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 SECURITIESEXCHANGE
      ACT OF 1934





For the quarterly period ended June 30,
2010


or


 ̈
            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(Stateorotherjurisdictionofincorporationororganization)
                  
                  I.R.S. Employer Identification
                    Number





600 South Main St., North Canton,
      Ohio  44720(Address
      of principal executive
offices)





(330) 499-1900Registrant'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
 ̈





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  ̈ No
 ̈





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





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





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





As of
August 16, 2010, 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 SIX MONTHS ENDED JUNE 30, 2010




SECOND
QUARTER REPORT







PagePART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements
                
                3Item
      2. Management’s Discussion and Analysis
                
                20Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk
                
                32Item
      4T. Controls and Procedures
                
                32PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
                
                33Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                33Item
      3. Defaults Upon Senior Securities
                
                33Item
      4. Removed and Reserved
                
                33Item
      5. Other Information
                
                33Item
      6. Exhibits
                
                34SIGNATURES
                
                35


2


PART 1 -
FINANCIAL INFORMATION





Item
1.  Financial Statements.




OHIO
LEGACY CORP


CONSOLIDATED
BALANCE SHEETS


As of
June 30, 2010 and December 31, 2009







June 30,
                        
                        
                        December 31,2010
                        
                        
                        2009(unaudited)ASSETSCash
      and due from banks
                        
                        $
                        1,739,509
                        
                        
                        $
                        1,970,133Federal
      funds sold and interest-bearing deposits in financial
      institutions
                        
                        
                        39,324,681
                        
                        
                        
                        22,195,657Cash
      and cash equivalents
                        
                        
                        41,064,190
                        
                        
                        
                        24,165,790Certificate
      of deposit in financial institution
                        
                        
                        100,000
                        
                        
                        
                        100,000Securities
      available for sale
                        
                        
                        25,635,750
                        
                        
                        
                        26,892,105Securities
      held to maturity (fair value June 30, 2009 - $3,075,613, December 31, 2009
      - 3,050,740)
                        
                        
                        2,995,313
                        
                        
                        
                        2,996,826Loans
      held for sale
                        
                        
                        64,272
                        
                        
                        
                        195,247Loans,
      net of allowance of $3,817,696 and $3,945,670 at June 30, 2010 and
      December 31, 2009
                        
                        
                        94,684,431
                        
                        
                        
                        100,855,165Federal
      bank stock
                        
                        
                        1,557,700
                        
                        
                        
                        1,267,250Premises
      and equipment, net
                        
                        
                        3,094,452
                        
                        
                        
                        2,952,392Other
      real estate owned
                        
                        
                        2,089,217
                        
                        
                        
                        3,175,658Accrued
      interest receivable and other assets
                        
                        
                        697,738
                        
                        
                        
                        640,595Total
      assets
                        
                        $
                        171,983,063
                        
                        
                        $
                        163,241,028LIABILITIESDeposits:Noninterest-bearing
      demand
                        
                        $
                        15,775,601
                        
                        
                        $
                        15,521,829Interest-bearing
      demand
                        
                        
                        9,504,231
                        
                        
                        
                        9,372,841Savings
                        
                        
                        58,399,524
                        
                        
                        
                        57,119,495Certificates
      of deposit, net
                        
                        
                        55,311,658
                        
                        
                        
                        57,784,548Total
      deposits
                        
                        
                        138,991,014
                        
                        
                        
                        139,798,713Repurchase
      agreements
                        
                        
                        3,767,660
                        
                        
                        
                        1,037,776Long-term
      Federal Home Loan Bank advances
                        
                        
                        10,000,000
                        
                        
                        
                        18,500,000Capital
      lease obligations
                        
                        
                        424,855
                        
                        
                        
                        440,786Accrued
      interest payable and other liabilities
                        
                        
                        980,619
                        
                        
                        
                        1,097,242Total
      liabilities
                        
                        
                        154,164,148
                        
                        
                        
                        160,874,517SHAREHOLDERS'
      EQUITYPreferred
      stock, no par value, 500,000 shares authorized, none
      outstanding
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, no par value;June
      30, 2010:  22,500,000 shares authorized, 19,714,564 shares
      issued and outstandingDecember
      31, 2009:  5,000,000 shared authorized, 2,214,564 shares issued
      and outstanding
                        
                        
                        35,499,702
                        
                        
                        
                        18,782,779Accumulated
      deficit
                        
                        
                        (18,089,259
                        )
                        
                        
                        (16,178,901
                        )Accumulated
      other comprehensive income (loss)
                        
                        
                        408,472
                        
                        
                        
                        (237,367
                        )Total
      shareholders' equity
                        
                        
                        17,818,915
                        
                        
                        
                        2,366,511Total
      liabilities and shareholders' equity
                        
                        $
                        171,983,063
                        
                        
                        $
                        163,241,028




See notes
to the consolidated financial statements.




3




OHIO
LEGACY CORP


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





For the Three Months Ended
                  
                  
                  For the Six Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Interest
      and dividend income:Loans,
      including fees
                  
                  $
                  1,488,346
                  
                  
                  $
                  1,747,129
                  
                  
                  $
                  2,992,197
                  
                  
                  $
                  3,691,442Securities,
      taxable
                  
                  
                  248,902
                  
                  
                  
                  449,459
                  
                  
                  
                  509,150
                  
                  
                  
                  850,471Securities,
      tax-exempt
                  
                  
                  28,636
                  
                  
                  
                  28,650
                  
                  
                  
                  57,178
                  
                  
                  
                  57,204Interest-bearing
      deposits, federal funds sold and other
                  
                  
                  19,861
                  
                  
                  
                  7,810
                  
                  
                  
                  32,369
                  
                  
                  
                  14,073Dividends
      on federal bank stock
                  
                  
                  18,266
                  
                  
                  
                  15,874
                  
                  
                  
                  33,540
                  
                  
                  
                  32,338Total
      interest and dividend income
                  
                  
                  1,804,011
                  
                  
                  
                  2,248,922
                  
                  
                  
                  3,624,434
                  
                  
                  
                  4,645,528Interest
      expense:Deposits
                  
                  
                  488,707
                  
                  
                  
                  898,088
                  
                  
                  
                  1,008,320
                  
                  
                  
                  1,837,566Short-term
      Federal Home Loan Bank advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,085Long-term
      Federal Home Loan Bank advances
                  
                  
                  70,083
                  
                  
                  
                  155,909
                  
                  
                  
                  184,570
                  
                  
                  
                  333,181Repurchase
      agreements
                  
                  
                  1,992
                  
                  
                  
                  940
                  
                  
                  
                  3,076
                  
                  
                  
                  1,872Capital
      leases
                  
                  
                  17,370
                  
                  
                  
                  18,574
                  
                  
                  
                  35,060
                  
                  
                  
                  37,421Investor
      notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,693
                  
                  
                  
                  -Total
      interest expense
                  
                  
                  578,152
                  
                  
                  
                  1,073,511
                  
                  
                  
                  1,240,719
                  
                  
                  
                  2,212,125Net
      interest income
                  
                  
                  1,225,859
                  
                  
                  
                  1,175,411
                  
                  
                  
                  2,383,715
                  
                  
                  
                  2,433,403Provision
      for loan losses
                  
                  
                  (223,479
                  )
                  
                  
                  375,000
                  
                  
                  
                  (146,707
                  )
                  
                  
                  556,000Net
      interest income after provision for loan losses
                  
                  
                  1,449,338
                  
                  
                  
                  800,411
                  
                  
                  
                  2,530,422
                  
                  
                  
                  1,877,403Noninterest
      income:Service
      charges and other fees
                  
                  
                  206,439
                  
                  
                  
                  211,068
                  
                  
                  
                  375,869
                  
                  
                  
                  423,253Gain
      on sales of securities available for sale, net
                  
                  
                  31,229
                  
                  
                  
                  -
                  
                  
                  
                  31,229
                  
                  
                  
                  685,948Other
      than temporary impairment lossTotal
      impairment loss
                  
                  
                  (47,200
                  )
                  
                  
                  -
                  
                  
                  
                  (47,200
                  )
                  
                  
                  (111,200
                  )Loss
      recognized in other comprehensive income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      impairment loss recognized in earnings
                  
                  
                  (47,200
                  )
                  
                  
                  -
                  
                  
                  
                  (47,200
                  )
                  
                  
                  (111,200
                  )Gain
      on sale of loans
                  
                  
                  1,864
                  
                  
                  
                  3,677
                  
                  
                  
                  5,328
                  
                  
                  
                  23,167Gain
      on disposition of other real estate owned
                  
                  
                  18,629
                  
                  
                  
                  474
                  
                  
                  
                  30,173
                  
                  
                  
                  38,494Direct
      write-down of other real estate owned
                  
                  
                  (219,797
                  )
                  
                  
                  (24,000
                  )
                  
                  
                  (219,797
                  )
                  
                  
                  (46,500
                  )Loss
      on disposition of fixed assets
                  
                  
                  (7,193
                  )
                  
                  
                  -
                  
                  
                  
                  (8,699
                  )
                  
                  
                  -Other
      income
                  
                  
                  19,656
                  
                  
                  
                  11,757
                  
                  
                  
                  34,505
                  
                  
                  
                  19,352Total
      noninterest income
                  
                  
                  3,627
                  
                  
                  
                  202,976
                  
                  
                  
                  201,408
                  
                  
                  
                  1,032,514Noninterest
      expense:Salaries
      and benefits
                  
                  
                  897,383
                  
                  
                  
                  738,972
                  
                  
                  
                  1,867,245
                  
                  
                  
                  1,465,366Occupancy
      and equipment
                  
                  
                  234,274
                  
                  
                  
                  206,815
                  
                  
                  
                  448,973
                  
                  
                  
                  415,469Professional
      fees
                  
                  
                  144,472
                  
                  
                  
                  51,487
                  
                  
                  
                  416,319
                  
                  
                  
                  154,143Franchise
      tax
                  
                  
                  6,500
                  
                  
                  
                  28,052
                  
                  
                  
                  15,550
                  
                  
                  
                  65,552Data
      processing
                  
                  
                  170,171
                  
                  
                  
                  172,588
                  
                  
                  
                  322,877
                  
                  
                  
                  350,098Marketing
      and advertising
                  
                  
                  29,968
                  
                  
                  
                  21,670
                  
                  
                  
                  95,055
                  
                  
                  
                  48,720Stationery
      and supplies
                  
                  
                  22,410
                  
                  
                  
                  16,755
                  
                  
                  
                  39,290
                  
                  
                  
                  36,533Amortization
      of intangible asset
                  
                  
                  -
                  
                  
                  
                  13,692
                  
                  
                  
                  -
                  
                  
                  
                  29,951Deposit
      expense and insurance
                  
                  
                  93,799
                  
                  
                  
                  361,615
                  
                  
                  
                  294,618
                  
                  
                  
                  487,267Investor
      expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  517,222
                  
                  
                  
                  -Other
      expenses
                  
                  
                  434,656
                  
                  
                  
                  374,705
                  
                  
                  
                  625,039
                  
                  
                  
                  582,312Total
      noninterest expense
                  
                  
                  2,033,633
                  
                  
                  
                  1,986,351
                  
                  
                  
                  4,642,188
                  
                  
                  
                  3,635,411Net
      loss before income taxes
                  
                  
                  (580,668
                  )
                  
                  
                  (982,964
                  )
                  
                  
                  (1,910,358
                  )
                  
                  
                  (725,494
                  )Income
      tax benefit
                  
                  
                  -
                  
                  
                  
                  (6,076
                  )
                  
                  
                  -
                  
                  
                  
                  (250,989
                  )Net
      loss
                  
                  $
                  (580,668
                  )
                  
                  $
                  (976,888
                  )
                  
                  $
                  (1,910,358
                  )
                  
                  $
                  (474,505
                  )Basic
      loss per share
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.44
                  )
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.21
                  )Diluted
      loss per share
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.44
                  )
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.21
                  )




See notes
to the consolidated financial statements.


4




OHIO
LEGACY CORP


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


For the
Six Months Ended June 30, 2010 and 2009


(Unaudited)







For the Six Months EndedJune 30,2010
                
                
                2009Balance,
      beginning of period
                
                $
                2,366,511
                
                
                $
                9,520,857Stock
      based compensation expense (forfeitures)
                
                
                2,143
                
                
                
                (9,547
                )Proceeds
      on sale of common stock, net
                
                
                16,714,781
                
                
                
                -Comprehensive
      loss:Net
      loss
                
                
                (1,910,358
                )
                
                
                (474,505
                )Net
      unrealized income (loss) on securities available for sale arising during
      the period, including effect of reclassifications
                
                
                645,838
                
                
                
                (579,232
                )Total
      comprehensive loss
                
                
                (1,264,520
                )
                
                
                (1,053,737
                )Balance,
      end of period
                
                $
                17,818,915
                
                
                $
                8,457,573





See notes
to the consolidated financial statements.


5




OHIO
LEGACY CORP


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For the
Six Months Ended June 30, 2010 and 2009


(Unaudited)










For the Six Months EndedJune 30,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (1,910,358
                    )
                    
                    $
                    (474,505
                    )Adjustments
      to reconcile net earnings (loss) to net cash from operating
      activities:Depreciation
      and amortization
                    
                    
                    180,967
                    
                    
                    
                    203,598Loss
      (gain) on disposition of fixed assets
                    
                    
                    8,699
                    
                    
                    
                    -Securities
      amortization and accretion, net
                    
                    
                    100,228
                    
                    
                    
                    68,603Origination
      of loans held for sale
                    
                    
                    (159,272
                    )
                    
                    
                    (844,682
                    )Proceeds
      from sales of loans held for sale
                    
                    
                    295,575
                    
                    
                    
                    1,760,787Provision
      for loan losses
                    
                    
                    (146,707
                    )
                    
                    
                    556,000Loss
      (gain) on disposition or direct writedown of real estate
    owned
                    
                    
                    189,624
                    
                    
                    
                    8,016(Gain)
      loss on sale of securities available for sale
                    
                    
                    (31,229
                    )
                    
                    
                    (685,948
                    )Other
      than temporary impairment of securities
                    
                    
                    47,200
                    
                    
                    
                    111,200Gain
      on sale of loans held for sale
                    
                    
                    (5,328
                    )
                    
                    
                    (23,167
                    )Stock
      based compensation expense
                    
                    
                    2,143
                    
                    
                    
                    (9,547
                    )Net
      change in:Accrued
      interest receivable and other assets
                    
                    
                    (57,143
                    )
                    
                    
                    221,506Accrued
      interest payable and other liabilities
                    
                    
                    (116,623
                    )
                    
                    
                    (653,020
                    )Deferred
      loan fees
                    
                    
                    8,795
                    
                    
                    
                    (13,018
                    )Net
      cash from operating activities
                    
                    
                    (1,593,429
                    )
                    
                    
                    225,823Cash
      flows from investing activities:Purchases
      of securities available for sale
                    
                    
                    (3,460,975
                    )
                    
                    
                    (44,758,741
                    )(Purchases)
      or redemptions of federal bank stock
                    
                    
                    (290,450
                    )
                    
                    
                    133,950Maturities,
      calls and paydowns of securities available for sale
                    
                    
                    2,350,575
                    
                    
                    
                    3,388,667Sales
      of securities available for sale
                    
                    
                    2,897,908
                    
                    
                    
                    27,878,086Proceeds
      from sale of other real estate owned
                    
                    
                    1,106,448
                    
                    
                    
                    1,120,250Net
      change in loans
                    
                    
                    6,096,136
                    
                    
                    
                    13,139,582Improvements
      to real estate owned
                    
                    
                    -
                    
                    
                    
                    (99,840
                    )Acquisition
      of premises and equipment
                    
                    
                    (331,927
                    )
                    
                    
                    (636
                    )Other
      investing activities
                    
                    
                    3,080
                    
                    
                    
                    -Net
      cash from investing activities
                    
                    
                    8,370,795
                    
                    
                    
                    801,318Cash
      flows from financing activitiesNet
      change in deposits
                    
                    
                    (807,699
                    )
                    
                    
                    11,366,669Net
      change in repurchase agreements
                    
                    
                    2,729,884
                    
                    
                    
                    (409,320
                    )Repayment
      of capital lease obligations
                    
                    
                    (15,931
                    )
                    
                    
                    (13,570
                    )Proceeds
      from short term FHLB advances, net of payments
                    
                    
                    -
                    
                    
                    
                    (6,850,000
                    )Proceeds
      from FHLB advances
                    
                    
                    -
                    
                    
                    
                    3,000,000Repayments
      of FHLB advances
                    
                    
                    (8,500,000
                    )
                    
                    
                    (5,500,000
                    )Net
      proceeds from issuance of common stock
                    
                    
                    16,714,780
                    
                    
                    
                    -Net
      cash from financing activities
                    
                    
                    10,121,034
                    
                    
                    
                    1,593,779Net
      change in cash and cash equivalents
                    
                    
                    16,898,400
                    
                    
                    
                    2,620,920Cash
      and cash equivalents at beginning of period
                    
                    
                    24,165,790
                    
                    
                    
                    11,467,937Cash
      and cash equivalents at end of period
                    
                    $
                    41,064,190
                    
                    
                    $
                    14,088,857




For the Six Months EndedJune 30,2010
                  
                  
                  2009Supplemental
      disclosures of cash flow information:Cash
      received during the period:Federal
      income tax refund
                  
                  
                  -
                  
                  
                  $
                  250,989Cash
      paid during the period for:Interest
                  
                  $
                  1,293,859
                  
                  
                  $
                  2,302,393Federal
      income taxes
                  
                  
                  -
                  
                  
                  
                  -Non-cash
      transactions:Transfer
      of loans to other real estate owned
                  
                  
                  212,510
                  
                  
                  $
                  441,060




See notes
to the consolidated financial statements.


6





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





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
and 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 June 30, 2010, 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 footnote 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, 2009, 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 other real estate owned
are particularly subject to change.


7





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.





NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS





In
June 2009, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 166, Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140(Accounting
Standards Codification (ASC) 860).  The new accounting requirement
amends previous guidance relating to the transfers of financial assets and
eliminates the concept of a qualifying special-purpose entity.  ASC
860 must be applied as of the beginning of each reporting entity’s first annual
reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period and for interim and annual reporting
periods thereafter.  ASC 860 must be applied to transfers occurring on
or after the effective date.   Additionally, on and after the
effective date, the concept of a qualifying special-purpose entity is no longer
relevant for accounting purposes. Therefore, formerly qualifying special-purpose
entities should be evaluated for consolidation by reporting entities on and
after the effective date in accordance with the applicable consolidation
guidance.   Additionally, the disclosure provisions of ASC 860
were also amended and apply to transfers that occurred both before and after the
effective date of ASC 860.  The adoption of ASC860did not have a material effect on the
Company’s consolidated financialstatements.





In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R)(ASC810), which amended
guidance for consolidation of variable interest entities by replacing
the  quantitative-based risks and rewards calculation for determining
which enterprise, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which enterprise has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and has (1) the
obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity.   SFAS No. 167 also requires additional
disclosures about an enterprise’s involvement in variable interest
entities.  SFAS No. 167 will be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods
thereafter.   Early adoption is prohibited.  The adoption of SFAS No. 167 did not
have an impact on the Company’s consolidated financialstatements.





NOTE
3 – 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.


8





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.





As
discussed in Note 10, the Bank entered into a Consent Order in 2009 that
specified achievement of higher capital ratios.  Following the
Closing, the Bank exceeded the minimum capital ratios required under the Consent
Order with the OCC of tier 1 capital of at least 8.75% of adjusted total assets
and total risk-based capital of at least 13.25% of risk-weighted
assets.  However, until the Consent Order is terminated, the Bank
cannot be classified as well-capitalized under prompt corrective action
provisions.





Various
management and board changes also took place as contemplated by the Stock
Purchase Agreement.





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 11 for
additional information regarding net operating loss
carryforwards.


9





NOTE
4 – EARNINGS (LOSS) PER SHARE





Basic
earnings (loss) per share is net Income (loss) divided by the weighted average
number of shares outstanding during the period.  Diluted earnings
(loss) per share include the dilutive effect of additional potential 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 Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009BASIC:Net
      loss
                
                $
                (580,668
                )
                
                $
                (976,888
                )
                
                $
                (1,910,358
                )
                
                $
                (474,505
                )Weighted
      average common shares outstanding
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                14,976,995
                
                
                
                2,214,564Basic
      loss per share
                
                $
                (0.03
                )
                
                $
                (0.44
                )
                
                $
                (0.13
                )
                
                $
                (0.21
                )DILUTED:Net
      loss
                
                $
                (580,668
                )
                
                $
                (976,888
                )
                
                $
                (1,910,358
                )
                
                $
                (474,505
                )Weighted
      average common shares outstanding
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                14,976,995
                
                
                
                2,214,564Dilutive
      effect of stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Dilutive
      effect of stock warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      common shares and dilutive potential common shares
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                14,976,995
                
                
                
                2,214,564Diluted
      loss per common share
                
                $
                (0.03
                )
                
                $
                (0.44
                )
                
                $
                (0.13
                )
                
                $
                (0.21
                )





The
following table details, as of June 30, dilutive potential common shares that
were excluded from the computation of diluted earnings per share during the
periods then ended as the effect of their exercise was
anti-dilutive:





For the Three Months Ended
                          
                          
                          For the Six Months EndedJune 30,
                          
                          
                          June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Stock
      options
                          
                          
                          -
                          
                          
                          
                          165,650
                          
                          
                          
                          43,938
                          
                          
                          
                          165,650Stock
      warrants
                          
                          
                          35,500
                          
                          
                          
                          150,000
                          
                          
                          
                          66,497
                          
                          
                          
                          150,000





NOTE
5 – 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:


10





June 30, 2010Gross
                  
                  
                  GrossAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairAvailable for sale, carried at fair value:
                  
                  Cost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueU.S.
      Government agencies
                  
                  $
                  3,440,795
                  
                  
                  $
                  5,909
                  
                  
                  $
                  (20
                  )
                  
                  $
                  3,446,684Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                  
                  
                  21,371,254
                  
                  
                  
                  598,800
                  
                  
                  
                  -
                  
                  
                  
                  21,970,054Other
      mortgage-backed securities
                  
                  
                  373,629
                  
                  
                  
                  -
                  
                  
                  
                  (196,217
                  )
                  
                  
                  177,412Equity
      securities
                  
                  
                  41,600
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  41,600Total
                  
                  $
                  25,227,278
                  
                  
                  $
                  604,709
                  
                  
                  $
                  (196,237
                  )
                  
                  $
                  25,635,750





December 31, 2009Gross
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairAvailableforsale,carriedatfairvalue:
                
                Cost
                
                
                Gains
                
                
                Losses
                
                
                ValueMortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                
                $
                26,616,829
                
                
                $
                30,703
                
                
                $
                (274,597
                )
                
                $
                26,372,935Other
      mortgage-backed securities
                
                
                423,843
                
                
                
                -
                
                
                
                (27,473
                )
                
                
                396,370Equity
      securities
                
                
                88,800
                
                
                
                34,000
                
                
                
                -
                
                
                
                122,800Total
                
                $
                27,129,472
                
                
                $
                64,703
                
                
                $
                (302,070
                )
                
                $
                26,892,105





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:





June 30,2010Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairHeld to maturity, carried at amortized cost
                      
                      Cost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueMunicipal
      securities
                      
                      $
                      2,995,313
                      
                      
                      $
                      80,300
                      
                      
                      $
                      -
                      
                      
                      $
                      3,075,613





December 31, 2009Gross
                    
                    
                    GrossAmortized
                    
                    
                    Unrealized
                    
                    
                    Unrealized
                    
                    
                    FairHeld to maturity, carried at amortized cost
                    
                    Cost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    ValueMunicipal
      securities
                    
                    $
                    2,996,826
                    
                    
                    $
                    56,408
                    
                    
                    $
                    (2,494
                    )
                    
                    $
                    3,050,740





The
amortized cost and fair value of the debt securities portfolio are shown by
expected maturity. Expected maturities may differ from contractual maturities
because the loans underlying the mortgage- backed securities generally can be
prepaid without penalty.


11




June 30, 2010Amortized Cost
                  
                  
                  Fair ValueAvailable
      for SaleU.S.
      Government-sponsored agency enterprisesOne
      to five years
                  
                  $
                  2,934,907
                  
                  
                  $
                  2,940,816Five
      to ten years
                  
                  
                  505,888
                  
                  
                  
                  505,868Beyond
      ten years
                  
                  
                  -
                  
                  
                  
                  -Mortgage
      backed securities
                  
                  
                  21,744,883
                  
                  
                  
                  22,147,466Total
                  
                  $
                  25,185,678
                  
                  
                  $
                  25,594,150Held
      to MaturityOne
      to five years
                  
                  $
                  180,103
                  
                  
                  $
                  182,408Five
      to ten years
                  
                  
                  1,263,294
                  
                  
                  
                  1,316,058Beyond
      ten years
                  
                  
                  1,551,916
                  
                  
                  
                  1,577,147Total
                  
                  $
                  2,995,313
                  
                  
                  $
                  3,075,613





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
                          
                          
                          TotalFair
                          
                          
                          Unrealized
                          
                          
                          Fair
                          
                          
                          Unrealized
                          
                          
                          Fair
                          
                          
                          UnrealizedJune 30, 2010
                          
                          Value
                          
                          
                          Loss
                          
                          
                          Value
                          
                          
                          Loss
                          
                          
                          Value
                          
                          
                          LossAvailable for sale:U.S.
      Government agencies
                          
                          $
                          505,868
                          
                          
                          $
                          (20
                          )
                          
                          
                          
                          
                          
                          
                          
                          $
                          505,868
                          
                          
                          $
                          (20
                          )Other
      mortgage-backed securities
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          177,412
                          
                          
                          $
                          (196,217
                          )
                          
                          
                          177,412
                          
                          
                          
                          (196,217
                          )Total
                          
                          $
                          505,868
                          
                          
                          $
                          (20
                          )
                          
                          $
                          177,412
                          
                          
                          $
                          (196,217
                          )
                          
                          $
                          683,280
                          
                          
                          $
                          (196,237
                          )





Less than 12 months
                          
                          
                          12 Months or More
                          
                          
                          TotalFair
                          
                          
                          Unrealized
                          
                          
                          Fair
                          
                          
                          Unrealized
                          
                          
                          Fair
                          
                          
                          UnrealizedDecember 31, 2009:
                          
                          Value
                          
                          
                          Loss
                          
                          
                          Value
                          
                          
                          Loss
                          
                          
                          Value
                          
                          
                          LossAvailable for sale:Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                          
                          $
                          15,498,626
                          
                          
                          $
                          (268,671
                          )
                          
                          $
                          273,428
                          
                          
                          $
                          (5,926
                          )
                          
                          $
                          15,772,054
                          
                          
                          $
                          (274,597
                          )Other
      mortgage-backed securities
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          396,370
                          
                          
                          
                          (27,473
                          )
                          
                          
                          396,370
                          
                          
                          
                          (27,473
                          )Total
                          
                          $
                          15,498,626
                          
                          
                          $
                          (268,671
                          )
                          
                          $
                          669,798
                          
                          
                          $
                          (33,399
                          )
                          
                          $
                          16,168,424
                          
                          
                          $
                          (302,070
                          )Held to maturity:Municipal
      securities
                          
                          $
                          331,478
                          
                          
                          $
                          (2,494
                          )
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          331,478
                          
                          
                          $
                          (2,494
                          )





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
June 30, 2010, the Company’s security portfolio consisted of 42 securities, one
of which was in an unrealized loss position for less than 12 months and one for
12 months or longer.


12


Mortgage-backed
securities





The
Company’s mortgage-backed securities portfolio includes one non-agency security
with a fair value of $177,412 which represents an unrealized loss of
approximately $196,217 at June 30, 2010; the estimated fair value has been less
than its amortized cost for twelve months or more. This non-agency
mortgage-backed security is rated investment grade.    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, 64% of the original principal has
been repaid as of June 30, 2010. 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 June 30, 2010, 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. Management
believes this increase is primarily the result of the illiquidity of this
security in the market, as well as management’s use of a new pricing service
subsequent to year-end that uses more conservative assumptions than in prior
periods.




Preferred
Stock





The
Company owns preferred stock issued by the Federal National Mortgage Association
(“FNMA”) and the Federal Home Loan Mortgage Corporation
(“FHLMC”).  During June 2010, FNMA and FHLMC announced that the New
York Stock Exchange would delist shares of its common and preferred shares in
July because the common stock had not maintained a minimum stock price of $1.00
for thirty consecutive days.  Following this announcement, the
preferred stock prices declined significantly.  At June 30, 2010, the
FNMA Series R preferred share price was $0.36 (down from $0.93 per share at May
31, 2010) and the FHLMC Series 2007 Fixed-to-Floating Rate preferred share price
was $0.34 (down from $1.05 per share at May 31, 2010).  In July the
preferred shares began to trade on the over the counter market.  The
companies reported combined losses of $18 billion during the first quarter of
2010, and no dividends have been paid on the preferred shares since dividend
payments were suspended in September 2008.  Each company continues to
operate under the conservatorship of the Federal Housing Finance
Agency.  These factors contributed to management’s decision to record
an OTTI charge at June 30, 2010 in the amount of $47,200 to reduce the carrying
value of the securities to estimated fair value at June 30, 2010.





NOTE
6 – LOANS




Loans, by
collateral type, were as follows at June 30, 2010 and December 31,
2009:




June 30, 2010
                
                
                December 31, 2009Balance
                
                
                Percent
                
                
                Balance
                
                
                PercentResidential
      real estate
                
                $
                33,750,330
                
                
                
                34.2
                
                
                $
                33,147,634
                
                
                
                31.6Multifamily
      real estate
                
                
                5,612,670
                
                
                
                5.7
                
                
                
                5,757,491
                
                
                
                5.5Commercial
      real estate
                
                
                43,600,557
                
                
                
                44.2
                
                
                
                47,639,944
                
                
                
                45.4Construction
                
                
                2,935,022
                
                
                
                3.0
                
                
                
                3,958,572
                
                
                
                3.8Commercial
                
                
                6,145,657
                
                
                
                6.2
                
                
                
                7,673,195
                
                
                
                7.3Consumer
      and home equity
                
                
                6,544,303
                
                
                
                6.7
                
                
                
                6,719,205
                
                
                
                6.4Total
      Loans
                
                
                98,588,539
                
                
                
                100.0
                
                
                
                104,896,041
                
                
                
                100.0Less:  Allowance
      for loan losses
                
                
                (3,817,696
                )
                
                
                
                
                
                
                (3,945,670
                )Net
      deferred loan fees
                
                
                (86,412
                )
                
                
                
                
                
                
                (95,206
                )Loans,
      net
                
                $
                94,684,431
                
                
                
                
                
                
                $
                100,855,165


13


Approximately
$22,727,000 and $23,436,000 of residential real estate loans were pledged as
collateral for Federal Home Loan Bank advances at June 30, 2010 and December 31,
2009, respectively.





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





For the Three Months Ended
                    
                    
                    For the Six Months EndedJune 30,
                    
                    
                    June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Balance,
      beginning of period
                    
                    $
                    4,033,006
                    
                    
                    $
                    3,565,895
                    
                    
                    $
                    3,945,670
                    
                    
                    $
                    3,398,284Provision
      for loan losses
                    
                    
                    (223,479
                    )
                    
                    
                    375,000
                    
                    
                    
                    (146,707
                    )
                    
                    
                    556,000Loans
      charged-off
                    
                    
                    (387
                    )
                    
                    
                    (1,504,765
                    )
                    
                    
                    (4,283
                    )
                    
                    
                    (1,519,684
                    )Recoveries
      of charged-off loans
                    
                    
                    8,556
                    
                    
                    
                    382,082
                    
                    
                    
                    23,016
                    
                    
                    
                    383,612Balance,
      end of period
                    
                    $
                    3,817,696
                    
                    
                    $
                    2,818,212
                    
                    
                    $
                    3,817,696
                    
                    
                    $
                    2,818,212Balance
      as a percentage of total loans
                    
                    
                    3.87
                    %
                    
                    
                    2.44
                    %
                    
                    
                    3.87
                    %
                    
                    
                    2.44
                    %





Loans
individually considered impaired and nonaccrual loans were as follows at June
30, 2010, and December 31, 2009:





June 30,
                
                
                December 31,2010
                
                
                2009Loans
      past due over 90 days and still accruing interest
                
                $
                11,077
                
                
                $
                -Nonaccrual
      loans, includes smaller balance homogeneous loans
                
                
                6,138,137
                
                
                
                5,826,976Impaired
      loans, included in nonaccrual loans
                
                
                6,138,137
                
                
                
                5,826,976Impaired
      loans with no allowance for loan loss allocated
                
                
                4,204,883
                
                
                
                5,826,976Amount
      of the allowance for loan losses allocated
                
                
                441,695
                
                
                
                -





NOTE
7 – OTHER REAL ESTATE OWNED





Other
real estate owned was as follows:





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Residential
      real estate
                  
                  $
                  1,577,292
                  
                  
                  $
                  1,160,603Commercial
      real estate
                  
                  
                  25,001
                  
                  
                  
                  196,706Land
      development
                  
                  
                  486,924
                  
                  
                  
                  1,818,349Total
      other real estate owned
                  
                  $
                  2,089,217
                  
                  
                  $
                  3,175,658





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. It is the Company’s intention to make periodic
reassessments of the value of assets held in this category and record valuation
adjustments or write-downs as the reassessments dictate.  Real estate
owned at June 30, 2010 and December 31, 2009 includes a property placed into
receivership until it can be improved and sold in an orderly
fashion.


14


Direct
write-downs of other real estate owned totaled $219,797 and $46,500 for the six
months ended June 30, 2010 and 2009, respectively.





NOTE
8 – 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.





Level 2 – Quoted prices (unadjusted)
for similar assets or liabilities in active markets that the entity has the
ability to access as of the measurement date.





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:





Investment
Securities:  The fair values for investment 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 discounted cash flows or other market indicators (Level 3).
Discounted cash flows are calculated using spread to swap and LIBOR curves that
are updated to incorporate loss severities, volatility, credit spread and
optionality. During times when trading is more liquid, broker quotes are used
(if available) to validate the model. Rating agency and industry research
reports as well as defaults and deferrals on individual securities are reviewed
and incorporated into the calculations.





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.


15


Assets
measured at fair value on a recurring basis are summarized below:





June 30,
                          
                          
                          December 31,2010
                          
                          
                          2009Available for sale
    securities
                          
                          $
                          25,635,750
                          
                          
                          $
                          26,892,105Quoted
      prices on active markets for identical assets (Level 1)Equity
      securities
                          
                          
                          41,600
                          
                          
                          
                          122,800Significant
      other observable inputs (Level 2)U.S.
      government sponsored enterprises
                          
                          
                          3,446,684
                          
                          
                          
                          -Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                          
                          
                          21,970,054
                          
                          
                          
                          26,372,935Other
      mortgage backed securities
                          
                          
                          177,412
                          
                          
                          
                          396,370Significant
      unobservable inputs (Level 3)
                          
                          
                          -
                          
                          
                          
                          -Impaired loans
                          
                          $
                          4,081,062
                          
                          
                          $
                          4,670,389Quoted
      prices on active markets for identical assets (Level 1)
                          
                          
                          -
                          
                          
                          
                          -Significant
      other observable inputs (Level 2)
                          
                          
                          -
                          
                          
                          
                          -Significant
      unobservable inputs (Level 3)
                          
                          
                          4,081,062
                          
                          
                          
                          4,670,389Other real estate owned
                          
                          $
                          1,832,706
                          
                          
                          $
                          3,131,658Quoted
      prices on active markets for identical assets (Level 1)
                          
                          
                          -
                          
                          
                          
                          -Significant
      other observable inputs (Level 2)
                          
                          
                          -
                          
                          
                          
                          -Significant
      unobservable inputs (Level 3)
                          
                          
                          1,832,706
                          
                          
                          
                          3,131,658





Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $4,081,062 after a
specific allocation of the allowance for loan losses of $441,695 at June 30,
2010. New specific loss reserves of $290,555 were provided for during the three
months ending June 30, 2010.


16


The
carrying amounts and estimated fair values of financial assets and liabilities
at June 30, 2010 are as follows:





June 30, 2010
                    
                    
                    December 31, 2009CarryingAmounts
                    
                    
                    EstimatedFairValue
                    
                    
                    CarryingAmounts
                    
                    
                    EstimatedFairValueFinancial
      assetsCash
      and cash equivalents
                    
                    $
                    41,064,000
                    
                    
                    $
                    41,064,000
                    
                    
                    $
                    24,166,000
                    
                    
                    $
                    24,166,000Certificate
      of deposit in financial institution
                    
                    
                    100,000
                    
                    
                    
                    100,000
                    
                    
                    
                    100,000
                    
                    
                    
                    100,000Securities
      available for sale
                    
                    
                    25,636,000
                    
                    
                    
                    25,636,000
                    
                    
                    
                    26,892,000
                    
                    
                    
                    26,892,000Securities
      held to maturity
                    
                    
                    2,995,000
                    
                    
                    
                    3,076,000
                    
                    
                    
                    2,997,000
                    
                    
                    
                    3,051,000Loans
      held for sale
                    
                    
                    64,000
                    
                    
                    
                    64,000
                    
                    
                    
                    195,000
                    
                    
                    
                    195,000Loans,
      net
                    
                    
                    94,684,000
                    
                    
                    
                    95,515,205
                    
                    
                    
                    100,855,000
                    
                    
                    
                    101,308,000Accrued
      interest receivable
                    
                    
                    423,000
                    
                    
                    
                    423,000
                    
                    
                    
                    413,000
                    
                    
                    
                    413,000Financial
      liabilitiesDeposits
                    
                    
                    (138,991,000
                    )
                    
                    
                    (139,593,000
                    )
                    
                    
                    (139,799,000
                    )
                    
                    
                    (140,668,000
                    )Repurchase
      agreements
                    
                    
                    (3,768,000
                    )
                    
                    
                    (3,768,000
                    )
                    
                    
                    (1,038,000
                    )
                    
                    
                    (1,038,000
                    )Overnight
      FHLB advances
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -FHLB
      advances
                    
                    
                    (10,000,000
                    )
                    
                    
                    (10,083,000
                    )
                    
                    
                    (18,500,000
                    )
                    
                    
                    (18,638,000
                    )Accrued
      interest payable
                    
                    
                    (95,000
                    )
                    
                    
                    (95,000
                    )
                    
                    
                    (148,000
                    )
                    
                    
                    (148,000
                    )





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
9 – STOCK BASED COMPENSATION





The
Company granted 150,000 warrants (Director Warrants) to organizers of the
Company at the time of closing of the 2000 Offering.  The Director
Warrants vested in equal percentages each year over a three-year period from the
date of grant.  Each warrant entitles the holder to purchase a share
of common stock at $10.00 per share and will expire ten years from the date of
issuance.  At March 31, 2010, Director Warrants for 35,000 shares
granted to former directors were vested and exercisable.  No warrants
have been exercised to date.


17


In June
2000, the Company’s Board of Directors adopted an Omnibus Stock Option, Stock
Ownership and Long-Term Incentive Plan (“Stock Ownership Plan”) that was amended
in 2002 and 2004.  The Stock Ownership Plan expired on September 14,
2009.  The following types of awards could be granted under the Stock
Ownership Plan to eligible persons:  nonqualified stock options,
incentive stock options and restricted stock.  Under the Stock
Ownership Plan, each nonemployee Director could be granted 2,500 nonqualified
options at the time, or soon after, that person first became a Director. This
initial option grant vested annually in equal amounts over a five-year
term.  In addition, each nonemployee Director could receive an annual
grant of up to 1,000 nonqualified options during his or her tenure on the Board,
which vested immediately. No Director grants were made in
2009.  Employee option grants usually vested three years from the date
of grant.  The exercise price of an option was not less than the fair
market value of the underlying common stock on the date of the
grant.





As a
condition to the consummation of the closing of the Stock Purchase Agreement
between the Company and Excel Financial (see Note 3), all outstanding options
and warrants held by the Company’s directors and employees were cancelled and
extinguished without consideration effective February 19, 2010 pursuant to stock
option and warrant cancellation and surrender agreements between the Company and
each of its directors and employees.  As of March 31, 2010, there were
35,000 common shares issuable under the Company’s equity compensation plans,
consisting of warrants to purchase 35,000 common shares (held by former
directors who were not serving on the Board of Directors at the time of the
closing); these warrants expire on October 1, 2010.





The
following table depicts the activity under the Stock Ownership
Plan:





2010WeightedAverageExerciseOptions
                    
                    
                    PriceOutstanding
      at January 1
                    
                    
                    162,300
                    
                    
                    $
                    10.79Granted
                    
                    
                    -Forfeited
                    
                    
                    (162,300
                    )
                    
                    
                    10.79Exercised
                    
                    
                    -Outstanding
      at June 30
                    
                    
                    -
                    
                    
                    
                    -Exercisable
      at June 30
                    
                    
                    -
                    
                    
                    
                    -





Shareholders
adopted the Ohio Legacy Corp 2010 Cash and Equity Incentive Plan in May
2010.  As of June 30, 2010, no grants were issued under this
plan.





NOTE
10 – 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.





The Bank,
through its Board of Directors, agreed to a Consent Order (the “Consent Order”)
with the Bank’s primary federal regulator, the Office of the Comptroller of the
Currency (the “OCC”), dated February 17, 2009. The Consent Order required the
Board of Directors to submit a capital plan to the Assistant Deputy Controller
that included specific plans to achieve and maintain tier 1 capital of at least
8.75% of adjusted total assets and total risk-based capital of at least 13.25%
of risk-weighted assets.


18


The
Consent Order provides that the OCC has the ability to take any action it deems
appropriate in fulfilling its regulatory and supervisory responsibilities during
the term of the Consent Order or upon the failure of the Bank to comply with the
terms of the Consent Order.   Among the actions that may be taken
by the OCC is the placing of the Bank into receivership.





As
described in Note 3, the Company and the Bank entered into a Stock Purchase
Agreement with Excel Financial.





At
December 31, 2009, the Bank met the definition of critically
undercapitalized.  The transactions contemplated by the Stock Purchase
Agreement were approved by the Company’s shareholders at a special meeting of
shareholders held on January 8, 2010.





After
the closing of the Stock Purchase Agreement and the private sale, the Company
contributed approximately $16.2 million to the capital of the Bank, improving
the Bank’s capital to levels sufficient to meet the capital minimums required by
the Consent Order.  However, until the Consent Order is terminated,
the Bank cannot be classified as well-capitalized under prompt corrective action
provisions.





Actual
and required capital amounts (in thousands) and ratios are presented below at
June 30, 2010:





To Be Well-Capitalized UnderFor Capital
                  
                  
                  Prompt CorrectiveActual
                  
                  
                  Adequacy Purposes
                  
                  
                  Action ProvisionsAmount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  RatioTotal
      capital to risk-weighted assets
                  
                  $
                  18,661
                  
                  
                  
                  19.9
                  %
                  
                  $
                  7,504
                  
                  
                  
                  8.00
                  %
                  
                  $
                  9,380
                  
                  
                  
                  10.00
                  %Tier
      1 capital to risk-weighted assets
                  
                  
                  17,456
                  
                  
                  
                  18.6
                  %
                  
                  
                  3,752
                  
                  
                  
                  4.00
                  %
                  
                  
                  5,628
                  
                  
                  
                  6.00
                  %Tier
      1 capital to average assets
                  
                  
                  17,456
                  
                  
                  
                  10.2
                  %
                  
                  
                  6,878
                  
                  
                  
                  4.00
                  %
                  
                  
                  8,598
                  
                  
                  
                  5.00
                  %





Note
11 – Income Taxes




The
Company has net operating loss carryforwards of approximately $5,352,000 that
will expire as follows:  $1,419,000 on December 31, 2027, $132,000 on
December 31, 2028, and $3,801,000 on December 31, 2029.  See Note 3
for information regarding the annual limitations on the use of net operating
loss carryforwards resulting from an “ownership change” as broadly defined in
Section 382 of the Internal Revenue Code of 1986, as amended.





At June
30, 2010 and December 31, 2009, a valuation allowance was recorded to reduce the
carrying amount of the Company’s net deferred tax assets to
zero.


19


Item
2.  Management’s Discussion and Analysis.





In the
following section, management presents an analysis of Ohio Legacy Corp's
financial condition as of June 30, 2010, and results of operations as of and for
the three and six months ended June 30, 2010 and 2009.  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, 2009.





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.





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;


20


·
            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





During
the first quarter of 2010, the Company completed the issuance of 17,500,000 of
unregistered shares of its common stock to meet the regulatory capital
requirements imposed by the Consent Order issued by the Bank’s principal federal
regulator (See Notes 3 and 10).  As a result of the stock issuance,
Excel Bancorp acquired 76% of the outstanding shares of the Company, new senior
management was installed, and seven directors were appointed to fill the
unexpired terms of seven resigning directors.   Following the
Closing, the Company invested $16.2 million of the proceeds of the stock
offering in the Bank as additional capital.





The
following key factors summarize the Company’s financial condition at June 30,
2010 compared to December 31, 2009:





·
            Total
      assets increased $8.8 million from $163.2 million to $172.0
      million;


·
            Total
      shareholders’ equity increased $15.4 million from $2.4 million to $17.8
      million;


·
            Tier
      1 capital for the Bank increased by $14.9 million from $2.6 million to
      $17.5 million;


·
            Net
      loans decreased $6.2 million from $100.9 million to $94.7
      million;


·
            Nonperforming
      assets (including nonaccrual loans, loans past due ninety days and still
      accruing interest and other real estate owned) remained high, but
      decreased slightly from $9.0 million to $8.2
  million;


·
            Total
      deposits decreased $807,699 from $139.8 million to $139.0
      million;


·
            Federal
      Home Loan Bank advances totaling $8.5 million were repaid reducing
      outstanding advances from $18.5 million to $10
  million;





The
following key factors summarize our results of operations for the six months
ending June 30, 2010:





·
            The
      Company incurred a net loss of $1.9
million;


·
            Net
      interest income declined by $49,688 compared to the same period in
      2009;


·
            A
      negative provision for loan loss totaling $146,707 was recorded compared
      to a provision expense of $556,000 for the same period in
      2009;


·
            Direct
      write-down on other real estate owned totaled $219,797 compared to $46,500
      for the same period in 2009;


·
            Securities
      gains realized during the period were $31,229 compared to $685,948 in
      securities gains recorded for the same period in
  2009;


·
            An
      OTTI charge of $47,200 was recorded during the period compared to an OTTI
      charge of $111,200 for the same period in
2009;


21


·
            The
      Company recorded investor expenses of $517,222 for the period 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
      Company incurred other consulting and compensation expenses related to
      services provided by Excel Financial prior to the Closing, for the hiring
      of new management and severance expense associated with employee
      terminations.


·
            The
      Company began to offer trust and investment services during
      2010.





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





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


·
            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 new management and new services are expected to
      be higher than the historical compensation costs at the
      Company;


·
            Noninterest
      income is expected to improve due to the introduction of trust, investment
      and wealth management services.


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





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.


22


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 $5,352,000 will expire as
follows:  $1,419,000 on December 31, 2027 and $132,000 on December 31,
2028, and $3,801,000 on December 31, 2029.  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 3 to our consolidated financial statements.





FINANCIAL
CONDITION – June 30, 2010 compared to December 31, 2009





Assets.At June
30, 2010, total assets increased to $172.0 million, up $8.8 million from $163.2
at December 31, 2009.  Most notable were the increases to total
shareholders’ equity and cash and cash equivalents which increased due to
proceeds received on the sale of common stock.





Cash and Cash
Equivalents.Cash and cash equivalents increased to $41.1
million at June 30, 2010, up $16.9 million from $24.2 million at year-end
2009.  The increase was directly related to proceeds from a common
stock issuance during February 2010.





Securities.Total
securities available for sale had an estimated fair value of $25.6 million at
June 30, 2010, compared to $26.9 million at year-end 2009.  Purchases
of securities available for sale during the first six months of 2010 totaled
$3.5 million, principal repayments totaled $2.4 million, and $2.9 million in
proceeds were received on securities sold during the second
quarter.  The portfolio consists primarily of mortgage-backed
securities issued by the GNMA with an original term of 30 years.  The
duration of the portfolio including municipal securities classified as
Held-to-Maturity was 4.1 years at June 30, 2010, and the longer-term
characteristics of the portfolio will contribute to increased market price
volatility for any given change in interest rates.  The estimated net
unrealized gain on the securities portfolio was $488,772 at June 30, 2010
compared to net unrealized loss of $183,453 at December 31, 2009.





Loans and Asset
Quality.Total loans, net of the allowance for loan loss and
deferred loan fees, decreased $6.2 million to $94.7 million at June 30, 2010
compared to $100.9 million at year-end 2009 principally due to repayments and
payoffs of loans during the quarter.  Loans classified by management
as substandard and special mention represented 13.8% of total loans at June 30,
2010, compared to 12.8% at March 31, 2010, and 12.7% at December 31, 2009. The
balance of loans classified as substandard and special mention increased by
$288,255 at June 30, 2010 compared to year-end 2009.  Impaired loans
represented 6.2% of total loans at June 30, 2010, and totaled $6,138,137, up
$311,161 from year-end 2009.  Improving asset quality is a prime
objective for management.   Outstanding loan balances are
expected to increase over the remainder of the year through business development
efforts.





Allowance for loan
losses.The amount of the allowance for loan losses
(“allowance”) 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 balance of the allowance at June 30, 2010, was $3,817,696
compared to $3,945,670 at year-end 2009.  For the three months ending
June 30, 2010, the Company recorded a negative provision for loan losses of
$223,479, and for the six months ended June 30, 2010, the Company recorded a
negative provision for loan loss of $146,707.  Management concluded
based on its evaluation of the estimate for the allowance, that a negative loan
loss provision was warranted due to principal reductions for non-classified
loans experienced in loan types that required higher historical experience loss
factors relative to other loan types within non-classified loans resulting in a
decrease in the allowance of approximately $289,000 since March 31,
2010.  The historical net-charge off percentage for loans classified
as substandard declined from the previous period resulting in a lower estimate
of loss within this loan classification of approximately
$211,000.  The portion of the allowance estimated for other factors
such as local economic conditions, industry trends, and credit administration
decreased approximately $38,000 at June 30, 2010, compared to March 31, 2010 due
to lower loan balances.  Partially offsetting these reductions to the
estimate of the allowance was an increase of approximately $291,000 in the
specific allocation of the allowance for impaired loans and an increase of
approximately $32,000 in the allowance for special mention loan
balances.


23


Loans
charged off totaled $4,283 for the six months ended June 30, 2010, and
recoveries on loans previously charged off totaled $23,016.  The
general allowance allocated to loans not classified by management totaled 2.37%
of non-classified loans at June 30, 2010, compared to 2.58% at year-end
2009.  As a percentage of total loans, the allowance was 3.87% at June
30, 2010, compared to 3.76% at year-end 2009, and 4.01% at March 31,
2010.  The allowance for loan losses as a percentage of loans not
individually identified as impaired and that excludes the amount of the
allowance specifically allocated to impaired loans totaled 3.43% at June 30,
2010, compared to 3.76% at December 31, 2009, and 3.86% at March 31,
2010.





Loans are
considered nonperforming when impaired or in nonaccrual
status.  Nonperforming loans totaled $6,138,137 at June 30, 2010,
compared to $5,826,976 at year-end 2009 and $5,734,473 at March 31,
2010.  The amount the allowance specifically allocated to impaired
loans totaled $441,695 at June 30, 2010 and $151,140 at March 31, 2010; there
were no allocations of the allowance to impaired loans at year-end
2009.





Other
Real Estate
Owned.Other real estate owned (“OREO”) consisted of nine
properties at June 30, 2010 and totaled $2,089,217, down from $3,175,658 at
year-end 2009.  During the first six months of 2010, one property was
transferred to OREO totaling $212,510, and there were eleven properties with an
aggregate basis of $1,076,276 were sold from OREO.  Direct write-downs
on two properties totaling $219,797 were recorded during the three months ending
June 30, 2010.





Deposits.Total
deposits decreased $807,699 to $139.0 million at June 30, 2010, compared to
year-end 2009.  Core deposits increased to $83.7 million at June 30,
2010, compared to $82.0 million at year-end 2009.  Certificates of
deposit decreased $2.5 to $55.3 million from $57.8 million at December 31,
2009.  Under applicable FDIC rules and regulations, a less than
well-capitalized insured depository institution may not pay a rate of interest
that significantly exceeds the prevailing rate in the institution's market area
or the prevailing rate in the market area from which the deposit is
accepted.





Federal Home Loan Bank
Advances.Total advances decreased $8.5 million to $10 million
at June 30, 2010, from $18.5 million at year-end 2009.  The weighted
average interest rate on matured advances was 4.05%.  The advances
were repaid from excess liquidity.





Shareholders’
Equity.  Shareholders’ equity increased $15.5 million to $17.8
million at June 30, 2010.  The increase was due to the sale of common
stock completed in February 2010.  Net proceeds of the stock sale
totaled $16.7 million.  Shareholders’ equity was reduced by $1.9 for
the net loss reported for the six months ending June 30, 2010.





RESULTS
OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2010




The net
loss for the three months ending June 30, 2010, totaled $580,668, or a loss of
$0.03 per diluted share compared to a net loss of $976,888, or $0.44 per diluted
share during the second quarter of 2009.  Average diluted shares
outstanding increased to 19,714,564 shares for the second quarter of 2010
compared to 2,214,564 in average diluted shares outstanding during the same
quarter of 2009.  The increase in average diluted shares outstanding
is due to the issuance of 17,500,000 shares of common stock on February 19,
2010.


24


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 June 30,2010
                            
                            
                            2009Average
                            
                            
                            Interest
                            
                            
                            
                            
                            
                            
                            
                            
                            InterestOutstanding
                            
                            
                            Earned/
                            
                            
                            Yield/
                            
                            
                            Average
                            
                            
                            Earned/
                            
                            
                            Yield/(Dollars in Thousands)
                            
                            Balance
                            
                            
                            Paid
                            
                            
                            Rate
                            
                            
                            Balance
                            
                            
                            Paid
                            
                            
                            RateAssetsInterest-earning
      assets:Interest-bearing
      deposits inother financial institutions and federal funds
      sold
                            
                            $
                            35,517
                            
                            
                            $
                            20
                            
                            
                            
                            0.22
                            %
                            
                            $
                            14,338
                            
                            
                            $
                            8
                            
                            
                            
                            0.22
                            %Securities
      available for sale
                            
                            
                            26,795
                            
                            
                            
                            249
                            
                            
                            
                            3.72
                            %
                            
                            
                            42,424
                            
                            
                            
                            449
                            
                            
                            
                            4.24
                            %Securities
      held to maturity
                            
                            
                            2,996
                            
                            
                            
                            29
                            
                            
                            
                            3.82
                            %
                            
                            
                            2,999
                            
                            
                            
                            29
                            
                            
                            
                            3.82
                            %Federal
      agency stock
                            
                            
                            1,477
                            
                            
                            
                            18
                            
                            
                            
                            4.95
                            %
                            
                            
                            1,321
                            
                            
                            
                            16
                            
                            
                            
                            4.81
                            %Loans
      (1)
                            
                            
                            94,711
                            
                            
                            
                            1,488
                            
                            
                            
                            6.30
                            %
                            
                            
                            112,960
                            
                            
                            
                            1,747
                            
                            
                            
                            6.20
                            %Total
      interest-earning assets
                            
                            
                            161,496
                            
                            
                            
                            1,804
                            
                            
                            
                            4.48
                            %
                            
                            
                            174,042
                            
                            
                            
                            2,249
                            
                            
                            
                            5.18
                            %Noninterest-earning
      assets
                            
                            
                            10,494
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            16,806Total
      assets
                            
                            $
                            171,990
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            190,848Liabilities and Shareholders'
      EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                            
                            $
                            9,039
                            
                            
                            $
                            15
                            
                            
                            
                            0.68
                            %
                            
                            $
                            8,821
                            
                            
                            $
                            19
                            
                            
                            
                            0.86
                            %Savings
      accounts
                            
                            
                            16,445
                            
                            
                            
                            36
                            
                            
                            
                            0.87
                            %
                            
                            
                            17,139
                            
                            
                            
                            74
                            
                            
                            
                            1.72
                            %Money
      market accounts
                            
                            
                            42,587
                            
                            
                            
                            94
                            
                            
                            
                            0.89
                            %
                            
                            
                            42,214
                            
                            
                            
                            164
                            
                            
                            
                            1.55
                            %Certificates
      of deposit
                            
                            
                            56,769
                            
                            
                            
                            344
                            
                            
                            
                            2.43
                            %
                            
                            
                            75,704
                            
                            
                            
                            642
                            
                            
                            
                            3.40
                            %Total
      interest-bearing deposits
                            
                            
                            124,840
                            
                            
                            
                            489
                            
                            
                            
                            1.57
                            %
                            
                            
                            143,878
                            
                            
                            
                            899
                            
                            
                            
                            2.50
                            %Other
      Borrowings
                            
                            
                            12,438
                            
                            
                            
                            89
                            
                            
                            
                            2.88
                            %
                            
                            
                            20,109
                            
                            
                            
                            175
                            
                            
                            
                            3.50
                            %Total
      Interest-bearing liabilities
                            
                            
                            137,278
                            
                            
                            
                            578
                            
                            
                            
                            1.69
                            %
                            
                            
                            163,987
                            
                            
                            
                            1,074
                            
                            
                            
                            2.63
                            %Noninterest-bearing
      demand deposits
                            
                            
                            15,926
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            16,692Noninterest-bearing
      liabilities
                            
                            
                            914
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            413Total
      liabilities
                            
                            
                            154,118
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            181,092Shareholders'
      Equity
                            
                            
                            17,872
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            9,756Total
      liabilities and shareholders' equity
                            
                            $
                            171,990
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            190,848Net
      interest income; interest rate spread (2)
                            
                            
                            
                            
                            
                            $
                            1,226
                            
                            
                            
                            2.79
                            %
                            
                            
                            
                            
                            
                            $
                            1,175
                            
                            
                            
                            2.55
                            %Net
      earning assets
                            
                            $
                            24,218
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            10,055Net
      interest margin (3)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            3.05
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            2.71
                            %Average
      interest-earning assets to interest-bearing liabilities
                            
                            
                            1.2
                            
                            
                            
                            X
                            
                            
                            
                            
                            
                            
                            
                            1.1
                            
                            
                            
                            X




25


(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 June 30, 2010, net interest income was $1,225,859, up
$50,448 from same period in 2009 while total interest earning assets were down
by $12.5 million. The yield on earning assets declined 0.70% to 4.48% for the
second quarter of 2010 from 5.18% for the comparable period of 2009. The yield
on interest-bearing liabilities declined 0.94% to 1.69% for the second quarter
of 2010 from 2.63% for the same period in 2009. The net interest margin
increased to 3.05% from 2.71%.





Interest Income.Total
interest income for the second quarter of 2010 was $1.8 million, down from $2.2
million for the second quarter of 2009. A low interest rate environment combined
with lower average loan balances and a larger allocation of funds to liquid
assets yielding only 0.22% contributed to lower interest income levels. Average
balances in cash and cash equivalents increased to $35.5 million during the
second quarter of 2010 compared to $14.3 million during the second quarter of
2009.





Interest expense.Interest on
deposits declined $409,381 to $488,707 for the second three months of 2010
compared to the same period in 2009. The average rate paid on interest-bearing
deposits dropped 0.93% to 1.57%. Interest expense related to other borrowings
including Federal Home Loan Bank advances declined by $85,978.





Provision for Loan Loss.A
negative loan loss provision totaling $223,479 was recorded during the second
quarter of 2010, compared to a loan loss provision of $375,000 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 declined $199,349 to $3,627 for the second quarter of
2010 compared to the same quarter of 2009. The most significant changes to
noninterest income for the comparative second quarter periods was a direct
write-down on other real estate owned totaling $219,797 on two properties
compared to a direct write-down on other real estate owned totaling $24,000 for
the second quarter of 2009. An impairment charge on FNMA and FHLMC preferred
stock totaling $47,200 was also recorded in the second quarter of 2010. Positive
contributors to noninterest income included a gain on sale of securities
available for sale totaling $31,229 and a gain on sale of other real estate
owned totaling $18,629. Service charges and other fees on deposits totaled
$206,439 for the second quarter, down $4,629 from the second quarter of
2009.




Noninterest expense.Noninterest expense increased $47,282, or 2.38%, to $2,033,633 for the
second quarter of 2010 compared to $1,986,351 for the second quarter of 2009.
The significant changes are detailed below.


26





Salaries
and benefits increased 21.4% to $897,383 for the second quarter of 2010 compared
to $738,972 for the same period of 2009. Following the recapitalization in
February 2010, management positions were added, and the Company staffed
positions for new product offerings for trust, investments and wealth
management. During the second quarter positions were added to the lending, human
resources and trust administration staff.




Occupancy
and equipment costs increased $27,459 to $234,274 for the second quarter of
2010. A new office was opened in St. Clairsville, Ohio, for trust, investment
and wealth management services that contributed to this increase. Building
repairs and maintenance costs were higher by $8,133, and depreciation expense
increased $10,511.





Professional
fees, including legal, accounting and other consulting expense, increased
$92,985 to $144,472 for the second quarter of 2010. The Company retained
experienced problem loan workout specialists to assist in loan collection
efforts. Accounting, auditing and examination costs also increased.





Deposit
expense and insurance decreased $267,816 to $93,799 compared to $361,615 in the
second quarter of 2009. The costs for FDIC insurance included in this category
decreased $264,260 due partly to the absence in 2010 of an emergency assessment
totaling $88,878 imposed in 2009 for all financial institutions based on asset
size as of June 30, 2009. In addition, the Bank’s improved risk-based capital
position following the stock offering in February 2010 resulted in lower expense
for the quarter. Part of the reduction related to lower costs for the first
quarter of 2010; the Bank received its assessment for the first quarter of 2010
in June that retroactively reduced the deposit insurance cost to the beginning
of the year.




Franchise
tax decreased $21,552 to $6,500 for the second quarter of 2010. Ohio franchise
tax for financial institutions is assessed based on net worth, and the lower
capital levels at year-end resulted in lower costs for the second
quarter.





No
amortization expense was recorded during the second quarter of 2010 compared to
an expense of $13,692 for the second quarter of 2009. The balance of intangible
assets was zero at year end 2009 and June 30, 2010.




Other
expenses increased $59,951 during the second quarter of 2010 compared to the
same period in 2009. Fidelity bond Insurance expense increased $21,999, loan
collection expenses increased $80,366 and other expense in the parent company
increased $16,788. These increases were partially offset by a decrease in other
real estate owned expenses of $64,669.




27




RESULTS
OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2010





Six
      Months Ended June 30,2010
                                
                                
                                2009Average
                                
                                
                                Interest
                                
                                
                                
                                
                                
                                
                                
                                
                                InterestOutstanding
                                
                                
                                Earned/
                                
                                
                                Yield/
                                
                                
                                Average
                                
                                
                                Earned/
                                
                                
                                Yield/(Dollars
      in Thousands)
                                
                                Balance
                                
                                
                                Paid
                                
                                
                                Rate
                                
                                
                                Balance
                                
                                
                                Paid
                                
                                
                                RateAssetsInterest-earning
      assets:Interest-bearing
      deposits in other financial institutions and federal funds
      sold
                                
                                $
                                31,584
                                
                                
                                $
                                32
                                
                                
                                
                                0.21
                                %
                                
                                $
                                9,470
                                
                                
                                $
                                14
                                
                                
                                
                                0.30
                                %Securities
      available for sale
                                
                                
                                26,667
                                
                                
                                
                                509
                                
                                
                                
                                3.82
                                %
                                
                                
                                37,195
                                
                                
                                
                                851
                                
                                
                                
                                4.57
                                %Securities
      held to maturity
                                
                                
                                2,997
                                
                                
                                
                                57
                                
                                
                                
                                3.82
                                %
                                
                                
                                3,000
                                
                                
                                
                                57
                                
                                
                                
                                3.81
                                %Federal
      agency stock
                                
                                
                                1,372
                                
                                
                                
                                34
                                
                                
                                
                                4.89
                                %
                                
                                
                                1,338
                                
                                
                                
                                32
                                
                                
                                
                                4.83
                                %Loans
      (1)
                                
                                
                                95,851
                                
                                
                                
                                2,992
                                
                                
                                
                                6.30
                                %
                                
                                
                                117,962
                                
                                
                                
                                3,691
                                
                                
                                
                                6.33
                                %Total
      interest-earning assets
                                
                                
                                158,471
                                
                                
                                
                                3,624
                                
                                
                                
                                4.61
                                %
                                
                                
                                168,965
                                
                                
                                
                                4,645
                                
                                
                                
                                5.56
                                %Noninterest-earning
      assets
                                
                                
                                10,461
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                22,234Total
      assets
                                
                                $
                                168,932
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                191,199Liabilities
      and Shareholders' EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                                
                                $
                                9,287
                                
                                
                                $
                                31
                                
                                
                                
                                0.67
                                %
                                
                                $
                                9,426
                                
                                
                                $
                                38
                                
                                
                                
                                0.80
                                %Savings
      accounts
                                
                                
                                16,662
                                
                                
                                
                                73
                                
                                
                                
                                0.88
                                %
                                
                                
                                16,448
                                
                                
                                
                                159
                                
                                
                                
                                1.95
                                %Money
      market accounts
                                
                                
                                41,338
                                
                                
                                
                                180
                                
                                
                                
                                0.88
                                %
                                
                                
                                41,077
                                
                                
                                
                                350
                                
                                
                                
                                1.72
                                %Certificates
      of deposit
                                
                                
                                56,869
                                
                                
                                
                                724
                                
                                
                                
                                2.57
                                %
                                
                                
                                75,209
                                
                                
                                
                                1,291
                                
                                
                                
                                3.47
                                %Total
      interest-bearing deposits
                                
                                
                                124,156
                                
                                
                                
                                1,008
                                
                                
                                
                                1.64
                                %
                                
                                
                                142,160
                                
                                
                                
                                1,838
                                
                                
                                
                                2.61
                                %Other
      Borrowings
                                
                                
                                14,482
                                
                                
                                
                                232
                                
                                
                                
                                3.21
                                %
                                
                                
                                21,676
                                
                                
                                
                                374
                                
                                
                                
                                3.46
                                %Total
      Interest-bearing liabilities
                                
                                
                                138,638
                                
                                
                                
                                1,240
                                
                                
                                
                                1.80
                                %
                                
                                
                                163,836
                                
                                
                                
                                2,212
                                
                                
                                
                                2.73
                                %Noninterest-bearing
      demand deposits
                                
                                
                                15,623
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                16,771Noninterest-bearing
      liabilities
                                
                                
                                866
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                617Total
      liabilities
                                
                                
                                155,127
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                181,224Shareholders'
      Equity
                                
                                
                                13,805
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                9,975Total
      liabilities and shareholders' equity
                                
                                $
                                168,932
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                191,199Net
      interest income; interest rate spread (2)
                                
                                
                                
                                
                                
                                $
                                2,384
                                
                                
                                
                                2.81
                                %
                                
                                
                                
                                
                                
                                $
                                2,433
                                
                                
                                
                                2.83
                                %Net
      earning assets
                                
                                $
                                19,833
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                5,129Net
      interest margin (3)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3.04
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.91
                                %Average
      interest-earning assets to interest-bearing liabilities
                                
                                
                                1.1
                                
                                
                                
                                X
                                
                                
                                
                                
                                
                                
                                
                                1.0
                                
                                
                                
                                X




28





(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
six months ended June 30, 2010, net interest income was $2.4 million, down
$49,688 from the same period in 2009. Total interest and dividend income
decreased $1,021,094. This decrease in revenue was partially offset by a
decrease of $971,406 in total interest expense. The net interest margin improved
to 3.04% from 2.91%.





Interest income. The average
balance of funds invested in interest-bearing deposits and federal funds sold
increased by $22.1 million and yielded only 0.21% during the first half of 2010.
In addition the average balance of loans fell by $22.1 million. These volume
changes in combination with an exceptionally low interest rate environment were
the principal drivers behind the decline in interest income. Also, proceeds from
an investment portfolio restructuring during the first half of 2009 resulted in
a lower yielding investment portfolio as those proceeds were reinvested at lower
interest rates. The yield on securities available for sale decreased 0.75% to
3.82% for the six months ending June 30, 2010.




Interest expense. The low
interest rate environment was evident in the decline in the Company’s cost of
interest-bearing liabilities to 1.80% from 2.73% for the first half of 2010. The
cost of every funding category declined. The volume of interest-bearing
liabilities declined $25.2 million. The average balance of certificates of
deposit balances declined $18.3 million, and the average borrowings declined
$7.2 million. Advances owed to the Federal Home Loan Bank totaling $8.5 million
were repaid during 2010.





Provision for loan losses. A
negative loan loss provision totaling $146,707 was recorded for the six months
ended June 30, 2010; this had a positive effect on earnings. During the same
period of 2009, the Company recorded provision expense of $556,000. 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 declined to $201,408 for the first six months of 2010 from
$1.0 million for the same period in 2009. Gains on sales of securities available
for sale decreased $654,719 and the direct write-down of other real estate owned
increased $173,297. An other than temporary impairment charge on FNMA and FHLMC
preferred stock was $47,200 in the first half of 2010, down from a charge of
$111,200 for the same period in 2009. Service charge revenue and other fees
decreased $47,384 due to a decline in overdraft fee income, net of refunds,
totaling $71,175. This decline was partially offset by trust and brokerage fees
totaling $17,111 and other increases in service charge revenue.




Noninterest
expense.
Total noninterest expense increased $1,006,777 to $4.6 million compared to $3.6
million for the first half of the prior year.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.
Otherchanges
are described below.


29





Salary
and benefits.
Compensation costs increased $401,879 for the six months ended June 30, 2010.Salaries expense included incentive payments totaling $153,000 during the
first six months of 2010 paid to newly hired management. Salaries and benefits
expense also included salary continuation for terminated staff totaling $39,993
and for departing executive management totaling $85,569. New positions were
added in trust and investment services, credit administration, and other
departments within the Company.




Occupancy
and equipment costs increased $33,504 for the six months ended June 30, 2010.
Part of this increase relates to a new trust and investment office that opened
in St. Clairsville, Ohio, in February 2010.




Professional
fees increased $262,176 for the six months ended June 30, 2010. These costs
include legal, accounting and auditing, regulatory examination and consulting
fees. Consulting fees of $140,000 were paid to Excel Financial for the period
prior to closing the stock offering. The Company also retained experienced
problem loan workout specialists to assist in loan collection
efforts.




Franchise
tax decreased $50,002 for the six months ended June 30, 2010 due to a lower
capital valuation at year end 2009 compared to year end 2008. Ohio franchise tax
for financial institutions is assessed based on the company’s net worth for the
previous year end.





Marketing
and advertising expense increased $46,335for the six months ended June
30, 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.
The Bank also expects to conduct trust services in several states. Costs
associated with the name change including logo design, costs associated with the
reissuance of credit and debit cards, and promotional materials totaled
approximately $47,000.





Deposit
expense and insurance fees decreased $192,649 for themonths ended June
30, 2010. During the second quarter of 2009, the FDIC imposed an emergency
assessment for all insured financial institutions that was paid in September
2009. The assessment totaled $88,878 and was based on total assets as of June
30, 2009. In addition to the absence of this special assessment in the second
quarter of 2010, an improvement in the Bank’s risk rating for FDIC insurance
based on higher capital levels following the common stock issuance in February
contributed to a reduction in this expense for the six months ended June 30,
2010.





As a
result of a change in the tax law late in 2008 that allows net operating losses
to be carried back five years, the Company was able to amend its 2003 tax return
and record a refund of taxes paid for that year, The refund of $289,300 was
offset by a $38,311 change in accrued taxes for 2008, resulting in a tax benefit
of $244,900 for the six months ended 2009. No tax benefits were recorded during
2010.




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





There
have been no material changes in the Company’s contractual obligations since
December 31, 2009.




30


At June
30, 2010, 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. We are currently
prohibited from using brokered certificates of deposit while operating under the
terms of the Consent Agreement. 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.




At June
30, 2010, the balances in cash and cash equivalents were $16.9 million higher
than at year-end. Cash and cash equivalents represented 23.9% of total assets at
June 30, 2010 compared to 14.8% of total assets at December 31, 2009. The higher
cash and cash equivalent balances at June 30, 2010 were principally due to the
issuance of common stock during February 2010.





CAPITAL
RESOURCES





Total
shareholders’ equity was $17.8 million at June 30, 2010, an increase of $15.5
million from the prior year-end balance. The increase in equity was due to
issuance of common stock as more fully described in Note 3 to the Consolidated
Financial Statements. Shareholders’ Equity was reduced by the amount of the net
loss of $1.9 million during the six months ended June 30, 2010.





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 June 30, 2010, the Bank was
adequately capitalized under the provisions of prompt corrective action. Until
the Consent Order is terminated, the Bank cannot be classified as
well-capitalized even though its capital ratios meet the minimum capital
requirements of a well capitalized institution. See Note 10 for more information
regarding the Consent Order, the regulatory capital requirements for the Bank,
and the Bank’s capital ratios as of June 30, 2010.


31





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 2010.




Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
applicable for Smaller Reporting Companies.





Item
4T. Controls and Procedures





As of
June 30, 2010, 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 second
fiscal quarter ended June 30, 2010, that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


32




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.


33




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 Exhibit2.1
            
            Stock
      Purchase Agreement, dated as of November 15, 2009, by and among Excel
      Financial, LLC, Ohio Legacy Corp and Ohio Legacy Bank, National
      Association (incorporated herein by reference to Exhibit 99.2 to Ohio
      Legacy Corp’s Current Report on Form 8-K filed on November 16, 2009 (File
      No. 0-31673))3.1
            
            Second
      Amended and Restated Articles of Incorporation of Ohio Legacy Corp as
      filed with the Ohio Secretary of State on August 5, 2003 (incorporated
      herein by reference to Exhibit 3.1 to Ohio Legacy Corp’s Quarterly Report
      on Form 10QSB for the fiscal quarter ended June 30, 2003 (File No.
      0-31673))3.2
            
            Amendment
      to Article Fourth of the Second Amended and Restated Articles of
      Incorporation of Ohio Legacy Corp as filed with the Ohio Secretary of
      State on February 5, 2010 (filed herewith)3.3
            
            Code
      of Regulations of Ohio Legacy Corp (incorporated herein by reference to
      Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB for the
      fiscal year ended December 31, 2003 (File No. 0-31673))3.4
            
            Amendment
      No. 1 to Code of Regulations of Ohio Legacy Corp (incorporated herein by
      reference to Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB
      for the fiscal year ended December 31, 2003 (File No.
      0-31673))4.1
            
            Form
      of Ohio Legacy Corp Organizer Stock Purchase Warrant (incorporated herein
      by reference to Exhibit 4.3 to Ohio Legacy Corp’s Registration Statement
      on Form SB-2 filed on June 30, 2000 (File No. 333-38328))11
            
            Statement
      Regarding Computation of Earnings per Share (Incorporated by reference to
      Note 4 of this Form 10-Q)21
            
            Subsidiary
      of Ohio Legacy Corp23
            
            Consent
      of Independent Registered Public Accounting Firm31.1
            
            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)




34







SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





OHIO
LEGACY CORP





Date:
August 16, 2010




By:
                  /s/ Rick L. HullRick
      L. HullPresident
      and Chief Executive
Officer





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. HullRick
      L. Hull, President and Chief Executive Officer and
  Director(principal
      executive officer)Date:
                                  August
      16, 2010By:
                                  /s/ Jane MarshJane
      Marsh, Senior Vice President, Chief Financial Officer and
      Treasurer(principal
      financial officer and principal accounting officer)Date:
                                  August
      16, 2010By:
                                  /s/ Wilbur R. RoatWilbur
      R. Roat, Chairman of the Board and DirectorDate:
                                  August
      16, 2010By:
                                  /s/ Louis AltmanLouis
      Altman, DirectorDate:
                                  August
      16, 2010By:
                                  /s/ Robert F. BeldenRobert
      F. Belden, DirectorDate:
                                  August
      16, 2010By:
                                  /s/ Bruce A. Cassidy,
Sr.Bruce
      A. Cassidy, DirectorDate:
                                  August
      16, 2010By:
                                  /s/Heather L. DavisHeather
      L. Davis,
Director


35





Date:
                August
      16, 2010By:
                /s/ J. Edward DiamondJ.
      Edward Diamond, DirectorDate:
                August
      16, 2010By:
                /s/ Denise M. PenzDenise
      M. Penz, DirectorDate:
                August
      16, 2010By:
                /s/ Michael S. SteinerMichael
      S. Steiner, DirectorDate:
                August
      16, 2010By:
                /s/ Frank WenthurFrank
      Wenthur, DirectorDate:
                August
      16, 2010By:
                /s/ David B. WursterDavid
      B. Wurster, DirectorDate:
                August
      16, 2010


36