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United Community Bancorp Expects Increased Loss Provision And Recognition Of Net Loss For Third Fiscal Quarter

LAWRENCEBURG, Ind., April 11, 2011 /PRNewswire/ -- United Community Bancorp (the "Company") (NASDAQ: UCBA), the holding company for United Community Bank (the "Bank"), announced today that it expects to record a third quarter provision for loan losses of approximately $3.9 million.  As a result, the Company anticipates reporting a net loss for the quarter ended March 31, 2011 ranging from $1.7 million to $2.0 million and for the nine months ended March 31, 2011 ranging from $700,000 to $1.0 million.

The expected increase in the loan loss provision is primarily the result of the anticipated charge-off of $4.4 million in multi-family and non-residential real estate loans, of which $692,000 relates to the restructuring of seven loans during the quarter having an aggregate outstanding principal balance of approximately $3.6 million.  The remaining $3.7 million being charged-off relates to the restructuring of six loans having an aggregate balance of approximately $9.9 million that had been restructured during the 2010 calendar year.  With respect to the previously restructured loans, the initial restructurings provided for lower interest rates for a period of one year.  After initially being current, the borrowers again began to experience payment difficulties, and as a consequence, management restructured the loans by bifurcating the loans, further lowering the interest rates and by requiring a balloon payment in two years.  With respect to all loans restructured in the quarter ended March 31, 2011, while the borrowers remain responsible for the full amount of their original indebtedness, the Company charged-off the amount by which the loans exceeded the fair value of the underlying collateral.  Fair value for each restructured loan was determined based upon a cash flow analysis of the underlying collateral performed by management.  Following the charge-offs, management believes that, based on the loans' carrying values at March 31, 2011, the properties collateralizing the restructured loans could be sold to a third party without material loss.

As a result of the above actions, troubled debt restructurings are expected to increase to approximately $21.3 million at March 31, 2011, compared to $20.9 million at December 31, 2010 and $10.3 million at June 30, 2010.  However, nonperforming loans are expected to decrease to approximately $20.6 million at March 31, 2011, compared to $23.5 million at December 31, 2010 primarily due to the $4.4 million in charge-offs discussed above.  The ratio of the allowance for loan losses to nonperforming loans is expected to decrease to 23.4% at March 31, 2011 from 28.5% at December 31, 2010 and 53.7% at June 30, 2010.  

During the past year, the Company has sought to restructure troubled loans rather than pursue foreclosure or liquidation, believing this approach increased the probability of realizing the best economic outcome for the Company in view of the current economic environment.  Troubled debt restructurings generally involved interest rate reductions or interest-only payment terms for limited time periods, or both, and are placed on nonaccrual.  Generally, as troubled debt restructurings establish a history of performance in accordance with the restructured terms of at least six consecutive months, the loans may be returned to accrual status and no longer be considered nonperforming loans.

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