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EX-32.1 - OHIO LEGACY CORPv222439_ex32-1.htm
EX-31.1 - OHIO LEGACY CORPv222439_ex31-1.htm
EX-31.2 - OHIO LEGACY CORPv222439_ex31-2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011
or
o
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)
 
 
  OHIO LEGACY CORP  
 
(Exact name of registrant as specified in its charter)
 
 
 
(330) 499-1900
 
 
Registrant's telephone number
 
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]     No [  ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.
 
  Large accelerated filer o Accelerated filer o  
  Non-accelerated filer o 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 o  No x

As of May 13, 2011, 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 MONTHS ENDED MARCH 31, 2011
 
FIRST QUARTER REPORT
 

 
   
Page
PART I - FINANCIAL INFORMATION
   
     
Item 1. Financial Statements
 
3
     
Item 2. Management’s Discussion and Analysis
 
22
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
30
     
Item 4T. Controls and Procedures
 
30
     
PART II - OTHER INFORMATION
   
     
Item 1. Legal Proceedings
 
30
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
31
     
Item 3. Defaults Upon Senior Securities
 
31
     
Item 4. Removed and Reserved
 
31
     
Item 5. Other Information
 
31
     
Item 6. Exhibits
 
32
     
SIGNATURES
 
33
 
 
2

 
 
PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements.
 
 
OHIO LEGACY CORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of March 31, 2011 and December 31, 2010
 
 
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
ASSETS
           
Cash and due from banks
  $ 1,258,327     $ 1,121,473  
Federal funds sold and interest-bearing deposits in financial institutions
    37,071,587       31,560,745  
Cash and cash equivalents
    38,329,914       32,682,218  
Certificate of deposit in financial institution
    100,000       100,000  
Securities available for sale
    16,816,032       25,206,895  
Securities held to maturity (fair value March 31, 2011 - $2,896,914, December 31, 2010 - $2,885,216)
    2,815,800       2,815,634  
Loans held for sale
    222,235       636,794  
Loans, net of allowance of $3,110,033 and $3,055,766 at March 31, 2011 and December 31, 2010
    101,953,427       101,146,194  
Federal bank stock
    1,518,000       1,557,700  
Premises and equipment, net
    3,369,985       3,461,455  
Assets acquired in settlement of loans
    2,252,175       2,351,302  
Accrued interest receivable and other assets
    789,785       658,779  
Total assets
  $ 168,167,353     $ 170,616,971  
                 
Commitments and contingent liabilities
    -       -  
                 
                 
LIABILITIES
               
Deposits:
               
Noninterest-bearing demand
  $ 21,045,328     $ 20,760,836  
Interest-bearing demand
    9,636,888       9,564,745  
Savings
    62,978,215       59,285,422  
Certificates of deposit, net
    51,725,405       53,604,644  
Total deposits
    145,385,836       143,215,647  
Repurchase agreements
    5,507,566       4,391,252  
Long-term Federal Home Loan Bank advances
    -       5,000,000  
Capital lease obligations
    398,429       407,593  
Accrued interest payable and other liabilities
    813,758       1,131,963  
Total liabilities
  $ 152,105,589     $ 154,146,455  
                 
                 
SHAREHOLDERS' EQUITY
               
Preferred stock, no par value, 500,000 shares authorized, none outstanding
    -       -  
Common stock, no par value,
               
March 31, 2011 and December 31, 2010: 22,500,000 shared authorized, 19,714,564 shares issued and outstanding
    35,654,897       35,603,803  
Accumulated deficit
    (19,757,578 )     (19,289,011 )
Accumulated other comprehensive income
    164,445       155,724  
Total shareholders' equity
    16,061,764       16,470,516  
                 
Total liabilities and shareholders' equity
  $ 168,167,353     $ 170,616,971  

See notes to the consolidated financial statements.
 
 
3

 
 
OHIO LEGACY CORP
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
             
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
Interest and dividend income:
           
Loans, including fees
  $ 1,393,962     $ 1,503,851  
Securities, taxable
    147,963       260,248  
Securities, tax-exempt
    27,172       28,542  
Interest-bearing deposits, federal funds sold and other
    17,920       12,508  
Dividends on federal bank stock
    19,625       15,275  
Total interest and dividend income
    1,606,642       1,820,424  
                 
Interest expense:
               
Deposits
    325,972       519,614  
Long-term Federal Home Loan Bank advances
    13,754       114,488  
Repurchase agreements
    2,591       1,083  
Capital leases
    16,332       17,690  
Investor notes
    -       9,693  
Total interest expense
    358,649       662,568  
Net interest income
    1,247,993       1,157,856  
Provision for loan losses
    23,772       76,772  
Net interest income after provision for loan losses
    1,224,221       1,081,084  
Noninterest income:
               
Service charges and other fees
    153,194       169,430  
Trust and brokerage fees
    165,838       -  
Gain on sales of securities available for sale, net
    32,999       -  
Gain on sale of loans
    26,747       3,465  
Gain (loss) on disposition of other real estate owned
    (35,299 )     11,543  
Loss on disposition of fixed assets
    (1,337 )     (1,506 )
Other income
    10,212       14,849  
Total noninterest income
    352,354       197,781  
                 
Noninterest expense:
               
Salaries and benefits
    1,045,550       969,861  
Occupancy and equipment
    245,836       214,699  
Professional fees
    134,651       271,847  
Franchise tax
    53,800       9,050  
Data processing
    179,995       152,706  
Marketing and advertising
    22,948       65,087  
Stationery and supplies
    18,448       16,880  
Deposit expense and insurance
    113,209       200,819  
Investor expenses
    -       517,222  
Other expenses
    230,705       190,384  
Total noninterest expense
    2,045,142       2,608,555  
Net loss before income taxes
    (468,567 )     (1,329,690 )
Income tax benefit
    -       -  
Net loss
  $ (468,567 )   $ (1,329,690 )
                 
                 
Basic loss per share
  $ (0.02 )   $ (0.13 )
Diluted loss per share
  $ (0.02 )   $ (0.13 )
 
See notes to the consolidated financial statements.
 
 
4

 
 
OHIO LEGACY CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
 
             
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Balance, beginning of period
  $ 16,470,516     $ 2,366,511  
                 
Stock based compensation expense
    51,094       2,143  
                 
Proceeds on sale of common stock, net
    -       16,714,781  
                 
Comprehensive income (loss):
               
Net income (loss)
    (468,567 )     (1,329,690 )
Net unrealized income (loss) on securities available for sale arising during the period, including effect of reclassifications
    8,721       128,180  
Total comprehensive income (loss)
    (459,846 )     (1,201,510 )
Balance, end of period
  $ 16,061,764     $ 17,881,925  
 
See notes to the consolidated financial statements.
 
 
5

 
 
OHIO LEGACY CORP
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
             
             
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Cash flows from operating activities:
           
Net loss
  $ (468,567 )   $ (1,329,690 )
Adjustments to reconcile net loss to net cash from operating activities:
               
Provision for loan losses
    23,772       76,772  
Depreciation and amortization
    94,761       83,904  
Loss on disposition of fixed assets
    1,337       1,506  
Securities amortization and accretion, net
    87,268       48,674  
Origination of loans held for sale
    (719,150 )     -  
Proceeds from sales of loans held for sale
    1,383,656       198,712  
Loss (gain) on disposition of real estate owned
    35,299       (11,543 )
Gain on sale of securities available for sale
    (32,999 )     -  
                 
Gain on sale of loans held for sale
    (26,747 )     (3,465 )
Stock based compensation expense
    51,094       2,143  
Net change in:
               
Accrued interest receivable and other assets
    (131,006 )     (209,838 )
Accrued interest payable and other liabilities
    (318,205 )     (270 )
Deferred loan fees
    23,203       (5,522 )
Net cash from operating activities
    3,717       (1,148,617 )
                 
Cash flows from investing activities:
               
Purchases of securities available for sale
    (984,645 )     (2,034,779 )
(Purchases) or redemptions of federal bank stock
    39,700       -  
Maturities, calls and paydowns of securities available for sale
    4,377,950       1,361,656  
Sales of securities available for sale
    4,951,844       -  
Proceeds from sale of other real estate owned
    191,101       430,648  
Participation loans purchased
    (725,000 )     -  
Net change in loans
    (479,681 )     4,105,987  
Proceeds from sale of premises and equipment
    13,250       -  
Acquisition of premises and equipment
    (17,879 )     (221,405 )
Net cash from investing activities
    7,341,982       3,642,107  
                 
Cash flows from financing activities
               
Net change in deposits
    2,170,189       843,952  
Net change in repurchase agreements
    1,116,314       (389,856 )
Repayment of capital lease obligations
    (9,164 )     (7,806 )
Repayments of FHLB advances
    (5,000,000 )     (8,500,000 )
Net proceeds from issuance of common stock
    -       16,714,781  
Net cash from financing activities
    (1,722,661 )     8,661,071  
                 
Net change in cash and cash equivalents
    5,647,696       11,154,561  
Cash and cash equivalents at beginning of period
    32,682,218       24,165,790  
                 
Cash and cash equivalents at end of period
  $ 38,329,914     $ 35,320,351  

See notes to the consolidated financial statements.
 
 
6

 
 
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
Supplemental disclosures of cash flow information:
           
Cash received during the period:
           
Federal income tax refund
  $ -     $ -  
                 
Cash paid during the period for:
               
Interest
    395,200       702,853  
Federal income taxes
    -       -  
Non-cash transactions:
               
Transfer of loans to assets acquired in settlement of loans
    127,272       212,510  
 
See notes to the consolidated financial statements.
 
 
7

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

These consolidated financial statements are prepared without audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company at March 31, 2011, 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, 2010, 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:

Improving Disclosures About Fair Value Measurements:  In January 2010, the FASB issued an amendment to Fair Value Measurements and Disclosures, Topic 820, Improving Disclosures About Fair ValueMeasurements. This amendment requires new disclosures regarding significant transfers in and out of Level 1 and 2 fair value measurements and the reasons for the transfers. This amendment also requires that a reporting entity present separately information about purchases, sales, issuances and settlements, on a gross basis rather than a net basis for activity in Level 3 fair value measurements using significant unobservable inputs. This amendment also clarifies existing disclosures on the level of disaggregation, in that the reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities, and that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and 3. The new disclosures and clarifications of existing disclosures for ASC 820 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC 820 did not have a material effect on the Company’s consolidated financial statements.
 
 
8

 
 
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses:  In July 2010, FASB issued Accounting Standards Update 2010-20, Disclosures about the Credit Quality of FinancingReceivables and the Allowance for Credit Losses (ASU 2010-20), to address concerns about the sufficiency, transparency, and robustness of credit risk disclosures for finance receivables and the related allowance for credit losses. This ASU requires new and enhanced disclosures at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Among other things, the expanded disclosures include roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables as of the end of a reporting period. New and enhanced disclosures are required for interim and annual periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual periods beginning after December 15, 2010. The adoption of the new guidance had no impact to the financial statements except for the additional disclosures.
  
No. 2011-01 | Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20:  In January 2011, FASB issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled DebtRestructurings in Update No. 2010-20 (ASU 2011-01). ASU 2011-01 was issued as a result of concerns raised from stakeholders that the introduction of new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings in one reporting period followed by a change in what constitutes a troubled debt restructuring shortly thereafter would be burdensome for preparers and may not provide financial statement users with useful information.

No. 2011-02 | Receivables (Topic 310) A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring:  In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring.  The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties.  With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted.  In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011.  Management is currently working through the guidance to determine the impact, if any.
   
NOTE 2 – STOCK ISSUANCE

On November 15, 2009, the Company and the Bank entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Excel Financial, LLC (“Excel Financial”).  Under the terms of the Stock Purchase Agreement, Excel Financial agreed to purchase 15.0 million of the Company’s common shares at a price of $1.00 per share.  As a condition to Excel Financial’s purchase of the Company’s common shares, the Company agreed to sell a minimum of 1.5 million of its common shares to investors other than Excel Financial in a private offering, and to use its best efforts to sell an additional 1.0 million of its common shares in the same private offering, all at a purchase price of $1.00 per share.
 
 
9

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

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

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

As discussed in Note 9, the Bank entered into a Consent Order in 2009 that specified achievement of higher capital ratios.  Following the Closing, the Bank exceeded the minimum capital ratios required under the Consent Order with the OCC of tier 1 capital of at least 8.75% of adjusted total assets and total risk-based capital of at least 13.25% of risk-weighted assets.  However, until the Consent Order is terminated, the Bank cannot be classified as well-capitalized under prompt corrective action provisions.

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

The issuance of common stock to Excel Bancorp resulted in an “ownership change” of the Company, as broadly defined in Section 382 of the Internal Revenue Code.  As a result of the ownership change, utilization of the Company’s net operating loss carryforwards and certain built-in losses under federal income tax laws will be subject to annual limitation.  The annual limitation placed on the Company’s ability to utilize these potential tax deductions will equal the product of an applicable interest rate mandated under federal income tax laws and the Company’s value immediately before the ownership change.  The annual limitation imposed under Section 382 would limit the deduction for both the carryforward tax attributes and the built-in losses realized within five years of the date of the ownership change to approximately $93,000 per year.  Given the limited carryforward period assigned to these tax deductions in excess of this annual limit, some portion of these potential deductions will be lost and, consequently, the related tax benefits will not be recorded in the financial statements.  See Note 10 for additional information regarding net operating loss carryforwards.

 
10

 
 
NOTE 3 – 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 includes 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
 
   
March 31,
 
   
2011
   
2010
 
BASIC:
           
Net loss
  $ (468,567 )   $ (1,329,690 )
Weighted average common shares outstanding
    19,714,564       10,186,786  
Basic loss per share
  $ (0.02 )   $ (0.13 )
                 
                 
DILUTED:
               
Net loss
  $ (468,567 )   $ (1,329,690 )
Weighted average common shares outstanding
    19,714,564       10,186,786  
Dilutive effect of stock options
    -       -  
Dilutive effect of stock warrants
    -       -  
Total common shares and dilutive potential common shares
    19,714,564       10,186,786  
Diluted loss per common share
  $ (0.02 )   $ (0.13 )

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 1,330,244 shares for the three months ending March 31, 2011 and 35,000 for the three months ending March 31, 2010.

NOTE 4 – 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
 
Available for sale, carried at fair value:
 
Cost
   
Gains
   
Losses
   
Value
 
March 31, 2011
                       
U.S. Government-sponsored enterprises
  $ 4,792,632     $ 4,821     $ -     $ 4,797,453  
Mortgage-backed securities issued by U.S. Government-sponsored enterprises
    11,306,732       282,672       (5,203 )     11,584,201  
Other mortgage-backed securities
    309,822       -       (67,594 )     242,228  
Equity securities
    39,900       152,250       -       192,150  
   Total
  $ 16,449,086     $ 439,743     $ (72,797 )   $ 16,816,032  


December 31, 2010
                       
U.S. Government-sponsored enterprises
  $ 8,261,724     $ 3,424     $ (1,722 )   $ 8,263,426  
Mortgage-backed securities issued by U.S. Government-sponsored enterprises
    16,228,702       396,481       -       16,625,183  
Other mortgage-backed securities
    316,644       -       (69,078 )     247,566  
Equity securities
    41,600       29,120       -       70,720  
   Total
  $ 24,848,670     $ 429,025     $ (70,800 )   $ 25,206,895  

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

 
11

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

         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
Held to maturity, carried at amortized cost
 
Cost
   
Gains
   
Losses
   
Value
 
March 31, 2011
                       
Municipal securities
  $ 2,815,800     $ 81,114     $ -     $ 2,896,914  
                                 
 
December 31, 2010
                               
Municipal securities
  $ 2,815,634     $ 69,582     $ -     $ 2,885,216  

The fair value of debt securities and the carrying amount, if different, at March 31, 2011 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.

   
Held-to-maturity
   
Available for sale
 
   
Carrying Amount
   
Fair Value
   
Fair Value
 
                   
Due in one year or less
    -       -       -  
Due from one to five years
  $ 634,857     $ 659,783     $ 1,502,627  
Due from five to ten years
    629,962       658,087       3,294,826  
Due after ten years
    1,550,981       1,579,044       -  
Equity securities
    -       -       192,150  
Mortgage-backed securities
    -       -       11,826,429  
Total
  $ 2,815,800     $ 2,896,914     $ 16,816,032  

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

   
Less than 12 months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
March 31, 2011:
 
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
Available for sale:
                                   
Mortgage-backed securities issued by U.S. Government-sponsored enterprises
  $ 1,960,188     $ (5,203 )   $ -     $ -       1,960,188       (5,203 )
Other mortgage-backed securities
    -       -       242,228       (67,594 )   $ 242,228     $ (67,594 )
   Total
  $ 1,960,188     $ (5,203 )   $ 242,228     $ (67,594 )   $ 2,202,416     $ (72,797 )

   
Less than 12 months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
December 31, 2010:
 
Value
   
Loss
   
Value
   
Loss
   
Value
   
Loss
 
Available for sale:
                                   
U.S. Government agencies
  $ 2,555,180     $ (1,722 )   $ -     $ -     $ 2,555,180     $ (1,722 )
Other mortgage-backed securities
    -       -       247,566       (69,078 )     247,566       (69,078 )
   Total
  $ 2,555,180     $ (1,722 )   $ 247,566     $ (69,078 )   $ 2,802,746     $ (70,800 )

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 March 31, 2011, the Company’s security portfolio consisted of 38 securities, one of which was in an unrealized loss position for 12 months or longer.
 
 
12

 
 
Mortgage-backed securities

The Company’s mortgage-backed securities portfolio includes one non-agency security with a fair value of $242,228 which represents an unrealized loss of approximately $67,594 at March 31, 2011; the estimated fair value has been less than its amortized cost for twelve months or more. This non-agency mortgage-backed security is rated Aa2 by Moody’s and AAA by Standard & Poor’s rating services.    This security is senior to several subordinate classes of securities that together are collateralized by a pool of residential mortgages.  No losses incurred on the mortgages in the pool have been assigned to the senior classes.  Although the borrowers are not required to make principal payments during the initial 10 year period, 69% of the original principal has been repaid as of March 31, 2011. 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 March 31, 2011, 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 5 – LOANS
 
Loans, by collateral type, were as follows at March 31, 2011 and December 31, 2010:

   
March 31, 2011
   
December 31, 2010
 
   
Balance
   
Percent
   
Balance
   
Percent
 
Residential real estate
  $ 32,044,752       30.5 %   $ 30,320,666       29.1 %
Multifamily real estate
    5,311,184       5.0 %     7,465,237       7.2 %
Commercial real estate
    42,755,786       40.7 %     42,222,715       40.4 %
Construction
    2,956,287       2.8 %     2,137,849       2.1 %
Commercial
    14,506,096       13.8 %     15,114,240       14.5 %
Consumer and home equity
    7,538,592       7.2 %     7,013,694       6.7 %
Total Loans
    105,112,697       100.0 %     104,274,401       100.0 %
Less: Allowance for loan losses
    (3,110,033 )             (3,055,766 )        
Net Deferred Loan Fees
    (49,237 )             (72,441 )        
Loans, net
  $ 101,953,427             $ 101,146,194          

Approximately $24,636,000 and $23,966,000 of residential real estate loans were pledged as collateral to support available borrowing capacity at the Federal Home Loan Bank at March 31, 2011 and for advances outstanding and additional borrowing capacity at December 31, 2010, respectively.  Approximately $29,446,000 and $30,177,000 of commercial and home equity loans were pledged as collateral at the Federal Reserve Bank of Cleveland for available discount window borrowing at March 31, 2011 and December 31, 2010.

Activity in the allowance for loan losses for the three months ended March 31 was as follows:

   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Balance, beginning of period
  $ 3,055,766     $ 3,945,670  
Provision for loan losses
    23,772       76,772  
Loans charged-off
    (174 )     (3,896 )
Recoveries of charged-off loans
    30,669       14,460  
                 
Balance, end of period
  $ 3,110,033     $ 4,033,006  
                 
Balance as a percentage of total loans
    2.96 %     4.01 %

Activity in the allowance for loan loss by portfolio segment for the three months ended March 31, 2011 was as follows:

   
1-4 family residential
   
1-4 family rental
   
Multi-family real state
   
Home Equity
   
Consumer
   
Commercial
   
Commercial Secured by Trust Assets
 
                                           
Balance, December 31, 2010
  $ 183,507     $ 331,184     $ 454,670     $ 93,187     $ 10,818     $ 275,473     $ 12,095  
Provision for loan losses
    9,963       (115,792 )     71,951       2,873       2,116       45,004       9  
Charge-offs
    -       -       -       -       (174 )     -       -  
Recoveries
    -       -       -       -       498       473       -  
Balance, March 31, 2011
  $ 193,470     $ 215,392     $ 526,621     $ 96,060     $ 13,258     $ 320,950     $ 12,104  
 
 
13

 
 
   
Commercial real estate
             
   
Non-owner occupied
   
Owner Occupied
   
Construction
   
Total
 
                         
Balance, December 31, 2010
  $ 509,739     $ 1,043,458     $ 141,635     $ 3,055,766  
Provision for loan losses
    27,878       (20,409 )     179       23,772  
Charge-offs
    -       -       -       (174 )
Recoveries
    -       23,698       6,000       30,669  
Balance, March 31, 2011
  $ 537,617     $ 1,046,747     $ 147,814     $ 3,110,033  

Loans individually considered impaired and nonaccrual loans were as follows at March 31, 2011 and December 31, 2010:

   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
Loans past due over 90 days still on accrual
  $ 14,832     $ 11,495  
Nonaccrual loans, includes smaller balance homogeneous loans
    3,519,307       3,452,602  
Impaired loans, included in nonaccrual loans
    3,353,189       3,409,242  
Impaired loans with no allowance for loan losses allocated
    3,021,975       3,371,759  
Amount of the allowance for loan losses allocated
    125,330       6,435  

No interest income was recognized during impairment for the three months ending March 31, 2011.

The recorded investment in loans is defined as the sum of the unpaid principal balance, accrued interest receivable and net deferred fees and deferred costs.  Because the recorded investment in loans is not materially different than the unpaid principal balance, the tables below are presented using the unpaid principal balance.

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

   
Loans Collectively Evaluated for Impairment
   
Loans Individually Evaluated for Impairment
   
Total
 
March 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
  $ 187,035     $ 27,544,902     $ 6,435     $ 366,702     $ 193,470     $ 27,911,604  
1-4 family rental property
    215,392       3,936,483       -       196,666       215,392       4,133,149  
Multi-family real estate
    526,621       5,311,184       -       -       526,621       5,311,184  
Home equity
    96,060       6,481,116       -       11,940       96,060       6,493,056  
Consumer
    13,259       1,045,536       -       -       13,259       1,045,536  
Commercial
    247,583       8,157,975       73,367       296,290       320,950       8,454,265  
Commercial secured by trust assets
    12,104       6,051,831       -       -       12,104       6,051,831  
Commercial real estate:
                                               
Non-owner occupied
    521,438       18,973,726       16,179       234,150       537,617       19,207,876  
Owner occupied
    1,017,397       22,292,978       29,349       1,254,931       1,046,746       23,547,909  
Construction and development
    147,814       1,963,777       -       992,510       147,814       2,956,287  
Total
  $ 2,984,703     $ 101,759,508     $ 125,330     $ 3,353,189     $ 3,110,033     $ 105,112,697  

   
Loans Collectively Evaluated for Impairment
   
Loans Individually Evaluated for Impairment
   
Total
 
December 31, 2010
 
Allowance for Loan Loss
   
Recorded Investment
   
Allowance for Loan Loss
   
Recorded Investment
   
Allowance for Loan Loss
   
Recorded Investment
 
1-4 family residential mortgage
  $ 177,072     $ 23,716,528     $ 6,435     $ 164,170     $ 183,507     $ 23,880,698  
1-4 family rental property
    331,184       6,161,295       -       278,673       331,184       6,439,968  
Multi-family real estate
    454,670       7,396,465       -       68,772       454,670       7,465,237  
Home equity
    93,187       6,277,141       -       -       93,187       6,277,141  
Consumer
    10,818       736,553       -       -       10,818       736,553  
Commercial
    275,473       8,818,892       -       247,731       275,473       9,066,623  
Commercial secured by trust assets
    12,095       6,047,617       -       -       12,095       6,047,617  
Commercial real estate:
                                               
Non-owner occupied
    509,739       18,112,082       -       174,750       509,739       18,286,832  
Owner occupied
    1,043,458       22,594,876       -       1,341,007       1,043,458       23,935,883  
Construction and development
    141,635       1,003,710       -       1,134,139       141,635       2,137,849  
Total
  $ 3,049,331     $ 100,865,159     $ 6,435     $ 3,409,242     $ 3,055,766     $ 104,274,401  

 
14

 
 
The following table presents loans individually evaluated for impairment by loan class.

   
 
 
March 31, 2011
   
 
December 31, 2010
 
   
Average Recorded Investment
   
Recorded Investment
   
Allowance for Loan Losses Allocated
   
Recorded Investment
   
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
                             
1-4 family residential mortgage
  $ 254,349     $ 329,219     $ -     $ 126,687     $ -  
1-4 family rental property
    224,190       196,666       -       278,673       -  
Multi-family real estate
    45,848       -       -       68,772       -  
Home equity
    3,980       11,940       -       -       -  
Commercial
    212,184       148,754       -       247,731       -  
Commercial real estate:
                                       
Non-owner occupied
    194,150       172,350       -       174,750       -  
Owner occupied
    1,227,597       1,170,536       -       1,341,007       -  
Construction and development
    1,055,427       992,510       -       1,134,139       -  
                                         
With an allowance recorded:
                                       
1-4 Single family residential mortgage
    31,048       37,483       6,435       37,483       6,435  
Commercial
    40,851       147,535       73,367       -       -  
Commercial real estate:
                                       
Non-owner occupied
    15,207       61,800       16,179       -       -  
Owner occupied
    18,349       84,396       29,349       -       -  
    $ 3,323,180     $ 3,353,189     $ 125,330     $ 3,409,242     $ 6,435  

The following table presents information for loans individually evaluated for impairment as of March 31, 2010:
   
March 31, 2010
 
       
Average of impaired loans during the period
  $ 5,625,690  
Interest income recognized during impairment
    -  
Cash-basis income recognized during impairment
    -  

The following tables present the aging of the recorded investment in past due loans by class of loans.

         
Days Past Due
             
March 31, 2011
 
Loans Not Past Due
   
30-59 Days
   
60-89 Days
   
90 Days or Greater & Still Accruing
   
90 Days or Greater & Non-Accruing
   
Total Past Due
   
Total
 
1-4 family residential mortgage
  $ 27,124,487     $ 420,415     $ -     $ -     $ 366,702     $ 787,117     $ 27,911,604  
1-4 family rental property
    3,936,483       -       -       -       196,666       196,666       4,133,149  
Multi-family real estate
    5,311,184       -       -       -       -       -       5,311,184  
Home equity loans
    6,377,311       73,896       29,909       -       11,940       115,745       6,493,056  
Consumer
    853,161       295       15,445       10,518       166,117       192,375       1,045,536  
Commercial
    7,833,281       320,380       -       4,314       296,290       620,984       8,454,265  
Commericial secured by trust assets
    6,051,831       -       -       -       -       -       6,051,831  
 Commercial real estate:
                                            -          
Non-owner occupied
    18,973,726       -       -       -       234,150       234,150       19,207,876  
Owner occupied
    22,216,564       76,413       -       -       1,254,932       1,331,345       23,547,909  
Construction and development
    1,963,777       -       -       -       992,510       992,510       2,956,287  
Total
  $ 100,641,805     $ 891,399     $ 45,354     $ 14,832     $ 3,519,307     $ 4,470,892     $ 105,112,697  
 
 
15

 
 
         
Days Past Due
             
 December 31, 2010
 
Loans Not Past Due
   
30-59 Days
   
60-89 Days
   
90 Days or Greater & Still Accruing
   
90 Days or Greater & Non-Accruing
   
Total Past Due
   
Total
 
1-4 family residential mortgage
  $ 23,367,952     $ 207,521     $ 141,055     $ -     $ 164,170     $ 512,746     $ 23,880,698  
1-4 family rental property
    6,161,295       -       -       -       278,673       278,673       6,439,968  
Multi-family real estate
    7,396,465       -       -       -       68,772       68,772       7,465,237  
Home equity loans
    6,192,016       74,621       10,504       -       -       85,125       6,277,141  
Consumer
    676,801       4,898       -       11,495       43,359       59,752       736,553  
Commercial
    8,751,090       8,889       58,913       -       247,731       315,533       9,066,623  
Commercial secured by trust assets
    6,047,617       -       -       -               -       6,047,617  
 Commercial real estate:
                                            -       -  
Non-owner occupied
    18,050,282       61,800       -       -       174,750       236,550       18,286,832  
Owner occupied
    22,594,876       -       -       -       1,341,007       1,341,007       23,935,883  
 Construction and development
    1,003,709       -       -       -       1,134,140       1,134,140       2,137,849  
Total
  $ 100,242,103     $ 357,729     $ 210,472     $ 11,495     $ 3,452,602     $ 4,032,298     $ 104,274,401  
 
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 not analyzed as part of homogeneous groups include commercial, commercial real estate, multi-family real estate, 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.  The risk category of loans by class of loans was as follows:

March 31, 2011
 
Not Rated
   
Pass
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
                                     
 1-4 Family residential mortgage
  $ 23,033,478     $ 3,495,701     $ 438,513     $ 792,710     $ 151,202     $ 27,911,604  
 1-4 family rental property
    130,000       3,238,402       370,545       394,202       -       4,133,149  
 Multi-family real estate
    -       2,515,888       1,998,773       796,523       -       5,311,184  
 Home equity loans
    6,377,095       83,347       2,311       30,303       -       6,493,056  
 Consumer
    1,045,536       -       -       -       -       1,045,536  
 Commercial
    -       7,826,701       279,884       264,803       82,877       8,454,265  
 Commercial secured by trust assets
            6,051,831       -       -       -       6,051,831  
 Commercial real estate:
                                               
 Non-owner occupied
    -       14,668,359       3,515,251       962,466       61,800       19,207,876  
 Owner occupied
    537,468       18,001,532       1,647,757       3,238,439       122,713       23,547,909  
 Construction and development
    546,791       1,385,662       31,324       992,510               2,956,287  
 Total
  $ 31,670,368     $ 57,267,423     $ 8,284,358     $ 7,471,956     $ 418,592     $ 105,112,697  
 
 
16

 
 

 
December 31, 2010
 
Not Rated
   
Pass
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
                                     
 1-4 family residential mortgage
  $ 23,135,647     $ 392,160     $ -     $ 197,341     $ 155,550     $ 23,880,698  
 1-4 family rental property
    -       5,413,008       453,930       573,030       -       6,439,968  
 Multi-family real estate
    91,908       4,350,194       1,591,890       1,431,245       -       7,465,237  
 Home equity loans
    6,055,818       200,000       2,582       18,741       -       6,277,141  
 Consumer
    736,553       -       -       -       -       736,553  
 Commercial
    -       8,403,145       311,832       281,043       70,603       9,066,623  
 Commercial secured by trust assets
    -       6,047,617       -       -       -       6,047,617  
 Commercial real estate:
                                               
 Non-owner occupied
    -       13,879,607       3,434,311       972,914       -       18,286,832  
 Owner occupied
    -       18,659,084       1,722,292       3,427,262       127,245       23,935,883  
 Construction and development
    262,922       592,301       32,824       1,249,802       -       2,137,849  
 Total
  $ 30,282,848     $ 57,937,116     $ 7,549,661     $ 8,151,378     $ 353,398     $ 104,274,401  

 
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