FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the Company (as defined below), its directors or its officers primarily with respect to future events and the future financial performance of the Company. Readers of this Form 10-Q are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates, charge-offs and loan loss provisions, loss of deposits and loan demand to other financial institutions, substantial changes in financial markets, changes in real estate values and the real estate market, regulatory changes, turmoil and governmental intervention in the financial services industry, changes in the financial condition of issuers of the Company's investments and borrowers, changes in economic condition of the Company's market area, increases in compensation and employee expenses, or unanticipated results in pending legal proceedings or regulatory proceedings.

Indiana Community Bancorp (the "Company") is organized as a financial holding company and owns all the outstanding capital stock of Indiana Bank and Trust Company (the "Bank"). The business of the Bank and, therefore, the Company, is to provide consumer and business banking services to certain markets in the south-central portions of the State of Indiana. The Bank does business through 19 full service banking branches.

The Company filed an application under the Troubled Asset Relief Program Capital Purchase Program with the U. S. Department of Treasury seeking approval to sell $21.5 million in preferred stock to the Treasury, and issued 21,500 shares of Fixed Rate Cumulative Preferred Stock, Series A on December 12, 2008 pursuant to that program. The Company also issued a ten year warrant to purchase 188,707 shares of the Company's common stock for an exercise price of $17.09 per share to the Treasury Department.

CRITICAL ACCOUNTING POLICIES
The notes to the consolidated financial statements contain a summary of the Company's significant accounting policies presented on pages 27 through 48 of the Company's annual report on Form 10-K for the year ended December 31, 2008. Certain of these policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses, and the valuation of securities.

Allowance for Loan Losses

A loan is considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the loan's discounted cash flow or the estimated fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses. Loan losses are charged against the allowance when management believes the loans are uncollectible. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is maintained at a level management considers to be adequate to absorb probable loan losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans. The allowance is based on ongoing assessments of the probable estimated losses inherent in the loan portfolio. The Company's methodology for assessing the appropriate allowance level consists of several key elements, as described below.

All delinquent loans that are 90 days past due are included on the Asset Watch List. The Asset Watch List is reviewed quarterly by the Asset Watch Committee for any classification beyond the regulatory rating based on a loan's delinquency.

Commercial and commercial real estate loans are individually risk rated pursuant to the loan policy. Homogeneous loans such as consumer and residential mortgage loans are not individually risk rated by management. They are pooled based on historical portfolio data that management believes will provide a good basis for the loans' quality. For all loans not listed individually on the Asset Watch List, historical loss rates based on the last two years are the basis for developing expected charge-offs for each pool of loans.

Historical loss rates for commercial and homogeneous loans may be adjusted for significant factors that, in management's judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the local economy, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and the Company's credit review function.

Finally, a portion of the allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating allowances for individual loans or pools of loans. This unallocated allowance is based on factors such as current economic conditions, trends in the Company's loan portfolio delinquency, losses and recoveries, level of under performing and non-performing loans, and concentrations of loans in any one industry. The unallocated allowance is assigned to the various loan categories based on management's perception of estimated incurred risk in the different loan categories and the principal balance of the loan categories.

Valuation of Securities
Securities are classified as held-to-maturity or available-for-sale on the date of purchase. Only those securities classified as held-to-maturity are reported at amortized cost. Available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income, net of related deferred income taxes, on the consolidated balance sheets. The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments. Realized securities gains or losses are reported within non interest income in the condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method. Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security's performance, the creditworthiness of the issuer and the Company's intent and ability to hold the security to recovery, which may be maturity. A decline in value that is considered to be other-than-temporary is recorded as a loss within non interest income in the condensed consolidated statements of operations. Management believes the price movements in these securities are dependent upon the movement in market interest rates and illiquidity related to these assets. Management also maintains the intent and ability to hold securities in an unrealized loss position to the earlier of the recovery of losses or maturity.

RESULTS OF OPERATIONS:
Quarter Ended September 30, 2009 Compared to Quarter Ended September 30, 2008

General
The Company reported net loss of $2.1 million for the quarter ended September 30, 2009, compared to net income of $1.8 million for the quarter ended September 30, 2008, a decrease of $3.9 million. Basic and diluted earnings per common share for the current quarter were $(0.71) compared to $0.54 for the quarter ended September 30, 2008. Key factors reducing the current quarter's income were the $2.9 million increase in the provision for loan losses and the $1.4 million full impairment of goodwill.

Net Interest Income
Net interest income before provision for loan losses decreased $659,000 or 8.8% to $6.8 million for the quarter ended September 30, 2009 as compared to $7.5 million for the quarter ended September 30, 2008. The net interest margin declined 61 basis points from 3.49% for the quarter ended September 30, 2008 to 2.88% for the quarter ended September 30, 2009. The reduction in net interest margin was due to the rates earned on interest earning assets falling faster than rates paid on interest bearing liabilities during the third quarter. Average interest earning assets and average interest bearing liabilities increased $87.2 million and $91.0 million, respectively in the third quarter of 2009 compared to the same quarter of the prior year.

Provision for Loan Losses
The provision for loan losses increased $2.9 million for the quarter ended September 30, 2009 to $3.9 million compared to $1.0 million for the quarter ended September 30, 2008. The $3.9 million provision for loan losses for the third quarter was due to increased levels in non-performing loans in the current quarter of $1.8 million to $29.7 million at September 30, 2009, as well as the continuing challenging economic environment. Net charge offs were $1.8 million for the third quarter. The Company had a $1.2 million write down on a commercial equipment loan, based on the continued decline in equipment values, evidenced by values received at auctions held in the third quarter. Additionally, the Company experienced $684,000 in consumer related net charge offs in the third quarter of 2009.

The allowance for loan losses increased $2.1 million during the third quarter. The increase in the allowance for loan losses during the quarter was a result of the increase in non performing loans to $29.7 million as of September 30, 2009, over the June 30, 2009 non performing loans which totaled $27.9 million, a third quarter increase of $1.8 million, as well as the effect of the current economic climate on credit quality. See the Critical Accounting Policies, Allowance for Loan Losses section for a description of the systematic analysis the Bank uses to determine its allowance for loan losses. The change to the loan loss allowance for the three month periods ended September 30, 2009 and 2008 is as follows:

Quarter ended September 30: (in thousands)     2009        2008

Allowance beginning balance                  $ 10,120     $ 7,649
Provision for loan losses                       3,899         987
Charge-offs                                    (1,984 )      (762 )
Recoveries                                        135         136
Allowance ending balance                     $ 12,170     $ 8,010

Allowance to Total Loans                         1.60 %      1.00 %
Allowance to Nonperforming Loans                   41 %        52 %

Net interest income after provision for loan losses was $2.9 million for the three month period ended September 30, 2009; a decrease of $3.6 million or 54.9%, compared to $6.5 million for the three month period ended September 30, 2008.

Interest Income
Total interest income for the three month period ended September 30, 2009, decreased $1.0 million or 7.9% from $12.8 million for the quarter ending September 30, 2008 to $11.8 million for the quarter ending September 30, 2009. Two primary factors influenced the resulting interest income recorded. The decrease in interest income is a direct reflection of the declining rates experienced in the third quarter of 2009 compared to the third quarter of 2008. The average prime rates for the third quarter of 2009 and 2008 were 3.25% and 5.00%, respectively. The declining rates of the two comparative quarters translated into a 94 basis points reduction in the yield on average interest earning assets to 5.50% for the quarter ended September 30, 2009 compared to 6.44% for the quarter ended September 30, 2008. Another factor influencing interest income was the composition of average interest earning assets for the third quarter of 2009, as compared to the third quarter of 2008. In the third quarter of 2009 average earning assets increased $87.2 million over average earning assets in the third quarter of 2008. Average balances of investments available for sale and interest earning demand deposits increased $97.7 million and $35.4 million, respectively, while the average balance of the higher yielding loan portfolio decreased $18.0 million.

Interest Expense
Total interest expense for the three month period ended September 30, 2009 decreased $351,000 or 6.6% as compared to the same period a year ago. The weighted average interest rates paid on average interest bearing liabilities decreased 37 basis points, from the three month period ended September 2008 to the three month period ended September 2009. The decrease in rates paid on interest bearing liabilities mirrors the declining rate environment discussed above, as well as the changing mix of interest bearing liabilities. The mix of interest bearing liabilities showed decreases of $15.0 million and $17.1 million in wholesale deposits and FHLB advances, respectively, with increases in average balances of lower cost interest checking, money market accounts and certificates of deposits of $57.3 million, $40.6 million and $32.9 million, respectively.

Non Interest Income
Total non interest income decreased $1.1 million or 31.6% to $2.3 million for the quarter. Gain on sale of loans increased $105,000 over the two comparative quarters as declining rates resulted in continuing increased refinance activity. The Company currently sells substantially all of its residential mortgage originations in the secondary market. Investment advisory services decreased $419,000 during the quarter. The Company sold its investment advisory services during the third quarter of 2008. Service fees on deposits declined $223,000 or 11.8% due to a decline in the number of overdraft fees accessed. Net loss on real estate owned of $468,000 was recorded in the third quarter of 2009, due to a write down of a subdivision owned by the Company.

Non Interest Expenses
Non interest expenses increased $923,000 or 13.0% to $8.0 million for the quarter. This increase was primarily due to the total goodwill impairment of $1.4 million recorded in the third quarter of 2009. See footnote 6 for a description of the impairment analysis performed. Another expense which increased in the third quarter of 2009 was FDIC insurance expense, which increased $287,000 over the same quarter of the prior year. In the quarter ended September 2008, FDIC insurance expense was $31,000. This was based on an assessment rate that is less than half of the current year assessment rate. Additionally, in the third quarter of 2008 the Company received the benefit of an assessment credit that was depleted at the end of 2008. In the quarter ended September 2009, the assessment rate is more than double the prior year rate and the Company no longer has an assessment credit to apply against the insurance charge. In total the FDIC insurance charge was $318,000 in the third quarter of 2009. Offsetting these increases were decreases in compensation and employee benefits of $458,000 or 11.6%, a decrease in occupancy and equipment expenses of $155,000 or 14.4% and a $128,000 decrease in miscellaneous expenses. Several factors contributed to the decrease in compensation and benefits: 1) the Company reduced its workforce by approximately 10% in the third quarter of 2008 resulting in an expense reduction of approximately $200,000 for the quarter; 2) the Company changed its vacation policy in February 2009 resulting in compensation reductions of $90,000 and 3) the Company discontinued offering brokerage services effective September 2008 resulting in an expense reduction of $258,000 for the quarter. These decreases to compensation and employee benefits were partially offset by an increase in mortgage commissions of $128,000 as a result of increased mortgage origination volumes. Occupancy expense reductions related to cost reductions in maintenance contracts. Miscellaneous expense decreased $128,000 or 9.6% for the current quarter. This decrease is the net result of increased loan expenses of $127,000 associated with increased loan originations and problem loan workouts offset by decreases in employee expenses, professional fees and communications expense.

Taxes
A tax credit of $674,000 was recorded for the third quarter ended September 2009 while tax expense of $1.0 million was recorded for the third quarter ended September 2008. In the quarter ended September 2009, the Company recorded a pretax loss of $2.8 million resulting in a tax credit of $674,000. In the quarter ended September 2008, the Company recorded pretax income of $2.8 million resulting in tax expense of $1.0 million. The third quarter ended 2009 included the non deductible goodwill impairment of $1.4 million. Both periods' tax calculation includes the benefit of approximately $317,000 of tax-exempt income.

RESULTS OF OPERATIONS:
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

General
The Company reported net loss of $4.5 million for the nine months ended September 30, 2009, compared to net income of $3.5 million for the nine months ended September 30, 2008. Basic and diluted earnings per common share for the current nine months were $(1.60) compared to $1.04 for the nine months ended September 30, 2008. The primary factor reducing the current nine months income was the $9.5 million increase in the provision for loan losses.

Net Interest Income
Net interest income before provision for loan losses decreased $1.1 million or 5.1% to $20.4 million for the nine months ended September 30, 2009 as compared to $21.5 million for the nine months ended September 30, 2008. The net interest margin declined 42 basis points from 3.38% for the nine months ended September 30, 2008 to 2.96% for the nine months ended September 30, 2009.

Provision for Loan Losses
The provision for loan losses increased $9.5 million for the nine months ended September 30, 2009 to $12.8 million compared to $3.3 million for the nine months ended September 30, 2008. The increase in the provision for loan losses is reflective of the increase in non-performing loans and the continuing sluggish economy. Year-to-date net charge offs totaled $9.2 million compared to $2.2 million for the year to date 2008 period. Net charge offs were $1.8 million for the third quarter and included a $1.2 million charge off on a commercial equipment loan, based on the continued decline in equipment values, evidenced by values received at auctions in the third quarter. Additionally the Company experienced $684,000 in consumer related net charge offs in the third quarter of 2009. Net charge offs were $5.6 million for the second quarter and included $3.3 million of charge offs related to three condominium projects. In the second quarter of 2009, one of the condominium projects converted to a multi-family apartment project, due to the continued decline of the condominium market. The change in project type and new bank appraisal valuation based on that change resulted in a second quarter write down of the new project. The Company received an updated second quarter 2009 appraisal valuation on another under performing condominium project leading management to decrease the value of the outstanding loan. Also in the second quarter of 2009, the Company had a court approved receiver's auction on a third under performing condominium project. The remaining units of this project were written down based on the auction values received. The Company also had a $1.2 million write down on an equipment loan, based on a chapter 11 bankruptcy filing by the borrower and updated equipment valuations provided in the second quarter. Additional smaller write downs occurred in the second quarter primarily due to new information becoming available regarding the value of the various projects involved. Net charge offs of $1.8 million for the first quarter of 2009 included a $1.4 million write down of a $3.0 million loan to a manufacturing business in southeast Indiana, as well as $268,000 of charge offs related to residential mortgages, seconds and home equities. The allowance for loan losses increased $3.6 million during the first nine months of 2009. The increase in the allowance for loan losses during the nine months, like the increase in the provision, was a result of the increasing level of non performing loans which totaled $29.7 million and the affect of the current economic climate on credit quality. See the Critical Accounting Policies, Allowance for Loan Losses section for a description of the systematic analysis the Bank uses to determine its allowance for loan losses. The change to the loan loss allowance for the nine month periods ended September 30, 2009 and 2008 is as follows:

Nine months ended September 30: (in thousands)     2009         2008

Allowance beginning balance                      $  8,589     $  6,972
Provision for loan losses                          12,785        3,271
Charge-offs                                        (9,472 )     (2,515 )
Recoveries                                            268          282
Allowance ending balance                         $ 12,170     $  8,010

Allowance to Total Loans                             1.60 %       1.00 %
Allowance to Nonperforming Loans                       41 %         52 %

Net interest income after provision for loan losses was $7.7 million for the nine month period ended September 30, 2009; a decrease of $10.6 million or 58.1%, compared to $18.3 million for the nine month period ended September 30, 2008.

Interest Income
Total interest income for the nine month period ended September 30, 2009, decreased $3.5 million or 9.1% from $38.8 million for the nine months ended September 30, 2008 compared to $35.3 million for the nine months ended September 30, 2009. Two primary factors influenced the resulting interest income recorded. First the weighted average rate earned on interest earning assets decreased 95 basis points to 4.7% in the nine month period ended September 30, 2009, as compared to 5.6% in the nine month period ended September 30, 2008. The decrease in interest rates was primarily due to the declining rate environment as evidenced by the average prime rate which decreased 217 basis points compared to the nine months ended September 30, 2008. A second factor impacting interest income was the changing mix of the interest earning assets. The nine months ended September 30, 2009 experienced growth of $21.5 million and $47.1 million, in the average balance of lower yielding interest bearing demand deposits and securities available for sale, respectively.

Interest Expense
Total interest expense for the nine month period ended September 30, 2009 decreased $2.4 million or 14.0% as compared to the same period a year ago. The weighted average interest rates paid on average interest bearing liabilities decreased 54 basis points, from the nine month period ended September 2008 to the nine month period ended September 2009. The decrease in rates paid on interest bearing liabilities mirrors the declining rate environment discussed above. The growth of $63.1 million in average interest bearing liabilities offset the decrease in interest rates for the nine month period.

Non Interest Income
The explanation for changes in non interest income for the nine month periods ended September 2009 and September 2008 are very similar to the explanation for changes in the three month periods ending September 2009 and 2008. Non interest income decreased $1.2 million or 12.5% to $8.1 million for the nine months ended September 2009. Gain on sale of loans increased $1.0 million over the two comparative nine month periods as declining rates resulted in increased refinance activity. The Company currently sells substantially all of its residential mortgage originations in the secondary market. The Company recorded a loss of $437,000 related to an other than temporary impairment in the value of its $4.3 million investment in the AMF Ultra Short Mortgage Fund in the second and third quarter of 2008. Investment advisory services decreased $1.4 million during the nine months. The Company sold its investment advisory services during the third quarter of 2008. Service fees on deposit accounts decreased $329,000 or 6.5% due to a reduction in the number of overdraft fees charged. Net loss on real estate owned of $468,000 was recorded in the third quarter of 2009, due to a write down of the carrying value of a subdivision owned by the Company resulting in the $510,000 decrease in net gain\(loss) on real estate owned. Miscellaneous income decreased $366,000 due primarily to a $196,000 decrease in FHLB dividend income. Other categories of miscellaneous income had small changes including a net decrease of $56,000 from the loss on sale of a Company building and other fixed assets, a $77,000 reduction in rental income received and a net reduction of $47,000 due to the recognition of deferred income related to the sale of a commercial property in the first nine month of 2008.

Non Interest Expenses
Non interest expenses increased $452,000 or 2.0% to $22.7 million for the nine months. This increase in expenses is the net result of several factors. The key factors increasing non interest expenses were the FDIC insurance expense of $1.4 million and the $1.4 million full impairment charge applied to goodwill. This FDIC insurance increase relates to the doubling of the rate charged, coupled with the depletion of the one time credit at the end of 2008, resulting in $939,000 of FDIC insurance expenses, as well as the second quarter $454,000 charge for the FDIC special assessment. The goodwill impairment charge resulted from the Company's annual analysis of goodwill described in footnote
6. Miscellaneous expense increased $210,000 or 5.1%, for the nine months due primarily to increased loan expenses of $819,000 for the year to date period primarily due to expenses associated with increased loan volumes and problem loan workout related costs. Offsetting the increase in loan expenses were decreases in various expense accounts including employee expenses of $133,000 due to having fewer employees, decreases in professional fees of $155,000 due to the previous year's change in external auditors and a $154,000 decrease in office supplies as the nine months ended September 2008 included purchases associated with the Bank's name change. Decreases in non interest expense included a decrease in compensation and employee benefits of $1.8 million or 14.4%, a decrease of $229,000 or 7.3% in occupancy expenses and a decrease in marketing expenses of $476,000 or 44.9%. Four primary factors contributed to the decrease in compensation and benefits: 1) the Company froze its defined benefit pension plan effective April 1, 2008 resulting is an expense reduction of $450,000 for the nine months; 2) the Company reduced its workforce by approximately 10% in the third quarter of 2008 resulting in an expense reduction . . .