Document:

<PAGE>

                                                                 Exhibit 10(iii)

                 FLOATING RATE JUNIOR SUBORDINATED NOTE DUE 2032

THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SUCH SECURITIES, AND ANY INTEREST THEREIN,
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY
SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A UNDER THE SECURITIES ACT.

THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR
OTHERWISE TRANSFERRED ONLY (I) TO THE COMPANY, (II) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (III) TO AN INSTITUTION "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a), (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT
IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (V) PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND, IN THE CASE OF (III) OR
(V), SUBJECT TO THE RIGHT OF THE COMPANY TO REQUIRE AN OPINION OF COUNSEL AND
OTHER INFORMATION SATISFACTORY TO IT AND (B) THE HOLDER WILL NOTIFY ANY
PURCHASER OF ANY SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN
(A) ABOVE.

THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN
AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. ANY ATTEMPTED TRANSFER OF
SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE PRINCIPAL
AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED
TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR ANY
PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST
ON SUCH SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL
BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH SECURITIES.

<PAGE>

THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF
OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE
BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA'), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN
ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON
INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY
INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE
RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS
EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR
ITS PURCHASE AND HOLDING OF THIS SECURITY, OR ANY INTEREST THEREIN, IS NOT
PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO
SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY
INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING
THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF
SECTION 3(3) OF ERISA, OR A PLAN TO WHICH ELECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT
PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE
BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT
RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE UNITED STATES OR ANY
AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC").

<PAGE>

                 Floating Rate Junior Subordinated Note due 2032

                                       of

                            United Community Bancorp

No. 001                                                               $5,155,000

     United Community Bancorp, a corporation organized and existing under the
laws of North Carolina (hereinafter called the "Company," which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to The Bank of New York, not in its individual
capacity but solely as Property Trustee for Catawba Valley Capital Trust I, a
Delaware statutory trust (the "Holder"), or registered assigns, the principal
sum of FIVE MILLION ONE HUNDRED FIFTY-FIVE THOUSAND ($5,155,000) DOLLARS on
December 30, 2032. The Company further promises to pay interest on said
principal sum from December 20, 2002, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, quarterly (subject to
deferral as set forth herein) in arrears on March 30th, June 30th, September
30th and December 30th of each year, commencing March 30, 2003, or if any such
day is not a Business Day, on the next succeeding Business Day (and no interest
shall accrue in respect of the amounts whose payment is so delayed for the
period from and after such Interest Payment Date until such next succeeding
Business Day), except that, if such Business Day falls in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case, with the same force and effect as if made on the Interest
Payment Date, at the rate equal to LIBOR plus 3.35% per annum, provided, that,
the applicable interest rate shall not exceed 12.0% through the Interest Payment
Date in December, 2007, together with Additional Tax Sums, if any, as provided
in Section 10.5 of the Indenture, until the principal hereof is paid or duly
provided for or made available for payment; provided, further, that any overdue
principal, premium or Additional Tax Sums and any overdue installment of
interest shall bear Additional Interest (to the extent that the payment of such
interest shall be legally enforceable) at the rate equal to LIBOR plus 3.35% per
annum (provided, that, the applicable interest rate on such overdue principal,
premium or Additional Tax Sums and any overdue installment of interest shall not
exceed 12.0% through the Interest Payment Date in December, 2007), compounded
quarterly, from the dates such amounts are due until they are paid or made
available for payment, and such interest shall be payable on demand.

     The amount of interest payable shall be computed on the basis of a 360-day
year and the actual number of days elapsed in the relevant interest period. The
amount of interest payable for any full interest period shall be computed by
dividing the applicable rate per annum by four. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date shall, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest installment. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than ten (10) days

<PAGE>

prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in the Indenture.

     So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time and from time to time during the term of this
Security, to defer the payment of interest on this Security for a period of up
to twenty (20) consecutive quarterly interest payment periods (each such period,
an "Extension Period"), during which Extension Period(s), no interest shall be
due and payable (except any Additional Tax Sums that may be due and payable). No
Extension Period shall end on a date other than an Interest Payment Date, and no
Extension Period shall extend beyond the Stated Maturity of the principal of
this Security. No interest shall be due and payable during an Extension Period
(except any Additional Tax Sums that may be due and payable), except at the end
thereof, but each installment of interest that would otherwise have been due and
payable during such Extension Period shall bear Additional Interest (to the
extent payment of such interest would be legally enforceable) at the rate equal
to LIBOR plus 3.35% per annum (provided, that, the applicable interest rate
shall not exceed 12.0% through the Interest Payment Date in December, 2007),
compounded quarterly, from the dates on which amounts would have otherwise been
due and payable until paid or made available for payment. At the end of any such
Extension Period, the Company shall pay all interest then accrued and unpaid on
this Security, together with such Additional Interest. Prior to the termination
of any such Extension Period and Company may further defer the payment of
interest; provided, that (i) all such previous and further extensions comprising
such Extension Period do not exceed twenty (20) quarterly interest payment
periods, (ii) no Extension Period shall end on a date other than an Interest
Payment Date and (iii) no Extension Period shall extend beyond the Stated
Maturity of the principal of this Security. Upon the termination of any such
Extension Period and upon the payment of all accrued and unpaid interest and any
Additional Interest then due on any Interest Payment Date, the Company may elect
to begin a new Extension Period; provided, that (i) such Extension Period does
not exceed twenty (20) quarterly interest payment periods, (ii) no Extension
Period shall end on a date other than an Interest Payment Date and (iii) no
Extension Period shall extend beyond the Stated Maturity of the principal of
this Security. The Company shall give the Holder of this Security and the
Trustee written notice of its election to begin any such Extension Period at
least one Business Day prior to the next succeeding Interest Payment Date on
which interest on this Security would be payable but for such deferral or, so
long as this Security is held by the Trust, at least one Business Day prior to
the earlier of (i) the next succeeding date on which Distributions on the
Preferred Securities of Catawba Valley Capital Trust I would be payable but for
such deferral and (ii) the date on which the Property Trustee of such Trust is
required to give notice to any securities exchange or other applicable
self-regulatory organization or to holders of such Preferred Securities of the
record date for the payment of such Distributions.

     During any such Extension Period, the Company shall not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or any interest or premium on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to this Security (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in

<PAGE>

connection with (1) any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, (2) a dividend reinvestment or stockholder stock
purchase plan or (3) the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a Subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any Rights Plan, the issuance of rights, stock or
other property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock).

     Payment of principal of, premium, if any, and interest on this Security
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
Payments of principal, premium, if any, and interest due at the Maturity of this
Security shall be made at the office or agency of the Company maintained for
that purpose in the Place of Payment upon surrender of such Securities to the
Paying Agent, and payments of interest shall be made, subject to such surrender
where applicable, by wire transfer at such place and to such account at a
banking institution in the United States as may be designated in writing to the
Paying Agent at least ten (10) Business Days prior to the date for payment by
the Person entitled thereto unless proper written transfer instructions have not
been received by the relevant record date, in which case such payments shall be
made by check mailed to the address of such Person as such address shall appear
in the Security Register. Notwithstanding the foregoing, so long as the holder
of this Security is the Property Trustee, the payment of the principal of (and
premium, if any) and interest (including any overdue installment of interest and
Additional Tax Sums, if any) on this Security will be made at such place and to
such account as may be designated by the Property Trustee.

     The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his or her behalf to take such actions as
may be necessary or appropriate to effectuate the subordination so provided and
(c) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Debt, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.

     Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.

<PAGE>

     In Witness Whereof, the Company has duly executed this certificate on this
20th day of December, 2002.

                                United Community Bancorp

                                By: /s/ R. Steve Aaron
                                    --------------------------------------------
                                    R. Steve Aaron
                                    President and Chief Executive Officer

     This is one of the Securities designated therein referred to in the within
mentioned Indenture.

Dated: December 20, 2002

                                The Bank of New York
                                   not in its individual capacity, but solely as
                                   Trustee

                                By: /s/ Van K. Brown
                                    --------------------------------------------
                                    Name: VAN K. BROWN
                                    Title: VICE PRESIDENT

<PAGE>

                               REVERSE OF SECURITY

     This Security is one of a duly authorized issue of securities of the
Company (the "Securities") issued under the Junior Subordinated Indenture, dated
as of December 20, 2002 (the "Indenture"), between the Company and The Bank of
New York, as Trustee (in such capacity, the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, the holders of Senior Debt and the Holders of the Securities, and
of the terms upon which the Securities are, and are to be, authenticated and
delivered.

     All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of December 20, 2002 (as
modified, amended or supplemented from time to time, the "Trust Agreement"),
relating to Catawba Valley Capital Trust I (the "Trust"), among the Company, as
Depositor, the Trustees named therein and the holders from time to time of the
Trust Securities issued pursuant thereto, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.

     The Company may, on any Interest Payment Date, at its option, upon not less
than thirty (30) days' nor more than sixty (60) days' written notice to the
Holders of the Securities (unless a shorter notice period shall be satisfactory
to the Trustee) on or after December 30, 2007 and subject to the terms and
conditions of Article XI of the Indenture, redeem this Security in whole at any
time or in part from time to time at a Redemption Price equal to one hundred
percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, to but
excluding the date fixed for redemption; provided, that the Company shall have
received the prior approval of the Federal Reserve Board if then required.

     In addition, upon the occurrence and during the continuation of a Special
Event, the Company may, at its option, upon not less than thirty (30) days' nor
more than sixty (60) days' written notice to the Holders of the Securities
(unless a shorter notice period shall be satisfactory to the Trustee), redeem
this Security, in whole but not in part, subject to the terms and conditions of
Article XI of the Indenture at a Redemption Price equal to one hundred percent
(100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, to but
excluding the date fixed for redemption; provided, that the Company shall have
received the prior approval of the Federal Reserve Board if then required.

     In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof. If less than all the Securities are
to be redeemed, the particular Securities to be redeemed shall be selected not
more than sixty (60) days prior to the Redemption Date by the Trustee from the
Outstanding Securities not previously called for redemption, by such method as
the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of a portion of the principal amount of any Security.

<PAGE>

     The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the
Holders of all Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.

     No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest, including any Additional Interest, on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained for such purpose, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar and duly executed by, the Holder hereof or
such Holder's attorney duly authorized in writing, and thereupon one or more new
Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

     The Securities are issuable only in registered form without coupons in
minimum denominations of $100,000 and any integral multiple of $1,000 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities are exchangeable for a like aggregate principal amount of
Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.

     No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

     The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that, for United States federal, state and
local tax purposes, it is intended that this Security constitute indebtedness.<PAGE>

                                                                  Exhibit 10(iv)

================================================================================

                               GUARANTEE AGREEMENT

                                     between

                            UNITED COMMUNITY BANCORP,
                                  as Guarantor,

                                       and

                              THE BANK OF NEW YORK,
                              as Guarantee Trustee

                          Dated as of December 20, 2002

                         CATAWBA VALLEY CAPITAL TRUST I

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                              <C>
ARTICLE I Interpretation and Definitions..........................................2

SECTION 1.1. Interpretation.......................................................2
SECTION 1.2. Definitions..........................................................2

ARTICLE II Reports................................................................6

SECTION 2.1. List of Holders......................................................6
SECTION 2.2. Periodic Reports to the Guarantee Trustee............................6
SECTION 2.3. Event of Default; Waiver.............................................6
SECTION 2.4. Event of Default; Notice.............................................6

ARTICLE III Powers, Duties and Rights of the Guarantee Trustee....................7

SECTION 3.1. Powers and Duties of the Guarantee Trustee...........................7
SECTION 3.2. Certain Rights of the Guarantee Trustee..............................8
SECTION 3.3. Compensation.........................................................9
SECTION 3.4. Indemnity...........................................................10
SECTION 3.5. Securities..........................................................10

ARTICLE IV Guarantee Trustee.....................................................10

SECTION 4.1. Guarantee Trustee; Eligibility......................................10
SECTION 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.......11

ARTICLE V Guarantee..............................................................11

SECTION 5.1. Guarantee...........................................................11
SECTION 5.2. Waiver of Notice and Demand.........................................12
SECTION 5.3. Obligations Not Affected............................................12
SECTION 5.4. Rights of Holders...................................................13
SECTION 5.5. Guarantee of Payment................................................13
SECTION 5.6. Subrogation.........................................................13
SECTION 5.7. Independent Obligations.............................................13
SECTION 5.8. Enforcement.........................................................14

ARTICLE VI Covenants and Subordination...........................................14

SECTION 6.1. Dividends, Distributions and Payments...............................14
SECTION 6.2. Subordination.......................................................15
SECTION 6.3. Pari Passu Guarantees...............................................15

ARTICLE VII Termination..........................................................15

SECTION 7.1. Termination.........................................................15
</TABLE>

                                        i

<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<S>                                                                              <C>
ARTICLE VIII Miscellaneous.......................................................16

SECTION 8.1. Successors and Assigns..............................................16
SECTION 8.2. Amendments..........................................................16
SECTION 8.3. Notices.............................................................16
SECTION 8.4. Benefit.............................................................17
SECTION 8.5. Governing Law.......................................................17
SECTION 8.6. Submission to Jurisdiction..........................................17
SECTION 8.7. Counterparts........................................................18
</TABLE>

                                       ii

<PAGE>

     Guarantee Agreement, dated as of December 20, 2002, executed and delivered
by United Community Bancorp, a North Carolina corporation (the "Guarantor")
having its principal office at 1039 Second Street North East, Hickory, North
Carolina 28601, and The Bank of New York, a New York banking corporation, as
trustee (in such capacity, the "Guarantee Trustee"), for the benefit of the
Holders (as defined herein) from time to time of the Preferred Securities (as
defined herein) of Catawba Valley Capital Trust I, a Delaware statutory trust
(the "Issuer").

                              W i t n e s s e t h :

     Whereas, pursuant to an Amended and Restated Trust Agreement, dated as of
the date hereof (the "Trust Agreement"), among the Guarantor, as Depositor, the
Property Trustee, the Delaware Trustee and the Administrative Trustees named
therein and the holders from time to time of the Preferred Securities (as
hereinafter defined), the Issuer is issuing $5,000,000 aggregate Liquidation
Amount (as defined in the Trust Agreement) of its Floating Rate Preferred
Securities (Liquidation Amount $1,000 per preferred security) (the "Preferred
Securities") representing preferred undivided beneficial interests in the assets
of the Issuer and having the terms set forth in the Trust Agreement;

     Whereas, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Notes (as
defined in the Trust Agreement) of the Guarantor; and

     Whereas, as incentive for the Holders to purchase Preferred Securities the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Preferred Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.

     Now, Therefore, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement to
provide as follows for the benefit of the Holders from time to time of the
Preferred Securities:

<PAGE>

                                    ARTICLE I

                         Interpretation and Definitions

     SECTION 1.1. Interpretation.

     In this Guarantee Agreement, unless the context otherwise requires:

          (a) capitalized terms used in this Guarantee Agreement but not defined
     in the preamble hereto have the respective meanings assigned to them in
     Section 1.2;

          (b) the words "include", "includes" and "including" shall be deemed to
     be followed by the phrase "without limitation";

          (c) all references to "the Guarantee Agreement" or "this Guarantee
     Agreement" are to this Guarantee Agreement as modified, supplemented or
     amended from time to time;

          (d) all references in this Guarantee Agreement to Articles and
     Sections are to Articles and Sections of this Guarantee Agreement unless
     otherwise specified;

          (e) the words "hereby", "herein", "hereof' and "hereunder" and other
     words of similar import refer to this Guarantee Agreement as a whole and
     not to any particular Article, Section or other subdivision;

          (f) a reference to the singular includes the plural and vice versa;
     and

          (g) the masculine, feminine or neuter genders used herein shall
     include the masculine, feminine and neuter genders.

     SECTION 1.2. Definitions.

     As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings:

          "Affiliate" of any specified Person means any other Person directly or
     indirectly controlling or controlled by or under direct or indirect common
     control with such specified Person; provided, that the Issuer shall not be
     deemed to be an Affiliate of the Guarantor. For the purposes of this
     definition, "control" when used with respect to any specified Person means
     the power to direct the management and policies of such Person, directly or
     indirectly, whether through the ownership of voting securities, by contract
     or otherwise; and the terms "controlling" and "controlled" have meanings
     correlative to the foregoing.

          "Beneficiaries" means any Person to whom the Issuer is or hereafter
     becomes indebted or liable.

                                        2

<PAGE>

          "Board of Directors" means either the board of directors of the
     Guarantor or any duly authorized committee of that board.

          "Common Securities" means the securities representing common undivided
     beneficial interests in the assets of the Issuer.

          "Debt" means with respect to any Person, whether recourse is to all or
     a portion of the assets of such Person, whether currently existing or
     hereafter incurred, and whether or not contingent and without duplication,
     (i) every obligation of such Person for money borrowed; (ii) every
     obligation of such Person evidenced by bonds, debentures, notes or other
     similar instruments, including obligations incurred in connection with the
     acquisition of property, assets or businesses; (iii) every reimbursement
     obligation of such Person with respect to letters of credit, bankers'
     acceptances or similar facilities issued for the account of such Person;
     (iv) every obligation of such Person issued or assumed as the deferred
     purchase price of property or services (but excluding trade accounts
     payable arising in the ordinary course of business); (v) every capital
     lease obligation of such Person; (vi) all indebtedness of such Person,
     whether incurred on or prior to the date of this Guarantee Agreement or
     thereafter incurred, for claims in respect of derivative products,
     including interest rate, foreign exchange rate and commodity forward
     contracts, options, swaps and similar arrangements; (vii) every obligation
     of the type referred to in clauses (i) through (vi) of another Person and
     all dividends of another Person the payment of which, in either case, such
     Person has guaranteed or is responsible or liable for, directly or
     indirectly, as obligor or otherwise; and (viii) any renewals, extensions,
     refundings, amendments or modifications of any obligation of the type
     referred to in clauses (i) through (vii).

          "Event of Default" means a default by the Guarantor on any of its
     payment or other obligations under this Guarantee Agreement; provided, that
     except with respect to a default in payment of any Guarantee Payments, the
     Guarantor shall have received notice of default from the Guarantee Trustee
     and shall not have cured such default within thirty (30) days after receipt
     of such notice.

          "Guarantee Payments" means the following payments or distributions,
     without duplication, with respect to the Preferred Securities, to the
     extent not paid or made by or on behalf of the Issuer: (i) any accumulated
     and unpaid Distributions (as defined in the Trust Agreement) required to be
     paid on the Preferred Securities, to the extent the Issuer shall have funds
     on hand available therefor at such time, (ii) the Redemption Price with
     respect to any Preferred Securities to the extent the Issuer shall have
     funds on hand available therefor at such time, and (iii) upon a voluntary
     or involuntary termination, winding up or liquidation of the Issuer, unless
     Notes are distributed to the Holders, the lesser of (a) the aggregate of
     the Liquidation Amount of $1,000 per Preferred Security plus accumulated
     and unpaid Distributions on the Preferred Securities to the date of
     payment, to the extent that the Issuer shall have funds available therefor
     at such time and (b) the amount of assets of the Issuer remaining available
     for distribution to Holders in liquidation of the Issuer after satisfaction
     of liabilities to creditors of the Issuer in accordance with applicable law
     (in either case, the "Liquidation Distribution").

                                        3

<PAGE>

          "Guarantee Trustee" means The Bank of New York, until a Successor
     Guarantee Trustee, as defined below, has been appointed and has accepted
     such appointment pursuant to the terms of this Guarantee Agreement, and
     thereafter means each such Successor Guarantee Trustee.

          "Holder" means any holder, as registered on the books and records of
     the Issuer, of any Preferred Securities; provided, that, in determining
     whether the holders of the requisite percentage of Preferred Securities
     have given any request, notice, consent or waiver hereunder, "Holder" shall
     not include the Guarantor, the Guarantee Trustee or any Affiliate of the
     Guarantor or the Guarantee Trustee.

          "Indenture" means the Junior Subordinated Indenture, dated as of the
     date hereof, as supplemented and amended, between the Guarantor and The
     Bank of New York, as trustee.

          "List of Holders" has the meaning specified in Section 2.1.

          "Majority in Liquidation Amount of the Preferred Securities" means a
     vote by the Holder(s), voting separately as a class, of more than fifty
     percent (50%) of the aggregate Liquidation Amount of all then outstanding
     Preferred Securities issued by the Issuer.

          "Obligations" means any costs, expenses or liabilities (but not
     including liabilities related to taxes) of the Issuer, other than
     obligations of the Issuer to pay to holders of any Trust Securities the
     amounts due such. holders pursuant to the terms of the Trust Securities.

          "Officers' Certificate" means, with respect to any Person, a
     certificate signed by the Chief Executive Officer, Chief Financial Officer,
     President or a Vice President of such Person, and by the Treasurer, an
     Assistant Treasurer, the Secretary or an Assistant Secretary of such
     Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
     delivered with respect to compliance with a condition or covenant provided
     for in this Guarantee Agreement (other than the certificate provided
     pursuant to Section 2.4) shall include:

          (a) a statement that each officer signing the Officers' Certificate
     has read the covenant or condition and the definitions relating thereto;

          (b) a brief statement of the nature and scope of the examination or
     investigation undertaken by each officer in rendering the Officers'
     Certificate;

          (c) a statement that each officer has made such examination or
     investigation as, in such officer's opinion, is necessary to enable such
     officer to express an informed opinion as to whether or not such covenant
     or condition has been complied with; and

          (d) a statement as to whether, in the opinion of each officer, such
     condition or covenant has been complied with.

                                        4

<PAGE>

          "Person" means a legal person, including any individual, corporation,
     estate, partnership, joint venture, association, joint stock company,
     limited liability company, trust, unincorporated association, government or
     any agency or political subdivision thereof or any other entity of whatever
     nature.

          "Responsible Officer" means, with respect to the Guarantee Trustee,
     any Senior Vice President, any Vice President, any Assistant Vice
     President, the Secretary, any Assistant Secretary, the Treasurer, any
     Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any
     other officer of the Corporate Trust Department of the Guarantee Trustee
     and also means, with respect to a particular corporate trust matter, any
     other officer to whom such matter is referred because of that officer's
     knowledge of and familiarity with the particular subject.

          "Senior Debt" means the principal of and any premium and interest on
     (including interest accruing on or after the filing of any petition in
     bankruptcy or for reorganization relating to the Guarantor whether or not
     such claim for post-petition interest is allowed in such proceeding) all
     Debt of the Guarantor, whether incurred on or prior to the date of the
     Indenture or thereafter incurred, unless it is provided in the instrument
     creating or evidencing the same or pursuant to which the same is
     outstanding, that such obligations are not superior in right of payment to
     the Preferred Securities; provided, however, that if the Guarantor is
     subject to the regulation and supervision of an "appropriate Federal
     banking agency" within the meaning of 12 U.S.C. 1813(q), the Guarantor
     shall have received the approval of such appropriate Federal banking agency
     prior to issuing any such obligation; provided further, that Senior Debt
     shall not include any other debt securities, and guarantees in respect of
     such debt securities, issued to any trust other than the Issuer (or a
     trustee of such trust), partnership or other entity affiliated with the
     Guarantor that is a financing vehicle of the Guarantor (a "financing
     entity"), in connection with the issuance by such financing entity of
     equity securities or other securities that are treated as equity capital
     for regulatory capital purposes guaranteed by the Guarantor pursuant to an
     instrument that ranks pari passu with or junior in right of payment to this
     Guarantee Agreement, including, without limitation, securities issued by
     Catawba Valley Capital Trust II.

          "Successor Guarantee Trustee" means a successor Guarantee Trustee
     possessing the qualifications to act as Guarantee Trustee under Section
     4.1.

          "Trust Indenture Act" means the Trust Indenture Act of 1939, as
     amended and as in effect on the date of this Guarantee Agreement.

Capitalized or otherwise defined terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Trust Agreement as in
effect on the date hereof.

                                        5

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                                   ARTICLE II

                                     Reports

     SECTION 2.1. List of Holders.

     The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee at such times as the Guarantee Trustee may request in writing, within
thirty (30) days after the receipt by the Guarantor of any such request, a list,
in such form as the Guarantee Trustee may reasonably require, of the names and
addresses of the Holders (the "List of Holders") as of a date not more than
fifteen (15) days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the Guarantor and is
not identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.

     SECTION 2.2. Periodic Reports to the Guarantee Trustee.

     The Guarantor shall deliver to the Guarantee Trustee, within one hundred
and twenty (120) days after the end of each fiscal year of the Guarantor ending
after the date of this Guarantee Agreement, an Officers' Certificate covering
the preceding fiscal year, stating whether or not to the knowledge of the
signers thereof the Guarantor is in default in the performance or observance of
any of the terms or provisions or any of the conditions of this Guarantee
Agreement (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Guarantor shall be in default thereof,
specifying all such defaults and the nature and status thereof of which they
have knowledge.

     SECTION 2.3. Event of Default; Waiver.

     The Holders of a Majority in Liquidation Amount of the Preferred Securities
may, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Guarantee Agreement, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent therefrom.

     SECTION 2.4. Event of Default; Notice.

     (a) The Guarantee Trustee shall, within ninety (90) days after the
occurrence of a default, transmit to the Holders notices of all defaults
actually known to the Guarantee Trustee, unless such defaults have been cured or
waived before the giving of such notice, provided, that, except in the case of a
default in the payment of a Guarantee Payment, the Guarantee Trustee shall be
protected in withholding such notice if and so long as the Board of Directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Guarantee Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders. For the purpose of this
Section 2.4, the term "default" means any event that is, or after notice or
lapse of time or both would become, an Event of Default.

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<PAGE>

     (b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained written notice, of such Event of Default
from the Guarantor or a Holder.

                                   ARTICLE III

               Powers, Duties and Rights of the Guarantee Trustee

     SECTION 3.1. Powers and Duties of the Guarantee Trustee.

     (a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising its rights pursuant
to Section 5.4(d) or to a Successor Guarantee Trustee upon acceptance by such
Successor Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.

     (b) The rights, immunities, duties and responsibilities of the Guarantee
Trustee shall be as provided by this Guarantee Agreement and there shall be no
other duties or obligations, express or implied, of the Guarantee Trustee.
Notwithstanding the foregoing, no provisions of this Guarantee Agreement shall
require the Guarantee Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it. Whether or not herein
expressly so provided, every provision of this Guarantee Agreement relating to
the conduct or affecting the liability of or affording protection to the
Guarantee Trustee shall be subject to the provisions of this Section 3.1. To the
extent that, at law or in equity, the Guarantee Trustee has duties and
liabilities relating to the Guarantor or the Holders, the Guarantee Trustee
shall not be liable to any Holder for the Guarantee Trustee's good faith
reliance on the provisions of this Guarantee Agreement. The provisions of this
Guarantee Agreement, to the extent that they restrict the duties and liabilities
of the Guarantee Trustee otherwise existing at law or in equity, are agreed by
the Guarantor and the Holders to replace such other duties and liabilities of
the Guarantee Trustee.

     (c) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, negligent
failure to act or own willful misconduct, except that:

          (i) the Guarantee Trustee shall not be liable for any error of
     judgment made in good faith by a Responsible Officer of the Guarantee
     Trustee, unless it shall be proved that the Guarantee Trustee was negligent
     in ascertaining the pertinent facts upon which such judgment was made; and

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<PAGE>

          (ii) the Guarantee Trustee shall not be liable with respect to any
     action taken or omitted to be taken by it in good faith in accordance with
     the direction of the Holders of not less than a Majority in Liquidation
     Amount of the Preferred Securities relating to the time, method and place
     of conducting any proceeding for any remedy available to the Guarantee
     Trustee, or exercising any trust or power conferred upon the Guarantee
     Trustee under this Guarantee Agreement.

     SECTION 3.2. Certain Rights of the Guarantee Trustee.

     (a) Subject to the provisions of Section 3.1:

          (i) the Guarantee Trustee may conclusively rely and shall be fully
     protected in acting or refraining from acting in good faith and in
     accordance with the terms hereof upon any resolution, certificate,
     statement, instrument, opinion, report, notice, request, direction,
     consent, order, bond, debenture, note, other evidence of indebtedness or
     other paper or document reasonably believed by it to be genuine and to have
     been signed, sent or presented by the proper party or parties;

          (ii) any direction or act of the Guarantor contemplated by this
     Guarantee Agreement shall be sufficiently evidenced by an Officers'
     Certificate unless otherwise prescribed herein;

          (iii) the Guarantee Trustee may consult with counsel, and the advice
     of such counsel shall be full and complete authorization and protection in
     respect of any action taken, suffered or omitted to be taken by it
     hereunder in good faith and in reliance thereon and in accordance with such
     advice. Such counsel may be counsel to the Guarantee Trustee, the Guarantor
     or any of its Affiliates and may be one of its employees. The Guarantee
     Trustee shall have the right at any time to seek instructions concerning
     the administration of this Guarantee Agreement from any court of competent
     jurisdiction;

          (iv) the Guarantee Trustee shall be under no obligation to exercise
     any of the rights or powers vested in it by this Guarantee Agreement at the
     request or direction of any Holder, unless such Holder shall have provided
     to the Guarantee Trustee reasonable security or indemnity against the
     costs, expenses (including reasonable attorneys' fees and expenses) and
     liabilities that might be incurred by it in complying with such request or
     direction, including such reasonable advances as may be requested by the
     Guarantee Trustee; provided, that, nothing contained in this Section
     3.2(a)(iv) shall be taken to relieve the Guarantee Trustee, upon the
     occurrence of an Event of Default, of its obligation to exercise the rights
     and powers vested in it by this Guarantee Agreement;

          (v) the Guarantee Trustee shall not be bound to make any investigation
     into the facts or matters stated in any resolution, certificate, statement,
     instrument, opinion, report, notice, request, direction, consent, order,
     bond, debenture, note, other evidence of indebtedness or other paper or
     document, but the Guarantee Trustee, in its discretion, may make such
     further inquiry or investigation into such facts or matters as it may see
     fit, and if the Guarantee Trustee shall determine to make such inquiry or
     investigation, it

                                        8

<PAGE>

     shall be entitled to examine the books, records and premises of the
     Guarantor, personally or by agent or attorney;

          (vi) the Guarantee Trustee may execute any of the trusts or powers
     hereunder or perform any duties hereunder either directly or by or through
     its agents, attorneys, custodians or nominees and the Guarantee Trustee
     shall not be responsible for any misconduct or negligence on the part of
     any such agent, attorney, custodian or nominee appointed with due care by
     it hereunder;

          (vii) whenever in the administration of this Guarantee Agreement the
     Guarantee Trustee shall deem it desirable to receive instructions with
     respect to enforcing any remedy or right hereunder, the Guarantee Trustee
     (A) may request instructions from the Holders of a Majority in Liquidation
     Amount of the Preferred Securities, (B) may refrain from enforcing such
     remedy or right or taking such other action until such instructions are
     received and (C) shall be protected in acting in accordance with such
     instructions;

          (viii) except as otherwise expressly provided by this Guarantee
     Agreement, the Guarantee Trustee shall not be under any obligation to take
     any action that is discretionary under the provisions of this Guarantee
     Agreement; and

          (ix) whenever, in the administration of this Guarantee Agreement, the
     Guarantee Trustee shall deem it desirable that a matter be proved or
     established before taking, suffering or omitting to take any action
     hereunder, the Guarantee Trustee (unless other evidence is herein
     specifically prescribed) may, in the absence of bad faith on its part,
     request and rely upon an Officers' Certificate which, upon receipt of such
     request from the Guarantee Trustee, shall be promptly delivered by the
     Guarantor.

     (b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.

     SECTION 3.3. Compensation.

     The Guarantor agrees to pay to the Guarantee Trustee from time to time
reasonable compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provisions of law in regard to the
compensation of a trustee of an express trust) and to reimburse the Guarantee
Trustee upon request for all reasonable expenses, disbursements and advances
(including the reasonable fees and expenses of its attorneys and agents)
incurred or made by the Guarantee Trustee in accordance with any provisions of
this Guarantee Agreement.

                                        9

<PAGE>

     SECTION 3.4. Indemnity.

     The Guarantor agrees to indemnify and hold harmless the Guarantee Trustee
and any of its Affiliates and any of their officers, directors, shareholders,
employees, representatives or agents from and against any loss, damage,
liability, tax (other than income, franchise or other taxes imposed on amounts
paid pursuant to Section 3.3), penalty, expense or claim of any kind or nature
whatsoever incurred without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with the acceptance or administration of
this Guarantee Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder. The Guarantee Trustee will not claim or
exact any lien or charge on any Guarantee Payments as a result of any amount due
to it under this Guarantee Agreement. This indemnity shall survive the
termination of this Agreement or the resignation or removal of the Guarantee
Trustee.

     In no event shall the Guarantee Trustee be liable for any indirect,
special, punitive or consequential loss or damage of any kind whatsoever,
including, but not limited to, lost profits, even if the Guarantee Trustee has
been advised of the likelihood of such loss or damage and regardless of the form
of action.

     In no event shall the Guarantee Trustee be liable for any failure or delay
in the performance of its obligations hereunder because of circumstances beyond
its control, including, but not limited to, acts of God, flood, war (declared or
undeclared), terrorism, fire, riot, embargo, government action, including any
laws, ordinances, regulations, governmental action or the like which delay,
restrict or prohibit the providing of the services contemplated by this
Guarantee Agreement.

     SECTION 3.5. Securities.

     The Guarantee Trustee or any other agent of the Guarantee Trustee, in its
individual or any other capacity, may become the owner or pledgee of Common or
Preferred Securities.

                                   ARTICLE IV

                                Guarantee Trustee

     SECTION 4.1. Guarantee Trustee; Eligibility.

     (a) There shall at all times be a Guarantee Trustee which shall:

          (i) not be an Affiliate of the Guarantor; and

          (ii) be a corporation organized and doing business under the laws of
     the United States or of any State thereof, authorized to exercise corporate
     trust powers, having a combined capital and surplus of at least fifty
     million dollars ($50,000,000), subject to supervision or examination by
     Federal or State authority and having an office within the United States.
     If such corporation publishes reports of condition at least annually,
     pursuant to law or to the requirements of such supervising or examining

                                       10

<PAGE>

     authority, then, for the purposes of this Section 4.1, the combined capital
     and surplus of such corporation shall be deemed to be its combined capital
     and surplus as set forth in its most recent report of condition so
     published.

     (b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).

     (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee shall either eliminate such interest or resign in the manner
and with the effect set out in Section 4.2(c).

     SECTION 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.

     (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor, except during an Event of
Default.

     (b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor.

     (c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

     (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within thirty (30) days
after delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.

                                    ARTICLE V

                                    Guarantee

     SECTION 5.1. Guarantee.

     (a) The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Issuer), as and when due, regardless of any defense
(except for the defense of payment by the Issuer), right of set-off or
counterclaim which the Issuer may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required

                                       11

<PAGE>

amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders. The Guarantor shall give prompt written notice to the
Guarantee Trustee in the event it makes any direct payment to the Holders
hereunder.

     (b) The Guarantor hereby also agrees to assume any and all Obligations of
the Issuer, and, in the event any such Obligation is not so assumed, subject to
the terms and conditions hereof, the Guarantor hereby irrevocably and
unconditionally guarantees to each Beneficiary the full payment, when and as
due, of any and all Obligations to such Beneficiaries. This Guarantee is
intended to be for the Beneficiaries who have received notice hereof.

     SECTION 5.2. Waiver of Notice and Demand.

     The Guarantor hereby waives notice of acceptance of the Guarantee Agreement
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Guarantee Trustee,
Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.

     SECTION 5.3. Obligations Not Affected.

     The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:

          (a) the release or waiver, by operation of law or otherwise, of the
     performance or observance by the Issuer of any express or implied
     agreement, covenant, term or condition relating to the Preferred Securities
     to be performed or observed by the Issuer;

          (b) the extension of time for the payment by the Issuer of all or any
     portion of the Distributions (other than an extension of time for payment
     of Distributions that results from the extension of any interest payment
     period on the Notes as provided in the Indenture), Redemption Price,
     Liquidation Distribution or any other sums payable under the terms of the
     Preferred Securities or the extension of time for the performance of any
     other obligation under, arising out of, or in connection with, the
     Preferred Securities;

          (c) any failure, omission, delay or lack of diligence on the part of
     the Holders to enforce, assert or exercise any right, privilege, power or
     remedy conferred on the Holders pursuant to the terms of the Preferred
     Securities, or any action on the part of the Issuer granting indulgence or
     extension of any kind;

          (d) the voluntary or involuntary liquidation, dissolution, sale of any
     collateral, receivership, insolvency, bankruptcy, assignment for the
     benefit of creditors, reorganization, arrangement, composition or
     readjustment of debt of, or other similar proceedings affecting, the Issuer
     or any of the assets of the Issuer;

          (e) any invalidity of, or defect or deficiency in, the Preferred
     Securities;

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<PAGE>

          (f) the settlement or compromise of any obligation guaranteed hereby
     or hereby incurred; or

          (g) any other circumstance whatsoever that might otherwise constitute
     a legal or equitable discharge or defense of a guarantor, it being the
     intent of this Section 5.3 that the obligations of the Guarantor hereunder
     shall be absolute and unconditional under any and all circumstances.

There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.

     SECTION 5.4. Rights of Holders.

     The Guarantor expressly acknowledges that: (a) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (b) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (c) the Holders of a Majority in Liquidation
Amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and (d) any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer or any other Person.

     SECTION 5.5. Guarantee of Payment.

     This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Notes to Holders as provided in the Trust
Agreement.

     SECTION 5.6. Subrogation.

     The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, that, the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights it may acquire by way of subrogation
or any indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Guarantee Agreement, if, at the time of any such payment, any
amounts are due and unpaid under this Guarantee Agreement. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

     SECTION 5.7. Independent Obligations.

     The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Preferred Securities and
that the Guarantor shall be

                                       13

<PAGE>

liable as principal and as debtor hereunder to make Guarantee Payments pursuant
to the terms of this Guarantee Agreement notwithstanding the occurrence of any
event referred to in subsections (a) through (g), inclusive, of Section 5.3.

     SECTION 5.8. Enforcement.

     A Beneficiary may enforce the Obligations of the Guarantor contained in
Section 5.1(b) directly against the Guarantor, and the Guarantor waives any
right or remedy to require that any action be brought against the Issuer or any
other person or entity before proceeding against the Guarantor.

                                   ARTICLE VI

                           Covenants and Subordination

     SECTION 6.1. Dividends, Distributions and Payments.

     So long as any Preferred Securities remain outstanding, if there shall have
occurred and be continuing an Event of Default or the Guarantor shall have
entered into an Extension Period as provided for in the Indenture and such
period, or any extension thereof, shall have commenced and be continuing, then
the Guarantor may not (a) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make liquidation payment with respect to, any of
the Guarantor's capital stock or (b) make any payment of principal of or any
interest or premium on or repay, repurchase or redeem any debt securities of the
Guarantor that rank pari passu in all respects with or junior in interest to the
Preferred Securities (other than (i) repurchases, redemptions or other
acquisitions of shares of capital stock of the Guarantor in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Guarantor (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the occurrence of such Event of
Default or the applicable Extension Period, (ii) as a result of an exchange or
conversion of any class or series of the Guarantor's capital stock (or any
capital stock of a subsidiary of the Guarantor) for any class or series of the
Guarantor's capital stock or any class of series of the Guarantor's indebtedness
for any class or series of the Guarantor's capital stock, (iii) the purchase of
fractional interests in shares of the Guarantor's capital stock pursuant to the
conversions or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) any declaration of a dividend in connection with
any rights plan, the issuance of rights, stock or other property under any
rights plan or the redemption or repurchase of rights pursuant thereto, or (v)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock).

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     SECTION 6.2. Subordination.

     The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Debt of the Guarantor.

     SECTION 6.3. Pari Passu Guarantees.

     (a) The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with the obligations of the Guarantor under any similar
guarantee agreements issued by the Guarantor with respect to preferred
securities (if any) similar to the Preferred Securities, issued by trusts other
than the Issuer established or to be established by the Guarantor (if any), in
each case similar to the Issuer, including, without limitation, the Guarantee
Agreement, dated December 20, 2002, issued by the Guarantor with respect to the
preferred securities issued by Catawba Valley Capital Trust II.

     (b) The right of the Guarantor to participate in any distribution of assets
of any of its subsidiaries upon any such subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent the Guarantor may itself be recognized as a
creditor of that subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee will be effectively subordinated to all existing and future
liabilities of the Guarantor's subsidiaries, and claimants should look only to
the assets of the Guarantor for payments thereunder. This Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Guarantor, including Senior Debt of the Guarantor, under any indenture or
agreement that the Guarantor may enter into in the future or otherwise.

                                   ARTICLE VII

                                   Termination

     SECTION 7.1. Termination.

     This Guarantee Agreement shall terminate and be of no further force and
effect upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) the distribution of Notes to the Holders in exchange for all of
the Preferred Securities or (c) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid with respect to Preferred Securities or
this Guarantee Agreement. The obligations of the Guarantor under Sections 3.3
and 3.4 shall survive any such termination or the resignation and removal of the
Guarantee Trustee.

                                       15

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                                  ARTICLE VIII

                                  Miscellaneous

     SECTION 8.1. Successors and Assigns.

     All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its rights or delegate its obligations hereunder without the prior approval of
the Holders of a Majority in Liquidation Amount of the Preferred Securities.

     SECTION 8.2. Amendments.

     Except with respect to any changes that do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Guarantor, the Guarantee Trustee and the Holders of not less
than a Majority in Liquidation Amount of the Preferred Securities. The
provisions of Article VI of the Trust Agreement concerning meetings or consents
of the Holders shall apply to the giving of such approval.

     SECTION 8.3. Notices.

     Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:

          (a) if given to the Guarantor, to the address or facsimile number set
     forth below or such other address, facsimile number or to the attention of
     such other Person as the Guarantor may give notice to the Guarantee Trustee
     and the Holders:

               United Community Bancorp
               1039 Second Street North East
               Hickory, North Carolina 28601
               Facsimile No.: (828) 431-2309
               Attention: Chief Executive Officer

          (b) if given to the issuer, at the Issuer's address or facsimile
     number set forth below or such other address, facsimile number or to the
     attention of such other Person as the Issuer may give notice to the
     Guarantee Trustee and the Holders:

               Catawba Valley Capital Trust I
               1039 Second Street North East
               Hickory, North Carolina 28601

                                       16

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               Facsimile No.: (828) 431-2309
               Attention: Administrative Trustee

          (c) if given to the Guarantee Trustee, at the address or facsimile
     number set forth below or such other address, facsimile number or to the
     attention of such other Person as the Guarantee Trustee may give notice to
     the Guarantor and the Holders:

               The Bank of New York
               101 Barclay Street
               New York, New York 10286
               Facsimile No.: (212) 896-7299
               Attention: Corporate Trust Administration

          (d) if given to any Holder, at the address set forth on the books and
     records of the Issuer.

     All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

     SECTION 8.4. Benefit.

     This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Preferred Securities.

     SECTION 8.5. Governing Law.

     This Guarantee Agreement and the rights and obligations of each party
hereto, shall be construed and enforced in accordance with and governed by the
laws of the State of New York without reference to its conflict of laws
provisions (other than Section 5-1401 of the General Obligations Law).

     SECTION 8.6. Submission to Jurisdiction.

     ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH
RESPECT TO OR ARISING OUT OF THIS GUARANTEE AGREEMENT MAY BE BROUGHT IN OR
REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW
YORK, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK
(IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF
THIS GUARANTEE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR
IN CONNECTION WITH THIS GUARANTEE AGREEMENT.

                                       17

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     SECTION 8.7. Counterparts.

     This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

                      [THE NEXT PAGE IS THE SIGNATURE PAGE]

                                       18

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     In Witness Whereof, the undersigned have executed this Guarantee Agreement
as of the date first above written.

                                       United Community Bancorp

                                       By: /s/ R. Steve Aaron
                                           -------------------------------------
                                           R. Steve Aaron
                                           President and Chief Executive Officer

                                       The Bank of New York,
                                          not in its individual capacity, but
                                          solely as Guarantee Trustee

                                       By: /s/ Van K. Brown
                                           -------------------------------------
                                           Van K. Brown
                                           Vice President

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