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 June 30,
2009
 or
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
      1934
 
 For the transition period from
__________ to __________
 
 Commission
file number:  000-31673
 
 OHIO LEGACY CORP(Exact
      name of registrant as specified in its
charter)
 
 Ohio
                  
                  34-1903890(State
      or other jurisdiction of incorporation or organization)
                  
                  I.R.S.
      Employer Identification
Number
 
 2375 Benden Drive Suite C, Wooster, OH,
      44691(Address
      of principal executive
offices)
 
 (330) 263-1955Registrant's
      telephone number
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x     No
 ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈
                
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈  No
x
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
 Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court    Yes  ̈   No
 ̈
 
 As of
August 13, 2009, the latest practicable date, there were 2,214,564 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, 2009
 SECOND
QUARTER REPORT
  
 
 PagePART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements
                      
                      3Item
      2. Management’s Discussion and Analysis
                      
                      17Item
      3. Not Applicable for Smaller Reporting Companies
                      
                      25Item
      4T. Controls and Procedures
                      
                      25PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
                      
                      26Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                      
                      26Item
      3. Defaults Upon Senior Securities
                      
                      26Item
      4. Submission of Matters to a Vote of Security Holders
                      
                      26Item
      5. Other Information
                      
                      26Item
      6. Exhibits
                      
                      27SIGNATURES
                      
                      28
  2.
  PART
I – FINANCIAL INFORMATION
 
 Item
1. Financial Statements.
 OHIO
LEGACY CORP
 CONSOLIDATED
BALANCE SHEETS
 As of
June 30, 2009, and December 31, 2008
 
 June 30,
                    2009
                
                
                December 31,
                    2009(unaudited)ASSETSCash
      and due from banks
                
                $
                2,805,275
                
                
                $
                7,652,710Federal
      funds sold and interest-bearing deposits in financial
      institutions
                
                
                11,283,572
                
                
                
                3,815,227Cash
      and cash equivalents
                
                
                14,088,847
                
                
                
                11,467,937Certificate
      of deposit in financial institution
                
                
                100,000
                
                
                
                100,000Securities
      available for sale
                
                
                46,027,811
                
                
                
                32,726,863Securities
      held to maturity (fair value of $3,011,376 and $3,003,825 at June 30, 2009
      and December 31, 2008)
                
                
                2,998,326
                
                
                
                2,999,813Loans
      held for sale
                
                
                119,100
                
                
                
                1,012,038Loans,
      net of allowance of $2,818,212 and $3,398,284 at June 30, 2009 and
      December 31, 2008
                
                
                112,712,850
                
                
                
                126,836,474Federal
      bank stock
                
                
                1,321,150
                
                
                
                1,455,100Premises
      and equipment, net
                
                
                3,111,873
                
                
                
                3,284,884Intangible
      asset
                
                
                29,950
                
                
                
                59,901Other
      real estate owned
                
                
                4,628,340
                
                
                
                5,215,696Accrued
      interest receivable and other assets
                
                
                1,153,862
                
                
                
                1,375,368Total
      assets
                
                $
                186,292,109
                
                
                $
                186,534,074LIABILITIESDeposits:Noninterest-bearing
      demand
                
                $
                16,130,078
                
                
                $
                16,659,300Interest-bearing
      demand
                
                
                8,762,561
                
                
                
                10,070,737Savings
                
                
                58,914,332
                
                
                
                53,483,533Certificates
      of deposit, net
                
                
                73,264,732
                
                
                
                65,491,464Total
      deposits
                
                
                157,071,703
                
                
                
                145,705,034Repurchase
      agreements
                
                
                996,299
                
                
                
                1,405,619Short
      term Federal Home Loan Bank advances
                
                
                -
                
                
                
                6,850,000Long
      term Federal Home Loan Bank advances
                
                
                18,500,000
                
                
                
                21,000,000Capital
      lease obligations
                
                
                455,490
                
                
                
                469,060Accrued
      interest payable and other liabilities
                
                
                811,044
                
                
                
                1,583,504Total
      liabilities
                
                $
                177,834,536
                
                
                $
                177,013,217SHAREHOLDERS’
      EQUITYPreferred
      stock, no par value, 500,000 shares authorized,none
      outstanding
                
                
                -
                
                
                
                -Common
      stock, no par value, 5,000,000 shares authorized, 2,214,564 shares issued
      and outstanding at June 30, 2009, and December 31, 2008,
      respectively
                
                
                18,798,764
                
                
                
                18,808,311Accumulated
      earnings (loss)
                
                
                (9,993,812
                )
                
                
                (9,519,307
                )Accumulated
      other comprehensive earnings (loss)
                
                
                (347,379
                )
                
                
                231,853Total
      shareholders’ equity
                
                
                8,457,573
                
                
                
                9,520,857Total
      liabilities and shareholders’ equity
                
                $
                186,292,109
                
                
                $
                186,534,074
 See notes
to the consolidated financial statements.
  3.
  OHIO
LEGACY CORP
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 For the
Three and Six Months Ended June 30, 2009 and 2008
 (Unaudited)
 
 For the Three Months Ended
                    June 30,
                  
                  
                  For the Six Months
                    Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Interest
      and dividends income:Loans,
      including fees
                  
                  $
                  1,747,129
                  
                  
                  $
                  2,202,767
                  
                  
                  $
                  3,691,442
                  
                  
                  $
                  4,530,466Securities,
      taxable
                  
                  
                  449,459
                  
                  
                  
                  456,503
                  
                  
                  
                  850,471
                  
                  
                  
                  855,435Securities,
      tax-exempt
                  
                  
                  28,650
                  
                  
                  
                  28,661
                  
                  
                  
                  57,204
                  
                  
                  
                  57,227Interest-bearing
      deposits and federal funds sold
                  
                  
                  7,810
                  
                  
                  
                  28,307
                  
                  
                  
                  14,073
                  
                  
                  
                  60,423Dividends
      on federal bank stock
                  
                  
                  15,874
                  
                  
                  
                  20,493
                  
                  
                  
                  32,338
                  
                  
                  
                  41,702Total
      interest and dividends income
                  
                  
                  2,248,922
                  
                  
                  
                  2,736,731
                  
                  
                  
                  4,645,528
                  
                  
                  
                  5,545,250Interest
      expense:Deposits
                  
                  
                  898,088
                  
                  
                  
                  1,092,626
                  
                  
                  
                  1,837,566
                  
                  
                  
                  2,324,214Short
      term Federal Home Loan Bank advances
                  
                  
                  -
                  
                  
                  
                  3,756
                  
                  
                  
                  2,085
                  
                  
                  
                  28,570Long
      term Federal Home Loan Bank advances
                  
                  
                  155,909
                  
                  
                  
                  176,106
                  
                  
                  
                  333,181
                  
                  
                  
                  339,546Repurchase
      agreements
                  
                  
                  940
                  
                  
                  
                  5,373
                  
                  
                  
                  1,872
                  
                  
                  
                  17,833Capital
      leases
                  
                  
                  18,574
                  
                  
                  
                  19,599
                  
                  
                  
                  37,421
                  
                  
                  
                  39,431Total
      interest expense
                  
                  
                  1,073,511
                  
                  
                  
                  1,297,460
                  
                  
                  
                  2,212,125
                  
                  
                  
                  2,749,594Net
      interest income
                  
                  
                  1,175,411
                  
                  
                  
                  1,439,271
                  
                  
                  
                  2,433,403
                  
                  
                  
                  2,795,656Provision
      for loan losses
                  
                  
                  375,000
                  
                  
                  
                  5,000
                  
                  
                  
                  556,000
                  
                  
                  
                  11,500Net
      interest income after provision for loan losses
                  
                  
                  800,411
                  
                  
                  
                  1,434,271
                  
                  
                  
                  1,877,403
                  
                  
                  
                  2,784,156Noninterest
      income:Service
      charges and other fees
                  
                  
                  211,068
                  
                  
                  
                  246,403
                  
                  
                  
                  423,253
                  
                  
                  
                  460,651Gain
      on the sale of available for sale securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  685,948
                  
                  
                  
                  -Other
      than temporary impairment of securities
                  
                  
                  -
                  
                  
                  
                  (159,000
                  )
                  
                  
                  (111,200
                  )
                  
                  
                  (159,000
                  )Gain
      on sale of loans
                  
                  
                  3,677
                  
                  
                  
                  63,993
                  
                  
                  
                  23,167
                  
                  
                  
                  95,018Gain
      on redemption of equity interest in Visa
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,561Gain
      (loss) on disposition of other real estate owned
                  
                  
                  474
                  
                  
                  
                  -
                  
                  
                  
                  38,494
                  
                  
                  
                  -Direct
      write-down of other real estate owned
                  
                  
                  (24,000
                  )
                  
                  
                  -
                  
                  
                  
                  (46,500
                  )
                  
                  
                  -Other
      income
                  
                  
                  11,757
                  
                  
                  
                  6,180
                  
                  
                  
                  19,352
                  
                  
                  
                  17,543Total
      noninterest income
                  
                  
                  202,976
                  
                  
                  
                  157,576
                  
                  
                  
                  1,032,514
                  
                  
                  
                  441,773Noninterest
      expense:Salaries
      and benefits
                  
                  
                  738,972
                  
                  
                  
                  838,435
                  
                  
                  
                  1,465,366
                  
                  
                  
                  1,634,903Occupancy
      and equipment
                  
                  
                  206,815
                  
                  
                  
                  229,389
                  
                  
                  
                  415,469
                  
                  
                  
                  456,483Professional
      fees
                  
                  
                  51,487
                  
                  
                  
                  82,972
                  
                  
                  
                  154,143
                  
                  
                  
                  180,899Franchise
      tax
                  
                  
                  28,052
                  
                  
                  
                  48,821
                  
                  
                  
                  65,552
                  
                  
                  
                  99,071Data
      processing
                  
                  
                  172,588
                  
                  
                  
                  165,111
                  
                  
                  
                  350,098
                  
                  
                  
                  335,367Marketing
      and advertising
                  
                  
                  21,670
                  
                  
                  
                  35,826
                  
                  
                  
                  48,720
                  
                  
                  
                  95,737Stationery
      and supplies
                  
                  
                  16,755
                  
                  
                  
                  24,760
                  
                  
                  
                  36,533
                  
                  
                  
                  52,140Amortization
      of intangible asset
                  
                  
                  13,692
                  
                  
                  
                  23,960
                  
                  
                  
                  29,951
                  
                  
                  
                  50,202Deposit
      expenses and insurance
                  
                  
                  361,615
                  
                  
                  
                  68,300
                  
                  
                  
                  487,267
                  
                  
                  
                  129,437Other
      expenses
                  
                  
                  374,705
                  
                  
                  
                  169,932
                  
                  
                  
                  582,312
                  
                  
                  
                  318,449Total
      noninterest expense
                  
                  
                  1,986,351
                  
                  
                  
                  1,687,506
                  
                  
                  
                  3,635,411
                  
                  
                  
                  3,352,688Earnings
      (loss) before income tax expense
                  
                  
                  (982,964
                  )
                  
                  
                  (95,695
                  )
                  
                  
                  (725,494
                  )
                  
                  
                  (126,759
                  )Income
      tax expense (benefit)
                  
                  
                  (6,076
                  )
                  
                  
                  -
                  
                  
                  
                  (250,989
                  )
                  
                  
                  -Net
      earnings (loss)
                  
                  $
                  (976,888
                  )
                  
                  $
                  (95,659
                  )
                  
                  $
                  (474,505
                  )
                  
                  $
                  (126,759
                  )Basic
      earnings (loss) per share
                  
                  $
                  (0.44
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.06
                  )Diluted
      earnings (loss) per share
                  
                  $
                  (0.44
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.06
                  )
 See notes
to the consolidated financial statements.
 
 4.
  OHIO
LEGACY CORP
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For the
Six Months Ended June 30, 2009 and 2008
 (Unaudited)
 For the Six Months Ended
                    June 30,2009
                  
                  
                  2008Cash
      flows from operating activities:Net
      earnings (loss)
                  
                  $
                  (474,505
                  )
                  
                  $
                  (126,759
                  )Adjustments
      to reconcile net earnings to net cash fromoperating
      activities:Depreciation
      and amortization
                  
                  
                  203,598
                  
                  
                  
                  231,244Securities
      amortization and accretion, net
                  
                  
                  68,603
                  
                  
                  
                  14,403(Gain)
      loss on the sale of securities available for sale
                  
                  
                  (685,948
                  )
                  
                  
                  -Origination
      of loans held for sale
                  
                  
                  (844,682
                  )
                  
                  
                  (11,009,182
                  )Proceeds
      from sales of loans held for sale
                  
                  
                  1,760,787
                  
                  
                  
                  10,605,271Provision
      for loan losses
                  
                  
                  556,000
                  
                  
                  
                  11,500(Gain)
      loss on disposition of other real estate
                  
                  
                  (38,494
                  )
                  
                  
                  (9,170
                  )Direct
      write-down of other real estate
                  
                  
                  46,500
                  
                  
                  
                  -Gain
      on sale of loans held for sale
                  
                  
                  (23,167
                  )
                  
                  
                  (95,018
                  )FHLB
      stock dividend
                  
                  
                  -
                  
                  
                  
                  (26,100
                  )Stock
      option expense
                  
                  
                  (9,547
                  )
                  
                  
                  17,414Other
      than temporary impairment of securities
                  
                  
                  111,200
                  
                  
                  
                  (159,000
                  )Net
      change in:Accrued
      interest receivable and other assets
                  
                  
                  221,506
                  
                  
                  
                  (225,133
                  )Accrued
      interest payable and other liabilities
                  
                  
                  (653,020
                  )
                  
                  
                  (361,417
                  )Deferred
      loan fees
                  
                  
                  (13,018
                  )
                  
                  
                  (43,615
                  )Net
      cash from operating activities
                  
                  
                  225,813
                  
                  
                  
                  (857,562
                  )Cash
      flows from investing activities:Purchases
      of securities available for sale
                  
                  
                  (44,758,741
                  )
                  
                  
                  (9,920,610
                  )Sale
      of securities available for sale
                  
                  
                  27,878,086
                  
                  
                  
                  -Maturities,
      calls and paydowns of securities available for sale
                  
                  
                  3,388,667
                  
                  
                  
                  2,049,091Redemption
      of federal bank stock
                  
                  
                  133,950
                  
                  
                  
                  118,750Proceeds
      from sales of other real estate owned
                  
                  
                  1,120,250
                  
                  
                  
                  13,366Net
      change in loans
                  
                  
                  13,139,582
                  
                  
                  
                  4,439,197Expenditures
      to improve other real estate owned
                  
                  
                  (99,840
                  )
                  
                  
                  (186,150
                  )Purchases
      of premises and equipment
                  
                  
                  (636
                  )
                  
                  
                  (69,287
                  )Net
      cash from investing activities
                  
                  
                  801,318
                  
                  
                  
                  (3,556,003
                  )Cash
      flows from financing activities:Net
      change in deposits
                  
                  
                  11,366,669
                  
                  
                  
                  1,224,607Net
      change in repurchase agreements
                  
                  
                  (409,320
                  )
                  
                  
                  (672,061
                  )Repayment
      of capital lease obligations
                  
                  
                  (13,570
                  )
                  
                  
                  (11,583
                  )Proceeds
      from short term FHLB advances, net of repayments
                  
                  
                  (6,850,000
                  )
                  
                  
                  (75,000
                  )Proceeds
      from long term  FHLB advances
                  
                  
                  3,000,000
                  
                  
                  
                  6,000,000Repayments
      of long term FHLB advances
                  
                  
                  (5,500,000
                  )
                  
                  
                  (2,000,000
                  )Net
      cash provided by financing activities
                  
                  
                  1,593,779
                  
                  
                  
                  4,465,963Net
      change in cash and cash equivalents
                  
                  
                  2,620,910
                  
                  
                  
                  52,398Cash
      and cash equivalents at beginning of period
                  
                  
                  11,467,937
                  
                  
                  
                  7,115,206Cash
      and cash equivalents at end of period
                  
                  $
                  14,088,847
                  
                  
                  $
                  7,167,603Supplemental
      disclosures of cash flow information:Cash
      received during the period for:Federal
      income tax refund
                  
                  $
                  250,989
                  
                  
                  $
                  -Cash
      paid during the period for:Interest
                  
                  $
                  2,302,393
                  
                  
                  $
                  2,749,594Federal
      income taxes
                  
                  
                  -
                  
                  
                  
                  -Non-cash
      transactions:Transfer
      of loans to other real estate owned
                  
                  $
                  441,060
                  
                  
                  $
                  1,151,076
 See notes
to the consolidated financial
statements.
  5.
 
 OHIO
LEGACY CORP
  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 (Ohio Legacy) and its wholly-owned subsidiary, Ohio
Legacy Bank, National Association (Bank). 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.
 
 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, 2009, 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 have been prepared in accordance with
the instructions of Form 10-Q and, therefore, do not purport to contain all
necessary financial and footnote disclosures required by U.S. GAAP.
 
 The
financial information presented in this report should be read in conjunction
with the Company’s Form 10-K for the year ended December 31, 2008, which
includes information and disclosures not presented in this report. Reference is
made to the accounting policies of the Company described in Note 1 of the Notes
to Consolidated Financial Statements.  The Company has consistently
followed those policies in preparing this Form 10-Q.
 
 Use of Estimates: To
prepare financial statements in conformity with U.S. GAAP, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and actual results could differ. The allowance for loan
losses, judgments about the other than temporary impairment of securities, fair
value of financial instruments, valuation of deferred tax assets and the fair
value of other real estate owned are particularly subject to
change.
 
 Reclassifications:  Some
items in the prior year financial statements were reclassified to conform to the
current presentation.
 
 Income
Taxes:  Income tax expense is the total of the current year
income tax due or refundable and the change in deferred tax assets and
liabilities.  Deferred tax assets and liabilities are the expected
future tax amounts for the temporary differences between carrying amounts and
tax bases of assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
 
 Subsequent Events:
The Company has evaluated subsequent events from the balance sheet date through
the issuance of the financial statements August 13, 2009 determining no events
require adjustments or additional disclosure in the consolidated financial
statements.
 
 NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
 
 In April
2009, the FASB issued Staff Position (FSP) No. 115-2 and No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments,which amends existing guidance for
determining whether impairment is other-than-temporary (OTTI) for debt
securities.  The FSP requires an entity to assess whether it intends
to sell, or it is more likely than not that it will be required to sell a
security in an
  6.
 
 OHIO
LEGACY CORP
  NOTE 2 – RECENT ACCOUNTING
PRONOUNCEMENTS (continued)
 
 unrealized
loss position before recovery of its amortized cost basis.  If either
of these criteria is met, the entire difference between amortized cost and fair
value is recognized in earnings.  For securities that do not meet the
aforementioned criteria, the amount of impairment recognized in earnings is
limited to the amount related to credit losses, while impairment related to
other factors is recognized in other comprehensive income. Additionally, the FSP
expands and increases the frequency of existing disclosures about
other-than-temporary impairments for debt and equity securities.  This
FSP is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009.  Through the period ended March 31, 2009, the Company recognized
cumulative other than temporary impairment charges of
$2.9 million for FNMA and FHLMC preferred stock. The Company adopted the
FSP effective April 1, 2009. The adoption of this FSP on April 1, 2009 did not
have a material impact on the results of operations or financial position since
the impairment previously recognized was all related to credit losses and
properly recognized in earnings.
 
 In April
2009, the FASB issued Staff Position (FSP) No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly.  This FSP emphasizes that even if there has been a
significant decrease in the volume and level of activity, the objective of a
fair value measurement remains the same.  Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants.  The FSP provides a number of factors to consider
when evaluating whether there has been a significant decrease in the volume and
level of activity for an asset or liability in relation to normal market
activity.   In addition, when transactions or quoted prices are
not considered orderly, adjustments to those prices based on the weight of
available information may be needed to determine the appropriate fair
value.  The FSP also requires increased disclosures.  This
FSP is effective for interim and annual reporting periods ending after June 15,
2009, and shall be applied prospectively.  Early adoption is permitted
for periods ending after March 15, 2009.  The adoption of this FSP at
June 30, 2009 did not have a material impact on the results of operations or
financial position.
 
 In
April 2009, the FASB issued FSP No. 107-1 and APB 28-1,Interim Disclosures about Fair
Value of Financial Instruments. This FSP amends FASB Statement
No. 107,Disclosures about Fair
Value of Financial Instruments , to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies that were previously only required in annual financial statements.
This FSP is effective for interim reporting periods ending after June 15,
2009.  The adoption of this FSP at June 30, 2009 did not have a
material impact on the results of operations or financial position as it only
required disclosures which are included in Note 8.
 
 Recently
Issued but not yet Effective Accounting Pronouncements
 
 Statement
No. 166 is a revision to FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and will
require more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures.
 
 Statement
No. 167 amends FIN 46(R) to replace the quantitative-based risks and rewards
calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with a qualitative approach
focused on identifying which enterprise has the power to direct the activities
of a variable interest entity (VIE) that most significantly impact the entity’s
economic performance and (1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity.   Unlike FIN
46 (R), this Statement requires ongoing reconsideration of whether (1) an entity
is a VIE and (2) an enterprise is the primary beneficiary of a
VIE.  It is expected that the amendments will result in more entities
consolidating VIEs that previously were not consolidated  The
Statement will also require additional disclosures about an enterprise’s
involvement in variable interest entities.
 
 Statement
Nos. 166 and 167 will be effective at the start of a reporting entity’s first
fiscal year beginning after November 15, 2009, or January 1, 2010, for a
calendar year-end entity.
  7.
  OHIO
LEGACY CORP
  NOTE 2 – RECENT ACCOUNTING
PRONOUNCEMENTS (continued)
 
 FASB
Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles – A Replacement of FASB Statement
No. 162
 
 With the
issuance of Statement No. 168 on June 29, 2009, the FASB Accounting Standards
CodificationTM (Codification) became the source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of this
Statement, the Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative.   This
Statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.
  NOTE
3 – STOCK BASED COMPENSATION
 
 The
Company granted 150,000 warrants (Director Warrants) to organizers of the
Company at the time of closing of the 2000 Offering. The Director Warrants vest
in equal percentages each year over a three-year period from the date of grant.
Each warrant entitles the holder to purchase a share of common stock at $10.00
per share and will expire ten years from the date of issuance. At June 30, 2009
all Director Warrants were vested and exercisable. No warrants have been
exercised to date.
 
 Following
is the activity under the plan:
 
 Six months ended
                      June 30, 2009
                      Total options outstandingShares
                    
                    
                    Weighted
                        Average
                        Exercise
                        PriceOptions
      outstanding, beginning of period
                    
                    
                    184,700
                    
                    
                    $
                    10.69Forfeited
                    
                    
                    (19,050
                    )
                    
                    
                    9.82Exercised
                    
                    
                    -
                    
                    
                    
                    -Granted
                    
                    
                    -
                    
                    
                    
                    -Options
      outstanding, end of period
                    
                    
                    165,650
                    
                    
                    $
                    10.79Options
      exercisable, end of period
                    
                    
                    159,150
                    
                    
                    $
                    10.88
 
 The
aggregate intrinsic value of all options outstanding and exercisable at June 30,
2009 was $0.
 
 The
compensation cost yet to be recognized for stock options that have been awarded
but not vested is as follows:
 
 CompensationCostsRemainder
      of 2009
                    
                    $
                    3,8322010
                    
                    
                    2,081Total
                    
                    $
                    5,913
  8.
  OHIO
LEGACY CORP
  NOTE 4 – EARNINGS
(LOSS) PER SHARE
 
 Basic
earnings (loss) per share is net earnings (loss) divided by the weighted average
number of shares outstanding during the period.  Diluted earnings
(loss) per share include the dilutive effect of additional
 
 potential
shares that may be issued upon the exercise of stock options and stock
warrants.  The following table details the calculation of basic and
diluted earnings (loss) per share:
 
 Three months ended
                    June 30,
                
                
                Six months ended
                    June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008BASIC:Net
      earnings (loss)
                
                $
                (976,888
                )
                
                $
                (95,659
                )
                
                $
                (474,505
                )
                
                $
                (126,759
                )Weighted
      average common shares outstanding
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564Basic
      earnings (loss) per share
                
                $
                (0.44
                )
                
                $
                (0.04
                )
                
                $
                (0.21
                )
                
                $
                (0.06
                )DILUTED:Net
      earnings (loss)
                
                $
                (976,888
                )
                
                $
                (95,659
                )
                
                $
                (474,505
                )
                
                $
                (126,759
                )Weighted
      average common shares outstanding
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564Dilutive
      effect of stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Dilutive
      effect of stock warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      common shares and dilutive potential common shares
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564
                
                
                
                2,214,564Diluted
      earnings (loss) per share
                
                $
                (0.44
                )
                
                $
                (0.04
                )
                
                $
                (0.21
                )
                
                $
                (0.06
                )
 
 The
following table details, as of June 30, dilutive potential common shares that
were excluded from the computation of diluted earnings per share during the
periods then ended as the effect of their exercise was
antidilutive:
 
 Three months ended
                      June 30,
                  
                  
                  Six months ended
                      June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Stock
      options
                  
                  
                  165,650
                  
                  
                  
                  185,350
                  
                  
                  
                  165,650
                  
                  
                  
                  185,350Stock
      warrants
                  
                  
                  150,000
                  
                  
                  
                  150,000
                  
                  
                  
                  150,000
                  
                  
                  
                  150,000
 
 NOTE
5 – LOANS
 
 Loans, by
collateral type, were as follows at June 30, 2009, and December 31,
2008:
  9.
  OHIO
LEGACY CORP
  NOTE 5 – LOANS
(continued)
 
 June 30, 2009
                  
                  
                  December 31, 2008Balance
                  
                  
                  Percent
                  
                  
                  Balance
                  
                  
                  PercentResidential
      real estate
                  
                  $
                  36,161,980
                  
                  
                  
                  31.3
                  %
                  
                  $
                  37,091,918
                  
                  
                  
                  28.5
                  %Multifamily
      residential real estate
                  
                  
                  5,521,612
                  
                  
                  
                  4.7
                  
                  
                  
                  5,558,771
                  
                  
                  
                  4.2Commercial
      real estate
                  
                  
                  52,802,568
                  
                  
                  
                  45.7
                  
                  
                  
                  56,921,284
                  
                  
                  
                  43.7Construction
                  
                  
                  5,357,374
                  
                  
                  
                  4.6
                  
                  
                  
                  10,799,541
                  
                  
                  
                  8.3Commercial
                  
                  
                  9,553,211
                  
                  
                  
                  8.3
                  
                  
                  
                  12,082,242
                  
                  
                  
                  9.3Consumer
      and home equity
                  
                  
                  6,233,762
                  
                  
                  
                  5.4
                  
                  
                  
                  7,893,464
                  
                  
                  
                  6.0Total
      loans
                  
                  
                  115,630,507
                  
                  
                  
                  100.0
                  %
                  
                  
                  130,347,220
                  
                  
                  
                  100.0
                  %Less:
      Allowance for loan losses
                  
                  
                  (2,818,212
                  )
                  
                  
                  
                  
                  
                  
                  (3,398,284
                  )Net
      deferred loan fees
                  
                  
                  (99,445
                  )
                  
                  
                  
                  
                  
                  
                  (112,463
                  )Loans,
      net
                  
                  $
                  112,712,850
                  
                  
                  
                  
                  
                  
                  $
                  126,836,473
 
 At June
30, 2009, and December 31, 2008, approximately $24,471,000 and $24,543,000,
respectively of single-family residential real estate loans were pledged as
collateral for advances from the Federal Home Loan Bank of
Cincinnati.
 
 Activity
in the allowance for loan losses for the three and six months ended June 30 was
as follows:
 
 For the Three Months Ended
                  
                  
                  For the Six Months EndedJune 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Balance,
      beginning of period
                  
                  $
                  3,565,894
                  
                  
                  $
                  1,628,411
                  
                  
                  $
                  3,398,283
                  
                  
                  $
                  1,622,906Provision
      for loan losses
                  
                  
                  375,000
                  
                  
                  
                  5,000
                  
                  
                  
                  556,000
                  
                  
                  
                  11,500Loans
      charged-off
                  
                  
                  (1,501,876
                  )
                  
                  
                  (12,289
                  )
                  
                  
                  (1,519,684
                  )
                  
                  
                  (24,534
                  )Recoveries
                  
                  
                  379,193
                  
                  
                  
                  11,131
                  
                  
                  
                  383,612
                  
                  
                  
                  22,381Balance,
      end of period
                  
                  $
                  2,818,212
                  
                  
                  $
                  1,632,253
                  
                  
                  $
                  2,818,212
                  
                  
                  $
                  1,632,253Allowance
      for loan losses, percent of total loans
                  
                  
                  2.43
                  %
                  
                  
                  1.28
                  %
 
 Loans
individually considered impaired and nonaccrual loans were as follows at June
30, 2009, and December 31, 2008:
 
 June 30,
                        2009
                    
                    
                    December 31, 2008Loans
      past due over 90 days still on accrual
                    
                    $
                    -
                    
                    
                    $
                    279,800Nonaccrual
      loans, includes smaller balance homogeneous loans
                    
                    
                    7,176,995
                    
                    
                    
                    4,636,376Impaired
      loans with no allowance for loan losses allocated
                    
                    
                    6,956,785
                    
                    
                    
                    3,380,537Impaired
      loans with allowance for loan losses allocated
                    
                    
                    220,210
                    
                    
                    
                    1,235,839Amount
      of the allowance for loan losses allocated
                    
                    $
                    100,000
                    
                    
                    $
                    772,000
  10.
  OHIO
LEGACY CORP
  NOTE 6 – OTHER REAL ESTATE
OWNED
 
 Other
real estate owned was as follows at June 30, 2009 and December 31,
2008:
 
 June 30,
                        2009
                    
                    
                    December 31,
                        2008Residential
      real estate
                    
                    $
                    1,777,082
                    
                    
                    $
                    2,430,803Land
      development
                    
                    
                    2,851,258
                    
                    
                    
                    2,784,893Total
      real estate owned
                    
                    
                    4,628,340
                    
                    
                    
                    5,215,696Less:
      valuation allowance
                    
                    
                    -
                    
                    
                    
                    -Real
      estate owned, net
                    
                    $
                    4,628,340
                    
                    
                    $
                    5,215,696
 
 Assets
acquired through or instead of loan foreclosure are initially recorded at fair
value less costs to sell when acquired, establishing a new cost basis. If fair
value declines, a valuation allowance is recorded through expense. Costs after
acquisition are expensed. Expenditures that improve the fair value of the
property are capitalized. It is the Company’s intention to make periodic
reassessments of the value of assets held in this category and record valuation
adjustments or write-downs as the reassessments dictate.  Real estate
owned at June 30, 2009 and December 31, 2008 includes a property placed into
receivership until it can be improved and sold in an orderly
fashion.
 
 NOTE
7 – INVESTMENT SECURITIES
 
 The
following table summarizes the amortized cost and fair value of the available
for sale and held to maturity investment securities portfolio at June 30, 2009,
including unrealized gains and losses:
 
 Description of
                      securities
                  
                  Amortized Cost
                  
                  
                  Unrealized
                      Gains
                  
                  
                  Unrealized
                      Losses
                  
                  
                  Fair ValueAvailable
      for saleFederal
      agency mortgage-backed securities
                  
                  $
                  45,818,759
                  
                  
                  $
                  66,402
                  
                  
                  $
                  (415,219
                  )
                  
                  $
                  45,469,942Other
      mortgage-backed securities
                  
                  
                  467,631
                  
                  
                  
                  -
                  
                  
                  
                  (51,363
                  )
                  
                  
                  416,269Equity
      securities
                  
                  
                  88,800
                  
                  
                  
                  52,800
                  
                  
                  
                  -
                  
                  
                  
                  141,600Total
      available for sale
                  
                  $
                  46,375,190
                  
                  
                  $
                  119,202
                  
                  
                  $
                  (466,581
                  )
                  
                  $
                  46,027,811Held
      to maturityStates
      and political subdivisions
                  
                  $
                  2,998,326
                  
                  
                  $
                  32,230
                  
                  
                  $
                  (19,180
                  )
                  
                  $
                  3,011,376Total
      held to maturity
                  
                  $
                  2,998,326
                  
                  
                  $
                  32,230
                  
                  
                  $
                  (19,180
                  )
                  
                  $
                  3,011,376
 
 The
amortized cost and fair value of the investment securities portfolio are shown
by expected maturity. Expected maturities may differ from contractual maturities
because the loans underlying the mortgage backed securities generally can be
prepaid without penalty.
  11.
  OHIO
LEGACY CORP
  NOTE 7 – INVESTMENT SECURITIES
(continued)
 
 June 30, 2009Amortized Cost
                    
                    
                    Fair ValueMaturityAvailable
      for saleMortgage
      backed securities
                    
                    $
                    46,286,390
                    
                    
                    $
                    45,866,211Equity
      securities
                    
                    
                    88,800
                    
                    
                    
                    141,600Total
                    
                    $
                    46,375,190
                    
                    
                    $
                    46,027,811Held
      to maturityOne
      to five years
                    
                    $
                    509,925
                    
                    
                    $
                    518,874Five
      to ten years
                    
                    
                    1,951,040
                    
                    
                    
                    1,965,025Beyond
      ten years
                    
                    $
                    537,361
                    
                    
                    $
                    527,477Total
                    
                    $
                    2,998,326
                    
                    
                    $
                    3,011,376
 
 The
following summarizes the investment securities with unrealized losses at June
30, 2009 by aggregated major security type and length of time in a continuous
unrealized loss position:
 
 Less than 12 months
                
                
                12 months or greater
                
                
                TotalDescription of
                    securities
                
                Fair Value
                
                
                Unrealized
                    Losses
                
                
                Fair Value
                
                
                Unrealized
                    Losses
                
                
                Fair Value
                
                
                Unrealized
                    LossesAvailable
      for saleFederal
      agency mortgage-backed securities
                
                $
                28,043,502
                
                
                $
                (406,412
                )
                
                $
                1,100,393
                
                
                $
                (8,807
                )
                
                $
                29,143,895
                
                
                $
                (415,219
                )Other
      mortgage-backed securities
                
                
                -
                
                
                
                -
                
                
                
                416,269
                
                
                
                (51,362
                )
                
                
                416,269
                
                
                
                (51,362
                )Total
      available for sale
                
                $
                28,043,502
                
                
                $
                (406,412
                )
                
                $
                1,516,662
                
                
                $
                (60,169
                )
                
                $
                29,560,164
                
                
                $
                (466,581
                )Held
      to maturityStates
      and political subdivisions
                
                $
                1,106,905
                
                
                $
                (19,180
                )
                
                
                -
                
                
                
                -
                
                
                $
                1,106,905
                
                
                $
                (19,180
                )Total
      held to maturity
                
                $
                1,106,905
                
                
                $
                (19,180
                )
                
                
                -
                
                
                
                -
                
                
                $
                1,106,905
                
                
                $
                (19,180
                )
 
 Proceeds
from sales and calls of securities available for sale were $27.9 million
for the six months ended June 30, 2009, respectively. Gross gains of $685,900
were realized on these sales during the period. There were no sales of
securities in the first half of 2008.
 
 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. The investment securities portfolio is evaluated for OTTI by
segregating the portfolio into two general segments and applying the appropriate
OTTI model. Investment securities classified as available for sale or
held-to-maturity are generally evaluated for OTTI under Statement of Financial
Accounting Standards (“SFAS”) No. 115,Accounting for Certain Investments
in Debt and Equity Securities.
 
 In
determining OTTI under the SFAS No. 115 model, management considers many
factors, including: (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and
 near-term
prospects of the issuer, (3) whether the market decline was affected by
macroeconomic conditions, and (4) whether the entity has the intent to sell
the debt security or more likely than not will be required to sell the debt
security before its anticipated recovery. The assessment of whether an
other than
  12.
  OHIO
LEGACY CORP
  NOTE 7 – INVESTMENT
SECURITIES (continued)
 
 temporary
decline exists involves a high degree of subjectivity and judgment and is based
on the information available to management at a point in time.
 
 The
second segment of the portfolio uses the OTTI guidance provided by EITF 99-20
that is specific to purchased beneficial interests that, on the purchase date,
were rated below AA. Under the EITF 99-20 model, the Company compares the
present value of the remaining cash flows as estimated at the preceding
evaluation date to the current expected remaining cash flows. An OTTI is deemed
to have occurred if there has been an adverse change in the remaining expected
future cash flows. The Company has no securities that meet this definition as of
June 30, 2009.
 
 When OTTI
occurs under either model, the amount of the OTTI recognized in earnings depends
on whether an entity intends to sell the security or it is more likely than not
it will be required to sell the security before recovery of its amortized cost
basis, less any current-period credit loss. If an entity intends to sell or it
is more likely than not it will be required to sell the security before recovery
of its amortized cost basis, less any current-period credit loss, the OTTI shall
be recognized in earnings equal to the entire difference between the
investment’s amortized cost basis and its fair value at the balance sheet date.
If an entity does not intend to sell the security and it is not more likely than
not that the entity will be required to sell the security before recovery of its
amortized cost basis less any current-period loss, the OTTI shall be separated
into the amount representing the credit loss and the amount related to all other
factors. The amount of the total OTTI related to the credit loss is determined
based on the present value of cash flows expected to be collected and is
recognized in earnings. The amount of the total OTTI related to other factors is
recognized in
 other
comprehensive income, net of applicable taxes. The previous amortized cost basis
less the OTTI recognized in earnings becomes the new amortized cost basis of the
investment.
  As of
June 30, 2009, the Company’s security portfolio consisted of 44 securities, 19
of which were in an unrealized loss position for less than 12 months and four
for 12 months or longer. The majority of unrealized losses are related to the
Company’s mortgage-backed securities, as discussed below:
  Mortgage-backedsecurities
  At June
30, 2009, 95.5% of the mortgage-backed securities held by the Company were
issued by Ginnie Mae, which are backed by the full faith and credit of the U.S.
government and an additional 3.3% were issued by Fannie Mae and Freddie Mac,
institutions which the government has affirmed its commitment to support.
Because the decline in fair value is attributable to changes in interest rates
and illiquidity, and not credit quality, and because the Company does not have
the intent to sell these mortgage-backed securities and it is likely that it
will not be required to sell the securities before their anticipated recovery,
the Company does not consider these securities to be other-than-temporarily
impaired at June 30, 2009.
  The
Company’s mortgage-backed securities portfolio includes one non-agency security
with a market value of $416,300 which represents an unrealized loss of
approximately $51,400 at June 30, 2009. This non-agency mortgage-backed security
was rated AAA and Aaa by by Standard and Poor’s and Moody’s,
respectively, when it was purchased and is still rated investment
grade. As part of this issue, certain subordinated classes of securities are
designated to receive principal repayments only after all payments have been
made to senior classes. As of the reporting date, the balances available to
support this security were 6.2 times the estimated potential loss, an increase
from 3.5 times at issuance. As of July 1, 2009, 1.16% of the loans serving
as collateral for this security were 30 days delinquent; there were no loans
that were 60 or 90 days delinquent and no loans in foreclosure or bankruptcy.
The loans are adjustable rate mortgages with an initial fixed rate for 10 years,
which then adjust annually at 2.75% over one year LIBOR. The first rate reset
would occur in September, 2013. Although the borrowers are not required to make
principal payments during the initial 10 year period, 52.1% of the original
principal has been repaid as of June 30, 2009. 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,
2009, 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.
  13.
 
 OHIO
LEGACY CORP
  NOTE 8 – FAIR
VALUE
 
 SFAS
No. 157 defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS No. 157 also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
values:
 
 Level
      1 – Quoted prices (unadjusted) for identical assets or liabilities in
      active markets that the entity has the ability to access as of the
      measurement date.
 
 Level
      2 – Quoted prices (unadjusted) for identical assets or liabilities in
      active markets that the entity has the ability to access as of the
      measurement date.
 
 Level
      3 – Significant unobservable inputs that reflect a company’s own
      assumptions about the assumptions that market participants would use in
      pricing an asset or liability.
 
 The
Company used the following methods and significant assumptions to estimate the
fair value of each type of financial asset:
 
 Investment
Securities:  The fair values for investment securities are
determined by quoted market prices, if available (Level 1). For securities where
quoted prices are not available, fair values are calculated based on market
prices of similar securities (Level 2). For securities where quoted prices or
market prices of similar securities are not available, fair values are
calculated using discounted cash flows or other market indicators (Level 3).
Discounted cash flows are calculated using spread to swap and LIBOR curves that
are updated to incorporate loss severities, volatility, credit spread and
optionality. During times when trading is more liquid,
 broker
quotes are used (if available) to validate the model. Rating agency and industry
research reports as well as defaults and deferrals on individual securities are
reviewed and incorporated into the calculations.
 
 Impaired Loans and Other
Real Estate:  The fair value of impaired loans with specific
allocations of the allowance for loan losses is generally based on recent real
estate appraisals. These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers to
adjust for differences between the comparable sales and income data available.
Such adjustments are typically significant and result in a Level 3
classification of the inputs for determining fair value.
 
 Assets
measured at fair value on a recurring basis are summarized below:
 
 June 30,
                      2009
                  
                  
                  December 31,
                      2008Available
      for sale securities
                  
                  $
                  46,027,811
                  
                  
                  $
                  32,726,863Quoted
      prices on active markets for identical assets (Level 1)
                  
                  
                  141,600
                  
                  
                  
                  58,000Significant
      other observable inputs (Level 2)
                  
                  
                  45,886,211
                  
                  
                  
                  32,668,863Significant
      unobservable inputs (Level 3)
                  
                  $
                  -
                  
                  
                  $
                  -
 
 Assets
measured at fair value on a non-recurring basis are summarized
below:
  14.
  OHIO
LEGACY CORP
  NOTE 8 – FAIR VALUE MEASUREMENT
(continued)
 
 June 30,
                      2009
                  
                  
                  December 31,
                      2008Impaired
      loans
                  
                  $
                  703,410
                  
                  
                  $
                  1,002,322Quoted
      prices on active markets for identical assets (Level 1)
                  
                  
                  -
                  
                  
                  
                  -Significant
      other observable inputs (Level 2)
                  
                  
                  -
                  
                  
                  
                  -Significant
      unobservable inputs (Level 3)
                  
                  $
                  703,410
                  
                  
                  $
                  1,002,322Other
      real estate
                  
                  $
                  2,211,670
                  
                  
                  $
                  2,888,998Quoted
      prices on active markets for identical assets (Level 1)
                  
                  
                  -
                  
                  
                  
                  -Significant
      other observable inputs (Level 2)
                  
                  
                  -
                  
                  
                  
                  -Significant
      unobservable inputs (Level 3)
                  
                  $
                  2,211,670
                  
                  
                  $
                  2,888,998
 
 Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $803,400 with a
specific allocation of the allowance for loan losses of $100,000. Loans in the
amount of $1,502,000 were charged off during the second quarter. These loans had
a specific allocation through the allowance for loan loss of $772,000. A
recovery of $379,000 was also realized on one of these loans, resulting in a net
additional provision for the quarter of $351,000.
 
 In
accordance with FSP FAS 107-1, the carrying amounts and estimated fair values of
financial instruments, at June 30, 2009 are as follows:
 
 June 30, 2009Estimated
                        Fair ValueFinancial
      assetsCash,
      due from banks, federal funds sold and money market
      investments
                    
                    $
                    14,088,800Securities
      available for sale
                    
                    
                    46,027,800Securities
      held to maturity
                    
                    
                    3,111,400Loans,
      net
                    
                    
                    114,653,000Accrued
      interest receivable
                    
                    
                    549,500Financial
      liabilitiesDeposits
                    
                    $
                    158,257,000Repurchase
      agreements
                    
                    
                    996,300FHLB
      advances
                    
                    
                    18,651,000Accrued
      interest payable
                    
                    
                    190,000
 
 The
methods and assumptions used to estimate fair value are described as
follows:
 
 Carrying
amount is the estimated fair value for cash and cash equivalents, interest
bearing deposits, accrued interest receivable and payable, demand deposits,
short-term debt, and variable rate loans or deposits that reprice frequently and
fully.  The methods for determining the fair values for securities
were described previously.  For fixed rate loans or deposits and for
variable rate loans or deposits with infrequent repricing or repricing limits,
fair value is based on discounted cash flows using current market rates applied
to the estimated life and credit risk including consideration of widening credit
spreads.  Fair value of debt is based on current rates for similar
financing.  It was not practicable to determine the fair value of FHLB
stock due to restrictions placed on its transferability.  The fair
value of off-balance-sheet items is not considered material
  15.


OHIO
LEGACY CORP





NOTE
9 – CONSENT ORDER





The Board
of Directors of the Bank entered into a Consent Order (“Order”) with the Bank’s
primary federal regulator, the Office of the Comptroller of the Currency (“OCC”)
dated February 17, 2009. The Order required the Board of Directors to submit a
capital plan to the Assistant Deputy Controller that included specific plans to
achieve and maintain a minimum ratio of Tier 1 capital to average assets of
8.75% and a minimum ratio of total capital to risk-weighted assets of 13.25% by
August 31, 2009. To have achieved this level of capital at June 30, 2009, the
Bank would have needed approximately $8.2 million of additional capital. The
Board of Directors submitted the capital plan to the OCC, which includes the
engagement of an advisory firm to seek out capital investment from parties not
currently affiliated with the Company or the Bank or attracting a merger
partner. The Company’s management and Board of Directors are in active
discussions with several parties in an attempt to achieve one of these
objectives. Additionally, the capital plan calls for management to continue to
manage the Bank’s assets with the goal of protecting and growing capital and
reducing the level of criticized assets.





The Order
provides that the OCC shall maintain the ability to take any action the OCC
deems appropriate in fulfilling its regulatory and supervisory
responsibilities during the term of the Consent Order or upon the failure of the
Bank to comply with the terms of the Consent Order.





16.




OHIO
LEGACY CORP


Item
2. Management’s Discussion and Analysis





FORWARD-LOOKING
STATEMENTS





This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the  Securities  Exchange Act of 1934, as amended, which can
be identified by the use of forward-looking terminology, such  as:
"may," "might," "could," "would," “should,” "believe," "expect," "intend,"
"plan," "seek," "anticipate," "estimate," "project" or "continue" or the
negative thereof or comparable terminology.  All statements other than
statements of historical fact included in this MD&A regarding our financial
position, capital adequacy and liquidity are forward-looking
statements.  These forward-looking statements also include, but are
not limited to:





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





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





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





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





·
            the
      adequacy of the allowance for loan losses;
and





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





These
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 expectations reflected in such forward-looking
statements are reasonable, we can give no assurance such 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 herein
include, but are not limited to:





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





·
            changes
      in general interest rates;





·
            rapid
      changes in technology affecting the financial services
      industry;





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





·
            changes
      in government regulation; and





·
            general
      economic and business conditions.





OVERVIEW





The
following key factors summarize the Company’s financial condition through June
30, 2009:





·
            Other
      real estate decreased from $5,215,700 to
  $4,628,300


·
            Nonaccrual
      loans increased from $4,636,400 to
$7,177,000


·
            Loan
      charge offs totaled $1,519,700


17.


OHIO
LEGACY CORP


The
following key factors summarize our results of operations for the first half of
2009:





·
            Net
      interest income fell $363,000 compared to the same period in
      2008


·
            The
      provision for loan losses increased $545,000 for the previous
      period


·
            Gains
      on the sale of available securities totaled
  $574,700





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





·
            Credit
      quality continues to be the primary focus of the
  Company


·
            The
      Company is fully engaged in exploring all alternatives to address the
      capital shortfall


·
            Capital
      preservation is a key priority for the
Company





CRITICAL
ACCOUNTING POLICIES





Allowance for loan
losses.  The allowance for loan losses is a valuation allowance
for probable incurred credit losses.  Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is
confirmed.





Subsequent
recoveries, if any, are credited to the allowance. Management estimates the
allowance balance required using past loan loss experience, 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 management’s
judgment, should be charged off.





The
allowance consists of specific and general components.  The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful.  The general
component covers non-classified loans and is based on historical loss experience
adjusted for current factors. The Company stratifies the portfolio by loan type
into nine separate categories, determines and assigns the components
individually then aggregates the resulting amounts. The allowance for the
individual categories ranges from 1.1% to 15.0%, equating to 2.4% of the entire
portfolio as of June 30, 2009.





The
Company changed its estimate of credit loss in the fourth quarter 2008. It
shortened the historical period that forms the basis of the loss factors used in
the allowance estimate from 4 years to 2.25 years to more heavily weight recent
quarters with higher charge offs. The effect of the change was to increase the
total amount of allowance.





A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan basis for
commercial and construction loans by either the present value of expected future
cash flows discounted at the loan’s effective interest rate, the loan’s
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.  Large groups of smaller balance homogeneous
loans are collectively evaluated for impairment. Accordingly, the Company does
not separately identify individual consumer and residential loans for impairment
disclosures.





Valuation allowance for deferred tax
assets. Another
critical accounting policy relates to valuation of the deferred tax asset for
net operating losses. A valuation allowance has been recorded for the
deferred tax asset for net operating loss carryforwards and other net deferred
tax assets to reduce the carrying amount of these assets to
zero. Additional information is included in Note 1 to our audited
consolidated financial statements.


18.


OHIO
LEGACY CORP


FINANCIAL
CONDITION – JUNE 30, 2009 COMPARED TO DECEMBER 31, 2008





Assets.At June 30, 2009, assets
totaled $186.3 million, essentially unchanged from $186.5 million at December
31, 2008. The composition of the balance sheet has changed significantly as the
Company executed strategies to strengthen its capital position and reduce its
overall risk profile.





Securities. Total securities
classified as available for sale increased by $13.3 million to $46.0 million.
The portfolio consists primarily of 30-year mortgage backed securities issued by
the Government National Mortgage Association (GNMA), an agency guaranteed by the
full faith and credit of the U.S. government. During the first quarter, the Bank
sold $28.0 million of 15, 20 and 30 year mortgage backed securities issued by
FNMA and FHLMC and reinvested the proceeds into GNMA securities to improve its
risk weighted capital ratio.  In addition, as cash from loan
repayments became available during the first and second quarters, the funds were
invested in additional GNMA securities. The monthly cash flow of principal and
interest can be used to fund loan growth, repay liabilities or be reinvested as
needed. At June 30, 2009 we believe the effective duration of the portfolio
excluding equity investments was approximately 5.3%, compared to 2.1% at
December 31, 2008 as a result of the strategies noted above. The increase in
duration from purchasing longer average life securities can be expected to
contribute to increased volatility in the market value of the portfolio for any
given change in market rates. The unrealized loss on the portfolio at June 30,
2009 was approximately $347,400, compared to a gain of $351,300 at year end. The
market has continued to experience significant volatility in prices and yields
due to ongoing concerns about the economy in general and the mortgage sector in
particular.





Loans.  At June 30,
2009, the loan portfolio, net of the allowance for loan losses and deferred
fees, totaled $112.7 million, a decrease of $14.1 million compared to December
31, 2008. The Company is strategically working to change the composition of the
portfolio to lower its risk profile through better diversification of product
types. However, continued weakness in the economy is limiting growth
opportunities in preferred sectors at the current time.





Allowance for loan losses and asset
quality.The
allowance for loan losses totaled $2.8 million at June 30, 2009, down from $3.4
million at December 31, 2008. Four loans totaling $1.5 million were charged off
in the second quarter, including two loans for which a $772,000 specific reserve
had been established at year end. The Company also posted a recovery of $379,200
from a mediated insurance settlement related to construction defects for one of
the loans charged off. A provision of $375,000 including a specific reserve of
$100,000 was recorded in the second quarter. As a percentage of total loans, the
allowance has decreased from 2.61% at year end to 2.43% at the end of the second
quarter. We continue to closely monitor credit quality and delinquencies as our
loan portfolio seasons, and will increase the allowance for loan losses if we
believe losses have been incurred.





Loans are
considered nonperforming if they are impaired or if they are in nonaccrual
status. Nonperforming loans totaled $7.2 million at June 30, 2009 compared to
$4.6 million at December 31, 2008. The balance includes ten loans totaling
approximately $4.6 million that were converted to nonaccrual status since year
end. The majority of the loans added are well secured. In addition to the loans
charged off, four loans totaling $441,000 were transferred to other real estate
and payments of $167,200 were recorded.





Accrued interest receivable and
other assets.Accrued interest receivable and other assets decreased by
$221,500 from year end. The loan recovery of $379,000 discussed above was
recorded as an account receivable pending payment from the insurance company.
Changes in the accounting for income taxes as the result of the net loss booked
in 2008 resulted in a decrease of $570,800; other changes in prepaid assets and
accrued interest arising from normal business activities comprised the
remainder.





Deposits. Total deposits
increased $11.4 million from year end to $157.1 million at June 30, 2009.
Overall, core deposit balances increased 4.5% to $83.8 million from $80.2
million at year end. Noninterest bearing demand deposits decreased 3.2% to $16.1
million. The certificate of deposit portfolio increased $7.8 million during the
period to $73.3 million or 46.6% of total deposits compared to $65.5 million or
45.0% of total deposits at year-end.  The increase was largely the
result of a short-term promotion late in the fourth quarter of 2008 and the
first few days of 2009.





Federal Home Loan Bank
advances.  Total advances decreased $9.4 million from $27.9
million to $18.5 million at June 30, 2009. An overnight advance of $6.9 million
was repaid early in the first quarter. A $3.0 million 4.89% advance that matured
in January was renewed at 3.19%, and a $2.5 million term advance with a rate of
5.24% was paid off at maturity in February.


19.


OHIO
LEGACY CORP


RESULTS
OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2009





The
following tables set 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 30,2009
              
              
              2008Average
              
              
              Interest
              
              
              
              
              
              Average
              
              
              InterestOutstanding
              
              
              earned/
              
              
              Yield/
              
              
              outstanding
              
              
              earned/
              
              
              Yield/(Dollars
      in thousands)
              
              Balance
              
              
              paid
              
              
              Rate
              
              
              Balance
              
              
              paid
              
              
              RateAssetsInterest-earning
      assets:Interest-bearing
      deposits and federal funds sold
              
              
              14,338
              
              
              
              8
              
              
              
              0.22
              %
              
              
              5,176
              
              
              
              28
              
              
              
              2.20
              %Securities
      available for sale
              
              
              42,424
              
              
              
              449
              
              
              
              4.24
              
              
              
              33,557
              
              
              
              457
              
              
              
              5.44Securities
      held to maturity
              
              
              2,999
              
              
              
              29
              
              
              
              3.82
              
              
              
              3,002
              
              
              
              29
              
              
              
              3.82Federal
      agency stock
              
              
              1,321
              
              
              
              16
              
              
              
              4.81
              
              
              
              1,466
              
              
              
              20
              
              
              
              5.59Loans
      (1)
              
              
              112,960
              
              
              
              1,747
              
              
              
              6.20
              
              
              
              127,886
              
              
              
              2,203
              
              
              
              6.93Total
      interest-earning assets
              
              
              174,042
              
              
              
              2,249
              
              
              
              5.18
              %
              
              
              171,087
              
              
              
              2,737
              
              
              
              6.43
              %Noninterest-earning assets
              
              
              16,806
              
              
              
              
              
              
              
              
              
              
              
              15,830Total
      assets
              
              
              190,848
              
              
              
              
              
              
              
              
              
              
              
              186,917Liabilities and Shareholders’
      EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
              
              
              8,821
              
              
              
              19
              
              
              
              0.86
              %
              
              
              9,556
              
              
              
              25
              
              
              
              1.05
              %Savings
      accounts
              
              
              17,139
              
              
              
              74
              
              
              
              1.72
              
              
              
              5,415
              
              
              
              10
              
              
              
              0.78Money
      market accounts
              
              
              42,214
              
              
              
              164
              
              
              
              1.55
              
              
              
              48,495
              
              
              
              320
              
              
              
              2.65Certificates
      of deposit
              
              
              75,704
              
              
              
              642
              
              
              
              3.40
              
              
              
              72,724
              
              
              
              737
              
              
              
              4.08Total
      interest-bearing deposits
              
              
              143,878
              
              
              
              899
              
              
              
              2.50
              
              
              
              136,190
              
              
              
              1,093
              
              
              
              3.23Other
      borrowings
              
              
              20,109
              
              
              
              175
              
              
              
              3.50
              
              
              
              19,389
              
              
              
              205
              
              
              
              4.25Total
      interest-bearing liabilities
              
              
              163,987
              
              
              
              1,074
              
              
              
              2.63
              %
              
              
              155,579
              
              
              
              1,297
              
              
              
              3.35
              %Noninterest-bearing
      demand deposits
              
              
              16,692
              
              
              
              
              
              
              
              
              
              
              
              15,538Noninterest-bearing liabilities
              
              
              413
              
              
              
              
              
              
              
              
              
              
              
              419Total
      liabilities
              
              
              181,092
              
              
              
              
              
              
              
              
              
              
              
              171,536Shareholders’
      equity
              
              
              9,756
              
              
              
              
              
              
              
              
              
              
              
              15,381Total
      liabilities and shareholders’ equity
              
              
              190,848
              
              
              
              
              
              
              
              
              
              
              
              186,917Net
      interest income; interest-rate spread (2)
              
              
              
              
              
              
              1,175
              
              
              
              2.55
              %
              
              
              
              
              
              
              1,439
              
              
              
              3.08
              %Net
      earning assets
              
              
              10,055
              
              
              
              
              
              
              
              
              
              
              
              15,508Net
      interest margin (3)
              
              
              
              
              
              
              
              
              
              
              2.71
              %
              
              
              
              
              
              
              
              
              
              
              3.38
              %Average
      interest-earning assets
      tointerest-bearing liabilities
              
              
              1.1
              X
              
              
              
              
              
              
              
              
              
              
              1.1
              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.





The net
loss totaled $976,900 for the three months ended June 30, 2009, or $0.44 per
diluted share, compared to a net loss of $95,700 or $0.04 per diluted share
during the second quarter of 2008.




20.


OHIO
LEGACY CORP


Net interest income. During
the three months ended June 30, 2009, net interest income was $1.1 million
compared to $1.4 million the comparable quarter last year, due in large part to
the decline in the net interest margin from 3.38% to 2.71% and further impacted
by a decrease in average net earning assets from $15.5 million to $10.1
million.




Interest income. Total
interest income for the quarter was $2.2 million, down $487,800 from $2.7
million in the same quarter in 2008. The increase in earning assets from $171.1
million to $174.0 million was offset by the decrease in the yield on earning
assets by 125 basis points from 6.43% to 5.18%.





Interest expense. For the
three months ended June 30, total interest expense was $1.1 million compared to
$1.3 million in the prior year. The increase in average interest bearing
liabilities from $155.6 to $164.0 million was more than offset by the decrease
in the cost of interest bearing liabilities by 72 basis points from 3.35% to
2.63%.





Provision for loan losses.
The provision for loan losses totaled $375,000 during the second quarter of
2009, compared to $5,000 the second quarter of 2008. As discussed above in the
“Allowance for loan losses,” our provision for loan losses can be expected to
fluctuate from period to period.





Noninterest income.
Noninterest income for the second quarter was $203,000 compared to $157,600 for
the same period the prior year. In 2009, service charge income declined $35,300.
Since the number of deposit accounts has remained consistent, the Company
attributes the decrease to changes in customer behavior in response to general
economic conditions. In 2009, gains on the sale of loans held for sale fell by
$60,300 and the Company recorded a write-down of other real estate of $24,000.
In comparison, the second quarter of 2008 included an other than temporary
impairment charge of $159,000.





Noninterest expense. Total
noninterest expense increased $298,800 to $2.0 million compared to $1.7 million
for the prior year quarter. The significant changes are described
below.





Salary and benefits.
Continued reduction and consolidation of positions resulted in a $99,500
reduction in salary and benefits.





Professional fees. In the
second quarter, professional fees were $31,500 lower than in the previous year
due to legal expenses related to the establishment of the loan production
offices in conjunction with Midwest Mortgage Processing LLC in
2008.





Deposit expenses. As
disclosed in the first quarter, the FDIC increased premiums for all insured
depository institutions for the first calendar quarter 2009 assessment. In
addition, the FDIC imposed an emergency assessment for all insured depository
institutions to be paid on September 30, 2009. In response to industry comments,
the calculation method of the emergency assessment was changed from a percentage
of deposits as of June 30, 2009 to a percentage of total assets as of that date.
The combination of these changes and a revision of the Company’s premium for the
fourth quarter 2008 resulted in an increase of $293,300.





Other expenses. An increase
of $204,800 in the most recent quarter was the result of $68,900 in legal
expenses related to the foreclosure of multiple properties. Maintenance expenses
for properties held as Other Real Estate increased $48,800 and delinquent and
current real estate taxes on foreclosed properties increased by $116,300. These
were offset in part by a $30,100 reduction in expenses related to mortgage loan
origination due to lower volume.


21.




OHIO
LEGACY CORP


RESULTS
OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2009





Six
      months ending June 30,2009
              
              
              2008Average
              
              
              Interest
              
              
              
              
              
              Average
              
              
              Interestoutstanding
              
              
              earned/
              
              
              Yield/
              
              
              outstanding
              
              
              earned/
              
              
              Yield/(Dollars
      in thousands)
              
              balance
              
              
              Paid
              
              
              Rate
              
              
              balance
              
              
              paid
              
              
              RateAssetsInterest-earning
      assets:Interest-bearing
      deposits and federal funds sold
              
              $
              9,470
              
              
              
              14
              
              
              
              0.30
              %
              
              $
              4,584
              
              
              $
              60
              
              
              
              2.67
              %Securities
      available for sale
              
              
              37,195
              
              
              
              851
              
              
              
              4.57
              
              
              
              31,123
              
              
              
              855
              
              
              
              5.50Securities
      held to maturity
              
              
              3,000
              
              
              
              57
              
              
              
              3.81
              
              
              
              3,002
              
              
              
              57
              
              
              
              3.81Federal
      agency stock
              
              
              1,338
              
              
              
              32
              
              
              
              4.83
              
              
              
              1,504
              
              
              
              42
              
              
              
              5.55Loans
      (1)
              
              
              117,962
              
              
              
              3,691
              
              
              
              6.33
              
              
              
              129,449
              
              
              
              4,530
              
              
              
              7.08Total
      interest-earning assets
              
              
              168,965
              
              
              
              4,645
              
              
              
              5.56
              %
              
              
              169,662
              
              
              
              5,545
              
              
              
              6.61
              %Noninterest-earning assets
              
              
              22,234
              
              
              
              
              
              
              
              
              
              
              
              16,362Total
      assets
              
              $
              191,199
              
              
              
              
              
              
              
              
              
              
              $
              186,024Liabilities and Shareholders’
      EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
              
              $
              9,426
              
              
              
              38
              
              
              
              0.80
              %
              
              $
              9,715
              
              
              
              60
              
              
              
              1.25
              %Savings
      accounts
              
              
              16,448
              
              
              
              159
              
              
              
              1.95
              
              
              
              5,415
              
              
              
              22
              
              
              
              0.82Money
      market accounts
              
              
              41,077
              
              
              
              350
              
              
              
              1.72
              
              
              
              46,363
              
              
              
              683
              
              
              
              2.98Certificates
      of deposit
              
              
              75,209
              
              
              
              1,291
              
              
              
              3.47
              
              
              
              73,560
              
              
              
              1,559
              
              
              
              4.29Total
      interest-bearing deposits
              
              
              142,160
              
              
              
              1,838
              
              
              
              2.61
              
              
              
              135,053
              
              
              
              2,324
              
              
              
              3.48Other
      borrowings
              
              
              21,676
              
              
              
              374
              
              
              
              3.46
              
              
              
              19,166
              
              
              
              425
              
              
              
              4.44Total
      interest-bearing liabilities
              
              
              163,836
              
              
              
              2,212
              
              
              
              2.73
              %
              
              
              154,219
              
              
              
              2,750
              
              
              
              3.61
              %Noninterest-bearing
      demand deposits
              
              
              16,771
              
              
              
              
              
              
              
              
              
              
              
              15,064Noninterest-bearing liabilities
              
              
              617
              
              
              
              
              
              
              
              
              
              
              
              682Total
      liabilities
              
              
              181,224
              
              
              
              
              
              
              
              
              
              
              
              169,965Shareholders’
      equity
              
              
              9,975
              
              
              
              
              
              
              
              
              
              
              
              16,059Total
      liabilities and shareholders’ equity
              
              $
              191,199
              
              
              
              
              
              
              
              
              
              
              $
              186,024Net
      interest income; interest-rate spread (2)
              
              
              
              
              
              $
              2,433
              
              
              
              2.83
              %
              
              
              
              
              
              $
              2,796
              
              
              
              3.00
              %Net
      earning assets
              
              $
              5,129
              
              
              
              
              
              
              
              
              
              
              $
              15,443Net
      interest margin (3)
              
              
              
              
              
              
              
              
              
              
              2.91
              %
              
              
              
              
              
              
              
              
              
              
              3.33
              %Average
      interest-earning assets
      tointerest-bearing liabilities
              
              
              1.0
              x
              
              
              
              
              
              
              
              
              
              
              1.10
              x





FOOTNOTES TO YIELD
TABLE





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


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


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





The net
loss totaled $474,500 for the six months ended June 30, 2009, or $0.21 per
share, compared to a net loss of $126,800 or $0.06 per share during the first
half of 2008.




Net interest income. During
the six months ended June 30, 2009, net interest income was $2.4 million,
compared to $2.8 million for the same period the prior year. The decrease of
$10.3 million in average net earning assets was further impacted by a decrease
in the net interest margin from 3.33% to 2.91%.




Interest income. Total
interest income was $4.7 million for the first six months of 2009, compared to
$5.6 million for the comparable period in 2008. The yield on loans dropped 0.75%
during the period, from 7.08% to 6.33% as variable rate notes reset downward and
new volume was added at lower rates. The yield on available for sale securities
declined from 5.50% to 4.57% primarily as a result of restructuring the
investment portfolio to reduce risk-weighted assets to improve the risk-based
capital ratio.




Interest expense. Total
interest expense fell $538,000 to $2.2 million in 2009, compared to $2.8 million
for the same period in 2008, despite an increase in average volume from $154.2
million to $163.8 million. Deposit expense reductions accounted for $486,000 and
other borrowings contributed approximately $50,000.


22.




OHIO
LEGACY CORP


Provision for loan losses.
The provision for loan losses totaled $556,000 during the first half of 2009,
compared to $11,500 for the same period in 2008. As discussed above in the
“Allowance for loan losses,” our provision for loan losses can be expected to
fluctuate from period to period.





Noninterest income.
Noninterest income was $1.1 million for the first six months of 2009, compared
to $441,800 for the first half of 2008. The increase was primarily due to a
$685,900 gain on the sale of available for sale securities during the first and
second quarters of 2009. Service charge income declined approximately $37,400
during the period, and gains on the sale of loans decreased by $71,900. The
Company recorded other than temporary impairment charges of $111,200 in the
first quarter of 2009 and $159,000 in the second quarter of 2008.





Noninterest expense. Total
noninterest expense increased $282,700 to $3.6 million compared to $3.4 million
for the first half of the prior year. The significant changes are described
below.





Salary and benefits. The
decrease of $169,500 is due to the continuing elimination and consolidation of
positions throughout the organization.


Deposit expense and insurance
fees. As disclosed in the first quarter, the FDIC increased premiums for
all insured depository institutions for the first calendar quarter 2009
assessment as part of its transition to a risk-based assessment methodology that
was adopted and implemented in the second quarter. In addition, the FDIC imposed
an emergency assessment for all insured depository institutions to be paid on
September 30, 2009. In response to industry comments, the calculation method of
the emergency assessment was changed from a percentage of deposits as of June
30, 2009 to a percentage of total assets as of that date. The combination of
these changes and a revision of the Company’s premium due to changes in
regulatory capital status for the fourth quarter 2008 resulted in an increase of
$357,800.





Other expenses.An increase
of $263,900 for the first half of 2009 was the result of $96,700 in legal
expenses related to the foreclosure of multiple properties. Maintenance expenses
for properties held as Other Real Estate increased $48,800 and delinquent and
current real estate taxes on foreclosed properties increased by $116,300. These
were offset in part by a $49,800 reduction in expenses related to mortgage loan
origination due to lower volumes in the first half.





Tax expense (benefit).As a
result of a change in the tax law late in 2008 that allows net operating losses
to be carried back five years, the company was able to amend its 2003 tax return
and record a refund of taxes paid for that year, The refund of $289,300 was
offset by a $44,400 change in accrued taxes for 2008, resulting in a tax benefit
of $244,900.





STRATEGIC
DEVELOPMENTS





As
disclosed in an 8-K on February 20, 2009, the Company entered into an Order of
Consent with the Comptroller of the Currency of the United States of America.
The Order requires the Bank to increase its capital to certain specified levels.
As disclosed in the 10-K filed on April 3, 2009, the Board of Directors has
retained the services of the investment banking firm of Stifel, Nicolaus to
explore the options of raising private equity capital, or merging with or being
acquired by another financial institution or other interested investors to
achieve compliance with the Order of Consent.





The
Company remains steadfast in its commitment to be a strong, community partner
providing the best financial solutions for our local customers. However, as part
of the efforts to comply with the Order, in addition to raising capital, we
intend to reduce the size of the balance sheet. Besides selling impaired loans
as noted below, other strategies may include the sale of securities or loans,
participating loans to other financial institutions and limiting the growth of
loans and deposits through pricing initiatives. Successful execution of these
interim strategies will enable the Company to move forward from a position of
strength.




23.


OHIO
LEGACY CORP
  The
Company continues to actively work to reduce its portfolio of impaired loans.
Due to the breadth and depth of the of the economic decline, the process of
obtaining judgment, foreclosing and acquiring deeds via sheriff sale often takes
as long as twelve months to complete. However, there is some evidence that the
backlog is lessening and delays are shortening. During the second quarter, four
properties were sold and five others were acquired at sheriff sale. Properties
are recorded as OREO once the deed has been received. There are currently 12
properties listed for sale for which the Company has or expects to obtain deeds
in the near future. Subsequent to the end of the quarter, the Company sold four
additional properties and recognized gross proceeds of $238,800. These disposals
benefit the Company both in terms of eliminating the expenses associated with
their acquisition and maintenance and allowing the funds to resume earning
interest.
  CONTRACTUAL
OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET
ARRANGEMENTS





There
have been no material changes in the Company’s contractual obligations since
December 31, 2008.





At June
30, 2009, we had no active unconsolidated, related special purpose entities, nor
did we engage in derivatives and hedging contracts, such as interest rate swaps,
that may expose us to liabilities greater than the amounts recorded on the
consolidated balance sheet. Our investment policy prohibits engaging in
derivatives contracts for speculative trading purposes; however, we may pursue
certain contracts, such as interest rate swaps, in our efforts 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 and
maturities, sales of securities, borrowings from the FHLB and capital
transactions. Alternative sources of funds include repurchase agreements and
brokered CDs 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 impending liquidity
crises. 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 liquidity risk and analyze various
scenarios that could impact our ability to access emergency funding in
conjunction with our asset/liability and interest rate risk management
activities.




At June
30, 2009, the balances in cash and cash equivalents were $2.6 million higher
than at year-end. Cash and cash equivalents represented 7.6% of total assets at
June 30, 2009 and 6.2% of total assets at December 31, 2008.





CAPITAL
RESOURCES





Total
shareholders’ equity was $8.5 million at June 30, 2009, a decrease of $1.1
million from the prior year- end balance. The reduction in equity was due to a
net loss for the period and an unrealized loss on securities available for
sale.





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, 2009, the Bank met the
definition of adequately capitalized as described above.


24.




OHIO
LEGACY CORP





On
February 17, 2009, the Company entered into an Order of Consent with the
Comptroller of the Currency of the United States of America. The Order requires
the Bank to increase its Tier 1 capital to at least 8.75% of adjusted total
assets and its total risk based capital to at least 13.25% of risk-weighted
assets by August 31, 2009. To have achieved both those levels at June 30, 2009
the Bank would have needed approximately $8.2 million of additional
capital.




The Board
of Directors has retained the services of the investment banking firm of Stifel,
Nicolaus to explore the options of raising private equity capital, or merging
with or being acquired by another financial institution or other interested
investors.





Actual
and required capital amounts (in thousands) and ratios are presented below at
June 30, 2009:





Actual
                
                
                For Capital
                    Adequacy Purposes
                
                
                To Be Well-
                    Capitalized Under
                    Prompt Corrective
                    Action ProvisionsAmount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                RatioTotal
      capital to risk-weighted assets
                
                $
                9,957
                
                
                
                8.8
                %
                
                $
                9,059
                
                
                
                8.0
                %
                
                $
                11,323
                
                
                
                10.0
                %Tier
      1 capital to risk-weighted assets
                
                $
                8,525
                
                
                
                7.5
                %
                
                $
                4,529
                
                
                
                4.0
                %
                
                $
                6,794
                
                
                
                6.0
                %Tier
      1 capital to average assets
                
                $
                8,525
                
                
                
                4.5
                %
                
                $
                7,627
                
                
                
                4.0
                %
                
                $
                9,534
                
                
                
                5.0
                %





The
payment of dividends by the Bank to Ohio Legacy and by Ohio Legacy to
shareholders is subject to restrictions by regulatory agencies. These
restrictions generally limit dividends to the sum of current year’s 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. During 2009, the Bank could not declare dividends without prior approval
of the Comptroller of the Currency. In addition to the dividend restrictions,
the Bank is not permitted to issue brokered deposit without prior approval from
its regulators.





Item
3. Not applicable for Smaller Reporting Companies.





Item
4T. Controls and Procedures





As of
June 30, 2009, an evaluation was conducted under the supervision and with the
participation of Ohio Legacy Corp’s management, including our Chief Executive
Officer and acting 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 acting 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 Ohio Legacy Corp’s internal control over financial reporting that
occurred during the Company’s fiscal quarter ended June 30, 2009, that has
materially affected, or is reasonably likely to materially affect, Ohio Legacy’s
Corp’s internal control over financial reporting.


25.




OHIO
LEGACY CORP


PART
II – OTHER INFORMATION





Item
1. Legal Proceedings.





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





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





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





Item
3. Defaults Upon Senior Securities.





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





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





The
Company delivered to its stockholders the Company's Notice of Annual Meeting of
Shareholders, which was held on May 19, 2009, to vote on the election of four
Class I directors to serve until the 2011 Annual Meeting of
Shareholders.





With
respect to each matter (as more fully described in the proxy statement) voted
upon at the meeting, the inspector of elections tabulated the following
votes:





Election
of Class I Directors





Nominee
      for Director
                
                For
                
                
                Against
                
                
                AbstainJ.
      Edward Diamond
                
                
                1,537,062
                
                
                
                357,876
                
                
                
                5,391D.
      William Allen
                
                
                1,538,062
                
                
                
                356,876
                
                
                
                5,391Daniel
      H. Plumly
                
                
                1,477,119
                
                
                
                420,710
                
                
                
                2,500Scott
      J. Fitzpatrick
                
                
                1,524,393
                
                
                
                359,104
                
                
                
                16,831





Item
5. Other Information.





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


26.




OHIO
LEGACY CORP


Item
6. Exhibits.





ExhibitNumber
              
              Note
              
              Description of Document3.1
              
              (1)
              
              Second
      Amended and Restated Articles of Incorporation of Ohio Legacy
      Corp3.2
              
              (2)
              
              Code
      of Regulations of Ohio Legacy Corp, as amended by Amendment No.
      14.1
              
              (3)
              
              See
      Pages 1 through 9 of Exhibit 3.1 for provisions defining the rights of the
      holders of common shares4.2
              
              (3)
              
              Form
      of Organizer Stock Purchase Warrant4.4
              
              (2)
              
              2004
      Amendment to Omnibus Stock Option, Stock Ownership and Long Term Incentive
      Plan of Ohio Legacy Corp10.1
              
              (3)
              
              Omnibus
      Stock Option, Stock Ownership and Long Term Incentive
  Plan10.2
              
              (4)
              
              2002
      Amendment to Omnibus Stock Option, Stock Ownership and Long Term Incentive
      Planof Ohio
      Legacy Corp10.3
              
              (3)
              
              Lease
      Agreement dated August 24, 1999, by and among Jack K. and Heidi M. Gant
      and Ohio Legacy Corp10.4
              
              (3)
              
              Lease
      Agreement dated November 30, 1999, by and between Schoeppner Properties
      and Ohio Legacy Corp10.5
              
              (7)
              
              Lease
      Agreement dated August 1, 2007 by and between Allen P. Reinhardt and WMBC
      Company and Ohio Legacy Bank, N.A.10.6
              
              (5)
              
              Employment
      Agreement with Mr. Kramer10.7
              
              (6)
              
              Change
      in Control Agreement with Mr. Spradlin10.8
              
              (7)
              
              Change
      in Control Agreement with Ms. Richards11
              
              
              
              Statement
      Regarding Computation of Per Share Earnings (incorporated by reference to
      Note 4 of this Form 10-Q)31.1
              
              
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Chief
      Financial Officer32.1
              
              
              
              Certification
      Pursuant To 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002


(1)
                    -
                    Incorporated
      by reference to Registrant’s Form 10-QSB for the fiscal quarter ended June
      30, 2003, filed on August 14, 2003(2)
                    -
                    Incorporated
      by reference to Registrant’s Form 10-KSB for the fiscal year ended
      December 31, 2003, filed on March 17, 2004(3)
                    -
                    Incorporated
      by reference to Registrant’s Form SB-2, File No. 333-38328, effective June
      1, 2000(4)
                    -
                    Incorporated
      by reference to Registrant’s Form S-8, File No. 333-88842, effective May
      22, 2002(5)
                    -
                    Incorporated
      by reference to Registrant’s Form 8-K filed on May 6,
  2005(6)
                    -
                    Incorporated
      by reference to Registrant’s Form 10-K filed on April 7,
    2008(7)
                    –
                    Incorporated
      by reference to Registrant’s Form 10-K filed on April 3,
    2009


27.




OHIO
LEGACY CORP


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





OHIO LEGACY CORP(Registrant)Date: August 14, 2009
                By: /s/ D. Michael
KramerD.
      Michael Kramer, President,President,
      Chief Executive
Officer


28.