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, 2009


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
November 13,
2009,
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)Consolidated
      Condensed Balance Sheets at September 30, 2009 and December 31,
      2008
                      
                      3Consolidated
      Condensed Statements of Operations for the Three and Nine Months Ended
      September 30, 2009 and 2008
                      
                      4Consolidated
      Condensed Statements of Shareholders’ Equity for the Nine Months Ended
      September 30, 2009
                      
                      5Consolidated
      Condensed Statements of Cash Flows for the Nine Months Ended September 30,
      2009 and 2008
                      
                      6Notes
      to Consolidated Condensed Financial Statements
                      
                      7Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      15Item
      3.
                      Quantitative
      and Qualitative Disclosure about Market Risk
                      
                      28Item
      4T.
                      Controls
      and Procedures
                      
                      28Part
      II.  Other InformationItem
      1.
                      Legal
      Proceedings
                      
                      28Item
      1A.
                      Risk
      Factors
                      
                      29Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      29Item
      3.
                      Defaults
      upon Senior Securities
                      
                      29Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      
                      29Item
      5.
                      Other
      Information
                      
                      29Item
      6.
                      Exhibits
                      
                      29Signatures




(2)




PART
I - FINANCIAL INFORMATION
  ITEM
I - FINANCIAL STATEMENTS
 Ameriana
Bancorp
 Consolidated
Condensed Balance Sheets
 (In
thousands, except share data)
 
 September
      30,
                                            
                                            
                                            December
      31,2009
                                            
                                            
                                            2008(Unaudited)AssetsCash
      on hand and in other institutions
                                            
                                            $
                                            4,331
                                            
                                            
                                            $
                                            3,810Interest-bearing
      demand deposits
                                            
                                            
                                            6,093
                                            
                                            
                                            
                                            4,639Cash
      and cash equivalents
                                            
                                            
                                            10,424
                                            
                                            
                                            
                                            8,449Investment
      securities available for sale
                                            
                                            
                                            54,059
                                            
                                            
                                            
                                            75,371Loans
      held for sale
                                            
                                            
                                            1,515
                                            
                                            
                                            
                                            —Loans,
      net of allowance for loan losses of $3,870 and $2,991
                                            
                                            
                                            329,597
                                            
                                            
                                            
                                            322,535Premises
      and equipment
                                            
                                            
                                            15,661
                                            
                                            
                                            
                                            14,912Stock
      in Federal Home Loan Bank
                                            
                                            
                                            5,629
                                            
                                            
                                            
                                            5,629Goodwill
                                            
                                            
                                            649
                                            
                                            
                                            
                                            564Cash
      value of life insurance
                                            
                                            
                                            24,312
                                            
                                            
                                            
                                            23,669Other
      real estate owned
                                            
                                            
                                            5,432
                                            
                                            
                                            
                                            3,881Other
      assets
                                            
                                            
                                            9,335
                                            
                                            
                                            
                                            8,492Total
      assets
                                            
                                            $
                                            456,613
                                            
                                            
                                            $
                                            463,502Liabilities
      and Shareholders’ EquityLiabilitiesDepositsNoninterest-bearing
                                            
                                            $
                                            27,396
                                            
                                            
                                            $
                                            22,070Interest-bearing
                                            
                                            
                                            318,869
                                            
                                            
                                            
                                            302,336Total
      deposits
                                            
                                            
                                            346,265
                                            
                                            
                                            
                                            324,406Borrowings
                                            
                                            
                                            68,435
                                            
                                            
                                            
                                            97,735Drafts
      payable
                                            
                                            
                                            1,200
                                            
                                            
                                            
                                            1,582Other
      liabilities
                                            
                                            
                                            7,383
                                            
                                            
                                            
                                            6,003Total
      liabilities
                                            
                                            
                                            423,283
                                            
                                            
                                            
                                            429,726Commitments
      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 and 3,213,952 shares
                                            
                                            
                                            3,214
                                            
                                            
                                            
                                            3,214Outstanding
      – 2,988,952 shares and 2,988,952 sharesAdditional
      paid-in capital
                                            
                                            
                                            1,047
                                            
                                            
                                            
                                            1,044Retained
      earnings
                                            
                                            
                                            31,318
                                            
                                            
                                            
                                            31,979Accumulated
      other comprehensive income
                                            
                                            
                                            749
                                            
                                            
                                            
                                            537Treasury
      stock at cost – 225,000 shares and 225,000 shares
                                            
                                            
                                            (2,998
                                            )
                                            
                                            
                                            (2,998
                                            )Total
      shareholders’ equity
                                            
                                            
                                            33,330
                                            
                                            
                                            
                                            33,776Total
      liabilities and shareholders’ equity
                                            
                                            $
                                            456,613
                                            
                                            
                                            $
                                            463,502
 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 30,2009
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2008Interest
      IncomeInterest
      and fees on loans
                                                        
                                                        $
                                                        4,915
                                                        
                                                        
                                                        $
                                                        4,933
                                                        
                                                        
                                                        $
                                                        14,622
                                                        
                                                        
                                                        $
                                                        14,748Interest
      on mortgage-backed securities
                                                        
                                                        
                                                        544
                                                        
                                                        
                                                        
                                                        540
                                                        
                                                        
                                                        
                                                        1,818
                                                        
                                                        
                                                        
                                                        1,551Interest
      on investment securities
                                                        
                                                        
                                                        122
                                                        
                                                        
                                                        
                                                        250
                                                        
                                                        
                                                        
                                                        435
                                                        
                                                        
                                                        
                                                        918Other
      interest and dividend income
                                                        
                                                        
                                                        74
                                                        
                                                        
                                                        
                                                        125
                                                        
                                                        
                                                        
                                                        183
                                                        
                                                        
                                                        
                                                        425Total
      interest income
                                                        
                                                        
                                                        5,655
                                                        
                                                        
                                                        
                                                        5,848
                                                        
                                                        
                                                        
                                                        17,058
                                                        
                                                        
                                                        
                                                        17,642Interest
      ExpenseInterest
      on deposits
                                                        
                                                        
                                                        1,596
                                                        
                                                        
                                                        
                                                        1,880
                                                        
                                                        
                                                        
                                                        5,079
                                                        
                                                        
                                                        
                                                        6,204Interest
      on borrowings
                                                        
                                                        
                                                        749
                                                        
                                                        
                                                        
                                                        961
                                                        
                                                        
                                                        
                                                        2,578
                                                        
                                                        
                                                        
                                                        2,693Total
      interest expense
                                                        
                                                        
                                                        2,345
                                                        
                                                        
                                                        
                                                        2,841
                                                        
                                                        
                                                        
                                                        7,657
                                                        
                                                        
                                                        
                                                        8,897Net
      Interest Income
                                                        
                                                        
                                                        3,310
                                                        
                                                        
                                                        
                                                        3,007
                                                        
                                                        
                                                        
                                                        9,401
                                                        
                                                        
                                                        
                                                        8,745Provision
      for loan losses
                                                        
                                                        
                                                        320
                                                        
                                                        
                                                        
                                                        205
                                                        
                                                        
                                                        
                                                        1,273
                                                        
                                                        
                                                        
                                                        797Net
      Interest Income After Provision for Loan Losses
                                                        
                                                        
                                                        2,990
                                                        
                                                        
                                                        
                                                        2,802
                                                        
                                                        
                                                        
                                                        8,128
                                                        
                                                        
                                                        
                                                        7,948Other
      IncomeOther
      fees and service charges
                                                        
                                                        
                                                        480
                                                        
                                                        
                                                        
                                                        481
                                                        
                                                        
                                                        
                                                        1,358
                                                        
                                                        
                                                        
                                                        1,345Brokerage
      and insurance commissions
                                                        
                                                        
                                                        360
                                                        
                                                        
                                                        
                                                        225
                                                        
                                                        
                                                        
                                                        943
                                                        
                                                        
                                                        
                                                        910Net
      realized and recognized gains (losses) on available-for-sale investment
      securities
                                                        
                                                        
                                                        793
                                                        
                                                        
                                                        
                                                        (6
                                                        )
                                                        
                                                        
                                                        895
                                                        
                                                        
                                                        
                                                        103Gains
      on sales of loans and servicing rights
                                                        
                                                        
                                                        91
                                                        
                                                        
                                                        
                                                        9
                                                        
                                                        
                                                        
                                                        278
                                                        
                                                        
                                                        
                                                        50Net
      (loss) gain on other real estate owned
                                                        
                                                        
                                                        (126
                                                        )
                                                        
                                                        
                                                        9
                                                        
                                                        
                                                        
                                                        (826
                                                        )
                                                        
                                                        
                                                        (9
                                                        )Loss
      on other repossessed assets
                                                        
                                                        
                                                        (150
                                                        )
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (150
                                                        )
                                                        
                                                        
                                                        —Other
      real estate owned income
                                                        
                                                        
                                                        77
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        182
                                                        
                                                        
                                                        
                                                        —Increase
      in cash value of life insurance
                                                        
                                                        
                                                        217
                                                        
                                                        
                                                        
                                                        242
                                                        
                                                        
                                                        
                                                        643
                                                        
                                                        
                                                        
                                                        677Gain
      on liquidation of minority interest in unconsolidated
      investment
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        192
                                                        
                                                        
                                                        
                                                        —Other
                                                        
                                                        
                                                        22
                                                        
                                                        
                                                        
                                                        68
                                                        
                                                        
                                                        
                                                        47
                                                        
                                                        
                                                        
                                                        113Total
      other income
                                                        
                                                        
                                                        1,764
                                                        
                                                        
                                                        
                                                        1,028
                                                        
                                                        
                                                        
                                                        3,562
                                                        
                                                        
                                                        
                                                        3,189Other
      ExpenseSalaries
      and employee benefits
                                                        
                                                        
                                                        2,459
                                                        
                                                        
                                                        
                                                        2,041
                                                        
                                                        
                                                        
                                                        6,825
                                                        
                                                        
                                                        
                                                        6,283Net
      occupancy expense
                                                        
                                                        
                                                        387
                                                        
                                                        
                                                        
                                                        236
                                                        
                                                        
                                                        
                                                        1,125
                                                        
                                                        
                                                        
                                                        762Furniture
      and equipment expense
                                                        
                                                        
                                                        228
                                                        
                                                        
                                                        
                                                        187
                                                        
                                                        
                                                        
                                                        669
                                                        
                                                        
                                                        
                                                        553Legal
      and professional fees
                                                        
                                                        
                                                        128
                                                        
                                                        
                                                        
                                                        111
                                                        
                                                        
                                                        
                                                        543
                                                        
                                                        
                                                        
                                                        413FDIC
      insurance premiums and assessments
                                                        
                                                        
                                                        409
                                                        
                                                        
                                                        
                                                        15
                                                        
                                                        
                                                        
                                                        663
                                                        
                                                        
                                                        
                                                        33Data
      processing expense
                                                        
                                                        
                                                        188
                                                        
                                                        
                                                        
                                                        163
                                                        
                                                        
                                                        
                                                        570
                                                        
                                                        
                                                        
                                                        470Printing
      and office supplies
                                                        
                                                        
                                                        78
                                                        
                                                        
                                                        
                                                        86
                                                        
                                                        
                                                        
                                                        226
                                                        
                                                        
                                                        
                                                        209Marketing
      expense
                                                        
                                                        
                                                        136
                                                        
                                                        
                                                        
                                                        134
                                                        
                                                        
                                                        
                                                        464
                                                        
                                                        
                                                        
                                                        278Other
      real estate owned expense
                                                        
                                                        
                                                        116
                                                        
                                                        
                                                        
                                                        51
                                                        
                                                        
                                                        
                                                        420
                                                        
                                                        
                                                        
                                                        107Other
                                                        
                                                        
                                                        487
                                                        
                                                        
                                                        
                                                        438
                                                        
                                                        
                                                        
                                                        1,309
                                                        
                                                        
                                                        
                                                        1,217Total
      other expense
                                                        
                                                        
                                                        4,616
                                                        
                                                        
                                                        
                                                        3,462
                                                        
                                                        
                                                        
                                                        12,814
                                                        
                                                        
                                                        
                                                        10,325Income
      (Loss) Before Income Taxes
                                                        
                                                        
                                                        138
                                                        
                                                        
                                                        
                                                        368
                                                        
                                                        
                                                        
                                                        (1,124
                                                        )
                                                        
                                                        
                                                        812Income
      tax benefit
                                                        
                                                        
                                                        49
                                                        
                                                        
                                                        
                                                        25
                                                        
                                                        
                                                        
                                                        732
                                                        
                                                        
                                                        
                                                        347Net
      Income (Loss)
                                                        
                                                        $
                                                        187
                                                        
                                                        
                                                        $
                                                        393
                                                        
                                                        
                                                        $
                                                        (392
                                                        )
                                                        
                                                        $
                                                        1,159Basic
      (Loss) Earnings Per Share
                                                        
                                                        $
                                                        0.06
                                                        
                                                        
                                                        $
                                                        0.13
                                                        
                                                        
                                                        $
                                                        (0.13
                                                        )
                                                        
                                                        $
                                                        0.39Diluted
      (Loss) Earnings Per Share
                                                        
                                                        $
                                                        0.06
                                                        
                                                        
                                                        $
                                                        0.13
                                                        
                                                        
                                                        $
                                                        (0.13
                                                        )
                                                        
                                                        $
                                                        0.39Dividends
      Declared Per Share
                                                        
                                                        $
                                                        0.01
                                                        
                                                        
                                                        $
                                                        0.04
                                                        
                                                        
                                                        $
                                                        0.09
                                                        
                                                        
                                                        $
                                                        0.12
 See
notes to consolidated condensed financial statements
  (4)
 
 Ameriana
Bancorp
 Consolidated
Condensed Statements of Shareholders’ Equity
 For the Nine
Months Ended September 30, 2009
 (In
thousands, except per share data)
 (Unaudited)
 
 Common
                            Stock
                          
                          
                          Additional
                            Paid-in
                            Capital
                          
                          
                          Retained
                            Earnings
                          
                          
                          Accumulated
                            Other
                            Comprehensive
                            Income
                          
                          
                          Treasury
                            Stock
                          
                          
                          TotalBalance
      at December 31, 2008
                          
                          $
                          3,214
                          
                          
                          $
                          1,044
                          
                          
                          $
                          31,979
                          
                          
                          $
                          537
                          
                          
                          $
                          (2,998
                          )
                          
                          $
                          33,776Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (392
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (392
                          )Increase
      of $315 in unrealized gain on available-for-sale securities, net of income
      tax
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          212
                          
                          
                          
                          —
                          
                          
                          
                          212Comprehensive
      loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (180
                          )Share-based
      compensation
                          
                          
                          —
                          
                          
                          
                          3
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          3Dividends
      declared ($0.09 per share)
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (269
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (269
                          )Balance
      at September 30, 2009
                          
                          $
                          3,214
                          
                          
                          $
                          1,047
                          
                          
                          $
                          31,318
                          
                          
                          $
                          749
                          
                          
                          $
                          (2,998
                          )
                          
                          $
                          33,330
 See
notes to consolidated condensed financial statements.
  (5)
 
 Ameriana
Bancorp
 Consolidated
Condensed Statements of Cash Flows
 (In
thousands)
 (Unaudited)
 
 Nine
      Months Ended September 30,2009
                                                                      
                                                                      
                                                                      2008Operating
      ActivitiesNet
      (loss) income
                                                                      
                                                                      $
                                                                      (392
                                                                      )
                                                                      
                                                                      $
                                                                      1,159Items
      not requiring (providing) cashProvision
      for losses on loans
                                                                      
                                                                      
                                                                      1,273
                                                                      
                                                                      
                                                                      
                                                                      797Depreciation
      and amortization
                                                                      
                                                                      
                                                                      794
                                                                      
                                                                      
                                                                      
                                                                      512Increase
      in cash value of life insurance
                                                                      
                                                                      
                                                                      (643
                                                                      )
                                                                      
                                                                      
                                                                      (677
                                                                      )Gain
      from sale of available-for-sale securities
                                                                      
                                                                      
                                                                      (895
                                                                      )
                                                                      
                                                                      
                                                                      (103
                                                                      )Mortgage
      loans originated for sale
                                                                      
                                                                      
                                                                      (14,593
                                                                      )
                                                                      
                                                                      
                                                                      (1,096
                                                                      )Proceeds
      from sale of mortgage loans
                                                                      
                                                                      
                                                                      13,187
                                                                      
                                                                      
                                                                      
                                                                      1,129Gains
      on sale of loans and servicing rights
                                                                      
                                                                      
                                                                      (278
                                                                      )
                                                                      
                                                                      
                                                                      (50
                                                                      )Loss
      on sale or write-down of other real estate owned and other repossessed
      assets
                                                                      
                                                                      
                                                                      976
                                                                      
                                                                      
                                                                      
                                                                      124Gain
      on liquidation of minority interest in unconsolidated
      investment
                                                                      
                                                                      
                                                                      (192
                                                                      )
                                                                      
                                                                      
                                                                      —Increase
      in accrued interest payable
                                                                      
                                                                      
                                                                      669
                                                                      
                                                                      
                                                                      
                                                                      25Other
      adjustments
                                                                      
                                                                      
                                                                      (217
                                                                      )
                                                                      
                                                                      
                                                                      154Net
      cash (used in) provided by operating activities
                                                                      
                                                                      
                                                                      (311
                                                                      )
                                                                      
                                                                      
                                                                      1,974Investing
      ActivitiesPurchase
      of securities
                                                                      
                                                                      
                                                                      (24,225
                                                                      )
                                                                      
                                                                      
                                                                      (30,103
                                                                      )Proceeds/principal
      from the sale of securities
                                                                      
                                                                      
                                                                      34,756
                                                                      
                                                                      
                                                                      
                                                                      9,323Proceeds/principal
      from maturities/calls of securities
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      3,000Principal
      collected on mortgage-backed securities
                                                                      
                                                                      
                                                                      11,924
                                                                      
                                                                      
                                                                      
                                                                      5,751Net
      change in loans
                                                                      
                                                                      
                                                                      (11,360
                                                                      )
                                                                      
                                                                      
                                                                      (22,585
                                                                      )Proceeds
      from sales of other real estate owned
                                                                      
                                                                      
                                                                      642
                                                                      
                                                                      
                                                                      
                                                                      251Purchase
      of insurance book of business
                                                                      
                                                                      
                                                                      (724
                                                                      )
                                                                      
                                                                      
                                                                      —Proceeds
      from liquidation of minority interest in unconsolidated
      investment
                                                                      
                                                                      
                                                                      645
                                                                      
                                                                      
                                                                      
                                                                      —Net
      purchases and construction of premises and equipment
                                                                      
                                                                      
                                                                      (1,476
                                                                      )
                                                                      
                                                                      
                                                                      (6,391
                                                                      )Construction
      cost for other real estate owned
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      (566
                                                                      )Other
      investing activities
                                                                      
                                                                      
                                                                      49
                                                                      
                                                                      
                                                                      
                                                                      144Net
      cash provided by (used in) investing activities
                                                                      
                                                                      
                                                                      10,231
                                                                      
                                                                      
                                                                      
                                                                      (41,176
                                                                      )Financing
      ActivitiesNet
      change in demand and savings deposits
                                                                      
                                                                      
                                                                      23,981
                                                                      
                                                                      
                                                                      
                                                                      (7,043
                                                                      )Net
      change in certificates of deposit
                                                                      
                                                                      
                                                                      (2,122
                                                                      )
                                                                      
                                                                      
                                                                      13,072Decrease
      in drafts payable
                                                                      
                                                                      
                                                                      (382
                                                                      )
                                                                      
                                                                      
                                                                      (2,940
                                                                      )Net
      change in short-term borrowings
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      4,000Proceeds
      from long-term borrowings
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      34,500Repayment
      of long-term borrowings
                                                                      
                                                                      
                                                                      (29,300
                                                                      )
                                                                      
                                                                      
                                                                      (1,778
                                                                      )Net
      change in advances by borrowers for taxes and insurance
                                                                      
                                                                      
                                                                      147
                                                                      
                                                                      
                                                                      
                                                                      383Cash
      dividends paid
                                                                      
                                                                      
                                                                      (269
                                                                      )
                                                                      
                                                                      
                                                                      (358
                                                                      )Net
      cash (used in) provided by financing activities
                                                                      
                                                                      
                                                                      (7,945
                                                                      )
                                                                      
                                                                      
                                                                      39,836Change
      in Cash and Cash Equivalents
                                                                      
                                                                      
                                                                      1,975
                                                                      
                                                                      
                                                                      
                                                                      634Cash
      and Cash Equivalents at Beginning of Year
                                                                      
                                                                      
                                                                      8,449
                                                                      
                                                                      
                                                                      
                                                                      17,172Cash
      and Cash Equivalents at End of Quarter
                                                                      
                                                                      $
                                                                      10,424
                                                                      
                                                                      
                                                                      $
                                                                      17,806Supplemental
      information:Interest
      paid on deposits
                                                                      
                                                                      $
                                                                      4,341
                                                                      
                                                                      
                                                                      $
                                                                      6,218Interest
      paid on borrowings
                                                                      
                                                                      $
                                                                      2,652
                                                                      
                                                                      
                                                                      $
                                                                      2,655Income
      taxes paid net of income taxes refunded
                                                                      
                                                                      $
                                                                      —
                                                                      
                                                                      
                                                                      $
                                                                      100Non-cash
      supplemental information:Transfers
      from loans to other real estate owned
                                                                      
                                                                      $
                                                                      3,048
                                                                      
                                                                      
                                                                      $
                                                                      1,336
 See
notes to consolidated condensed financial statements.
  (6)
  AMERIANA
BANCORP AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
 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 three direct wholly-owned subsidiaries,
Ameriana Insurance Agency, Ameriana Financial Services, Inc., and Ameriana
Investment Management, Inc.
 
 The
unaudited interim consolidated condensed financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and disclosures required by generally accepted accounting
principles (“GAAP”) for complete financial statements.  In the opinion
of management, the financial statements reflect all adjustments (comprised only
of normal recurring adjustments and accruals) necessary to present fairly the
Company’s financial position and results of operations and cash
flows.  The consolidated condensed balance sheet of the Company as of
December 31, 2008, has been derived from the audited consolidated balance sheet
of the Company as of that date.  The results of operations for the
period are not necessarily indicative of the results to be expected in the full
year.  These statements should be read in conjunction with the
consolidated financial statements and related notes which are included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2008.
 
 NOTE
B - - SHAREHOLDERS’ EQUITY
 
 On August
31, 2009, 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 September 11, 2009, and was paid on October
2, 2009.
 
 No
stock options were exercised during the third quarter of 2009.
 
 NOTE
C - - EARNINGS (LOSS) PER SHARE
 
 Earnings
(loss) per share were computed as follows:
 
 (In thousands, except share data)Three Months Ended September 30,2009
                              
                              
                              2008Income
                              
                              
                              Weighted
                                Average
                                Shares
                              
                              
                              Per Share
                                Amount
                              
                              
                              Income
                              
                              
                              Weighted
                                Average
                                Shares
                              
                              
                              Per Share
                                AmountBasic
      Earnings Per Share: Income available tocommon  shareholders
                              
                              $
                              187
                              
                              
                              
                              2,988,952
                              
                              
                              $
                              0.06
                              
                              
                              $
                              393
                              
                              
                              
                              2,988,952
                              
                              
                              $
                              0.13Effect
      of dilutive stock options
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -Diluted
      Earnings Per Share: Income available to common shareholders and assumed
      conversions
                              
                              $
                              187
                              
                              
                              
                              2,988,952
                              
                              
                              $
                              0.06
                              
                              
                              $
                              393
                              
                              
                              
                              2,988,952
                              
                              
                              $
                              0.13
 
 (In thousands, except share data)Nine Months Ended September 30,2009
                                  
                                  
                                  2008Loss
                                  
                                  
                                  Weighted
                                    Average
                                    Shares
                                  
                                  
                                  Per Share
                                    Amount
                                  
                                  
                                  Income
                                  
                                  
                                  Weighted
                                    Average
                                    Shares
                                  
                                  
                                  Per Share
                                    AmountBasic
      (Loss) Earnings Per Share: (Loss) income available tocommon  shareholders
                                  
                                  $
                                  (392
                                  )
                                  
                                  
                                  2,988,952
                                  
                                  
                                  $
                                  (0.13
                                  )
                                  
                                  $
                                  1,159
                                  
                                  
                                  
                                  2,988,952
                                  
                                  
                                  $
                                  0.39Effect
      of dilutive stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Diluted
      (Loss) Earnings Per Share: (Loss) income available to common shareholders
      and assumed conversions
                                  
                                  $
                                  (392
                                  )
                                  
                                  
                                  2,988,952
                                  
                                  
                                  $
                                  (0.13
                                  )
                                  
                                  $
                                  1,159
                                  
                                  
                                  
                                  2,988,952
                                  
                                  
                                  $
                                  0.39
 
 Options
to purchase 172,982 and 184,482 shares of common stock at exercise prices of
$9.25 to $15.56 and $9.25 to $15.56 per share were outstanding at September 30,
2009 and 2008, respectively, but were not included in the computation of diluted
earnings per share because the options were anti-dilutive.
  (7)
  NOTE
D - - INVESTMENT SECURITIES
 
 The
following tables provide the composition of investment securities at September
30, 2009, and December 31, 2008:
 
 Amortized
                            Cost
                          
                          
                          Gross
                            Unrealized
                            Gains
                          
                          
                          Gross
                            Unrealized
                            Losses
                          
                          
                          Fair
                            ValueAvailable
      for sale at September 30, 2009Mortgage-backed
      securities - pass through
                          
                          $
                          38,866
                          
                          
                          $
                          1,055
                          
                          
                          $
                          3
                          
                          
                          $
                          39,918Collateralized
      mortgage obligations
                          
                          
                          6,101
                          
                          
                          
                          —
                          
                          
                          
                          46
                          
                          
                          
                          6,055Municipal
      securities
                          
                          
                          3,461
                          
                          
                          
                          120
                          
                          
                          
                          —
                          
                          
                          
                          3,581SBA
      asset-backed securities
                          
                          
                          2,876
                          
                          
                          
                          13
                          
                          
                          
                          —
                          
                          
                          
                          2,899Mutual
      funds
                          
                          
                          1,559
                          
                          
                          
                          47
                          
                          
                          
                          —
                          
                          
                          
                          1,606$
                          52,863
                          
                          
                          $
                          1,235
                          
                          
                          $
                          49
                          
                          
                          $
                          54,059
 
 Amortized
                              Cost
                            
                            
                            Gross
                              Unrealized
                              Gains
                            
                            
                            Gross
                              Unrealized
                              Losses
                            
                            
                            Fair
                              ValueAvailable
      for sale at December 31, 2008Mortgage-backed
      securities
                            
                            $
                            54,276
                            
                            
                            $
                            1,127
                            
                            
                            $
                            114
                            
                            
                            $
                            55,289Municipal
      securities
                            
                            
                            18,700
                            
                            
                            
                            227
                            
                            
                            
                            370
                            
                            
                            
                            18,557Mutual
      funds
                            
                            
                            1,513
                            
                            
                            
                            12
                            
                            
                            
                            —
                            
                            
                            
                            1,525$
                            74,489
                            
                            
                            $
                            1,366
                            
                            
                            $
                            484
                            
                            
                            $
                            75,371
 
 The
amortized cost and fair value of securities available for sale at September 30,
2009, 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
                                
                                
                                324
                                
                                
                                
                                344Five
      to ten years
                                
                                
                                —
                                
                                
                                
                                —After
      ten years
                                
                                
                                3,137
                                
                                
                                
                                3,2373,461
                                
                                
                                
                                3,581Mortgage-backed
      securities – pass-through
                                
                                
                                38,866
                                
                                
                                
                                39,918Collateralized
      mortgage obligations
                                
                                
                                6,101
                                
                                
                                
                                6,055SBA
      asset-backed securities
                                
                                
                                2,876
                                
                                
                                
                                2,899Equity
      securities
                                
                                
                                1,559
                                
                                
                                
                                1,606$
                                52,863
                                
                                
                                $
                                54,059
 
 Mortgage-backed
securities: The contractual cash flows of those investments are
guaranteed by agencies of the U.S. Government.  Accordingly, it is
expected that the securities would not be settled at a price less than the
amortized cost of the Company’s investment.
 
 Collateralized
mortgage obligations: The unrealized losses on the Company’s investment
in collateralized mortgage obligations were caused by interest rate
changes.  The contractual cash flows of those investments are
guaranteed by the Ginnie Mae, a corporation owned by the U.S.
Government.  Accordingly, it is expected that the securities would not
be settled at a price less than the amortized cost of the Company’s
investment.  Because the decline in market value was attributable to
changes in interest rates and not credit quality, and because the Company has
the ability and intent to hold those investments until a recovery of fair value,
which may be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at September 30, 2009.
  (8)
  SBA asset-backed
securities:The contractual cash flows of those investments
are guaranteed by the U.S. Small Business Association, an agency of the U.S.
Government.  Accordingly, it is expected that the security 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, 2009 that were rated by Moody’s Investors
Service received an investment grade credit quality rating.  Two
securities were not rated by Moody’s, but received an investment grade rating
from Standard & Poor’s.  One security was not rated by either
Moody’s or Standard & Poor’s.   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.
 
 Equity
securities:The equity securities balance at September 30,
2009 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 by Standard & Poor’s.
 
 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, 2009 and December 31, 2008 were $6,403,000 and $18,004,000, which
is approximately 11.8% and 23.9% of the Company’s investment
portfolio.
 
 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,
2009 and December 31, 2008:
 
 At September 30, 2009
                          
                          Less Than 12 Months
                          
                          
                          12 Months or Longer
                          
                          
                          TotalFair Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Unrealized
                            LossesMortgage-backed
      securities – pass-thru
                          
                          $
                          76
                          
                          
                          $
                          —
                          
                          
                          $
                          273
                          
                          
                          $
                          3
                          
                          
                          $
                          349
                          
                          
                          $
                          3Collateralized
      mortgage obligations
                          
                          
                          6,054
                          
                          
                          
                          46
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          6,054
                          
                          
                          
                          46$
                          6,130
                          
                          
                          $
                          46
                          
                          
                          $
                          273
                          
                          
                          $
                          3
                          
                          
                          $
                          6,403
                          
                          
                          $
                          49
 
 At December 31, 2008
                          
                          Less Than 12 Months
                          
                          
                          12 Months or Longer
                          
                          
                          TotalFair Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Unrealized
                            LossesMortgage-backed
      securities
                          
                          $
                          6,490
                          
                          
                          $
                          93
                          
                          
                          $
                          1,524
                          
                          
                          $
                          21
                          
                          
                          $
                          8,014
                          
                          
                          $
                          114Municipal
      securities
                          
                          
                          5,865
                          
                          
                          
                          187
                          
                          
                          
                          4,125
                          
                          
                          
                          183
                          
                          
                          
                          9,990
                          
                          
                          
                          370$
                          12,355
                          
                          
                          $
                          280
                          
                          
                          $
                          5,649
                          
                          
                          $
                          204
                          
                          
                          $
                          18,004
                          
                          
                          $
                          484
 
 Investment
securities with a total market value of $30,706,000 and $32,339,000 were pledged
at September 30, 2009 and December 31, 2008, respectively, to secure FHLB
advances and three letters of credit.
 
 Investment
securities with a total market value of $9,092,000 and $9,512,000 were pledged
at September 30, 2009 and December 31, 2008, respectively, to secure a
repurchase agreement.
 
 A gross
gain of $959,000 and a gross loss of $64,000 resulting from sales of available
for sale securities were realized during the first nine months of 2009, with a
net tax expense of $304,000.
  (9)
 
 NOTE
E - - CURRENT AND FUTURE ACCOUNTING MATTERS
 
 q
              Financial Accounting Standards
      Board (FASB)
  §
              Accounting Standards Update
      (ASU) No. 2009-12,Investments in Certain
      Entities that Calculate Net Asset Value per Share
  In
September 2009, this ASU was issued and permits, as a practical expedient, a
reporting entity to measure the fair value of an investment that is within the
scope of the amendments in this ASU on the basis of the net asset value per
share of the investment (or its equivalent) if the net asset value of the
investment (or its equivalent) is calculated in a manner consistent with the
measurement principles of Topic 946 as of the reporting entity’s measurement
date.  The ASU also requires disclosures by major category of
investment about the attributes of investments within the scope of the
Update.  ASU 2009-12 is effective for interim and annual periods
ending after December 15, 2009.  We are currently assessing the impact
of the ASU on our financial condition, results of operations, and
disclosures.
  §
              ASU No. 2009-05,Measuring Liabilities at Fair
      Valuecodified in “Fair
      Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at
      Fair Value”
  In August
2009, this ASU provides amendments for fair value measurements of
liabilities.  It provides clarification that in circumstances in which
a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using one or more
techniques.  ASU 2009-05 also clarifies that when estimating a fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of the liability.  ASU 2009-05 is effective
for the first reporting period (including interim periods) beginning after
issuance or fourth quarter 2009.  We are currently assessing the
impact of the on our financial condition, results of operations, and
disclosures.
  §
              ASU 2009-01 (Formerly SFAS No.
      168, Topic 105 -
      Generally Accepted Accounting Principles - FASB Accounting Standards
      Codification  and the Hierarchy of Generally Accepted Accounting
      Principles)
  ASU
2009-01 establishes the FASB Accounting Standards Codification (Codification) as
the single source of authoritative U.S. generally accepted accounting principles
(U.S. GAAP) recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the SEC under authority
of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants.  ASU 2009-01 was effective for financial statements
issued for interim and annual periods ending after September 15,
2009.  We have made the appropriate changes to GAAP references in our
financial statements.
  §
              ASC 810-10 (Formerly SFAS No.
      167,Amendments
      to FASB Interpretation No.
46(R))
  In June
2009, the FASB issued consolidation guidance applicable to variable interest
entities.  The amendments to the consolidation guidance affect all
entities currently within the scope of FIN 46(R), as well as qualifying
special-purpose entities (QSPEs) that are currently excluded from the scope of
FIN 46(R).  SFAS 167 is effective as of the beginning of the first
annual reporting period that begins after November 15, 2009.  We are
currently assessing the impact of SFAS 167 on our financial condition, results
of operations, and disclosures.
  §
              ASC 860 (Formerly SFAS No. 166,Accounting for
      Transfers of Financial Assets Accounting for Transfers of Financial
      Assets, an amendment of FASB Statement No.
  140)
  SFAS 166
amends the derecognition accounting and disclosure guidance relating to SFAS
140.  SFAS 166 eliminates the exemption from consolidation for QSPEs,
it also requires a transferor to evaluate all existing QSPEs to determine
whether it must be consolidated in accordance with SFAS 167.  SFAS 166
is effective as of the beginning of the first annual reporting period that
begins after November 15, 2009.  We are currently assessing the impact
of SFAS 166 on our financial condition, results of operations, and
disclosures.
  (10)
  §
              ASC 855 (Formerly SFAS No.
      165,Subsequent
      Events)
  In May
2009, the FASB issued SFAS 165 which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or available to be
issued.  SFAS 165 was effective for interim or annual periods
ending after June 15, 2009.  We adopted the provisions of SFAS
165 and this change is reflected in Note H - Subsequent
Events.
  §
              ASC 825 (Formerly FASB Staff
      Position (FSP) 107-1 and APB 28-1,Interim Disclosures about Fair
      Value of Financial
Instruments)
  In April
2009, the FASB issued the FSP which requires a public entity to
provide disclosures about fair value of financial instruments in interim
financial information.  The FSP is effective for interim and
annual financial periods ending after June 15, 2009.  We adopted the
provisions of the FSP on April 1, 2009 and the impact on our
disclosures is more fully discussed in Note G.
  §
              ASC 320 (Formerly FSP FAS
      115-2, FAS 124-2 and EITF 99-20-2,Recognition and Presentation
      of
Other-Than-Temporary-Impairment)
  In April
2009, the FASB issued the FSP which (i) changes existing guidance for
determining whether an impairment is other than temporary to debt securities and
(ii) replaces the existing requirement that the entity’s management assert it
has both the intent and ability to hold an impaired security until recovery with
a requirement that management assert: (a) it does not have the intent to sell
the security; and (b) it is more likely than not it will not have to sell the
security before recovery of its cost basis.  Under the FSP, declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses to the extent the impairment is related to credit
losses.  The amount of impairment related to other factors is
recognized in other comprehensive income.  The FSP is effective
for interim and annual periods ending after June 15, 2009.  We adopted
the provisions of the FSP on April 1, 2009.
  §
              ASC 820 (Formerly FSP FAS
      157-4,Determining Fair Value When
      the Volume and Level of Activity for the Asset or Liability Have
      Significantly Decreased and Identifying Transactions That Are Not
      Orderly)
  In April
2009, the FASB issued the FSP which affirms the objective of fair
value when a market is not active, clarifies and includes additional factors for
determining whether there has been a significant decrease in market activity,
eliminates the presumption that all transactions are distressed unless proven
otherwise, and requires an entity to disclose a change in valuation
technique.  The FSP is effective for interim and annual periods ending
after June 15, 2009.  We adopted the provisions of the
FSP on April 1, 2009.  We adopted the provisions of the FSP
on April 1, 2009.
  §
              ASC 260 (Formerly FSP EITF
      03-6-1,Determining Whether
      Instruments Granted in Shared-Based Payment Transaction are Participating
      Securities)
  In June
2008, the FASB issued the FSP which clarifies that unvested
share-based payment awards with a right to receive nonforfeitable dividends are
participating securities.  The FSP also provides guidance on how
to allocate earnings to participating securities and compute earnings per
share using the two-class method.  The FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years.  The provisions of the
FSP did not have a material impact on our EPS calculation.
  (11)
  NOTE
F – RETIREMENT PLAN
 
 Effective
January 1, 2008, the Company terminated the supplemental retirement plan (the
“Plan”) that provided retirement and death benefits to certain officers and
directors.  At that time, the officers and directors covered by that
Plan voluntarily elected to forego their benefits under the
Plan.  Instead, the Company entered into separate agreements with
these certain officers and directors that provide retirement and death
benefits.  The Company is recording an expense equal to the projected
present value of the payments due at the full eligibility date.  The
liability for the agreements was $1.8 million at September 30, 2009 and $1.7
million at December 31, 2008.  The expense for the Plan was $54,000
and $163,000 for the three month and nine month periods ended
September 30, 2009, respectively.
 
 NOTE
G – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
  Effective
January 1, 2008, the Company adopted new accounting guidance that defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements.  This guidance has been applied
prospectively as of the beginning of the year/period.
  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 which 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:
  Leve
      l
                Quoted
      prices in active markets for identical assets or
    liabilitiesLevel
      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
      liabilitiesLevel
      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
securities valued in Level 1 are mutual funds.
  Level 2
securities include U.S. agency and U.S. government sponsored enterprise
mortgage-backed securities,  municipal securities, and one U.S. Small
Business Administration asset-backed security.  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.
  There
currently are no securities valued in Level 3.
  The
following table presents the fair value measurements of assets and liabilities
recognized in the accompanying balance sheet measured at fair value on a
recurring basis and the level within the FAS 157 fair value hierarchy in which
the fair value measurements fall at September 30, 2009 and December 31,
2008:
  (12)
  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, 2009:Mortgage-backed
      securities – pass-thru
                  
                  $
                  39,918,000
                  
                  
                  $
                  —
                  
                  
                  $
                  39,918,000
                  
                  
                  $
                  —Collateralized
      mortgage obligations
                  
                  
                  6,055,000
                  
                  
                  
                  —
                  
                  
                  
                  6,055,000
                  
                  
                  
                  —Municipal
      securities
                  
                  
                  3,581,000
                  
                  
                  
                  —
                  
                  
                  
                  3,581,000
                  
                  
                  
                  —SBA
      asset-backed securities
                  
                  
                  2,899,000
                  
                  
                  
                  —
                  
                  
                  
                  2,899,000
                  
                  
                  
                  —Mutual
      funds
                  
                  
                  1,606,000
                  
                  
                  
                  1,606,000
                  
                  
                  
                  —
                  
                  
                  
                  —$
                  54,059,000
                  
                  
                  $
                  1,606,000
                  
                  
                  $
                  52,453,000
                  
                  
                  $
                  —At
      December 31, 2008:Mortgage-backed
      securities
                  
                  $
                  55,289,000
                  
                  
                  $
                  —
                  
                  
                  $
                  55,289,000
                  
                  
                  $
                  —Municipal
      securities
                  
                  
                  18,557,000
                  
                  
                  
                  —
                  
                  
                  
                  18,557,000
                  
                  
                  
                  —Mutual
      funds
                  
                  
                  1,525,000
                  
                  
                  
                  1,525,000
                  
                  
                  
                  —
                  
                  
                  
                  —$
                  75,371,000
                  
                  
                  $
                  1,525,000
                  
                  
                  $
                  73,846,000
  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 and Other Real Estate Owned
 
 Loan impairment is reported when
substantial doubt about the collectibility of scheduled payments
exists.  Impaired loans are carried at the fair value of collateral if
the loan is collateral dependent.  A portion of the allowance for loan
losses is allocated to impaired loans if the value of such loans is deemed to be
less than the unpaid balance.  If these allocations cause the
allowance for loan losses to increase, such increase is reported as a component
of the provision for loan losses.  Loan losses are charged against the
allowance when management believes the uncollectability of the loan is
confirmed.  During the first nine months of 2009, twenty-two impaired
loans were partially charged-off or re-evaluated, resulting in a remaining
balance for these loans, net of specific reserve, of $11.6 million as of
September 30, 2009.  This valuation would be considered Level 3,
consisting of appraisals of underlying collateral.
  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 change in fair value of other
real estate owned on September 30, 2009 that was recognized during the nine
months ended September 30, 2009 was $777,000, which was recorded as a direct
charge to current earnings.
  The following table presents the fair
value measurements of assets and liabilities recognized in the accompanying
balance sheet measured at fair value on a nonrecurring basis and the level
within the FAS 157 fair value hierarchy in which the fair value measurements
fall at September 30, 2009 and December 31, 2008:
  Fair Value Measurements UsingFair 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, 2009:Impaired
      loans
                    
                    $
                    11,567,000
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    11,567,000Other
      real estate owned
                    
                    
                    5,432,000
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    5,432,000At
      December  31, 2008:Impaired
      loans
                    
                    $
                    8,151,000
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    8,151,000Other
      real estate owned
                    
                    
                    3,881,000
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,881,000
  (13)
 
 Fair
Value of Financial Instruments
 
 Fair
values are based on estimates using present value and other valuation techniques
in instances where quoted market prices are not available.  These
techniques are significantly affected by the assumptions used, including
discount rates and estimates of future cash flows.  As such, the
derived fair value estimates cannot be compared to independent markets and,
further, may not be 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:
 
 September 30, 2009
                            
                            
                            December 31, 2008Carrying
                              Value
                            
                            
                            Fair
                              Value
                            
                            
                            Carrying
                              Value
                            
                            
                            Fair
                              ValueAssetsCash
      and cash equivalents
                            
                            $
                            10,424
                            
                            
                            $
                            10,424
                            
                            
                            $
                            8,449
                            
                            
                            $
                            8,449Investment
      securities available for sale
                            
                            
                            54,059
                            
                            
                            
                            54,059
                            
                            
                            
                            75,371
                            
                            
                            
                            75,371Loans
      held for sale
                            
                            
                            1,515
                            
                            
                            
                            1,515
                            
                            
                            
                            —
                            
                            
                            
                            —Loans
                            
                            
                            329,597
                            
                            
                            
                            333,433
                            
                            
                            
                            322,535
                            
                            
                            
                            326,393Interest
      receivable
                            
                            
                            1,561
                            
                            
                            
                            1,561
                            
                            
                            
                            1,717
                            
                            
                            
                            1,717Stock
      in FHLB
                            
                            
                            5,629
                            
                            
                            
                            5,629
                            
                            
                            
                            5,629
                            
                            
                            
                            5,629LiabilitiesDeposits
                            
                            
                            346,265
                            
                            
                            
                            340,514
                            
                            
                            
                            324,406
                            
                            
                            
                            327,978Borrowings
                            
                            
                            68,435
                            
                            
                            
                            65,959
                            
                            
                            
                            97,735
                            
                            
                            
                            95,762Interest
      payable
                            
                            
                            1,444
                            
                            
                            
                            1,444
                            
                            
                            
                            780
                            
                            
                            
                            780Drafts
      payable
                            
                            
                            1,200
                            
                            
                            
                            1,200
                            
                            
                            
                            1,582
                            
                            
                            
                            1,582
 
 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: The fair values for loans
are estimated using a discounted cash flow calculation that applies interest
rates used to price new similar loans to a schedule of aggregated expected
monthly maturities on loans.
 
 Interest
Receivable/Payable: The fair value of accrued
interest receivable/payable approximates carrying values.
 
 Deposits: The fair values of
interest-bearing demand and savings accounts are equal to the amount payable on
demand at the balance sheet date.  Fair values for certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on deposits to a schedule of aggregated
expected monthly maturities on deposits.
 
 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.
 
 NOTE
H – SUBSEQUENT EVENT
 
 Subsequent
events have been evaluated through November 13, 2009,which is the date the financial statements were
issued.
  (14)
 
 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, 2008, 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 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 this Form 10-Q under Part II, Item 1A -“Risk
Factors,” and in other reports filed with the Securities and Exchange
Commission.  The Company cautions readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date
made.  The Company advises readers that the factors listed above could
affect the Company’s financial performance and could cause the Company’s actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
 
 The
Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions 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 (the “Company”) 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, 2002,
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.  The Bank offers a wide range of retail and commercial
banking services, including:  (i) accepting deposits; (ii) originating
commercial, mortgage, consumer and construction loans; and (iii) through its
subsidiaries, providing investment and brokerage services and insurance
services.
  (15)
  The
Bank has three wholly-owned subsidiaries, Ameriana Insurance Agency (“AIA”),
Ameriana Financial Services, Inc. (“AFS”) and Ameriana Investment Management,
Inc. (“AIMI”).  AIA provides insurance sales from offices in New
Castle, Greenfield and Avon, Indiana.  On June 30, 2009, AIA completed
the purchase of the book of business of Chapin-Hayworth Insurance Agency Inc.
located in New Castle, Indiana.  AFS had offered insurance products
through its ownership of an interest in Family Financial Life Insurance Company
(“Family Financial”), New Orleans, Louisiana, which offers a full line of
credit-related insurance products.  On May 22, 2009, the Company
announced that AFS had liquidated its 16.67% interest in Family Financial, and
recorded a pre-tax gain of $192,000 from the transaction.  AFS also
operates a brokerage facility in conjunction with LPL Financial that provides
non-bank investment product alternatives to its customers and the general
public.  AIMI manages the Company’s investment portfolio.
 
 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.
 
 Executive Overview of the
Third Quarter of 2009
 
 The
Company recorded net income of $187,000, or $0.06 per share, for the third
quarter of 2009, which resulted primarily from $793,000 in gains from sales of
investment securities, exceeding credit costs for the quarter that were inflated
by the weak economic environment.  Credit costs included a loan loss
provision of $320,000, and net losses of $276,000 from sales and write-downs of
other real estate owned (“OREO”) and a major non-real estate repossessed
asset.  An FDIC insurance expense of $409,000 also had a significant
negative impact on third quarter earnings.  Following is additional
summary information for the quarter:
 
 ·
              The
      Company reduced its quarterly dividend from $0.04 per share to $0.01 per
      share.
 
 ·
              All
      three of the Bank’s capital ratios at September 30, 2009 were considerably
      above the levels required under regulatory guidelines to be considered
      “well capitalized.”
 
 ·
              Net
      interest income for the third quarter of 2009 was $303,000, or 10.1%,
      higher than the same quarter in 2008, primarily from the growth of the
      Bank’s loan portfolio.
 
 ·
              Net
      interest margin of 3.126%, on a fully tax-equivalent basis for the third
      quarter of 2009 was essentially unchanged from 3.122% for the same period
      of 2008.
 
 ·
              A
      $115,000 increase in the provision for loan losses, compared to the same
      period of 2008, to $320,000 resulted from the Bank’s efforts to strengthen
      the allowance for loan losses due to an increase in non-performing
      loans.
 
 ·
              Other
      income of $1.8 million for the third quarter of 2009 was $736,000, or
      71.6%, greater than the total for the same quarter of 2008, and resulted
      primarily from $793,000 in gains from sales of investment securities,
      compared to $6,000 in losses during the same period in 2008, reduced by
      higher credit costs.
 
 ·
              Other
      expense for the third quarter of 2009 was $1.2 million, or 33.3%, higher
      than the same quarter in 2008, due primarily to the acceleration of the
      Bank’s Indianapolis retail expansion strategy, and higher FDIC insurance
      premium expense due mostly to a higher industry-wide assessment rate and
      the one-time credit being exhausted earlier in the
  year.
  (16)
  ·
              The
      income tax benefit of $49,000 for the third quarter of 2009 was related
      primarily to the significant amount of tax-exempt income from municipal
      securities and bank-owned life
insurance.
 
 For the
third quarter of 2009, total assets decreased by $32.8 million, or 6.7%, to
$456.6 million due primarily to balance sheet restructuring strategies
implemented by the Bank to strengthen its capital
position.  Significant factors relating to balance sheet items
include:
 
 ·
              A
      $10.8 million reduction in the investment portfolio during the quarter
      resulted primarily from principal payments on mortgage-backed securities
      and $26.8 million in securities sales exceeding the $18.8 million of
      securities purchases.  All securities purchased during the
      quarter are Ginnie Mae securities that carry the full faith and credit of
      the U.S. Government.  The Bank continues to sell municipal
      securities as part of its overall income tax
  strategy.
 
 ·
              Net
      loans receivable of $329.6 million at September 30, 2009 represented a
      decrease of $6.2 million, or 1.8%, for the quarter, as commercial loan
      demand remained weak and the Bank continued the strategic change adopted
      earlier in the year of selling fixed-rate residential products in the
      secondary market.
 
 ·
              Reflective
      of the continuing weak economy, total non-performing loans of $8.3
      million, or 2.48% of total net loans, at September 30, 2009, represented a
      $3.9 million increase from June 30,
2009.
 
 ·
              The
      allowance for loan losses of $3.9 million at September 30, 2009, was equal
      to 1.16% of total loans and 46.72% of non-performing loans, compared to
      ratios of 1.07% and 82.7%, respectively, at June 30,
  2009.
 
 ·
              As
      of September 30, 2009, 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 2009, total deposits decreased by $27.5 million, or
      7.4%, to $346.3 million.  A Bank-planned reduction of non-core
      public funds investments resulted in $24.9 million of this
      decrease.  No brokered certificates of deposit were held at
      September 30, 2009.
 
 ·
              Also,
      during the third quarter of 2009, an $800,000 note to the FHLB matured and
      the Bank prepaid a $5.0 million borrowing from the FHLB that carried a
      January 25, 2010 maturity date.
 
 Regulatory
Action
 
 On September 28, 2009, 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 7.75% by December
      31, 2009 and to 8.00% at March 31, 2010 and to increase its Total
      Risk-Based Capital Ratio to 12.00% by December 31,
  2009;
 ·
              Adopt
      a written plan to less 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.
 
 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 will provide our customers the opportunity to interact
with our banking associates in a new and dynamic environment that will include
interactive terminals, an internet café, and multi-media in-store
marketing.
  (17)
  In
early 2008, the Company announced plans to open three new full-service banking
centers in Hamilton County, which lies just north of Marion County and
Indianapolis.  The new offices in Fishers and Carmel opened in
November 2008 and December 2008, respectively, and the Westfield office opened
in late May of 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.
 
 We
believe the continued 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 Ameriana 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 provides coverage for 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 specific and expected losses, including volatility of
default probabilities, rating migrations, loss severity and economic and
political conditions. The allowance is increased through provisions charged to
operating earnings and reduced by net charge-offs.
 
 The
Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for non-commercial loans is based on an analysis of loan mix, risk
characteristics of the portfolio, fraud loss and bankruptcy experiences and
historical losses, adjusted for current trends, for each loan category or group
of loans. The allowance for loan losses relating to impaired loans is based on
the loan’s observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan’s
effective interest rate.
 
 Regardless
of the extent of the Company’s analysis of customer performance, portfolio
trends or risk management processes, certain inherent but undetected losses are
probable within the loan and lease 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
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger,
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company’s evaluation of risk
associated with the commercial and consumer allowance levels and the estimated
impact of the current economic environment.
  (18)
  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 SFAS No. 157 “Fair Value Measurement” (“SFAS No. 157”), 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 Corporation’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, 2009 and December 31, 2008, 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.
 
 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,
2009.
 
 FINANCIAL
CONDITION
 
 Total
assets of $456.6 million at September 30, 2009 represented a reduction of$6.9
million, or 1.5%, from the December 31, 2008 total of $463.5
million.  This managed reduction of the balance sheet occurred in the
third quarter of 2009 after the Company reported total assets of $489.4 million
at June 30, 2009, and represented a $32.8 million, or 6.7%, reduction in total
assets for the most recent three month period.  The Company embarked
on this restructuring to strengthen its capital position to be in a better
position to sustain the possible consequences of a continuing weak
economy.  During the third quarter, the strategy focused primarily on
eliminating non-core deposits and reducing the level of borrowed money with
excess cash accumulated during 2009, and also with the proceeds from some of the
securities sales executed during the quarter.  The sales of these
securities, along with other security sales in the quarter, also allowed the
Company to realize gains and enhance the quarter’s earnings.
  (19)
  Cash
and cash equivalents of $10.4 million at September 30, 2009 were $2.0 million
higher than the December 31, 2008 total of $8.4 million, but $16.8 million less
than the June 30, 2009 total of $27.2 million.  Cash and cash
equivalents represent an immediate source of liquidity to fund loans or meet
deposit outflows.
 
 Investment
securities available for sale decreased 28.2% to $54.1 million at September 30,
2009 from $75.4 million at December 31, 2008.  This $21.3 million
decrease was due primarily to sales of municipal securities, and sales and
principal repayments on mortgage-backed securities that exceeded new
purchases.  Municipal securities decreased to $3.6 million through
total sales of $15.2 million designed primarily to support the Bank’s income
tax  strategies.  Principal repayments of $11.9 million and
sales of $19.4 million of securities, offset by $21.3 million of Ginnie Mae
purchases, reduced the total fair value of mortgage-backed pass-through and
collateralized mortgage obligation securities to $46.0 million.  All
mortgage-backed securities in the portfolio at September 30, 2009 are insured by
either Ginnie Mae, Fannie Mae or Freddie Mac.  Purchases during the
nine-month period ended September 30, 2009 included $15.2 million of Ginnie Mae
pass-through mortgage-backed securities, $6.1 million of Ginnie Mae
collateralized mortgage obligations, and one $2.9 million U.S. Small Business
Administration security, all of which  carry the full faith and credit
guarantee of the U.S. Government.
 
 We
realized a $7.1 million, or 2.2%, increase in net loans receivable to $329.6
million from $322.5 million at December 31, 2008.  Our commercial loan
growth objective for the nine months of 2009 was negatively impacted by the
effect of the economic recession on the business community, while residential
mortgage loan origination volume exceeded projections, due primarily to a
significant amount of refinancing activity resulting from the Federal Reserve’s
actions to reduce mortgage loan interest rates.  For the nine months
ended September 30, 2009, the Bank’s commercial and investment residential real
estate, and commercial business loans increased $2.7 million, or 1.5%, to $179.7
million.  The owner-occupied residential real estate first mortgage
loan portfolio grew $6.0 million, or 4.9%, during the nine month period to
$127.8 million at September 30, 2009, however the growth was limited by
management’s decision to sell $14.6 million of new originations due to balance
sheet management considerations.  The Bank had elected to add most new
originations of this product to its portfolio during the first quarter, as
spreads to funding costs continued to remain wide, but then modified its
mortgage banking strategy and sold most of the new residential real estate
production into the secondary market.  The residential mortgage loan
strategy is reviewed regularly to ensure that it remains consistent with the
Bank’s overall balance sheet management objectives.
 
 Premises
and equipment of $15.7 million at September 30, 2009 represented a $749,000
increase over the total of $14.9 million at December 31, 2008.  The
net increase was a result of payments for additions totaling $1.5 million,
related primarily to the Indianapolis market expansion strategy, exceeding
$727,000 of depreciation for the nine-month period ended September 30,
2009.
 
 The
$85,000 increase in goodwill from $564,000 at December 31, 2008 to $649,000 at
September 30, 2009 resulted from the June 30, 2009 purchase of an insurance
agency book of business.  $457,000 of the goodwill reported for both
dates relates to deposits associated with a banking center acquired on February
27, 1998.  The results of the Bank’s impairment tests have reflected a
fair value for the deposits at this banking center that exceeds the
goodwill.
 
 The
total for other assets was $9.3 million at September 30, 2009, compared to $8.5
million at December 31, 2008.  This increase of $843,000 was primarily
the net of the $629,000 unamortized portion of AIA’s purchase price for an
insurance book of business not allocated to goodwill and a $630,000 increase in
deferred tax assets, reduced by the $453,000 December 31, 2008 book value of the
investment in Family Financial that was liquidated in 2009.
 
 Total
deposits of $346.3 million at September 30, 2009 represented an increase of
$21.9 million, or 6.7%, from the total of $324.4 million at December 31, 2008,
but $27.5 million less than the total at June 30, 2009, as the Bank worked
diligently to reduce non-core deposits as part of its balance sheet
restructuring strategy.  During the third quarter, the Bank reduced
its total of public funds certificates of deposit by $11.1 million primarily
through not accepting renewals, and reduced public funds checking balances by
$13.8 million through re-pricing strategies.  $21.6 million of growth
was realized with the Bank’s public funds checking product during the first six
months of 2009, as the municipalities found our pricing for this product to be
more attractive for their short-term investments than bids being received for
certificates of deposit. $21.1 million of the $30.2 million growth in retail and
business deposits during the nine months of 2009 was attributed to the three new
Indianapolis metropolitan area banking centers located in Fishers, Carmel and
Westfield.  The Bank has maintained its focus 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.
  (20)
  Borrowings
declined by $29.3 million during the first nine months of 2009 to $68.4 million,
as the Bank used available cash to repay five borrowings from the Federal Home
Loan Bank that had reached maturity, and prepaid one $5.0 million borrowing from
the Federal Home Loan Bank that had been scheduled to mature on January 25,
2010.  Wholesale funding options and strategies are continuously being
analyzed to ensure that we retain sufficient sources of credit to fund all of
the Company’s needs, and to control funding costs by using this alternative to
organic deposit account funding when appropriate.
 
 Drafts
payable of $1.2 million at September 30, 2009 reflected a $382,000 decrease from
$1.6 million at December 31, 2008.  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 $33.3 million at September 30, 2009 was $446,000 lower
than the total at December 31, 2008, with the reduction resulting from the
$392,000 net loss and $269,000 in dividends paid during the nine month period,
partially offset by an unrealized gain net of income taxes of $212,000 from the
Bank’s available for sale investments securities portfolio. The Company declined
to participate in the United States Treasury Department’s Troubled Asset Relief
Program, even though the Treasury approved the purchase of up to $9.8 million of
the Company’s senior preferred stock.  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.”
 
 RESULTS
OF OPERATIONS
 
 Third Quarter of 2009
compared to the Third Quarter of 2008
 
 The
Company recorded net income of $187,000, or $0.06 per diluted share, for the
third quarter of 2009, compared to net income of $393,000, or $0.13 per diluted
share, for the third quarter of 2008.
 
 Although
credit costs related to the weak economic environment had a significant negative
impact on 2009 third quarter earnings, the results benefited from balance sheet
restructuring strategies that produced $793,000 in net gains on sales of
investment securities.  Compared to the same period in 2008, other
expense for the third quarter of 2009 increased by $1.2 million primarily due to
costs associated with the three new Indianapolis metropolitan area banking
centers, and higher expenses related to a pension plan, FDIC insurance premiums,
and OREO expense.
 
 Net Interest
Income
 
 Net
interest income on a fully tax-equivalent basis increased $231,000, or 7.4%, to
$3.4 million for the third quarter of 2009 compared to $3.1 million for the same
period of 2008.  The increase resulted primarily from a 7.0%, or $27.8
million, increase in average interest-earning assets. The Company’s net interest
margin on a fully tax-equivalent was essentially unchanged at 3.126% for the
third quarter of 2009 compared to 3.122% for the third quarter of
2008.
 
 Tax-exempt
interest was $110,000 for the third quarter of 2009 compared to $249,000 for the
same period of 2008. Our tax-exempt interest was from bank-qualified municipal
securities and municipal loans.  The tax-equivalent adjustments were
$54,000 and $125,000 for the third quarter of 2009 and 2008,
respectively.  The decrease in tax-exempt interest for the third
quarter compared to the same period of 2008 was due primarily to the significant
amount of municipal securities sales.
  (21)
 
 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 30,2009
                                  
                                  
                                  2008Balance
      at beginning of quarter
                                  
                                  $
                                  3,643
                                  
                                  
                                  $
                                  2,909Provision
      for loan losses
                                  
                                  
                                  320
                                  
                                  
                                  
                                  205Charge-offs
                                  
                                  
                                  (135
                                  )
                                  
                                  
                                  (105
                                  )Recoveries
                                  
                                  
                                  42
                                  
                                  
                                  
                                  5Net
      charge-offs
                                  
                                  
                                  (93
                                  )
                                  
                                  
                                  (100
                                  )Balance
      at end of period
                                  
                                  $
                                  3,870
                                  
                                  
                                  $
                                  3,014Allowance
      to total loans
                                  
                                  
                                  1.16
                                  %
                                  
                                  
                                  0.95
                                  %Allowance
      to non-performing loans
                                  
                                  
                                  46.72
                                  %
                                  
                                  
                                  66.76
                                  %
 
 We recorded a provision for loan losses
of $320,000 in the third quarter of 2009, compared to $205,000 for the same
period in 2008.  The provision for loan losses for the third quarter
of 2009 reflected the continuing pressure of current economic conditions on
credit quality, including an increase in non-performing loans.  Based
on the results of the Company’s continuing review process, it is management’s
opinion that the allowance for loan losses is adequate as of September 30,
2009.
 
 The
following table summarizes the Company’s non-performing loans:
 
 (Dollars in thousands)September 30,2009
                                  
                                  
                                  2008Loans
      accounted for on a non-accrual basis
                                  
                                  $
                                  7,685
                                  
                                  
                                  $
                                  4,467Accruing
      loans contractually past due 90 days or more
                                  
                                  
                                  598
                                  
                                  
                                  
                                  49Total
      of non-accrual and 90 days past due loans
                                  
                                  $
                                  8,283
                                  
                                  
                                  $
                                  4,516Percentage
      of total net loans
                                  
                                  
                                  2.48
                                  %
                                  
                                  
                                  1.43
                                  %Other
      non-performing assets (1)
                                  
                                  $
                                  5,570
                                  
                                  
                                  $
                                  4,044
 
 (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.
 
 Although
the allowance for loan losses of $3.9 million at September 30, 2009 was
$856,000, or 28.4%, higher than a year earlier, the allowance for loan losses to
non-performing loans ratio of 46.72% at September 30, 2009 reflected a
significant change from the ratio of 66.76% at September 30, 2008 as the result
of the higher total of non-performing loans.  Non-performing loans of
$8.3 million at September 30, 2009 represented an 83.4% increase over the total
of $4.5 million at September 30, 2008.
 
 Other
real estate owned of $5.4 million at September 30, 2009, represented a decrease
of $226,000 from June 30, 2009, with two new properties and three sales, and
five write downs that totaled $152,000.
 
 An
additional write-down of $150,000 in the third quarter of 2009 of a helicopter
repossessed in December of 2008, resulted in the total for repossessed assets
declining from $288,000 at June 30, 2009 to $138,000 at September 30,
2009.
 
 Other
Income
 
 The
Company recorded other income of $1.8 million for the third quarter of 2009, an
increase of $736,000 over $1.0 million for the same period a year
earlier:
  (22)
 ·
                Due
      primarily to the June 30, 2009 acquisition of an insurance agency book of
      business, brokerage and insurance commission income of $360,000 for the
      third quarter of 2009 increased $135,000 over the total for the same
      period of 2008.
 ·
              Due
      primarily to a different mortgage-banking strategy, gains on sales of
      loans and servicing rights of $91,000 for the third quarter were $82,000
      greater than the same quarter of
2008.
 
 ·
              Balance
      sheet restructuring strategies in the third quarter of 2009 resulted in
      $793,000 in net gains from sales of investment securities, compared to a
      net loss of $6,000 during the same period of
  2008.
 
 ·
              A
      total of $276,000 in net losses during the third quarter of 2009 from OREO
      and other repossessed assets, including the $150,000 write-down of the
      helicopter, negatively impacted earnings, while the third quarter of 2008
      benefited from a $9,000 net gain from
OREO.
 
 ·
              The
      Bank earned $77,000 in rental income from an OREO apartment complex for
      the third quarter of 2009, and recorded no OREO rental income for the same
      period in 2008.
 
 ·
              The
      $25,000 decrease in income from bank owned life insurance for the third
      quarter of 2009 compared to the same period of 2008 resulted from a lower
      average yield on the policies.
 
 Other
Expense
 
 The
$1.2 million, or 33.3%, increase in total other expense for the third quarter of
2009, compared to the third quarter of 2008, resulted primarily from the
acceleration of the Bank’s Indianapolis retail expansion strategy, a higher
required pension plan contribution, higher FDIC insurance premiums, and OREO
expense:
 
 ·
              The
      $2.5 million total cost for salaries and employees benefits for the third
      quarter of 2009 was $418,000 higher than the year earlier quarter, due
      mostly to compensation costs related to the three new banking centers and
      significantly higher funding costs for the frozen defined benefit
      retirement plan.  The increase would have been materially
      greater without the benefit from the elimination of other positions
      through attrition.
 
 ·
              The
      $151,000 increase in office occupancy expense and the $41,000 increase in
      furniture and equipment expense were due mostly to costs associated with
      the two new banking centers that opened during the fourth quarter of 2008,
      the new banking center that opened in May of 2009, and the major banking
      center remodel that was completed in September of
  2008.
 
 ·
              The
      $394,000 increase in FDIC insurance premiums and assessments resulted from
      a higher industry-wide insurance assessment rate than a year earlier, the
      balance of the one-time assessment credit being used up in the first half
      of 2009, and a correcting entry to properly reflect the Bank’s accrued
      expense at quarter end.
 
 ·
              The
      $116,000 of other real estate owned expense exceeded the total for the
      same quarter a year earlier by $65,000 and related primarily to real
      estate taxes and to operating expenses for the OREO apartment complex that
      provided $77,000 of rental income during the
  quarter.
 
 Income Tax
Expense
 
 The
Company had income before income taxes of $138,000, but recorded an income tax
benefit of $49,000 for the third quarter of 2009 due to a significant amount of
tax-exempt income from municipal securities and BOLI.  For the same
quarter of 2008, the Company had income before taxes of $368,000 and recorded a
tax benefit of $25,000 that was due to a similar amount of BOLI income coupled
with the interest from a larger average investment in municipal
securities.  The municipal securities portfolio had been reduced from
an average balance of $18.6 million for the third quarter of 2008 to an average
balance of $7.1 million for the third quarter of 2009.
 
 We
have a deferred state tax asset that is primarily the result of operating losses
sustained since 2003 for state tax purposes.  We started recording a
valuation allowance against our current period state income tax benefit in 2005
due to our concern that we may not be able to use more than the deferred tax
asset already recorded on the books without modifying the use of AIMI, our
investment subsidiary.  Operating income from AIMI is not subject to
state income taxes under current state law, and is the primary reason for the
deferred tax asset.
  (23)
  The
Company also has a deferred federal tax asset that is composed of tax benefit
from a net operating loss carryforward and purchased tax credits.  The
federal loss carryforward 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 carryforwards and credits within the allotted
time periods.
 
 Nine Months Ended September
30, 2009 compared to the Nine Months Ended September 30,
2008
 
 The
Company recorded a net loss of $392,000, or $(0.13) per diluted share, for the
first nine months of 2009, compared to net income of $1.2 million, or $0.39 per
diluted share, for the first nine months of 2008.
 
 Net
income in the year-earlier period benefited from a favorable federal income tax
ruling that resulted in an additional $150,000 of income tax
benefit.  The net loss for the nine months of 2009 resulted primarily
from a loan loss provision of $1.3 million, and net losses from OREO and other
repossessed asset sales or write-downs that totaled $976,000.  These
losses were partially offset by $895,000 of net gains realized from the sales of
investment securities.
 
 The
Company achieved net interest income growth of $656,000, or 7.5%, compared to
the first nine months of 2008 that resulted primarily from the Bank’s success
with continuing efforts related to loan portfolio growth.  The
significant increase in other expense for the nine months of 2009 compared to
the same period in 2008 was due primarily to costs associated with the new
banking centers, the FDIC special assessment and higher FDIC insurance costs,
and higher OREO expense.
 
 Net Interest
Income
 
 Net
interest income on a fully tax-equivalent basis increased $461,000, or 5.0%, to
$9.6 million for the nine months of 2009 compared to $9.2 million for the same
period of 2008, and resulted primarily from growth of $15.7 million, or 5.0%, in
the Bank’s loan portfolio.  The Company’s net interest margin on a
fully tax-equivalent basis declined to 2.99% for the nine months of 2009 from
3.09% for the first nine months of 2008.  The decrease in the net
interest margin was due largely to activity during the first six months of 2009
involving strategies to grow cash and cash equivalents to address risks
associated with difficult economic conditions, as well as an interest rate
spread issue related to a temporary significant increase in interest-bearing
non-maturity public funds deposits.
 
 Tax-exempt
interest was $441,000 for the nine months of 2009 compared to $818,000 for the
same period of 2008. Our tax-exempt interest results from holdings of
bank-qualified municipal securities and municipal loans.  The
tax-equivalent adjustments were $221,000 and $415,000 for the nine months of
2009 and 2008, respectively.  The decrease in tax-exempt interest for
the nine months of 2009 compared to the same period of 2008 was due primarily to
the significant amount of municipal securities sales.
 
 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 30,2009
                              
                              
                              2008Balance
      at beginning of year
                              
                              $
                              2,991
                              
                              
                              $
                              2,677Provision
      for loan losses
                              
                              
                              1,273
                              
                              
                              
                              797Charge-offs
                              
                              
                              (453
                              )
                              
                              
                              (546
                              )Recoveries
                              
                              
                              59
                              
                              
                              
                              86Net
      charge-offs
                              
                              
                              (394
                              )
                              
                              
                              (460
                              )Balance
      at end of period
                              
                              $
                              3,870
                              
                              
                              $
                              3,014
 
 We had a provision for loan losses of
$1.3 million for the nine months of 2009, compared to $797,000 for the same
period in 2008.  The increase in the provision reflected the
additional loan portfolio growth and the continuing pressure of current economic
conditions on credit quality, which resulted in increased non-performing
loans.  The allowance to total loans ratio was 1.16% at September 30,
2009 compared to 0.92% at December 31, 2008.
  (24)
 
 Other
Income
 
 The
$373,000 increase in other income to $3.6 million for the nine months of 2009,
compared to $3.2 million for the same period of 2008, resulted primarily from
the following:
 
 ·
              A
      $792,000 increase in gains on available for sale investment securities
      from $103,000 for the nine months ended September 30, 2008 to $895,000 for
      the nine months ended September 30, 2009 that resulted primarily from
      balance sheet restructuring
strategies;
 
 ·
              A
      $228,000 increase in gains on sales of loans and servicing rights from
      $278,000;
 
 ·
              $182,000
      in OREO income from the operation of an apartment complex compared to none
      for the same period of 2008;
 
 ·
              The
      $192,000 gain from the liquidation of a minority interest in Family
      Financial; reduced by
 
 ·
              An
      $817,000 increase in net losses on OREO from $9,000 for the nine months
      ended September 30, 2008 to $826,000 for the nine months ended September
      30, 2009;
 
 ·
              A
      $150,000 write-down of a repossessed helicopter;
  and
 
 ·
              A
      $66,000 decrease in other income that resulted primarily from a $56,000
      increase in the amortization of originated mortgage loan servicing rights
      amortization due mostly to higher refinancing activity than in the same
      period of 2008.
 
 Other
Expense
 
 The
Company recorded a $2.5 million growth in total other expense for the nine
months of 2009, compared to the first nine months of 2008, with the following
increases:
 
 ·
              An
      increase of $1.2 million in the total of salaries and employee benefits,
      office occupancy expense, furniture and equipment expense, and marketing
      expense that was due mostly to costs associated with the two new banking
      centers that opened during the fourth quarter of 2008, the new banking
      center that opened in May of 2009, and the major banking center remodel
      that was completed in September
2008;
 
 ·
              A
      $130,000 increase in legal and professional fees to $543,000 that resulted
      primarily from higher legal fees, mostly related to the Abstract &
      Title Guaranty Company, Inc.
litigation;
 
 ·
              A
      $630,000 increase in FDIC insurance premiums and assessments that was
      related primarily to higher net premiums due to industry-wide increases
      and the exhaustion of the one-time credit, coupled with the industry-wide
      special assessment that resulted in a $225,000 second quarter expense for
      the Bank;
 
 ·
              A
      $100,000 increase in data processing expense to $570,000 that resulted
      primarily from a greater use of the existing electronic services, as well
      new electronic services provided by the Bank;
  and
 
 ·
              The
      $420,000 of other real estate owned expense that exceeded the total for
      the same period a year earlier by $313,000, and related primarily to real
      estate taxes and to operating expenses for the apartment
      complex.
 
 Income Tax
Expense
 
 Although
the Company had a loss before income taxes of $1.1 million for the nine months
of 2009, compared to income before income taxes of $812,000 for the same period
of 2008, the 2008 income tax benefit was not correspondingly lower for the
following two reasons.  In the first nine months of 2008, the Bank had
a larger portfolio of tax-exempt municipal securities and also benefited from a
$150,000 reversal of an income tax liability recorded in prior years that
resulted from a favorable tax court ruling regarding the application of the Tax
Equity and Fiscal Responsibility Act penalty to investment subsidiaries of
commercial banks.  The first nine months of both 2009 and 2008
benefited from significant amounts of tax-exempt income from municipal
securities and BOLI.
  (25)
 
 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.
 
 For
the nine months ended September 30, 2009, we did not engage in any off-balance
sheet transactions reasonably likely to have a material effect on our financial
condition, results of operations or cash flows.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Liquidity
is the ability to meet current and future obligations of a short-term
nature.  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 and investment
securities, through borrowings from the FHLB system and the Federal Reserve Bank
Discount Window programs, through the brokered certificates market, and
securities sold under agreements to repurchase. We regularly adjust the
investments in liquid assets based upon our assessment of (1) expected loan
demand, (2) expected deposit flows, (3) yields available on interest-earning
deposits and securities and (4) the objectives of our asset/liability
program.
 
 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 interest and
principal on outstanding debt. At times, the Company has repurchasesd its stock.
Substantially all of the Company’s operating cash is obtained from subsidiary
service fees and dividends. Payment of such dividends to the Company by the Bank
is limited under Indiana law. As part of a resolution adopted by the Board of
Directors of the Bank on September 28, 2009, 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, 2009, we had $3.5 million in loan commitments outstanding and
$36.5 million of available commercial and consumer lines of credit. Certificates
of deposit due within one year of September 30, 2009 totaled $135.7 million, or
39.2% 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 certificates of deposit, securities sold under agreements to
repurchase, and other borrowings.  Depending on market conditions, we
may be required to pay higher rates on such deposits or other borrowings than
the rates that we are now paying on those certificates of deposit that are due
within one year of September 30, 2009. However, based on past experiences we
believe that a significant portion of the certificates of deposit will remain
with us. We also have the ability to attract and retain deposits by adjusting
the interest rates offered.
 
 Our
primary investing activity, the origination and purchase of loans, produced
growth of $7.1 million in net loans receivable for the nine months of
2009.  In the first nine months of 2008, we experienced an increase of
$20.5 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 increased by $21.9 million and total FHLB
advances were reduced by $29.3 million during the nine months of 2009. There
were no brokered certificates at either September 30, 2009 or December 31,
2008.
 
 In
March 2006, the Company completed a private placement of $10.0 million in trust
preferred securities. The proceeds from the private placement are included in
Borrowings on the Consolidated Condensed Balance Sheets.  The proceeds
were used initially for paying down short-term borrowings and were also used to
fund a stock repurchase program.
 
 We
paid $269,000 in cash dividends to our shareholders for the nine-month period
ended September 30, 2009 and $358,000 for the nine-month period ended September
30, 2008.  The dividend rates were $0.09 per share for the first nine
months of 2009 and $0.12 per share for the first nine months of
2008.
  (26)
  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. At September 30, 2009, both
the Company and the Bank exceeded all of their regulatory capital requirements
and were considered “well capitalized” under regulatory
guidelines.  In addition, as part of a resolution adopted by the Board
of Directors of the Bank on September 28, 2009, the Bank agreed to adopt a
capital plan to increase its Tier 1 Leverage Ratio to 7.75% by December 31, 2009
and to 8.00% at March 31, 2010 and to increase its Total Risk-Based Capital
Ratio to 12.00% by December 31, 2009.  See “Regulatory
Action.”
 
 There
are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized.  Classification in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank’s operations.  At September 30, 2009
and December 31, 2008, the Bank was categorized as well capitalized and met
all subject capital adequacy requirements.  There are no conditions or
events since September 30, 2009, that management believes have changed this
classification.
 
 Actual,
required, and well capitalized amounts and ratios for the Bank are as
follows:
 
 September
      30, 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)
                          
                          $
                          41,262
                          
                          
                          
                          12.39
                          %
                          
                          $
                          26,637
                          
                          
                          
                          8.00
                          %
                          
                          $
                          33,297
                          
                          
                          
                          10.00
                          %Tier
      1 risk-based capital ratio
                            (tier 1 capital to
      risk-weighted assets)
                          
                          $
                          37,244
                          
                          
                          
                          11.19
                          %
                          
                          $
                          13,319
                          
                          
                          
                          4.00
                          %
                          
                          $
                          19,978
                          
                          
                          
                          6.00
                          %Tier
      1 leverage ratio
                            (tier 1
      capital  to adjusted average total
      assets)
                          
                          $
                          37,244
                          
                          
                          
                          7.82
                          %
                          
                          $
                          14,280
                          
                          
                          
                          3.00
                          %
                          
                          $
                          23,800
                          
                          
                          
                          5.00
                          %
 
 December 31, 2008Actual 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)
                              
                              $
                              41,715
                              
                              
                              
                              12.78
                              %
                              
                              $
                              26,110
                              
                              
                              
                              8.00
                              %
                              
                              $
                              32,638
                              
                              
                              
                              10.00
                              %Tier
      1 risk-based capital ratio
                                (tier 1 capital to
      risk-weighted assets)
                              
                              $
                              38,592
                              
                              
                              
                              11.82
                              %
                              
                              $
                              13,055
                              
                              
                              
                              4.00
                              %
                              
                              $
                              19,583
                              
                              
                              
                              6.00
                              %Tier
      1 leverage ratio
                                (tier 1
      capital  to adjusted average total
      assets)
                              
                              $
                              38,592
                              
                              
                              
                              8.34
                              %
                              
                              $
                              13,879
                              
                              
                              
                              3.00
                              %
                              
                              $
                              23,131
                              
                              
                              
                              5.00
                              %
 
 Actual,
required, and well capitalized amounts and ratios for the Company are as
follows:
 
 September 30, 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)
                          
                          $
                          41,551
                          
                          
                          
                          12.39
                          %
                          
                          $
                          26,826
                          
                          
                          
                          8.00
                          %
                          
                          $
                          33,533
                          
                          
                          
                          10.00
                          %Tier
      1 risk-based capital ratio
                            (tier 1 capital to
      risk-weighted assets)
                          
                          $
                          37,533
                          
                          
                          
                          11.19
                          %
                          
                          $
                          13,413
                          
                          
                          
                          4.00
                          %
                          
                          $
                          20,119
                          
                          
                          
                          6.00
                          %Tier
      1 leverage ratio
                            (tier 1
      capital  to adjusted average total
      assets)
                          
                          $
                          37,533
                          
                          
                          
                          7.87
                          %
                          
                          $
                          14,301
                          
                          
                          
                          3.00
                          %
                          
                          $
                          23,835
                          
                          
                          
                          5.00
                          %
  (27)
  December 31, 2008Actual
      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)
                          
                          $
                          42,008
                          
                          
                          
                          12.79
                          %
                          
                          $
                          26,277
                          
                          
                          
                          8.00
                          %
                          
                          $
                          32,846
                          
                          
                          
                          10.00
                          %Tier
      1 risk-based capital ratio
                            (tier 1 capital to
      risk-weighted assets)
                          
                          $
                          38,885
                          
                          
                          
                          11.84
                          %
                          
                          $
                          13,138
                          
                          
                          
                          4.00
                          %
                          
                          $
                          19,708
                          
                          
                          
                          6.00
                          %Tier
      1 leverage ratio
                            (tier 1
      capital  to adjusted average total
      assets)
                          
                          $
                          38,885
                          
                          
                          
                          8.39
                          %
                          
                          $
                          13,903
                          
                          
                          
                          3.00
                          %
                          
                          $
                          23,171
                          
                          
                          
                          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.
 
 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, 2009 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
  The Abstract & Title Guaranty
Company, Inc. (“AGT”) sued the Bank in 2003 to recover for checks issued by AGT
and delivered to one of its title insurance customers for delivery to various
payees. Generally, the checks were issued in conjunction with real estate
transactions and were issued to pay mortgage liens in full. Forty-one such
checks were forged and deposited into an account at the Bank. The
litigation was initiated in Hendricks County Superior Court in May of 2003 and
the plaintiff is seeking damages of approximately $740,000 plus interest and
attorney fees.  The Bank has adequate insurance to protect it from any
judgment rendered based upon the complaint. However, the insurance does not
provide indemnification for the costs of defending the litigation. 
Discovery is now being conducted by both parties.    The parties
anticipate that the matter will go to trial in mid to late 2010.
  (28)
  Except
as indicated above, 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
 
 Failure
to comply with the restrictions and conditions in the resolution adopted by our
board at the request of the Federal Deposit Insurance Corporation and the
Indiana Department of Financial Institutions could result in additional
enforcement action against us.
 
 On September 28, 2009, the Board of
Directors of the Bank, adopted a resolution agreeing to higher capital
requirements, requirements to reduce the level of our classified and criticized
assets and restrictions on dividend payments.  These restrictions may
impede our ability to operate our business.  If we fail to comply with
the terms and conditions of the board resolution, the FDIC and the Indiana
Department of Financial Institutions could take enforcement action against us,
including the imposition of further operating restrictions.  These
enforcement actions could take the form of a memorandum of understanding or a
cease and desist order.  Any informal or formal enforcement action
could harm our reputation and our ability to retain or attract customers or
employees and impact the trading price of our common stock.
 
 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, 2008 which could materially affect our business,
financial condition or future results. The risks described in our Annual Report
on Form 10-K are not the only risks that we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.
 
 ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 The
Company did not repurchase any of its common stock during the quarter ended
September 30, 2009, and at September 30, 2009 had no approved repurchase plans
or programs.
 
 ITEM 3 – DEFAULTS UPON SENIOR
SECURITIES
 
 Not Applicable
 
 ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
 
 Not Applicable
 
 ITEM 5 – OTHER
INFORMATION
 
 Not Applicable
 
 ITEM 6  - EXHIBITS
 
 No.
                
                Description31
                
                Rule
      13a-14(a)/15d-14(a) Certifications32
                
                Section
      1350 Certifications
  (29)
  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 
      13, 2009
                  
                  /s/
      Jerome J. GassenJerome
      J. GassenPresident
      and Chief Executive Officer(Duly
      Authorized Representative)DATE:
      November 
      13, 2009
                  
                  /s/
      John J. LetterJohn
      J. LetterSenior
      Vice President-Treasurer andChief
      Financial Officer(Principal
      Financial Officerand
      Accounting Officer)