Ohio Legacy (OLCB) 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number:  000-31673

OHIO LEGACY CORP

(Exact name of registrant as specified in its charter)

Ohio	34-1903890
(State or other jurisdiction of incorporation or organization)	I.R.S. Employer Identification Number

600 South Main St., North Canton, Ohio  44720

(Address of principal executive offices)

(330) 499-1900

Registrant's telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

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

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

As of November 14, 2011, the latest practicable date, there were 19,714,564 shares of the issuer’s Common Stock, without par value, issued and outstanding.

OHIO LEGACY CORP

FORM 10-Q

AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

THIRD QUARTER REPORT

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis		29
Item 3. Quantitative and Qualitative Disclosures about Market Risk		42
Item 4T. Controls and Procedures		42
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3. Defaults Upon Senior Securities		43
Item 4. Removed and Reserved		43
Item 5. Other Information		43
Item 6. Exhibits		44
SIGNATURES		44

2

OHIO LEGACY CORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

As of September 30, 2011 and December 31, 2010

	September 30,			December 31,
	2011			2010
ASSETS
Cash and due from banks	$	1,106,519		$	1,121,473
Federal funds sold and interest-bearing deposits in financial institutions		50,842,255			31,560,745
Cash and cash equivalents		51,948,774			32,682,218
Certificate of deposit in financial institution		100,000			100,000
Securities available for sale		11,122,400			25,206,895
Securities held to maturity (fair value September 30, 2011 - $0, December 31, 2010 - $2,885,216)		-			2,815,634
Loans held for sale		427,173			636,794
Loans, net of allowance of $2,364,643 and $3,055,766 at September 30, 2011 and December 31, 2010		103,717,760			101,146,194
Federal bank stock		1,518,000			1,557,700
Premises and equipment, net		2,221,750			3,461,455
Assets acquired in settlement of loans		2,379,847			2,351,302
Assets to be disposed of through branch sale		10,096,653			-
Accrued interest receivable and other assets		2,058,974			658,779
Total assets	$	185,591,331		$	170,616,971
Commitments and contingent liabilities		-			-
LIABILITIES
Deposits:
Noninterest-bearing demand	$	16,408,203		$	20,760,836
Interest-bearing demand		4,663,798			9,564,745
Savings		35,520,226			59,285,422
Certificates of deposit, net		31,551,662			53,604,644
Total deposits		88,143,889			143,215,647
Repurchase agreements		5,661,395			4,391,252
Long-term Federal Home Loan Bank advances		-			5,000,000
Capital lease obligations		-			407,593
Liabilities to be disposed of through branch sale		75,403,109			-
Accrued interest payable and other liabilities		622,988			1,131,963
Total liabilities	$	169,831,381		$	154,146,455
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 500,000 shares authorized, none outstanding		-			-
Common stock, no par value;
September 30, 2011 and December 31, 2010: 22,500,000 shared authorized, 19,714,564 shares issued and outstanding		35,756,764			35,603,803
Accumulated deficit		(20,276,592	)		(19,289,011	)
Accumulated other comprehensive income		279,778			155,724
Total shareholders' equity		15,759,950			16,470,516
Total liabilities and shareholders' equity	$	185,591,331		$	170,616,971

See notes to the consolidated financial statements.

3

OHIO LEGACY CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Three Months Ended						For the Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
Interest and dividend income:
Loans, including fees		$	1,409,382		$	1,381,852		$	4,154,898		$	4,374,049
Securities, taxable			62,873			217,890			323,491			727,040
Securities, tax-exempt			27,177			28,534			81,612			85,713
Interest-bearing deposits, federal funds sold and other			25,032			24,969			65,174			57,338
Dividends on federal bank stock			17,637			19,505			56,045			53,046
Total interest and dividend income			1,542,101			1,672,750			4,681,220			5,297,186
Interest expense:
Deposits			270,438			446,407			876,716			1,454,727
Short-term Federal Home Loan Bank advances			-			-			13,754			-
Long-term Federal Home Loan Bank advances			-			64,735			-			249,305
Repurchase agreements			3,144			2,856			8,268			5,931
Capital leases			15,426			17,038			47,698			52,098
Investor notes			-			-			-			9,693
Total interest expense			289,008			531,036			946,436			1,771,754
Net interest income			1,253,093			1,141,714			3,734,784			3,525,432
Provision for loan losses			(108,874	)		287,450			(135,069	)		140,743
Net interest income after provision for loan losses			1,361,967			854,264			3,869,853			3,384,689
Noninterest income:
Service charges and other fees			157,955			182,353			463,739			540,861
Trust and brokerage fee income			196,278			66,877			541,328			84,238
Gain on sales of securities available for sale, net			325,032			-			358,030			31,229
Other than temporary impairment on securities available for sale
Total impairment loss			-			-			-			(47,200	)
Loss recognized in other comprehensive income			-			-			-			-
Net impairment loss recognized in earnings			-			-			-			(47,200	)
Gain on sale of loans	��		23,185			9,723			71,425			15,051
Loss  on disposition of other real estate owned			(86,934	)		(112,436	)		(122,233	)		(302,060	)
Loss on disposition of fixed assets			(3,412	)		-			(3,749	)		(8,699	)
Other income			10,069			9,108			38,447			43,611
Total noninterest income			622,173			155,625			1,346,987			357,031
Noninterest expense:
Salaries and benefits			976,541			1,048,356			3,057,451			2,915,600
Occupancy and equipment			233,673			223,548			729,338			672,521
Professional fees			166,814			190,453			465,722			606,772
Franchise tax			51,875			7,250			158,175			22,800
Data processing			182,818			221,230			544,692			544,107
Marketing and advertising			11,760			31,399			51,118			126,454
Stationery and supplies			15,138			17,393			49,871			58,484
Deposit expense and insurance			91,753			91,374			299,501			385,992
Branch disposal expenses			166,687			-			166,687			-
Investor expenses			-			-			-			517,222
Other expenses			217,766			334,017			681,865			957,257
Total noninterest expense			2,114,825			2,165,020			6,204,420			6,807,209
Loss before income taxes			(130,685	)		(1,155,131	)		(987,580	)		(3,065,489	)
Income tax expense			149,384			-			-			-
Net loss		$	(280,069	)	$	(1,155,131	)	$	(987,580	)	$	(3,065,489	)
Basic loss per share		$	(0.01	)	$	(0.06	)	$	(0.05	)	$	(0.18	)
Diluted loss per share		$	(0.01	)	$	(0.06	)	$	(0.05	)	$	(0.18	)

See notes to the consolidated financial statements.

4

OHIO LEGACY CORP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Balance, beginning of period	$	16,155,730		$	17,818,915		$	16,470,516		$	2,366,511
Stock based compensation expense		50,217			45,325			152,960			47,468
Proceeds on sale of common stock, net		-			-			-			16,714,781
Comprehensive loss:
Net loss		(280,069	)		(1,155,131	)		(987,580	)		(3,065,489	)
Net unrealized income (loss) on securities available for sale arising during the period, including effect of reclassifications		(165,928	)		87,750			124,054			733,588
Total comprehensive loss		(445,997	)		(1,067,381	)		(863,526	)		(2,331,901	)
Balance, end of period	$	15,759,950		$	16,796,859		$	15,759,950		$	16,796,859

See notes to the consolidated financial statements.

5

OHIO LEGACY CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(987,580	)	$	(3,065,489	)
Adjustments to reconcile net loss to net cash from operating activities:
Provision for loan losses		(135,069	)		140,743
Depreciation and amortization		277,164			280,273
Loss on disposition of fixed assets		3,749			8,699
Securities amortization and accretion, net		183,490			187,501
Origination of loans held for sale		(5,427,370	)		(2,304,700	)
Proceeds from sales of loans held for sale		6,137,328			1,732,076
Loss on disposition or direct write-down of real estate owned		122,233			302,060
Gain on sale of securities available for sale		(358,030	)		(31,229	)
Other than temporary impairment of securities		-			47,200
Gain on sale of loans held for sale		(71,425	)		(15,051	)
Stock based compensation expense		152,960			47,468
Net change in:
Accrued interest receivable and other assets		(1,400,193	)		(292,592	)
Accrued interest payable and other liabilities		(508,975	)		(153,846	)
Deferred loan fees		53,922			(1,892	)
Net cash from operating activities		(1,957,795	)		(3,118,779	)
Cash flows from investing activities:
Purchases of securities available for sale		(6,539,002	)		(11,656,522	)
(Purchases) or redemptions of federal bank stock		39,700			(290,450	)
Maturities, calls and paydowns of securities available for sale		12,967,243			4,644,526
Sales of securities available for sale		10,770,482			2,897,908
Proceeds from sale of other real estate owned		453,679			2,264,106
Participation loans sold		1,435,046			-
Participation loans purchased		(725,000	)		-
Net change in loans		(13,311,810	)		4,469,946
Insurance claim proceeds for real estate owned		-			2,879
Proceeds from sale of premises and equipment		14,250			200
Acquisition of premises and equipment		(74,138	)		(487,134	)
Net cash from investing activities		5,030,450			1,845,459
Cash flows from financing activities
Net change in deposits		19,231,988			1,985,815
Net change in repurchase agreements		1,996,427			3,147,633
Repayment of capital lease obligations		(34,514	)		(24,389	)
Repayments of FHLB advances		(5,000,000	)		(13,500,000	)
Net proceeds from issuance of common stock		-			16,714,781
Net cash from financing activities		16,193,901			8,323,840
Net change in cash and cash equivalents		19,266,556			7,050,520
Cash and cash equivalents at beginning of period		32,682,218			24,165,790
Cash and cash equivalents at end of period	$	51,948,774		$	31,216,310

See notes to the consolidated financial statements.

6

	For the Nine Months Ended
	September 30,
	2011		2010
Supplemental disclosures of cash flow information:
Cash received during the period:
Federal income tax refund	$	-	$	-
Cash paid during the period for:
Interest		998,782		1,833,077
Federal income taxes		-		-
Non-cash transactions:
Transfer of loans to assets acquired in settlement of loans		604,459		1,763,948
Reclassification of securities to available-for-sale from held-to-maturity		2,816,058		-
Reclassification of asset balances to assets to be disposed of through branch sale:
Loans, net		9,077,972		-
Premises and equipment, net		1,018,681		-
Reclassification of liability balances to liabilities to be disposed of through branch sale:
Deposits		74,303,746		-
Repurchase agreements		726,284		-
Capital lease obligation		373,079		-

See notes to the consolidated financial statements.

7

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Ohio Legacy Corp (“the Company”) and its wholly-owned subsidiary, Premier Bank & Trust, National Association (“Bank”) (formerly known as Ohio Legacy Bank, National Association).  Ohio Legacy Corp is approximately 76% owned by Excel Bancorp, LLC, a registered bank holding company.  Intercompany transactions and balances are eliminated in consolidation. References to the Company include Ohio Legacy, consolidated with its subsidiary, the Bank.

Ohio Legacy is a bank holding company incorporated on July 1, 1999 under the laws of the State of Ohio. The Bank began operations on October 3, 2000.  The Bank provides financial services through its full-service offices in Wooster and Canton, Ohio.  Its primary deposit products are checking, savings and certificate of deposit accounts, and its primary lending products are residential mortgage, commercial and installment loans.  Substantially all loans are secured by specific items of collateral including business and consumer assets and real estate.  Commercial loans are expected to be repaid from cash flow from operations of businesses.  Real estate loans are secured by residential and commercial real estate.  Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.  On March 23, 2010, the Bank received approval from the Comptroller of the Currency of its application to commence fiduciary powers pursuant to 12 USC 92a.Subsequently, the Bank opted to include “Trust” in its name and announced a name change to Premier Bank & Trust, N.A. effective April 2010.  The Bank also began to offer investment brokerage services in April 2010.

These consolidated financial statements are prepared without audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company at September 30, 2011, and its results of operations and cash flows for the periods presented.  All such adjustments are normal and recurring in nature.  The accounting principles used to prepare the consolidated financial statements are in compliance with U.S. GAAP.  However, the financial statements were prepared in accordance with the instructions of Form 10-Q and, therefore, do not purport to contain all necessary financial and note disclosures required by U.S. GAAP.

The financial information presented in this report should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2010, which includes information and disclosures not presented in this report.  Reference is made to the accounting policies of the Company described in Note 1 of the Notes to Consolidated Financial Statements.  The Company has consistently followed those policies in preparing this Form 10-Q.

Use of Estimates:  To prepare financial statements in conformity with U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.  The allowance for loan losses, judgments about the other than temporary impairment of securities, fair value of financial instruments, valuation of deferred tax assets and the fair value of assets acquired in settlement of loans are particularly subject to change.

Reclassifications:  Some items in the prior year financial statements were reclassified to conform to the current presentation.  The reclassifications had no impact on reported net income or shareholders’ equity.

Adoption of New Accounting Pronouncements:

Improving Disclosures About Fair Value Measurements:  In January 2010, the FASB issued an amendment to Fair Value Measurements and Disclosures, Topic 820, Improving Disclosures About Fair Value Measurements. This amendment requires new disclosures regarding significant transfers in and out of Level 1 and 2 fair value measurements and the reasons for the transfers. This amendment also requires that a reporting entity present separately information about purchases, sales, issuances and settlements, on a gross basis rather than a net basis for activity in Level 3 fair value measurements using significant unobservable inputs. This amendment also clarifies existing disclosures on the level of disaggregation, in that the reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities, and that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and 3. The new disclosures and clarifications of existing disclosures for ASC 820 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC 820 did not have a material effect on the Company’s consolidated financial statements.

8

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses:  In July 2010, FASB issued Accounting Standards Update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20), to addressconcerns about the sufficiency, transparency, and robustness of credit risk disclosures for finance receivables and the related allowance for credit losses. This ASU requires new and enhanced disclosures at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Among other things, the expanded disclosures include roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables as of the end of a reporting period. New and enhanced disclosures are required for interim and annual periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual periods beginning after December 15, 2010.   The adoption of the new guidance had no impact to the financial statements except for the additional disclosures.

No. 2011-01 | Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20:  In January 2011, FASB issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-01). ASU 2011-01 wasissued as a result of concerns raised from stakeholders that the introduction of new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings in one reporting period followed by a change in what constitutes a troubled debt restructuring shortly thereafter would be burdensome for preparers and may not provide financial statement users with useful information.

No. 2011-02 | Receivables (Topic 310) A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring:  In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring.  The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties.  With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted.  In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011.  The impact of adoption was not material to the Company’s consolidated financial statements.

No. 2011-04 | Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs:  In May 2011, FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs (ASU 2011-04).  The new guidance in this ASU results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs.  Certain amendments clarify the FASB[‘s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. These amendments also enhance disclosure requirements surrounding fair value measurement.  Most significantly, an entity will be required to disclose additional information regarding Level 3 fair value measurements including quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements.  The new guidance is effective for interim and annual periods beginning on or after December 15, 2011.  Management is currently working through the guidance to determine the impact, if any, to the consolidated financial statements.

9

No 2011-05 |  Presentation of Comprehensive Income:  In June 2011, FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (ASU 2011-05):  The ASU eliminates the option to report other comprehensive income and its components in the statement of changes in equity.  An entity can elect to present the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The ASU does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or how earnings per share is calculated or presented. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and must be applied retrospectively.   The adoption of the new guidance will impact the presentation of the consolidated financial statements.

NOTE 2 – STOCK ISSUANCE

On November 15, 2009, the Company and the Bank entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Excel Financial, LLC (“Excel Financial”).  Under the terms of the Stock Purchase Agreement, Excel Financial agreed to purchase 15.0 million of the Company’s common shares at a price of $1.00 per share.  As a condition to Excel Financial’s purchase of the Company’s common shares, the Company agreed to sell a minimum of 1.5 million of its common shares to investors other than Excel Financial in a private offering, and to use its best efforts to sell an additional 1.0 million of its common shares in the same private offering, all at a purchase price of $1.00 per share.

At a special meeting held January 8, 2010, the Company’s shareholders approved the issuance and sale of up to 17,500,000 additional shares of Ohio Legacy common stock.  Shareholder approval was obtained in conjunction with the Stock Purchase Agreement.   At the special meeting, shareholders approved:  (1) an amendment to Ohio Legacy’s articles of incorporation to increase the number of authorized shares of common stock from 5,000,000 to 22,500,000; (2) the issuance of 15,000,000 shares of common stock to Excel Bancorp LLC (“Excel Bancorp”), an Ohio limited liability company formed to acquire the shares of Ohio Legacy’s common stock, pursuant to the Stock Purchase Agreement, and the issuance of up to 2,500,000 additional shares to other investors in a private offering made in connection with the sale of shares to Excel Bancorp; and (3) the control share acquisition by Excel Bancorp of 15,000,000 shares of common stock.

Excel Financial had engaged consultants and advisors to assist it in this endeavor and had no other business activity.  Although the Company entered into the Stock Purchase Agreement with Excel Financial, Excel Financial assigned the agreement to its assignee, Excel Bancorp.   The Federal Reserve Board approved Excel Bancorp’s application to become a registered bank holding company on February 12, 2010, in connection with its acquisition of Ohio Legacy’s common stock.  Following regulatory approval, Ohio Legacy issued 15,000,000 shares of common stock to Excel Bancorp and 2,500,000 shares of common stock in a private offering on February 19, 2010, at an issue price of $1.00 per share (the “Closing”).

The net proceeds to the Company of the stock offering were $16,714,781 after payment of various costs totaling $785,219.  Net proceeds were used by the Company to increase the capital level of the Bank in the amount of $16,184,135 and to repay notes payable and accrued interest to the organizers of Excel Bancorp and Excel Financial in the amount of $526,915 for advances made to Excel Financial for organization and operating expenses related to its pursuit of a bank acquisition.  The Company accepted the assignment of the notes payable to the organizers of Excel Bancorp and Excel Financial in exchange for their agreement to waive a closing condition that required the Bank to maintain a minimum tier 1 capital level of $5.7 million.  Since the notes to the organizers were an obligation to reimburse expenses not directly related to the stock offering, the cost was expensed rather than deducted from the stock offering proceeds.  Various management and board changes also took place as contemplated by the Stock Purchase Agreement.

10

The issuance of common stock to Excel Bancorp resulted in an “ownership change” of the Company, as broadly defined in Section 382 of the Internal Revenue Code.  As a result of the ownership change, utilization of the Company’s net operating loss carryforwards and certain built-in losses under federal income tax laws will be subject to annual limitation.  The annual limitation placed on the Company’s ability to utilize these potential tax deductions will equal the product of an applicable interest rate mandated under federal income tax laws and the Company’s value immediately before the ownership change.  The annual limitation imposed under Section 382 would limit the deduction for both the carryforward tax attributes and the built-in losses realized within five years of the date of the ownership change to approximately $93,000 per year.  Given the limited carryforward period assigned to these tax deductions in excess of this annual limit, some portion of these potential deductions will be lost and, consequently, the related tax benefits will not be recorded in the financial statements.  See Note 10 for additional information regarding net operating loss carryforwards.

NOTE 3 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is equal to net income (loss) divided by the weighted average number of shares outstanding during the period.  Diluted earnings (loss) per share includes the dilutive effect of additional potential common shares that may be issued upon the exercise of stock options and stock warrants.  The following table details the calculation of basic and diluted earnings (loss) per share:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
BASIC:
Net loss	$	(280,069	)	$	(1,155,131	)	$	(987,580	)	$	(3,065,489	)
Weighted average common shares outstanding		19,714,564			19,714,564			19,714,564			16,573,538
Basic loss per share	$	(0.01	)	$	(0.06	)	$	(0.05	)	$	(0.18	)
DILUTED:
Net loss	$	(280,069	)	$	(1,155,131	)	$	(987,580	)	$	(3,065,489	)
Weighted average common shares outstanding		19,714,564			19,714,564			19,714,564			16,573,538
Dilutive effect of stock options		-			-			-			-
Dilutive effect of stock warrants		-			-			-			-
Total common shares and dilutive potential common shares		19,714,564			19,714,564			19,714,564			16,573,538
Diluted loss per common share	$	(0.01	)	$	(0.06	)	$	(0.05	)	$	(0.18	)

The dilutive potential common shares that were excluded from the computation of diluted earnings per share because the effect of their exercise was anti-dilutive were as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Stock options		1,301,985		1,207,272		1,320,574		435,977
Stock warrants		-		35,500		-		56,051

11

NOTE 4 – INVESTMENT SECURITIES

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
Available for sale, carried at fair value:	Cost		Gains		Losses			Value
September 30, 2011
U.S. Government-sponsored enterprises	$	2,530,013	$	1,771	$	-		$	2,531,784
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		4,989,594		198,423		(79	)		5,187,938
Other mortgage-backed securities		264,384		-		(63,351	)		201,033
Municipal securities		2,816,230		168,215		-			2,984,445
Equity securities		39,900		177,300		-			217,200
Total	$	10,640,121	$	545,709	$	(63,430	)	$	11,122,400

December 31, 2010
U.S. Government-sponsored enterprises	$	8,261,724	$	3,424	$	(1,722	)	$	8,263,426
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		16,228,702		396,481		-			16,625,183
Other mortgage-backed securities		316,644		-		(69,078	)		247,566
Equity securities		41,600		29,120		-			70,720
Total	$	24,848,670	$	429,025	$	(70,800	)	$	25,206,895

All mortgage-backed securities at both period ends are residential mortgage-backed securities.

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held to maturity, carried at amortized cost	Cost		Gains		Losses		Value
September 30, 2011
None	$	-	$	-	$	-	$	-
December 31, 2010
Municipal securities	$	2,815,634	$	69,582	$	-	$	2,885,216

At June 30, 2011, the Company reclassified its municipal securities to the available-for-sale category from held-to-maturity since management no longer intends to hold these securities to maturity.  At the time of the transfer, the municipal securities were carried at amortized cost totaling $2,816,058 and the estimated fair value was $2,950,608.  The unrealized gain included as a component of accumulated other comprehensive income related to the reclassification was $134,550.  The securities were reclassified because the Company may sell the municipal securities to assist in funding the branch sale described in Note 11.  No purchases will be classified as held-to-maturity for the next two years.

Proceeds from the sale of securities available-for-sale totaled $10,770,482 and $2,897,908 for the nine months ended September 30, 2011 and 2010, respectively.  Proceeds from the sale of securities available-for-sale totaled $5,818,639 and $0 for the three months ended September 30, 2011 and 2010, respectively.

The fair value of debt securities and the carrying amount, if different, at September 30, 2011 by expected maturity are depicted in the following table.  Expected maturities may differ from contractual maturities because the loans underlying the mortgage-backed securities generally can be prepaid without penalty.

	Available for sale
	Fair Value
Due in one year or less	$	-
Due from one to five years		3,205,437
Due from five to ten years		673,762
Due after ten years		1,637,030
Equity securities		217,200
Mortgage-backed securities		5,388,971
Total		11,122,400

12

The following summarizes the investment securities with unrealized losses by aggregated major security type and length of time in a continuous unrealized loss position:

	Less than 12 months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2011:	Value		Loss			Value		Loss			Value		Loss
Available for sale:
Mortgage-backed securities issued by U.S. Government-sponsored enterprises	$	13,643	$	(79	)	$	-	$	-		$	13,643	$	(79	)
Other mortgage-backed securities		-		-			201,033		(63,351	)		201,033		(63,351	)
Total	$	13,643	$	(79	)	$	201,033	$	(63,351	)	$	214,676	$	(63,430	)

	Less than 12 months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2010:	Value		Loss			Value		Loss			Value		Loss
Available for sale:
U.S. Government agencies	$	2,555,180	$	(1,722	)	$	-	$	-		$	2,555,180	$	(1,722	)
Other mortgage-backed securities		-		-			247,566		(69,078	)		247,566		(69,078	)
Total	$	2,555,180	$	(1,722	)	$	247,566	$	(69,078	)	$	2,802,746	$	(70,800	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

As of September 30, 2011, the Company’s security portfolio consisted of 31 securities, one of which was in an unrealized loss position for 12 months or longer.

Mortgage-backed securities

The Company’s mortgage-backed securities portfolio includes one non-agency security with a fair value of $201,033 which represents an unrealized loss of approximately $63,351 at September 30, 2011; the estimated fair value has been less than its amortized cost for twelve months or more. This non-agency mortgage-backed security was rated Ba2 by Moody’s on April 21, 2011 and BBB- on July 12, 2011 by Standard & Poor’s rating services.    This security is senior to several subordinate classes of securities that together are collateralized by a pool of residential mortgages.  No losses incurred on the mortgages in the pool have been assigned to the senior classes.  Although the borrowers are not required to make principal payments during the initial 10 year period, 74% of the original principal has been repaid as of September 30, 2011. There are no negative amortization loans in the pool and none of the loans are subprime, Alt A or similar type of high-default product. Based on these factors, as of September 30, 2011, the Company believes there is no OTTI and does not have the intent to sell this security and it is likely that it will not be required to sell the security before its anticipated recovery.

NOTE 5 – LOANS

Loans, by collateral type, were as follows at September 30, 2011 and December 31, 2010:

	September 30, 2011						December 31, 2010
	Balance			Percent			Balance			Percent
Residential real estate	$	30,286,376			28.5	%	$	30,320,666			29.1	%
Multifamily real estate		5,572,582			5.3	%		7,465,237			7.2	%
Commercial real estate		41,116,186			38.8	%		42,222,715			40.4	%
Construction		3,752,302			3.5	%		2,137,849			2.1	%
Commercial		9,379,612			8.8	%		15,114,240			14.5	%
Secured by Trust Assets		6,607,563			6.2	%
Consumer and home equity		9,386,301			8.9	%		7,013,694			6.7	%
Total Loans		106,100,922			100.0	%		104,274,401			100.0	%
Less: Allowance for loan losses		(2,364,643	)					(3,055,766	)
Net deferred loan fees		(18,519	)					(72,441	)
Loans, net	$	103,717,760					$	101,146,194

13

At September 30, 2011, loans with an aggregate balance of $9,677,972 were classified as “assets to be disposed of through branch sale” and are not included in the table above. The amount of the allowance for loan loss allocated to these loans, also excluded from the table above and previously included as part of the general component of the allowance, was $600,000.  The allowance amount allocated to the disposal group was contractually determined through negotiations with the purchaser.

No loans included in the disposal group were classified as impaired.  The following table presents loans included in the disposal group by collateral type and risk category:

	Disposal Group Loans as of September 30, 2011
	Not rated		Pass		Special Mention		Substandard		Total
Residential real estate	$	692,750	$	322,924	$	-	$	-	$	1,015,674
Multifamily real estate		-		-		409,578		-		409,578
Commercial real estate:
Owner occupied		183,092		1,681,968		611,333		1,193,028		3,669,421
Non-owner occupied		-		1,325,701		-		-		1,325,701
Commercial		-		2,842,727		-		39,089		2,881,816
Consumer and home equity		375,782		-		-		-		375,782
Total	$	1,251,624	$	6,173,320	$	1,020,911	$	1,232,117	$	9,677,972

Approximately $23,141,000 and $23,966,000 of residential real estate were pledged as collateral to support available borrowing capacity at the Federal Home Loan Bank at September 30, 2011 and for advances outstanding and additional borrowing capacity at December 31, 2010, respectively.  Approximately $11,056,000 and $30,177,000 of commercial and home equity loans were pledged as collateral at the Federal Reserve Bank of Cleveland for available discount window borrowing at September 30, 2011 and December 31, 2010.

Allowance for Loan and Lease Losses:  The allowance for loan and lease losses (“ALLL”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Management utilizes past due information as a credit quality indicator across the loan portfolio.  The past due information is the primary credit quality indicator within both the 1-4 family residential real estate loan portfolio (including first liens, home equity loans, and construction loans in the 1-4 family real estate segment) and consumer loans.

The primary credit quality indicator for commercial and commercial real estate loans (including non-owner occupied, owner occupied, multi-family real estate, 1-4 family rental property, and construction and development loans not included in the residential real estate segment) is based on an internal grading system. Credit grades are monitored regularly by the respective loan officer and independently by credit administration, and adjustments are made when appropriate. The frequency of loan review with respect to credit grades is dependent upon the size and grade of the loan.  See below for a description of credit quality indicators.

Commercial and commercial real estate loans that are graded “doubtful” are shown as nonperforming and management generally charges these loans down to their fair value by taking a partial charge-off or recording a specific allocation of the allowance. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Any commercial loan graded “loss” is immediately charged-off.

14

When collection of principal and interest is in doubt or a loan is 90-days past due, the loan is placed on non-accrual status and is specifically reviewed for impairment.  Impairment is measured based on one of three methods:  (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) at the observable market price of the loan; or (3) the fair value of the collateral less estimated disposal costs.  Individually impaired loans include all nonaccrual and restructured loans.  U.S. generally accepted accounting principles (“GAAP”) require a specific allocation to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loans will not be collected, and the recorded investment exceeds fair value.

For all loan segments, the Bank will initiate a charge-off or a partial charge-off based on the status of the loan.  If the loan is not fully collateralized and is in the process of collection, the Bank will charge off the amount of the uncollectable account balance as a loss.  The designated workout officer is generally responsible for calculating and recommending the charge-off amount.  All charge-offs must be approved by the Credit Committee whose members consist of the Chief Credit Officer, the Chief Executive Officer, the Chief Operating Officer and the Senior Lending Officer.

Charge offs are recorded when consumer loans are 120 days past due and real estate loans are 180 days past due.  This may be extended if management believes that the risk of loss is minimal, and the Bank is in the process of collection with a reasonable prospect of full collection.  Management conducts reviews of impaired loans regularly and assesses the requirement for specific allocations or charge-offs.  When a loss has not been confirmed and payments are current, a specific allocation is generally recorded.  Charge-offs (either full or partial) are recognized when loss is confirmed (for example, upon receipt of a current appraisal) and is generally based on the amount that the loan balance exceeds the estimated net realizable value of the collateral.  For unsecured loans, the full balance is charged-off at the time the loan is deemed impaired.  The Company did not revise its charge-off policy during periods presented.

Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired and assigned a probable loss amount.  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures unless the loan is on nonaccrual status.  The Company then divides the remaining loans by risk into four grades: pass, special mention, substandard, and doubtful.  Loans with a pass grade are divided into ten separate categories.  Total charge-offs for a specified time period, currently three years, are divided into the same categories and used as a starting point to estimate credit losses in each category.  Other subjective factors, such as industry conditions, local economic trends and similar items are assigned a numeric value by category and are also applied to the balances in the pass grade.  Historic loss percentages are applied separately to the special mention and substandard pools of loans based on actual charge-offs for each pool in total regardless of the category.   The amount and timing of full or partial charge-offs is important since charge-offs are factored into the calculation of the three-year historical loan loss experience rates used to estimate the adequacy of the allowance for loan losses.  Failure to record charge-offs in a timely manner could result in lower historical loss rates and potentially understate  the estimate of the amount of incurred losses within the portfolio and distort coverage ratios such as the allowance for loan losses to nonaccrual loans used by management to evaluate the adequacy of the allowance for loan losses.

15

A description of each segment of the loan portfolio, along with the risk characteristics of each segment, is included below:

Residential real estate:  The Company defines residential real estate loansas first mortgages on individuals’ primary residence.  Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and an appropriately appraised value of the real estate securing the loan that generally requires that the residential real estate loan amount be no more than 85% of the purchase price or the appraised value of the real estate securing the loan, whichever is less, unless private mortgage insurance is obtained by the borrower.  Loans made for the Bank’s portfolio are generally adjustable rate, fully amortized mortgages. The rates used are generally fully-indexed rates and are not priced using low introductory “teaser” rates.

Home equity loans:  These loans are either lines of credit or closed-end loans secured by second mortgages.  The maximum amount of a home equity line of credit is generally limited to 95% (with acceptable credit scores) of the appraised value of the property less the balance of the first mortgage.

One to Four Family Rental Property:  These loans are secured by residential real estate rental properties.   The principal source of repayment generally is dependent upon satisfactory occupancy of the building by tenants.

Multi-family Real Estate:  These loans consist of residential rental properties and generally consist of buildings with rental units for five or more families.  The principal source of repayment generally is dependent upon satisfactory occupancy of the building by tenants.

Consumer Loans:  The Company originates direct consumer loans, primarily automobile loans, personal lines of credit, and unsecured consumer loans in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.

Commercial Loans:  Commercial loans are made for a wide variety of general corporate purposes, including financing for industrial and commercial properties, financing for equipment, inventories and accounts receivable. The term of each commercial loan varies by its purpose.  Repayment terms are structured such that commercial loans will be repaid within the economic useful life of the underlying asset.  The commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the areas where the Bank operates.

Loans Secured by Trust Assets: These loans are secured by cash or marketable securities and have substantially less credit risk than other types of loans.

16

Commercial Real Estate:   Commercial real estate loans (“CRE loans”)include mortgage loans to developers and owners of commercial real estate.  The collateral for these CRE loans is the underlying commercial real estate.  The Bank generally requires that the CRE loan amount be no more than 90% of the purchase price or 80% of the appraised value of the commercial real estate securing the CRE loan, whichever is less.   The Bank evaluates commercial real estate based on whether the property is owner occupied or non-owner occupied.  Non-owner occupied CRE loans typically exhibit higher risk.

Construction and development: Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default.  In the event a default on a construction loan occurs and foreclosure follows, the Bank must take control of the project and attempt either to arrange for completion of construction or to dispose of the unfinished project. Additional risk exists with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion. Generally the Bank attempts to reduce such risks on loans to developers by requiring personal guarantees and reviewing current personal financial statements and tax returns.

Activity in the allowance for loan losses for the three months and nine months ended September 30 was as follows:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Balance, beginning of period	$	2,761,502		$	3,817,696		$	3,055,766		$	3,945,670
Provision for loan losses		(108,874	)		287,450			(135,069	)		140,743
Loans charged-off		(9,185	)		(607,777	)		(327,234	)		(612,062	)
Recoveries of charged-off loans		321,200			116,302			371,180			139,320
Transfer of allowance for loans to be disposed of through branch sale		(600,000	)		-			(600,000	)		-
Balance, end of period	$	2,364,643		$	3,613,671		$	2,364,643		$	3,613,671
Balance as a percentage of total loans		2.23	%		3.68	%		2.23	%		3.68	%

Activity in the allowance for loan loss by portfolio segment for the each quarter of 2011 was as follows:

	1-4 family residential			1-4 family rental			Multi-family real estate			Home Equity			Consumer			Commercial			Secured by Trust Assets
Balance, December 31, 2010	$	183,507		$	331,184		$	454,670		$	93,187		$	10,818		$	275,473		$	12,095
Provision for loan losses		9,963			(115,792	)		71,951			2,873			2,116			45,004			9
Charge-offs		-			-			-			-			(174	)		-			-
Recoveries		-			-			-			-			498			473			-
Balance, March 31, 2011		193,470			215,392			526,621			96,060			13,258			320,950			12,104
Provision for loan losses		29,018			(15,593	)		(116,017	)		(7,905	)		(2,908	)		39,529			(310	)
Charge-offs		(48,077	)											(342	)		(81,263	)
Recoveries		-			-			-			-			375			955			-
Balance, June 30, 2011		174,411			199,799			410,604			88,155			10,383			280,171			11,794
Provision for loan losses		4,387			13,721			156,305			7,608			(4,260	)		43,907			1,421
Charge-offs		-			-			-			-			(426	)		-			-
Recoveries		-			-			-			-			528			10,118			-
Subtotal		178,798			213,520			566,909			95,763			6,225			334,196			13,215
Reclassification of allowance for loans to be disposed of through branch sale		(5,745	)		(11,918	)		(132,966	)		(1,836	)		(914	)		(90,260	)		-
Balance, September 30, 2011	$	173,053		$	201,602		$	433,943		$	93,927		$	5,311		$	243,936		$	13,215

17

	Commercial real estate
	Non-owner occupied			Owner Occupied			Construction			Total
Balance, December 31, 2010	$	509,739		$	1,043,458		$	141,635		$	3,055,766
Provision for loan losses		27,878			(20,409	)		179			23,772
Charge-offs		-			-			-			(174	)
Recoveries		-			23,698			6,000			30,669
Balance, March 31, 2011		537,617			1,046,747			147,814			3,110,033
Provision for loan losses		(80,941	)		95,744			9,416			(49,967	)
Charge-offs		(29,089	)		(159,104	)					(317,875	)
Recoveries		-			11,981			6,000			19,311
Balance, June 30, 2011	$	427,587		$	995,368		$	163,230		$	2,761,502
Provision for loan losses		(63,510	)		(30,860	)		(237,593	)		(108,874	)
Charge-offs		-			(7,554	)		(1,205	)		(9,185	)
Recoveries		-			59,708			250,846			321,200
Subtotal		364,077			1,016,662			175,278			2,964,643
Reclassification of allowance for loans to be disposed of through branch sale		(5,966	)		(350,395	)		-			(600,000	)
Balance, September 30, 2011	$	358,111		$	666,267		$	175,278		$	2,364,643

Loans individually considered impaired and nonaccrual loans were as follows at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
Loans past due over 90 days still on accrual	$	27,412	$	11,495
Nonaccrual loans, includes smaller balance homogeneous loans		1,712,489		3,452,602
Impaired loans, included in nonaccrual loans		1,684,209		3,409,242
Impaired loans with no allowance for loan losses allocated		1,217,188		3,371,759
Amount of the allowance for loan losses allocated		125,585		6,435

No interest income was recognized during impairment for the year to date period ending September 30, 2011 or 2010.

The unpaid principal balance of loans reflects the borrowers’ principal balance and is not reduced by partial charge-offs previously recorded by the Company.  For nonaccrual loans, the recorded investment in loans is reduced by the full amount of payments received from the borrower, whereas the unpaid principal balance will continue to reflect an allocation of the borrower’s payment between principal and interest. Generally accepted accounting principles define the recorded investment in loans as the sum of unpaid principal balance, accrued interest receivable, and deferred fees and costs minus partial charge-offs.  Because accrued interest receivable, deferred fees and deferred costs are not material, the recorded investment in loans presented in the accompanying tables does not include these balances.

The following tables present the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method.

	Loans Collectively Evaluated for Impairment				Loans Individually Evaluated for Impairment				Total
September 30, 2011	Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss			Recorded Investment
1-4 family residential mortgage	$	82,640	$	25,855,310	$	90,413	$	361,203	$	173,053		$	26,216,513
1-4 family rental property		193,441		3,877,673		8,161		192,190		201,602			4,069,863
Multi-family real estate		433,943		5,572,582		-		-		433,943			5,572,582
Home equity		93,927		8,242,386		-		-		93,927			8,242,386
Consumer		5,311		1,143,915		-		-		5,311			1,143,915
Commercial		241,304		9,254,017		2,632		125,595		243,936			9,379,612
Secured by trust assets		13,215		6,607,563		-		-		13,215			6,607,563
Commercial real estate:
Non-owner occupied		358,111		21,635,579		-		40,121		358,111	��		21,675,700
Owner occupied		641,888		18,791,008		24,379		649,478		666,267			19,440,486
Construction and development		175,278		3,436,680		-		315,622		175,278			3,752,302
Total	$	2,239,058	$	104,416,713	$	125,585	$	1,684,209	$	2,364,643		$	106,100,922

18

	Loans Collectively Evaluated for Impairment				Loans Individually Evaluated for Impairment				Total
December 31, 2010	Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment
1-4 family residential mortgage	$	177,072	$	23,716,528	$	6,435	$	164,170	$	183,507	$	23,880,698
1-4 family rental property		331,184		6,161,295		-		278,673		331,184		6,439,968
Multi-family real estate		454,670		7,396,465		-		68,772		454,670		7,465,237
Home equity		93,187		6,277,141		-		-		93,187		6,277,141
Consumer		10,818		736,553		-		-		10,818		736,553
Commercial		275,473		8,818,892		-		247,731		275,473		9,066,623
Commercial secured by trust assets		12,095		6,047,617		-		-		12,095		6,047,617
Commercial real estate:
Non-owner occupied		509,739		18,112,082		-		174,750		509,739		18,286,832
Owner occupied		1,043,458		22,594,876		-		1,341,007		1,043,458		23,935,883
Construction and development		141,635		1,003,710		-		1,134,139		141,635		2,137,849
Total	$	3,049,331	$	100,865,159	$	6,435	$	3,409,242	$	3,055,766	$	104,274,401

The following table presents loans individually evaluated for impairment by loan class.

	September 30, 2011
	Quarter-to-Date Average Recorded Investment		Year-to-Date Average Recorded Investment		Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
With no related allowance recorded:
1-4 family residential mortgage	$	175,495	$	243,244	$	136,635	$	234,589	$	-
1-4 family rental property		32,410		132,624		31,795		66,574		-
Multi-family real estate		-		15,283		-				-
Home equity		-		3,980		-				-
Commercial		145,130		171,291		122,963		345,287		-
Commercial real estate:
Non-owner occupied		40,121		101,698		40,121		61,800		-
Owner occupied		631,845		971,027		570,052		644,492		-
Construction and development		765,633		937,493		315,622		746,994		-
With an allowance recorded:
1-4 Single family residential mortgage		92,885		48,211		224,568		224,568		90,413
1-4 family rental property		152,234		67,716		160,395		222,100		8,161
Commercial		-		29,543		2,632		2,849		2,632
Commercial real estate:
Non-owner occupied		-		15,207		-		-		-
Owner occupied		54,499		42,449		79,426		82,517		24,379
Total	$	2,090,252	$	2,779,766	$	1,684,209	$	2,631,770	$	125,585

	December 31, 2010
	Recorded Investment		Unpaid Principal Balance		Allowance for Loan Losses Allocated
With no related allowance recorded:
1-4 family residential mortgage	$	126,687	$	200,650	$	-
1-4 family rental property		278,673		908,487		-
Multi-family real estate		68,772		116,139		-
Home equity		-		-		-
Commercial		247,731		674,733		-
Commercial real estate:
Non-owner occupied		174,750		190,764		-
Owner occupied		1,341,007		1,864,179		-
Construction and development		1,134,139		2,269,265		-
With an allowance recorded:
1-4 Single family residential mortgage		37,483		37,483		6,435
1-4 family rental property		-		-		-
Commercial		-		-		-
Commercial real estate:
Non-owner occupied		-		-		-
Owner occupied		-		-		-
Total	$	3,409,242	$	6,261,700	$	6,435

19

The following table presents the amount of income recognized during impairment and the average recorded investment in impaired loans for the comparative periods:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Interest income recognized during impairment	$	1,712	$	-	$	13,163	$	-
Cash-basis income recognized during impairment		1,712		-		13,163		-
Average of impaired loans during the period		2,090,252		5,717,963		2,779,766		5,669,181

The following tables present the aging of the recorded investment in past due loans by class of loans.

			Days Past Due
September 30, 2011	Loans Not Past Due		30-59 Days		60-89 Days		90 Days or Greater & Still Accruing		Non-Accrual		Total Past Due		Total
1-4 family residential mortgage	$	25,630,292	$	166,354	$	58,664	$	-	$	361,203	$	586,221	$	26,216,513
1-4 family rental property		3,877,673		-		-		-		192,190		192,190		4,069,863
Multi-family real estate		5,572,582		-		-		-		-		-		5,572,582
Home equity loans		8,196,878		-		45,508		-		-		45,508		8,242,386
Consumer		1,083,012		2,276		2,935		27,412		28,280		60,903		1,143,915
Commercial		9,254,017		-		-		-		125,595		125,595		9,379,612
Secured by trust assets		6,607,563		-		-		-		-		-		6,607,563
Commercial real estate:
Non-owner occupied		21,578,420		57,159		-		-		40,121		97,280		21,675,700
Owner occupied		18,791,008		-		-		-		649,478		649,478		19,440,486
Construction and development		3,436,680		-		-		-		315,622		315,622		3,752,302
Total	$	104,028,125	$	225,789	$	107,107	$	27,412	$	1,712,489	$	2,072,797	$	106,100,922

			Days Past Due
December 31, 2010	Loans Not Past Due		30-59 Days		60-89 Days		90 Days or Greater & Still Accruing		Non-Accrual		Total Past Due		Total
1-4 family residential mortgage	$	23,367,952	$	207,521	$	141,055	$	-	$	164,170	$	512,746	$	23,880,698
1-4 family rental property		6,161,295		-		-		-		278,673		278,673		6,439,968
Multi-family real estate		7,396,465		-		-		-		68,772		68,772		7,465,237
Home equity loans		6,192,016		74,621		10,504		-		-		85,125		6,277,141
Consumer		676,801		4,898		-		11,495		43,359		59,752		736,553
Commercial		8,751,090		8,889		58,913		-		247,731		315,533		9,066,623
Commercial secured by trust assets		6,047,617		-		-		-				-		6,047,617
Commercial real estate:												-		-
Non-owner occupied		18,050,282		61,800		-		-		174,750		236,550		18,286,832
Owner occupied		22,594,876		-		-		-		1,341,007		1,341,007		23,935,883
Construction and development		1,003,709		-		-		-		1,134,140		1,134,140		2,137,849
Total	$	100,242,103	$	357,729	$	210,472	$	11,495	$	3,452,602	$	4,032,298	$	104,274,401

Troubled Debt Restructurings:

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.  If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The Company has no allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011.  There were no troubled debt restructurings as of December 31, 2010.  The Company has committed to lend additional amounts totaling up to $6,000 as of September 30, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.   All loans classified as troubled debt restructurings were also classified as impaired loans as of September 30, 2011.

20

During the period ending September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk..

None of the modifications involved a reduction of the stated interest rate of the loan. Modifications involving an extension of the maturity date were for periods ranging from 12 to 18 months.  In some cases, the maturity dates were shortened by up to 12 years.

Subsequent to the period ending September 30, 2011, the Company completed a restructure of loans totaling $2,159,147 of which $194,266 represented new funds advanced.   Although interest rates remained the same or were increased as compared to the original contractual rate, a concession was granted given that new funds were advanced at below market rates to borrowers experiencing financial difficulty.   No specific reserve was allocated for this restructuring.

There were no loans modified as troubled debt restructurings during the three months ending September 30, 2011.  The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ending September 30, 2011:

			Outstanding Recorded Investment
	Number of Loans		Pre-Modification		Post-Modification
Troubled Debt Restructurings
Commercial		5	$	145,294	$	107,778
Commercial real estate:
Owner occupied		2		120,403		113,648
Total		7	$	265,697	$	221,426

The troubled debt restructurings described above did not increase the allowance for loan losses or result in charge offs during the period ending September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within nine months following the modification during the period ending September 30, 2011:

Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment
Commercial		1	$	3,692

The payment default on the above troubled debt restructuring occurred during the three months ending September 30, 2011.

A loan is typically considered to be in payment default once it is eleven days contractually past due under the modified terms.

The troubled debt restructuring that subsequently defaulted described above did not increase the allowance for loan losses or result in any loan charge offs during the period ending September 30, 2011.

No other loans were modified during the period ending September 30, 2011 that did not meet the definition of a troubled debt restructuring.  In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

21

Credit Quality Indicators:

The Company classifies all non-homogeneous loans such as commercial and commercial real estate loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk into four non-classified categories (i.e. passing grade loans) and three categories of classified loans.    This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Loans not analyzed as part of homogeneous groups include commercial, commercial real estate, multi-family real estate, construction and development loans.  Homogeneous groups of loans are not typically risk rated unless the loan is placed on nonaccrual status.  A loan may also be separated from the homogeneous pool and individually risk rated due to recurrent delinquency problems, typically 60 to 89 days past due.  Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

September 30, 2011	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
1-4 family residential mortgage	$	22,219,061	$	3,131,998	$	205,032	$	551,051	$	109,371	$	26,216,513
1-4 family rental property		405,623		2,760,051		520,488		383,701		-		4,069,863
Multi-family real estate		-		4,264,315		262,359		1,045,908		-		5,572,582
Home equity loans		8,158,267		76,085		1,759		6,275		-		8,242,386
Consumer		1,143,915		-		-		-		-		1,143,915
Commercial		-		9,236,703		32,499		48,015		62,395		9,379,612
Secured by trust assets		581,678		6,025,885		-		-		-		6,607,563
Commercial real estate:												-
Non-owner occupied		-		18,125,549		2,736,163		813,988		-		21,675,700
Owner occupied		-		17,053,368		1,528,571		744,899		113,648		19,440,486
Construction and development		2,012,379		1,395,976		28,324		315,623		-		3,752,302
Total	$	34,520,923	$	62,069,930	$	5,315,195	$	3,909,460	$	285,414	$	106,100,922

December 31, 2010	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
1-4 family residential mortgage	$	23,135,647	$	392,160	$	-	$	197,341	$	155,550	$	23,880,698
1-4 family rental property		-		5,413,008		453,930		573,030		-		6,439,968
Multi-family real estate		91,908		4,350,194		1,591,890		1,431,245		-		7,465,237
Home equity loans		6,055,818		200,000		2,582		18,741		-		6,277,141
Consumer		736,553		-		-		-		-		736,553
Commercial		-		8,403,145		311,832		281,043		70,603		9,066,623
Commercial secured by trust assets		-		6,047,617		-		-		-		6,047,617
Commercial real estate:												-
Non-owner occupied		-		13,879,607		3,434,311		972,914		-		18,286,832
Owner occupied		-		18,659,084		1,722,292		3,427,262		127,245		23,935,883
Construction and development		262,922		592,301		32,824		1,249,802		-		2,137,849
Total	$	30,282,848	$	57,937,116	$	7,549,661	$	8,151,378	$	353,398	$	104,274,401

22

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses.  For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the current principal balance of residential and consumer loans based on payment activity:

	Residential
September 30, 2011	1-4 family		Home Equity		Consumer		Total
Performing	$	25,855,310	$	8,242,386	$	1,115,635	$	35,213,331
Nonperforming		361,203		-		28,280		389,483
Total	$	26,216,513	$	8,242,386	$	1,143,915	$	35,602,814

	Residential
December 31, 2010	1-4 family		Home Equity		Consumer		Total
Performing	$	23,716,528	$	6,277,141	$	693,194	$	30,686,863
Nonperforming		164,170		-		43,359		207,529
Total	$	23,880,698	$	6,277,141	$	736,553	$	30,894,392

NOTE 6 – ASSETS ACQUIRED IN SETTLEMENT OF LOANS

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. Expenditures that improve the fair value of the property are capitalized. The Company makes periodic reassessments of the value of assets held in this category and record valuation adjustments or write-downs as the reassessments dictate.

Assets acquired in settlement of loans were as follows:

	September 30,		December 31,
	2011		2010
Interest in limited liability company	$	1,305,437	$	1,305,437
Residential real estate		124,761		401,111
Commercial real estate		339,000		-
Multi-family real estate		320,753		320,753
Construction and development		289,896		324,001
Total	$	2,379,847	$	2,351,302

The interest in the limited liability company was obtained through a U.S. Bankruptcy Code 363 sale.  The limited liability company was formed by the lead bank for the banks participating in the project financing to acquire title to the real estate, conduct the operation of the facility, and market the real estate and the operations of the business for sale.  The carrying value of its interest is based upon the estimated fair value of the real estate less costs to sell.

Direct write-downs of assets acquired in settlement of loans totaled $70,148 and $514,890 for the nine months ended September 30, 2011 and 2010, respectively.

NOTE 7 – FAIR VALUE

ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

23

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial asset:

Securities:  The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using matrix pricing, which is a mathematical technique used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Impaired Loans and Other Real Estate:  The fair value of impaired loans with specific allocations of the allowance for loan losses and other real estate is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets measured at fair value on a recurring basis are summarized in the following table:

	September 30,		December 31,
	2011		2010
Available for sale securities	$	11,122,400	$	25,206,895
Quoted prices on active markets for identical assets (Level 1)
Equity securities		217,200		70,720
Significant other observable inputs (Level 2)
U.S. government sponsored enterprises		2,531,784		8,263,426
Mortgage-backed securities issued by U.S. Government-
sponsored enterprises		5,187,938		16,625,183
Other mortgage backed securities		201,033		247,566
Municipal securities		2,984,445		-
Significant unobservable inputs (Level 3)		-		-

Assets measured at fair value on a non-recurring basis are summarized in the following table:

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		��	Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)			(Level 2)		(Level 3)		Total
September 30, 2011:
Impaired loans:
1-4 family residential mortgage		-			-	$	158,004	$	158,004
1-4 family rental property		-			-		310,741		310,741
Commercial		-			-		107,778		107,778
Commercial real estate:
Non-owner occupied		-			-		40,121		40,121
Owner occupied		-			-		55,047		55,047
Construction and development		-			-		287,897		287,897

24

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets acquired in settlement of loans:
Residential		-		-		55,989		55,989
Construction and development		-		-		231,394		231,394
December 31, 2010:
Impaired loans:
1-4 family residential mortgage		-		-	$	157,735	$	157,735
1-4 family rental property		-		-		278,673		278,673
Multi-family real estate		-		-		68,772		68,772
Commercial		-		-		247,731		247,731
Commercial real estate:
Non-owner occupied		-		-		174,750		174,750
Owner occupied		-		-		1,341,007		1,341,007
Construction and development		-		-		1,134,139		1,134,139
Assets acquired in settlement of loans:
Residential		-		-		401,112		401,112
Construction		-		-		324,001		324,001

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $1,085,172, with a valuation allowance of $125,585 at September 30, 2011, resulting in an additional provision for loan losses of $94,673 for the three months ending September 30, 2011, and $445,784 for the nine months ending September 30, 2011.  At December 31, 2010, impaired loans had a principal balance of $3,409,242 with a valuation allowance of $6,435, resulting in an additional provision for loan losses of $872,560 in 2010, of which $181,891 was provided for during the three months ended September 30, 2010 and $627,870 was provided for the nine months ended September 30, 2010.

Assets acquired in settlement of loans, measured at fair value less costs to sell, had a carrying value of $2,379,847 at September 30, 2011 and $2,351,302 at December 31, 2010.  Gross direct write-downs in the value of these assets for the three and nine months ended September 30, 2011 totaled $70,148.  Gross write-downs totaling $542,490 were recorded on assets acquired in settlement of loans during 2010.  Direct write-downs for the three and nine months ended September 30, 2010 totaled $295,093 and $514,890, respectively.

The carrying amounts and estimated fair values of financial assets and liabilities are as follows:

	September 30, 2011						December 31, 2010
	Carrying Amounts			Estimated Fair Value			Carrying Amounts			Estimated Fair Value
Financial assets
Cash and cash equivalents	$	51,949,000		$	51,949,000		$	32,682,000		$	32,682,000
Certificate of deposit in financial institution		100,000			100,000			100,000			100,000
Securities available for sale		11,122,000			11,122,000			25,207,000			25,207,000
Securities held to maturity		-			-			2,816,000			2,885,000
Loans held for sale		427,000			451,000			637,000			637,000
Loans, net		103,718,000			105,082,000			101,146,000			100,206,000
Federal bank stock		1,518,000		NA				1,558,000		NA
Financial assets to be disposed of through branch sale		9,078,000			9,078,000			-			-
Accrued interest receivable		358,000			358,000			429,000			429,000
Financial liabilities
Deposits		(88,144,000	)		(88,189,000	)		(143,216,000	)		(143,669,000	)
Repurchase agreements		(5,661,000	)		(5,661,000	)		(4,391,000	)		(4,391,000	)
Financial liabilities to be disposed of through branch sale		(75,403,000	)		(75,493,000	)		-			-
Federal Home Loan Bank advances		-			-			(5,000,000	)		(5,013,000	)
Accrued interest payable		(33,000	)		(33,000	)		(69,000	)		(69,000	)

25

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, noninterest-bearing demand deposits and variable-rate loans, deposits that reprice frequently and fully, repurchase agreements, certificates of deposit in financial institutions and overnight FHLB advances.  Security fair values are determined as previously described.  For fixed-rate loans or deposits and for variable-rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life.  The fair value of borrowings is based upon current rates for similar financing over the remaining terms of the borrowings.  It was not practicable to determine the fair value of federal bank stock due to restrictions placed on its transferability.  The estimated fair value for other financial instruments and off-balance sheet loan commitments are considered nominal.

NOTE 8 – STOCK BASED COMPENSATION

Shareholders adopted the Ohio Legacy Corp 2010 Cash and Equity Incentive Plan in May 2010.  The Plan permits the grant of share-based awards for a maximum of 2,000,000 shares of common stock.  The Plan provides for awards of options, restricted stock, stock appreciation rights, and other stock-based awards to employees, directors and consultants.  Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant.  Options awards have vesting periods as determined by the Compensation Committee of the Board of Directors.  All options currently outstanding have an original vesting period of five years.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below.  Expected volatilities are based on historical volatilities of the Company’s common stock.  The Company uses historical data to estimate option exercise and post-vesting termination behavior.  (Employee and management options are tracked separately.)  The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable.  The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The following table depicts the activity under this Plan:

	2011
	Options			Weighted Average Exercise Price
Outstanding, January 1		1,330,400		$	2.30
Granted		-			-
Forfeited		(41,150	)		2.30
Exercised		-			-
Outstanding, September 30		1,289,250		$	2.30

The weighted average remaining contractual life of the options outstanding at September 30, 2011 was 8.78 years.  The intrinsic value of options outstanding was $0.

No options were granted during 2011.  The fair market value of options granted during 2010 was determined using the following weighted-average assumptions as of grant date:

	2010
Risk-free interest rate	1.11% - 1.83%
Expected term	6.5 years
Expected stock price volatility	0.298
Dividend yield	0%

26

The weighted average fair value of options granted during 2010 was $0.78.  The Company has a policy of using authorized but unissued common shares to satisfy option exercises.

The compensation cost yet to be recognized for stock options that have been awarded but not vested is as follows:

For the remainder of 2011	$	50,217
2012		199,233
2013		199,233
2014		199,233
2015		99,201
Total	$	747,117

NOTE 9 – REGULATORY MATTERS

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators.  Prompt corrective action regulations provide five classifications:  (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; and (v) critically undercapitalized, although these terms are not used to represent overall financial condition.  Failure to meet capital requirements can initiate regulatory action.

On September 9, 2011, the Bank’s primary regulator, the Office of the Comptroller of the Currency (“OCC”), terminated the Consent Order entered into during February 2009 since the Bank demonstrated full compliance with all terms of the Consent Order, and the continued existence of the Consent Order was no longer required.  As a result, the Bank is considered well-capitalized under the risk-based capital regulations governing the banking industry and is no longer classified by the OCC as a “troubled” institution.

Actual and required capital amounts (in thousands) and ratios are presented below at September 30, 2011 and December 31, 2010:

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2011:
Total capital to risk-weighted assets
Premier Bank & Trust	$	16,815		14.2	%	$	9,487		8.0	%	$	11,859		10.0	%
Tier 1 capital to risk-weighted assets
Premier Bank & Trust		15,322		12.9	%		4,744		4.0	%		7,115		6.0	%
Tier 1 capital to average assets
Premier Bank & Trust		15,322		8.7	%		7,018		4.0	%		8,772		5.0	%
December 31, 2010:
Total capital to risk-weighted assets
Premier Bank & Trust	$	17,507		17.1	%	$	8,182		8.0	%	$	10,228		10.0	%
Tier 1 capital to risk-weighted assets
Premier Bank & Trust		16,207		15.8	%		4,091		4.0	%		6,137		6.0	%
Tier 1 capital to average assets
Premier Bank & Trust		16,207		9.6	%		6,727		4.0	%		8,409		5.0	%

27

NOTE 10 – INCOME TAXES

A valuation allowance of $5,543,622 at September 30, 2011 and $5,453,661 at December 31, 2010, was recorded to reduce the carrying amount of the Company’s net deferred tax assets to zero as a result of the Company’s net operating losses.  As a result, income tax benefits related to net operating losses are not typically recorded.  The amount of income tax expense or benefit allocated to operations is generally determined without regard to the tax effects of other categories of income or loss, such as other comprehensive income (loss). However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from operations and pretax income from other categories of comprehensive income (such as the appreciation in the market value of securities classified as available-for-sale) in the current period.  In such instances, income from other categories offsets the current loss from operations, and the tax benefit of such offset is reflected in operations.  The amount of the tax expense recorded for the third quarter of 2011 of $149,384 reversed the tax benefit for the same amount recorded during the second quarter of 2011 due to a change in the estimate of income for 2011 to include the expected gain from the branch sale that closed on October 14, 2011.   The second quarter tax benefit was the result of the tax allocation in the current period between other comprehensive income and the deferred tax asset valuation allowance.

Internal Revenue Code section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation.  Accordingly, utilization of net operating loss carryforwards may be subject to an annual limitation regarding their utilization against future taxable income upon change in control.

At February 19, 2010, a Stock Purchase Agreement between Ohio Legacy Corp and Excel Bancorp resulted in a section 382 limitation against pre-transaction Ohio Legacy Corp net operating loss carryforwards.  The Company reduced the deferred tax asset related to NOL carryforwards and the valuation allowance by $1,367,000, of which $1,039,000 was reflected in 2010 and an additional $328,000 in the second quarter of 2011, based on actions taken in the quarter with the 2010 income tax return.

After the actions taken on the 2010 income tax return, as of December 31, 2010, after consideration of the reduction to pre-transaction net operating losses due to the section 382 limitation, the Company had net operating loss carryforwards of approximately $8,987,000 that will expire as follows:  $1,419,000 on December 31, 2027, $132,000 on December 31, 2028, $1,694,000 on December 31, 2029, and $5,742,000 on December 31, 2030.

In addition, the Company has approximately $46,000 of alternative minimum tax credits that may be carried forward indefinitely.

NOTE 11 – BRANCH SALE AGREEMENT AND SUBSEQUENT EVENTS

 On October 14, 2011, the Bank sold certain assets and liabilities under an Office Purchase and Assumption Agreement (the “Agreement”) entered into on June 23, 2011, with The Commercial and Savings Bank of Millersburg, Ohio (“CSB”), a wholly owned subsidiary of CSB Bancorp, Inc. relative to two Premier branches located in Wooster, Ohio.  Under the terms of the Agreement, CSB purchased certain assets of the branches at book value, including real estate, fixtures and equipment associated with the branch locations, and approximately $9.1 million in loans, while assuming the branch deposits of $74.3 million and a lease obligation associated with one of the acquired branch locations. CSB paid a premium of $3.5 million–an amount equal to 5% of the average amount of assumed deposits during a ten day period prior to and including the date of the closing less a fixed amount of $166,000.

The Company funded the transaction from operating liquidity, cash flow from the securities portfolio including the sale of securities, and advances from the Federal Home Loan Bank totaling $19 million.  The total cash paid to CSB was $60.9 million.  The gain recorded for the sale was $3.7 million and consisted of the deposit premium paid of $3,526,000 and a gain on the assignment of a capital lease for one of the branch offices of $220,000.

28

 The carrying values of assets and liabilities in the Disposal Groups as of September 30, 2011 were as follows:

Assets:
Loans, net	$	9,077,972
Premises and equipment, net		1,018,681
Total assets to be disposed of through branch sale	$	10,096,653
Liabilities:
Deposits
Noninterest-bearing demand	$	9,221,896
Interest-bearing demand		4,947,070
Savings		27,324,325
Certificates of deposit		32,810,455
Total deposits		74,303,746
Repurchase agreements		726,284
Capital lease obligation		373,079
Total liabilities to be disposed of through branch sale	$	75,403,109

Item 2.  Management’s Discussion and Analysis.

In the following section, management presents an analysis of Ohio Legacy Corp's financial condition as of September 30, 2011, and results of operations as of and for the three and nine months ended September 30, 2011 and 2010.  This discussion is provided to give shareholders a more comprehensive review of the issues facing management than could be obtained from an examination of the financial statements alone.  This analysis should be read in conjunction with the consolidated financial statements and the accompanying notes included in this Form 10-Q and the Company’s annual report on Form 10-K for the year ended December 31, 2010.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act which can be identified by the use of forward-looking terminology, such as “may,” “might,” “could,” “would,” “believe,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “estimate,” “project,” or “continue” or the negative version of such terms or comparable terminology.  All statements other than statements of historical fact included in this Form 10-Q, including statements regarding our outlook, financial position, results of operation, liquidity, capital resources and interest rate sensitivity are forward-looking statements.

The Private Securities Litigation Reform Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements.  We desire to take advantage of the “safe harbor” provisions of that Act.

Forward-looking statements speak only as of the date on which they are made and, except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date on which the statement is made.

29

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to be materially different from any future results expressed or implied by such forward-looking statements.  Although we believe the assumptions, judgments and expectations reflected in such forward-looking statements are reasonable, we can give no assurance such assumptions, judgments and expectations will prove to have been correct.  Important factors that could cause actual results to differ materially from those in the forward-looking statements included in this Form 10-Q include, but are not limited to:

· competition in the industry and markets in which we operate;

· rapid changes in technology affecting the financial services industry;

· changes in government regulation;

· general economic and business conditions;

· changes in industry conditions created by state and federal legislation and regulations;

· changes in general interest rates and the impact of future interest rate changes on our profitability, capital adequacy and the fair value of our financial assets and liabilities;

· our ability to retain existing customers and attract new customers;

· our development of new products and services and their success in the marketplace;

· the adequacy of our allowance for loan losses; and

· our anticipated loan and deposit account growth, expense levels, liquidity and capital resources and projections of earnings.

OVERVIEW OF STRATEGIC DEVELOPMENTS

In October 2011, Premier Bank & Trust completed the sale of two branch offices located in Wooster, Ohio, to The Commercial and Savings Bank of Millersburg, Ohio (“CSB”), a wholly owned subsidiary of CSB Bancorp, Inc., under an agreement (the “Agreement”) entered into during June 2011.  The assets and liabilities identified for sale are included in the categories of “Assets and Liabilities to be Disposed of through Branch Sale” on the Consolidated Balance Sheets.

Under the terms of the Agreement, CSB purchased approximately $9 million in loans, net of an allocation of the Allowance for Loan and Lease Losses totaling $600,000, real estate, fixtures and equipment associated with the branch locations, and deposits and other liabilities of $75 million.   CSB paid a premium of $3.5 million, or 5% of the average amount of assumed deposits during the ten day period prior to and the day of closing less a fixed stated amount of $166,000.  In addition to the loans, real estate, and fixed assets sold to CSB, the transaction was funded with approximately $42 million in cash and $19 million in borrowings from the Federal Home Loan Bank.  This transaction positions the Company to focus on our core market of Stark County, Ohio, and provides future expansion potential.

In September 2011, the Bank was advised by its primary regulator, the Office of the Comptroller of the Currency (the” OCC”), that it had terminated the Consent Order entered into during February 2009 since the Bank demonstrated full compliance with all terms of the Consent Order, and the continued existence of the Consent Order was no longer required.  As a result, the Bank is considered well-capitalized bank under the risk-based capital regulations governing the banking industry and is no longer classified by the OCC as a “troubled” institution.

30

The following key factors summarize the Company’s financial condition at September 30, 2011 compared to December 31, 2010:

· Total assets increased $15.0 million to $185.6 million from $170.6 million.

· Assets and liabilities associated with the branch sale to CSB were segregated on the Consolidated Balance Sheets as of September 30, 2011, reflecting the intention of the Company to dispose of these assets and liabilities through the branch sale.  These assets and liabilities are collectively referred to as the “Disposal Group”.

· Liquidity remained high during the third quarter with cash and cash equivalents increasing $19.3 million to $51.9 million. Liquidity will decrease following the sale of deposits associated with the Wooster branch offices in October 2011.

· Net loans increased $2.6 million to $103.7 million.  Excluding the reclassification of $9.1 million in loans identified for the branch sale, total loans increased $11.6 million to $112.8 million.

· Total deposits decreased $55.1 million to $88.1 million due to the reclassification of $74.3 million in deposits identified for the branch sale.  Excluding this reclassification, total deposits increased $19.2 million from $143.2 million to $162.4 million.

· The Bank raised time deposits from other financial institutions totaling $11.2 million with an average account balance of $223,000 through a national certificate of deposit rate listing service offered through a subscription to participating financial institutions to provide funds for the branch sale and provide additional liquidity following the closing of the sale.  Retail depositors continued the trend toward investing in money market fund and savings deposit balances and reducing time deposit balances.

· Debt with the Federal Home Loan Bank totaling $5 million was repaid.

· Total shareholders’ equity decreased $711,000 from $16.5 million to $15.8 million principally due to the operating loss recorded by the Company for the nine months ending September 30, 2011.

The following key factors summarize our results of operations for the nine months ending September 30, 2011:

· The Company incurred a net loss of $987,580 in 2011 compared to a loss of $3,065,489 for the same period in 2010.

· Net interest income improved $209,352 in 2011 compared to the same period in 2010.

· The Company reduced its allowance for loan loss through a negative loan loss provision of $135,069 in 2011 compared to provision expense of $140,743 for the same period in 2010.

· Noninterest income increased $989,956 primarily driven by an increase in trust and brokerage services fee income of $457,090, an increase in gains on securities sales of $326,801 and a reduction in the loss realized on disposition of other real estate owned of $179,827.  Trust and brokerage services are new services offered by the Company beginning with the second quarter of 2010.

· Noninterest expense decreased by $602,789 principally due to the absence of investor expenses of $517,222 recorded in the first quarter of 2010 in connection with the assignment of promissory notes from Excel Financial to the Company in connection with the assignment of the Stock Purchase Agreement to Excel Bancorp by Excel Financial.

The following forward-looking statements describe our near term outlook:

· Assets are expected to decrease and capital will increase during the fourth quarter of 2011 due to the sale of deposits associated with two branch offices in Wayne County, Ohio;

· Liquidity will decrease following  the sale of the Wayne County branch offices in October 2011 which should improve our margins;

· Credit quality will remain a primary focus of the Company, and costs associated with credit administration and collection efforts will remain high;

31

· Commercial lending,  with an emphasis on commercial and industrial lending, and new services in trust, brokerage and wealth management are expected to expand;

· Operating expenses associated with the change in management during 2010 and new services are expected to be higher than the historical compensation costs at the Company;

· The Bank’s costs associated with its regulatory risk profile including FDIC insurance and regulatory examination costs will remain high until asset quality and earnings improve.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements and related disclosures in accordance with U.S. generally accepted accounting principles requires us to make judgments, assumptions and estimates at a specific point in time that affect the amounts reported in the accompanying consolidated financial statements and related notes.  In preparing these financial statements, we have utilized available information including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality.  It is possible that the ultimate outcome as anticipated by management in formulating our estimates inherent in these financial statements may not materialize.  Application of the critical accounting policies described below involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.  In addition, other companies may utilize different estimates, which may impact the comparability of our results of operation to similar businesses.

Allowance for loan losses.  The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and recoveries, and decreased by charge-offs.  We estimate the allowance balance by considering the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.  Loan losses are charged against the allowance when we believe the loan balance cannot be collected.

We consider various factors, including portfolio risk, economic environment and loan delinquencies, when determining the level of the provision for loan losses.  We monitor loan quality monthly and use an independent third party each quarter to review our loan grading system.

Valuation allowance for deferred tax assets.  Another critical accounting policy relates to valuation of the deferred tax asset for net operating losses. Net operating loss carryforwards of approximately $8,987,000 will expire as follows: $1,419,000 on December 31, 2027, $132,000 on December 31, 2028, $1,694,000 on December 31, 2029, and $5,742,000 on December 31, 2030.  A valuation allowance has been recorded for the related deferred tax asset for these carryforwards and other net deferred tax assets recorded by the Company to reduce the carrying amount of these assets to zero.  Additional information is included in Note 10 to our consolidated financial statements.

FINANCIAL CONDITION – September 30, 2011 compared to December 31, 2010

Assets.At September 30, 2011, total assets increased to $185.6 million, up $15.0 million from $170.6 million at December 31, 2010.   The asset increase was principally due to an increase in deposits of $19.2 million (including deposits in the Disposal Group) which was partially offset by the repayment from operating liquidity of Federal Home Loan Bank advances totaling $5 million during the first quarter of 2011.

Cash and Cash Equivalents.  Cash and cash equivalents increased to $51.9 million at September 30, 2011, up $19.3 million from year-end 2010.  The increase in cash was due to proceeds received from sales and calls of securities available for sale that were not reinvested and proceeds from an increase in deposits.  The sale of deposits associated with two branch offices in Wayne County, Ohio required a substantial use of cash when the transaction closed in October 2011.

32

Securities.Total securities available for sale had an estimated fair value of $11.1 million at September 30, 2011, compared to $25.2 million at year-end 2010.  Sales of securities available for sale totaled $10.8 million and maturities, calls and principal repayments totaled $13.0 million.  Securities sales consisted principally of GNMA mortgage-backed securities issued in 2009 with an original term of 30 years and a coupon rate of 4.5% to 5.0%.  These securities were sold in part as a defensive move to reduce the market price sensitivity of the portfolio to rising interest rates and to raise cash for the Wayne County branch office sale.  The net unrealized gain on the securities portfolio was $482,279 at September 30, 2011 compared to a net unrealized gain of $427,807 at December 31, 2010.  At June 30, 2011, the Company reclassified its municipal securities portfolio from the held-to-maturity classification to the available-for-sale sale classification, since it no longer intends to hold these securities to maturity.

Loans and Asset Quality.  Total loans, net of the allowance for loan loss and deferred loan fees, increased $2.6 million to $103.7 million.  Loans reclassified as assets to be disposed of through the branch sale totaled $9.1 million. Excluding this reclassification, total loans, net of the allowance for loan loss and deferred loan fees, increased $11.6 million at September 30, 2011.

Loans classified by management as special mention, substandard, doubtful and not deemed impaired represented 7.4% of total loans at September 30, 2011, compared to 12.5% at December 31, 2010.  Impaired loans represented 1.6% of total loans at September 30, 2011, and totaled $1,684,209, down $1,725,033 from year-end 2010.  Loan balances classified as special mention or substandard that are included in the Disposal Group total approximately $2.3 million.  Improving asset quality continues to be a prime objective for management.   Aside from this pending sale, outstanding loan balances are expected to increase over the remainder of the year through business development efforts.  However expected loan growth may be constrained by continued economic weakness in the markets served by the Company.

Allowance for loan losses.The balance of the allowance for loan loss at September 30, 2011, was $2,364,643 excluding $600,000 for the portion of the allowance allocated to loans in the Disposal Group compared to $3,055,766 at year-end 2010.  For the nine months ending September 30, 2011, the allowance for loan loss was reduced by a negative loan loss provision of $135,069.  Recoveries on loans previously charged-off totaled $371,180. The amount of the allowance for loan loss is based on a combination of actual experiential factors such as historical losses for each category of loans, information about specific borrowers, and other factors, including delinquencies, general economic conditions and the outlook for specific industries, which are more subjective in nature.

The reduction to the allowance is directionally consistent with the trends in the criticized loan portfolio.  Criticized loans decreased as a result of loan risk upgrades on specific loans and principal reductions from payments.  Another contributing factor was a decrease in the historical loss percentages.  These loss rates are regularly updated to reflect the most recent three years of loss experience.   The loss rate for special mention and substandard loans for the first three quarters in 2011 (added to the loss experience calculation during the quarter) were lower than the loss experience for the first three quarters of 2008 that were eliminated from the calculation.

The general allowance allocated to loans not classified by management totaled 1.63% of non-classified loans at September 30, 2011, compared to 1.90% at year-end 2010.  As a percentage of total loans, the allowance decreased to 2.23% at September 30, 2011, compared to 2.93% at year-end 2010.  The allowance for loan loss as a percentage of loans not individually identified as impaired and that excludes the amount of the allowance specifically allocated to impaired loans totaled 2.14% at September 30, 2011, compared to 3.02% at year-end 2010.  Specific allocations of the allowance for impaired loans increased to $125,585 at September 30, 2011 compared to $6,435 at year-end 2010.

33

Assets acquired in settlement of loans.These assets include other real estate owned (“OREO”) and an interest in a limited liability company acquired during 2010 that owns the real estate and operations of an indoor water park and resort obtained through a U.S. Bankruptcy Code 363 sale.  The limited liability company was formed by the lead bank for the banks participating in the project financing to acquire title to the real estate, conduct the operation of the facility, and market the real estate and the operations of the business for sale.  The carrying value of its interest is $1.3 million and is based upon the estimated fair value of the real estate less costs to sell.

Other real estate owned consisted of eight properties and totaled $1.1 million at September 30, 2011 compared to $1.0 million at year-end 2010.   Six properties were sold for a net loss of $52,085, and six properties with an estimated value of $604,000 were transferred to OREO during 2011.

Deposits.Total deposits decreased by $55.1 million to $88.1 million after the reclassification of $74.3 million in deposits to the Disposal Group at September 30, 2011, compared to year-end 2010.  Including those deposits reclassified to the Disposal Group, total deposits increased $19.2 million at September 30, 2011 compared to December 31, 2010.  Time deposits totaling $11.2 million were acquired from financial institutions subscribing to a national time deposit rate listing service.  These deposits had a weighted average rate of 0.54% with an average maturity of 376 days.  This funding source is less expensive than rates paid in the retail deposit market, but there is no opportunity to cross-sell other products and services to these depositors.  It has also allowed the Bank to extend the maturity term of its deposits since retail depositors have migrated into money market funds as customers anticipate higher interest rates in the near term reflecting an unwillingness to lengthen deposit maturities.

Federal Home Loan Bank Advances.Debt remaining from the Federal Home Loan Bank was repaid during the first quarter of 2011.  The weighted average interest rate on $5.0 million in matured advances was 2.43%.  The advances were repaid from excess operating liquidity.

Shareholders’ Equity.  Shareholders’ Equity decreased $711,000 to $15.8 million at September 30, 2011.  The decrease was due to the operating loss of $988,000 incurred for the nine months of 2011.  Stock-based compensation expense of $153,000 increased equity as well as $124,000 in other comprehensive income related to the appreciation in market value of securities available for sale including the impact of the reclassification of securities to the available-for-sale classification from the held-to-maturity classification.

34

RESULTS OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2011

The net loss for the three months ending September 30, 2011, totaled $280,069 or a loss of $0.01 per diluted share compared to a net loss of $1,155,131, or $0.06 per diluted share during the third quarter of 2010.  Average diluted shares outstanding were unchanged at 19,714,564 shares for the third quarter of 2011 compared to the same quarter of 2010.

The following table sets forth information relating to the average balance sheet and reflects the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the periods indicated.  These yields and costs are derived by dividing income or expense, on an annualized basis, by the average balances of interest-earning assets or interest-bearing liabilities for the periods presented.

	Three Months Ended September 30,
	2011							2010
			Interest							Interest
	Average		Earned/		Yield/			Average		Earned/		Yield/
(Dollars in Thousands)	Balance		Paid		Rate			Balance		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other financial institutions and federal funds sold	$	44,476	$	25		0.22	%	$	36,979	$	25		0.27	%
Securities available for sale		13,480		90		2.67	%		29,005		218		2.98	%
Securities held to maturity		-		-		-	%		2,995		28		3.78	%
Federal agency stock		1,518		18		4.65	%		1,558		20		4.98	%
Loans (1)		109,007		1,409		5.13	%		92,745		1,382		5.91	%
Total interest-earning assets		168,481		1,542		3.63	%		163,282		1,673		4.06	%
Noninterest-earning assets		7,849							9,719
Total assets	$	176,330						$	173,001
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	9,712	$	6		0.26	%	$	9,036	$	12		0.53	%
Savings accounts		13,359		12		0.35	%		15,833		29		0.72	%
Money market accounts		51,082		71		0.56	%		45,141		100		0.88	%
Certificates of deposit		55,989		181		1.28	%		54,307		305		2.23	%
Total interest-bearing deposits		130,142		270		0.82	%		124,317		446		1.42	%
Other Borrowings		4,967		19		1.48	%		13,129		85		2.56	%
Total Interest-bearing liabilities		135,109		289		0.85	%		137,446		531		1.53	%
Noninterest-bearing demand deposits		24,529							17,061
Noninterest-bearing liabilities		700							883
Total liabilities		160,338							155,390
Shareholders' equity		15,992							17,611
Total liabilities and
shareholders' equity	$	176,330						$	173,001
Net interest income; interest rate spread (2)			$	1,253		2.78	%			$	1,142		2.53	%
Net earning assets	$	33,372						$	25,836
Net interest margin (3)						2.95	%						2.77	%
Average interest-earning assets to interest-bearing liabilities		1.2		X					1.2		X

(1) Net of net deferred loan fees and costs and loans in process. Non-accrual loans are reported in non-interest earning assets in this table.

(2) Interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.

(3) Net interest margin represents net interest income, annualized, divided by average interest-earning assets.

Net interest income.For the three months ending September 30, 2010, net interest income was $1,253,093, up $111,379 from same period in 2010 while total interest earning assets were up $5.2 million.  The yield on earning assets declined 0.43% to 3.63% for the third quarter of 2011 from 4.06% for the comparable period of 2010.  The yield on interest-bearing liabilities declined 0.68% to 0.85% for the third quarter of 2011 from 1.53% for the same period in 2010. The net interest margin increased to 2.78% from 2.53%.

Interest Income.  Total interest income for the third quarter of 2011 was $1.5 million, down from $1.7 million for the third quarter of 2010.  A low interest rate environment combined with a larger allocation of funds to liquid assets or securities with a shorter duration contributed to lower interest income levels.  Average balances in funds invested in interest-bearing deposits and federal funds sold increased to $44.5 million earning only 0.22% during the third quarter of 2011 compared to $37.0 million at a yield of 0.27% during the third quarter of 2010.  Management increased liquidity during the third quarter of 2011 anticipating the closing of the branch sale transaction on October 14, 2011.  Although the yield on loans decreased from 5.91% to 5.13%, an increase in average loan balances of $16.3 million more than offset the impact of lower rates on the loan portfolio for the comparative quarter as interest income on loans increased by $28,000.

35

Interest expense.  Interest on deposits declined $176,000 to $270,000 for the third quarter of 2011 compared to the same period in 2010.  The average rate paid on interest-bearing deposits dropped 0.60% to 0.82%.  Interest expense related to other borrowings including Federal Home Loan Bank advances declined by $66,000.  Management expects that it will be difficult to achieve further reductions to the cost its core deposits since the current cost is already priced at historically low rates.

Provision for Loan Loss.A negative loan loss provision totaling $108,874 was recorded during the third quarter of 2011, compared to provision expense of $287,450 for the same quarter last year; negative loan loss provisions provide a positive contribution to net income.  The provision for loan loss will fluctuate based on management’s evaluation of the credit within the loan portfolio, changes in credit loss experience factors, and incurred losses in the loan portfolio during the period.  See also the discussion above for the Allowance for Loan Losses.

Noninterest income.Noninterest income increased $466,548 to $622,173 for the third quarter of 2011 compared to $155,625 for the same quarter of 2010.  The increase was largely driven by an increase in trust and brokerage fees, securities gains, and a reduction to the loss on disposition of other real estate owned.

Service charges and other fees declined $24,398, to $157,955 for the third quarter of 2011 compared to the same period of 2010.  The decline was due to lower overdraft fee income which decreased by approximately $40,000.

The Bank’s trust department and brokerage business generated $196,278 in gross fees during the third quarter of 2011, up from $66,877 for the comparative quarter of 2010.  These services, newly introduced during the second quarter of 2010, garnered assets under management in excess of $100 million in 2011.

Gains realized on the sale of securities during the third quarter of 2011 totaled $325,032.  The bonds sold were 5% coupon, 30 year GNMA mortgage-backed securities originally issued in 2009.  Three bonds were sold to raise liquidity in anticipation of the branch sale closing in October 2011 and to reduce the overall interest rate risk exposure of the investment portfolio.  No gains were realized during the third quarter of 2010.

Gains on sale of loans increased $13,462 to $23,185 for the third quarter of 2011 compared to the same quarter of 2010.  Low mortgage rates prevailed during the quarter contributing to a pickup in mortgage activity.

Losses recorded on the disposition of other real estate owned during the third quarter of 2011 declined to $86,934, an improvement over a net loss of $112,436 recorded during the third quarter of 2010.  Direct write-downs in the value of OREO totaled $70,148 for one property in the third quarter of 2011 and $295,093 for two properties in the comparative quarter of 2010.

Noninterest expense.Noninterest expense decreased $50,195 to $2,114,825 for the third quarter of 2011 compared to $2,165,020 for the third quarter of 2010.  Non-recurring expenses related to the pending branch sale totaled $166,687 for the third quarter of 2011.  The significant changes are detailed below.

Salaries and benefits, excluding severance benefits classified as part of branch disposal expenses associated with the pending branch sale, decreased $71,815 to $976,541 for the third quarter of 2011 compared to $1,048,356 for the same period of 2010. The reduction in compensation costs is principally related to an increase in the deferral of costs associated with loan originations.  Since the change of control in February 2010, Management has increased staff significantly in support of lending, trust and brokerage, branch management, and human resources, therefore personnel costs are higher than historical levels for the Company.  Benefits expense associated with incentive stock options granted during the last half of 2010 totaled $50,217 and $45,325 for the third quarter of 2011 and 2010, respectively.

36

Occupancy and equipment costs increased $10,125 to $233,673 for the third quarter of 2011.  Increases in rent, property taxes and utilities were incurred while building repairs and maintenance costs declined.

Professional fees, including legal, accounting and other consulting expense, decreased $23,639 to $166,814 for the third quarter of 2011 principally due to a reduction in costs for consultants.

Franchise tax increased $44,625 to $51,875 for the third quarter of 2011.  Ohio franchise tax for financial institutions for the current year is based on the Bank’s net worth on the last day of the prior calendar year end; higher capital levels at year-end 2010 compared to year-end 2009 resulted in higher costs for 2011.

Data processing charges include costs for internet banking, core systems data processing and courier charges.  This expense category decreased $38,412 to $182,818.  This cost is principally driven by the costs associated with core processing and is largely driven by transaction volumes.

Marketing costs were down $19,639 for the third quarter of 2011 to $11,760.  This reduction is attributed to the difference in the timing when costs are incurred.  General marketing costs for 2011, except for costs incurred related to the Bank’s name change in 2010, are expected to be similar to the costs incurred in 2010.

Costs incurred during the third quarter of 2011 associated with the pending sale of the Wooster branch offices totaled $166,687.  These costs included severance costs associated with terminated employees in the market totaling $134,079, legal expenses of $19,083 and $13,525 in other costs.

Other expenses decreased $116,251 during the third quarter of 2011 compared to the same period in 2010.  Loan-related expense decreased $94,679, other real estate owned expenses decreased $7,116, and insurance expense decreased $13,584 contributing to this cost savings.

RESULTS OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2011

The net loss for the nine months ending September 30, 2011, totaled $987,580, or a loss of $0.05 per diluted share compared to a net loss of $3,065,489, or $0.18 per diluted share during the same period of 2010.  Average diluted shares outstanding were 19,714,564 shares for the nine months ending September 30, 2011, compared to average diluted shares of 16,573,538 for the comparative prior year period.  During February 2010, 17.5 million shares were issued in connection with a common stock offering.

The following table sets forth information relating to the average balance sheet and reflects the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the periods indicated.  These yields and costs are derived by dividing income or expense, on an annualized basis, by the average balances of interest-earning assets or interest-bearing liabilities for the periods presented.

	Nine Months Ended September 30,
	2011							2010
			Interest							Interest
	Average		Earned/		Yield/			Average		Earned/		Yield/
(Dollars in Thousands)	Balance		Paid		Rate			Balance		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other financial institutions and federal funds sold	$	38,726	$	65		0.23	%	$	33,382	$	57		0.23	%
Securities available for sale		17,424		360		2.75	%		27,446		727		3.53	%
Securities held to maturity		1,564		45		3.87	%		2,996		86		3.81	%
Federal agency stock		1,531		56		4.88	%		1,434		53		4.93	%
Loans (1)		103,666		4,155		5.36	%		94,816		4,374		6.17	%
Total interest-earning assets		162,911		4,681		3.84	%		160,074	$	5,297		4.42	%
Noninterest-earning assets		8,072							10,213
Total assets	$	170,983						$	170,287

37

	Nine Months Ended September 30,
	2011							2010
			Interest							Interest
	Average		Earned/		Yield/			Average		Earned/		Yield/
(Dollars in Thousands)	Balance		Paid		Rate			Balance		Paid		Rate
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	9,682	$	21		0.29	%	$	9,203	$	43		0.62	%
Savings accounts		13,496		38		0.37	%		16,386		102		0.83	%
Money market accounts		50,022		225		0.60	%		42,606		281		0.88	%
Certificates of deposit		53,245		592		1.49	%		56,015		1,029		2.46	%
Total interest-bearing deposits		126,445		876		0.93	%		124,210		1,455		1.57	%
Other Borrowings		5,019		70		1.85	%		14,031		317		3.01	%
Total Interest-bearing liabilities		131,464		946		0.96	%		138,241	$	1,772		1.71	%
Noninterest-bearing demand deposits		22,638							16,102
Noninterest-bearing liabilities		761							871
Total liabilities		154,863							155,214
Shareholders' equity		16,120							15,073
Total liabilities and
shareholders' equity	$	170,983						$	170,287
Net interest income; interest rate spread (2)			$	3,735		2.88	%			$	3,525		2.71	%
Net earning assets	$	31,447						$	21,833
Net interest margin (3)						3.07	%						2.95	%
Average interest-earning assets to interest-bearing liabilities		1.2		X					1.2		X

(1) Net of net deferred loan fees and costs and loans in process. Non-accrual loans are reported in non-interest earning assets in this table.

(2) Interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.

(3) Net interest margin represents net interest income, annualized, divided by average interest-earning assets.

Net interest income.  For the nine months ended September 30, 2011, net interest income was $3.7 million, up $209,352 from the same period in 2010. Total interest and dividend income decreased $615,966.  This decrease in revenue was offset by a decrease of $825,318 in total interest expense.  The net interest margin improved to 3.07% from 2.95%.

Management expects net interest margins may be negatively impacted by a sustained low interest rate environment.  There is little room to reduce the cost of funds further and earning assets will continue to reprice downward as interest-earning assets mature or reprice during a sustained period of low interest rates.  This could be exacerbated by the Federal Reserve Bank’s Open Market Committee’s (FOMC) stated intent to influence longer term interest rates through the purchase of longer term U.S. Treasury bonds on the open market with the intention of lowering longer term interest rates below current levels.  On September 21, 2011, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase, by the end of June 2012, $400 billion in par value of Treasury securities with remaining maturities of 6 years to 30 years and to sell, over the same period, an equal par value of Treasury securities with remaining maturities of 3 years or less.  The FOMC also directed the Desk to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS.  These purchases create a demand for bonds that could ultimately increase the price of the bonds thereby lowering interest rates in those maturity ranges since interest rates move inversely with bond prices.

Interest income.  Interest income decreased by $615,966 for the nine months of 2011 compared to 2010.  The average balance of funds invested in interest-bearing deposits in other financial institutions and federal funds sold increased by $5.3 million to $38.7 million representing 23.8% of earning asset balances and yielded 0.23% in 2011.  Lower yields on the investment and loan portfolios contributed about $735,000 to the decline in interest income.  The average balance of the investment portfolio decreased $11.5 million contributing about $305,000 to the decline in interest income. The average loan balances increased by $8.9 million contributing about $408,000 in interest income partially offsetting the reductions to interest income due to lower yields.

38

Interest expense.  A sustained low interest rate environment was evident in the decline in the Company’s cost of interest-bearing liabilities to 0.96% from 1.71% for the nine months of 2011 compared to the same period of 2010.  The cost of every funding category declined.  The volume of average interest-bearing liabilities declined $6.8 million.  The average balances of certificates of deposit balances declined $2.8 million and borrowings declined $9.0 million, while money market balances increased $7.4 million.  Advances owed to the Federal Home Loan Bank totaling $5.0 million were repaid during 2011.

Provision for loan losses.  A negative loan loss provision totaling $135,069 was recorded for the nine months ended September 30, 2011; this had a positive effect on earnings.  During the same period of 2010, the Company recorded provision expense of $140,743.  The provision for loan loss will fluctuate based on management’s evaluation of the credits within the loan portfolio, changes in credit loss experience factors, and incurred losses in the loan portfolio during the period.  See also the discussion above for the Allowance for Loan Losses.

Noninterest income.  Noninterest income increased to $1,346,987 for the first nine months of 2011 from $357,031 for the same period in 2010.  Significant changes to the components of noninterest income for the nine months ended September 30, 2011 compared to September 30, 2010 are discussed below.

Service charges and other fees declined $77,122 to $463,739 for 2011 compared to 2010.  The decline was due to lower overdraft fee income which decreased by approximately $98,000, and reflects a shift in customer behavior.

The Bank’s trust department and brokerage business generated $541,328 in gross fees during the first nine months of 2011, up from $84,238 for the comparative period of 2010.  These are newly offered financial services that began during second quarter of 2010.

Gains on sale of securities available of sale resulted in revenue of $358,030 for the 2011 period also contributing to the increase in total noninterest income.  Securities sold included $10.8 million of 30 year GNMA mortgage-backed securities issued during 2009.  These securities were sold to reduce the price sensitivity of the Bank’s securities portfolio.  Sales during the third quarter of 2011 were completed to raise liquidity for the pending branch sale.  Gains on the sale of securities available for sale resulted in revenue of $31,229 in the 2010 period.  However, these gains were more than offset by an “other-than-temporary” impairment charge on FNMA and FHLMC preferred stock totaling $47,200.

Gains on sale of loans increased $56,374 to $71,425 for the 2011 period.  Low mortgage rates prevailed during 2011 contributing to a pickup in mortgage activity, and home purchase activity  recently began to improve in the Bank’s market area.

Net losses recorded on the disposition of other real estate owned during the 2011 period totaled $122,233 compared to net losses of $302,060 for the 2010 period.  The loss for 2011 included a direct write-down in value for one property for $70,148. Sales of six properties resulted in net losses of $52,085.  During the first nine months of 2010, direct write-downs in the value of OREO for four properties totaled $514,890 and were partially offset by a gain of $212,830 on the sale of fourteen properties.

Noninterest expense.  Total noninterest expense decreased $602,789 to $6.2 million compared to $6.8 million for the nine months of the prior year. In 2010, substantial costs were incurred related to the change in ownership control and subsequent change in management.  The Company recorded investor expenses of $517,222 in February 2010 in connection with the assignment of promissory notes from Excel Financial to the Company in connection with the assignment of the Stock Purchase Agreement to Excel Bancorp by Excel Financial.   The investor expenses represent expenses incurred in connection with the pursuit of an acquisition of a financial institution and development of fiduciary services in connection with an acquisition.  Other changes comparing the first nine months of 2011 to the same period of 2010 are described below.

39

Compensation costs, excluding severance benefits classified as part of branch disposal expenses associated with the pending branch sale, increased $141,851 to $3,057,451 for the nine months of 2011.  Benefits cost for the nine months of 2011 included $152,960 in expense associated with incentive stock options that were granted during the last half of 2010 compared to $47,468 in stock based compensation expense for the first nine months of 2010.  Salaries and benefits for the asset management business increased $109,842 for the first nine months of 2011 compared to the same period in 2010 based on a full nine months of operation in 2011 compared to partial year operations in the prior period. A position for loan workout, previously outsourced to a consultant in 2010, was eliminated and replaced with internal staffing resulting in a net cost savings for the Company.  Salaries expense for the first nine months of 2010 included incentive payments totaling $175,500 paid to newly hired management.  Salaries and benefits expense also included salary continuation for terminated staff totaling $61,603 and for departing executive management totaling $85,569.  New positions were added during 2010 in trust and investment services, credit administration, and other departments within the Company.

Occupancy and equipment costs increased $56,817 for the nine months of 2011.  Increases in costs were incurred for rent, property taxes, insurance and depreciation expense.

Professional fees decreased $141,050 for the nine months of 2011.  These costs include legal, accounting and auditing, regulatory examination and consulting fees.  Costs for consultants and regulatory examination costs were lower in 2011 by approximately $187,000.  Consulting fees of $140,000 were paid to Excel Financial for the period prior to closing the stock offering in 2010; no costs were incurred from Excel Financial during the first nine months of 2011.  Accounting and auditing fees increased by approximately $33,000.  The internal audit and loan review functions were outsourced to CPA firms with practices in these fields resulting in this increase.  Legal expense increased by approximately $13,000.

Franchise tax increased $135,375 to $158,175 for the first nine months of 2011.   Ohio franchise tax for financial institutions for the current year is based on the Bank’s net worth on the last day of the prior calendar year end; higher capital levels at year-end 2010 compared to year-end 2009 resulted in higher costs for 2011.

Marketing and advertising expense decreased $75,336 to $51,118 for the nine month of 2011.  Most of this decrease relates to the absence of expense in 2011 associated with a name change for the Bank in 2010.  During the first quarter of 2010, the Board of Directors of the Bank approved changing the name of the Bank to Premier Bank & Trust, National Association.  The Bank opted to include “Trust” in its name in connection with obtaining fiduciary powers from the Office of the Comptroller of the Currency.  Costs associated with the name change in 2010 were approximately $47,000 and included logo design, the reissuance of credit and debit cards, and promotional materials.

Deposit expense and insurance fees decreased $86,491 to $299,501 for the nine months of 2011.  A change in the deposit insurance assessment base to total assets, net of Tier 1 capital, instead of total deposits and an improvement in the Bank’s risk rating for FDIC insurance based partly on higher capital levels following the common stock issuance in February 2010 were two factors that contributed to a reduction in FDIC deposit insurance expense totaling $83,334 for 2011.

Non-recurring costs incurred for the pending sale of the Wooster branch offices totaled $166,687.  These costs included severance costs associated with terminated employees in the market totaling $134,079, legal expenses of $19,083, data processing costs of $9,524, and other costs of $4,001.

40

Other expenses decreased $275,392 to $681,865 for the first nine months of 2011.  Loan expenses declined by $195,152 and OREO related expenses decreased $78,494.  These savings were partially offset by increases in other miscellaneous expenses.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS

On June 23, 2011, the Bank entered into an Office Purchase and Assumption Agreement (the “Agreement”), with The Commercial and Savings Bank of Millersburg, Ohio (“CSB”), a wholly owned subsidiary of CSB Bancorp, Inc., that provided for the sale of certain assets and the transfer of certain liabilities relative to two Premier branches located in Wooster, Ohio.  On October 14, 2011, the sale of these assets and liabilities was completed. CSB purchased certain assets of the branches at book value, including real estate, fixtures and equipment associated with the branch locations, and approximately $9.1 million in loans, while assuming $74.3 million in branch deposits and a lease obligation associated with one of the acquired branch locations.  CSB paid a premium of 5% based on the average amount of assumed deposits during a specified period prior to the closing minus a fixed stated amount of $166,000 for a total premium of $3.5 million.

At September 30, 2011, the Company had no active unconsolidated, related special purpose entities, nor did the Company engage in derivatives and hedging contracts, such as interest rate swaps, that may expose the Company to liabilities greater than the amounts recorded on the consolidated balance sheet.  The investment policy prohibits engaging in derivatives contracts for speculative trading purposes; however, the Company may pursue certain contracts, such as interest rate swaps, to execute a sound and defensive interest rate risk management policy.

LIQUIDITY

Liquidity refers to our ability to fund loan demand and customers’ deposit withdrawal needs and to meet other commitments and contingencies. The purpose of liquidity management is to ensure sufficient cash flow to meet all of our financial commitments and to capitalize on opportunities for business expansion in the context of managing the Company’s interest rate risk exposure. This ability depends on our financial strength, asset quality and the types of deposit and loan instruments we offer to our customers.

Our principal sources of funds are deposits, loan and security repayments, maturities and sales of securities, borrowings from the FHLB and capital transactions.  Alternative sources of funds include repurchase agreements and brokered certificates of deposit and the sale of loans.  While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan and security prepayments are more influenced by interest rates, general economic conditions and competition.  We maintain investments in liquid assets based upon our assessment of our need for funds, our expected deposit flows, yields available on short-term liquid assets and the objectives of our asset/liability management program.

We have implemented a liquidity contingency funding plan that identifies liquidity thresholds and red flags that may provide evidence of an impending liquidity crisis.  Additionally, the liquidity contingency plan details specific actions to be taken by management and the Board of Directors and identifies sources of emergency liquidity, both asset and liability-based, should we encounter a liquidity crisis.  We actively monitor our liquidity position and analyze various scenarios that could impact our ability to access emergency funding in conjunction with our asset/liability and interest rate risk management activities.

The Consolidated Statement of Cash Flows provides details on sources and uses of cash for the nine months ending September 30.  Cash and cash equivalents increased $19.3 million to $51.9 million at September 30, 2011 since year-end 2010.  To assist in funding the branch sale to CSB, the Company expects to borrow approximately $19 million from the Federal Home Loan Bank.  Approximately $42 million in cash available from current liquidity will also fund the transaction.

41

CAPITAL RESOURCES

Total shareholders’ equity was $15.8 million at September 30, 2011, a decrease of $711,000 from the prior year-end balance.  The decrease in equity was primarily due to the net loss of approximately $988,000 incurred by the Company for the nine months of 2011.  Stock-based compensation expense of approximately $153,000 increased equity as well as $124,000 in other comprehensive income related to the appreciation in market value of securities available for sale including the impact of the reclassification of securities to the available-for-sale classification from the held-to-maturity classification.

The Bank is subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. Failure to meet capital requirements can initiate regulatory action.  At September 30, 2011, the Bank was well capitalized under the provisions of prompt corrective action.  See Note 9 for more information regarding the regulatory capital requirements for the Bank and the Bank’s capital ratios as of September 30, 2011.

The payment of dividends by the Bank to the Company and by the Company to shareholders is subject to restrictions by regulatory agencies.  These restrictions generally limit dividends to the sum of the current year’s earnings and the prior two years’ retained earnings, as defined.  In addition, dividends may not reduce capital levels below the minimum regulatory requirements as described above.  The Bank cannot declare dividends without prior approval from the Comptroller of the Currency in 2011.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable for Smaller Reporting Companies.

Item  4T.  Controls and Procedures

As of September 30, 2011, an evaluation was conducted under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended).  Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s third fiscal quarter ended September 30, 2011, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

42

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

There are no matters required to be reported under this item.

Item 1A.  Risk Factors

Not applicable for Smaller Reporting Companies.

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

Not applicable.

Item 3.  Defaults upon Senior Securities.

There are no matters required to be reported under this item.

Item 4.  (Removed and Reserved)

Not Applicable

Item 5.  Other Information.

There are no matters required to be reported under this item.

43

Item 6.  Exhibits.

INDEX TO EXHIBITS

The following exhibits are included in this Report on Form 10-Q or are incorporated herein by reference as noted in the following table:

Exhibit Number	Description of Exhibit
10.1	Office Purchase and Assumption Agreement by and between Premier Bank & Trust, National Association and The Commercial and Savings Bank of Millersburg, Ohio (incorporated herein by reference to Ohio Legacy Corp’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011) (File No. 000-31673)
31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)
32.1	Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Rick L. Hull
	Rick L. Hull, President and Chief Executive Officer and Director (principal executive officer)
Date: November 14, 2011
By:	/s/ Jane Marsh
	Jane Marsh, Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)
Date:  November 14, 2011

45