.00% |  |                        | 3,747   |  |                                      |   | 2,021  |                                        | 
|5.01 – 6.00% |  |                        | 243     |  |                                      |   | 338    |                                        | 
|Total        |  | $                      | 119,629 |  |                                      | $ | 49,892 |                                        | 



The following table sets forth deposit
activity for the periods indicated.





|                                             |  | Year Ended June 30, |        
|-------------------------------------------- |  | ------------------- | -------
|                                             |  | 2011                |        
|                                             |  | (In thousands)      |        
|Beginning balance                            |  | $                   | 430,180
|Deposits assumed                             |  |                     | —      
|Increase (decrease) before interest credited |  |                     | (22,605
|Interest credited                            |  |                     | 5,516  
|Net increase (decrease) in deposits          |  |                     | (17,089
|Ending balance                               |  | $                   | 413,091



Borrowings.We utilize borrowings from the Federal
Home Loan Bank of Indianapolis to supplement our supply of funds for loans and investments. Borrowings decreased from $2.8 million
at June 30, 2010 to $1.8 million at June 30, 2011 due to repayments on our FHLB advance.





|                                                                           |  | Year Ended June 30,    |      
|-------------------------------------------------------------------------- |  | ---------------------- | -----
|                                                                           |  | 2011                   |      
|                                                                           |  | (Dollars in thousands) |      
|Maximum amount of advances outstanding at any month end during the period: |  |                        |      
|FHLB advances                                                              |  | $                      | 2,833
|Average advances outstanding during the period:                            |  |                        |      
|FHLB advances                                                              |  | $                      | 2,333
|Weighted average interest rate during the period:                          |  |                        |      
|FHLB advances                                                              |  |                        | 3.20 
|Balance outstanding at end of period:                                      |  |                        |      
|FHLB advances                                                              |  | $                      | 1,833
|Weighted average interest rate at end of period:                           |  |                        |      
|FHLB advances                                                              |  |                        | 3.20 







25









Results of Operations for the Years Ended June 30,
2011 and 2010



Overview.





|                                 |  | 2011                   |       |   | 2010          |   |       | % Change 2011/2010 | 
|-------------------------------- |  | ---------------------- | ----- | - | ------------- | - | ----- | ------------------ | 
|                                 |  | (As Restated)          |       |   | (As Restated) |   |       |                    | 
|                                 |  | (Dollars in thousands) |      
|                                 |  |                        |      
|Net income (loss)                |  | $                      | 1,170 |   |               | $ | (412  | )                  | 
|Return on average assets         |  |                        | 0.24  | % |               |   | (0.10 | )%                 | 
|Return on average equity         |  |                        | 2.17  | % |               |   | (0.74 | )%                 | 
|Average equity to average assets |  |                        | 11.04 | % |               |   | 13.03 | %                  | 





Net income for the year ended June 30,
2011 was $1.2 million, compared to a net loss of $412,000 for the year ended June 30, 2010. The increase was primarily the
result of an increase in net interest income of $1.8 million combined with a decrease in the provision for loan losses of $707,000,
partially offset by an increase in the provision for income taxes of $1.1 million.



Net Interest Income.



The increase in net interest income was
the result of an increase in the average balances in interest-earning assets from $400.8 million in the prior year to $457.8 million
in the current year combined with a decrease in the average interest rate paid on interest-bearing liabilities from 1.76% for
the prior year to 1.30% for the current year, partially offset by a decrease in the average rate earned on interest-earning assets
from 4.73% for the prior year to 4.33% for the current year and an increase in the average balance of interest-bearing liabilities
from $366.1 million in the prior year to $430.7 million in the current year. The decrease in rates and yields was driven by continued
low market interest rates in the current year. The increase in average balances was due to the aforementioned branch acquisition.



26







Average Balances and Yields.The
following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest
income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived
by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes
of this table, average balances have been calculated using month-end balances, and nonaccrual loans are included in average balances
only. Management does not believe that the use of month-end balances instead of daily average balances has caused any material
differences in the information presented. Loan fees are included in interest income on loans and are insignificant. Yields are
not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.





|                                                                        |  | Year Ended June 30,    |        
|----------------------------------------------------------------------- |  | ---------------------- | -------
|                                                                        |  | 2011                   |        
|                                                                        |  | (As Restated)          |        
|                                                                        |  | (Dollars in Thousands) |        
|                                                                        |  | Average Balance        |        
|Assets:                                                                 |  |                        |        
|Interest-earning assets:                                                |  |                        |        
|Loans                                                                   |  | $                      | 296,640
|Investment securities                                                   |  |                        | 127,384
|Other interest-earning assets                                           |  |                        | 33,812 
|Total interest-earning assets                                           |  |                        | 457,836
|Noninterest-earning assets                                              |  |                        | 30,664 
|Total assets                                                            |  | $                      | 488,500
|Liabilities and equity:                                                 |  |                        |        
|Interest-bearing liabilities:                                           |  |                        |        
|NOW and money market deposit accounts                                   |  | $                      | 153,636
|Passbook accounts                                                       |  |                        | 64,623 
|Certificates of deposit                                                 |  |                        | 210,078
|Total interest-bearing deposits                                         |  |                        | 428,337
|FHLB advances                                                           |  |                        | 2,333  
|Total interest-bearing liabilities                                      |  |                        | 430,670
|Noninterest-bearing liabilities                                         |  |                        | 3,901  
|Total liabilities                                                       |  |                        | 434,571
|Total stockholders’ equity                                              |  | $                      | 53,929 
|Total liabilities and stockholders’ equity                              |  | $                      | 488,500
|Net interest income                                                     |  |                        |        
|Interest rate spread                                                    |  |                        |        
|Net interest margin                                                     |  |                        |        
|Average interest-earning assets to average interest-bearing liabilities |  |                        |        







27









Rate/Volume Analysis. The following table sets
forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes
in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes
attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes
due to rate and the changes due to volume.



|                                   |  | Year Ended June 30, 2011 Compared to 2010 |      
|---------------------------------- |  | ----------------------------------------- | -----
|                                   |  | Increase (Decrease) Due to                |      
|                                   |  | Volume                                    |      
|                                   |  | (As Restated) (In thousands)              |      
|Interest and dividend income:      |  |                                           |      
|Loans                              |  | $                                         | 1,321
|Investment securities              |  |                                           | 1,029
|Other interest-earning assets      |  |                                           | (1   
|Total interest-earning assets      |  |                                           | 2,349
|Interest expense:                  |  |                                           |      
|Deposits                           |  |                                           | 1,142
|FHLB advances                      |  |                                           | (32  
|Total interest-bearing liabilities |  |                                           | 1,110
|Net change in net interest income  |  | $                                         | 1,239



The increase in the interest earned on
interest-earning assets was due to market interest rates paid on interest bearing liabilities decreasing faster than interest rates
earned on interest earning assets.



Interest Expense. Interest
expense decreased $842,000 for the year ended June 30, 2011 as compared to the same period in 2010, resulting from decreases in
the rates paid on deposits and borrowings and a $1.0 million decrease in the average balance of Federal Home Loan Bank advances,
offset by an increase in average interest-bearing deposits of $65.6 million. Rates paid on average deposits decreased 45 basis
points from 1.74% to 1.29%. The rates paid on Federal Home Loan Bank advances remained unchanged. Contributing to higher average
deposits were increases in NOW and money market deposit accounts, passbook accounts and certificates of deposit of $18.0 million,
$22.1 million and $25.4 million, respectively, primarily due to the previously discussed acquisition of three branch offices in
June 2010.



Provision for Loan Losses.



The provision for loan losses was
$4.1 million for the year ended June 30, 2011, compared to $4.8 million for the prior year. The decrease in the
provision was primarily related to a decrease in delinquent loans and classified loans. In fiscal 2011, the Company
restructured 13 loans with an aggregate principal balance prior to the restructuring of $18.0 million and a restated net
carrying value of approximately $15.1 million. The effect of the restatement referenced in “Explanatory Note” and
described below on the June 30, 2010 consolidated financial statements increased both the allowance for loan losses and the
provision for loan losses by $2.3 million and decreased the June 30, 2011 provision for loan losses by $2.0 million.





The 13 restructured loans, which include
our five largest nonaccrual loans, relate to six loan relationships. Each of these loan relationships represents long-time borrowers
of the Company and each of the loans was being carefully monitored by management due to the borrowers’ prior disclosure to
management that they were experiencing short-term cash flow deficiencies. All of the borrowers’ loans had been tested for
impairment prior to the issuance of the Company’s June 30, 2010 audited consolidated financial statements. In measuring
impairment, management considered the results of internal and independent property appraisals, together with estimated selling
expenses, and/or detailed cash flow analyses which included the required personal cash infusion of the co-borrowers. Upon review,
it has been determined that such estimated required personal cash infusions by co-borrowers who were experiencing financial difficulties
should not have been included in the analysis. Based on the revised analysis, management concluded at June 30, 2011 that such
loans’ carrying values were overstated. Accordingly the June 30, 2010 and June 30, 2011 financial statements have been restated
and an additional provision of $2.3 million was recorded with respect to these loans at June 30, 2010 and a decrease in the provision
of $2.0 million was recorded with respect to these loans at June 30, 2011. A detailed discussion of these loan relationships and
our most significant nonaccrual loans is set forth in the section below entitled “—Analysis of Nonperforming and
Classified Assets.”



28







As a result of cash flow issues relating
to these loans, management undertook a “split note” strategy, referred to as the “Note A/B” strategy, primarily
to achieve debt coverage ratios for the restructured loans that supported the borrowers’ “as is” cash-flow status
during the quarter ended March 31, 2011, without forgiving any of the borrowers’ original indebtedness. The “as
is” approach is the one most commonly used by the Company where the property is valued using current information about rental
revenue, occupancy rates and expenses.



Under the Note A/Note B strategy, Note
A for each loan was underwritten based on the Company’s normal underwriting standards with the exception that a debt service
coverage ratio of 1.5x or higher was required. This is more stringent than the Company’s normal underwriting guidelines which
generally require a debt service coverage of 1.2x or better. The Note A payment is based on a thirty year amortization schedule
and matures at the end of two years. The amount of Note B for each loan is the difference between the amount of Note A and the
principal amount to be refinanced. The interest rate and two year maturity of the Note B loan are identical to the Note A loan,
but the Note B loan requires no payments of interest or principal until maturity. While no amount of the original indebtedness
was forgiven through this process, the full amount of the borrowers’ Note B indebtedness, totaling $3.0 million, was charged-off
in March, 2011, reflecting management’s conclusion that, based on specific events negatively impacting each of the borrowers’
financial condition, collection of this portion of the indebtedness was doubtful and should be charged off. Finally, the utilization
of this strategy also enables management to concentrate its collection efforts on the remaining greater than 60 day delinquent
credits which had declined to $1.6 million at June 30, 2011.



Noninterest Income. The following
table shows the components of other income for the years ended June 30, 2011 and 2010.



|                                        |  | 2011                   |       |   | 2010 |   |       | %
                                                                               Change 2011/2010 | 
|--------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ------------------------------------------------------------------------------------------------- | 
|                                        |  | (Dollars in thousands) |       |   |      |  
|Service charges                         |  | $                      | 2,392 |   |      | $ | 1,988 |                                                                                                   | 
|Gain on sale loans                      |  |                        | 519   |   |      |   | 278   |                                                                                                   | 
|Gain (loss) on sale of investments      |  |                        | 584   |   |      |   | 311   |                                                                                                   | 
|Gain on sale of other real estate owned |  |                        | (10   | ) |      |   | 34    |                                                                                                   | 
|Income from Bank Owned Life Insurance   |  |                        | 274   |   |      |   | 282   |                                                                                                   | 
|Other                                   |  |                        | 279   |   |      |   | 664   |                                                                                                   | 
|Total                                   |  | $                      | 4,038 |   |      | $ | 3,557 |                                                                                                   | 



The increase in noninterest income is
attributable to the increase in service charges of $0.4 million, an increase in gain on sale of investments of $0.3 million, and
an increase in gain on sale of loans of $0.2 million, partially offset by a decrease of $0.4 million in other noninterest income.
The increase in service charges is due to an increased customer base primarily resulting from the previously mentioned branch
acquisition in June 2010. The increase in gain on sale of investments resulted from increased profit from the sale of certain
investments that were in an unrealized gain position at the time of the sale. The increase in sale of loans to Freddie Mac is
the result of continued favorable rates offered by Freddie Mac for the purchase of fixed-rate loans. The decrease in other income
is attributable to the settlement of a claim in the prior year.



Noninterest Expense.The
following table shows the components of other expense and the percentage changes for the years ended June 30, 2011 and 2010.



|                                                      |  | 2011                   |        |  | 2010 |   |        | % Change 2011/2010 | 
|----------------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ------------------ | 
|                                                      |  | (Dollars in thousands) |        |  |      |  
|Compensation and employee benefits                    |  | $                      | 6,610  |  |      | $ | 6,040  |                    | 
|Premises and occupancy expense                        |  |                        | 1,325  |  |      |   | 1,101  |                    | 
|Deposit insurance premium                             |  |                        | 775    |  |      |   | 740    |                    | 
|Advertising expense                                   |  |                        | 408    |  |      |   | 378    |                    | 
|Data processing expense                               |  |                        | 1,161  |  |      |   | 899    |                    | 
|Provision for loss on sale of other real estate owned |  |                        | —      |  |      |   | 510    |                    | 
|Acquisition related expenses                          |  |                        | 38     |  |      |   | 439    |                    | 
|Other operating expenses                              |  |                        | 2,169  |  |      |   | 2,091  |                    | 
|Total                                                 |  | $                      | 12,486 |  |      | $ | 12,198 |                    | 





29







The increase in noninterest expense is
attributable to a $0.6 million increase in compensation and employee benefits, a $0.3 million increase in data processing expense
and a $0.2 million increase in premises and occupancy expense, partially offset by a $0.5 million decrease in provision for loss
on sale of other real estate owned and a $0.4 million decrease in acquisition related expenses. The decrease in provision for loss
on sale of other real estate owned was the result of no such provision needed for the current year. The remaining increases and
decreases are primarily attributable to the previously mentioned branch acquisition in June 2010.



Income Taxes.



Income tax expense increased to $0.5 million
for the year ended June 30, 2011, compared to a benefit of $0.6 million for the year ended June 30, 2010. The $1.1 million
increase in expense was primarily due to an increase of $2.1 million in income before taxes. The effective tax rates for 2011 and
2010 were affected by tax exempt municipal bond income and income on bank owned life insurance in addition to an unanticipated
state tax refund of $0.1 million received in the current year which related to prior years.



Risk Management



Overview. Managing risk is
an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest
rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment
when it is due. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates.
Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such
as available-for-sale securities, that are accounted for on a mark-to-market basis. Other risks that we face are operational risks,
liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors,
technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers.
Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or
revenue.



Credit Risk Management. Our
strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing
prompt attention to potential problem loans. We have also implemented a controlled growth strategy. This strategy also emphasizes
the origination of one- to four-family mortgage loans, which typically have lower default rates than other types of loans and are
secured by collateral that generally tends to appreciate in value. In June 2010, we amended our loan policies to reduce our concentration
limits for multi-family and nonresidential real estate loans to 125% and 175%, respectively, and for construction and land loans
to 10%, of the sum of core capital plus our allowance for loan losses. As of June 30, 2011, these loans represented 90.90%,
127.94%, 2.13% and 7.82%, respectively, of the sum of core capital plus our allowance for loan losses.



When a borrower fails to make a required
loan payment, we take a number of steps to attempt to have the borrower cure the delinquency and restore the loan to current status.
When the loan becomes 15 days past due, a late charge notice is generated and sent to the borrower and phone calls are made. If
payment is not then received by the 30th day of delinquency, a further notification is sent to the borrower. If no successful workout
can be achieved, after a loan becomes 90 days delinquent, we may commence foreclosure or other legal proceedings. If a foreclosure
action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property
securing the loan generally is sold at foreclosure. We may consider loan workout arrangements with certain borrowers under certain
circumstances in the form of a troubled debt restructuring.



If a foreclosure action is instituted and
the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally
is sold at foreclosure.



Management reports to the Board of Directors
monthly regarding the amount of loans delinquent more than 30 days and all foreclosed and repossessed property that we own.



Analysis of Nonperforming and Classified
Assets. We consider foreclosed real estate, repossessed assets, nonaccrual loans, and troubled debt restructurings that
are delinquent or have not been performing to terms for a reasonable amount of time to be nonperforming assets. Loans are generally
placed on nonaccrual status when the collection of principal or interest is in doubt, or at the latest when a loan becomes 90 days
delinquent. When a loan is placed on nonaccrual status, the accrual of interest ceases and the allowance for any uncollectible
accrued interest is established and charged against operations. All commercial loans that are placed on nonaccrual status are evaluated
for impairment at the time the loans are placed on nonaccrual status. Typically, payments received on a nonaccrual loan are applied
to the outstanding principal and interest as determined at the time of collection of the loan.



Real estate that we acquire as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as a nonperforming asset until it is sold. When property is acquired,
it is initially recorded at the lower of its cost, or market, less estimate selling expenses. Holding costs and declines in fair
value after acquisition of the property result in charges against income.



30









Historically, we had not incurred significant
losses in our lending operations. Beginning in the year ended June 30, 2008, we began to experience the adverse effects of
a significant national decline in real estate values. The consequences of this decline were generally evident in all portfolio
types, but were more pronounced in multi-family and nonresidential real estate loans, particularly in markets outside of Dearborn
and Ripley Counties. Our approach to resolving nonperforming loans focused on foreclosure and liquidations in the year ended June 30,
2008 and the greater part of the year ended June 30, 2009. This manner of troubled asset resolution proved costly as a result
of legal and other operating costs in the process.



As a result, beginning in the latter part
of the year ended June 30, 2009, management initiated a restructuring process with respect to nonperforming loans that provided
for either restructuring the loan to the borrower in recognition of the lower available cash flows from the collateral properties
or identification of stronger borrowers to refinance the loan. In evaluating whether to restructure a loan, we consider the borrower’s
payment status and history, the borrower’s ability to pay upon a rate reset on an adjustable-rate mortgage, size of the payment
increase upon a rate reset, period of time remaining before the rate reset, and other relevant factors in determining whether a
borrower is experiencing financial difficulty. Through these troubled debt restructurings, management believes they have provided
the necessary valuation allowances or charge-offs to reflect the loans’ carrying amounts at fair value. The general concept
underlying fair value would indicate that the collateral properties could be sold to other third parties without material loss
if the restructuring efforts fail.



Loan workouts and modifications are handled
by the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, and the Senior Vice President,
Lending, and are subject to approval by the Board of Directors. Delinquent or otherwise nonperforming mortgage loan and home equity
loan customers are required to provide updated financial information and the reasons for their inability to pay or comply with
the contractual terms of their loans. Management ascertains the value of the underlying collateral, depending on whether the loan
is “collateral dependent” or “cash-flow” dependent. If a loan is determined to be “collateral dependent,”
the value of the underlying collateral is determined through an independent appraisal. If the loan is determined to be “cash-flow
dependent,” the value of the underlying collateral is determined through an in-house cash flow analysis of the property with
the cash flows discounted at the loan’s original effective interest rate. Once the value of collateral is established, management
will either establish a specific allocation or charge-off an amount equal to the shortfall between the collateral value and the
outstanding principal loan balance. Management will then develop and pursue a workout plan. Once a workout plan is established
and implemented, management will, at a minimum, monitor the monthly performance of the loan until it is removed from nonaccrual
status. On an annual basis, management will conduct property inspections and review financial information of the borrowers and
any guarantors. In situations where a collateral shortfall (i.e. the value of the underlying collateral of the loan is less than
the outstanding principal balance of the loan) is discovered on a previously existing loan, typically through an updated independent
appraisal or collateral inspection, management will seek to obtain additional collateral and/or a personal guaranty at that time.
If no additional collateral is available, management will work with the borrower on a suitable workout arrangement that may include
a troubled debt restructuring, or management may determine to foreclose on the property. To determine the best outcome for the
Bank, management reviews the financial condition of the borrower, the cash flow of the property and the value of the loan’s
collateral.



If the Bank obtains a guaranty, the strength and value of the guaranty is measured by the Bank at the
time the loan is closed and is re-evaluated at least annually. The strength of each guaranty is determined by evaluating the guarantor’s
net worth, liquid net worth, debt-to-income ratio and credit score. In certain circumstances, the Bank may deem it appropriate
not to enforce a guaranty, such as when it determines enforcing a guaranty could be detrimental to a larger banking relationship.
Since December, 2008, the Bank has successfully collected $174,000 from five personal guarantors and has forbearance agreements
to collect an additional $1.2 million. Of the forbearance agreements two, totaling $1.1 million, are in the form of liens on excess
collateral on existing loans. The remaining agreements are for smaller individual balances, and the Bank is receiving regular payments
on these amounts. The entire balance of each forbearance is considered impaired and payments are treated as recoveries when received.
As a result of the restatement, while the Company still uses guarantors and co-borrowers, there is no reliance on the required
cash infusions when guarantors and co-borrowers are experiencing financial difficulties, in arriving at a loan’s carrying
value.



After the restructuring is completed, if
the borrower continues to experience payment difficulties, or there is an additional decline in the collateral value identified
in the annual property inspection or updated appraisal, management may impair the loan further, restructure the loan again, or
foreclose on the collateral property. At this point, management considers all of the same factors it did when the initial restructuring
occurred, and attempts to resolve the situation so as to achieve the best outcome for the Bank.



Troubled debt restructurings are considered
to be impaired and are initially treated as nonperforming. Troubled debt restructurings that are originally restructured at a market
rate of interest and have a history of performance (generally at a minimum of twelve consecutive months of performance under the
restructured terms) may be excluded from being reported as TDRs. At June 30, 2011, 53 loans were considered to be troubled
debt restructurings (with an aggregate balance of $24.9 million) of which 24 loans (with an aggregate balance of $16.2 million)
were included in nonperforming assets. At June 30, 2010, 19 loans were considered to be troubled debt restructurings (with
an aggregate balance of $14.6 million) of which 14 loans (with an aggregate balance of $9.6 million) were included in nonperforming
assets. Additional information on all of our troubled debt restructurings appears in the troubled debt restructurings table below.



31







The following table provides information
with respect to our nonperforming assets at the dates indicated.



|                                                     |  | At June 30,            |       
|---------------------------------------------------- |  | ---------------------- | ------
|                                                     |  | 2011                   |       
|                                                     |  | (As Restated)          |       
|                                                     |  | (Dollars in thousands) |       
|Nonaccrual loans:                                    |  |                        |       
|One- to four-family residential real estate          |  | $                      | 1,652 
|Multi-family real estate                             |  |                        | 1,742 
|Nonresidential real estate and land                  |  |                        | 566   
|Commercial                                           |  |                        | 240   
|Consumer                                             |  |                        | 240   
|Total nonaccrual loans                               |  |                        | 4,440 
|Nonaccrual restructured loans:                       |  |                        |       
|One- to four-family residential real estate          |  |                        | 1,653 
|Multi-family real estate                             |  |                        | 10,358
|Nonresidential real estate and land                  |  |                        | 4,146 
|Total nonaccrual restructured loans                  |  |                        | 16,157
|Total nonperforming loans                            |  |                        | 20,597
|Real estate owned                                    |  |                        | 139   
|Total nonperforming assets                           |  |                        | 20,736
|Accruing restructured loans                          |  |                        | 8,768 
|Accruing restructured loans and nonperforming assets |  | $                      | 29,504
|Total nonperforming loans to total loans             |  |                        | 7.08  
|Total nonperforming loans to total assets            |  |                        | 4.36  
|Total nonperforming assets to total assets           |  |                        | 4.39  



Interest income that would have been recorded
for the years ended June 30, 2011 and 2010 had nonaccruing loans been current according to their original terms was $274,000
and $774,000, respectively. No interest related to nonaccrual loans was included in interest income for the years ended June 30,
2011 and 2010.



During the year ended June 30, 2011,
nonperforming loans increased from $17.3 million to $20.6 million. The increase in nonperforming loans was primarily the result
of the increase in troubled debt restructurings on nonaccrual status from $9.6 million at June 30, 2010 to $16.2 million at
June 30, 2011. The Company continued to experience performance issues in multifamily and nonresidential real estate loan portfolio
secured by properties primarily outside of Dearborn and Ripley Counties, as reflected in the level of classified assets at June 30,
2011 and 2010. As a result, in the third quarter of the year ended June 30, 2011, management reviewed all classified assets
and ultimately restructured $13.7 million of loans during the period. All of these restructured assets had been included in nonperforming
loans prior to the restructuring, and will remain in nonperforming loans until they establish a history of performance in accordance
with their restructured terms for at least six consecutive months.



A discussion of the most significant nonaccrual
loans, which includes the five largest nonaccrual loans at June 30, 2011, and the five largest charge-offs recognized during
the year ended June 30, 2011 follows. These loans comprise $9.5 million, or 54.6%, of the $17.4 million in total nonaccrual
loans at June 30, 2011. Management monitors the performance of these loans and reviews all options available to keep the loans
current, including further restructuring of the loans. If restructuring efforts ultimately are not successful, management will
initiate foreclosure proceedings.



32







| | • | Loan Relationship A. Three loans, all included in one loan relationship, with a carrying value of $6.4 million prior
to its restructuring in the third quarter of the year ended June 30, 2011. One loan (A-1) is secured by a first mortgage on
an apartment complex near a college campus, another (A-2) is secured by a first mortgage on two mobile home parks, and the last
(A-3) is secured by the first mortgage on another apartment complex. All three loans are included in the above table as “Nonaccrual
restructured loans, Multi-family real estate” at June 30, 2011, but were not originally included in this table at any
of the dates presented prior to June 30, 2011. As a result of the restatement of the June 30, 2010 audited consolidated financial
statements, the Company has included Loan A-1 in “Nonaccrual Multi-family real estate loans” , resulting in an increase
of $3.0 million in this category as of June 30, 2010. In the “Credit Risk Profile by Internally Assigned Grade” table
on page 36, restated, Loans A-1 and A-2 were classified as “Multi-family residential real estate, Special Mention and Substandard”
at June 30, 2011 and June 30, 2010, respectively. Loan A-3 has been classified as “Multi-family residential real
estate - Substandard” and “- Watch” at June 30, 2011 and 2010, respectively. The loans comprising Loan Relationship
A were originally restructured in October and November, 2010. At the time of the first restructuring in 2010, one of the loans,
with a carrying value of $3.0 million, was 180 days delinquent, and the other two loans were performing. Management performed a
global analysis of the borrowers and restructured each of the three loans by reducing the original loan rates by 125 to 225 basis
points to a rate that was 25 basis points below market rate. Foregone interest income amounted to $51,000 on the two performing
loans that were restructured. The borrowers paid a loan modification fee of $3,000 for this restructuring. At the time of the restructuring,
management established a specific reserve through a charge-off to the general allowance for loan losses of $132,000. One of the
borrowers is a corporate entity. Each of the principals of the corporate borrower individually signed as co-borrowers. At the time
of the restructuring, we analyzed the personal net worth, liquid net worth, debt to income ratios and credit scores of the co-borrowers.
While the co-borrowers were not expected to cover a total loss on the loans, management believed the co-borrowers would mitigate
the amount of the potential future losses. In March 2011, Loan A-2 was again restructured through a troubled debt restructuring
as a result of the borrower experiencing cash flow problems during the quarter ended March 31, 2011. The cash flow problems
experienced were the combined effect of decreased rental income and the failure to pay real estate property taxes. However, due
to certain financial difficulties experienced by the co-borrowers, including the cash flow problems of the subject properties and
a decrease in other outside sources of income, the co-borrowers were unable to mitigate the losses on the loan. Based upon a cash
flow analysis of the properties performed by management, $651,000 of the $6.4 million in loans was charged-off during the restructuring
into the split loan structure. This split was done for one loan that had a balance of $1.6 million before the split. After
the split, Note A had a balance of $994,000 and Note B had a balance of $651,000. Prior to the loan being restructured in March,
2011, the restructured loan carried a $19,000 specific reserve that was included in Note B and charged-off. The split note loans
have an interest rate that is 275 points below their original restructured rate for a period of two years, and 475 points below
their original rates. At the end of the two year period, balloon payments are due, unless the borrower refinances into a market
rate loan at that time. This relationship was performing in accordance with its restructured terms at June 30, 2011. On March
28, 2012, the Board of Directors and the Audit Committee approved the restatement of the June 30, 2010 and June 30, 2011 audited
consolidated financial statements. The restatement was effected to address the inclusion of required personal cash flow infusions
from co-borrowers on troubled loans in calculating values. As a result, Loan A-1 has been reported as impaired as of June 30, 2010
with an increase in the allowance for loan loss of $296,000 as of June 30, 2010 and Loan A-2 has been determined to be impaired
as of June 30, 2010 with an increase in allowance for loan loss of $650,000.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | • | Loan Relationship B. The loans comprising Loan Relationship B were originally restructured in June, 2010, with an aggregate
carrying value of $4.1 million prior to their restructuring in the quarter ended March 31, 2011. These loans are secured by
a first mortgage on two separate retail strip shopping centers and a single purpose commercial use property. All three loans are
included in the above table as “Nonaccrual restructured loans, nonresidential real estate” at June 30, 2011, but
were originally not included in this table at any of the dates presented prior to June 30, 2011. As a result of the aforementioned
restatement, at June 30, 2010 the $4.1 million of loans has been included in “Nonaccrual restructured Multi-family real estate”
loans. In the “Credit Risk Profile by Internally Assigned Grade” table on page 36, as restated, these loans were classified
as “Nonresidential real estate, Substandard” at June 30, 2011 and June 30, 2010. At the time of the original
restructuring, the property value was based primarily on the collateral’s cash flow including required personal cash infusions
from the co-borrowers. Management believed that the lower debt service would improve the borrowers’ cash flow, and in turn,
the performance of the loans. One of the borrowers is a corporate entity. The principals of the corporate borrower are also co-borrowers
of the note. At the time of the restructuring, we analyzed the personal net worth, liquid net worth, debt to income ratios and
credit scores of the co-borrowers. While the co-borrowers were not expected to cover a total loss on the loans, management believed
the co-borrowers would mitigate the amount of potential future losses. Based on the restatement of the June 30, 2010 audited consolidated
financial statements, the loans were considered impaired at June 30, 2010 with an additional increase in the allowance for loan
loss of $600,000 to reflect the reduction in carrying value resulting from the exclusion of the required personal cash infusions
from the co-borrowers from the calculation of the carrying value. In March, 2011, the loans comprising Loan Relationship B again
were experiencing cash flow problems and were refinanced through a troubled debt restructuring, utilizing the split note strategy.
The cash flow problems experienced were the combined effect of the level of the required monthly loan payments, decreases in rental
revenue from the properties, and failure to pay real estate property taxes. However, due to certain financial difficulties experienced
by the co-borrowers, including the cash flow problems of the subject properties and a decrease in other outside sources of income,
the co-borrowers were unable to mitigate the losses on the loan.  Based upon a cash flow analysis of the properties performed
by management, after the restructuring, the two loans categorized as Note A’s had a combined balance of $2.6 million and
the two loans categorized as Note B’s had a balance of $1.5 million. A restructuring fee of $15,000 was charged and included
in Note B at March 31, 2011. The restructured loans have an interest rate that is an additional 275 points lower than the
2010 restructured rate for a period of two years, and 500 points below their original rates. At the end of the two year period,
balloon payments are due, unless the borrower refinances the loans into a market rate loan at that time. This relationship was
performing in accordance with its restructured terms at June 30, 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





33











| | • | Loan Relationship C. Two loans, included in one relationship, with an aggregate value of $2.1 million prior to being
restructured in the quarter ended March 31, 2011. One loan is secured by a first mortgage on a single-family home. One loan
is secured by a 24-unit apartment complex, one- to four-family residential properties and several residential building lots. Both
loans are included in the above table as “Nonaccrual restructured loans, multi-family real estate” at June 30,
2011 and “Accruing restructured loans” at June 30, 2010. In the “Credit Risk Profile by Internally Assigned Grade”
table on page 36, as restated, these loans were classified as “Multi-family real estate, Substandard” at June 30,
2011 and June 30, 2010, respectively. The loans comprising Loan Relationship C were originally restructured in August, 2009.
At the time of the first restructuring, management established a specific reserve through a charge-off to the general allowance
for loan losses of $29,000. In August, 2009, the loans were originally restructured by reducing the interest rates on the loans
by a range of 400 to 600 basis points to a rate that was 300 basis points below market rate. These loans were performing at the
time of the restructuring, but the borrowers were beginning to experience cash flow difficulties. Management believed that the
lower debt service would improve the borrowers’ cash flow, and in turn, the performance of the loans. At the time the loans
were first restructured, independent appraisals were performed on each piece of underlying collateral. These appraisals supported
the aggregate $2.1 million carrying value of the loans. One of the borrowers is a corporate entity, with one principal who has
personally signed on the loan. At the time of the restructuring, we analyzed the personal net worth, liquid net worth, debt to
income ratios and credit scores of the co-borrower and determined that the co-borrower was not expected to cover a total loss,
but would mitigate the amount of potential future losses. Based on the restatement of the June 30, 2010 audited consolidated financial
statements, the loans were considered impaired at June 30, 2010 with an additional increase in the allowance for loan losses of
$675,000 to reflect the reduction in the carrying value resulting from the exclusion of the required personal cash infusions from
the co-borrower from the calculation of the carrying value. At December 31, 2010, the loan was originally subject to a $179,000
specific allowance. The allowance of $179,000 has been reversed in the quarter ended December 31, 2010 as a result of increasing
the allowance at June 30, 2010 by such amount in the restated audited consolidated financial statements. During the quarter ended
March 2011, the borrower again began to experience cash flow difficulties and these loans were refinanced through a troubled debt
restructuring. The cash flow problems experienced were the combined effect of the failure to pay required monthly loan payments,
the failure to pay association dues, and the failure to pay real estate property taxes. However, due to certain financial difficulties
experienced by the co-borrowers, including the cash flow problems of the subject properties and a decrease in other outside sources
of income, the co-borrowers were unable to mitigate the losses on the loan. Based upon a cash flow analysis of the properties performed
by management, the loans were restructured during the quarter ended March 31, 2011 utilizing the split note strategy. After
the restructuring, the previous balance of $2.1 million was split into two notes with Note A having a balance of $1.5 million and
Note B having a balance of $626,000. A restructuring fee of $14,000 was charged and included in Note B at March 31, 2011.
The restructured loans have an interest rate that is an additional 275 basis points lower than the 2010 restructured rate for a
period of two years, and 675 to 875 points below the original rates. At the end of the two year period, balloon payments are due,
unless the borrower refinances into a market rate loan at that time. This relationship was performing in accordance with its restructured
terms at June 30, 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Loan Relationship D. The loan comprising Loan Relationship D was originally restructured in December 2008. The loan
is secured by a first mortgage on a 62-unit apartment complex near a college campus. The loan was made in 2008 to a seasoned property
manager who made major improvements to the property. The property was purchased in December 2008 from a Bank borrower who was delinquent
at the time of acquisition. At the time the loan was acquired from the delinquent borrower in 2008, it was restructured with a
new borrower, in lieu of foreclosure, pursuant to which the Bank loaned the borrower funds to purchase and renovate the property.
At the time of the restructuring, management established a specific reserve through a charge-off to the general allowance for loan
losses of $113,000. We have no personal guarantee or co-borrower on this loan. At this time, the loan requires interest only payments
through December 2011. In January, 2012, the interest rate on the loan will be at the prime interest rate as published by The
Wall Street Journal, plus a spread. At the time of the acquisition, management believed that the new borrower would be able
to renovate the property with a view toward improving the property’s cash flow, and in turn, the performance of the loan.
Since the closing of the loan, the borrower has completed renovations to the property and the cash flow of the property has improved.
At the time the loan was made, an independent appraisal was performed on the collateral underlying the loan. This appraisal supported
the $1.6 million carrying value of the loan. At June 30, 2011, the carrying value of this loan was $1.3 million, and the loan
was performing in accordance with its restructured terms at that date.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





34









| | • | Loan Relationship E. Two loans with an aggregate carrying value of $563,000 at June 30, 2011, secured by nonresidential
real estate. These loans (which consisted of one note prior to the use of the split note structure) are included in the above table
as “Nonaccrual restructured loans, nonresidential real estate” at June 30, 2011, June 30, 2010 and June 30,
2009. In the “Credit Risk Profile by Internally Assigned Grade” table on page 36, these loans were classified as “Nonresidential
real estate, Substandard” at June 30, 2011 and June 30, 2010, respectively. The loan was originally restructured
in April, 2010. At the time of the restructuring we established a specific valuation allowance of $260,000 through a charge-off
to the general allowance for loan losses, based upon an appraisal obtained in March 2010. The originally restructured loan had
payments deferred for one year, while accruing interest at market rates. This loan was scheduled to undergo an interest rate and
payment reset in February, 2011, pursuant to the terms of the note. We have no personal guarantee or co-borrower on this loan.
At the time of the loan adjustment period, it became apparent the borrower was going to struggle to make the required monthly payments
beginning in February, 2011. As a result, management completed a detailed analysis of this loan and determined to again restructure
the loan utilizing the Note A / Note B format in March, 2011. The terms of Note A were calculated using current financial information
to determine the amount of the payment at which the borrower would have a debt service coverage ratio of approximately 1.5x, which
is more stringent than our normal underwriting standards. A restructuring fee of $9,000 was charged and included in Note B at March 31,
2011. After the restructuring in March, 2011, Note A was $569,000 and Note B of $508,000 was charged-off in the quarter ended March 31,
2011 inclusive of the previous specific reserve of $260,000. At the end of the two year period, balloon payments are due, unless
the borrower refinances into a market rate loan at that time. This relationship was performing in accordance with its restructured
terms at June 30, 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | Loan Relationship F. Two loans with an aggregate carrying value of $472,000 at June 30, 2011. These loans, originally
one loan, are secured by single-family and multifamily residential real estate. These loans are included in the above table as
“Nonaccrual restructured loans, multi-family real estate” at June 30, 2011, and for the two loans in this relationship
at June 30, 2010, one loan, totaling $217,000 was included in “Nonaccrual restructured loans, multi-family real estate”
and one loan, totaling $631,000 was originally included in “Nonaccrual loans, multi-family real estate.” As a result
of the aforementioned restatement, this $631,000 loan has been included instead in “Nonaccrual restructured Multi-family
real estate”. In the “Credit Risk Profile by Internally Assigned Grade” table on page 36, as restated, these
loans were classified as “Multi-family real estate, Substandard” at June 30, 2011 and June 30, 2010, respectively.
The original loan was originally restructured in a Note A / Note B format in June, 2010 based on an 80% LTV derived from an April,
2010 appraisal. Based on the restatement of the June 30, 2010 audited consolidated financial statements, the loans were considered
impaired at June 30, 2010 with an additional increase in the allowance for loan losses of $117,000 to reflect the reduction in
carrying value resulting from the exclusion of the required personal cash infusions from the co-borrower from the calculation of
the carrying value. At December 31, 2010, the loan was 160 days delinquent. The delinquency was a result of personal problems
between the borrowers affecting their ability to manage the multi-family residential real estate. The personal problems between
the borrowers also resulted in the borrowers’ inability to make the required personal cash infusions. In the latter part
of 2010 and into 2011, one of the borrowers effectively took control of the multi-family residential real estate and has brought
the business current with respect to property taxes, refunds to former tenants, and made required monthly loan payments in January
and February, 2011. Other than the January and February loan payments, the borrowers have been unable to bring the loan current
under their current cash flow. Based upon those developments, management completed a detailed analysis of the total lending relationship
with the borrowers. As a result of this analysis, these loans were again restructured, utilizing the Note A / Note B format in
March, 2011. The terms of the Note A were calculated using current financial information to determine the amount of the payment
at which the borrowers would have a debt service coverage ratio of approximately 1.5x, which is more stringent than our current
underwriting standards. A restructuring fee of $7,000 was charged and included in Note B at March 31, 2011. One of the borrowers
is a corporate entity, with two principals, who are also individually signed on the loan. After the restructuring in March, 2011,
Note A was $475,000 and Note B in the amount of $405,000 was charged-off in the quarter ended March 31, 2011, including $188,000
that was charged-off against the general allowance for loan losses. At the end of the two year period, balloon payments are due,
unless the borrower refinances into a market rate loan at that time.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table summarizes all Note
A / B split loans at June 30, 2011:





|                                             |  | Loan Balances          |       |  | Number of Loans |  
|-------------------------------------------- |  | ---------------------- | ----- |  | --------------- | -
|                                             |  | Note A                 |       |  | Note B          |  
|                                             |  | (dollars in thousands) |      
|Nonresidential real estate                   |  | $                      | 4,006 |  |                 | $
|Multifamily residential real estate          |  |                        | 3,457 |  |                 |  
|One- to four- family residential real estate |  |                        | 137   |  |                 |  
|Total (1)                                    |  | $                      | 7,600 |  |                 | $





35
















| | (1) | – Included in this total are $6.3 million in Note A’s and $3.7 million in Note B’s that are included in the
discussion of Loan Relationships A, B, C, E and F.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



There was one loan utilizing the Note
A / B strategy at June 30, 2010. Note A, totaling $631,000 and Note B, totaling $217,000 were included in “Nonaccrual
restructured loans, Multi-family residential real estate” at June 30, 2010. Also at June 30, 2010, a specific
allowance (as part of the allowance for loan losses) had been established for the $217,000 included in Note B as well as $117,000
specific allowance on Note A as a result of the restatement. There were no loans utilizing the split note strategy at June 30,
2009.



As evidenced by our loans receivable greater
than 30 days past due in the multi-family residential real estate and nonresidential real estate portfolios only amounting to
$1.0 million at June 30, 2011, management does not believe there are any other large concentrations of credit risk that are
not performing under the original terms or modified terms, as applicable. Management has no knowledge of any additional loans
that will require restructuring.



The following table provides information
with respect to all of our loans that are classified as troubled debt restructurings. Troubled debt restructurings are considered
to be impaired, except for those that have established a sufficient performance history under the terms for the restructured loan.
For additional information regarding troubled debt restructurings on nonaccrual status, see the table of nonperforming assets above.





|                                            |  | At June 30, 2011 |      
|------------------------------------------- |  | ---------------- | -----
|                                            |  | Loan Status      |      
|                                            |  | Accrual          |      
|One- to four-family residential real estate |  | $                | 4,128
|Multifamily residential real estate         |  |                  | 2,041
|Nonresidential real estate                  |  |                  | 2,599
|Total                                       |  | $                | 8,768
|Number of loans                             |  |                  | 28   





|                                            |  | At June 30, 2010 |      
|------------------------------------------- |  | ---------------- | -----
|                                            |  | Loan Status      |      
|                                            |  | Accrual          |      
|One- to four-family residential real estate |  | $                | 422  
|Multifamily residential real estate         |  |                  | 1,981
|Nonresidential real estate                  |  |                  | 2,600
|                                            |  | $                | 5,003
|Number of loans                             |  |                  | 5    





|                                            |  | At June 30, 2009 |      
|------------------------------------------- |  | ---------------- | -----
|                                            |  | Loan Status      |      
|                                            |  | Accrual          |      
|One- to four-family residential real estate |  | $                | 350  
|Multifamily residential real estate         |  |                  | 1,296
|Nonresidential real estate                  |  |                  | 1,000
|                                            |  | $                | 2,646
|Number of loans                             |  |                  | 3    





Loans that were included in troubled debt
restructuring at June 30, 2011 and 2010 were generally given concessions of interest rate reductions of between 25 and 300
basis points, and/or structured as interest only payment loans for periods of one to three years. Many of these loans also have
balloon payments due at the end of their lowered rate period, requiring the borrower to refinance at market rates at that time.
At June 30, 2011, there were 43 loans with required payments of principal and interest, and nine loans with required interest
only payments. At June 30, 2010, there were nine loans with required principal and interest payments, eight loans with required
interest only payments, and two loans with no payments due until 2011. At June 30, 2009, there were three loans with required
interest only payments, and two loans with no payments due until 2011. Although the economic trends during the year ended June 30,
2011 have been generally stable in our primary market area, i.e., Dearborn and Ripley Counties in Indiana, the overall increases
in troubled debt restructurings from June 30, 2010 to June 30, 2011, and from June 30, 2009 to June 30, 2010,
related to continued weakness in the local economy resulting from the economic down turn that started in 2008, particularly in
outside of Dearborn and Ripley Counties in Indiana.





36







Federal regulations require us to review
and classify our assets on a regular basis. In addition, the OCC has the authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard
assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some
loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions
and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible
and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special
mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as special
mention, we account for those classifications when establishing a general allowance for loan losses. If we classify an asset as
substandard, doubtful or loss, we establish a specific allowance for the asset at that time.



The following table shows the aggregate
amounts of our classified assets at the dates indicated.







|                        |  | At June 30,    |       
|----------------------- |  | -------------- | ------
|                        |  | 2011           |       
|                        |  | (As Restated)  |       
|                        |  | (in thousands) |       
|Special mention assets  |  | $              | 13,488
|Substandard assets      |  |                | 28,455
|Total classified assets |  | $              | 41,943









At June 30, 2011:



Credit Risk Profile by Internally Assigned
Grade



|                |  | One- to Four-
    Family Owner- Occupied Mortgage |         |  | Consumer |   |        | One- to Four-
    Family Non- owner Occupied Mortgage |  |   | Multi- family
    Non- Owner Occupied Mortgage |  |  | Non-Residential
    Real estate |        |  | Construction |   |        | Land |  |   | Commercial and
    Agricultural |  |  | Total |      
|--------------- |  | ------------------------------------------------- | ------- |  | -------- | - | ------ | ----------------------------------------------------- |  | - | ---------------------------------------------- |  |  | ------------------------------- | ------ |  | ------------ | - | ------ | ---- |  | - | ------------------------------- |  |  | ----- | -----
|                |  | (In thousands)                                    |        
|Grade:          |  |                                                   |         |  |          |   |        |                                                       |  |   |                                                |  |  |                                 |        |  |              |   |        |      |  |   |                                 |  |  |       |      
|Pass            |  | $                                                 | 100,380 |  |          | $ | 35,893 |                                                       |  | $ | 13,234                                         |  |  | $                               | 17,140 |  |              | $ | 36,307 |      |  | $ | 273                             |  |  | $     | 2,663
|Watch           |  |                                                   | 6,805   |  |          |   | 378    |                                                       |  |   | 2,865                                          |  |  |                                 | 13,023 |  |              |   | 11,845 |      |  |   | 644                             |  |  |       | 1,322
|Special mention |  |                                                   | 1,002   |  |          |   | 127    |                                                       |  |   | 1,030                                          |  |  |                                 | 1,593  |  |              |   | 9,573  |      |  |   | —                               |  |  |       | —    
|Substandard     |  |                                                   | 4,715   |  |          |   | 241    |                                                       |  |   | 1,122                                          |  |  |                                 | 14,540 |  |              |   | 7,431  |      |  |   | 167                             |  |  |       | —    
|Total:          |  | $                                                 | 112,902 |  |          | $ | 36,639 |                                                       |  | $ | 18,251                                         |  |  | $                               | 46,296 |  |              | $ | 65,156 |      |  | $ | 1,084                           |  |  | $     | 3,985



At June 30, 2010 (As Restated):



Credit Risk Profile by Internally Assigned
Grade



|                |  | One- to Four- 
    Family Owner- Occupied Mortgage |         |  | Consumer |   |        | One- to Four-
    Family Non- Owner Occupied Mortgage |  |   | Multi- family
    Non- Owner Occupied Mortgage |  |  | Non- Residential
    Real estate |        |  | Construction |   |        | Land |  |   | Commercial and
    Agricultural |  |  | Total |      
|--------------- |  | -------------------------------------------------- | ------- |  | -------- | - | ------ | ----------------------------------------------------- |  | - | ---------------------------------------------- |  |  | -------------------------------- | ------ |  | ------------ | - | ------ | ---- |  | - | ------------------------------- |  |  | ----- | -----
|                |  | (in thousands)                                     |        
|Grade:          |  |                                                    |         |  |          |   |        |                                                       |  |   |                                                |  |  |                                  |        |  |              |   |        |      |  |   |                                 |  |  |       |      
|Pass            |  | $                                                  | 115,917 |  |          | $ | 37,450 |                                                       |  | $ | 9,037                                          |  |  | $                                | 18,940 |  |              | $ | 45,712 |      |  | $ | 1,566                           |  |  | $     | 3,836
|Watch           |  |                                                    | 3,816   |  |          |   | 460    |                                                       |  |   | 3,481                                          |  |  |                                  | 9,382  |  |              |   | 12,483 |      |  |   | —                               |  |  |       | 684  
|Special mention |  |                                                    | 766     |  |          |   | 313    |                                                       |  |   | 704                                            |  |  |                                  | 6,575  |  |              |   | 9,802  |      |  |   | —                               |  |  |       | 881  
|Substandard     |  |                                                    | 2,936   |  |          |   | 902    |                                                       |  |   | 816                                            |  |  |                                  | 11,880 |  |              |   | 9,571  |      |  |   | —                               |  |  |       | —    
|Total:          |  | $                                                  | 123,435 |  |          | $ | 39,125 |                                                       |  | $ | 14,038                                         |  |  | $                                | 46,777 |  |              | $ | 77,568 |      |  | $ | 1,566                           |  |  | $     | 5,401



37







Delinquencies.The following
table provides information about delinquencies in our loan portfolio at the dates indicated.



|                                    |  | At June 30,         |      
|----------------------------------- |  | ------------------- | -----
|                                    |  | 2011                |      
|                                    |  | 30-59 Days Past Due |      
|                                    |  | (in thousands)      |      
|Residential real estate:            |  |                     |      
|One- to four-family                 |  | $                   | 1,155
|Multi-family                        |  |                     | —    
|Nonresidential real estate and land |  |                     | 732  
|Consumer and other loans            |  |                     | 665  
|Total                               |  | $                   | 2,552



Analysis and Determination of the
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable credit losses in the loan
portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances
are necessary, a provision for loan losses is charged to earnings. The recommendations for increases or decreases to the allowance
are presented by management to the board of directors. Our methodology for assessing the appropriateness of the allowance for loan
losses consists of: (1) a specific allowance on identified impaired loans; and (2) a general valuation allowance on the
remainder of the loan portfolio.



Allowance Required for Identified
Impaired Loans. We establish an allowance on certain identified impaired loans based on such factors as: (1) the strength
of the property’s or the business’ cash flows; (2) the availability of other sources of repayment; (3) the
amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the
estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency.



General Valuation Allowance on the
Remainder of the Loan Portfolio. We establish a general allowance for loans that are not delinquent to recognize the inherent
losses associated with lending activities. This general valuation allowance is determined by segregating the loans by loan category
and assigning historical loss percentages to each category. The percentages are adjusted for significant factors that, in management’s
judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in
existing general economic and business conditions affecting our primary lending areas and the national economy, staff lending experience,
recent loss experience in particular segments of the portfolio, specific reserve and classified asset trends, delinquency trends
and risk rating trends. These loss factors are subject to ongoing evaluation to ensure their relevance in the current economic
environment.



As a result of our systematic analysis
of the adequacy of the allowance for loan losses, the loss factors we presently use to determine the reserve level are based on
various risk factors such as trends in underperforming loans, trends and concentrations in loans and loan volume, economic trends
in our market area, particularly the impact of the gaming and tourism industry on the economy of our market area, the effect of
which has become significant in recent periods.





38







We also identify loans that may need to
be charged-off as a loss by reviewing all delinquent loans, classified loans and other loans that management may have concerns
about collectability. On a monthly basis, management reviews all substandard commercial loans and all loans that are more than
30 days delinquent. On a quarterly basis, management reviews all classified assets and on an annual basis, management reviews all
major lending relationships (relationships greater than $1.0 million). The review of major loan relationships includes completing
an updated property inspection report, and obtaining current tax returns and financial information about the borrower and the property.
When impaired loans are identified, management will reduce the loan to fair value and charge-off the difference between the outstanding
balance and fair value to the allowance for loan losses. On a quarterly basis, management will review the allowance for loan losses
based upon the criteria discussed above and make adjustments to the allowance accordingly.



Any commercial loan that is included in
delinquent loans, classified loans, or other loans about which management may have concerns is individually reviewed for impairment
on a monthly basis. For individually reviewed loans, the borrowers’ inability to make payments under the terms of these loans,
or the existence of a shortfall in the collateral value relating to these loans, could result in our allocating a portion of the
allowance to the loans that were impaired.



At June 30, 2011, our allowance for
loan losses represented 1.83% of total loans and 25.9% of nonperforming loans and amounted to $5.3 million at such date compared
to $8.0 million at June 30, 2010. At June 30, 2010, our allowance for loan losses represented 2.54% of total loans and
46.5% of nonperforming loans.



From June 30, 2009 to June 30,
2010 the loan portfolio experienced increases of $11.3 million in nonperforming loans, $9.6 million in nonperforming assets, and
$9.5 million in troubled debt restructurings. The increases in troubled assets were primarily the result of the addition of 15
troubled debt restructurings totaling $9.5 million during the year ended June 30, 2010. From June 30, 2010 to June 30,
2011, the loan portfolio experienced further increases of $3.3 million in nonperforming loans, $3.2 million in nonperforming assets,
and $10.3 million in troubled debt restructurings. Classified assets decreased $4.2 million due primarily to charge-offs. A review
of these factors resulted in the determination to establish a loan loss provision of $4.1 million for the year ended June 30,
2011. The increases in troubled debt restructurings and nonperforming assets were primarily the result of utilization of the Note
A/Note B strategy and related charge-offs of $4.5 million recorded during the third quarter of the year ended June 30, 2011. For
more information on the Note A/Note B strategy and the related charge-offs, see “Results of Operations for the Years Ended
June 30, 2011 and 2010 – Provision for Loan Loss.” When a loan first becomes a troubled debt restructuring,
it is included in nonaccrual loans until a history of at least six consecutive monthly payments can be established. Troubled debt
restructurings are also classified as substandard assets for the life of the restructured terms. Because nonaccrual loans are included
in nonperforming loans and nonperforming assets and are also considered classified assets, the increase in troubled debt restructurings
was the primary reason for the increase in nonperforming loans, nonperforming assets, and classified assets.



Additionally, from June 30, 2009
to June 30, 2010 the loan portfolio experienced an aggregate increase of $2.0 million in loans 30-89 days delinquent. From
June 30, 2010 to June 30, 2011 the loan portfolio experienced an aggregate decrease of $2.7 million in loans 30-89 days
delinquent. This change is attributable to the utilization of the Note A/Note B strategy and the related charge-offs of $4.5 million
upon performing a detailed review of the Company’s significant troubled lending relationships during the third quarter of
the year ended June 30, 2011. The restructuring of these loans has had a significantly positive impact on our past due loans
receivable as the majority of our past due amounts centered around a specific segment of our loan portfolio.



The provision for loan losses was $4.1
million for the year ended June 30, 2011 and $4.8 million for the year ended June 30, 2010. The amount of the provision
in the year ended June 30, 2011 was primarily the result of the increase in troubled debt restructurings. As previously discussed,
the increase in troubled debt restructurings adversely impacted nonaccrual loans, nonperforming loans, nonperforming assets, and
classified assets. The increased provision was necessary to replenish the allowance for loan losses following the recognition of
charge-offs related to several loans restructured.



As noted earlier, the ratio of the allowance
for loan losses to nonperforming loans (coverage ratio) decreased from 46.5% to 25.9% from June 30, 2010 to June 30,
2011. This decrease was a result of the significant change in composition of nonperforming loans during this time. At June 30,
2010 and 2011, troubled debt restructurings were 50.1% and 78.4% of nonperforming loans, respectively. Troubled debt restructurings
have generally been charged off or written down to their fair value at the time of the restructuring. The fair value at the time
of restructuring is determined by a recent independent appraisal or cash flow analysis of the underlying collateral. As a result
of the recent fair value determinations of a majority of the loans that are included in nonperforming loans, the allowance for
loan losses as a percentage of nonperforming loans decreased from June 30, 2010 to June 30, 2011.



39







The following table illustrates the changes
to the allowance for loan losses for the year ended June 30, 2011:



Allowance for Credit Losses and Recorded
Investment in Loans Receivable for the year ended June 30, 2011 (As Restated):



|                                                          |  | One- to Four-
    Family Mortgage Owner Occupied |         |   | Consumer |   |        | One- to Four-
    Family Mortgage Nonowner- Occupied |  |   | Multi- Family
    Mortgage Nonowner- Occupied |  |  | Non- Residential
    Real Estate |        |   | Construction |   |        | Land |  |   | Commercial and
    Agricultural |   |  | Total |      
|--------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | -------- | - | ------ | ---------------------------------------------------- |  | - | --------------------------------------------- |  |  | -------------------------------- | ------ | - | ------------ | - | ------ | ---- |  | - | ------------------------------- | - |  | ----- | -----
|Allowance for Credit
    Losses:                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                               |  |  |                                  |        |   |              |   |        |      |  |   |                                 |   |  |       |      
|Beginning Balance:                                        |  | $                                                | 419     |   |          | $ | 908    |                                                      |  | $ | —                                             |  |  | $                                | 3,159  |   |              | $ | 3,298  |      |  | $ | 4                               |   |  | $     | 10   
|Charge offs                                               |  |                                                  | (803    | ) |          |   | (959   | )                                                    |  |   | —                                             |  |  |                                  | (2,008 | ) |              |   | (3,065 | )    |  |   | —                               |   |  |       | —    
|Recoveries                                                |  |                                                  | 26      |   |          |   | 15     |                                                      |  |   | —                                             |  |  |                                  | —      |   |              |   | 7      |      |  |   | —                               |   |  |       | —    
|Provision                                                 |  |                                                  | 1,158   |   |          |   | 346    |                                                      |  |   | 112                                           |  |  |                                  | 1,459  |   |              |   | 1,222  |      |  |   | (1                              | ) |  |       | 2    
|Ending Balance:                                           |  | $                                                | 800     |   |          | $ | 310    |                                                      |  | $ | 112                                           |  |  | $                                | 2,610  |   |              | $ | 1,462  |      |  | $ | 3                               |   |  | $     | 12   
|Balance, Individually Evaluated                           |  | $                                                | 18      |   |          | $ | —      |                                                      |  | $ | —                                             |  |  | $                                | 1,573  |   |              | $ | —      |      |  | $ | —                               |   |  | $     | —    
|Balance, Collectively Evaluated                           |  | $                                                | 782     |   |          | $ | 310    |                                                      |  | $ | 112                                           |  |  | $                                | 1,037  |   |              | $ | 1,462  |      |  | $ | 3                               |   |  | $     | 12   
|Financing receivables: Ending
    Balance                 |  | $                                                | 112,902 |   |          | $ | 36,639 |                                                      |  | $ | 18,251                                        |  |  | $                                | 46,296 |   |              | $ | 65,156 |      |  | $ | 1,084                           |   |  | $     | 3,985
|Ending Balance: individually
    evaluated for impairment |  | $                                                | —       |   |          | $ | —      |                                                      |  | $ | 531                                           |  |  | $                                | 11,223 |   |              | $ | 4,545  |      |  | $ | 167                             |   |  | $     | —    
|Ending Balance: collectively
    evaluated for impairment |  | $                                                | 97,258  |   |          | $ | 29,640 |                                                      |  | $ | 16,744                                        |  |  | $                                | 34,568 |   |              | $ | 53,694 |      |  | $ | 917                             |   |  | $     | 3,743
|Ending Balance: loans acquired
    at fair value          |  | $                                                | 15,644  |   |          | $ | 6,999  |                                                      |  | $ | 976                                           |  |  | $                                | 505    |   |              | $ | 6,917  |      |  | $ | —                               |   |  | $     | 242  



The most significant decreases in classified
assets from June 30, 2010 to June 30, 2011 occurred in one- to four-family, multi-family, and non-residential real estate
loans as a result of charge offs. Overall decreases in the allowance allocated to these portfolios was warranted as other risk
factors stemming from decreases in classified assets and delinquencies decreased as well.



40









The following table sets forth the breakdown
of the allowance for loan losses by loan category at the dates indicated.



|                                                 |  | At June 30,            |        
|------------------------------------------------ |  | ---------------------- | -------
|                                                 |  | 2011                   |        
|                                                 |  | (As Restated)          |        
|                                                 |  | Amount                 |        
|                                                 |  | (Dollars in thousands) |        
|One-
    to four- family residential real estate |  | $                      | 912    
|Multi-family real estate                         |  |                        | 2,610  
|Nonresidential real estate                       |  |                        | 1,462  
|Land                                             |  |                        | 12     
|Agricultural                                     |  |                        | 6      
|Commercial                                       |  |                        | 20     
|Consumer                                         |  |                        | 310    
|Construction                                     |  |                        | 3      
|Total
    allowance for loan losses              |  | $                      | 5,335  
|Total
    loans                                  |  | $                      | 290,834



|                                                 |  | At June 30,            |        
|------------------------------------------------ |  | ---------------------- | -------
|                                                 |  | 2008                   |        
|                                                 |  | Amount                 |        
|                                                 |  | (Dollars in Thousands) |        
|One- to four-
    family residential real estate |  | $                      | 209    
|Multi-family real estate                         |  |                        | 315    
|Nonresidential real estate
    and land          |  |                        | 3,753  
|Land                                             |  |                        | 70     
|Agricultural                                     |  |                        | —      
|Commercial                                       |  |                        | 7      
|Consumer                                         |  |                        | 265    
|                                                 |  |                        |        
|Construction                                     |  |                        | —      
|Total
    allowance for loan losses              |  | $                      | 4,619  
|Total
    loans                                  |  | $                      | 289,744



Although we believe that we use the best
information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary
and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making
the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with U.S. generally
accepted accounting principles, there can be no assurance that the OCC, in reviewing our loan portfolio, will not request us to
increase our allowance for loan losses. The OCC may require us to increase our allowance for loan losses based on judgments different
from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.



41









Analysis of Loan Loss Experience.
The following table sets forth an analysis of the allowance for loan losses for the periods indicated.



|                                                               |  | Year Ended June 30,    |       
|-------------------------------------------------------------- |  | ---------------------- | ------
|                                                               |  | 2011                   |       
|                                                               |  | (As Restated)          |       
|                                                               |  | (Dollars in thousands) |       
|Allowance at beginning of period                               |  | $                      | 8,019 
|Provision for loan losses                                      |  |                        | 4,140 
|Charge-offs:                                                   |  |                        |       
|One- to four-family residential real estate                    |  |                        | 803   
|Land                                                           |  |                        | —     
|Nonresidential real estate                                     |  |                        | 3,065 
|Multi-family real estate                                       |  |                        | 2,008 
|Consumer and other loans                                       |  |                        | 997   
|Total charge-offs                                              |  |                        | 6,873 
|Recoveries:                                                    |  |                        |       
|One- to four-family residential real estate                    |  |                        | 26    
|Nonresidential real estate and land                            |  |                        | 7     
|Multi-family real estate                                       |  |                        | —     
|Consumer and other loans                                       |  |                        | 16    
|Total recoveries                                               |  |                        | 49    
|Net charge-offs                                                |  |                        | (6,824
|Loss on restructuring of loan                                  |  |                        | —     
|Allowance at end of period                                     |  | $                      | 5,335 
|Allowance to nonperforming loans                               |  |                        | 25.90 
|Allowance to total loans outstanding at the end of the period  |  |                        | 1.83  
|Net charge-offs to average loans outstanding during the period |  |                        | 2.30  



The charge-offs in the year ended June 30,
2011 were primarily the result of the previously mentioned restructuring of 13 loans having an aggregate outstanding principal
balance of $18.0 million.



Charge-offs in the year ended June 30,
2010 were primarily the result of one loan secured by a mobile home park. The loan was charged-off in September, 2009 and taken
into other real estate owned at that time. The property was sold in February, 2010 and we restructured the loan as a troubled debt
restructuring. The loan is included in nonaccrual troubled debt restructurings and was performing in accordance with its restructured
terms at June 30, 2011.



Charge-offs in the year ended June 30,
2009 were the result of four loans in two lending relationships. Three of the loans, included in one relationship for a landscape
nursery, were charged-off in August, 2008, the inventory and assets from the business were liquidated, and the real estate was
taken into other real estate owned. The real property was sold in June, 2009 and we financed the sale as a troubled debt restructuring.
Due to its performance history, it is classified as an accruing troubled debt restructuring and was performing according to its
restructured terms at June 30, 2011. The fourth loan was related to Loan Relationship D included in “—Analysis of
Nonperforming and Classified Assets.” This loan was classified as a nonaccrual troubled debt restructuring and was performing
according to its restructured terms at June 30, 2011.



The increase in charge-offs in the year
ended June 30, 2008 is the result of the two loans that were foreclosed and taken into other real estate owned in May, 2008. One
property, a golf course, was sold in December, 2009. We provided the sales financing and restructured the loan as a troubled debt
restructuring due to additional collateral that was provided by the borrower at the time of restructuring. This loan was performing
according to terms and was considered an accruing troubled debt restructuring at June 30, 2011. The other property is land held
for future residential development that is adjacent to the aforementioned golf course. This property is included in other real
estate owned at June 30, 2011.



42









Interest Rate Risk Management.
We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize
the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market
interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates
may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential
volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining
an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings;
adjusting the investment portfolio mix and duration; and generally selling in the secondary market newly originated conforming
fixed-rate 15-, 20- and 30-year one- to four-family residential real estate loans and available-for-sale securities. We currently
do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.



We have an Asset/Liability Committee, which
includes members of management and Board members, to communicate, coordinate and control all aspects involving asset/liability
management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the
objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and
profitability goals.



Our goal is to manage asset and liability
positions to moderate the effects of interest rate fluctuations on net interest income and net income.



Net Portfolio Value Analysis.We
use a net portfolio value analysis prepared by the OCC to review our level of interest rate risk. This analysis measures interest
rate risk by computing changes in net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in
the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio
equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance
sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained
50 to 300 basis point increase or 50 and 100 basis point decrease in market interest rates with no effect given to any steps that
we might take to counter the effect of that interest rate movement. Because of the low level of market interest rates, these analyses
are not performed for decreases of more than 100 basis points.



The following table, which is based on
information that we provided to the OTS prior to the July 21, 2011 transition date, presents the change in our net portfolio
value at June 30, 2011 that would occur in the event of an immediate change in interest rates based on OCC assumptions, with
no effect given to any steps that we might take to counteract that change.







|                                   |  | Net Portfolio Value (Dollars in Thousands) |        |  | Net Portfolio Value as % of Portfolio Value of Assets |  
|---------------------------------- |  | ------------------------------------------ | ------ |  | ----------------------------------------------------- | -
|Basis Point (“bp”) Change in Rates |  | Amount                                     |        |  | Change                                                |  
|300                                |  | $                                          | 51,183 |  |                                                       | $
|200                                |  |                                            | 54,605 |  |                                                       |  
|100                                |  |                                            | 55,633 |  |                                                       |  
|50                                 |  |                                            | 55,957 |  |                                                       |  
|0                                  |  |                                            | 56,385 |  |                                                       |  
|(50)                               |  |                                            | 56,602 |  |                                                       |  
|(100)                              |  |                                            | 57,519 |  |                                                       |  







The OCC uses various assumptions in assessing
interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values
of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analyses presented in the foregoing tables. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate
mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further,
in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could
deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income.
Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates have a significant
impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise,
prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments
slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates
will approximate actual future mortgage-backed security and loan repayment activity.



43







Liquidity Management. Liquidity
is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of
deposit inflows, loan repayments, maturities and sales of securities and borrowings from the Federal Home Loan Bank of Indianapolis.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates, economic conditions and competition.



We regularly adjust our investments in
liquid assets based upon our assessment of: (1) expected loan demands; (2) expected deposit flows, in particular municipal
deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability
management policy.



Our most liquid assets are cash and cash
equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period.
Cash and cash equivalents totaled $31.2 million at June 30, 2011. Securities classified as available-for-sale whose market
value exceeds our cost, which provide additional sources of liquidity, totaled $100.3 million at June 30, 2011. Total securities
classified as available-for-sale were $123.3 million at June 30, 2011. In addition, at June 30, 2011, we had the ability
to borrow a total of approximately $73.2 million from the Federal Home Loan Bank of Indianapolis.



At June 30, 2011 the Bank’s
total commitment to extend credit at variable rates was $26.7 million. The amount of fixed rate commitments was approximately $679,000
at June 30, 2011. The fixed rate loan commitments at June 30, 2011 have interest rates ranging from 3.00% to 6.00%. In
addition, the bank had $590,000 of letters of credit outstanding at June 30, 2011. Certificates of deposit due within one
year of June 30, 2011 totaled $119.6 million. This represented 60.9% of certificates of deposit at June 30, 2011. We
believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest
their funds for long periods in the current low interest rate environment. If these maturing deposits do not remain with us, we
will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions,
we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit
due on or before June 30, 2011. We believe, however, based on past experience that a significant portion of our certificates
of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.



The following table presents certain of
our contractual obligations as of June 30, 2011.



|                            |  |                        |       |  | Payments Due by Period |  
|--------------------------- |  | ---------------------- | ----- |  | ---------------------- | -
|Contractual Obligations     |  | Total                  |       |  | Less than One Year     |  
|                            |  | (Dollars in Thousands) |      
|At June 30, 2011            |  |                        |       |  |                        |  
|Long-term debt obligations  |  | $                      | 1,833 |  |                        | $
|Operating lease obligations |  | $                      | 64    |  |                        |  
|Total                       |  | $                      | 1,897 |  |                        | $



Our primary investing activities are the
origination and purchase of loans and the purchase of securities. Our primary financing activities consist of activity in deposit
accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates
and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive
and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.



44









The following table presents our primary
investing and financing activities during the periods indicated.





|                                                                |  | Year Ended June 30,    |         
|--------------------------------------------------------------- |  | ---------------------- | --------
|                                                                |  | 2011                   |         
|                                                                |  | (Dollars in thousands) |         
|Investing activities:                                           |  |                        |         
|Loans disbursed or closed, net of acquisition                   |  | $                      | (65,984 
|Loan principal repayments                                       |  |                        | 75,538  
|Proceeds from maturities and principal repayments of securities |  |                        | 48,441  
|Proceeds from sales of securities available-for-sale            |  |                        | 50,622  
|Purchases of securities                                         |  |                        | (104,381
|Increase in cash surrender value of life insurance              |  |                        | (773    
|Capital expenditures, net of acquisition                        |  |                        | (434    
|Financing activities:                                           |  |                        |         
|(Decrease) increase in deposits, net of acquisition             |  |                        | (16,992 
|Repayments of Federal Home Loan Bank advances                   |  |                        | (1,000  
|Dividends paid to stockholders                                  |  |                        | (1,357  
|Repurchases of common stock                                     |  |                        | (37     



Capital Management. United
Community Bank is subject to various regulatory capital requirements administered by the OCC, including a risk-based capital measure.
The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2011, we exceeded all of
our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. See “Regulation
and Supervision—Regulation of Federal Savings Associations—Capital Requirements,”and Note 17 to the consolidated
financial statements included in Item 8 to this Annual Report on Form 10-K/A.



Off-Balance Sheet Arrangements.
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted
accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of
credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding
and take the form of loan commitments, letters of credit and lines of credit. For information about our loan commitments and unused
lines of credit, see Note 16 of the notes to the consolidated financial statements. We currently have no plans to engage in hedging
activities in the future.



For the year ended June 30, 2011,
we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results
of operations or cash flows.



Effect of Inflation and Changing Prices



The financial statements and related financial
data presented in this report have been prepared in accordance with U.S. generally accepted accounting principles, which require
the measurement of financial position and operating results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in
increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s
performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent
as the prices of goods and services.



Item 7A. Quantitative and Qualitative Disclosures about
Market Risk



The information required by this item
is incorporated herein by reference to the section captioned “Risk Management” in Item 7 of this Annual
Report on Form 10-K/A.





45





Item 8. Financial Statements and Supplementary
Data



Management’s Report on Internal
Control over Financial Reporting



The Company’s management is responsible for establishing
and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of
America.



Management conducted an assessment of the effectiveness of the
Company’s internal control over financial reporting as of June 30, 2011, utilizing the framework established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on this assessment, management determined that the Company’s internal control over financial reporting as of June 30,
2011 was noteffective. On
March 28, 2012, the Board of Directors of the Company determined that the following previously issued consolidated financial statements
of the Company should no longer be relied upon: (i) the audited consolidated financial statements at June 30, 2010 and 2011 and
for the fiscal years then ended, as contained in the Annual Reports on Form 10-K for the fiscal years ended June 30, 2010 and June
30, 2011, and (ii) the unaudited consolidated financial statements at September 30, 2010, December 31, 2010, March 31, 2011 and
December 31, 2011 and for the interim periods then ended as contained in the Quarterly Reports on Form 10-Q for the quarterly periods
ended September 30, 2010, December 31, 2010, March 31, 2011 and December 31, 2011.



The Board of Directors arrived at this determination based on
the recommendation of the Audit Committee of the Board of Directors and management, in consultation with Clark, Schaefer, Hackett
& Co., the Company’s independent registered public accounting firm. The foregoing determination and consultation occurred
in connection with the SEC staff’s review of the Registration Statement on Form S-1, as amended, filed by United Community
Bancorp (an Indiana corporation), the proposed new holding company for the Bank, in connection with the second-step conversion
of the Bank.



The restatements are the result of material weaknesses in internal
control over financial reporting and the related correction of an error in calculating the provision for loan loss for the periods
ended June 30, 2010 and 2011. The Company experienced control deficiencies in the monitoring of certain loans and loan relationships.
These control deficiencies resulted in the Company not properly identifying impaired loans and troubled debt restructurings under
ASC 310-10-35 and ASC 310-40-35. The Company also experienced deficiencies in measuring impairment on impaired loans and troubled
debt restructurings under ASC 310-10-35. These deficiencies primarily related to the reliance on required personal cash infusions
of co-borrowers who were experiencing financial difficulties on troubled debt restructurings when determining the present value
of future cash flows. For the year ended June 30, 2010, as part of the Company’s process to measure impairment on certain
impaired loans, management relied on required personal cash infusions from co-borrowers that had been experiencing financial difficulties.
Management has determined that relying on required personal cash infusions from co-borrowers who were experiencing financial difficulties
in these circumstances was inconsistent with U.S. generally accepted accounting principles. As a result of these deficiencies,
management, in consultation with Clark, Schaefer, Hackett & Co., determined that the Company had material weaknesses in internal
control over financial reporting as it relates to identifying troubled debt restructurings and impaired loans as well as the measurement
of impairment at each of the dates and periods that are being restated.



The portion of the loan loss provision being
corrected relates to five loan relationships comprising the most significant troubled debt restructurings effected by the
Bank that were restructured using a split note strategy in the March 31, 2011 quarter. In connection with the above referenced
consultations between management and Clark, Schaefer, Hackett & Co., management has determined that, in calculating the future
cash flows of these loan relationships, the Company should not
have included required cash infusions from co-borrowerswho were experiencing
financial difficulties. Because the required restatements relate to the timing and not the aggregate amount of the loan
loss provisions recorded during the periods being restated, no additional loan loss provisions were required for any of these loan
relationships during the periods being restated.



Our internal control over financial reporting includes policies
and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions
and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States of America; (2) receipts
and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized
acquisitions, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial
statements are prevented or timely detected.



All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect
to financial statement preparations and presentations. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.





46







This annual report does not include an attestation report of
the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual
report.



April 26, 2012





47













Report of Independent Registered

Public Accounting Firm



To the Board of Directors of

United Community Bancorp and Subsidiaries:



We have audited the consolidated statements of financial condition
of United Community Bancorp and Subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the years then ended. The Company’s management
is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based
on our audits.



We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.



In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of United Community Bancorp and Subsidiaries as of June 30, 2011
and 2010, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles
generally accepted in the United States of America.



As described in Note 1 of the consolidated financial
statements, the Company has restated its 2011 and 2010 financial statements to correct its accounting for certain
impaired loans.



/s/ Clark, Schaefer, Hackett & Co.



Cincinnati, Ohio

September 28, 2011, except for the matter in the fourth paragraph
above and in Note 1, as to which the date is April 26, 2012.



49







UNITED COMMUNITY BANCORP AND SUBSIDIARIES



Consolidated Statements of Financial Condition



|(In thousands, except share amounts)                                                                                                                                                                                 |  | June 30, 2011 |         |   | June 30, 2010 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | -
|                                                                                                                                                                                                                     |  | (As Restated) |         |   | (As Restated) |  
|Assets                                                                                                                                                                                                               |  |               |         |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Cash and due from banks                                                                                                                                                                                              |  | $             | 31,159  |   |               | $
|Investment securities:                                                                                                                                                                                               |  |               |         |   |               |  
|Securities available for sale - at estimated market value                                                                                                                                                            |  |               | 49,230  |   |               |  
|Securities held to maturity - at amortized cost                                                                                                                                                                      |  |               | 564     |   |               |  
|Mortgage-backed securities available for sale - at estimated market value                                                                                                                                            |  |               | 74,119  |   |               |  
|Loans receivable, net                                                                                                                                                                                                |  |               | 285,877 |   |               |  
|Loans available for sale                                                                                                                                                                                             |  |               | 196     |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Property and equipment, net                                                                                                                                                                                          |  |               | 7,396   |   |               |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                                |  |               | 2,507   |   |               |  
|Accrued interest receivable:                                                                                                                                                                                         |  |               |         |   |               |  
|Loans                                                                                                                                                                                                                |  |               | 1,291   |   |               |  
|Investments and mortgage-backed securities                                                                                                                                                                           |  |               | 681     |   |               |  
|Other real estate owned, net                                                                                                                                                                                         |  |               | 139     |   |               |  
|Cash surrender value of life insurance policies                                                                                                                                                                      |  |               | 7,882   |   |               |  
|Deferred income taxes                                                                                                                                                                                                |  |               | 2,880   |   |               |  
|Goodwill                                                                                                                                                                                                             |  |               | 2,522   |   |               |  
|Intangible asset                                                                                                                                                                                                     |  |               | 1,028   |   |               |  
|Prepaid expenses and other assets                                                                                                                                                                                    |  |               | 5,060   |   |               |  
|Total assets                                                                                                                                                                                                         |  | $             | 472,531 |   |               | $
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Liabilities and Stockholders’ Equity                                                                                                                                                                                 |  |               |         |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Deposits                                                                                                                                                                                                             |  | $             | 413,091 |   |               | $
|Advance from FHLB                                                                                                                                                                                                    |  |               | 1,833   |   |               |  
|Accrued interest on deposits                                                                                                                                                                                         |  |               | 44      |   |               |  
|Accrued interest on FHLB advance                                                                                                                                                                                     |  |               | 3       |   |               |  
|Advances from borrowers for payment of insurance and taxes                                                                                                                                                           |  |               | 230     |   |               |  
|Accrued expenses and other liabilities                                                                                                                                                                               |  |               | 3,184   |   |               |  
|Total liabilities                                                                                                                                                                                                    |  |               | 418,385 |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                        |  |               |         |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Stockholders’ equity                                                                                                                                                                                                 |  |               |         |   |               |  
|Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued                                                                                                                                           |  |               | —       |   |               |  
|Common stock, $0.01 par value; 19,000,000 shares authorized, 8,464,000 shares issued and 7,840,382 shares outstanding at June 30, 2011 and 8,464,000 shares issued and 7,845,554 shares outstanding at June 30, 2010 |  |               | 36      |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Common stock                                                                                                                                                                                                         |  |               |         |   |               |  
|Additional paid-in capital                                                                                                                                                                                           |  |               | 37,089  |   |               |  
|Retained earnings                                                                                                                                                                                                    |  |               | 26,435  |   |               |  
|Less shares purchased for stock plans                                                                                                                                                                                |  |               | (2,775  | ) |               |  
|Treasury Stock, at cost - 621,618 shares at June 30, 2011 and 618,446 shares at June 30, 2010                                                                                                                        |  |               | (7,091  | ) |               |  
|Accumulated other comprehensive income:                                                                                                                                                                              |  |               |         |   |               |  
|Unrealized gain on securities available for sale, net of income taxes                                                                                                                                                |  |               | 452     |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Total stockholders’ equity                                                                                                                                                                                           |  |               | 54,146  |   |               |  
|                                                                                                                                                                                                                     |  |               |         |   |               |  
|Total liabilities and stockholders’ equity                                                                                                                                                                           |  | $             | 472,531 |   |               | $



50







UNITED COMMUNITY BANCORP AND SUBSIDIARIES



Consolidated Statements of Operations

(In thousands, except share amounts)



|                                                    |  | For the years ended June 30, |       
|--------------------------------------------------- |  | ---------------------------- | ------
|                                                    |  | 2011                         |       
|                                                    |  | (As Restated)                |       
|Interest income:                                    |  |                              |       
|Loans                                               |  | $                            | 16,958
|Investments and mortgage - backed securities        |  |                              | 2,888 
|Total interest income                               |  |                              | 19,846
|                                                    |  |                              |       
|Interest expense:                                   |  |                              |       
|Deposits                                            |  |                              | 5,516 
|Borrowed funds                                      |  |                              | 71    
|Total interest expense                              |  |                              | 5,587 
|                                                    |  |                              |       
|Net interest income                                 |  |                              | 14,259
|                                                    |  |                              |       
|Provision for loan losses                           |  |                              | 4,140 
|                                                    |  |                              |       
|Net interest income after provision for loan losses |  |                              | 10,119
|                                                    |  |                              |       
|Other income:                                       |  |                              |       
|Service charges                                     |  |                              | 2,392 
|Gain on sale of loans                               |  |                              | 519   
|Gain on sale of investments                         |  |                              | 584   
|Gain (loss) on sale of other real estate owned      |  |                              | (10   
|Income from Bank Owned Life Insurance               |  |                              | 274   
|Other                                               |  |                              | 279   
|Total other income                                  |  |                              | 4,038 
|                                                    |  |                              |       
|Other expense:                                      |  |                              |       
|Compensation and employee benefits                  |  |                              | 6,610 
|Premises and occupancy expense                      |  |                              | 1,325 
|Deposit insurance premium                           |  |                              | 775   
|Advertising expense                                 |  |                              | 408   
|Data processing expense                             |  |                              | 1,161 
|Provision for loss on sale of real estate owned     |  |                              | —     
|Acquisition related expenses                        |  |                              | 38    
|Other operating expenses                            |  |                              | 1,797 
|Intangible Amortization                             |  |                              | 372   
|Total other expense                                 |  |                              | 12,486
|                                                    |  |                              |       
|Income (loss) before income tax provision           |  |                              | 1,671 
|                                                    |  |                              |       
|Provision for income taxes:                         |  |                              |       
|Income tax provision (benefit)                      |  |                              | 501   
|                                                    |  |                              |       
|Net income (loss)                                   |  | $                            | 1,170 
|                                                    |  |                              |       
|Basic and diluted earnings (loss) per share         |  | $                            | 0.15  



See accompanying notes to the consolidated financial statements.



51







UNITED COMMUNITY BANCORP AND SUBSIDIARIES



Consolidated Statements of Comprehensive
Income (Loss)

(In thousands)



|                                                                                          |  | For the year ended June 30, |      
|----------------------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                                          |  | 2011                        |      
|                                                                                          |  | (As Restated)               |      
|Net income (loss)                                                                         |  | $                           | 1,170
|                                                                                          |  |                             |      
|Other comprehensive income, net of tax                                                    |  |                             |      
|Unrealized gain on available for sale securities                                          |  |                             | 311  
|                                                                                          |  |                             |      
|Reclassification adjustment for gains on available for sale securities included in income |  |                             | (356 
|                                                                                          |  |                             |      
|Total comprehensive income (loss)                                                         |  | $                           | 1,125



See accompanying notes to consolidated financial statements.



52







UNITED COMMUNITY BANCORP AND SUBSIDIARY



Consolidated Statements of Stockholders’
Equity



(As Restated)



|(In thousands, except per share data)                          |  | Common
                    Stock |    |  | Additional
                    Paid-In Capital |   |        | Retained
                    Earnings |  |   | Shares
                    Purchased for Stock plans |   |  | Treasury
                    Stock |        |   | Unrealized
                    Gain (Loss) on  Securities Available for Sale |   |        | Total | 
|-------------------------------------------------------------- |  | -------------------------------- | -- |  | ---------------------------------------------- | - | ------ | ------------------------------------- |  | - | ---------------------------------------------------- | - |  | ---------------------------------- | ------ | - | ---------------------------------------------------------------------------- | - | ------ | ----- | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Balance at June 30, 2009                                       |  | $                                | 36 |  |                                                | $ | 36,791 |                                       |  | $ | 28,204                                               |   |  | $                                  | (3,254 | ) |                                                                              | $ | (6,974 | )     | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Net loss                                                       |  |                                  | —  |  |                                                |   | —      |                                       |  |   | (412                                                 | ) |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Cash dividends of $0.41 per share*                             |  |                                  | —  |  |                                                |   | —      |                                       |  |   | (1,170                                               | ) |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Stock-based compensation
    expense                           |  |                                  | —  |  |                                                |   | 298    |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Amortization of ESOP shares                                    |  |                                  | —  |  |                                                |   | (94    | )                                     |  |   | —                                                    |   |  |                                    | 212    |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Shares repurchased                                             |  |                                  | —  |  |                                                |   | —      |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | (80    | )     | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Unrealized loss on investments:                                |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Net change during the period,
    net of deferred taxes of $72 |  |                                  | —  |  |                                                |   | —      |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Balance at June 30, 2010                                       |  | $                                | 36 |  |                                                | $ | 36,995 |                                       |  | $ | 26,622                                               |   |  | $                                  | (3,042 | ) |                                                                              | $ | (7,054 | )     | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Net income                                                     |  |                                  | —  |  |                                                |   | —      |                                       |  |   | 1,170                                                |   |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Cash dividends of $0.44 per share*                             |  |                                  | —  |  |                                                |   | —      |                                       |  |   | (1,357                                               | ) |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Stock-based compensation
    expense                           |  |                                  | —  |  |                                                |   | 157    |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Amortization of ESOP shares                                    |  |                                  | —  |  |                                                |   | (63    | )                                     |  |   | —                                                    |   |  |                                    | 267    |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Shares repurchased                                             |  |                                  | —  |  |                                                |   | —      |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | (37    | )     | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Unrealized loss on investments:                                |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Net change during the period,
    net of deferred taxes of $23 |  |                                  | —  |  |                                                |   | —      |                                       |  |   | —                                                    |   |  |                                    | —      |   |                                                                              |   | —      |       | 
|                                                               |  |                                  |    |  |                                                |   |        |                                       |  |   |                                                      |   |  |                                    |        |   |                                                                              |   |        |       | 
|Balance at June 30, 2011                                       |  | $                                | 36 |  |                                                | $ | 37,089 |                                       |  | $ | 26,435                                               |   |  | $                                  | (2,775 | ) |                                                                              | $ | (7,091 | )     | 



| | * | paid on all shares other than MHC
| | - | ---------------------------------



See accompanying notes to consolidated financial statements.



53







UNITED COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows



|                                                                                         |  | For the year ended June 30, |        
|---------------------------------------------------------------------------------------- |  | --------------------------- | -------
|(In thousands)                                                                           |  | 2011                        |        
|                                                                                         |  | (As Restated)               |        
|Operating activities:                                                                    |  |                             |        
|Net income (loss)                                                                        |  | $                           | 1,170  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |        
|Depreciation                                                                             |  |                             | 551    
|Provision for loan losses                                                                |  |                             | 4,140  
|Provision for losses on real estate acquired through foreclosure                         |  |                             | —      
|Deferred loan origination costs                                                          |  |                             | (216   
|Amortization of premium on investments                                                   |  |                             | 1,447  
|Proceeds from sale of loans                                                              |  |                             | 21,748 
|Loans disbursed for sale in the secondary market                                         |  |                             | (21,061
|Gain on sale of loans                                                                    |  |                             | (519   
|Amortization of intangible asset                                                         |  |                             | 372    
|Amortization of acquisition-related loan yield discount                                  |  |                             | (124   
|Amortization of acquisition-related credit risk discount                                 |  |                             | (102   
|Amortization of acquisition-related CD yield adjustment                                  |  |                             | (97    
|Gain on the sale of investments                                                          |  |                             | (584   
|ESOP shares committed to be released                                                     |  |                             | (87    
|Stock-based compensation expense                                                         |  |                             | 157    
|Deferred income taxes                                                                    |  |                             | 1,711  
|(Gain) loss on sale of other real estate owned                                           |  |                             | 10     
|Effects of change in operating assets and liabilities:                                   |  |                             |        
|Accrued interest receivable                                                              |  |                             | 318    
|Prepaid expenses and other assets                                                        |  |                             | (1,608 
|Accrued interest on deposits                                                             |  |                             | (75    
|Accrued expenses and other                                                               |  |                             | 16     
|Net cash provided by operating activities                                                |  |                             | 7,167  
|                                                                                         |  |                             |        
|Investing activities:                                                                    |  |                             |        
|Proceeds from maturity of available for sale investment securities                       |  |                             | 29,802 
|Proceeds from the sale of available for sale investment securities                       |  |                             | 17,712 
|Proceeds from the maturity of held to maturity investment securities                     |  |                             | 67     
|Proceeds from repayment of mortgage-backed securities available for sale                 |  |                             | 18,572 
|Proceeds from sale of mortgage-backed securities                                         |  |                             | 32,910 
|Proceeds from sale of other real estate owned                                            |  |                             | 541    
|Purchases of available for sale investment securities                                    |  |                             | (35,817
|Purchases of mortgage-backed securities                                                  |  |                             | (68,065
|Proceeds from sale of Federal Home Loan Bank stock                                       |  |                             | 8      
|Purchases of Federal Home Loan Bank stock                                                |  |                             | (499   
|Net decrease (increase) in loans, net of acquisition                                     |  |                             | 17,269 
|Increase in cash surrender value of life insurance                                       |  |                             | (773   
|Cash received from acquisition of branches                                               |  |                             | —      
|Capital expenditures, net of acquisition                                                 |  |                             | (434   
|Net cash provided by (used in) investing activities                                      |  |                             | 11,293 
|                                                                                         |  |                             |        
|Financing activities:                                                                    |  |                             |        
|Net increase (decrease) in deposits, net of acquisition                                  |  |                             | (16,992
|Dividends paid to stockholders                                                           |  |                             | (1,357 
|Repurchases of common stock                                                              |  |                             | (37    
|Repayments of Federal Home Loan Bank advances                                            |  |                             | (1,000 
|Net increase (decrease) in advances from borrowers for payment of insurance and taxes    |  |                             | 62     
|Net cash provided by (used in) financing activities                                      |  |                             | (19,324
|                                                                                         |  |                             |        
|Net increase (decrease) in cash and cash equivalents                                     |  |                             | (864   
|                                                                                         |  |                             |        
|Cash and cash equivalents at beginning of period                                         |  |                             | 32,023 
|                                                                                         |  |                             |        
|Cash and cash equivalents at end of period                                               |  | $                           | 31,159 



See accompanying notes to the consolidated financial statements.



54







UNITED COMMUNITY BANCORP



Notes to Consolidated Financial Statements



NOTE 1 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS



The restatements are the result of material
weaknesses in internal control over financial reporting and the related correction of an error in calculating the provision
for loan loss for the periods ended June 30, 2010 and 2011. The Company experienced control deficiencies in the
monitoring of certain loans and loan relationships. These controldeficiencies
resulted in the Company not properly identifying impaired loans and troubled debt restructurings under ASC 310-10-35 and ASC
310-40-35. The Company also experienced deficiencies in measuring impairment on impaired loans and troubled debt
restructurings under ASC 310-10-35. These deficiencies primarily related to the reliance on required personal cash infusions
of co-borrowers on troubled debt restructurings when determining the present value of future cash flows. For
the year ended June 30, 2010, as part of the Company’s process to measure impairment on certain impaired loans,
management relied on required personal cash infusions from co-borrowers that had been experiencing financial difficulties.
Management has determined that relying on required personal cash infusions from co-borrowers in these circumstances was
inconsistent with U.S. generally accepted accounting principles. As a result of these deficiencies, management, in
consultation with Clark, Schaefer, Hackett & Co., determined that the Company had  material weaknesses in internal control
over financial reporting as it relates to identifying troubled debt restructurings and impaired loans as well as the
measurement of impairment at June 30, 2011 and June 30, 2010.



The portion of the loan loss provision being
corrected relates to five loan relationships comprising the most significant troubled debt restructurings effected by the
Bank that were restructured using a split note strategy in the March 31, 2011 quarter. In connection with the above referenced
consultations between management and Clark, Schaefer, Hackett & Co., management has determined that, in calculating the future
cash flows of these loan relationships, it should not have included required personalcash infusions from co-borrowerswho were experiencing financial
difficulties. Because the required restatements relate to the timing and not the aggregate amount of the loan loss provisions
recorded during the periods being restated, no additional loan loss provisions were required for any of these loan relationships
during the periods being restated. The following discloses the impact of these corrections on the consolidated balance sheets as
of June 30, 2011 and 2010:



|(in thousands)             |  | June 30, 2011          |        
|-------------------------- |  | ---------------------- | -------
|                           |  | As Previously Reported |        
|Loans receivable, net      |  | $                      | 286,173
|Deferred income tax asset  |  | $                      | 2,765  
|Total assets               |  | $                      | 472,712
|                           |  |                        |        
|Retained earnings          |  | $                      | 26,616 
|Total stockholders’ equity |  | $                      | 54,327 



|(in thousands)             |  | June 30, 2010          |        
|-------------------------- |  | ---------------------- | -------
|                           |  | As Previously Reported |        
|Loans receivable, net      |  | $                      | 309,575
|Deferred income tax asset  |  | $                      | 3,721  
|Total assets               |  | $                      | 492,104
|                           |  |                        |        
|Retained earnings          |  | $                      | 28,048 
|Total stockholders’ equity |  | $                      | 55,480 



55







The following discloses the impact of these corrections on the
consolidated statements of operations for the years ended June 30, 2011 and 2010 and for the quarterly periods during the year
ended June 30, 2011:



|                                     |  | Year ended               |        |  | Quarter ended            |   |       | Quarter ended            |  |   | Quarter ended            |  |  | Quarter ended            |        |   | Year ended               |  
|------------------------------------ |  | ------------------------ | ------ |  | ------------------------ | - | ----- | ------------------------ |  | - | ------------------------ |  |  | ------------------------ | ------ | - | ------------------------ | -
|                                     |  | June 30,                 |        |  | September 30,            |   |       | December 31,             |  |   | March 31,                |  |  | June 30,                 |        |   | June 30,                 |  
|                                     |  | 2010                     |        |  | 2010                     |   |       | 2010                     |  |   | 2011                     |  |  | 2011                     |        |   | 2011                     |  
|(in thousands)                       |  | (As Previously
Reported) |        |  | (As Previously
Reported) |   |       | (As Previously
Reported) |  |   | (As Previously
Reported) |  |  | (As Previously
Reported) |        |   | (As Previously
Reported) |  
|Net interest income                  |  | $                        | 12,507 |  |                          | $ | 3,395 |                          |  | $ | 3,600                    |  |  | $                        | 3,590  |   |                          | $
|Provision for loan losses            |  |                          | 2,509  |  |                          |   | 719   |                          |  |   | 737                      |  |  |                          | 3,971  |   |                          |  
|Other income                         |  |                          | 3,557  |  |                          |   | 995   |                          |  |   | 973                      |  |  |                          | 795    |   |                          |  
|Other expense                        |  |                          | 12,198 |  |                          |   | 3,251 |                          |  |   | 3,204                    |  |  |                          | 2,949  |   |                          |  
|Income (loss) before taxes           |  | $                        | 1,357  |  |                          | $ | 420   |                          |  | $ | 632                      |  |  | $                        | (2,535 | ) |                          | $
|Provision (benefit) for income taxes |  |                          | 343    |  |                          |   | 149   |                          |  |   | 53                       |  |  |                          | (814   | ) |                          |  
|Net income (loss)                    |  | $                        | 1,014  |  |                          | $ | 271   |                          |  | $ | 579                      |  |  | $                        | (1,721 | ) |                          | $
|                                     |  |                          |        |  |                          |   |       |                          |  |   |                          |  |  |                          |        |   |                          |  
|Earnings per common share:           |  |                          |        |  |                          |   |       |                          |  |   |                          |  |  |                          |        |   |                          |  
|Basic                                |  | $                        | 0.13   |  |                          | $ | 0.04  |                          |  | $ | 0.08                     |  |  | $                        | (0.23  | ) |                          | $
|Diluted                              |  | $                        | 0.13   |  |                          | $ | 0.04  |                          |  | $ | 0.08                     |  |  | $                        | (0.23  | ) |                          | $





|                                     |  | Year ended    |        |   | Quarter ended |   |       | Quarter ended |  |   | Quarter ended |  |  | Quarter ended |       |   | Year ended    |  
|------------------------------------ |  | ------------- | ------ | - | ------------- | - | ----- | ------------- |  | - | ------------- |  |  | ------------- | ----- | - | ------------- | -
|                                     |  | June 30,      |        |   | September 30, |   |       | December 31,  |  |   | March 31,     |  |  | June 30,      |       |   | June 30,      |  
|                                     |  | 2010          |        |   | 2010          |   |       | 2010          |  |   | 2011          |  |  | 2011          |       |   | 2011          |  
|(in thousands)                       |  | (As Restated) |        |   | (As Restated) |   |       | (As Restated) |  |   | (As Restated) |  |  | (As Restated) |       |   | (As Restated) |  
|Net interest income                  |  | $             | 12,507 |   |               | $ | 3,395 |               |  | $ | 3,600         |  |  | $             | 3,590 |   |               | $
|Provision for loan losses            |  |               | 4,847  |   |               |   | 643   |               |  |   | 538           |  |  |               | 2,204 |   |               |  
|Other income                         |  |               | 3,557  |   |               |   | 995   |               |  |   | 973           |  |  |               | 795   |   |               |  
|Other expense                        |  |               | 12,198 |   |               |   | 3,251 |               |  |   | 3,204         |  |  |               | 2,949 |   |               |  
|Income (loss) before taxes           |  | $             | (981   | ) |               | $ | 496   |               |  | $ | 831           |  |  | $             | (768  | ) |               | $
|Provision (benefit) for income taxes |  |               | (569   | ) |               |   | 179   |               |  |   | 131           |  |  |               | (125  | ) |               |  
|Net income (loss)                    |  | $             | (412   | ) |               | $ | 317   |               |  | $ | 700           |  |  | $             | (643  | ) |               | $
|                                     |  |               |        |   |               |   |       |               |  |   |               |  |  |               |       |   |               |  
|Earnings per common share:           |  |               |        |   |               |   |       |               |  |   |               |  |  |               |       |   |               |  
|Basic                                |  | $             | (0.05  | ) |               | $ | 0.04  |               |  | $ | 0.09          |  |  | $             | (0.08 | ) |               | $
|Diluted                              |  | $             | (0.05  | ) |               | $ | 0.04  |               |  | $ | 0.09          |  |  | $             | (0.08 | ) |               | $





56







|                                     |  | Year ended                 |        |   | Quarter ended              |   |      | Quarter ended              |  |   | Quarter ended              |   |  | Quarter ended              |        |   | Year ended                 |  
|------------------------------------ |  | -------------------------- | ------ | - | -------------------------- | - | ---- | -------------------------- |  | - | -------------------------- | - |  | -------------------------- | ------ | - | -------------------------- | -
|                                     |  | June
    30, 2010          |        |   | September
    30, 2010     |   |      | December
    31, 2010      |  |   | March
    31, 2011         |   |  | June
    30, 2011          |        |   | June
    30, 2011          |  
|(in thousands)                       |  | (amount
    of
adjustment) |        |   | (amount
    of
adjustment) |   |      | (amount
    of
adjustment) |  |   | (amount
    of
adjustment) |   |  | (amount
    of
adjustment) |        |   | (amount
    of
adjustment) |  
|Net interest income                  |  | $                          | -      |   |                            | $ | -    |                            |  | $ | -                          |   |  | $                          | -      |   |                            | $
|Provision for loan losses            |  |                            | 2,338  |   |                            |   | (76  | )                          |  |   | (199                       | ) |  |                            | (1,767 | ) |                            |  
|Other income                         |  |                            | -      |   |                            |   | -    |                            |  |   | -                          |   |  |                            | -      |   |                            |  
|Other expense                        |  |                            | -      |   |                            |   | -    |                            |  |   | -                          |   |  |                            | -      |   |                            |  
|Income (loss) before taxes           |  | $                          | (2,338 | ) |                            | $ | 76   |                            |  | $ | 199                        |   |  | $                          | 1,767  |   |                            | $
|Provision (benefit) for income taxes |  |                            | (912   | ) |                            |   | 30   |                            |  |   | 78                         |   |  |                            | 689    |   |                            |  
|Net income (loss)                    |  | $                          | (1,426 | ) |                            | $ | 46   |                            |  | $ | 121                        |   |  | $                          | 1,078  |   |                            | $
|                                     |  |                            |        |   |                            |   |      |                            |  |   |                            |   |  |                            |        |   |                            |  
|Earnings per common share:           |  |                            |        |   |                            |   |      |                            |  |   |                            |   |  |                            |        |   |                            |  
|Basis                                |  | $                          | (0.18  | ) |                            | $ | 0.00 |                            |  | $ | 0.01                       |   |  | $                          | 0.15   |   |                            | $
|Diluted                              |  | $                          | (0.18  | ) |                            | $ | 0.00 |                            |  | $ | 0.01                       |   |  | $                          | 0.15   |   |                            | $



57









NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



United Community Bancorp (the “Company”) is a Federally-chartered
corporation, which was organized to be the mid-tier holding company for United Community Bank (the “Bank”), which is
a Federally-chartered, FDIC-insured savings bank. The Company was organized in conjunction with the Bank’s reorganization
from a mutual savings bank to the mutual holding company structure on March 30, 2006. United Community MHC, a Federally-chartered
corporation, is the mutual holding company parent of the Company. At June 30, 2011, United Community MHC owned 59% of the
Company’s outstanding common stock and must always own at least a majority of the voting stock of the Company. In addition
to the shares of the Company, United Community MHC was capitalized with $100,000 in cash from the Company. The Company, through
the Bank, operates in a single business segment providing traditional banking services through its office and branches in Southeastern
Indiana. UCB Real Estate Management Holdings, LLC, a wholly-owned subsidiary of United Community Bank, was formed for the purpose
of holding and operating real estate assets that are acquired by the Bank through, or in lieu of, foreclosure. UCB Financial Services,
Inc, a wholly-owned subsidiary of United Community Bank, was formed for the purpose of collecting commissions on investments referred
to Lincoln Financial Group.



The Company evaluates events and transactions occurring subsequent
to the date of the financial statements for matters requiring recognition or disclosure in the financial statements.



PRINCIPLES OF CONSOLIDATION – The consolidated financial
statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated.



RECLASSIFICATIONS – Certain year-to-date and prior year
amounts presented have been reclassified in order to conform to the current year presentation.



USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). In preparing consolidated financial statements in accordance with GAAP, management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The most significant estimates and assumptions in the Company’s financial statements are recorded in the allowances
for loan and other real estate losses and deferred income taxes. Actual results could differ significantly from those estimates.



CASH AND CASH EQUIVALENTS – For purposes of reporting
cash flows, cash and cash equivalents include cash and interest-bearing deposits in other financial institutions with original
maturities of less than ninety days.



INVESTMENT SECURITIES – Investment and mortgage-backed
securities are classified upon acquisition into one of three categories: held to maturity, trading, and available for sale, in
accordance with FASB Accounting Standards Codification (ASC) Topic 320, Investments. Debt securities that the Bank has the
positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt
and equity securities that are bought and held principally for the purpose of selling in the near-term are classified as trading
securities and reported at fair value, with unrealized gains and losses included in earnings. The Bank had no trading securities
at June 30, 2011 or 2010. Debt and equity securities not classified as either held to maturity securities or trading securities
are classified as available for sale securities and reported at fair value, with unrealized gains or losses excluded from earnings
and reported as a separate component of stockholders’ equity, net of deferred taxes.



Securities are recorded net of applicable premium or discount
with the premium or discount being amortized on the interest method over the estimated average life of the investment.



The Bank designates its investments in U. S. League Intermediate-Term
Portfolio, certain municipal bonds, and mortgage-backed securities as available for sale.



Gains and losses realized on the sale of investment securities
are accounted for on the trade date using the specific identification method.



LOANS RECEIVABLE - Loans receivable that management has the
intent and ability to hold until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any
charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or
discounts on purchased loans. Interest on loans is calculated by using the simple interest method on daily balances of the principal
amount outstanding. Loans held for sale are recorded at lower of cost or market determined in the aggregate. Loans are designated
for sale as a part of the Bank’s asset/liability management strategy. Market value is determined based on expected volatility
in interest rates and the anticipated holding period before the loan is sold. Due to the holding period being short term, the market
value and cost of the loan are approximately the same. The Bank had $196,000 and $364,000 in loans held for sale at June 30,
2011 and 2010, respectively. Loans held for sale are carried at lower of cost or fair market value.





58







The Bank defers all loan origination fees, net of certain direct
loan origination costs, and amortizes them over the contractual life of the loan as an adjustment of yield in accordance with ASC
310-20, Receivables – Nonrefundable Fees and Other.



The Bank retains the servicing on loans sold and agrees to remit
to the investor loan principal and interest at agreed-upon rates. These rates can differ from the loan’s contractual interest
rate resulting in a “yield differential.” In addition to previously deferred loan origination fees and cash gains,
gains on the sale of loans can represent the present value of the future yield differential less normal servicing fees, capitalized
over the estimated life of the loans sold. Normal servicing fees are determined by reference to the stipulated minimum servicing
fee set forth by the government agencies to which the loans are sold. Such servicing fees are amortized to operations over the
life of the loans using the interest method. If prepayments are higher than expected, an immediate charge to operations is made.
If prepayments are lower than original estimates, then the related adjustments are made prospectively.



The mortgage servicing rights recorded by the Bank are segregated
into pools for valuation purposes using as pooling criteria the loan term and coupon rate in accordance with ASC 860-50-30.
Once pooled, each grouping of loans is evaluated on a discounted earnings basis to determine the present value of the future earnings
that a purchaser could expect to realize from each portfolio. Earnings are projected from a variety of sources including loan-servicing
fees, interest earned on float, net interest earned on escrows, miscellaneous income and costs to service the loans. The present
value of future earnings is the “economic” value for the pool. The Company has selected the amortized cost method for
valuation under guidance of ASC 860-50, Transfers and Servicing – Servicing Assets and Liabilities.



The allowance for loan and real estate losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management’s quarterly evaluation of the adequacy of
the allowance is based on the Bank’s past loan loss experience, known and inherent risks such as amount of loan, type of
loan, concentrations, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, present value of expected future cash flows to support the loan, and current economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan
losses. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of Management.



Although Management uses the best information available to make
these estimates, future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions
that may be beyond the Bank’s control.



The Bank’s internal asset review committee reviews each
loan with three or more delinquent payments, and each loan ninety days or more past due, and decides on whether the circumstances
involved give reason to place the loan on non-accrual status. The Board of Directors reviews this information as determined by
the internal asset review committee each month. Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is
a sustained period of repayment performance by the borrower, in accordance with the contractual terms of interest and principal.
While a loan is classified as non-accrual, interest income is generally recognized on a cash basis.



A loan is defined as impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the
loan agreement. The Bank considers its investment in one-to-four family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Bank’s
investment in multi-family and nonresidential loans, such loans are determined to be cash flow dependent or collateral dependent.
For collateral dependent loans, as a practical expedient, are carried at the lower of cost or fair value based upon the most recent
real estate appraisals. Cash flow dependent loans are carried at lower of cost or fair value based on the present value of expected
future cash flows. Loans which are more than ninety days delinquent and are considered to constitute more than a minimum delay
in repayment are evaluated for impairment at that time.



Cash receipts on a nonaccrual loan are applied to principal
and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts,
whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is
generally returned to accrual status when principal and interest payments are current, full collectibility of principal and interest
is reasonably assured and a consistent record of performance has been demonstrated.



It is the Savings Bank’s policy to charge off unsecured
credits that are more than one hundred and twenty days delinquent. Similarly, loans which are more than ninety days delinquent
are considered to constitute more than a minimum delay in repayment and are evaluated for impairment at that time. Impaired
loans would be charged off in the same manner as all loans are subject to charge off.



From time to time, as part of our loss mitigation process, loans
may be renegotiated in a troubled debt restructuring (TDR) when we determine that greater economic value will ultimately be recovered
under the new terms than through foreclosure, liquidation, or bankruptcy. We may consider the borrower’s payment status and
history, the borrower’s ability to pay upon a rate reset on an adjustable rate mortgage, size of the payment increase upon
a rate reset, period of time remaining prior to the rate reset, and other relevant factors in determining whether a borrower is
experiencing financial difficulty. However, TDRs are also considered to be nonperforming, except for those that have been performing
under the new terms for at least six consecutive months. TDRs are accounted for as set forth in ASC 310 Receivables (“ASC
310”). A TDR may be on non-accrual or it may accrue interest. A TDR is typically on non-accrual until the borrower successfully
performs under the new terms for six consecutive months. However, a TDR may be placed on accrual immediately following the TDR
in those instances where a borrower’s payments are current prior to the modification and management determines that principal
and interest under the new terms are fully collectible.



59







Existing performing loan customers who request a loan modification
(non-TDR) and who meet the Bank’s underwriting standards may, usually for a fee, modify their original loan terms to terms
currently offered. The modified terms of these loans are similar to the terms offered to new customers. The fee assessed for modifying
the loan is deferred and amortized over the life of the modified loan using the level-yield method and is reflected as an adjustment
to interest income. Each modification is examined on a loan-by-loan basis and if the modification of terms represents more than
a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs associated with the mortgage
loan are recognized in interest income at the time of the modification. If the modification of terms does not represent more than
a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs continue to be deferred.



CONCENTRATION OF CREDIT RISK - The Bank grants residential and
commercial loans to customers in local counties in Southeastern Indiana, Northern Kentucky, and Southwestern Ohio. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent
upon the local economy. Management maintains deposit accounts with financial institutions in excess of federal deposit insurance
limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.



OTHER REAL ESTATE OWNED - Real estate properties acquired through,
or in lieu of, loan foreclosure are initially recorded at fair value based on the value of the underlying collateral at the date
of foreclosure, and are transferred to the Bank’s wholly-owned subsidiary, UCB Real Estate Management Holdings, LLC. Holding
costs, including losses from operations, are expensed when incurred. Valuations are periodically performed, and an allowance for
losses is established by a charge to operations if the carrying value of a property exceeds its estimated net realizable value.



PROPERTY AND EQUIPMENT - Property and equipment is carried at
cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. The estimated useful
lives are as follows:



|Land improvements       | 7 - 15  years 
|----------------------- | --------------
|Buildings               | 15 - 39  years
|Furniture and equipment | 3 - 10  years 



Significant renewals and betterments are charged to the property
and equipment account. Maintenance and repairs are charged to operations in the period incurred.



INCOME TAXES – The Company accounts for income taxes in
accordance with ASC 740-10-50. Pursuant to the provisions of ASC 740-10-50, a deferred tax liability or deferred tax asset is computed
by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability
and its reported amount in the consolidated financial statements that will result in taxable or deductible amounts in future periods.
Deferred tax assets are recorded only to the extent that the amount of net deductible or taxable temporary differences or carry
forward attributes may be utilized against current period earnings, carried back against prior years’ earnings, offset against
taxable temporary differences reversing in future periods, or utilized to the extent of management’s estimate of future taxable
income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences
and carry forward attributes exceeds management’s estimates of taxes payable on future taxable income. Deferred tax liabilities
are provided on the total amount of net temporary differences taxable in the future. The Company applies a more likely than not
recognition threshold for all tax uncertainties.



The Company’s principal temporary differences between
pretax financial income and taxable income result primarily from timing differences for certain components of compensation and
post-retirement expense, book and tax bad debt deductions, and amortization of goodwill and other intangible assets. Additional
temporary differences result from depreciation expense computed utilizing accelerated methods for tax purposes, and for limitations
on annual deductions related to charitable contributions to the UCB Charitable Foundation.



The determination of current and deferred income taxes is an
accounting estimate which is based on the analyses of many factors including interpretation of federal and state income tax laws,
the evaluation of uncertain tax positions, differences between the tax and financial reporting basis of assets and liabilities
(temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial
accounting standards. Actual results could differ from the estimates and tax law interpretations used in determining the current
and deferred income tax liabilities.





60









EMPLOYEE STOCK OWNERSHIP PLAN - The Company accounts for the
United Community Bank Employee Stock Ownership Plan (“ESOP”) in accordance with ASC 718-40, Compensation –
Stock Compensation – Employee Stock Ownership Plans. ESOP shares pledged as collateral are reported as unearned ESOP
shares in stockholders’ equity. As shares are committed to be released from collateral, the Bank will record compensation
expense equal to the current market price of the shares. To the extent that the fair value of the ESOP shares differs from the
cost of such charges, the difference is recorded to stockholders’ equity as additional paid-in capital. Additionally, the
shares become outstanding for basic net income per share computations.



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



EARNINGS PER SHARE – Effective July 1, 2009, the
Company adopted ASC 260-10-65-2, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating
Securities. This guidance concludes that non-vested shares with non-forfeitable dividend rights are considered participating
securities and, thus, subject to the two-class method pursuant to ASC 260, Earnings per Share,when computing basic and
diluted EPS. The Company’s restricted share awards contain non-forfeitable dividend rights but do not contractually obligate
the holders to share in the losses of the Company. Accordingly, during periods of net income, unvested restricted shares are included
in the determination of both basic and diluted EPS. During periods of net loss, these shares are excluded from both basic and diluted
EPS.



Basic earnings per share (“EPS”) is based on the
weighted average number of common shares and unvested restricted shares outstanding, adjusted for ESOP shares not yet committed
to be released. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock,
such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock. Diluted
EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effects of contracts
or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method.



Due to the net loss incurred for the year ended June 30,
2011, 27,702 unvested restricted shares were excluded from the computation of basic and diluted earnings (loss) per share. For
each of the years ended June 30, 2011 and 2010, outstanding options to purchase 346,304 shares were excluded from the computations
of diluted earnings per share as their effect would have been anti-dilutive. The following is a reconciliation of the basic and
diluted weighted average number of common shares outstanding:



|                                            |  | June 30, |          
|------------------------------------------- |  | -------- | ---------
|                                            |  | 2011     |          
|                                            |  |          |          
|Basic weighted average outstanding shares   |  |          | 7,627,418
|Effect of dilutive stock options            |  |          | —        
|Diluted weighted average outstanding shares |  |          | 7,627,418



COMPREHENSIVE INCOME (LOSS) – The Company presents in
the consolidated statement of comprehensive income (loss) those amounts from transactions and other events which currently are
excluded from the consolidated statement of operations and are recorded directly to stockholders’ equity.



GOODWILL – In June 2010, the Company acquired three branches
from Integra Bank National Association (“Integra”), which was accounted for under the purchase method of accounting.
Under the purchase method, the Company is required to allocate the cost of an acquired company to the assets acquired, including
identified intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. The excess
cost over the value of net assets acquired represents goodwill, which is not subject to amortization.



Goodwill arising from business combinations represents the value
attributable to unidentifiable intangible elements in the business acquired. Goodwill recorded by the Company in connection with
its acquisition relates to the inherent value in the business acquired and this value is dependent upon the Company’s ability
to provide quality, cost-effective services in a competitive market place. As such, goodwill value is supported ultimately by revenue
that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to
deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings
in future periods.





61







Goodwill is not amortized but is tested for impairment when
indicators of impairment exist, or at least annually, to determine the reasonableness of the recorded amount. Potential goodwill
impairment exists when the fair value of the reporting unit (as defined by US GAAP) is less than its carrying value. An impairment
loss is recognized in earnings only when the carrying amount of goodwill is less than its implied fair value.



FAIR VALUE OF FINANCIAL INSTRUMENTS – ASC 820, Fair
Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments, both assets and liabilities,
whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate the value. For financial instruments
where quoted market prices are not available, fair values are estimated using present value or other valuation methods.



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



Cash and cash equivalents

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



Investments and mortgage-backed securities

For investment securities (debt instruments) and mortgage-backed
securities, fair values are based on quoted market prices, where available. If a quoted market price is not available, fair value
is estimated using quoted market prices of comparable instruments.



Loans receivable

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



Federal Home Loan Bank stock

The Bank is a member of the Federal Home Loan Bank system and
is required to maintain an investment based upon a pre-determined formula. The carrying values presented in the consolidated statements
of position approximate fair value.



Deposits

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



Advance from Federal Home Loan Bank

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



Off-balance sheet items

Carrying value is a reasonable estimate of fair value. These
instruments are generally variable rate or short-term in nature, with minimal fees charged.



ADVERTISING - The Bank expenses advertising costs as incurred.
Advertising costs consist primarily of television, radio, newspaper and billboard advertising.



EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS



In June 2011, the FASB issued Accounting Standards Update (ASU)
2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income
along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and
a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income
as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must
be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The
ASU is effective December 15, 2011. Although the adoption of this ASU will impact the way the Company currently reports comprehensive
income, it is not expected to have a material impact on the Company’s financial statements.



62







In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which
generally represents clarifications of Topic 820, Fair ValueMeasurements, but also includes certain instances where a particular
principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU
is intended to result in common principles and requirements for measuring fair value and for disclosing information about fair
value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 is effective
prospectively for interim and annual periods beginning after December 15, 2011 with earlier application not permitted. This
ASU is not expected to have a material impact on the Company’s financial statements.



In April 2011, the FASB issued ASU 2011-02, Receivables (Topic
310) – A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which clarifies
which loan modifications constitute troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled
debt restructuring, a creditor must separately conclude under the guidance in ASU 2011-02 that the restructuring constitutes a
concession and that the debtor is experiencing financial difficulties. The amendments also clarify that a creditor is precluded
from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether
a restructuring constitutes a troubled debt restructuring. ASU 2011-02 is effective for the first interim or annual period beginning
on or after June 15, 2011. This ASU is not expected to have a material impact on the Company’s financial statements.



In December 2010, the FASB issued ASU 2010-29, Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity
presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting
period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the
nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2010. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s financial statements.



In December 2010, the FASB issued ASU 2010-28, When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1
of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.
In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance,
which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities,
the amendments in this Update are effective for fiscal year, and interim periods within those years, beginning after December 15,
2010. Early adoption is not permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.



In July 2010, the FASB issued Accounting Standards Update (ASU)
2010-20, “Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The
purpose of this Update is to improve transparency by companies that hold financing receivables, including loans, leases and other
long-term receivables. The Update requires such companies to disclose more information about the credit quality of their financing
receivables and the credit reserves against them. This guidance became effective during the three month period ended December 31,
2010, with the exception of certain disclosures which include information for activity that occurs during a reporting period (activity
in the allowance for credit losses and modifications of financing receivables) which will be effective for the first interim
or annual period beginning after December 15, 2011.



In April 2010, the FASB issued ASU No. 2010-18, Receivables
(Topic 310): Effect of Loan Modification when the Loan is Part of a Pool that is accounted for as a Single Asset (a consensus of
the FASB Emerging Issues Task Force). The amendments in this update affect any entity that acquires loans subject to ASC Subtopic
310-30, that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after
acquisition. ASU No. 2010-18 became effective for modifications of loans accounted for within pools under Subtopic 310-30
occurring in the interim period ending September 30, 2010, and the amendments are to be applied prospectively. The adoption
of this guidance did not have a material impact on the Company’s financial statements.





63







In January 2010, the FASB issued ASU No. 2010-06, Improving
Disclosure about Fair Value Measurements, under Topic 820, Fair value Measurements and Disclosures, to improve and provide
new disclosures for recurring and nonrecurring fair value measurements under the three-level hierarchy of inputs for transfers
in and out of Levels 1 and 2, and activity in Level 3. This update also clarifies existing disclosures of the level of disaggregation
for the classes of assets and liabilities and the disclosure about inputs and valuation techniques. ASU No. 2010-06 became
effective during the year ended June 30, 2010, except for the disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements, which becomes effective for the interim period ending September 30,
2011. The adoption of this remaining guidance is not expected to have a material impact on the Company’s financial statements.



NOTE 3 – PLAN OF CONVERSION AND REORGANIZATION



The Boards of Directors of United Community Bancorp, MHC (“MHC”)
and the Company adopted a Plan of Conversion and Reorganization (the “Plan”) on March 10, 2011 as amended and
restated on May 12, 2011. Pursuant to the Plan, the MHC will convert from the mutual holding company form of organization to the
fully public form. The MHC will be merged into the Company, and the MHC will no longer exist. The Company will merge into a new
Indiana corporation named United Community Bancorp. As part of the conversion, the MHC’s ownership interest of the Company
will be offered for sale in a public offering. The existing publicly held shares of the Company, which represents the remaining
ownership interest in the Company, will be exchanged for new shares of common stock of United Community Bancorp, the new Indiana
corporation. The exchange ratio will ensure that immediately after the conversion and public offering, the public shareholders
of the Company will own the same aggregate percentage of United Community Bancorp common stock that they owned immediately prior
to that time (excluding shares purchased in the stock offering and cash received in lieu of fractional shares). When the conversion
and public offering are completed, all of the capital stock of United Community Bank will be owned by United Community Bancorp,
the Indiana corporation.



The Plan provides for the establishment, upon the completion
of the conversion, of special “liquidation accounts” for the benefit of certain depositors of United Community Bank
in an amount equal to the greater of the MHC’s ownership interest in the retained earnings of the Company as of the date
of the latest balance sheet contained in the prospectus or the retained earnings of United Community Bank at the time it reorganized
into the MHC. Following the completion of the conversion, under the rules of the Office of Thrift Supervision, United Community
Bank will not be permitted to pay dividends on its capital stock to United Community Bancorp, its sole shareholder, if United Community
Bank’s shareholder’s equity would be reduced below the amount of the liquidation accounts. The liquidation accounts
will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases
will not restore an eligible account holder’s interest in the liquidation accounts.



Direct costs of the conversion and public offering will be deferred
and reduce the proceeds from the shares sold in the public offering. If the conversion and public offering are not completed, all
costs will be charged to expense in the period in which the public offering is terminated. Costs of $557,000 have been incurred
and capitalized related to the conversion as of June 30, 2011.



NOTE 4 – ACQUISITION



On June 4, 2010 the Bank completed the purchase of three
banking offices of Integra Bank Corporation’s wholly-owned bank subsidiary, Integra Bank N.A., located in Milan, Versailles,
and Osgood, Indiana and a portfolio of selected loans originated by other offices of Integra Bank. This acquisition was consistent
with the Bank’s strategy to strengthen and expand its Southeast Indiana market share. This transaction added $53.0 million
in deposits and $45.9 million in loans. The deposits were purchased at a premium of 4.50%. As a result of the acquisition, the
Company recorded a core deposit intangible asset of $1,400,000 and goodwill of $2,522,000. The results of operations for this acquisition
have been included since the transaction date of June 4, 1010. None of these purchased loans have shown evidence of credit
deterioration since origination. Expenses associated with this transaction were $38,000 and $439,000 for the years ended June 30,
2011 and 2010, respectively.



64







NOTE 5 – INVESTMENT AND MORTGAGE-BACKED SECURITIES

Investment securities available for sale at June 30, 2011
consist of the following:



|                                           |  | Amortized Cost |         |  | Gross Unrealized Gains |   |     | Gross Unrealized Losses |  |   | Estimated Market Value | 
|------------------------------------------ |  | -------------- | ------- |  | ---------------------- | - | --- | ----------------------- |  | - | ---------------------- | 
|                                           |  | (In thousands) |        
|                                           |  |                |         |  |                        |   |     |                         |  |   |                        | 
|Mortgage-backed securities                 |  | $              | 73,827  |  |                        | $ | 364 |                         |  | $ | 72                     | 
|U. S. Government corporations and agencies |  |                | 28,817  |  |                        |   | 39  |                         |  |   | —                      | 
|Municipal bonds                            |  |                | 19,744  |  |                        |   | 544 |                         |  |   | 44                     | 
|Other equity securities                    |  |                | 210     |  |                        |   | —   |                         |  |   | 80                     | 
|Total                                      |  | $              | 122,598 |  |                        | $ | 947 |                         |  | $ | 196                    | 



Investment securities held to maturity at June 30, 2011
consist of the following:









|                |  | Amortized Cost |     |  | Gross Unrealized Gains |   |   | Gross Unrealized Losses |  |   | Estimated Market Value | 
|--------------- |  | -------------- | --- |  | ---------------------- | - | - | ----------------------- |  | - | ---------------------- | 
|                |  | (In thousands) |    
|Municipal bonds |  | $              | 564 |  |                        | $ | — |                         |  | $ | —                      | 





Investment securities available for sale at June 30, 2010
consist of the following:



|                                           |  | Amortized Cost |         |  | Gross Unrealized Gains |   |     | Gross Unrealized Losses |  |   | Estimated Market Value | 
|------------------------------------------ |  | -------------- | ------- |  | ---------------------- | - | --- | ----------------------- |  | - | ---------------------- | 
|                                           |  | (In thousands) |        
|                                           |  |                |         |  |                        |   |     |                         |  |   |                        | 
|Mortgage-backed securities                 |  | $              | 56,669  |  |                        | $ | 636 |                         |  | $ | 67                     | 
|U. S. Government corporations and agencies |  |                | 49,157  |  |                        |   | 212 |                         |  |   | —                      | 
|Municipal bonds                            |  |                | 12,538  |  |                        |   | 137 |                         |  |   | 84                     | 
|Other equity securities                    |  |                | 211     |  |                        |   | —   |                         |  |   | 82                     | 
|Total                                      |  | $              | 118,575 |  |                        | $ | 985 |                         |  | $ | 233                    | 



Investment securities held to maturity at June 30, 2010
consist of the following:



|                |  | Amortized Cost |     |  | Gross Unrealized Gains |   |   | Gross Unrealized Losses |  |   | Estimated Market Value | 
|--------------- |  | -------------- | --- |  | ---------------------- | - | - | ----------------------- |  | - | ---------------------- | 
|                |  | (In thousands) |    
|                |  |                |     |  |                        |   |   |                         |  |   |                        | 
|Municipal bonds |  | $              | 631 |  |                        | $ | — |                         |  | $ | —                      | 



Gross proceeds on the sale of investment and mortgage-backed
securities were $50,622,000 and $20,557,000 for the years ended June 30, 2011 and 2010, respectively. Gross realized gains
for the years ended June 30, 2011 and 2010 were $662,000 and $437,000, respectively. Gross realized losses for the years ended
June 30, 2011 and 2010 were $78,000 and $126,000, respectively.



The mortgage-backed securities, U.S. Government agency bonds
and municipal bonds available for sale have the following maturities at June 30, 2011:



|                                         |  | Amortized cost |         |  | Estimated market value |  
|---------------------------------------- |  | -------------- | ------- |  | ---------------------- | -
|                                         |  | (In thousands) |        
|                                         |  |                |         |  |                        |  
|Due or callable in one year or less      |  | $              | 21,608  |  |                        | $
|Due or callable in 1 - 5 years           |  |                | 81,214  |  |                        |  
|Due or callable in 5 - 10 years          |  |                | 3,129   |  |                        |  
|Due or callable in greater than 10 years |  |                | 16,437  |  |                        |  
|Total debt securities                    |  | $              | 122,388 |  |                        | $



65







All other securities available for sale at June 30, 2011
are saleable within one year. The Bank held $564,000 and $631,000 in investment securities that are being held to maturity
at June 30, 2011 and 2010, respectively. The investment securities held to maturity have annual returns of principal
and will be fully matured between 2014 and 2019.



The expected returns of principal of investments held to maturity
are as follows as of June 30, 2011 (in thousands):



|2012                |  |  |   | 43  | 
|------------------- |  |  | - | --- | 
|2013                |  |  |   | 46  | 
|2014                |  |  |   | 49  | 
|2015                |  |  |   | 176 | 
|2016                |  |  |   | 56  | 
|2017 and thereafter |  |  |   | 194 | 
|                    |  |  | $ | 564 | 



66







The table below indicates the length of time individual investment
securities and mortgage-backed securities have been in a continuous loss position at June 30, 2011 and 2010:



|                           |  | Less than 12 Months    |        |  | 12 Months or Longer |   |     | Total      | 
|-------------------------- |  | ---------------------- | ------ |  | ------------------- | - | --- | ---------- | 
|                           |  | Fair Value             |        |  | Unrealized Losses   |   |     | Fair Value | 
|                           |  | (Dollars in thousands) |       
|June 30, 2011              |  |                        |        |  |                     |   |     |            | 
|Municipal bonds            |  | $                      | 1,971  |  |                     | $ | 26  |            | 
|Mortgage-backed securities |  |                        | 18,202 |  |                     |   | 43  |            | 
|Other equity securities    |  |                        | —      |  |                     |   | —   |            | 
|                           |  |                        |        |  |                     |   |     |            | 
|                           |  | $                      | 20,173 |  |                     |   | 69  |            | 
|Number of investments      |  |                        | 11     |  |                     |   |     |            | 
|                           |  |                        |        |  |                     |   |     |            | 
|June 30, 2010              |  |                        |        |  |                     |   |     |            | 
|Municipal bonds            |  | $                      | 6,703  |  |                     | $ | 84  |            | 
|Mortgage-backed securities |  |                        | 8,888  |  |                     |   | 67  |            | 
|Other equity securities    |  |                        | —      |  |                     |   | —   |            | 
|                           |  |                        |        |  |                     |   |     |            | 
|                           |  | $                      | 15,591 |  |                     |   | 151 |            | 
|Number of investments      |  |                        | 19     |  |                     |   |     |            | 



Securities available for sale are reviewed for possible other-than-temporary
impairment on a quarterly basis. During this review, Management considers the severity and duration of the unrealized losses as
well as its intent and ability to hold the securities until recovery, taking into account balance sheet management strategies and
its market view and outlook. Management also assesses the nature of the unrealized losses taking into consideration factors such
as changes in risk-free interest rates, general credit spread widening, market supply and demand, creditworthiness of the issuer
or any credit enhancement providers, and the quality of the underlying collateral. Management does not intend to sell these securities
in the foreseeable future, and does not believe that it is more likely than not that the Bank will be required to sell a security
in an unrealized loss position prior to a recovery in its value. The decline in market value is due to changes in market interest
rates. The fair values are expected to recover as the securities approach maturity dates.



The detail of interest and dividends on investment securities
is as follows:



|                           |  | For the year ended June 30, |      
|-------------------------- |  | --------------------------- | -----
|                           |  | 2011                        |      
|                           |  | (In thousands)              |      
|Taxable interest income    |  | $                           | 2,197
|Nontaxable interest income |  |                             | 639  
|Dividends                  |  |                             | 52   
|Total                      |  | $                           | 2,888



Mortgage-backed securities available for sale at June 30,
2011 consist of the following:



| |       |  | Amortized Cost |   |        | Gross Unrealized Gains |  |   | Gross Unrealized Losses |  |  | Estimated Market Value |   
| | ----- |  | -------------- | - | ------ | ---------------------- |  | - | ----------------------- |  |  | ---------------------- | --
| |       |  | (In thousands) |   |        |                        |  |   |                         | 
| | FNMA  |  |                | $ | 51,620 |                        |  | $ | 236                     |  |  | $                      | 4 
| | FHLMC |  |                |   | 17,103 |                        |  |   | 107                     |  |  |                        | 68
| | GNMA  |  |                |   | 5,104  |                        |  |   | 21                      |  |  |                        | — 
| |       |  |                |   |        |                        |  |   |                         |  |  |                        |   
| |       |  |                | $ | 73,827 |                        |  | $ | 364                     |  |  | $                      | 72



67







Mortgage-backed securities available for sale at June 30, 2010
consist of the following:



|      |  | Amortized Cost |        |  | Gross Unrealized Gains |   |     | Gross Unrealized Losses |  |   | Estimated Market Value | 
|----- |  | -------------- | ------ |  | ---------------------- | - | --- | ----------------------- |  | - | ---------------------- | 
|      |  | (In thousands) |       
|FNMA  |  | $              | 40,237 |  |                        | $ | 345 |                         |  | $ | 11                     | 
|FHLMC |  |                | 16,432 |  |                        |   | 291 |                         |  |   | 56                     | 
|      |  |                |        |  |                        |   |     |                         |  |   |                        | 
|      |  | $              | 56,669 |  |                        | $ | 636 |                         |  | $ | 67                     | 



NOTE 6 – FINANCING RECEIVABLES

Financing receivables consist of the following:



|                                                             |  | At June 30,    |        
|------------------------------------------------------------ |  | -------------- | -------
|                                                             |  | 2011           |        
|                                                             |  | (In thousands) |        
|                                                             |  | (As Restated)  |        
|Residential real estate                                      |  |                |        
|One-to-four family                                           |  | $              | 131,153
|Multi-family – nonowner-occupied                             |  |                | 46,296 
|Construction                                                 |  |                | 1,084  
|Nonresidential real estate – commercial and office buildings |  |                | 65,156 
|Agricultural                                                 |  |                | 1,661  
|Land                                                         |  |                | 3,985  
|Commercial                                                   |  |                | 4,860  
|Consumer                                                     |  |                | 36,639 
|                                                             |  |                | 290,834
|                                                             |  |                |        
|Less:                                                        |  |                |        
|Allowance for losses, restated                               |  |                | 5,335  
|Undisbursed portion of loans in process                      |  |                | 333    
|Deferred loan costs, net                                     |  |                | (711   
|                                                             |  | $              | 285,877



As of June 30, 2011 and 2010, the Bank was servicing loans for
the benefit of others in the amount of $60,833,000 and $52,341,000, respectively. The Bank recognized $519,000 and $278,000 of
pre-tax gains on sale of loans during the years ended June 30, 2011 and 2010, respectively. The carrying value of mortgage servicing
rights approximated $547,000 and $471,000 as of June 30, 2011 and 2010, respectively. No impairment has been identified on the
mortgage service assets and correspondingly, no valuation allowance has been recognized as of June 30, 2011 and 2010.



The Company sells loans in the secondary market. Proceeds from
the sales of mortgage loans totaled $21,748,000 and $25,409,000 during the years ended June 30, 2011 and 2010, respectively.
The Bank had $196,000 and $364,000 in 1-4 family fixed rate loans designated as held for sale at June 30, 2011 and 2010, respectively.
It is generally management’s intention to hold all other loans originated to maturity or earlier repayment.



Changes in the allowance for losses on loans are as follows:



|                               |  | For the year ended June 30,  |       
|------------------------------ |  | ---------------------------- | ------
|                               |  | 2011                         |       
|                               |  | (In thousands) (As Restated) |       
|Balance at beginning of period |  | $                            | 8,019 
|Provisions charged to income   |  |                              | 4,140 
|Charge-offs                    |  |                              | (6,873
|Recoveries                     |  |                              | 49    
|Balance at end of period       |  | $                            | 5,335 



68







The following table provides information with respect to nonaccrual
loans.



|                                                             |  | At June 30,                          |       
|------------------------------------------------------------ |  | ------------------------------------ | ------
|                                                             |  | 2011                                 |       
|                                                             |  | (Dollars in thousands) (As Restated) |       
|Nonaccrual loans:                                            |  |                                      |       
|One- to four-family – owner occupied                         |  | $                                    | 1,418 
|One-to-four-family – non-owner occupied                      |  |                                      | 234   
|Multi-family residential real estate – nonowner occupied     |  |                                      | 1,742 
|                                                             |  |                                      |       
|Nonresidential real estate – commercial and office buildings |  |                                      | 566   
|Consumer                                                     |  |                                      | 240   
|Commercial                                                   |  |                                      | 240   
|Restructured nonaccrual loans:                               |  |                                      |       
|One- to four-family – owner occupied                         |  | $                                    | 1,318 
|One-to-four-family – non-owner occupied                      |  |                                      | 335   
|Multi-family residential real estate – nonowner occupied     |  |                                      | 10,358
|                                                             |  |                                      |       
|Nonresidential real estate – commercial and office buildings |  |                                      | 4,146 
|Total nonperforming loans                                    |  | $                                    | 20,597
|Number of nonaccrual loans                                   |  |                                      | 61    



From time to time, as part of the loss mitigation process, loans
may be renegotiated in a troubled debt restructuring (TDR) when we determine that greater economic value will ultimately be recovered
under the new terms than through foreclosure, liquidation, or bankruptcy. Management may consider the borrower’s payment
status and history, the borrower’s ability to pay upon a rate reset on an adjustable rate mortgage, size of the payment increase
upon a rate reset, period of time remaining prior to the rate reset, and other relevant factors in determining whether a borrower
is experiencing financial difficulty. However, TDRs are also considered to be nonperforming, except for those that have been performing
under the new terms for at least six consecutive months. TDRs are accounted for as set forth in ASC 310 Receivables (“ASC
310”). A TDR may be on non-accrual or it may accrue interest. A TDR is typically on non-accrual until the borrower successfully
performs under the new terms for six consecutive months.



Existing performing loan customers who request a loan modification
(non-TDR) and who meet the Bank’s underwriting standards may, usually for a fee, modify their original loan terms to terms
currently offered. The modified terms of these loans are similar to the terms offered to new customers. The fee assessed for modifying
the loan is deferred and amortized over the life of the modified loan using the level-yield method and is reflected as an adjustment
to interest income. Each modification is examined on a loan-by-loan basis and if the modification of terms represents more than
a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs associated with the mortgage
loan are recognized in interest income at the time of the modification. If the modification of terms does not represent more than
a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs continue to be deferred.



During the third quarter of the fiscal year ended June 30,
2011, Management began restructuring loans into a Note A/Note B format. Upon performing a global analysis of the relationship with
the borrower, the terms of Note A are calculated using current financial information to determine the amount of payment at which
the borrower would have a debt service coverage ratio of 1.5x or better. That payment is calculated based upon a 20 to 30 year
amortization period, then fixed for two years, with the loan maturing at the end of the two years. The amount for Note B is the
difference of Note A and the original amount to be refinanced, plus reasonable closing costs. It is given the same interest rate
and balloon term as Note A, but no principal or interest payments are due until maturity. While no amount of the original indebtedness
of the borrower is forgiven through this process, the full amount of Note B is charged-off. Note A is treated as any other troubled
debt restructuring and, generally, may return to accrual status after a history of performance in accordance with the restructured
terms of at least six consecutive months is established.



69







The following tables summarize TDRs by loan type and accrual
status.



|At June 30,
    2011 (As Restated)         
|-------------------------------------------
|                                           
|                                           
|                                           
|(In thousands)                             
|One- to Four-Family residential real estate
|Multifamily residential real estate        
|Nonresidential real estate                 
|                                           
|Total                                      



|At June 30, 2010 (As Restated)             
|-------------------------------------------
|                                           
|                                           
|                                           
|(In thousands)                             
|One- to Four-Family residential real estate
|Multifamily residential real estate        
|Nonresidential real estate                 
|Total                                      



At June 30, 2011, the Bank had 52 loans totaling $24.9
million that qualified as TDRs, and has established an allowance for losses on these loans of $1.2 million. With respect to the
$24.9 million in TDRs, the Bank charged off $4.5 million with respect to these loans at the time of the restructuring into the
split Note A/B. At June 30, 2011, the Bank had no other commitments to lend on its TDRs. At June 30, 2010, the Bank had
19 loans totaling $14.6 million that qualified as TDRs, and has reserved for losses on these loans of $3.2 million. Management
continues to monitor the performance of loans classified as TDRs.



The following table is a rollforward of activity in our TDRs
for the fiscal year ending June 30, 2011.



|(Dollar amounts in thousands) |  | Recorded Investment |        |   | Number of Loans | 
|----------------------------- |  | ------------------- | ------ | - | --------------- | 
|Beginning balance             |  | $                   | 11,372 |   |                 | 
|Additions to TDRs             |  |                     | 15,118 |   |                 | 
|Charge offs                   |  |                     | (1,995 | ) |                 | 
|Payments                      |  |                     | (743   | ) |                 | 
|                              |  | $                   | 23,752 |   |                 | 



Loans that were included in troubled debt restructuring at June 30,
2011 and 2010 were generally given concessions of interest rate reductions of between 25 and 300 basis points, and/or structured
as interest only payment loans for periods of one to three years. Many of these loans also have balloon payments due at the end
of their lowered rate period, requiring the borrower to refinance at market rates at that time. At June 30, 2011, there were
43 loans with required principal and interest payments, 9 loans with required interest only payments. At June 30, 2010, there
were nine loans with required principal and interest payments, eight loans with required interest only payments, and two loans
with no payments due until 2011. The overall increases in troubled debt restructurings from June 30, 2010 to June 30,
2011 related to continued weakness in the economy.



Interest income that would have been recorded for the years
ended June 30, 2011 and 2010 had nonaccruing loans been current according to their original terms was $274,000 and $774,000,
respectively. No interest related to nonaccrual loans was included in interest income for the years ended June 30, 2011 and
2010.



70







The following table illustrates certain disclosures required
by ASC 310-10-50-11B(c), (g) and (h).



Allowance for Credit Losses and Recorded Investment in Loans Receivable



For the year ended June 30, 2011 (As
        Restated)





|                                                          |  | One- to Four- Family Mortgage Owner
    Occupied |         |   | Consumer |   |        | One- to Four- Family Mortgage Nonowner-
    Occupied |  |   | Multi- Family Mortgage Nonowner- Occupied |  |  | Non- Residential Real Estate |        |   | Construction |   |        | Land |  |   | Commercial and Agricultural |   |  | Total |      
|--------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | -------- | - | ------ | ---------------------------------------------------- |  | - | ----------------------------------------- |  |  | ---------------------------- | ------ | - | ------------ | - | ------ | ---- |  | - | --------------------------- | - |  | ----- | -----
|                                                          |  | (In thousands)                                   |        
|Allowance for Credit Losses:                              |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Beginning Balance:                                        |  | $                                                | 419     |   |          | $ | 908    |                                                      |  | $ | —                                         |  |  | $                            | 3,159  |   |              | $ | 3,298  |      |  | $ | 4                           |   |  | $     | 10   
|Charge offs                                               |  |                                                  | (803    | ) |          |   | (959   | )                                                    |  |   | —                                         |  |  |                              | (2,008 | ) |              |   | (3,065 | )    |  |   | —                           |   |  |       | —    
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Recoveries                                                |  |                                                  | 26      |   |          |   | 15     |                                                      |  |   | —                                         |  |  |                              | —      |   |              |   | 7      |      |  |   | —                           |   |  |       | —    
|Provision                                                 |  |                                                  | 1,158   |   |          |   | 346    |                                                      |  |   | 112                                       |  |  |                              | 1,459  |   |              |   | 1,222  |      |  |   | (1                          | ) |  |       | 2    
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Ending Balance:                                           |  | $                                                | 800     |   |          | $ | 310    |                                                      |  | $ | 112                                       |  |  | $                            | 2,610  |   |              | $ | 1,462  |      |  | $ | 3                           |   |  | $     | 12   
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Balance, Individually
    Evaluated                       |  | $                                                | 18      |   |          | $ | —      |                                                      |  | $ | —                                         |  |  | $                            | 1,573  |   |              | $ | —      |      |  | $ | —                           |   |  | $     | —    
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Balance, Collectively Evaluated                           |  | $                                                | 782     |   |          | $ | 310    |                                                      |  | $ | 112                                       |  |  | $                            | 1,037  |   |              | $ | 1,462  |      |  | $ | 3                           |   |  | $     | 12   
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Financing receivables:                                    |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Ending Balance                                            |  | $                                                | 112,902 |   |          | $ | 36,639 |                                                      |  | $ | 18,251                                    |  |  | $                            | 46,296 |   |              | $ | 65,156 |      |  | $ | 1,084                       |   |  | $     | 3,985
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Ending Balance: individually
    evaluated for impairment |  | $                                                | —       |   |          | $ | —      |                                                      |  | $ | 531                                       |  |  | $                            | 11,223 |   |              | $ | 4,545  |      |  | $ | 167                         |   |  | $     | —    
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Ending Balance: collectively
    evaluated for impairment |  | $                                                | 97,258  |   |          | $ | 29,640 |                                                      |  | $ | 16,744                                    |  |  | $                            | 34,568 |   |              | $ | 53,694 |      |  | $ | 917                         |   |  | $     | 3,743
|                                                          |  |                                                  |         |   |          |   |        |                                                      |  |   |                                           |  |  |                              |        |   |              |   |        |      |  |   |                             |   |  |       |      
|Ending Balance: loans acquired
    at fair value          |  | $                                                | 15,644  |   |          | $ | 6,999  |                                                      |  | $ | 976                                       |  |  | $                            | 505    |   |              | $ | 6,917  |      |  | $ | —                           |   |  | $     | 242  



Federal regulations require us to review
and classify our assets on a regular basis. In addition, the OCC has the authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard
assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some
loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions
and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible
and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special
mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as special
mention, we account for those classifications when establishing a general allowance for loan losses. If we classify an asset as
substandard, doubtful or loss, we establish a specific allowance for the asset at that time.



71







The following table illustrates certain disclosures required
by ASC 310-10-50-29(b) at June 30, 2011.



|                |  | Credit Risk Profile by Internally Assigned Grade |        
|--------------- |  | ------------------------------------------------ | -------
|                |  | One- to Four- Family Mortgage Owner Occupied     |        
|                |  | (In thousands)                                   |        
|Grade:          |  |                                                  |        
|                |  |                                                  |        
|Pass            |  | $                                                | 100,380
|                |  |                                                  |        
|Watch           |  |                                                  | 6,805  
|                |  |                                                  |        
|Special mention |  |                                                  | 1,002  
|                |  |                                                  |        
|Substandard     |  |                                                  | 4,715  
|                |  |                                                  |        
|Total:          |  | $                                                | 112,902



The following table illustrates certain
disclosures required by ASC 310-10-50-7A for gross loans.



At June 30, 2011:



|Age Analysis of Past Due Loans Receivable                                 
|--------------------------------------------------------------------------
|                                                                          
|                                                                          
|Mortgage one-to-four
    family – owner occupied                          
|Consumer                                                                  
|One- to four-family mortgage
    nonowner occupied                        
|Multi-family mortgage nonowner
    occupied                               
|Non-residential real estate
    mortgage – commercial and office buildings
|Construction                                                              
|Land                                                                      
|Commercial
    and agricultural                                           
|Total                                                                     



The following table illustrates certain disclosures required
by ASC 310-10-50-15.



|                                                                       |  | Impaired Loans For the year ended June 30, 2011 (As Restated) |      
|---------------------------------------------------------------------- |  | ------------------------------------------------------------- | -----
|                                                                       |  | Recorded investment                                           |      
|                                                                       |  |                                                               |      
|With an allowance recorded:                                            |  |                                                               |      
|Mortgage – one-to-four family – owner occupied                         |  | $                                                             | 26   
|Consumer                                                               |  |                                                               | —    
|One- to four-family nonowner- occupied                                 |  |                                                               | —    
|Multi-family nonowner-occupied                                         |  |                                                               | 6,484
|Non-residential real estate mortgage – commercial and office buildings |  |                                                               | —    
|                                                                       |  |                                                               |      
|Construction                                                           |  |                                                               | —    
|                                                                       |  |                                                               |      
|Land                                                                   |  |                                                               | —    
|                                                                       |  |                                                               |      
|Commercial and agricultural                                            |  |                                                               | —    
|                                                                       |  |                                                               |      
|Total                                                                  |  | $                                                             | 6,510



72







|                                                                       |  | Impaired Loans For the year ended June 30, 2011 (As Restated)
|---------------------------------------------------------------------- |  | -------------------------------------------------------------
|                                                                       |  | Recorded investment                                          
|                                                                       |  |                                                              
|Without an allowance recorded:                                         |  |                                                              
|Mortgage – one-to-four family – owner occupied                         |  | $                                                            
|Consumer                                                               |  |                                                              
|One- to four-family nonowner- occupied                                 |  |                                                              
|Multi-family nonowner-occupied                                         |  |                                                              
|Non-residential real estate mortgage – commercial and office buildings |  |                                                              
|                                                                       |  |                                                              
|Construction                                                           |  |                                                              
|                                                                       |  |                                                              
|Land                                                                   |  |                                                              
|                                                                       |  |                                                              
|Commercial and agricultural                                            |  |                                                              
|                                                                       |  |                                                              
|Total                                                                  |  | $                                                            



|                                                                       |  | Impaired Loans For the year ended June 30, 2011 (As Restated)
|---------------------------------------------------------------------- |  | -------------------------------------------------------------
|                                                                       |  | Recorded investment                                          
|                                                                       |  |                                                              
|Total:                                                                 |  |                                                              
|Mortgage – one-to-four family – owner occupied                         |  | $                                                            
|Consumer                                                               |  |                                                              
|One- to four-family nonowner- occupied                                 |  |                                                              
|Multi-family nonowner-occupied                                         |  |                                                              
|Non-residential real estate mortgage – commercial and office buildings |  |                                                              
|                                                                       |  |                                                              
|Construction                                                           |  |                                                              
|                                                                       |  |                                                              
|Land                                                                   |  |                                                              
|                                                                       |  |                                                              
|Commercial and agricultural                                            |  |                                                              
|                                                                       |  |                                                              
|Total                                                                  |  | $                                                            



Impaired loans includes troubled debt restructurings with a
principal balance of $24.9 million and a recorded investment of $23.8 million. The Bank did not have any investments in subprime
loans at June 30, 2011. At June 30, 2010, as restated, the Bank had $20.5 million of impaired loans with a related allowance
of $4.2 million.



ASC 310-30, Loans and Debt Securities Acquired with Deteriorated
Credit Quality, requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances when
initially accounting for acquired impaired loans. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers
in good standing under revolving credit agreements are excluded from the scope of this pronouncement. It limits the yield that
may be accreted to the excess of the undiscounted expected cash flows over the investor’s initial investment in the loan.
The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases
in cash flows expected to be collected are recognized prospectively through an adjustment of the loan’s yield over its remaining
life. Decreases in expected cash flows are recognized as impairments.





73







The Company acquired loans pursuant to the acquisition of Integra
branches in June 2010. The Company reviewed the loan portfolio at acquisition to determine whether there was evidence of deterioration
of credit quality since origination and if it was probable that it will be unable to collect all amounts due according to the loan’s
contractual terms. When both conditions existed, the Company accounted for each loan individually, considered expected prepayments,
and estimated the amount and timing of discounted expected principal, interest, and other cash flows (expected at acquisition)
for each loan. The Company determined the excess of the loan’s scheduled contractual principal and contractual interest payments
over all cash flows expected at acquisition as an amount that should not be accreted into interest income (nonaccretable difference).
The remaining amount, representing the excess of the loan’s cash flows expected to be collected over the amount paid, is
accreted into interest income over the remaining life of the loan (accretable yield).



Over the life of the loan, the Company continues to estimate
cash flows expected to be collected. The Company evaluates at the balance sheet date whether the present value of its loans determined
using the effective interest rates has decreased, and if so, the Company establishes a valuation allowance for the loan. Valuation
allowances for acquired loans reflect only those losses incurred after acquisition; that is, the present value of cash flows expected
at acquisition that are not expected to be collected. Valuation allowances are established only subsequent to our acquisition of
the loans. For loans that are not accounted for as debt securities, the present value of any subsequent increase in the loan’s
or pool’s actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance
for that loan. For any remaining increases in cash flows expected to be collected, the Company adjusts the amount of accretable
yield recognized on a prospective basis over the loan’s remaining life.



The following table depicts the accretable yield (in thousands)
at the beginning and end of the period.



|Balance, June 30, 2009 |  |  | $ | —    
|---------------------- |  |  | - | -----
|Additions              |  |  |   | 1,400
|Balance, June 30, 2010 |  |  | $ | 1,400
|Accretion              |  |  |   | 124  
|                       |  |  |   |      
|Balance, June 30, 2011 |  |  | $ | 1,276



NOTE 7 – OTHER REAL ESTATE OWNED



Other real estate owned consists of the following at:



|                                          |  | June 30,       |     
|----------------------------------------- |  | -------------- | ----
|                                          |  | 2011           |     
|                                          |  | (In thousands) |     
|One-to-four family                        |  | $              | —   
|Multifamily                               |  |                |     
|Land                                      |  |                | 340 
|Commercial real estate                    |  |                | —   
|Allowance for losses on real estate owned |  |                | (201
|                                          |  | $              | 139 



74







Activity in the allowance for losses on real estate owned is
as follows:



|                                          |  | For the year ended June 30, |    
|----------------------------------------- |  | --------------------------- | ---
|                                          |  | (In thousands)              |    
|                                          |  | 2011                        |    
|Balance, beginning of period              |  | $                           | 212
|Allowance for losses on real estate owned |  |                             | —  
|Charged off upon sale of property         |  |                             | (11
|Balance, end of period                    |  | $                           | 201



NOTE 8 – PROPERTY AND EQUIPMENT



Property and equipment is summarized as follows:



|                                   |  | June 30,      
|---------------------------------- |  | --------------
|                                   |  | (In thousands)
|                                   |  | 2011          
|Land and land improvements         |  | $             
|Building and building improvements |  |               
|Furniture and equipment            |  |               
|                                   |  |               
|Less: accumulated depreciation     |  |               
|                                   |  | $             



NOTE 9 – DEPOSITS



Deposits at June 30, 2011 and 2010 consist of the following:



|                                   |  | June 30, 2011          |      |   | June 30, 2010
|---------------------------------- |  | ---------------------- | ---- | - | -------------
|                                   |  | (Dollars in thousands)
|                                   |  | Weighted Average Rate  |      |   | Balance      
|                                   |  |                        |      |   |              
|Demand deposit accounts            |  |                        | 0.30 | % |              
|Passbook                           |  |                        | 0.40 | % |              
|Money market deposit accounts      |  |                        | 0.50 | % |              
|Total demand and passbook deposits |  |                        |      |   |              
|                                   |  |                        |      |   |              
|Certificates of deposit:           |  |                        |      |   |              
|Less than 12 months                |  |                        | 1.05 | % |              
|12 months to 24 months             |  |                        | 1.71 | % |              
|24 months to 36 months             |  |                        | 2.71 | % |              
|More than 36 months                |  |                        | 3.10 | % |              
|Individual retirement accounts     |  |                        | 2.78 | % |              
|                                   |  |                        |      |   |              
|Total certificates of deposit      |  |                        |      |   |              
|                                   |  |                        |      |   |              
|Total deposit accounts             |  |                        |      |   |              



75







Interest expense on deposits is as follows:



|                              |  | For the years ended June 30,
|----------------------------- |  | ----------------------------
|                              |  | 2011                        
|                              |  | (Dollars in thousands)      
|NOW and money market accounts |  | $                           
|Savings                       |  |                             
|Certificates of deposit       |  |                             
|                              |  | $                           



The aggregate amount of time deposits with a minimum denomination
of $100,000 was approximately $91,772,000 and $113,371,000 at June 30, 2011 and 2010, respectively. Individual deposits with
denominations of more than $250,000 are not federally insured.



Total non-interest bearing deposits were $30,844,000 and $28,627,000
at June 30, 2011 and 2010, respectively. Municipal deposits totaled $111,251,000 and $121,607,000 at June 30, 2011 and
2010, respectively.



Maturities of certificate accounts are approximately as follows:



|                 |  | June 30, 2011  |         |  | June 30, 2010
|---------------- |  | -------------- | ------- |  | -------------
|                 |  | (In thousands)
|One year or less |  | $              | 119,629 |  |              
|1 – 2 years      |  |                | 49,892  |  |              
|2 – 3 years      |  |                | 13,510  |  |              
|3 – 4 years      |  |                | 11,851  |  |              
|4 – 5 years      |  |                | 1,297   |  |              
|Over 5 years     |  |                | 161     |  |              
|Totals           |  | $              | 196,340 |  |              



NOTE 10 – GOODWILL AND ACQUISITION INTANGIBLES



Goodwill



The Integra acquisition included $2,522,000 in goodwill. Further
details of this transaction are included in Note 3.



As required by current accounting rules, the Company completed
its annual goodwill impairment testing as of June 30, 2011. In performing this assessment, the carrying value of the reporting
unit was compared to its estimated fair value, as calculated by a discounted present value of cash flows method. The estimated
fair value exceeded the carrying value and, therefore, no impairment charge was recorded.



Intangible Assets



The Integra acquisition included a core deposit intangible asset
of $1,400,000. Amortization expense for the year ended June 30, 2011 totaled $372,000. Amortization of the core deposit intangible
for future years is as follows (dollars in thousands):



|2012                |  |  | $ | 226
|------------------- |  |  | - | ---
|2013                |  |  |   | 179
|2014                |  |  |   | 142
|2015                |  |  |   | 118
|2016                |  |  |   | 118
|2017 and thereafter |  |  |   | 245
|                    |  |  |   | $  



76







NOTE 11 – FAIR VALUES OF ASSETS AND LIABILITIES



The estimated fair values of the Company’s financial instruments
are as follows:



|                                         |  | June 30,        
|---------------------------------------- |  | ----------------
|                                         |  | 2011            
|                                         |  | Carrying Amounts
|                                         |  | (In thousands)  
|                                         |  | (As Restated)   
|Financial assets:                        |  |                 
|Cash and interest bearing deposits       |  | $               
|Investment securities available for sale |  |                 
|Investment securities held to maturity   |  |                 
|Mortgage-backed securities               |  |                 
|Loans receivable and loans held for sale |  |                 
|Accrued interest receivable              |  |                 
|Investment in FHLB stock                 |  |                 
|                                         |  |                 
|Financial liabilities:                   |  |                 
|Deposits                                 |  | $               
|Accrued interest payable                 |  |                 
|FHLB advances                            |  |                 
|Off-balance sheet items                  |  |                 



As discussed in Note 1, Basis of Presentation and Summary
of Significant Accounting Pronouncements, ASC 820-10-50-2 also establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:





|Level 1 | Quoted prices in active markets for identical assets or liabilities.                                                                                                                                                                                                                                  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                       
|Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|        |                                                                                                                                                                                                                                                                                                       
|Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.                                                                                                                                                       



Fair value methods
and assumptions are set forth below for each type of financial instrument. Where quoted prices are available in an active market,
securities are classified within Level 1 of the valuation hierarchy. Level 2 securities include U.S. Government and
agency mortgage-backed securities, U.S. Government agency bonds, municipal securities, and other real estate owned. If quoted
market prices are not available, the Bank utilizes a third party vendor to calculate the fair value of its available for sale
securities. The third party vendor uses quoted prices of securities with similar characteristics when available. If such
quotes are not available, the third party vendor uses pricing models or discounted cash flow models with observable inputs to
determine the fair value of these securities. For other real estate owned, the Bank utilizes appraisals obtained from independent
third parties to determine fair value.





77







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



|                                          |  | Total |        |  | Quoted prices in active markets for identical assets (Level 1) |   |     | Significant other observable inputs (Level 2) |  |   | Significant other unobservable inputs (Level 3)
|----------------------------------------- |  | ----- | ------ |  | -------------------------------------------------------------- | - | --- | --------------------------------------------- |  | - | -----------------------------------------------
|June 30, 2011:                            |  |      
|Mortgage-backed securities                |  | $     | 74,119 |  |                                                                | $ | —   |                                               |  | $ | 74,119                                         
|U.S. Government corporations and agencies |  |       | 28,856 |  |                                                                |   | —   |                                               |  |   | 28,856                                         
|Municipal bonds                           |  |       | 20,244 |  |                                                                |   | —   |                                               |  |   | 20,244                                         
|Other equity securities                   |  |       | 130    |  |                                                                |   | 130 |                                               |  |   | —                                              
|June 30, 2010:                            |  |       |        |  |                                                                |   |     |                                               |  |   |                                                
|Mortgage-backed securities                |  | $     | 57,238 |  |                                                                | $ | —   |                                               |  | $ | 57,238                                         
|U.S. Government corporations and agencies |  |       | 49,369 |  |                                                                |   | —   |                                               |  |   | 49,369                                         
|Municipal bonds                           |  |       | 12,591 |  |                                                                |   | —   |                                               |  |   | 12,591                                         
|Other equity securities                   |  |       | 129    |  |                                                                |   | 129 |                                               |  |   | —                                              



78







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



|                             |  | Total          |        |  | Quoted prices in active markets for identical assets (Level 1) |   |   | Significant other observable inputs (Level 2) |  |   | Significant other unobservable inputs (Level 3)
|---------------------------- |  | -------------- | ------ |  | -------------------------------------------------------------- | - | - | --------------------------------------------- |  | - | -----------------------------------------------
|                             |  | (In thousands)
|June 30, 2011 (As Restated): |  |                |        |  |                                                                |   |   |                                               |  |   |                                                
|Other real estate owned      |  | $              | 139    |  |                                                                | $ | — |                                               |  | $ | 139                                            
|Loans available for sale     |  |                | 196    |  |                                                                |   | — |                                               |  |   | 196                                            
|Impaired loans               |  |                | 25,202 |  |                                                                |   | — |                                               |  |   | 25,202                                         
|June 30, 2010 (As Restated): |  |                |        |  |                                                                |   |   |                                               |  |   |                                                
|Other real estate owned      |  | $              | 297    |  |                                                                | $ | — |                                               |  | $ | 297                                            
|Loans held for sale          |  |                | 364    |  |                                                                |   | — |                                               |  |   | 364                                            
|Impaired loans               |  |                | 20,520 |  |                                                                |   | — |                                               |  |   | 20,520                                         



The adjustments to other real estate owned and impaired loans
are based primarily on appraisals of the real estate cash flow analysis or other observable market prices. The Bank’s policy
is that fair values for these assets are based on current appraisals or cash flow analysis.



NOTE 12 – BORROWED FUNDS



Pursuant to collateral agreements with the FHLB, advances are
secured by all stock in the FHLB and a blanket pledge agreement for qualifying first mortgage loans. The Bank had $1,833,000 and
$2,833,000 in outstanding FHLB advances at June 30, 2011 and 2010, respectively. At June 30, 2011 and 2010, the Bank
had only one advance from the FHLB. The original amount of the advance was $5,000,000 at a fixed interest rate of 3.2%. Principal
payments of $83,000 are due on a monthly basis until the loan is paid in full in April 2013. Interest payments are also due at
the time that the principal payment is made (in thousands).



|2012  |  |  | $ | 1,000
|----- |  |  | - | -----
|2013  |  |  |   | 833  
|Total |  |  | $ | 1,833



NOTE 13 – EMPLOYEE BENEFIT PLANS



401(k) Profit Sharing Plan



The Bank has a standard 401(k) profit sharing plan. Eligible
participants must be at least 18 years of age and have one year of service. The Bank makes matching contributions based on each
employee’s deferral contribution. Total expense under the plan for the years ended June 30, 2011 and 2010 totaled $123,000
and $125,000, respectively.



ESOP



As of June 30, 2011 and 2010, the ESOP owned 202,061 and
230,897 shares, respectively, of the Company’s common stock, which were held in a suspense account until released for allocation
to the participants. Additionally, as of June 30, 2011, the Company has committed to release 14,449 shares. The Company recognized
compensation expense of $204,000 and $118,000 during the years ended June 30, 2011 and 2010, respectively, which equals the
fair value of the ESOP shares during the periods in which they became committed to be released. The fair value of the unearned
ESOP shares approximated $1,263,000 at June 30, 2011.



Contributions to the ESOP and shares released from the suspense
account will be allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined
in the ESOP, to the total compensation of all eligible plan participants. Participants become 100% vested in their accounts upon
three years of service. Participants with less than three years of service are 0% vested in their accounts.



The term loan, which bears interest at 7.75%, is payable in
fifteen annual installments of $370,000 through December 31, 2020. Shares purchased with the loan proceeds are initially pledged
as collateral for the term loan and are held in a suspense account for future allocation to the ESOP participants. Each plan year,
in addition to any discretionary contributions, the Company shall contribute cash to the ESOP to enable the ESOP to make its principal
and interest payments under the term loan. Company contributions may be increased by any investment earnings attributable to such
contributions and any cash dividends paid with respect to Company stock held by the ESOP.



79







Deferred Compensation



In March 2002, the Bank adopted a supplemental retirement income
program with selected officers and board members. To fund this plan, the Bank purchased single-premium life insurance policies
on each officer and director, at a cumulative total cost of $5,100,000. During the year ended June 30, 2011, an additional
insurance policy on a new director was purchased at a cost of $500,000. The cash surrender value of these policies was $7,882,000
and $7,109,000 at June 30, 2011 and 2010, respectively. The directors’ liability is accrued based on life expectancies,
return on investment and a discount rate. For the officers, an annual contribution based on actuarial assumptions is made to a
secular trust with the employee as the beneficiary. Deferred compensation payments are funded by available assets in the secular
trust. No further funding is required by the Bank, with the exception that upon a change in control of the Bank, the plan provides
for full supplemental benefits which would have occurred at age 65.



Future expected contributions for the funding of officers’
deferred compensation are as follows:



|2012                |  |  | $ | 197,000  
|------------------- |  |  | - | ---------
|2013                |  |  |   | 197,000  
|2014                |  |  |   | 197,000  
|2015                |  |  |   | 197,000  
|2016                |  |  |   | 197,000  
|2017 and thereafter |  |  |   | 374,000  
|                    |  |  | $ | 1,359,000



At June 30, 2011 and 2010, the Bank had accrued directors’
supplemental retirement expense of $1,304,000 and $1,315,000, respectively. Officers and directors supplemental retirement expense
totaled $397,000 and $417,000 for the years ended June 30, 2011 and 2010, respectively.



Supplemental Executive Retirement Plan



A Supplemental Executive Retirement Plan (SERP) was established
to provide participating executives (as determined by the Company’s Board of Directors) with benefits that cannot be provided
under the 401(k) Profit Sharing Plan or ESOP as a result of limitations imposed by the Internal Revenue Code. The SERP will also
provide benefits to eligible employees if they retire or are terminated following a change in control before the complete allocation
of shares under the ESOP. SERP expense totaled $6,000 and $7,000 for the years ended June 30, 2011 and 2010, respectively.



Employee Severance Compensation Plan



An Employee Severance Compensation Plan (Severance Plan) was
established to provide eligible employees with severance benefits if a change in control of the Bank occurs causing involuntary
termination of employment in a comparable position. Employees are eligible upon the completion of one year of service. Under the
Severance Plan, eligible employees will be entitled to severance benefits ranging from one month of compensation, as defined in
the plan, up to 199% of compensation. Such benefits are payable within five business days from termination of employment.



NOTE 14 – STOCK-BASED COMPENSATION



In November 2006, the Company adopted the United Community Bancorp
2006 Equity Incentive Plan (Equity Incentive Plan) for the issuance of restricted stock, incentive stock options and non-statutory
stock options to employees, officers and directors of the Company. The aggregate number of shares of common stock reserved and
available for issuance pursuant to awards granted under the Equity Incentive Plan is 580,630. Of the total shares available, 414,736
may be issued in connection with the exercise of stock options and 165,894 may be issued as restricted stock. The maximum number
of shares of common stock that may be covered by options granted under the Equity Incentive Plan to any one person during any one
calendar year is 103,684.



In December 2006, the Board of Directors of the Company authorized
the funding of a trust that purchased 165,894 shares of the Company’s outstanding common stock to be used to fund restricted
stock awards under the Equity Incentive Plan.



In December 2006, the Company granted restricted stock awards
for a total of 149,297 shares of common stock, incentive stock option awards for a total of 219,446 shares of common stock and
non-statutory stock option awards for a total of 153,815 shares of common stock. These awards vest at 20% annually from January
2008 through January 2012. The restricted stock awards were valued at the stock price on the date of grant, or $11.53 per share.
The stock options were valued using the following assumptions: expected volatility of 11.49%, risk-free interest rate of 4.6%,
expected term of ten years and expected dividend yield of 2.3%.



80







During each of the years ended June 30, 2011 and 2010,
27,703 restricted share awards became fully vested and 69,261 stock options became fully vested. Total recognized compensation
expense for the years ended June 30, 2011 and 2010 was $157,000 and $298,000, respectively. The remaining unvested expense
as of June 30, 2011 that will be recorded as expense in future periods is $48,000. The weighted average time over which this
expense will be recorded is six months.



Information related to stock options for the years ended June 30,
2011 and 2010 is as follows:





|                             |  | Shares |         |  | Weighted Average Exercise Price |   |       | Weighted Average Remaining Contractual Term
|---------------------------- |  | ------ | ------- |  | ------------------------------- | - | ----- | -------------------------------------------
|Outstanding at June 30, 2009 |  |        | 346,304 |  |                                 | $ | 11.53 |                                            
|Granted                      |  |        | —       |  |                                 |   | —     |                                            
|Forfeited                    |  |        | —       |  |                                 |   | —     |                                            
|Exercised                    |  |        | —       |  |                                 |   | —     |                                            
|Outstanding at June 30, 2010 |  |        | 346,304 |  |                                 |   | 11.53 |                                            
|Granted                      |  |        | —       |  |                                 |   | —     |                                            
|Forfeited                    |  |        | —       |  |                                 |   | —     |                                            
|Exercised                    |  |        | —       |  |                                 |   | —     |                                            
|Outstanding at June 30, 2011 |  |        | 346,304 |  |                                 |   | 11.53 |                                            
|                             |  |        |         |  |                                 |   |       |                                            
|Exercisable at June 30, 2011 |  |        | 277,044 |  |                                 |   | 11.53 |                                            
|                             |  |        |         |  |                                 |   |       |                                            
|Fair value of options        |  |        |         |  |                                 | $ | 2.37  |                                            





A summary of the status of unvested stock options for the years
ended June 30, 2011 and 2010 is as follows:



|                             |  | Shares |         |   | Weighted Average Grant Date Fair Value
|---------------------------- |  | ------ | ------- | - | --------------------------------------
|                             |  |        |         |   |                                       
|Outstanding at June 30, 2009 |  |        | 207,782 |   |                                       
|Granted                      |  |        | —       |   |                                       
|Vested                       |  |        | (69,261 | ) |                                       
|Forfeited                    |  |        | —       |   |                                       
|Outstanding at June 30, 2010 |  |        | 138,521 |   |                                       
|Granted                      |  |        | —       |   |                                       
|Vested                       |  |        | (69,261 | ) |                                       
|Forfeited                    |  |        | —       |   |                                       
|Outstanding at June 30, 2011 |  |        | 69,260  |   |                                       



Information related to restricted stock grants for the
years ended June 30, 2011 and 2010 is as follows:



|                             |  | Shares |         |   | Weighted Average Grant Date Fair Value |  
|---------------------------- |  | ------ | ------- | - | -------------------------------------- | -
|Outstanding at June 30, 2009 |  |        | 83,108  |   |                                        | $
|Granted                      |  |        | —       |   |                                        |  
|Vested                       |  |        | (27,703 | ) |                                        |  
|Forfeited                    |  |        | —       |   |                                        |  
|                             |  |        |         |   |                                        |  
|Outstanding at June 30, 2010 |  |        | 55,405  |   |                                        |  
|Granted                      |  |        | —       |   |                                        |  
|Vested                       |  |        | (27,703 | ) |                                        |  
|Forfeited                    |  |        | —       |   |                                        |  
|                             |  |        |         |   |                                        |  
|Outstanding at June 30, 2011 |  |        | 27,702  |   |                                        | $





81







NOTE 15 – SUPPLEMENTAL CASH FLOW INFORMATION



|                                                                                      |  | Years Ended June 30,
|------------------------------------------------------------------------------------- |  | --------------------
|                                                                                      |  | 2011                
|                                                                                      |  | (In thousands)      
|Supplemental disclosure of cash flow information is as follows:                       |  |                     
|Cash paid during the period for:                                                      |  |                     
|Income taxes, net of refunds received                                                 |  | $                   
|Interest                                                                              |  | $                   
|                                                                                      |  |                     
|Supplemental disclosure of non-cash investing and financing activities is as follows: |  |                     
|Unrealized gains (losses) on securities designated as available for sale, net of tax  |  | $                   
|Transfers of loans to other real estate owned                                         |  | $                   



NOTE 16 – COMMITMENTS



Leases



The Bank is party to various operating leases for property and
equipment. Lease expense for the years ended June 30, 2011 and 2010 was $56,000 and $43,000, respectively.



Future minimum lease payments under these lease agreements are
as follows as of June 30, 2011:



|2012 |  |  | $ | 37,000
|---- |  |  | - | ------
|2013 |  |  |   | 16,000
|2014 |  |  |   | 11,000
|     |  |  | $ | 64,000



The Bank entered into lease agreements with various tenants
who lease space from the Bank in certain locations where the Bank has a branch office. Revenue from these leases for the years
ended June 30, 2011 and 2010 was $39,000 and $37,000, respectively.



Future minimum lease payments under these lease agreements
are as follows as of June 30, 2011:



|2012 |  |  | $ | 42,000 
|---- |  |  | - | -------
|2013 |  |  |   | 42,000 
|2014 |  |  |   | 42,000 
|2015 |  |  |   | 42,000 
|2016 |  |  |   | 24,000 
|     |  |  | $ | 192,000



Loans



In the ordinary course of business, the Bank has various outstanding
commitments to extend credit that are not reflected in the accompanying consolidated financial statements. These commitments involve
elements of credit risk in excess of the amounts recognized in the balance sheet.





82







The Bank uses the same credit policies in making commitments
for loans as it does for loans that have been disbursed and recorded in the consolidated balance sheet. The Bank generally requires
collateral when it makes loan commitments, which generally consists of the right to receive first mortgages on improved or unimproved
real estate when performance under the contract occurs.



Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since some portions of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Certain of these commitments
are for fixed rate loans, and, therefore, their values are subject to market risk as well as credit risk. Generally, these commitments
do not extend beyond 90 days.



At June 30, 2011 the Bank’s total commitment to extend
credit at variable rates was $26,709,000. The amount of fixed rate commitments was approximately $679,000 at June 30, 2011.
The fixed rate loan commitments at June 30, 2011 have interest rates ranging from 3.00% to 5.00%. In addition, the bank had
$590,000 of letters of credit outstanding at June 30, 2011.



At June 30, 2010, the Bank’s total commitment to
extend credit at variable rates was $36,981,000. The amount of fixed rate commitments was approximately $826,000 at June 30,
2010. The fixed rate loan commitments at June 30, 2010 have interest rates ranging from 4.25% to 5.00%. In addition, the Bank
had $856,000 of letters of credit outstanding at June 30, 2010.



NOTE 17 – RELATED PARTY TRANSACTIONS



Loans to executive officers, directors and their affiliated
companies, totaled $3,923,000 and $3,517,000 at June 30, 2011 and 2010, respectively. All loans were current at June 30,
2011 and 2010, respectively.



The activity in loans to executive officers, directors and their
affiliated companies are as follows:



|                  |  | For the year ended June 30, |      
|----------------- |  | --------------------------- | -----
|                  |  | 2011                        |      
|                  |  | (In thousands)              |      
|Beginning balance |  | $                           | 3,517
|New loans         |  |                             | 533  
|Payments on loans |  |                             | (127 
|Ending balance    |  | $                           | 3,923



Deposits from officers and directors and affiliates totaled
$1,626,000 and $1,975,000 at June 30, 2011 and 2010, respectively.



NOTE 18 – REGULATORY CAPITAL



The Bank is subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulation involve quantitative measures
of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory
action that, if undertaken, could have a direct material effect on the consolidated financial statements.



Prompt corrective action regulations provide five classifications:
well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although
these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required
to accept broker deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At August 9, 2010, the most recent regulatory notifications categorized the Bank as well
capitalized. There are no conditions or events since that notification that management believes have changed the institution’s
category. Management believes that, under current regulatory capital regulations, the Bank will continue to meet its minimum capital
requirements in the foreseeable future. Actual and required capital amounts and ratios are presented below:





83







The following tables summarize the Bank’s capital amounts
and the ratios required:





|                                          |  | Actual                 |        |  | For capital adequacy purposes |  |       | To be well capitalized under prompt corrective action | 
|----------------------------------------- |  | ---------------------- | ------ |  | ----------------------------- |  | ----- | ----------------------------------------------------- | 
|                                          |  | Amount                 |        |  | Ratio                         |  |       | Amount                                                | 
|                                          |  | (Dollars in thousands) |       
|                                          |  | (As Restated)          |       
|June 30, 2011                             |  |                        |        |  |                               |  |       |                                                       | 
|Tier 1 capital to risk-weighted assets    |  | $                      | 45,709 |  |                               |  | 16.22 | %                                                     | 
|Total capital to risk-weighted assets     |  |                        | 49,213 |  |                               |  | 17.47 | %                                                     | 
|Tier 1 capital to adjusted total assets   |  |                        | 45,709 |  |                               |  | 9.80  | %                                                     | 
|Tangible capital to adjusted total assets |  |                        | 45,709 |  |                               |  | 9.80  | %                                                     | 



|                                          |  | Actual                 |        |  | For capital adequacy purposes |  |       | To be well capitalized under prompt corrective action | 
|----------------------------------------- |  | ---------------------- | ------ |  | ----------------------------- |  | ----- | ----------------------------------------------------- | 
|                                          |  | Amount                 |        |  | Ratio                         |  |       | Amount                                                | 
|                                          |  | (Dollars in thousands) |       
|                                          |  | (As Restated)          |       
|June 30, 2010                             |  |                        |        |  |                               |  |       |                                                       | 
|Tier 1 capital to risk-weighted assets    |  | $                      | 44,365 |  |                               |  | 13.56 | %                                                     | 
|Total capital to risk-weighted assets     |  |                        | 47,233 |  |                               |  | 14.30 | %                                                     | 
|Tier 1 capital to adjusted total assets   |  |                        | 44,365 |  |                               |  | 9.12  | %                                                     | 
|Tangible capital to adjusted total assets |  |                        | 44,365 |  |                               |  | 9.12  | %                                                     | 



Dividends from the Bank are one of the major sources of funds
for the Bancorp. These funds aid the parent company in payment of dividends to shareholders, expenses, and other obligations. Payment
of dividends to the parent company is subject to various legal and regulatory limitations. Regulatory approval is required prior
to the declaration of any dividends in excess of available retained earnings. The amount of dividends that may be declared without
regulatory approval is further limited to the sum of net income for the current year and retained net income for the preceding
two years, less any required transfers to surplus or common stock. As of June 30, 2011, the Bank has never paid dividends
income to the Bancorp in excess of regulatory limits.



Reconciliation of GAAP equity to regulatory capital is as follows
for the Bank:



|                                                 |  | June 30,       |       
|------------------------------------------------ |  | -------------- | ------
|                                                 |  | 2011           |       
|                                                 |  | (In thousands) |       
|                                                 |  | (As Restated)  |       
|                                                 |  |                |       
|GAAP equity                                      |  | $              | 49,820
|Intangible assets, net                           |  |                | (3,550
|Unrealized gain on securities available for sale |  |                | (506  
|Disallowed servicing rights (10%)                |  |                | (55   
|Tier 1 capital                                   |  |                | 45,709
|General allowance for loan losses                |  |                | 3,504 
|Tangible capital to adjusted total assets        |  | $              | 49,213



84







NOTE 19 – INCOME TAXES



The components of the provision (benefit) for income taxes are
summarized as follows:



|                                |  | For the year ended June 30, |       
|------------------------------- |  | --------------------------- | ------
|                                |  | 2011                        |       
|                                |  | (In thousands)              |       
|                                |  | (As Restated)               |       
|Current tax expense (benefit):  |  |                             |       
|Federal                         |  | $                           | (971  
|State                           |  |                             | (239  
|                                |  |                             | (1,210
|                                |  |                             |       
|Deferred tax expense (benefit): |  |                             |       
|Federal                         |  |                             | 1,404 
|State                           |  |                             | 307   
|                                |  |                             | 1,711 
|                                |  |                             |       
|                                |  | $                           | 501   



The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June 30, 2011 and 2010 are as follows:



|                                                       |  | June 30,       |       
|------------------------------------------------------ |  | -------------- | ------
|                                                       |  | 2011           |       
|                                                       |  | (In thousands) |       
|                                                       |  | (As Restated)  |       
|Deferred tax assets arising from:                      |  |                |       
|Loan loss reserve                                      |  | $              | 2,080 
|Reserve for loss on real estate owned                  |  |                | 79    
|Vacation and bonus accrual                             |  |                | 303   
|Supplemental retirement                                |  |                | 425   
|Stock-based compensation                               |  |                | 251   
|Charitable contributions                               |  |                | 63    
|Acquisition-related expenses                           |  |                | 174   
|State depreciation differences                         |  |                | 73    
|Amortization of intangible assets                      |  |                | 43    
|Yield adjustment for purchased loans and deposits      |  |                | 513   
|Reserve for loss on deposit accounts                   |  |                | 62    
|AMT credit carryforward                                |  |                | 5     
|Unrealized gain in market value of loans held for sale |  |                | 5     
|Post-retirement health care benefits                   |  |                | 50    
|                                                       |  |                |       
|Total deferred tax assets                              |  |                | 4,126 
|                                                       |  |                |       
|Valuation allowance                                    |  |                | —     
|                                                       |  |                |       
|Deferred tax liabilities arising from:                 |  |                |       
|Mortgage servicing rights                              |  |                | (214  
|Depreciation                                           |  |                | (393  
|Deferred loan fees                                     |  |                | (278  
|Unrealized gain in market value of investments         |  |                | (361  
|Total deferred tax liabilities                         |  |                | (1,246
|                                                       |  |                |       
|Net deferred tax asset                                 |  | $              | 2,880 





85







During the year ended June 30, 2006, the Company contributed
$1,858,000 to fund the UCB Charitable Foundation. The deduction for federal income tax purposes is limited to ten percent of federal
taxable income. The non-deductible portion, which approximated $805,000 at June 30, 2010, remained unused and expired on June 30,
2011.



86







The rate reconciliation is as follows:



|                                                                                   |  | For the year ended June 30, |     
|---------------------------------------------------------------------------------- |  | --------------------------- | ----
|                                                                                   |  | 2011                        |     
|                                                                                   |  | (In thousands)              |     
|                                                                                   |  | (As Restated)               |     
|Federal income taxes (benefit) at statutory rate                                   |  | $                           | 568 
|State taxes, net of federal benefit and impact of future change in state tax rates |  |                             | 148 
|Deferred tax adjustment for vested restricted shares                               |  |                             | 40  
|Increase (decrease) in taxes resulting primarily from:                             |  |                             |     
|Non-taxable income on Bank-owned life insurance                                    |  |                             | (93 
|Non-deductible stock-based compensation                                            |  |                             | 10  
|Tax exempt income                                                                  |  |                             | (203
|Expiration of charitable contribution                                              |  |                             | 83  
|Non-cash charitable contribution                                                   |  |                             | (53 
|Other                                                                              |  |                             | 1   
|                                                                                   |  |                             |     
|                                                                                   |  | $                           | 501 



Retained earnings at June 30, 2011, and 2010, include approximately
$749,000 related to the pre-1987 allowance for loan losses for which no deferred federal income tax liability has been recognized.
These amounts represent an allocation of income to bad debt deductions for tax purposes only. If the Bank no longer qualifies as
a bank, or in the event of a liquidation of the Bank, income would be created for tax purposes only, which would be subject to
the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amount for financial statement
purposes was approximately $255,000.



The Company adopted the provisions of ASC 275-10-50-8 to account
for uncertainty in income taxes effective July 1, 2007. Implementation resulted in no cumulative effect adjustment to retained
earnings as of the date of adoption. The Company had no unrecognized tax benefits as of June 30, 2011 and 2010. The Company
recognized no interest and penalties on the underpayment of income taxes during fiscal years June 30, 2011 and 2010, and had
no accrued interest and penalties on the balance sheet as of June 30, 2011 and 2010. The Company has no tax positions for
which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase with the next twelve
months. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years
before 2007.



NOTE 20 – PARENT ONLY FINANCIAL STATEMENTS



The following condensed financial statements summarize the financial
position of United Community Bancorp (parent company only) as of June 30, 2011 and 2010, and the results of its operations
and cash flows for the fiscal years ended June 30, 2011 and 2010 (all amounts in thousands):



UNITED COMMUNITY BANCORP

STATEMENTS OF FINANCIAL CONDITION

June 30, 2011 and 2010



|                                                          |  | 2011          |        |  | 2010
|--------------------------------------------------------- |  | ------------- | ------ |  | ----
|                                                          |  | (As Restated) |        |  |     
|ASSETS                                                    |  |               |        |  |     
|Cash and cash equivalents                                 |  | $             | 1,502  |  |     
|Securities available for sale – at estimated market value |  |               | 130    |  |     
|Accrued interest receivable                               |  |               | 78     |  |     
|Deferred income taxes                                     |  |               | 30     |  |     
|Prepaid expenses and other assets                         |  |               | 2,679  |  |     
|Investment in United Community Bank                       |  |               | 49,820 |  |     
|                                                          |  |               | 54,239 |  |     
|                                                          |  |               |        |  |     
|LIABILITIES AND STOCKHOLDERS’ EQUITY                      |  |               |        |  |     
|Other liabilities                                         |  |               | 93     |  |     
|Stockholders’ equity                                      |  |               | 54,146 |  |     
|                                                          |  | $             | 54,239 |  |     





87







UNITED COMMUNITY BANCORP

STATEMENTS OF OPERATIONS

June 30, 2011 and 2010



|                                                   |  | 2011          |       |  | 2010 |  
|-------------------------------------------------- |  | ------------- | ----- |  | ---- | -
|                                                   |  | (As Restated) |      
|Interest income:                                   |  |               |       |  |      |  
|ESOP loan                                          |  | $             | 168   |  |      | $
|Securities                                         |  |               | 8     |  |      |  
|Other income:                                      |  |               |       |  |      |  
|Equity (loss) in earnings of United Community Bank |  |               | 1,350 |  |      |  
|                                                   |  |               |       |  |      |  
|Net revenue                                        |  |               | 1,526 |  |      |  
|                                                   |  |               |       |  |      |  
|Operating expenses:                                |  |               |       |  |      |  
|Other operating expenses                           |  |               | 333   |  |      |  
|                                                   |  |               |       |  |      |  
|Income (loss) before income taxes                  |  |               | 1,193 |  |      |  
|                                                   |  |               |       |  |      |  
|Income tax expense (benefit)                       |  |               | 23    |  |      |  
|Net income (loss)                                  |  | $             | 1,170 |  |      | $



UNITED COMMUNITY BANCORP

STATEMENTS OF CASH FLOWS

June 30, 2011 and 2010



|                                                                                         |  | 2011          |        |   | 2010 |  
|---------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ---- | -
|                                                                                         |  | (As Restated) |        |   |      |  
|Operating activities:                                                                    |  |               |        |   |      |  
|Net earnings (loss)                                                                      |  | $             | 1,170  |   |      | $
|                                                                                         |  |               |        |   |      |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |               |        |   |      |  
|Equity in earnings of United Community Bank                                              |  |               | (1,350 | ) |      |  
|Shares committed to be released                                                          |  |               | (87    | ) |      |  
|Amortization and expense of stock-based compensation plans                               |  |               | 157    |   |      |  
|Deferred income taxes                                                                    |  |               | 214    |   |      |  
|Effects of change in assets and liabilities                                              |  |               | (5     | ) |      |  
|                                                                                         |  |               |        |   |      |  
|                                                                                         |  |               | 99     |   |      |  
|                                                                                         |  |               |        |   |      |  
|Financing activities:                                                                    |  |               |        |   |      |  
|Purchase of treasury stock                                                               |  |               | (37    | ) |      |  
|Dividends paid to stockholders                                                           |  |               | (1,357 | ) |      |  
|                                                                                         |  |               | (1,394 | ) |      |  
|                                                                                         |  |               |        |   |      |  
|Net increase (decrease) in cash and cash equivalents                                     |  |               | (1,295 | ) |      |  
|Cash and cash equivalents at beginning of year                                           |  |               | 2,797  |   |      |  
|Cash and cash equivalents at end of year                                                 |  | $             | 1,502  |   |      | $



88







NOTE 21 – QUARTERLY FINANCIAL DATA (UNAUDITED)



The following tables present quarterly financial information
for the Company for 2011 and 2010:



|                                                           |  | For the year ended June 30, 2011    
|---------------------------------------------------------- |  | ------------------------------------
|                                                           |  | (Dollars in thousands) (as restated)
|                                                           |  | Fourth quarter                      
|                                                           |  |                                     
|Interest income                                            |  | $                                   
|Interest expense                                           |  |                                     
|                                                           |  |                                     
|Net interest income                                        |  |                                     
|Provision for loan losses                                  |  |                                     
|                                                           |  |                                     
|Net interest income (loss) after provision for loan losses |  |                                     
|                                                           |  |                                     
|Other income                                               |  |                                     
|Other expense                                              |  |                                     
|                                                           |  |                                     
|Income (loss) before income taxes                          |  |                                     
|                                                           |  |                                     
|Provision (benefit) for income taxes                       |  |                                     
|                                                           |  |                                     
|Net income (loss)                                          |  | $                                   



|                                                           |  | For the year ended June 30, 2010
|---------------------------------------------------------- |  | --------------------------------
|                                                           |  | (Dollars in thousands)          
|                                                           |  | Fourth quarter (as restated)    
|                                                           |  |                                 
|Interest income                                            |  | $                               
|Interest expense                                           |  |                                 
|                                                           |  |                                 
|Net interest income                                        |  |                                 
|Provision for loan losses                                  |  |                                 
|                                                           |  |                                 
|Net interest income (loss) after provision for loan losses |  |                                 
|                                                           |  |                                 
|Other income                                               |  |                                 
|Other expense                                              |  |                                 
|                                                           |  |                                 
|Income (loss) before income taxes                          |  |                                 
|                                                           |  |                                 
|Provision (benefit) for income taxes                       |  |                                 
|                                                           |  |                                 
|Net income (loss)                                          |  | $                               



89







Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure



Not applicable.



Item 9A. Controls and Procedures



The Company’s management, including
the Company’s principal executive and principal financial officers, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive and principal financial
officers concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures
werenot effective for the purpose of ensuring that the information
required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange
Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.



Management’s annual report on internal
control over financial reporting is incorporated herein by reference to Item 8 in this Annual Report on Form 10-K/A. This annual
report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to the rules of the SEC that permit the Company to provide only Management’s report in this
report.



The Company experienced control deficiencies
in the monitoring of certain loans and loan relationships. These control deficiencies resulted in the Company not properly identifying
impaired loans and troubled debt restructurings under ASC 310-10-35 and ASC 310-40-35. The Company also experienced deficiencies
in measuring impairment on impaired loans and troubled debt restructurings under ASC 310-10-35. These deficiencies primarily related
to the reliance on required personal cash infusions of co-borrowers who were experiencing financial difficulties on troubled debt
restructurings when determining the present value of future cash flows. For the year ended June 30, 2010, as part of the Company’s
process to measure impairment on certain impaired loans, management relied on required personal cash infusions from co-borrowers
that had been experiencing financial difficulties. See Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations under the section entitled “Analysis of Nonperforming and Classified Assets” for
additional information on the financial difficulties experienced by the co-borrowers. Management has determined that relying on
required personal cash infusions from co-borrowers who were experiencing financial difficulties in these circumstances was inconsistent
with U.S. generally accepted accounting principles. As a result of these deficiencies, management, in consultation with Clark,
Schaefer, Hackett & Co., determined that the Company had material weaknesses in internal control over financial reporting
as it relates to both identifying troubled debt restructurings and impaired loans as well as the measurement of impairment at
each of the dates and periods that are being restated.



Due to the material weaknesses in internal
controls over financial reporting, the Company determined that the following previously issued consolidated financial statements
of the Company should no longer be relied upon: (i) the audited consolidated financial statements at June 30, 2010 and 2011 and
for the fiscal years then ended, as contained in the Annual Reports on Form 10-K for the fiscal years ended June 30, 2010 and June
30, 2011, and (ii) the unaudited consolidated financial statements at September 30, 2010, December 31, 2010, March 31, 2011 and
December 31, 2011 and for the interim periods then ended, as contained in the Quarterly Reports on Form 10-Q for the quarterly
periods ended September 30, 2010, December 31, 2010, March 31, 2011 and December 31, 2011.



As a result of the restatement described
in the Explanatory Note and in Note 1 of the Notes to Consolidated Financial Statements set forth in “Item 8 – Financial
Statements and Supplementary Data” of Part II of this Form 10-K/A – Amendment No. 1, the Company’s management
reevaluated the design and operation of the Company’s internal controls and procedures and determined that, as of June 30,
2011 and 2010, the Company’s internal controls over financial reporting were not effective with respect to the identification
of troubled debt restructurings and impaired loans as well as the error in the calculation of the allowance for loan losses related
to certain impaired loans.



The Company reviews its disclosure controls
and procedures, which includes its internal control over financial reporting, on an ongoing basis and may from time to time make
changes aimed at enhancing their effectiveness. The Company has implemented process improvements in order to address the material
weaknesses which resulted in the restatement of its financial statements. Specifically, in connection with the impairment calculation
under ASC 310-10-35, management no longer relies on required personal cash infusions from co-borrowers who were experiencing financial
difficulties. In addition the following monitoring controls have been implemented:





90







| | • | When calculating impairments under ASC 310-10-35 for
non-collateral dependent loans, the contractual cash flows discounted at the original effective rate are used to determine the
specific allocation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Our monitoring of non-collateral dependent troubled
debt restructurings and impaired loans has been enhanced to include a required review of the borrower’s cash flows, performed
at least quarterly, which includes the review of rent rolls, financial statements, and tax returns.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Management has gained a further understanding of the
accounting for troubled debt restructurings and impaired loans under ASC 310-10-35 and ASC 310-40-35 and the complexities involved.
The Company has implemented a quarterly monitoring process as described above, to identify
impaired loans and troubled debt restructurings in the proper period and torecord impairment to
reflect the proper fair value of the loan based on the known facts and circumstancesup through the date the financial statements are issued.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Management has also hired a controller and an assistant controller to strengthen its accounting staff.
As of the date of this filing, management believes that the enhancements
to the Company’s internal controls and procedures over financial
reportinghave remediated the material weaknesses
that existed as of June 30, 2011 and 2010.



91







PART IV



Item 15.Exhibits and Financial Statement
Schedules



List of Documents Filed as Part of This
Report



(1) Financial Statements. The following
consolidated financial statements are filed under Item 8 hereof:



|Report of Independent Registered Public Accounting Firm                                           | 
|------------------------------------------------------------------------------------------------- | 
|                                                                                                  | 
|Consolidated Statements of Financial Condition as of June 30, 2011 and 2010                       | 
|                                                                                                  | 
|Consolidated Statements of Operations for the Years Ended June 30, 2011 and 2010                  | 
|                                                                                                  | 
|Consolidated Statements of Comprehensive Income (Loss) for the Years Ended June 30, 2011 and 2010 | 
|                                                                                                  | 
|Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2011 and 2010        | 
|                                                                                                  | 
|Consolidated Statements of Cash Flows for the Years Ended June 30, 2011 and 2010                  | 
|                                                                                                  | 
|Notes to Consolidated Financial Statements                                                        | 



(2) Financial Statement Schedules.All
schedules for which provision is made in the applicable accounting regulations are either not required under the related instructions
or are inapplicable, and therefore have been omitted.



92







(3) Exhibits. The following is a
list of exhibits as part of this Annual Report on Form 10-K/A and is also the Exhibit Index.



|No.   |  | Description                                                                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                            
|2.1   |  | Amended and Restated Plan of Conversion and Reorganization, dated March 10, 2011 and amended and restated as of May 12, 2011 (1)                                                           
|      |  |                                                                                                                                                                                            
|3.1   |  | Charter of United Community Bancorp (2)                                                                                                                                                    
|      |  |                                                                                                                                                                                            
|3.2   |  | Amended and Restated Bylaws of United Community Bancorp (3)                                                                                                                                
|      |  |                                                                                                                                                                                            
|4.1   |  | Specimen Stock Certificate of United Community Bancorp (2)                                                                                                                                 
|      |  |                                                                                                                                                                                            
|10.1  |  | United Community Bank Employee Stock Ownership Plan and Trust Agreement*(2)                                                                                                                
|      |  |                                                                                                                                                                                            
|10.2  |  | Form of ESOP Loan Documents*(2)                                                                                                                                                            
|      |  |                                                                                                                                                                                            
|10.3  |  | United Community Bank 401(k) Profit Sharing Plan and Trust and Adoption Agreement*(2)                                                                                                      
|      |  |                                                                                                                                                                                            
|10.4  |  | Amended and Restated United Community Bank Employee Severance Compensation Plan*(4)                                                                                                        
|      |  |                                                                                                                                                                                            
|10.5  |  | Amended and Restated United Community Bank Supplemental Executive Retirement Plan*(4)                                                                                                      
|      |  |                                                                                                                                                                                            
|10.6  |  | Amended and Restated Employment Agreement between United Community Bancorp and certain executive officers*(4)                                                                              
|      |  |                                                                                                                                                                                            
|10.7  |  | Employment Agreement between United Community Bank and certain executive officers*(4)                                                                                                      
|      |  |                                                                                                                                                                                            
|10.8  |  | United Community Bank Directors Retirement Plan*(2)                                                                                                                                        
|      |  |                                                                                                                                                                                            
|10.9  |  | First Amendment to the United Community Bank Directors’ Retirement Plan (4)                                                                                                                
|      |  |                                                                                                                                                                                            
|10.10 |  | Executive Supplemental Retirement Income Agreements between United Community Bank and William F. Ritzmann, Elmer G. McLaughlin and James W. Kittle and Grantor Trust Agreements thereto*(2)
|      |  |                                                                                                                                                                                            
|10.11 |  | First Amendment to the United Community Bank Executive Supplemental Retirement Income Agreement (4)                                                                                        
|      |  |                                                                                                                                                                                            
|10.12 |  | Rabbi Trust related to Directors Retirement Plan and Executive Supplemental Retirement Income Agreements*(2)                                                                               
|      |  |                                                                                                                                                                                            
|10.13 |  | United Community Bancorp 2006 Equity Incentive Plan (5)                                                                                                                                    
|      |  |                                                                                                                                                                                            
|21    |  | Subsidiaries (1)                                                                                                                                                                           
|      |  |                                                                                                                                                                                            
|23    |  | Consent of Clark, Schaefer, Hackett & Co.                                                                                                                                                  
|      |  |                                                                                                                                                                                            
|31.1  |  | Rule 13(a)-14(a) Certification of Chief Executive Officer                                                                                                                                  
|      |  |                                                                                                                                                                                            
|31.2  |  | Rule 13(a)-14(a) Certification of Chief Financial Officer                                                                                                                                  
|      |  |                                                                                                                                                                                            
|32    |  | Certifications Pursuant to 18 U.S.C. Section 1350                                                                                                                                          










| | * | Management contract or compensation plan or arrangement.
| | - | --------------------------------------------------------

| | (1) | Incorporated herein by reference to the Company’s Annual Report on Form 10-K filed with the SEC on September 28, 2011
(File No. 0-51800).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated herein by reference to the Company’s Registration Statement on Form S-1, as amended, as initially filed
with the SEC on December 14, 2005 (File No. 333-130302).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2011
(File No. 0-51800).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2009
(File No. 0-51800).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated herein by reference to Appendix C to the Company’s Proxy Statement filed with the SEC on October 5,
2006.
| | --- | ----------------------------------------------------------------------------------------------------------------------



93







SIGNATURES



Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                     | UNITED COMMUNITY BANCORP
|-------------------- | ------------------------
|                     |                         
|Date: April 26, 2012 | By:                     
|                     |                         
|                     |                         













94