UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549







FORM
10-Q




(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, 2010


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




AMERIANA
      BANCORP


(Exact
name of registrant as specified in its charter)




Indiana
                  
                  35-1782688(State
      or Other Jurisdiction of
                  
                  (I.R.S.
      EmployerIncorporation
      or Organization)
                  
                  Identification
      No.)2118 Bundy Avenue, New Castle,
      Indiana
                  
                  47362-1048(Address
      of Principal Executive Offices)
                  
                  (Zip
      Code)




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




Not Applicable(Former
      name, former address and former fiscal year, if changed since last
      report)





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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈ 
No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “ accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.




Large
      accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            Smaller
      reporting company
            x


(Do not
check if a smaller reporting company)




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 November12,2010,
the registrant had 2,988,952 shares of its common stock
outstanding.









AMERIANA
BANCORP




Table
of Contents





Page
      No.Part
      I.  Financial InformationItem
      1.
                          Financial
      Statements (Unaudited)
                          3Consolidated
      Condensed Balance Sheets at September 30, 2010 and December 31,
      2009
                          3Consolidated
      Condensed Statements of Operations for the Three and Nine Months Ended
      September 30, 2010 and 2009
                          4Consolidated
      Condensed Statements of Shareholders’ Equity for the Nine Months Ended
      September 30, 2010
                          5Consolidated
      Condensed Statements of Cash Flows for the Nine Months Ended September 30,
      2010 and 2009
                          6Notes
      to Consolidated Condensed Financial Statements
                          7Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          14Item
      3.
                          Quantitative
      and Qualitative Disclosure about Market Risk
                          27Item
      4T.
                          Controls
      and Procedures
                          28Part
      II.  Other InformationItem
      1.
                          Legal
      Proceedings
                          28Item
      1A.
                          Risk
      Factors
                          28Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          28Item
      3.
                          Defaults
      upon Senior Securities
                          28Item
      4.
                          (Removed
      and Reserved)
                          28Item
      5.
                          Other
      Information
                          28Item
      6.
                          Exhibits
                          28Signatures




(2)





PART
I - FINANCIAL INFORMATION




ITEM
I - FINANCIAL STATEMENTS




Ameriana
Bancorp


Consolidated
Condensed Balance Sheets


(In
thousands, except share data)





September
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009(Unaudited)AssetsCash
      on hand and in other institutions
                            
                            $
                            5,899
                            
                            
                            $
                            6,283Interest-bearing
      demand deposits
                            
                            
                            6,116
                            
                            
                            
                            13,305Cash
      and cash equivalents
                            
                            
                            12,015
                            
                            
                            
                            19,588Investment
      securities available for sale
                            
                            
                            35,539
                            
                            
                            
                            35,841Loans
      held for sale
                            
                            
                            1,398
                            
                            
                            
                            537Loans,
      net of allowance for loan losses of $4,134 and $4,005
                            
                            
                            305,733
                            
                            
                            
                            321,544Premises
      and equipment
                            
                            
                            14,815
                            
                            
                            
                            15,508Stock
      in Federal Home Loan Bank
                            
                            
                            5,629
                            
                            
                            
                            5,629Goodwill
                            
                            
                            649
                            
                            
                            
                            649Cash
      value of life insurance
                            
                            
                            25,197
                            
                            
                            
                            24,538Other
      real estate owned
                            
                            
                            9,797
                            
                            
                            
                            5,517Other
      assets
                            
                            
                            13,378
                            
                            
                            
                            12,212Total
      assets
                            
                            $
                            424,150
                            
                            
                            $
                            441,563Liabilities
      and Shareholders’ EquityLiabilitiesDepositsNoninterest-bearing
                            
                            $
                            33,381
                            
                            
                            $
                            29,531Interest-bearing
                            
                            
                            294,726
                            
                            
                            
                            308,850Total
      deposits
                            
                            
                            328,107
                            
                            
                            
                            338,381Borrowings
                            
                            
                            54,810
                            
                            
                            
                            64,185Drafts
      payable
                            
                            
                            1,468
                            
                            
                            
                            920Other
      liabilities
                            
                            
                            6,229
                            
                            
                            
                            5,502Total
      liabilities
                            
                            
                            390,614
                            
                            
                            
                            408,988Commitments
      and contingenciesShareholders’
      equityPreferred
      stock - 5,000,000 shares authorized and unissued
                            
                            
                            —
                            
                            
                            
                            —Common
      stock, $1.00 par value Authorized 15,000,000 shares
      Issued  –  3,213,952 shares Outstanding – 2,988,952
      shares
                            
                            
                            3,214
                            
                            
                            
                            3,214Additional
      paid-in capital
                            
                            
                            1,048
                            
                            
                            
                            1,045Retained
      earnings
                            
                            
                            31,777
                            
                            
                            
                            31,416Accumulated
      other comprehensive income (loss)
                            
                            
                            495
                            
                            
                            
                            (102
                            )Treasury
      stock at cost – 225,000 shares
                            
                            
                            (2,998
                            )
                            
                            
                            (2,998
                            )Total
      shareholders’ equity
                            
                            
                            33,536
                            
                            
                            
                            32,575Total
      liabilities and shareholders’ equity
                            
                            $
                            424,150
                            
                            
                            $
                            441,563





See notes to consolidated condensed
financial statements.


(3)





Ameriana
Bancorp


Consolidated
Condensed Statements of Operations


(In
thousands, except per share data)


(Unaudited)





Three
      Months Ended
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009Interest
      IncomeInterest
      and fees on loans
                
                $
                4,525
                
                
                $
                4,915
                
                
                $
                13,923
                
                
                $
                14,622Interest
      on mortgage-backed securities
                
                
                317
                
                
                
                544
                
                
                
                949
                
                
                
                1,818Interest
      on investment securities
                
                
                40
                
                
                
                122
                
                
                
                135
                
                
                
                435Other
      interest and dividend income
                
                
                22
                
                
                
                74
                
                
                
                97
                
                
                
                183Total
      interest income
                
                
                4,904
                
                
                
                5,655
                
                
                
                15,104
                
                
                
                17,058Interest
      ExpenseInterest
      on deposits
                
                
                1,009
                
                
                
                1,596
                
                
                
                3,285
                
                
                
                5,079Interest
      on borrowings
                
                
                581
                
                
                
                749
                
                
                
                1,850
                
                
                
                2,578Total
      interest expense
                
                
                1,590
                
                
                
                2,345
                
                
                
                5,135
                
                
                
                7,657Net
      Interest Income
                
                
                3,314
                
                
                
                3,310
                
                
                
                9,969
                
                
                
                9,401Provision
      for loan losses
                
                
                360
                
                
                
                320
                
                
                
                1,378
                
                
                
                1,273Net
      Interest Income After Provision for Loan Losses
                
                
                2,954
                
                
                
                2,990
                
                
                
                8,591
                
                
                
                8,128Other
      IncomeOther
      fees and service charges
                
                
                508
                
                
                
                480
                
                
                
                1,508
                
                
                
                1,358Brokerage
      and insurance commissions
                
                
                352
                
                
                
                360
                
                
                
                1,038
                
                
                
                943Net
      realized and recognized gains on available-for-sale investment
      securities
                
                
                104
                
                
                
                793
                
                
                
                209
                
                
                
                895Gains
      on sales of loans and servicing rights
                
                
                119
                
                
                
                91
                
                
                
                824
                
                
                
                278Net
      loss from sales and write-downs of other real estate owned
                
                
                (33
                )
                
                
                (126
                )
                
                
                (213
                )
                
                
                (826
                )Net
      loss on other repossessed assets
                
                
                —
                
                
                
                (150
                )
                
                
                —
                
                
                
                (150
                )Other
      real estate owned rental income
                
                
                111
                
                
                
                77
                
                
                
                321
                
                
                
                182Increase
      in cash value of life insurance
                
                
                222
                
                
                
                217
                
                
                
                659
                
                
                
                643Loss
      from limited partnership investment in real estate qualifying for federal
      tax credits
                
                
                (95
                )
                
                
                (27
                )
                
                
                (111
                )
                
                
                (49
                )Gain
      on liquidation of minority interest in unconsolidated
      investment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                192Other
                
                
                40
                
                
                
                49
                
                
                
                164
                
                
                
                96Total
      other income
                
                
                1,328
                
                
                
                1,764
                
                
                
                4,399
                
                
                
                3,562Other
      ExpenseSalaries
      and employee benefits
                
                
                2,380
                
                
                
                2,459
                
                
                
                7,005
                
                
                
                6,825Net
      occupancy expense
                
                
                377
                
                
                
                387
                
                
                
                1,152
                
                
                
                1,125Furniture
      and equipment expense
                
                
                213
                
                
                
                228
                
                
                
                644
                
                
                
                669Legal
      and professional fees
                
                
                80
                
                
                
                128
                
                
                
                477
                
                
                
                543FDIC
      insurance premiums and assessments
                
                
                191
                
                
                
                409
                
                
                
                582
                
                
                
                663Data
      processing expense
                
                
                192
                
                
                
                188
                
                
                
                558
                
                
                
                570Printing
      and office supplies
                
                
                68
                
                
                
                78
                
                
                
                181
                
                
                
                226Marketing
      expense
                
                
                105
                
                
                
                136
                
                
                
                284
                
                
                
                464Other
      real estate owned expense
                
                
                205
                
                
                
                116
                
                
                
                739
                
                
                
                420Other
                
                
                390
                
                
                
                487
                
                
                
                1,085
                
                
                
                1,309Total
      other expense
                
                
                4,201
                
                
                
                4,616
                
                
                
                12,707
                
                
                
                12,814Income
      (Loss) Before Income Taxes
                
                
                81
                
                
                
                138
                
                
                
                283
                
                
                
                (1,124
                )Income
      tax benefit
                
                
                61
                
                
                
                49
                
                
                
                168
                
                
                
                732Net
      Income (Loss)
                
                $
                142
                
                
                $
                187
                
                
                $
                451
                
                
                $
                (392
                )Basic
      Earnings (Loss) Per Share
                
                $
                0.05
                
                
                $
                0.06
                
                
                $
                0.15
                
                
                $
                (0.13
                )Diluted
      Earnings (Loss) Per Share
                
                $
                0.05
                
                
                $
                0.06
                
                
                $
                0.15
                
                
                $
                (0.13
                )Dividends
      Declared Per Share
                
                $
                0.01
                
                
                $
                0.01
                
                
                $
                0.03
                
                
                $
                0.09





See
notes to consolidated condensed financial statements


(4)





Ameriana
Bancorp


Consolidated
Condensed Statements of Shareholders’ Equity


For
the Nine Months Ended September 30, 2010


(In
thousands, except per share data)


(Unaudited)





Common
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income (Loss)
                
                
                Treasury
                  Stock
                
                
                TotalBalance
      at December 31, 2009
                
                $
                3,214
                
                
                $
                1,045
                
                
                $
                31,416
                
                
                $
                (102
                )
                
                $
                (2,998
                )
                
                $
                32,575Net
      Income
                
                
                —
                
                
                
                —
                
                
                
                451
                
                
                
                —
                
                
                
                —
                
                
                
                451Change
      of $920 from unrealized loss to unrealized gain on available-for-sale
      securities, net of income tax of $323
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                597
                
                
                
                —
                
                
                
                597Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,048Share-based
      compensation
                
                
                —
                
                
                
                3
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3Dividends
      declared ($0.03 per share)
                
                
                —
                
                
                
                —
                
                
                
                (90
                )
                
                
                —
                
                
                
                —
                
                
                
                (90
                )Balance
      at September 30, 2010
                
                $
                3,214
                
                
                $
                1,048
                
                
                $
                31,777
                
                
                $
                495
                
                
                $
                (2,998
                )
                
                $
                33,536




See
notes to consolidated condensed financial statements.




(5)





Ameriana
Bancorp


Consolidated
Condensed Statements of Cash Flows


(In
thousands)


(Unaudited)





Nine
      Months Ended September 30,2010
                          
                          
                          2009Operating
      ActivitiesNet
      income (loss)
                          
                          $
                          451
                          
                          
                          $
                          (392
                          )Items
      not requiring (providing) cashProvision
      for losses on loans
                          
                          
                          1,378
                          
                          
                          
                          1,273Depreciation
      and amortization
                          
                          
                          879
                          
                          
                          
                          794Increase
      in cash value of life insurance
                          
                          
                          (659
                          )
                          
                          
                          (643
                          )Gain
      from sale of available-for-sale securities
                          
                          
                          (209
                          )
                          
                          
                          (895
                          )Loss
      on sale or write-down of other real estate owned and other repossessed
      assets
                          
                          
                          213
                          
                          
                          
                          976Gain
      on liquidation of minority interest in unconsolidated
      investment
                          
                          
                          —
                          
                          
                          
                          (192
                          )Mortgage
      loans originated for sale
                          
                          
                          (13,729
                          )
                          
                          
                          (14,593
                          )Proceeds
      from sales of mortgage loans originated for sale
                          
                          
                          12,989
                          
                          
                          
                          13,187Gains
      on sales of mortgage loans and servicing rights
                          
                          
                          (824
                          )
                          
                          
                          (278
                          )Increase
      in accrued interest payable
                          
                          
                          326
                          
                          
                          
                          669Other
      adjustments
                          
                          
                          1,647
                          
                          
                          
                          (217
                          )Net
      cash provided by (used in) operating activities
                          
                          
                          2,462
                          
                          
                          
                          (311
                          )Investing
      ActivitiesPurchase
      of securities
                          
                          
                          (10,431
                          )
                          
                          
                          (24,225
                          )Proceeds/principal
      from the sale of securities
                          
                          
                          4,444
                          
                          
                          
                          34,756Principal
      collected on mortgage-backed securities
                          
                          
                          4,529
                          
                          
                          
                          11,924Net
      change in loans
                          
                          
                          (2,093
                          )
                          
                          
                          (11,360
                          )Proceeds
      from sales of mortgage loans transferred to held for sale
                          
                          
                          11,436
                          
                          
                          
                          —Proceeds
      from sales of other real estate owned
                          
                          
                          1,184
                          
                          
                          
                          642Purchase
      of insurance business
                          
                          
                          —
                          
                          
                          
                          (724
                          )Proceeds
      from liquidation of minority interest in unconsolidated
      investment
                          
                          
                          —
                          
                          
                          
                          645Purchases
      and construction of premises and equipment
                          
                          
                          (69
                          )
                          
                          
                          (1,476
                          )Other
      investing activities
                          
                          
                          84
                          
                          
                          
                          49Net
      cash provided by investing activities
                          
                          
                          9,084
                          
                          
                          
                          10,231Financing
      ActivitiesNet
      change in demand and savings deposits
                          
                          
                          5,253
                          
                          
                          
                          23,981Net
      change in certificates of deposit
                          
                          
                          (15,527
                          )
                          
                          
                          (2,122
                          )Increase
      (decrease) in drafts payable
                          
                          
                          548
                          
                          
                          
                          (382
                          )Proceeds
      from long-term borrowings
                          
                          
                          3,000
                          
                          
                          
                          —Repayment
      of long-term borrowings
                          
                          
                          (12,375
                          )
                          
                          
                          (29,300
                          )Net
      change in advances by borrowers for taxes and insurance
                          
                          
                          72
                          
                          
                          
                          147Cash
      dividends paid
                          
                          
                          (90
                          )
                          
                          
                          (269
                          )Net
      cash used in financing activities
                          
                          
                          (19,119
                          )
                          
                          
                          (7,945
                          )Change
      in Cash and Cash Equivalents
                          
                          
                          (7,573
                          )
                          
                          
                          1,975Cash
      and Cash Equivalents at Beginning of Year
                          
                          
                          19,588
                          
                          
                          
                          8,449Cash
      and Cash Equivalents at End of Quarter
                          
                          $
                          12,015
                          
                          
                          $
                          10,424Supplemental
      information:Interest
      paid on deposits
                          
                          $
                          2,934
                          
                          
                          $
                          4,341Interest
      paid on borrowings
                          
                          $
                          1,875
                          
                          
                          $
                          2,652Non-cash
      supplemental information:Transfers
      from loans to other real estate owned
                          
                          $
                          5,645
                          
                          
                          $
                          3,048




See
notes to consolidated condensed financial statements.


(6)


AMERIANA
BANCORP AND SUBSIDIARIES





NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)





NOTE
A - - BASIS OF PRESENTATION





The
consolidated condensed financial statements include the accounts of Ameriana
Bancorp (the “Company”) and its wholly-owned subsidiary, Ameriana Bank (the
“Bank”).  The Bank has two wholly-owned subsidiaries, Ameriana Insurance
Agency and Ameriana Financial Services, 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
consolidated condensed balance sheet of the Company as of December 31, 2009 has
been derived from the audited consolidated balance sheet of the Company as of
that date.  The results of operations for the three and nine months ended
September 30, 2010 are not necessarily indicative of the results to be expected
in the full year or for any other period.  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, 2009.





NOTE
B - - SHAREHOLDERS’ EQUITY





On
September 27, 2010, the Board of Directors declared a quarterly cash dividend of
$0.01 per share.  This dividend, totaling approximately $30,000, was
accrued for payment to shareholders of record on October 8, 2010, and was paid
on October 29, 2010.





No stock
options were exercised during the third quarter of 2010.





NOTE
C - - EARNINGS (LOSS) PER SHARE





Earnings
(loss) per share were computed as follows:





(In thousands, except share data)Three Months Ended September 30,2010
                        
                        
                        2009NetIncome
                        
                        
                        Weighted
                          Average
                          Shares
                        
                        
                        PerShare
                          Amount
                        
                        
                        Net
                          Income
                        
                        
                        Weighted
                          Average
                          Shares
                        
                        
                        PerShare
                          AmountBasic
      Earnings Per Share: Income available to common
shareholders
                        
                        $
                        142
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.05
                        
                        
                        $
                        187
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.06Effect
      of dilutive stock options
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -Diluted
      Earnings Per Share: Income available to common
shareholders
                        
                        $
                        142
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.05
                        
                        
                        $
                        187
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.06




(In thousands, except share data)Nine Months Ended September 30,2010
                        
                        
                        2009Net
                          Income
                        
                        
                        Weighted
                          Average
                          Shares
                        
                        
                        Per Share
                          Amount
                        
                        
                        Net Loss
                        
                        
                        Weighted
                          Average
                          Shares
                        
                        
                        Per Share
                          AmountBasic
      Earnings (Loss) Per Share: Income (loss) available to common
      shareholders
                        
                        $
                        451
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.15
                        
                        
                        $
                        (392
                        )
                        
                        
                        2,988,952
                        
                        
                        $
                        (0.13
                        )Effect
      of dilutive stock options
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -Diluted
      Earnings (Loss) Per Share: Income (loss) available to common
      shareholders
                        
                        $
                        451
                        
                        
                        
                        2,988,952
                        
                        
                        $
                        0.15
                        
                        
                        $
                        (392
                        )
                        
                        
                        2,988,952
                        
                        
                        $
                        (0.13
                        )




(7)





Options
to purchase 169,482 and 172,982 shares of common stock at exercise prices of
$9.25 to $15.56 per share were outstanding at September 30, 2010 and 2009,
respectively, but were not included in the computation of diluted earnings per
share because the options were anti-dilutive.





NOTE
D —
INVESTMENT SECURITIES





The
following tables provide the composition of investment securities at September
30, 2010 and December 31, 2009 (dollars in thousands):





Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueAvailable
      for sale at September 30, 2010Ginnie
      Mae and GSE mortgage-backed pass-through securities
                
                $
                25,378
                
                
                $
                589
                
                
                $
                1
                
                
                $
                25,966Ginnie
      Mae collateralized mortgage obligations
                
                
                5,570
                
                
                
                20
                
                
                
                —
                
                
                
                5,590Municipal
      securities
                
                
                2,228
                
                
                
                63
                
                
                
                —
                
                
                
                2,291Mutual
      fund
                
                
                1,613
                
                
                
                79
                
                
                
                —
                
                
                
                1,692$
                34,789
                
                
                $
                751
                
                
                $
                1
                
                
                $
                35,539





Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueAvailable
      for sale at December 31, 2009Ginnie
      Mae and GSE mortgage-backed pass-through securities
                
                $
                24,953
                
                
                $
                214
                
                
                $
                175
                
                
                $
                24,992Ginnie
      Mae collateralized mortgage obligations
                
                
                6,024
                
                
                
                —
                
                
                
                204
                
                
                
                5,820Municipal
      securities
                
                
                3,461
                
                
                
                30
                
                
                
                60
                
                
                
                3,431Mutual
      fund
                
                
                1,573
                
                
                
                25
                
                
                
                —
                
                
                
                1,598$
                36,011
                
                
                $
                269
                
                
                $
                439
                
                
                $
                35,841





The
amortized cost and fair value of securities available for sale at September 30,
2010, by contractual maturity, are shown below.  Expected maturities will
differ from contractual maturities because issuers may have the right to
call


or prepay
obligations with or without call or prepayment penalties.





Available for SaleAmortized
                    Cost
                  
                  
                  Fair
                    ValueWithin
      one year
                  
                  $
                  —
                  
                  
                  $
                  —One
      to five years
                  
                  
                  1,489
                  
                  
                  
                  1,532Five
      to ten years
                  
                  
                  739
                  
                  
                  
                  759After
      ten years
                  
                  
                  —
                  
                  
                  
                  —2,228
                  
                  
                  
                  2,291Ginnie
      Mae and GSE mortgage-backed pass-through securities
                  
                  
                  25,378
                  
                  
                  
                  25,966Ginnie
      Mae collateralized mortgage obligations
                  
                  
                  5,570
                  
                  
                  
                  5,590Mutual
      fund
                  
                  
                  1,613
                  
                  
                  
                  1,692$
                  34,789
                  
                  
                  $
                  35,539





Mortgage-backed
pass-through securities: The contractual cash flows of those investments
are guaranteed by either Ginnie Mae, a U.S. Government agency, or by U.S.
Government-sponsored entities, Fannie Mae and Freddie Mac, institutions which
the U.S. Government has affirmed its commitment to support.  Accordingly,
it is expected that the securities would not be settled at a price less than the
amortized cost of the Company’s investment.


(8)





Collateralized
mortgage obligations:  The contractual cash flows of these
investments are guaranteed by Ginnie Mae, a U.S. Government Agency. 
Accordingly, it is expected that the securities would not be settled at a price
less than the amortized cost of the Company’s investment.





Municipal
securities:  All of the municipal securities in the Company’s
investment portfolio at September 30, 2010 that were rated received an
investment grade credit quality rating.  Two securities were not
rated.  The contractual terms of those investments do not permit the issuer
to settle the securities at a price less than the amortized cost of the
investment.





Mutual
fund:The mutual fund balance at September 30, 2010 consisted
of an investment in the CRA Qualified Investment mutual fund, whose portfolio
composition is primarily in debt securities with an average credit quality
rating of AAA.





Certain
investment securities are reported in the financial statements at an amount less
than their historical cost.  Total fair value of these investments at
September 30, 2010 and December 31, 2009 were $113,000 and $18,289,000,
respectively, which was approximately 0.3% and 51.0%, respectively, of the
Company’s investment portfolio at these dates.





Should
the impairment of any of these securities become other than temporary, the cost
basis of the investment will be reduced and the resulting loss recognized in net
income in the period the other-than-temporary impairment is
identified.





The
following table shows the Company’s investments’ gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at September 30,
2010 and December 31, 2009 (dollars in thousands):





At September 30, 2010
                
                Less Than 12 Months
                
                
                12 Months or Longer
                
                
                TotalFair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  LossesGSE
      mortgage-backed pass-through securities
                
                $
                —
                
                
                $
                —
                
                
                $
                65
                
                
                $
                1
                
                
                $
                113
                
                
                $
                1$
                —-
                
                
                $
                —
                
                
                $
                65
                
                
                $
                1
                
                
                $
                113
                
                
                $
                1





At December 31, 2009
                
                Less Than 12 Months
                
                
                12 Months or Longer
                
                
                TotalFair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  LossesGinnie
      Mae and GSE mortgage-backed pass-through securities
                
                $
                10,394
                
                
                $
                172
                
                
                $
                231
                
                
                $
                3
                
                
                $
                10,625
                
                
                $
                175Ginnie
      Mae collateralized mortgage obligations
                
                
                5,820
                
                
                
                204
                
                
                
                —
                
                
                
                —
                
                
                
                5,820
                
                
                
                204Municipal
      securities
                
                
                1,844
                
                
                
                60
                
                
                
                —
                
                
                
                —
                
                
                
                1,844
                
                
                
                60$
                18,058
                
                
                $
                436
                
                
                $
                231
                
                
                $
                3
                
                
                $
                18,289
                
                
                $
                439





Together
with mortgage loans, investment securities with a total market value of
$5,590,000 and $5,820,000 were pledged at September 30, 2010 and
December 31, 2009, respectively, to secure FHLB advances and three letters
of credit.





Investment
securities with a total market value of $9,571,000 and $9,030,000 were pledged
at September 30, 2010 and December 31, 2009, respectively, to secure a
repurchase agreement.





A gross
gain of $104,000 resulting from the sale of an available-for-sale security was
realized during the three month period ended September 30, 2010, with a net tax
expense of $35,000, compared to an $828,000 gross gain and a $35,000 gross loss
for the three month period ended September 30, 2009, with a net tax expense of
$269,000.  Gross gains of $212,000 and a gross loss of $3,000 resulting
from sales of available-for-sale securities were realized during the first nine
months of 2010, with a net tax expense of $71,000, compared to a $959,000 gross
gain and a $64,000 gross loss for the first nine months of 2009, with a net tax
expense of $304,000.




(9)





NOTE
E — CURRENT AND FUTURE ACCOUNTING MATTERS





FASB ASU 2009-16, Transfers and
Servicing (Topic 860); Accounting for Transfers of Financial
Assets:  ASU 2009-16 requires more information about transfers
of financial assets, including securitization transactions, and where entities
have continued exposure to the risks related to transferred assets. The Company
adopted ASU 2009-16 effective January 1, 2010 and adoption did not have a
material effect on its financial position or results of operations.





ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820):  Improving
Disclosures about Fair Value Measurements.  ASU 2010-06 revises two
disclosure requirements concerning fair value measurements and clarifies two
others.  It requires separate presentation of significant transfers into
and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the
reasons for such transfers. It will also require the presentation of purchases,
sales, issuances, and settlements within Level 3 on a gross basis rather than a
net basis.  The amendments also clarify that disclosures should be
disaggregated by class of asset or liability and that disclosures about inputs
and valuation techniques should be provided for both recurring and non-recurring
fair value measurements.  The Company’s disclosures about fair value
measurements are presented in Note G - Disclosures About Fair Value of Assets
and Liabilities.  These new disclosure requirements were effective for the
period ended March 31, 2010, except for the requirement concerning gross
presentation of Level 3 activity, which is effective for fiscal years beginning
after December 15, 2010.  There was no significant effect to the Company’s
financial statement disclosure upon adoption of this ASU.




ASU No. 2010-09, Subsequent Events
(Topic 855) – Amendments to Certain Recognition and Disclosure
Requirements:    ASU 2010-09 amends the subsequent
events disclosure guidance.  The amendments include a definition of an SEC
filer, requires an SEC filer or conduit bond obligor to evaluate subsequent
events through the date the financial statements are issued, and removes the
requirement for an SEC filer to disclose the date through which subsequent
events have been evaluated.  ASU 2010-09 was effective upon issuance for
us.  The impact of ASU 2010-09 on our disclosures is reflected in
Subsequent Events footnote.





FASB ASU 2010-18 - Effect of a Loan
Modification When the Loan Is Part of a Pool That Is Accounted for as a
Single Asset:  This Update
clarifies that modifications of loans that are accounted for within a pool under
Subtopic 310-30, which provides guidance on accounting for acquired loans that
have evidence of credit deterioration upon acquisition, do not result in the
removal of those loans from the pool even if the modification would otherwise be
considered a troubled debt restructuring. An entity will continue to be required
to consider whether the pool of assets in which the loan is included is impaired
if expected cash flows for the pool change.  The amendments do not affect
the accounting for loans under the scope of Subtopic 310-30 that are not
accounted for within pools. Loans accounted for individually under Subtopic
310-30 continue to be subject to the troubled debt restructuring accounting
provisions within Subtopic 310-40.  The Company has adopted ASU 2010-18,
but does not anticipate that its adoption will have an impact on its financial
statements.





ASU No. 2010-20, Receivables (Topic
310):  Disclosures about the Credit Quality of Financing Receivables
and the Allowance for
Credit Losses:  ASU 2010-20 requires that more information be
disclosed about the credit quality of a company’s loans and the allowance for
loan losses held against those loans.  A company will need to disaggregate
new and existing disclosure based on how it develops its allowance for loan
losses and how it manages credit exposures.  Existing disclosures to be
presented on a disaggregated basis include a roll-forward of the allowance for
loan losses, the related recorded investment in such loans, the nonaccrual
status of loans, and impaired loans.  Additional disclosure is also
required about the credit quality indicators of loans by class at the end of the
reporting period, the aging of past due loans, information about troubled debt
restructurings, and significant purchases and sales of loans during the
reporting period by class.





For
public companies, ASU 2010-20 requires certain disclosures as of the end of a
reporting period effective for periods ending on or after December 15,
2010.  Other required disclosures about activity that occurs during a
reporting period are effective for periods beginning on or after December 15,
2010. The Company anticipates that adoption of these additional disclosures will
not have a material effect on its financial position or results of
operations.





NOTE
F — RETIREMENT PLAN





The
Company entered into separate agreements with certain officers and directors
that provide retirement and death benefits.  The Company is recording an
expense equal to the projected present value of the payment due at the full
eligibility date.  The liability for the plan at September 30, 2010 and
December 31, 2009 was $1,865,000 and $1,823,000, respectively.  The expense
for the plan was $46,000 and $55,000 for the three-month periods ended September
30, 2010 and September 30, 2009, respectively.   The expense for the
plan was $138,000 and $164,000 for the nine-month periods ended September 30,
2010 and September 30, 2009, respectively.


(10)





NOTE
G – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES




This
guidance defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  A fair value hierarchy has been
established that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.  The
standard describes three levels of inputs that may be used to measure fair
value:




Level 1
            Quoted
      prices in active markets for identical assets or
    liabilities




Level
      2
              Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in active markets that are not active; or
      other inputs that are observable or can be corroborated by observable
      market data for substantially the full term of the assets or
      liabilities
  Level 3
                Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities


Following
is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance
sheet, as well as the general classification of such instruments pursuant to the
valuation hierarchy.




Available-for-sale
Securities




Where
quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy.  The security
valued in Level 1 is a mutual fund.




Level 2
securities include U.S. Government agency and U.S. Government-sponsored
enterprise mortgage-backed securities, and municipal securities. Level 2
securities are valued by a third party pricing service commonly used in the
banking industry utilizing observable inputs.  The pricing provider
utilizes evaluated pricing models that vary based on asset class.  These
models incorporate available market information including quoted prices of
securities with similar characteristics and, because many fixed-income
securities do not trade on a daily basis, apply available information through
processes such as benchmark curves, benchmarking of like securities, sector
grouping and matrix pricing.  In addition, model processes, such as an
option adjusted spread model is used to develop prepayment and interest rate
scenarios for securities with prepayment features.




The
Company currently holds no securities valued in Level 3.




(11)




The
following table presents the fair value measurements of assets recognized in the
accompanying balance sheet measured at fair value on a recurring basis and the
level within the fair value hierarchy in which the fair value measurements fall
at September 30, 2010 and December 31, 2009 (dollars in thousands):




Fair Value Measurements UsingAvailable-for-sale securities:
                
                Fair Value
                
                
                Quoted Prices in
                  Active Markets for
                  Identical Assets
                  (Level 1)
                
                
                Significant Other
                  Observable Inputs
                  (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level 3)At
      September 30, 2010:Ginnie
      Mae and GSE mortgage-backed pass-through securities
                
                $
                25,966
                
                
                $
                —
                
                
                $
                25,966
                
                
                $
                —Ginnie
      Mae collateralized mortgage obligations
                
                
                5,590
                
                
                
                —
                
                
                
                5,590
                
                
                
                —Municipal
      securities
                
                
                2,291
                
                
                
                —
                
                
                
                2,291
                
                
                
                —Mutual
      fund
                
                
                1,692
                
                
                
                1,692
                
                
                
                —
                
                
                
                —$
                35,539
                
                
                $
                1,692
                
                
                $
                33,847
                
                
                $
                —At
      December 31, 2009:Ginnie
      Mae and GSE mortgage-backed pass-through securities
                
                $
                24,992
                
                
                $
                —
                
                
                $
                24,992
                
                
                $
                —Ginnie
      Mae collateralized mortgage obligations
                
                
                5,820
                
                
                
                —
                
                
                
                5,820Municipal
      securities
                
                
                3,431
                
                
                
                —
                
                
                
                3,431
                
                
                
                —Mutual
      fund
                
                
                1,598
                
                
                
                1,598
                
                
                
                —
                
                
                
                —$
                35,841
                
                
                $
                1,598
                
                
                $
                34,243
                
                
                $
                —




Following
is a description of valuation methodologies used for instruments measured at
fair value on a non-recurring basis and recognized in the accompanying balance
sheet, as well as the general classification of such instruments pursuant to the
valuation hierarchy.





Impaired
Loans (Collateral Dependent)




Loans for
which it is probable that the Company will not collect all principal and
interest due according to contractual terms are measured for impairment. 
Allowable methods for determining the amount of impairment include estimating
fair value using the fair value of the collateral for collateral-dependent
loans.




If the
impaired loan is identified as collateral dependent, then the fair value method
of measuring the amount of impairment is utilized.  This method requires
obtaining a current independent appraisal of the collateral and applying a
discount factor to the value.




Impaired
loans that are collateral dependent are classified within Level 3 of the fair
value hierarchy when impairment is determined using the fair value
method.




(12)




Other
Real Estate Owned




The fair
value of the Company’s other real estate owned is determined using Level 3
inputs, which include current and prior appraisals and estimated costs to
sell.




The
following table presents the fair value measurements of assets recognized in the
accompanying balance sheet measured at fair value on a nonrecurring basis and
the level within the fair value hierarchy in which the fair value measurements
fall at September 30, 2010 and December 31, 2009.  The totals represent
only those impaired loans and other real estate owned as of that date that
experienced a change in fair value since the beginning of the year (dollars in
thousands):




Fair Value Measurements UsingFair Value
                          
                          
                          Quoted
                            Prices
                            inActive
                            Markets for
                            Identical
                            Assets
                            (Level 1)
                          
                          
                          Significant
                            Other
                            Observable
                            Inputs
                            (Level 2)
                          
                          
                          Significant
                            Unobservable
                            Inputs
                            (Level 3)At
      September 30, 2010:Impaired
      loans
                          
                          $
                          14,597
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          14,597Other
      real estate owned
                          
                          
                          2,779
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,779At
      December  31, 2009:Impaired
      loans
                          
                          $
                          11,401
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          11,401Other
      real estate owned
                          
                          
                          3,286
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          3,286




Fair
Value of Financial Instruments





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





The
following table presents the estimates of fair value of financial instruments
(dollars in thousands):





September
      30, 2010
                        
                        
                        December
      31, 2009Carrying
                          Value
                        
                        
                        Fair
                          Value
                        
                        
                        Carrying
                          Value
                        
                        
                        Fair
                          ValueAssetsCash
      and cash equivalents
                        
                        $
                        12,015
                        
                        
                        $
                        12,015
                        
                        
                        $
                        19,588
                        
                        
                        $
                        19,588Investment
      securities available for sale
                        
                        
                        35,539
                        
                        
                        
                        35,539
                        
                        
                        
                        35,841
                        
                        
                        
                        35,841Loans
      held for sale
                        
                        
                        1,398
                        
                        
                        
                        1,398
                        
                        
                        
                        537
                        
                        
                        
                        537Loans
                        
                        
                        305,733
                        
                        
                        
                        313,226
                        
                        
                        
                        321,544
                        
                        
                        
                        323,890Stock
      in FHLB
                        
                        
                        5,629
                        
                        
                        
                        5,629
                        
                        
                        
                        5,629
                        
                        
                        
                        5,629Interest
      receivable
                        
                        
                        1,209
                        
                        
                        
                        1,209
                        
                        
                        
                        1,419
                        
                        
                        
                        1,419LiabilitiesDeposits
                        
                        
                        328,107
                        
                        
                        
                        328,601
                        
                        
                        
                        338,381
                        
                        
                        
                        340,940Borrowings
                        
                        
                        54,810
                        
                        
                        
                        53,340
                        
                        
                        
                        64,185
                        
                        
                        
                        60,034Drafts
      payable
                        
                        
                        1,468
                        
                        
                        
                        1,468
                        
                        
                        
                        920
                        
                        
                        
                        920Interest
      payable
                        
                        
                        741
                        
                        
                        
                        741
                        
                        
                        
                        414
                        
                        
                        
                        414





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





Cash and Cash
Equivalents and Stock in FHLB: The carrying amounts
reported in the consolidated balance sheets approximate those assets’ fair
values.





Loans Held for
Sale:The fair value
approximates carrying value.





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





Interest
Receivable/Payable: The fair value of accrued
interest receivable/payable approximates carrying values.


(13)





Deposits: The fair value of
interest-bearing demand and savings accounts are estimated by adding a servicing
cost factor to the applicable interest rate, and the use of a discounted cash
flow calculation based on an average remaining life of five years and a discount
factor equal to the interest rate being offered on a FHLB five year borrowing at
that time.  The fair values for certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on deposits to a schedule of aggregated expected monthly maturities on
deposits.





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





Drafts
Payable: The
fair value approximates carrying value.





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 narrative on our financial condition,
results of operations, liquidity, critical accounting policies, off-balance
sheet arrangements and the future impact of accounting standards.  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,
2009, and our other reports on Forms 10-Q and 8-K and other publicly available
information.





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 (the “Company”) current expectations
regarding its business strategies, intended results and future
performance.  Forward-looking statements are generally 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, laws and regulations, 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 under Part I, Item 1A- “Risk
Factors,” in the Form 10-Q for the quarter ended June 30, 2010 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 that 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 is an Indiana
chartered bank holding company subject to regulation and supervision by the
Board of Governors of the Federal Reserve System (the “Federal Reserve Board”)
under the Bank Holding Company Act of 1956, as amended.  The Company became
the holding company for Ameriana Bank, an Indiana chartered commercial bank
headquartered in New Castle, Indiana (the “Bank”), in 1990.  The Company
also holds a minority interest in a limited partnership organized to acquire and
manage real estate investments, which qualify for federal tax
credits.





The Bank
began operations in 1890.  Since 1935, the Bank has been a member of the
Federal Home Loan Bank (the “FHLB”) System.  Its deposits are insured to
applicable limits by the Deposit Insurance Fund, administered by the Federal
Deposit Insurance Corporation (the “FDIC”).  On June 29, 2001, the Bank
converted to an Indiana savings bank and adopted the name “Ameriana Bank and
Trust, SB.”  As a result of the conversion in 2002, the Bank became
subject to regulation by the Indiana Department of Financial Institutions and
the FDIC.  On July 31, 2006, the Bank closed its Trust Department and
adopted the name Ameriana Bank, SB, on September 12, 2006.  On June 10,
2009, the Bank converted to an Indiana chartered commercial bank and adopted the
name Ameriana Bank.  The Bank conducts business through its main office at
2118 Bundy Avenue, New Castle, Indiana and through twelve branch offices located
in New Castle, Middletown, Knightstown, Morristown, Greenfield, Anderson, Avon,
McCordsville, Carmel, Fishers, Westfield and New Palestine, Indiana and a loan
production office in Carmel, Indiana.


(14)





The Bank
has two wholly-owned subsidiaries, Ameriana Insurance Agency (“AIA”) and
Ameriana Financial Services, Inc. (“AFS”).  AIA provides insurance sales
from offices in New Castle, Greenfield and Avon, Indiana.  On July 1, 2009,
AIA purchased the book of business of Chapin-Hayworth Insurance Agency, Inc., a
multi-line property and casualty insurance agency located in New Castle,
Indiana.  AFS operates a brokerage facility in conjunction with LPL
Financial that provides non-bank investment product alternatives to its
customers and the general public. Ameriana Investment Management, Inc. (“AIMI”),
a former wholly-owned subsidiary, had been responsible for managing investment
securities for the Bank.  AIMI was liquidated by the Bank effective
December 31, 2009, and the investment securities were transferred to the
Bank.




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 along with borrowed 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 ranging from three months to seven
years, interest-bearing and noninterest-bearing checking accounts, savings
accounts and money market accounts.  Our primary source of borrowings is
FHLB advances.  Through our subsidiaries, we engage in insurance and
investment 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 borrowings.  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 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 and the current
interest rate environment.




Executive Overview of the
Third Quarter of 2010





The
Company recorded net income of $142,000, or $0.05 per share, for the three-month
period ended  September
30, 2010, which represented its fifth consecutive profitable
quarter.





·
            Consistent
      with its capital contingency plan, the Company paid only a de minimis
      quarterly dividend of $0.01 per
share.





·
            All
      three of the Bank’s capital ratios at September 30, 2010 were considerably
      above the levels required under regulatory guidelines to be considered
      “well capitalized,” and exceeded the higher standards as established in
      the Board resolution addressed
below.





·
            Net
      interest income for the third quarter of 2010 was relatively unchanged
      from the same quarter in 2009,   despite a significantly
      lower volume of average interest-earning assets that resulted from balance
      sheet restructuring that began in the last half of 2009 that was designed
      to increase the Bank’s regulatory capital
  ratios.





·
            Net
      interest margin of 3.61% on a fully tax-equivalent basis for the third
      quarter of 2010 represented no change from the second quarter of 2010, but
      was 49 basis points higher than the same period of 2009.  The
      improvement resulted primarily from a significant reduction in the Bank’s
      average cost of deposits.





·
            Due
      to a continuing elevated level of charge-offs and non-performing loans,
      the Bank recorded a $360,000 provision for loan losses in the third
      quarter of 2010, compared to $320,000 in the year earlier quarter, and
      $658,000 in the second quarter of
2010.




(15)





·
            Other
      income of $1.3 million for the third quarter of 2010 represented a
      $436,000 decrease from the total for the same quarter of 2009, as the 2009
      period included $689,000 more in net gains on sales of available-for-sale
      investment securities, offset by $243,000 more in net losses on other real
      estate owned and other repossessed
assets.





·
            Other
      expense for the third quarter of 2010 of $4.2 million was $415,000, or
      9.0%, lower than the same quarter in 2009, with the most significant
      change being a $218,000 decrease in FDIC insurance premiums and
      assessments.





·
            The
      Company had income before income taxes of $81,000 for the third quarter of
      2010, but recorded an income tax benefit of $61,000 that resulted
      primarily from the significant amount of tax-exempt income from bank-owned
      life insurance.





For the
third quarter of 2010, total assets decreased by $7.0 million, or 1.6%, to
$423.7 million from $430.7 million at June 30, 2010:





·
            A
      $4.2 million decrease in the investment portfolio during the third quarter
      of 2010 to $35.5 million resulted primarily from a $2.2 million sale of a
      mortgage-backed security and $2.1 million in principal payments on
      mortgage-backed securities.





·
            Net
      loans receivable of $305.7 million at September 30, 2010 represented an
      increase of $3.3 million, or 1.1%, for the third quarter of 2010,
      reversing the trend of a declining portfolio over the four prior
      quarters.





·
            Total
      non-performing loans of $7.6 million, or 2.5% of total net loans at
      September 30, 2010, represented an increase of $1.7 million from June 30,
      2010, primarily the result of the addition of two section 42 tax credit
      housing loans that are ultimately expected to be resolved without
      incurring a loss.





·
            The
      allowance for loan losses of $4.1 million at September 30, 2010 was equal
      to 1.33% of total loans and 54.4% of non-performing loans, compared to
      ratios of 1.32% and 68.7%, respectively, at June 30,
  2010.





·
            As
      of September 30, 2010, the Company did not own Fannie Mae or Freddie Mac
      preferred stock or private-label mortgage-backed securities.  The
      Company has no direct exposure to sub-prime loans in its loan
      portfolio.





·
            During
      the third quarter of 2010, total deposits decreased by $3.7 million, or
      1.1%, to $328.1 million, as the Bank maintained its strong focus on core
      deposit relationships, allowing more rate-sensitive accounts to run off,
      including a net reduction of $5.3 million in certificate accounts. 
      No brokered certificates of deposit were held at September 30,
      2010.





·
            Also,
      during the third quarter of 2010, a $4.0 million note payable to the FHLB
      was repaid, reducing total borrowings to $54.8
  million.





Regulatory
Action





On July 26, 2010, following a joint
examination by and discussions with the FDIC and the Indiana Department of
Financial Institutions, the Board of Directors of the Bank adopted a resolution
agreeing to, among other things:





·
            Adopt
      a capital plan to increase its Tier 1 Leverage Ratio to 8.50% by June 30,
      2010 and to maintain a Total Risk-Based Capital Ratio of
      12.00%;


·
            Adopt
      a written plan to lower classified
assets;


·
            Formulate
      and implement a written profit
plan;


·
            Receive
      prior written consent from the FDIC and the Indiana Department of
      Financial Institutions before declaring or paying any
      dividends;


·
            Strive
      to reduce total holdings of bank-owned life insurance;
  and


·
            Furnish
      quarterly progress reports regarding the Bank’s compliance with all
      provisions of the resolution.





The Bank
is currently in compliance with the provisions of the
resolution.


(16)





Strategic
Issues





As part
of the Bank’s efforts to expand its commercial lending capabilities, in the
second quarter of 2007, the Bank opened a commercial lending center in the
fast-growing suburban area of Carmel, Indiana. This office, our current emphasis
on commercial lending and our strong focus on retail banking activities, are
expected to allow us to produce earnings growth for the Company.





A major
remodeling of our Greenfield Banking Center, our second largest office, was
completed in the third quarter of 2008. The renovations provide our customers
the opportunity to interact with our banking associates in a new and dynamic
environment that includes interactive terminals, an internet café, and
multi-media in-store marketing.





The
Company opened three new full-service banking centers in Hamilton County, which
lies just north of Marion County and Indianapolis, in Fishers and Carmel in
November 2008 and December 2008, respectively, and in Westfield in late May
2009.  These new banking centers enhance Ameriana’s presence in one of the
fastest growing areas of Indiana, considerably increase the footprint in the
Indianapolis area, and boost the Company’s overall visibility in this
market.





Achievement
of the Company’s financial objectives will require obtaining new loans and
deposits in our traditional markets, generating significant loan and deposit
growth from our new offices in Hamilton County and continuing the expansion of
our commercial lending strategy in the greater Indianapolis metropolitan
area.




We
believe the long-term success of the Company is dependent on its ability to
provide its customers with financial advice and solutions that assist them in
achieving their goals.  We will accomplish this mission by:





·
            being
      our customers’ first choice for financial advice and
      solutions;




·
            informing
      and educating customers on the basics of money management;
    and




·
            understanding
      and meeting customers’ financial needs throughout their life
      cycle.




Serving
customers requires the commitment of all of our associates to provide
exceptional service and sound advice.  We believe these qualities will
differentiate us from our competitors and increase profitability and shareholder
value.





CRITICAL
ACCOUNTING POLICIES





The
accounting and reporting policies of the Company are maintained in accordance
with accounting principles generally accepted in the United States and conform
to general practices within the banking industry. The Company’s significant
accounting policies are described in detail in the Notes to the Company’s
Consolidated Financial Statements. 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, and
they require management to make estimates that are difficult, subjective or
complex.  The following are the Company’s critical accounting
policies:





Allowance for Loan
Losses.The
allowance for loan losses is based on management’s estimate of the probable
losses in the Company’s loan portfolio. Management evaluates the adequacy of the
allowance for credit losses each quarter based on changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is
inherently subjective, as it requires the use of significant management
estimates. Many factors can affect management’s estimates of 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 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.


(17)





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 nature of
individual loan evaluations, collateral assessments and the interpretation of
economic trends. Volatility of economic or customer-specific conditions
affecting the identification and estimation of losses for larger,
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company’s evaluation of 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 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.





Valuation Measurements.Valuation methodologies often involve a significant degree of judgment,
particularly when there are no observable active markets for the items being
valued.  Investment securities and residential mortgage loans held for sale
are carried at fair value, as defined in ASC 820 “Fair Value Measurements and
Disclosures” (“ASC 820”), which requires key judgments affecting how fair value
for such assets and liabilities is determined.  In addition, the outcomes
of valuations have a direct bearing on the carrying amounts for goodwill and
intangible assets.  To determine the values of these assets and
liabilities, as well as the extent to which related assets may be impaired,
management makes assumptions and estimates related to discount rates, asset
returns, prepayment rates and other factors.  The use of different discount
rates or other valuation assumptions could produce significantly different
results, which could affect the Company’s results of operations.





Income Tax Accounting.We file a consolidated federal income tax return.  The
provision for income taxes is based upon income in our consolidated financial
statements, rather than amounts reported on our income tax return. 
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect of a
change in tax rates on our deferred tax assets and liabilities is recognized as
income or expense in the period that includes the enactment date.





Under
U.S. GAAP, a valuation allowance is required to be recognized if it is “more
likely than not” that a deferred tax asset will not be realized.  The
determination of the realizability of the deferred tax assets is highly
subjective and dependent upon judgment concerning our evaluation of both
positive and negative evidence, our forecasts of future income, applicable tax
planning strategies, and assessments of current and future economic and business
conditions.  Positive evidence includes the existence of taxes paid in
available carry-back years as well as the probability that taxable income will
be generated in future periods, while negative evidence includes any cumulative
losses in the current year and prior two years and general business and economic
trends.  At September 30, 2010 and December 31, 2009, we determined that
valuation allowances were not necessary, largely based on available tax planning
strategies and our projections of future taxable income.  Any reduction in
estimated future taxable income may require us to record a valuation allowance
against our deferred tax assets.  Any required valuation allowance would
result in additional income tax expense in the period and could have a
significant impact on our future earnings.





Positions
taken in our tax returns may be subject to challenge by the taxing authorities
upon examination.  The benefit of an uncertain tax position is initially
recognized in the financial statements only when it is more likely than not the
position will be sustained upon examination by the tax authorities.  Such
tax positions are both initially and subsequently measured as the largest amount
of tax benefit that is greater than 50% likely of being realized upon settlement
with the tax authority, assuming full knowledge of the position and all relevant
facts.  Differences between our position and the position of tax
authorities could result in a reduction of a tax benefit or an increase to a tax
liability, which could adversely affect our future income tax
expense.


(18)





We
believe our tax policies and practices are critical accounting policies because
the determination of our tax provision and current and deferred tax assets and
liabilities have a material impact our net income and the carrying value of our
assets.  We believe our tax liabilities and assets are adequate and are
properly recorded in the consolidated financial statements at September 30,
2010.





FINANCIAL
CONDITION





Total
assets of $424.2 million at September 30, 2010 represented a reduction of$17.4
million, or 3.9%, from the December 31, 2009 total of $441.6 million, and were
also considerably lower than total assets of $489.4 million at June 30,
2009.  During the last half of 2009, the Company initiated a major balance
sheet restructuring strategy to strengthen its capital position to be in a
better position to sustain the possible consequences of a continuing weak
economy.  The strategy focused primarily on eliminating non-core deposits
and reducing the level of borrowed money using excess cash accumulated earlier
in the year, and also with the proceeds from sales of investment securities that
resulted in significant gains for the Bank in the last six months of
2009.





Cash and
cash equivalents of $12.0 million at September 30, 2010 were down $7.6 million
from the December 31, 2009 total of $19.6 million.  The change resulted
primarily from a $7.4 million reduction in interest-bearing deposits at the
Federal Reserve Bank of Chicago from $13.3 million at December 31, 2009 to $5.9
million at September 30, 2010.  Cash and cash equivalents represent an
immediate source of liquidity to fund loans or meet deposit
outflows.





Investment
securities available-for-sale decreased by $302,000, or 0.8% to $35.5 million at
September 30, 2010 from $35.8 million at December 31, 2009.  This decrease
resulted from sales of Fannie Mae and Ginnie Mae mortgage-backed securities
totaling $5.2 million, sales of three municipal securities totaling $1.2
million, and $4.6 million of principal repayments on mortgage-backed securities,
offset by $10.4 million in purchases of Ginnie Mae mortgage-backed securities
and a $920,000 increase in the portfolio’s fair value adjustment.  The
municipal securities sales represent a continuation of a Bank income tax
strategy that has resulted in the municipal securities portfolio being reduced
to $2.2 million at September 30, 2010.  All mortgage-backed securities in
the portfolio at September 30, 2010, which totaled $31.6 million, are insured by
either the U.S. Government agency Ginnie Mae, or by a U.S. Government sponsored
enterprise (“GSE”), Fannie Mae or Freddie Mac.





Net loans
receivable decreased by $15.8 million, or 4.9%, to $305.7 million from $321.5
million at December 31, 2009, primarily due to a second quarter sale of $10.9
million of seasoned performing residential mortgage loans.  Due mostly to
the $10.9 million sale and total sales of $12.9 million of new originations from
mortgage banking operations, the owner-occupied residential real estate first
mortgage loan portfolio declined $15.9 million during the nine months ended
September 30, 2010. The residential mortgage loan strategy is reviewed regularly
to ensure that it remains consistent with the Bank’s overall balance sheet
management objectives.  For the nine months ended September 30, 2010, the
Bank’s commercial and investment residential real estate, and commercial
business loans increased only $411,000, which reflected the impact of relatively
poor economic conditions on the Bank’s growth objectives.  Outstanding
consumer loan balances, including home equity lines of credit, dropped $181,000
during the first nine months of 2010.





Premises
and equipment of $14.8 million at September 30, 2010 represented a $693,000
decrease from $15.5 million at December 31, 2009.  The net decrease was a
result of $760,000 of depreciation for the nine months ended September 30, 2010
exceeding net capital expenditures of $67,000 for the period.





Goodwill
of $649,000 at September 30, 2010 was unchanged from December 31, 2009. 
$457,000 of the goodwill relates to deposits associated with a banking center
acquired on February 27, 1998, and $192,000 is the result of two separate
acquisitions of insurance businesses.  The Bank’s impairment tests
reflected that there was no impairment as of September 30, 2010.





Other
real estate owned of $9.8 million at September 30, 2010, represented an increase
of $4.3 million from December 31, 2009, with nineteen properties added and
nineteen sales during the nine month period.  The increase was due
primarily to the second quarter migration of a $3.5 million commercial real
estate credit from the non-performing loan classification.





Other
assets were $13.4 million at September 30, 2010, compared to $12.2 million at
December 31, 2009.  The net increase of $1.2 million was primarily the
result of an addition of a $2.2 million receivable from a mortgage-backed
security sale and a $555,000 reduction in prepaid FDIC insurance
premiums.


(19)





Total
deposits of $328.1 million at September 30, 2010 represented a decrease of $10.3
million, or 3.0%, from $338.4 million at December 31, 2009, as the Bank focused
on core deposit relationships, allowing the more rate-sensitive accounts to run
off.  During the first nine months of 2010, the Bank grew the total for
checking, money market and savings balances by $5.2 million, while certificate
of deposit balances decreased $15.5 million. The Bank has concentrated on
strategies designed to grow total balances in multi-product deposit
relationships.  Our markets remain very competitive for deposit products
and the Bank continues to utilize pricing strategies designed to produce growth
with an acceptable marginal cost for both existing and new
deposits.





Borrowings
declined by $9.4 million during the first nine months of 2010 to $54.8 million,
as the Bank repaid four Federal Home Loan Bank borrowings totaling $12.4 million
that had matured, and added a $3.0 million five year Federal Home Loan Bank
fixed-rate advance.  Wholesale funding options and strategies are
continuously analyzed to ensure that we retain sufficient sources of credit to
fund all of the Bank’s needs, and to control funding costs by using this
alternative to organic deposit account funding when appropriate.





Drafts
payable of $1.5 million at September 30, 2010 were up $548,000 from $920,000 at
December 31, 2009.  This difference will vary and is a function of the
dollar amount of checks issued near period end and the time required for those
checks to clear.





Total
shareholders’ equity of $33.5 million at September 30, 2010 was $961,000 higher
than the total at December 31, 2009. The increase resulted primarily from
$451,000 in net income and an unrealized gain net of income taxes of $597,000
from the Bank’s available-for-sale investment securities portfolio, reduced by
$90,000 in dividends declared during the nine-month period. The Company and the
Bank’s three regulatory capital ratios were all considerably above the levels
required under regulatory guidelines to be considered “well capitalized,” and
exceeded the higher standards as established in the July 26, 2010 Board
resolution.





RESULTS
OF OPERATIONS





Third Quarter of 2010
compared to the Third Quarter of 2009





The
Company recorded net income of $142,000, or $0.05 per diluted share, for the
third quarter of 2010, compared to net income of $187,000, or $0.06 per diluted
share, for the third quarter of 2009.





Credit
costs related to the weak economic environment continued to adversely affect
earnings during the third quarter of 2010, but not as severely as the impact on
the results for the third quarter of 2009.  The significant credit costs
for the third quarter of 2009 were mostly offset by gains from sales of
investment securities, while the third quarter of 2010 benefited from lower
operating expense than the year earlier quarter.





Net Interest
Income





The
Company’s net interest income on a fully tax-equivalent basis decreased slightly
by $26,000 or 0.8%, to $3.3 million for the third quarter of 2010, compared to
the total for the same period of 2009.  The Company was able to maintain
net interest income at a comparable level with a significant increase in
interest rate spread, as average interest-earning assets of $366.5 million for
the quarter ended September 30, 2010 were down $60.5 million, or 14.2% from the
total for the same quarter a year earlier.  The reduction in average
interest-earning assets resulted primarily from balance sheet restructuring
strategies that were implemented during the second half of 2009.  As a
result of the Company’s interest rate spread improvement, that was due primarily
to a decrease in the Bank’s cost of funds, net interest margin on a fully
tax-equivalent basis increased 49 basis points to 3.61% for the third quarter of
2010 from 3.12% for the third quarter of 2009.





Tax-exempt
interest was $51,000 for the third quarter of 2010 compared to $110,000 for the
same period of 2009, as a result of levels in each period of bank-qualified
municipal securities and municipal loans.  Tax-equivalent adjustments were
$23,000 and $54,000 for the third quarter of 2010 and 2009, respectively. 
The decrease in tax-exempt interest for the third quarter of 2010 compared to
the same period of 2009 was due primarily to the Bank’s sales of municipal
securities.





“Net
interest income on a fully tax-equivalent basis” is calculated by increasing net
interest income by an amount that represents the additional taxable interest
income that would be needed to produce the same amount of after-tax income as
the tax-exempt interest income included in net interest income for the
period.





“Net
interest margin on fully tax-equivalent basis” is calculated by dividing
annualized “net interest income on a fully tax-equivalent basis” by average
interest-earning assets for the period.


(20)




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 30,2010
                  
                  
                  2009Balance
      at beginning of quarter
                  
                  $
                  4,033
                  
                  
                  $
                  3,643Provision
      for loan losses
                  
                  
                  360
                  
                  
                  
                  320Charge-offs
                  
                  
                  (342
                  )
                  
                  
                  (135
                  )Recoveries
                  
                  
                  83
                  
                  
                  
                  42Net
      charge-offs
                  
                  
                  (259
                  )
                  
                  
                  (93
                  )Balance
      at end of period
                  
                  $
                  4,134
                  
                  
                  $
                  3,870Allowance
      to total loans
                  
                  
                  1.33
                  %
                  
                  
                  1.16
                  %Allowance
      to non-performing loans
                  
                  
                  54.44
                  %
                  
                  
                  46.72
                  %





We recorded a provision for loan losses
of $360,000 in the third quarter of 2010, compared to $320,000 for the same
period in 2009.  The provision for loan losses for the third quarter of
2010 reflected the continuing pressure of current economic conditions on credit
quality, including an increase in net charge-offs.





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





(Dollars
      in thousands)September
      30,2010
                    
                    
                    2009Loans
      accounted for on a non-accrual basis
                    
                    $
                    7,303
                    
                    
                    $
                    7,685Accruing
      loans contractually past due 90 days or more
                    
                    
                    290
                    
                    
                    
                    598Total
      of non-accrual and 90 days past due loans
                    
                    $
                    7,593
                    
                    
                    $
                    8,283Percentage
      of total net loans
                    
                    
                    2.48
                    %
                    
                    
                    2.48
                    %Other
      non-performing assets (1)
                    
                    $
                    9,807
                    
                    
                    $
                    5,570Percentage
      of total assets
                    
                    
                    2.31
                    %
                    
                    
                    1.22
                    %





(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 its carrying value.





The
allowance for loan losses of $4.1 million at September 30, 2010 was $264,000, or
6.8%, higher than a year earlier, and the allowance for loan losses to
non-performing loans ratio of 54.44% at September 30, 2010 reflected an increase
from the ratio of 46.72% at September 30, 2009, due in part to a lower total of
non-performing loans.  Non-performing loans of $7.6 million at September
30, 2010 represented a $690,000 decrease from the total of $8.3 million at
September 30, 2009.  It is management’s opinion that the allowance for loan
losses at September 30, 2010 is adequate based on measurements of the credit
risk in the entire portfolio as of that date.





Other
real estate owned of $9.8 million at September 30, 2010, represented a decrease
of $24,000 from the total for June 30, 2010, with four new properties and four
sales during the three month period.





At
September 30, 2010, the Company had $9.1 million in loans categorized as a
troubled debt restructuring, with one loan for $1.1 million also included in the
table above in the total for loans accounted for on a non-accrual
basis.




(21)





Other
Income





The
Company recorded other income of $1.3 million for the third quarter of 2010, a
decrease of $436,000 over the total of $1.8 million for the same period a year
earlier that resulted primarily from the net of the following
changes:





·
            Net
      gains on sales of available-for-sale securities decreased $689,000 from
      $793,000 for the third quarter of 2009 to $104,000 for the third quarter
      of 2010;





·
            A
      $28,000 increase in fees and service charges from deposit account
      relationships compared to the same quarter a year earlier that reflected
      the Bank’s success in growing retail checking
  accounts;





·
            A
      $28,000 increase in gains on sales of loans and servicing rights over the
      same quarter a year earlier that related primarily to significant
      residential mortgage loan refinancing
activity;





·
            The
      Bank experienced a $243,000 reduction in net losses from OREO and other
      repossessed assets to a net loss of $33,000 for the third quarter of 2010,
      compared to a net loss $276,000 in the same period a year
      earlier;





·
            A
      $34,000 increase in other real estate owned income compared to the same
      quarter a year earlier that resulted primarily from increased occupancy
      and rental rates for an apartment complex,
and





·
            A
      $95,000 loss related to the Company’s investment in a limited partnership
      organized to acquire and manage real estate investments qualifying for
      federal tax credits, which exceeded the loss for this investment for the
      same quarter a year earlier by
$68,000.





Other
Expense





Total
other expense of $4.2 million for the third quarter of 2010 was $415,000, or
9.0%, lower than the third quarter of 2009, with the following major
differences:





·
            A
      decrease of $79,000 in salaries and employee benefits that was due mostly
      to an $87,000 reduction in compensation and benefits, and a $46,000
      reduction in employee health insurance costs that are driven primarily by
      claims, partially offset by a $50,000 increase in funding costs for the
      frozen multi-employer defined benefit retirement
  plan;





·
            A
      decrease of $48,000 in legal and professional fees, due primarily to a
      lower expense recorded for audit and accounting
  fees;





·
            A
      $218,000 decrease in the total for FDIC insurance premiums and assessments
      compared to the year earlier
period;





·
            The
      $205,000 total for other real estate owned expense exceeded the total for
      the same quarter a year earlier by $89,000, primarily due to the larger
      average size of the portfolio of properties.  The total for both
      periods included operating expenses for an apartment complex that provided
      $109,000 of rental income during the third quarter of 2010, and $83,000
      for the same period a year earlier;





·
            Marketing
      expense of $105,000 for the third quarter of 2010 was $31,000 lower than
      the same quarter a year earlier, and reflects an expense reduction
      initiative implemented by Bank management beginning in the second half of
      2009; and





·
            Other
      expense was $97,000 lower, primarily as a result of a $45,000 third
      quarter 2009 prepayment penalty on a Federal Home Loan Bank borrowing, a
      $19,000 decrease in the cost of directors’ benefits, an $18,000 decrease
      in charitable contributions, and a $12,000 reduction in travel and
      entertainment expense.





Income Tax
Expense





The
Company had income before income taxes of $81,000, but recorded an income tax
benefit of $61,000 for the third quarter of 2010 due to a significant amount of
tax-exempt income, primarily from bank owned life insurance.  For the same
quarter of 2009, the Company had income before income taxes of $138,000 and
recorded a tax benefit of $49,000 that also resulted primarily from tax-exempt
BOLI income coupled with the interest from a larger investment in municipal
securities.  The municipal securities portfolio had been reduced from an
average balance of $7.1 million for the third quarter of 2009 to an average
balance of $2.2 million for the third quarter of 2010.


(22)





We have a
deferred state tax asset that is primarily the result of operating losses
sustained since 2003.  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 tax asset already recorded on the books
without modifying the use of AIMI, our investment subsidiary, which was
liquidated effective December 31, 2009.  Operating income from AIMI was not
subject to state income taxes under state law, and is the primary reason for the
tax asset.





The
Company also has a deferred federal tax asset that is composed of tax benefit
from a net operating loss carry-forward and purchased tax credits.  The
federal loss carry-forward expires in 2026, and the tax credits begin to expire
in 2023.  Management believes that the Company will be able to utilize the
benefits recorded for loss carry-forwards and credits within the allotted time
periods.





In
addition to the liquidation of AIMI, the Bank has initiated several strategies
designed to expedite the use of both the deferred state tax asset and the
deferred federal tax asset.  Through sales of tax-exempt municipal
securities, that segment of the investment portfolio has been reduced by $32.3
million, or 93.6%, from $34.5 million at December 31, 2006 to $2.2 million at
September 30, 2010.  The proceeds from these sales have been reinvested in
taxable financial instruments.  The Bank is considering a sale/leaseback
transaction that could result in a taxable gain on its office properties, and
also allow the Bank to convert nonearning assets to assets that will produce
taxable income.  Additionally, the Bank is exploring options related to
reducing its current investment in tax-exempt bank owned life insurance policies
that involve the reinvestment of the proceeds in taxable financial instruments
with a similar or greater risk-adjusted after-tax yield.  Sales of banking
centers not important to long-term growth objectives that would result in
taxable gains and reduced operating expenses could be considered by the
Bank.





Nine Months Ended September
30, 2010 compared to the Nine Months Ended September 30,
2009





The
Company recorded net income of $451,000, or $0.15 per diluted share, for the
first nine months of 2010, an increase of $843,000 from a net loss of $392,000,
or $(0.13) per diluted share, for the first nine months of 2009.





One of
the major factors in the earnings improvement was net interest income growth of
$568,000, or 6.0%, compared to the first nine months of 2009 that resulted
primarily from the Bank’s success with continuing efforts related to enhancing
net interest margin.  Additionally, the Company had an increase of $837,000
in other income for the nine months of 2010 compared to the same period in 2009,
due primarily to a $560,000 gain from the bulk sale of seasoned performing
residential mortgage loans, and a $763,000 reduction in net losses on other real
estate owned and repossessed assets.  Net realized gains from sales of
investment securities of $209,000 were $686,000 less than the total for the
first nine months of 2009.





Net Interest
Income





Net
interest income on a fully tax-equivalent basis increased $424,000, or 4.4%, to
$10.0 million for the first nine months of 2010 compared to $9.6 million for the
same period of 2009, primarily as a result of a 55 basis point reduction in the
Bank’s average cost of deposits from 1.67% at September 30, 2009 to 1.12% at
September 30, 2010.  The Company’s net interest margin on a fully
tax-equivalent basis increased 59 basis points to 3.58% for the first nine
months of 2010 from 2.99% for the first nine months of 2009.  The Company
was able to increase net interest income by $568,000 compared to the same period
of 2009 through a significant increase in interest rate spread, as average
interest-earning assets of $366.5 million for the first nine months of 2010 were
down $54.7 million, or 12.7% from the total for the same period a year
earlier.





Tax-exempt
interest was $171,000 for the first nine months of 2010 compared to $441,000 for
the same period of 2009. Our tax-exempt interest results from holdings of
bank-qualified municipal securities and municipal loans.  The
tax-equivalent adjustments were $77,000 and $221,000 for the first nine months
of 2010 and 2009, respectively.  The decrease in tax-exempt interest for
the first nine months of 2010 compared to the same period of 2009 was due
primarily to the significant amount of municipal securities sales.




(23)





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 30,2010
                    
                    
                    2009Balance
      at beginning of year
                    
                    $
                    4,005
                    
                    
                    $
                    2,991Provision
      for loan losses
                    
                    
                    1,378
                    
                    
                    
                    1,273Charge-offs
                    
                    
                    (1,489
                    )
                    
                    
                    (453
                    )Recoveries
                    
                    
                    240
                    
                    
                    
                    59Net
      charge-offs
                    
                    
                    (1,249
                    )
                    
                    
                    (394
                    )Balance
      at end of period
                    
                    $
                    4,134
                    
                    
                    $
                    3,870





We had a
provision for loan losses of $1.4 million for the first nine months of 2010,
compared to $1.3 million for the same period in 2009.  The increase in the
provision reflected the continuing pressure of current economic conditions on
credit quality, which resulted in a higher level of charge-offs.  The
allowance to total loans ratio was 1.33% at September 30, 2010 compared to 1.16%
at September 30, 2009 and 1.23% at December 31, 2009.





Other
Income





The
$837,000 increase in other income to $4.4 million for the nine months of 2010,
compared to $3.6 million for the same period of 2009, resulted primarily from
the following changes:





·
            A
      $150,000, or 11.0%,  increase in fees and service charges from
      deposit account relationships compared to the same nine month period a
      year earlier, including a $90,000 increase in debit card fees, that
      reflected the Bank’s success in growing retail checking
      accounts;





·
            A
      $95,000 increase in commissions earned on insurance and brokerage sales
      that resulted primarily from the July 1, 2009 purchase of an insurance
      business;





·
            A
      $546,000 increase in gains on sales of loans and servicing rights over the
      first nine months of 2009, due primarily to the second quarter $560,000
      gain from the $10.9 million bulk sale of seasoned performing residential
      mortgage loans;





·
            A
      $763,000 decrease in net losses on OREO and other repossessed assets from
      a net loss of $976,000 for the nine months ended September 30, 2009 to a
      net loss of $213,000 for the nine months ended September 30,
      2010;





·
            A
      $139,000 increase in OREO income related primarily to additional rental
      income received on a foreclosed  apartment complex; reduced
      by





·
            A
      $192,000 gain from the liquidation of a minority interest in Family
      Financial, an unconsolidated investment that focused on credit-related
      insurance products that occurred in the first nine months of 2009; and
      reduced by





·
            Net
      gains on sales of available-for-sale securities declining $686,000 from
      $895,000 for the first nine months of 2009 to $209,000 for the nine months
      of 2010.





Other
Expense





The
Company recorded a $107,000 decrease in total other expense to $12.7 million for
the first nine months of 2010, compared to $12.8 million for the first nine
months of 2009, due primarily to the following major differences:





·
            A
      decrease of $66,000 in legal and professional fees, of which $30,000
      represented the reversal of an accrued expense due to the Company’s
      Sarbanes-Oxley Section 404(b) exemption resulting from the regulatory
      reform bill that was signed into law during the third quarter of
      2010;


(24)





·
            An
      $81,000 decrease in FDIC insurance premiums and assessments that was
      related primarily to the industry-wide special assessment that resulted in
      a $225,000 expense in 2009, which was partly offset by higher total net
      premiums in 2010 due to industry-wide increases and the exhaustion of the
      one-time credit in 2009;





·
            A
      $45,000 decrease in the printing and office supplies expense that resulted
      primarily from several cost reduction
decisions;





·
            A
      $180,000 reduction in marketing expense that reflected an expense
      reduction initiative implemented by Bank management in the second half of
      2009; and





·
            A
      $224,000 reduction in other that resulted primarily from the $292,000
      expense reversal related to the elimination of a directors’
      post-retirement benefit plan, reduced by $86,000 in loan expense resulting
      from the write-off of receivables from loan customers that represented
      advances for taxes and various other items.  The receivables were
      deemed to be uncollectible based on current
  information.





The
decreases above were offset in part by:





·
            An
      increase of $180,000, or 2.6%, in salaries and employee benefits that was
      due mostly to a $182,000 increase in employee health insurance costs
      resulting primarily from an increase in claims, and a $144,000 increase in
      funding costs for the frozen multi-employer defined benefit retirement
      plan.  Salary costs were $137,000 lower, as the benefit from the
      elimination of positions through attrition exceeded additional salary
      costs associated with a new banking center and normal annual salary
      increases for employees.  In light of the impact of poor economic
      conditions on the earnings of the Company, management agreed to forego
      salary increases for 2010; and





·
            Other
      real estate owned expense of $739,000 represented a $319,000 increase over
      the first nine months of 2009 that was related primarily to the larger
      average size of the portfolio of properties.  The total for the first
      nine months of 2010 included operating expenses on the foreclosed
      apartment complex that provided $309,000 of rental
  income.





Income Tax
Expense





The
Company had income before income taxes of $283,000 for the first nine months of
2010, but recorded an income tax benefit of $168,000 as a result of tax-exempt
income.  The Company had a loss before income taxes of $1.1 million for the
same period of 2009, and recorded a $732,000 income tax benefit that was also
elevated by tax-exempt income.  For both nine month periods, the Bank had a
significant amount of tax-exempt income from BOLI, in addition to tax-exempt
income from municipal loans and municipal securities.





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.





We do not
have any off-balance-sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.




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 through the brokered certificates
market.  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.




(25)




The
Company is a separate entity and apart from the Bank and must provide for its
own liquidity.  In addition to its operating expenses, the Company is
responsible for the payment of dividends declared for its shareholders and the
payment of interest on its subordinated debentures.  At times, the Company
has repurchased its stock.  Substantially all of the Company’s operating
cash is obtained from subsidiary dividends.  Payment of such dividends to
the Company by the Bank is limited under Indiana law.  Additionally, as
part of a resolution adopted by the Board of Directors of the Bank on July 26,
2010, the Bank cannot declare or pay any dividends without the prior written
consent of the FDIC and the Indiana Department of Financial Institutions. 
See “Regulatory Action.”  The Company believes that such restriction
will not have an impact on the Company’s ability to meet its ongoing cash
obligations.





At
September 30, 2010, we had $7.9 million in loan commitments outstanding and
$38.1 million of additional commitments for line of credit receivables. 
Certificates of deposit due within one year of September 30, 2010 totaled $95.8
million, or 29.2% 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 CDs, and borrowings.  Depending on
market conditions, we may be required to pay higher rates on such deposits or
other borrowings than currently paid on the certificates of deposit due on or
before September 30, 2011.  However, based on past experiences we believe
that a significant portion of the certificates of deposit will remain.  We
have the ability to attract and retain deposits by adjusting the interest rates
offered.




Our
primary investing activity, the origination and purchase of loans, is offset by
the sale of loans and principal repayments.  In the first nine months of
2010, net loans receivable decreased by $15.8 million, or 4.9%.  In the
first nine months of 2009, we experienced an increase of $7.1 million in net
loans receivable.





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 decreased by $10.3 million and total FHLB advances
were reduced by $9.4 million during the first nine months of 2010. There were no
brokered certificates at either September 30, 2010 or December 31,
2009.





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 Board.  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.  In addition, as part of a resolution
adopted by the Board of Directors of the Bank on July 26, 2010, the Bank adopted
a capital plan to increase its Tier 1 Leverage Ratio to 8.50% by June 30, 2010
and maintain a Total Risk-Based Capital Ratio of 12.00%, both of which the Bank
has accomplished.  See “Regulatory Action.”





There are
five capital categories defined in the regulations, ranging from well
capitalized to critically under-capitalized.  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, 2010 and
December 31, 2009, the Bank was categorized as “well capitalized” and met
all subject capital adequacy requirements.  There are no conditions or
events since September 30, 2010, that management believes have changed this
classification.





Actual,
required, and well capitalized amounts and ratios for the Bank are as
follows:





September
      30, 2010


ActualCapital
                      
                      
                      Required
      For
                        Adequate
      Capital
                      
                      
                      To
      Be
                        Well
      CapitalizedAmount
                      
                      
                      Ratio
                      
                      
                      Amount
                      
                      
                      Ratio
                      
                      
                      Amount
                      
                      
                      RatioTotal risk-based capital
      ratio(risk based capital to risk-weighted
    assets)
                      
                      $
                      42,090
                      
                      
                      
                      13.27
                      %
                      
                      $
                      25,383
                      
                      
                      
                      8.00
                      %
                      
                      $
                      31,729
                      
                      
                      
                      10.00
                      %Tier 1 risk-based capital
      ratio(tier 1 capital to risk-weighted assets)
                      
                      $
                      38,091
                      
                      
                      
                      12.01
                      %
                      
                      $
                      12,692
                      
                      
                      
                      4.00
                      %
                      
                      $
                      19,037
                      
                      
                      
                      6.00
                      %Tier 1 leverage
      ratio(tier 1 capital to adjusted average total
      assets)
                      
                      $
                      38,091
                      
                      
                      
                      9.02
                      %
                      
                      $
                      12,669
                      
                      
                      
                      3.00
                      %
                      
                      $
                      21,115
                      
                      
                      
                      5.00
                      %




(26)





December 31, 2009Actual Capital
                    
                    
                    Required For
                      Adequate Capital
                    
                    
                    To Be
                      Well CapitalizedAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    RatioTotal risk-based capital
      ratio
                      (risk
      based capital to risk-weighted assets)
                    
                    $
                    40,811
                    
                    
                    
                    12.51
                    %
                    
                    $
                    26,107
                    
                    
                    
                    8.00
                    %
                    
                    $
                    32,634
                    
                    
                    
                    10.00
                    %Tier 1 risk-based capital
      ratio
                      (tier
      1 capital to risk-weighted assets)
                    
                    $
                    36,720
                    
                    
                    
                    11.25
                    %
                    
                    $
                    13,053
                    
                    
                    
                    4.00
                    %
                    
                    $
                    19,580
                    
                    
                    
                    6.00
                    %Tier 1 leverage
      ratio
                      (tier
      1 capital to adjusted average total assets)
                    
                    $
                    36,720
                    
                    
                    
                    8.27
                    %
                    
                    $
                    13,314
                    
                    
                    
                    3.00
                    %
                    
                    $
                    22,189
                    
                    
                    
                    5.00
                    %





Actual,
required, and well capitalized amounts and ratios for the Company are as
follows:





September 30, 2010Actual Capital
                    
                    
                    Required For
                      Adequate Capital
                    
                    
                    To Be
                      Well CapitalizedAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    RatioTotal risk-based capital
      ratio
                      (risk
      based capital to risk-weighted assets)
                    
                    $
                    42,266
                    
                    
                    
                    13.21
                    %
                    
                    $
                    25,592
                    
                    
                    
                    8.00
                    %
                    
                    $
                    31,990
                    
                    
                    
                    10.00
                    %Tier 1 risk-based capital
      ratio
                      (tier
      1 capital to risk-weighted assets)
                    
                    $
                    38,267
                    
                    
                    
                    11.96
                    %
                    
                    $
                    12,796
                    
                    
                    
                    4.00
                    %
                    
                    $
                    19,194
                    
                    
                    
                    6.00
                    %Tier 1 leverage
      ratio
                      (tier
      1 capital to adjusted average total assets)
                    
                    $
                    38,267
                    
                    
                    
                    9.05
                    %
                    
                    $
                    12,680
                    
                    
                    
                    3.00
                    %
                    
                    $
                    21,134
                    
                    
                    
                    5.00
                    %





December 31, 2009Actual Capital
                    
                    
                    Required For
                      Adequate Capital
                    
                    
                    To Be
                      Well CapitalizedAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    RatioTotal risk-based capital
      ratio
                      (risk
      based capital to risk-weighted assets)
                    
                    $
                    41,047
                    
                    
                    
                    12.49
                    %
                    
                    $
                    26,300
                    
                    
                    
                    8.00
                    %
                    
                    $
                    32,874
                    
                    
                    
                    10.00
                    %Tier 1 risk-based capital
      ratio
                      (tier
      1 capital to risk-weighted assets)
                    
                    $
                    36,956
                    
                    
                    
                    11.24
                    %
                    
                    $
                    13,150
                    
                    
                    
                    4.00
                    %
                    
                    $
                    19,725
                    
                    
                    
                    6.00
                    %Tier 1 leverage
      ratio
                      (tier
      1 capital to adjusted average total assets)
                    
                    $
                    36,956
                    
                    
                    
                    8.32
                    %
                    
                    $
                    13,333
                    
                    
                    
                    3.00
                    %
                    
                    $
                    22,222
                    
                    
                    
                    5.00
                    %





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.





ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





Not
applicable as issuer is a smaller reporting company.


(27)





ITEM
4T – 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.





There
were no changes in the Company’s internal control over financial reporting
during the three months ended September 30, 2010 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.





PART
II - OTHER INFORMATION





ITEM 1 – LEGAL PROCEEDINGS





Neither
the Company nor the Bank is involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the
company.





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, 2009 and Part II, “Item 1A.
Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June
30, 2010, which could materially affect our business, financial condition or
future results. The risks described in our Annual Report on Form 10-K and our
Quarterly Report on Form 10-Q 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





The
Company did not repurchase any of its common stock during the quarter ended
September 30, 2010, and at September 30, 2010 had no approved repurchase plans
or programs.





ITEM 3 – DEFAULTS UPON SENIOR
SECURITIES





Not
Applicable





ITEM 4 – (Removed and
Reserved)





ITEM 5 – OTHER
INFORMATION





Not
Applicable





ITEM 6 - EXHIBITS





No.
              
              Description31
              
              Rule
      13a-14(a)/15d-14(a) Certifications32
              
              Section
      1350 Certifications




(28)





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
      BANCORPDATE:November  12,
      2010
                    /s/
      Jerome J. GassenJerome
      J. GassenPresident
      and Chief Executive Officer(Duly
      Authorized Representative)DATE: November  12,
      2010
                    /s/
      John J. LetterJohn
      J. LetterSenior
      Vice President-Treasurer andChief
      Financial Officer(Principal
      Financial Officerand
      Accounting
Officer)