##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number: 000-31673
 OHIO LEGACY CORP
 
   
   
   
   
  þ o
 o þ
  o þ




---



##### 



PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis
    
    
    15Item 3. Controls and Procedures
    
    
    26PART 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
    
    
    28EX-31.1EX-32.1
  2.




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCash and due from banks
    
    $
    5,287,692
    
    
    $
    5,659,986Federal funds sold and interest-bearing deposits in financial institutions
    
    
    4,713,999
    
    
    
    7,379,879Cash and cash equivalents
    
    
    10,001,691
    
    
    
    13,039,865Certificate of deposit in financial institution
    
    
    100,000
    
    
    
    100,000Securities available for sale
    
    
    23,161,687
    
    
    
    26,945,022Securities held to maturity (fair value of $2,972,413 and $2,166,324 at September 30, 2007, and December 31, 2006)
    
    
    3,003,433
    
    
    
    2,201,682Loans held for sale
    
    
    2,541,984
    
    
    
    1,217,035Loans, net of allowance of $1,619,581 and $1,757,110 at
September 30, 2007 and December 31, 2006
    
    
    135,737,026
    
    
    
    177,016,649Federal bank stock
    
    
    1,541,200
    
    
    
    1,541,200Premises and equipment, net
    
    
    2,912,865
    
    
    
    3,618,697Intangible asset
    
    
    179,702
    
    
    
    282,388Other real estate owned
    
    
    1,423,385
    
    
    
    2,566,301Accrued interest receivable and other assets
    
    
    4,261,147
    
    
    
    1,954,992Total assets
    
    $
    184,864,120
    
    
    $
    230,483,831LIABILITIESDeposits:Noninterest-bearing demand
    
    $
    13,993,903
    
    
    $
    17,346,767Interest-bearing demand
    
    
    9,534,416
    
    
    
    9,988,257Savings
    
    
    51,368,229
    
    
    
    49,504,180Certificates of deposit
    
    
    77,973,659
    
    
    
    109,477,664Total deposits
    
    
    152,870,207
    
    
    
    186,316,868Repurchase agreements
    
    
    1,522,696
    
    
    
    1,317,527Long-term Federal Home Loan Bank advances
    
    
    12,043,796
    
    
    
    19,433,770Subordinated debentures
    
    
    
    
    
    
    3,325,000Capital lease obligations
    
    
    498,609
    
    
    
    940,183Accrued interest payable and other liabilities
    
    
    600,884
    
    
    
    731,926Total liabilities
    
    
    167,536,192
    
    
    
    212,065,274SHAREHOLDERS EQUITYPreferred stock, no par value, 500,000 shares authorized,
none outstanding
    
    
    
    
    
    
    Common stock, no par value, 5,000,000 shares authorized,
2,214,564 shares issued and outstanding at
September 30, 2007, and December 31, 2006, respectively
    
    
    18,770,251
    
    
    
    18,737,150Accumulated earnings (loss)
    
    
    (1,306,141
    )
    
    
    166,415Accumulated other comprehensive income (loss)
    
    
    (136,182
    )
    
    
    (485,008
    )Total shareholders equity
    
    
    17,327,928
    
    
    
    18,418,557Total liabilities and shareholders equity
    
    $
    184,864,120
    
    
    $
    230,483,831
  3.




---



##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest and dividends
income:Loans, including
fees
    
    $
    3,241,838
    
    
    $
    3,107,712
    
    
    $
    9,742,370
    
    
    $
    8,805,540Securities,
taxable
    
    
    270,750
    
    
    
    290,582
    
    
    
    807,507
    
    
    
    913,390Securities,
tax-exempt
    
    
    25,842
    
    
    
    7,141
    
    
    
    75,110
    
    
    
    21,510Interest-bearing deposits
and federal funds sold and other
    
    
    54,840
    
    
    
    53,657
    
    
    
    197,862
    
    
    
    157,280Dividends on federal bank
stock
    
    
    25,999
    
    
    
    22,211
    
    
    
    74,122
    
    
    
    65,502Total interest and
dividends income
    
    
    3,619,269
    
    
    
    2,913,231
    
    
    
    10,896,971
    
    
    
    9,963,222Interest
expense:Deposits
    
    
    1,699,420
    
    
    
    1,459,061
    
    
    
    5,122,294
    
    
    
    3,801,905Short term Federal Home
Loan Bank advances
    
    
    
    
    
    
    96,677
    
    
    
    
    
    
    
    207,357Long term Federal Home
Loan Bank advances
    
    
    238,107
    
    
    
    157,942
    
    
    
    634,446
    
    
    
    561,094Subordinated
debentures
    
    
    48,766
    
    
    
    70,722
    
    
    
    190,211
    
    
    
    212,166Repurchase
agreements
    
    
    23,157
    
    
    
    32,733
    
    
    
    64,279
    
    
    
    93,724Capital leases
    
    
    34,486
    
    
    
    37,159
    
    
    
    107,526
    
    
    
    112,024Total interest
expense
    
    
    2,043,936
    
    
    
    1,854,294
    
    
    
    6,118,756
    
    
    
    4,988,270Net interest
income
    
    
    1,575,333
    
    
    
    1,627,009
    
    
    
    4,778,215
    
    
    
    4,974,952Provision for loan
losses
    
    
    3,089,650
    
    
    
    65,000
    
    
    
    3,146,650
    
    
    
    242,000Net interest income
(loss) after provision for loan losses
    
    
    (1,514,317
    )
    
    
    1,562,009
    
    
    
    1,631,565
    
    
    
    4,732,952Noninterest
income:Service charges and other
fees
    
    
    279,658
    
    
    
    259,022
    
    
    
    835,282
    
    
    
    793,175Gain on sale of
loans
    
    
    46,570
    
    
    
    
    
    
    
    141,864
    
    
    
    Loss on sales of
securities available for sale, net
    
    
    (340,066
    )
    
    
    
    
    
    
    (340,066
    )
    
    
    Loss on disposal of fixed
asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Gain (loss) on
disposition or direct write-down of other
real estate owned
    
    
    (658,849
    )
    
    
    2,262
    
    
    
    (654,018
    )
    
    
    (4,036
    )Gain on sale of
branch
    
    
    2,077,556
    
    
    
    
    
    
    
    2,077,556
    
    
    
    Other income
    
    
    27,004
    
    
    
    13,402
    
    
    
    80,577
    
    
    
    36,053Total noninterest
income
    
    
    1,431,873
    
    
    
    274,686
    
    
    
    2,141,205
    
    
    
    823,320Noninterest
expense:Salaries and
benefits
    
    
    1,030,342
    
    
    
    956,825
    
    
    
    3,044,077
    
    
    
    2,786,852Occupancy and
equipment
    
    
    268,575
    
    
    
    240,889
    
    
    
    738,139
    
    
    
    714,262Professional
fees
    
    
    194,111
    
    
    
    81,458
    
    
    
    484,417
    
    
    
    284,236Franchise tax
    
    
    61,209
    
    
    
    58,592
    
    
    
    187,862
    
    
    
    186,142Data processing
    
    
    183,819
    
    
    
    164,222
    
    
    
    533,523
    
    
    
    466,295Marketing and
advertising
    
    
    57,355
    
    
    
    52,893
    
    
    
    159,201
    
    
    
    139,537Stationery and
supplies
    
    
    31,736
    
    
    
    26,857
    
    
    
    92,156
    
    
    
    93,200Amortization of
intangible asset
    
    
    31,662
    
    
    
    41,931
    
    
    
    102,687
    
    
    
    133,493Deposit expenses and
insurance
    
    
    102,852
    
    
    
    56,022
    
    
    
    221,453
    
    
    
    153,107Other expenses
    
    
    131,665
    
    
    
    116,213
    
    
    
    455,737
    
    
    
    318,461Total noninterest
expense
    
    
    2,093,326
    
    
    
    1,795,902
    
    
    
    6,019,252
    
    
    
    5,275,585Earnings
(loss) before income tax expense
    
    
    (2,175,770
    )
    
    
    40,793
    
    
    
    (2,246,482
    )
    
    
    280,687Income tax expense
(benefit)
    
    
    (742,977
    )
    
    
    18,793
    
    
    
    (773,926
    )
    
    
    106,687Net earnings
(loss)
    
    $
    (1,432,793
    )
    
    $
    22,000
    
    
    $
    (1,472,556
    )
    
    $
    174,000Basic earnings
(loss) per share
    
    $
    (0.65
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08Diluted earnings
(loss) per share
    
    
    (0.65
    )
    
    
    0.01
    
    
    
    (0.66
    )
    
    
    0.08
  4.




---



##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Shareholders equity, beginning of period
    
    $
    18,418,631
    
    
    $
    18,077,373
    
    
    $
    18,418,557
    
    
    $
    18,104,875Net earnings (loss)
    
    
    (1,432,793
    )
    
    
    22,000
    
    
    
    (1,472,556
    )
    
    
    174,000Other comprehensive income (loss), net of tax:Reclassification adjustment for amounts
realized on securities sales included in net
earnings
    
    
    224,444
    
    
    
    
    
    
    
    224,444
    
    
    
    Net unrealized gain (loss) on available for sale
securities arising during the period
    
    
    106,398
    
    
    
    301,368
    
    
    
    124,382
    
    
    
    61,291Total comprehensive income (loss)
    
    
    (1,101,951
    )
    
    
    323,638
    
    
    
    (1,123,730
    )
    
    
    235,291Additional paid in capital from stock options
    
    
    11,248
    
    
    
    6,621
    
    
    
    33,101
    
    
    
    67,466Shareholders equity, end of period
    
    $
    17,327,928
    
    
    $
    18,407,632
    
    
    $
    17,327,928
    
    
    $
    18,407,632
  5.




---



##### Table of Contents



For the nine months ended September 30,2007
    
    
    2006Cash flows from operating activities:Net earnings (loss)
    
    
    (1,472,556
    )
    
    $
    174,000Adjustments to reconcile net earnings to net cash from
operating activities:Depreciation and amortization
    
    
    412,579
    
    
    
    440,576Securities amortization and accretion, net
    
    
    65,921
    
    
    
    88,559Federal Home Loan Bank (FHLB) stock dividends
    
    
    
    
    
    
    (40,100
    )Origination of loans held for sale
    
    
    (19,897,924
    )
    
    
    (227,232
    )Proceeds from sales of loans held for sale
    
    
    18,714,839
    
    
    
    Provision for loan losses
    
    
    3,146,650
    
    
    
    242,000Loss from Ohio Legacy Trust 1
    
    
    (706
    )
    
    
    6,057Loss on disposition or write down of other real estate owned
    
    
    654,018
    
    
    
    9,667Loss on sale of securities available for sale
    
    
    340,066
    
    
    
    Gain on sale of branch
    
    
    (2,077,556
    )Gain on sale of loans held for sale
    
    
    (141,864
    )
    
    
    Accretion of fair value purchase adjustments
    
    
    (8,049
    )
    
    
    (15,174
    )Stock option expense
    
    
    33,101
    
    
    
    67,466Net change in:Accrued interest receivable and other assets
    
    
    (2,697,951
    )
    
    
    (140,932
    )Accrued interest payable and other liabilities
    
    
    (72,759
    )
    
    
    200,924Deferred loan fees
    
    
    (44,367
    )
    
    
    (19,212
    )Net cash from operating activities
    
    
    (3,046,558
    )
    
    
    788,471Cash flows from investing activities:Purchases of securities held to maturity
    
    
    (804,847
    )
    
    
    Purchases of securities available for sale
    
    
    (12,913,004
    )
    
    
    Maturities, calls and paydowns of securities available for sale
    
    
    3,674,738
    
    
    
    4,788,133Sales of securities available for sale
    
    
    13,147,235
    
    
    
    Proceeds from sales of loans
    
    
    612,264Proceeds from sales of other real estate owned
    
    
    694,068
    
    
    
    207,090Net cash from branch sale
    
    
    17,750,281
    
    
    
    Purchases of federal bank stock
    
    
    
    
    
    
    (7,000
    )Net change in loans
    
    
    1,782,266
    
    
    
    (21,059,563
    )Participation loans purchased
    
    
    (2,834,385
    )
    
    
    Expenditures to improve other real estate owned
    
    
    (98,633
    )
    
    
    Purchases of premises and equipment
    
    
    (140,813
    )
    
    
    (170,793
    )Net cash from investing activities
    
    
    20,869,170
    
    
    
    (16,242,133
    )Cash flows from financing activities:Net change in deposits
    
    
    (10,326,816
    )
    
    
    15,368,162Net change in repurchase agreements
    
    
    205,169
    
    
    
    (1,395,711
    )Repayment of capital lease obligations
    
    
    (24,165
    )
    
    
    (13,126
    )Repayment of subordinated debt obligation
    
    
    (3,325,000
    )
    
    
    Proceeds from short term FHLB advances, net of repayments
    
    
    
    
    
    
    (5,050,000
    )Proceeds from FHLB advances
    
    
    
    
    
    
    12,000,000Repayments of FHLB advances
    
    
    (7,389,974
    )
    
    
    (2,647,802
    )Net cash provided by financing activities
    
    
    (20,860,786
    )
    
    
    18,261,523Net change in cash and cash equivalents
    
    
    (3,038,174
    )
    
    
    2,807,861Cash and cash equivalents at beginning of period
    
    
    13,039,865
    
    
    
    8,122,546Cash and cash equivalents at end of period
    
    
    10,001,691
    
    
    $
    10,930,407Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    6,217,290
    
    
    $
    4,901,196Federal income taxes
    
    
    
    
    
    
    190,000Non-cash transactions:Transfer of loans to other real estate owned
    
    $
    106,536
    
    
    $
    941,944
  7.




---



##### Table of Contents



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




---



##### Table of Contents



NOTE 2  STOCK BASED COMPENSATION
    Nine months endedSeptember 30, 2007Total options outstandingWeighted
    
    WeightedAverage
    
    AverageExercise
    
    FairShares
    
    Price
    
    ValueOptions outstanding, beginning of period
    
    
    287,375
    
    
    $
    10.62
    
    
    $
    4.72Forfeited
    
    
    (69,875
    )
    
    
    10.43
    
    
    
    4.49Exercised
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    5,000
    
    
    
    8.28
    
    
    
    3.77Options outstanding, end of period
    
    
    222,500
    
    
    $
    10.63
    
    
    $
    4.78Options exercisable, end of period
    
    
    192,000
    
    
    $
    10.86
    
    
    $
    4.83
    8.




---



##### Table of Contents



Stock OptionsOptions granted
    
    
    5,000Fair value, calculated
    
    $
    3.77Exercise price
    
    $
    8.28Risk-free interest rate, 10-year Treasury
    
    
    4.64
    %Expected stock price volatility
    
    
    22.52
    %Expected dividend rate
    
    NoneExpected average life
    
    10 years
  CompensationCostsRemainder of 2007
    
    $
    11,2572008
    
    
    42,9902009
    
    
    20,1992010
    
    
    2,081Total
    
    $
    76,527
 NOTE 3  EARNINGS PER SHARE
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006BASIC:Net earnings (loss)
    
    $
    (1,437,793
    )
    
    $
    22,000
    
    
    $
    (1,472,556
    )
    
    $
    174,000Weighted average common shares outstanding
    
    
    2,214,564
    
    
    
    2,214,564
    
    
    
    2,214,564
    
    
    
    2,214,564Basic earnings per share
    
    $
    (0.65
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08DILUTED:Net earnings
    
    $
    (1,437,793
    )
    
    $
    22,000
    
    
    $
    (1,472,556
    )
    
    $
    174,000Weighted average common shares outstanding
    
    
    2,214,564
    
    
    
    2,214,564
    
    
    
    2,214,564
    
    
    
    2,214,564Dilutive effect of stock options
    
    
    
    
    
    
    2,442
    
    
    
    
    
    
    
    4,219Dilutive effect of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190Total common shares and dilutive potential
common shares
    
    
    2,214,564
    
    
    
    2,217,006
    
    
    
    2,214,564
    
    
    
    2,218,973Diluted earnings per share
    
    $
    (0.65
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08
   9.




---



##### Table of Contents



NOTE 3  EARNINGS PER SHARE (continued)
 Three months ended
    
    Nine months endedSeptember 30
    
    September 30,2007
    
    2006
    
    2007
    
    2006Stock options
    
    
    222,500
    
    
    
    256,525
    
    
    
    222,500
    
    
    
    159,525Stock warrants
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    
 NOTE 4  LOANS
  September 30, 2007
    
    
    December 31, 2006Balance
    
    
    Percent
    
    
    Balance
    
    
    PercentResidential real estate
    
    $
    40,395,724
    
    
    
    29.4
    %
    
    $
    65,282,422
    
    
    
    36.5
    %Multifamily residential real estate
    
    
    8,073,502
    
    
    
    5.9
    
    
    
    9,452,861
    
    
    
    5.3Commercial real estate
    
    
    62,869,555
    
    
    
    45.7
    
    
    
    65,228,180
    
    
    
    36.4Construction
    
    
    8,574,316
    
    
    
    6.2
    
    
    
    10,235,414
    
    
    
    5.7Commercial
    
    
    12,742,311
    
    
    
    9.3
    
    
    
    18,524,153
    
    
    
    10.4Consumer and home equity
    
    
    4,885,325
    
    
    
    3.5
    
    
    
    10,259,367
    
    
    
    5.7Total loans
    
    
    137,540,733
    
    
    
    100.0
    %
    
    
    178,982,397
    
    
    
    100.0
    %Less: Allowance for loan losses
    
    
    (1,619,581
    )
    
    
    
    
    
    
    (1,757,110
    )Net deferred loan fees
    
    
    (184,126
    )
    
    
    
    
    
    
    (208,638
    )Loans, net
    
    $
    135,737,026
    
    
    
    
    
    
    $
    177,016,649
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Balance, beginning of period
    
    $
    1,766,379
    
    
    $
    1,706,244
    
    
    $
    1,757,110
    
    
    $
    1,589,407Provision for loan losses
    
    
    3,089,650
    
    
    
    65,000
    
    
    
    3,146,650
    
    
    
    242,000Loans charged-off
    
    
    (2,852,022
    )
    
    
    (3,268
    )
    
    
    (2,904,633
    )
    
    
    (66,355
    )Recoveries
    
    
    361
    
    
    
    7,308
    
    
    
    5,241
    
    
    
    10,232Reduction of allowance for loans sold
    
    
    (384,787
    )
    
    
    
    
    
    
    (384,787
    )
    
    
    Balance, end of period
    
    $
    1,619,581
    
    
    $
    1,775,284
    
    
    $
    1,619,581
    
    
    $
    1,775,284Allowance for loan losses, percent of total loans
    
    
    1.18
    %
    
    
    0.99
    %
   10.




---



##### Table of Contents



NOTE 4  LOANS (continued)
 September 30,
    
    December 31,2007
    
    2006Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    Nonaccrual loans, includes smaller balance homogeneous loans
    
    
    2,818,485
    
    
    
    2,439,938Impaired loans, included in nonaccrual loans
    
    
    1,983,449
    
    
    
    1,481,109Amount of the allowance for loan losses allocated
    
    
    
    
    
    
    32,000
 NOTE 5  ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
  NOTE 6  OTHER REAL ESTATE OWNED
  September 30,
    
    December 31,2007
    
    2006Residential real estate
    
    
    53,054
    
    
    
    819,602Construction
    
    
    1,370,331
    
    
    
    1,746,698Total real estate owned
    
    
    1,423,385
    
    
    
    2,566,301Less: valuation allowance
    
    
    
    
    
    
    Real estate owned, net
    
    
    1,423,385
    
    
    
    2,566,301
   11.




---



##### Table of Contents



NOTE 7  BRANCH SALE
   12.




---



##### Table of Contents



Item 2. Managements Discussion and Analysis
  FORWARD-LOOKING STATEMENTS
  
    
    anticipated changes in industry conditions created by state and federal legislation and
regulations;
    
    anticipated changes in general interest rates and the impact of future interest rate
changes on our profitability, capital adequacy and the fair value of our financial assets
and liabilities;
    
    retention of our existing 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.
  
    
    competition in the industry and markets in which we operate;
    
    changes in general interest rates;
    
    rapid changes in technology affecting the financial services industry;
    
    changes in government regulation; and
    
    general economic and business conditions.
  13.




---



##### Table of Contents



OVERVIEW
   
    
    Net loans for the first nine months of 2007 averaged $172.7 million, up from $167.4 for
the first nine months of 2006.
    
    Core deposits for the first nine months averaged $62.9 million, up from $52.7 for the
same period in the prior year.
    
    The provision for loan losses through the first three quarters of 2007 was $3.1 million, primarily
reflecting $2.9 million in charge-offs to the carrying value of a number of real estate
related loans taken in the third quarter of the year.
    
    Net loss through three quarters for 2007 was ($1,472,556), reflecting a loss of
($1,432,793) in the third quarter, due largely to the provision for loan losses and losses
recognized to restructure the investment portfolio.
  
    
    Third quarter net loss was ($1,432,793) compared to net income of $22,000 for the same
period a year ago. The loss is due largely to the provision for loan losses and losses
realized on the sale of securities in the investment portfolio. These charges are
discussed at length below.
    
    Non-interest expense reflected several non-recurring items associated with the branch
sale and the loan loss provision. We anticipate these numbers returning to lower levels in
the coming months
   
    
    The sale of the Millersburg banking office, including the sale of $38.9 million in loans
and the transfer of $23.1 million in deposits.
    
    The recast of $13.5 million of investment securities, representing approximately half
of the balance in the investment portfolio.
    
    The retirement of $3.3 million in trust preferred securities.
    
    The sale of three commercial loans totaling $612,000. Management charged-off $301,000 related to these loans during the quarter.
    
    The adjustment in value of approximately $6.8 million in commercial loans.
 14.




---



##### Table of Contents



Sale of Branch
  
    
    Market Focus. The Companys focus will be on Stark County and Wayne County. In our
assessment, Holmes County is a limited growth market, as a result of 70% of deposit market
share being held by two banking companies, the generational nature of the banking
consumers, where each generation follows the former to the formers bank, and the
relatively slow economic growth of the county. Although Holmes County is a very profitable
market for the dominant players, it is our desire to focus on markets where there is better
growth potential, more diverse distribution of market share and less of a
traditional/generational culture. We believe that Stark and Wayne counties better represent
these market dynamics.
    
    Lower reliance on long-term, fixed rate mortgage related assets. Of the $38.9 million
in loans sold, 87% were tied to real estate. From an asset quality and asset/liability
management standpoint, it is imperative that the Company improve its asset mix. The sale
allowed us to eliminate 32% of the first and second lien residential mortgage loans in the
Company.
    
    Reduced dependence on wholesale and high cost funding. The Millersburg banking offices
deposit mix was approximately two-thirds time deposits and one-third core deposits. In
addition, there was an average funding gap of approximately $16.0 million. The sale has
helped move the Company closer to a 50/50 ratio of core deposit to time deposit funding and
has allowed us to reduce our need for wholesale funding as well.
 Securities Available for Sale
  Trust Preferred Securities
  15.




---



##### Table of Contents



Loans Sold
  Loan
and Real Estate Values
  Conclusion
  SIGNIFICANT ACCOUNTING POLICIES
 Allowance for loan losses
  FINANCIAL CONDITION
 16.




---



##### Table of Contents



Assets
 Securities
 Loans
 Allowance for loan losses and asset quality
 
    
    The Allowance for loan losses increased from approximately 0.98% of total loans to
1.18% of total loans. We have increased our provision based on the overall deterioration
of real estate values, primarily residential real estate within our region.
    
    The Company ended the period with $2.8 million of non-accrual/non-performing loans.
This is a decrease of $77,000 from the previous quarter. It should be noted that the new total
reflects approximately $1.5 of increases in non-accrual loans, followed by the cumulative effect
of the write-downs in book value of non-accrual loans totaling $1.6 million. The increase is
largely the result of a single commercial real estate loan that has been a performing credit.
However, vacancy and recent delinquency issues prompted conversations between management and the
borrowers. The outcome of these conversations, along with managements assessment of market
conditions, led us to the conclusion that it is prudent to downgrade this credit. We have discussed at some length the write-downs that we have taken
on certain loans. These adjustments had the effect of lowering the balances of loan on non-accrual
status by $1.6 million. It should also be noted that within this total is $900,000 of loans in
foreclosure awaiting sheriffs sale. In our markets, there is a seven to nine month backlog
for sheriffs sales. We believe that we have valued these loans appropriately and that any additional material losses are unlikely.
    
    Other Real Estate Owned (OREO) decreased
quarter-over-quarter, moving from $2.3 million
at June 30, 2007 to $1.4 million at September 30, 2007. This downward change reflects
several properties being sold and disposed of and the write-down in value on other
properties in OREO. The remaining balance primarily includes a single loan made for the
development of a residential subdivision. To comply with requirements established by the
judge on this case, the Company established an escrow account for $1.1 million to
guarantee the funding for completion of the project. As work is completed, the funds will
be transferred from the escrow account to the OREO account. prior to the sale of the lots.
There is a contract in place to deliver the lots upon completion. The Company does not
expect any additional material losses on this project.
    
    The Company sold three additional loans during the period. These loans were sold
privately, at losses ranging from 50% to 70% of the book value of the loans. All three
loans were non-performing, with significant real estate exposure for the Company. The net
pre-tax effect was a loss of ($303,000) on loans totaling over $915,000.
  17.




---



##### Table of Contents



Premises and equipment, accrued interest receivable and other assets.
 Deposits.
 Federal Home Loan Bank advances
 Other borrowings
 RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2007
  Net interest income
  18.




---



##### Table of Contents



Three months ended September 30,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    paid
    
    
    Rate
    
    
    balance
    
    
    paid
    
    
    RateAssetsInterest-earning assets:Interest-bearing deposits and federal funds sold
    
    $
    4,259
    
    
    $
    55
    
    
    
    5.15
    %
    
    $
    4,097
    
    
    $
    54
    
    
    
    5.20
    %Securities available for sale
    
    
    24,761
    
    
    
    271
    
    
    
    4.37
    
    
    
    29,532
    
    
    
    290
    
    
    
    3.94Securities held to maturity (1)
    
    
    3,004
    
    
    
    39
    
    
    
    5.21
    
    
    
    833
    
    
    
    11
    
    
    
    5.20Federal agency stock
    
    
    1,541
    
    
    
    26
    
    
    
    6.84
    
    
    
    1,513
    
    
    
    22
    
    
    
    5.87Loans (2)
    
    
    169,245
    
    
    
    3,242
    
    
    
    7.66
    
    
    
    173,943
    
    
    
    3,108
    
    
    
    7.09Total interest-earning assets
    
    
    202,810
    
    
    
    3,633
    
    
    
    7.17
    
    
    
    209,918
    
    
    
    3,485
    
    
    
    6.59Noninterest-earning assets
    
    
    20,001
    
    
    
    
    
    
    
    
    
    
    
    11,749Total assets
    
    $
    222,811
    
    
    
    
    
    
    
    
    
    
    $
    221,667Liabilities and Shareholders EquityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    9,833
    
    
    
    49
    
    
    
    1.96
    
    
    $
    8,604
    
    
    
    16
    
    
    
    0.74Savings accounts
    
    
    7,277
    
    
    
    14
    
    
    
    0.78
    
    
    
    10,792
    
    
    
    22
    
    
    
    0.82Money market accounts
    
    
    49,062
    
    
    
    481
    
    
    
    3.89
    
    
    
    34,642
    
    
    
    315
    
    
    
    3.60Certificates of deposit
    
    
    95,266
    
    
    
    1,155
    
    
    
    4.81
    
    
    
    102,938
    
    
    
    1,106
    
    
    
    4.26Total interest-bearing deposits
    
    
    161,468
    
    
    
    1,699
    
    
    
    4.18
    
    
    
    156,976
    
    
    
    1,459
    
    
    
    3.69Other borrowings
    
    
    23,998
    
    
    
    345
    
    
    
    5.70
    
    
    
    30,649
    
    
    
    395
    
    
    
    5.16Total interest-bearing liabilities
    
    
    185,466
    
    
    
    2,044
    
    
    
    4.37
    
    
    
    187,625
    
    
    
    1,854
    
    
    
    3.92Noninterest-bearing demand deposits
    
    
    17,268
    
    
    
    
    
    
    
    
    
    
    
    14,881Noninterest-bearing liabilities
    
    
    961
    
    
    
    
    
    
    
    
    
    
    
    1,070Total liabilities
    
    
    203,695
    
    
    
    
    
    
    
    
    
    
    
    203,576Shareholders equity
    
    
    19,116
    
    
    
    
    
    
    
    
    
    
    
    18,091Total liabilities and shareholders equity
    
    $
    222,811
    
    
    
    
    
    
    
    
    
    
    $
    221,667Net interest income; interest rate spread (3)
    
    
    
    
    
    $
    1,589
    
    
    
    2.80
    %
    
    
    
    
    
    $
    1,631
    
    
    
    2.67
    %Net earning assets
    
    $
    17,344
    
    
    
    
    
    
    
    
    
    
    $
    22,293Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.08
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    1.09
    x
    
    
    
    
    
    
    
    
    
    
    1.12
    x
 
 (1)
    
    Presented on a taxable-equivalent basis.(2)
    
    Net of net deferred loan fees and costs and loans in process. Nonaccrual loans are included in noninterest-earning assets.(3)
    
    Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income, annualized, divided by average interest-earning assets. Interest
income
 Interest expense
 
    
    Interest bearing demand deposit balances increased $1.3 million and the rate
increased from 0.74% to 1.96%
    
    Savings account balances decreased $3.5 million and the rate decreased from 0.82%
to 0.78%
    
    Money market balances increased by $14.4 million, and the rate increased from
3.60% to 3.89%
    
    CD balances decreased $7.7 million , but the rate increased from 4.26% to 4.81%
    
    Borrowings decreased $6.7 million, but the rate increased from 5.16% to 5.70%
 19.




---



##### Table of Contents



Provision for loan losses
 Noninterest
income
 Service
charges and other fees
     Noninterest
expense
    Other
expenses.
 RESULTS OF OPERATIONS  NINE MONTHS ENDED SEPTEMBER 30, 2006
  Net interest income
 20.




---



##### Table of Contents



Nine months ending September 30,2007
    
    
    2006Average
    
    
    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
    
    $
    5,049
    
    
    $
    198
    
    
    
    5.23
    %
    
    $
    4,324
    
    
    $
    157
    
    
    
    4.86
    %Securities available for sale
    
    
    25,240
    
    
    
    808
    
    
    
    4.27
    
    
    
    31,332
    
    
    
    913
    
    
    
    3.89Securities held to maturity (1)
    
    
    2,889
    
    
    
    114
    
    
    
    5.25
    
    
    
    835
    
    
    
    33
    
    
    
    5.20Federal agency stock
    
    
    1,541
    
    
    
    74
    
    
    
    6.43
    
    
    
    1,497
    
    
    
    65
    
    
    
    5.83Loans (2)
    
    
    172,659
    
    
    
    9,742
    
    
    
    7.52
    
    
    
    167,355
    
    
    
    8,806
    
    
    
    7.03Total interest-earning assets
    
    
    207,378
    
    
    
    10,936
    
    
    
    7.03
    
    
    
    205,343
    
    
    
    9,974
    
    
    
    6.49Noninterest-earning assets
    
    
    20,491
    
    
    
    
    
    
    
    
    
    
    
    10,717Total assets
    
    $
    227,869
    
    
    
    
    
    
    
    
    
    
    $
    216,060Liabilities and Shareholders EquityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    9,488
    
    
    
    89
    
    
    
    1.25
    
    
    $
    9,205
    
    
    
    52
    
    
    
    0.75Savings accounts
    
    
    8,151
    
    
    
    48
    
    
    
    0.79
    
    
    
    12,339
    
    
    
    76
    
    
    
    0.83Money market accounts
    
    
    45,290
    
    
    
    1,310
    
    
    
    3.87
    
    
    
    31,139
    
    
    
    758
    
    
    
    3.25Certificates of deposit
    
    
    102,644
    
    
    
    3,676
    
    
    
    4.79
    
    
    
    97,639
    
    
    
    2,916
    
    
    
    3.99Total interest-bearing deposits
    
    
    165,573
    
    
    
    5,123
    
    
    
    4.14
    
    
    
    150,322
    
    
    
    3,802
    
    
    
    3.38Other borrowings
    
    
    23,766
    
    
    
    996
    
    
    
    5.61
    
    
    
    32,190
    
    
    
    1,186
    
    
    
    4.91Total interest-bearing liabilities
    
    
    189,339
    
    
    
    6,119
    
    
    
    4.32
    
    
    
    182,512
    
    
    
    4,988
    
    
    
    3.65Noninterest-bearing demand deposits
    
    
    18,129
    
    
    
    
    
    
    
    
    
    
    
    14,412Noninterest-bearing liabilities
    
    
    759
    
    
    
    
    
    
    
    
    
    
    
    1,079Total liabilities
    
    
    208,227
    
    
    
    
    
    
    
    
    
    
    
    198,003Shareholders equity
    
    
    19,642
    
    
    
    
    
    
    
    
    
    
    
    18,057Total liabilities and shareholders equity
    
    $
    227,869
    
    
    
    
    
    
    
    
    
    
    $
    216,060Net interest income; interest-rate spread (3)
    
    
    
    
    
    $
    4,817
    
    
    
    2.71
    %
    
    
    
    
    
    $
    4,986
    
    
    
    2.84
    %Net earning assets
    
    $
    18,039
    
    
    
    
    
    
    
    
    
    
    $
    22,831Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.25
    %Average interest-earning assets to interest-bearing liabilities
    
    
    1.10
    x
    
    
    
    
    
    
    
    
    
    
    1.13
    x
  
 (1)
    
    Presented on a taxable-equivalent basis.(2)
    
    Net of net deferred loan fees and costs and loans in process. Nonaccrual loans are included in noninterest-earning
assets.(3)
    
    Interest rate spread represents the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income, annualized, divided by average interest-earning assets. Interest income
 Interest expense
 Provision for loan losses
 21.




---



##### Table of Contents



Non-interest income.
     Non-interest expense
      CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS
    LIQUIDITY
  22.




---



##### Table of Contents



CAPITAL RESOURCES
    To Be Well-Capitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital to risk-weighted assets
    
    $
    18,123
    
    
    
    12.6
    
    
    $
    11,525
    
    
    
    8.0
    
    
    $
    14,406
    
    
    
    10.0
    %Tier 1 capital to risk-weighted
assets
    
    $
    16,503
    
    
    
    11.5
    
    
    $
    5,762
    
    
    
    4.0
    
    
    $
    8,644
    
    
    
    6.0
    %Tier 1 capital to average assets
    
    $
    16,503
    
    
    
    7.4
    
    
    $
    8,901
    
    
    
    4.0
    
    
    $
    11,126
    
    
    
    5.0
    %
  23.




---



##### Table of Contents



3. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  24.




---



##### Table of Contents



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 Plan of Ohio
Legacy Corp10.4
    
    
    (3
    )
    
    Employment Agreement with Mr. Pettit10.5
    
    
    (3
    )
    
    Lease Agreement dated August 24, 1999, by and among Jack K. and Heidi M. Gant and Ohio Legacy Corp10.6
    
    
    (3
    )
    
    Lease Agreement dated November 30, 1999, by and between Schoeppner Properties and Ohio Legacy Corp10.8
    
    
    (5
    )
    
    Lease Agreement dated October 2001 by and between Shee-Brees, L.L.C. and Ohio Legacy Corp10.10
    
    
    (6
    )
    
    Assignment and assumption of lease by and among Unizan Bank, Ohio Legacy Bank and Chesterland
Productions, P.L.L. dated August 27, 200410.11
    
    
    (7
    )
    
    Employment Agreement with Mr. Kramer11
    
    
    
    
    
    Statement Regarding Computation of Per Share Earnings (incorporated by reference to
Note 3 on page 9 of the this Form 10-QSB)31.1
    
    
    
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and
acting Chief Financial Officer32.1
    
    
    
    
    
    Certification Pursuant To 18 U.S.C. Section 1350 As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
         Incorporated by reference to Registrants Form 10-QSB for the fiscal quarter ended June 30, 2003, filed on August 14, 2003(2)
    
         Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2003, filed on March 17, 2004(3)
    
         Incorporated by reference to Registrants Form SB-2, File No. 333-38328, effective June 1, 2000(4)
    
         Incorporated by reference to Registrants Form S-8, File No. 333-88842, effective May 22, 2002(5)
    
         Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2001, filed on April 1, 2002(6)
    
         Incorporated by reference to Registrants Form 10-KSB for the fiscal year ended December 31, 2004, filed on March 22, 2005(7)
    
         Incorporated by reference to Registrants Form 8-K filed on May 6, 2005 25.




---



##### Table of Contents



SIGNATURES
  OHIO LEGACY CORP
(Registrant)Date:  November 19, 2007
    By:
    /s/ D. Michael KramerD. Michael KramerPresident, Chief Executive Officer, Director
and acting Chief Financial Officer 26.