UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





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


EXCHANGE
      ACT OF 1934





For the quarterly period ended
September 30, 2010


or


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





For the transition period from
__________ to __________





Commission
file number:  000-31673





OHIO LEGACY
CORP


(Exact
name of registrant as specified in its charter)





Ohio
              
              34-1903890(Stateorotherjurisdictionofincorporationororganization)
              
              I.R.S.EmployerIdentification
                Number





600 South Main St., North Canton,
Ohio  44720


(Address
of principal executive offices)





(330)
499-1900


Registrant's
telephone number





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x     No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No
 ̈





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





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





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





As of
November 12, 2010, the latest practicable date, there were 19,714,564 shares of
the issuer’s Common Stock, without par value, issued and
outstanding.





OHIO
LEGACY CORP


FORM
10-Q




AS OF AND
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010




THIRD
QUARTER REPORT







PagePART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements
              
              3Item
      2. Management’s Discussion and Analysis
              
              23Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk
              
              36Item
      4T. Controls and Procedures
              
              36PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
              
              37Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              
              37Item
      3. Defaults Upon Senior Securities
              
              37Item
      4. Removed and Reserved
              
              37Item
      5. Other Information
              
              37Item
      6. Exhibits
              
              38SIGNATURES
              
              39


2


PART
      1 - FINANCIAL INFORMATIONItem
      1.  Financial Statements.OHIO
      LEGACY CORPCONSOLIDATED
      BALANCE SHEETSAs
      of September 30, 2010 and December 31, 2009




September
      30,
                
                
                December
      31,2010
                
                
                2009(unaudited)ASSETSCash
      and due from banks
                
                $
                1,368,029
                
                
                $
                1,970,133Federal
      funds sold and interest-bearing deposits in financial
      institutions
                
                
                29,848,281
                
                
                
                22,195,657Cash
      and cash equivalents
                
                
                31,216,310
                
                
                
                24,165,790Certificate
      of deposit in financial institution
                
                
                100,000
                
                
                
                100,000Securities
      available for sale
                
                
                31,538,633
                
                
                
                26,892,105Securities
      held to maturity (fair value September 30, 2010 - $3,171,611, December 31,
      2009 - $3,050,740)
                
                
                2,994,501
                
                
                
                2,996,826Loans
      held for sale
                
                
                781,692
                
                
                
                195,247Loans,
      net of allowance of $3,613,671 and $3,945,670 at September 30, 2010 and
      December 31, 2009
                
                
                94,483,650
                
                
                
                100,855,165Federal
      bank stock
                
                
                1,557,700
                
                
                
                1,267,250Premises
      and equipment, net
                
                
                3,150,355
                
                
                
                2,952,392Other
      real estate owned
                
                
                1,065,124
                
                
                
                3,175,658Accrued
      interest receivable and other assets
                
                
                2,238,624
                
                
                
                640,595Total
      assets
                
                $
                169,126,589
                
                
                $
                163,241,028LIABILITIESDeposits:Noninterest-bearing
      demand
                
                $
                17,135,230
                
                
                $
                15,521,829Interest-bearing
      demand
                
                
                10,259,754
                
                
                
                9,372,841Savings
                
                
                61,223,913
                
                
                
                57,119,495Certificates
      of deposit, net
                
                
                53,165,631
                
                
                
                57,784,548Total
      deposits
                
                
                141,784,528
                
                
                
                139,798,713Repurchase
      agreements
                
                
                4,185,409
                
                
                
                1,037,776Long-term
      Federal Home Loan Bank advances
                
                
                5,000,000
                
                
                
                18,500,000Capital
      lease obligations
                
                
                416,397
                
                
                
                440,786Accrued
      interest payable and other liabilities
                
                
                943,396
                
                
                
                1,097,242Total
      liabilities
                
                $
                152,329,730
                
                
                $
                160,874,517SHAREHOLDERS'
      EQUITYPreferred
      stock, no par value, 500,000 shares authorized, none
      outstanding
                
                
                -
                
                
                
                -Common
      stock, no par value;September
      30, 2010:  22,500,000 shares authorized, 19,714,564 shares
      issued and outstandingDecember
      31, 2009:  5,000,000 shared authorized, 2,214,564 shares issued
      and outstanding
                
                
                35,545,028
                
                
                
                18,782,779Accumulated
      deficit
                
                
                (19,244,390
                )
                
                
                (16,178,901
                )Accumulated
      other comprehensive income (loss)
                
                
                496,221
                
                
                
                (237,367
                )Total
      shareholders' equity
                
                
                16,796,859
                
                
                
                2,366,511Total
      liabilities and shareholders' equity
                
                $
                169,126,589
                
                
                $
                163,241,028




See notes
to the consolidated financial statements.


3


OHIO
LEGACY CORP


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)




For
      the Three Months Ended
                  
                  
                  For
      the Nine Months EndedSeptember
      30,
                  
                  
                  September
      30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Interest
      and dividend income:Loans,
      including fees
                  
                  $
                  1,381,852
                  
                  
                  $
                  1,693,274
                  
                  
                  $
                  4,374,049
                  
                  
                  $
                  5,384,716Securities,
      taxable
                  
                  
                  217,890
                  
                  
                  
                  364,651
                  
                  
                  
                  727,040
                  
                  
                  
                  1,215,122Securities,
      tax-exempt
                  
                  
                  28,534
                  
                  
                  
                  28,548
                  
                  
                  
                  85,713
                  
                  
                  
                  85,752Interest-bearing
      deposits, federal funds sold and other
                  
                  
                  24,969
                  
                  
                  
                  9,638
                  
                  
                  
                  57,338
                  
                  
                  
                  23,711Dividends
      on federal bank stock
                  
                  
                  19,505
                  
                  
                  
                  16,691
                  
                  
                  
                  53,046
                  
                  
                  
                  49,029Total
      interest and dividend income
                  
                  
                  1,672,750
                  
                  
                  
                  2,112,802
                  
                  
                  
                  5,297,186
                  
                  
                  
                  6,758,330Interest
      expense:Deposits
                  
                  
                  446,407
                  
                  
                  
                  806,129
                  
                  
                  
                  1,454,727
                  
                  
                  
                  2,643,695Short-term
      Federal Home Loan Bank advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,085Long-term
      Federal Home Loan Bank advances
                  
                  
                  64,735
                  
                  
                  
                  157,623
                  
                  
                  
                  249,305
                  
                  
                  
                  490,804Repurchase
      agreements
                  
                  
                  2,856
                  
                  
                  
                  1,371
                  
                  
                  
                  5,931
                  
                  
                  
                  3,243Capital
      leases
                  
                  
                  17,038
                  
                  
                  
                  18,291
                  
                  
                  
                  52,098
                  
                  
                  
                  55,712Investor
      notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,693
                  
                  
                  
                  -Total
      interest expense
                  
                  
                  531,036
                  
                  
                  
                  983,414
                  
                  
                  
                  1,771,754
                  
                  
                  
                  3,195,539Net
      interest income
                  
                  
                  1,141,714
                  
                  
                  
                  1,129,388
                  
                  
                  
                  3,525,432
                  
                  
                  
                  3,562,791Provision
      for loan losses
                  
                  
                  287,450
                  
                  
                  
                  2,078,703
                  
                  
                  
                  140,743
                  
                  
                  
                  2,634,703Net
      interest income after provision for loan losses
                  
                  
                  854,264
                  
                  
                  
                  (949,315
                  )
                  
                  
                  3,384,689
                  
                  
                  
                  928,088Noninterest
      income:Service
      charges and other fees
                  
                  
                  249,230
                  
                  
                  
                  216,152
                  
                  
                  
                  625,099
                  
                  
                  
                  639,405Gain
      on sales of securities available for sale, net
                  
                  
                  -
                  
                  
                  
                  232,239
                  
                  
                  
                  31,229
                  
                  
                  
                  918,187Other
      than temporary impairment lossTotal
      impairment loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (47,200
                  )
                  
                  
                  (111,200
                  )Loss
      recognized in other comprehensive income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      impairment loss recognized in earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (47,200
                  )
                  
                  
                  (111,200
                  )Gain
      on sale of loans
                  
                  
                  9,723
                  
                  
                  
                  15,198
                  
                  
                  
                  15,051
                  
                  
                  
                  38,365Gain
      on disposition of other real estate owned
                  
                  
                  182,657
                  
                  
                  
                  104,402
                  
                  
                  
                  212,830
                  
                  
                  
                  142,896Direct
      write-down of other real estate owned
                  
                  
                  (295,093
                  )
                  
                  
                  (215,532
                  )
                  
                  
                  (514,890
                  )
                  
                  
                  (262,032
                  )Loss
      on disposition of fixed assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,699
                  )
                  
                  
                  -Other
      income
                  
                  
                  9,108
                  
                  
                  
                  21,551
                  
                  
                  
                  43,611
                  
                  
                  
                  40,903Total
      noninterest income
                  
                  
                  155,625
                  
                  
                  
                  374,010
                  
                  
                  
                  357,031
                  
                  
                  
                  1,406,524Noninterest
      expense:Salaries
      and benefits
                  
                  
                  1,042,523
                  
                  
                  
                  676,250
                  
                  
                  
                  2,909,767
                  
                  
                  
                  2,141,616Occupancy
      and equipment
                  
                  
                  223,548
                  
                  
                  
                  218,679
                  
                  
                  
                  672,521
                  
                  
                  
                  634,148Professional
      fees
                  
                  
                  190,453
                  
                  
                  
                  114,409
                  
                  
                  
                  606,772
                  
                  
                  
                  268,552Franchise
      tax
                  
                  
                  7,250
                  
                  
                  
                  23,329
                  
                  
                  
                  22,800
                  
                  
                  
                  88,881Data
      processing
                  
                  
                  221,230
                  
                  
                  
                  180,985
                  
                  
                  
                  544,107
                  
                  
                  
                  531,083Marketing
      and advertising
                  
                  
                  31,399
                  
                  
                  
                  23,186
                  
                  
                  
                  126,454
                  
                  
                  
                  71,906Stationery
      and supplies
                  
                  
                  17,393
                  
                  
                  
                  15,930
                  
                  
                  
                  56,684
                  
                  
                  
                  52,463Amortization
      of intangible asset
                  
                  
                  -
                  
                  
                  
                  11,124
                  
                  
                  
                  -
                  
                  
                  
                  41,075Deposit
      expense and insurance
                  
                  
                  91,374
                  
                  
                  
                  216,870
                  
                  
                  
                  385,992
                  
                  
                  
                  704,137Investor
      expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  517,222
                  
                  
                  
                  -Other
      expenses
                  
                  
                  339,850
                  
                  
                  
                  347,720
                  
                  
                  
                  964,890
                  
                  
                  
                  930,032Total
      noninterest expense
                  
                  
                  2,165,020
                  
                  
                  
                  1,828,482
                  
                  
                  
                  6,807,209
                  
                  
                  
                  5,463,893Net
      loss before income taxes
                  
                  
                  (1,155,131
                  )
                  
                  
                  (2,403,787
                  )
                  
                  
                  (3,065,489
                  )
                  
                  
                  (3,129,281
                  )Income
      tax benefit
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (250,989
                  )Net
      loss
                  
                  $
                  (1,155,131
                  )
                  
                  $
                  (2,403,787
                  )
                  
                  $
                  (3,065,489
                  )
                  
                  $
                  (2,878,292
                  )Basic
      loss per share
                  
                  $
                  (0.06
                  )
                  
                  $
                  (1.09
                  )
                  
                  $
                  (0.18
                  )
                  
                  $
                  (1.30
                  )Diluted
      loss per share
                  
                  $
                  (0.06
                  )
                  
                  $
                  (1.09
                  )
                  
                  $
                  (0.18
                  )
                  
                  $
                  (1.30
                  )




See notes
to the consolidated financial statements.


4




OHIO
      LEGACY CORPCONDENSED
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYFor
      the Three and Nine Months Ended September 30, 2010 and
2009(Unaudited)For
      the Three Months Ended
                                                    
                                                    
                                                    For
      the Nine Months EndedSeptember
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2009Balance,
      beginning of period
                                                    
                                                    $
                                                    17,818,915
                                                    
                                                    
                                                    $
                                                    8,457,573
                                                    
                                                    
                                                    $
                                                    2,366,511
                                                    
                                                    
                                                    $
                                                    9,520,857Stock
      based compensation expense
                                                    
                                                    
                                                    45,325
                                                    
                                                    
                                                    
                                                    (18,100
                                                    )
                                                    
                                                    
                                                    47,468
                                                    
                                                    
                                                    
                                                    (27,647
                                                    )Proceeds
      on sale of common stock, net
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    16,714,781
                                                    
                                                    
                                                    
                                                    -Comprehensive
      loss:Net
      loss
                                                    
                                                    
                                                    (1,155,131
                                                    )
                                                    
                                                    
                                                    (2,403,787
                                                    )
                                                    
                                                    
                                                    (3,065,489
                                                    )
                                                    
                                                    
                                                    (2,878,289
                                                    )Net
      unrealized income (loss) on securities available for sale arising during
      the period, including effect of reclassifications
                                                    
                                                    
                                                    87,750
                                                    
                                                    
                                                    
                                                    383,273
                                                    
                                                    
                                                    
                                                    733,588
                                                    
                                                    
                                                    
                                                    (195,962
                                                    )Total
      comprehensive loss
                                                    
                                                    
                                                    (1,067,381
                                                    )
                                                    
                                                    
                                                    (2,020,514
                                                    )
                                                    
                                                    
                                                    (2,331,901
                                                    )
                                                    
                                                    
                                                    (3,074,251
                                                    )Balance,
      end of period
                                                    
                                                    $
                                                    16,796,859
                                                    
                                                    
                                                    $
                                                    6,418,959
                                                    
                                                    
                                                    $
                                                    16,796,859
                                                    
                                                    
                                                    $
                                                    6,418,959




See notes
to the consolidated financial statements.




5




OHIO
      LEGACY CORPCONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Nine Months Ended September 30, 2010 and 2009(Unaudited)For
      the Nine Months EndedSeptember
      30,2010
                  
                  
                  2009Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  (3,065,489
                  )
                  
                  $
                  (2,878,292
                  )Adjustments
      to reconcile net earnings (loss) to net cash from operating
      activities:Depreciation
      and amortization
                  
                  
                  280,273
                  
                  
                  
                  300,597Loss
      (gain) on disposition of fixed assets
                  
                  
                  8,699
                  
                  
                  
                  -Securities
      amortization and accretion, net
                  
                  
                  187,501
                  
                  
                  
                  102,277Origination
      of loans held for sale
                  
                  
                  (2,304,700
                  )
                  
                  
                  (1,593,918
                  )Proceeds
      from sales of loans held for sale
                  
                  
                  1,732,076
                  
                  
                  
                  2,424,636Provision
      for loan losses
                  
                  
                  140,743
                  
                  
                  
                  2,634,703Loss
      (gain) on disposition of real estate owned
                  
                  
                  (212,830
                  )
                  
                  
                  (138,597
                  )Direct
      write-down of other real estate owned
                  
                  
                  514,890
                  
                  
                  
                  262,032(Gain)
      loss on sale of securities available for sale
                  
                  
                  (31,229
                  )
                  
                  
                  (918,187
                  )Other
      than temporary impairment of securities
                  
                  
                  47,200
                  
                  
                  
                  111,200Gain
      on sale of loans held for sale
                  
                  
                  (15,051
                  )
                  
                  
                  (38,365
                  )Stock
      based compensation expense
                  
                  
                  47,468
                  
                  
                  
                  (27,644
                  )Net
      change in:Accrued
      interest receivable and other assets
                  
                  
                  (292,592
                  )
                  
                  
                  599,324Accrued
      interest payable and other liabilities
                  
                  
                  (153,846
                  )
                  
                  
                  (642,969
                  )Deferred
      loan fees
                  
                  
                  (1,892
                  )
                  
                  
                  18,235Net
      cash from operating activities
                  
                  
                  (3,118,779
                  )
                  
                  
                  215,032Cash
      flows from investing activities:Purchases
      of securities available for sale
                  
                  
                  (11,656,522
                  )
                  
                  
                  (58,739,297
                  )(Purchases)
      or redemptions of federal bank stock
                  
                  
                  (290,450
                  )
                  
                  
                  187,850Maturities,
      calls and paydowns of securities available for sale
                  
                  
                  4,644,526
                  
                  
                  
                  4,335,637Sales
      of securities available for sale
                  
                  
                  2,897,908
                  
                  
                  
                  59,368,575Proceeds
      from sale of other real estate owned
                  
                  
                  2,264,106
                  
                  
                  
                  1,599,869Net
      change in loans
                  
                  
                  4,469,946
                  
                  
                  
                  16,206,556Improvements
      to real estate owned
                  
                  
                  -
                  
                  
                  
                  (69,853
                  )Insurance
      claim proceeds for real estate owned
                  
                  
                  2,879
                  
                  
                  
                  -Proceeds
      from sale of premises and equipment
                  
                  
                  200
                  
                  
                  
                  -Acquisition
      of premises and equipment
                  
                  
                  (487,134
                  )
                  
                  
                  (8,116
                  )Net
      cash from investing activities
                  
                  
                  1,845,459
                  
                  
                  
                  22,881,221Cash
      flows from financing activitiesNet
      change in deposits
                  
                  
                  1,985,815
                  
                  
                  
                  1,399,000Net
      change in repurchase agreements
                  
                  
                  3,147,633
                  
                  
                  
                  (720,685
                  )Repayment
      of capital lease obligations
                  
                  
                  (24,389
                  )
                  
                  
                  (20,775
                  )Proceeds
      from short term FHLB advances, net of repayments
                  
                  
                  -
                  
                  
                  
                  (6,850,000
                  )Proceeds
      from long term FHLB advances
                  
                  
                  -
                  
                  
                  
                  3,000,000Repayments
      of FHLB advances
                  
                  
                  (13,500,000
                  )
                  
                  
                  (5,500,000
                  )Net
      proceeds from issuance of common stock
                  
                  
                  16,714,781
                  
                  
                  
                  -Net
      cash from financing activities
                  
                  
                  8,323,840
                  
                  
                  
                  (8,692,460
                  )Net
      change in cash and cash equivalents
                  
                  
                  7,050,520
                  
                  
                  
                  14,403,793Cash
      and cash equivalents at beginning of period
                  
                  
                  24,165,790
                  
                  
                  
                  11,467,937Cash
      and cash equivalents at end of period
                  
                  $
                  31,216,310
                  
                  
                  $
                  25,871,730


See notes
to the consolidated financial statements.


6




For
      the Nine Months EndedSeptember
      30,2010
                
                
                2009Supplemental
      disclosures of cash flow information:Cash
      received during the period:Federal
      income tax refund
                
                
                -
                
                
                $
                250,989Cash
      paid during the period for:Interest
                
                $
                1,833,077
                
                
                $
                3,223,075Federal
      income taxes
                
                
                -
                
                
                
                -Non-cash
      transactions:Transfer
      of loans to other real estate owned
                
                $
                458,511
                
                
                $
                973,541Transfer
      of loans to other assets
                
                
                1,305,437
                
                
                
                -




See notes
to the consolidated financial statements.




7





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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




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





These
consolidated financial statements are prepared without audit and reflect all
adjustments that, in the opinion of management, are necessary to present fairly
the financial position of the Company at September 30, 2010, and its results of
operations and cash flows for the periods presented. All such adjustments are
normal and recurring in nature. The accounting principles used to prepare the
consolidated financial statements are in compliance with U.S. GAAP. However, the
financial statements were prepared in accordance with the instructions of Form
10-Q and, therefore, do not purport to contain all necessary financial and
footnote disclosures required by U.S. GAAP.





The
financial information presented in this report should be read in conjunction
with the Company’s Form 10-K for the year ended December 31, 2009, which
includes information and disclosures not presented in this report. Reference is
made to the accounting policies of the Company described in Note 1 of the Notes
to Consolidated Financial Statements. The Company has consistently followed
those policies in preparing this Form 10-Q.





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




8




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





NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS





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




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





Accounting
Standards Update (ASU) 2010-6 – Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements. The ASU amends
Subtopic 820-10 with new disclosure requirements and clarification of existing
disclosure requirements. New disclosures required include the amount of
significant transfers in and out of levels 1 and 2 fair value measurements and
the reasons for the transfers. In addition, the reconciliation for level 3
activity is required on a gross rather than net basis. The ASU provides
additional guidance related to the level of disaggregation in determining
classes of assets and liabilities and disclosures about inputs and valuation
techniques. The amendments are effective for annual or interim reporting periods
beginning after December 15, 2009, except for the requirement to provide the
reconciliation for level 3 activity on a gross basis which will be effective for
fiscal years beginning after December 15, 2010.





Accounting
Standards Update (ASU) 2010-20 – Receivables (Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses. The
ASU will require more information about the credit quality of the loan portfolio
in the disclosures to financial statements, such as aging information and credit
quality indicators. Both new and existing disclosures must be disaggregated by
portfolio segment or class. The disaggregation of information is based on how a
company develops its allowance for credit losses and how it manages its credit
exposure. The disclosure related to period-end balances are effective for annual
or interim reporting periods ending after December 15, 2010 and the disclosures
of activity that occurs during the reporting period are effective for annual or
interim reporting periods beginning after December 15, 2010


9





NOTE
3 – STOCK ISSUANCE





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





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





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





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





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




10




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




The
issuance of common stock to Excel Bancorp resulted in an “ownership change” of
the Company, as broadly defined in Section 382 of the Internal Revenue Code. As
a result of the ownership change, utilization of the Company’s net operating
loss carryforwards and certain built-in losses under federal income tax laws
will be subject to annual limitation. The annual limitation placed on the
Company’s ability to utilize these potential tax deductions will equal the
product of an applicable interest rate mandated under federal income tax laws
and the Company’s value immediately before the ownership change. The annual
limitation imposed under Section 382 would limit the deduction for both the
carryforward tax attributes and the built-in losses realized within five years
of the date of the ownership change to approximately $93,000 per year. Given the
limited carryforward period assigned to these tax deductions in excess of this
annual limit, some portion of these potential deductions will be lost and,
consequently, the related tax benefits will not be recorded in the financial
statements. See Note 11 for additional information regarding net operating loss
carryforwards.





NOTE
4 – EARNINGS (LOSS) PER SHARE





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





For
      the Three Months Ended
                
                
                For
      the Nine Months EndedSeptember
      30,
                
                
                September
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009BASIC:Net
      loss
                
                $
                (1,155,131
                )
                
                $
                (2,403,787
                )
                
                $
                (3,065,489
                )
                
                $
                (2,878,292
                )Weighted
      average common shares outstanding
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                16,573,538
                
                
                
                2,214,564Basic
      loss per share
                
                $
                (0.06
                )
                
                $
                (1.09
                )
                
                $
                (0.18
                )
                
                $
                (1.30
                )DILUTED:Net
      loss
                
                $
                (1,155,131
                )
                
                $
                (2,403,787
                )
                
                $
                (3,065,489
                )
                
                $
                (2,878,292
                )Weighted
      average common shares outstanding
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                16,573,538
                
                
                
                2,214,564Dilutive
      effect of stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Dilutive
      effect of stock warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      common shares and dilutive potential common shares
                
                
                19,714,564
                
                
                
                2,214,564
                
                
                
                16,573,538
                
                
                
                2,214,564Diluted
      loss per common share
                
                $
                (0.06
                )
                
                $
                (1.09
                )
                
                $
                (0.18
                )
                
                $
                (1.30
                )


11





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





For
      the Three Months Ended
                
                
                For
      the Nine Months EndedSeptember
      30,
                
                
                September
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009Stock
      options
                
                
                1,207,272
                
                
                
                165,650
                
                
                
                435,977
                
                
                
                165,650Stock
      warrants
                
                
                35,500
                
                
                
                150,000
                
                
                
                56,051
                
                
                
                150,000





NOTE
5 – INVESTMENT SECURITIES





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


September
      30, 2010Gross
                    
                    
                    GrossAmortized
                    
                    
                    Unrealized
                    
                    
                    Unrealized
                    
                    
                    FairAvailable
      for sale, carried at fair value:
                    
                    Cost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    ValueU.S.
      Government agencies
                    
                    $
                    10,584,587
                    
                    
                    $
                    13,021
                    
                    
                    $
                    -
                    
                    
                    $
                    10,597,608Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                    
                    
                    20,069,537
                    
                    
                    
                    657,652
                    
                    
                    
                    -
                    
                    
                    
                    20,727,189Other
      mortgage-backed securities
                    
                    
                    346,689
                    
                    
                    
                    -
                    
                    
                    
                    (177,253
                    )
                    
                    
                    169,436Equity
      securities
                    
                    
                    41,600
                    
                    
                    
                    2,800
                    
                    
                    
                    
                    
                    
                    
                    44,400Total
                    
                    $
                    31,042,413
                    
                    
                    $
                    673,473
                    
                    
                    $
                    (177,253
                    )
                    
                    $
                    31,538,633





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





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


12


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





September
      30, 2010Gross
                    
                    
                    GrossAmortized
                    
                    
                    Unrealized
                    
                    
                    Unrealized
                    
                    
                    FairHeld
      to maturity, carried at amortized cost
                    
                    Cost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    ValueMunicipal
      securities
                    
                    $
                    2,994,501
                    
                    
                    $
                    177,110
                    
                    
                    $
                    -
                    
                    
                    $
                    3,171,611





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





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





September
      30, 2010Amortized
      Cost
                      
                      
                      Fair
      ValueAvailable
      for SaleU.S.
      Government-sponsored agency enterprisesOne
      to five years
                      
                      $
                      8,666,673
                      
                      
                      $
                      8,675,168Five
      to ten years
                      
                      
                      1,917,914
                      
                      
                      
                      1,922,440Beyond
      ten years
                      
                      
                      -
                      
                      
                      
                      -Mortgage
      backed securities
                      
                      
                      20,416,226
                      
                      
                      
                      20,896,625Total
                      
                      $
                      31,000,813
                      
                      
                      $
                      31,494,233Held
      to MaturityOne
      to five years
                      
                      $
                      321,040
                      
                      
                      $
                      327,924Five
      to ten years
                      
                      
                      1,071,721
                      
                      
                      
                      1,141,062Beyond
      ten years
                      
                      
                      1,601,740
                      
                      
                      
                      1,702,625Total
                      
                      $
                      2,994,501
                      
                      
                      $
                      3,171,611





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





Less
      than 12 months
                      
                      
                      12
      Months or More
                      
                      
                      TotalFair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      UnrealizedSeptember 30, 2010:
                      
                      Value
                      
                      
                      Loss
                      
                      
                      Value
                      
                      
                      Loss
                      
                      
                      Value
                      
                      
                      LossAvailable for sale:Other
      mortgage-backed securities
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      169,436
                      
                      
                      $
                      (177,253
                      )
                      
                      $
                      169,436
                      
                      
                      $
                      (177,253
                      )Total
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      169,436
                      
                      
                      $
                      (177,253
                      )
                      
                      $
                      169,436
                      
                      
                      $
                      (177,253
                      )


13





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





Other-Than-Temporary-Impairment





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




As of
September30, 2010, the Company’s security portfolio consisted of 53 securities,
one of which was in an unrealized loss position for 12 months or
longer.




Mortgage-backed
securities





The
Company’s mortgage-backed securities portfolio includes one non-agency security
with a fair value of $169,436 which represents an unrealized loss of
approximately $177,253 at September 30, 2010; the estimated fair value has been
less than its amortized cost for twelve months or more. This non-agency
mortgage-backed security is rated Aa2 by Moody’s and AAA by Standard &
Poor’s rating services. This security is senior to several subordinate classes
of securities that together are collateralized by a pool of residential
mortgages. No losses incurred on the mortgages in the pool have been assigned to
the senior classes. Although the borrowers are not required to make principal
payments during the initial 10 year period, 65% of the original principal has
been repaid as of September 30, 2010. There are no negative amortization loans
in the pool and none of the loans are subprime, Alt A or similar type of
high-default product. Based on these factors, as of September 30, 2010, the
Company believes there is no OTTI and does not have the intent to sell this
security and it is likely that it will not be required to sell the security
before its anticipated recovery. The unrealized loss on the
non-agency security as of September 30, 2010 is approximately $150,000 greater
than the unrealized loss as of December 31, 2009.  Management believes this
increase is primarily the result of the illiquidity of this security in the
market, as well as management’s use of a new pricing service subsequent to
year-end that used more conservative assumptions than in prior periods. For the
third quarter of 2010, the underlying assumptions used to estimate the fair
value for this security included a constant prepayment speed (“CPR”) of 3%, a
spread to the US Treasury rate of 1,492 basis points, an average life of 11.6
years, a duration of 4.7 years , and an estimated yield to maturity of
17.6%.


14




Preferred
Stock





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





NOTE
6 – LOANS




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





September 30, 2010
                    
                    
                    December 31, 2009Balance
                    
                    
                    Percent
                    
                    
                    Balance
                    
                    
                    PercentResidential
      real estate
                    
                    $
                    32,750,644
                    
                    
                    
                    33.4
                    
                    
                    $
                    33,147,634
                    
                    
                    
                    31.6Multifamily
      real estate
                    
                    
                    5,546,449
                    
                    
                    
                    5.6
                    
                    
                    
                    5,757,491
                    
                    
                    
                    5.5Commercial
      real estate
                    
                    
                    41,893,877
                    
                    
                    
                    42.7
                    
                    
                    
                    47,639,944
                    
                    
                    
                    45.4Construction
                    
                    
                    2,780,040
                    
                    
                    
                    2.8
                    
                    
                    
                    3,958,572
                    
                    
                    
                    3.8Commercial
                    
                    
                    8,654,726
                    
                    
                    
                    8.8
                    
                    
                    
                    7,673,195
                    
                    
                    
                    7.3Consumer
      and home equity
                    
                    
                    6,568,684
                    
                    
                    
                    6.7
                    
                    
                    
                    6,719,205
                    
                    
                    
                    6.4Total
      Loans
                    
                    
                    98,194,420
                    
                    
                    
                    100.0
                    
                    
                    
                    104,896,041
                    
                    
                    
                    100.0Less:  Allowance
      for loan losses
                    
                    
                    (3,613,671
                    )
                    
                    
                    
                    
                    
                    
                    (3,945,670
                    )Net
      deferred loan fees
                    
                    
                    (97,099
                    )
                    
                    
                    
                    
                    
                    
                    (95,206
                    )Loans,
      net
                    
                    $
                    94,483,650
                    
                    
                    
                    
                    
                    
                    $
                    100,855,165





Approximately
$20,040,000 and $23,436,000 of residential real estate loans were pledged as
collateral for Federal Home Loan Bank advances at September 30, 2010 and
December 31, 2009, respectively.





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


For the Three Months Ended
                  
                  
                  For the Nine Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Balance,
      beginning of period
                  
                  $
                  3,817,696
                  
                  
                  $
                  2,818,212
                  
                  
                  $
                  3,945,670
                  
                  
                  $
                  3,398,284Provision
      for loan losses
                  
                  
                  287,450
                  
                  
                  
                  2,078,703
                  
                  
                  
                  140,743
                  
                  
                  
                  2,634,703Loans
      charged-off
                  
                  
                  (607,777
                  )
                  
                  
                  (215,944
                  )
                  
                  
                  (612,062
                  )
                  
                  
                  (1,735,628
                  )Recoveries
      of charged-off loans
                  
                  
                  116,302
                  
                  
                  
                  64,285
                  
                  
                  
                  139,320
                  
                  
                  
                  447,897Balance,
      end of period
                  
                  $
                  3,613,671
                  
                  
                  $
                  4,745,255
                  
                  
                  $
                  3,613,671
                  
                  
                  $
                  4,745,256Balance
      as a percentage of total loans
                  
                  
                  3.68
                  %
                  
                  
                  4.24
                  %
                  
                  
                  3.68
                  %
                  
                  
                  4.24
                  %




15




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


September 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Loans
      past due over 90 days and still accruing interest
                  
                  $
                  11,565
                  
                  
                  $
                  -Nonaccrual
      loans, includes smaller balance homogeneous loans
                  
                  
                  3,866,974
                  
                  
                  
                  5,826,976Impaired
      loans included in nonaccrual loans
                  
                  
                  3,866,974
                  
                  
                  
                  5,826,976Impaired
      loans with no allowance for loan loss allocated
                  
                  
                  3,470,607
                  
                  
                  
                  5,826,976Amount
      of the allowance for loan losses allocated
                  
                  
                  102,809
                  
                  
                  
                  -





No
interest income was recognized during impairment for the nine months ending
September 30, 2010.





NOTE
7 – OTHER REAL ESTATE OWNED





Other
real estate owned was as follows:





September 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Residential
      real estate
                    
                    $
                    716,123
                    
                    
                    $
                    1,160,603Commercial
      real estate
                    
                    
                    25,001
                    
                    
                    
                    196,706Land
      development
                    
                    
                    324,000
                    
                    
                    
                    1,818,349Total
      other real estate owned
                    
                    $
                    1,065,124
                    
                    
                    $
                    3,175,658





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





Other
real estate owned activity for the nine months ending September 20, 2010 was as
follows:





Balance
      at beginning of period
                        
                        $
                        3,175,658Transfers
      in
                        
                        
                        458,509Valuation
      write-downs
                        
                        
                        (514,890
                        )Sales
                        
                        
                        (2,051,275
                        )Insurance
      claim
                        
                        
                        (2,879
                        )Balance
      at end of period
                        
                        $
                        1,065,123





Direct
write-downs of other real estate owned totaled $514,890 and $262,032 for the
nine months ended September 30, 2010 and 2009, respectively.





NOTE
8 – FAIR VALUE





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


16




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





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





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





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





Investment
Securities:  The fair values for investment securities are
determined by quoted market prices, if available (Level 1). For securities where
quoted prices are not available, fair values are calculated based on market
prices of similar securities (Level 2). For securities where quoted prices or
market prices of similar securities are not available, fair values are
calculated using discounted cash flows or other market indicators (Level 3).
Discounted cash flows are calculated using spread to swap and LIBOR curves that
are updated to incorporate loss severities, volatility, credit spread and
optionality. During times when trading is more liquid, broker quotes are used
(if available) to validate the model. Rating agency and industry research
reports as well as defaults and deferrals on individual securities are reviewed
and incorporated into the calculations.





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





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





September 30,
                                          
                                          
                                          December 31,2010
                                          
                                          
                                          2009Available for sale
    securities
                                          
                                          $
                                          31,538,633
                                          
                                          
                                          $
                                          26,892,105Quoted
      prices on active markets for identical assets (Level 1)Equity
      securities
                                          
                                          
                                          44,400
                                          
                                          
                                          
                                          122,800Significant
      other observable inputs (Level 2)U.S.
      government sponsored enterprises
                                          
                                          
                                          10,597,608
                                          
                                          
                                          
                                          -Mortgage-backed
      securities issued by U.S. Government-sponsored
      enterprises
                                          
                                          
                                          20,727,189
                                          
                                          
                                          
                                          26,372,935Other
      mortgage backed securities
                                          
                                          
                                          169,436
                                          
                                          
                                          
                                          396,370Significant
      unobservable inputs (Level 3)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -




17




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




September 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Impaired loans
                    
                    $
                    2,311,437
                    
                    
                    $
                    4,670,389Quoted
      prices on active markets for identical assets (Level 1)
                    
                    
                    -
                    
                    
                    
                    -Significant
      other observable inputs (Level 2)
                    
                    
                    -
                    
                    
                    
                    -Significant
      unobservable inputs (Level 3)
                    
                    
                    2,311,437
                    
                    
                    
                    4,670,389Other real estate owned
                    
                    $
                    562,613
                    
                    
                    $
                    3,131,658Quoted
      prices on active markets for identical assets (Level 1)
                    
                    
                    -
                    
                    
                    
                    -Significant
      other observable inputs (Level 2)
                    
                    
                    -
                    
                    
                    
                    -Significant
      unobservable inputs (Level 3)
                    
                    
                    562,613
                    
                    
                    
                    3,131,658





Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $2,311,437 after a
specific allocation of the allowance for loan losses of $102,809 at September
30, 2010. New specific loss reserves of $63,838 were provided for during the
three months ending September 30, 2010.





Real
estate owned is recorded at fair value based on property appraisals, less
estimated selling costs, at the date of transfer.  The carrying value
amount of real estate owned is not re-measured to fair value on a recurring
basis, but is subject to fair value adjustments when the carrying amount exceeds
the fair value, less estimated selling costs.





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





September 30, 2010
                  
                  
                  December 31, 2009Carrying
                    Amounts
                  
                  
                  Estimated Fair
                    Value
                  
                  
                  Carrying
                    Amounts
                  
                  
                  Estimated Fair
                    ValueFinancial
      assetsCash
      and cash equivalents
                  
                  $
                  31,216,000
                  
                  
                  $
                  31,216,000
                  
                  
                  $
                  24,166,000
                  
                  
                  $
                  24,166,000Certificate
      of deposit in financial institution
                  
                  
                  100,000
                  
                  
                  
                  100,000
                  
                  
                  
                  100,000
                  
                  
                  
                  100,000Securities
      available for sale
                  
                  
                  31,539,000
                  
                  
                  
                  31,539,000
                  
                  
                  
                  26,892,000
                  
                  
                  
                  26,892,000Securities
      held to maturity
                  
                  
                  2,995,000
                  
                  
                  
                  3,172,000
                  
                  
                  
                  2,997,000
                  
                  
                  
                  3,051,000Loans
      held for sale
                  
                  
                  782,000
                  
                  
                  
                  795,000
                  
                  
                  
                  195,000
                  
                  
                  
                  195,000Federal
      bank stock
                  
                  
                  1,557,700
                  
                  
                  NA
                  
                  
                  
                  1,267,250
                  
                  
                  NALoans,
      net
                  
                  
                  94,484,000
                  
                  
                  
                  93,206,000
                  
                  
                  
                  100,855,000
                  
                  
                  
                  101,308,000Accrued
      interest receivable
                  
                  
                  529,000
                  
                  
                  
                  529,000
                  
                  
                  
                  413,000
                  
                  
                  
                  413,000Financial
      liabilitiesDeposits
                  
                  
                  (141,785,000
                  )
                  
                  
                  (142,819,000
                  )
                  
                  
                  (139,799,000
                  )
                  
                  
                  (140,668,000
                  )Repurchase
      agreements
                  
                  
                  (4,185,000
                  )
                  
                  
                  (4,185,000
                  )
                  
                  
                  (1,038,000
                  )
                  
                  
                  (1,038,000
                  )Overnight
      FHLB advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -FHLB
      advances
                  
                  
                  (5,000,000
                  )
                  
                  
                  (5,041,000
                  )
                  
                  
                  (18,500,000
                  )
                  
                  
                  (18,638,000
                  )Accrued
      interest payable
                  
                  
                  (87,000
                  )
                  
                  
                  (87,000
                  )
                  
                  
                  (148,000
                  )
                  
                  
                  (148,000
                  )




18




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





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





NOTE
9 – STOCK BASED COMPENSATION





The
Company granted 150,000 warrants (Director Warrants) to organizers of the
Company at the time of closing of the 2000 Offering.  The Director
Warrants vested in equal percentages each year over a three-year period from the
date of grant.  Each warrant entitles the holder to purchase a share
of common stock at $10.00 per share and will expire ten years from the date of
issuance.  At September 30, 2010, Director Warrants for 35,000 shares
granted to former directors were vested and exercisable.  No warrants
have been exercised to date.





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





As a
condition to the consummation of the closing of the Stock Purchase Agreement
between the Company and Excel Financial (see Note 3), all outstanding options
and warrants held by the Company’s directors and employees were cancelled and
extinguished without consideration effective February 19, 2010 pursuant to stock
option and warrant cancellation and surrender agreements between the Company and
each of its directors and employees.  As of September 30, 2010, there
were 35,000 common shares issuable under the Company’s equity compensation
plans, consisting of warrants to purchase 35,000 common shares (held by former
directors who were not serving on the Board of Directors at the time of the
closing); these warrants expired on October 1, 2010 unexercised.




19




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





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





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





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





The
following table depicts the activity under this Plan:





2010Options
                  
                  
                  Weighted
                    Average Exercise
                    PriceOutstanding,
      January 1Granted
                  
                  
                  1,322,250
                  
                  
                  $
                  2.30Forfeited
                  
                  
                  -Exercised
                  
                  
                  -Outstanding,
      September 30
                  
                  
                  1,322,250
                  
                  
                  $
                  2.30Exercisable
      at September 30
                  
                  
                  -
                  
                  
                  
                  -





The
weighted average remaining contractual life of the options outstanding at
September 30, 2010 was 9.75 years.  The intrinsic value of options
outstanding was $0.


20




The fair
market value of options granted was determined using the following
weighted-average assumptions as of grant date:





2010Risk-free
      interest rate
                  
                  
                  1.83
                  %Expected
      term
                  
                  5
      yearsExpected
      stock price volatility
                  
                  
                  .298Dividend
      yield
                  
                  
                  0
                  %





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





2010
                    
                    $
                    45,3272011
                    
                    
                    179,8342012
                    
                    
                    179,8342013
                    
                    
                    179,8342014
                    
                    
                    179,8342015
                    
                    
                    89,140Total
                    
                    $
                    853,803





NOTE
10 – REGULATORY MATTERS





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





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





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


21




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





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





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





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





To Be Well-Capitalized UnderConsent Order
                    
                    
                    For Capital
                    
                    
                    Prompt CorrectiveActual
                    
                    
                    Requirement
                    
                    
                    Adequacy Purposes
                    
                    
                    Action ProvisionsAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    RatioTotal
      capital to risk-weighted assets
                    
                    $
                    17,593
                    
                    
                    
                    18.5
                    %
                    
                    $
                    12,578
                    
                    
                    
                    13.25
                    %
                    
                    $
                    7,595
                    
                    
                    
                    8.00
                    %
                    
                    $
                    9,493
                    
                    
                    
                    10.00
                    %Tier
      1 capital to risk-weighted assets
                    
                    
                    16,376
                    
                    
                    
                    17.3
                    %
                    
                    na
                    
                    
                    na
                    
                    
                    
                    3,797
                    
                    
                    
                    4.00
                    %
                    
                    
                    5,696
                    
                    
                    
                    6.00
                    %Tier
      1 capital to average assets
                    
                    
                    16,376
                    
                    
                    
                    9.5
                    %
                    
                    $
                    15,094
                    
                    
                    
                    8.75
                    %
                    
                    
                    6,900
                    
                    
                    
                    4.00
                    %
                    
                    
                    8,625
                    
                    
                    
                    5.00
                    %





Note
11 – Income Taxes




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





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




22




Item
2.  Management’s Discussion and Analysis.





In the
following section, management presents an analysis of Ohio Legacy Corp's
financial condition as of September 30, 2010, and results of operations as of
and for the three and nine months ended September 30, 2010 and
2009.  This discussion is provided to give shareholders a more
comprehensive review of the issues facing management than could be obtained from
an examination of the financial statements alone.  This analysis
should be read in conjunction with the consolidated financial statements and the
accompanying notes included in this Form 10-Q and the Company’s annual report on
Form 10-K for the year ended December 31, 2009.





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





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





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





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





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





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





·
            rapid
      changes in technology affecting the financial services
      industry;





·
            changes
      in government regulation;





·
            general
      economic and business
conditions;


23




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





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





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





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





·
            the
      adequacy of our allowance for loan losses;
and





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





OVERVIEW
OF STRATEGIC DEVELOPMENTS





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





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





·
            Total
      assets increased $5.9 million from $163.2 million to $169.1
      million;


·
            Total
      shareholders’ equity increased $14.4 million from $2.4 million to $16.8
      million;


·
            Tier
      1 capital for the Bank increased by $13.8 million from $2.6 million to
      $16.4 million;


·
            Net
      portfolio loans decreased $6.4 million from $100.9 million to $94.5
      million;


·
            Nonperforming
      assets (including nonaccrual loans, loans past due ninety days and still
      accruing interest and other real estate owned) remained high, but
      decreased from $9.0 million to $6.2
million;


·
            Total
      deposits increased $2.0 million from $139.8 million to $141.8
      million;


·
            Federal
      Home Loan Bank advances totaling $13.5 million were repaid reducing
      outstanding advances from $18.5 million to $5
  million;





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





·
            The
      Company incurred a net loss of $3.1
million;


·
            Net
      interest income declined by $37,360 compared to the same period in
      2009;


·
            A
      provision for loan loss totaling $140,743 was recorded compared to a
      provision expense of $2,634,703 for the same period in
    2009;


·
            Direct
      write-down on other real estate owned totaled $514,890 compared to
      $262,032 for the same period in
2009;


·
            Securities
      gains realized during the period were $31,229 compared to $918,187 in
      securities gains recorded for the same period in
  2009;


24




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


·
            The
      Company recorded investor expenses of $517,222 for the period in
      connection with the assignment of promissory notes from Excel Financial to
      the Company in connection with the assignment of the Stock Purchase
      Agreement to Excel Bancorp by Excel
Financial;


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


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





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





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


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


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


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


·
            The
      Bank’s costs associated with its regulatory risk profile including FDIC
      insurance and regulatory examination costs, although improved from 2009,
      will remain high until asset quality and earnings
  improve.





CRITICAL
ACCOUNTING POLICIES





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





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





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


25




Valuation allowance for deferred tax
assets.  Another critical accounting policy relates to
valuation of the deferred tax asset for net operating losses.  Net
operating loss carryforwards of approximately $5,352,000 will expire as
follows:  $1,419,000 on December 31, 2027 and $132,000 on December 31,
2028, and $3,801,000 on December 31, 2029.  A valuation allowance has
been recorded for the related deferred tax asset for these carryforwards and
other net deferred tax assets recorded by the Company to reduce the carrying
amount of these assets to zero.  Additional information is included in
Note 3 to our consolidated financial statements.





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





Assets.At
September 30, 2010, total assets increased to $169.1 million, up $5.9 million
from $163.2 at December 31, 2009.  Most notable were the increases to
total shareholders’ equity and cash and cash equivalents which increased due to
proceeds received on the sale of common stock.





Cash and Cash
Equivalents.Cash and cash equivalents increased to $31.2
million at September 30, 2010, up $7.0 million from $24.2 million at year-end
2009.  The increase was related to proceeds from a common stock
issuance during February 2010.





Securities.Total
securities available for sale had an estimated fair value of $31.5 million at
September 30, 2010, compared to $26.9 million at year-end
2009.  Purchases of securities available for sale during the first
nine months of 2010 totaled $11.7 million, principal repayments and totaled $4.6
million, and $2.9 million in proceeds were received on securities
sold.  The portfolio consists primarily of mortgage-backed securities
issued by the GNMA with an original term of 30 years.  The duration of
the portfolio including municipal securities classified as Held-to-Maturity was
2.1 years at September 30, 2010, and the longer-term characteristics of the
portfolio will contribute to increased market price volatility for any given
change in interest rates.  The estimated net unrealized gain on the
securities portfolio was $673,330 at September 30, 2010 compared to net
unrealized loss of $183,453 at December 31, 2009.





Loans and Asset
Quality.Total portfolio loans, net of the allowance for loan
loss and deferred loan fees, decreased $6.4 million to $94.5 million at
September 30, 2010 compared to $100.9 million at year-end 2009 principally due
to repayments and payoffs of loans during the quarter.  Loans
classified by management as substandard and special mention represented 14.3% of
total loans at September 30, 2010, compared to 13.8% at June 30, 2010, 12.8% at
March 31, 2010, and 12.7% at December 31, 2009. The balance of loans classified
as substandard and special mention increased by $472,758 compared to the end of
the second quarter and $761,013 compared to year-end 2009.  Impaired
loans represented 3.9% of total loans at September 30, 2010, and totaled $3.9
million, down $2.0 million from year-end 2009.  Improving asset
quality is a prime objective for management.   Outstanding loan
balances are expected to increase over the remainder of the year through
business development efforts.





Allowance for loan
losses.The amount of the allowance for loan losses
(“allowance”) is based on a combination of actual experiential factors such as
historical losses for each category of loans, information about specific
borrowers, and other factors, including delinquencies, general economic
conditions and the outlook for specific industries, which are more subjective in
nature.  The balance of the allowance at September 30, 2010 was
$3,613,671 compared to $3,817,696 at June 30, 2010 and $3,945,670 at year-end
2009.  For the three months ending September 30, 2010, the Company
recorded a loan loss provision of $287,450 reducing the negative loan loss
provision of $146,707 previously recorded during the first six months of 2010;
the result was a loan loss provision of $140,743 for the nine months ending
September 30, 2010.


26




At
September 30, 2010, the allowance for loan losses declined approximately
$204,000 from the previous quarter-end which is the result of:  a
decrease in the amount of specific reserves for impaired loans totaling
approximately $339,000; a decrease of $89,000 based on a change in the
methodology for estimating the loss rate on the pools of pass-rated loans
whereby average loan balances instead of ending loan balances are used as the
denominator in the calculation of the historical loss rate; a $227,000 increase
for loans classified as special mention or substandard; and a $3,000 decrease
for other factors due to a change in the mix of loans from the prior
period.  Other factors include a subjective review of external trends
that impact the estimate of loss within the loan portfolio.  These
factors include trends in the unemployment rate and loan delinquencies, economic
conditions in the market, loan concentrations, the experience of the lending
staff, and other criteria that affect management’s evaluation of the credit
quality of the loan portfolio.   A comparison of the allocation
of the allowance for loan loss follows:





September 30, 2010
                    
                    
                    December 31, 2009Non-classified
      loans
                    
                    $
                    968,012
                    
                    
                    $
                    1,399,102Classified
      loans:Special
      mention
                    
                    
                    414,233
                    
                    
                    
                    431,329Substandard
                    
                    
                    1,324,326
                    
                    
                    
                    1,303,402Specific
      allocations
                    
                    
                    102,809
                    
                    
                    
                    -Other
      factors
                    
                    
                    804,291
                    
                    
                    
                    811,838Allowance
      for Loan Loss
                    
                    $
                    3,613,671
                    
                    
                    $
                    3,945,671





Loans
charged off totaled $612,062 for the nine months ended September 30, 2010, and
recoveries on loans previously charged off totaled $139,320.  The
general allowance allocated to loans not classified by management totaled 2.21%
of non-classified loans at September 30, 2010, compared to 2.58% at year-end
2009.  As a percentage of total loans, the allowance was 3.68% at
September 30, 2010, compared to 3.76% at year-end 2009.  The allowance
for loan losses as a percentage of loans not individually identified as impaired
and that excludes the amount of the allowance specifically allocated to impaired
loans totaled 3.72% at September 30, 2010, compared to 3.98% at December 31,
2009.





Loans are
considered nonperforming when impaired or in nonaccrual
status.  Nonperforming loans totaled $3,866,974 at September 30, 2010,
compared to $5,826,976 at year-end 2009 and $6,138,137 at June 30,
2010.  The amount the allowance specifically allocated to impaired
loans totaled $102,809 at September 30, 2010 and $441,695 at June 30, 2010;
there were no allocations of the allowance to impaired loans at year-end
2009.





Other Real Estate
Owned.Other real estate owned (“OREO”) consisted of nine
properties at September 30, 2010 and totaled $1,065,124, down from $3,175,658 at
year-end 2009.  During the first nine months of 2010, two properties
were transferred to OREO totaling $458,511, and there were thirteen properties
with an aggregate basis of $2,264,105 were sold from OREO.  Direct
write-downs on two properties totaling $295,093 were recorded during the three
months ending September 30, 2010 and $514,890 for the nine months ending
September 30, 2010.





Other
Assets.Other assets include an interest in a limited
liability company that owns the real estate and operations of an indoor
waterpark and resort acquired through a U.S. Bankruptcy Code 363 sale. The
limited liability company was formed by the lead bank of the banks participating
in the project financing to acquire title to the real estate, conduct the
operation of the facility, and market the real estate and the operations of the
business for sale.  The carrying value of its interest is $1,305,437
and is based upon the estimated fair value of the real estate less costs to
sell.


27




Deposits.Total
deposits increased $1,985,815 to $141.8 million at September 30, 2010, compared
to year-end 2009.  Core deposits increased to $88.6 million at
September 30, 2010, compared to $82.0 million at year-end
2009.  Certificates of deposit decreased $4.6 to $53.2 million from
$57.8 million at December 31, 2009.  Due to the low interest rate
environment, customers are reluctant to commit funds to time
deposits.  Under applicable FDIC rules and regulations, a less than
well-capitalized insured depository institution may not pay a rate of interest
that significantly exceeds the prevailing rate in the institution's market area
or the prevailing rate in the market area from which the deposit is
accepted.





Federal Home Loan Bank
Advances.Total advances decreased $13.5 million to $5 million
at September 30, 2010, from $18.5 million at year-end 2009.  The
weighted average interest rate on matured advances was 3.73%.  The
advances were repaid from excess liquidity. A $3 million advance paying 2.08%
matures in January 2011, and a $2 million advance paying 2.96% matures in March
2011.





Shareholders’
Equity.  Shareholders’ equity increased $14.4 million to $16.8
million at September 30, 2010.  The increase was due to the sale of
common stock completed in February 2010.  Net proceeds of the stock
sale totaled $16.7 million.  Shareholders’ equity was reduced by $3.1
for the net loss reported for the nine months ending September 30,
2010.




28




RESULTS
OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2010




The net
loss for the three months ending September 30, 2010, totaled $1,155,131, or a
loss of $0.06 per diluted share compared to a net loss of $2,403,787, or $1.09
per diluted share during the third quarter of 2009.  Average diluted
shares outstanding increased to 19,714,564 shares for the third quarter of 2010
compared to 2,214,564 in average diluted shares outstanding during the same
quarter of 2009.  The increase in average diluted shares outstanding
is due to the issuance of 17,500,000 shares of common stock on February 19,
2010.





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





Three Months Ended September 30,2010
                              
                              
                              2009Average
                              
                              
                              Interest
                              
                              
                              
                              
                              
                              
                              
                              
                              InterestOutstanding
                              
                              
                              Earned/
                              
                              
                              Yield/
                              
                              
                              Average
                              
                              
                              Earned/
                              
                              
                              Yield/(Dollars in Thousands)
                              
                              Balance
                              
                              
                              Paid
                              
                              
                              Rate
                              
                              
                              Balance
                              
                              
                              Paid
                              
                              
                              RateAssetsInterest-earning
      assets:Interest-bearing
      deposits inother financial institutions and federal funds
      sold
                              
                              $
                              36,979
                              
                              
                              $
                              25
                              
                              
                              
                              0.27
                              %
                              
                              $
                              21,550
                              
                              
                              $
                              10
                              
                              
                              
                              0.18
                              %Securities
      available for sale
                              
                              
                              29,005
                              
                              
                              
                              218
                              
                              
                              
                              2.98
                              %
                              
                              
                              34,099
                              
                              
                              
                              365
                              
                              
                              
                              4.24
                              %Securities
      held to maturity
                              
                              
                              2,995
                              
                              
                              
                              28
                              
                              
                              
                              3.78
                              %
                              
                              
                              2,998
                              
                              
                              
                              29
                              
                              
                              
                              3.78
                              %Federal
      agency stock
                              
                              
                              1,558
                              
                              
                              
                              20
                              
                              
                              
                              4.98
                              %
                              
                              
                              1,295
                              
                              
                              
                              17
                              
                              
                              
                              5.11
                              %Loans
      (1)
                              
                              
                              92,745
                              
                              
                              
                              1,382
                              
                              
                              
                              5.91
                              %
                              
                              
                              106,750
                              
                              
                              
                              1,693
                              
                              
                              
                              6.29
                              %Total
      interest-earning assets
                              
                              
                              163,282
                              
                              
                              
                              1,673
                              
                              
                              
                              4.06
                              %
                              
                              
                              166,692
                              
                              
                              
                              2,113
                              
                              
                              
                              5.03
                              %Noninterest-earning
      assets
                              
                              
                              9,719
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              15,315Total
      assets
                              
                              $
                              173,001
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              182,007Liabilities
      and Shareholders' EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                              
                              $
                              9,036
                              
                              
                              $
                              12
                              
                              
                              
                              0.53
                              %
                              
                              $
                              7,977
                              
                              
                              $
                              14
                              
                              
                              
                              0.70
                              %Savings
      accounts
                              
                              
                              15,833
                              
                              
                              
                              29
                              
                              
                              
                              0.72
                              %
                              
                              
                              16,646
                              
                              
                              
                              46
                              
                              
                              
                              1.10
                              %Money
      market accounts
                              
                              
                              45,141
                              
                              
                              
                              100
                              
                              
                              
                              0.88
                              %
                              
                              
                              42,407
                              
                              
                              
                              134
                              
                              
                              
                              1.26
                              %Certificates
      of deposit
                              
                              
                              54,307
                              
                              
                              
                              305
                              
                              
                              
                              2.23
                              %
                              
                              
                              70,757
                              
                              
                              
                              612
                              
                              
                              
                              3.43
                              %Total
      interest-bearing deposits
                              
                              
                              124,317
                              
                              
                              
                              446
                              
                              
                              
                              1.42
                              %
                              
                              
                              137,787
                              
                              
                              
                              806
                              
                              
                              
                              2.32
                              %Other
      Borrowings
                              
                              
                              13,129
                              
                              
                              
                              85
                              
                              
                              
                              2.56
                              %
                              
                              
                              20,076
                              
                              
                              
                              177
                              
                              
                              
                              3.50
                              %Total
      Interest-bearing liabilities
                              
                              
                              137,446
                              
                              
                              
                              531
                              
                              
                              
                              1.53
                              %
                              
                              
                              157,863
                              
                              
                              
                              983
                              
                              
                              
                              2.47
                              %Noninterest-bearing
      demand deposits
                              
                              
                              17,061
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              15,132Noninterest-bearing
      liabilities
                              
                              
                              883
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              569Total
      liabilities
                              
                              
                              155,390
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              173,564Shareholders'
      Equity
                              
                              
                              17,611
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              8,443Total
      liabilities and shareholders' equity
                              
                              $
                              173,001
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              182,007Net
      interest income; interest rate spread (2)
                              
                              
                              
                              
                              
                              $
                              1,142
                              
                              
                              
                              2.53
                              %
                              
                              
                              
                              
                              
                              $
                              1,129
                              
                              
                              
                              2.56
                              %Net
      earning assets
                              
                              $
                              25,836
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              8,829Net
      interest margin (3)
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2.77
                              %
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2.69
                              %Average
      interest-earning assets to interest-bearing liabilities
                              
                              
                              1.2
                              
                              
                              X
                              
                              
                              
                              
                              
                              
                              
                              
                              1.1
                              
                              
                              X




29


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


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


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





Net interest
income.For the three months ending September 30, 2010, net
interest income was $1,141,714, up $12,326 from same period in 2009 while total
interest earning assets were down by $3.4 million.  The yield on
earning assets declined 0.97% to 4.06% for the third quarter of 2010 from 5.03%
for the comparable period of 2009.  The yield on interest-bearing
liabilities declined 0.94% to 1.53% for the third quarter of 2010 from 2.47% for
the same period in 2009. The net interest margin increased to 2.77% from
2.69%.





Interest
Income.Total interest income for the third quarter of 2010
was $1.7 million, down from $2.1 million for the third quarter of
2009.  A low interest rate environment combined with lower average
loan balances and a larger allocation of funds to liquid assets yielding only
0.27% contributed to lower interest income levels.  Average balances
in cash and cash equivalents increased to $37.0 million during the third quarter
of 2010 compared to $21.6 million during the third quarter of 2009.





Interest
expense.Interest on deposits declined $359,722 to $446,407
for the third quarter of 2010 compared to the same period in
2009.  The average rate paid on interest-bearing deposits dropped
0.90% to 1.42%.  Interest expense related to other borrowings
including Federal Home Loan Bank advances declined by $92,656.





Provision for Loan
Loss.A loan loss provision totaling $287,450 was recorded
during the third quarter of 2010, compared to a loan loss provision of
$2,078,703 for the same quarter last year.  The provision for loan
loss will fluctuate based on management’s evaluation of the credits within the
loan portfolio, changes in credit loss experience factors, and incurred losses
in the loan portfolio during the period.  See also the discussion
above for the Allowance for Loan Losses.





Noninterest
income.Noninterest income declined $218,385 to $155,625 for
the third quarter of 2010 compared to the same quarter of 2009.  There
were no gains realized on securities in the third quarter of 2010 compared to
$232,239 in securities gains in 2009.  Direct write-downs on other
real estate owned reduced noninterest income by $295,093 in 2010 compared to
$215,532 for the third quarter of 2009.  Sale activity of other real
estate owned contributed $182,657 to noninterest income in 2010, up $78,255 from
$104,402 in 2009.  Service charges and other fees increased $33,078 to
$249,230.  This increase is directly related to the introduction of
fiduciary, wealth management and brokerage services introduced by the Company
during 2010; fees related to these new services totaled $66,191 for the
period.


30


Noninterest
expense.Noninterest expense increased $336,538, or 18.4%, to
$2,165,020 for the third quarter of 2010 compared to $1,828,482 for the third
quarter of 2009.  The significant changes are detailed
below.





Salaries
and benefits increased 54.2% to $1,042,523 for the third quarter of 2010
compared to $676,250 for the same period of 2009.  Following the
recapitalization in February 2010, management positions were added, and the
Company staffed positions for new product offerings for trust, investments and
wealth management.  Positions were added to the lending, human
resources and trust administration staff.





Occupancy
and equipment costs increased $4,869 to $223,548 for the third quarter of
2010.  A new office was opened in St. Clairsville, Ohio, for trust,
investment and wealth management services that contributed to this
increase.





Professional
fees, including legal, accounting and other consulting expense, increased
$76,044 to $190,453 for the third quarter of 2010.  The Company
retained experienced problem loan workout specialists to assist in loan
collection efforts.





Deposit
expense and insurance decreased $125,496 to $91,374 compared to $216,870 in the
third quarter of 2009.  The costs for FDIC insurance included in this
category decreased $113,305 largely due to the absence of a special FDIC
assessment of $88,878 in September 2009, the Bank’s improved risk-based capital
position following the stock offering in February 2010, and a lower deposit
base.





Franchise
tax decreased $16,079 to $7,250 for the third quarter of 2010.  Ohio
franchise tax for financial institutions is assessed based on net
worth.  Lower capital levels at year-end, the measurement date for the
franchise tax assessment for the current year, resulted in lower costs for the
third quarter.





No
amortization expense was recorded during the third quarter of 2010 compared to
an expense of $11,124 for the third quarter of 2009.  The balance of
intangible assets was zero at year end 2009 and September 30, 2010.





Other
expenses decreased $7,870 to $339,850 during the third quarter of 2010 compared
to the same period in 2009.  Fidelity bond Insurance expense increased
$26,540, loan expenses increased $29,139 and directors’ fees increased $16,350
following reinstatement of fees subsequent to the
recapitalization.  These increases were offset by a decrease in other
real estate owned expenses of $93,225.


31


RESULTS
OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2010





Nine
      Months Ended September 30,2010
                          
                          
                          2009Average
                          
                          
                          Interest
                          
                          
                          
                          
                          
                          
                          
                          
                          InterestOutstanding
                          
                          
                          Earned/
                          
                          
                          Yield/
                          
                          
                          Average
                          
                          
                          Earned/
                          
                          
                          Yield/(Dollars
      in Thousands)
                          
                          Balance
                          
                          
                          Paid
                          
                          
                          Rate
                          
                          
                          Balance
                          
                          
                          Paid
                          
                          
                          RateAssetsInterest-earning
      assets:Interest-bearing
      deposits inother
      financial institutions and federal funds sold
                          
                          $
                          33,382
                          
                          
                          $
                          57
                          
                          
                          
                          0.23
                          %
                          
                          $
                          13,497
                          
                          
                          $
                          24
                          
                          
                          
                          0.24
                          %Securities
      available for sale
                          
                          
                          27,446
                          
                          
                          
                          727
                          
                          
                          
                          3.53
                          %
                          
                          
                          36,163
                          
                          
                          
                          1,215
                          
                          
                          
                          4.48
                          %Securities
      held to maturity
                          
                          
                          2,996
                          
                          
                          
                          86
                          
                          
                          
                          3.81
                          %
                          
                          
                          2,999
                          
                          
                          
                          86
                          
                          
                          
                          3.81
                          %Federal
      agency stock
                          
                          
                          1,434
                          
                          
                          
                          53
                          
                          
                          
                          4.93
                          %
                          
                          
                          1,323
                          
                          
                          
                          49
                          
                          
                          
                          4.94
                          %Loans
      (1)
                          
                          
                          94,816
                          
                          
                          
                          4,374
                          
                          
                          
                          6.17
                          %
                          
                          
                          114,224
                          
                          
                          
                          5,385
                          
                          
                          
                          6.32
                          %Total
      interest-earning assets
                          
                          
                          160,074
                          
                          
                          
                          5,297
                          
                          
                          
                          4.42
                          %
                          
                          
                          168,206
                          
                          
                          
                          6,758
                          
                          
                          
                          5.39
                          %Noninterest-earning
      assets
                          
                          
                          10,213
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          19,927Total
      assets
                          
                          $
                          170,287
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          188,133Liabilities
      and Shareholders' EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                          
                          $
                          9,203
                          
                          
                          $
                          43
                          
                          
                          
                          0.62
                          %
                          
                          $
                          8,943
                          
                          
                          $
                          52
                          
                          
                          
                          0.77
                          %Savings
      accounts
                          
                          
                          16,386
                          
                          
                          
                          102
                          
                          
                          
                          0.83
                          %
                          
                          
                          16,514
                          
                          
                          
                          205
                          
                          
                          
                          1.66
                          %Money
      market accounts
                          
                          
                          42,606
                          
                          
                          
                          281
                          
                          
                          
                          0.88
                          %
                          
                          
                          41,520
                          
                          
                          
                          485
                          
                          
                          
                          1.56
                          %Certificates
      of deposit
                          
                          
                          56,015
                          
                          
                          
                          1,029
                          
                          
                          
                          2.46
                          %
                          
                          
                          73,725
                          
                          
                          
                          1,903
                          
                          
                          
                          3.46
                          %Total
      interest-bearing deposits
                          
                          
                          124,210
                          
                          
                          
                          1,455
                          
                          
                          
                          1.57
                          %
                          
                          
                          140,702
                          
                          
                          
                          2,644
                          
                          
                          
                          2.51
                          %Other
      Borrowings
                          
                          
                          14,031
                          
                          
                          
                          317
                          
                          
                          
                          3.01
                          %
                          
                          
                          21,141
                          
                          
                          
                          552
                          
                          
                          
                          3.48
                          %Total
      Interest-bearing liabilities
                          
                          
                          138,241
                          
                          
                          
                          1,772
                          
                          
                          
                          1.71
                          %
                          
                          
                          161,843
                          
                          
                          
                          3,196
                          
                          
                          
                          2.65
                          %Noninterest-bearing
      demand deposits
                          
                          
                          16,102
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,224Noninterest-bearing
      liabilities
                          
                          
                          871
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          601Total
      liabilities
                          
                          
                          155,214
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          178,668Shareholders'
      Equity
                          
                          
                          15,073
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          9,465Total
      liabilities and shareholders' equity
                          
                          $
                          170,287
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          188,133Net
      interest income; interest rate spread (2)
                          
                          
                          
                          
                          
                          $
                          3,525
                          
                          
                          
                          2.71
                          %
                          
                          
                          
                          
                          
                          $
                          3,563
                          
                          
                          
                          2.74
                          %Net
      earning assets
                          
                          $
                          21,833
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          6,363Net
      interest margin (3)
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          2.95
                          %
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          2.83
                          %Average
      interest-earning assets to interest-bearing liabilities
                          
                          
                          1.2
                          
                          
                          X
                          
                          
                          
                          
                          
                          
                          
                          
                          1.0
                          
                          
                          X




32


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


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


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





Net interest
income.  For the nine months ended September 30, 2010, net
interest income was $3.5 million, down $37,359 from the same period in 2009.
Total interest and dividend income decreased $1,461,144.  This
decrease in revenue was partially offset by a decrease of $1,423,785 in total
interest expense.  The net interest margin improved to 2.95% from
2.83%.





Interest income. The average
balance of funds invested in interest-bearing deposits and federal funds sold
increased by $19.9 million and yielded only 0.23% during the first nine months
of 2010.  The average balance of loans fell by $19.4
million.  These volume changes in combination with an exceptionally
low interest rate environment were the principal drivers behind the decline in
interest income. Purchases of securities available for sale during 2010 were
designed to shorten the duration of the overall portfolio to reduce interest
rate risk contributing to the lower yields on securities.  Proceeds
from an investment portfolio restructuring during the first half of 2009 also
resulted in a lower yielding investment portfolio as those proceeds were
reinvested at lower interest rates.  The yield on securities available
for sale decreased 0.95% to 3.53% for the nine months ending September 30,
2010.





Interest
expense.  The low interest rate environment was evident in the
decline in the Company’s cost of interest-bearing liabilities to 1.71% from
2.65% for the first nine months of 2010.  The cost of every funding
category declined.  The volume of interest-bearing liabilities
declined $23.6 million.  The average balance of certificates of
deposit balances declined $17.7 million, and average borrowings declined $7.1
million.  Advances owed to the Federal Home Loan Bank totaling $13.5
million were repaid during 2010 from excess liquidity.





Provision for loan
losses.  A loan loss provision totaling $140,743 was recorded
for the nine months ended September 30, 2010.  During the same period
of 2009, the Company recorded provision expense of $2,634,703.  The
provision for loan loss will fluctuate based on management’s evaluation of the
credits within the loan portfolio, changes in credit loss experience factors,
and incurred losses in the loan portfolio during the period.  See also
the discussion above for the Allowance for Loan Losses.





Noninterest
income.  Noninterest income declined to $357,031 for the first
nine months of 2010 from $1.4 million for the same period in
2009.  Gains on sales of securities available for sale decreased
$886,958 and the direct write-down of other real estate owned increased
$252,858.  An other than temporary impairment charge on FNMA and FHLMC
preferred stock totaled $47,200 in 2010, down from a charge of $111,200 during
2009.  Gains on disposition of other real estate increased to $212,830
in 2010 from $142,896 in 2009.  Service charge revenue and other fees
decreased $14,306 principally due to a decline in overdraft fee income, net of
refunds, totaling $106,372.  This decline was partially offset by
trust and brokerage fees totaling $83,301 and other increases in service charge
revenue.


33


Noninterest
expense.  Total
noninterest expense increased $1,343,316 to $6.8 million compared to $5.5
million for the first nine months of the prior year.Substantial costs were incurred related
to the change in ownership control and subsequent change in
management.  The Company recorded investor expenses of $517,222 in
February 2010 in connection with the assignment of promissory notes from Excel
Financial to the Company in connection with the assignment of the Stock Purchase
Agreement to Excel Bancorp by Excel Financial.   The investor
expenses represent expenses incurred in connection with the pursuit of an
acquisition of a financial institution and development of fiduciary services in
connection with an acquisition.  Otherchanges are described
below.





Salary
and benefits.  Compensation
costs increased $768,151 for the nine months ended September 30,
2010.Salaries expense included incentive payments totaling
$175,500 during the first nine months of 2010 paid to newly hired
management.  Salaries and benefits expense also included salary
continuation for terminated staff totaling $61,603 and for departing executive
management totaling $85,569.  New positions were added in trust and
investment services, credit administration, and other departments within the
Company.





Occupancy
and equipment costs increased $38,373 for the nine months ended September 30,
2010.  Part of this increase relates to a new trust and investment
office that opened in St. Clairsville, Ohio, in February 2010.





Professional
fees increased $338,220 for the nine months ended September 30,
2010.  These costs include legal, accounting and auditing, regulatory
examination and consulting fees.  Consulting fees of $140,000 were
paid to Excel Financial for the period prior to closing the stock
offering.  The Company also retained experienced problem loan workout
specialists to assist in loan collection efforts.





Franchise
tax decreased $66,081 for the nine months ended September 30, 2010 due to a
lower capital valuation at year end 2009 compared to year end
2008.  Ohio franchise tax for financial institutions is assessed based
on the company’s net worth for the previous year end.





Marketing
and advertising expense increased $54,548for the nine months ended
September 30, 2010.  During the first quarter of 2010, the Board of
Directors of the Bank approved changing the name of the Bank to Premier Bank
& Trust, National Association.  The Bank opted to include “Trust”
in its name in connection with obtaining fiduciary powers from the Office of the
Comptroller of the Currency.  The Bank also expects to conduct trust
services in several states.  Costs associated with the name change
including logo design, costs associated with the reissuance of credit and debit
cards, and promotional materials totaled approximately $47,000.





Deposit
expense and insurance fees decreased $318,145 for the ninemonths ended
September 30, 2010.  During the second quarter of 2009, the FDIC
imposed an emergency assessment for all insured financial institutions that was
paid in September 2009.  The assessment totaled $88,878 and was based
on total assets as of September 30, 2009. In addition to the absence of this
special assessment in 2010, an improvement in the Bank’s risk rating for FDIC
insurance based on higher capital levels following the common stock issuance in
February contributed to a reduction in this expense for the nine months ended
September 30, 2010.





As a
result of a change in the tax law in 2008 that allows net operating losses to be
carried back five years, the Company was able to amend its 2003 tax return and
record a refund of taxes paid for that year. The refund of $289,300 was offset
by a $38,311 change in accrued taxes for 2008, resulting in a tax benefit of
$250,989 for the nine months ended 2009. No tax benefits were recorded during
2010.


34


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





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





At
September 30, 2010, the Company had no active unconsolidated, related special
purpose entities, nor did the Company engage in derivatives and hedging
contracts, such as interest rate swaps, that may expose the Company to
liabilities greater than the amounts recorded on the consolidated balance
sheet.  The investment policy prohibits engaging in derivatives
contracts for speculative trading purposes; however, the Company may pursue
certain contracts, such as interest rate swaps, to execute a sound and defensive
interest rate risk management policy.





LIQUIDITY





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





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





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





At
September 30, 2010, the balances in cash and cash equivalents were $7.1 million
higher than at year-end.  Cash and cash equivalents represented 18.5%
of total assets at September 30, 2010 compared to 14.8% of total assets at
December 31, 2009. The Consolidated Statement of Cash Flows provides details on
sources and uses of cash.


35


CAPITAL
RESOURCES





Total
shareholders’ equity was $16.8 million at September 30, 2010, an increase of
$14.4 million from the prior year-end balance.  The increase in equity
was due to issuance of common stock as more fully described in Note 3 to the
Consolidated Financial Statements.  Shareholders’ Equity was reduced
by the amount of the net loss of $3.1 million during the nine months ended
September 30, 2010.





The Bank
is subject to regulatory capital requirements administered by federal banking
agencies.  Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance sheet items calculated under regulatory accounting
practices.  Capital amounts and classifications are also subject to
qualitative judgments by regulators.  Prompt corrective action
regulations provide five classifications: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized, although these terms are not used to represent overall
financial condition. Failure to meet capital requirements can initiate
regulatory action.  At September 30, 2010, the Bank was adequately
capitalized under the provisions of prompt corrective action.  Until
the Consent Order is terminated, the Bank cannot be classified as
well-capitalized even though its capital ratios meet the minimum capital
requirements of a well capitalized institution.  See Note 10 for more
information regarding the Consent Order, the regulatory capital requirements for
the Bank, and the Bank’s capital ratios as of September 30, 2010.





The
payment of dividends by the Bank to the Company and by the Company to
shareholders is subject to restrictions by regulatory agencies.  These
restrictions generally limit dividends to the sum of the current year’s earnings
and the prior two years’ retained earnings, as defined.  In addition,
dividends may not reduce capital levels below the minimum regulatory
requirements as described above.  The Bank cannot declare dividends
without prior approval from the Comptroller of the Currency in
2010.





Item
3.  Quantitative and Qualitative Disclosures about Market
Risk





Not
applicable for Smaller Reporting Companies.





Item  4T.  Controls
and Procedures





As of
September 30, 2010, an evaluation was conducted under the supervision and with
the participation of the Company’s management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended).  Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. There was no
change in the Company’s internal control over financial reporting that occurred
during the Company’s third fiscal quarter ended September 30, 2010, that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.


36


PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





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





Item
1A.  Risk Factors





Not
applicable for Smaller Reporting Companies.





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





Not
applicable.





Item
3.  Defaults upon Senior Securities.





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





Item
4.  (Removed and Reserved)





Not
Applicable





Item
5.  Other Information.





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


37


Item
6.  Exhibits.





INDEX
TO EXHIBITS





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




Exhibit
                Number
              Description
      of Exhibit2.1
              Stock
      Purchase Agreement, dated as of November 15, 2009, by and among Excel
      Financial, LLC, Ohio Legacy Corp and Ohio Legacy Bank, National
      Association (incorporated herein by reference to Exhibit 99.2 to Ohio
      Legacy Corp’s Current Report on Form 8-K filed on November 16, 2009 (File
      No. 0-31673))3.1
              Second
      Amended and Restated Articles of Incorporation of Ohio Legacy Corp as
      filed with the Ohio Secretary of State on August 5, 2003 (incorporated
      herein by reference to Exhibit 3.1 to Ohio Legacy Corp’s Quarterly Report
      on Form 10QSB for the fiscal quarter ended June 30, 2003 (File No.
      0-31673))3.2
              Amendment
      to Article Fourth of the Second Amended and Restated Articles of
      Incorporation of Ohio Legacy Corp as filed with the Ohio Secretary of
      State on February 5, 2010 (filed herewith)3.3
              Code
      of Regulations of Ohio Legacy Corp (incorporated herein by reference to
      Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB for the
      fiscal year ended December 31, 2003 (File No. 0-31673))3.4
              Amendment
      No. 1 to Code of Regulations of Ohio Legacy Corp (incorporated herein by
      reference to Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB
      for the fiscal year ended December 31, 2003 (File No.
      0-31673))4.1
              Form
      of Ohio Legacy Corp Organizer Stock Purchase Warrant (incorporated herein
      by reference to Exhibit 4.3 to Ohio Legacy Corp’s Registration Statement
      on Form SB-2 filed on June 30, 2000 (File No.
  333-38328))11
              Statement
      Regarding Computation of Earnings per Share (Incorporated by reference to
      Note 4 of this Form 10-Q)21
              Subsidiary
      of Ohio Legacy Corp23
              Consent
      of Independent Registered Public Accounting Firm31.1
              Rule
      13a-14(a)/15d-14(a) Certification (Principal Executive
      Officer)31.2
              Rule
      13a-14(a)/15d-14(a) Certification (Principal Financial
      Officer)32.1
              Section
      1350 Certification (Principal Executive Officer and Principal Financial
      Officer)




38


SIGNATURES





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





OHIO
      LEGACY CORPDate:
                November
      15, 2010By:
                /s/ Rick L. HullRick
      L. HullPresident
      and Chief Executive Officer





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





By:
                      /s/ Rick L. HullRick
      L. Hull, President and Chief Executive Officer and
Director(principal
      executive officer)Date:
                      November
      15, 2010By:
                      /s/ Jane MarshJane
      Marsh, Senior Vice President, Chief Financial Officer and
      Treasurer(principal
      financial officer and principal accounting officer)Date:
                      November
      15, 2010




39