AMERIANA BANCORP - FORM 10-Q

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EX-32 - EX-32 - AMERIANA BANCORP	v222268_ex32.htm
EX-31 - EX-31 - AMERIANA BANCORP	v222268_ex31.htm

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 March 31, 2011

¨ 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. Employer
Incorporation or Organization)		Identification No.)

2118 Bundy Avenue, New Castle, Indiana		47362-1048
(Address of Principal Executive Offices)		(Zip Code)

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

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 May 13, 2011, the registrant had 2,988,952 shares of its common stock outstanding.

AMERIANA BANCORP

Table of Contents

			Page No.

Part I. Financial Information

	Item 1.	Financial Statements (Unaudited)	3

		Consolidated Condensed Balance Sheets at March 31, 2011 and December 31, 2010	3

		Consolidated Condensed Statements of Income for the Three Months Ended March 31, 2011 and 2010	4

		Consolidated Condensed Statement of Shareholders’ Equity for the Three Months Ended March 31, 2011	6

		Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	7

		Notes to Consolidated Condensed Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	34

	Item 4.	Controls and Procedures	34

Part II. Other Information

	Item 1.	Legal Proceedings	34

	Item 1A.	Risk Factors	34

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3.	Defaults upon Senior Securities	35

	Item 4.	(Removed and Reserved)	35

	Item 5.	Other Information	35

	Item 6.	Exhibits	35

Signatures			36

(2)

PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

Ameriana Bancorp

Consolidated Condensed Balance Sheets

(In thousands, except share data)

	March 31,			December 31,
	2011			2010
	(Unaudited)
Assets
Cash on hand and in other institutions	$	4,309		$	3,673
Interest-bearing demand deposits		26,953			8,074
Cash and cash equivalents		31,262			11,747
Investment securities available for sale		32,769			38,608
Loans held for sale		532			91
Loans, net of allowance for loan losses of $4,416 and $4,212		309,035			312,715
Premises and equipment		14,513			14,736
Stock in Federal Home Loan Bank		5,101			5,101
Goodwill		649			649
Cash value of life insurance		25,623			25,413
Other real estate owned		9,027			9,067
Other assets		12,673			11,530
Total assets	$	441,184		$	429,657

Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	38,093		$	34,769
Interest-bearing		316,872			303,209
Total deposits		354,965			337,978
Borrowings		45,810			51,810
Drafts payable		1,018			1,594
Other liabilities		6,201			5,024
Total liabilities		407,994			396,406
Commitments and contingencies
Shareholders’ equity
Preferred stock - 5,000,000 shares authorized and unissued		—			—
Common stock, $1.00 par value Authorized 15,000,000 shares Issued – 3,213,952 shares		3,214			3,214
Outstanding – 2,988,952 shares
Additional paid-in capital		1,050			1,048
Retained earnings		31,940			31,849
Accumulated other comprehensive (loss) income		(16	)		138
Treasury stock at cost – 225,000 shares		(2,998	)		(2,998	)
Total shareholders’ equity		33,190			33,251
Total liabilities and shareholders’ equity	$	441,184		$	429,657

See notes to consolidated condensed financial statements

(3)

Ameriana Bancorp

Consolidated Condensed Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Interest Income
Interest and fees on loans	$	4,394		$	4,676
Interest on mortgage-backed securities		288			318
Interest on investment securities		38			52
Other interest and dividend income		46			37
Total interest income		4,766			5,083
Interest Expense
Interest on deposits		862			1,169
Interest on borrowings		475			631
Total interest expense		1,337			1,800
Net Interest Income		3,429			3,283
Provision for loan losses		360			360
Net Interest Income After Provision for Loan Losses		3,069			2,923
Other Income
Other fees and service charges		461			469
Brokerage and insurance commissions		386			364
Net realized and recognized gains on available-for-sale investment securities		52			104
Gains on sales of loans and servicing rights		32			66
Net loss from sales and write-downs of other real estate owned		(11	)		(35	)
Other real estate owned rental income		212			100
Increase in cash value of life insurance		210			218
Other		47			66
Total other income		1,389			1,352
Other Expense
Salaries and employee benefits		2,403			2,274
Net occupancy expense		447			408
Furniture and equipment expense		219			215
Legal and professional fees		163			221
FDIC insurance premiums and assessments		208			196
Data processing expense		202			176
Printing and office supplies		68			54
Marketing expense		88			101
Other real estate owned expense		183			208
Other		420			433
Total other expense		4,401			4,286
Income (Loss) Before Income Taxes		57			(11	)
Income tax benefit		64			91
Net Income	$	121		$	80

See notes to consolidated condensed financial statements

(4)

Ameriana Bancorp

Consolidated Condensed Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2011		2010

Basic Earnings Per Share	$	0.04	$	0.03
Diluted Earnings Per Share	$	0.04	$	0.03
Dividends Declared Per Share	$	0.01	$	0.01

See notes to consolidated condensed financial statements

(5)

Ameriana Bancorp

Consolidated Condensed Statement of Shareholders’ Equity

For the Three Months Ended March 31, 2011

(In thousands, except per share data)

(Unaudited)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at December 31, 2010	$	3,214	$	1,048	$	31,849		$	138		$	(2,998	)	$	33,251
Net Income		—		—		121			—			—			121
Change of $234 from unrealized gain to unrealized loss on available-for-sale securities, net of income tax benefit of $80		—		—		—			(154	)		—			(154	)
Comprehensive loss															(33	)
Share-based compensation		—		2		—			—			—			2
Dividends declared ($0.01 per share)		—		—		(30	)		—			—			(30	)
Balance at March 31, 2011	$	3,214	$	1,050	$	31,940		$	(16	)	$	(2,998	)	$	33,190

See notes to consolidated condensed financial statement.

(6)

Ameriana Bancorp

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Operating Activities
Net income	$	121		$	80
Items not requiring (providing) cash
Provision for losses on loans		360			360
Depreciation and amortization		352			285
Increase in cash value of life insurance		(210	)		(218	)
Gain from sale of available-for-sale securities		(52	)		(104	)
Loss on sale or write-down of other real estate owned		11			35
Mortgage loans originated for sale		(1,793	)		(3,489	)
Proceeds from sales of mortgage loans originated for sale		1,365			3,131
Gains on sales of mortgage loans and servicing rights		(32	)		(66	)
Increase in accrued interest payable		554			621
Other adjustments		1,023			(354	)
Net cash provided by operating activities		1,699			281
Investing Activities
Purchase of securities		(13	)		(10	)
Proceeds/principal from the sale of securities		2,369			553
Principal collected on mortgage-backed securities		1,457			1,094
Net change in loans		3,152			194
Proceeds from sales of other real estate owned		197			389
Net purchases and construction of premises and equipment		(31	)		(30	)
Construction cost for other real estate owned		—			(32	)
Other investing activities		2			8
Net cash provided by investing activities		7,133			2,166
Financing Activities
Net change in demand and savings deposits		11,691			1,490
Net change in brokered certificates of deposit		6,178			—
Net change in other certificates of deposit		(882	)		(3,175	)
(Decrease) increase in drafts payable		(576	)		28
Proceeds from long-term borrowings		—			3,000
Repayment of long-term borrowings		(6,000	)		(3,375	)
Net change in advances by borrowers for taxes and insurance		302			175
Cash dividends paid		(30	)		(30	)
Net cash provided by (used) in financing activities		10,683			(1,887	)
Change in Cash and Cash Equivalents		19,515			560
Cash and Cash Equivalents at Beginning of Year		11,747			19,588
Cash and Cash Equivalents at End of Quarter	$	31,262		$	20,148

Supplemental information:

Interest paid on deposits	$	288		$	544

Interest paid on borrowings	$	495		$	635

Non-cash supplemental information:

Transfers from loans to other real estate owned	$	168		$	1,470

See notes to consolidated condensed financial statements.

(7)

AMERIANA BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

NOTE A — BASIS OF PRESENTATION

The consolidated condensed financial statements include the accounts of Ameriana Bancorp (the “Company”) and its wholly-owned subsidiary Ameriana Bank (the “Bank”). The Bank has two wholly-owned subsidiaries, Ameriana Insurance Agency and Ameriana Financial Services, Inc.

The unaudited interim consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and disclosures required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (comprised only of normal recurring adjustments and accruals) necessary to present fairly the Company’s financial position and results of operations and cash flows. The consolidated condensed balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet of the Company as of that date. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected in the full year or for any other period. These statements should be read in conjunction with the consolidated financial statements and related notes which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE B — SHAREHOLDERS’ EQUITY

On March 28, 2011, 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 April 8, 2011, and was paid on April 29, 2011.

No stock options were exercised during the first quarter of 2011.

NOTE C — EARNINGS PER SHARE

Earnings per share were computed as follows:

	(In thousands, except share data)
	Three Months Ended March 31,
	2011						2010
	Net Income		Weighted Average Shares		Per Share Amount		Net Income		Weighted Average Shares		Per Share Amount
Basic Earnings Per Share: Income available to common shareholders	$	121		2,988,952	$	0.04	$	80		2,988,952	$	0.03
Effect of dilutive stock options		-		-				-		-
Diluted Earnings Per Share: Income available to common shareholders	$	121		2,988,952	$	0.04	$	80		2,988,952	$	0.03

Options to purchase 169,482 and 169,982 shares of common stock at exercise prices of $9.25 to $15.56 per share were outstanding at March 31, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

(8)

NOTE D — INVESTMENT SECURITIES

The following tables provide the composition of investment securities at March 31, 2011 and December 31, 2010 (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at March 31, 2011
Ginnie Mae and GSE mortgage-backed pass-through securities	$	23,852	$	176	$	145	$	23,883
Ginnie Mae collateralized mortgage obligations		5,075		—		75		5,000
Municipal securities		2,228		17		33		2,212
Mutual fund		1,639		35		—		1,674
	$	32,794	$	228	$	253	$	32,769

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2010
Ginnie Mae and GSE mortgage-backed pass-through securities	$	29,210	$	336	$	110	$	29,436
Ginnie Mae collateralized mortgage obligations		5,335		8		2		5,341
Municipal securities		2,228		12		76		2,164
Mutual fund		1,626		41		—		1,667
	$	38,399	$	397	$	188	$	38,608

The amortized cost and fair value of securities available for sale at March 31, 2011, 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 Sale
	Amortized Cost		Fair Value
Within one year	$	—	$	—
One to five years		1,465		1,482
Five to ten years		—		—
After ten years		763		730
		2,228		2,212
Ginnie Mae and GSE mortgage-backed pass-through securities		23,852		23,883
Ginnie Mae collateralized mortgage obligations		5,075		5,000
Mutual fund		1,639		1,674
	$	32,794	$	32,769

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

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

(9)

Municipal securities: There were five municipal securities in the Company’s investment portfolio at March 31, 2011, and two received an investment grade from both Moody’s and Standard & Poor’s. Two securities received an investment grade from one of the two rating agencies, but were not rated by the other. 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.

Mutual fund: The mutual fund balance at March 31, 2011 consisted of an investment in the CRA Qualified Investment mutual fund, whose portfolio composition is primarily in debt securities with an average credit quality rating of AAA.

Certain investment securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2011 and December 31, 2010 were $13,998,000 and $9,159,000, respectively, which was approximately 42.7% and 23.7%, respectively, of the Company’s investment portfolio at these dates.

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

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011 and December 31, 2010 (dollars in thousands):

At March 31, 2011	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Ginnie Mae and GSE mortgage-backed pass-through securities	$	8,267	$	145	$	—	$	—	$	8,267	$	145
Ginnie Mae collateralized mortgage obligations		5,000		75		—		—		5,000		75
Municipal securities		731		33		—		—		731		33
	$	13,998	$	253	$	—	$	—	$	13,998	$	253

At December 31, 2010	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Ginnie Mae and GSE mortgage-backed pass-through securities	$	5,055	$	109	$	51	$	1	$	5,106	$	110
Ginnie Mae collateralized mortgage obligations		2,225		2		—		—		2,225		2
Municipal securities		1,828		76		—		—		1,828		76
	$	9,108	$	187	$	51	$	1	$	9,159	$	188

Together with mortgage loans, investment securities with a total market value of $5,000,000 and $5,341,000 were pledged at March 31, 2011 and December 31, 2010, respectively, to secure FHLB advances and three letters of credit.

Investment securities with a total market value of $9,329,000 and $9,047,000 were pledged at March 31, 2011 and December 31, 2010, respectively, to secure a repurchase agreement.

A gross gain of $52,000 resulting from sales of available-for-sale securities was realized during the three-month period ended March 31, 2011, with a tax expense of $17,000, compared to an $104,000 gross gain for the three-month period ended March 31, 2010, with a tax expense of $35,000

(10)

NOTE E — LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

	At March 31,		At December 31,
	2011		2010
Real estate loans:
Commercial	$	96,816	$	94,595
Residential		161,943		167,162
Construction		26,706		26,817
Commercial loans and leases		24,536		22,360
Municipal loans		3,075		2,718
Consumer loans		3,613		3,943
Total loans		316,689		317,595

Less:
Undisbursed loan proceeds		2,985		443
Deferred loan fees (expenses), net		253		225
Allowance for loan losses		4,416		4,212
		7,654		4,880

Total loans - net	$	309,035	$	312,715

Methodology: Bank policy is designed to ensure that an adequate allowance for loan and lease losses (“ALLL”) will be maintained. Primary responsibility for ensuring that the Bank has in place processes to consistently assess the adequacy of the ALLL rests with the Board. The Board has charged the Chief Credit Officer (“CCO”) with responsibility for establishing the methodology to be used and to assess the adequacy of the ALLL quarterly. The methodology will be reviewed and affirmed by the Loan Review Committee. Quarterly the Board will review recommendations from the CCO to adjust the allowance as appropriate.

The methodology employed by the CCO will at a minimum contain the following:

Loans will be segmented by type of loan.

Loans will be further segmented by risk grades.

The required ALLL for types of performing homogeneous loans which do not have a specific reserve will be determined by applying a factor based on historical losses averaged over the past 12 quarters. In those instances, where the Bank’s historical experience is not available, the CCO will develop factors based on industry experience and best practices.

All criticized and classified loans will be tested for impairment by applying one of three methodologies:

a. Present value of future cash flows;

b. Fair value of collateral less cost to sell; or

c. The loan’s observable market price

Loans tested for impairment will be removed from other pools to prevent layering (double-counting).

The required ALLL for each group of loans will be added together to determine the total required ALLL for the Bank. The required ALLL will be compared to the current ALLL to determine the required provision to increase the ALLL or credit to decrease the ALLL.

(11)

The following table presents the balance in allowance for loan losses and the recorded investment in loans and impairment methods as of March 31, 2011:

Allowance for Loan Losses and Recorded Investment In Loans

For Three Months Ended March 31, 2011

	Commercial Real Estate Loans		Residential Real Estate Loans			Construction Real Estate Loans			Commercial Loans and Leases		Municipal Loans		Consumer Loans			Total
Balance at beginning of quarter	$	639	$	1,584		$	1,254		$	657	$	—	$	78		$	4,212
Provision for losses		194		295			(211	)		66		—		16			360
Charge-offs (1)		—		(153	)		(2	)		—		—		(20	)		(175	)
Recoveries		—		15			—			—		—		4			19
Balance at end of quarter	$	833	$	1,741		$	1,041		$	723		—	$	78		$	4,416

Ending allowance balance:
Individually evaluated for impairment	$	556	$	845		$	595		$	97	$	—	$	8		$	2,101
Collectively evaluated for impairment		277		896			446			626		—		70			2,315
Total	$	833	$	1,741		$	1,041		$	723		—	$	78		$	4,416

Ending loan balance:
Individually evaluated for impairment	$	6,081	$	5,817		$	4,474		$	1,014	$	—	$	60		$	17,446
Collectively evaluated for impairment		90,735		156,126			22,232			23,522		3,075		3,553			299,243
Total	$	96,816	$	161,943		$	26,706		$	24,536	$	3,075	$	3,613		$	316,689

(12)

The following table presents the balance in allowance for loan losses and the recorded investment in loans and impairment methods as of December 31, 2010:

Allowance for Loan Losses and Recorded Investment In Loans

For Year Ended December 31, 2010

	Commercial Real Estate Loans			Residential Real Estate Loans			Construction Real Estate Loans			Commercial Loans and Leases			Municipal Loans		Consumer Loans			Total
Balance at beginning of year	$	661		$	1,262		$	1,269		$	686		$	—	$	127		$	4,005
Provision for losses		200			1,059			304			365			—		5			1,933
Charge-offs (1)		(238	)		(737	)		(525	)		(398	)		—		(72	)		(1,970	)
Recoveries		16			—			206			4			—		18			244
Balance at end of year	$	639		$	1,584		$	1,254		$	657			—	$	78		$	4,212

Ending allowance balance:
Individually evaluated for impairment	$	406		$	876		$	797		$	97		$	—	$	8		$	2,184
Collectively evaluated for impairment		233			708			457			560			—		70			2,028
Total	$	639		$	1,584		$	1,254		$	657		$	—	$	78		$	4,212

Ending loan balance:
Individually evaluated for impairment	$	6,288		$	7,604		$	5,694		$	1,055		$	—	$	42		$	20,683
Collectively evaluated for impairment		88,307			159,558			21,123			21,305			2,718		3,901			296,912
Total	$	94,595		$	167,162		$	26,817		$	22,360		$	2,718	$	3,943		$	317,595

(1)

Loan Charge-Offs: A loan should be charged off at any point in time when it no longer can be considered a bankable asset, meaning collectable within the parameters of policy. The Bank shall not renew any loan, or put a loan on a demand basis, only to defer a problem, nor is it appropriate to attempt long-term recoveries while reporting loans as assets. An unsecured loan generally should be charged off no later than when it is 120 days past due as to principal or interest. For loans in the legal process of foreclosure against collateral of real and/or liquid value, the 120-day rule does not apply. Such charge-offs can be deferred until the foreclosure process progresses to the point where the Bank can adequately determine whether or not any ultimate loss will result. In similar instances where other legal actions will cause extraordinary delays, such as the settlement of an estate, yet collateral of value is realizable, the 120-day period could be extended. When a loan is unsecured or not fully collateralized, the loan should be charged off or written down to the documented collateral value rather than merely being placed on non-accrual status.

All charge-offs and forgiveness of debt greater than $50,000 must be approved by the Loan Committee upon recommendation by the CCO. Charge-offs between $10,000 and $50,000 must be approved by the CCO. Decisions to defer the charge off of a loan must be approved by the CCO.

The following table presents an analysis of the allowance for loan losses for the periods indicated:

	Three Months Ended March 31,
	2011			2010
Balance at beginning of quarter	$	4,212		$	4,005
Provision for losses		360			360
Charge-offs		(175	)		(540	)
Recoveries		19			138
Net charge-offs		(156	)		(402	)
Balance at end of Quarter	$	4,416		$	3,963

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Narrative Description of Borrower Rating:

Grade 1 — Highest Quality (Pass)

This loan represents a credit extension of the highest quality. The borrower’s historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has broad access to alternative financial markets. Also included in this category may be loans secured by U.S. government securities, U.S. government agencies, highly rated municipal bonds, insured savings accounts, and insured certificates of deposit drawn on high quality banks.

Grade 2 — Excellent Quality (Pass)

This loan has a sound primary and secondary source of repayment. The borrower has proven access to alternative sources of financing. This loan carries a low level of risk, with minimal loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are strong. Loans secured by high quality traded stocks and lower grade municipal bonds (must still be investment grade).

Grade 3 — Good Quality (Pass)

This loan has a sound primary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher graded borrower. This loan carries a normal level of risk, with minimal loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the higher quality loans. Real estate loans in this category display advance rates below the suggested maximum, debt coverage well in excess of the suggested level, or are leased beyond the loan term by a “credit” tenant.

Grade 4 — Acceptable Quality (Pass)

The borrower is a reasonable credit risk and demonstrates the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. Historic financial information may indicate erratic performance, but current trends are positive. Quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher graded loans. If adverse circumstances arise, the impact on the borrower may be significant. All small business loans extended based upon credit scoring should be classified in this category unless deterioration occurs, in which case they should bear one of the below mentioned grades.

Grade 5 - Marginal Quality (Pass)

The borrower is an acceptable credit risk and while it can demonstrate it has the ability to repay the debt from normal business operations, the coverage is not as strong as an Acceptable Quality loan. Weakness in one or more areas are defined. Risk factors would typically include a higher leverage position than desirable, low liquidity, weak or sporadic cash flow, the lack of reasonably current and complete financial information, and/or overall financial trends are erratic.

Grade 6 – Elevated Risk, Management Attention (Watch)

The borrower while at origination is not considered a high risk potential, there are characteristics related to the financial condition, and/or a level of concern regarding either or both the primary and secondary source of repayment, that may preclude this from being a pass credit. These credit facilities are considered “pass” credits but exhibit the potential of developing a more serious weakness in their operation going forward. Usually, a credit in this category will be upgraded or downgraded on further analysis within a short period of time.

Grade 7 — Special Mention

These credit facilities have developing weaknesses that deserve extra attention from the loan officer and other management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the Bank’s debt in the future. This grade should not be assigned to loans which bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans where actual, not potential, weaknesses or problems are clearly evident and significant should generally be graded in one of the grade categories below.

(14)

Grade 8 — Substandard

Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that some future loss will be sustained by the Bank if such weaknesses are not corrected. Clear loss potential, however, does not have to exist in any individual assets classified as substandard.

Grade 9 — Doubtful

Loans and other credit extensions graded “9” have all the weaknesses inherent in those graded “8,” with the added characteristic that the severity of the weaknesses make collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is extremely high, but because of certain important and reasonably specific factors, the amount of loss cannot be determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral. Loans in this classification should be placed in nonaccrual status, with collections applied to principal on the Bank’s books.

Grade 10 — Loss

Loans in this classification are considered uncollectible and cannot be justified as a viable asset of the Bank. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2011 and December 31, 2010:

Loan Portfolio Quality Indicators

At March 31, 2011

	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans		Commercial Loans and Leases		Municipal Loans		Consumer Loans		Total
Rating:
Pass (Grades 1-5)	$	78,402	$	155,009	$	18,332	$	22,161	$	3,075	$	3,613	$	280,592
Watch (Grade 6)		6,752		970		3,880		1,300		—		—		12,902
Special Mention (Grade 7)		5,378		499		55		36		—		—		5,968
Substandard (Grade 8)		4,740		1,235		240		487		—		—		6,702
Doubtful (Grade 9)		1,544		4,230		4,199		552		—		—		10,525
Loss (Grade 10)		—		—		—		—		—		—		—
Total	$	96,816	$	161,943	$	26,706	$	24,536	$	3,075	$	3,613	$	316,689

Loan Portfolio Quality Indicators

At December 31, 2010

	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans		Commercial Loans and Leases		Municipal Loans		Consumer Loans		Total
Rating:
Pass (Grades 1-5)	$	76,303	$	157,801	$	18,383	$	21,277	$	2,718	$	3,929	$	280,411
Watch (Grade 6)		6,501		1,257		2,685		513		—		—		10,956
Special Mention (Grade 7)		5,420		216		55		43		—		—		5,734
Substandard (Grade 8)		6,168		1,630		1,510		—		—		—		9,308
Doubtful (Grade 9)		203		6,258		4,184		527		—		14		11,186
Loss (Grade 10)		—		—		—		—		—		—		—
Total	$	94,595	$	167,162	$	26,817	$	22,360	$	2,718	$	3,943	$	317,595

(15)

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2011 and December 31, 2010:

Loan Portfolio Aging Analysis

At March 31, 2011

	30-59 Days Past Due (A)		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 days & Accruing
Real estate loans:
Commercial	$	—	$	—	$	1,341	$	1,341	$	95,475	$	96,816	$	—
Residential		685		422		4,784		5,891		156,052		161,943		465
Construction		1,647		—		2,552		4,199		22,507		26,706		—
Commercial loans and leases		124		25		527		676		23,860		24,536		—
Municipal loans		—		—		—		—		3,075		3,075		—
Consumer loans		52		—		—		52		3,561		3,613		—
Total	$	2,508	$	447	$	9,204	$	12,159	$	304,530	$	316,689	$	465

(A) Includes $1,647,000 in loans classified as nonaccrual that are less than 30 days past due, which are construction loans.

Loan Portfolio Aging Analysis

At December 31, 2010

	30-59 Days Past Due (A)		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 days & Accruing
Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	94,595	$	94,595	$	—
Residential		2,069		538		5,221		7,828		159,334		167,162		60
Construction		4,909		—		—		4,909		21,908		26,817		—
Commercial loans and leases		—		203		527		730		21,630		22,360		—
Municipal loans		—		—		—		—		2,718		2,718		—
Consumer loans		191		11		14		216		3,727		3,943		—
Total	$	7,169	$	752	$	5,762	$	13,683	$	303,912	$	317,595	$	60

(A) Includes $2,978,000 in loans classified as nonaccrual that are less than 30 days past due, of which $1,097,000 are residential real estate loans and $1,881,000 are construction loans.

(16)

Impaired Loans: A loan is designated as impaired when, based on current information or events, it is probable that the Bank will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with insignificant delays not exceeding 90 days outstanding are not considered impaired. Certain non-accrual and substantially delinquent loans may be considered to be impaired. Generally, loans are placed on non-accrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and non-accrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.

When interest accrual is discontinued, all unpaid accrued interest is reversed when considered uncollectible. When a loan is in a non-accrual status, all cash payments of interest are applied to loan principal. Should the loan be reinstated to accrual status, all cash payments of interest received while in non-accrual status will be taken into income over the remaining life of the loan using the level yield accounting method.

The following table presents impaired loans for the quarter ended March 31, 2011:

Impaired Loans

At March 31, 2011

	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans (1)		Interest Income Recognized (2)
Loans without a specific valuation allowance:
Real estate loans:
Commercial	$	—	$	—	$	N/A	$	—	$	—
Residential		—		—		N/A		—		—
Construction		—		—		N/A		—		—
Commercial loans and leases		—		—		N/A		—		—
Municipal loans		—		—		N/A		—		—
Consumer loans		—		—		N/A		—		—
Total		—		—		N/A		—		—

Loans with a specific valuation allowance:
Real estate loans:
Commercial	$	6,081	$	6,081	$	556	$	6,184	$	2
Residential		5,817		5,820		845		6,596		42
Construction		4,474		4,534		595		5,109		14
Commercial loans and leases		1,014		1,014		97		1,035		—
Municipal loans		—		—		—		—		—
Consumer loans		60		60		8		51		—
Total	$	17,446	$	17,509	$	2,101	$	18,975	$	58

All Impaired Loans	$	17,446	$	17,509	$	2,101	$	18,975	$	58

(1)	Includes all loans that were classified as impaired at any time during the quarter, not just impaired loans at March 31, 2011, and their average balance for only the time in the quarter during which they were classified as impaired.

(2)	Interest recorded in income only during the time in the quarter the loans were classified as impaired, for all loans that were classified as impaired at any time during the quarter ended March 31, 2011.

(17)

Cash basis interest on impaired loans included above was $91,000 for the quarter ended March 31, 2011.

The following table presents impaired loans for the year ended December 31, 2010:

Impaired Loans

At December 31, 2010

	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans (1)		Interest Income Recognized (2)
Loans without a specific valuation allowance:
Real estate loans:
Commercial	$	—	$	—	$	N/A	$	—	$	—
Residential		60		60		N/A		78		—
Construction		—		—		N/A		—		—
Commercial loans and leases		—		—		N/A		—		—
Municipal loans		—		—		N/A		—		—
Consumer loans		—		—		N/A		—		—
Total	$	60	$	60		N/A	$	78		—

Loans with a specific valuation allowance:
Real estate loans:
Commercial	$	6,288	$	6,288	$	406	$	4,835	$	333
Residential		7,544		7,544		876		6,911		190
Construction		5,694		5,694		797		7,739		285
Commercial loans and leases		1,055		1,055		97		783		30
Municipal loans		—		—		—		—		—
Consumer loans		42		42		8		49		—
Total	$	20,623	$	20,623	$	2,184	$	20,317	$	838

All Impaired Loans	$	20,683	$	20,683	$	2,184	$	20,395	$	838

(1) Includes all loans that were classified as impaired at any time during 2010, not just impaired loans at December 31, 2010, and their average balance for only the period during which they were classified as impaired.

(2) Interest recorded in income during the period the loans were classified as impaired, for all loans that were classified as impaired at any time during 2010.

Cash basis interest on impaired loans included above was $797,000 for the year ended December 31, 2010.

(18)

Non-Accrual Loans: Any loan which becomes 90 days delinquent, or has the full collection of principal and interest in doubt, or a portion of principal has been charged off; will immediately be placed on non-accrual status. The loan does not have to be placed on non-accrual if the charge-off is part of a Chapter 13 reaffirmation. At the time a loan is placed on non-accrual, all accrued but unpaid interest will be reversed from interest income. Placing the loan on non-accrual does not relieve the borrower of the obligation to repay interest.

When a loan is in a non-accrual status, all cash payments of interest are applied to loan principal.

A loan placed on non-accrual may be restored to accrual status when all delinquent principal and interest has been brought current, and the Bank expects full payment of the remaining contractual principal and interest including any previous charge-offs. Should the loan be reinstated to accrual status, all cash payments of interest received while in non-accrual status will be taken into income over the remaining life of the loan using the level yield accounting method.

The following table presents the Company’s non-accrual loans at March 31, 2011 and December 31, 2010:

Loans Accounted for on a Non-Accrual Basis

	At March 31,		At December 31,
	2011		2010
Real estate loans:
Commercial	$	1,341	$	—
Residential		4,328		6,258
Construction		4,200		4,184
Commercial loans and leases		552		731
Municipal loans		—		—
Consumer loans		—		14
Total	$	10,421	$	11,187

Troubled debt restructurings totaled $8,825,000 and $8,393,000 at March 31, 2011 and December 31, 2010, respectively. Total no-accrual loans at March 31, 2011 and December 31, 2010 included $1,124,000 and $2,245,000 of troubled debt restructurings, respectively.

NOTE F— CURRENT AND FUTURE ACCOUNTING MATTERS

§	Financial Accounting Standards Board (FASB)

ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. In July 2010, the Financial Accounting Standards board (“FASB”) issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires that more information be disclosed about the credit quality of a company’s loans and the allowance for loan losses held against those loans. A company is required to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures. Existing disclosures to be presented on a disaggregated basis include a roll-forward of the allowance for loan losses, the related recorded investment in such loans, the nonaccrual status of loans, and impaired loans. Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class. For public companies, ASU 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The Company adopted the applicable required additional disclosures effective December 31, 2010, and adoption of these additional disclosures did not have a material effect on its financial position or results of operations.

(19)

ASU No. 211-02; In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02 “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU 2011-02 clarifies whether loan modifications constitute troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 is effective for the first interim and annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We are assessing the impact of ASU 2011-02 on our financial condition, results of operations, and disclosures.

NOTE G -– RETIREMENT PLAN

The Company entered into separate agreements with certain officers and directors that provide retirement benefits. The Company is recording an expense equal to the projected present value of the payment due at the full eligibility date. The liability for the plan at March 31, 2011 and December 31, 2010 was $1,897,000 and $1,879,000, respectively. The expense for the plan was $49,000 and $46,000 for the three-month periods ended March 31, 2011 and March 31, 2010, respectively.

NOTE H – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

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

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

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

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

Available-for-sale Securities

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

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

The Company currently holds no securities valued in Level 3.

(20)

The following table presents the fair value measurements of assets recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010 (dollars in thousands):

			Fair Value Measurements Using
Available-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 March 31, 2011:
Ginnie Mae and GSE mortgage-backed pass-through securities	$	23,883	$	—	$	23,883	$	—
Ginnie Mae collateralized mortgage obligations		5,000		—		5,000		—
Municipal securities		2,212		—		2,212		—
Mutual fund		1,674		1,674		—		—
	$	32,769	$	1,674	$	31,095	$	—

At December 31, 2010:
Ginnie Mae and GSE mortgage-backed pass-through securities	$	29,436	$	—	$	29,436	$	—
Ginnie Mae collateralized mortgage obligations		5,341		—		5,341
Municipal securities		2,164		—		2,164		—
Mutual fund		1,667		1,667		—		—
	$	38,608	$	1,667	$	36,941	$	—

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

Impaired Loans (Collateral Dependent)

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

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

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

Other Real Estate Owned

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

The following table presents the fair value measurements of assets recognized in the accompanying balance sheet measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010. The totals represent only those impaired loans and other real estate owned as of that date that experienced a change in fair value since the beginning of the year (dollars in thousands):

(21)

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At March 31, 2011:
Impaired loans	$	5,482	$	—	$	—	$	5,482
Other real estate owned		167		—		—		167

At December 31, 2010:
Impaired loans	$	17,388	$	—	$	—	$	17,388
Other real estate owned		4,028		—		—		4,028

Fair Value of Financial Instruments

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

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

	March 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Cash and cash equivalents	$	31,262	$	31,262	$	11,747	$	11,747
Investment securities available for sale		32,769		32,769		38,608		38,608
Loans held for sale		532		532		91		91
Loans		309,035		314,928		312,715		318,753
Stock in FHLB		5,101		5,101		5,101		5,101
Mortgage servicing rights		656		656		689		689
Interest and dividends receivable		1,021		1,021		1,065		1,065

Liabilities
Deposits		354,965		357,122		337,978		340,430
Borrowings		45,810		44,203		51,810		50,061
Drafts payable		1,018		1,018		1,594		1,594
Interest and dividends payable		696		696		143		143

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

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

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

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

Mortgage Servicing Rights: The initial amount recorded is an estimate of the fair value of the streams of net servicing revenues that will occur over the estimated life of the servicing arrangement, and the initial amount recorded is then amortized over the estimated life. The Bank engages a third party consulting firm to perform a valuation analysis of the fair value of the mortgage servicing rights at least annually.

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

(22)

Deposits: The fair values of non-maturity demand, savings, and money market 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 I – SUBSEQUENT EVENTS

Ameriana Insurance Agency, a wholly-owned subsidiary of Ameriana Bank, entered into an agreement in April 2011 to purchase a book of business of another insurance agency located in its market area that had 2010 commission income totaling about $135,000. The transaction is expected to close near mid-year 2011.

Ameriana Bank added an employee stock ownership plan component (KSOP) to its 401(k) Plan (“Plan”) effective April 1, 2011. Employees of Ameriana Bank and any affiliated companies are eligible to participate in the Plan. The matching contributions made to the “Plan” by Ameriana Bank and affiliated companies will be used to purchase shares of Ameriana Bancorp stock.

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, 2010, and our other reports on Forms 10-Q and 8-K and other publicly available information.

FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on Ameriana Bancorp’s (the “Company”) current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are generally preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, the outcome of litigation, fluctuations in interest rates, demand for loans and deposits in the Company’s market area, changes in the quality or composition of our loan portfolio, changes in accounting principles, laws and regulations, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Additional factors that may affect our results are discussed in the Form 10-K under Part I, Item 1A- “Risk Factors,” in 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 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.

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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 has two wholly-owned subsidiaries, Ameriana Insurance Agency (“AIA”) and Ameriana Financial Services, Inc. (“AFS”). AIA provides insurance sales from offices in New Castle, Greenfield and Avon, Indiana. AFS operates a brokerage facility in conjunction with LPL Financial that provides non-bank investment product alternatives to its customers and the general public.

What We Do

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

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

Executive Overview of the First Quarter of 2011

The Company recorded net income of $121,000, or $0.04 per share, for the three-month period ended March 31, 2011, which represented its seventh consecutive profitable quarter.

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

All three of the Bank’s capital ratios at March 31, 2011 were considerably above the levels required under regulatory guidelines to be considered “well capitalized,” and exceeded the higher standards as established in the Board resolution addressed below.

Net interest income for the first quarter of 2011 was $146,000, or 4.4%, higher than the same quarter in 2010, despite a $10.4 million decrease in average interest-earning assets, that resulted from balance sheet management strategies that were designed to increase the Bank’s regulatory capital ratios.

Net interest margin of 3.76% on a fully tax-equivalent basis for the first quarter of 2011 represented a two basis points decrease from the fourth quarter of 2010, but was 25 basis points higher than the same period of 2010. The improvement over the same quarter a year earlier resulted primarily from a significant reduction in the Bank’s average cost of deposits.

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Due to a continuing elevated level of non-performing loans, the Bank recorded a $360,000 provision for loan losses in the first quarter of 2011, compared to $555,000 in the fourth quarter of 2010, and $360,000 in the year earlier quarter.

Other income of $1.4 million for the first quarter of 2011 represented a $37,000, or 2.7%, increase from the total for the same quarter of 2010, and resulted primarily from a $112,000 increase in other real estate owned income, reduced by a decrease of $52,000 in gains on sales of available-for-sale investment securities, and a $34,000 drop in gains from mortgage banking sales.

Other expense for the first quarter of 2011 of $4.4 million was $115,000, or 2.7%, higher than the same quarter in 2010, with the most significant change being a $129,000 increase in salaries and employee benefits.

The Company had income before income taxes of $57,000 for the first quarter of 2011, but recorded an income tax benefit of $64,000 that resulted primarily from a significant amount of tax-exempt income from bank-owned life insurance.

For the first quarter of 2011, total assets increased by $11.5 million, or 2.7%, to $441.2 million from $429.7 million at December 31, 2010:

Interest-bearing demand deposits increased $18.9 million from $8.1 million at December 31, 2010 to $27.0 million at March 31, 2011, of which $26.9 million was invested at the Federal Reserve Bank of Chicago.

A $5.8 million decrease in the investment portfolio during the first quarter of 2011 to $32.8 million resulted primarily from $4.1 million in sales of mortgage-backed securities and $1.5 million in principal payments on mortgage-backed securities.

Net loans receivable of $309.0 million at March 31, 2011 represented a decrease of $3.7 million, or 1.2%, for the first quarter of 2011, due primarily to a $5.2 million reduction in the residential mortgage loan portfolio that was reflective of both a weak housing market and the Bank’s mortgage-banking strategy.

Total non-performing loans of $10.9 million, or 3.5% of total net loans at March 31, 2011, represented a decrease of $361,000 from December 31, 2010.

The allowance for loan losses of $4.4 million at March 31, 2011 was 1.41% of total loans and 40.6% of non-performing loans, compared to ratios of 1.33% and 37.5%, respectively, at December 31, 2010.

Other real estate owned of $9.0 million at March 31, 2011 represented a decrease of $40,000 from December 31, 2010, with one property added and four sales during the quarter.

As of March 31, 2011, the Company did not own Fannie Mae or Freddie Mac preferred stock or private-label mortgage-backed securities. As a matter of policy, the Company has not originated or purchased sub-prime loans.

During the first quarter of 2011, total deposits increased by $17.0 million, or 5.0%, to $355.0 million, as the Bank maintained its strong focus on nurturing existing and attracting new core deposit relationships, while allowing the more rate-sensitive accounts to run off. The deposit growth included $6.2 million in callable brokered certificates of deposit, of which $6.0 million was used to repay a maturing note payable to the Federal Home Loan Bank (“FHLB”).

The repayment of the $6.0 million FHLB note reduced total borrowings to $45.8 million, or 11.2% of the Company’s total liabilities as of March 31, 2011.

Regulatory Action

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

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

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Adopt a written plan to lower classified assets;

Formulate and implement a written profit plan;

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

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

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

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

Strategic Issues

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

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

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

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

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are maintained in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the Notes to the Company’s Consolidated Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations of the Company can be affected by these estimates and assumptions, and such estimates and assumptions are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective or complex. The following are the Company’s critical accounting policies:

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

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

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger, non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors affecting the accuracy of the Company’s analysis. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.

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

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

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

Under U.S. GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. At March 31, 2011 and December 31, 2010, we determined that valuation allowances were not necessary for our federal deferred tax asset, 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. We have a deferred state tax asset that is primarily the result of operating losses sustained since 2003. We started recording a valuation allowance against our current period state income tax benefit in 2005 due to our concern that we may not be able to use more than the tax asset already recorded on the books.

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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 March 31, 2011.

FINANCIAL CONDITION

Total assets of $441.2 million at March 31, 2011 represented an increase of $11.5 million, or 2.7%, from the December 31, 2010 total of $429.7 million, and was due primarily to an increase in cash and cash equivalents resulting mostly from the Bank’s growth in deposit accounts.

Cash and cash equivalents of $31.3 million at March 31, 2011 were up $19.5 million from the December 31, 2010 total of $11.8 million. Of the total at March 31, 2011, $26.9 million was in interest-bearing over-night deposits at the Federal Reserve Bank of Chicago. Cash and cash equivalents represent an immediate source of liquidity to fund loans or meet deposit outflows.

Investment securities available-for-sale decreased by $5.8 million, or 15.1%, to $32.8 million at March 31, 2011 from $38.6 million at December 31, 2010. This decrease resulted primarily from sales of mortgage-backed securities totaling $4.1 million and $1.5 million of principal repayments on mortgage-backed securities. All mortgage-backed securities in the portfolio at March 31, 2011, which totaled $28.9 million, are insured by either the U.S. Government agency Ginnie Mae, or by a U.S. Government sponsored enterprise (“GSE”), Fannie Mae or Freddie Mac.

Net loans receivable decreased by $3.7 million, or 1.2%, to $309.0 million at March 31, 2011 from $312.7 million at December 31, 2010, primarily due to a $5.2 million decrease in the residential mortgage loan portfolio to $161.9 million that was reflective of both the weak housing market and the Bank’s mortgage-banking strategy that involved the Bank selling $1.4 million in new production fixed-rate product in the first quarter of 2011. The residential mortgage loan strategy is reviewed regularly to ensure that it remains consistent with the Bank’s overall balance sheet management objectives. The net growth in the other segments of the loan portfolio was also limited by weak economic conditions.

Premises and equipment of $14.5 million at March 31, 2011 represented a $223,000 decrease from $14.7 million at December 31, 2010. The net decrease was a result of $254,000 of depreciation for the three months ended March 31, 2011 exceeding net capital expenditures of $31,000 for the period.

Goodwill of $649,000 at March 31, 2011 was unchanged from December 31, 2010. $457,000 of the goodwill relates to deposits associated with a banking center acquired on February 27, 1998 and $192,000 is the result of two separate acquisitions of insurance businesses. The Bank’s impairment tests reflected that there was no impairment as of March 31, 2011.

We have investments in life insurance on employees and directors, with a balance or cash surrender value of $25.6 million and $25.4 million at March 31, 2011 and December 31, 2010, respectively. The non-taxable increase in cash surrender value of this life insurance was $210,000 for the first quarter of 2011, compared to $218,000 for the same period a year earlier.

Other real estate owned of $9.0 million at March 31, 2011, represented a decrease of $40,000 from December 31, 2010, with one single-family property added and four sales during the three month period involving three single-family properties and one commercial property.

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Other assets were $12.7 million at March 31, 2011, compared to $11.5 million at December 31, 2010. The net increase of $1.2 million resulted primarily from the addition of a $1.8 million receivable related to a mortgage-backed security sale.

Total deposits of $355.0 million at March 31, 2011 represented an increase of $17.0 million, or 5.0%, from $338.0 million at December 31, 2010, and included an additional $6.2 million in callable brokered certificates of deposit, of which $6.0 million was used to pay off a maturing note payable to the Federal Home Loan Bank. The Bank maintained its strong focus on nurturing existing and attracting new core deposit relationships, while allowing the more rate-sensitive accounts to run off. During the first three months of 2011, checking, money market and savings balances increased $11.7 million, while non-brokered certificate of deposit balances decreased $882,000. The Bank has concentrated on strategies designed to grow total balances in multi-product deposit relationships. Our markets remain very competitive for deposit products and the Bank continues to utilize pricing strategies designed to produce growth with an acceptable marginal cost for both existing and new deposits.

Borrowings declined by $6.0 million during the first three months of 2011 to $45.8 million, as the Bank repaid a Federal Home Loan Bank note with an interest rate of 3.38%, using the proceeds from new callable brokered certificates of deposit with a weighted-average all-in cost of 1.30% and weighted average term of 29 months. Wholesale funding options and strategies are continuously analyzed to ensure that we retain sufficient sources of credit to fund all of the Bank’s needs, and to control funding costs by using this alternative to organic deposit account funding when appropriate.

Drafts payable of $1.0 million at March 31, 2011 were down $576,000 from $1.6 million at December 31, 2010. 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 $33.2 million at March 31, 2011 was $61,000 lower than the total at December 31, 2010. The decrease resulted primarily from an unrealized loss net of income tax benefit of $154,000 from the Bank’s available-for-sale investment securities portfolio, and $30,000 in dividends declared during the three month period, partly offset by net income of $121,000. The Company and the Bank’s regulatory capital ratios were all considerably above the levels required under regulatory guidelines to be considered “well capitalized,” and exceeded the higher standards as established in the July 26, 2010 Board resolution.

RESULTS OF OPERATIONS

First Quarter of 2011 compared to the First Quarter of 2010

The Company recorded net income of $121,000, or $0.04 per diluted share, for the first quarter of 2011, compared to net income of $80,000, or $0.03 per diluted share, for the first quarter of 2010.

Credit costs associated with a high level of nonperforming assets that resulted from an extended period of weak economic conditions continued to adversely affect earnings during the first quarter of 2011, as it did throughout 2010. The earnings growth for the first quarter of 2011 compared to the same quarter a year earlier was related primarily to an improvement in net interest income that was achieved mostly through a reduction in the Bank’s cost of funds.

Net Interest Income

The Company’s net interest income on a fully tax-equivalent basis increased by $146,000 or 4.5%, to $3.4 million for the first quarter of 2011, compared to $3.3 million for the same period of 2009. The growth in net interest income was accomplished through an increase in interest rate spread, as average interest-earning assets of $372.8 million for the quarter ended March 31, 2011 were down $10.4 million, or 2.7%, from the total for the same quarter a year earlier. The reduction in average interest-earning assets resulted primarily from the Bank’s balance sheet strategies that were designed to improve its regulatory capital ratios. As a result of the Company’s interest rate spread improvement, that was due primarily to a decrease in the Bank’s cost of funds, net interest margin on a fully tax-equivalent basis increased 25 basis points to 3.76% for the first quarter of 2011 from 3.51% for the first quarter of 2010. The Bank benefited from certain market conditions that allowed it to decrease its cost of funds, primarily through the repricing of deposit accounts in a relatively stable low interest rate environment.

Tax-exempt interest was $51,000 for the first quarter of 2011 compared to $64,000 for the same period of 2010, and resulted from bank-qualified municipal securities and municipal loans. Tax-equivalent adjustments were $23,000 and $29,000 for the first quarter of 2011 and 2010, respectively. The decrease in tax-exempt interest for the first quarter of 2011 compared to the same period of 2010 was due primarily to the Bank’s sales of municipal securities.

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

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

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 March 31,
	2011			2010
Balance at beginning of quarter	$	4,212		$	4,005
Provision for loan losses		360			360
Charge-offs		(175	)		(540	)
Recoveries		19			138
Net charge-offs		(156	)		(402	)
Balance at end of period	$	4,416		$	3,963
Allowance to total loans		1.41	%		1.23	%
Allowance to non-performing loans		40.57	%		42.22	%

We recorded a provision for loan losses of $360,000 in the first quarter of 2011 and 2010. The provision for loan losses for the first quarter of 2011 reflected the continuing pressure of current economic conditions on credit quality, including an elevated level of non-performing loans.

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

	(Dollars in thousands)
	March 31,
	2011			2010

Loans accounted for on a non-accrual basis	$	10,421		$	8,935

Accruing loans contractually past due 90 days or more		465			451

Total of non-accrual and 90 days past due loans (1)	$	10,886		$	9,386
Percentage of total net loans		3.52	%		2.94	%

Other non-performing assets (2)	$	9,027		$	6,622
Total of non-performing assets	$	19,913		$	16,008
Percentage of total assets		4.51	%		3.63	%

Troubled debt restructurings in nonaccrual total (1)	$	1,124		$	—
Total troubled debt restructurings	$	8,825		$	714

(1)	Total nonaccrual loans at March 31, 2011 included $1.1 million of troubled debt restructurings.

(2)	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.

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The allowance for loan losses of $4.4 million at March 31, 2011 was $453,000, or 11.4%, higher than a year earlier, but the allowance for loan losses to non-performing loans ratio decreased from 42.22% at March 31, 2010 to 40.57% at March 31, 2011 primarily due to a higher total of non-performing loans. Non-performing loans of $10.9 million at March 31, 2011 represented a $1.5 million increase from the total of $9.4 million at March 31, 2010. It is management’s opinion that the allowance for loan losses at March 31, 2011 is adequate based on measurements of the credit risk in the entire portfolio as of that date.

At March 31, 2011, the Company had $8.8 million in loans categorized as a troubled debt restructuring, with one loan for $1.1 million also included in the table above in the total for loans accounted for on a non-accrual basis. The total of $8.8 million included a $4.5 million loan on a hotel in northern Indiana, three land development credits totaling $1.5 million, a $1.1 million loan on a residential condominium project, and loans on fourteen single-family residential properties totaling $1.6 million.

Other Income

The Company recorded other income of $1.4 million for the first quarter of 2011, an increase of $37,000 over the total for the same period a year earlier that resulted primarily from the net of the following changes:

A $112,000 increase in other real estate owned rental income from $100,000 for the first quarter of 2010 to $212,000 that was primarily related to the mid-2010 acquisition of a strip commercial center;

Net gains on sales of available-for-sale securities decreased $52,000 from $104,000 for the first quarter of 2010 from four sales totaling $3.6 million to $52,000 for the first quarter of 2011 from two sales totaling $4.1 million; and

A $34,000 decrease in gains on sales of loans and servicing rights to $32,000 for the first quarter of 2011 from $66,000 for the same quarter a year earlier, that related primarily to weak market conditions with minimal refinancing activity in the most recently completed quarter.

Other Expense

Total other expense of $4.4 million for the first quarter of 2011 was $115,000, or 2.7%, higher than the first quarter of 2010, with the following major differences:

The $2.4 million total cost for salaries and employee benefits for the first quarter of 2011 was $129,000, or 5.7%, higher than the year earlier quarter, due primarily to annual salary increases, the added cost of filling vacant positions, an increase in retail incentive awards related to deposit goals, higher unemployment tax, and a $39,000 increase in funding costs for the frozen multi-employer defined benefit retirement plan, partly offset by a $20,000 decrease in employee health insurance expense. In light of the impact of poor economic conditions on the earnings of the Company, senior management agreed to forego salary increases for 2010 and 2011.

The $39,000, or 9.6% increase in net occupancy expense to $447,000 that was related primarily to a $35,000 refund of prior years’ real estate taxes that was received in the first quarter of 2010 as a result of successfully contesting the tax assessment on one of the Bank’s offices.

A decrease of $58,000 in legal and professional fees was due primarily to a lower expense recorded for legal fees in the first quarter of 2011, and a $25,000 recruiting fee that was incurred in the first quarter of 2010, while no recruiting fees were incurred in the first quarter of 2011.

Income Tax Expense

The Company had income before income taxes of $57,000, but recorded an income tax benefit of $64,000 for the first quarter of 2011 due to a significant amount of tax-exempt income, primarily from bank-owned life insurance. For the same quarter of 2010, the Company had a loss before income taxes of $11,000 and recorded a tax benefit of $91,000 that also resulted primarily from tax-exempt BOLI income.

We have a deferred state tax asset that is primarily the result of operating losses sustained since 2003. We started recording a valuation allowance against our current period state income tax benefit in 2005 due to our concern that we may not be able to use more than the tax asset already recorded on the books without modifying the use of AIMI, our investment subsidiary, which was liquidated effective December 31, 2009. Operating income from AIMI was not subject to state income taxes under state law, and is the primary reason for the tax asset.

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

In addition to the liquidation of AIMI, the Bank has initiated several strategies designed to expedite the use of both the deferred state tax asset and the deferred federal tax asset. Through sales of tax-exempt municipal securities, that segment of the investment portfolio has been reduced by $32.3 million, or 93.6%, from $34.5 million at December 31, 2006 to $2.2 million at March 31, 2011. The proceeds from these sales have been reinvested in taxable financial instruments. The Bank periodically evaluates a sale/leaseback transaction that could result in a taxable gain on its office properties, and also allow the Bank to convert nonearning assets to assets that will produce taxable income. Additionally, the Bank is exploring options related to reducing its current investment in tax-exempt bank owned life insurance policies that involve the reinvestment of the proceeds in taxable financial instruments with a similar or greater risk-adjusted after-tax yield. Sales of banking centers not important to long-term growth objectives that would result in taxable gains and reduced operating expenses could be considered by the Bank.

OFF-BALANCE SHEET ARRANGEMENTS

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

At March 31, 2011, we had $5.8 million in loan commitments outstanding and $49.1 million of additional commitments for line of credit receivables. Certificates of deposit due within one year of March 31, 2011, including $5.3 million of brokered deposits, totaled $96.3 million, or 27.1% of total deposits. If these maturing certificates of deposit do not remain with us, other sources of funds must be used, including other certificates of deposit, brokered CDs, and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than currently paid on the certificates of deposit due on or before March 31, 2012. However, based on past experiences we believe that a significant portion of the certificates of deposit will remain. We have the ability to attract and retain deposits by adjusting the interest rates offered. We held $16.5 million of brokered CDs at March 31, 2011, and $10.4 million at December 31, 2010.

Our primary investing activity, the origination and purchase of loans, is offset by the sale of loans and principal repayments. In the first three months of 2011, net loans receivable decreased by $3.7 million, or 1.2%.

Financing activities consist primarily of activity in deposit accounts, including brokered certificates of deposit, 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 $17.0 million, or 5.0%, and total FHLB advances were reduced by $6.0 million, or 21.4%, during the first three months of 2011.

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The Bank is subject to various regulatory capital requirements set by the FDIC, including a risk-based capital measure. The Company is also subject to similar capital requirements set by the Federal Reserve Board. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. In addition, as part of a resolution adopted by the Board of Directors of the Bank on July 26, 2010, the Bank adopted a capital plan to increase its Tier 1 Leverage Ratio to 8.50% by June 30, 2010 and maintain a Total Risk-Based Capital Ratio of 12.00%, both of which the Bank has accomplished. See “Regulatory Action.”

There are five capital categories defined in the regulations, ranging from well capitalized to critically under-capitalized. Classification in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank’s operations. At March 31, 2011 and December 31, 2010, the Bank was categorized as “well capitalized” and met all subject capital adequacy requirements. There are no conditions or events since March 31, 2011, that management believes have changed this classification.

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

March 31, 2011
	Actual Capital					Required For Adequate Capital					To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital ratio (risk based capital to risk-weighted assets)	$	41,349		13.08	%	$	25,294		8.00	%	$	31,626		10.00	%
Tier 1 risk-based capital ratio (tier 1 capital to risk-weighted assets)	$	37,375		11.82	%	$	12,647		4.00	%	$	18,975		6.00	%
Tier 1 leverage ratio (tier 1 capital to adjusted average total assets)	$	37,375		8.74	%	$	12,835		3.00	%	$	21,003		5.00	%

December 31, 2010
	Actual Capital					Required For Adequate Capital					To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital ratio (risk based capital to risk-weighted assets)	$	41,468		13.11	%	$	25,300		8.00	%	$	31,626		10.00	%
Tier 1 risk-based capital ratio (tier 1 capital to risk-weighted assets)	$	37,493		11.86	%	$	12,650		4.00	%	$	18,975		6.00	%
Tier 1 leverage ratio (tier 1 capital to adjusted average total assets)	$	37,493		8.93	%	$	12,602		3.00	%	$	21,003		5.00	%

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

March 31, 2011
	Actual Capital					Required For Adequate Capital					To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital ratio (risk based capital to risk-weighted assets)	$	41,724		13.08	%	$	25,516		8.00	%	$	31,895		10.00	%
Tier 1 risk-based capital ratio (tier 1 capital to risk-weighted assets)	$	37,750		11.84	%	$	12,758		4.00	%	$	19,137		6.00	%
Tier 1 leverage ratio (tier 1 capital to adjusted average total assets)	$	37,750		8.82	%	$	12,843		3.00	%	$	21,407		5.00	%

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December 31, 2010
	Actual Capital					Required For Adequate Capital					To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital ratio (risk based capital to risk-weighted assets)	$	41,762		13.10	%	$	25,513		8.00	%	$	31,891		10.00	%
Tier 1 risk-based capital ratio (tier 1 capital to risk-weighted assets)	$	37,787		11.85	%	$	12,756		4.00	%	$	19,135		6.00	%
Tier 1 leverage ratio (tier 1 capital to adjusted average total assets)	$	37,787		8.99	%	$	12,611		3.00	%	$	21,019		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 4 – CONTROLS AND PROCEDURES

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

There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

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

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, 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.

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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 March 31, 2011, and at March 31, 2011 had no approved repurchase plans or programs.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4 – (Removed and Reserved)

ITEM 5 – OTHER INFORMATION

Not Applicable

ITEM 6 - EXHIBITS

No.		Description

31		Rule 13a-14(a)/15d-14(a) Certifications

32		Section 1350 Certifications

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERIANA BANCORP

DATE: May 13, 2011	/s/ Jerome J. Gassen
	Jerome J. Gassen
	President and Chief Executive Officer
	(Duly Authorized Representative)

DATE: May 13, 2011	/s/ John J. Letter
	John J. Letter
	Senior Vice President-Treasurer and
	Chief Financial Officer
	(Principal Financial Officer
	and Accounting Officer)

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