United Community Bancorp Reports Third Quarter Results

Business Wire, May 6, 2008

LAWRENCEBURG, Ind. -- United Community Bancorp (the "Company") (Nasdaq: UCBA), the holding company for United Community Bank (the "Bank"), announced a net loss of $982,000, or $0.13 per share, for the quarter ended March 31, 2008 compared to net income of $713,000, or $0.09 per share, for the quarter ended March 31, 2007. The decrease in net income was the result of a $1.9 million increase in the provision for loan loss. Net loss for the nine months ended March 31, 2008 was $1.4 million, or $0.18 per share, compared to net income of $1.9 million, or $0.24 per share, for the nine months ended March 31, 2007. The decrease in net income for the nine month period was the result of a $3.1 increase in provision for loan loss.

Net interest income for the quarter ended March 31, 2008 totaled $2.4 million compared to $2.7 million for the prior year quarter. The decrease from the prior year quarter is primarily due to a decrease in total interest income of $157,000, and by an increase in total interest expense of $134,000. Interest income on loans increased by $307,000 primarily due to the combined effect of an increase in average balance from $265.7 million to $289.9 million, partially offset by a decrease in average yield from 6.56% to 6.44%. Interest income on investment and mortgage-backed securities decreased by $205,000 to $398,000, primarily due to the impact of a decrease in average balance from $51.7 million to $34.9 million and a decrease in average yield from 4.67% to 4.56%. The decreases in investment and mortgage-backed securities is due to the deployment of the proceeds of these securities into higher yielding loans. Interest income on other interest-earning assets decreased $259,000 to $206,000, primarily due to the impact of a decrease in average balance from $47.1 million to $41.1 million and a decrease in average yield from 3.95% to 2.00%. Interest expense on interest-bearing deposits increased by $134,000 primarily due to the effect of an increase in average balance from $317.9 million to $324.3 million and an increase in the average rate paid from 3.44% to 3.54%. The changes in the average yields on loans and investments and in the average rates paid on interest-bearing deposits are primarily the result of changes in market interest rates in the local and national economies.

Net interest income for the nine months ended March 31, 2008 totaled $7.5 million compared to $8.2 million for the prior year period. The decrease from the prior year period is primarily due to an increase in total interest expense of $1.4 million, partially offset by an increase in total interest income of $701,000. Interest income on loans increased by $1.2 million primarily due to the combined effect of an increase in average balance from $258.6 million to $285.2 million, partially offset by a decrease in average yield from 6.60% to 6.55%. Interest income on investment and mortgage-backed securities decreased by $631,000 to $1.4 million, primarily due to the impact of a decrease in average balance from $59.8 million to $39.0 million, partially offset by an increase in average yield from 4.59% to 4.89%. Interest income on other interest-earning assets increased $130,000 to $984,000, primarily due to the impact of an increase in average balance from $27.4 million to $37.8 million, partially offset by a decrease in average yield from 4.16% to 3.47%. Interest expense on interest-bearing deposits increased by $1.5 million, primarily due to the effect of an increase in the average balance from $295.6 million to $317.9 million and an increase in the average rate paid from 3.35% to 3.75%. Interest expense on borrowed funds decreased $97,000 due to a decrease in average outstanding borrowings from $2.7 million to no outstanding borrowings in the current year. The decrease in borrowings is due to the increase in cash balances throughout most of the year when compared to the prior year. The changes in the average yields on loans and investments and in the average rates paid on interest-bearing deposits and borrowed funds are primarily the result of changes in market interest rates in the local and national economies.

The provision for loan losses was $2.0 million for the quarter ended March 31, 2008 compared to $95,000 for the quarter ended March 31, 2007. The provision for loan losses was $3.7 million for the nine months ended March 31, 2008 compared to $635,000 for the nine months ended March 31, 2007. The increase is primarily due to the increase of $9.6 million in nonperforming loans for the nine months ended March 31, 2008 as compared to an increase of $2.2 million in nonperforming loans for the nine months ended March 31, 2007, as well as an increase in the size of the loan portfolio. The increase in nonperforming loans in the nine months ended March 31, 2008 is primarily the result of the addition of nine commercial real estate loans totaling $11.0 million, partially offset by the pay off of one loan for $1.2 million and the charge off (including loans charged off to the provision for loan loss and real estate owned) of two other loans totaling $572,000. The non-performing loans include: 1) A golf course loan and a related real estate development loan having an aggregate balance of $4.7 million, and a $1.4 million loan relationship made up of three loans secured by real estate, inventory and other business assets of a landscape-nursery, all of which experienced unfavorable weather and economic conditions. Management expects the land securing the golf course loan and the related real estate development loan to be the subjects of foreclosure sale in 2008. The Bank has entered into a forbearance agreement with the borrower of the loan secured by the landscape-nursery pursuant to which that property has been transferred to a trustee. If the property is not sold before July 31, 2008 (for adequate consideration) the deed to the property will revert to the Bank and the Bank expects to sell the property and other collateral; 2) A $1.4 million loan secured by an apartment complex, one-fourth of the tenants of which have lost their subsidized housing grant. The borrower of that loan is attempting to improve occupancy and/or sell the property securing the loan; 3) A $1.5 million loan secured by a mobile home park that has experienced management issues that have, in turn, resulted in decreased occupancy and cash flows. The borrower of this loan has hired a management company to attempt to correct these deficiencies; 4) Two loans, totaling $1.9 million, secured by office/warehouses that have experienced declines in occupancy rates due to increased competition and unfavorable general economic conditions; 5) A $900,000 loan secured by a gas station/convenience store. The borrower of this loan has accepted an offer to purchase the property. The offer is sufficient for the Bank to recover the full principal and interest amounts due on this loan. The Bank has obtained recent appraisals on the collateral securing the above loans except for the apartment complex loan collateral (for which an appraisal has been ordered) and the office/warehouse loan (for which the Bank obtained an appraisal in November, 2006 and for which management does not believe requires a more current appraisal at this time). We did not have any troubled debt restructurings or any accruing loans past due 90 days or more at the dates presented.