SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934

For the Quarterly Period Ended: September 30, 2004

Commission File Number: 0-18392

Ameriana Bancorp

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO [  ]

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

As of October 30, 2004, there were issued and outstanding 3,149,988 shares of the registrant’s common stock.

AMERIANA BANCORP AND SUBSIDIARIES

CONTENTS

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PART I — FINANCIAL INFORMATION

AMERIANA BANCORP AND SUBSIDIARY

See accompanying notes to consolidated condensed financial statements.

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AMERIANA BANCORP AND SUBSIDIARY

See accompanying notes to consolidated condensed financial statements.

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AMERIANA BANCORP AND SUBSIDIARY

See accompanying notes to consolidated condensed financial statements.

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AMERIANA BANCORP AND SUBSIDIARY

See accompanying notes to consolidated condensed financial statements.

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AMERIANA BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollar amounts in thousands, except share data)

NOTE A — BASIS OF PRESENTATION

     Ameriana Bancorp (“the Company”) is a bank holding company. Through its wholly owned subsidiary, Ameriana Bank and Trust (“the Bank”), the Company offers an extensive line of banking services and provides a range of investments and securities products through branches in the central Indiana area. Ameriana Bank and Trust also offers trust and investment management services. The Bank has three direct wholly owned subsidiaries, Ameriana Insurance Agency (“AIA”), Ameriana Financial Services, Inc. (“AFS”) and Ameriana Investment Management, Inc. (“AIMI”). AIA provides insurance sales from offices in New Castle, Greenfield and Avon, Indiana. AFS offers insurance products through its ownership of an interest in Family Financial Holdings, Incorporated, Columbus, Indiana, which offers a full line of credit, related insurance products. AFS also operates a brokerage facility in conjunction with Linsco/Private Ledger. AFS has a 20.9% ownership interest in Indiana Title Insurance Company, LLC through which it offers title insurance. AIMI manages the Bank’s investment portfolio. The Company maintains a website at www.ameriana.com.

     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 for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (comprised only of normal recurring adjustments and accruals) necessary to present fairly the Company’s financial position and results of operations and cash flows. The results of operations for the period are not necessarily indicative of the results to be expected in the full year. A summary of the Company’s significant accounting policies is set forth in Note 1 of Notes to Consolidated Financial Statements in the Company’s annual report on Form 10-K for the year ended December 31, 2003.

     The consolidated condensed balance sheet of the Company as of December 31, 2003 has been derived from the audited consolidated balance sheet of the Company as of that date.

NOTE B — SHAREHOLDERS’ EQUITY

     On August 30, 2004, the Board of Directors declared a quarterly cash dividend of $.16 per share. This dividend, totaling $504,000, was accrued for payment to shareholders of record on September 17, 2004, and was paid on October 1, 2004. Payment was made for 3,149,888 shares, compared to 3,148,988 the previous quarter. Stock options totaling 900 shares were exercised during the third quarter of 2004.

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NOTE C — EARNINGS PER SHARE

Earnings per share were computed as follows:

At September 30, 2004, options to purchase 34,100 shares were excluded from the computation of diluted earnings per share because the options’ exercise price was greater than or equal to the average market price of common shares.

NOTE D — STOCK BASED COMPENSATION

The Company has stock-based employee compensation plans, which are accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

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AMERIANA BANCORP AND SUBSIDIARIES

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     This Quarterly Report on Form 10-Q (“Form 10-Q”) may contain statements, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the Company primarily with respect to future events and future financial performance. Readers of this Form 10-Q are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate values and the real estate market or regulatory changes.

     As with most bank holding companies, the Company’s largest source of revenue has historically been net interest income, which is determined by (i) the difference between rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest rate spread”), and (ii) the relative amounts of interest–earning assets and interest-bearing liabilities. Levels of other income and operating expenses also significantly affect net income.

Significant Events in 2003

     Sale of Cincinnati Branches: On April 7, 2003, the Company announced that it had agreed to sell its two Cincinnati-area branches to Peoples Community Bancorp, Inc. (NASDAQ/NM: PCBI)(“PCBI”) of West Chester, Ohio. The two branches are located in Deer Park and Landen, Ohio. On September 30, 2003, the Company announced the completion of the sale of the two branches to PCBI. In connection with the sale, the Company recorded an after-tax gain of approximately $2,930,000 or $0.93 per diluted share in the third quarter 2003. The transaction included the Company’s real property related to the Deer Park branch and its leasehold on the premises for the Landen branch. Additionally, the Company conveyed $28,847,000 in loans, which consisted of most of the consumer and commercial loans at those branches as part of the transaction, as well as the branches’ savings deposits, but retained and will continue to service certain single family residential mortgages originated in those locations.

     Company Writes Off Troubled Lease Portfolio in 2003: On September 30, 2003 the Company charged-off the two troubled equipment leases (“lease pools”) originated by Commercial Money Center (“CMC”), a now bankrupt company. The Company recorded an after-tax loss of approximately $2,784,000 or $0.88 per diluted share. Prior to September 30, 2003, the Company had established reserves against these lease pools equal to approximately 58% of the $10,900,000 that remained outstanding. See “Recent Developments.”

Recent Developments

     Ameriana announced on November 12, 2004, that it has reached a tentative settlement in its litigation against the American Motorist Insurance Company (“AMICO”). That litigation pertains to the stream of lease payments Ameriana purchased from the now-bankrupt Commercial Money Center and the surety bonds issued by AMICO and RLI Insurance Co. to guarantee the income stream of those leases.

     Under the terms of the agreement, AMICO will pay $2.3 million into an escrow account in full settlement of the case. These funds will be held in escrow for a period of 90 days. If AMICO remains financially viable, the escrowed funds will be released to Ameriana at the end of that 90-day period and Ameriana will dismiss its case against AMICO.

     As previously reported, during 2001 Ameriana purchased two pools of equipment lease payment streams originated by Commercial Money Center (“CMC”) for approximately $12 million. Each lease in the pools was backed by a surety bond issued by either AMICO or RLI, guaranteeing payment of all amounts due under the leases in the event of default by the lessee. CMC subsequently declared bankruptcy, leaving an unpaid balance on the lease pools totaling $10.9 million, approximately 50% of which was guaranteed by AMICO. Both insurers later claimed they were defrauded by CMC and denied responsibility for the unpaid balance. Ameriana and other financial institutions participating in the lease pools thereupon initiated litigation against the sureties, and between December 31, 2002, and September 30, 2003, Ameriana first reserved and then wrote-off the entire unpaid balance.

     The Company’s litigation against the other surety bond issuer, RLI, continues. It is unlikely that the litigation will be resolved in 2004.

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Critical Accounting Policies

     The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the Notes to the Company’s Consolidated Financial Statements for the year ended December 31, 2003. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective or complex.

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

     The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for 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 judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger, non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of imprecision risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.

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

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     Goodwill and Other Intangibles: The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by Statement of Financial Accounting Standards (“SFAS”) No. 141. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded, and subsequent impairment analysis, requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.

     The Cincinnati branches sold had approximately $890,000 recorded as goodwill and core deposit intangibles. The $890,000 was written-off and netted against the gain on the sale of the branches in the third quarter of 2003.

FINANCIAL CONDITION

     Assets totaled $434,046,000 at September 30, 2004, an increase of $31,593,000, or 7.9% from $402,453,000 at December 31, 2003. The increase was primarily due to a planned strategy to leverage the institution’s assets to improve earnings and return on equity. This was accomplished primarily through new Federal Home Loan Bank advances of $30.0 million in the first nine months of 2004.

     Cash and cash equivalents totaled $19,024,000 at September 30, 2004, an increase of $4,475,000 from $14,549,000 at December 31, 2003.

     Investment securities totaled $172,078,000 at September 30, 2004, an increase of $34,290,000 or 24.9% from $137,788,000 at December 31, 2003. The increase was funded with additional Federal Home Loan Bank advances and excess funds from a decline in the loan portfolio. The Company transferred the majority of its investment securities from available for sale to held to maturity in the first six months of 2004. The securities were transferred at fair value at the date of the transfer. The unrealized holding gain or loss at the date of the transfer will continue to be reported in “accumulated other comprehensive income (loss)”, a separate component of shareholders’ equity, but will be amortized over the remaining life of the security. Investments classified as available for sale are adjusted to fair value each month-end with the resulting after-tax unrealized gains or loss included in “accumulated other comprehensive income (loss)” included in equity. Investments classified as held to maturity are not adjusted to fair value each month.

     Loans receivable totaled $201,251,000 at September 30, 2004, a decline of $6,634,000 or 3.2% from $207,885,000 at December 31, 2003. Most of the decline was in residential mortgage loans. The Company continued to sell new fixed rate mortgages to minimize potential long-term interest rate risk associated with such long-term, low-interest loans.

     The deposit portfolio totaled $335,820,000 at September 30, 2004, a decrease of $9,924,000 or 2.9% from $345,744,000 at December 31, 2003. Non interest-bearing deposits decreased $2,389,000 while interest-bearing deposits declined $7,535,000.

     Advances from Federal Home Loan Bank totaled $50,769,000 at September 30, 2004, an increase of $41,4139,0