- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE

ACT OF 1934

For the quarterly period ended June 30, 2012

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

For the transition period from __________ to __________

Commission file number: 000-31673

OHIO LEGACY CORP

(Exact name of registrant as specified in its charter)

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

600 South Main St., North Canton, Ohio 44720

(Address of principal executive offices)

(330) 499-1900

Registrant's telephone number

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

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

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

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

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

As of August 13, 2012, the latest practicable date, there were 19,714,564 shares of the issuer’s Common Stock, without par value, issued and outstanding.

OHIO LEGACY CORP

FORM 10-Q

AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012

SECOND QUARTER REPORT

_______________________________________________________________________

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	3

Item 2. Management’s Discussion and Analysis	27

Item 3. Quantitative and Qualitative Disclosures about Market Risk	37

Item 4T. Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	37

Item 1A. Risk Factors	37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3. Defaults Upon Senior Securities	37

Item 4. Removed and Reserved	37

Item 5. Other Information	38

Item 6. Exhibits	38

SIGNATURES	38

Item 8. Financial Statements and Supplementary Data.

OHIO LEGACY CORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of June 30, 2012 and December 31, 2011


	June 30,			December 31,
	2012			2011
ASSETS
Cash and due from banks	$	695,928		$	778,689
Federal funds sold and interest-bearing deposits in financial institutions		7,943,003			19,267,467
Cash and cash equivalents		8,638,931			20,046,156
Certificate of deposit in financial institution		100,000			100,000
Securities available for sale		14,256,959			10,677,644
Loans held for sale		7,311,584			895,610
Loans, net of allowance of $2,271,108 and $2,484,478 at June 30, 2012 and December 31, 2011		120,301,447			108,277,319
Federal bank stock		1,577,750			1,597,850
Premises and equipment, net		2,547,715			2,452,627
Assets acquired in settlement of loans		2,152,128			2,012,752
Accrued interest receivable and other assets		786,895			541,409
Total assets	$	157,673,409		$	146,601,367

LIABILITIES
Deposits:
Noninterest-bearing demand	$	24,191,472		$	21,017,215
Interest-bearing demand		7,622,579			6,190,520
Savings		37,019,178			38,537,916
Certificates of deposit, net		45,237,665			38,216,813
Total deposits		114,070,894			103,962,464
Repurchase agreements		5,512,693			4,213,612
Short-term Federal Home Loan Bank advances		13,000,000			13,000,000
Long-term Federal Home Loan Bank advances		6,000,000			6,000,000
Accrued interest payable and other liabilities		545,864			837,203
Total liabilities		139,129,451			128,013,279

Commitments and contingent liabilities		0			0


SHAREHOLDERS' EQUITY
Preferred stock, no par value, 500,000 shares authorized, none outstanding		0			0
Common stock, no par value;
June 30, 2012 and December 31, 2011: 22,500,000 shares authorized, 19,714,564 shares issued and outstanding		35,904,793			35,806,662
Accumulated deficit		(17,650,824	)		(17,468,889	)
Accumulated other comprehensive income		289,989			250,315
Total shareholders' equity		18,543,958			18,588,088

Total liabilities and shareholders' equity	$	157,673,409		$	146,601,367

See notes to the consolidated financial statements.

OHIO LEGACY CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended
	June 30,
	2012			2011
Interest and dividend income:
Loans, including fees	$	1,396,125		$	1,351,553
Securities, taxable		52,886			112,655
Securities, tax-exempt		27,001			27,264
Interest-bearing deposits, federal funds sold and other		7,327			22,222
Dividends on federal bank stock		19,174			18,784
Total interest and dividend income		1,502,513			1,532,478

Interest expense:
Deposits		146,121			280,308
Short-term Federal Home Loan Bank advances		5,474			0
Long-term Federal Home Loan Bank advances		8,503			0
Repurchase agreements		2,888			2,532
Capital leases		0			15,941
Total interest expense		162,986			298,781
Net interest income		1,339,527			1,233,697
Provision for loan losses		0			(49,967	)
Net interest income after provision for loan losses		1,339,527			1,283,664
Noninterest income:
Service charges and other fees		73,421			152,589
Trust and brokerage fee income		226,949			179,212
Gain on sale of loans		38,691			21,493
Gain on disposition of assets acquired in settlement of loans		427			0
Gain (loss) on disposition of fixed assets		(2,541	)		1,000
Other income		14,344			18,166
Total noninterest income		351,291			372,460

Noninterest expense:
Salaries and benefits		892,107			1,035,359
Occupancy and equipment		200,666			249,829
Professional fees		131,314			164,257
Franchise tax		60,750			52,500
Data processing		147,598			181,879
Marketing and advertising		30,786			16,410
Stationery and supplies		13,414			16,285
Deposit expense and insurance		78,953			94,539
Other expenses		122,629			233,394
Total noninterest expense		1,678,217			2,044,452
Net income (loss) before income taxes		12,601			(388,328	)
Income tax expense (benefit)		(20,438	)		(149,384	)

Net income (loss)	$	33,039		$	(238,944	)

Basic income (loss) per share	$	0.00		$	(0.01	)
Diluted income (loss) per share	$	0.00		$	(0.01	)

See notes to the consolidated financial statements.

OHIO LEGACY CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Six Months Ended
	June 30,
	2012			2011
Interest and dividend income:
Loans, including fees	$	2,740,907		$	2,745,516
Securities, taxable		91,854			260,618
Securities, tax-exempt		53,908			54,435
Interest-bearing deposits, federal funds sold and other		19,606			40,142
Dividends on federal bank stock		39,407			38,408
Total interest and dividend income		2,945,682			3,139,119

Interest expense:
Deposits		290,281			606,278
Short-term Federal Home Loan Bank advances		10,150			13,754
Long-term Federal Home Loan Bank advances		17,007			0
Repurchase agreements		5,761			5,124
Capital leases		0			32,273
Total interest expense		323,199			657,429
Net interest income		2,622,483			2,481,690
Provision for loan losses		(7,557	)		(26,195	)
Net interest income after provision for loan losses		2,630,040			2,507,885

Noninterest income:
Service charges and other fees		142,002			305,782
Trust and brokerage fee income		443,336			345,051
Gain on sales of securities available for sale, net		0			32,999
Gain on sale of loans		61,484			48,240
Loss on disposition of assets acquired in settlement of loans		(26,414	)		(35,299	)
Loss on disposition of fixed assets		(2,541	)		(337	)
Other income		16,255			28,379
Total noninterest income		634,122			724,815

Noninterest expense:
Salaries and benefits		1,848,617			2,080,909
Occupancy and equipment		389,195			495,665
Professional fees		247,033			298,908
Franchise tax		121,550			106,300
Data processing		288,152			361,874
Marketing and advertising		47,705			39,359
Stationery and supplies		29,274			34,733
Deposit expense and insurance		151,891			207,748
Other expenses		327,741			464,099
Total noninterest expense		3,451,158			4,089,595
Net income (loss) before income taxes		(186,996	)		(856,895	)
Income tax expense (benefit)		(5,061	)		(149,384	)

Net income (loss)	$	(181,935	)	$	(707,511	)

Basic income (loss) per share	$	(0.01	)	$	(0.04	)
Diluted income (loss) per share	$	(0.01	)	$	(0.04	)

See notes to the consolidated financial statements.

OHIO LEGACY CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net income (loss)	$	33,039		$	(238,944	)	$	(181,935	)	$	(707,511	)

Other comprehensive income:
Unrealized gains/losses on securities:
Unrealized holding gain (loss) arising during the period		66,527			430,644			60,112			472,364
Reclassification adjustment for losses (gains) included in net income		0			0			0			(32,999	)
Tax effect		(20,438	)		(149,384	)		(20,438	)		(149,384	)
Total other comprehensive income		46,089			281,260			39,674			289,981
Comprehensive income (loss)	$	79,128		$	42,316		$	(142,261	)	$	(417,530	)

See notes to the consolidated financial statements.

OHIO LEGACY CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2012		2011		2012			2011

Balance, beginning of period	$	18,415,510	$	16,061,764	$	18,588,088		$	16,470,516

Stock based compensation expense		49,320		51,650		98,131			102,744

Comprehensive income (loss)		79,128		42,316		(142,261	)		(417,530	)

Balance, end of period	$	18,543,958	$	16,155,730	$	18,543,958		$	16,155,730

See notes to the consolidated financial statements.

OHIO LEGACY CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Six Months Ended
	June 30,
	2012			2011

Cash flows from operating activities:
Net loss	($	181,935	)	($	707,511	)
Adjustments to reconcile net loss to net cash from operating activities:
Provision for loan losses		(7,557	)		(26,195	)
Depreciation and amortization		138,762			186,103
Loss on disposition of fixed assets		2,541			337
Securities amortization and accretion, net		57,086			145,567
Origination of loans held for sale		(7,554,400	)		(2,709,250	)
Participation interests in held for sale loans sold		15,731,121			0
Participation interests in held for sale loans purchased		(22,721,715	)		0
Proceeds from sales of loans held for sale		7,604,606			3,394,307
Loss on disposition or direct write-down of assets acquired in settlement of loans		26,414			35,299
Gain on sale of securities available for sale		0			(32,999	)
Gain on sale of loans held for sale		(61,484	)		(48,240	)
Stock based compensation expense		98,131			102,744
Net change in:
Accrued interest receivable and other assets		(265,924	)		(150,355	)
Accrued interest payable and other liabilities		(291,337	)		(500,139	)
Deferred loan fees		(57,786	)		46,325
Net cash from operating activities		(7,483,477	)		(264,007	)

Cash flows from investing activities:
Purchases of securities available for sale		(6,209,677	)		(2,998,639	)
(Purchases) or redemptions of federal bank stock		20,100			39,700
Maturities, calls and paydowns of securities available for sale		2,633,387			7,844,970
Sales of securities available for sale		0			4,951,844
Proceeds from sale of assets acquired in settlement of loans		194,970			191,101
Participation loans sold		5,605,114			0
Participation loans purchased		(3,439,635	)		(725,000	)
Net change in loans		(13,899,126	)		(1,971,509	)
Proceeds from sale of premises and equipment		4,050			14,250
Acquisition of premises and equipment		(240,442	)		(61,048	)
Net cash from investing activities		(15,331,259	)		7,285,669

Cash flows from financing activities
Net change in deposits		10,108,430			10,638,213
Net change in repurchase agreements		1,299,081			(145,268	)
Repayment of capital lease obligations		0			(21,009	)
Repayments of long term FHLB advances		0			(5,000,000	)
Net cash from financing activities		11,407,511			5,471,936

Net change in cash and cash equivalents		(11,407,225	)		12,493,598
Cash and cash equivalents at beginning of period		20,046,156			32,682,218

Cash and cash equivalents at end of period	$	8,638,931		$	45,175,816

See notes to the consolidated financial statements.

	For the Six Months Ended
	June 30,
	2012		2011
Supplemental disclosures of cash flow information:

Cash paid during the period for:
Interest		323,032		703,411
Federal income taxes		40,000		0
Non-cash transactions:
Transfer of loans to assets acquired in settlement of loans		360,760		466,273
Reclassification of securities to available-for-sale from held-to-maturity		0		2,816,058
Reclassification of asset balances to assets to be disposed of through branch sale:
Loans, net		0		9,427,832
Premises and equipment, net		0		1,049,062
Reclassification of liability balances to liabilities to be disposed of through branch sale:
Deposits		0		80,191,437
Repurchase agreements		0		562,125
Capital lease obligation		0		386,584

See notes to the 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 North Canton and St. Clairsville, Ohio. Its primary deposit products are checking, savings and certificate of deposit accounts, and its primary lending products are residential mortgage, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business and consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold. On March 23, 2010, the Bank received approval from the Comptroller of the Currency of its application to commence fiduciary powers pursuant to 12 USC 92a. Subsequently, the Bank opted to include “Trust” in its name and announced a name change to Premier Bank & Trust, N.A. effective April 2010. The Bank also began to offer investment brokerage services in April 2010.

These consolidated financial statements are prepared without audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company at June 30, 2012, and its results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accounting principles used to prepare the consolidated financial statements are in compliance with U.S. GAAP. However, the financial statements were prepared in accordance with the instructions of Form 10-Q and, therefore, do not purport to contain all necessary financial and note disclosures required by U.S. GAAP.

The financial information presented in this report should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2011, which includes information and disclosures not presented in this report. Reference is made to the accounting policies of the Company described in Note 1 of the Notes to Consolidated Financial Statements. The Company has consistently followed those policies in preparing this Form 10-Q.

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

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

Adoption of New Accounting Pronouncements:

No. 2011-04 | Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs : In May 2011, FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs (ASU 2011-04). The new guidance in this ASU results in common fair value measurement and disclosure requirements in U.S. and international accounting principles. Certain amendments clarify the FASB‘s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. These amendments also enhance disclosure requirements surrounding fair value measurement. Most significantly, an entity will be required to disclose additional information regarding Level 3 fair value measurements including quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. The new guidance is effective for interim and annual periods beginning on or after December 15, 2011. The effect of adopting this standard did not have a material effect on the Company’s operating results or financial condition, but the additional disclosures are included in Note 6.

No. 2011-05 |Comprehensive Income (Topic 220): In June 2011, FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. The ASU eliminates the option to report other comprehensive income and its components in the statement of changes in equity. An entity can elect to present the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or how earnings per share is calculated or presented. The amendments in this guidance are effective as of the beginning of the fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the statement of comprehensive income for the Company to two consecutive statements instead of presented as part of the consolidated statement of shareholders’ equity.

No. 2011-12 | Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05: In December 2011, the FASB issued ASU No. 2011-12 that deferred the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income. The adoption of the new guidance will impact the presentation of the consolidated financial statements.

NOTE 2 – EARNINGS (LOSS) PER SHARE

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

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2012		2011			2012			2011
BASIC:
Net income (loss)	$	33,039	$	(238,944	)	$	(181,935	)	$	(707,511	)
Weighted average common shares outstanding		19,714,564		19,714,564			19,714,564			19,714,564
Basic loss per share	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.04	)

DILUTED:
Net income (loss)	$	33,039	$	(238,944	)	$	(181,935	)	$	(707,511	)
Weighted average common shares outstanding		19,714,564		19,714,564			19,714,564			19,714,564
Dilutive effect of stock options		-		-			-			-
Total common shares and dilutive potential common shares		19,714,564		19,714,564			19,714,564			19,714,564
Diluted loss per common share	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.04	)

The dilutive potential common shares that were excluded from the computation of diluted earnings per share because the effect of their exercise was anti-dilutive totaled 1,281,050 at June 30, 2012.

NOTE 3 – INVESTMENT SECURITIES

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
June 30, 2012
U.S. Government-sponsored enterprises	$	1,530,865	$	46	$	(1,652	)	$	1,529,259
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		9,195,544		192,521		0			9,388,065
Other mortgage-backed securities-residential		220,893		0		(33,134	)		187,759
Municipal securities		2,756,829		175,097		0			2,931,926
Equity securities		39,900		180,050		0			219,950
Total	$	13,744,031	$	547,714	$	(34,786	)	$	14,256,959


December 31, 2011
U.S. Government-sponsored enterprises	$	2,514,982	$	952	$	(28	)	$	2,515,906
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		4,663,733		201,434		0			4,865,167
Other mortgage-backed securities-residential		250,748		0		(60,877	)		189,871
Municipal Securities		2,755,465		205,885					2,961,350
Equity securities		39,900		105,450		0			145,350
Total	$	10,224,828	$	513,721	$	(60,905	)	$	10,677,644

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

No securities were sold during the six months ending June 30, 2012. Proceeds on securities sold during the six months ending June 30, 2011 totaled $4,951,844 and included gross gains of $32,999. No securities were sold during the three months ending June 30, 2012 or the three months ending June 30, 2011. No losses were realized on sold securities.

The fair value of debt securities and the carrying amount, if different, at June 30, 2012 by expected maturity are depicted in the following table. Expected maturities may differ from contractual maturities because the loans underlying the mortgage-backed securities generally can be prepaid without penalty.

	Available for Sale
	Fair Value

Due in one year or less	$	0
Due from one to five years		1,420,403
Due from five to ten years		2,024,025
Due after ten years		1,016,757
Mortgage-backed securities-residential		9,575,824
Total	$	14,037,009

Securities with unrealized losses for less than one year and one year or more were as follows:

	Less than 12 months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
June 30, 2012:	Value		Loss			Value		Loss			Value		Loss
Available for sale:
U.S. Government-sponsored enterprises	$	1,028,451	$	(1,652	)	$	0	$	0		$	1,028,451	$	(1,652	)
Other mortgage-backed securities-residential		0		0			187,759		(33,134	)		187,759		(33,134	)
Total	$	1,028,451	$	(1,652	)	$	187,759	$	(33,134	)	$	1,216,210	$	(34,786	)

	Less than 12 months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2011:	Value		Loss			Value		Loss			Value		Loss
Available for sale:
U.S. Government-sponsored enterprises	$	1,003,318	$	(28	)	$	0	$	0		$	1,003,318	$	(28	)
Other mortgage-backed securities-residential		0		0			189,871		(60,877	)		189,871		(60,877	)
Total	$	1,003,318	$	(28	)	$	189,871	$	(60,877	)	$	1,193,189	$	(60,905	)

Other-Than-Temporary-Impairment

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

As of June 30, 2012, the Company’s security portfolio consisted of 28 securities, one of which was in an unrealized loss position for 12 months or longer.

Mortgage-backed securities-residential

The Company’s mortgage-backed securities portfolio includes one non-agency security with a fair value of $187,759 which represents an unrealized loss of approximately $33,134 at June 30, 2012; the estimated fair value has been less than its amortized cost for twelve months or more. This non-agency mortgage-backed security was rated Caa1 by Moody’s on April 21, 2011 and BBB- on July 12, 2011 by Standard & Poor’s rating services. This security is senior to several subordinate classes of securities that together are collateralized by a pool of residential mortgages. No losses incurred on the mortgages in the pool have been assigned to the senior classes. Although the borrowers are not required to make principal payments during the initial 10 year period, 78% of the original principal has been repaid as of June 30, 2012. There are no negative amortization loans in the pool and none of the loans are subprime, Alt A or similar type of high-default product. Based on these factors, as of June 30, 2012, the Company believes there is no OTTI and does not have the intent to sell this security and it is likely that it will not be required to sell the security before its anticipated recovery.

NOTE 4 – LOANS

Loans, by collateral type, were as follows at June 30, 2012 and December 31, 2011:

	June 30, 2012						December 31, 2011
	Balance			Percent			Balance			Percent
Residential real estate	$	29,512,903			24.1	%	$	27,985,517			25.3	%
Multifamily real estate		9,389,252			7.7	%		9,140,672			8.2	%
Commercial real estate		46,490,634			38.0	%		42,622,961			38.5	%
Construction		4,350,454			3.6	%		4,219,420			3.8	%
Commercial		13,750,149			11.2	%		10,031,094			9.1	%
Secured by trust assets		7,041,317			5.7	%		6,798,929			6.1	%
Consumer and home equity		11,948,503			9.7	%		9,931,647			9.0	%
Total Loans		122,483,212			100.0	%		110,730,240			100.0	%
Less: Allowance for loan losses		(2,271,108	)					(2,484,478	)
Net deferred loan costs (fees)		89,343						31,557
Loans, net	$	120,301,447					$	108,277,319

Residential real estate loans pledged as collateral for advances and to support available borrowing capacity at the Federal Home Loan Bank totaled approximately $26,555,000 at June 30, 2012 and $24,475,000 at December 31, 2011. Commercial and multi-family real estate pledged to the FHLB as of June 30, 2012 and December 31, 2011 totaled $23,981,000 and $23,827,000, respectively. Commercial and home equity loans pledged as collateral at the Federal Reserve Bank of Cleveland for available discount window borrowing at June 30, 2012 and December 31, 2011 totaled $18,836,000 and $16,553,000, respectively.

Activity in the allowance for loan losses by loan class for the three months and six months ended June 30 are presented in the following tables:

			For the Three Months Ended June 30, 2012
	Balance, March 31, 2012		Provision for Loan Losses			Loans Charged-Off			Recoveries		Balance, June 30, 2012
1-4 family residential mortgage	$	193,181	$	28,514		$	(19,797	)	$	1,790	$	203,688
1-4 family rental property		271,845		2,977			(30,137	)		0		244,685
Multi-family real estate		380,405		45,634			0			0		426,039
Home equity loans		152,050		48,266			(20,483	)		0		179,833
Consumer		30,310		6,951			(1,117	)		427		36,571
Commercial		313,368		(142,239	)		0			2,790		173,919
Secured by trust assets		12,312		1,565			0			0		13,877
Commercial real estate:
Non-owner occupied		246,134		631			(31,412	)		0		215,353
Owner occupied		662,996		38,306			0			0		701,302
Construction and development		156,446		(30,605	)		(50,000	)		0		75,841
Total	$	2,419,047	$	0		$	(152,946	)	$	5,007	$	2,271,108

			For the Three Months Ended June 30, 2011
	Balance, March 31, 2011		Provision for Loan Losses			Loans Charged-Off			Recoveries		Reclassification for loans to be disposed of through branch sale			Balance, June 30, 2011
1-4 family residential mortgage	$	193,470	$	29,018		$	(48,077	)	$	0	$	(4,002	)	$	170,409
1-4 family rental property		215,392		(15,593	)		0			0		(11,527	)		188,272
Multi-family real estate		526,621		(116,017	)		0			0		(33,036	)		377,568
Home equity loans		96,060		(7,905	)		0			0		(2,076	)		86,079
Consumer		13,258		(2,908	)		(342	)		375		(1,208	)		9,175
Commercial		320,950		39,529			(81,263	)		955		(92,773	)		187,398
Secured by trust assets		12,104		(310	)		0			0		0			11,794
Commercial real estate:
Non-owner occupied		537,617		(80,941	)		(29,089	)		0		(8,758	)		418,829
Owner occupied		1,046,747		95,744			(159,104	)		11,981		(278,377	)		716,991
Construction and development		147,814		9,416			0			6,000		0			163,230
Total	$	3,110,033	$	(49,967	)	$	(317,875	)	$	19,311	$	(431,757	)	$	2,329,745

			For the Six Months Ended June 30, 2012
	Balance, December 31, 2011		Provision for Loan Losses			Loans Charged-Off			Recoveries		Balance, June 30, 2012
1-4 family residential mortgage	$	202,699	$	89,565		($	90,366	)	$	1,790	$	203,688
1-4 family rental property		235,523		39,299			(30,137	)		0		244,685
Multi-family real estate		423,031		3,008			0			0		426,039
Home equity loans		139,419		60,897			(20,483	)		0		179,833
Consumer		9,687		27,293			(1,117	)		708		36,571
Commercial		284,961		(114,647	)		0			3,605		173,919
Secured by trust assets		13,600		277			0			0		13,877
Commercial real estate:
Non-owner occupied		278,699		(31,934	)		(31,412	)		0		215,353
Owner occupied		662,269		39,033			0			0		701,302
Construction and development		234,590		(120,348	)		(50,000	)		11,599		75,841
Total	$	2,484,478	($	7,557	)	($	223,515	)	$	17,702	$	2,271,108

			For the Six Months Ended June 30, 2011
	Balance, December 31, 2010		Provision for Loan Losses			Loans Charged-Off			Recoveries		Reclassification for loans to be disposed of through branch sale			Balance, June 30, 2011
1-4 family residential mortgage	$	183,507	$	38,981		$	(48,077	)	$	0	$	(4,002	)	$	170,409
1-4 family rental property		331,184		(131,385	)		0			0		(11,527	)		188,272
Multi-family real estate		454,670		(44,066	)		0			0		(33,036	)		377,568
Home equity loans		93,187		(5,032	)		0			0		(2,076	)		86,079
Consumer		10,818		(792	)		(516	)		873		(1,208	)		9,175
Commercial		275,473		84,533			(81,263	)		1,428		(92,773	)		187,398
Secured by trust assets		12,095		(301	)		0			0		0			11,794
Commercial real estate:
Non-owner occupied		509,739		(53,063	)		(29,089	)		0		(8,758	)		418,829
Owner occupied		1,043,458		75,335			(159,104	)		35,679		(278,377	)		716,991
Construction and development		141,635		9,595			0			12,000		0			163,230
Total	$	3,055,766	$	(26,195	)	$	(318,049	)	$	49,980	$	(431,757	)	$	2,329,745

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

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

	Loans Collectively Evaluated for Impairment				Loans Individually Evaluated for Impairment				Total
June 30, 2012	Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment
1-4 family residential mortgage	$	203,688	$	24,741,181	$	0	$	499,306	$	203,688	$	25,240,487
1-4 family rental property		235,752		4,126,803		8,933		145,613		244,685		4,272,416
Multi-family real estate		424,039		9,383,864		2,000		5,388		426,039		9,389,252
Home equity		147,499		10,097,391		32,334		207,983		179,833		10,305,374
Consumer		36,571		1,643,129		0		0		36,571		1,643,129
Commercial		173,919		13,580,572		0		169,577		173,919		13,750,149
Secured by trust assets		13,877		7,041,317		0		0		13,877		7,041,317
Commercial real estate:
Non-owner occupied		189,025		18,304,891		26,328		2,475,967		215,353		20,780,858
Owner occupied		693,502		24,941,213		7,800		768,563		701,302		25,709,776
Construction and development		75,841		4,350,454		0		0		75,841		4,350,454
Total	$	2,193,713	$	118,210,815	$	77,395	$	4,272,397	$	2,271,108	$	122,483,212

	Loans Collectively Evaluated for Impairment				Loans Individually Evaluated for Impairment				Total
December 31, 2011	Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment		Allowance for Loan Loss		Recorded Investment
1-4 family residential mortgage	$	202,699	$	23,645,009	$	0	$	108,877	$	202,699	$	23,753,886
1-4 family rental property		235,523		4,068,998		0		162,633		235,523		4,231,631
Multi-family real estate		423,031		9,132,775		0		7,897		423,031		9,140,672
Home equity		98,944		8,711,640		40,475		189,603		139,419		8,901,243
Consumer		9,687		1,030,404		0		0		9,687		1,030,404
Commercial		284,347		9,838,175		614		192,919		284,961		10,031,094
Commercial secured by trust assets		13,600		6,798,929		0		0		13,600		6,798,929
Commercial real estate:
Non-owner occupied		212,153		20,279,967		66,546		2,522,791		278,699		22,802,758
Owner occupied		650,824		19,208,688		11,445		611,515		662,269		19,820,203
Construction and development		234,590		3,931,523		0		287,897		234,590		4,219,420
Total	$	2,365,398	$	106,646,108	$	119,080	$	4,084,132	$	2,484,478	$	110,730,240

The following tables present loans individually evaluated for impairment by loan class as of June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and June 30, 2011:

	As of June 30, 2012						As of December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
1-4 family residential mortgage	$	529,960	$	499,306	$	0	$	197,637	$	108,877	$	0
1-4 family rental property		286,080		97,997		0		288,674		162,633		0
Multi-family real estate		0		0		0		36,952		7,897		0
Home equity		81,134		58,858		0		32,336		32,337		0
Commercial		332,651		169,577		0		371,177		192,305		0
Commercial real estate:
Non-owner occupied		2,490,043		2,436,019		0		1,836,578		1,754,214		0
Owner occupied		845,549		760,763		0		613,495		533,746		0
Construction and development		0		0		0		716,657		287,897		0
Subtotal		4,565,417		4,022,520		0		4,093,506		3,079,906		0

With an allowance recorded:
1-4 family residential mortgage		0		0		0		0		0		0
1-4 family rental property		99,869		47,616		8,933		0		0		0
Multi-family real estate		36,413		5,388		2,000		0		0		0
Home equity		149,969		149,125		32,334		157,266		157,266		40,475
Commercial		0		0		0		2,849		614		614
Commercial real estate:
Non-owner occupied		118,959		39,948		26,328		773,028		768,577		66,546
Owner occupied		15,544		7,800		7,800		82,517		77,769		11,445
Subtotal		420,754		249,877		77,395		1,015,660		1,004,226		119,080

Total	$	4,986,171	$	4,272,397	$	77,395	$	5,109,166	$	4,084,132	$	119,080

	For the Three Months Ended June 30, 2012						For the Three Months Ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

With no related allowance recorded:
1-4 family residential mortgage	$	455,033	$	434	$	434	$	299,888	$	590	$	590
1-4 family rental property		87,121		0		0		141,273		0		0
Multi-family real estate		4,217		0		0		0		0		0
Home equity		64,028		0		0		7,960		0		0
Commercial		160,759		0		0		156,558		0		0
Commercial real estate:
Non-owner occupied		2,463,779		0		0		70,824		0		0
Owner occupied		599,071		0		0		1,053,639		0		0
Construction and development		191,931		0		0		991,420		0		0
Subtotal		4,025,939		434		434		2,721,562		590		590

With an allowance recorded:
1-4 family residential mortgage		0		0		0		20,699		0		0
1-4 family rental property		53,168		0		0		50,914		0		0
Multi-family real estate		1,276		0		0		0		0		0
Home equity		116,538		0		0		0		0		0
Commercial		0		0		0		47,779		0		0
Commercial real estate:
Non-owner occupied		7,851		0		0		30,414		0		0
Owner occupied		0		0		0		54,498		0		0
Subtotal		178,833		0		0		204,304		0		0

Total	$	4,204,772	$	434	$	434	$	2,925,866	$	590	$	590

	For the Six Months Ended June 30, 2012						For the Six Months Ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

With no related allowance recorded:
1-4 family residential mortgage	$	320,680	$	434	$	434	$	299,888	$	590	$	590
1-4 family rental property		111,422		0		0		141,273		10,861		10,861
Multi-family real estate		5,810		0		0		0		0		0
Home equity		62,293		0		0		7,960		0		0
Commercial		167,815		2,325		2,325		156,558		0		0
Commercial real estate:
Non-owner occupied		2,483,608		0		0		70,824		0		0
Owner occupied		563,198		0		0		1,053,639		0		0
Construction and development		239,914		0		0		991,420		0		0
Subtotal		3,954,740		2,759		2,759		2,721,562		11,451		11,451

With an allowance recorded:
1-4 family residential mortgage		0		0		0		20,699		0		0
1-4 family rental property		37,858		0		0		50,914		0		0
Multi-family real estate		638		0		0		0		0		0
Home equity		116,665		0		0		0		0		0
Commercial		0		0		0		47,779		0		0
Commercial real estate:
Non-owner occupied		4,754		0		0		30,414		0		0
Owner occupied		10,497		0		0		54,498		0		0
Subtotal		170,412		0		0		204,304		0		0

Total	$	4,125,152	$	2,759	$	2,759	$	2,925,866	$	11,451	$	11,451

The following tables present the aging of the recorded investment in loans by loan class:

			Days Past Due
June 30, 2012	Loans Not Past Due		30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Total
1-4 family residential mortgage	$	24,204,092	$	442,847	$	57,536	$	536,012	$	1,036,395	$	25,240,487
1-4 family rental property		4,126,803		0		9,206		136,407		145,613		4,272,416
Multi-family real estate		9,383,863		0		0		5,389		5,389		9,389,252
Home equity loans		10,164,629		81,886		26,522		32,337		140,745		10,305,374
Consumer		1,642,048		1,081		0		0		1,081		1,643,129
Commercial		13,676,209		4,598		0		69,342		73,940		13,750,149
Secured by trust assets		7,041,317		0		0		0		0		7,041,317
Commercial real estate:
Non-owner occupied		20,740,910		0		0		39,948		39,948		20,780,858
Owner occupied		25,147,010		202,226		0		360,540		562,766		25,709,776
Construction and development		4,350,454		0		0		0		0		4,350,454
Total	$	120,477,335	$	732,638	$	93,264	$	1,179,975	$	2,005,877	$	122,483,212

			Days Past Due
December 31, 2011	Loans Not Past Due		30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Total
1-4 family residential mortgage	$	23,161,060	$	454,167	$	138,659	$	0	$	592,826	$	23,753,886
1-4 family rental property		3,924,394		144,603		31,975		130,659		307,237		4,231,631
Multi-family real estate		9,132,775		0		0		7,897		7,897		9,140,672
Home equity loans		8,809,248		25,161		34,497		32,337		91,995		8,901,243
Consumer		1,017,062		0		11,670		1,672		13,342		1,030,404
Commercial		10,005,369		3,848		6,692		15,185		25,725		10,031,094
Secured by trust assets		6,798,929		0		0		0		0		6,798,929
Commercial real estate:
Non-owner occupied		22,762,810		0		0		39,948		39,948		22,802,758
Owner occupied		19,581,686		0		0		238,517		238,517		19,820,203
Construction and development		3,881,837		49,686		0		287,897		337,583		4,219,420
Total	$	109,075,170	$	677,465	$	223,493	$	754,112	$	1,655,070	$	110,730,240

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by loan class:

June 30, 2012	Nonaccrual Loans		90 Days or Greater & Still Accruing		Total
1-4 family residential mortgage	$	499,306	$	36,706	$	536,012
1-4 family rental property		145,613		0		145,613
Multi-family real estate		5,388		0		5,388
Home equity loans		58,858		0		58,858
Consumer		29,153		0		29,153
Commercial		69,342		0		69,342
Secured by trust assets		0		0		0
Commercial real estate:						0
Non-owner occupied		39,948		0		39,948
Owner occupied		768,563		0		768,563
Construction and development		0		0		0
Total	$	1,616,171	$	36,706	$	1,652,877

December 31, 2011	Nonaccrual loans		90 Days or Greater & Still Accruing		Total
1-4 family residential mortgage	$	108,877	$	0	$	108,877
1-4 family rental property		162,633		0		162,633
Multi-family real estate		7,897		0		7,897
Home equity loans		38,612		0		38,612
Consumer		6,309		1,672		7,981
Commercial		77,919		0		77,919
Commercial real estate:
Non-owner occupied		39,948		0		39,948
Owner occupied		611,515		0		611,515
Construction and development		287,897		0		287,897
Total	$	1,341,607	$	1,672	$	1,343,279

Troubled Debt Restructurings:

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The following tables report the balance of TDRs outstanding and related information as of June 30, 2012 and December 31, 2011:

			Outstanding Recorded Investment
June 30, 2012:	Number of Loans		Pre-Modification		Post-Modification
Home equity		1	$	150,991	$	150,991
Commercial		2		129,842		180,310
Commercial real estate:
Non-owner occupied		4		2,222,984		2,490,647
Owner occupied		3		358,920		349,922
Total		10	$	2,878,189	$	3,171,870

TDR allocated specific reserves					$	32,334
TDR loan commitments outstanding					$	6,000

			Outstanding Recorded Investment
December 31, 2011:	Number of Loans		Pre-Modification		Post-Modification
Home equity		1	$	150,991	$	150,991
Commercial		3		145,294		195,761
Commercial real estate:
Non-owner occupied		4		2,222,984		2,490,647
Owner occupied		2		120,403		120,403
Total		10	$	2,639,672	$	2,957,802

TDR allocated specific reserves					$	100,746
TDR loan commitments outstanding					$	6,000

The Home Equity modification related to a change in payment through the re-amortization of the remaining balance and an increase in the interest rate.

The modifications of the Commercial class generally relate to maturity date extensions as well as rate and payment modifications. The payment modifications adjusted the remaining amortization of the outstanding loan balance. Generally, interest rates are either maintained at the same rate or increased for modifications in the Commercial class. The advance of funds “post-modification” related to equipment purchases.

The modifications of the Non-Owner Occupied Commercial Real Estate class related to a restructuring of payment, interest rate, term and amortization. For each loan, the interest rate was either increased or was unchanged. The loan term was left unchanged or shortened. The amortization period was lengthened up to 7 years with the loan-to-value of each loan remaining within Bank credit policy limits. The increase in balances “post-modification” related to the advance of new funds to pay delinquent real estate taxes.

The Owner-Occupied Commercial Real Estate modifications were the result of matching the expiration date of the real estate holding company debt with the debt of the operating entity.

A loan is typically considered to be in payment default once it is eleven days contractually past due under the modified terms. As of June 30, 2012, there were no loans identified as a TDR for which a payment default occurred during the prior twelve months following the modification.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy.

The following table includes TDR related activity for the three and six months ended June 30:

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2012				2011				2012					2011
	Number		Amount		Number		Amount		Number		Amount			Number		Amount
TDRs completed:
Owner occupied commercial real estate		1	$	227,159		2	$	118,181		1	$	227,159			2	$	118,181
Commercial		0		0		3		129,913		0		0			3		129,913

TDR related increase (decrease) in the allowance for loan loss				0				0			$	(66,546	)				0
TDR charge offs				0				0				0					0

No loans were modified during the three or six months ending June 30, 2012 that had a significant payment delay and did not meet the definition of a troubled debt restructuring.

Credit Quality Indicators:

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

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

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

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

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

June 30, 2012	Not Rated		Pass		Special Mention		Substandard			Doubtful		Total
1-4 family residential mortgage	$	24,542,565	$	0	$	198,616	$	499,306		$	0	$	25,240,487
1-4 family rental property		776,405		3,084,143		180,617		231,251			0		4,272,416
Multi-family real estate		291,434		5,695,353		2,051,949		1,350,516			0		9,389,252
Home equity loans		10,031,664		65,726		0		175,647			32,337		10,305,374
Consumer		1,643,129		0		0		0			0		1,643,129
Commercial		0		13,580,572		0		117,424			52,153		13,750,149
Secured by trust assets		485,313		6,556,004		0		0			0		7,041,317
Commercial real estate:
Non-owner occupied		0		16,971,072		836,355		2,973,431			0		20,780,858
Owner occupied		0		24,417,217		321,770		863,272			107,517		25,709,776
Construction and development		2,355,073		1,995,773		0		(392	)		0		4,350,454
Total	$	40,125,583	$	72,365,860	$	3,589,307	$	6,210,455		$	192,007	$	122,483,212

December 31, 2011	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total

1-4 family residential mortgage	$	23,441,682	$	0	$	203,327	$	1,680	$	107,197	$	23,753,886
1-4 family rental property		494,363		2,872,069		513,544		351,655		0		4,231,631
Multi-family real estate		303,587		7,240,618		254,823		1,341,644		0		9,140,672
Home equity loans		8,637,268		72,895		1,477		150,991		38,612		8,901,243
Consumer		1,030,404		0		0		0		0		1,030,404
Commercial		0		9,823,849		14,326		130,799		62,120		10,031,094
Secured by trust assets		675,626		6,123,303		0		0		0		6,798,929
Commercial real estate:												0
Non-owner occupied		5,000		19,005,683		759,562		3,032,513		0		22,802,758
Owner occupied		1,795		17,493,719		1,506,489		707,573		110,627		19,820,203
Construction and development		1,867,195		2,037,504		26,824		287,897		0		4,219,420
Total	$	36,456,920	$	64,669,640	$	3,280,372	$	6,004,752	$	318,556	$	110,730,240

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

	Residential
June 30, 2012	1-4 family		Home Equity		Consumer		Total
Performing	$	24,741,181	$	10,246,516	$	1,613,976	$	36,601,673
Nonperforming		499,306		58,858		29,153		587,317
Total	$	25,240,487	$	10,305,374	$	1,643,129	$	37,188,990

	Residential
December 31, 2011	1-4 Family		Home Equity		Consumer		Total
Performing	$	23,645,009	$	8,711,640	$	1,024,095	$	33,380,744
Nonperforming		108,877		189,603		6,309		304,789
Total	$	23,753,886	$	8,901,243	$	1,030,404	$	33,685,533

NOTE 5 – ASSETS ACQUIRED IN SETTLEMENT OF LOANS

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

Assets acquired in settlement of loans were as follows:

	June 30,		December 31,
	2012		2011
Interest in limited liability company	$	1,255,437	$	1,255,437
Residential real estate		86,339		201,154
Commercial real estate		200,001		292,251
Construction and development		610,351		263,910
Total	$	2,152,128	$	2,012,752

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

There were no direct write-downs of assets acquired in settlement of loans for the three months ended June 30, 2012 and 2011. Direct write-downs totaled $30,450 and $0 for the six months ended June 30, 2012 and 2011.

NOTE 6 – FAIR VALUE

Fair value is 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. There are three levels of inputs that may be used to measure fair values:

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

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

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

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

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Certificate of Deposit in Financial Institution: The fair value of certificates of deposit maintained with financial institutions is based upon discounted cash analyses, using interest rates currently offered for similar time deposits resulting in a Level 2 classification.

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

Loans Held For Sale: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan resulting in Level 2 classification.

Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: Fair values for loans are estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses 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.

Federal Bank Stock: It is not practical to determine the fair value of federal bank stock due to restrictions placed on its transferability.

Assets Acquired in Settlement of Loans: Assets acquired in settlement of loans are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. The fair value of assets acquired in settlement of loans is generally based on real estate appraisals. 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.

Annual appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. For commercial impaired loans and other real estate owned, if the carrying value is less than $250,000, the Company may obtain a property evaluation by an independent company instead of an appraisal. The Company uses an independent third party appraisal management company for the management of appraisal ordering and review. The appraisal management company reviews the assumptions and approaches, utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics and provides a written review report to the Company. Appraised values or evaluation values are always discounted by at least ten percent for selling costs to arrive at fair value. In some cases, and when justified through appropriate documentation, additional discounting is reflected to allow for changing market conditions, property condition or increasing vacancy.

Deposits : The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Other Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value and its classification is correlated to the underlying financial instrument.

Off-balance Sheet Instruments: Fair values for off-balance sheet commitments are nominal and are not material.

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

	Fair Value Measurements Using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2012:
Equity securities	$	219,950	$	0	$	0	$	219,950
U.S. government sponsored enterprises		0		1,529,259		0		1,529,259
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		0		9,388,065		0		9,388,065
Other mortgage backed securities-residential		0		187,759		0		187,759
Municipal securities		0		2,371,802		560,124		2,931,926
Total securities available for sale	$	219,950	$	13,476,885	$	560,124	$	14,256,959

	Fair Value Measurements Using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
December 31, 2011:
Equity securities	$	145,350	$	0	$	0	$	145,350
U.S. government sponsored enterprises		0		2,515,906		0		2,515,906
Mortgage-backed securities issued by U.S. Government-sponsored enterprises		0		4,865,167		0		4,865,167
Other mortgage backed securities-residential		0		189,871		0		189,871
Municipal securities		0		2,379,836		581,514		2,961,350
Total securities available for sale	$	145,350	$	9,950,780	$	581,514	$	10,677,644

Level 3 securities are priced by a third party vendor and consist of non-rated municipal bonds of a single issuer. The vendor uses internal quality ratings that are a proprietary, internal data management tool to group municipal securities into sectors by perceived credit quality and correlation to the overall municipal market. Data gathered can be categorized as indicative data (terms and conditions data) and market data which are inputs used in price generation. Market data is comprised of various inputs needed to generate or adjust the variables required by the vendors pricing system. Examples of these market inputs are trades, bid price or spread, two-sided markets, quotes, benchmark curves including but not limited to Treasury benchmarks and LIBOR and swap curves, market data feeds such as MSRB, new issues, financial statements, discount rate, capital rates, and trustee reports. They rely on the expertise and judgment of its pricing analysts to gather and identify relevant information to use in formulating pricing opinions.

The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period. There were no transfers between Level 1 and Level 2 securities during the three or six months ended June 30, 2012.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31and June 30:

	Municipal Securities
	2012			2011
Balance of recurring Level 3 assets at January 1	$	581,514		$	0
Total gains or losses (realized/unrealized):
Included in earnings – realized		0			0
Included in earnings – unrealized		0			0
Included in other comprehensive income		(5,388	)		0
Purchases		0			0
Sales		0			0
Issuances		0			0
Settlements		0			0
Transfers in and/or out of Level 3		0			0
Balance of recurring Level 3 assets at March 31		576,126			0
Total gains or losses (realized/unrealized):
Included in earnings – realized		0			0
Included in earnings – unrealized		0			0
Included in other comprehensive income		(16,002	)		0
Purchases		0			0
Sales		0			0
Issuances		0			0
Settlements		0			0
Transfers in and/or out of Level 3		0			0
Balance of recurring Level 3 assets at June 30	$	560,124		$	0

The following table summarizes changes in unrealized gains and losses recorded in earnings for the three months and six months ended June 30 for Level 3 assets and liabilities that are still held at June 30.

	Changes in Unrealized Gains/Losses					Changes in Unrealized Gains/Losses
	Relating to Assets Still Held at					Relating to Assets Still Held at
	Reporting Date for the Three Months					Reporting Date for the Six Months
	Ending June 30,					Ending June 30,
	Municipal Securities					Municipal Securities
	2012			2011		2012			2011
Interest income on securities	$	52		$	0	$	78		$	0
Other changes in fair value		(16,054	)		0		(21,468	)		0
Total	($	16,002	)	$	0	($	21,390	)	$	0

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

	Fair Value Measurements Using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2012:
Impaired loans:
1-4 family residential mortgage	$	0	$	0	$	152,000	$	152,000
1-4 family rental property		0		0		72,528		72,528
Home equity		0		0		116,791		116,791
Multi-family real estate		0		0		3,828		3,828
Commercial real estate:
Non-owner occupied		0		0		13,620		13,620
Owner occupied		0		0		0		0
Construction and development		0		0		0		0

Assets acquired in settlement of loans:
Residential		0		0		86,339		86,339
Commercial real estate		0		0		200,001		200,001
Construction and development		0		0		249,591		249,591
Interest in limited liability company		0		0		1,255,437		1,255,437

December 31, 2011:
Impaired loans:
1-4 family residential mortgage	$	0	$	0	$	107,197	$	107,197
1-4 family rental property		0		0		130,659		130,659
Home equity		0		0		116,791		116,791
Multi-family real estate		0		0		7,897		7,897
Commercial		0		0		62,120		62,120
Commercial real estate:
Non-owner occupied		0		0		741,979		741,979
Owner occupied		0		0		66,324		66,324
Construction and development		0		0		287,897		287,897

Assets acquired in settlement of loans:
Residential		0		0		55,989		55,989
Commercial real estate		0		0		292,251		292,251
Construction and development		0		0		263,910		263,910
Interest in limited liability company		0		0		1,255,437		1,255,437

	Fair Value Measurements Using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
December 31, 2011:
Impaired loans:
1-4 family residential mortgage	$	0	$	0	$	107,197	$	107,197
1-4 family rental property		0		0		130,659		130,659
Home equity		0		0		116,791		116,791
Multi-family real estate		0		0		7,897		7,897
Commercial		0		0		62,120		62,120
Commercial real estate:
Non-owner occupied		0		0		741,979		741,979
Owner occupied		0		0		66,324		66,324
Construction and development		0		0		287,897		287,897

Assets acquired in settlement of loans:
Residential		0		0		55,989		55,989
Commercial real estate		0		0		292,251		292,251
Construction and development		0		0		263,910		263,910
Interest in limited liability company		0		0		1,255,437		1,255,437

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $488,315 with a specific allocation of the allowance for loan losses of $77,395 at June 30, 2012. Provisions for loan losses as a result of charge-offs or write-downs to the fair value of collateral were $140,433 for the six months ended June 30, 2012 of which $63,027 was provided for during the three months ended June 30, 2012.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $1,639,944, with a specific allocation of the allowance for loan losses of $119,080 at December 31, 2011. Provisions for loan losses as a result of charge-offs or write-downs to the fair value of collateral were $628,530 in 2011, of which $231,906 was provided for during the three months ended June 30, 2011 and $350,799 was provided for during the six months ended June 30, 2011.

Assets acquired in settlement of loans, measured at fair value less costs to sell, had a carrying value of $1,791,369 at June 30, 2012. Gross write-downs totaling $30,450 were recorded on assets acquired in settlement of loans during the six months ended June 30, 2012 of which $0 was recorded during the three months ended June 30, 2012. There were no direct write-downs in the value of these assets during the three or six months ended June 30, 2011.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2012:

				Range
Impaired loans	Fair value	Valuation Technique	Unobservable Inputs		to		Weighted Average
1-4 family residential mortgage	$152,000	Sales comparison approach	Adjustment for differences between the comparable sales	-4.00%		-4.00%	-4.00%
1-4 family rental property	72,528	Sales comparison approach	Adjustment for differences between the comparable sales	-32.00%		34.00%	1.35%
Home equity	116,791	Sales comparison approach	Adjustment for differences between the comparable sales	-1.00%		-1.00%	-1.00%
Multi-family real estate	3,828	Sales comparison approach	Adjustment for differences between the comparable sales	28.00%		28.00%	28.00%
Commercial real estate:
Non-owner occupied	13,620	Income approach	Capitalization rate	12.00%		12.00%	12.00%

				Range
Impaired loans	Fair value	Valuation Technique	Unobservable Inputs		to		Weighted Average

Assets Acquired in Settlement of Loans
Residential	86,339	Sales comparison approach	Adjustment for differences between the comparable sales	-15.00%			-5.27%
Commercial real estate	200,001	Sales comparison approach	Adjustment for differences between the comparable sales	-7.00%			-7.00%
Construction and development	249,591	Sales comparison approach	Adjustment for differences between the comparable sales	0%		16.00%	10.93%
Interest in limited liability company	1,255,437	Income approach	Capitalization rate			10.25%	10.25%

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

				Fair Value Measurements Using:
June 30, 2012	Carrying Value			Level 1			Level 2			Level 3		Total
Financial assets
Cash and cash equivalents	$	8,639,000		$	8,639,000		$	0		$	0	$	8,639,000
Certificate of deposit in financial institution		100,000			0			100,000			0		100,000
Securities available for sale		14,257,000			220,000			13,477,000			560,000		14,257,000
Loans held for sale		7,312,000			0			7,509,000			0		7,509,000
Loans, net		120,301,000			0			0			122,175,000		122,175,000
Federal bank stock		1,578,000			NA			NA			NA		NA
Accrued interest receivable		378,000			0			57,000			321,000		378,000

Financial liabilities
Deposits		(114,071,000	)		(68,815,000	)		(45,432,000	)		0		(114,247,000	)
Repurchase agreements		(5,513,000	)		0			(5,513,000	)		0		(5,513,000	)
Federal Home Loan Bank advances		(19,000,000	)		0			(19,038,000	)		0		(19,038,000	)
Accrued interest payable		(24,000	)		(1,000	)		(23,000	)		0		(24,000	)

December 31, 2011	Carrying Value			Estimated Fair Value
Financial assets
Cash and cash equivalents	$	20,046,000		$	20,046,000
Certificate of deposit in financial institution		100,000			100,000
Securities available for sale		10,678,000			10,678,000
Loans held for sale		896,000			928,000
Loans, net		108,277,000			110,428,000
Federal bank stock		1,598,000			NA
Accrued interest receivable		340,000			340,000

Financial liabilities
Deposits		(103,962,000	)		(104,100,000	)
Repurchase agreements		(4,214,000	)		(4,214,000	)
Federal Home Loan Bank advances		(19,000,000	)		(19,055,000	)
Accrued interest payable		(24,000	)		(24,000	)

NOTE 7 – STOCK BASED COMPENSATION

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

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

The following table depicts the activity under this Plan:

	2012
	Options			Weighted Average Exercise Price
Outstanding, January 1		1,281,850		$	2.30
Granted		0			0
Forfeited		(800	)		2.30
Exercised		0			0
Outstanding, June 30		1,281,050		$	2.30

The weighted average remaining contractual life of the options outstanding at June 30, 2012 was 8.03 years. The intrinsic value of options outstanding was $0. At June 30, 2012, there were 265,250 options that were exercisable. All nonvested outstanding options are expected to vest.

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

For the remainder of 2012	$	99,718
2013		197,811
2014		197,811
2015		98,436
Total	$	593,776

NOTE 8 – REGULATORY MATTERS

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

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

Actual and required capital amounts (in thousands) and ratios are presented below at June 30, 2012 and December 31, 2011:

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2012
Total capital to risk-weighted assets
Premier Bank & Trust	$	19,593		15.3	%	$	10,265		8.0	%	$	12,831		10.0	%

Tier 1 capital to risk-weighted assets
Premier Bank & Trust		17,981		14.0	%		5,132		4.0	%		7,699		6.0	%

Tier 1 capital to average assets
Premier Bank & Trust		17,981		11.7	%		6,143		4.0	%		7,678		5.0	%

December 31, 2011:
Total capital to risk-weighted assets
Premier Bank & Trust	$	19,501		17.6	%	$	8,841		8.0	%	$	11,051		10.0	%

Tier 1 capital to risk-weighted assets
Premier Bank & Trust		18,106		16.4	%		4,420		4.0	%		6,631		6.0	%

Tier 1 capital to average assets
Premier Bank & Trust		18,106		12.1	%		5,965		4.0	%		7,457		5.0	%

NOTE 9 – INCOME TAXES

A valuation allowance of $4,612,697 was recorded to reduce the carrying amount of the Company’s net deferred tax assets to zero due primarily to losses sustained in prior years. As a result, income tax benefits related to net operating losses are not typically recorded. A portion of the change in the valuation allowance in each period is attributable to other comprehensive income.

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

At February 19, 2010, a Stock Purchase Agreement between Ohio Legacy Corp and Excel Bancorp resulted in a section 382 limitation against pre-transaction Ohio Legacy Corp net operating loss carryforwards. The Company reduced the deferred tax asset related to net operating loss carryforwards and the valuation allowance by $1,039,000 at December 31, 2010. At December 31, 2011, the Company further reduced the deferred tax asset related to net operating loss carryforwards and the valuation allowance by an additional $377,000 as a result of changes in the realizable amount of such net operating loss.

At December 31, 2011, after consideration of the reduction to pre-transaction net operating losses due to the section 382 limitation, the Company had net operating loss carryforwards of approximately $8,026,000 that will expire as follows: $1,257,000 on December 31, 2027, $132,000 on December 31, 2028, $1,532,000 on December 31, 2029, and $5,105,000 on December 31, 2030. In addition, the Company had approximately $76,000 of alternative minimum tax credits that may be carried forward indefinitely.

At December 31, 2011 and 2010, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to change significantly within the next twelve months.

Item 2. Management’s Discussion and Analysis.

In the following section, management presents an analysis of Ohio Legacy Corp's financial condition as of June 30, 2012, and results of operations as of and for the three months and six months ended June 30, 2012 and 2011. 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, 2011.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

competition in the industry and markets in which we operate;

rapid changes in technology affecting the financial services industry;

changes in government regulation;

general economic and business conditions;

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

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;

our ability to seek additional capital in the future;

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

Following the recapitalization of the Company in February 2010, the Company’s management has focused on a number of initiatives including the following:

Improve the Company’s regulatory risk profile to alleviate the financial and management burden of problem loans and special supervision by the Bank’s principal regulator in connection with a Consent Order issued in February 2009.

The Consent Order was removed by the OCC on September 9, 2011, reflecting improvements in the management of problem loans.

Evaluate the markets where the Company’s branch network operates to determine whether the operating costs and demographics fit with the Bank’s business plan. As a result, the following events occurred:

A full service branch office was opened in February 2012 in St. Clairsville, Ohio expanding services offered to current and prospective clients at this Belmont County location. The branch office is located in the same plaza as the Bank’s Wealth office.

Deposits totaling $74.3 million and net loans totaling $9.1 million for two branch offices located in Wayne County, Ohio, were sold in October 2011.

Criticized loans included in the sale totaled $2.3 million.

Develop fee-based revenue through the wealth management business started by the Bank in April 2010.

Assets under management by the trust department totaled $111 million at June 30, 2012 and $105 million at year-end 2011.

Evaluate the core processing system to reduce costs while expanding product offerings to remain competitive through advances in technology.

The Bank completed a core processing system conversion in April 2012.

Deliver efficient and premier service and products for current and prospective clients and develop a sales culture throughout the Company.

In October 2011, Premier Bank & Trust completed the sale of two branch offices located in Wooster, Ohio, to The Commercial and Savings Bank of Millersburg, Ohio (“CSB”), a wholly owned subsidiary of CSB Bancorp, Inc., under an agreement (the “Agreement”) entered into during June 2011. Under the terms of the Agreement, CSB purchased approximately $9 million in loans, net of an allocation of the Allowance for Loan and Lease Losses totaling $600,000, real estate, fixtures and equipment associated with the branch locations, and deposits and other liabilities of $75 million. CSB paid a premium of $3.5 million, or 5% of the average amount of assumed deposits during the ten day period prior to and the day of closing less a fixed stated amount of $166,000. In addition to the loans, real estate, and fixed assets sold to CSB, the transaction was funded with approximately $42 million in cash and $19 million in borrowings from the Federal Home Loan Bank. This transaction positions the Company to focus on our core market of Stark County, Ohio, and provides future expansion potential. The impact of the branch sale is evident when comparing the results for the reported periods of 2012 with to the same period of 2011 particularly for deposit related noninterest income and overhead expenses.

The following key factors summarize the Company’s financial condition at June 30, 2012 compared to December 31, 2011:

Total assets increased $11.1 million to $157.7 million from $146.6 million.

Net loans increased $12.0 million to $120.3 million, and loans held for sale increased $6.4 million to $7.3 million.

Total deposits increased $10.1 million to $114.1 million.

Excess liquidity and higher deposit balances funded loan growth resulting in a reduction to cash and cash equivalents to $8.6 million compared to $20.0 million at year-end.

Total shareholders’ equity decreased $44,000 to $18.5 million principally due to the operating loss of approximately $182,000 recorded by the Company for the six months ended June 30, 2012. This decrease in capital was partially offset by approximately $98,000 in stock-based compensation costs and $40,000 in other comprehensive income.

The following key factors summarize our results of operations for the three months ended June 30, 2012:

The Company recorded net income of $33,039 for the second quarter of 2012 compared to a loss of $238,944 for the same period in 2011.

Net interest income improved $105,830 for the second quarter of 2012 compared to the same period in 2011.

No loan loss provision was recorded for the second quarter of 2012. Improvements to historical loss ratios enabled the Company to increase the loan portfolio without the need to provide for additional loan losses through provision expense. For the comparative quarter of 2011, the Company reduced its allowance for loan loss through a negative loan loss provision of $49,967.

Noninterest income decreased $21,169 driven by a reduction in service charges and other deposit related fee income totaling $79,168 resulting from the sale of two branch offices in October 2011.

Noninterest expense decreased by $366,235 principally due to the elimination of overhead associated with the branch sale.

The following key factors summarize our results of operations for the six months ended June 30, 2012:

The Company recorded a net loss of $181,935 for the first six months of 2012 compared to a net loss of $707,511 for the same period of 2011.

Net interest income improved $140,793 for the period in 2012 compared to the same period in 2011.

The Company reduced its allowance for loan loss through a negative loan loss provision totaling $7,557 for the first half of 2012 compared to a negative loan loss provision of $26,195 for the same period in 2011.

Noninterest income decreased $90,693 driven by a reduction in service charges and other deposit related fee income totaling $163,780 resulting from the sale of two branch offices in October 2011.

Noninterest expense decreased by $638,437 principally driven by the elimination of overhead associated with the sold branches.

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

Margins may decline as interest earning assets continue to adjust to lower rates given the Federal Open Market Committee’s expectation to maintain a highly accommodative stance for monetary policy to support a stronger economic recovery. The FOMC has maintained the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The FOMC also has the ability to influence longer term interest rates through its open market operations.

It will be difficult to reduce our cost of funds significantly below current levels.

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

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

The Bank’s costs associated with its regulatory risk profile including FDIC insurance and regulatory examination costs will remain elevated 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 engage an independent third party each quarter to help monitor and confirm our loan grading conclusions.

Valuation allowance for deferred tax assets . Another critical accounting policy relates to valuation of the deferred tax asset for net operating losses. Net operating loss carryforwards of approximately $8,026,000 will expire as follows: $1,257,000 on December 31, 2027, $132,000 on December 31, 2028, $1,532,000 on December 31, 2029, and $5,105,000 on December 31, 2030. A valuation allowance has been recorded for the related deferred tax asset for these carryforwards and other net deferred tax assets recorded by the Company to reduce the carrying amount of these assets to zero. Additional information is included in Note 9 to the consolidated financial statements.

FINANCIAL CONDITION – June 30, 2012 compared to December 31, 2011

Assets. At June 30, 2012, total assets increased to $157.7 million, up $11.1 million from $146.6 million at December 31, 2011. The asset increase was principally due to an increase in funds provided by an increase in deposits of $10.1 million.

Cash and Cash Equivalents . Cash and cash equivalents decreased to $8.6 million at June 30, 2012, down $11.4 million from year-end 2011. The decrease in cash and cash equivalents was due to an increase in lending activities.

Securities. Total securities available for sale had an estimated fair value of $14.3 million at June 30, 2012, compared to $10.7 million at year-end 2011. There were no sales of securities during the first half of 2012. The net unrealized gain on the securities portfolio was $512,928 at June 30, 2012 compared to a net unrealized gain of $452,816 at December 31, 2011.

Loans Held for Sale. Loans held for sale increased to $7.3 million at June 30, 2012 compared to approximately $896,000 at year-end 2011. The increase was driven primarily by a new mortgage purchase participation (“MPP”)program whereby the Bank purchases a 50% interest in mortgage loans originated by brokers outside of the Bank’s market for another financial institution. At June 30, 2012, the balance of loans purchased through the MPP program totaled $7 million.

Loans and Asset Quality . Total loans, net of the allowance for loan loss and deferred loan fees, increased $12.0 million to $120.3 million, an increase of 11.1%. Loans criticized by management as special mention or substandard and not deemed impaired represented 4.7% of total loans at June 30, 2012, compared to 5.0% at December 31, 2011. Impaired loans on nonaccrual status represented 1.3% of total loans at June 30, 2012, and totaled $1,587,019. Improving asset quality continues to be a prime objective for management. Outstanding loan balances are expected to increase over the remainder of the year through business development efforts. However expected loan growth may be constrained by continued economic weakness in the markets served by the Company and competitive pressure.

Allowance for loan losses. The balance of the allowance for loan loss at June 30, 2012, was $2,271,108 compared to $2,484,478 at year-end 2011. No loan loss provision was recorded for the three months ended June 30, 2012 and a negative loan loss provision of $7,557 was recorded for the first half of 2012. Recoveries on loans previously charged-off totaled $17,702 and loans charged off totaled $223,515 for the six months ended June 30, 2012. The amount of the allowance for loan loss is based on a combination of actual experiential factors such as historical losses for each category of loans, information about specific borrowers, and other factors, including delinquencies, general economic conditions and the outlook for specific industries, which are more subjective in nature.

The reduction to the allowance is directionally consistent with the trends in the criticized loan portfolio. Historical loan loss rates are regularly updated to reflect the most recent three years of loss experience. Loss rates have declined as loan charge offs recorded during the first half of 2009 have begun to roll out of the loan loss experience rate calculation for 2012. Reductions to the estimate of incurred losses in the loan portfolio for lower loss rates resulted in a reduction to the Allowance for Loan Losses of approximately $465,000 at June 30, 2012 compared to year-end 2011. The specific allowance allocated to impaired loans declined approximately $42,000. These reductions were partially offset by the allowance for loan loss set aside for loan growth in the portfolio totaling approximately $100,000 and an increase in other subjective factors totaling approximately $194,000.

The general allowance allocated to loans not criticized by management totaled 1.56% of non-criticized loans at June 30, 2012, compared to 1.75% at year-end 2011. As a percentage of total loans, the allowance decreased to 1.85% at June 30, 2012, compared to 2.24% at year-end 2011. The allowance for loan loss as a percentage of loans not individually identified as impaired and that excludes the amount of the allowance specifically allocated to impaired loans totaled 1.85% at June 30, 2012, compared to 2.22% at year-end 2011. Specific allocations of the allowance for impaired loans decreased to $77,395 at June 30, 2012 compared to $119,080 at year-end 2011.

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

Other real estate owned consisted of seven properties and totaled approximately $897,000 at June 30, 2012 compared to nine properties with a carrying value of $757,000 at year-end 2011. Two properties were sold for a gain of $4,036, and one property was transferred to OREO during the six months ended June 30, 2012.

Deposits. Total deposits increased $10.1 million to $114.1 million compared to year-end 2011. Certificates of deposit at June 30, 2012 included $17.8 million in deposits acquired from financial institutions subscribing to a national time deposit rate listing service. Approximately $2.2 million of the increase in total deposits were for time deposits opened through this program since the beginning of 2012. This funding source had a weighted average rate of 0.53% with an average remaining maturity of 163 days. It is a less expensive source of funds than for comparable funds raised through the retail time deposit market, but there is no opportunity to cross-sell other products and services to these depositors. It has also allowed the Bank to extend the maturity term of its deposits since retail depositors have migrated into money market funds as customers tend to be unwilling to lengthen deposit maturities given low interest rates. It has also partially replaced deposits sold through the branch sale during the fourth quarter of 2011.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances totaling $19 million were used as a funding source following the sale of two branches during the fourth quarter of 2012.

Shareholders’ Equity. Shareholders’ Equity decreased $44,000 to $18.5 million at June 30, 2012. The decrease was due to the operating loss of approximately $182,000 incurred for the six months of 2012 which was partially offset by stock-based compensation costs, a noncash expense, of approximately $98,000. Accumulated other comprehensive income increased by approximately $40,000.

RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2012

The Company recorded net income of $33,039 for the three months ended June 30, 2012, compared to a net loss of $238,944, or $0.01 per share during the second quarter of 2011. Average shares outstanding totaled 19,714,564 for both periods.

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

	Three Months Ended June 30,
	2012							2011
			Interest							Interest
	Average		Earned/		Yield/			Average		Earned/		Yield/
(Dollars in Thousands)	Balance		Paid		Rate			Balance		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in
other financial institutions and federal funds sold	$	12,325	$	8		0.24	%	$	39,395	$	22		0.23	%
Securities available for sale		13,601		80		2.35	%		16,458		122		2.96	%
Securities held to maturity		0		0		0.00	%		1,877		18		3.89	%
Federal agency stock		1,580		19		4.85	%		1,518		19		4.95	%
Loans (1)		121,319		1,396		4.63	%		101,246		1,351		5.35	%
Total interest-earning assets		148,825		1,503		4.06	%		160,494		1,532		3.83	%
Noninterest-earning assets		5,530							8,065
Total assets	$	154,355						$	168,559

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	6,026	$	5		0.31	%	$	10,012	$	7		0.31	%
Savings accounts		5,645		5		0.36	%		12,580		11		0.34	%
Money market accounts		31,641		34		0.44	%		51,069		74		0.58	%
Certificates of deposit		44,323		102		0.93	%		51,730		188		1.46	%
Total interest-bearing deposits		87,635		146		0.67	%		125,391		280		0.90	%
Other Borrowings		23,467		17		0.29	%		3,796		18		1.95	%
Total Interest-bearing liabilities		111,102		163		0.59	%		129,187		298		0.93	%
Noninterest-bearing demand deposits		23,521							22,599
Noninterest-bearing liabilities		1,372							698
Total liabilities		135,995							152,484
Shareholders' equity		18,360							16,075
Total liabilities and
shareholders' equity	$	154,355						$	168,559

Net interest income; interest rate spread (2)			$	1,340		3.47	%			$	1,234		2.90	%
Net earning assets	$	37,723						$	31,307
Net interest margin (3)						3.62	%						3.08	%

Average interest-earning assets to interest-bearing liabilities		1.3		X					1.2		X

(1)

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

(2)

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

(3)

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

Net interest income. For the three months ending June 30, 2012, net interest income was $1,339,527, up $105,830 from same period in 2011 while average total interest earning assets were down $11.7 million. Loans and liquid assets used to fund deposits sold during the third quarter of 2011 reduced the balance of earning assets. The yield on earning assets increased 0.23% to 4.06% for the second quarter of 2012 from 3.83% for the comparable period of 2011. The yield on interest-bearing liabilities declined 0.34% to 0.59% for the second quarter of 2012 from 0.93% for the same period in 2011. The net interest margin increased to 3.62% from 3.08%.

Interest Income. Total interest income for the second quarter of 2012 was $1.5 million, nearly unchanged from the second quarter of 2011. Interest-bearing assets continue to reprice downward as low interest rates prevailed during the quarter and originations of interest earning assets are booked at lower rates contributing to lower interest income levels. Average loans increased by $20 million for the comparative quarters which enabled the Company to maintain interest income at about the same level in the second quarter of 2012 compared to 2011 despite the decrease in earning assets and lower interest rates.

Interest expense. Interest on deposits declined $134,000 to $146,000 for the second quarter of 2012 compared to the same period in 2011. The average yield on interest-bearing deposits dropped 0.23% to 0.67%. The overall cost of interest bearing liabilities fell from 0.93% to 0.59%. Management expects it will be difficult to achieve further reductions to the cost its deposits since the current cost is already priced at historically low rates.

Provision for Loan Loss. No loan loss provision was recorded for the second quarter of 2012. A negative loan loss provision totaling $49,967 was recorded during the second quarter of 2011; negative loan loss provisions provide a positive contribution to net income. The provision for loan loss will fluctuate based on management’s evaluation of the credit within the loan portfolio, changes in credit loss experience factors, and incurred losses in the loan portfolio during the period. See also the discussion above for the Allowance for Loan Losses.

Noninterest income. Noninterest income decreased $21,169 to $351,291 for the second quarter of 2012 compared to $372,460 for the same quarter of 2011. The decrease was the result of a reduction in service charges and other fees due to the sale of branch deposits during the fourth quarter of 2011.

Service charges and other fees declined $79,168 to $73,421 for the second quarter of 2012 compared to the same period of 2011. This decline resulted from the sale of deposit accounts during the fourth quarter of 2011. Those accounts generated approximately $90,000 in service charges and other fees during the second quarter of 2011.

The Bank’s trust department and brokerage business generated $226,949 in gross fees during the second quarter of 2012, up from $179,212 for the comparative quarter of 2011. These services, introduced during the second quarter of 2010, provided asset management expertise for $111 million in assets as of June 30, 2012.

Gains on sale of loans increased $17,198 to $38,691 for the second quarter of 2012 compared to the same quarter of 2011. Refinancing activity due to record low mortgage loan rates remains strong.

Other income declined $3,822 for the second quarter of 2012 compared to the same quarter last year. The decline was principally due to the absence of rental income from leased office space located at one of the sold branch offices.

Noninterest expense. Noninterest expense decreased $366,235 to $1,678,217 for the second quarter of 2012 compared to $2,044,452 for the second quarter of 2011. Lower expenses were principally the result of the reduction in overhead associated with the branch offices sold during the fourth quarter of 2012. Those savings were partially reduced by costs associated with the opening of a new branch office in St. Clairsville, Ohio in February 2012. The significant changes are detailed below.

Salaries and benefits decreased $143,252 to $892,107 for the second quarter of 2012 compared to $1,035,359 for the same period of 2011. Salaries and benefits costs associated with recently sold branches totaled approximately $93,000 for the second quarter of 2011.

Occupancy and equipment costs decreased $49,163 to $200,666 for the second quarter of 2012. Costs associated with recently sold branches during the second quarter of 2011 totaled approximately $70,000. Occupancy and equipment costs associated with the recently opened St. Clairsville branch totaled approximately $32,000.

Professional fees, including legal, accounting and other consulting expense, decreased $32,943 to $131,314 for the second quarter of 2012 principally due to a reduction in costs for legal expenses which were lower by $25,653 and audit and regulatory examination costs which were lower by $10,444.

Franchise tax increased $8,250 to $60,750 for the second quarter of 2012. Ohio franchise tax for financial institutions for the current year is based on the Bank’s net worth on the last day of the prior calendar year end; higher capital levels at year-end 2011 compared to year-end 2010 resulted in higher costs for 2012.

Data processing charges include costs for internet banking, core systems data processing and courier charges. This expense category decreased $34,281 to $147,598. This cost is principally driven by the costs associated with core processing and is largely driven by transaction volumes. Costs for the second quarter of 2012 also included approximately $22,000 in expenses associated with the core processing conversion completed in April 2012.

Marketing costs were up $14,376 for the second quarter of 2012 to $30,786. This increase is attributed to the difference in the timing when costs are incurred. General marketing costs for 2012 are expected to be similar to the costs incurred in 2011.

Deposit insurance and deposit related expenses decreased $15,586 to $78,953 for the second quarter of 2012 compared to the same period in 2011. FDIC insurance expense decreased by approximately $7,000. Both the change in the methodology in FDIC assessments implemented April 1, 2011 and the reduction in total assessment base due to lower average total assets contributed to the decrease.

Other expenses decreased $110,765 during the second quarter of 2012 compared to the same period in 2011. Other loan origination expense deferrals increased $36,322 based on higher lending volumes for the comparative quarters; these expenses are deferred and reflected as a component of loan yield over the loan term in accordance with ASC 310-20-25, Receivables-Nonrefundable Fees and Other Costs . Other real estate owned expenses decreased $14,257, insurance expense decreased $11,047, legal expenses associated with lending activities decreased $26,095, and directors’ fees decreased $4,500.

RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2012

The net loss for the six months ended June 30, 2012, totaled $181,935, or a loss of $0.01 per share compared to a net loss of $707,511, or $0.04 per share during the same period of 2011. Average shares outstanding totaled 19,714,564 shares for both periods.

	Six Months Ended June 30,
	2012							2011
			Interest							Interest
	Average		Earned/		Yield/			Average		Earned/		Yield/
(Dollars in Thousands)	Balance		Paid		Rate			Balance		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in
other financial institutions and federal funds sold	$	18,089	$	19		0.22	%	$	35,851	$	40		0.23	%
Securities available for sale		11,712		146		2.49	%		19,397		270		2.78	%
Securities held to maturity		0		0		0.00	%		2,347		45		3.87	%
Federal agency stock		1,589		39		4.96	%		1,537		38		5.00	%
Loans (1)		116,741		2,741		4.73	%		100,996		2,746		5.48	%
Total interest-earning assets		148,131		2,945		4.01	%		160,128		3,139		3.95	%
Noninterest-earning assets		5,371							8,184
Total assets	$	153,502						$	168,312

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	5,864	$	8		0.28	%	$	9,667	$	15		0.31	%
Savings accounts		5,587		10		0.37	%		13,564		26		0.39	%
Money market accounts		32,040		75		0.47	%		49,493		154		0.63	%
Certificates of deposit		42,673		197		0.93	%		51,873		411		1.60	%
Total interest-bearing deposits		86,164		290		0.68	%		124,597		606		0.98	%
Other Borrowings		23,536		33		0.29	%		5,045		51		2.03	%
Total Interest-bearing liabilities		109,700		323		0.59	%		129,642		657		1.02	%
Noninterest-bearing demand deposits		24,287							21,692
Noninterest-bearing liabilities		1,068							790
Total liabilities		135,055							152,124
Shareholders' equity		18,447							16,188
Total liabilities and
shareholders' equity	$	153,502						$	168,312

Net interest income; interest rate spread (2)			$	2,622		3.42	%			$	2,482		2.90	%
Net earning assets	$	38,431						$	30,486
Net interest margin (3)						3.57	%						3.13	%

Average interest-earning assets to interest-bearing liabilities		1.4		X					1.2		X

(1)

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

(2)

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

(3)

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

Net interest income. For the six months ended June 30, 2012, net interest income was $2.6 million, up $140,793 from the same period in 2011. Total interest and dividend income decreased $193,437. This decrease in revenue was offset by a decrease of $334,230 in total interest expense. The net interest margin improved to 3.57% from 3.13%.

Interest income. Interest income decreased by $193,437 for the first half of 2012 compared to 2011. The continuation of low interest rates resulted in floating rate assets repricing to lower interest rates over time and new interest earning assets booked at interest rates lower than prevailing rates on older loans held in the portfolio. Refinancing activity also pressures the yields on the existing portfolio of loans. The change in yield on earning assets caused interest income to decline by approximately $448,000. However this decline was partly offset by the change in the mix of earning assets from lower yielding investments to higher yielding loans; this allocation shift in volume improved interest income by about $258,000. Average earning assets declined by about $12 million as a result of assets used to fund the branch deposit sale in the fourth quarter of 2011.

Interest expense. The sustained low interest rate environment was evident in the decline in the Company’s cost of interest-bearing liabilities to 0.59% from 1.02% for the first half of 2012. The cost of every funding category declined although the pace of reductions to cost of funds has slowed. The volume of average interest-bearing liabilities declined $19.9 million as a result of the sale of branch deposits in the fourth quarter of 2011. The average balance of other borrowings increased $18.5 million principally due to advances drawn at the Federal Home Loan Bank during the fourth quarter of 2011 to assist with funding the branch deposit sale.

Provision for loan losses. A negative loan loss provision totaling $7,557 was recorded for the six months ended June 30, 2012; this had a positive effect on earnings. During the same period of 2011, the Company recorded a negative loan loss provision of $26,195. 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 decreased $90,693 to $634,122 for the first six months of 2012 from $724,815 for the same period in 2011. The decrease was directly related to the sale of branch deposits during the fourth quarter of 2011 that resulted in lower service charges and fees for the first half of 2012. Significant changes to the components of noninterest income for the six months ended June 30, 2012 compared to June 30, 2011 are discussed below.

Service charges and other fees declined $163,780 to $142,002 for the 2012 period compared to the 2011. Service charges and fees associated with deposit accounts sold during the fourth quarter of 2011 totaled approximately $180,000 for the first half of 2011.

The Bank’s trust department and brokerage business generated $443,336 in gross fees during the first six months of 2012, up $98,285 for the comparative period of 2011.

No securities were sold during the first six months of 2012. Gains on sale of securities available for sale resulted in revenue of $32,999 for the 2011. Securities sold included $4.9 million of 30 year GNMA mortgage-backed securities issued during 2009. These securities were sold to reduce the price sensitivity of the Bank’s securities portfolio in a rising interest rate environment.

Gains on sale of loans increased $13,244 to $61,484 for the 2012 period. Low mortgage rates prevailed during the first half of 2012 contributing to a pickup in mortgage activity, and home purchase activity has recently begun to improve in the Bank’s market area. Long term fixed rate mortgage loans are sold to an investor to minimize interest rate risk.

Net losses recorded on the disposition of assets acquired in settlement of loans during the 2012 period totaled $26,414. Direct write-downs on two properties totaled $30,450 which were partially offset by a gain on sale of two properties totaling $4,036. For the 2011 period, a loss of $35,299 was recorded on the sale of one property.

Noninterest expense. Total noninterest expense decreased $638,437 to $3.5 million compared to $4.1 million for the first half of the prior year. Changes comparing the first six months of 2012 to the same period of 2011 are described below.

Compensation costs decreased $232,292 to $1,848,617 for the first half of 2012. Compensation costs for the first half of 2011 associated with the two branch offices sold during the fourth quarter of 2011 totaled approximately $180,000. Compensation cost deferrals increased $54,632 based on higher lending volumes for the comparative periods; these expenses are deferred and reflected as a component of loan yield over the loan term in accordance with ASC 310-20-25, Receivables-Nonrefundable Fees and Other Costs . Compensation costs associated with the St. Clairsville branch opened in early 2012 totaled approximately $68,000 for the first half of 2012.

Occupancy and equipment costs decreased $106,470 for the first half of 2012. Costs associated with the sold branch offices totaled approximately $146,000 for the first half of 2011. Occupancy and equipment costs incurred for the new full service branch office in St. Clairsville totaled approximately $56,000 for the first half of 2012.

Professional fees decreased $51,875 for the first half of 2012. These costs include legal, accounting and auditing, regulatory examination and consulting fees. Costs in each of these areas were lower in 2012 except for a modest increase of approximately $3,000 in consulting fees.

Franchise tax increased $15,250 to $121,550 for the first half of 2012. Ohio franchise tax for financial institutions for the current year is based on the Bank’s net worth on the last day of the prior calendar year end; higher capital levels at year-end 2011 compared to year-end 2010 resulted in higher costs for 2012.

Data processing expense decreased $73,722 to $288,152 for the first half of 2012. This cost is largely driven by transaction volumes which were substantially reduced by the branch deposit sale in the fourth quarter of 2011.

Marketing and advertising expense increased $8,346 to $47,705 for the first half of 2012. This increase is attributed to the difference in the timing when costs are incurred. General marketing costs for 2012 are expected to be similar to the costs incurred in 2011.

Deposit expense and insurance fees decreased $55,857 to $151,891 for the first half of 2012. FDIC insurance expense decreased by approximately $40,000. Both the change in the methodology in FDIC assessments implemented April 1, 2011 and the reduction in total assessment base due to lower average total assets contributed to the decrease. Bank charges for cash letter processing and armored car services were also lower by approximately $16,000.

Other expenses decreased $136,358 to $327,741 for the first half of 2012. Contributing to this reduction were lower other real estate owned expenses totaling $26,331, loan legal expenses totaling $45,248, insurance expense totaling $21,718, and directors’ fees totaling $9,250. Other loan origination expense deferrals increased $33,658 contributing to lower comparative costs based on higher lending volumes; these expenses are deferred and reflected as a component of loan yield over the loan term in accordance with ASC 310-20-25, Receivables-Nonrefundable Fees and Other Costs .

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

At June 30, 2012, the Company had no active unconsolidated, related special purpose entities, nor did the Company engage in derivatives and hedging contracts, such as interest rate swaps, that may expose the Company to liabilities greater than the amounts recorded on the consolidated balance sheet. The investment policy prohibits engaging in derivatives contracts for speculative trading purposes; however, the Company may pursue certain contracts, such as interest rate swaps, to execute a sound and defensive interest rate risk management policy.

LIQUIDITY

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

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

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

The Consolidated Statement of Cash Flows provides details on sources and uses of cash for the six months ended June 30, 2012. Cash and cash equivalents decreased $11.4 million to $8.6 million at June 30, 2012 since year-end 2011. Management considers the current liquidity level and the Bank’s additional funding capacity through available borrowing facilities to be sufficient for its current operations.

CAPITAL RESOURCES

Total shareholders’ equity was $18.5 million at June 30, 2012, a decrease of $44,000 from the prior year-end balance. The decrease in equity was due to the net loss of approximately $182,000 incurred by the Company for the six months ended June 30, 2012. Stock-based compensation expense of approximately $98,000 increased equity as this noncash expense is recorded as an increase to capital. Unrealized net gains in the investment portfolio increased by approximately $40,000 since year-end. These items substantially offset the impact of the net loss to shareholders’ equity.

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. Failure to meet capital requirements can initiate regulatory action. At June 30, 2012, the Bank was well capitalized under the provisions of prompt corrective action. See Note 8 for more information regarding the regulatory capital requirements for the Bank and the Bank’s capital ratios as of June 30, 2012.

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 2012.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable for Smaller Reporting Companies.

Item 4T. Controls and Procedures

As of June 30, 2012 an evaluation was conducted under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s second fiscal quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

Item 6. Exhibits.

INDEX TO EXHIBITS

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

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

SIGNATURES

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

By: /s/ Rick L. Hull

Rick L. Hull, President and Chief Executive Officer and Director

(principal executive officer)

Date: August 14, 2012

By: /s/ Jane Marsh

Jane Marsh, Senior Vice President, Chief Financial Officer and Treasurer

(principal financial officer and principal accounting officer)

Date: August 14, 2012

Ohio Legacy (NASDAQ:OLCB)
Historical Stock Chart
From Apr 2024 to May 2024

Ohio Legacy (NASDAQ:OLCB)
Historical Stock Chart
From May 2023 to May 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

OLCB Ohio Legacy Corp. (MM)

Latest OLCB Messages

Loading Messages....

News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

OLCB Ohio Legacy Corp. (MM)

Latest OLCB Messages

Loading Messages....

News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App