**UNITED      STATES SECURITIES**

**AND      EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

| x      | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE                ACT OF 1934                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                 |
|   | For                the quarterly period ended September 30, 2008                                                                     |
|   |                                                                                                                                 |
|  ̈ | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT                OF1934 |

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|                                                                                                                  | Page   |
|-----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                  |   |
| PART I - FINANCIAL INFORMATION                                                                    |   |
|                                                                                                                  |   |
| Item 1. Financial Statements                                                                           | 3      |
|                                                                                                                  |   |
| Item 2. Management’s Discussion and Analysis                                           | 12     |
|                                                                                                                  |   |
| Item 3. Not Applicable for Smaller Reporting Companies                        | 22     |
|                                                                                                                  |   |
| Item 4. Controls and Procedures                                                                   | 22     |
|                                                                                                                  |   |
| PART II - OTHER INFORMATION                                                                       |   |
|                                                                                                                  |   |
| Item 1. Legal Proceedings                                                                              | 23     |
|                                                                                                                  |   |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 23     |
|                                                                                                                  |   |
| Item 3. Defaults Upon Senior Securities                                                      | 23     |
|                                                                                                                  |   |
| Item 4. Submission of Matters to a Vote of Security Holders         | 23     |
|                                                                                                                  |   |
| Item 5. Other Information                                                                              | 23     |
|                                                                                                                  |   |
| Item 6. Exhibits                                                                                            | 24     |
|                                                                                                                  |   |
| SIGNATURES                                                                                                            | 25     |

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**PART      I – FINANCIAL INFORMATION**

**Item      1. Financial Statements.**

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|                                                                                                                                                                                                                    |   | September 30, |        | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|-------------------|--------|
|                                                                                                                                                                                                                    |   | 2008               |        | 2007              |   |
|                                                                                                                                                                                                                    |   | (unaudited)        |        |              |   |
| **ASSETS**                                                                                                                                                                                                              |   |               |        |              |   |   |   |
| Cash                and due from banks                                                                                                                                                                                  |   | $                  | 4,553,318   |              | $      | 5,764,580 |   |
| Federal                funds sold and interest-bearing deposits in financial                institutions                                                                                                                |   |               | 98,392      |              |   | 1,350,625 |   |
| Cash                and cash equivalents                                                                                                                                                                                |   |               | 4,651,710   |              |   | 7,115,205 |   |
| Certificate                of deposit in financial institution                                                                                                                                                          |   |               | 100,000     |              |   | 100,000 |   |
| Securities                available for sale                                                                                                                                                                            |   |               | 32,952,733  |              |   | 29,010,334 |   |
| Securities                held to maturity (fair value of $2,813,719 and $2,995,122 at September                30,                2008 and December 31, 2007)                                                          |   |               | 3,000,504   |              |   | 3,002,754 |   |
| Loans                held for sale                                                                                                                                                                                      |   |               | 902,149     |              |   | 911,906 |   |
| Loans,                net of allowance of $1,631,011 and $1,622,906 at September 30, 2008                and                December 31, 2007                                                                           |   |               | 127,650,714 |              |   | 131,642,471 |   |
| Federal                bank stock                                                                                                                                                                                       |   |               | 1,462,050   |              |   | 1,541,200 |   |
| Premises                and equipment, net                                                                                                                                                                              |   |               | 3,329,997   |              |   | 2,901,906 |   |
| Intangible                asset                                                                                                                                                                                         |   |               | 78,726      |              |   | 150,322 |   |
| Other                real estate owned                                                                                                                                                                                  |   |               | 4,057,165   |              |   | 2,416,367 |   |
| Accrued                interest receivable and other assets                                                                                                                                                             |   |               | 1,796,739   |              |   | 1,488,214 |   |
|                                                                                                                                                                                                                    |   |               |        |              |   |   |   |
| Total                assets                                                                                                                                                                                             |   | $                  | 179,982,487 |              | $      | 180,280,679 |   |
|                                                                                                                                                                                                                    |   |               |        |              |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                         |   |               |        |              |   |   |   |
| Deposits:                                                                                                                                                                                                               |   |               |        |              |   |   |   |
| Noninterest-bearing                demand                                                                                                                                                                               |   | $                  | 16,999,844  |              | $      | 14,329,339 |   |
| Interest-bearing                demand                                                                                                                                                                                  |   |               | 8,962,164   |              |   | 9,995,343 |   |
| Savings                                                                                                                                                                                                                 |   |               | 49,678,454  |              |   | 49,566,417 |   |
| Certificates                of deposit, net                                                                                                                                                                             |   |               | 64,437,996  |              |   | 73,458,253 |   |
| Total                deposits                                                                                                                                                                                           |   |               | 140,078,458 |              |   | 147,349,352 |   |
| Repurchase                agreements                                                                                                                                                                                    |   |               | 1,831,504   |              |   | 2,022,869 |   |
| Short                term Federal Home Loan Bank advances                                                                                                                                                               |   |               | 3,100,000   |              |   | 2,025,000 |   |
| Long                term Federal Home Loan Bank advances                                                                                                                                                                |   |               | 21,000,000  |              |   | 12,000,000 |   |
| Fed                funds purchased                                                                                                                                                                                      |   |               | 898,000     |              |   | - |   |
| Capital                lease obligations                                                                                                                                                                                |   |               | 475,448     |              |   | 493,168 |   |
| Accrued                interest payable and other liabilities                                                                                                                                                           |   |               | 1,300,755   |              |   | 1,076,647 |   |
| Total                liabilities                                                                                                                                                                                        |   |               | 168,684,165 |              |   | 164,967,036 |   |
|                                                                                                                                                                                                                    |   |               |        |              |   |   |   |
| **SHAREHOLDERS’                EQUITY**                                                                                                                                                                           |   |               |        |              |   |   |   |
| Preferred                stock, no par value, 500,000 shares authorized,  none                outstanding                                                                                                          |   |               | -           |              |   | - |   |
| Common                stock, no par value, 5,000,000 shares authorized, 2,214,564 shares                issued                and outstanding at September 30, 2008, and December 31, 2007,                respectively |   |               | 18,803,771  |              |   | 18,781,925 |   |
| Accumulated                earnings (loss)                                                                                                                                                                              |   |               | (7,368,933  | )                 |   | (3,472,218 | ) |
| Accumulated                other comprehensive earnings (loss)                                                                                                                                                          |   |               | (136,516    | )                 |   | 3,936 |   |
| Total                shareholders’ equity                                                                                                                                                                         |   |               | 11,298,322  |              |   | 15,313,643 |   |
|                                                                                                                                                                                                                    |   |               |        |              |   |   |   |
| Total                liabilities and shareholders’ equity                                                                                                                                                         |   | $                  | 179,982,487 |              | $      | 180,280,679 |   |

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|                                                                      |   | For the Three Months Ended |       | For the Nine Months Ended |   |
|---------------------------------------------------------------------------|--------|------------------------------------------------|------------|-----------------------------------------------|--------|
|                                                                      |   | September 30,                             |       | September 30,                            |   |
|                                                                      |   | 2008                                           |       | 2007                                          |   | 2008 |   | 2007 |   |
| Interest                and dividends income:                             |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Loans,                including fees                                      |   | $                                              | 2,092,490  |                                          | $      | 3,241,838 |   | $ | 6,622,956 |   | $ | 9,742,370 |   |
| Securities,                taxable                                        |   |                                           | 447,153    |                                          |   | 270,750 |   |   | 1,302,585 |   |   | 807,507 |   |
| Securities,                tax-exempt                                     |   |                                           | 28,560     |                                          |   | 25,842 |   |   | 85,788 |   |   | 75,110 |   |
| Interest-bearing                deposits and federal funds sold and other |   |                                           | 6,286      |                                          |   | 54,840 |   |   | 66,709 |   |   | 197,862 |   |
| Dividends                on federal bank stock                            |   |                                           | 20,211     |                                          |   | 25,999 |   |   | 61,913 |   |   | 74,122 |   |
| Total                interest and dividends income                        |   |                                           | 2,594,700  |                                          |   | 3,619,269 |   |   | 8,139,951 |   |   | 10,896,971 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Interest                expense:                                          |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Deposits                                                                  |   |                                           | 931,120    |                                          |   | 1,699,420 |   |   | 3,255,333 |   |   | 5,122,294 |   |
| Short                term Federal Home Loan Bank advances                 |   |                                           | 22,463     |                                          |   | - |   |   | 51,033 |   |   | - |   |
| Long                term Federal Home Loan Bank advances                  |   |                                           | 177,320    |                                          |   | 238,107 |   |   | 516,865 |   |   | 634,446 |   |
| Subordinated                debentures                                    |   |                                           | -          |                                          |   | 48,766 |   |   | - |   |   | 190,211 |   |
| Repurchase                agreements                                      |   |                                           | 4,810      |                                          |   | 23,157 |   |   | 22,644 |   |   | 64,279 |   |
| Capital                leases                                             |   |                                           | 19,359     |                                          |   | 34,486 |   |   | 58,791 |   |   | 107,526 |   |
| Total                interest expense                                     |   |                                           | 1,155,072  |                                          |   | 2,043,936 |   |   | 3,904,666 |   |   | 6,118,756 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Net                interest income                                        |   |                                           | 1,439,628  |                                          |   | 1,575,333 |   |   | 4,235,285 |   |   | 4,778,215 |   |
| Provision                for loan losses                                  |   |                                           | 608,996    |                                          |   | 3,089,650 |   |   | 620,496 |   |   | 3,146,650 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Net                interest income (loss) after provision for loan losses |   |                                           | 830,632    |                                          |   | (1,514,317 | ) |   | 3,614,789 |   |   | 1,631,565 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Noninterest                income:                                        |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Service                charges and other fees                             |   |                                           | 254,638    |                                          |   | 279,658 |   |   | 715,290 |   |   | 835,282 |   |
| Gain                on sale of loans                                      |   |                                           | 47,126     |                                          |   | 46,570 |   |   | 142,144 |   |   | 141,864 |   |
| Gain                (loss) on disposition of other real estate owned      |   |                                           | (2,434     | )                                             |   | (658,849 | ) |   | 6,736 |   |   | (654,018 | ) |
| Direct                write-down of other real estate owned               |   |                                           | (436,006   | )                                             |   | - |   |   | (436,006 | ) |   | - |   |
| Gain                on redemption of equity interest in Visa              |   |                                           | -          |                                          |   | - |   |   | 18,392 |   |   | - |   |
| Loss                on sale of securities available for sale, net         |   |                                           | -          |                                          |   | (340,066 | ) |   | - |   |   | (340,066 | ) |
| Other                than temporary impairment of securities              |   |                                           | (2,700,024 | )                                             |   | - |   |   | (2,859,024 | ) |   | - |   |
| Gain                on sale of branch                                     |   |                                           | -          |                                          |   | 2,077,556 |   |   | - |   |   | 2,077,556 |   |
| Other                income                                               |   |                                           | 91,429     |                                          |   | 27,004 |   |   | 108,972 |   |   | 80,587 |   |
| Total                noninterest income                                   |   |                                           | (2,745,271 | )                                             |   | 1,431,873 |   |   | (2,303,496 | ) |   | 2,141,205 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Noninterest                expense:                                       |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Salaries                and benefits                                      |   |                                           | 848,020    |                                          |   | 1,030,342 |   |   | 2,482,923 |   |   | 3,044,077 |   |
| Occupancy                and equipment                                    |   |                                           | 296,434    |                                          |   | 268,575 |   |   | 752,916 |   |   | 738,139 |   |
| Professional                fees                                          |   |                                           | 67,451     |                                          |   | 194,111 |   |   | 248,349 |   |   | 484,417 |   |
| Franchise                tax                                              |   |                                           | 43,973     |                                          |   | 61,209 |   |   | 143,045 |   |   | 187,862 |   |
| Data                processing                                            |   |                                           | 171,688    |                                          |   | 183,819 |   |   | 507,056 |   |   | 533,523 |   |
| Marketing                and advertising                                  |   |                                           | 48,531     |                                          |   | 57,355 |   |   | 144,268 |   |   | 159,201 |   |
| Stationery                and supplies                                    |   |                                           | 24,372     |                                          |   | 31,736 |   |   | 76,513 |   |   | 92,156 |   |
| Amortization                of intangible asset                           |   |                                           | 21,393     |                                          |   | 31,662 |   |   | 71,595 |   |   | 102,687 |   |
| Deposit                expenses and insurance                             |   |                                           | 68,041     |                                          |   | 102,852 |   |   | 197,478 |   |   | 221,453 |   |
| Other                expenses                                             |   |                                           | 265,416    |                                          |   | 131,665 |   |   | 583,866 |   |   | 455,737 |   |
| Total                noninterest expense                                  |   |                                           | 1,855,319  |                                          |   | 2,093,326 |   |   | 5,208,009 |   |   | 6,019,252 |   |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Earnings                (loss) before income tax expense                  |   |                                           | (3,769,958 | )                                             |   | (2,175,770 | ) |   | (3,896,716 | ) |   | (2,246,482 | ) |
| Income                tax expense (benefit)                               |   |                                           | -          |                                          |   | (742,977 | ) |   | - |   |   | (773,926 | ) |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Net                earnings (loss)                                        |   | $                                              | (3,769,958 | )                                             | $      | (1,432,793 | ) | $ | (3,896,716 | ) | $ | (1,472,556 | ) |
|                                                                      |   |                                           |       |                                          |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                            |   | $                                              | (1.70      | )                                             | $      | (0.65 | ) | $ | (1.76 | ) | $ | (0.66 | ) |
| Diluted                earnings (loss) per share                          |   | $                                              | (1.70      | )                                             | $      | (0.65 | ) | $ | (1.76 | ) | $ | (0.66 | ) |

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|                                                                                                       |   | For the Nine Months EndedSeptember 30, |        |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|-------------|
|                                                                                                       |   | 2008                                                            |        | 2007 |   |
| Cash                flows from operating activities:                                                       |   |                                                            |        |   |   |   |   |
| Net                earnings (loss)                                                                         |   | $                                                               | (3,896,716  | ) | $ | (1,472,556 | ) |
| Adjustments                to reconcile net earnings to net cash from operating                activities: |   |                                                            |        |   |   |   |   |
| Depreciation                and amortization                                                               |   |                                                            | 408,452     |   |   | 412,579 |   |
| Securities                amortization and accretion, net                                                  |   |                                                            | 16,335      |   |   | 65,921 |   |
| Origination                of loans held for sale                                                          |   |                                                            | (14,668,786 | ) |   | (19,897,924 | ) |
| Proceeds                from sales of loans held for sale                                                  |   |                                                            | 14,820,687  |   |   | 18,714,839 |   |
| Provision                for loan losses                                                                   |   |                                                            | 620,496     |   |   | 3,146,650 |   |
| Loss                from Ohio Legacy Trust 1                                                               |   |                                                            | -           |   |   | (706 | ) |
| (Gain)                loss on disposition of other real estate                                             |   |                                                            | (6,736      | ) |   | 10,789 |   |
| Direct                write-down of other real estate                                                      |   |                                                            | 436,006     |   |   | 643,229 |   |
| Gain                on sale of loans held for sale                                                         |   |                                                            | (142,144    | ) |   | (141,864 | ) |
| Loss                on sale of securities available for sale                                               |   |                                                            | -           |   |   | 340,066 |   |
| Gain                on sale of branch                                                                      |   |                                                            | -           |   |   | (2,077,556 | ) |
| Accretion                of fair value purchase adjustments                                                |   |                                                            | -           |   |   | (8,049 | ) |
| FHLB                stock dividend                                                                         |   |                                                            | (39,600     | ) |   | - |   |
| Stock                option expense                                                                        |   |                                                            | 21,846      |   |   | 33,101 |   |
| Other                than temporary impairment of securities                                               |   |                                                            | 2,859,024   |   |   | - |   |
| Net                change in:                                                                              |   |                                                            |        |   |   |   |   |
| Accrued                interest receivable and other assets                                                |   |                                                            | (236,172    | ) |   | (2,697,951 | ) |
| Accrued                interest payable and other liabilities                                              |   |                                                            | 224,105     |   |   | (72,759 | ) |
| Deferred                loan fees                                                                          |   |                                                            | (43,219     | ) |   | (44,367 | ) |
| Net                cash from operating activities                                                          |   |                                                            | 373,578     |   |   | (3,046,558 | ) |
|                                                                                                       |   |                                                            |        |   |   |   |   |
| Cash                flows from investing activities:                                                       |   |                                                            |        |   |   |   |   |
| Purchases                of securities held to maturity                                                    |   |                                                            | (100,000    | ) |   | (804,847 | ) |
| Purchases                of securities available for sale                                                  |   |                                                            | (9,920,610  | ) |   | (12,913,004 | ) |
| Sales                of securities available for sale                                                      |   |                                                            | -           |   |   | 13,147,235 |   |
| Maturities,                calls and paydowns of securities available for sale                             |   |                                                            | 2,892,300   |   |   | 3,674,738 |   |
| Maturities,                calls and paydowns of securities held to maturity                               |   |                                                            | 100,000     |   |   | - |   |
| Redemption                of federal bank stock                                                            |   |                                                            | 118,750     |   |   | - |   |
| Proceeds                from sales of other real estate owned                                              |   |                                                            | 235,973     |   |   | 694,068 |   |
| Proceeds                from sales of loans                                                                |   |                                                            | -           |   |   | 612,264 |   |
| Net                change in loans                                                                         |   |                                                            | 1,444,839   |   |   | (1,052,119 | ) |
| Expenditures                to improve other real estate owned                                             |   |                                                            | (336,399    | ) |   | (98,633 | ) |
| Net                cash from branch sale                                                                   |   |                                                            | -           |   |   | 17,750,281 |   |
| Purchases                of premises and equipment                                                         |   |                                                            | (764,947    | ) |   | (140,813 | ) |
| Net                cash from investing activities                                                          |   |                                                            | (6,330,094  | ) |   | 20,869,170 |   |
|                                                                                                       |   |                                                            |        |   |   |   |   |
| Cash                flows from financing activities:                                                       |   |                                                            |        |   |   |   |   |
| Net                change in deposits                                                                      |   |                                                            | (7,270,894  | ) |   | (10,326,816 | ) |
| Net                change in repurchase agreements                                                         |   |                                                            | (191,365    | ) |   | 205,169 |   |
| Net                change in fed funds purchased                                                           |   |                                                            | 898,000     |   |   | - |   |
| Repayment                of capital lease obligations                                                      |   |                                                            | (17,720     | ) |   | (24,165 | ) |
| Repayment                of subordinated debt obligation                                                   |   |                                                            | -           |   |   | (3,325,000 | ) |
| Proceeds                from short term FHLB advances, net of repayments                                   |   |                                                            | 1,075,000   |   |   | - |   |
| Proceeds                from long term FHLB advances                                                       |   |                                                            | 11,000,000  |   |   | - |   |
| Repayments                of long term FHLB advances                                                       |   |                                                            | (2,000,000  | ) |   | (7,389,974 | ) |
| Net                cash provided by financing activities                                                   |   |                                                            | 3,493,021   |   |   | (20,860,786 | ) |
|                                                                                                       |   |                                                            |        |   |   |   |   |
| Net                change in cash and cash equivalents                                                     |   |                                                            | (2,463,495  | ) |   | (3,038,174 | ) |
| Cash                and cash equivalents at beginning of period                                            |   |                                                            | 7,115,205   |   |   | 13,039,865 |   |
|                                                                                                       |   |                                                            |        |   |   |   |   |
| Cash                and cash equivalents at end of period                                                  |   | $                                                               | 4,651,710   |   | $ | 10,001,691 |   |
|                                                                                                       |   |                                                            |        |   |   |   |   |
| Supplemental                disclosures of cash flow information:                                          |   |                                                            |        |   |   |   |   |
| Cash                paid during the period for:                                                            |   |                                                            |        |   |   |   |   |
| Interest                                                                                                   |   | $                                                               | 3,904,666   |   | $ | 6,217,290 |   |
| Federal                income taxes                                                                        |   |                                                            | -           |   |   | - |   |
| Non-cash                transactions:                                                                      |   |                                                            |        |   |   |   |   |
| Transfer                of loans to other real estate owned                                                |   | $                                                               | 1,969,642   |   | $ | 106,536 |   |

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**NOTE      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**NOTE      2 – STOCK BASED COMPENSATION**

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**NOTE          2 – STOCK BASED COMPENSATION (continued)**

|                                                    |   | Nine months endedSeptember 30, 2008Total options outstanding |    |
|---------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|---------|
|                                                    |   |                                                                                       |    | Weighted |   |
|                                                    |   |                                                                                       |    | Average |   |
|                                                    |   |                                                                                       |    | Exercise |   |
|                                                    |   | Shares                                                                                     |    | Price |   |
|                                                    |   |                                                                                       |    |   |   |
| Options                outstanding, beginning of period |   |                                                                                       | 214,150 |   | $ | 10.64 |   |
| Forfeited                                               |   |                                                                                       | (28,800 | ) |   | 10.36 |   |
| Exercised                                               |   |                                                                                       | -       |   |   | - |   |
| Granted                                                 |   |                                                                                       | -       |   |   | - |   |
|                                                    |   |                                                                                       |    |   |   |   |   |
| Options                outstanding, end of period       |   |                                                                                       | 185,350 |   | $ | 10.69 |   |
|                                                    |   |                                                                                       |    |   |   |   |   |
| Options                exercisable, end of period       |   |                                                                                       | 158,250 |   | $ | 10.95 |   |

|                             |   | Compensation |   |
|----------------------------------|--------|--------------|--------|
|                             |   | Costs        |   |
|                             |   |         |   |
| Remainder                of 2008 |   | $            | 8,176  |   |
| 2009                             |   |         | 17,659 |   |
| 2010                             |   |         | 2,081  |   |
| Total                            |   | $            | 27,916 |   |

**NOTE      3 – EARNINGS (LOSS) PER SHARE**

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**NOTE      3 **
**–      EARNINGS (LOSS) PER SHARE (continued)**

|                                                                                   |   | Three                months endedSeptember                30 |       | Nine                months endedSeptember                30 |   |
|----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|------------|-------------------------------------------------------------|--------|
|                                                                                   |   | 2008                                                         |       | 2007                                                        |   | 2008 |   | 2007 |   |
| BASIC:                                                                                 |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Net                earnings (loss)                                                     |   | $                                                            | (3,769,958 | )                                                           | $      | (1,437,793 | ) | $ | (3,896,716 | ) | $ | (1,472,556 | ) |
|                                                                                   |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding                              |   |                                                         | 2,214,564  |                                                        |   | 2,214,564 |   |   | 2,214,564 |   |   | 2,214,564 |   |
|                                                                                   |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                                         |   | $                                                            | (1.70      | )                                                           | $      | (0.65 | ) | $ | (1.76 | ) | $ | (0.66 | ) |
|                                                                                   |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| DILUTED:                                                                               |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Net                earnings (loss)                                                     |   | $                                                            | (3,769,958 | )                                                           | $      | (1,437,493 | ) | $ | (3,896,716 | ) | $ | (1,472,556 | ) |
|                                                                                   |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding                              |   |                                                         | 2,214,564  |                                                        |   | 2,214,564 |   |   | 2,214,564 |   |   | 2,214,564 |   |
| Dilutive                effect of stock options                                        |   |                                                         | -          |                                                        |   | - |   |   | - |   |   | - |   |
| Dilutive                effect of stock warrants                                       |   |                                                         | -          |                                                        |   | - |   |   | - |   |   | - |   |
| Total                common shares and dilutive potential common                shares |   |                                                         | 2,214,564  |                                                        |   | 2,214,564 |   |   | 2,214,564 |   |   | 2,214,564 |   |
|                                                                                   |   |                                                         |       |                                                        |   |   |   |   |   |   |   |   |   |
| Diluted                earnings (loss) per share                                       |   | $                                                            | (1.70      | )                                                           | $      | (0.65 | ) | $ | (1.76 | ) | $ | (0.66 | ) |

|                          |   | Three                months ended September                30, |    | Nine                months ended September                30, |   |
|-------------------------------|--------|----------------------------------------------------------------|---------|--------------------------------------------------------------------|--------|
|                          |   | 2008                                                           |    | 2007                                                               |   | 2008 |   | 2007 |   |
|                          |   |                                                           |    |                                                               |   |   |   |   |   |
| Stock                options  |   |                                                           | 185,350 |                                                               |   | 222,500 |   |   | 185,350 |   |   | 222,500 |   |
| Stock                warrants |   |                                                           | 150,000 |                                                               |   | 150,000 |   |   | 150,000 |   |   | 150,000 |   |

**NOTE      4 – LOANS **

|                                                |   | September                30, 2008 |        | December                31, 2007 |   |
|-----------------------------------------------------|--------|-----------------------------------|-------------|----------------------------------|--------|
|                                                |   | Balance                           |        | Percent                          |   | Balance |   | Percent |   |
|                                                |   |                              |        |                             |   |   |   |   |   |
| Residential                real estate              |   | $                                 | 38,544,533  |                             |   | 29.8 | % | $ | 36,548,271 |   |   | 27.4 | % |
| Multifamily                residential real estate  |   |                              | 6,428,966   |                             |   | 5.0 |   |   | 7,918,222 |   |   | 5.9 |   |
| Commercial                real estate               |   |                              | 54,398,620  |                             |   | 42.0 |   |   | 59,574,635 |   |   | 44.7 |   |
| Construction                                        |   |                              | 11,323,322  |                             |   | 8.8 |   |   | 10,714,524 |   |   | 8.0 |   |
| Commercial                                          |   |                              | 10,913,238  |                             |   | 8.4 |   |   | 12,528,137 |   |   | 9.4 |   |
| Consumer                and home equity             |   |                              | 7,789,807   |                             |   | 6.0 |   |   | 6,141,568 |   |   | 4.6 |   |
| Total                loans                          |   |                              | 129,398,487 |                             |   | 100.0 | % |   | 133,425,357 |   |   | 100.0 | % |
| Less: Allowance                for loan losses |   |                              | (1,631,011  | )                                |   |   |   |   | (1,622,906 | ) |   |   |   |
| Net                deferred loan fees               |   |                              | (116,761    | )                                |   |   |   |   | (159,980 | ) |   |   |   |
| Loans,                net                           |   | $                                 | 127,650,714 |                             |   |   |   | $ | 131,642,471 |   |   |   |   |

----

**NOTE      4 – LOANS (continued)**

|                                                             |   | For                the Three Months Ended |      | For                the Nine Months Ended |   |
|------------------------------------------------------------------|--------|-------------------------------------------|-----------|------------------------------------------|--------|
|                                                             |   | September                30,              |      | September                30,             |   |
|                                                             |   | 2008                                      |      | 2007                                     |   | 2008 |   | 2007 |   |
|                                                             |   |                                      |      |                                     |   |   |   |   |   |
| Balance,                beginning of period                      |   | $                                         | 1,632,253 |                                     | $      | 1,766,379 |   | $ | 1,622,906 |   | $ | 1,757,110 |   |
| Provision                for loan losses                         |   |                                      | 608,996   |                                     |   | 3,089,650 |   |   | 620,496 |   |   | 3,146,650 |   |
| Loans                charged-off                                 |   |                                      | (634,369  | )                                        |   | (2,852,022 | ) |   | (658,902 | ) |   | (2,904,633 | ) |
| Recoveries                                                       |   |                                      | 24,131    |                                     |   | 361 |   |   | 46,511 |   |   | 5,241 |   |
| Reduction                of allowance for loans sold             |   |                                      | -         |                                     |   | (384,787 | ) |   | - |   |   | (384,787 | ) |
|                                                             |   |                                      |      |                                     |   |   |   |   |   |   |   |   |   |
| Balance,                end of period                            |   | $                                         | 1,631,011 |                                     | $      | 1,619,581 |   | $ | 1,631,011 |   | $ | 1,619,581 |   |
|                                                             |   |                                      |      |                                     |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses, percent of total loans |   |                                      | 1.26      | %                                        |   | 1.18 | % |   |   |   |   |   |   |

|                                                                        |   | September 30,2008 |      | December 31,2007 |   |
|-----------------------------------------------------------------------------|--------|------------------------|-----------|-----------------------|--------|
|                                                                        |   |                   |      |                  |   |
| Loans                past due over 90 days still on accrual                 |   | $                      | -         |                  | $      | - |   |
| Nonaccrual                loans, includes smaller balance homogeneous loans |   |                   | 5,220,583 |                  |   | 4,205,143 |   |
|                                                                        |   |                   |      |                  |   |   |   |
| Impaired                loans, included in nonaccrual loans                 |   |                   | 5,081,445 |                  |   | 3,550,936 |   |
| Amount                of the allowance for loan losses allocated            |   | $                      | -         |                  | $      | 11,472 |   |

**NOTE      5 – OTHER REAL ESTATE OWNED**

|                                   |   | September 30,2008 |      | December 31, 2007 |   |
|----------------------------------------|--------|------------------------|-----------|-----------------------------|--------|
|                                   |   |                   |      |                        |   |
| Residential                real estate |   | $                      | 2,043,334 |                        | $      | 136,716 |   |
| Land                development        |   |                   | 2,013,831 |                        |   | 2,279,651 |   |
| Total                real estate owned |   | $                      | 4,057,165 |                        | $      | 2,416,367 |   |

----

**NOTE      6 – OTHER THAN TEMPORARY IMPAIRMENT**

**NOTE      7 – FAIR VALUE MEASUREMENT **

|                                         |   | September 30,2008 |       | Quoted Prices on Active Markets for Identical Assets (Level 1) |   | Significant Other Observable Inputs (Level 2) |   | Significant Unobservable Inputs (Level 3) |       |
|----------------------------------------------|--------|------------------------|------------|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|
|                                         |   |                   |       |                                                                                                        |   |                                                                   |   |                                                          |       |
| Available                for sale securities |   | $                      | 32,952,733 |                                                                                                        | $      | 200,000                                                                |   | $                                                             | 32,752,733 |   | $ | - |   |

----

**NOTE      7 – FAIR VALUE MEASUREMENT (continued)**

|                          |   | September 30, 2008 |      | Quoted Prices on Active Markets for Identical Assets (Level 1) |   | Significant Other Observable Inputs (Level 2) |   | Significant Unobservable Inputs (Level 3) |    |
|-------------------------------|--------|------------------------------|-----------|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|---------------------------------------------------------------|---------|
|                          |   |                         |      |                                                                                                        |   |                                                                   |   |                                                          |    |
| Impaired                loans |   | $                            | 5,081,445 |                                                                                                        | $      | -                                                                      |   | $                                                             | 685,208 |   | $ | 4,396,237 |   |

**NOTE      8 – OTHER COMPREHENSIVE INCOME (LOSS)**

|                                                                                                      |   | For                the three months ended September                30, |       | For                the nine months ended September                30, |   |
|-----------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|--------|
|                                                                                                      |   | 2008                                                                   |       | 2007                                                                       |   | 2008 |   | 2007 |   |
| Net                earnings (loss)                                                                        |   | $                                                                      | (3,769,958 | )                                                                          | $      | (1,432,793 | ) | $ | (3,896,716 | ) | $ | (1,472,556 | ) |
| Other                comprehensive income (loss), net of tax:                                             |   |                                                                   |       |                                                                       |   |   |   |   |   |   |   |   |   |
| Unrealized                gains (losses) on securities arising during the period                          |   |                                                                   | (2,561,785 | )                                                                          |   | 106,398 |   |   | (3,071,830 | ) |   | 124,382 |   |
| Less:                reclassification adjustment for losses (gains) included in net                income |   |                                                                   | 2,700,024  |                                                                       |   | 340,066 |   |   | 2,859,024 |   |   | 340,066 |   |
| Net                unrealized gains (losses)                                                              |   |                                                                   | 138,239    |                                                                       |   | 446,464 |   |   | (212,806 | ) |   | 464,448 |   |
| Income                tax effect                                                                          |   |                                                                   | (47,001    | )                                                                          |   | (151,798 | ) |   | 72,354 |   |   | (157,912 | ) |
| Other                comprehensive income (loss), net of tax                                              |   |                                                                   | 91,238     |                                                                       |   | 294,666 |   |   | (140,452 | ) |   | 306,536 |   |
| Comprehensive                income (loss)                                                                |   | $                                                                      | (3,678,720 | )                                                                          | $      | (1,138,127 | ) | $ | (4,037,168 | ) | $ | (1,166,020 | ) |

**NOTE      9 – PARTICIPATION IN THE TREASURY CAPITAL PURCHASE PROGRAM**

**.**

----

**FORWARD-LOOKING      STATEMENTS**

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

|   | · | anticipated                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; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | retention                of our existing customer base and our ability to attract new                customers; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

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

|   | · | the                adequacy of the allowance for loan losses;                and |
|--------|--------|----------------------------------------------------------------------------------|

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

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

|   | · | changes                in general interest rates; |
|--------|--------|---------------------------------------------------|

|   | · | rapid                changes in technology affecting the financial services                industry; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | deterioration                in securities markets due to a lack of liquidity and demand for securities                related to real estate, |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | changes                in government regulation; and |
|--------|--------|------------------------------------------------------|

|   | · | general                economic and business                conditions. |
|--------|--------|-------------------------------------------------------------------------|

----

**OVERVIEW**

|   | § | The                company recognized an other-than-temporary impairment (OTTI) charge                of                $2.7 million for Fannie Mae and Freddie Mac Preferred Shares in the                third                quarter and $2.9 million for the year to                date |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The                company wrote down the value of assets held in its OREO portfolio                by                $436,006 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | § | The                company took a loan loss provision expense of $608,996 during the                third                quarter |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

**Credit      Quality**

**Net      Interest Income – **

**Noninterest      Income – **

**Noninterest      Expense – **

**Loans      and Leases – **

**Deposits      – **
** **
** **

----

**CRITICAL      ACCOUNTING POLICIES**

*Allowance      for loan losses*

**FINANCIAL      CONDITION – SEPTEMBER 30, 2008 COMPARED TO DECEMBER 31,      2007**

*Assets*
** **

*Securities*

*Loans*

----

*Allowance      for loan losses and asset quality*
** **

*Accrued      interest receivable and other assets. *

*Deposits*

*Federal      Home Loan Bank advances*

**RESULTS      OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2008**

----

|                                                                                                                                                                                             |   | Three                months ended September 30, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                                                                                                                                                             |   | 2008                                            |    | 2007 |   |
|                                                                                                                                                                                             |   | Average                                         |    | Interest |   |   |   | Average |   | Interest |   |   |   |
|                                                                                                                                                                                             |   | Outstanding                                     |    | earned/ |   | Yield/ |   | outstanding |   | earned/ |   | Yield/ |   |
| (Dollars                in thousands)                                                                                                                                                            |   | Balance                                         |    | paid |   | Rate |   | balance |   | paid |   | Rate |   |
| Assets                                                                                                                                                                                           |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning                assets:                                                                                                                                                          |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                deposits and federal funds sold                                                                                                                        |   | $                                               | 1,052   |   |   | 6 |   |   | 2.38 | % | $ | 4,259 |   | $ | 55 |   |   | 5.15 | % |
| Securities                available for sale                                                                                                                                                |   |                                            | 36,336  |   |   | 447 |   |   | 4.90 |   |   | 24,761 |   |   | 271 |   |   | 4.37 |   |
| Securities                held to                maturity                                                                                                                                        |   |                                            | 3,001   |   |   | 29 |   |   | 3.79 |   |   | 3,004 |   |   | 26 |   |   | 3.46 |   |
| Federal                agency                stock                                                                                                                                               |   |                                            | 1,449   |   |   | 20 |   |   | 5.55 |   |   | 1,541 |   |   | 26 |   |   | 6.84 |   |
| Loans                (1)                                                                                                                                                                         |   |                                            | 125,713 |   |   | 2,093 |   |   | 6.62 |   |   | 169,245 |   |   | 3,241 |   |   | 7.66 |   |
| Total                interest-earning                assets                                                                                                                                      |   |                                            | 167,551 |   |   | 2,595 |   |   | 6.16 | % |   | 202,810 |   |   | 3,619 |   |   | 7.10 |   |
| Noninterest-earning assets                                                                                                                                                                  |   |                                            | 15,329  |   |   |   |   |   |   |   |   | 20,001 |   |   |   |   |   |   |   |
| Total                assets                                                                                                                                                                      |   |                                            | 182,880 |   |   |   |   |   |   |   |   | 222,811 |   |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                and Shareholders’ Equity                                                                                                                                        |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                                                                                                                     |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                demand deposits                                                                                                                                             |   | $                                               | 9,095   |   |   | 23 |   |   | 0.99 | %   | $ | 9,863 |   | $ | 49 |   |   | 1.96 | % |
| Savings                accounts                                                                                                                                                                  |   |                                            | 5,420   |   |   | 11 |   |   | 0.82 |   |   | 7,277 |   |   | 14 |   |   | 0.78 |   |
| Money                market                accounts                                                                                                                                              |   |                                            | 47,779  |   |   | 272 |   |   | 2.26 |   |   | 49,062 |   |   | 481 |   |   | 3.89 |   |
| Certificates                of deposit                                                                                                                                                      |   |                                            | 66,963  |   |   | 625 |   |   | 3.72 |   |   | 95,266 |   |   | 1,155 |   |   | 4.81 |   |
| Total                interest-bearing                deposits                                                                                                                                    |   |                                            | 129,257 |   |   | 931 |   |   | 2.87 |   |   | 161,468 |   |   | 1,699 |   |   | 4.18 |   |
| Other                borrowings                                                                                                                                                                  |   |                                            | 22,715  |   |   | 224 |   |   | 3.92 |   |   | 23,998 |   |   | 345 |   |   | 5.70 |   |
| Total                interest-bearing                liabilities                                                                                                                                 |   |                                            | 151,972 |   |   | 1,155 |   |   | 3.02 |   |   | 185,466 |   |   | 2,044 |   |   | 4.37 |   |
| Noninterest-bearing                demand deposits                                                                                                                                               |   |                                            | 16,178  |   |   |   |   |   |   |   |   | 17,268 |   |   |   |   |   |   |   |
| Noninterest-bearing liabilities                                                                                                                                                             |   |                                            | 279     |   |   |   |   |   |   |   |   | 961 |   |   |   |   |   |   |   |
| Total                liabilities                                                                                                                                                                 |   |                                            | 168,429 |   |   |   |   |   |   |   |   | 203,695 |   |   |   |   |   |   |   |
| Shareholders’                equity                                                                                                                                                        |   |                                            | 14,451  |   |   |   |   |   |   |   |   | 19,116 |   |   |   |   |   |   |   |
| Total                liabilities and shareholders’ equity                                                                                                                             |   | $                                               | 182,880 |   |   |   |   |   |   |   | $ | 222,811 |   |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income; interest-rate spread (2)                                                                                                                                |   |                                            |    |   | $ | 1,440 |   |   | 3.14 | % |   |   |   | $ | 1,575 |   |   | 2.73 | % |
| Net                earning assets                                                                                                                                                                |   | $                                               | 15,579  |   |   |   |   |   |   |   | $ | 17,344 |   |   |   |   |   |   |   |
| Net                interest margin (3)                                                                                                                                                           |   |                                            |    |   |   |   |   |   | 3.41 | % |   |   |   |   |   |   |   | 3.09 | % |
| Average                interest-earning assets to                interest-bearing liabilities                                                                                          |   |                                            | 1.10x   |   |   |   |   |   |   |   |   | 1.09x |   |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                  |   |                                            |    |   |   |   |
| (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*

*Interest      income*

*Interest      expense*

----

*Provision      for loan losses*

*Noninterest      income*

*Noninterest      expense*

*Salary      and benefits*

*Professional      fees*

*Other      expenses.*

----

**RESULTS      OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2008**

|                                                                                                    |   | Nine                months ending September 30, |    |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                                                                    |   | 2008                                            |    | 2007 |   |
|                                                                                                    |   | Average                                         |    | Interest |   |   |   | Average |   | Interest |   |   |   |
|                                                                                                    |   | Outstanding                                     |    | earned/ |   | Yield/ |   | outstanding |   | earned/ |   | Yield/ |   |
| (Dollars                in thousands)                                                                   |   | balance                                         |    | Paid |   | Rate |   | balance |   | paid |   | Rate |   |
| Assets                                                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning                assets:                                                                 |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                deposits and federal funds sold                               |   | $                                               | 3,407   |   | $ | 67 |   |   | 2.62 | %   | $ | 5,049 |   | $ | 198 |   |   | 5.23 | % |
| Securities                available for sale                                                       |   |                                            | 32,860  |   |   | 1,302 |   |   | 5.29 |   |   | 25,240 |   |   | 808 |   |   | 4.27 |   |
| Securities                held to                maturity                                               |   |                                            | 3,002   |   |   | 86 |   |   | 3.81 |   |   | 2,889 |   |   | 75 |   |   | 3.46 |   |
| Federal                agency                stock                                                      |   |                                            | 1,485   |   |   | 62 |   |   | 5.56 |   |   | 1,541 |   |   | 74 |   |   | 6.43 |   |
| Loans                (1)                                                                                |   |                                            | 128,203 |   |   | 6,623 |   |   | 6.90 |   |   | 172,659 |   |   | 9,742 |   |   | 7.52 |   |
| Total                interest-earning                assets                                             |   |                                            | 168,957 |   |   | 8,140 |   |   | 6.44 |   |   | 207,378 |   |   | 10,897 |   |   | 7.03 |   |
| Noninterest-earning assets                                                                         |   |                                            | 16,017  |   |   |   |   |   |   |   |   | 20,491 |   |   |   |   |   |   |   |
| Total                assets                                                                             |   | $                                               | 184,974 |   |   |   |   |   |   |   | $ | 227,869 |   |   |   |   |   |   |   |
|                                                                                                    |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                and Shareholders’ Equity                                               |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                            |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                demand deposits                                                    |   | $                                               | 9,508   |   |   | 82 |   |   | 1.16 |   | $ | 9,488 |   |   | 89 |   |   | 1.25 |   |
| Savings                accounts                                                                         |   |                                            | 5,416   |   |   | 33 |   |   | 0.82 |   |   | 8,151 |   |   | 48 |   |   | 0.79 |   |
| Money                market                accounts                                                     |   |                                            | 46,835  |   |   | 955 |   |   | 2.72 |   |   | 45,290 |   |   | 1,310 |   |   | 3.87 |   |
| Certificates                of deposit                                                             |   |                                            | 71,361  |   |   | 2,185 |   |   | 4.09 |   |   | 102,644 |   |   | 3,676 |   |   | 4.79 |   |
| Total                interest-bearing                deposits                                           |   |                                            | 133,120 |   |   | 3,255 |   |   | 3.27 |   |   | 165,573 |   |   | 5,123 |   |   | 4.14 |   |
| Other                borrowings                                                                         |   |                                            | 20,348  |   |   | 650 |   |   | 4.25 |   |   | 23,766 |   |   | 996 |   |   | 5.61 |   |
| Total                interest-bearing                liabilities                                        |   |                                            | 153,468 |   |   | 3,905 |   |   | 3.40 |   |   | 189,339 |   |   | 6,119 |   |   | 4.32 |   |
| Noninterest-bearing                demand deposits                                                      |   |                                            | 15,435  |   |   |   |   |   |   |   |   | 18,129 |   |   |   |   |   |   |   |
| Noninterest-bearing liabilities                                                                    |   |                                            | 548     |   |   |   |   |   |   |   |   | 759 |   |   |   |   |   |   |   |
| Total                liabilities                                                                        |   |                                            | 169,451 |   |   |   |   |   |   |   |   | 208,227 |   |   |   |   |   |   |   |
| Shareholders’                equity                                                               |   |                                            | 15,523  |   |   |   |   |   |   |   |   | 19,642 |   |   |   |   |   |   |   |
| Total                liabilities and shareholders’ equity                                    |   | $                                               | 184,974 |   |   |   |   |   |   |   | $ | 227,869 |   |   |   |   |   |   |   |
|                                                                                                    |   |                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income; interest-rate spread (2)                                       |   |                                            |    |   | $ | 4,235 |   |   | 3.04 | % |   |   |   | $ | 4,778 |   |   | 2.71 | % |
| Net                earning assets                                                                       |   | $                                               | 15,489  |   |   |   |   |   |   |   | $ | 18,039 |   |   |   |   |   |   |   |
| Net                interest margin (3)                                                                  |   |                                            |    |   |   |   |   |   | 3.34 | % |   |   |   |   |   |   |   | 3.08 | % |
| Average                interest-earning assets to                interest-bearing liabilities |   |                                            | 1.10x   |   |   |   |   |   |   |   |   | 1.10x |   |   |   |   |   |   |   |

|  | (1) | Net                of net deferred loan fees and costs and loans in process. Nonaccrual                loans                are included in noninterest-earning                assets. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (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*

*Interest      income*

*Interest      expense*

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*Provision      for loan losses*

*Noninterest      income*

*Noninterest      expense*

*Salary      and benefits*

*Professional      fees*

*Other      expenses.*

**STRATEGIC      DEVELOPMENTS**

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

**LIQUIDITY**

**CAPITAL      RESOURCES**

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|                                                  |   |   |   |                             |   |                             |    |                             |   | To                Be Well-       |   |
|-------------------------------------------------------|--------|--------|--------|----------------------------------|--------|----------------------------------|---------|----------------------------------|--------|----------------------------------|--------|
|                                                  |   |   |   |                             |   |                             |    |                             |   | Capitalized                Under |   |
|                                                  |   |   |   |                             |   | For                Capital       |    | Prompt                Corrective |   |
|                                                  |   | Actual |   | Adequacy                Purposes |   | Action                Provisions |    |
|                                                  |   | Amount |   | Ratio                            |   | Amount                           |    | Ratio                            |   | Amount                           |   | Ratio |   |
|                                                  |   |   |   |                             |   |                             |    |                             |   |                             |   |   |   |
| Total                capital to risk-weighted assets  |   | $      | 12,565 |                             |   | 9.3                              | %  | $                                | 10,794 |                             |   | 8.0 | %  | $ | 13,493 |   |   | 10.0 | % |
|                                                  |   |   |   |                             |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |
| Tier                1 capital to risk-weighted assets |   | $      | 10,934 |                             |   | 8.1                              | %       | $                                | 5,397  |                             |   | 4.0 | % | $ | 8,096 |   |   | 6.0 | % |
|                                                  |   |   |   |                             |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |
| Tier                1 capital to average assets       |   | $      | 10,934 |                             |   | 6.0                              | %       | $                                | 7,325  |                             |   | 4.0 | % | $ | 9,156 |   |   | 5.0 | % |

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**Item      3. Not applicable for Smaller Reporting Companies.**

**Item      4. Controls and Procedures**

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**PART      II – OTHER INFORMATION**

**Item      1. Legal Proceedings.**

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

**Item      3. Defaults Upon Senior Securities.**

**Item      4. Submission of Matters to a Vote of Security Holders.**

**Item      5. Other Information.**

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**Item      6. Exhibits.**

|   | Exhibit                          |   |   |   |                                                                                                                                                                                                  |
|--------|----------------------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Number                           |   | Note   |   | Description                of Document                                                                                                                                                                |
|   |  3.1                        |   | (1)    |   | Second                Amended and Restated Articles of Incorporation of Ohio Legacy                Corp                                                                                               |
|   |  3.2                        |   | (2)    |   | Code                of Regulations of Ohio Legacy Corp, as amended by Amendment No.                1                                                                                                  |
|   |  4.1                        |   | (3)    |   | See                Pages 1 through 9 of Exhibit 3.1 for provisions defining the rights                of the                holders of common shares                                                  |
|   |  4.2                        |   | (3)    |   | Form                of Organizer Stock Purchase Warrant                                                                                                                                               |
|   |  4.4                        |   | (2)    |   | 2004                Amendment to Omnibus Stock Option, Stock Ownership and Long Term                Incentive                Plan of Ohio Legacy Corp                                                 |
|   | 10.1                             |   | (3)    |   | Omnibus                Stock Option, Stock Ownership and Long Term Incentive Plan                                                                                                                     |
|   | 10.2                             |   | (4)    |   | 2002                Amendment to Omnibus Stock Option, Stock Ownership and Long Term                Incentive                Plan** **of                Ohio Legacy Corp                         |
|   | 10.5                             |   | (3)    |   | Lease                Agreement dated August 24, 1999, by and among Jack K. and Heidi M.                Gant                and Ohio Legacy Corp                                                       |
|   | 10.6                             |   | (3)    |   | Lease                Agreement dated November 30, 1999, by and between Schoeppner Properties                and Ohio Legacy Corp                                                                      |
|   | 10.8                             |   | (5)    |   | Lease                Agreement dated October 2001 by and between Shee-Bree’s, L.L.C. and Ohio                Legacy Corp                                                                        |
|   | 10.11                            |   | (7)    |   | Employment                Agreement with Mr. Kramer                                                                                                                                                   |
|   | 10.12                            |   | (8)    |   | Change                in Control Agreement with Mr. Williams                                                                                                                                          |
|   | 10.13                            |   | (8)    |   | Change                in Control Agreement with Mr. Spradlin                                                                                                                                          |
|   | 10.14                            |   | (8)    |   | Change                in Control Agreement with Mr. Dodds                                                                                                                                             |
|   | 10.15                            |   |   |   | Loan                Processing Agreement dated April 28, 2008 by and between Midwest                Mortgage                Processing, LLC and Ohio Legacy Bank, N.A.                                |
|   | 10.16                            |   |   |   | Administrative                Services Agreement dated April 28, 2008 by and between JMC Marketing                Ltd.                And Ohio Legacy Bank, N.A.                                      |
|   | 10.17                            |   |   |   | Guaranty                dated April 28, 2008 by and between James A. Hinkle, Cheldon Rose,                Michael                Prall and Ohio Legacy Bank, N.A.                                     |
|   | 10.18                            |   |   |   | First                Addendum to Administrative Services Agreement dated September 30,                2008 by                and between JMC Marketing Ltd. And Ohio Legacy Bank,                N.A. |
|   | 11      |   |   |   | Statement                Regarding Computation of Per Share Earnings (incorporated by reference                to                Note 3 on page 8 of this Form 10-Q)                                  |
|   | 31.1                   |   |   |   | Rule                13a-14(a)/15d-14(a) Certification of Principal Executive Officer                and                acting Chief Financial Officer                                                 |
|   | 32.1                   |   |   |   | Certification                Pursuant To 18 U.S.C. Section 1350 As Adopted Pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002                                    |

----

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**SIGNATURES**

|                                   |   | OHIO                LEGACY CORP                              |
|----------------------------------------|--------|--------------------------------------------------------------|
|                                   |   | (Registrant)                                                 |
|                                   |   |                                                         |   |
|                                   |   |                                                         |   |
| Date: November 14, 2008 |   | By:                                                          | /s/ D.                Michael Kramer |
|                                   |   | D.                Michael Kramer, President,                 |
|                                   |   | President,                Chief Executive Officer and acting |
|                                   |   | Chief                Financial Officer                       |

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