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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------------

For the transition period from  to

Commission File Number: 0-18392



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AMERIANA BANCORP

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Indiana                                                        |  | 35-1782688                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer 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

Not Applicable

(Former name, former
address and former fiscal year, if changed since last report)



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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 whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated
filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes ̈No  x

At November 12, 2007, the registrant had 2,988,952 shares of its common stock outstanding.



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##### Table of Contents

A
MERIANA BANCORP

Table of Contents



|                              |  |          |  |                                                                                                                 |  |         
|----------------------------- |  | -------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |          |  |                                                                                                                 |  | Page No.
|Part I. Financial Information |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Financial Statements (Unaudited)                                                                                |  |         
|                              |  |          | 
|                              |  |          |  | Consolidated Condensed Balance Sheets at September 30, 2007 and December 31, 2006                               |  | 1       
|                              |  |          | 
|                              |  |          |  | Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006 |  | 2       
|                              |  |          | 
|                              |  |          |  | Consolidated Condensed Statements of Shareholders Equity for the Nine Months Ended September 30, 2007          |  | 3       
|                              |  |          | 
|                              |  |          |  | Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006           |  | 4       
|                              |  |          | 
|                              |  |          |  | Notes to Consolidated Condensed Financial Statements                                                            |  | 5       
|                              |  |          | 
|                              |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 7       
|                              |  |          | 
|                              |  | Item 3.  |  | Quantitative and Qualitative Disclosure about Market Risk                                                       |  | 19      
|                              |  |          | 
|                              |  | Item 4.  |  | Controls and Procedures                                                                                         |  | 20      
|                              | 
|Part II. Other Information    |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Legal Proceedings                                                                                               |  | 21      
|                              |  |          | 
|                              |  | Item 1A. |  | Risk Factors                                                                                                    |  | 21      
|                              |  |          | 
|                              |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 21      
|                              |  |          | 
|                              |  | Item 3.  |  | Defaults upon Senior Securities                                                                                 |  | 21      
|                              |  |          | 
|                              |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  | 21      
|                              |  |          | 
|                              |  | Item 5.  |  | Other Information                                                                                               |  | 21      
|                              |  |          | 
|                              |  | Item 6.  |  | Exhibits                                                                                                        |  | 21      
|                              |  |         
|Signatures                    |  |          |  |                                                                                                                



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##### Table of Contents

PART I  FINANCIAL INFORMATION

ITEM I  FINANCIAL STATEMENTS

Ameriana Bancorp

Consolidated Condensed Balance Sheets

(In thousands, except share data)



|                                                             |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                             |  | September 30,2007 |         |   | December 31,2006 |  
|                                                             |  | (Unaudited)       |         |   |                  |  
|Assets                                                       |  |                   |         |   |                  |   |         |  
|Cash on hand and in other institutions                       |  | $                 | 5,330   |   |                  | $ | 7,986   |  
|Interest-bearing demand deposits                             |  |                   | 6,966   |   |                  |   | 4,084   |  
|                                                             |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                    |  |                   | 12,296  |   |                  |   | 12,070  |  
|Investment securities available for sale                     |  |                   | 78,616  |   |                  |   | 129,776 |  
|Loans held for sale                                          |  |                   | 594     |   |                  |   |        |  
|Loans, net of allowance for loan losses of $2,739 and $2,616 |  |                   | 282,347 |   |                  |   | 249,272 |  
|Premises and equipment                                       |  |                   | 7,493   |   |                  |   | 7,346   |  
|Stock in Federal Home Loan Bank                              |  |                   | 5,632   |   |                  |   | 5,646   |  
|Goodwill                                                     |  |                   | 564     |   |                  |   | 564     |  
|Cash value of life insurance                                 |  |                   | 22,568  |   |                  |   | 21,937  |  
|Other assets                                                 |  |                   | 12,003  |   |                  |   | 10,635  |  
|                                                             |  |                   |         |   |                  |   |         |  
|Total assets                                                 |  | $                 | 422,113 |   |                  | $ | 437,246 |  
|                                                             |  |                   |         |   |                  |   |         |  
|Liabilities and Shareholders Equity                         |  |                   |         |   |                  |   |         |  
|Liabilities                                                  |  |                   |         |   |                  |   |         |  
|Deposits                                                     |  |                   |         |   |                  |   |         |  
|Noninterest-bearing                                          |  | $                 | 20,251  |   |                  | $ | 19,905  |  
|Interest-bearing                                             |  |                   | 299,517 |   |                  |   | 302,529 |  
|                                                             |  |                   |         |   |                  |   |         |  
|Total deposits                                               |  |                   | 319,768 |   |                  |   | 322,434 |  
|Borrowings                                                   |  |                   | 60,304  |   |                  |   | 74,683  |  
|Drafts payable                                               |  |                   | 2,098   |   |                  |   | 2,097   |  
|Other liabilities                                            |  |                   | 6,415   |   |                  |   | 4,908   |  
|                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities                                            |  |                   | 388,585 |   |                  |   | 404,122 |  
|                                                             |  |                   |         |   |                  |   |         |  
|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  3,213,952 and 3,213,952 shares                      |  |                   | 3,214   |   |                  |   | 3,214   |  
|Outstanding  2,988,952 and 3,051,948 shares                 |  |                   |         |   |                  |   |         |  
|Additional paid-in capital                                   |  |                   | 1,039   |   |                  |   | 1,039   |  
|Retained earnings                                            |  |                   | 33,137  |   |                  |   | 32,152  |  
|Accumulated other comprehensive loss                         |  |                   | (864    | ) |                  |   | (1,090  | )
|Treasury stock at cost  225,000 and 162,004 shares          |  |                   | (2,998  | ) |                  |   | (2,191  | )
|                                                             |  |                   |         |   |                  |   |         |  
|Total shareholders equity                                   |  |                   | 33,528  |   |                  |   | 33,124  |  
|                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities and shareholders equity                   |  | $                 | 422,113 |   |                  | $ | 437,246 |  
|                                                             |  |                   |         |   |                  |   |         |  

See notes to consolidated condensed financial statements.



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##### Table of Contents

Ameriana Bancorp

Consolidated Condensed Statements of Operations

(In thousands, except share data)

(Unaudited)



|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                |  | 2007                            |        |   | 2006                           |   |       | 2007 |  |   | 2006   |  
|Interest Income                                                 |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Interest and fees on loans                                      |  | $                               | 4,883  |   |                                | $ | 4,158 |      |  | $ | 14,280 |   |  | $ | 11,788 |  
|Interest on mortgage-backed securities                          |  |                                 | 408    |   |                                |   | 477   |      |  |   | 1,270  |   |  |   | 1,404  |  
|Interest on investment securities                               |  |                                 | 518    |   |                                |   | 956   |      |  |   | 1,909  |   |  |   | 2,830  |  
|Other interest and dividend income                              |  |                                 | 132    |   |                                |   | 127   |      |  |   | 395    |   |  |   | 503    |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Total interest income                                           |  |                                 | 5,941  |   |                                |   | 5,718 |      |  |   | 17,854 |   |  |   | 16,525 |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Interest Expense                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Interest on deposits                                            |  |                                 | 2,794  |   |                                |   | 2,732 |      |  |   | 8,280  |   |  |   | 7,773  |  
|Interest on borrowings                                          |  |                                 | 720    |   |                                |   | 829   |      |  |   | 2,349  |   |  |   | 2,147  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Total interest expense                                          |  |                                 | 3,514  |   |                                |   | 3,561 |      |  |   | 10,629 |   |  |   | 9,920  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Net Interest Income                                             |  |                                 | 2,427  |   |                                |   | 2,157 |      |  |   | 7,225  |   |  |   | 6,605  |  
|Provision (credit) for loan losses                              |  |                                 | (1,927 | ) |                                |   | 75    |      |  |   | (1,747 | ) |  |   | 225    |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Net Interest Income After Provision (Credit) for Loan Losses    |  |                                 | 4,354  |   |                                |   | 2,082 |      |  |   | 8,972  |   |  |   | 6,380  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Other Income                                                    |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Other fees and service charges                                  |  |                                 | 434    |   |                                |   | 440   |      |  |   | 1,262  |   |  |   | 1,310  |  
|Brokerage and insurance commissions                             |  |                                 | 298    |   |                                |   | 227   |      |  |   | 899    |   |  |   | 710    |  
|Gain (loss) on sale of available for sale investment securities |  |                                 | 2      |   |                                |   |      |      |  |   | (9     | ) |  |   |       |  
|Gains on sales of loans and servicing rights                    |  |                                 | 30     |   |                                |   | 29    |      |  |   | 50     |   |  |   | 70     |  
|Increase in cash value of life insurance                        |  |                                 | 224    |   |                                |   | 189   |      |  |   | 631    |   |  |   | 565    |  
|Other                                                           |  |                                 | (3     | ) |                                |   | (101  | )    |  |   | 130    |   |  |   | 63     |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Total other income                                              |  |                                 | 985    |   |                                |   | 784   |      |  |   | 2,963  |   |  |   | 2,718  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Other Expense                                                   |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Salaries and employee benefits                                  |  |                                 | 2,076  |   |                                |   | 1,922 |      |  |   | 6,326  |   |  |   | 5,832  |  
|Net occupancy expense                                           |  |                                 | 290    |   |                                |   | 209   |      |  |   | 733    |   |  |   | 621    |  
|Furniture and equipment expense                                 |  |                                 | 176    |   |                                |   | 185   |      |  |   | 539    |   |  |   | 539    |  
|Legal and professional fees                                     |  |                                 | 176    |   |                                |   | 171   |      |  |   | 702    |   |  |   | 486    |  
|Data processing expense                                         |  |                                 | 149    |   |                                |   | 146   |      |  |   | 436    |   |  |   | 412    |  
|Printing and office supplies                                    |  |                                 | 111    |   |                                |   | 61    |      |  |   | 222    |   |  |   | 192    |  
|Advertising and marketing expense                               |  |                                 | 135    |   |                                |   | 62    |      |  |   | 283    |   |  |   | 185    |  
|Other                                                           |  |                                 | 431    |   |                                |   | 468   |      |  |   | 1,215  |   |  |   | 1,307  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Total other expense                                             |  |                                 | 3,544  |   |                                |   | 3,224 |      |  |   | 10,456 |   |  |   | 9,574  |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Income (Loss) Before Income Taxes                               |  |                                 | 1,795  |   |                                |   | (358  | )    |  |   | 1,479  |   |  |   | (476   | )
|Income taxes (benefit)                                          |  |                                 | 405    |   |                                |   | (266  | )    |  |   | 135    |   |  |   | (607   | )
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Net Income (Loss)                                               |  | $                               | 1,390  |   |                                | $ | (92   | )    |  | $ | 1,344  |   |  | $ | 131    |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Basic Earnings (Loss) Per Share                                 |  | $                               | 0.47   |   |                                | $ | (0.03 | )    |  | $ | 0.45   |   |  | $ | 0.04   |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Diluted Earnings (Loss) Per Share                               |  | $                               | 0.47   |   |                                | $ | (0.03 | )    |  | $ | 0.45   |   |  | $ | 0.04   |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Dividends Declared Per Share                                    |  | $                               | 0.04   |   |                                | $ | 0.16  |      |  | $ | 0.12   |   |  | $ | 0.48   |  
|                                                                |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  

See notes to consolidated condensed financial statements.



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##### Table of Contents

Ameriana Bancorp

Consolidated Condensed Statements of Shareholders Equity

(In thousands, except per share data)

(Unaudited)



|                                                                              |  |              |       |                            |   |                   |  |   |                                      |   |  |               |        |   |       |   |        |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------ | ----- | -------------------------- | - | ----------------- |  | - | ------------------------------------ | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | ------ | -
|                                                                              |  | Common Stock |       | Additional Paid-in Capital |   | Retained Earnings |  |   | Accumulated Other Comprehensive Loss |   |  | TreasuryStock |        |   | Total |  
|Balance at December 31, 2006                                                  |  | $            | 3,214 |                            | $ | 1,039             |  | $ | 32,152                               |   |  | $             | (1,090 | ) |       | $ | (2,191 | ) |  | $ | 33,124 |  
|Net income                                                                    |  |              |      |                            |   |                  |  |   | 1,344                                |   |  |               |       |   |       |   |       |   |  |   | 1,344  |  
|Change in accumulated other comprehensive income related to retirement plan   |  |              |       |                            |   |                   |  |   |                                      |   |  |               | (165   | ) |       |   |        |   |  |   | (165   | )
|Change in unrealized loss on available-for-sale securities, net of income tax |  |              |      |                            |   |                  |  |   |                                     |   |  |               | 391    |   |       |   |       |   |  |   | 391    |  
|                                                                              |  |              |       |                            |   |                   |  |   |                                      |   |  |               |        |   |       |   |        |   |  |   |        |  
|Comprehensive gain                                                            |  |              |       |                            |   |                   |  |   |                                      |   |  |               |        |   |       |   |        |   |  |   | 226    |  
|Dividends declared ($0.12 per share)                                          |  |              |      |                            |   |                  |  |   | (359                                 | ) |  |               |       |   |       |   |       |   |  |   | (359   | )
|Common stock repurchased                                                      |  |              |      |                            |   |                  |  |   |                                     |   |  |               |       |   |       |   | (807   | ) |  |   | (807   | )
|                                                                              |  |              |       |                            |   |                   |  |   |                                      |   |  |               |        |   |       |   |        |   |  |   |        |  
|Balance at September 30, 2007                                                 |  | $            | 3,214 |                            | $ | 1,039             |  | $ | 33,137                               |   |  | $             | (864   | ) |       | $ | (2,998 | ) |  | $ | 33,528 |  
|                                                                              |  |              |       |                            |   |                   |  |   |                                      |   |  |               |        |   |       |   |        |   |  |   |        |  

See notes to consolidated condensed financial statements.



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##### Table of Contents

Ameriana Bancorp

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                            |  |                                 |         |   |      |   |         |  
|----------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                            |  | Nine Months Ended September 30, |        
|                                                            |  | 2007                            |         |   | 2006 |  
|Operating Activities                                        |  |                                 |         |   |      |   |         |  
|Net income                                                  |  | $                               | 1,344   |   |      | $ | 131     |  
|Items not requiring (providing) cash                        |  |                                 |         |   |      |   |         |  
|Provision (credit) for losses on loans                      |  |                                 | (1,747  | ) |      |   | 225     |  
|Depreciation and amortization                               |  |                                 | 668     |   |      |   | 928     |  
|Increase in cash value of life insurance                    |  |                                 | (631    | ) |      |   | (565    | )
|Mortgage loans originated for sale                          |  |                                 | (5,751  | ) |      |   | (3,500  | )
|Proceeds from sale of mortgage loans                        |  |                                 | 5,180   |   |      |   | 3,537   |  
|Gains on sale of loans and servicing rights                 |  |                                 | (31     | ) |      |   | (70     | )
|Loss on sale of other real estate owned                     |  |                                 | 67      |   |      |   |        |  
|Loss from sales of available for sale securities            |  |                                 | 9       |   |      |   |        |  
|Increase (decrease) in drafts payable                       |  |                                 | 1       |   |      |   | (636    | )
|Increase in accrued interest payable                        |  |                                 | 1,111   |   |      |   |        |  
|Other adjustments                                           |  |                                 | 779     |   |      |   | 1,430   |  
|                                                            |  |                                 |         |   |      |   |         |  
|Net cash used in operating activities                       |  |                                 | 999     |   |      |   | 1,480   |  
|                                                            |  |                                 |         |   |      |   |         |  
|Investing Activities                                        |  |                                 |         |   |      |   |         |  
|Purchase of securities                                      |  |                                 | (208    | ) |      |   | (25,590 | )
|Proceeds/principal from sale of securities                  |  |                                 | 16,037  |   |      |   |        |  
|Proceeds/principal from maturity/calls of securities        |  |                                 | 30,750  |   |      |   | 19,500  |  
|Principal collected on mortgage-backed securities           |  |                                 | 5,036   |   |      |   | 7,209   |  
|Net change in loans                                         |  |                                 | (34,477 | ) |      |   | (30,378 | )
|Proceeds from sales of other real estate owned              |  |                                 | 731     |   |      |   |        |  
|Net purchases of premises and equipment                     |  |                                 | (656    | ) |      |   | (558    | )
|Redemption of Federal Home Loan Bank stock                  |  |                                 | 14      |   |      |   | 1,754   |  
|Purchase of investment in Ameriana Capital Trust I          |  |                                 |        |   |      |   | (310    | )
|Other investing activities                                  |  |                                 | (4      | ) |      |   | 621     |  
|                                                            |  |                                 |         |   |      |   |         |  
|Net cash (used in) provided by investing activities         |  |                                 | 17,223  |   |      |   | (27,752 | )
|                                                            |  |                                 |         |   |      |   |         |  
|Financing Activities                                        |  |                                 |         |   |      |   |         |  
|Net change in demand and savings deposits                   |  |                                 | 2,690   |   |      |   | (15,344 | )
|Net change in certificates of deposit                       |  |                                 | (5,356  | ) |      |   | 6,603   |  
|Net change in short-term borrowings                         |  |                                 | (26,000 | ) |      |   | 20,000  |  
|Proceeds from long-term borrowings                          |  |                                 | 24,000  |   |      |   | 10,000  |  
|Repayment of long-term borrowings                           |  |                                 | (12,379 | ) |      |   | (5,475  | )
|Proceeds from issuance of subordinated debentures           |  |                                 |        |   |      |   | 10,310  |  
|Repurchase of common stock                                  |  |                                 | (807    | ) |      |   | (1,201  | )
|Exercise of stock options                                   |  |                                 |        |   |      |   | 371     |  
|Tax benefit from stock options exercised                    |  |                                 |        |   |      |   | 43      |  
|Net change in advances by borrowers for taxes and insurance |  |                                 | 215     |   |      |   | 250     |  
|Cash dividends paid                                         |  |                                 | (359    | ) |      |   | (1,533  | )
|                                                            |  |                                 |         |   |      |   |         |  
|Net cash (used in) provided by financing activities         |  |                                 | (17,996 | ) |      |   | 24,024  |  
|                                                            |  |                                 |         |   |      |   |         |  
|Change in Cash and Cash Equivalents                         |  |                                 | 226     |   |      |   | (2,248  | )
|Cash and Cash Equivalents at Beginning of Year              |  |                                 | 12,070  |   |      |   | 14,270  |  
|                                                            |  |                                 |         |   |      |   |         |  
|Cash and Cash Equivalents at End of Quarter                 |  | $                               | 12,296  |   |      | $ | 12,022  |  
|                                                            |  |                                 |         |   |      |   |         |  
|Supplemental information:                                   |  |                                 |         |   |      |   |         |  
|Interest paid                                               |  | $                               | 9,519   |   |      | $ | 8,471   |  
|Income taxes paid                                           |  |                                 |        |   |      |   |        |  

See notes to consolidated condensed financial statements.



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AMERIANA BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE ABASIS OF PRESENTATION

The consolidated
financial statements include the accounts of Ameriana Bancorp (the Company) and its wholly-owned subsidiary, Ameriana Bank, SB (the Bank). The Bank has three direct wholly-owned subsidiaries, Ameriana Insurance Agency,
Ameriana Financial Services, Inc., and Ameriana Investment Management, Inc.

The unaudited interim consolidated condensed financial
statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and disclosures required by generally accepted accounting principles (GAAP) for complete financial statements.
In the opinion of management, the financial statements reflect all adjustments (comprised only of normal recurring adjustments and accruals) necessary to present fairly the Companys financial position and results of operations and cash flows.
The results of operations for the period are not necessarily indicative of the results to be expected in the full year. These statements should be read in conjunction with the consolidated financial statements and related notes which are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

Certain reclassifications have been made to the 2006
unaudited interim financial statements to conform to the 2007 unaudited interim financial statement presentation. These reclassifications had no effect on net income.

NOTE BSHAREHOLDERS EQUITY

On August 27, 2007, the Board of Directors declared a
quarterly cash dividend of $0.04 per share. This dividend, totaling approximately $120,000, was accrued for payment to shareholders of record on September 14, 2007, and was paid on October 5, 2007.

No stock options were exercised during the third quarter of 2007.

NOTE CEARNINGS PER SHARE

Earnings per share were computed as follows:



|                                                                                                          |  |                                   |       |                       |           |                |   |        |  |   |                       |   |                |           |  |   |       |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | --------------------- | --------- | -------------- | - | ------ |  | - | --------------------- | - | -------------- | --------- |  | - | ----- | -
|                                                                                                          |  | (In thousands, except share data) |      
|                                                                                                          |  | Three Months Ended September 30,  |      
|                                                                                                          |  | 2007                              |       | 2006                  |          
|                                                                                                          |  | Income                            |       | WeightedAverageShares |           | PerShareAmount |   | Income |  |   | WeightedAverageShares |   | PerShareAmount |          
|Basic Earnings (Loss) per Share: Income (loss) available to common shareholders                           |  | $                                 | 1,390 |                       | 2,988,952 |                | $ | 0.47   |  | $ | (92                   | ) |                | 3,149,067 |  | $ | (0.03 | )
|                                                                                                          |  |                                   |       |                       |           |                |   |        |  |   |                       |   |                |           |  |   |       |  
|Effect of dilutive stock options                                                                          |  |                                   |      |                       |          |                |   |        |  |   |                      |   |                |          |  |   |       |  
|                                                                                                          |  |                                   |       |                       |           |                |   |        |  |   |                       |   |                |           |  |   |       |  
|Diluted Earnings (Loss) Per Share: Income (loss) available to common shareholders and assumed conversions |  | $                                 | 1,390 |                       | 2,988,952 |                | $ | 0.47   |  | $ | (92                   | ) |                | 3,149,067 |  | $ | (0.03 | )
|                                                                                                          |  |                                   |       |                       |           |                |   |        |  |   |                       |   |                |           |  |   |       |  



|                                                                                            |  |                                   |       |                       |           |                |   |        |  |                       |     |                |           |  |   |     
|------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | --------------------- | --------- | -------------- | - | ------ |  | --------------------- | --- | -------------- | --------- |  | - | ----
|                                                                                            |  | (In thousands, except share data)
|                                                                                            |  | Nine Months Ended September 30,  
|                                                                                            |  | 2007                              |       | 2006                 
|                                                                                            |  | Income                            |       | WeightedAverageShares |           | PerShareAmount |   | Income |  | WeightedAverageShares |     | PerShareAmount
|Basic Earnings per Share: Income available to common shareholders                           |  | $                                 | 1,344 |                       | 3,003,127 |                | $ | 0.45   |  | $                     | 131 |                | 3,183,130 |  | $ | 0.04
|                                                                                            |  |                                   |       |                       |           |                |   |        |  |                       |     |                |           |  |   |     
|Effect of dilutive stock options                                                            |  |                                   |      |                       |          |                |   |        |  |                       |    |                | 4,714     |  |   |     
|                                                                                            |  |                                   |       |                       |           |                |   |        |  |                       |     |                |           |  |   |     
|Diluted Earnings Per Share: Income available to common shareholders and assumed conversions |  | $                                 | 1,344 |                       | 3,003,127 |                | $ | 0.45   |  | $                     | 131 |                | 3,187,844 |  | $ | 0.04
|                                                                                            |  |                                   |       |                       |           |                |   |        |  |                       |     |                |           |  |   |     



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Options to purchase 206,282 and 274,427 shares of common stock at exercise prices of $12.43 to $17.05 and
$14.25 to $18.30 per share were outstanding at September 30, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

NOTE DFUTURE ACCOUNTING MATTERS

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting standards, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We do not expect the adoption of SFAS No. 157 to have a material impact on our financial condition or results of operations.

Accounting for Uncertainty in Income taxes

In June 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes (Interpretation No. 48). Interpretation No. 48 clarifies the accounting for uncertainty in income taxes in financial statements and prescribes
a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. It also provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. Interpretation No. 48 is effective for the Company beginning January 1, 2007. We have evaluated the requirements of Interpretation No. 48 and determined that it did not have a material
effect on our financial condition or results of operations.

Split-dollar life insurance agreements

In September 2006, the Emerging Issues Task Force Issue 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements, was ratified. EITF 06-4 addresses accounting for separate agreements which split life insurance policy benefits between an employer and employee. The Issue requires the employer to recognize a liability for
future benefits payable to the employee under these agreements. The effects of applying EITF 06-4 must be recognized through either a change in accounting principle through an adjustment to equity or through the retrospective application to all
prior periods. For calendar year companies, EITF 06-4 is effective beginning January 1, 2008. Early adoption is permitted as of January 1, 2007. The Company is evaluating and has not yet determined the impact the new standard is expected
to have on its financial position.

Fair Value Option for Financial Assets and Financial Liabilities

On February 15, 2007, the FASB issued its Statement No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of
FASB Statement No. 115. FAS 159 permits entities to elect to report most financial assets and liabilities at their fair value with changes in fair value included in net income. The fair value option may be applied on an instrument-by-instrument
or instrument class-by-class basis. The option is not available for deposits withdrawable on demand, pension plan assets and obligations, leases, instruments classified as stockholders equity, investments in consolidated subsidiaries and
variable interest entities and certain insurance policies. The new standard is effective at the beginning of the Companys fiscal year beginning January 1, 2008, and early application may be elected in certain circumstances. The Company
expects to first apply the new standard at the beginning of its 2008 fiscal year. The Company is currently evaluating and has not yet determined the impact the new standard is expected to have on its financial position, results of operations or cash
flows.

NOTE ETRUST PREFERRED SECURITIES

During March 2006, the Company completed a private placement of $10 million in trust preferred securities through Ameriana Capital Trust I (the Trust), a statutory business trust formed by the Company. The securities were sold
pursuant to an applicable exemption from registration under the Securities Act of 1933, as amended. The proceeds from the issuance, along with the Companys $310,000 capital contribution for the Trusts common securities, were used to
acquire $10.3 million in subordinated



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debentures issued by the Company, which constitute the sole asset of the Trust. Because the Trust is not consolidated with the Company, pursuant to FASB
Interpretation No. 46, the Company's financial statements reflect the subordinated debt issued to the Trust. Interest payments are payable quarterly at a rate of the average of 6.71% and three-month LIBOR plus 150 basis points for the first
five years. After the first five years, the subordinated debentures bear interest at a rate of equal to the three-month LIBOR rate plus 150 basis points. The Company has the option to defer interest payments from time to time for a period not to
exceed 20 consecutive quarters. The rate at September 30, 2007 was 6.95%. The subordinated debt matures on March 15, 2036 and can be called at par anytime after March 15, 2011.

NOTE FRETIREMENT PLAN

The following table
summarizes the components of net periodic pension cost:



|                                                |  |                                 |    |                                |   |      |  |      |     |  |   |    
|----------------------------------------------- |  | ------------------------------- | -- | ------------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                |  | Three Months EndedSeptember 30, |    | Nine Months EndedSeptember 30,
|$ in thousands                                  |  | 2007                            |    | 2006                           |   | 2007 |  | 2006
|Service cost                                    |  | $                               | 8  |                                | $ | 7    |  | $    | 25  |  | $ | 22 
|Interest cost                                   |  |                                 | 29 |                                |   | 32   |  |      | 88  |  |   | 95 
|Amortization of actuarial loss                  |  |                                 | 3  |                                |   | 19   |  |      | 8   |  |   | 57 
|Amortization of unrecognized prior service cost |  |                                 | 15 |                                |   | 15   |  |      | 45  |  |   | 45 
|                                                |  |                                 |    |                                |   |      |  |      |     |  |   |    
|Net periodic pension cost                       |  | $                               | 55 |                                | $ | 73   |  | $    | 166 |  | $ | 219
|                                                |  |                                 |    |                                |   |      |  |      |     |  |   |    

Net periodic pension cost is recorded as a component of employee benefits in the Consolidated Condensed Statements
of Operations. The plan assumptions are evaluated annually and are updated as necessary. The discount rate assumption reflects the yield on a portion of high quality fixed-income instruments that have a similar duration to the plans
liabilities.

NOTE GCHANGE IN ACCOUNTING PRINCIPLE

The Company or one of its subsidiaries files income tax returns in the U.S. federal and Indiana jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax
authorities for years before 2004.

The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109,on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a
result of the implementation of FIN 48, the Company did not identify any uncertain tax positions that it believes should be recognized in the financial statements.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements Discussion and Analysis of Financial Condition and Results of Operations (the MD&A) is designed to provide a reader of our financial statements with a narrative on our financial condition, results of
operations, liquidity, critical accounting policies, off-balance sheet arrangements and the future impact of accounting standards. We believe it is useful to read our MD&A in conjunction with the consolidated financial statements contained in
Part I in this Quarterly Report on Form 10-Q (this "Form 10-Q"), our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and our other reports on Forms 10-Q and 8-K and other publicly available information.



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FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain certain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on Ameriana
Bancorps current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as expects, believes, anticipates,
intends and similar expressions. 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 and deposits in the Companys market area, changes in the quality or composition of our loan portfolio, changes in accounting principles, and competition that could cause actual
results to differ materially from historical earnings and those presently anticipated or projected. Additional factors that may affect our results are discussed in the Form 10-K, including in the section titled Risk Factors, in this Form
10-Q under Part II, Item 1A -Risk Factors, and in other reports filed with the Securities and Exchange Commission. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as
of the date made. The Company advises 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.

Who We Are

Ameriana
Bancorp (the Company) is an Indiana chartered bank holding company organized in 1987 by Ameriana Savings Bank, FSB (the Bank). The Company is subject to regulation and supervision by the Federal Reserve Bank. The Bank began
banking operations in 1890 as a federally chartered savings bank. On June 29, 2002, the Bank converted to an Indiana savings bank and adopted the name, Ameriana Bank and Trust, SB. In August 2006, the Bank closed its Trust Department and
adopted its present name. The Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation (the FDIC), and the Indiana Department of Financial Institutions (the DFI). Our deposits are insured to
applicable limits by the Deposit Insurance Fund administered by the FDIC. References in this Form 10-Q to we, us, and our refer to Ameriana Bancorp and/or the Bank, as appropriate.

We are headquartered in New Castle, Indiana. We conduct business through our main office at 2118 Bundy Avenue, New Castle, Indiana and through nine
branch offices located in New Castle, Middletown, Knightstown, Morristown, Greenfield, Anderson, Avon, McCordsville and New Palestine, Indiana, and through our commercial loan production office in Carmel, Indiana.

The Bank has three wholly owned subsidiaries, Ameriana Insurance Agency (AIA), Ameriana Financial Services, Inc. (AFS) and
Ameriana Investment Management, Inc. (AIMI). AIA provides insurance sales from offices in New Castle, Greenfield and Avon, Indiana. AFS offers debt protection products through its ownership of an interest in Family Financial Holdings,
Incorporated, Columbus, Indiana. 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. AIMI
manages the Banks investment portfolio. The Company holds a minority interest in a limited partnership, House Investments, organized to acquire and manage real estate investments which qualify for federal tax credits.



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What We Do

The Bank is a community-oriented financial institution. Our principal business consists of attracting deposits from the general public and investing those funds primarily in mortgage loans on single-family residences,
multi-family loans, construction loans, commercial real estate loans, and, to a lesser extent, commercial and industrial loans, small business lending, home improvement loans, and consumer loans. We have from time to time purchased loans and loan
participations in the secondary market. We also invest in various federal and government agency obligations and other investment securities permitted by applicable laws and regulations, including mortgage-backed, municipal and equity securities. We
offer customers in our market area time deposits with terms from three months to seven years, interest-bearing and non interest-bearing checking accounts, savings accounts and money market accounts. Our primary source of borrowings is Federal Home
Loan Bank (FHLB) advances. Through our subsidiaries, we engage in insurance and brokerage activities.

Our primary source of
income is net interest income, which is the difference between the interest income earned on our loan and investment portfolios and the interest expense incurred on our deposits and borrowing portfolios. Our loan portfolio typically earns more
interest than the investment portfolio, and our deposits typically have a lower average rate than FHLB advances. Several factors affect our net interest income. These factors include the loan, investment, deposit, and borrowing portfolio balances,
their composition, the length of their maturity, re-pricing characteristics, liquidity, credit, and interest rate risk, as well as market and competitive conditions.

Overview of the Three and Nine Months Ended September 30, 2007

During the first
nine months of 2007, the Company recorded improved net interest income that resulted primarily from significant growth of the commercial loan portfolio and from the balance sheet restructuring strategy initiated in the last quarter of 2006. A credit
to the allowance for loan losses was primarily responsible for the significant increase in net income for the third quarter of 2007, compared to the two prior quarters. Earnings were negatively impacted in the first quarter of 2007 by increased
operating expenses, which resulted in a slight net loss for the first three months of the year. A substantial tax liability related to the Companys restructuring of its Bank Owned Life Insurance (BOLI) produced a similar slight net loss for
the second quarter of 2007.



| |  |  | The Company realized net income of $1,390,000 for the three months ended September 30, 2007, compared to a net loss of $92,000 for the same period in 2006. The
recovery in the RLI litigation during the third quarter, described below, was the primary factor in the $1,344,000 net income achieved for the nine months ended September 30, 2007, compared to net income of $131,000 for the nine months ended
September 30, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The credit to the allowance for loan losses recorded in the third quarter of 2007 was the net of a recovery of $2.8 million that resulted from our litigation
against RLI Insurance Co. (RLI) over surety guarantees for certain lease pools in which Ameriana Bank had previously invested, reduced by a provision of $823,000 that included amounts related to two commercial credits that recently were
either charged off or specifically reserved. See Part II, Item 1  Legal Proceedings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The first quarter of 2007 included a severance cost of $273,000 related to a change in management that had an after-tax impact of approximately $180,000 on the
Companys earnings.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Operating expense for the three months ended March 31, 2007 also included recruiting expense related to our expansion of commercial lending in metropolitan
Indianapolis, and continuing fees for the RLI litigation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An income tax liability of $219,000 recorded during the second quarter of 2007 resulted from a BOLI program restructuring that was designed to improve the mix of
policies covering insured current and inactive employees, change carriers to improve the credit ratings of the issuers, and improve the overall yield of the portfolio of policies.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | A continuing balance sheet management strategy that provided positive results in the first nine months of 2007 was the redeployment of funds from lower-yielding
investment securities into higher-yielding commercial loans. This strategy was the primary reason that net interest margin improved 40 basis points to 2.70% for the nine months ended September 30, 2007, from 2.30% for the same period in 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Financial and Strategic Issues

The improvement in overall credit quality that was achieved in 2006 continued through the first six months of 2007, but the Bank started to see some deterioration of credit quality in the third quarter as classified
loans increased from $9.7 million at June 30, 2007 to $10.8 million at September 30, 2007. The Banks percentage of classified loans to total risk-based capital of 25.0% at September 30, 2007, was an improvement over the 32.8% a
year earlier, as classified loans were reduced from $13.9 million to $10.8 million and total risk-based capital grew from $42.4 million to $43.1 million. The decline in this ratio over the twelve-month period was a result of improved work-out
strategies undertaken by the Bank. Significant focus on underwriting, and a portfolio risk approach should allow the Bank to manage credit risk effectively.

Our net interest margin will continue to be impacted by actions of the Federal Reserve. After 13 prior increases of 0.25% each, the Federal Reserve raised the Federal funds target rate four additional times in 0.25%
increments during the first six months of 2006. The Federal Reserve then held the rate at 5.25% until September of 2007, when it changed direction and reduced the rate 50 basis points to 4.75%, where it remained at the end of the third quarter. The
U.S. Treasury yield curve remained relatively flat through most of 2006 and the first nine months of 2007, which negatively impacted most financial institutions. Our interest-bearing liabilities re-price to current market conditions faster than our
interest-earning assets, which can potentially decrease our net interest margin in a rising interest rate environment. The expected improvement in the mix of interest-earning assets in 2007, with the reinvestment of funds from lower-yielding
investment securities into commercial loans, will have a positive impact on our net interest margin.

The Companys short and
long-term action plans include:



| |  |  | Diversifying the loan portfolio by reducing the concentration in commercial real estate and expanding commercial, residential real estate and consumer lending.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Focusing on retail banking activities, including an emphasis on transactional deposit growth, expanding customer relationships as measured by products per
household, and acquisition of new customer relationships.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improving the efficiency ratio of the Company.
| | - |  | ----------------------------------------------



| |  |  | Reducing the size of the investment portfolio as a percentage of total assets.
| | - |  | ------------------------------------------------------------------------------

We will continue to focus on these strategies in the fourth quarter of 2007 in order to continue the improvements realized in 2006 that were also carried forward through the first nine months of 2007.

CRITICAL ACCOUNTING POLICIES

The accounting and
reporting policies of the Company are maintained in accordance with accounting principles generally accepted in the United States (GAAP) 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 in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006. 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 such estimates and
assumptions 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 of operations,
and they require management to make estimates that are difficult, subjective or complex. We consider the allowance for loan losses and mortgage servicing rights to be our critical accounting policies.



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Allowance for Loan Losses. The allowance for loan losses provides coverage for probable
losses inherent in the Companys loan portfolio. Management evaluates the adequacy of the allowance for loan 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), asset quality 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
non-commercial 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 loan category or group of loans. The allowance for
loan 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 changes in their unique business conditions, the
subjective 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 considered. 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.

FINANCIAL CONDITION

Total assets of $422.1 million
at September 30, 2007, represented a decrease of $15.1 million from the December 31, 2006 total of $437.2 million. The decrease resulted primarily from managements decision to reduce the size of the investment portfolio (particularly
lower-yielding securities) and to use a portion of the cash flows from the portfolio to paydown Federal Home Loan Bank borrowings.

Cash
and cash equivalents of $12.3 million at September 30, 2007, were essentially unchanged from the December 31, 2006 total of $12.1 million. The total impact from managements strategy to reduce the size of the investment securities
portfolio was a reduction in the level of securities of $51.2 million to $78.6 million at September 30, 2007 from $129.8 million at December 31, 2006. The proceeds from the investment securities portfolio were used to fund loan portfolio
growth and reduce the Companys level of borrowings.



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Net loans increased $33.1 million, or 13.3%, during the nine-month period to $282.3 million, mostly due
to increases in both the commercial loan portfolio and the portfolio of residential real estate first mortgages. The commercial loan growth of $19.4 million, or 15.8%, to $141.9 million was achieved primarily through the addition of highly-seasoned
commercial lenders as part of the Banks Indianapolis metropolitan market expansion strategy. The residential real estate first mortgage loan portfolio growth of $14.0 million, or 13.3%, to $118.7 million, included the purchase of $3.9 million
of fixed-rate loans in the first quarter of 2007. In addition to adding to the growth of the portfolio, this purchase was also designed to improve the geographic diversification of the portfolio. As a result of our interest rate risk management
strategy implemented in the second quarter of 2007 to sell longer-term fixed-rate residential loans, sales of residential mortgage loans into the secondary market grew from $787,000 for the first six months of the year to $3.9 million for the third
quarter of 2007. The residential mortgage loan strategy is reviewed on a regular basis to ensure that it remains consistent with the Banks overall balance sheet management objectives.

Total deposits declined $2.7 million, or 0.8%, during the first nine months of 2007 to $319.8 million, with higher-costing certificates of deposit
declining $5.4 million. The combined total for checking, savings, and money market accounts was up $2.7 million for the period. The Banks markets remain very competitive for deposit products and the Bank continues to utilize pricing strategies
designed to produce an acceptable marginal cost for both existing and new deposits.

Borrowings decreased by $14.4 million during the first
nine months of 2007 to $60.3 million, as the Bank applied cash flows from the investment portfolio that were in excess of amounts needed to fund the loan portfolio growth during the period to pay down borrowings. Wholesale funding strategies and
sources are continuously being analyzed in an effort to control the cost of this alternative to organic deposit account funding.

Net
income of $1.3 million was the primary factor in shareholders equity growth of $404,000 for the nine months ended September 30, 2007, offset by the repurchase of 63,000 shares of common stock at a cost of $807,000 and $359,000 to pay the
three quarterly shareholder dividends. Adjustments included an addition of $391,000 to equity related to the improvement in the market value of investment securities, and a reduction of $165,000 related to the Company retirement plan.

RESULTS OF OPERATIONS

Third Quarter of 2007 compared to the
Third Quarter of 2006

The Company realized net income of $1.4 million, or $0.47 per diluted share, for the third quarter of 2007,
compared to a net loss of $92,000, or $0.03 per diluted share, for the third quarter of 2006. The difference of $1.5 million resulted primarily from the after-tax benefit from the RLI loss recovery of $2.8 million net of the third quarter loan loss
provision of $823,000. There were other major income statement component differences between the two quarters:



| |  |  | The Company produced a $270,000, or 12.5%, increase in net interest income resulting from a 50 basis point improvement in net interest margin from 2.24% to 2.74%.
The improvement in net interest income was also accomplished with a lower average earning asset total for the third quarter of 2007 than the same period in 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other income for the third quarter of 2007 was $985,000, a $201,000, or 25.6%, improvement over the $784,000 recorded for the same quarter of 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $3.5 million in other expense for the third quarter of 2007, represented a $320,000 or 9.9% increase over other expense of $3.2 million for the same quarter of
2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A $671,000 increase in income tax expense for the third quarter of 2007, compared to the same quarter of 2006, resulted primarily from the difference between the
credit to the allowance for loan losses for the three months ended September 30, 2007, and the loan loss provision expense for the three months ended September 30, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Net Interest Income

Net interest income on a fully tax equivalent basis increased $355,000 to $2.6 million for the third quarter of 2007 compared to $2.3 million for the same period of 2006. The Company improved its net interest margin
on a fully tax equivalent basis by 50 basis points to 2.74% for the third quarter of 2007 from 2.24% for the third quarter of 2006. The improvement in net interest income and net interest margin was accomplished primarily through the balance sheet
restructuring strategy implemented in November of 2006, coupled with the significant loan growth that included both commercial and residential first mortgage loans. A higher average cost of funds for the third quarter of 2007 compared to the same
period in 2006 had a negative impact on efforts to further improve the net interest margin.

Tax-exempt interest was $352,000 for the third
quarter of 2007 compared to $184,000 for the third quarter of 2006. Our tax-exempt interest was from bank-qualified municipal securities and municipal loans. The tax equivalent adjustments were $180,000 and $95,000 for the third quarters of 2007 and
2006, respectively.

Provision for Loan Losses

The following table sets forth an analysis of the Banks allowance for loan losses for the periods indicated:



|                                   |  |                                  |        |   |      |   |       |  
|---------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ----- | -
|                                   |  | (Dollars in thousands)           |       
|                                   |  | Three Months Ended September 30, |       
|                                   |  | 2007                             |        |   | 2006 |  
|Balance at beginning of quarter    |  | $                                | 2,730  |   |      | $ | 2,993 |  
|Provision (credit) for loan losses |  |                                  | (1,927 | ) |      |   | 75    |  
|Charge-offs                        |  |                                  | (818   | ) |      |   | (31   | )
|Recoveries                         |  |                                  | 2,754  |   |      |   | 36    |  
|                                   |  |                                  |        |   |      |   |       |  
|Net recoveries                     |  |                                  | 1,936  |   |      |   | 5     |  
|                                   |  |                                  |        |   |      |   |       |  
|Balance at end of period           |  | $                                | 2,739  |   |      | $ | 3,073 |  
|                                   |  |                                  |        |   |      |   |       |  
|Allowance to total loans           |  |                                  | 0.96   | % |      |   | 1.23  | %
|                                   |  |                                  |        |   |      |   |       |  
|Allowance to non-performing loans  |  |                                  | 112.25 | % |      |   | 65.86 | %
|                                   |  |                                  |        |   |      |   |       |  

We had a credit to the allowance for loan losses of $1.9 million in the third quarter of 2007
compared to a provision of $75,000 for the same period in 2006. The change in provision expense was primarily due to the loss recovery in the third quarter of 2007 of $2.8 million that resulted from our litigation against RLI, reduced by a net
provision of $823,000 that included amounts related to two commercial credits previously totaling $2.3 million that recently were either charged off or charged down.

The following table summarizes the Companys non-performing loans:



|                                                      |  |                        |       |   |      |   |       |  
|----------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | -
|                                                      |  | (Dollars in thousands) |      
|                                                      |  | September 30,          |      
|                                                      |  | 2007                   |       |   | 2006 |  
|Loans accounted for on a non-accrual basis            |  | $                      | 2,388 |   |      | $ | 4,648 |  
|Accruing loans contractually past due 90 days or more |  |                        | 52    |   |      |   | 18    |  
|                                                      |  |                        |       |   |      |   |       |  
|Total of non-accrual and 90 days past due loans       |  | $                      | 2,440 |   |      | $ | 4,666 |  
|                                                      |  |                        |       |   |      |   |       |  
|Percentage of total net loans                         |  |                        | 0.86  | % |      |   | 1.88  | %
|                                                      |  |                        |       |   |      |   |       |  
|Other non-performing assets (1)                       |  | $                      | 2,962 |   |      | $ | 1,625 |  
|                                                      |  |                        |       |   |      |   |       |  



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##### Table of Contents

---

|(1) | Other non-performing assets represent 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Non-accrual loans declined $2.3 million from $4.7 million at September 30, 2006 to $2.4 million at
September 30, 2007, primarily due to transfers into real estate owned that resulted from the Banks continued workout strategies. This decrease was also impacted by the sale of one non-accrual loan totaling $1.4 million that occurred in
the fourth quarter of 2006 and resulted in a loss of $385,000. Two credit relationships totaling $1.3 million moved into non-accrual during the third quarter of 2007. The two credits are both commercial real estate loans, a land development loan and
a loan secured by multiple investment properties. We have reserved $166,000 for possible losses on these two credits.

Other non-performing
assets, real estate owned, increased to $3.0 million at September 30, 2007 from $1.6 million at September 30, 2006, with additions from the non-accrual category as discussed above.

Other Income

The $201,000 increase in total
other income for the third quarter of 2007, compared to the same period in 2006, resulted primarily from an increase of $71,000 in brokerage and insurance commissions, a $35,000 improvement in the increase in cash value of life insurance, and a
reduction of $120,000 in net losses from other real estate owned. The improvement in brokerage and insurance commissions was mainly due to higher commission income from the investment center that resulted from increased sales.

Other Expense

The $320,000 increase in total
other expense in the third quarter of 2007, compared to the third quarter of 2006, resulted primarily from:



| |  |  | A $154,000, or 8.0% increase in salaries and employee benefits relating primarily to the expansion of the Banks commercial lending operations over the past
year, and to higher salaries and employee benefits related to normal annual increases.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An $81,000, or 38.8% increase in net occupancy expense resulting primarily from higher real estate taxes on office properties, and from major maintenance to office
properties that did not meet the criteria for capitalization.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A $50,000 increase in printing and office supplies, and a $73,000 increase in advertising and marketing expense relating primarily to the major initiative of
re-branding the Company that also included the roll-out of a new logo.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income Tax Expense

The $671,000 difference in income taxes from a tax benefit of $266,000 for the third quarter of 2006 to an income tax expense of $405,000 for the same
period of 2007, related primarily to the income tax expense resulting from the $1.9 million credit to the allowance for loan losses for the third quarter of 2007.

We have a deferred state tax asset that is primarily the result of operating losses sustained since 2003 for state tax purposes. We started recording a valuation allowance against our current period state income tax
benefit in 2005 due to our concern that we may not be able to use more than the deferred tax asset already recorded on the books without modifying the use of AIMI, our investment subsidiary. Operating income from AIMI is not subject to state income
taxes under current state law, and is the primary reason for the deferred tax asset.

Nine Months Ended September 30, 2007 compared to the Nine
Months Ended September 30, 2006

The Company realized net income of $1.3 million, or $0.45 per diluted share, for the nine
months ended September 30, 2007, compared to net income of $131,000, or $0.04 per diluted share, for the same period of 2006. The $1.2 million difference in net income and $0.41 increase in earnings per share resulted primarily from the
after-tax benefit from the RLI loss recovery of $2.8 million received in the third quarter net of the loan loss provision of $1.0 million incurred for the nine months ended September 30, 2007.



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##### Table of Contents

| |  |  | The $620,000 growth in net interest income was accomplished through a significant improvement in net interest margin that produced a benefit that exceeded a
corresponding negative impact from a lower level of average earning assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total other income increased $245,000, primarily as a result of significant growth in brokerage and insurance commissions, a larger increase in the cash value of
bank owned life insurance, and a reduction in net losses from other real estate owned.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $882,000 increase in total other expense resulted primarily from five factors: (1) an increased expense for salaries and employee benefits arising from the
liability for severance pay recorded in the first quarter; (2) higher staffing levels in commercial lending and credit review; (3) higher real estate taxes and major maintenance to office properties; (4) a significant increase in
legal fees related to the RLI Insurance Company litigation; and (5) higher marketing expense related to the major initiative of re-branding the Company.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $742,000 increase in income tax expense resulted primarily from the difference between the credit to the allowance for loan losses for the nine months ended
September 30, 2007, compared to the loan loss provision for the nine months ended September 30, 2006, and the tax liability booked in the second quarter of 2007 that resulted from the restructuring of the BOLI program.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Interest Income

Net interest income on a fully tax equivalent basis increased $866,000 to $7.7 million for the nine months ended September 30, 2007, compared to $6.9 million for the same period of 2006. The Company improved its net interest margin on
a fully tax equivalent basis by 40 basis points to 2.70% for the first nine months of 2007 from 2.30% for the first nine months of 2006. The improvement in net interest income and net interest margin was accomplished primarily through the balance
sheet restructuring strategy implemented in November of 2006, coupled with the significant loan growth that included both commercial and residential first mortgage loans. A higher average cost of funds for the first nine months of 2007 compared to
the same period in 2006 had a negative impact on efforts to further improve the net interest margin.

Tax-exempt interest was $1.0 million
for the first nine months of 2007 compared to $539,000 for the first nine months of 2006. Our tax-exempt interest was from bank-qualified municipal securities and municipal loans. The tax equivalent adjustments were $524,000 and $278,000 for the
first nine months of 2007 and 2006, respectively.

Provision for Loan Losses

The following table sets forth an analysis of the Banks allowance for loan losses for the periods indicated:



|                                   |  |                                 |        |   |      |   |       |  
|---------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ----- | -
|                                   |  | (Dollars in thousands)          |       
|                                   |  | Nine Months Ended September 30, |       
|                                   |  | 2007                            |        |   | 2006 |  
|Balance at beginning of year       |  | $                               | 2,616  |   |      | $ | 2,835 |  
|Provision (credit) for loan losses |  |                                 | (1,747 | ) |      |   | 225   |  
|Charge-offs                        |  |                                 | (926   | ) |      |   | (113  | )
|Recoveries                         |  |                                 | 2,796  |   |      |   | 126   |  
|                                   |  |                                 |        |   |      |   |       |  
|Net recoveries                     |  |                                 | 1,870  |   |      |   | 13    |  
|                                   |  |                                 |        |   |      |   |       |  
|Balance at end of period           |  | $                               | 2,739  |   |      | $ | 3,073 |  
|                                   |  |                                 |        |   |      |   |       |  

We had a credit to the allowance for loan losses of $1.7 million for the first nine months of
2007, compared to a provision of $225,000 for the same period in 2006. The change in provision expense was primarily due to the loss recovery in the third quarter of 2007 of $2.8 million that resulted from our litigation against RLI, reduced by a
net provision of $1.0 million for the nine months ended September 30, 2007 that included amounts related to two commercial credits that were also either charged off or charged down in the third quarter.



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##### Table of Contents

Other Income

The $245,000 increase in total other income for the first nine months of 2007, compared to the same period in 2006, resulted from an increase of $189,000 in brokerage and insurance commissions, a $66,000 improvement
in the increase in cash value of life insurance, and a $91,000 reduction in net losses from other real estate owned. The improvements listed above were partially offset by a $48,000 decline in other fees and service charges, of which $40,000 related
to trust services fees. During 2006, the Company discontinued offering trust services. The increase in brokerage and insurance commissions was mainly due to higher commission income from the investment center that resulted from increased sales. The
improvement in the increase in the cash value of life insurance resulted from the BOLI program restructuring that occurred earlier in the year. Net losses from other real estate owned in the third quarter of 2006 included a sale that resulted in a
$175,000 loss.

Other Expense

The $882,000 increase in total other expense for the first nine months of 2007, compared to the same period of 2006, resulted primarily from higher total salaries and employee benefits expense, an increase in office occupancy expense, a
significant increase in legal and professional fees, and higher advertising and marketing expense.



| |  |  | The $494,000 increase in salaries and employee benefits resulted primarily from the $273,000 liability for severance pay recorded in the first quarter, and from
higher staffing levels in commercial lending and credit review.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A $112,000 increase in net office occupancy expense related primarily to a $35,000 rise in real estate tax expense, and a $51,000 increase in repairs and
maintenance to improve the condition of office properties.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $216,000 increase in legal and professional fees was due primarily to a significant increase in costs associated with the litigation related to the RLI
Insurance Company. See Part II, Item 1  Legal Proceedings for additional detail on legal proceedings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $98,000 increase in advertising and marketing expense related primarily to the major initiative of re-branding the Company that also included the roll-out of a
new logo.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income Tax Expense

The $742,000 difference between the $135,000 in income tax expense for the nine months ended September 30, 2007, and $607,000 in income tax benefit recorded for the same period in 2006 resulted primarily from two
factors:



| |  |  | The difference between the $1.7 million credit to the allowance for loan losses for the nine months ended September 30, 2007, compared to the $225,000 loan
loss provision expense for the nine months ended September 30, 2006; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $219,000 income tax liability booked in the second quarter of 2007 that resulted from the restructuring of the Companys BOLI program.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

The income tax benefits recorded by the Company result primarily from a substantial portfolio of municipal securities,
and a significant portfolio of BOLI policies, which produce tax-exempt income.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial
statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments and lines of
credit.



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##### Table of Contents

For the nine months ended September 30, 2007, we did not engage in any off-balance sheet
transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

LIQUIDITY AND CAPITAL
RESOURCES

Liquidity is the ability to meet current and future obligations of a short-term nature. Historically, funds provided by
operations, loan repayments and new deposits have been our principal sources of liquid funds. In addition, we have the ability to obtain funds through the sale of mortgage loans, through borrowings from the FHLB system and the Federal Reserve Bank
Discount Window programs, through the brokered certificates market, and securities sold under agreements to repurchase. We regularly adjust the investments in liquid assets based upon our assessment of (1) expected loan demand,
(2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability program.

At September 30, 2007, we had $2.5 million in loan commitments outstanding and $37.2 million of available commercial and home equity lines of credit. Certificates of deposit due within one year of
September 30, 2007, totaled $153.0 million, or 47.8% of total deposits. If these maturing certificates of deposit do not remain with us, other sources of funds must be used, including other certificates of deposit, brokered certificates of
deposit, securities sold under agreements to repurchase, and other borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than the rates that we are now paying on those certificates of
deposit that are due within one year of September 30, 2007. However, based on past experiences we believe that a significant portion of the certificates of deposit will remain. We also have the ability to attract and retain deposits by
adjusting the interest rates offered.

Our primary investing activity, the origination and purchase of loans, produced growth of $33.1
million in net loans receivable for the first nine months of 2007, with $3.9 million coming from the purchase of residential mortgage loans. In the first nine months of 2006, we experienced an increase of $29.5 million in net loans receivable, and
the growth included loan purchases totaling $15.6 million of which $12.1 million were residential mortgage loans.

Financing activities
consist primarily of activity in retail deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products we offer, and our local competitors and other factors. Total deposits
declined by $2.7 million and FHLB advances were reduced by $14.4 million during the first nine months of 2007. There were no brokered certificates at either September 30, 2007 or December 31, 2006.

In March 2006, the Company completed a private placement of $10.0 million in trust preferred securities. The proceeds from the private placement are
included in Borrowings on the Consolidated Condensed Balance Sheets. The proceeds were used initially for paying down short-term borrowings and were also used to fund the stock repurchase program. We paid $359,000 in cash dividends to our
shareholders for the nine-month period ended September 30, 2007, compared to $1.5 million for the same period of 2006. The dividend rates were $0.12 per share and $0.48 per share for the first nine months of 2007 and 2006, respectively.

The Bank is subject to various regulatory capital requirements set by the FDIC including a risk-based capital measure. The Company is also
subject to similar capital requirements set by the Federal Reserve Bank. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance
sheet items to broad risk categories. At September 30, 2007, both the Company and the Bank exceeded all of their regulatory capital requirements and were considered well capitalized under regulatory guidelines.

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 September 30, 2007 and December 31, 2006, the Bank was categorized as well capitalized and met all subject
capital adequacy requirements. There are no conditions or events since September 30, 2007, that management believes have changed this classification.



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##### Table of Contents

Actual and required capital amounts and ratios for the Bank are as follows:



|                                                   |  |                              |   |                |        |        |       |       |   |        |   |       
|-------------------------------------------------- |  | ---------------------------- | - | -------------- | ------ | ------ | ----- | ----- | - | ------ | - | ------
|                                                   |  | September 30, 2007          
|                                                   |  | Required ForAdequate Capital |   | Actual Capital
|                                                   |  | Ratio                        |   |                | Amount |        | Ratio |       |   | Amount
|Total risk-based capital (to risk-weighted assets) |  | 8.0                          | % |                | $      | 23,232 |       | 14.83 | % |        | $ | 43,065
|Tier 1 capital (to risk-weighted assets)           |  | 4.0                          |   |                |        | 11,616 |       | 13.84 |   |        |   | 40,193
|Core capital (to adjusted total assets)            |  | 3.0                          |   |                |        | 12,500 |       | 9.65  |   |        |   | 40,193
|Core capital (to adjusted tangible assets)         |  | 2.0                          |   |                |        | 8,333  |       | 9.65  |   |        |   | 40,193
|Tangible capital (to adjusted total assets)        |  | 1.5                          |   |                |        | 6,250  |       | 9.65  |   |        |   | 40,193
|                                                   | 
|                                                   |  | December 31, 2006           
|                                                   |  | Required ForAdequate Capital |   | Actual Capital
|                                                   |  | Ratio                        |   |                | Amount |        | Ratio |       |   | Amount
|Total risk-based capital (to risk-weighted assets) |  | 8.0                          | % |                | $      | 21,474 |       | 15.49 | % |        | $ | 41,572
|Tier 1 capital (to risk-weighted assets)           |  | 4.0                          |   |                |        | 10,737 |       | 14.46 |   |        |   | 38,824
|Core capital (to adjusted total assets)            |  | 3.0                          |   |                |        | 13,585 |       | 8.57  |   |        |   | 38,824
|Core capital (to adjusted tangible assets)         |  | 2.0                          |   |                |        | 9,057  |       | 8.57  |   |        |   | 38,824
|Tangible capital (to adjusted total assets)        |  | 1.5                          |   |                |        | 6,793  |       | 8.57  |   |        |   | 38,824

AVAILABLE INFORMATION

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, are made available free of charge on our website, www.ameriana.com, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. Information
on our website should not be considered a part of this Form 10-Q.



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##### Table of Contents

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk
(IRR) is the risk to earnings and capital arising from movements in interest rates. IRR can result from:



| |  |  | timing differences in the maturity/repricing of an institution's assets, liabilities, and off-balance sheet contracts;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of embedded options, such as call or convertible options, loan prepayments, interest rate caps, and deposit withdrawals;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | unexpected shifts of the yield curve; and
| | - |  | -----------------------------------------



| |  |  | differences in the behavior of lending and funding rates, sometimes referred to as basis risk. An example would occur if floating rate assets and liabilities, with
otherwise identical repricing characteristics, were based on market indexes that were imperfectly correlated.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Asset-Liability Committee and the Board of Directors review our exposure to interest rate changes and market risk quarterly. 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. We monitor IRR from two perspectives:



| |  |  | Economic value at risk  long-term exposure
| | - |  | -------------------------------------------

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 levels. This measures our IRR exposure from movements in interest rates and the resulting change in the NPV.



| |  |  | Earnings at risk  near-term exposure
| | - |  | -------------------------------------

The model also tests the impact various interest rate scenarios have on net interest income over a stated period of time (one year, for example). See Interest Rate Scenarios below.

We recognize that effective management of IRR includes an understanding of when potential adverse changes in interest rates will flow through the income
statement. Accordingly, we manage our position so that exposure to net interest income is monitored over both a one year planning horizon (accounting perspective) and a longer term strategic horizon (economic perspective).

Our objective is to manage our exposure to IRR, bearing in mind that we will always be in the business of taking on rate risk and that complete rate risk
immunization is not possible. Also, it is recognized that as exposure to IRR is reduced, so too may the net interest margin be reduced.

Interest
Rate Scenarios

Effect of change in net interest income for Year 1 and Year 2

(Dollars in thousands)



|                   |  |                               |        |                           |   |           |  |             |        |  |           |    |  |       |   
|------------------ |  | ----------------------------- | ------ | ------------------------- | - | --------- |  | ----------- | ------ |  | --------- | -- |  | ----- | --
|                   |  | Projected Net Interest Income |        | % Change From Year 1 Base |  
|                   |  | Down200 bp                    |        | Base                      |   | Up 200 bp |  | Down 200 bp |        |  | Up 200 bp |   
|September 30, 2007 |  |                               |        |                           |   |           |  |             |        |  |           |    |  |       |   
|Year 1             |  | $                             | 11,191 |                           | $ | 11,032    |  | $           | 10,624 |  | 1.44      | %  |  | (3.70 | )%
|Year 2             |  | $                             | 11,570 |                           | $ | 11,283    |  | $           | 10,092 |  | 4.88      | %  |  | (8.52 | )%
|                   |  |                               |        |                           |  
|December 31, 2006  |  |                               |        |                           |   |           |  |             |        |  |           |    |  |       |   
|Year 1             |  | $                             | 9,652  |                           | $ | 9,755     |  | $           | 9,797  |  | (1.06     | )% |  | 0.43  | % 
|Year 2             |  | $                             | 10,124 |                           | $ | 10,396    |  | $           | 10,273 |  | 3.78      | %  |  | 5.31  | % 



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##### Table of Contents

The results from modeling our balance sheet structure as of September 30, 2007, incorporating
current replacement assumptions, indicate that our overall IRR exposure to rising interest rates increased, while our IRR exposure to falling interest rates improved from December 31, 2006 as we utilized strategies designed to grow net interest
income. Our IRR exposure has been maintained well within acceptable levels. The substantial increase in projected base net interest income at September 30, 2007, compared to December 31, 2006, is reflective primarily of the Companys
efforts to reinvest cash flows from lower-yielding securities in higher-yielding loans with a resulting improvement in net interest margin.

Management plans to remain highly focused on developing additional strategies designed to further grow net interest income, and also intends to add interest rate risk hedge positions if it is determined to be necessary to keep the Company
within reasonable risk levels.

ITEM 4  CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as
amended, (1) is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms and (2) is accumulated and communicated to our management, including our principal executive and principal
financial officers as appropriate to allow timely discussions regarding required disclosures. It should be noted that the design of our disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of
future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, but our principal executive and
financial officers have concluded that our disclosure controls and procedures are, in fact, effective at a reasonable assurance level. In addition, based on that evaluation, no change in the Companys internal control over financial reporting
occurred during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II  OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS

As previously reported, the Bank has been involved in litigation
relating to its interests in two pools of equipment leases originated by Commercial Money Center, Inc. (CMC), a California-based equipment leasing company that is now in bankruptcy. In June and September 2001, the Bank purchased the
income streams from two separate pools of commercial leases totaling $12.0 million. The leases within the pools were supported by surety bonds issued by American Motorist Insurance Company (AMICO) and RLI Insurance Company
(RLI), each rated at least A by A.M. Best at the time of the purchase. The bonds guaranteed payment of all amounts due under the leases in the event of default by the lessee. Each pool was sold under the terms of a Sales and
Servicing Agreement, which provided for the insurers to service the leases. In each case, the insurers assigned their servicing rights and responsibilities to Commercial Servicing Corporation, (CSC), a California-based company, which is
now in bankruptcy. When the lease pools went into default, notice was given to each insurer. AMICO made payments pursuant to the leases under a reservation of rights. RLI paid nothing. Both insurers claimed that they were defrauded by CMC, the
originator of the leases. Both denied responsibility for payment. In 2005, the Bank settled all claims it had against AMICO for a $2.3 million payment and on September 6, 2007, the Bank received a payment of $2.75 million to settle all claims
it had against RLI.

The Abstract & Title Guaranty Company, Inc. (AGT) sued the Bank to recover for checks issued by
AGT and delivered to one of its title insurance customers for delivery to various payees. Generally, the checks were issued in conjunction with real estate transactions and were issued to pay mortgage liens in full. Forty-one such checks were
deposited into the wrong account at the Bank. The Bank has adequate insurance to protect it from any judgment rendered based upon the complaint. However, the insurance does not provide indemnification for the costs of defending the litigation.

ITEM 1A  RISK FACTORS

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006 which could materially affect our business, financial condition or future results.
The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.

ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

ITEM 5  OTHER INFORMATION

Not Applicable

ITEM 6  EXHIBITS



|            |  |                                                    
|----------- |  | ---------------------------------------------------
|No.         |  | Description                                        
|Exhibit 3,  |  | Amended and Restated Bylaws of Ameriana Bancorp (1)
|            | 
|Exhibit 31, |  | Rule 13a-14(a)/15d-14(a) Certifications            
|            | 
|Exhibit 32, |  | Section 1350 Certifications                        

---

|(1) | Incorporated herein by reference to the Exhibits to the Form 8-K as filed with the Securities and Exchange Commission on October 2, 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements 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: November 12, 2007 |  | /s/ Jerome J. Gassen                                                  
|                        |  | Jerome J. Gassen                                                      
|                        |  | President and Chief Executive Officer (Duly
Authorized Representative)
|                        | 
|DATE: November 12, 2007 |  | /s/ John J. Letter                                                    
|                        |  | John J. Letter                                                        
|                        |  | Senior Vice President-Treasurer and Chief Financial Officer           
|                        |  | (Principal Financial Officer and Accounting Officer)