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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                  _____________
                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2002
                                       OR

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

For the transition period from _____________  to ____________

                         Commission File Number: 0-18392

                                AMERIANA BANCORP
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

           INDIANA                                                35-1782688
-------------------------------                             --------------------
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

2118 BUNDY AVENUE, NEW CASTLE, INDIANA                           47362-1048
------------------------------------------                  --------------------
  (Address of Principal Executive Offices)                       (Zip Code)

       Registrant's telephone number, including area code: (765) 529-2230

        Securities registered pursuant to Section 12(b) of the Act: NONE
                                                                    ----

           Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $1.00 PER SHARE
                     ---------------------------------------

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes     No X
                                        ---    ---


At December 31, 2002, the  registrant had 3,147,463  shares of its Common Stock,
$1.00 per share, outstanding. The aggregate market value of voting stock held by
nonaffiliates  of the  registrant  at December  31, 2002 was  approximately  $32
million  based on the closing  sale price of the  registrant's  Common  Stock as
listed  on the  Nasdaq  National  Market  as of  the  last  business  day of the
registrant's most recently completed second fiscal quarter. For purposes of this
calculation,   directors   and   executive   officers   are   not   treated   as
"non-affiliates".

                      DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Proxy  Statement  for the 2003 Annual  Meeting of  Shareholders
     ("Proxy Statement") (Part III).

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<PAGE>

                                     PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING STATEMENTS

     When used in this Annual  Report on Form 10-K (the  "Annual  Report"),  the
words or phrases "will likely  result," "are expected to," "will  continue," "is
anticipated,"  "estimate,"  "project"  or similar  expressions  are  intended to
identify  "forward-looking   statements"  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks  and  uncertainties  including  changes  in  economic  conditions  in  the
Company's market area, changes in policies by regulatory  agencies,  the outcome
of litigation, fluctuations in interest rates, demand for loans in the Company's
market  area,  and  competition  that  could  cause  actual  results  to  differ
materially  from  historical   earnings  and  those  presently   anticipated  or
projected.  The Company wishes to caution readers not to place undue reliance on
any such forward-looking  statements,  which speak only as of the date made. The
Company  wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ  materially  from any opinions or statements  expressed
with respect to future periods in any current statements.

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

GENERAL

     THE COMPANY.  Ameriana  Bancorp (the  "Company") is a bank holding  company
subject to regulation  and  supervision by the Board of Governors of the Federal
Reserve System (the "Federal  Reserve Board") under the Bank Holding Company Act
of 1956 ("BHCA"). The Company's principal subsidiary is Ameriana Bank and Trust,
SB, an Indiana chartered savings bank headquartered in New Castle,  Indiana (the
"Bank").  The Company  also holds a minority  interest in a limited  partnership
organized  to acquire  and manage  real estate  investments,  which  qualify for
federal tax credits.

     The Company  became the holding  company for the Bank in 1990. In 1992, the
Company acquired Deer Park Financial  Corporation,  the holding company for Deer
Park Federal  Savings and Loan  Association  ("Deer  Park"),  a federal  savings
association with its main office in Cincinnati, Ohio. After the acquisition, the
Company  operated  Deer Park as a  separate  subsidiary.  In 1998,  the  Company
acquired Cardinal State Bank  ("Cardinal"),  an

                                       1
<PAGE>

Ohio-chartered commercial bank with its main office in Maineville, Ohio, through
a merger  with Deer  Park.  Following  the  acquisition,  Deer Park was  renamed
Ameriana Bank of Ohio,  F.S.B.  ("Ameriana-Ohio")  and continued to operate as a
separate subsidiary.  In October 2000, the Company merged Ameriana-Ohio into the
Bank.

     Effective June 29, 2001, the Bank converted to an Indiana  savings bank and
adopted  its present  name,  "Ameriana  Bank and Trust,  SB." As a result of the
conversion,  the Bank become subject to regulation by the Indiana  Department of
Financial  Institutions and the Federal Deposit Insurance  Corporation  ("FDIC")
rather than by the Office of Thrift  Supervision,  and the Company became a bank
holding company.

     THE BANK. The Bank began  operations in 1890. Since 1935, the Bank has been
a member of the Federal Home Loan Bank ("FHLB") System. Its deposits are insured
to  applicable  limits  by the  Savings  Association  Insurance  Fund  ("SAIF"),
administered  by the FDIC.  The  Bank's  main  office is  located  at 2118 Bundy
Avenue,  New Castle,  Indiana.  The Bank also  conducts  business  through eight
Indiana  branch  offices  located  in  New  Castle,   Middletown,   Knightstown,
Morristown,  Greenfield,  Anderson, Avon and New Palestine, Indiana and two Ohio
branch offices located in Cincinnati and Maineville,  Ohio. The Bank,  through a
wholly owned  subsidiary,  Ameriana  Financial  Services,  Inc.,  has  ownership
interests  in a  life  insurance  underwriting  firm  located  in  New  Orleans,
Louisiana and in an Indiana title  insurance  agency,  and offers a full line of
investments and securities  products through its brokerage center located in New
Castle, Indiana. The Bank maintains a website at www.ameriana.com.

     The business of the Bank consists primarily of attracting deposits from the
general  public and  originating  mortgage  loans on  single-family  residences,
multi-family  housing  and  commercial  real  estate.  The Bank also  makes home
improvement  loans and consumer loans and,  through its  subsidiary,  engages in
insurance and brokerage  activities.  In 1999,  the Bank  established a Business
Services Division to provide  specialized lending and other banking services for
business  customers.  As a result of the Business Services Division,  commercial
real estate loans have increased significantly during 2002, 2001 and 2000.

     The Bank  also  began  operating  a Trust  Department  during  1999,  which
provides trust,  investment and estate planning services.  The principal sources
of funds for the Bank's lending  activities  include deposits  received from the
general  public,  funds  borrowed  from the  FHLB,  principal  amortization  and
prepayment of loans.  The Bank's primary sources of income are interest and fees
on loans and interest on  investments.  The Bank has from time to time purchased
loans and loan  participations in the secondary market. The Bank also invests in
various  federal  and  government   agency   obligations  and  other  investment
securities   permitted   by   applicable   laws   and

                                       2
<PAGE>

regulations, including mortgage-backed securities. The Bank's principal expenses
are interest paid on deposit accounts and borrowed funds and operating  expenses
incurred in the operation of the Bank.

     REGULATORY  ACTIONS.  During the second  quarter of 2002,  the Bank entered
into a  memorandum  of  understanding  ("MOU")  with the  FDIC  and the  Indiana
Department  of  Financial  Institutions  ("DFI").  Among other  things,  the MOU
required  the Bank to  adopt  written  action  plans  with  respect  to  certain
classified  assets,  revise its  lending  policies,  require  greater  financial
information  from  borrowers,  establish a loan review program and certain other
internal  controls.  For  more a more  detailed  discussion  of  the  terms  and
conditions  of the  MOU,  see  "Regulation  and  Supervision  -  Regulation  and
Supervision of the Bank - Capital  Requirements"  below.

LENDING AND INVESTMENT ACTIVITIES

     GENERAL.   The  principal  lending  activity  of  the  Bank  has  been  the
origination  of  conventional   first  mortgage  loans  secured  by  residential
property, commercial real estate, equity lines of credit and consumer loans. The
residential  mortgage  loans have been  predominantly  secured by  single-family
homes and have included construction loans.

     The Bank may  originate  or  purchase  whole  loans or loan  participations
secured by real estate located in any part of the United States. Notwithstanding
this  nationwide  lending  authority,  the majority of the Bank's  mortgage loan
portfolio  is  secured by real  estate  located  in Henry,  Hancock,  Hendricks,
Madison,  Shelby,  Delaware  and Marion  counties in the state of Indiana and in
Hamilton, Butler, Clermont and Warren counties in the state of Ohio.

     Certain amounts in the tables that follow have been reclassified to conform
to 2002 presentation.

                                       3
<PAGE>

     The  following  table  sets  forth  information  concerning  the  Company's
aggregate loans by type of loan at the dates indicated.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                            --------------------------------------------------------------------
                                                     2002                 2001                   2000
                                            -------------------   -------------------     ------------------
                                              AMOUNT       %        AMOUNT       %         AMOUNT        %
                                              ------     -----      ------     -----       ------      -----
                                                                 (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>      <C>          <C>        <C>           <C>
Real estate mortgage loans:
  Commercial..............................  $  88,558    27.54%   $  61,678    16.91%     $  35,615     8.57%
  Residential loans.......................    157,622    49.00      211,601    58.00        295,949    71.18
  Construction loans......................     42,714    13.28       42,045    11.52         43,287    10.41
Commercial loans..........................     19,192     5.97       18,536     5.08          8,764     2.11
Consumer loans:
  Mobile home and auto loans..............     10,092     3.14       15,941     4.37         20,767     5.00
  Loans secured by deposits...............      1,130     0.35        1,348     0.37          1,598     0.38
  Home improvement loans..................        248     0.08          403     0.11            321     0.08
  Other...................................      2,043     0.64       13,294     3.64          9,431     2.27
                                            ---------   ------    ---------   ------     ----------   ------
     Total................................    321,599   100.00%     364,846   100.00%       415,732   100.00%
                                            ---------   ======    ---------   ======     ----------   ======

Less:
  Loans in process........................      7,985                12,725                  16,724
  Deferred loan fees......................        362                     8                    (143)
  Loan loss reserve.......................      8,666                 1,730                   1,489
   Subtotal...............................     17,013                14,463                  18,070
                                            ---------             ---------               ---------
     Total................................  $ 304,586             $ 350,383               $ 397,662
                                            =========             =========               =========

<CAPTION>
                                                       AT DECEMBER 31,
                                            ---------------------------------------
                                                    1999                 1998
                                            -------------------   -----------------
                                             AMOUNT        %      AMOUNT        %
                                             ------      -----    ------      -----
                                                    (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>     <C>         <C>
Real estate mortgage loans:
  Commercial..............................  $ 22,411      6.51%   $ 15,282     5.55%
  Residential loans.......................   250,392     72.77     205,636    74.69
  Construction loans......................    42,971     12.49      23,176     8.42
Commercial loans..........................     1,209      0.35         862     0.31
Consumer loans:
  Mobile home and auto loans..............    16,373      4.77      21,854     7.94
  Loans secured by deposits...............     1,392      0.40       1,351     0.49
  Home improvement loans..................     1,577      0.46       2,774     1.01
  Other...................................     7,762      2.26       4,387     1.59
                                           ---------    ------    --------   ------
     Total................................   344,087    100.00%    275,322   100.00%
                                           ---------    ======    --------   ======

Less:
  Loans in process........................    16,723                12,123
  Deferred loan fees......................      (129)                  102
  Loan loss reserve.......................     1,534                 1,284
                                            --------              --------
   Subtotal...............................    18,128                13,509
                                            --------              --------
     Total................................  $325,959              $261,813
                                            ========              ========
</TABLE>


                                       4
<PAGE>
     The following  table shows,  at December 31, 2002, the Company's  aggregate
loans based on their contractual terms to maturity  (mortgage-backed  securities
are not included).  Demand loans,  loans having no stated schedule of repayments
and no stated maturity,  and overdrafts are reported as due in one year or less.
Contractual  principal repayments of loans do not necessarily reflect the actual
term of the loan portfolio.  The average life of mortgage loans is substantially
less than their  contractual  terms because of loan  prepayments  and because of
enforcement of due-on-sale  clauses,  which give the Bank the right to declare a
loan  immediately  due and payable in the event,  among other  things,  that the
borrower  sells the real  property  subject to the  mortgage and the loan is not
repaid.  The average  life of mortgage  loans tends to increase,  however,  when
current  mortgage  loan rates  substantially  exceed rates on existing  mortgage
loans.
<TABLE>
<CAPTION>
                                                 AMOUNTS OF LOANS WHICH MATURE IN
                                -------------------------------------------------------------
                                                                  2008 AND
                                    2003        2004 - 2007       THEREAFTER         TOTAL
                                    ----        -----------       ----------         -----
                                                      (IN THOUSANDS)
<S>                             <C>              <C>              <C>            <C>
Type of Loan:
   Real estate mortgage.......  $   38,807       $   33,948       $ 216,139      $  288,894
   Other......................       4,183           26,569           1,953          32,705
                                ----------       ----------       ---------      ----------
      Total...................  $   42,990       $   60,517       $ 218,092      $  321,599
                                ==========       ==========       =========      ==========
</TABLE>

     The following table sets forth the dollar amount of the Company's aggregate
loans due after  one year  from  December  31,  2002  which  have  predetermined
interest   rates  and  which  have   floating  or  adjustable   interest   rates
(mortgage-backed securities are not included).
<TABLE>
<CAPTION>
                                                      FIXED      ADJUSTABLE
                                                       RATE          RATE          TOTAL
                                                      ------     -----------       -----
                                                                (IN THOUSANDS)
<S>                                                <C>             <C>           <C>
          Real estate mortgage loans.............  $  111,845      $ 138,242     $ 250,087
          Other loans............................      27,216          1,306        28,522
                                                   ----------      ---------     ---------
            Total................................  $  139,061      $ 139,548     $ 278,609
                                                   ==========      =========     =========
</TABLE>

     RESIDENTIAL REAL ESTATE LENDING.  The Bank's primary lending activities are
the origination of loans on one-to-four family  residential  dwelling units. The
Bank  currently  offers  fixed-rate,   first  and  second  mortgage  loans.  The
fixed-rate  mortgage  loans provide for a maturity of ten to thirty years,  with
the thirty-year  loan bearing a slightly  higher rate of interest.  The terms of
the first mortgage loans generally conform to the guidelines  established by the
Federal Home Loan Mortgage Corporation ("FHLMC") and are, therefore, saleable in
the secondary  mortgage  market.  The Bank's  fixed-rate  second  mortgage loans
provide  for a maturity of up to 15 years and bear  interest at a rate  slightly
higher than that borne by the first mortgage loans. At the time the Bank makes a
fixed-rate

                                       5
<PAGE>

mortgage loan, it determines whether the loan will be held in portfolio or sold.
Normally the Bank sells fixed rate loans and retains adjustable rate loans. Once
placed in portfolio,  loans are not sold. Loans originated for sale are promptly
sold in the secondary market.  Fixed-rate mortgage loans in the amount of $110.8
million were  originated  for sale during 2002 and $113.0 million were sold at a
gain of $1.4  million.  Mortgage  loans held for sale are those  loans that have
been  committed  to be sold,  but have not  closed as of the end of the year and
were $3.8 million at December 31, 2002.

     The Bank emphasizes the origination of  adjustable-rate  mortgages ("ARMs")
for  portfolio.  The Bank  currently  offers  several  types of ARMs  either  as
first-lien  mortgage loans or as second-lien  mortgage loans that are adjustable
semi-annually, annually, or on three-year, five-year or seven-year intervals and
indexed to the yields on comparable United States Treasury securities.

     The Bank  limits the  maximum  loan-to-value  ratio on  one-to-four  family
residential  first  mortgages to 97% of the appraised value with the requirement
that private mortgage insurance normally be obtained for loan-to-value ratios in
excess  of 80%.  The Bank  limits  the  loan-to-value  ratio to 89.9% on  second
mortgages on one-to-four family dwellings.

     The Bank's  residential  lending  activities  also include loans secured by
multi-family  residential  structures,  which are structures  consisting of over
four separate dwelling units. This has not constituted a significant  portion of
the Bank's lending activities to date.  Multi-family  residential structures are
generally  income-producing  properties.  The Bank generally does not lend above
80% of the appraised values of multi-family residences on first mortgage loans.

     CONSTRUCTION AND COMMERCIAL REAL ESTATE LENDING.  The Bank originates loans
secured by existing commercial  properties and construction loans on residential
real estate. Churches, nursing homes, hotels/motels,  and other income-producing
properties secure the Bank's commercial real estate loans. The Bank's commercial
real estate loans have increased  significantly  due to the establishment of the
new  Business  Services  Division  during  1999.  This  operation  makes  direct
commercial  loans  and  purchases  loan   participations  from  other  financial
institutions.  These participations in commercial real estate loans are reviewed
and approved based upon the same credit standards as direct  commercial loans at
the Bank.  Loans  secured by  commercial  real estate  properties  are generally
larger  and  involve a greater  degree of credit  risk than  one-to-four  family
residential mortgage loans. Because payments on loans secured by commercial real
estate properties are often dependent on the successful

                                       6
<PAGE>
operation  or  management  of the  properties,  repayment  of such  loans may be
subject to adverse  conditions in the real estate market or by general  economic
conditions. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed),  the  borrower's  ability to repay the loan may be
impaired.  To minimize the risks  involved in originating  such loans,  the Bank
considers,  among other  things,  the credit  worthiness  of the  borrower,  the
location of the real estate,  the condition and occupancy levels of the security
and the quality of the organization managing the property.

     The Bank originates  and/or purchases  construction  loans on single-family
residential  properties in its primary  market  areas.  The loans are secured by
real estate,  and most of the homes to be constructed  are already  subject to a
sales  contract  at  the  time  the  construction   loan  is  made.  The  Bank's
construction  loans generally range in size between  $100,000 and $500,000,  and
the Bank's  commercial  real  estate  loans range from  $100,000 to  $4,000,000.
Substantially  all of the commercial and construction  loans  originated  and/or
purchased by the Bank have either  adjustable  interest rates with maturities of
30 years or less or are loans with fixed  interest  rates and  maturities of ten
years or less.

     Loans involving construction financing present a greater level of risk than
loans for the purchase of existing homes since collateral value and construction
costs  can only be  estimated  at the time  the loan is  approved.  The Bank has
sought to  minimize  this risk by  limiting  construction  lending to  qualified
borrowers  in its market area and by limiting the number of  construction  loans
outstanding at any time to individual builders. In addition,  most of the Bank's
construction  loans are made on homes  that are  pre-sold,  for which  permanent
financing is already arranged.

     The Bank's underwriting  criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Bank considers evidence
of the  availability  of  permanent  financing  or a takeout  commitment  to the
borrower; the reputation of the borrower and his or her financial condition; the
amount of the borrower's equity in the project; independent appraisal and review
of cost estimates;  pre-construction sale and leasing information; and cash flow
projections of the borrower.

     CONSUMER LOANS.  The consumer loans granted by the Bank have included loans
on automobiles and other consumer goods,  loans secured by savings  accounts and
secured and unsecured lines of credit.

     Management believes that the shorter terms and the normally higher interest
rates  available  on  various  types of  consumer  loans  have been  helpful  in
maintaining  profitable  spreads between average loan yields and costs of funds.
Consumer loans do, however, pose additional risks of collection when compared to
traditional  types of

                                       7
<PAGE>

loans granted by thrift  institutions  such as residential first mortgage loans.
The Bank has sought to reduce this risk by primarily  granting  secured consumer
loans.

     COMMERCIAL BUSINESS LENDING. Under applicable law, the Bank is permitted to
make  secured  and  unsecured  loans for  commercial,  corporate,  business  and
agricultural  purposes,  including  issuing  letters of credit and  engaging  in
inventory financing and commercial leasing  activities.  The Bank does not, as a
common  practice,  make unsecured  commercial  loans.  The Bank began making and
purchasing  collateral  secured  commercial  loans in 1998.  The total lease and
commercial portfolio at December 31, 2002 was $19.2 million.

     ORIGINATIONS,  PURCHASES  AND SALES.  Historically,  most  residential  and
commercial real estate loans have been  originated  directly by the Bank through
salaried loan officers.  Residential loan originations have been attributable to
referrals  from  real  estate  brokers  and  builders,  depositors  and  walk-in
customers,  and  commissioned  loan agents.  The Bank also obtains  consumer and
commercial  loans from paid brokers.  The Bank  obtained  $12.3 million of loans
from brokers and other financial  institutions  through loan  participations  in
2002.  Commercial real estate and construction  loan originations have also been
obtained by direct solicitation.  Consumer loan originations are attributable to
walk-in customers who have been made aware of the Bank's programs by advertising
as well as direct solicitation.

     The Bank has previously  sold whole loans to other  financial  institutions
and  institutional  investors.  Sales of loans generate  income (or loss) at the
time of sale,  produce future  servicing income and provide funds for additional
lending and other  purposes.  When the Bank  retains the  servicing  of loans it
sells,  the Bank  retains  responsibility  for  collecting  and  remitting  loan
payments,  inspecting the properties,  making certain insurance and tax payments
on behalf of borrowers and otherwise  servicing those loans.  The Bank typically
receives  a fee of between  0.25% and  0.375% per annum of the loan's  principal
amount for  performing  this  service.  The right to service a loan has economic
value and the Bank carries  capitalized  servicing  rights on its books based on
comparable market values and expected cash flows. At December 31, 2002, the Bank
was servicing  $177.4  million of loans for others.  The aggregate book value of
capitalized servicing rights at December 31, 2002 was $1.2 million.

     Management  believes that  purchases of loans and loan  participations  are
generally desirable, primarily when area mortgage demand is less than the supply
of funds  available  for  local  mortgage  origination  or when  loan  terms are
available  in  areas  outside  the  Bank's  local  lending  areas  that are more
favorable to its investment requirements.  Additionally,  purchases of loans may
be made in order to  diversify  the Bank's  lending  portfolio.  The

                                       8
<PAGE>

Bank's loan purchasing activities fluctuate significantly.  The seller generally
performs the servicing of purchased  loans. In order to cover  servicing  costs,
the  service  provider  retains  a portion  of the  interest  being  paid by the
borrower.  In  addition  to  whole  loan  purchases,  the  Bank  also  purchases
participation  interests  in loans.  Both  whole  loans and  participations  are
purchased on a yield basis.

     For additional  information,  see "Management's  Discussion and Analysis --
Results of Operations" included in Item 7 of this Annual Report.

     LOAN UNDERWRITING. During the loan approval process, the Bank assesses both
the  borrower's  ability to repay the loan and the  adequacy  of the  underlying
security.  Potential  residential  borrowers  complete  an  application  that is
submitted to a salaried loan officer.  As part of the loan application  process,
the  Bank  obtains  information  concerning  the  income,  financial  condition,
employment,  and  credit  history  of  the  applicant.  In  addition,  qualified
appraisers inspect and appraise the property that is offered to secure the loan.

     The Bank's loan officers and/or loan committee analyze the loan application
and the property to be used as collateral and  subsequently  approve or deny the
loan request.  Individual  salaried employees are authorized to approve loans up
to their individual lending limits and loan parameters.  A committee  consisting
of certain members of senior management must approve residential loans exceeding
$500,000,  and commercial  loans between  $350,000 and $1,000,000.  The Board of
Directors  approves all loans in excess of  $1,000,000.  In connection  with the
origination of single-family,  residential  adjustable rate loans, borrowers are
qualified  at a rate of  interest  equal to the second year rate,  assuming  the
maximum increase.  It is the policy of management to make loans to borrowers who
not only qualify at the low initial rate of interest, but who would also qualify
following an upward interest rate adjustment.

     LOAN  COMMITMENTS.  Conventional loan commitments by the Bank are generally
granted for periods of up to 60 days.  The total amount of the Bank's  aggregate
outstanding commitments to originate real estate loans at December 31, 2002, was
approximately $7.4 million of residential mortgage commitments and approximately
$1.0 million of commercial  commitments.  It has been the Bank's experience that
few commitments expire un-funded.

     LOAN FEE AND SERVICING INCOME. In addition to interest earned on loans, the
Bank receives income through servicing of loans and fees in connection with loan
originations,  loan  modifications,  late  payments,  and  changes  of  property
ownership and for miscellaneous  services related to the loan. Income from these
activities is volatile and varies from period to period with the volume and type
of loans made.

                                       9
<PAGE>

     When possible,  the Bank charges loan  origination fees on commercial loans
that are  calculated as a percentage  of the amount  borrowed and are charged to
the borrower at the time of origination of the loan.  These fees generally range
from none to 1.00 point  (one  point  being  equivalent  to 1% of the  principal
amount of the loan).  In  accordance  with  Statement  of  Financial  Accounting
Standard No. 91, loan  origination  and commitment  fees and certain direct loan
origination  costs are deferred and the net amount amortized as an adjustment of
yield over the contractual life of the related loans.

     For  additional  information,  see  Note 4 to the  "Consolidated  Financial
Statements" included under Item 8 of this Annual Report.

     DELINQUENCIES.  When a borrower defaults upon a required payment on a loan,
the Bank  contacts  the borrower and attempts to induce the borrower to cure the
default. A late payment notice is mailed to the borrower and a telephone contact
is made after a payment is 15 days past due.  If the  delinquency  on a mortgage
loan  exceeds  90 days and is not cured  through  the Bank's  normal  collection
procedures or an acceptable arrangement is not worked out with the borrower, the
Bank  will  institute  measures  to remedy  the  default,  including  commencing
foreclosure action.

     NON-PERFORMING  ASSETS AND ASSET  CLASSIFICATION.  Loans are  reviewed on a
regular  basis and are placed on a  non-accrual  status when,  in the opinion of
management,  the  collection  of  additional  interest is doubtful.  Residential
mortgage  loans are  placed on  non-accrual  status  when  either  principal  or
interest is 90 days or more past due unless it is  adequately  secured and there
is reasonable  assurance of full collection of principal and interest.  Consumer
loans generally are charged off when the loan becomes over 120 days  delinquent.
Commercial  business and real estate loans are placed on non-accrual status when
the loan is 90 days or more past due.  Interest accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent payments are applied to the outstanding principal balance.

     Real estate  acquired by the Bank as a result of  foreclosure or by deed in
lieu of  foreclosure is classified as real estate owned until such time as it is
sold. When such property is acquired,  it is recorded at the lower of the unpaid
principal  balance  of the  related  loan  or its  fair  value.  Any  subsequent
deterioration  of the property is charged off  directly to income,  reducing the
value of the asset.

     The following  table sets forth  information  with respect to the Company's
aggregate non-performing assets at the dates indicated.

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                      --------------------------------------------------------
                                                        2002        2001        2000       1999         1998
                                                      --------    --------    --------    --------     -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                   <C>         <C>         <C>         <C>         <C>
Loans accounted for on a non-accrual basis:
  Real Estate:
     Residential....................................  $  3,281    $    818    $    720    $    703     $   684
     Commercial.....................................     2,269       1,348          36         226          15
     Construction...................................        --          --          --          --          --
  Commercial........................................    12,500          --           8          11          --
  Consumer..........................................       257          12          37         231          46
                                                      --------    --------    --------    --------     -------
    Total...........................................    18,307       2,178         801       1,171         745
                                                      --------    --------    --------    --------     -------
Accruing loans contractually past due 90
  days or more:
  Real Estate:
     Residential....................................       103         268         576          16          37
     Commercial.....................................        28          --          --          --          --
     Construction...................................        --          --         158          --          --
  Commercial........................................        --          --          --          --          --
  Consumer..........................................         4         127          13           9           3
                                                      --------    --------    --------    --------     -------
    Total...........................................       135         395         747          25          40
                                                      --------    --------    --------    --------     -------

    Total of non-accrual and
       90 days past due loans.......................  $ 18,442    $  2,573    $  1,548    $  1,196     $   785
                                                      ========    ========    ========    ========     =======
Percentage of total loans (excluding
    mortgage-backed securities).....................      5.89%       0.74%       0.39%       0.37%       0.30%
                                                      ========    ========    ========    ========     =======
Other non-performing assets (1).....................  $    525    $    606    $    125    $     --    $     96
                                                      ========    ========    ========    ========     =======
<FN>
____________
(1)  Other   non-performing   assets   represents   property   acquired  through
     foreclosure or  repossession.  This property is carried at the lower of its
     fair market value or the principal balance of the related loan.
</FN>
</TABLE>

     The increase of $16.1 million in non-accrual loans during 2002 is primarily
due to  participations  in two pools of lease  receivables  for $10.9 million in
loans to a  builder/development  group and its  related  parties  totaling  $3.6
million.

     The lease pools are in litigation.  For more information please see "Item 3
-- Legal Proceedings"

     As noted above, the Bank has a number of real estate  development/lot loans
and  single   family   residential   loans  on   existing   properties   with  a
builder/developer  group, and its related parties, that are currently in default
and  bankruptcy.  There  appears  to  be a  considerable  number  of  fraudulent
transactions  involved  and there are  multiple  lien  issues on a number of the
properties. The Bank is working closely with the workout specialist hired by the
bankruptcy  trustee on liquidation of the properties  involved in the bankruptcy
and we are  negotiating  with the  borrower  and its  related  parties and their
counsel  for  resolution  of the  remaining  properties.  The total  outstanding
balance of the various loans totaled $3.6 million as of December 31, 2002.

                                       11
<PAGE>

     During 2002,  the Bank would have recorded  gross  interest  income of $1.5
million on the loans set forth above as accounted for on a non-accrual basis, if
such loans had been current in accordance  with their terms.  Instead,  the Bank
recorded interest income of $241,000 on those loans for the year.

     For  additional  information  regarding the Bank's  problem assets and loss
provisions recorded thereon, see "Management's  Discussion and Analysis" in Item
7 of this Annual Report.

RESERVES FOR LOSSES ON LOANS AND REAL ESTATE

     In making loans,  management recognizes the fact that credit losses will be
experienced  and that the risk of loss will vary with,  among other things,  the
type of loan being made, the  creditworthiness  of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.

     It is  management's  policy to maintain  reserves for  estimated  losses on
loans. The Bank's  personnel  provide general loan loss reserves based on, among
other things,  estimates of the historical loan loss  experience,  evaluation of
economic  conditions  in general and in various  sectors of the Bank's  customer
base, and periodic  reviews of loan  portfolio  quality.  Specific  reserves are
provided  for  individual  loans where the  ultimate  collection  is  considered
questionable by management after reviewing the current status of loans which are
contractually  past due and considering the net realizable value of the security
of the loan or guarantees, if applicable. It is management's policy to establish
specific  reserves for estimated  losses on delinquent  loans when it determines
that losses are  anticipated  to be incurred on the  underlying  properties.  At
December  31,  2002,  the Bank's  allowance  for loan  losses  amounted  to $8.7
million.

     Future   reserves  may  be  necessary  if  economic   conditions  or  other
circumstances  differ  substantially  from the  assumptions  used in making  the
initial determinations.  There can be no assurance that regulators, in reviewing
the Bank's loan  portfolio in the future,  will not ask the Bank to increase its
allowance for loan losses,  thereby negatively affecting its financial condition
and earnings.

                                       12
<PAGE>

     The  following  table sets forth an  analysis  of the  Company's  aggregate
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------
                                                        2002        2001        2000       1999         1998
                                                      --------    --------    --------    --------    --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                  <C>          <C>         <C>         <C>         <C>
Balance at Beginning of Period.....................   $  1,730    $  1,489    $  1,534    $  1,284    $  1,163
                                                      --------    --------    --------    --------    --------
Charge-Offs:
  Real Estate:
    Residential....................................        202          29          30          --          12
    Commercial.....................................         --          --         206          --          --
    Construction...................................         24          --          --          --          --
  Commercial business..............................         --          --         252          --          --
  Consumer.........................................        162         117          --          98         153
                                                      --------    --------    --------    --------    --------
                                                           388         146         488          98         165
                                                      --------    --------    --------    --------    --------

Recoveries:
  Real Estate:
    Residential....................................         --          12          --          --          --
    Commercial.....................................         --          --          --          --          --
    Construction...................................         --          --          --          --          --
  Commercial business..............................         --          --           3           4          --
  Consumer.........................................         24          15          23          16          27
                                                      --------    --------    --------    --------    --------
                                                            24          27          26          20          27
                                                      --------    --------    --------    --------    --------

Net Charge-Offs....................................       (364)       (119)       (462)        (78)       (138)
Increase from Acquisition..........................         --          --          --          --         100
Provision for Loan Losses..........................      7,300         360         417         328         159
                                                      --------    --------    --------    --------    --------


Balance at End of Period............................  $  8,666    $  1,730    $  1,489    $  1,534    $  1,284
                                                      ========    ========    ========    ========    ========
Ratio of Net Charge-Offs to Average
  Loans Outstanding During the Period..............       0.11%       0.03%       0.12%       0.03%       0.05%
                                                      ========    ========    ========    ========    ========
Ratio of Ending Allowance for
  Loan Losses to Ending Loans......................       2.77%       0.49%       0.37%       0.47%       0.49%
                                                      ========    ========    ========    ========    ========
</TABLE>

     The  provision  for loan  losses in 2002  increased  to $7.3  million  from
$360,000 from the prior year.  This increase is primarily due to the non-accrual
loans  in  the  table  under  the  heading   "Non-Performing  Assets  and  Asset
Classification"  earlier in this  section.  The lease pools had 50% reserves for
$5.5 million due to an expected lengthy litigation process (see Item 3 -- "Legal
Proceedings").  Due to the uncertainty of the outcome of the legal  proceedings,
management estimates that at December 31, 2002 the potential loss could be up to
$10.9  million.  Based on  information  available  at December  31, 2002, a $5.5
million reserve was considered  appropriate.  The loans to the builder/developer
group,  and its related  parties had 25% reserves for  $895,000.  The  remaining
reserves  were

                                       13
<PAGE>

necessary to reflect  management's view on the risk in the loan portfolio due to
the change in the portfolio mix. See also "Item 7.  Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations  -- Loans  --Credit
Quality".

     Net  charge-offs  for the year ended December 31, 2002 increased from 2001.
Mortgage,  construction,  and  consumer  loan  charge-offs  increased  $173,000,
$24,000 and $45,000  respectively  from 2001. Net charge-offs for the year ended
December 31, 2001 decreased  principally because there were no large charge-offs
of commercial  mortgage or consumer  loans as in 2000.  During fiscal year 2000,
the Bank charged-off $172,000 on a loan which was acquired in the acquisition of
Cardinal State Bank in 1998 and which had been fully reserved for in 1999.

     The  following  table sets forth a  breakdown  of the  Company's  aggregate
allowance  for loan losses by loan category at the dates  indicated.  Management
believes that the allowance can be allocated by category only on an  approximate
basis.  The  allocation  of the  allowance to each  category is not  necessarily
indicative  of future  losses and does not restrict the use of the  allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                            ------------------------------------------------------------------------------
                                                          2002                2001                       2000
                                            -------------------------   ----------------------   -------------------------
                                                         PERCENT OF                PERCENT OF                 PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH              LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO                CATEGORY TO
                                            AMOUNT       TOTAL LOANS    AMOUNT     TOTAL LOANS   AMOUNT       TOTAL LOANS
                                            ------      -------------   ------    -------------  ------      -------------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>              <C>       <C>            <C>        <C>              <C>
Loans:
  Real Estate Mortgage:
    Commercial............................  $   1,414        28%       $     617      17%        $      76        9%
    Residential...........................        772        49              417      58               635       71
    Construction..........................        539        13               90      12                93       10
  Commercial..............................      5,618         6              185       5                 8        2
  Consumer................................        323         4              421       8               677        8
                                            ---------       ---        ---------     ---         ---------      ---
    Total Allowance for Loan Losses.......  $   8,666       100%       $   1,730     100%        $   1,489      100%
                                            =========       ===        =========     ===         =========      ===
<CAPTION>
                                                              AT DECEMBER 31,
                                           ----------------------------------------------------
                                                   1999                      1998
                                           --------------------------   -----------------------
                                                         PERCENT OF                PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO
                                            AMOUNT       TOTAL LOANS    AMOUNT     TOTAL LOANS
                                            ------      -------------   ------    -------------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>               <C>      <C>             <C>
Loans:
  Real Estate Mortgage:
    Commercial............................  $      58         7%       $      31       6%
    Residential...........................        649        73              429      75
    Construction..........................        112        12               47       8
  Commercial..............................         11        --               15      --
  Consumer................................        704         8              762      11
                                            ---------       ---        ---------     ---
    Total Allowance for Loan Losses.......  $   1,534       100%       $   1,284     100%
                                            =========       ===        =========     ===
</TABLE>

                                       14
<PAGE>

INVESTMENT ACTIVITIES

     Interest  and   dividends   on   investment   securities,   mortgage-backed
securities,   collateralized   mortgage   obligations,   FHLB  stock  and  other
investments  provide the second  largest source of income for the Company (after
interest on loans),  constituting  18.3% of the Company's  total interest income
(and  dividends) for fiscal 2002. The Bank maintains its liquid assets at levels
believed  adequate  to  meet  requirements  of  normal  banking  activities  and
potential savings outflows.

     As an  Indiana  savings  bank,  the Bank is  authorized  to invest  without
limitation  in direct or  indirect  obligations  of the  United  States,  direct
obligations  of a United  States  territory,  an insular  possession  and direct
obligations  of the  state or a  municipal  corporation  or taxing  district  in
Indiana.  The Bank is also permitted to invest in bonds or other securities of a
national  mortgage  association  and the stock and obligations of a Federal Home
Loan Bank.  Indiana  savings  banks may also invest in  collateralized  mortgage
obligations to the same extent as national  banks.  An Indiana  savings bank may
also purchase for its own account other investment  securities under such limits
as the Department of Financial Institutions prescribes by rule provided that the
savings  bank  may  not  invest  more  than  10% of its  equity  capital  in the
investment securities of any one issuer. Any Indiana savings bank may not invest
in  speculative  bonds,  notes  or  other  indebtedness  which  are  defined  as
securities  and which are rated  below the first  four  rating  categories  by a
generally  recognized rating service or are in default.  An Indiana savings bank
may purchase an unrated security if it obtains financial information adequate to
document the investment quality of the security.

     The Company's investment portfolio consists primarily of obligations issued
by federal  agencies  such as FNMA,  FHLB and the FFCB  System,  mortgage-backed
securities  issued by GNMA,  FNMA and FHLMC.  The Company  has also  invested in
trust-preferred securities, mutual funds and maintains interest-bearing deposits
in other financial  institutions  (primarily the FHLBs). As a member of the FHLB
System, the Bank is also required to hold stock in the FHLBs of Indianapolis and
Cincinnati.  At December 31, 2002,  the Company did not have  investments in the
securities  of  any  single   non-governmental  issuer  which  exceeded  10%  of
shareholders' equity. At December 31, 2002, the Company had one investment which
exceeded 10% of equity: a security issued by Shay Financial Services,  Inc. with
a book value of $20.48  million and a market value of $20.53  million as of that
date. During the first quarter of 2003, the Company liquidated this investment.

                                       15
<PAGE>

     During  2001,  the  Company   substantially   increased  its  portfolio  of
mortgage-backed  securities and  collateralized  mortgage  obligations to offset
declines in the loan portfolio due to refinancings and calls of federal agencies
securities  attributable in both cases to the radically  declining interest rate
environment.  As interest  rates  stabilized  at the end of 2001,  the estimated
lives  of  these  securities  increased  significantly,  exposing  the  Bank  to
unacceptable levels of interest rate risk. The Company accordingly  reclassified
these  securities,   effective  December  31,  2001,  from  held-to-maturity  to
available-for-sale and marked them to fair value, recording an accumulated other
comprehensive  loss of $696,000.  The Company disposed of these  mortgage-backed
securities  and  collateralized  mortgage  obligation  portfolios  in the  first
quarter of 2002 at an estimated after-tax loss of $1.9 million. All investments,
as of December 31, 2002, was classified as available-for-sale.

     The  following  table  sets  forth  the  carrying  value  of the  Company's
investments  in  federal  agency  obligations  and  mortgage-backed  securities,
collaterized mortgage obligations and other investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                                     --------------------------------------------
                                                       2002              2001             2000
                                                     ---------         ---------        ---------
                                                                   (IN THOUSANDS)
<S>                                                  <C>               <C>              <C>
         Federal agencies..........................  $   8,227         $  28,696        $  87,901
         Mortgage-backed securities and
            collateral mortgage obligations........     27,824           110,393           11,806
         Interest-bearing deposits (1).............     38,215             4,283            4,422
         FHLB stock................................      6,759             7,365            7,265
         Mutual fund...............................     20,538                --               --
         Other investments.........................      1,566             1,540               --
                                                     ---------         ---------        ---------
             Total investments.....................  $ 103,129         $ 152,277        $ 111,394
                                                     =========         =========        =========
<FN>
     _____________
     (1)  Consist  of   overnight   deposits   and   short-term   non-negotiable
          certificates of deposit.
</FN>
</TABLE>

     The following table sets forth information  regarding maturity distribution
and average yields for the Company's investment securities portfolio at December
31, 2002.  The  Company's  federal  agencies  investment  portfolio  consists of
obligations  issued  by FNMA,  FHLB,  and the  FFCB  System.  Other  investments
consists of trust preferred securities and mutual funds.
<TABLE>
<CAPTION>
                            WITHIN 1 YEAR       1-5 YEARS        5-10 YEARS       OVER 10 YEARS        TOTAL
                            --------------   --------------    --------------    ---------------   ---------------
                            AMOUNT   YIELD   AMOUNT   YIELD    AMOUNT   YIELD    AMOUNT    YIELD   AMOUNT    YIELD
                            ------   -----   ------   -----    ------   -----    ------    -----   ------    -----

<S>                        <C>       <C>     <C>       <C>     <C>      <C>      <C>       <C>     <C>        <C>
 Federal agencies........  $ 4,090   4.6%    $ 4,137   3.8%    $   --    --%     $   --      --%   $ 8,227    4.2%
 Mutual fund.............  $20,538   2.6%    $    --   -- %    $   --    --%     $   --      --%   $20,538    2.6%
 Other Investments.......  $    --   -- %    $    --   -- %    $   --    --%     $1,566     8.9%   $ 1,566    8.9%
</TABLE>

                                       16
<PAGE>
     The   Company's   mortgage-backed   securities   include  both  fixed-  and
adjustable-rate  securities. At December 31, 2002, the Company's mortgage-backed
securities consisted of the following:
<TABLE>
<CAPTION>
                                                        CARRYING    AVERAGE
                                                         AMOUNT       RATE
                                                        --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                    <C>            <C>
        Variable rate:
           Repricing in one year or less.............. $ 3,717        5.57%
        Fixed-rate:
           Maturing in five years or less.............      12        8.06
           Maturing in five to ten years..............   3,901        5.86
           Maturing in more than ten years............  20,194        5.59
                                                       -------        ----
                Total................................. $27,824        5.62%
                                                       =======        ====
</TABLE>
SOURCES OF FUNDS

     GENERAL.  Savings  accounts and other types of deposits have  traditionally
been an  important  source of the Bank's  funds for use in lending and for other
general business  purposes.  In addition to deposit  accounts,  the Bank derives
funds  from  loan  repayments,   loan  sales,  borrowings  and  operations.  The
availability  of funds from loan sales is influenced by general  interest  rates
and other market  conditions.  Borrowings  may be used on a short-term  basis to
compensate for reductions in deposits or deposit  inflows at less than projected
levels  and may be used on a  longer-term  basis  to  support  expanded  lending
activities.

     DEPOSITS. The Bank attracts both short-term and long-term deposits from the
general  public by offering a wide  assortment of deposit  accounts and interest
rates.  The Bank offers regular  savings  accounts,  NOW accounts,  money market
accounts,   fixed-interest-rate   certificates  with  varying  maturities,   and
negotiated-rate jumbo certificates with various maturities. The Bank also offers
tax-deferred  individual retirement,  Keogh retirement,  and simplified employer
plan retirement accounts.

                                       17
<PAGE>

     As of December 31,  2002,  approximately  33.4%,  or $134  million,  of the
Bank's  aggregate  deposits  consisted  of various  savings  and demand  deposit
accounts  from which  customers  are  permitted  to  withdraw  funds at any time
without penalty.

     Interest earned on passbook and statement accounts is paid from the date of
deposit to the date of withdrawal  and  compounded  semi-annually  for the Bank.
Interest  earned on NOW and money market deposit  accounts is paid from the date
of  deposit to the date of  withdrawal  and  compounded  and  credited  monthly.
Management establishes the interest rate on these accounts.

     The Bank also makes available to its depositors a number of certificates of
deposit with various terms and interest  rates to be  competitive  in its market
area. These certificates have minimum deposit requirements as well.

                                       18
<PAGE>
     The  following  table sets forth the change in dollar amount of deposits in
the  various  types of deposit  accounts  offered by the Bank  between the dates
indicated.
<TABLE>
<CAPTION>
                                                             INCREASE                         INCREASE
                                            BALANCE AT      (DECREASE)       BALANCE AT       (DECREASE)       BALANCE AT
                                           DECEMBER 31,     FROM PRIOR      DECEMBER 31,      FROM PRIOR     DECEMBER 31,
                                              2002             YEAR             2001            YEAR              2000
                                       ------------------   ---------    -----------------    ---------     ---------------
                                                                                      (DOLLARS IN THOUSANDS)
<S>                                    <C>           <C>    <C>          <C>          <C>     <C>         <C>          <C>
Savings deposits....................   $   33,990    8.45%  $   1,343    $ 32,647     7.92%   $  (2,040)  $  34,687    9.44%
NOW accounts........................       39,344    9.78      (1,297)     40,641     9.85        2,948      37,693   10.25
Money market deposit accounts.......       61,127   15.20      13,441      47,686    11.56        9,401      38,285   10.41
Certificate accounts:
  Certificates $100,000 and more....       45,510   11.32     (14,853)     60,363    14.64       17,324      43,039   11.71
  Fixed-rate certificates:
     12 months or less..............      183,885   45.72     122,347      61,538    14.92        6,200      55,338   15.05
     13-24 months...................       15,327    3.81     (81,706)     97,033    23.53        8,949      88,084   23.96
     25-36 months...................       10,251    2.55       2,466       7,785     1.89       (6,974)     14,759    4.02
     37 months or greater...........       10,247    2.55     (51,935)     62,182    15.08        9,408      52,774   14.36
  Variable-rate certificate:
     18 months......................        2,506    0.62         (32)      2,538     0.61         (398)      2,936    0.80
                                       ----------  ------   ---------    --------   ------    ---------   ---------  ------
                                       $  402,187  100.00%  $ (10,226)   $412,413   100.00%   $  44,818   $ 367,595  100.00%
                                       ==========  ======   =========    ========   ======    =========   =========  ======
</TABLE>

                                       19
<PAGE>
     The variety of deposit  accounts offered by the Bank has permitted it to be
competitive  in obtaining  funds and has allowed it to respond with  flexibility
to, but without eliminating the threat of,  disintermediation (the flow of funds
away from  depository  institutions  such as savings  institutions  into  direct
investment vehicles such as government and corporate  securities).  In addition,
the Bank has become  much more  subject  to  short-term  fluctuation  in deposit
flows, as customers have become more interest rate conscious. The ability of the
Bank to attract and maintain deposits and its costs of funds have been, and will
continue to be,  significantly  affected by money  market  conditions.  The Bank
currently offers a variety of deposit products as options to the customer.  They
include   non-interest-bearing   and  interest-bearing  NOW  accounts,   savings
accounts,  Money Market Deposit  Accounts  ("MMDA") and  Certificates of Deposit
ranging in terms from three months to seven years.  During the past year,  MMDAs
increased, which may be due favorable rates and funds leaving the stock markets.

     The following table sets forth the Company's average aggregate balances and
interest  rates.  Average  balances in 2002 are  calculated  from  actual  daily
balances.  Average  balances for 2001 and 2000 are derived from  balances  which
management does not believe are materially different from daily balances (actual
daily balances could not be obtained without undue effort and expense).
<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED DECEMBER 31,
                                 ------------------------------------------------------------------------
                                          2002                    2001                     2000
                                 --------------------       -------------------       -------------------
                                              AVERAGE                   AVERAGE                   AVERAGE
                                  AVERAGE       RATE        AVERAGE       RATE        AVERAGE       RATE
                                  BALANCE       PAID        BALANCE       PAID        BALANCE       PAID
                                  -------     -------       -------     -------       -------     -------
                                                            (DOLLARS IN THOUSANDS)
<S>                              <C>            <C>         <C>           <C>        <C>           <C>
Interest-bearing demand
   deposits....................  $   78,490     2.01%       $   60,791    2.93%      $   58,598    3.49%
Savings deposits...............      34,003     1.16            33,321    1.68           36,584    2.01
Time deposits..................     284,259     4.48           276,924    5.89          250,343    5.82
                                 ----------     ----         ----------   ----       ----------    ----
     Total interest bearing
        deposits...............     396,752     3.71%          371,036    5.03%         345,525    5.02%
Non-interest-bearing demand                     ====                      ====                     ====
   and savings deposits........      19,448                     16,494                   16,269
                                 ----------                 ----------               ----------
     Total deposits............  $  416,200                 $  387,530               $  361,794
                                 ==========                 ==========               ==========
</TABLE>

                                       20
<PAGE>

     The following  table sets forth the aggregate  time deposits in the Company
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                                    ---------------------------------------------
                                                      2002              2001             2000
                                                    ----------         ---------        ---------
                                                                   (IN THOUSANDS)
         <S>                                         <C>               <C>              <C>
         Less than 4%..............................  $ 154,387         $  63,358        $     478
         4% -  5.99%...............................     52,643           109,842           84,009
         6% -  7.99%...............................     60,696           118,224          172,429
         8% -  9.99%...............................         --                15               14
                                                     ---------         ---------        ---------
                                                     $ 267,726         $ 291,439        $ 256,930
                                                     =========         =========        =========
</TABLE>

     The following  table sets forth the amount and  maturities of the Company's
time deposits at December 31, 2002.
<TABLE>
<CAPTION>
                                                                AMOUNT DUE
                                  -------------------------------------------------------------------------
                                  LESS THAN                                       MORE THAN
      RATE                        ONE YEAR        1-2 YEARS      2-3 YEARS          3 YEARS          TOTAL
      ----                        ---------       ---------      ---------        ----------         -----
                                                               (IN THOUSANDS)
<S>                               <C>             <C>            <C>             <C>              <C>
Less than 4%....................  $ 125,835       $   19,766     $    4,110      $    4,676       $  154,387
4% - 5.99%......................     11,853            8,764         13,596          18,430           52,643
6% - 7.99%......................     54,915            1,188          4,493             100           60,696
8% - 9.99%......................         --               --             --              --               --
                                  ---------       ----------     ----------      ----------       ----------
                                  $ 192,603       $   29,718     $   22,199      $   23,206       $  267,726
                                  =========       ==========     ==========      ==========       ==========
</TABLE>

     The following table  indicates the amount of the Company's  certificates of
deposit and other deposits of $100,000 or more by time remaining  until maturity
at December 31, 2002.
<TABLE>
<CAPTION>
                                                                                      SAVINGS, NOW
                                                            CERTIFICATES                AND MMDA
                      MATURITY PERIOD                        OF DEPOSIT                  DEPOSITS
                      ---------------                       -------------             -------------
                                                                         (IN THOUSANDS)
             <S>                                             <C>                       <C>
             Three months or less.........................   $   6,837                 $   32,563
             Over three through six months................      13,766                         --
             Over six through twelve months...............      11,948                         --
             Over twelve months...........................      12,959                         --
                                                             ---------                 ----------
                    Total.................................   $  45,510                 $   32,563
                                                             =========                 ==========
</TABLE>

                                       21
<PAGE>


     BORROWINGS.  Deposits  are the  primary  sources  of funds  for the  Bank's
lending and investment  activities and for its general  business  purposes.  The
Bank also uses advances (borrowings) from the Federal Home Loan Bank ("FHLB") to
supplement its supply of lendable funds, to meet deposit withdrawal requirements
and to extend the terms of its liabilities.  FHLB advances are typically secured
by the  Bank's  FHLB  stock,  a  portion  of first  mortgage  loans,  investment
securities  and  overnight  deposits.  At December 31,  2002,  the Bank had $5.6
million of FHLB advances outstanding.

     The FHLBs function as central  reserve banks  providing  credit for savings
institutions and certain other member financial  institutions.  As a member, the
Bank is required to own capital stock in its FHLB and is authorized to apply for
advances on the  security of such stock and  certain of its home  mortgages  and
other assets  (principally,  securities  which are obligations of, or guaranteed
by, the United States) provided certain  standards  related to  creditworthiness
have been met.

     The Company had notes  payable in the total  amount of $840,000 at December
31, 2002.  Included in this amount was a note payable to a third party financial
institution  with a current balance of $750,000 and bearing interest at 4.25% at
December 31, 2002, the proceeds of which were used to finance stock  repurchases
during 1999.  The remainder of notes payable with balances of $90,000,  $180,000
and $271,000 at December 31, 2002, 2001 and 2000,  respectively,  are 6.0% notes
payable to former stockholders of Cardinal State Bank.

     The following  table sets forth certain  information  regarding  borrowings
from the FHLBs at the dates and for the periods indicated.
<TABLE>
<CAPTION>
                                                   AT OR FOR THE YEAR
                                                  YEAR ENDED DECEMBER 31,
                                             --------------------------------
                                               2002        2001        2000
                                               ----        ----        ----
                                                    (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>         <C>
Amounts outstanding at end of period:
     FHLB advances .......................   $  5,592    $ 87,653    $138,751

Weighted average rate paid on:
     FHLB advances .......................       6.83%       5.51%       6.54%

Maximum amount of borrowings outstanding
   at any month end:
     FHLB advances .......................   $ 75,105    $128,497    $138,751

Approximate average amounts outstanding:
     FHLB advances .......................   $ 43,813    $ 84,080    $106,657

Approximate weighted average rate paid on:
     FHLB advances .......................       6.39%       6.50%       6.73%
</TABLE>

                                       22
<PAGE>

AVERAGE BALANCE SHEET

     The  following  table  sets  forth  certain  information  relating  to  the
Company's  aggregate average yield on assets and average cost of liabilities for
the periods  indicated.  Such yields and costs are derived by dividing income or
expenses by the average balance of assets or liabilities,  respectively, for the
periods  presented.  Average  balances in 2002 are calculated  from actual daily
balances.  Average  balances for 2001 and 2000 are derived from  balances  which
management does not believe are materially different from daily balances (actual
daily balances could not be obtained without undue effort and expense).
<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED DECEMBER 31,
                                   ---------------------------------------------------------------
                                                2002                             2001
                                   ------------------------------    -----------------------------
                                                          AVERAGE                          AVERAGE
                                    AVERAGE                YIELD/    AVERAGE                YIELD/
                                    BALANCE    INTEREST    COST      BALANCE    INTEREST     COST
                                    -------    --------   -------    -------    --------   -------
                                          (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>          <C>      <C>        <C>         <C>
Interest-earning assets:
 Loan portfolio (1)..............   $342,240   $24,473      7.15%    $ 376,157  $30,005     7.98%
 Mortgage-backed securities......     56,644     3,196      5.64        31,768    2,225     7.00
 Short-term investments and
  other interest-earning
  assets (2).....................     74,610     2,304      3.09        74,186    4,940     6.66
                                    --------   -------    ------     ---------  -------   ------
    Total interest-earning
      assets.....................    473,494    29,973      6.33       482,111   37,170     7.71
Noninterest-earning assets.......     40,566                            42,722
                                    --------                         ---------
    Total assets.................   $514,060                         $ 524,833
                                    ========                         =========

Interest-bearing liabilities:
  Deposits.......................   $396,752   $14,712      3.71     $ 371,036   18,663     5.03%
  FHLB advances..................     43,813     2,798      6.39        84,080    5,466     6.50
  Notes payable..................        841        31      3.69         1,562      114     7.30
                                    --------   -------    ------     ---------  -------   ------
    Total interest-bearing
      liabilities................    441,406    17,541      3.97       456,678   24,243     5.31
Noninterest-bearing liabilities..     30,621   -------    ------        25,549   -------  ------
                                    --------                         ---------
    Total liabilities............    472,027                           482,227
Shareholders' equity.............     42,033                            42,606
                                    --------                         ---------
    Total liabilities and
      shareholders' equity.......   $514,060                         $ 524,833
                                    ========                         =========
Net interest income..............              $12,432                          $12,927
                                               =======                          =======
Interest rate spread.............                           2.36%                           2.40%
                                                          ======                          ======
Net yield on interest-earning
  assets.........................                           2.63%                           2.68%
                                                          ======                          ======
Ratio of average interest-earning
  assets to average interest-
  bearing liabilities.............                        107.27%                         105.57%
                                                          ======                          ======
<CAPTION>
                                       FOR THE YEAR ENDED DECEMBER 31,
                                       ---------------------------
                                                   2000
                                       ---------------------------
                                                           AVERAGE
                                       AVERAGE              YIELD/
                                       BALANCE   INTEREST   COST
                                       -------   --------  -------
                                        (DOLLARS IN THOUSANDS)
<S>                                    <C>       <C>         <C>
Interest-earning assets:
 Loan portfolio (1)..............      $371,349  $ 29,663    7.99%
 Mortgage-backed securities......        13,016       910    6.99
 Short-term investments and
  other interest-earning
  assets (2).....................        98,410     6,750    6.86
                                       --------  --------   -----
    Total interest-earning
      assets.....................       482,775    37,323    7.73
Noninterest-earning assets.......        40,518
                                      ---------
    Total assets.................     $ 523,293
                                      =========

Interest-bearing liabilities:
  Deposits.......................      $345,525    17,337    5.02
  FHLB advances..................       106,657     7,187    6.74
  Notes payable..................         2,456       204    8.31
                                       --------  --------   -----
    Total interest-bearing
      liabilities................       454,638    24,728    5.44
Noninterest-bearing liabilities..        27,615  --------   -----
                                       --------
    Total liabilities............       482,253
Shareholders' equity.............        41,040
                                       --------
    Total liabilities and
      shareholders' equity.......      $523,293
                                       ========
Net interest income..............                $ 12,595
                                                 ========
Interest rate spread.............                            2.29%
                                                           ======
Net yield on interest-earning
  assets.........................                            2.61%
                                                           ======
Ratio of average interest-earning
  assets to average interest-
  bearing liabilities.............                         106.19%
                                                           ======
<FN>
_________
(1)  Excludes  income  earned  on late  charges  and  inspection  fees.  Average
     balances include non-accrual loans.
(2)  Includes   interest-bearing   deposits  in  other  financial  institutions,
     investment securities and FHLB stock.
</FN>
</TABLE>

                                       23
<PAGE>

TRUST ACTIVITIES

     During 1999, the Bank began offering trust,  investment and estate planning
services through its Ameriana Trust and Investment Management Services division.
Trust  services  consist of personal  trusts,  testamentary  trusts,  investment
agency  accounts  (discretionary  and directed),  guardianships,  rollover IRA's
(discretionary  and  directed)  and  estates  (personal  representative).  These
accounts are offered to customers within the Bank's service areas in Indiana and
Ohio.  Trust account  balances of $75,000 and more can  profitably be managed by
the Bank. At December 31, 2002, the Bank had $14.6 million in trust assets under
management.

SUBSIDIARY ACTIVITIES

     The Bank  has two  direct  wholly-owned  subsidiaries,  Ameriana  Insurance
Agency  ("AIA") and Ameriana  Financial  Services,  Inc.  ("AFS").  AIA provides
insurance sales from offices in New Castle,  Greenfield and Avon,  Indiana.  AFS
offers  insurance  products  through  its  ownership  of an  interest  in Family
Financial Life Insurance Company,  New Orleans,  Louisiana,  which offers a full
line of  credit,  related  insurance  products.  In 2002,  AFS  acquired a 20.9%
ownership  interest in Indiana  Title  Insurance  Company,  LLC through which it
offers title  insurance.  AFS also operates a brokerage  facility in conjunction
with Linsco/Private Ledger.

     At December 31,  2002,  the Bank's  investments  in its  subsidiaries  were
approximately $4.3 million, consisting of direct equity investments.

     Indiana savings banks may acquire or establish  subsidiaries that engage in
activities  permitted to be performed by the savings bank itself or permitted to
operating  subsidiaries of national banks. Under FDIC regulations,  a subsidiary
of a state bank may not engage as  principal  in any  activity  that is not of a
type  permissible for a subsidiary of a national bank unless the FDIC determines
that the activity does not impose a significant  risk to the affected  insurance
fund.

                                       24
<PAGE>
COMPETITION

     The  Bank  experiences  substantial  competition  both  in  attracting  and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition  for  savings  deposits  comes  from  other  savings   institutions,
commercial  banks,  and  credit  unions  located  in  the  Bank's  market  area.
Additional significant  competition for savings deposits comes from money market
mutual funds and corporate and government debt securities.

     The primary  factors in  competing  for loans are  interest  rates and loan
origination  fees and the range of  services  offered by the  various  financial
institutions.  Competition  for  origination of real estate loans normally comes
from other thrift  institutions,  commercial banks,  mortgage bankers,  mortgage
brokers and insurance  companies.  The Bank has been able to compete effectively
in its market area.

     The Bank has  offices in Henry,  Hancock,  Hendricks,  Shelby  and  Madison
Counties in Indiana and in Hamilton  County,  Ohio. In addition to the financial
institutions,  which have  offices in these  counties,  the Bank  competes  with
several commercial banks and savings institutions in surrounding counties,  many
of which have assets, which are substantially larger than the Bank.

                           REGULATION AND SUPERVISION

REGULATION AND SUPERVISION OF THE COMPANY

     GENERAL. The Company is a bank holding company subject to regulation by the
Federal Reserve Board under the BHCA. As a result, the activities of the Company
are subject to certain limitations, which are described below. In addition, as a
bank  holding  company,  the Company is  required  to file annual and  quarterly
reports  with  the  Federal   Reserve  Board  and  to  furnish  such  additional
information as the Federal  Reserve Board may require  pursuant to the BHCA. The
Company is also subject to regular examination by the Federal Reserve Board.

     ACQUISITIONS.  With certain  exceptions,  the BHCA prohibits a bank holding
company from acquiring  direct or indirect  ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding  company,
or from  engaging  directly  or  indirectly  in  activities  other than those of
banking,   managing  or  controlling   banks,  or  providing  services  for  its
subsidiaries.  The principal  exceptions to these  prohibitions  involve certain
non-bank activities, which, by statute or by Federal Reserve Board regulation or
order,  have been  identified as activities  closely  related to the business of
banking. The activities of the Company are subject to these legal and regulatory
limitations  under the BHCA and the related Federal  Reserve Board  regulations.
Notwithstanding   the

                                       25
<PAGE>
Federal Reserve Board's prior approval of specific  nonbanking  activities,  the
Federal  Reserve  Board  has  the  power  to  order  a  holding  company  or its
subsidiaries to terminate any activity, or to terminate its ownership or control
of any subsidiary, when it has reasonable cause to believe that the continuation
of such activity or such ownership or control  constitutes a serious risk to the
financial safety,  soundness or stability of any bank subsidiary of that holding
company.

     Under the BHCA,  a bank holding  company must obtain the prior  approval of
the Federal Reserve Board before (1) acquiring  direct or indirect  ownership or
control of any voting shares of any bank or bank holding  company if, after such
acquisition,  the bank  holding  company  would  directly or  indirectly  own or
control more than 5% of such shares;  (2) acquiring all or substantially  all of
the  assets  of  another  bank  or  bank  holding  company;  or (3)  merging  or
consolidating  with  another  bank  holding  company.   Satisfactory   financial
condition,  particularly  with  regard to  capital  adequacy,  and  satisfactory
Community  Reinvestment  Act ("CRA")  ratings  generally  are  prerequisites  to
obtaining federal regulatory approval to make acquisitions.

     Under the BHCA,  any company  must obtain  approval of the Federal  Reserve
Board prior to acquiring control of the Company or the Bank. For purposes of the
BHCA,  "control" is defined as ownership of more than 25% of any class of voting
securities of the Company or the Bank,  the ability to control the election of a
majority of the  directors,  or the  exercise of a  controlling  influence  over
management  or policies of the Company or the Bank.  In addition,  the Change in
Bank  Control  Act and the related  regulations  of the  Federal  Reserve  Board
require any person or persons acting in concert  (except for companies  required
to make  application  under the BHCA), to file a written notice with the Federal
Reserve  Board before such person or persons may acquire  control of the Company
or the Bank.  The Change in Bank  Control  Act defines  "control"  as the power,
directly  or  indirectly,  to vote 25% or more of any  voting  securities  or to
direct the management or policies of a bank holding company or an insured bank.

     Under Indiana  banking law,  prior  approval of the Department of Financial
Institutions  is also  required  before  any person  may  acquire  control of an
Indiana stock savings bank,  bank or bank holding  company.  The Department will
issue a notice  approving  the  transaction  if it  determines  that the persons
proposing to acquire the savings bank or bank holding  company are  qualified in
character, experience and financial responsibility, and the transaction does not
jeopardize the interests of the public.

                                       26
<PAGE>

     CAPITAL  REQUIREMENTS.  The Federal  Reserve  Board has adopted  guidelines
regarding  the capital  adequacy of bank holding  companies,  which require bank
holding  companies  to  maintain  specified  minimum  ratios of capital to total
assets and capital to risk-weighted assets. See "-- Capital Requirements."

     DIVIDENDS. The Federal Reserve Board has the power to prohibit dividends by
bank holding companies if their actions  constitute unsafe or unsound practices.
The Federal  Reserve Board has issued a policy  statement on the payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding  company  should pay cash  dividends only to the extent
that the  company's net income for the past year is sufficient to cover both the
cash  dividends and a rate of earnings  retention  that is  consistent  with the
company's capital needs,  asset quality,  and overall financial  condition.  The
Federal Reserve Board also indicated that it would be  inappropriate  for a bank
holding company  experiencing  serious financial problems to borrow funds to pay
dividends. Under the prompt corrective action regulations adopted by the Federal
Reserve Board pursuant to FDICIA,  the Federal Reserve Board may prohibit a bank
holding  company  from  paying  any  dividends  if the  holding  company's  bank
subsidiary  is  classified  as  "undercapitalized."  See "--  Prompt  Corrective
Regulatory Action."

     STOCK  REPURCHASES.  As a bank holding company,  the Company is required to
give  the  Federal  Reserve  Board  prior  written  notice  of any  purchase  or
redemption of its outstanding  equity securities if the gross  consideration for
the purchase or redemption,  when combined with the net  consideration  paid for
all such  purchases or redemptions  during the preceding 12 months,  is equal to
10% or more of the Company's  consolidated  net worth. The Federal Reserve Board
may disapprove  such a purchase or redemption if it determines that the proposal
would violate any law, regulation,  Federal Reserve Board order,  directive,  or
any condition  imposed by, or written agreement with, the Federal Reserve Board.
This   requirement   does  not  apply  to  bank  holding   companies   that  are
"well-capitalized," received one of the two highest examination ratings at their
last examination and are not the subject of any unresolved supervisory issues.

     SARBANES-OXLEY ACT OF 2002. On July 30, 2002, the President signed into law
the Sarbanes-Oxley Act of 2002 (the "Act"),  which mandated a variety of reforms
intended to address  corporate and  accounting  fraud.  The Act provides for the
establishment  of a new Public Company  Accounting  Oversight  Board  ("PCAOB"),
which will enforce  auditing,  quality  control and  independence  standards for
firms that audit SEC-reporting companies and will be funded by fees from all SEC
reporting  companies.  The Act imposes higher standards for auditor independence
and restricts  provision of consulting  services by auditing  firms to companies
they audit.  Any  non-audit  services

                                       27
<PAGE>

being  provided to an audit client will  require  preapproval  by the  Company's
audit  committee  members.  In addition,  certain audit partners must be rotated
periodically.  The Act requires  chief  executive  officers and chief  financial
officers,  or their  equivalent,  to certify to the accuracy of periodic reports
filed with the SEC, subject to civil and criminal penalties if they knowingly or
willfully violate this certification  requirement.  In addition,  under the Act,
counsel  will be required  to report  evidence  of a material  violation  of the
securities  laws or a  breach  of  fiduciary  duty  by a  company  to its  chief
executive  officer or its chief legal  officer,  and, if such  officer  does not
appropriately  respond,  to report such evidence to the audit committee or other
similar committee of the board of directors or the board itself.

     Longer  prison  terms  will also be  applied to  corporate  executives  who
violate federal  securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended,  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate  misconduct.  Executives  are  also  prohibited  from  trading  during
retirement  plan  "blackout"  periods,  and  loans  to  company  executives  are
restricted.  In addition, a provision directs that civil penalties levied by the
SEC as a result  of any  judicial  or  administrative  action  under  the Act be
deposited in a fund for the benefit of harmed investors. Directors and executive
officers  must also  report  most  changes  in their  ownership  of a  company's
securities within two business days of the change.

     The Act also  increases the oversight and authority of audit  committees of
publicly traded  companies.  Audit committee members must be independent and are
barred from accepting  consulting,  advisory or other compensatory fees from the
issuer. In addition,  all SEC reporting companies must disclose whether at least
one member of the committee is a "financial  expert" (as such term is defined by
the SEC  rules)  and if not,  why  not.  Audit  committees  of  publicly  traded
companies  will have  authority to retain  their own counsel and other  advisors
funded by the  company.  Audit  committees  must  establish  procedures  for the
receipt, retention and treatment of complaints regarding accounting and auditing
matters  and  procedures  for  confidential,  anonymous  submission  of employee
concerns regarding questionable accounting or auditing matters.

     Beginning  six months  after the SEC  determines  that the PCAOB is able to
carry  out its  functions,  it will be  unlawful  for any  person  that is not a
registered  public  accounting firm ("RPAF") to audit an SEC-reporting  company.
Under the Act, a RPAF is prohibited from performing  statutorily  mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person

                                       28
<PAGE>

serving in equivalent  positions has been employed by such firm and participated
in the audit of such company  during the  one-year  period  preceding  the audit
initiation  date. The Act also prohibits any officer or director of a company or
any other  person  acting  under  their  direction  from  taking  any  action to
fraudulently influence,  coerce, manipulate or mislead any independent public or
certified  accountant engaged in the audit of the Company's financial statements
for the purpose of rendering the financial  statement's  materially  misleading.
The Act also  requires  the SEC to  prescribe  rules  requiring  inclusion of an
internal  control  report and  assessment  by management in the annual report to
shareholders.  The Act  requires the RPAF that issues the audit report to attest
to and report on management's  assessment of the Company's internal controls. In
addition, the Act requires that each financial report required to be prepared in
accordance with (or reconciled to) generally accepted accounting  principles and
filed  with  the SEC  reflect  all  material  correcting  adjustments  that  are
identified by a RPAF in accordance with generally accepted accounting principles
and the rules and regulations of the SEC.

     Although  the  Company  anticipates  it will  incur  additional  expense in
complying with the provisions of the Act and the related rules,  management does
not expect that such  compliance  will have a material  impact on the  Company's
financial condition or results of operations.

REGULATION AND SUPERVISION OF THE BANK

     GENERAL.  The Bank is subject to extensive  regulation by the Department of
Financial   Institutions  and  the  FDIC.  The  lending   activities  and  other
investments of the Bank must comply with various  regulatory  requirements.  The
Department of Financial  Institutions and FDIC periodically examine the Bank for
compliance with various regulatory requirements. The Bank must file reports with
the Department of Financial  Institutions and the FDIC describing its activities
and  financial   condition.   The  Bank  is  also  subject  to  certain  reserve
requirements  promulgated by the Federal  Reserve Board.  This  supervision  and
regulation is intended  primarily for the protection of  depositors.  Certain of
these regulatory requirements are referred to below or appear elsewhere herein.

     CAPITAL  REQUIREMENTS.  Under FDIC regulations,  state-chartered banks that
are not members of the Federal Reserve System are required to maintain a minimum
leverage  capital  requirement  consisting of a ratio of Tier 1 capital to total
assets of 3% if the FDIC determines that the institution is not  anticipating or
experiencing  significant  growth and has  well-diversified  risk,  including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and in general a strong banking  organization,  rated composite 1 under
the Uniform  Financial  Institutions  Rating System (the CAMELS  rating  system)
established by the Federal Financial

                                       29
<PAGE>

Institutions Examination Council. For all but the most highly rated institutions
meeting the conditions set forth above, the minimum leverage capital ratio is 3%
plus an additional  "cushion"  amount of at least 100 to 200 basis points with a
minimum leverage capital  requirement of not less than 4%. Tier 1 capital is the
sum of common  stockholders'  equity,  noncumulative  perpetual  preferred stock
(including  any  related   surplus)  and  minority   interests  in  consolidated
subsidiaries, minus all intangible assets (other than certain mortgage servicing
assets,  purchased  credit card  relationships,  credit-enhancing  interest-only
strips and certain deferred tax assets) minus identified losses,  investments in
certain financial subsidiaries and nonfinancial equity investments.

     In  addition  to the  leverage  ratio (the ratio of Tier I capital to total
assets),  state-chartered  nonmember  banks  must  maintain  a minimum  ratio of
qualifying  total  capital  to  risk-weighted  assets of at least 8% of which at
least four percentage  points must be Tier 1 capital.  Qualifying  total capital
consists of Tier 1 capital plus Tier 2 or  supplementary  capital items.  Tier 2
capital items include  allowances for loan losses in an amount of up to 1.25% of
risk-weighted  assets,  cumulative  preferred  stock and preferred  stock with a
maturity of over 20 years,  certain other capital  instruments  and up to 45% of
pretax net unrealized holding gains on equity securities.  The includable amount
of Tier 2 capital  cannot exceed the  institution's  Tier 1 capital.  Qualifying
total  capital is further  reduced  by the amount of the bank's  investments  in
banking  and  finance  subsidiaries  that are not  consolidated  for  regulatory
capital  purposes,  reciprocal  cross-holdings  of capital  securities issued by
other banks, most intangible assets and certain other deductions. Under the FDIC
risk-weighted  system,  all of a bank's  balance  sheet  assets  and the  credit
equivalent  amounts of certain  off-balance  sheet items are  assigned to one of
four broad risk weight  categories from 0% to 100%,  based on the risks inherent
in the type of assets or item.  The aggregate  dollar amount of each category is
multiplied by risk weight  assigned to that category.  The sum of these weighted
values equals the bank's risk-weighted assets.

     At December  31,  2002,  the Bank's ratio of Tier 1 capital to total assets
was 7.96%,  its ratio of Tier 1 capital to  risk-weighted  assets was 12.61% and
its ratio of total risk-based capital to risk-weighted assets was 13.89%.

     During the second  quarter of 2002,  the Bank entered into a memorandum  of
understanding  ("MOU")  with the FDIC and the Indiana  Department  of  Financial
Institutions  ("DFI").  Among other  things,  the MOU required the Bank to adopt
written  action  plans with  respect to certain  classified  assets,  revise its
lending  policies in accordance with examiner  recommendations,  require greater
financial information from borrowers,  establish a loan review program, document
Board review of the adequacy of loan losses,  formulate a plan for improving the
Bank's

                                       30
<PAGE>

profitability,   review  staffing  needs  with   particular   emphasis  on  loan
administration,  strengthen  certain  internal  controls and audit  coverage and
address other regulatory compliance issues raised in the most recent examination
report by the FDIC and DFI.  While the MOU is in effect,  the Bank must maintain
Tier 1 capital at or above 7% of assets.

     The Company's  Board of Directors have adopted  resolutions  providing that
the Company will not cause the Bank to pay dividends if its Tier 1 capital would
be less than 7%  thereafter,  that the Company  will not incur  additional  debt
without prior Federal Reserve  approval,  and that the Company will not purchase
any treasury stock. The resolutions remain in effect until the MOU is lifted.

     The Company  believes  that the Company and the Bank have taken all actions
specified in the MOU and Board resolutions within the timeframes specified.  The
Company does not believe the MOU or Board resolutions will materially affect the
operations  of the Company or the Bank.  A failure to comply with either the MOU
or resolutions could lead to the initiation of formal  enforcement action by the
FDIC, DFI and the Federal Reserve.

     DIVIDEND  LIMITATIONS.  The Bank may not pay dividends on its capital stock
if its  regulatory  capital  would  thereby  be reduced  below the  amount  then
required  for the  liquidation  account  established  for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.

     Earnings of the Bank  appropriated  to bad debt  reserves  and deducted for
Federal  income tax purposes are not available for payment of cash  dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings  removed  from the  reserves  for
such distributions. See "Federal and State Taxation."

     Under FDIC  regulations,  the Bank is  prohibited  from  making any capital
distributions if after making the distribution, the Bank would have: (i) a total
risk-based  capital  ratio of less than 8.0%;  (ii) a Tier 1 risk-based  capital
ratio of less  than  4.0%;  or (iii) a  leverage  ratio of less than  4.0%.  For
additional   information   about  dividend   limitations  see  Note  11  in  the
Consolidated Financial Statements.

     DEPOSIT INSURANCE.  The Bank is required to pay assessments to the FDIC for
insurance  of its  deposits  by the SAIF based on a  percentage  of its  insured
deposits.  Under the FDIA, the FDIC is required to set  semi-annual  assessments
for  SAIF-insured  institutions at a rate determined by the FDIC to be necessary
to  maintain  the  designated  reserve  ratio of the SAIF at 1.25% of  estimated
insured  deposits or at a higher  percentage  of insured  deposits that the FDIC
determines to be justified for that year by circumstances  raising a significant
risk of

                                       31
<PAGE>

substantial future losses to the SAIF. In the event that the SAIF should fail to
meet its statutory  reserve ratio, the FDIC would be required to set semi-annual
assessment  rates for SAIF members that are  sufficient  to increase the reserve
ratio to 1.25% within one year or in  accordance  with such other  schedule that
the FDIC adopts by  regulation  to restore the reserve ratio in not more than 15
years.

     The assessment rate for an insured depository  institution is determined by
the assessment risk classification assigned to the institution by the FDIC based
on the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators for date closest to the last day of the fourth month
preceding the semi-annual assessment period, institutions are assigned to one of
three  capital   groups  --  well   capitalized,   adequately   capitalized   or
undercapitalized  --  using  the  same  percentage  criteria  as in  the  prompt
corrective action  regulations.  See "-- Prompt Corrective  Regulatory  Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.

     The FDIC has adopted an  assessment  schedule  for SAIF  deposit  insurance
pursuant to which the assessment rate for well-capitalized institutions with the
highest  supervisory  ratings have been reduced to zero and  institutions in the
worst risk  assessment  classification  will be assessed at the rate of 0.27% of
insured deposits. At December 31, 2002, the Bank is considered well capitalized.
In addition,  FDIC-insured  institutions  are required to pay assessments to the
FDIC to help fund  interest  payments on certain  bonds issued by the  Financing
Corporation ("FICO"), an agency of the federal government established to finance
takeovers of insolvent thrifts.

     PROMPT  CORRECTIVE  REGULATORY  ACTION.  Under FDICIA,  the federal banking
regulators  are  required  to  take  prompt  corrective  action  if  an  insured
depository  institution  fails to satisfy certain minimum capital  requirements,
including a leverage  limit,  a risk-based  capital  requirement,  and any other
measure deemed  appropriate by the federal banking  regulators for measuring the
capital  adequacy  of  an  insured  depository  institution.  All  institutions,
regardless  of their  capital  levels,  are  restricted  from making any capital
distribution or paying any management fees if the institution  would  thereafter
fail to satisfy  the  minimum  levels for any of its  capital  requirements.  An
institution  that  fails to meet the  minimum  level  for any  relevant  capital
measure (an  "undercapitalized  institution")  may be: (i) subject to  increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable  capital  restoration  plan within 45 days; (iii) subject to asset
growth

                                       32
<PAGE>

limits; and (iv) required to obtain prior regulatory  approval for acquisitions,
branching and new lines of businesses. The capital restoration plan must include
a guarantee  by the  institution's  holding  company that the  institution  will
comply  with the plan until it has been  adequately  capitalized  on average for
four consecutive quarters, under which the holding company would be liable up to
the lesser of 5% of the  institution's  total assets or the amount  necessary to
bring the institution into capital compliance as of the date it failed to comply
with  its  capital   restoration   plan.  A   "significantly   undercapitalized"
institution, as well as any undercapitalized institution that does not submit an
acceptable  capital  restoration plan, may be subject to regulatory  demands for
recapitalization,  broader  application of  restrictions  on  transactions  with
affiliates,  limitations  on interest  rates paid on deposits,  asset growth and
other  activities,   possible   replacement  of  directors  and  officers,   and
restrictions on capital  distributions  by any bank holding company  controlling
the institution. Any company controlling the institution may also be required to
divest  the  institution  or  the  institution   could  be  required  to  divest
subsidiaries.  The senior executive officers of a significantly undercapitalized
institution may not receive  bonuses or increases in compensation  without prior
approval and the  institution is prohibited from making payments of principal or
interest on its  subordinated  debt. In their  discretion,  the federal  banking
regulators  may also  impose  the  foregoing  sanctions  on an  undercapitalized
institution if the regulators determine that such actions are necessary to carry
out the purposes of the prompt corrective provisions.  If an institution's ratio
of tangible  capital to total assets falls below the  "critical  capital  level"
established by the appropriate  federal banking regulator,  the institution will
be subject to conservatorship or receivership within specified time periods.

     Under  the  implementing   regulations,   the  federal  banking  regulators
generally  measure an  institution's  capital adequacy on the basis of its total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio (the  ratio of its core  capital to
adjusted total assets).  The following  table shows the capital ratios  required
for the various prompt corrective action categories.
<TABLE>
<CAPTION>
                                                     ADEQUATELY                                     SIGNIFICANTLY
                           WELL CAPITALIZED          CAPITALIZED         UNDERCAPITALIZED        UNDERCAPITALIZED
                           ----------------          -----------         ----------------        ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio           10.0% or more            8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
___________
*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

                                       33
<PAGE>

A "critically  undercapitalized"  institution is defined as an institution  that
has a ratio of  "tangible  equity" to total  assets of less than 2.0%.  Tangible
equity is defined as core capital plus cumulative perpetual preferred stock (and
related  surplus) less all intangible  assets other than qualifying  supervisory
goodwill  and  certain  purchased   mortgage  servicing  rights.  The  FDIC  may
reclassify a well capitalized  depository  institution as adequately capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically undercapitalized) if the FDIC determines, after notice
and an opportunity for a hearing,  that the savings  institution is in an unsafe
or unsound  condition or that the  institution  has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category.

     SAFETY AND SOUNDNESS  GUIDELINES.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  federal  banking  agency is required  to  establish  safety and  soundness
standards  for  institutions  under  its  authority.  In 1995,  these  agencies,
including the FDIC, released interagency guidelines  establishing such standards
and adopted rules with respect to safety and  soundness  compliance  plans.  The
guidelines  require  depository  institutions to maintain  internal controls and
information  systems and internal  audit  systems that are  appropriate  for the
size,  nature  and scope of the  institution's  business.  The  guidelines  also
establish certain basic standards for loan documentation,  credit  underwriting,
interest rate risk exposure,  and asset growth.  The guidelines  further provide
that depository  institutions  should maintain safeguards to prevent the payment
of  compensation,  fees and  benefits  that are  excessive or that could lead to
material financial loss, and should take into account factors such as comparable
compensation practices at comparable institutions. If the agency determines that
a depository  institution  is not in  compliance  with the safety and  soundness
guidelines,  it may  require the  institution  to submit an  acceptable  plan to
achieve compliance with the guidelines.  A depository institution must submit an
acceptable  compliance plan to the agency within 30 days of receipt of a request
for such a plan.  Failure to submit or implement a  compliance  plan may subject
the institution to regulatory sanctions.

     Additionally  under FDICIA, as amended by the CDRI Act, the federal banking
agencies established standards relating to asset quality and earnings. Under the
guidelines a depository  institution should maintain systems,  commensurate with
its size and the nature and scope of its operations,  to identify problem assets
and prevent  deterioration  in those  assets as well as to evaluate  and monitor
earnings and ensure that earnings are

                                       34
<PAGE>

sufficient to maintain adequate capital and reserves.  Management  believes that
the asset quality and earnings  standards will not have a material effect on the
operations of the Bank.

     UNIFORM  LENDING  STANDARDS.  As  required by FDICIA,  the federal  banking
agencies  have  adopted  regulations  that  require  banks to adopt and maintain
written policies establishing appropriate limits and standards for extensions of
credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent  improvements to real estate. These policies must
establish  loan  portfolio  diversification   standards,   prudent  underwriting
standards,  including  loan-to-value limits that are clear and measurable,  loan
administration   procedures   and   documentation,    approval   and   reporting
requirements.  A bank's real estate lending policy must reflect consideration of
the  Interagency  Guidelines for Real Estate Lending  Policies (the "Real Estate
Lending  Guidelines") that have been adopted by the banking  agencies.  The Real
Estate Lending Guidelines, among other things, call upon depository institutions
to establish internal loan-to-value limits for real estate loans that should not
exceed  supervisory  loan-to-value  limits for the various  types of real estate
loans.  The  Real  Estate  Lending  Guidelines  state,  however,  that it may be
appropriate   in   individual   cases  to  originate  or  purchase   loans  with
loan-to-value ratios in excess of the supervisory loan-to-value limits. The Bank
does not believe that the Real Estate Lending  Guidelines will materially affect
its lending activities.

     RESERVE  REQUIREMENTS.  Under Federal Reserve Board  regulations,  the Bank
currently must maintain  average daily  reserves equal to 3% of net  transaction
accounts up to $42.1  million  plus 10% on the  remainder.  This  percentage  is
subject to adjustment by the Federal Reserve Board.  Because  required  reserves
must be  maintained  in the  form of  vault  cash or in a  non-interest  bearing
account at a Federal  Reserve Bank, the effect of the reserve  requirement is to
reduce the amount of the institution's  interest-earning assets. At December 31,
2002, the Bank met applicable Federal Reserve Board reserve requirements.

     FEDERAL  HOME LOAN BANK  SYSTEM.  The Bank is a member of the Federal  Home
Loan Bank System, which consists of 12 regional Federal Home Loan Banks governed
and regulated by the Federal Housing Finance Board  ("FHFB").  As a member,  the
Bank is required to purchase  and hold stock in the FHLB of  Indianapolis  in an
amount equal to the greater of 1% of its aggregate  unpaid home loan balances at
the beginning of the year or an amount equal to 5% of FHLB advances outstanding,
whichever is greater.  As of December 31, 2002,  the Bank held stock in the FHLB
of  Indianapolis  in the amount $5.8  million was in  compliance  with the above
requirement.

                                       35
<PAGE>

     The FHLB of Indianapolis serves as a reserve or central bank for the member
institutions  within its assigned  region.  It is funded primarily from proceeds
derived from the sale of consolidated obligations of FHLB System. It makes loans
(i.e.,   advances)  to  members  in  accordance  with  policies  and  procedures
established  by the  FHLB  System  and the  Board  of  Directors  of the FHLB of
Indianapolis.

     The  Bank is also a  member  of the  FHLB of  Cincinnati  due to  remaining
borrowings  after the merger of  Ameriana-Ohio  and the Bank. As of December 31,
2002,  the Bank held stock in the FHLB of  Cincinnati  in the amount of $939,000
and was in compliance with requirements of membership.

     LOANS TO EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS. Loans to
directors,  executive officers and principal  stockholders of a state non-member
bank  like  the  Bank  must be made on  substantially  the  same  terms as those
prevailing  for  comparable  transactions  with  persons  who are not  executive
officers, directors,  principal stockholders or employees of the Bank unless the
loan is made pursuant to a compensation or benefit plan that is widely available
to  employees  and does not  favor  insiders.  Loans to any  executive  officer,
director and principal  stockholder together with all other outstanding loans to
such person and affiliated  interests generally may not exceed 15% of the bank's
unimpaired  capital and surplus and all loans to such persons may not exceed the
institution's  unimpaired  capital and unimpaired  surplus.  Loans to directors,
executive officers and principal stockholders,  and their respective affiliates,
in  excess of the  greater  of  $25,000  or 5% of  capital  and  surplus  (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested"  director not participating in the voting.  State
non-member  banks are  prohibited  from  paying the  overdrafts  of any of their
executive  officers or directors  unless  payment is made pursuant to a written,
pre-authorized interest-bearing extension of credit plan that specifies a method
of  repayment or transfer of funds from  another  account at the bank.  Loans to
executive  officers may not be made on terms more  favorable than those afforded
other  borrowers and are restricted as to type,  amount and terms of credit.  In
addition,  Section 106 of the BHCA  prohibits  extensions of credit to executive
officers,   directors,  and  greater  than  10%  stockholders  of  a  depository
institution  by  any  other  institution  which  has  a  correspondent   banking
relationship  with the  institution,  unless  such  extension  of  credit  is on
substantially  the same  terms as those  prevailing  at the time for  comparable
transactions  with other  persons and does not involve more than the normal risk
of repayment or present other unfavorable features.

     TRANSACTIONS  WITH AFFILIATES.  A state non-member bank or its subsidiaries
may not engage in "covered  transactions"  with any one  affiliate  in an amount
greater  than 10% of such bank's  capital  stock and  surplus,  and for

                                       36
<PAGE>

all such  transactions with all affiliates a state non-member bank is limited to
an amount equal to 20% of capital stock and surplus.  All such transactions must
also be on terms  substantially the same, or at least as favorable,  to the bank
or  subsidiary  as  those  provided  to  a  non-affiliate.   The  term  "covered
transaction"  includes  the making of loans,  purchase of assets,  issuance of a
guarantee  and similar  other types of  transactions.  An  affiliate  of a state
non-member  bank is any  company or entity  which  controls  or is under  common
control with the state  non-member bank and, for purposes of the aggregate limit
on transactions with affiliates, any subsidiary that would be deemed a financial
subsidiary of a national bank. In a holding company context,  the parent holding
company of a state non-member bank (such as the Company) and any companies which
are  controlled  by such  parent  holding  company are  affiliates  of the state
non-member  bank.  The BHCA  further  prohibits a  depository  institution  from
extending  credit to or offering  any other  services,  or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some  additional  service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution, subject to
certain limited exceptions.

INDIANA BANKING LAW

     BRANCHING.  An Indiana  savings bank is entitled to  establish  one or more
branches de novo or by acquisition in any location or locations in Indiana.  The
savings bank is required to file an application with the Department of Financial
Institutions.  Approval of the application is contingent  upon the  Department's
determination  that after the establishment of the branch, the savings bank will
have adequate capital, sound management and adequate future earnings.

     LENDING  LIMITS.  Indiana  savings  banks are not subject to  percentage of
asset or  capital  limits  on their  commercial,  consumer  and  non-residential
mortgage  lending,  and accordingly,  have more flexibility in structuring their
portfolios than federally chartered savings banks. However, the Bank is required
to maintain at least 60% of its assets in investments that would qualify it as a
domestic  building and loan  association  under the Internal  Revenue  Code.  At
December 31, 2002, the Bank was in compliance with this requirement.

     OTHER  ACTIVITIES.  The Bank is authorized to engage in a variety of agency
and fiduciary  activities  including acting as executors of an estate,  transfer
agent and in other fiduciary capacities. On approval from the Indiana Department
of  Financial  Institutions,  the Bank would be  permitted to exercise any right
granted to national banks.

                                       37
<PAGE>

FEDERAL AND STATE TAXATION

     FEDERAL  TAXATION.  The Company and its  subsidiaries  file a  consolidated
federal  income tax return on a calendar  year end.  Saving Banks are subject to
the  provisions  of the  Internal  Revenue Code of 1986 (the "Code") in the same
general manner as other  corporations.  However,  institutions  such as the Bank
which met certain definitional tests and other conditions prescribed by the Code
benefited from certain  favorable  provisions  regarding  their  deductions from
taxable income for annual  additions to their bad debt reserve.  For purposes of
the bad debt reserve  deduction,  loans were  separated  into  "qualifying  real
property loans," which generally were loans secured by interests in certain real
property,  and  nonqualifying  loans,  which were all other loans.  The bad debt
reserve  deduction with respect to nonqualifying  loans was based on actual loss
experience.  For tax years  beginning  before January 1, 1996, the amount of the
bad debt reserve  deduction  with respect to qualifying  real property loans was
based upon actual loss experience (the  "experience  method") or a percentage of
taxable income  determined  without regard to such deduction (the "percentage of
taxable income method"). The Bank historically used whichever method resulted in
the highest bad debt reserve deduction in any given year.

     Legislation  that was effective for tax years  beginning after December 31,
1995 requires  institutions  to recapture into taxable income over a six taxable
year period the portion of the tax loan loss  reserve  that exceeds the pre-1988
tax loan loss reserve.  The Bank will no longer be allowed to use the percentage
of taxable income method for tax loan loss  provisions,  but would be allowed to
use the experience  method of accounting for bad debts.  There will be no future
effect on net income  from the  recapture  because  the taxes on these bad debts
reserves has already been accrued as a deferred tax liability.

     The  Company's  federal  income tax returns have not been audited in recent
years.

     STATE  TAXATION.  The State of  Indiana  imposes a  franchise  tax which is
assessed on  qualifying  financial  institutions,  such as the Bank.  The tax is
based upon  federal  taxable  income  before  net  operating  loss  carryforward
deductions (adjusted for certain Indiana  modifications) and is levied at a rate
of 8.5% of adjusted taxable income.

     The  Company's  state  income tax returns  have not been  audited in recent
years.

                                       38
<PAGE>

EMPLOYEES

     As of December 31, 2002, the Company and subsidiaries had approximately 185
full-time and 14 part-time  employees.  The employees are not  represented  by a
collective  bargaining  agreement.  Management  believes  the  Company  and  its
subsidiaries enjoy good relations with their personnel.

EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
                                    AGE AT
NAME                          DECEMBER 31, 2002      PRINCIPAL POSITION
----                          -----------------      ------------------
<S>                                  <C>             <C>
Harry J. Bailey                      60              President and Chief Executive Officer of the Bank and the
                                                     Company

Timothy G. Clark                     52              Executive Vice President and Chief Operating Officer of
                                                     the Bank and the Company

Bradley L. Smith                     42              Senior Vice President - Treasurer and Chief Financial Officer
                                                     of the Bank and the Company effective April 2002.

Nancy A. Rogers                      60              Senior Vice President - Marketing Services of
                                                     the Bank and Secretary of the Bank and the Company

Ted R. Girton                        41              Senior Vice President - Credit Administration effective June 2002

Grover F. Archer                     62              Senior Vice President - Retail Banking of the Bank

Deborah A. Bell                      50              Senior Vice President - Information Technology of the Bank

Ronald M. Holloway                   53              Senior Vice President - Lending Services of the Bank

Jan F. Wright                        59              Senior Vice President - Business Services of the Bank

</TABLE>

     Unless otherwise noted, all officers have held the position described below
for at least the past five years.

     HARRY J.  BAILEY has been  President  of the Company and the Bank since May
1990 and was appointed Chief Executive  Officer in December 1990. Mr. Bailey had
been the Executive  Vice  President and Chief  Operating  Officer of the Company
since its formation in 1989 and of the Bank since  February  1984. He has been a
director  of the Bank  since  1987  and a  director  of the  Company  since  its
formation.

     TIMOTHY G. CLARK  joined the Bank as  Executive  Vice  President  and Chief
Operating  Officer on September 2, 1997. He was elected Executive Vice President
and Chief  Operating  Officer of the Company on October 23, 2000.  He previously
held the position of Regional Executive and Area President at National City Bank
of  Indiana  in  Seymour,  Indiana  for 5 years and  prior to that  held  senior
management  positions with Central  National Bank in Greencastle,  Indiana for 5
years and Hancock Bank & Trust in Greenfield, Indiana for 13 years.

                                       39
<PAGE>

     BRADLEY L.  SMITH,  a  certified  public  accountant,  joined the Bank as a
Senior  Vice  President-Treasurer  and Chief  Financial  Officer of the Bank and
Company on April 10, 2002.  Prior to joining the Bank, he was the Executive Vice
President of Finance Center Federal  Credit Union in  Indianapolis  where he had
been employed since 1992.

     NANCY A. ROGERS was elected as Senior Vice  President - Marketing  Services
in March 1995 and was also  appointed  Secretary  of the Company and the Bank in
1998.  She has been employed at the Bank since 1964 and most recently  served as
Vice President and Director of Advertising and Public Relations.

     TED R. GIRTON was elected as Senior Vice President - Credit  Administration
of the Bank in June 2002.  Prior to joining the Bank, he was Vice  President and
Head of Credit  Administration  for the Commercial Lending Unit at Union Federal
Bank in Indianapolis.

     GROVER F. ARCHER joined the Bank as Senior Vice  President - Retail Banking
in  January  1999.  Prior  to  joining  the Bank he held  the  position  of Area
President  for one year,  as Regional  Administrative  Manager for six years and
Senior Vice  President and Director of Retail  Banking for six years at National
City Bank of Indiana and its  predecessor  in Anderson,  Indiana.  Prior to that
time Mr. Archer was in senior management positions with Indiana Lawrence Bank in
North Manchester, Indiana for 16 years.

     DEBORAH  A.  BELL was  elected  as  Senior  Vice  President  -  Information
Technology  in May 1998.  She has been  employed at the Bank since 1976 and most
recently  served as Vice  President and Director of Data  Processing  since 1991
after serving in that department since July 1985.

     RONALD M. HOLLOWAY has been employed by the Bank since 1973 and was elected
Senior Vice President and Chief Lending  Officer in December 1995. Mr.  Holloway
previously was responsible for the Bank's loan servicing department.

     JAN F. WRIGHT was elected as Senior Vice  President - Business  Services at
the Bank in January  1998 and prior to that  served as Senior  Vice  President -
Branch  Operations  since March 1995.  He  previously  held the position of Vice
President and Director of Loan  Origination and Processing and has been employed
by the Bank since 1972.

                                       40
<PAGE>

ITEM 2. PROPERTIES
------------------

     The  following  table  sets  forth the  location  of the  Company's  office
facilities at December 31, 2002 and certain other information  relating to these
properties at that date.
<TABLE>
<CAPTION>
                                    YEAR           TOTAL              NET          OWNED/            SQUARE
                                  ACQUIRED      INVESTMENT        BOOK VALUE       LEASED             FEET
                                  --------      ----------        ----------       ------            ------
                                               (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                 <C>          <C>             <C>                <C>               <C>
  MAIN OFFICE:
  2118 Bundy Avenue
  New Castle, Indiana..........     1958         $   1,658       $      459         Owned             20,500

  BRANCH OFFICES:
  1311 Broad Street
  New Castle, Indiana..........     1890             1,103              320         Owned             18,000

  956 North Beechwood Street
  Middletown, Indiana..........     1971               322               72         Owned              5,500

  22 North Jefferson
  Knightstown, Indiana.........     1979               400              173         Owned              3,400

  1810 North State Street
  Greenfield, Indiana..........     1995             1,200              997         Owned              5,800

  99 Dan Jones Road
  Avon, Indiana................     1995             1,558            1,353         Owned             12,600

  1754 East 53rd Street
  Anderson, Indiana............     1993               734              671         Owned              4,900

  488 W. Main Street
  Morristown, Indiana..........     1998               353              313         Owned              2,600

  7435 W. U.S. 52
  New Palestine, Indiana.......     1999               944              858         Owned              3,300

  7200 Blue Ash Road
  Cincinnati, Ohio.............     1992               921              464         Owned              9,100

  2894 W. U.S. 22 & 3
  Maineville, Ohio.............     1998                84               54        Leased              1,300

  AMERIANA INSURANCE
  AGENCY, INC. AND TRUST
  DEPARTMENT OF THE BANK
  1908 Bundy Avenue
  New Castle, Indiana..........     1999               373              350         Owned              5,000
                                                 ---------       ----------
        Total..................                  $   9,650       $    6,084
                                                 =========       ==========
</TABLE>

                                       41
<PAGE>

     The Bank uses on-line processing terminals.  Most of the data processing is
done by an in-house data processing  center. At December 31, 2002, the total net
book  value  of  the  Company's  offices  and  equipment   (including  leasehold
improvements) was $ 7.9 million.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     The Company's  principal  subsidiary,  the Bank is involved in a variety of
litigation relating to its interests in two pools of equipment leases originated
by the Commercial  Money Center,  Inc.  ("CMC"),  a California  based  equipment
leasing company which is now in bankruptcy.

     In June and September  2001, the Bank purchased two separate pools of lease
receivables totaling $12,003,000, consisting primarily of equipment leases. Each
lease  within  each  pool is  supported  by a surety  bond  issued by one of two
insurance  companies rated at least "A" by Moody's.  The bonds guarantee payment
of all amounts due under the leases in the event of default by the lessee.  Each
pool was sold by the terms of a Sales and  Servicing  Agreement  which  provides
that the  insurers  will  service the  leases.  In each case the  insurers  have
assigned  their  servicing  rights and  responsibilities  to Commercial  Service
Center, a company which has now filed bankruptcy.

     When the lease pools went into  default,  notice was given to each insurer.
One them made payments for a few months under a reservation of rights; the other
paid nothing. Both insurers claim they were defrauded by Commercial Money Center
(CMC),   the  company  which  sold  the  lease  pools.   Both  are  now  denying
responsibility for payment. CMC has also filed for bankruptcy protection.

     Many other financial  institutions have purchased lease pools from CMC. All
of the lease pools are in default and in litigation.  The Panel on Multidistrict
Litigation  has taken  control of the many actions and assigned them to the U.S.
District Court for the Northern  District of Ohio,  Eastern  Division.  A status
conference is scheduled for April 28, 2003. The cases are in the early stages of
discovery.

     The Bank has also been named as a  defendant  in a suit filed by a group of
lessees in  California  state court against CMC, CSC, the banks that invested in
the CMC pools and the  insurers  that issued the surety  bonds on the CMC pools.
The  California  suit alleges  that the leases are  usurious and  un-collectable
under  California law. None of the plaintiffs in the California suit is a lessee
in either of the lease pools purchased by the Bank.

     The Company believes the surety bonds are enforceable against the insurers.
The current unpaid balance for the pools is  $10,900,000.  It is highly unlikely
that the litigation will be resolved in 2003.

                                       42
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of the fiscal year covered by this Report.

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters
--------------------------------------------------------------------------------

     The Company's common stock, par value $1.00 per share (the "Common Stock"),
is traded on the Nasdaq  National  MarketSM under the symbol "ASBI." As of March
18, 2003, the Company had 3,147,463  shares of Common Stock  outstanding and had
640 stockholders of record and  approximately  1,450  beneficial  owners holding
shares in nominee or "street" name. The Company began paying quarterly dividends
during the fourth  quarter of fiscal  year 1987.  The  Company's  ability to pay
dividends is dependent on dividends  received from the Bank.  See Note 12 to the
"Consolidated  Financial Statements" included under Item 8 of this Annual Report
for a discussion  of the  restrictions  on the payment of cash  dividends by the
Company.

     The following  table sets forth the high,  low and closing sales prices for
the Common  Stock as  reported  on the  Nasdaq  National  MarketSM  and the cash
dividends declared on the Common Stock for each full quarterly period during the
last two fiscal years.
<TABLE>
<CAPTION>
                                        2002                                     2001
                           -----------------------------------       -------------------------------------
                                                     DIVIDENDS                                   DIVIDENDS
QUARTER ENDED:             HIGH     LOW     CLOSE    DECLARED        HIGH    LOW      CLOSE      DECLARED
-------------              ----     ---     -----    --------        ----    ---      -----      ---------
<S>                        <C>      <C>     <C>        <C>           <C>     <C>      <C>          <C>
March 31                   $16.00   $13.50  $14.94     $0.16         $13.00  $10.31   $11.06       $0.15
June 30                     15.10    13.85   14.54      0.16          14.01   10.35    13.49        0.15
September 30                14.20    12.10   13.25      0.16          13.75   12.00    12.75        0.15
December 31                 13.25    10.71   11.48      0.16          13.80   11.75    13.40        0.16
</TABLE>

                                       43
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                            (Dollars in thousands, except per share data)
                                                                                     at December 31,
---------------------------------------------------------------------------------------------------------------
Summary of Financial Condition                      2002        2001         2000             1999       1998
---------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>          <C>          <C>
   Cash                                         $    7,481  $   7,518    $    14,609  $    14,637  $     7,545
   Investment securities                            58,155    140,629         99,707      102,705       71,798
   Loans net of allowances for loan losses         304,586    350,383        397,662      325,959      261,813
   Interest-bearing deposits, and stock
      in Federal Home Loan Bank                     44,974     11,648         11,687       11,136       45,081
   Other assets                                     41,611     41,896         33,623       31,912       19,481
---------------------------------------------------------------------------------------------------------------
   Total assets                                 $  456,807  $ 552,074    $   557,288  $   486,349  $   405,718
---------------------------------------------------------------------------------------------------------------

   Deposits noninterest-bearing                 $   19,124  $  24,257    $    12,927  $    16,308  $    14,633
   Deposits interest-bearing                       383,063    388,156        354,668      339,451      319,356
   Borrowings                                        6,432     88,583        141,172       82,872       17,551
   Other liabilities                                 9,148      8,183          6,810        7,689        8,829
---------------------------------------------------------------------------------------------------------------
   Total liabilities                               417,767    509,179        515,577      446,320      360,369
   Shareholders' equity                             39,040     42,895         41,711       40,029       45,349
---------------------------------------------------------------------------------------------------------------
   Total liabilities and shareholders' equity   $  456,807  $ 552,074    $   557,288   $  486,349  $   405,718
===============================================================================================================

                                                                           Year Ended December 31,
---------------------------------------------------------------------------------------------------------------
Summary of Earnings                                 2002        2001         2000            1999        1998
---------------------------------------------------------------------------------------------------------------
   Interest income                              $   29,973  $  37,170    $    37,323    $  29,083    $  28,301
   Interest expense                                 17,541     24,243         24,728       16,749       15,993
   Net interest income                              12,432     12,927         12,595       12,334       12,308
   Provision for loan losses                         7,300        360            417          328          159
   Other income                                      2,738      3,857          3,368        3,302        3,429
   Other expense                                    13,464     11,159         10,820       10,509        9,655
---------------------------------------------------------------------------------------------------------------
   Income (loss) before taxes                       (5,594)     5,265          4,726        4,799        5,923
   Income taxes                                     (2,519)     1,465          1,164        1,467        2,085
---------------------------------------------------------------------------------------------------------------
   Net income(loss)                             $   (3,075) $   3,800    $     3,562    $   3,332    $   3,838
---------------------------------------------------------------------------------------------------------------
   Basic earnings (loss)per share (1)           $   (0.98)  $    1.21    $      1.13    $    0.98    $    1.08
   Diluted earnings (loss)per share (1)         $   (0.98)  $    1.21    $      1.13    $    0.98    $    1.06
---------------------------------------------------------------------------------------------------------------
   Dividends declared per share (1)             $    0.64   $    0.61    $      0.60    $    0.60    $    0.59
---------------------------------------------------------------------------------------------------------------
   Book value per share (1)                     $   12.40   $   13.63    $     13.26    $   12.72    $   12.92
===============================================================================================================

                                                                           Year Ended December 31,
---------------------------------------------------------------------------------------------------------------
Other Selected Data                                 2002        2001         2000         1999        1998
---------------------------------------------------------------------------------------------------------------
   Return on average assets                         (0.60)%      0.72%          0.68%        0.77%        0.98%
   Return on average equity                         (7.32)       8.92           8.68         7.60         8.48
   Ratio of average equity to average assets         8.18        8.12           7.84        10.17        11.60
   Dividend payout ratio (2)                          NM(3)     50.41%         53.00%       61.22%       55.66%
   Number of full-service bank offices                  11         11             11           12           11
---------------------------------------------------------------------------------------------------------------
<FN>
(1)  Restated to reflect the eleven-for-ten stock split in 1998.
(2)  Based on total  dividends  per share  declared and net income per share for
     the year.
(3)  NM - Not meaningful.
</FN>
</TABLE>

                                       44
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
--------------------------------------------------------------------------------

GENERAL
-------

     The Company was incorporated  under Indiana law for the purpose of becoming
the holding company for Ameriana Bank and Trust of Indiana. In 1990, the Company
acquired all of Ameriana  Bank and Trust of Indiana  common stock in  connection
with its reorganization into the holding company form of ownership. In 1992, the
Company  acquired  Ameriana Bank of Ohio,  F.S.B.  ("ABO").  ABO was merged into
Ameriana Bank and Trust of Indiana in October  2000. On June 29, 2001,  Ameriana
Bank and Trust of Indiana  converted  from a Federal  savings bank to an Indiana
chartered  state  savings bank and changed its name to Ameriana  Bank and Trust,
SB. At the same time, the Company  contributed  Ameriana Insurance Agency,  Inc.
("AIA") to the Bank. AIA operates a general insurance agency in three locations.
The Bank has a brokerage  operation through its wholly owned subsidiary Ameriana
Financial  Services,  Inc.  ("AFS").  AFS also owns a partial interest in a life
insurance company and a title insurance company.  In 1995, the Company purchased
a minority  interest in a limited  partnership  organized  to acquire and manage
real estate investments, which qualify for federal tax credits.

     The largest components of the Company's total revenue and total expense are
interest income and interest expense, respectively.  Consequently, the Company's
earnings are primarily dependent on its net interest income, which is determined
by (i) the  difference  between  rates of  interest  earned on  interest-earning
assets and rates paid on interest-bearing  liabilities ("interest rate spread"),
and (ii) the relative amounts of  interest-earning  assets and  interest-bearing
liabilities.  Levels of other income and operating  expenses also  significantly
affect net income.

                                       45
<PAGE>

CRITICAL ACCOUNTING POLICIES
----------------------------

     The accounting and reporting policies of the Company are in accordance with
accounting  principles  generally  accepted in the United  States and conform to
general  practices  within  the  banking  industry.  The  Company's  significant
accounting  policies  are  described  in detail  in the  notes to the  Company's
consolidated  financial  statements  for the year ended  December 31, 2002.  The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions. The
financial  position and results of operations can be affected by these estimates
and  assumptions  and are  integral to the  understanding  of reported  results.
Critical accounting policies are those policies that management believes are the
most  important  to the  portrayal  of the  Company's  financial  condition  and
results,  and they require  management  to make  estimates  that are  difficult,
subjective, or complex.

     ALLOWANCE FOR CREDIT  LOSSES.  The  allowance  for credit  losses  provides
coverage  for  probable   losses  inherent  in  the  Company's  loan  portfolio.
Management  evaluates  the  adequacy  of the  allowance  for credit  losses each
quarter based on changes, if any, in underwriting activities, the loan portfolio
composition (including product mix and geographic, industry or customer-specific
concentrations),  trends in loan performance,  regulatory  guidance and economic
factors.  This  evaluation is inherently  subjective,  as it requires the use of
significant management estimates. Many factors can affect management's estimates
of specific and expected losses,  including volatility of default probabilities,
rating  migrations,  loss  severity and economic and political  conditions.  The
allowance  is increased  through  provisions  charged to operating  earnings and
reduced by net charge-offs.

     The Company  determines the amount of the allowance  based on relative risk
characteristics  of the loan  portfolio.  The allowance  recorded for commercial
loans is based on reviews of individual credit  relationships and an analysis of
the  migration of  commercial  loans and actual loss  experience.  The allowance
recorded  for  homogeneous  consumer  loans is based on an analysis of loan mix,
risk  characteristics of the portfolio,  fraud loss and bankruptcy  experiences,
and  historical  losses,  adjusted  for  current  trends,  for each  homogeneous
category or group of loans. The allowance for credit losses relating to impaired
loans is based on the loan's observable market price, the collateral for certain
collateral-dependent  loans,  or the  discounted  cash  flows  using the  loan's
effective interest rate.

     Regardless of the extent of the Company's analysis of customer performance,
portfolio trends or risk management  processes,  certain inherent but undetected
losses are probable  within the loan  portfolio.  This is due to several factors
including  inherent  delays in  obtaining  information  regarding  a  customer's
financial  condition  or

                                       46
<PAGE>

changes in their unique business conditions, the judgmental nature of individual
loan  evaluations,  collateral  assessments and the  interpretation  of economic
trends.  Volatility of economic or  customer-specific  conditions  affecting the
identification and estimation of losses for larger  non-homogeneous  credits and
the sensitivity of assumptions  utilized to establish  allowances for homogenous
groups  of loans are among  other  factors.  The  Company  estimates  a range of
inherent losses related to the existence of these  exposures.  The estimates are
based upon the Company's  evaluation of  imprecision  risk  associated  with the
commercial and consumer allowance levels and the estimated impact of the current
economic environment.

     MORTGAGE SERVICING RIGHTS.  Mortgage  servicing rights ("MSRs")  associated
with loans originated and sold, where servicing is retained, are capitalized and
included in other intangible assets in the consolidated balance sheet. The value
of the capitalized  servicing rights  represents the present value of the future
servicing  fees  arising  from the  right  to  service  loans in the  portfolio.
Critical  accounting  policies  for MSRs  relate to the  initial  valuation  and
subsequent  impairment tests. The methodology used to determine the valuation of
MSRs  requires  the  development  and use of a number  of  estimates,  including
anticipated  principal  amortization and prepayments of that principal  balance.
Events that may significantly  affect the estimates used are changes in interest
rates,  mortgage  loan  prepayment  speeds and the  payment  performance  of the
underlying  loans.  The carrying value of the MSRs is periodically  reviewed for
impairment  based on a  determination  of fair  value.  Impairment,  if any,  is
recognized  through a valuation  allowance  and is recorded as  amortization  of
intangible assets.

     GOODWILL  AND  OTHER  INTANGIBLES.  The  Company  records  all  assets  and
liabilities  acquired in purchase  acquisitions,  including  goodwill  and other
intangibles,  at fair value as required by SFAS 141.  Goodwill is subject,  at a
minimum,  to annual tests for impairment.  Other intangible assets are amortized
over their estimated useful lives using  straight-line and accelerated  methods,
and are subject to  impairment  if events or  circumstances  indicate a possible
inability  to realize  the  carrying  amount.  The  initial  goodwill  and other
intangibles  recorded and subsequent  impairment analysis requires management to
make subjective  judgments  concerning  estimates of how the acquired asset will
perform in the future.  Events and  factors  that may  significantly  affect the
estimates include, among others,  customer attrition,  changes in revenue growth
trends, specific industry conditions and changes in competition.

                                       47
<PAGE>

FINANCIAL CONDITION
-------------------

     Total assets decreased $95.3 million or 17.3% to $456.8 million at December
31, 2002, from $552.1 million at December 31, 2001.

CASH AND CASH EQUIVALENTS
-------------------------

     Cash and cash  equivalents  increased  $33.9  million  to $45.7  million at
December 31, 2002 from $11.8  million at December 31, 2001.  This was mainly due
to a decline in the loan portfolio during 2002.  Mortgage loan refinancing was a
major factor for the decline. Due to the rate environment in 2002, the Bank sold
the majority of its fixed-rate originations.

SECURITIES
----------

     Investment  securities  decreased  approximately  $82.4  million  to  $58.2
million at December 31,  2002,  from $140.6  million at December  31, 2001.  The
Bank's  interest  rate risk  position for year-end 2001 exceeded the Bank's risk
parameters,  primarily  due  to  volatile  collateralized  mortgage  obligations
("CMO").  In order to restructure  the  investment  portfolio,  securities  were
reclassified from  held-to-maturity to available-for sale effective December 31,
2001.  The Bank disposed of most of the security  portfolio in the first quarter
2002 for an after tax loss of approximately  $1.9 million.  The breakdown of the
securities  sold by type,  were  agency  bonds  with a net  book  value of $25.1
million, for a pretax loss of $173,000, and CMOs with a net book value of $111.6
million, for a pretax loss of $3.0 million. The proceeds from the sale were used
to pay off Federal  Home Loan Bank  ("FHLB")  advances  of $17.9  million in the
first  quarter 2002 and the Company  reinvested  the  remainder in the first and
second  quarters of 2002 in an  adjustable  rate  mortgage  ("ARM")  mutual fund
comprised of adjustable rate mortgage-back securities ("MBS"),  agencies and MBS
securities  and which  presented  less  interest  rate risk than the  liquidated
investments (see "Interest Rate Risk").

     In September  2002,  the Bank  determined it could improve its net interest
margin by paying down the majority of FHLB  advances  with the sale of a similar
amount of investment securities. The Company sold an additional $44.6 million of
investments in the third quarter 2002 and realized a gain of approximately  $1.2
million on the sale,  which offset to some extent,  the loss on  disposition  of
investments  realized  earlier  in the  year.  The  proceeds  from  this  latest
investment sale were used to pay off higher-rate FHLB advances, which included a
prepayment  penalty of approximately  $1.1 million.  These  transactions,  taken
together,  had a net pre-tax  income  effect of about  $111,000.  Aside from the
de-leveraging  effect,  these transactions are expected to improve the

                                       48
<PAGE>
Company's  net interest  margin  through the  reduction of higher rate debt with
proceeds  from  the sale of  lower  earning  investments.

The following  table  identify  changes in the  investment  securities  carrying
values:
<TABLE>
<CAPTION>
                                                        (Dollars in thousands)
        =============================================================================================================
                                                         2002           2001           $ Change         % Change
        -------------------------------------------------------------------------------------------------------------
        <S>                                               <C>             <C>            <C>                <C>
        Available for sale at December 31:
          Mortgage-backed and
              collateralized mortgage obligations         $27,824         $110,393       $ (82,569)         (74.80)%
          Federal agencies                                  8,227           28,696         (20,469)         (71.33)
          Mutual fund                                      20,538               --          20,538            NM(1)
          Trust preferred                                   1,566            1,540              26            1.69
        -------------------------------------------------------------------------------------------------------------
             Totals                                       $58,155         $140,629       $ (82,474)          58.65%
        =============================================================================================================
(1)      NM - Not meaningful.
</TABLE>

     The following table identifies the percentage composition of the investment
     securities:
<TABLE>
<CAPTION>
        ===============================================================================
                                                                2002          2001
        -------------------------------------------------------------------------------
        <S>                                                        <C>           <C>
        Available for sale at December 31:
          Mortgage-backed and
              collateralized mortgage obligations                47.8%         78.5%
          Federal agencies                                       14.2          20.4
          Mutual fund                                            35.3            --
          Trust preferred                                         2.7           1.1
        -------------------------------------------------------------------------------
            Totals                                                100.0%        100.0%
        ===============================================================================
</TABLE>

The following  table  identifies  changes in net unrealized  gains and losses in
investment securities:
<TABLE>
<CAPTION>
                                                        (Dollars in thousands)
        ==============================================================================================
                                                                2002          2001         $ Change
        ----------------------------------------------------------------------------------------------
        <S>                                                         <C>      <C>              <C>
        Available for sale at December 31:
          Mortgage-backed and
              collateralized mortgage obligations                   $573     $ (1,330)        $ 1,903
          Federal agencies                                           175           130             45
          Mutual fund                                                 61            --             61
          Trust preferred                                             66            40             26
        ----------------------------------------------------------------------------------------------
            Totals                                                  $875      $ (1,160)       $ 2,035
        ==============================================================================================
</TABLE>

See Note 3 to the  "Consolidated  Financial  Statements" for more information on
investment securities.

                                       49
<PAGE>

LOANS
-----

The  following  table  shows  the  percentage  change of the loan  portfolio  by
category (loans in process and deferred fees are not included in this table):
<TABLE>
<CAPTION>
                                                   (Dollars in thousands)
        ===============================================================================
                                                                2002          2001
        -------------------------------------------------------------------------------
        <S>                                                        <C>           <C>
        At year-end December 31:
          Real estate mortgage loans:
            Commercial loans                                      43.6%         73.2%
            Residential loans                                    (25.5)        (28.5)
            Construction loans                                     1.6          (2.9)
          Commercial loans and leases                              3.5         111.5
          Consumer loans:
            Mobile home and auto loans                           (36.7)        (23.2)
            Loans secured by deposits                            (16.2)        (15.6)
            Home improvement loans                               (38.5)         25.6
            Other                                                (84.6)         41.0
        ==============================================================================
</TABLE>

     The portfolio  shift to commercial  real estate loans continued in 2002 and
2001. Fixed-rate residential mortgage loans were sold in the secondary market in
2002 and 2001,  which is the main cause for the decline in residential  mortgage
loans.  Proceeds from loans sold in the secondary markets were $113.0 million in
2002, and $86.8 million in 2001. Fixed mortgage loan rates have been at historic
lows during this two year period which has increased  the volume of  refinances.
The  fixed-rate  residential  loans are sold to minimize the Bank's  exposure to
interest rate risk. Due to the consumer demand for fixed-rate  loans, the Bank's
residential  loan  portfolio  has  declined.  The Bank  generally  retains  loan
servicing  on loans  originated  and sold in  Indiana,  and sells loans and loan
servicing  rights for loans  originated and sold in Ohio.  Loans serviced by the
Bank for  investors,  primarily  the  Federal  Home  Loan  Mortgage  Corporation
("FHLMC")  and  Federal  National   Mortgage   Association   ("FNMA"),   totaled
approximately  $177  million in 2002 and $162  million  in 2001.  Loans sold and
subsequently  serviced by the Bank  generate a steady  source of fee income with
servicing fees ranging from 0.25% to 0.375%.

     In 2001,  the  Bank  purchased  two  separate  pools of lease  receivables,
totaling $12.0.  million,  which is the reason for the  substantial  increase in
commercial  loans and leases in 2001. In 2002 these two pools went into default.
Please see "Credit Quality" for additional information.

     Consumer  loans  made up 4.21% and 8.49% of the total  loan  portfolio  for
year-ends 2002 and 2001  respectively.  Consumer loans declined $17.5 million to
$13.5 million at December 31, 2002 from $31.0 million at

                                       50
<PAGE>

December  31,  2001.  The  decline  was due to  reduced  loan  volume  as market
competitive rates were below minimums established by the Company.

     Total loan production was strong for 2002 and 2001. New loan production was
$217  million and $199  million in 2002 and 2001,  respectively.  Since the Bank
sells most of its fixed-rate  mortgage loans in the secondary  market,  the loan
volume is not fully reflected in the balance sheet.

CREDIT QUALITY
--------------

     Non-performing assets,  totaling $19.0 million, grew substantially in 2002.
This represents an increase of $15.8 million over the 2001 non-performing assets
total of $3.2  million.  The main cause for the increase is related to two lease
pools  totaling $10.9 million and related loans to a  builder/developer  of $3.6
million.

     The two lease  pools are  supported  by a surety  bond issued by one of two
insurance  companies rated at least "A" by Moody's.  The bonds guarantee payment
of all amounts due under the leases in the event of default by the lessee.  When
the lease pools went into default, notice was given to each insurer. One of them
made  payments for a few months under a  reservation  of rights;  the other paid
nothing.  Both insurers  claim they were  defrauded by  Commercial  Money Center
(CMC),   the  company  which  sold  the  lease  pools.   Both  are  now  denying
responsibility for payment.  CMC has also filed for bankruptcy  protection.  The
current unpaid balance for the pools is $10,900,000.  It is highly unlikely that
the litigation  will be resolved during 2003. The Bank believes the surety bonds
are enforceable against the insurers.

     The Bank also has a number of real estate  development/lot loans and single
family residential loans on existing properties with a builder/developer  group,
and its related parties, that are currently in default and bankruptcy.  The Bank
is working closely with the workout  specialist hired by the bankruptcy  trustee
on  liquidation  of  the  properties  involved  in  the  bankruptcy  and  we are
negotiating  with the borrower and their counsel for resolution of the remaining
properties.  The total  outstanding  balance of the various  loans  totaled $3.6
million as of December 31, 2002.

                                       51
<PAGE>

The following table compares delinquent loans as a percentage of total loans:
<TABLE>
<CAPTION>
        =============================================================================================================
        December 31,                                2002                                       2001
        -------------------------------------------------------------------------------------------------------------
                                             90 days      Non-                          90 days      Non-
                                    30-89      and       accrual               30-89     and       accrual
                                     days     over(1)    loans     Totals       days     over(1)    loans      Total
        -------------------------------------------------------------------------------------------------------------
        <S>                           <C>       <C>        <C>      <C>          <C>      <C>        <C>       <C>
        Real Estate:
          Residential                0.59%     0.03%      1.05%    1.83%        0.22%    0.08%      0.23%     0.46%
          Commercial                 0.22      0.01       0.72     0.79           --       --       0.38      0.38
          Construction               0.32        --         --     0.32           --       --         --        --
        Commercial loans             0.14        --       0.51     0.65           --       --         --        --
        Consumer loans               0.17        --       0.08     0.25         0.08     0.04         --      0.15
        Leases                         --        --       3.48     3.48           --       --         --        --
        ------------------------------------------------------------------------------------------------------------
        Totals                       1.44%     0.04%      5.85%    7.32%        0.30%    0.11%      0.61%     0.99%
        =============================================================================================================
<FN>
          __________
          (1)  Still accruing
</FN>
</TABLE>

     The  increase  in 30-89 day  delinquencies  is largely the result of a weak
economy.  The 2002  non-accrual  loans increased  primarily due to the two lease
pools  in  default,  and  builder/developer  loans  related  to  one  party,  as
previously discussed.

     The Bank's  charged-off loans less recoveries were $364,000 and $119,000 in
2002 and 2001 respectively.  The percentage of net charge-offs to average assets
were 0.07% and 0.03% in 2002 and 2001 respectively.

     The Bank made  structural  changes in the  lending  area in 2002.  The Bank
added the new position of  Senior-Vice  President of Credit  Administration  and
also added additional loan staff.

DEPOSITS
--------

     Interest  rates paid on Bank  deposits  were near  historic lows in 2002 as
market  interest  rates  continued to fall. The federal funds interest rate, the
rate banks charge other banks on overnight  loans was at a 41 year low. Fed fund
rates generally  affect the prime lending rate,  which was at a 44-year historic
low.  The  Federal  Reserve has cut the fed funds rate a dozen times since 2001,
with the last rate cut of 0.50% in November 2002. Short term deposits  (deposits
with maturities of one year or less, including certificate  accounts,  checking,
savings  and  money  market  accounts),  comprised  80%  of the  Bank's  deposit
portfolio as of year-end 2002, compared to 76% for the same period in 2001. With
such a high percentage of deposit  accounts staying  short-term,  an increase in
rates in the near  future may  squeeze  the Bank's  net  interest  margin in the
short-term, since loans are slower to re-price at new market rates.

     Deposits  declined  $10.2 million or 2.5% in 2002 for a year-end  portfolio
balance of $402.2  million.  The deposit  portfolio at year-end  2001 was $412.4
million.  The main reason for the decline is public  fund  certificates


                                       52
<PAGE>

(public funds include  deposits from state and local  municipal  agencies),which
had a balance of $12.9  million at December  31,  2001.  The Bank held no public
fund certificates at December 31, 2002. Public fund certificate  balances may be
more  volatile than Bank customer  deposits.  The following  table shows deposit
changes by category:
<TABLE>
<CAPTION>
                                                        (Dollars in thousands)
        =============================================================================================================
                                                         2002           2001           $ Change         % Change
        -------------------------------------------------------------------------------------------------------------
        <S>                                               <C>              <C>             <C>                <C>
        December 31,
          Savings deposits                                $33,990          $32,647         $ 1,343           4.1%
          NOW accounts                                     39,344           40,641          (1,297)         (3.2)
          Money market accounts                            61,127           47,686           13,441         28.2
          Certificates $100,000 and more                   45,510           60,363         (14,853)        (24.6)
          Other certificates                              267,726          231,076          (8,860)         (3.9)
        ------------------------------------------------------------------------------------------------------------
            Totals                                       $402,187         $412,413       $ (10,226)         (2.5)%
        =============================================================================================================
</TABLE>

BORROWINGS
----------

     Borrowings  declined sharply in 2002. FHLB Advances  declined $82.1 million
to $5.6  million at  year-end  2002 from $87.7  million at  year-end  2001.  The
decline was due to de-leveraging strategies implemented by the Bank in September
2002. The borrowings  were paid down from security sales (see  "Securities"  for
more information).

     Notes Payable by the Company declined $90,000 to $840,000 at year-end 2002,
from $930,000 at year-end 2001.  Included in this amount was a note payable to a
third party financial institution with a current balance of $750,000 and bearing
interest  at 4.25% at  December  31,  2002,  the  proceeds of which were used to
finance  stock  repurchases  during 1999.  The remainder of notes payable with a
balance of $90,000 and $180,000 at December 31, 2002 and 2001, respectively, are
6.0% notes payable to former stockholders of Cardinal State Bank.

                                       53
<PAGE>

INTEREST RATE RISK
------------------

     The  Bank  is  subject  to  interest  rate  risk  to the  degree  that  its
interest-bearing  liabilities,  primarily deposits and borrowings from the FHLB,
mature or reprice at different rates than its interest-earning  assets. Although
having liabilities that mature or reprice more frequently on average than assets
may not be beneficial in times of rising interest rates, such an asset/liability
structure could result in higher net income during periods of declining interest
rates, unless offset by other factors.

     The Asset/Liability  Committee and the Board of Directors review the Bank's
exposure to interest  rate  changes and market risk on a quarterly  basis.  This
review is accomplished by the use of a cash flow simulation model using detailed
securities,  loan,  deposit,  borrowings and market information to estimate fair
values of assets and liabilities  using  discounted  cash flows.  The difference
between the Bank's  estimated  fair value of assets and the estimated fair value
of  liabilities,  is the fair value of equity,  also  referred to as net present
value of equity  ("NPV").  The  change  in the NPV is  calculated  at  different
interest  rate  intervals.  This  tests the  interest  rate risk  exposure  from
movements in interest rates to determine the change in the Bank's NPV. The model
also tests the impact  various  interest  rate  scenarios  have on net  interest
income and net income over a stated period of time (one year for example).

     The model uses a number of  assumptions,  including the relative  levels of
market  interest rates and prepayments or extension in maturity and repayment in
loans, MBS & CMO and certain types of callable  investments.  These computations
did not  contemplate  actions  management may undertake to reposition the assets
and liabilities,  and should not be relied upon as indicative of actual results.
In addition,  certain  shortcomings  are inherent in the model of computing NPV.
Should  interest rates remain or decrease below present  levels,  the portion of
adjustable  rate loans could decrease in future periods due to loan  refinancing
or payoff activity. In the event of an interest rate change,  pre-payment levels
would  likely be  different  from those  assumed in the model and the ability of
borrowers  to repay  their  adjustable  rate loans may  decrease  during  rising
interest rate environments.

                                       54
<PAGE>
     The Bank's  information  below provides an assessment of the risk of NPV in
the event of sudden and sustained 200 basis point increases and decreases in the
prevailing interest rates as of December 31, 2002.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                      NPV as Percent of
             Net Portfolio Value                   Present Value of Assets
------------------------------------------------------------------------------------
 Change            Dollar         Dollar       Percent
in Rates           Amount         Change       Change        NPV Ratio      Change
------------------------------------------------------------------------------------
                                 (Dollars in thousands)

<S>               <C>            <C>           <C>             <C>         <C>
 +200  bp *       $36,812        $ (5,999)     (14.01) %       8.61%       (147) bp
Base or 0%         42,811                                     10.08%
-200   bp          39,952          (2,859)      (6.68)         9.65         (43) bp
<FN>
* basis points
</FN>
</TABLE>

     The Bank information below provides an assessment of the risk of NPV in the
event of sudden and  sustained  200 basis point  increases  and decreases in the
prevailing interest rates as of December 31, 2001.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                      NPV as Percent of
             Net Portfolio Value                   Present Value of Assets
------------------------------------------------------------------------------------
 Change            Dollar         Dollar       Percent
in Rates           Amount         Change       Change        NPV Ratio      Change
------------------------------------------------------------------------------------
                                 (Dollars in thousands)

<S>               <C>            <C>           <C>            <C>         <C>
 +200  bp *        $ 6,035        $(31,953)     (84.11)%      1.19%        (570) bp
Base or 0%          37,988                                    6.89
-200   bp           40,989           3,001        7.90        7.23           34  bp
<FN>
* basis points
</FN>
</TABLE>

     The interest  rate risk  position of the Bank for the prior  period  ending
December  31,  2002 was within  the  Bank's  risk  parameters  specified  in its
interest rate risk policy, which was updated in 2002.

     The interest  rate risk  position of the Bank for the prior  period  ending
December  31, 2001 was  reviewed by  management.  Management  determined  that a
significant deterioration had occurred in Company's CMO portfolio which resulted
in a large  increase in the Company's  exposure to future  increases in interest
rate risk. Upon further review,  management  determined that the increase in the
exposure was significant enough to call into question the prudence of continuing
to hold the  securities to maturity.  In order to take the  necessary  action to
reduce this exposure, management decided to move the entire securities portfolio
from the "Held to Maturity"  accounting  classification  to the  "Available  for
Sale" classification as of December 31, 2001.

     In 2002, the Company  determined that most of its investments no longer fit
its risk profile  given the  unsettled,  uncertain  and  volatile  nature of the
market and the possibility that interest rates could move against the portfolio.
The  decelerating  speed of  prepayments on these  instruments  during the first
quarter of 2002 was remarkable,  significantly  extending the practical maturity
of the  portfolio  to a level that  exceeded  the Bank's  risk  parameters.  The
alternatives  to

                                       55
<PAGE>

taking immediate action to mitigate the potential  losses,  including  long-term
funding strategies, hedging strategies and partial liquidations, were felt to be
inadequate in the  circumstances.  The Company decided to liquidate the majority
of the investment portfolio during the first quarter of 2002.

     The proceeds from the liquidation of the Company's  investments  were first
applied towards repayment of short-term borrowings from the FHLB. This increased
the  Company's  flexibility  to  retain  more of its  self-originated  loans  in
portfolio  and to purchase  loan  participations  in the region,  as they became
available.  The balance of the proceeds were used to purchase  short-term liquid
investments,  including  limited  maturity MBS, which present less interest rate
risk than the liquidated  investments,  and an ARM mutual fund. The Company also
used some  proceeds to invest in  intermediate-term  MBS to provide a balance to
its portfolio between interest rate risk reduction and maintenance of higher net
interest income levels.

YIELDS EARNED AND RATES PAID
----------------------------

     The following  tables set forth the weighted  average  yields earned on the
Company's  interest-earning  assets and the weighted average interest rates paid
on the Company's  interest-bearing  liabilities,  together with the net yield on
interest-earning assets.
<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                              -------------------------------
Weighted Average Yield:                                                       2002          2001         2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>          <C>          <C>
     Loans                                                                     7.15%        7.98%        7.99%
     MBS & CMO                                                                 5.64         7.00         6.99
     Other interest-earning assets                                             3.09         6.66         6.86
     All interest-earning assets                                               6.33         7.71         7.73
Weighted Average Cost:
----------------------------------------------------------------------------------------------------------------
     Deposits                                                                  3.71         5.03         5.02
     Federal Home Loan Bank advances                                           6.39         6.50         6.74
     Notes payable                                                             3.69         7.30         8.31
     All interest-bearing liabilities                                          3.97         5.31         5.44
----------------------------------------------------------------------------------------------------------------
Interest Rate Spread (spread between weighted average yield on all
     interest-earning assets and all interest-bearing liabilities)             2.36         2.40         2.29
----------------------------------------------------------------------------------------------------------------
Net Yield (net interest income as a percentage of average
     interest-earning assets)                                                  2.63         2.68         2.61


                                                                                       At December 31,
                                                                              -------------------------------
Weighted Average Interest Rates:                                              2002          2001         2000
----------------------------------------------------------------------------------------------------------------
     Loans                                                                     6.88%        7.74%        8.16%
     MBS & CMO                                                                 6.66         6.35         6.94
     Total interest-earning assets                                             6.07         7.39         7.91
     Deposits                                                                  3.04         4.40         5.25
     Federal Home Loan Bank advances                                           6.83         5.58         6.54
     Notes payable                                                             4.44         6.20         8.67
     Total interest-bearing liabilities                                        3.09         4.62         5.63
     Interest rate spread                                                      2.98         2.77         2.28
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       56
<PAGE>
RATE/VOLUME ANALYSIS
--------------------

     The following  table sets forth certain  information  regarding  changes in
interest income, interest expense and net interest income of the Company for the
periods   indicated.   For  each   category  of   interest-earning   assets  and
interest-bearing  liabilities,  information is provided on changes  attributable
to: (1) changes in volume  (changes in volume  multiplied by old rate),  and (2)
changes in rate (changes in rate multiplied by new volume).  No material amounts
of loan fees or out-of-period  interest is included in the table. Dollars are in
thousands.
<TABLE>
<CAPTION>
                                                                   Year Ended December 31
                                                  2002      vs.      2001         2001     vs.      2000
-------------------------------------------------------------------------------------------------------------
                                                    Increase (Decrease)           Increase (Decrease)
                                                    Due to Changes in             Due to Changes in
-------------------------------------------------------------------------------------------------------------
                                                                     Net                             Net
                                               Volume    Rate      Change      Volume     Rate      Change
-------------------------------------------------------------------------------------------------------------
<S>                                            <C>       <C>       <C>           <C>       <C>      <C>
Interest income:
   Loans                                       $(2,705)  $(2,827)  $(5,532)     $   384    $  (42)  $   342
   Other interest-earning assets                 1,770    (3,435)   (1,665)        (350)     (145)     (495)
-------------------------------------------------------------------------------------------------------------
   Total interest-earning assets                  (935)   (6,262)   (7,197)          34      (187)     (153)
-------------------------------------------------------------------------------------------------------------
Interest Expense:
   Deposits                                      2,272    (6,223)   (3,951)       1,280        46     1,326
   FHLB advances and notes payable              (2,671)      (80)   (2,751)      (1,595)     (216)   (1,811)
-------------------------------------------------------------------------------------------------------------
   Total interest-bearing liabilities             (399)   (6,303)   (6,702)        (315)     (170)     (485)
-------------------------------------------------------------------------------------------------------------
   Change in net interest income               $  (536)  $    41   $  (495)     $   349    $  (17)  $   332
=============================================================================================================
</TABLE>

                                       57
<PAGE>


RESULTS OF OPERATIONS

PART 1   2002 COMPARED TO 2001
------------------------------
NET  INCOME (LOSS)
------------------

     Ameriana  Bancorp had a net loss of $3.1 million for the year-end 2002, due
primarily to security losses and large loan provision expenses.

     The Bank's  interest  rate risk  position  for year-end  2001  exceeded the
Bank's risk  parameters  primarily due to volatile CMOs. In March 2002, the Bank
disposed  of $137  million in  securities  at a pretax  loss of $3.2  million or
approximately  $1.9 million after tax. The Bank has since revised its investment
policy and created an investment  committee that approves all investments.  (See
"Securities" for further information.)

     The total provision for loans and lease losses  increased  substantially in
2002.  Provision expense increased $6.9 million for a total provision expense of
$7.3 million in 2002. This increase was necessary to establish specific reserves
for the additional  non-accrual loans, which increased by $16.1 million in 2002,
for a year-end  total of $18.3  million.  In 2002,  the Bank set aside  specific
reserves  in the amount of $5.5  million  for two lease  pools with a  principal
balance of $10.9 million at December 31, 2002, in addition to specific  reserves
of  $795,000  for  business/development  loans and its  related  parties  with a
principal  balance of $3.6 million at December 31, 2002. These specific reserves
account for $6.2 million of the $6.9 million  increase in the provision for loan
and lease losses.  The Bank also increased its general  reserves due to the weak
economy, and to reflect the Bank's current risk in the loan portfolio due to the
change in the portfolio mix.

     For a quarterly  breakdown  of earnings,  see Note 18 to the  "Consolidated
Financial Statements".

 The table below shows selected performance data:
<TABLE>
<CAPTION>
========================================================================================================================
                                                    2002           2001          2000           1999          1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>            <C>           <C>            <C>
Net income (loss) (in thousands)                     $(3,075)        $3,800         $3,562        $3,332         $3,838
Basic earnings (loss) per share (1)                  $ (0.98)        $ 1.21         $ 1.13        $ 0.98         $ 1.08
Diluted earning (loss) per share (1)                 $ (0.98)        $ 1.21         $ 1.13        $ 0.98         $ 1.06
Dividends declared per share (1)                      $ 0.64         $ 0.61         $ 0.60        $ 0.60         $ 0.59
Book value per share (1)                             $ 12.40         $13.63         $13.26        $12.72         $12.92
Return on average assets                              (0.60)%         0.72%          0.68%         0.77%          0.98%
Return on average equity                              (7.32)%         8.92%          8.68%         7.60%          8.48%
Ratio of average equity to average assets              8.18%          8.12%          7.84%        10.17%         11.60%
Dividend Payout Ratio(2)                                NM           50.41%         53.00%        61.22%         55.66%
Number of full-service bank offices                     11            11             11            12             11
========================================================================================================================
<FN>
(1)  Restated to reflect the eleven-for-ten stock split in 1998.
(2)  Based on total  dividends  per share  declared and net income per share for
     the year. NM - not meaningful.
</FN>
</TABLE>

                                       58
<PAGE>

NET INTEREST INCOME
-------------------

     The Company  derives the majority of its income from net  interest  income.
The following  table shows a breakdown of net interest  income for 2002 compared
to 2001.
<TABLE>
<CAPTION>

                                                        (Dollars in thousands)
====================================================================================================================
Years ended December 31,                             2002                           2001
---------------------------------------------------------------------------------------------------
                                             Interest       Yield          Interest       Yield           Change
-------------------------------------------------------------------------------------- -----------------------------
<S>                                             <C>            <C>            <C>            <C>          <C>
Interest and fees on loans                      $24,473       7.15%           $30,005       7.98%         $ (5,532)
Other interest income                             5,500       4.19              7,165       6.76            (1,665)
-------------------------------------------------------------------------------------- -----------------------------
   Total interest income                         29,973       6.33             37,170       7.71            (7,197)
-------------------------------------------------------------------------------------- -----------------------------
Interest on deposits                             14,712       3.71             18,663       5.03            (3,951)
Interest on borrowings                            2,829       6.33              5,580       6.52            (2,751)
-------------------------------------------------------------------------------------- -----------------------------
   Total interest expense                        17,541       3.97             24,243       5.31            (6,702)
-------------------------------------------------------------------------------------- -----------------------------
Net interest income                             $12,432         --            $12,927         --             $(495)
====================================================================================================================
Net interest spread                                  --       2.36%                --       2.40%               --
Net interest margin                                  --       2.63%                --       2.68%               --
====================================================================================================================
</TABLE>

     Net interest income declined 3.8% or $495,000 in 2002. Most of the decrease
was  volume-related.  See "Rate/Volume  Analysis" for more information.  The net
interest  spread,  which is the  mathematical  difference  between  the yield on
average  interest-earning assets and cost of interest-bearing  liabilities,  was
2.36% in 2002 and 2.40% in 2001.  The net  interest  margin on  interest-earning
assets, which is interest income as percent of average earning assets, was 2.63%
in 2002 and 2.68% in 2001.

     The Bank  de-leveraged  the balance  sheet in September  2002 by paying off
higher costing FHLB advances with lower yielding investments.  Several high cost
certificates  originated  before 2002 re-priced at the current market.  Yield on
securities  declined when most of the security  portfolio was sold in March 2002
due to the high level of  interest  rate risk and was  subsequently  replaced in
second quarter 2002 with lower yielding  securities  that posed a  comparatively
lower level of interest rate risk. As a result, the net interest margin improved
0.42% to 3.04% for the fourth  quarter 2002,  from 2.62% for the fourth  quarter
2001.

PROVISION FOR LOAN LOSSES
-------------------------

     The Company  significantly  increased  the  provision for loan losses for a
total provision expense of $7.3 million for 2002,  compared to $360,000 in 2001.
The  provision is the amount that is added to the  allowance  for loan losses to
absorb inherent losses in the loan portfolio. Net loan charge-offs were $364,000
and $119,000 for the years 2002 and 2001,  respectively.  The allowance for loan
losses  as a  percent  of loans  was  2.77% at  December  31,  2002 and 0.49% at
December 31, 2001,  and  represents  management's  best estimate of the inherent
losses in the loan  portfolio.  The provision  increase in 2002 was necessary to
increase  the  allowance  for loan and  lease  losses to a  sufficient  level of
specific  and  general  reserves.   Non-performing   loans,  which  consists  of
non-accrual loans, and loans delinquent over 90 days, substantially increased by


                                       59
<PAGE>

$15.8 million during 2002.  Non performing  loans were $18.4 million at December
31, 2002 and $2.6 million at December 31, 2001.  The increase in  non-performing
loans is mainly due to a few large loans.  Please see "Credit  Quality" for more
information.

     The following table breaks out non-performing loans by category.
<TABLE>
<CAPTION>
                                                        (Dollars in thousands)
        =============================================================================================================
                                                         2002           2001           $ Change         % Change
        -------------------------------------------------------------------------------------------- ----------------
        <S>                                               <C>               <C>            <C>                <C>
        December 31,
        Non-accrual loans                                 $18,307           $2,178         $16,129            740.5%
        Over 90 days delinquent still accruing                135              395            (260)         (65.8)
        -------------------------------------------------------------------------------------------------------------
        Totals                                            $18,442           $2,573         $15,869            616.8%
        =============================================================================================================
</TABLE>

     The Company  believes it has  established  an adequate  allowance  for loan
losses  in  accordance  with  generally  accepted  accounting  principles.   The
variation in the amount of provision  charged against income is directly related
to  changes  in loan  charge-offs,  non-performing  loans,  loan  delinquencies,
economic  conditions in the Company's lending area and loan portfolio mix during
each year.

NON-INTEREST INCOME
-------------------

     Non-interest  income was $2.7 million in 2002 and $3.9 million in 2001, for
an overall decrease of 29.01%.  The main cause of the decline was due to the net
losses on  securities  sold in 2002 of $2.0 million (See  "Securities"  for more
information  on  securities  sold  in  2002).  Excluding  the  security  losses,
non-interest  income  would have  improved  23.49%.  Gains on sales of loans and
servicing rights improved to $1.4 million for 2002 from $804,000 for 2001, or an
increase of 77.00%.  Interest rates have steadily  declined since 2001 which has
created a higher demand from consumers for fixed-rate  mortgage loans.  Proceeds
from loans sold in the  secondary  market were $113.0  million in 2002 and $86.8
million in 2001. Other fees and service charges improved 4.07%,  while brokerage
and insurance  commissions were up 1.01%. The Bank invested in life insurance on
employees and directors, with a balance or cash surrender value of $18.9 million
and $18.0 million  respectively  at December 31, 2002 and 2001.  The majority of
these policies were purchased in 1999, The nontaxable increase in cash surrender
value of life insurance was $897,000 in 2002 and $945,000 in 2001. Overall,  the
increase  in cash value of life  insurance  declined  5.08% in 2002  compared to
2001.  Operating losses  associated with the limited  partnership  amounted to a
gain of $92,000 in 2002 and a loss of $172,000 in 2001 and are included in other
income.  The Company  incurred  an  allocated  gain of  $191,000  and tax credit
recapture  of  $33,000  due  to  the  termination  of  ownership  in  one of the
properties in 2002.  The Company also  reflected  federal  income tax credits of
$159,000  (after tax credit  recapture) and $210,000 for the year ended December
31, 2002 and December 31 2001.


                                       60
<PAGE>

NON-INTEREST EXPENSE
--------------------

     Non-interest  expense was $13.5 million 2002 and $11.2 million in 2001, for
an overall increase of 20.66%.  The main cause of the increase was the penalties
paid on early payoff of FHLB advances in 2002 of $1.1 million (See  "Securities"
for more  information  on FHLB advance  payoffs in 2002).  Excluding the advance
early payoff penalties,  non-interest  expense would have increased 11.10%.  The
largest  component of  non-interest  expense is salaries  and employee  benefits
which make up 56.44% of total non-interest expenses.

     Salaries and employee benefits  increased $879,000 to $7.6 million in 2002,
compared  to $6.7  million in 2001.  In 2002,  the Bank paid a former  executive
officer  severance  pay for a  non-recurring  expense  of  $289,000.  The Bank's
employee  retirement  plan expense  increased to $215,000 in 2002 from $5,000 in
2001. The  retirement  expense  incurred in 2001 was for general  administrative
expenses of the retirement fund. In 2001, the market  generally  provided enough
earnings to cover increases  required in the employee  retirement fund. With the
decline of the market, the Bank's retirement expense in 2002 rose substantially.
Other insurance  benefits,  comprised mainly of medical insurance,  increased to
$1.0 million in 2002 from $748,000 in 2001, for an overall increase in insurance
benefits expense of $280,000.  There were eleven new positions added during 2002
in several areas of the Bank. Please see Note 11 to the "Consolidated  Financial
Statements" for more information regarding benefits.

     Net occupancy and furniture and equipment expense was $1.7 million in 2002,
compared to $1.4 million in 2001, for an overall expense increase of $271,000 or
19.62%  in  2001.  The  increase  was  mainly  due  to  building  and  equipment
maintenance expense, utilities,  equipment rental, and depreciation expense that
increased $74,000,  $17,000,  $22,000,  $14,000  respectively in 2002 from 2001.
Data processing, printing and supplies, and all other expenses increased $79,000
or 0.03% in 2002 from 2001.

INCOME TAX EXPENSE
------------------

     Income taxes was a credit of $2.5 million in 2002 compared to an expense of
$1.5million in 2001. The effective tax rate in was (45.0)% in 2002, and 27.8% in
2001. The 2002 income taxes was comprised of $796,000  expense for current taxes
and $3.3 million credit for deferred taxes.  The 2001 income taxes was comprised
of $1.7 million  expense for current  taxes,  and  $229,000  credit for deferred
taxes.  The deferred  tax credits in 2002 were mainly due to the loan  provision
expense in 2002.  For both 2002 and 2001,  the  primary  difference  between the
effective  tax rates and the  statutory tax rates relate to

                                       61
<PAGE>

tax credits and cash value of life  insurance.  See Note 10 to the  Consolidated
Financial Statements for more detail information.

PART 2   2001 COMPARED TO 2000
------------------------------
NET INCOME
----------

     The Company's net income increased $238,000 or 6.68% to $3.8 million ($1.21
basis and diluted  earnings  per share) for the year ended  December  31,  2001,
compared to $3.6 million  ($1.13  basis and diluted  earnings per share) for the
year ended December 31, 2000. The  improvement in year 2001 income was primarily
due to increases in net interest  income and other income due mostly to gains on
loans sold.

NET INTEREST INCOME
-------------------

     Net interest income  increased by $332,000 in 2001 compared to 2000 and was
due to a greater  decrease in interest  costs of $485,000 or 1.96% compared to a
decrease in interest income of $153,000 or 0.41%. The  average-interest  earning
assets  decreased  only 0.14% to $482.1  million in 2001 from $482.8  million in
2000 and the interest-bearing liabilities increased only 0.45% to $456.7 million
in 2001 from $454.6 million in 2000. The total interest rate on average  earning
assets  decreased  2 basis  points  to 7.71%  in 2001  from  7.73% in 2000.  The
decrease in interest expense was due to increased volume and a small increase in
costs of  deposits  while  correspondingly  reducing  FHLB  advances  and  notes
payable.  The  total  interest  rate  on  average  interest-bearing  liabilities
decreased 13 basis  points to 5.31% in 2001 from 5.44% in 2000.  The decrease in
interest income was due to the increase in loans and MBS & CMO at lower interest
rates  offset  by calls on  agency  investment  securities.  The  Company's  net
interest  spread  increased 11 basis points to 2.40% in 2001 from 2.29% in 2000.

PROVISION FOR LOAN LOSSES
-------------------------

     The  provision  for loan losses was  $360,000 in 2001 and $417,000 in 2000.
The  provision is the amount that is added to the  allowance  for loan losses to
absorb  inherent  losses in the  portfolio.  The  allowance for loan losses as a
percent of loans was 0.49% at December  31, 2001 and 0.37% at December 31, 2000,
and  represents  management's  best  estimate  of  losses  inherent  in the loan
portfolio.  Net loan  charge-offs  were $119,000 and $462,000 for the years 2001
and 2000 respectively. Non-performing loans, which consists of non-accrual loans
and  loans  delinquent  over 90 days,  were $2.6  million  and $1.5  million  at
December  31,  2001  and  2000,  respectively.  The 2001  non-performing  losses
included  $1.3 million for a loan on an apartment  complex that had an appraisal
for 130% of its carrying value.

                                       62
<PAGE>

     The following table breaks out non-performing loans by category.
<TABLE>
<CAPTION>
                                                        (Dollars in thousands)
        =============================================================================================================
                                                         2001           2000           $ Change         % Change
        -------------------------------------------------------------------------------------------------------------
        <S>                                                <C>                <C>          <C>             <C>
        December 31,
        Non-accrual loans                                  $2,178             $801         $ 1,377          171.9%
        Over 90 days delinquent still accruing                395              747            (352)         (47.1)
        -------------------------------------------------------------------------------------------------------------
        Totals                                             $2,573           $1,548         $ 1,025           66.2%
        =============================================================================================================
</TABLE>

     The Company  believes it has  established  an adequate  allowance  for loan
losses  in  accordance  with  generally  accepted  accounting  principles.   The
variation in the amount of provision  charged against income is directly related
to  changes  in loan  charge-offs,  non-performing  loans,  loan  delinquencies,
economic  conditions in the Company's  lending area and loan growth or reduction
during each year.

NON-INTEREST INCOME

     Non-interest  income was $3.9  million and $3.4  million for 2001 and 2000,
respectively.  The 2001 gains on sales of loans and servicing rights of $804,000
were  significantly  higher than $103,000 in 2000.  These changes  reflected the
change in demand for fixed-rate  real estate loans.  In 2001 rates decreased all
year and the consumer wanted the fixed-rate  residential mortgage loan which the
Bank sold to the  secondary  market.  The  average  mortgage  rates in 2000 were
higher and the consumer  preferred the variable-rate  residential  mortgage loan
which are normally retained in portfolio. Included in other income are operating
losses associated with a limited  partnership which amounted to $172,000 in 2001
and $101,000 in 2000. At the same time as these losses  reflected as a reduction
in other  income,  the  Company  also  reflected  federal  income tax credits of
$210,000  and  $213,000  for the year ended  December  31, 2001 and December 31,
2000. Brokerage and insurance  commissions decreased slightly in both years with
$995,000 in 2001 and $1.1 million in 2000. The recession had a direct  influence
on this income  during 2001 and the latter  part of 2000.  The Bank  invested in
life  insurance on employees  and  directors,  with a balance or cash  surrender
value of $18.0  million  and  $17.1  million  at  December  31,  2001 and  2000,
respectively.  The  majority of the policies  were  purchased  during 1999.  The
nontaxable  increase in cash  surrender  value of life insurance was $945,000 in
2001 and $972,000 in 2000.  The 2000 income  included a one-time  adjustment  of
$197,000 related to the value of insurance policies on two retired employees.

OTHER EXPENSE

     Operating  expenses were $11.2 million and $10.8 million for 2001 and 2000,
respectively. These yearly increases were due to normal increases as well as the
additional  expense of  operating a new trust  department  and  commercial  loan
department.  Improvements  made in data  processing  and the initial  expense of
implementing  check imaging were incurred in

                                       63
<PAGE>

2000.  Data  processing  expense and other expenses in 2000 included  additional
costs related to the merger of the two Banks during that year.

INCOME TAX EXPENSE
------------------

     Income tax expense was $1.5 million in 2001 and $1.2  million in 2000.  The
effective tax rate was 27.8% in 2001 and 24.6% in 2000.  For both 2001 and 2000,
the primary  differences  between the  effective  tax rate and the statutory tax
rate relate to tax credits and cash surrender value of life insurance.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     Historically,  funds provided by operations,  loan principal repayments and
new deposits  have been the  Company's  principal  sources of liquid  funds.  In
addition,  the Company has the ability to obtain  funds  through the sale of new
mortgage  loans and through  borrowings  from the FHLB  system.  At December 31,
2002, the Company's  commitments  for loans in process  totaled $8.4 million and
conditional  commitments for lines of credit receivable totaled $22.2 million. .
Management believes that the Company's liquidity and other sources of funds will
be  sufficient  to fund all  outstanding  commitments  and other cash  needs.  A
portion of these  commitments is for fixed-rate  mortgage  loans,  which will be
sold immediately into the secondary market.

     An amendment of the 1996 Stock Option Plan, which provides for the granting
of incentive and non-qualified  stock options,  was approved by the shareholders
in April 1998 and extended the plan's term to ten years and increased the number
of shares reserved under the plan from 176,000 to 352,000 shares. No options for
exercise  of shares  were done in 2001.  Options  for 9,713  shares in 2002 were
exercised. See Notes 1 and 11 to the "Consolidated Financial Statements" for the
pro forma effect on net income and option activity.

IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------

     The  consolidated  financial  statements and related data presented in this
report have been  prepared in  accordance  with  generally  accepted  accounting
principles.  This requires the  measurement of financial  position and operating
results in terms of historical  dollars without  consideration of changes in the
relative purchasing power of money over time due to inflation.

     Virtually all of the assets and liabilities of a financial  institution are
monetary in nature. As a result,  interest rates have a more significant  impact
on a financial  institution's  performance than the effects of general levels of
inflation.  Interest rates do not  necessarily  move in the same direction or at
the same rate as changes in the prices of goods and services, which

                                       64
<PAGE>

are directly  affected by inflation,  although  interest  rates may fluctuate in
response to perceived changes in the rate of inflation.

CURRENT ACCOUNTING ISSUES
-------------------------

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS')
No.  142,  Goodwill  and Other  Intangible  Assets,  on January  1,  2002.  This
Statement  establishes  new  accounting  and  reporting  standards  for acquired
goodwill and other  intangible  assets.  The Statement  addresses how intangible
assets that are acquired  individually  or with a group of other assets (but not
those acquired in a business  combination)  should be accounted for in financial
statements  upon their  acquisition.  It also  addresses  how goodwill and other
intangible assets (including those acquired in a business combination) should be
accounted  for after  they  have  been  initially  recognized  in the  financial
statements.  SFAS No. 142 was  effective  for the Company  beginning  January 1,
2002.  Upon adoption of SFAS No. 142, the Company no longer  amortizes  goodwill
but makes an annual  assessment  of  impairment  loss.  At December 31, 2002, no
impairment loss was identified.

     The Company  recently  adopted SFAS No. 147,  which amends SFAS No. No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions,  and FASB
Interpretation  No. 9,  Applying  APB  Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business  Combination
Accounted for by the Purchase Method.  SFAS No. 72 and FASB Interpretation No. 9
provided  interpretive  guidance on the  application  of the purchase  method to
acquisitions of financial  institutions.  Except for transactions between two or
more  mutual  enterprises,  SFAS  No.  147  removes  acquisitions  of  financial
institutions  from the scope of both SFAS No.  72 and  Interpretation  No. 9 and
requires that those  transactions  be accounted by in  accordance  with SFAS No.
141,  Business  Combinations,   and  No.  142,  Goodwill  and  Other  Intangible
Assets.147.  In addition,  SFAS No. 147 amends SFAS No. 144,  Accounting for the
Impairment or Disposal of Long-Lived  Assets,  to include in its scope long-term
customer-relationship  intangible  assets  of  financial  institutions  such  as
depositor- and  borrower-relationship  intangible  assets and credit  cardholder
intangible assets.  Those intangible assets are subject to the same undiscounted
cash flow  recoverability  test and impairment loss  recognition and measurement
provisions that SFAS No. 144 requires for other long-lived  assets that are held
and used.

     The  effective  date of SFAS No.  147 was  October 1,  2002,  with  earlier
application relating to previously recognized  unidentifiable  intangible assets
permitted and did not have a significant impact on the Company upon adoption.

                                       65
<PAGE>

     The Company  recently  adopted  Accounting for Stock-Based  Compensation --
Transition  and  Disclosure.  SFAS No. 148, which amends FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation.  SFAS No. 148  provides  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for  stock-based  employee  compensation.  In addition,  SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more  frequent   disclosures  in  financial  statements  about  the  effects  of
stock-based compensation.

     Under the provisions of SFAS No. 123, companies that adopted the fair value
based  method were  required to apply that  method  prospectively  for new stock
option  awards.   This   contributed  to  a  "ramp-up"   effect  on  stock-based
compensation  expense in the first few years  following  adoption,  which caused
concern  for  companies  and  investors  because of the lack of  consistency  in
reported results. To address that concern,  SFAS No. 148 provides two additional
methods of transition  that reflect an entity's full  complement of  stock-based
compensation expense immediately upon adoption,  thereby eliminating the ramp-up
effect.

     SFAS No. 148 also improves the clarity and prominence of disclosures  about
the  pro-forma  effects of using the fair value based method of  accounting  for
stock-based  compensation  for all  companies --  regardless  of the  accounting
method used -- by requiring that the data be presented more prominently and in a
more  user-friendly  format in the  footnotes to the  financial  statements.  In
addition, SFAS No. 148 improves the timeliness of those disclosures by requiring
that this  information  be  included  in  interim  as well as  annual  financial
statements.  In the past, companies were required to make pro-forma  disclosures
only in annual financial statements.

     The transition  guidance and annual  disclosure  provisions of SFAS No. 148
are  effective  for fiscal years ending  after  December 15, 2002,  with earlier
application   permitted  in  certain   circumstances.   The  interim  disclosure
provisions are effective for financial reports containing  financial  statements
for interim  periods  beginning  after  December 15, 2002.  The adoption of this
statement did not have a material effect on the Company's  financial position or
results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
-------------------------------------------------------------------

     Reference is made to the discussion  captioned "Interest Rate Risk" in Item
7 of this Annual Report.

                                       66
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of Independent Auditors                                               68

Consolidated Balance Sheets at December 31, 2002 and 2001                    69

Consolidated Statements of Income for Each of the Three Years in the
     Period Ended December 31, 2002                                          70

Consolidated Statements of Shareholders' Equity for Each of the Three
     Years in the Period Ended December 31, 2002                             71

Consolidated Statements of Cash Flows for Each of the Three Years
     in the Period Ended December 31, 2002                                   72

Notes to Consolidated Financial Statements                                   73


                                       67
<PAGE>

                         Independent Accountants' Report


To the Shareholders and
Board of Directors
Ameriana Bancorp
New Castle, Indiana


We have audited the accompanying consolidated balance sheets of Ameriana Bancorp
as of December 31, 2002 and 2001,  and the related  consolidated  statements  of
operations,  shareholders'  equity and cash flows for each of the three years in
the period ended December 31, 2002. These consolidated  financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the consolidated  financial  statements described above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Ameriana  Bancorp  as of  December  31,  2002 and 2001,  and the  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United States of America.

As more fully  discussed in Note 7, the Company changed its method of accounting
for goodwill in 2002.

/s/ BKD, LLP


Indianapolis, Indiana
February 3, 2003

                                       68
<PAGE>

                                Ameriana Bancorp
                           Consolidated Balance Sheets
                        (in thousands, except share data)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                 December 31
----------------------------------------------------------------------------------------------------------------------------
                                                                                             2002                 2001
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                  <C>
ASSETS
   Cash on hand and in other institutions                                                $   7,481            $   7,518
   Interest-bearing demand deposits                                                         38,215                4,283
----------------------------------------------------------------------------------------------------------------------------
         Cash and cash equivalents                                                          45,696               11,801
   Investment securities available for sale                                                 58,155              140,629
   Loans, net of allowance for loan losses of $8,666 and $1,730                            304,586              350,383
   Premises and equipment                                                                    7,901                6,919
   Stock in Federal Home Loan Bank                                                           6,759                7,365
   Goodwill                                                                                  1,291                1,291
   Cash value of life insurance                                                             18,932               18,035
   Other assets                                                                             13,487               15,651
----------------------------------------------------------------------------------------------------------------------------
         Total assets                                                                     $456,807             $552,074
============================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
   Liabilities
     Deposits
       Noninterest-bearing                                                               $  19,124            $  24,257
       Interest-bearing                                                                    383,063              388,156
----------------------------------------------------------------------------------------------------------------------------
         Total deposits                                                                    402,187              412,413
     Borrowings                                                                              6,432               88,583
     Drafts payable                                                                          5,099                6,152
     Other liabilities                                                                       4,049                2,031
-----------------------------------------------------------------------------------------------------------------------------
         Total liabilities                                                                 417,767              509,179
----------------------------------------------------------------------------------------------------------------------------
   Commitments and contingencies
   Shareholders' equity
     Preferred stock  - 5,000,000 shares authorized and unissued
     Common stock, $1.00 par value
         Authorized 15,000,000 shares
         Issued and outstanding - 3,147,463 and 3,146,616 shares                             3,147                3,147
     Additional paid-in capital                                                                499                  499
     Retained earnings                                                                      34,856               39,945
     Accumulated other comprehensive income (loss)                                             538                 (696)
-----------------------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                                         39,040               42,895
-----------------------------------------------------------------------------------------------------------------------------
         Total liabilities and shareholders' equity                                       $456,807             $552,074
=============================================================================================================================
</TABLE>

See notes to consolidated financial statements.

                                       69
<PAGE>
                                Ameriana Bancorp
                      Consolidated Statements of Operations
                        (in thousands, except share data)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                   Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------
                                                                         2002               2001               2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>                <C>
INTEREST INCOME
   Interest and fees on loans                                            $24,473             $30,005            $29,663
   Interest on mortgage-backed securities                                  3,196               2,225                910
   Interest on investment securities                                       1,320               4,067              6,055
   Other interest and dividend income                                        984                 873                695
-----------------------------------------------------------------------------------------------------------------------------
         Total interest income                                            29,973              37,170             37,323
----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
   Interest on deposits                                                   14,712              18,663             17,337
   Interest on borrowings                                                  2,829               5,580              7,391
-----------------------------------------------------------------------------------------------------------------------------
         Total interest expense                                           17,541              24,243             24,728
----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME                                                       12,432              12,927             12,595
   Provision for loan losses                                               7,300                 360                417
-----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                        5,132              12,567             12,178
----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
   Other fees and service charges                                          1,073               1,031                939
   Brokerage and insurance commissions                                     1,005                 995              1,056
   Net realized losses on sales of available-for-sale securities          (2,025)                 --                 --
   Gains on sales of loans and servicing rights                            1,423                 804                103
   Increase in cash value of life insurance                                  897                 945                972
   Other                                                                     365                  82                298
-----------------------------------------------------------------------------------------------------------------------------
         Total other income                                                2,738               3,857              3,368
----------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE
   Salaries and employee benefits                                          7,599               6,720              6,383
   Net occupancy expense                                                     963                 802                860
   Furniture and equipment expense                                           689                 579                607
   Data processing expense                                                   374                 313                308
   Printing and office supplies                                              309                 330                290
   Penalty on early payoff of FHLB advances                                1,076                  --                 --
   Other                                                                   2,454               2,415              2,372
-----------------------------------------------------------------------------------------------------------------------------
         Total other expense                                              13,464              11,159             10,820
----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES                                         (5,594)              5,265              4,726
   Income taxes                                                           (2,519)              1,465              1,164
----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                       $ (3,075)           $  3,800           $  3,562
============================================================================================================================
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                                $(.98)              $1.21              $1.13
============================================================================================================================
</TABLE>
See notes to consolidated financial statements.

                                       70
<PAGE>
                                Ameriana Bancorp
                 Consolidated Statements of Shareholders' Equity
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                                           Accumulated
                                                                                              Other
                                                           Additional                     Comprehensive
                                             Common         Paid-in         Retained         Income
                                             Stock          Capital         Earnings         (Loss)            Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>           <C>                              <C>
Balance at January 1, 2000                     $3,146            $492          $36,391                          $40,029
Net income                                         --              --            3,562                            3,562
Dividends declared ($.60 per share)                --              --           (1,888)                          (1,888)
Exercise of stock options                           1               7               --                                8
-----------------------------------------------------------------------------------------                ------------------
Balance at December 31, 2000                    3,147             499           38,065                           41,711
Net income                                         --              --            3,800                            3,800
Change in unrealized depreciation on
   available-for-sale securities, net
   of income tax benefit of $464                   --              --              --            $(696)            (696)
                                                                                                         ------------------
    Comprehensive income                                                                                          3,104
Dividends declared ($.61 per share)                --              --           (1,920)            --            (1,920)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                    3,147             499           39,945            (696)          42,895
Net loss                                           --              --           (3,075)            --            (3,075)
Change in unrealized depreciation on
   available-for-sale securities, net
   of income tax expense of $801                   --              --              --            1,234            1,234
                                                                                                         ------------------
    Comprehensive loss                                                                                           (1,841)
Exercise of stock options                           9             128               --             --               137
Purchase of common stock                           (9)           (128)              --             --              (137)
Dividends declared ($.64 per share)                --              --           (2,014)            --            (2,014)
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002                   $3,147            $499          $34,856            $538          $39,040
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.

                                       71
<PAGE>
                                Ameriana Bancorp
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                         Year Ended December 31
------------------------------------------------------------------------------------------------------------------------------
                                                                                2002             2001             2000
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>              <C>
OPERATING ACTIVITIES
------------------------------------------------------------------------------------------------------------------------------
   Net income                                                                 $  (3,075)       $ 3,800          $  3,562
   Items not requiring (providing) cash
     Provision for losses on loans                                                7,300            360               417
     Depreciation and amortization                                                  967            804               677
     Increase in cash surrender value                                              (897)          (945)             (972)
     Mortgage loans originated for sale                                        (110,756)       (91,515)           (9,238)
     Proceeds from sale of mortgage loans                                       113,047         86,814             9,298
     Gains on sale of loans and servicing rights                                 (1,423)          (804)             (103)
     Loss on sale of investments                                                  2,025             --                --
     Increase (decrease) in drafts payable                                       (1,053)         3,053              (862)
     Other adjustments                                                            2,898         (2,297)             (362)
------------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in)  operating activities                     9,033           (730)            2,417
------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
------------------------------------------------------------------------------------------------------------------------------
   Net change in interest-bearing time deposits                                      --             --             1,499
   Purchase of investment securities held to maturity                                --       (131,430)             (606)
   Proceeds from maturities/calls of securities held to maturity                     --         77,805                --
   Principal collected on mortgage-backed securities held to maturity                --         11,445             3,720
   Purchase of investment securities available for sale                        (131,339)            --                --
   Proceeds from sale of investment securities available for sale               179,218             --                --
   Proceeds from maturities/calls of securities available for sale                6,207             --                --
   Principal collected on mortgage-backed securities available for sale          28,038             --                --
   Net change in loans                                                           37,856         45,711           (72,769)
   Net purchases of premises and equipment                                       (1,589)          (425)             (636)
   Purchase of Federal Home Loan Bank stock                                         (69)          (100)           (2,924)
   Proceeds from sale of Federal Home Loan Bank stock                               675
   Other investing activities                                                       256            153            (1,509)
-------------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) investing activities                    119,253          3,159           (73,225)
-------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
------------------------------------------------------------------------------------------------------------------------------
   Net change in demand and passbook deposits                                    13,487         10,309             1,722
   Net change in certificates of deposit                                        (23,713)        34,509            11,764
   Proceeds from borrowings                                                      55,500         93,500           329,600
   Repayment of borrowings                                                     (137,651)      (146,089)         (271,300)
   Purchase of common stock                                                        (137)            --                --
   Exercise of stock options                                                        137             --                 8
   Cash dividends paid                                                           (2,014)        (1,888)           (1,888)
------------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) financing activities                    (94,391)        (9,659)           69,906
------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS                                              33,895         (7,230)             (902)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                   11,801         19,031            19,933
-------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $45,696        $11,801           $19,031
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements.

                                       72
<PAGE>
                                Ameriana Bancorp
                   Notes to Consolidated Financial Statements
             (table dollar amounts in thousands, except share data)


1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:  The consolidated  financial statements include the
accounts of Ameriana  Bancorp (the "Company") and its  wholly-owned  subsidiary,
Ameriana  Bank and  Trust,  SB  ("ABT"),  and ABT's  wholly-owned  subsidiaries,
Ameriana Financial Services,  Inc., Indiana Title Insurance Company ("ITIC") and
Ameriana Insurance Agency,  Inc. ITIC ceased operations at the close of business
on December 31, 2000. All  significant  intercompany  accounts and  transactions
have been eliminated.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

The  Company  is a  thrift  holding  company  whose  principal  activity  is the
ownership  and  management  of ABT and its  subsidiaries.  The Company  provides
various banking services and engages in loan servicing  activities for investors
and operates in a single  significant  business  segment.  ABT is subject to the
regulation of the Indiana  Department of Financial  Institutions and the Federal
Deposit  Insurance  Corporation.  The Company's gross revenues are substantially
earned from the various banking services provided by ABT. The Company also earns
brokerage  and  insurance  commissions  from the services  provided by the other
subsidiaries.

ABT generates loans and receives  deposits from customers  located  primarily in
east central  Indiana and  southwestern  Ohio.  Loans are  generally  secured by
specific items of collateral  including real property and consumer  assets.  The
Company has sold  various  loans to  investors  while  retaining  the  servicing
rights.

CASH AND CASH EQUIVALENTS  consist of cash on hand and in other institutions and
interest-bearing demand deposits.

INVESTMENT  SECURITIES:  Debt securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities  not  classified as held to maturity are  classified as available for
sale.  Securities  available for sale are carried at fair value with  unrealized
gains and losses reported separately in accumulated other comprehensive  income,
net of tax.

Amortization  of premiums  and  accretion of  discounts  are recorded  using the
interest  method as interest income from  securities.  Realized gains and losses
are  recorded  as net  security  gains  (losses).  Gains and  losses on sales of
securities are determined on the specific-identification method.

STOCK IN  FEDERAL  HOME LOAN BANK  ("FHLB")  is stated at cost and the amount of
stock the Company is required to own is determined by regulation.

LOANS are carried at the principal amount outstanding.  A loan is impaired when,
based on current  information or events, it is probable that the Company will be
unable to collect all amounts due  (principal  and  interest)  according  to the
contractual terms of the loan agreement.  Payments with insignificant delays not
exceeding 90 days outstanding are not considered  impaired.  Certain  nonaccrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investment in one-to-four family residential loans and installment
loans to be homogeneous and therefore  excluded from separate  identification of
evaluation of impairment.  Interest income is accrued on the principal  balances
of  loans.  The  accrual  of  interest  on  impaired  and  nonaccrual  loans  is
discontinued when, in management's  opinion,  the borrower may be unable to meet
payments as they become due. When interest accrual is  discontinued,  all unpaid
accrued interest is reversed when considered  uncollectible.  Interest income is
subsequently  recognized only to the extent cash payments are received.  Certain
loan fees and direct costs are being  deferred and amortized as an adjustment of
yield on the loans over the contractual  lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.

                                       73
<PAGE>
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


ALLOWANCE  FOR  LOAN  LOSSES  is  maintained  at a level  believed  adequate  by
management  to  absorb  inherent  losses  in the  loan  portfolio.  Management's
determination  of the adequacy of the allowance is based on an evaluation of the
portfolio including consideration of past loan loss experience, current economic
conditions,   volume,  growth  and  composition  of  the  loan  portfolio,   the
probability of collecting all amounts due, and other relevant factors.  Impaired
loans are measured by the present  value of expected  future cash flows,  or the
fair value of the collateral of the loan, if collateral dependent. The allowance
is increased by provisions for loan losses charged against  income.  Loan losses
are charged against the allowance when management believes the  uncollectibility
of a loan balance is confirmed.  Subsequent recoveries,  if any, are credited to
the allowance.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic  environment  and market  conditions.  Management  believes  that as of
December  31,  2002,  the  allowance  for  loan  losses  is  adequate  based  on
information  currently available.  A worsening or protracted economic decline in
the areas within which the Company  operates  would  increase the  likelihood of
additional  losses due to credit and market  risks and could create the need for
additional loss reserves.

PREMISES  AND  EQUIPMENT  are  stated  at cost  less  accumulated  depreciation.
Depreciation  is  computed  principally  by the  straight-line  method  over the
estimated  useful  lives of the  related  assets.  Maintenance  and  repairs are
expensed as incurred while major additions and improvements are capitalized.

GOODWILL  is  annually  tested  for  impairment.  If the  implied  fair value of
goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written  down to its implied  fair value.  Subsequent  increases  in
goodwill value are not recognized in the financial statements.

EARNINGS  PER SHARE is computed by dividing  net income by the  weighted-average
number of common and potential common shares outstanding during each year.

MORTGAGE  SERVICING RIGHTS on originated loans are capitalized by estimating the
fair value of the  streams of net  servicing  revenues  that will occur over the
estimated life of the servicing arrangement. Capitalized servicing rights, which
include purchased  servicing rights, are amortized in proportion to and over the
period of estimated servicing revenues.

STOCK OPTIONS - The Company has a stock-based employee  compensation plan, which
is described more fully in Note 11. The Company accounts for this plan under the
recognition and measurement  principles of Accounting  Principles  Board ("APB")
Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
interpretations.  No stock-based employee  compensation cost is reflected in net
income, as all options granted under the plan had an exercise price equal to the
market value of the  underlying  common stock on the grant date.  The  following
table illustrates the effect on net income and earnings per share if the Company
had applied the fair value  provisions  of  Statement  of  Financial  Accounting
Standards  (SFAS)  No.  123,   Accounting  for  Stock-Based   Compensation,   to
stock-based employee compensation.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                2002             2001            2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>           <C>
Net income (loss), as reported                                               $(3,075)           $3,800        $3,562
Less:  Total stock-based employee compensation cost determined
   under the fair value based method, net of income taxes                        (25)               --           (33)
-----------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss)                                                  $(3,100)           $3,800        $3,529
=============================================================================================================================

Basic and diluted earnings per share, as reported                              $(.98)            $1.21         $1.13

Basic and diluted earnings per share, pro forma                                 (.98)             1.21          1.12
</TABLE>

                                       74
<PAGE>
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


INCOME TAX in the consolidated statements of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
and its  subsidiaries  file  consolidated  tax returns.  The parent  company and
subsidiaries  are charged or given  credit for income  taxes as though  separate
returns were filed.

RECLASSIFICATIONS of certain amounts in the 2001 and 2000 consolidated financial
statements have been made to conform to the 2002 presentation.


2.   RESTRICTION ON CASH AND DUE FROM BANKS

The Bank is required to maintain  reserve  funds in cash and/or on deposit  with
the  Federal  Reserve  Bank.  The  reserve  required  at  December  31, 2002 was
$1,513,000.  Interest-bearing  demand  deposits with the FHLB of $3,000,000 were
pledged to secure FHLB advances.


3.   INVESTMENT SECURITIES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                      GROSS             GROSS
                                                 AMORTIZED         UNREALIZED         UNREALIZED            FAIR
                                                   COST               GAINS             LOSSES             VALUE
-------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                   <C>             <C>              <C>
Available for sale at December 31, 2002
    Mortgage-backed securities and
      collateralized mortgage obligations          $ 27,251               $584            $   11          $ 27,824
    Federal agencies                                  8,052                175                --             8,227
    Equity securities                                21,977                127                --            22,104
------------------------------------------------------------------------------------------------------------------------
                                                   $ 57,280               $886            $   11          $ 58,155
========================================================================================================================

Available for sale at December 31, 2001
    Mortgage-backed securities and
      collateralized mortgage obligations          $111,723               $269            $1,599          $110,393
    Federal agencies                                 28,566                176                46            28,696
    Equity securities                                 1,500                 40                --             1,540
------------------------------------------------------------------------------------------------------------------------
                                                   $141,789               $485            $1,645          $140,629
========================================================================================================================
</TABLE>

At December 31, 2002,  federal  agencies with a total  amortized cost and market
value of  $4,053,000  and  $4,090,000,  mature in 2003.  At December  31,  2002,
federal  agencies with a total amortized cost and market value of $3,999,000 and
$4,137,000, respectively, mature in 2004.

Investment  securities with a total carrying value of $1,811,000 and $52,422,000
were pledged at December 31, 2002 and 2001 to secure FHLB advances.

Gross gains of $1,247,000 and gross losses of $3,272,000 resulting from sales of
available-for-sale securities were realized for 2002.

In 2001, the Company determined that because of its interest rate risk, it would
not be  able  to  continue  to  hold  its  investment  securities  to  maturity.
Accordingly,   the  Company  transferred  its  held-to-maturity  investments  to
available for sale as of December 31, 2001,  and recorded an  accumulated  other
comprehensive loss of $696,000 as of that date.

                                       75
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


4.   LOANS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                            December 31
---------------------------------------------------------------------------------------
                                                      2002                2001
---------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>
Residential mortgage loans                           $195,055             $234,858
Commercial mortgage loans                              91,856               78,435
Installment loans                                      12,386               24,045
Commercial loans                                       21,172               26,160
Loans secured by deposits                               1,130                1,348
---------------------------------------------------------------------------------------
                                                      321,599              364,846
----------------------------------------------------------------------------------------
Deduct
---------------------------------------------------------------------------------------
   Undisbursed loan proceeds                            7,985               12,725
   Deferred loan costs, net                               362                    8
   Allowance for loan losses                            8,666                1,730
---------------------------------------------------------------------------------------
                                                       17,013               14,463
---------------------------------------------------------------------------------------
                                                     $304,586             $350,383
=======================================================================================
</TABLE>

Loans being  serviced by the Company for  investors,  primarily the Federal Home
Loan Mortgage  Corporation and Federal National  Mortgage  Association,  totaled
approximately  $177,392,000,  $162,017,000  and  $144,000,000 as of December 31,
2002, 2001 and 2000. Such loans are not included in the preceding table.

The aggregate fair value of capitalized  mortgage  servicing  rights at December
31, 2002 and 2001 is based on comparable  market values and expected cash flows,
with impairment  assessed based on portfolio  characteristics  including product
type,  investor type and interest rates. No valuation allowance was necessary at
December 31, 2002 and 2001.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                        Year Ended December 31
----------------------------------------------------------------------------------------------
                                                2002             2001             2000
----------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>
Mortgage servicing rights
   Balance at beginning of year                 $1,012           $   847          $   910
   Servicing rights capitalized                    597               416               44
   Amortization of servicing rights               (412)             (251)            (107)
----------------------------------------------------------------------------------------------
   Balance at end of year                       $1,197            $1,012           $  847
==============================================================================================
</TABLE>

At December  31,  2002 and 2001,  the Company  had  outstanding  commitments  to
originate  loans  of  approximately  $8,379,000  and  $11,756,000,   which  were
primarily for  adjustable-rate  mortgages  with rates that are  determined  just
prior to closing or fixed-rate  mortgage  loans with rates locked in at the time
of loan commitment.  In addition, the Company had $22,231,000 and $19,949,000 of
conditional commitments for lines of credit receivables at December 31, 2002 and
2001.  Exposure to credit loss in the event of nonperformance by the other party
to the financial  instruments for commitments to extend credit is represented by
the  contractual  or  notional  amount  of those  instruments.  The same  credit
policies are used in making such  commitments as are used for  instruments  that
are included in the  consolidated  balance sheets.  Commitments to extend credit
are  agreements  to lend to a customer as long as there is no  violation  of any
condition  established  in  the  contract.   Commitments  generally  have  fixed
expiration dates or other termination  clauses and may require payment of a fee.
Since many of the  commitments  are expected to expire without being drawn upon,
the  total  commitment   amounts  do  not  necessarily   represent  future  cash
requirements.  Each customer's  credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained,  if deemed necessary upon extension of
credit, is based on management's  credit evaluation.  Collateral held varies but
may  include  accounts  receivable,   inventory,  real  estate,  equipment,  and
income-producing commercial properties.

                                       76
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


5.   Allowance for Loan Losses
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                    Year Ended December 31
------------------------------------------------------------------------------------------
                                            2002               2001            2000
------------------------------------------------------------------------------------------
<S>                                          <C>                <C>               <C>
Balance at beginning of year                 $1,730             $1,489            $1,534
Provision for losses                          7,300                360               417
Net charge-offs
   Charge-offs                                 (388)              (156)             (488)
   Recoveries                                    24                 37                26
------------------------------------------------------------------------------------------
   Net charge-offs                             (364)              (119)             (462)
------------------------------------------------------------------------------------------
Balance at end of year                       $8,666             $1,730            $1,489
==========================================================================================
</TABLE>

At December 31, 2002,  impaired loans totaled  $16,669,000 with an allowance for
loan losses of $6,646,000.

Interest of $119,000 was recognized on average impaired loans of $11,076,000 for
2002. All interest recognized on impaired loans during 2002 was on a cash basis.

Impaired  loans were  immaterial at December 31, 2001 and during the years ended
December 31, 2001 and 2000.

At December 31, 2002 and 2001, accruing loans delinquent 90 days or more totaled
$135,000  and  $395,000.  Non-accruing  loans at December 31, 2002 and 2001 were
$18,307,000 and $2,178,000.


6.   PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
                                                   December 31
----------------------------------------------------------------------------
                                              2002              2001
----------------------------------------------------------------------------
<S>                                           <C>                <C>
Land                                          $1,777             $1,396
Land improvements                                580                513
Office buildings                               7,682              7,415
Furniture and equipment                        4,891              4,551
Automobiles                                       70                 70
----------------------------------------------------------------------------
                                              15,000             13,945
Less accumulated depreciation                  7,099              7,026
----------------------------------------------------------------------------
                                              $7,901             $6,919
============================================================================
</TABLE>


7.   GOODWILL

During  2002,  the  Company  changed  its  method of  accounting  and  financial
reporting for goodwill and other intangible assets by adopting the provisions of
SFAS 142. The effect of adopting the new method was to increase  2002 net income
by $120,000.

                                       77
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)

8.   Deposits
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
                                                       December 31
----------------------------------------------------------------------------------
                                                 2002                2001
----------------------------------------------------------------------------------
<S>                                            <C>                  <C>
Demand                                         $ 100,471            $  88,327
Savings                                           33,990               32,647
Certificates of $100,000 or more                  45,510               60,363
Other certificates                               222,216              231,076
----------------------------------------------------------------------------------
                                                $402,187             $412,413
==================================================================================
</TABLE>

Certificates maturing in years ending after December 31, 2002:

-------------------------------------------------
2003                               $192,603
2004                                 29,718
2005                                 22,199
2006                                 11,850
2007                                 10,458
Thereafter                              898
-------------------------------------------------
                                   $267,726
=================================================

Interest paid on deposits approximated interest expense in 2002, 2001 and 2000.


9.   BORROWINGS

Borrowings at December 31, 2002 and 2001 include Federal Home Loan Bank advances
totaling  $5,592,000 and $87,653,000 with a  weighted-average  rate of 6.83% and
5.51%.  The  advances  are secured by a  combination  of  first-mortgage  loans,
investment  securities  and  overnight  deposits.  Some  advances are subject to
restrictions or penalties in the event of prepayment.

Borrowings  at  December  31,  2002 and 2001  also  include a note  payable  for
$750,000 to another  financial  institution  with a rate of 4.25% and 6.25%. The
note is secured by the outstanding common stock of ABT. The note was due at July
24, 2002 and was renewed at that date to January 24, 2003.

A promissory  note of $90,000 and $180,000 is included in borrowings at December
31, 2002 and 2001. The interest rate on the note is 6.0%.

Interest paid on borrowings was $3,092,000, $5,881,000, and $7,064,000 for 2002,
2001 and 2000.

                                       78
<PAGE>
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


-----------------------------------------------------------------------
Maturities in years ending December 31
   2003                                               $1,802
   2004                                                  915
   2005                                                3,301
   2006                                                  216
   2007                                                  170
   Thereafter                                             28
-----------------------------------------------------------------------
                                                      $6,432
=======================================================================

10.  INCOME TAXES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                         December 31
------------------------------------------------------------------------------------------------
                                                                     2002            2001
------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>
Deferred tax assets
   Deferred compensation                                             $   294           $   163
   General loan loss reserves                                          3,428               669
   Net unrealized loss on securities available for sale                   --               464
   Reserve for uncollected interest                                      534                --
   Other                                                                  48               186
------------------------------------------------------------------------------------------------
                                                                       4,304             1,482
------------------------------------------------------------------------------------------------
Deferred tax liabilities
   FHLB stock dividends                                                 (515)             (477)
   Tax bad debt reserves                                                 (88)             (146)
   Purchase accounting adjustments                                       (95)             (153)
   Deferred loan fees                                                    (91)              (97)
   Mortgage servicing rights                                            (454)             (358)
   Net unrealized gains on securities available for sale                (337)               --
   Other                                                                (105)             (146)
------------------------------------------------------------------------------------------------
                                                                      (1,685)           (1,377)
------------------------------------------------------------------------------------------------
         Net deferred tax asset                                       $2,619           $   105
================================================================================================
</TABLE>

                                       79
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


The effective income tax rate on income from continuing operations is reconciled
to the statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                               Year Ended December 31
-----------------------------------------------------------------------------------------------------
                                                       2002             2001             2000
-----------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>              <C>
Statutory federal tax rate                            (34.0)%            34.0%            34.0%
State income taxes, net of federal tax benefit         (4.5)              2.8              1.4
Tax credits                                            (2.9)             (4.0)            (4.5)
Cash value of life insurance                           (5.5)             (6.1)            (7.0)
Other                                                   1.9               1.1               .7
------------------------------------------------------------------------------------------------------
Effective tax rate                                    (45.0)%            27.8%            24.6%
=====================================================================================================
</TABLE>

The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                       Year Ended December 31
-----------------------------------------------------------------------------
                               2002             2001             2000
-----------------------------------------------------------------------------
<S>                           <C>                <C>              <C>
Federal
   Current                    $    702           $1,448           $1,172
   Deferred                     (2,840)            (205)            (111)
-----------------------------------------------------------------------------
                                (2,138)           1,243            1,061
-----------------------------------------------------------------------------
State
   Current                          94              246               71
   Deferred                       (475)             (24)              32
-----------------------------------------------------------------------------
                                  (381)             222              103
-----------------------------------------------------------------------------
                               $(2,519)          $1,465           $1,164
=============================================================================
</TABLE>

The Company paid  $290,000,  $969,000 and $1,624,000 of state and federal income
taxes in 2002, 2001 and 2000.


11.  EMPLOYEE BENEFITS

The  Company is a  participating  employer in a  multi-employer  defined-benefit
pension  plan and a 401(k) plan.  The plans cover  substantially  all  full-time
employees  of  the  Company.  Since  the  defined-benefit   pension  plan  is  a
multi-employer  plan, no separate actuarial  valuations are made with respect to
each  participating  employer.  Pension expense for the plans totaled  $215,000,
$5,000, and $38,000 in 2002, 2001 and 2000, respectively.

The Company has  arrangements  that  provide  retirement  and death  benefits to
certain  officers  and  directors.  The  accrual of benefits  totaled  $744,000,
$420,000 and  $235,000 for 2002,  2001 and 2000.  In  connection  with these and
other  benefits,  life  insurance has been  purchased with the proceeds from the
policies to be utilized for the payment of benefits.

                                       80
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)

The Company has entered into employment  agreements  with certain  officers that
provide  for the  continuation  of salary and certain  benefits  for a specified
period of time  under  certain  conditions.  Under the terms of the  agreements,
these  payments  could occur in the event of a change in control of the Company,
as defined, along with other specific conditions. The contingent liability under
these agreements is generally three times the annual salary of the officer.

Under the 1987 Stock  Option Plan and the 1996 Stock Option and  Incentive  Plan
("1996 Plan"),  which are accounted for under the  recognition  and  measurement
principles of APB No. 25, Accounting for Stock Issued to Employees,  and related
interpretations,  the  Company has granted  options to  individuals  to purchase
common  stock at a price  equal to the fair  market  value at the date of grant,
subject to the terms and  conditions  of the plans.  Plan terms  permit  certain
nonincentive  stock  options  to be granted  at less than  market  value at plan
committee  discretion.  Options vest and are fully  exercisable  when granted or
over an  extended  period  subject  to  continuous  employment  or  under  other
conditions set forth in the plans.  The period for exercising  options shall not
exceed ten years from the date of grant.  The plans also permit  grants of stock
appreciation  rights.  An amendment of the 1996 Plan extended the plan's term by
five  years and  increased  the  number of shares  reserved  under the plan from
176,000 to 352,000 shares.

The following is a summary of the status of the Company's stock option plans and
changes in those plans as of and for the years ended December 31, 2002, 2001 and
2000.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                     Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------
                                                  2002                        2001                         2000
----------------------------------------------------------------------------------------------------------------------------
                                                     WEIGHTED-                     Weighted-                   Weighted-
                                                      AVERAGE                       Average                     Average
                 OPTIONS                 SHARES    EXERCISE PRICE     Shares    Exercise Price    Shares    Exercise Price
----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>            <C>             <C>          <C>           <C>
Outstanding at beginning of year          203,510      $14.37         226,786         $14.31       255,505       $14.43
Granted                                    22,000       14.25              --          --            1,000        10.63
Exercised                                  (9,713)      14.15              --          --             (825)        9.43
Forfeited/expired                         (16,775)      17.81         (23,276)         13.81       (28,894)       14.01
                                                                                               --------------
                                      -------------               ---------------
Outstanding at end of year                199,022       14.27         203,510          14.37       226,786        14.31
                                      =============               ===============              ==============
Options exercisable at year end           187,022      $14.27         201,750         $14.35       215,082       $14.32
Weighted-average fair value of
   options granted during the year                      $1.58                           --                        $2.35
</TABLE>

As of December 31, 2002, selected other information in exercise price ranges for
options outstanding and exercisable is as follows:
<TABLE>
<CAPTION>
                           Outstanding                                                    Exercisable
--------------------------------------------------------------------------        ------------------------------
                                     Weighted-           Weighted-Average                         Weighted-
Exercise Price       Number           Average         Remaining Contractual         Number         Average
    Range           of Shares      Exercise Price               Life              of Shares     Exercise Price
--------------------------------------------------------------------------        ------------------------------
<S>                  <C>             <C>                    <C>                     <C>            <C>
$9.43 - 12.53        64,177          $12.46                 3.1 years               64,177         $12.46
13.05 - 18.30       134,845           15.13                 4.8 years              122,845          15.22
</TABLE>

There were 177,442  shares under the 1996 Plan  available  for grant at December
31, 2002.

                                       81
<PAGE>
Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)

Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma  disclosures  of net income and  earnings  per share as if the Company had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing  model
with the following assumptions:
<TABLE>
<CAPTION>
                                                                                 2002            2000
                                                                          ----------------------------------
<S>                                                                             <C>             <C>
Risk-free interest rates                                                        3.3%            6.4%
Dividend yields                                                                 4.7%            5.3%
Expected volatility factors of market price of common stock                    18.4%           27.9%
Weighted-average expected life of the options                                 10 YEARS         8 years
</TABLE>

The pro forma effect on net income is disclosed in Note 1.

12.  SHAREHOLDERS' EQUITY

The payment of dividends by the Company  depends  substantially  upon receipt of
dividends from ABT, which is subject to various  regulatory  restrictions on the
payment of  dividends.  Under current  regulations  ABT may not declare or pay a
cash dividend or repurchase any of its capital stock if the effect thereof would
cause  the net worth of this  entity  to be  reduced  below  regulatory  capital
requirements or the amount required for its liquidation accounts.

In  addition,  without  prior  approval,  current  regulations  allow ABT to pay
dividends to the Company not  exceeding  retained net income for the  applicable
calendar  year to date,  plus  retained net income for the  preceding two years.
Application  is required by ABT to pay  dividends in excess of this  restriction
and the  Company's  Board of  Directors  have  resolved  not to cause ABT to pay
dividends if its Tier 1 capital  would be less than 7%  thereafter.  At December
31,  2002,  the  shareholder's  equity of ABT was  $39,590,000  and  approval is
required by the Indiana Department of Financial Institutions to pay dividends to
the Company.

13.  EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
                                                                     Year Ended December 31
------------------------------------------------------------------------------------------------------------------------------
                                               2002                          2001                           2000
------------------------------------------------------------------------------------------------------------------------------
                                            WEIGHTED-                      Weighted-                      Weighted-
                                             AVERAGE  PER SHARE             Average  Per Share             Average  Per Share
                                     LOSS    SHARES     AMOUNT    INCOME    Shares     Amount    Income    Shares     Amount
------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>        <C>       <C>     <C>         <C>        <C>      <C>        <C>
Basic Earnings Per Share
   Income (loss) available to      $(3,075)  3,147,301  $(.98)    $3,800  3,146,616   $1.21      $3,562   3,146,451  $1.13
     common shareholders                                ======                        =====                          =====

Effect Of Dilutive Stock Options        --        --                 --       1,352                 --          110
                                   --------------------         ----------------------         ----------------------
Diluted Earnings Per Share
   Income available to common
     shareholders and assumed
     conversions                   $(3,075)  3,147,301  $(.98)    $3,800  3,147,968   $1.21      $3,562   3,146,561  $1.13
                                   ===========================================================================================
</TABLE>

Options to purchase  199,022 shares of common stock at exercise  prices of $9.43
to $18.30 per share were  outstanding at December 31, 2002 but were not included
in the  computation  of diluted  earnings  per share  because the  options  were
anti-dilutive.


                                       82
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)

14.  OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows:
<TABLE>
<CAPTION>
                                                                                            2002                2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                     <C>
Unrealized gains (losses) on securities available for sale                              $        10             $(1,160)
Reclassification for realized amount included in income                                      (2,025)                 --
-----------------------------------------------------------------------------------------------------------------------------
         Other comprehensive income (loss), before tax effect                                 2,035              (1,160)
Tax expense (benefit)                                                                           801                (464)
------------------------------------------------------------------------------------------------------------------------------
         Other comprehensive income (loss)                                                   $1,234           $    (696)
=============================================================================================================================
</TABLE>


15.  REGULATORY MATTERS

ABT is subject to various  regulatory capital  requirements  administered by the
federal  banking  agencies and is assigned to a capital  category.  The assigned
capital  category is largely  determined  by three  ratios  that are  calculated
according  to the  regulations.  The ratios  are  intended  to  measure  capital
relative to assets and credit risk  associated with those assets and off-balance
sheet  exposures.  The  capital  category  assigned  can  also  be  affected  by
qualitative judgments made by regulatory agencies about the risk inherent in the
entity's activities that are not part of the calculated ratios.

There are five capital categories defined in the regulations,  ranging from well
capitalized  to  critically  undercapitalized.  Classification  in  any  of  the
undercapitalized  categories can result in actions by regulators that could have
a material effect on a bank's operations.  At December 31, 2002 and 2001, ABT is
categorized  as  well   capitalized  and  met  all  subject   capital   adequacy
requirements.  There are no conditions or events since  December 31, 2002,  that
management believes have changed this classification.


                                       83
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)

Actual and required capital amounts and ratios for ABT are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                         December 31, 2002
-------------------------------------------------------------------------------------------------------------------------------
                                                                              Required For
                                                                           Adequate Capital(1)          Actual Capital
------------------------------------------------------------------------------------------------------------------------------
                                                                          Ratio        Amount       Ratio         Amount
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>         <C>          <C>          <C>
Total risk-based capital 1 (to risk-weighted assets)                        8.0%        23,754       13.89%       41,255
Tier 1 capital (to risk-weighted assets)                                    4.0         11,877       12.61        37,455
Core capital 1 (to adjusted total assets)                                   3.0         14,109        7.96        37,455
Core capital 1 (to adjusted tangible assets)                                2.0          9,406        7.96        37,455
Tangible capital (to adjusted total assets)                                 1.5          7,054        7.96        37,455

(1) As defined by regulatory agencies
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                         December 31, 2001
------------------------------------------------------------------------------------------------------------------------------
                                                                              Required For
                                                                           Adequate Capital(1)         Actual Capital
-----------------------------------------------------------------------------------------------------------------------------
                                                                          Ratio        Amount       Ratio        Amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>        <C>           <C>         <C>
Total risk-based capital 1 (to risk-weighted assets)                        8.0%       $26,903       13.0%       $43,710
Tier 1 capital (to risk-weighted assets)                                    4.0         13,451       12.48        41,980
Core capital 1 (to adjusted total assets)                                   3.0         16,002        7.87        41,980
Core capital 1 (to adjusted tangible assets)                                2.0         10,668        7.87        41,980
Tangible capital (to adjusted total assets)                                 1.5          8,001        7.87        41,980

(1) As defined by regulatory agencies
</TABLE>

During  the  second   quarter  of  2002,   ABT  entered  into  a  memorandum  of
understanding  (the "MOU") with the Federal Deposit  Insurance  Corporation (the
"FDIC") and the Indiana Department of Financial  Institutions (the "DFI"). Among
other things, the MOU required ABT to adopt written action plans with respect to
certain  classified  assets,  revise its  lending  policies in  accordance  with
examiner recommendations,  require greater financial information from borrowers,
establish a loan review  program,  document Board review of the adequacy of loan
losses,  formulate a plan for improving  ABT's  profitability,  review  staffing
needs  with  particular  emphasis  on loan  administration,  strengthen  certain
internal  controls and audit  coverage and address other  regulatory  compliance
issues raised in the most recent  examination  report by the FDIC and DFI. While
the MOU is in effect, ABT must maintain Tier 1 capital at or above 7% of assets.

The Company's  Board of Directors  have adopted  resolutions  providing that the
Company will not cause ABT to pay  dividends if its Tier 1 capital would be less
than 7%  thereafter,  that the Company  will not incur  additional  debt without
prior  Federal  Reserve  approval,  and that the Company  will not  purchase any
treasury stock. The resolutions remain in effect until the MOU is lifted.

The Company  believes that the Company and ABT have taken all actions  specified
in the MOU and Board resolutions  within the timeframes  specified.  The Company
does not  believe  the MOU or  Board  resolutions  will  materially  affect  the
operations  of the  Company or ABT. A failure to comply  with  either the MOU or
resolutions  could lead to the  initiation of formal  enforcement  action by the
FDIC, DFI and the Federal Reserve.

                                       84
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


ABT has qualified under  provisions of the Internal  Revenue Code that permit it
to deduct from taxable  income a provision  for bad debts which differs from the
provision for such losses charged against income. Accordingly, retained earnings
at December 31, 2002, includes an allocation of income to bad debt deductions of
approximately  $11,883,000  for which no provision for federal  income taxes has
been made. If, in the future,  this portion of retained earnings is used for any
purpose other than to absorb bad debt losses, including redemption of bank stock
or excess  dividends,  or loss of "bank"  status,  federal  income  taxes may be
imposed  at the then  applicable  rates.  The  unrecorded  deferred  income  tax
liability on the above amount was approximately $4,000,000.


16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair  values are based on  estimates  using  present  value and other  valuation
techniques  in instances  where quoted market  prices are not  available.  These
techniques  are  significantly  affected  by  the  assumptions  used,  including
discount  rates and  estimates of future cash flows.  As such,  the derived fair
value estimates cannot be compared to independent markets and, further,  may not
be realizable in an immediate  settlement of the instruments.  Accordingly,  the
aggregate  fair value  amounts  presented  do not  represent,  and should not be
construed to represent, the underlying value of the Company.

The  following   table  presents  the  estimates  of  fair  value  of  financial
instruments:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                    December 31
----------------------------------------------------------------------------------------------------------
                                                         2002                          2001
----------------------------------------------------------------------------------------------------------
                                               CARRYING         FAIR         Carrying         Fair
                                                 VALUE          VALUE          Value          Value
---------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>             <C>           <C>
Assets
   Cash and cash equivalents                    $  45,696     $  45,696       $  11,801     $  11,801
   Investment securities                           58,155        58,155         140,629       140,629
   Loans                                          304,586       309,792         350,383       346,395
   Interest receivable                              1,958         1,958           3,263         3,263
   Stock in FHLB                                    6,759          6759           7,365         7,365
   Cash surrender value of life insurance          18,932        18,932          18,035        18,035

Liabilities
   Deposits                                       402,187       403,745         412,413       414,413
   Borrowings                                       6,432         6,897          89,513        91,572
   Interest payable                                   411           411             982           982
   Drafts payable                                   5,099         5,099           6,152         6,152
</TABLE>

                                       85
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

CASH AND CASH  EQUIVALENTS,  STOCK  IN FHLB  AND  CASH  SURRENDER  VALUE OF LIFE
INSURANCE:  The carrying  amounts  reported in the  consolidated  balance sheets
approximate those assets' fair values.

INVESTMENT SECURITIES: Fair values are based on quoted market prices.

LOANS:  The fair values for loans are  estimated  using a  discounted  cash flow
calculation  that applies  interest  rates used to price new similar  loans to a
schedule of aggregated expected monthly maturities on loans.

INTEREST    RECEIVABLE/PAYABLE:    The   fair   value   of   accrued    interest
receivable/payable approximates carrying values.

DEPOSITS:  The fair values of  interest-bearing  demand and savings accounts are
equal to the amount payable on demand at the balance sheet date. Fair values for
certificates of deposit are estimated  using a discounted cash flow  calculation
that applies interest rates currently being offered on deposits to a schedule of
aggregated  expected monthly  maturities on deposits.  A core deposit intangible
component in the fair value  estimate is not included,  and although it would be
impractical  from a cost-benefit  standpoint to estimate that value, the Company
realizes that the dollar amount could be significant.

BORROWINGS:  The fair value of borrowings is estimated  using a discounted  cash
flow  calculation,  based on  borrowing  rates  for  periods  comparable  to the
remaining terms to maturity of the borrowings.

DRAFTS PAYABLE: The fair value approximates carrying value.


17.  PARENT COMPANY FINANCIAL INFORMATION

The  following  are  condensed  financial  statements  for the  parent  company,
Ameriana Bancorp, only:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                             December 31
---------------------------------------------------------------------------------------
BALANCE SHEETS                                         2002               2001
---------------------------------------------------------------------------------------
<S>                                                  <C>               <C>
Assets
   Cash                                              $       --        $         1
   Advances to subsidiaries                                  --              1,341
   Investment in ABT                                     39,590             42,896
   Investments in affiliates                                464                371
   Other assets                                             360                  6
---------------------------------------------------------------------------------------
                                                        $40,414            $44,615
=======================================================================================
Liabilities and shareholders' equity
   Notes payable to subsidiaries                     $       --          $     243
   Notes payable, other                                     840                930
   Other liabilities                                        534                547
   Shareholders' equity                                  39,040             42,895
---------------------------------------------------------------------------------------
                                                        $40,414            $44,615
=======================================================================================
</TABLE>

                                       86
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                     Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS                                                    2002              2001              2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
Dividends from subsidiaries                                                  $1,500            $3,000            $2,888
Interest income                                                                   6                47                30
-----------------------------------------------------------------------------------------------------------------------------
                                                                              1,506             3,047             2,918
Operating expense                                                               489               594               664
----------------------------------------------------------------------------------------------------------------------------
   Income before income tax benefit and equity in undistributed
     income of subsidiaries                                                   1,017             2,453             2,254
Income tax benefit                                                              356               511               521
-----------------------------------------------------------------------------------------------------------------------------
                                                                              1,373             2,964             2,775
Equity in undistributed income of subsidiaries and affiliates
   (distributions in excess of equity in income)                             (4,448)              836               787
-----------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                                          $ (3,075)           $3,800            $3,562
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                      Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS                                                     2002              2001             2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
Operating Activities
   Net income (loss)                                                         $(3,075)          $3,800            $3,562
   Items not requiring (providing) cash
     Equity in undistributed income of subsidiaries and affiliates             4,448             (866)             (787)
     Other adjustments                                                          (368)             210               141
-----------------------------------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                             1,005            3,144             2,916
----------------------------------------------------------------------------------------------------------------------------
Investing Activities
   Advance to subsidiaries                                                     1,341              484              (722)
   Proceeds from sale of premises and equipment                                   --               --               176
-----------------------------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) investing activities                   1,341              484              (546)
----------------------------------------------------------------------------------------------------------------------------
Financing Activities
   Repayment of notes payable to subsidiaries                                   (243)            (250)           (2,550)
   Proceeds from other borrowings                                                 --               --             2,500
   Repayment of other borrowings                                                 (90)          (1,491)             (440)
   Cash dividends paid                                                        (2,014)          (1,888)           (1,888)
   Purchase of common stock                                                     (137)              --                --
   Proceeds from exercise of stock options                                       137               --                 8
-----------------------------------------------------------------------------------------------------------------------------
         Net cash used in financing activities                                (2,347)          (3,629)           (2,370)
----------------------------------------------------------------------------------------------------------------------------
Change in cash                                                                    (1)              (1)               --
Cash at beginning of year                                                          1                2                 2
----------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                         $     --        $       1         $       2
============================================================================================================================
</TABLE>

                                       87
<PAGE>

Ameriana Bancorp
Notes to Consolidated Financial Statements
(table dollar amounts in thousands, except share data)


18.  QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                           FIRST            SECOND            THIRD            FOURTH
                                                          QUARTER           QUARTER          QUARTER           QUARTER
----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>              <C>               <C>
2002
   TOTAL INTEREST INCOME                                     $8,592           $7,476           $7,268            $6,637
   TOTAL INTEREST EXPENSE                                     5,244            4,775            4,192             3,330
   NET INTEREST INCOME                                        3,348            2,701            3,076             3,307
   PROVISION FOR LOAN LOSSES                                  1,250              150              150             5,750
   NET INCOME                                                (2,050)             600              786            (2,411)
----------------------------------------------------------------------------------------------------------------------------
   BASIC AND DILUTED EARNINGS PER SHARE                        (.65)             .19              .25              (.77)
----------------------------------------------------------------------------------------------------------------------------
   DIVIDENDS DECLARED PER SHARE                                 .16              .16              .16               .16
----------------------------------------------------------------------------------------------------------------------------
   STOCK PRICE RANGE
     HIGH                                                     16.00            15.10            14.20             13.25
     LOW                                                      13.15            13.85            12.10             12.70
----------------------------------------------------------------------------------------------------------------------------
2001
   Total interest income                                     $9,927           $9,237           $8,664            $9,342
   Total interest expense                                     6,619            6,243            5,768             5,613
   Net interest income                                        3,308            2,994            2,896             3,729
   Provision for loan losses                                     90               90               90                90
   Net income                                                 1,053              780              751             1,216
----------------------------------------------------------------------------------------------------------------------------
   Basic and diluted earnings per share                       .33               .25              .24               .39
----------------------------------------------------------------------------------------------------------------------------
   Dividends declared per share                               .15               .15              .15               .16
----------------------------------------------------------------------------------------------------------------------------
   Stock price range
     High                                                    13.00             14.01           13.75              13.80
     Low                                                     10.31             10.35           12.00              11.75
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       88
<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

     For  information  concerning the directors of the Company,  the information
contained under the section  captioned  "Proposal I -- Election of Directors" in
the Proxy  Statement  is  incorporated  herein  by  reference.  For  information
concerning  the  executive  officers of the  Company,  see "Item 1.  Business --
Executive  Officers"  under Part I of the Annual Report,  which is  incorporated
herein by reference.

     For  information  concerning  compliance with Section 16(a) of the Exchange
Act,  see the section  titled  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance" in the Proxy Statement, which is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under the  section  captioned  "Proposal  I --
Election of  Directors  --  Executive  Compensation"  in the Proxy  Statement is
incorporated herein by reference.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

     (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

          Information  required by this item is incorporated herein by reference
          to the section captioned "Voting Securities and Security Ownership" in
          the Proxy Statement.

     (b)  SECURITY OWNERSHIP OF MANAGEMENT

          Information  required by this item is incorporated herein by reference
          to the section captioned "Voting Securities and Security Ownership" in
          the Proxy Statement.

     (c)  CHANGES IN CONTROL

          The Company is not aware of any arrangements,  including any pledge by
          any person of securities of the Company, the operation of which may at
          a subsequent date result in a change in control of the Company.

                                       89
<PAGE>
     (d)  Securities Authorized for Issuance Under Equity Compensation Plans

          The following table sets forth certain information with respect to the
          Company's equity compensation plans.
<TABLE>
<CAPTION>
                                                (A)                            (B)                           (C)
                                                                                                NUMBER OF SECURITIES REMAINING
                                     NUMBER OF SECURITIES TO BE                                 AVAILABLE FOR FUTURE ISSUANCE
                                      ISSUED UPON EXERCISE OF       WEIGHTED-AVERAGE EXERCISE     UNDER EQUITY COMPENSATION
                                        OUTSTANDING OPTIONS,          PRICE OF OUTSTANDING       PLANS (EXCLUDING SECURITIES
PLAN CATEGORY                           WARRANTS AND RIGHTS       OPTIONS, WARRANTS AND RIGHTS     REFLECTED IN COLUMN (A))
-------------                        -------------------------    ----------------------------  ------------------------------
<S>                                           <C>                          <C>                             <C>
Equity compensation plans
  approved by security holders                199,022                      14.27                           177,442

Equity compensation plans not
  approved by security holders                     --                         --                                --
                                              -------                      -----                           -------
     Total                                    199,022                      14.27                           177,442
                                              =======                      =====                           =======
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES
--------------------------------

     The Company's  Chief  Executive  Officer and Chief  Financial  Officer have
evaluated  the Company's  disclosure  controls and  procedures  (as such term is
defined in Rule 13a-14(c) under the Exchange Act) as of a date within 90 days of
the date of filing of this  Annual  Report.  Based  upon  such  evaluation,  the
Company's  Chief Executive  Officer and Chief  Financial  Officer have concluded
that such controls and procedures  are effective to ensure that the  information
required  to be  disclosed  by the  Company in the  reports  it files  under the
Exchange Act is gathered, analyzed and disclosed with adequate timeliness.

     There have been no significant  changes in the Company's  internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of the evaluation described above.

                                       90
<PAGE>

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
          ----------------------------------------------

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

               Report of Independent Auditors

               Consolidated Balance Sheets at December 31, 2002 and 2001

               Consolidated  Statements of Income for Each of the Three Years in
               the Period Ended December 31, 2002

               Consolidated  Statements of Shareholders'  Equity for Each of the
               Three Years in the Period Ended December 31, 2002

               Consolidated Statements of Cash Flows for Each of the Three Years
               in the Period Ended December 31, 2002

               Notes to Consolidated Financial Statements

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

          (3)  Exhibits.  The  following  is a list of  exhibits as part of this
Report and is also the Exhibit Index.

   NO.      DESCRIPTION
   --       -----------

   3        Ameriana Bancorp Articles of Incorporation  and Bylaws --
            incorporated  herein by reference to the Company's Registration
            Statement on Form S-4 filed with the SEC on September 18, 1989

   10.1*    Ameriana  Bancorp 1987 Stock Option Plan  incorporated  herein by
            reference to the Company's  Registration Statement on Form S-8 filed
            with the SEC on March 30, 1990; other option agreements with Charles
            M. Drackett, Jr., Michael E. Kent and Ronald R. Pritzke incorporated
            herein by reference to the Company's Registration Statement on
            Form S-8 filed with the SEC on May 17, 1996

                                       91
<PAGE>
   NO.      DESCRIPTION
   --       -----------
   10.2*    Employment  Agreement, dated February 26,  2001,  between Ameriana
            Bank & Trust and Harry J. Bailey -- incorporated herein by reference
            to the Company's  Annual Report on Form 10-K filed with the SEC on
            March 29, 2001

   10.3*    Employment  Agreement,  dated  February  26,  2001,  between
            Ameriana  Bank & Trust and Timothy G. Clark -- incorporated herein
            by reference to the Company's Annual Report on Form 10-K filed with
            the SEC on March 29, 2001

   10.4*    Ameriana Bank of Indiana, F.S.B. Director Supplemental  Retirement
            Program  Director  Agreement  -- incorporated herein by reference to
            the Company's Annual Report on Form 10-K filed with the SEC on March
            30, 2000

   10.5*    Ameriana Bank of Indiana, F.S.B. Director Supplemental Retirement
            Program Director Agreement,  dated June 4, 1999, between Ameriana
            Bank of Indiana,  F.S.B. and Paul W. Prior -- incorporated herein
            by reference to the Company's Annual Report on Form 10-K filed with
            the SEC on March 30, 2000

   10.6*    Executive Supplemental  Retirement Plan Agreement, dated May 6, 1999
            between  Ameriana Bank of Indiana, F.S.B.  and Harry J. Bailey --
            incorporated  herein by reference to the Company's Annual Report
            on Form 10-K filed with the SEC on March 30, 2000

   10.7*    Executive Supplemental Retirement Plan Agreement, dated May 6, 1999,
            between  Ameriana Bank of Indiana, F.S.B. and Timothy G. Clark --
            incorporated  herein by reference to the Company's Annual Report on
            Form 10-K filed with the SEC on March 29, 2001

   10.8*    Change-in-Control Severance Agreement, dated February 26, 2001,
            between Ameriana Bank and Trust and Nancy A. Rogers --  incorporated
            herein by reference to the  Company's  Annual Report on Form 10-K
            filed with the SEC on March 29, 2001

   10.9*    Change-in-Control Severance Agreement, dated February 26, 2001,
            between Ameriana Bank and Trust and Jan F. Wright --  incorporated
            herein by reference to the Company's  Annual Report on Form 10-K
            filed with the SEC on March 29, 2001

   10.10*   Change-in-Control  Severance Agreement, dated February 26, 2001,
            between Ameriana Bank and Trust and Deborah Bell - incorporated by
            reference to the Company's  Quarterly Report on Form 10-Q for the
            quarter ended March 31, 2001


                                       92
<PAGE>
   NO.      DESCRIPTION
   --       -----------

   10.11*   Change-in-Control  Severance Agreement,  dated February 26, 2001,
            between Ameriana Bank and Trust and Ronald M.  Holloway --
            incorporated  by reference to the Company's  Quarterly  Report on
            Form 10-Q for the quarter ended March 31, 2001

   21       Subsidiaries

   23       Consent of BKD, LLP

   99       Certification pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002

_______
*  Management contract or compensation plan or arrangement

     (b) REPORTS ON FORM 8-K.  The  Company did not file any Current  Reports on
         -------------------
Form 8-K during the fourth  quarter of the fiscal  year  covered by this  Annual
Report.

     (c)  EXHIBITS.  The  exhibits  required by Item 601 of  Regulation  S-K are
          --------
either filed as part of this Report or incorporated by reference herein.

     (d) FINANCIAL  STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT.  There
         ---------------------------------------------------------------
are no other financial  statements and financial statement schedules required by
Regulation  S-X which  are  excluded  from the  Annual  Report  to  Stockholders
pursuant to Rule 14a-3(b)(1) which are required to be included herein.

                                       93
<PAGE>

                                   SIGNATURES

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

                                       AMERIANA BANCORP


Date:    March 25, 2003                By: /s/ Harry J. Bailey
                                           -------------------------------------
                                           Harry J. Bailey
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following  persons on behalf of the  registrant in
the capacities and on the dates indicated.


By: /s/ Harry J. Bailey                                    March 25, 2003
    ---------------------------------------------
        Harry J. Bailey
        President, Chief Executive Officer
       and Director
       (Principal Executive Officer)

By: /s/ Bradley L. Smith                                   March 25, 2003
    ---------------------------------------------
       Bradley L. Smith
       Senior Vice President - Treasurer
       (Principal Financial and Accounting Officer)

By:
    ---------------------------------------------
        Paul W. Prior
        Chairman of the Board and Director

By: /s/ Donald C. Danielson                                March 26, 2003
    ---------------------------------------------
        Donald C. Danielson
        Director

By:
    ---------------------------------------------
       Charles M. Drackett, Jr.
       Director

By: /s/ R. Scott Hayes                                     March 25, 2003
    ---------------------------------------------
        R. Scott Hayes
        Director

By:
    ---------------------------------------------
       Michael E. Kent
       Director

By: /s/ Ronald R. Pritzke                                  March 25, 2003
    ---------------------------------------------
       Ronald R. Pritzke
       Director
<PAGE>

                                  CERTIFICATION


     I, Harry J.  Bailey,  President  and Chief  Executive  Officer of  Ameriana
Bancorp, certify that:

     1. I have reviewed this annual report on Form 10-K of Ameriana Bancorp;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) Presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     (a) All  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     (b) Any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


                                /s/ Harry J. Bailey
                                -------------------------------------------
                                Harry J. Bailey
                                President and Chief Executive Officer

<PAGE>

                                  Certification


     I, Bradley L. Smith,  Senior Vice  President  and  Principal  Financial and
Accounting Officer of Ameriana Bancorp, certify that:

     1. I have reviewed this annual report on Form 10-K of Ameriana Bancorp;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) Presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent functions):

     (a) All  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     (b) Any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


                                /s/ Bradley L. Smith
                                -----------------------------------------------
                                Bradley L. Smith
                                Senior Vice President and Principal Financial
                                and Accounting Officer