##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number: 000-31673
 OHIO LEGACY CORP
   
   
   
   
  þ o
 o þ
  o þ




---



##### 



PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis
    
    
    17Item 3. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29
 2.




---



##### 



PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements.
 
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCash and due from banks
    
    $
    5,519,465
    
    
    $
    4,528,094Federal funds sold and interest-bearing deposits in financial institutions
    
    
    5,410,942
    
    
    
    3,594,452Cash and cash equivalents
    
    
    10,930,407
    
    
    
    8,122,546Certificate of deposit in financial institution
    
    
    100,000
    
    
    
    100,000Securities available for sale
    
    
    28,243,990
    
    
    
    33,032,297Securities held to maturity (fair value of $820,256 and $823,359
at September 30, 2006, and December 31, 2005)
    
    
    831,007
    
    
    
    838,224Loans held for sale
    
    
    227,232
    
    
    
    Loans, net of allowance of $1,775,284 and $1,589,407 at
September 30, 2006 and December 31, 2005
    
    
    178,077,150
    
    
    
    158,182,319Federal bank stock
    
    
    1,526,600
    
    
    
    1,479,500Premises and equipment, net
    
    
    3,659,152
    
    
    
    3,797,314Intangible assets
    
    
    321,751
    
    
    
    455,244Other real estate owned
    
    
    725,187
    
    
    
    Accrued interest receivable and other assets
    
    
    2,125,321
    
    
    
    2,010,323Total assets
    
    $
    226,767,797
    
    
    $
    208,017,767LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    15,704,758
    
    
    $
    15,727,338Interest-bearing demand
    
    
    10,438,917
    
    
    
    12,231,345Savings
    
    
    44,837,945
    
    
    
    42,665,057Certificates of deposit
    
    
    107,268,416
    
    
    
    92,273,308Total deposits
    
    
    178,250,036
    
    
    
    162,897,048Repurchase agreements
    
    
    1,670,806
    
    
    
    3,066,517Short term Federal Home Loan Bank advances
    
    
    2,150,000
    
    
    
    7,200,000Federal Home Loan Bank advances
    
    
    21,148,208
    
    
    
    11,796,010Subordinated debentures
    
    
    3,325,000
    
    
    
    3,325,000Capital lease obligations
    
    
    946,324
    
    
    
    959,450Accrued interest payable and other liabilities
    
    
    869,791
    
    
    
    668,867Total liabilities
    
    
    208,360,165
    
    
    
    189,912,892SHAREHOLDERS EQUITYPreferred 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, 2006, and December 31, 2005, respectively
    
    
    18,725,852
    
    
    
    18,658,386Accumulated earnings
    
    
    253,415
    
    
    
    79,415Accumulated other comprehensive income (loss)
    
    
    (571,635
    )
    
    
    (632,926
    )Total shareholders equity
    
    
    18,407,632
    
    
    
    18,104,875Total liabilities and shareholders equity
    
    $
    226,767,797
    
    
    $
    208,017,767
  3.




---



##### 



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest and dividends income:Loans, including fees
    
    $
    3,107,712
    
    
    $
    2,515,946
    
    
    $
    8,805,540
    
    
    $
    6,992,354Securities, taxable
    
    
    290,582
    
    
    
    340,920
    
    
    
    913,390
    
    
    
    1,096,604Securities, tax-exempt
    
    
    7,141
    
    
    
    6,920
    
    
    
    21,510
    
    
    
    18,404Interest-bearing deposits and federal funds
sold and other
    
    
    53,657
    
    
    
    30,040
    
    
    
    157,280
    
    
    
    121,951Dividends on federal bank stock
    
    
    22,211
    
    
    
    19,405
    
    
    
    65,502
    
    
    
    55,757Total interest and dividends income
    
    
    3,481,303
    
    
    
    2,913,231
    
    
    
    9,963,222
    
    
    
    8,285,070Interest expense:Deposits
    
    
    1,459,061
    
    
    
    982,651
    
    
    
    3,801,905
    
    
    
    2,757,245Short term Federal Home Loan Bank advances
    
    
    96,677
    
    
    
    47,491
    
    
    
    207,357
    
    
    
    53,406Federal Home Loan Bank advances
    
    
    157,942
    
    
    
    81,033
    
    
    
    561,094
    
    
    
    259,425Subordinated debentures
    
    
    70,722
    
    
    
    70,722
    
    
    
    212,166
    
    
    
    212,166Repurchase agreements
    
    
    32,733
    
    
    
    4,896
    
    
    
    93,724
    
    
    
    4,896Capital leases
    
    
    37,159
    
    
    
    37,676
    
    
    
    112,024
    
    
    
    113,294Total interest expense
    
    
    1,854,294
    
    
    
    1,224,469
    
    
    
    4,988,270
    
    
    
    3,400,432Net interest income
    
    
    1,627,009
    
    
    
    1,688,762
    
    
    
    4,974,952
    
    
    
    4,884,638Provision for loan losses
    
    
    65,000
    
    
    
    103,000
    
    
    
    242,000
    
    
    
    210,046Net interest income after provision for loan losses
    
    
    1,562,009
    
    
    
    1,585,762
    
    
    
    4,732,952
    
    
    
    4,674,592Noninterest income:Service charges and other fees
    
    
    259,022
    
    
    
    138,058
    
    
    
    793,175
    
    
    
    392,345Gain on sale of credit card portfolio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,782Loss on disposal of fixed asset
    
    
    
    
    
    
    (2,505
    )
    
    
    (1,872
    )
    
    
    (6,929
    )Gain (loss) on sale of repossessed assets
    
    
    2,262
    
    
    
    
    
    
    
    (4,036
    )
    
    
    7,000Other income
    
    
    13,402
    
    
    
    7,957
    
    
    
    36,053
    
    
    
    18,750Total noninterest income
    
    
    274,686
    
    
    
    143,510
    
    
    
    823,320
    
    
    
    420,948Noninterest expense:Salaries and benefits
    
    
    956,825
    
    
    
    792,251
    
    
    
    2,786,852
    
    
    
    2,117,255Occupancy and equipment
    
    
    240,889
    
    
    
    192,253
    
    
    
    714,262
    
    
    
    589,350Professional fees
    
    
    81,458
    
    
    
    95,780
    
    
    
    284,236
    
    
    
    371,497Franchise tax
    
    
    58,592
    
    
    
    58,269
    
    
    
    186,142
    
    
    
    191,782Data processing
    
    
    164,222
    
    
    
    132,201
    
    
    
    466,295
    
    
    
    442,426Marketing and advertising
    
    
    52,893
    
    
    
    36,141
    
    
    
    139,537
    
    
    
    117,811Stationery and supplies
    
    
    26,857
    
    
    
    29,622
    
    
    
    93,200
    
    
    
    89,448Amortization of intangible asset
    
    
    41,931
    
    
    
    52,199
    
    
    
    133,493
    
    
    
    164,298Deposit expenses and insurance
    
    
    56,022
    
    
    
    33,289
    
    
    
    153,107
    
    
    
    110,339Other expenses
    
    
    116,213
    
    
    
    95,722
    
    
    
    318,461
    
    
    
    288,318Total noninterest expense
    
    
    1,795,902
    
    
    
    1,517,727
    
    
    
    5,275,585
    
    
    
    4,482,524Earnings before income tax expense
    
    
    40,793
    
    
    
    211,545
    
    
    
    280,687
    
    
    
    613,016Income tax expense
    
    
    18,793
    
    
    
    71,545
    
    
    
    106,687
    
    
    
    207,016Net earnings
    
    $
    22,000
    
    
    $
    140,000
    
    
    $
    174,000
    
    
    $
    406,000Basic earnings per share
    
    $
    0.01
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.19Diluted earnings per share
    
    
    0.01
    
    
    
    0.06
    
    
    
    0.08
    
    
    
    0.18
  4.




---



##### 



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Shareholders equity, beginning of period
    
    $
    18,077,373
    
    
    $
    17,587,469
    
    
    $
    18,104,875
    
    
    $
    17,240,374Net earnings
    
    
    22,000
    
    
    
    140,000
    
    
    
    174,000
    
    
    
    406,000Other comprehensive income (loss), net of tax:Net unrealized gain (loss) on available for sale
securities arising during the period
    
    
    301,638
    
    
    
    (121,628
    )
    
    
    61,291
    
    
    
    (216,163
    )Total comprehensive income (loss)
    
    
    323,638
    
    
    
    18,372
    
    
    
    235,291
    
    
    
    189,837Proceeds from exercise of stock warrants
    
    
    
    
    
    
    757,840
    
    
    
    
    
    
    
    923,440Additional paid in capital from stock options
    
    
    6,621
    
    
    
    
    
    
    
    67,466Proceeds from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,500Redemption of stock warrants
    
    
    
    
    
    
    (9,239
    )
    
    
    
    
    
    
    (9,239
    )Income tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,530Shareholders equity, end of period
    
    $
    18,407,632
    
    
    $
    18,354,442
    
    
    $
    18,407,632
    
    
    $
    18,354,442
  5.




---



##### 



2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    174,000
    
    
    $
    406,000Adjustments to reconcile net earnings to net cash from operating activities:Depreciation and amortization
    
    
    440,576
    
    
    
    407,595Securities amortization and accretion, net
    
    
    88,559
    
    
    
    123,531Federal Home Loan Bank (FHLB) stock dividends
    
    
    (40,100
    )
    
    
    (30,700
    )Origination of loans held for sale
    
    
    (227,232
    )
    
    
    Provision for loan losses
    
    
    242,000
    
    
    
    210,046Loss from Ohio Legacy Trust I
    
    
    6,057
    
    
    
    6,057Gain on sale of credit card portfolio
    
    
    
    
    
    
    (9,782
    )Loss on disposal of fixed asset
    
    
    1,872
    
    
    
    6,929Loss on dispositions of real estate owned
    
    
    9,667
    
    
    
    Accretion of fair value purchase adjustments
    
    
    (15,174
    )
    
    
    (108,570
    )Stock option expense
    
    
    67,466
    
    
    
    Net change in:Accrued interest receivable and other assets
    
    
    (140,932
    )
    
    
    (114,839
    )Accrued interest payable and other liabilities
    
    
    200,924
    
    
    
    28,180Deferred loan fees
    
    
    (19,212
    )
    
    
    39,337Net cash provided by operating activities
    
    
    788,471
    
    
    
    963,784Cash flows from investing activities:Purchases of securities available for sale
    
    
    
    
    
    
    (3,459,730
    )Purchases of securities held to maturity
    
    
    
    
    
    
    (197,764
    )Purchases of certificates of deposit
    
    
    
    
    
    
    (100,000
    )Maturities, calls and paydowns of securities available for sale
    
    
    4,788,133
    
    
    
    7,087,751Proceeds from sale of credit card portfolio
    
    
    
    
    
    
    257,418Proceeds from sale of other real estate owned
    
    
    207,090
    
    
    
    Purchases of federal bank stock
    
    
    (7,000
    )
    
    
    (60,050
    )Net change in loans
    
    
    (21,059,563
    )
    
    
    (22,144,600
    )Purchases of premises and equipment
    
    
    (170,793
    )
    
    
    (1,296,830
    )Net cash used by investing activities
    
    
    (16,242,133
    )
    
    
    (19,913,805
    )Cash flows from financing activities:Net change in deposits
    
    
    15,368,162
    
    
    
    1,238,900Net change in repurchase agreements
    
    
    (1,395,711
    )
    
    
    2,400,137Repayment of capital lease obligations
    
    
    (13,126
    )
    
    
    (6,811
    )Proceeds from exercise of stock warrants
    
    
    
    
    
    
    923,440Redemption of stock warrants
    
    
    
    
    
    
    (9,239
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    8,500Proceeds from short term FHLB advances, net of repayments
    
    
    (5,050,000
    )
    
    
    8,500,000Proceeds from FHLB advances
    
    
    12,000,000
    
    
    
    2,000,000Repayments of FHLB advances
    
    
    (2,647,802
    )
    
    
    (3,621,027
    )Net cash provided by financing activities
    
    
    18,261,523
    
    
    
    11,433,900Net change in cash and cash equivalents
    
    
    2,807,861
    
    
    
    (7,516,121
    )Cash and cash equivalents at beginning of period
    
    
    8,122,546
    
    
    
    16,989,323Cash and cash equivalents at end of period
    
    $
    10,930,407
    
    
    $
    9,473,202Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    4,901,196
    
    
    $
    3,366,585Federal income taxes
    
    
    190,000
    
    
    
    205,000Noncash transactions:Transfers of loans to other real estate owned
    
    $
    941,944
    
    
    $
    
  6.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations and Principles of Consolidation
   
 Use of Estimates
 Reclassifications
 Income Taxes
 Loans Held for Sale
  7.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Recent Accounting Pronouncements
       8.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Stock-Based Compensation
     9.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Three months ended September 30, 2006Using
    
    
    SFASPrevious
    
    
    123(R)
    
    
    AsAccounting
    
    
    Adjustments
    
    
    ReportedIncome before income taxes
    
    $
    47,414
    
    
    $
    (6,621
    )
    
    $
    40,793Income taxes
    
    
    18,793
    
    
    
    
    
    
    
    18,793Net income
    
    $
    28,621
    
    
    $
    (6,621
    )
    
    $
    22,000Basic earnings per share
    
    $
    0.01
    
    
    $
    (0.00
    )
    
    $
    0.01Diluted earnings per share
    
    $
    0.01
    
    
    $
    (0.00
    )
    
    $
    0.01
 Nine months ended September 30, 2006Using
    
    
    SFASPrevious
    
    
    123(R)
    
    
    AsAccounting
    
    
    Adjustments
    
    
    ReportedIncome before income taxes
    
    $
    348,153
    
    
    $
    (67,466
    )
    
    $
    280,687Income taxes
    
    
    121,674
    
    
    
    14,987
    
    
    
    106,687Net income
    
    $
    226,479
    
    
    $
    (52,479
    )
    
    $
    174,000Basic earnings per share
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    0.08Diluted earnings per share
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    0.08
  10.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Three months ended September 30, 2005Pro Forma asAs
    
    
    Pro Forma
    
    
    If underReported
    
    
    Adjustments
    
    
    SFAS 123(R)Income before income taxes
    
    $
    211,545
    
    
    $
    (55,019
    )
    
    $
    156,526Income taxes
    
    
    71,545
    
    
    
    238
    
    
    
    71,307Net income
    
    $
    140,000
    
    
    $
    (54,781
    )
    
    $
    85,219Basic earnings per share
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.04Diluted earnings per share
    
    $
    0.06
    
    
    $
    (0.02
    )
    
    $
    0.04
 Nine months ended September 30, 2005Pro Forma asAs
    
    
    Pro Forma
    
    
    If underReported
    
    
    Adjustments
    
    
    SFAS 123(R)Income before income taxes
    
    $
    613,016
    
    
    $
    (322,506
    )
    
    $
    290,510Income taxes
    
    
    207,016
    
    
    
    59,158
    
    
    
    147,858Net income
    
    $
    406,000
    
    
    $
    (263,348
    )
    
    $
    142,652Basic earnings per share
    
    $
    0.19
    
    
    $
    (0.12
    )
    
    $
    0.07Diluted earnings per share
    
    $
    0.18
    
    
    $
    (0.11
    )
    
    $
    0.07
  Nine months endedSeptember 30, 2006Total options outstandingWeighted
    
    WeightedAverage
    
    AverageExercise
    
    FairShares
    
    Price
    
    ValueOptions outstanding, beginning of
period
    
    
    285,750
    
    
    $
    10.76
    
    
    $
    4.73Forfeited
    
    
    (21,600
    )
    
    
    10.78
    
    
    
    4.90Exercised
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    32,875
    
    
    
    9.48
    
    
    
    4.61Options outstanding, end of period
    
    
    297,025
    
    
    $
    10.62
    
    
    $
    4.71Options exercisable, end of period
    
    
    269,000
    
    
    $
    10.74
    
    
    $
    4.72
   11.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Nine Months EndedSeptember 30,2006
    
    2005Proceeds of options exercised
    
    $
    
    
    
    $
    8,500Related tax benefit recognized
    
    
    
    
    
    
    1,530Intrinsic value of options exercised
    
    
    
    
    
    
    4,500
   Outstanding
    
    
    ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Number
    
    
    Life (years)
    
    
    Price
    
    
    Number
    
    
    Price$8.50 - $9.99
    
    
    75,025
    
    
    
    7.97
    
    
    $
    8.97
    
    
    
    47,000
    
    
    $
    8.71$10.00
    
    
    91,500
    
    
    
    5.58
    
    
    
    10.00
    
    
    
    91,500
    
    
    
    10.00$12.00
    
    
    130,500
    
    
    
    8.14
    
    
    
    12.00
    
    
    
    130,500
    
    
    
    12.00297,025
    
    
    
    7.31
    
    
    $
    10.62
    
    
    
    269,000
    
    
    $
    10.74
  July 2006
    
    May 2006
    
    May 2006Stock Options
    
    Stock Options
    
    Stock OptionsOptions granted
    
    
    3,000
    
    
    
    500
    
    
    
    29,375Fair value, calculated
    
    $
    4.36
    
    
    $
    4.50
    
    
    $
    4.64Exercise price
    
    $
    9.05
    
    
    $
    9.27
    
    
    $
    9.52Risk-free interest rate, 10-year Treasury
    
    
    5.06
    %
    
    
    5.12
    %
    
    
    5.10
    %Expected stock price volatility
    
    
    23.87
    %
    
    
    24.14
    %
    
    
    24.43
    %Expected dividend rate
    
    None
    
    
    None
    
    
    NoneExpected life
    
    10 years
    
    
    10 years
    
    
    10 years
  12.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 August 2005
    
    April 2005Stock Options
    
    Stock OptionsOptions granted
    
    
    5,000
    
    
    
    89,500Fair value, calculated
    
    $
    4.76
    
    
    $
    5.59Exercise price
    
    $
    10.00
    
    
    $
    12.00Risk-free interest rate, 10-year Treasury
    
    
    4.23
    %
    
    
    4.19
    %Expected stock price volatility
    
    
    26.99
    %
    
    
    25.91
    %Expected dividend rate
    
    None
    
    
    NoneExpected life
    
    10 years
    
    
    10 years
  CompensationCostsRemainder of 2006
    
    $
    10,6702007
    
    
    42,6802008
    
    
    40,8352009
    
    
    14,071Total
    
    $
    108,256
 NOTE 2  EARNINGS PER SHARE
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302006
    
    
    2005
    
    
    2006
    
    
    2005BASIC:Net earnings
    
    $
    22,000
    
    
    $
    140,000
    
    
    $
    174,000
    
    
    $
    406,000Weighted average common shares outstanding
    
    
    2,214,564
    
    
    
    2,187,482
    
    
    
    2,214,564
    
    
    
    2,148,822Basic earnings per share
    
    $
    0.01
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.19DILUTED:Net earnings
    
    $
    22,000
    
    
    $
    140,000
    
    
    $
    174,000
    
    
    $
    406,000Weighted average common shares outstanding
    
    
    2,214,564
    
    
    
    2,187,482
    
    
    
    2,214,564
    
    
    
    2,148,822Dilutive effect of stock options
    
    
    2,442
    
    
    
    7,850
    
    
    
    4,219
    
    
    
    20,862Dilutive effect of stock warrants
    
    
    
    
    
    
    4,165
    
    
    
    190
    
    
    
    31,535Total common shares and dilutive potential
common shares
    
    
    2,217,006
    
    
    
    2,199,497
    
    
    
    2,218,973
    
    
    
    2,201,219Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.18
  13.




---



##### 



NOTE 2  EARNINGS PER SHARE
  Three months ended
    
    Nine months endedSeptember 30
    
    September 302006
    
    2005
    
    2006
    
    2005Stock options
    
    
    256,525
    
    
    
    143,250
    
    
    
    159,525
    
    
    
    Stock warrants
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
 NOTE 3  LOANS
  September 30, 2006
    
    
    December 31, 2005Balance
    
    
    Percent
    
    
    Balance
    
    
    PercentResidential real estate
    
    $
    64,696,364
    
    
    
    36.0
    %
    
    $
    59,320,852
    
    
    
    37.1
    %Multifamily residential real estate
    
    
    9,750,008
    
    
    
    5.4
    
    
    
    9,929,945
    
    
    
    6.2Commercial real estate
    
    
    66,120,974
    
    
    
    36.7
    
    
    
    54,522,175
    
    
    
    34.1Construction
    
    
    11,361,118
    
    
    
    6.3
    
    
    
    11,758,408
    
    
    
    7.3Commercial
    
    
    17,544,026
    
    
    
    9.7
    
    
    
    12,805,424
    
    
    
    8.0Consumer and home equity
    
    
    10,581,603
    
    
    
    5.9
    
    
    
    11,655,793
    
    
    
    7.3Total loans
    
    
    180,054,093
    
    
    
    100.0
    %
    
    
    159,992,597
    
    
    
    100.0
    %Less: Allowance for loan losses
    
    
    (1,775,284
    )
    
    
    
    
    
    
    (1,589,407
    )Net deferred loan fees
    
    
    (201,659
    )
    
    
    
    
    
    
    (220,871
    )Loans, net
    
    $
    178,077,150
    
    
    
    
    
    
    $
    158,182,319
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    1,706,244
    
    
    $
    1,215,760
    
    
    $
    1,589,407
    
    
    $
    1,263,655Provision for loan losses
    
    
    65,000
    
    
    
    103,000
    
    
    
    242,000
    
    
    
    210,046Loans charged-off
    
    
    (3,268
    )
    
    
    (34,096
    )
    
    
    (66,355
    )
    
    
    (189,966
    )Recoveries
    
    
    7,308
    
    
    
    4,496
    
    
    
    10,232
    
    
    
    5,425Balance, end of period
    
    $
    1,775,284
    
    
    $
    1,289,160
    
    
    $
    1,775,284
    
    
    $
    1,289,160Allowance for loan losses, percent of total loans
    
    
    0.99
    %
    
    
    0.83
    %
  14.




---



##### 



NOTE 3  LOANS
  September 30,
    
    December 31,2006
    
    2005Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    Nonaccrual loans, includes smaller balance homogeneous loans
    
    
    2,711,980
    
    
    
    663,970Impaired loans, some also included in nonaccrual loans
    
    $
    2,284,499
    
    
    $
    344,837Amount of the allowance for loan losses allocated to
impaired loans
    
    
    30,787
    
    
    
    35,000
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Interest income foregone on nonaccrual loans
    
    $
    42,293
    
    
    $
    7,192
    
    
    $
    56,267
    
    
    $
    35,982Average of impaired loans during the period
    
    $
    2,168,783
    
    
    $
    321,000
    
    
    $
    1,238,578
    
    
    $
    572,000Interest income recognized during impairment
    
    
    1,850
    
    
    
    
    
    
    
    5,186
    
    
    
    Cash-basis interest income recognized
during impairment
    
    
    1,850
    
    
    
    
    
    
    
    5,186
    
    
    
    6,747
  September 30,
    
    December 31,2006
    
    2005Commitments to make loans:Variable-rate
    
    $
    946,522
    
    
    $
    702,000Fixed-rate
    
    
    140,500
    
    
    
    123,000Unused lines of credit, variable-rate
    
    $
    21,094,000
    
    
    $
    19,052,000
   15.




---



##### 



NOTE 4  FEDERAL HOME LOAN BANK ADVANCES
   September
    
    
    December2006
    
    
    2005Thirty-month interest-only advance
2.77% fixed rate, maturing June 23, 2006
    
    $
    
    
    
    $
    1,500,000Three-year interest-only advance
3.07% fixed rate, maturing December 22, 2006
    
    
    1,500,000
    
    
    
    1,500,000Three-year, constant monthly payment advance
2.26% fixed rate, final maturity October 1, 2006
    
    
    86,106
    
    
    
    853,818Three-year interest-only advance
2.42% fixed rate, maturing March 10, 2007
    
    
    5,000,000
    
    
    
    5,000,000Two-year interest-only advance
4.32% fixed rate, maturing September 7, 2007
    
    
    2,000,000
    
    
    
    2,000,000Four-year, constant monthly payment advance
2.57% fixed rate, final maturity October 1, 2007
    
    
    562,102
    
    
    
    942,192Twenty seven month interest-only advance
4.94% fixed rate, maturing April 25, 2008
    
    
    2,000,000
    
    
    
    Three-year interest-only advance
4.89% fixed rate, maturing January 16, 2009
    
    
    3,000,000
    
    
    
    Three-year interest-only advance
5.24% fixed rate, maturing February 23, 2009
    
    
    2,500,000
    
    
    
    Four-year interest-only advance
4.98% fixed rate, maturing January 25, 2010
    
    
    2,000,000
    
    
    
    Four-year interest-only advance
5.25% fixed rate, maturing February 23, 2010
    
    
    2,500,000
    
    
    
    $
    21,148,208
    
    
    $
    11,796,010
  Remainder of 2006
    
    $
    1,714,4382007
    
    
    7,433,7702008
    
    
    2,000,0002009
    
    
    5,500,0002010
    
    
    4,500,000$
    21,148,208
  16.




---



##### 



Item 2. Managements Discussion and Analysis
  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 client base and our ability to attract new clients, especially core deposits;
    
    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;
    
    changes in government regulation; and
    
    general economic and business conditions.
 17.




---



##### 



OVERVIEW
  §
    
    The loan portfolio has grown $19.9 million year-to-date§
    
    The deposit portfolio increased $15.4 million during the same period§
    
    Spread and margin have compressed through the first nine months due primarily to
increased deposit costs§
    
    Net interest income is flat compared to the same period a year ago and has gradually
decreased quarter to quarter during the first nine months of this year§
    
    Noninterest expense has increased throughout the first nine months
  
    
    Net earnings totaled $22,000, a decrease from the $140,000 recorded during the
third quarter of 2005
    
    Interest income increased 19.5% over the third quarter of 2005; however net
interest income decreased 3.7% for the same period
    
    Net interest spread fell 14 basis points from the second quarter of 2006 as the
cost of funds increased more than the yield on assets
    
    Net interest margin fell 14 basis points compared to the second quarter of 2006
and was off 42 basis points compared to the third quarter of 2005 due to the continued
reliance on certificates of deposit and borrowings
    
    Noninterest expense increased $44,000 over the second quarter of 2006 due
largely to increased salary expense
  
    
    The flat and sometimes inverted yield curve has compressed the spread earned
between new loans and our funding sources
    
    Time deposits, money market accounts and Federal Home Loan Bank advances
pricing upward in-step with the Federal Reserve Fed Fund increases throughout the first
half of the year have put tremendous pressure on three of our four primary funding sources
    
    We expect compensation and occupancy expense to begin to level in the fourth
quarter of 2006 as we have completed the staffing buildup in our Mortgage, Business
banking, Credit Admin and Commercial banking areas
    
    We remain committed to our deposit growth strategy and believe that we are
beginning to see this strategy pay dividends
    
    We have experienced an increase in delinquency and assets categorized as
nonaccrual, however, we believe that this was driven by two commercial real estate loans
that senior management is actively involved with
    
    We remain bullish on the outlook for well priced loan growth in our primary
markets
 SIGNIFICANT ACCOUNTING POLICIES
 Allowance for loan losses
  18.




---



##### 



FINANCIAL CONDITION
 Assets
 Securities
 Loans
  Allowance for loan losses and asset quality
 19.




---



##### 



Premises and equipment, accrued interest receivable and other assets.
 Deposits.
  Borrowings
 RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2006
  Net interest income
 20.




---



##### 



Three months ended September 30,2006
    
    
    2005Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    paid
    
    
    Rate
    
    
    balance
    
    
    paid
    
    
    RateAssetsInterest-earning assets:Interest-bearing deposits and federal funds sold
    
    $
    4,097
    
    
    $
    54
    
    
    
    5.20
    %
    
    $
    3,381
    
    
    $
    30
    
    
    
    3.52
    %Securities available for sale
    
    
    29,532
    
    
    
    290
    
    
    
    3.94
    
    
    
    37,286
    
    
    
    341
    
    
    
    3.66Securities held to maturity (1)
    
    
    833
    
    
    
    11
    
    
    
    5.20
    
    
    
    804
    
    
    
    10
    
    
    
    5.22Federal agency stock
    
    
    1,513
    
    
    
    22
    
    
    
    5.87
    
    
    
    1,456
    
    
    
    19
    
    
    
    5.33Loans (2)
    
    
    173,943
    
    
    
    3,108
    
    
    
    7.09
    
    
    
    149,183
    
    
    
    2,516
    
    
    
    6.69Total interest-earning assets
    
    
    209,918
    
    
    
    3,485
    
    
    
    6.59
    
    
    
    192,110
    
    
    
    2,916
    
    
    
    6.02Noninterest-earning assets
    
    
    11,749
    
    
    
    
    
    
    
    
    
    
    
    9,042Total assets
    
    $
    221,667
    
    
    
    
    
    
    
    
    
    
    $
    201,152Liabilities and Shareholders EquityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    8,604
    
    
    
    16
    
    
    
    0.74
    
    
    $
    9,684
    
    
    
    19
    
    
    
    0.77Savings accounts
    
    
    10,792
    
    
    
    22
    
    
    
    0.82
    
    
    
    16,863
    
    
    
    42
    
    
    
    0.99Money market accounts
    
    
    34,642
    
    
    
    315
    
    
    
    3.60
    
    
    
    28,392
    
    
    
    186
    
    
    
    2.60Certificates of deposit
    
    
    102,938
    
    
    
    1,106
    
    
    
    4.26
    
    
    
    92,607
    
    
    
    736
    
    
    
    3.15Total interest-bearing deposits
    
    
    156,976
    
    
    
    1,459
    
    
    
    3.69
    
    
    
    147,546
    
    
    
    983
    
    
    
    2.64Other borrowings
    
    
    30,649
    
    
    
    395
    
    
    
    5.16
    
    
    
    22,418
    
    
    
    241
    
    
    
    4.31Total interest-bearing liabilities
    
    
    187,625
    
    
    
    1,854
    
    
    
    3.92
    
    
    
    169,964
    
    
    
    1,224
    
    
    
    2.86Noninterest-bearing demand deposits
    
    
    14,881
    
    
    
    
    
    
    
    
    
    
    
    12,449Noninterest-bearing liabilities
    
    
    1,070
    
    
    
    
    
    
    
    
    
    
    
    711Total liabilities
    
    
    203,576
    
    
    
    
    
    
    
    
    
    
    
    183,124Shareholders equity
    
    
    18,091
    
    
    
    
    
    
    
    
    
    
    
    18,028Total liabilities and shareholders equity
    
    $
    221,667
    
    
    
    
    
    
    
    
    
    
    $
    201,152Net interest income; interest rate spread (3)
    
    
    
    
    
    $
    1,631
    
    
    
    2.67
    %
    
    
    
    
    
    $
    1,692
    
    
    
    3.16
    %Net earning assets
    
    $
    22,293
    
    
    
    
    
    
    
    
    
    
    $
    22,146Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.08
    %
    
    
    
    
    
    
    
    
    
    
    3.50
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    1.12
    x
    
    
    
    
    
    
    
    
    
    
    1.13
    x
 
 (1)
    
    Presented on a taxable-equivalent basis.(2)
    
    Net of net deferred loan fees and costs and loans in process. Nonaccrual loans are included in noninterest-earning assets.(3)
    
    Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income, annualized, divided by average interest-earning assets. Interest income
  21.




---



##### 



Interest expense
  Provision for loan losses
 Noninterest income
 Noninterest expense
   Intangible asset amortization.
 22.




---



##### 



RESULTS OF OPERATIONS  NINE MONTHS ENDED SEPTEMBER 30, 2006
  Net interest income
  Nine months ending September 30,2006
    
    
    2005Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/(Dollars in thousands)
    
    balance
    
    
    paid
    
    
    Rate
    
    
    Balance
    
    
    paid
    
    
    RateAssetsInterest-earning assets:Interest-bearing deposits and federal funds sold
    
    $
    4,324
    
    
    $
    157
    
    
    
    4.86
    %
    
    $
    6,300
    
    
    $
    122
    
    
    
    2.59
    %Securities available for sale
    
    
    31,332
    
    
    
    913
    
    
    
    3.89
    
    
    
    39,494
    
    
    
    1,097
    
    
    
    3.70Securities held to maturity (1)
    
    
    835
    
    
    
    33
    
    
    
    5.20
    
    
    
    699
    
    
    
    27
    
    
    
    5.32Federal agency stock
    
    
    1,497
    
    
    
    65
    
    
    
    5.83
    
    
    
    1,421
    
    
    
    56
    
    
    
    5.23Loans (2)
    
    
    167,355
    
    
    
    8,806
    
    
    
    7.03
    
    
    
    142,698
    
    
    
    6,992
    
    
    
    6.55Total interest-earning assets
    
    
    205,343
    
    
    
    9,974
    
    
    
    6.49
    
    
    
    190,612
    
    
    
    8,294
    
    
    
    5.82Noninterest-earning assets
    
    
    10,717
    
    
    
    
    
    
    
    
    
    
    
    8,879Total assets
    
    $
    216,060
    
    
    
    
    
    
    
    
    
    
    $
    199,491Liabilities and Shareholders EquityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    9,205
    
    
    
    52
    
    
    
    0.75
    
    
    $
    10,541
    
    
    
    61
    
    
    
    0.78Savings accounts
    
    
    12,339
    
    
    
    76
    
    
    
    0.83
    
    
    
    21,355
    
    
    
    164
    
    
    
    1.03Money market accounts
    
    
    31,139
    
    
    
    758
    
    
    
    3.25
    
    
    
    25,855
    
    
    
    501
    
    
    
    2.59Certificates of deposit
    
    
    97,639
    
    
    
    2,916
    
    
    
    3.99
    
    
    
    90,952
    
    
    
    2,031
    
    
    
    2.99Total interest-bearing deposits
    
    
    150,322
    
    
    
    3,802
    
    
    
    3.38
    
    
    
    148,703
    
    
    
    2,757
    
    
    
    2.48Other borrowings
    
    
    32,190
    
    
    
    1,186
    
    
    
    4.91
    
    
    
    20,388
    
    
    
    643
    
    
    
    4.21Total interest-bearing liabilities
    
    
    182,512
    
    
    
    4,988
    
    
    
    3.65
    
    
    
    169,091
    
    
    
    3,400
    
    
    
    2.69Noninterest-bearing demand deposits
    
    
    14,412
    
    
    
    
    
    
    
    
    
    
    
    12,167Noninterest-bearing liabilities
    
    
    1,079
    
    
    
    
    
    
    
    
    
    
    
    698Total liabilities
    
    
    198,003
    
    
    
    
    
    
    
    
    
    
    
    181,956Shareholders equity
    
    
    18,057
    
    
    
    
    
    
    
    
    
    
    
    17,535Total liabilities and shareholders equity
    
    $
    216,060
    
    
    
    
    
    
    
    
    
    
    $
    199,491Net interest income; interest-rate spread (3)
    
    
    
    
    
    $
    4,986
    
    
    
    2.84
    %
    
    
    
    
    
    $
    4,894
    
    
    
    3.13
    %Net earning assets
    
    $
    22,831
    
    
    
    
    
    
    
    
    
    
    $
    21,521Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.13
    x
 
 (1)
    
    Presented on a taxable-equivalent basis.(2)
    
    Net of net deferred loan fees and costs and loans in process. Nonaccrual loans are included in noninterest-earning assets.(3)
    
    Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income, annualized, divided by average interest-earning assets. Interest income
 23.




---



##### 



Interest expense
 Provision for loan losses
 Noninterest income.
 Noninterest expense
  STRATEGIC DEVELOPMENTS
   24.




---



##### 



CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS
  Three months
    
    Year ended December 31,(Dollars in thousands)
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    ThereafterCertificates of deposit
    
    $
    21,527
    
    
    $
    57,850
    
    
    $
    21,952
    
    
    $
    3,477
    
    
    $
    1,865
    
    
    $
    597Repurchase agreements
    
    
    1,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term FHLB advances
    
    
    2,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    1,714
    
    
    
    7,434
    
    
    
    2,000
    
    
    
    5,500
    
    
    
    4,500
    
    
    
    Subordinated debentures (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,325Capital lease obligations (2)
    
    
    43
    
    
    
    179
    
    
    
    181
    
    
    
    181
    
    
    
    181
    
    
    
    1,156Operating leases
    
    
    53
    
    
    
    200
    
    
    
    183
    
    
    
    183
    
    
    
    183
    
    
    
    502Deposits without maturity
    
    
    70,982
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The subordinated debentures are redeemable at par, at the Companys option, any time prior
to maturity, which is March 31, 2022.(2)
    
    Includes $976 of amounts allocable to interest payments over the remaining term of the
leases.   LIQUIDITY
   25.




---



##### 



CAPITAL RESOURCES
    To Be Well-Capitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital to risk-weighted assetsOhio Legacy Corp
    
    $
    23,758
    
    
    
    14.0
    %
    
    $
    13,627
    
    
    
    8.0
    %
    
    
    NA
    
    
    NAOhio Legacy Bank
    
    
    22,032
    
    
    
    12.9
    
    
    
    13,635
    
    
    
    8.0
    
    
    
    17,044
    
    
    
    10.0
    %Tier 1 capital to risk-weighted
assetsOhio Legacy Corp
    
    $
    21,983
    
    
    
    12.9
    %
    
    $
    6,813
    
    
    
    4.0
    %
    
    
    NA
    
    
    NAOhio Legacy Bank
    
    
    20,257
    
    
    
    11.9
    
    
    
    6,818
    
    
    
    4.0
    
    
    
    10,226
    
    
    
    6.0
    %Tier 1 capital to average assetsOhio Legacy Corp
    
    $
    21,983
    
    
    
    9.8
    %
    
    $
    8,956
    
    
    
    4.0
    %
    
    
    NA
    
    
    NAOhio Legacy Bank
    
    
    20,257
    
    
    
    9.1
    
    
    
    8,956
    
    
    
    4.0
    
    
    
    11,195
    
    
    
    5.0
    %
 
 26.




---



##### 



Item 3. Controls and Procedures
  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.
  27.




---



##### 



Item 6. Exhibits.
  Number
    
    Note
    
    Description of Document3.1
    
    (1)
    
    Second Amended and Restated Articles of Incorporation of Ohio Legacy Corp3.2
    
    (2)
    
    Code of Regulations of Ohio Legacy Corp, as amended by Amendment No. 14.1
    
    (3)
    
    See Pages 1 through 9 of Exhibit 3.1 for provisions defining the rights of the holders ofcommon shares4.2
    
    (3)
    
    Form of Organizer Stock Purchase Warrant4.4
    
    (2)
    
    2004 Amendment to Omnibus Stock Option, Stock Ownership and Long Term Incentive Plan of OhioLegacy Corp10.1
    
    (3)
    
    Omnibus Stock Option, Stock Ownership and Long Term Incentive Plan10.2
    
    (4)
    
    2002 Amendment to Omnibus Stock Option, Stock Ownership and Long Term Incentive Plan of OhioLegacy Corp10.4
    
    (7)
    
    Employment Agreement with Mr. Pettit10.5
    
    (3)
    
    Lease Agreement dated August 24, 1999, by and among Jack K. and Heidi M. Gant and Ohio LegacyCorp10.6
    
    (3)
    
    Lease Agreement dated November 30, 1999, by and between Schoeppner Properties and Ohio LegacyCorp10.7
    
    (7)
    
    Employment Agreement with Mr. Boss10.8
    
    (5)
    
    Lease Agreement dated October 2001 by and between Shee-Brees, L.L.C. and Ohio Legacy Corp10.10
    
    (6)
    
    Assignment and assumption of lease by and among Unizan Bank, Ohio Legacy Bank and ChesterlandProductions, P.L.L. dated August 27, 200410.11
    
    (7)
    
    Employment Agreement with Mr. Kramer10.12
    
    (8)
    
    Employment and Consulting Agreement with Mr. Douce, effective January 1, 200611
    
    
    
    Statement Regarding Computation of Per Share Earnings (incorporated by reference toNote 2 on page 13 of this Form 10-QSB)31.1
    
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and acting Chief Financial Officer32.1
    
    
    
    Certification Pursuant To 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    - Incorporated by reference to Registrants Form 10-QSB for the fiscal quarter ended June 30, 2003, filed on August 14, 2003(2)
    
    - Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2003, filed on March 17, 2004(3)
    
    - Incorporated by reference to Registrants Form SB-2, File No. 333-38328, effective June 1, 2000(4)
    
    - Incorporated by reference to Registrants Form S-8, File No. 333-88842, effective May 22, 2002(5)
    
    - Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2001, filed on April 1, 2002(6)
    
    - Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2004, filed on March 22, 2005(7)
    
    - Incorporated by reference to Registrants Form 8-K filed on May 26, 2005(8)
    
    - Incorporated by reference to Registrants Form 8-K filed on August 4, 2005 28.




---



##### 



SIGNATURES
  OHIO LEGACY CORP(Registrant)Date: November 14, 2006
    
    By: /s/ D. Michael KramerD. Michael KramerPresident, Chief Executive Officer, Director and acting Chief
Financial Officer
 29.