UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For
      the fiscal year ended December 31,
2009





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 No.)600 South Main Street,
              North Canton, Ohio
            
            44720(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code:  (330) 499-1900





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
                      
                      Name of each exchange on which
      registeredCommon
      stock, without par value
                      
                      The
      NASDAQ Stock Market LLC(The
      NASDAQ Capital Market)





Securities
registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities act.  Yes   ̈  No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.  Yes   ̈  No  x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See 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(Do
      not check if a smaller reporting company)





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





As of
June 30, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates was $4,966,344, based on the closing sale price as reported on
the NASDAQ Stock Market.





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.





Class
                        
                        Outstanding as of March 30,
      2010Common
      stock, without par value
                        
                        19,714,564





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant’s definitive proxy statement for the Annual Meeting of
Shareholders to be held on May 18, 2010 are incorporated by reference into Part
III of this Annual Report on Form 10-K.





Index to
Exhibits begins on page 61.









TABLE
OF CONTENTS





PagePART
      IItem
      1
                                                        
                                                        Business.
                                                        
                                                        3Item
      1B
                                                        
                                                        Unresolved
      Staff Comments.
                                                        
                                                        15Item
      2
                                                        
                                                        Properties.
                                                        
                                                        16Item
      3
                                                        
                                                        Legal
      Proceedings.
                                                        
                                                        16PART
      IIItem
      5
                                                        
                                                        Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                                                        
                                                        16Item
      7
                                                        
                                                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                                                        
                                                        17Item
      8
                                                        
                                                        Financial
      Statements and Supplementary Data.
                                                        
                                                        26Item
      9
                                                        
                                                        Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
                                                        
                                                        54Item
      9A(T)
                                                        
                                                        Controls
      and Procedures.
                                                        
                                                        54Item
      9B
                                                        
                                                        Other
      Information.
                                                        
                                                        55PART
      IIIItem
      10
                                                        
                                                        Directors,
      Executive Officers and Corporate Governance.
                                                        
                                                        55Item
      11
                                                        
                                                        Executive
      Compensation.
                                                        
                                                        55Item
      12
                                                        
                                                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                                                        
                                                        55Item
      13
                                                        
                                                        Certain
      Relationships and Related Transactions, and Director
      Independence.
                                                        
                                                        55Item
      14
                                                        
                                                        Principal
      Accounting Fees and Services.
                                                        
                                                        55PART
      IVItem
      15
                                                        
                                                        Exhibits,
      Financial Statement Schedules
                                                        
                                                        55SIGNATURES
                                                        
                                                        
                                                        
                                                        57INDEX
      TO EXHIBITS
                                                        
                                                        
                                                        
                                                        58


2


PART
I





Item
1.  Business.





Background





Ohio
Legacy Corp (“Ohio Legacy”) is a bank holding company incorporated in July 1999
under the laws of the State of Ohio. Ohio Legacy has one wholly-owned
subsidiary, Ohio Legacy Bank, National Association (the
“Bank”).  Unless otherwise noted, the “Company,” “us,” “we,” and “our”
refer to Ohio Legacy, together with the Bank. The Bank opened for business on
October 3, 2000.





Ohio
Legacy’s principal executive offices are located at 600 South Main Street, North
Canton, Ohio 44720, and its telephone office is (330)
499-1900.  Shares of Ohio Legacy’s common stock, each without par
value, are listed on The NASDAQ Capital Market under the symbol
“OLCB.”





Ohio
Legacy maintains an Internet Web site at www.ohiolegacycorp.com (this uniform
resource locator, or URL, is an inactive textual reference only and is not
intended to incorporate Ohio Legacy’s Internet Web site into this Annual Report
on Form 10-K (this “Form 10-K”)).  Ohio Legacy makes available free of
charge on or through its Internet Web site Ohio Legacy’s annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
as well as Ohio Legacy’s definitive proxy statements filed pursuant to Section
14 of the Exchange Act, as soon as reasonably practicable after Ohio Legacy
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission (the “SEC”).





Recent
Developments





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





On
February 19, 2010, Ohio Legacy closed (i) the sale of 15 million shares of its
common stock, pursuant to the Stock Purchase Agreement, to Excel Bancorp, LLC
(“Excel Bancorp”), an affiliate of Excel Financial, at a price of $1.00 per
share and (ii) the sale of 2.5 million shares of its common stock to other local
investors at a price of $1.00 per share.  The aggregate proceeds from
the sales were $17.5 million.  Through its purchase of 15 million
shares of Ohio Legacy’s common stock, Excel Bancorp, which did not own any Ohio
Legacy securities before the closing, acquired approximately 76% of Ohio
Legacy’s total outstanding shares of common stock.





The
transactions contemplated by the Stock Purchase Agreement were approved by Ohio
Legacy’s shareholders at a special meeting held on January 8,
2010.  Additional information regarding the Stock Purchase Agreement
and the related transactions was set forth in Ohio Legacy’s definitive proxy
statement relating to the special meeting filed with the SEC on December 17,
2009.  See Note 2 to the consolidated financial statements for
additional information regarding these transactions.





Products and
Services





The
Company, through the Bank’s four offices, provides retail and commercial banking
services to its customers, who are located primarily in Stark and Wayne Counties
in north east Ohio. These products include checking and savings accounts, cash
management services, time deposits, safe deposit box facilities and courier
services, commercial loans, real estate mortgage loans, installment and personal
loans and night depository facilities to customers.


3





Commercial
and Construction Lending Products





Commercial
loans are primarily variable rate and include operating lines of credit and term
loans made to small businesses based primarily on their ability to repay the
loan from cash flows. These loans typically are secured by business assets such
as equipment or inventory. For entity borrowers, the Bank generally obtains a
personal guarantee of the business owner. As compared to retail lending, which
includes residential real estate, personal installment loans and automobile
loans, commercial lending entails significant additional risks. These loans
typically involve larger loan balances and are generally dependent on the
businesses’ cash flow and, thus, may be subject to adverse conditions in the
general economy or in a specific industry. Management reviews the borrower’s
cash flows when deciding whether or not to grant the credit. Management also
evaluates if estimated future cash flows will be adequate to service principal
and interest of the new obligation in addition to existing obligations.
Additionally, the company’s historical performance, business principles and
industry are reviewed prior to the extension of credit. Commercial loans
comprised 7.3% of the Bank’s loan portfolio at December 31, 2009.





Commercial
real estate loans are secured primarily by borrower-occupied business real
estate or multifamily residential real estate, such as apartment buildings, and
are dependent on the ability of the related business to generate adequate cash
flow to service the debt. These loans primarily carry variable interest rates.
Commercial real estate loans generally are originated with a loan-to-value ratio
of 80% or less. Management performs much the same analysis when deciding whether
to grant a commercial real estate loan as it performs when deciding whether to
grant a commercial loan. Commercial real estate and multifamily real estate
loans comprised 50.9% of the Bank’s loan portfolio at December 31,
2009.





Construction
loans are secured by residential and business real estate. Construction loans
generally involve greater underwriter and default risks than do loans on
existing real estate due to the inherent uncertainties in construction costs and
the difficulty in valuing property under construction. The Bank’s construction
lending program is established in a manner to minimize risk of this type of
lending by not making a significant number of loans on speculative projects
located outside its geographic marketplace. While not required to do so
contractually, the Bank may finance the permanent loan at the end of the
construction phase. Construction loans also are generally made in amounts of 80%
or less of the value of collateral. Construction loans comprised 3.8% of the
Bank’s loan portfolio at December 31, 2009.





Certain
risks are involved in granting loans that primarily relate to the borrower’s
ability and willingness to repay the debt. Before the Bank extends a new loan to
a customer, these risks are assessed through a review of the borrower’s past and
current credit history, the collateral being used to secure the transaction in
case the customer does not repay the debt, cash flows of any related businesses,
the availability of personal guarantees and other factors. Once the decision has
been made to extend credit, the Bank’s credit officers monitor these factors
throughout the life of the loan.





Retail
Lending Products





Residential
real estate loans, primarily fixed rate, and home equity lines of credit,
primarily variable rate, are secured by the borrower’s residence. These loans
are made based on the borrower’s ability to make repayment from employment and
other income. Using secondary market approval standards management assesses the
borrower’s ability to repay the debt through a review of credit history and
ratings, verification of employment and other income, review of debt-to-income
ratios and other measures of repayment ability. The Bank generally makes these
loans in amounts of 90% or less of the value of collateral. An appraisal is
obtained from a qualified real estate appraiser for substantially all loans
secured by real estate. Beginning in November 2006 the bank began originating
residential real estate loans and selling these loans to the secondary market.
It is the strategy of the Company going forward to continue to sell these types
of loans in accordance with secondary market guidelines.


4


Consumer
installment loans to individuals include loans secured by automobiles and other
consumer assets, including home equity loans on personal residences. Consumer
loans for the purchase of new automobiles generally do not exceed 85% of the
purchase price of the car. Loans for used cars generally do not exceed the
average wholesale or trade-in value of the car as stipulated in a recent auto
industry used car price guide. Overdraft protection loans are unsecured personal
lines of credit to individuals of demonstrated good credit character with
reasonably assured sources of income and satisfactory credit histories. Consumer
loans generally involve more risk than residential mortgage loans because of the
type and nature of collateral and, in certain types of consumer loans, the
absence of collateral. Since these loans generally are repaid from ordinary
income of an individual or family unit, repayment may be adversely affected by
job loss, divorce, ill health or a general decline in economic conditions. The
Bank assesses the borrower’s ability to make repayment through a review of
credit history, credit ratings, debt-to-income ratios and other
measures.





At
December 31, 2009, residential real estate loans comprised 31.6% and consumer
and home equity loans comprised 6.4% of the Bank’s total loans.





Deposit
Products





The Bank
offers a broad range of deposit products, such as personal and business
checking, savings and money market accounts, certificates of deposit, internet
banking, cash management and direct-deposit services. Deposit accounts are
tailored to each market area at rates competitive with those offered in Wayne
and Stark Counties in Ohio and consistent with the Bank’s asset-liability
management goals. All deposit accounts are insured by the Federal Deposit
Insurance Corporation (the “FDIC”) up to the maximum amount permitted by law.
The Bank solicits deposit accounts from individuals, businesses, associations,
financial institutions and government entities. The Bank is not significantly
affected by seasonal activity or large deposits of any individual
depositor.





Employees





At
December 31, 2009, the Bank had 54 employees, including 36 full-time
employees.  The Bank provides a number of benefits to its employees,
such as health, disability and life insurance for all qualified employees. No
employee is represented by a union or collective bargaining group. Management
considers its employee relations to be good. Ohio Legacy has no employees who
are not also employed by the Bank.





Competition





The Bank
operates in a highly competitive industry. In its primary market areas of Stark
and Wayne Counties in Ohio, the Bank competes for new deposit accounts and loans
with numerous other commercial banks, both large regional banks and smaller
community banks, as well as savings and loan associations, credit unions,
finance companies, insurance companies, brokerage firms and investment
companies. Many of our competitors enjoy the benefits of greater financial
resources, advanced technology, fewer regulatory constraints and lower cost
structures.  The Bank’s ability to generate earnings is impacted in
part by interest rates offered on loans and deposits, and by changes in the
rates on loans and various other securities which comprise the Bank’s investment
portfolio. The Bank is competitive with respect to the interest rates and loan
fees it charges, as well as in the variety of accounts and interest rates it
offers to customers. The dominant pricing mechanisms on loans are the Prime
interest rate as published in the Wall Street Journal and U.S. Treasury Note
rates with three-year or five-year maturities. The interest margin in excess of
the applicable base rate depends on the overall account relationship and the
creditworthiness of the borrower. Deposit rates are reviewed and set weekly by
management. The Bank’s primary objective in setting deposit rates is to remain
competitive in the market area while maintaining an adequate interest rate
spread (the difference between the yield earned on interest-earning assets and
the rates paid on deposits and borrowed funds) to meet overhead costs and
provide a profitable return.





Supervision and
Regulation





The Bank
is subject to supervision, regulation and periodic examination by the Office of
the Comptroller of the Currency (the “OCC”) and Ohio Legacy is supervised by the
Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).
Earnings of the Company are affected by state and federal laws and regulations
and by policies of various regulatory authorities. These policies include, for
example, statutory maximum lending rates, loan loss reserves, requirements on
maintenance of reserves against deposits, domestic monetary policies of the
Federal Reserve Board, United States federal government fiscal policy,
international currency regulations and monetary policies, certain restrictions
on banks’ relationships with the securities business, capital adequacy
requirements and liquidity restraints.


5





Regulation
of Ohio Legacy





Bank Holding Company Act. As a
bank holding company, Ohio Legacy is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the “BHCA”). Under the BHCA, Ohio
Legacy is subject to periodic examination by the Federal Reserve Board and is
required to file periodic reports regarding its operations and any additional
information that the Federal Reserve Board may require.





The BHCA
generally limits the activities of a bank holding company to banking, managing
or controlling banks, furnishing services to or performing services for its
subsidiaries and engaging in any other activities that the Federal Reserve Board
has determined to be so closely related to banking or to managing or controlling
banks as to be incidental to those activities. In addition, the BHCA requires
bank holding companies to obtain the approval of the Federal Reserve Board prior
to acquiring substantially all the assets of another bank or bank holding
company, acquiring direct or indirect ownership or control of more than 5% of
the voting shares of a bank or merging or consolidating with another bank
holding company.





The
Federal Reserve Board has extensive enforcement authority over bank holding
companies, including, among other things, the ability to:  (i) assess
civil money penalties; (ii) issue cease and desist or removal orders; and (iii)
require that a bank holding company divest subsidiaries (including its
subsidiary banks).  In general, the Federal Reserve Board may initiate
enforcement actions for violations of laws and regulations and unsafe or unsound
practices.





Under
Federal Reserve Board policy, a bank holding company is expected to act as a
source of financial strength to each subsidiary bank and to commit resources to
support those subsidiary banks. Under this policy, the Federal Reserve Board may
require a bank holding company to contribute additional capital to an
undercapitalized subsidiary bank and may disapprove of the payment of dividends
to shareholders if the Federal Reserve Board believes the payment of such
dividends would be an unsafe or unsound practice.  These provisions
could have the effect of limiting Ohio Legacy’s ability to pay dividends on its
common stock.





Gramm-Leach-Bliley Act. In
November 1999, the Gramm-Leach-Bliley Act of 1999 (the “GLBA”) went into effect
making substantial revisions to statutory restrictions separating banking
activities from other financial activities. Under the GLBA, bank holding
companies that are well-capitalized, well-managed and have at least a
satisfactory Community Reinvestment Act rating can elect to become “financial
holding companies.” Financial holding companies and their subsidiaries may
engage in or acquire companies that engage in a broad range of financial
services that were not permitted previously, such as insurance underwriting,
securities underwriting and distribution, merchant banking and certain other
financial activities as determined by the Federal Reserve Board. Ohio Legacy has
not registered as a financial holding company.





The GLBA
adopts a system of functional regulation under which the Federal Reserve Board
is designated as the umbrella regulator for financial holding companies.
However, financial holding company affiliates are regulated by functional
regulators such as the FDIC, the SEC and state insurance regulators, depending
on the nature of the business and entity type of the financial holding company’s
affiliates.





The GLBA
contains extensive provisions regarding a customer’s right to privacy of
non-public personal information. Under these provisions, a financial institution
must provide to its customers the institution’s policies and procedures
regarding the handling of customers’ non-public personal information. Except in
certain cases, an institution may not provide personal information to
unaffiliated third parties unless the institution discloses that such
information may be disclosed and the customer is given the opportunity to opt
out of such disclosure. Ohio Legacy and the Bank are also subject to certain
state laws that deal with the use and distribution of non-public personal
information.


6





Capital Guidelines. The OCC
and the Federal Reserve Board each have adopted risk-based and leverage capital
guidelines to evaluate the adequacy of capital of national banks and bank
holding companies. The guidelines involve a process of assigning various risk
weights to different classes of assets, then evaluating the sum of the
risk-weighted balance sheet structure against the capital base. Actual and
required capital amounts are disclosed in Note 14 of the consolidated financial
statements.  Failure to meet capital guidelines could subject a
banking institution to various penalties, including termination of FDIC deposit
insurance. In addition, the OCC and the FDIC may take various corrective actions
against any undercapitalized bank and any bank that fails to submit an
acceptable capital restoration plan or fails to implement a plan accepted by the
OCC or the FDIC. These powers include, but are not limited to, requiring the
institution to be recapitalized, prohibiting asset growth, restricting interest
rates paid, requiring prior approval of capital distributions by any bank
holding company that controls the institution, requiring divestiture by the
institution of its subsidiaries or by the holding company of the institution
itself, requiring new election of directors, and requiring the dismissal of
directors and officers.





At
December 31, 2009, the Bank was critically undercapitalized according to the
guidelines above. The Bank, through its Board of Directors, agreed to a Consent
Order (the “Consent Order”) with the OCC dated February 17, 2009 that called for
the Bank to reach and maintain tier 1 capital of at least 8.75% of adjusted
total assets and total risk-based capital of at least 13.25% of risk-weighted
assets by August 31, 2009.  In response to the Consent Order, the Bank
initiated several short and intermediate term strategies to improve its capital
position.  During the first quarter of 2009, the Bank sold
approximately $28.4 million of debt and mortgage backed securities issued
by the Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC"), which have a 20% risk weighting, and
purchased the same amount of mortgage backed securities issued by the Government
National Mortgage Association ("GNMA"), which have a 0% risk weighting. In
addition, the Bank retained the services of the investment banking firm of
Stifel, Nicolaus & Company, Incorporated (“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.  On
February 19, 2010, pursuant to a Stock Purchase Agreement entered into on
November 15, 2009 with Excel Financial, the Company received $15.0 million from
Excel Bancorp in connection with Excel Bancorp’s purchase of 15 million shares
of common stock, and raised an additional $2.5 million in connection with a
private placement of 2.5 million shares of common stock.  After the
closing of these transactions, Ohio Legacy contributed approximately $16.2
million to the capital of the Bank.  With the additional capital
invested in the Bank, the Company exceeded the minimum capital ratios required
under the Consent Order.  See Notes 2 and 18 to the consolidated
financial statements for additional information regarding the Consent Order and
Ohio Legacy’s sale of its common stock.





Regulation
of the Bank





The Bank
is also subject to federal regulation regarding such matters as reserves,
limitations on the nature and amount of loans and investments, issuance or
retirement of its securities, limitations on the payment of dividends and other
aspects of banking operations.





The Bank
is a member of the Federal Reserve System and, because it is a national bank, is
regulated by the OCC. Accordingly, the Bank is subject to periodic examinations
by the OCC. These examinations are designed primarily for the protection of the
depositors of the Bank and not for its shareholder, Ohio Legacy, or for the
shareholders of Ohio Legacy.  The OCC has broad enforcement powers
over national banks, including the power to impose fines and other civil and
criminal penalties and to appoint a conservator or receiver if any of a number
of conditions are met.





Dividend Restrictions. The
Bank is a legal entity separate and distinct from Ohio Legacy, although Ohio
Legacy owns 100% of the outstanding stock of the Bank. Virtually all of Ohio
Legacy’s revenues result from dividends paid by the Bank. The Bank is subject to
laws and regulations that limit the amount of dividends it can pay to Ohio
Legacy. Under OCC regulations, a national bank, such as the  Bank, may
not declare a dividend in excess of its undivided profits. Additionally, the
Bank may not declare a dividend if the total amount of all dividends declared by
the Bank in any calendar year, including the proposed dividend, exceeds the
total of the Bank’s retained net income of that year to date, combined with its
retained net income of the preceding two years. However, a dividend that does
not meet this criteria may be approved by the OCC in certain circumstances. In
addition, the Bank may not declare or pay any dividend if, after making the
dividend, the Bank would be undercapitalized under applicable federal
regulations.


7





FDIC. The FDIC is an
independent federal agency that insures the deposits of federally-insured banks
and savings associations up to prescribed limits. Presently, the FDIC insures
accounts generally up to $250,000 per account.  On January 1, 2014,
the standard insurance amount is scheduled to revert back to $100,000 per
account, except for certain retirement accounts (such as IRAs) which will
permanently remain insured up to $250,000.  Under the FDIC’s
Transaction Account Guarantee Program, through June 30, 2010, all non-interest
bearing transaction accounts (such as demand deposit accounts and business
checking accounts) will have unlimited insurance coverage at participating
institutions, including the Bank.  On June 30, 2010, this additional
coverage expires and the insurance amount will revert to $250,000 per
account.  Institutions were permitted to opt-out of this additional
coverage, although the Bank did not.  While this program is in place,
the Bank pays an additional assessment on the balance of non-interest bearing
accounts over $250,000 of ten basis points (on an annualized
basis).





The FDIC
is required to maintain designated levels of reserves.  The FDIC may
increase assessment rates if necessary to restore the ratio of reserves to
insured deposits to its target level within a reasonable time and may decrease
rates if the target level has been met.  Assessments vary based on the
risk the institution poses to the deposit insurance fund and the FDIC may alter
its method of determining risk at any time.  The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.  The FDIC may, in its
discretion, impose special assessments on insured institutions at any
time.  In May 2009, the FDIC imposed a special assessment on all
insured depository institutions of five basis points on the amount of the
institution’s assets.  In November 2009, the FDIC approved a final
rule requiring banks to prepay their estimated quarterly assessments for the
fourth quarter of 2009, as well as all of 2010, 2011, and 2012 on December 30,
2009.  The Bank was exempted by the FDIC from prepaying its estimated
assessments for 2010 through 2012 under a provision of the final rule permitting
the FDIC, after consultation with the Bank’s primary federal regulator, to waive
the prepayment requirement if prepayment poses a safety and soundness risk for
the institution.  The FDIC may impose additional special assessments
or increase premiums in the future.





The FDIC
safeguards the safety and soundness of financial institutions through
examinations of insured institutions. The Bank is subject to examination by the
FDIC, and the Bank’s deposits are assessed deposit insurance premiums by the
Bank Insurance Fund of the FDIC. Under the FDIC’s deposit insurance assessment
system, the assessment rate for any insured institution may vary according to
regulatory capital levels of the institution and other factors such as
supervisory evaluations.





The FDIC
is authorized to prohibit any insured institution from engaging in any activity
that poses a serious threat to the insurance fund and may initiate enforcement
actions against banks. The FDIC may also terminate the deposit insurance of any
institution that has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
order or condition imposed by the FDIC. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, will continue to be insured for a period from six months to two
years, as determined by the FDIC. The Company is not aware of any existing
circumstances that could result in termination of the Bank’s deposit
insurance.





Community Reinvestment Act.
The Community Reinvestment Act (the “CRA”) requires depository institutions to
assist in meeting the credit needs of their market areas, including low and
moderate-income areas, consistent with safe and sound banking practice. Under
the CRA, each institution is required to adopt a statement for each of its
marketing areas describing the depository institution’s efforts to assist in its
community’s credit needs. Depository institutions are examined periodically for
compliance and are assigned ratings. Banking regulators consider these ratings
when considering approval of a proposed transaction by an
institution.


8


Patriot Act. The Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “Patriot Act”) strengthened the federal
government’s powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing
and broadened anti-money laundering requirements.  Title III of the
Patriot Act takes measures to encourage information sharing among bank
regulatory agencies and law enforcement bodies.  Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions.  Among other requirements, Title III and
related regulations require regulated financial institutions to establish a
program specifying procedures for obtaining specified identifying information
from customers seeking to open new accounts and to establish enhanced due
diligence policies, procedures and controls designed to detect and report
suspicious activity.  The Bank has augmented its policies and
procedures to comply with the requirements of the Patriot Act.





Transactions with Affiliates,
Directors, Executive Officers and Shareholders.Section 23A and 23B of
the Federal Reserve Act and Regulation W restrict transactions by banks and
their subsidiaries with their affiliates.  An affiliate of a bank is
any company or entity which controls, is controlled by or is under common
control with the bank.  Ohio Legacy, Excel Bancorp and the Bank are
affiliates.  Generally, Sections 23A and 23B and Regulation
W:  (i) limit the extent to which a bank or its subsidiaries may
engage in “covered transactions” with any one affiliate to an amount equal to
10% of that bank’s capital stock and surplus (i.e., tangible capital); (ii)
limit the extent to which a bank or its subsidiaries may engage in “covered
transactions” with all affiliates to 20% of that bank’s capital stock and
surplus; and (iii) require that all such transactions be on terms substantially
the same, or at least as favorable to the bank subsidiary, as those provided to
a non-affiliate.





The term
“covered transaction” includes the making of loans to the affiliate, the
purchase of assets from the affiliate, issuance of a guarantee on behalf of the
affiliate, the purchase of securities issued by the affiliate, and other similar
types of transactions.





A bank’s
authority to extend credit to executive officers, directors and greater than 10%
shareholders, as well as entities such persons control, is subject to Sections
22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated
thereunder by the Federal Reserve Board.  Among other things, these
loans must be made on terms substantially the same as those offered to
unaffiliated individuals or be made as part of a benefit or compensation program
and on terms widely available to employees, and must not involve a greater than
normal risk of repayment.  In addition, the amount of loans a bank may
make to these persons is based, in part, on the bank’s capital position, and
specified approval procedures must be followed in making loans which exceed
specified amounts.





Effects
of Government Monetary Policy





The
earnings of the Company are affected by general and local economic conditions
and by the policies of various governmental regulatory authorities. In
particular, the Federal Reserve Board regulates monetary policy, credit
conditions and interest rates that may influence general economic conditions
primarily through open market acquisitions or dispositions of United States
government securities, varying the discount rate on member bank borrowings and
setting reserve requirements against member and nonmember bank deposits. The
Federal Reserve Board’s monetary policies have historically had a significant
effect on the interest income and interest expense of commercial banks,
including the Bank, and are expected to continue to do so in the
future.





Future
Regulatory Uncertainty





Federal
regulation of bank holding companies and financial institutions changes
regularly and is the subject of constant legislative debate. Future legislation
and policies may have a significant influence on overall growth and distribution
of loans, investments and deposits and may affect interest rates charged on
loans or paid on time and savings deposits.  Such legislation and
policies have had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the
future.  As a result of the continuous changes in legislation related
to the financial services industry, the Company cannot forecast how federal
regulation of financial institutions may change in the future or its impact on
the Company’s operations and profitability.


9





Statistical
Disclosures





The
following schedules present, for the periods indicated, certain financial and
statistical information of the Company as required under the SEC’s Industry
Guide 3, “Statistical Disclosure by Bank Holding Companies.”





Industry
Guide 3 - Item I. Distribution of Assets, Liabilities and Stockholders’ Equity;
Interest Rates and Interest Differential





A. &
B.  Average Balance Sheets and Related Analysis of Net Interest
Earnings





The
following table sets forth information relating to the Company’s 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 by the average balances of
interest-earning assets or interest-bearing liabilities for the periods
presented.





Year
      ended December 31,2009
                
                
                2008Average
                    Outstanding
                    Balance
                
                
                Interest
                    Earned/
                    Paid
                
                
                Yield/
                    Rate
                
                
                Average
                    Outstanding
                    Balance
                
                
                Interest
                    Earned/
                    Paid
                
                
                Yield/
                    Rate(Dollars
      in thousands)AssetsInterest-earning
      assets:Interest-bearing
      deposits and federal funds sold
                
                $
                18,368
                
                
                $
                37
                
                
                
                0.20
                %
                
                $
                2,677
                
                
                $
                69
                
                
                
                2.59
                %Securities
      available for sale
                
                
                34,041
                
                
                
                1,505
                
                
                
                4.42
                
                
                
                32,839
                
                
                
                1,731
                
                
                
                5.27Securities
      held to maturity
                
                
                2,999
                
                
                
                114
                
                
                
                3.81
                
                
                
                3,001
                
                
                
                115
                
                
                
                3.81Federal
      bank stock
                
                
                1,309
                
                
                
                64
                
                
                
                4.92
                
                
                
                1,478
                
                
                
                82
                
                
                
                5.49Loans
      (1)
                
                
                111,275
                
                
                
                6,985
                
                
                
                6.28
                
                
                
                127,825
                
                
                
                8,681
                
                
                
                6.79Total
      interest-earning assets
                
                
                167,992
                
                
                
                8,705
                
                
                
                5.18
                
                
                
                167,820
                
                
                
                10,678
                
                
                
                6.36Noninterest-earning assets
                
                
                15,657
                
                
                
                
                
                
                
                
                
                
                
                16,342Total
      assets
                
                $
                183,649
                
                
                
                
                
                
                
                
                
                
                $
                184,162Liabilities
      and Shareholders’ EquityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                
                
                8,716
                
                
                
                65
                
                
                
                0.75
                
                
                
                9,299
                
                
                
                99
                
                
                
                1.07Savings
      accounts
                
                
                16,505
                
                
                
                244
                
                
                
                1.48
                
                
                
                6,737
                
                
                
                91
                
                
                
                1.36Money
      market accounts
                
                
                41,134
                
                
                
                582
                
                
                
                1.42
                
                
                
                45,317
                
                
                
                1,159
                
                
                
                2.56Certificates
      of deposit
                
                
                71,340
                
                
                
                2,430
                
                
                
                3.41
                
                
                
                69,298
                
                
                
                2,741
                
                
                
                3.95Total
      interest-bearing deposits
                
                
                137,695
                
                
                
                3,321
                
                
                
                2.41
                
                
                
                130,651
                
                
                
                4,090
                
                
                
                3.13Other
      borrowings
                
                
                20,793
                
                
                
                729
                
                
                
                3.50
                
                
                
                22,776
                
                
                
                908
                
                
                
                3.98Total
      interest-bearing liabilities
                
                
                158,488
                
                
                
                4,050
                
                
                
                2.56
                
                
                
                153,427
                
                
                
                4,998
                
                
                
                3.26Noninterest-bearing
      demand deposits
                
                
                15,855
                
                
                
                
                
                
                
                
                
                
                
                15,930Noninterest-bearing liabilities
                
                
                625
                
                
                
                
                
                
                
                
                
                
                
                500Total
      liabilities
                
                
                174,968
                
                
                
                
                
                
                
                
                
                
                
                169,857Shareholders’
      equity
                
                
                8,681
                
                
                
                
                
                
                
                
                
                
                
                14,305Total
      liabilities and shareholders’ equity
                
                $
                183,649
                
                
                
                
                
                
                
                
                
                
                $
                184,162Net
      interest income; interest-rate spread (2)
                
                
                
                
                
                $
                4,655
                
                
                
                2.62
                %
                
                
                
                
                
                $
                5,680
                
                
                
                3.10
                %Net
      earning assets
                
                $
                9,504
                
                
                
                
                
                
                
                
                
                
                $
                14,393Net
      interest margin (3)
                
                
                
                
                
                
                
                
                
                
                2.77
                %
                
                
                
                
                
                
                
                
                
                
                3.38
                %Average
      interest-earning assets tointerest-bearing liabilities
                
                
                1.06x
                
                
                
                
                
                
                
                
                
                
                
                1.09x





(1)   Average
loans are net of net deferred loan fees and costs and loans in process.
Nonaccrual loans are included in noninterest-earning assets. Fee income is
included in interest earned.


(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 divided by average
interest-earning assets.


10





C.  Interest
Differential





The table
below describes the extent to which changes in interest rates and changes in
volume of interest-earning assets and interest-bearing liabilities have affected
the Company’s interest income and interest expense during the years indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume (change
in balances multiplied by prior year rate), (2) changes in rate (change in rates
multiplied by prior year balance) and (3) total changes in rate and volume. The
combined effects of changes in both volume and rate, which are not separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate.





Year
      ended December 31,2009
      vs. 2008
                
                
                2008
      vs. 2007Increase
      (Decrease) due to
                
                
                Increase
      (Decrease) due to(Dollars
      in thousands)
                
                Volume
                
                
                Rate
                
                
                Total
                
                
                Volume
                
                
                Rate
                
                
                TotalChange
      in interest income attributable to:Interest-bearing
      deposits and federal funds sold
                
                $
                83
                
                
                $
                (115
                )
                
                $
                (32
                )
                
                $
                (97
                )
                
                $
                (97
                )
                
                $
                (194
                )Securities
      available for sale
                
                
                62
                
                
                
                (288
                )
                
                
                (226
                )
                
                
                396
                
                
                
                219
                
                
                
                615Securities
      held to maturity
                
                
                (1
                )
                
                
                -
                
                
                
                (1
                )
                
                
                3
                
                
                
                1
                
                
                
                4Federal
      bank stock
                
                
                (10
                )
                
                
                (8
                )
                
                
                (18
                )
                
                
                (4
                )
                
                
                (12
                )
                
                
                (16
                )Loans
                
                
                (1,070
                )
                
                
                (626
                )
                
                
                (1,696
                )
                
                
                (2,536
                )
                
                
                (981
                )
                
                
                (3,517
                )Total
      assets
                
                $
                (936
                )
                
                $
                (1,037
                )
                
                $
                (1,973
                )
                
                $
                (2,238
                )
                
                $
                (870
                )
                
                $
                (3,108
                )Change
      in interest expense attributable to:Interest-bearing
      demand deposits
                
                
                (6
                )
                
                
                (28
                )
                
                
                (34
                )
                
                
                (2
                )
                
                
                (34
                )
                
                
                (36
                )Savings
      accounts
                
                
                144
                
                
                
                9
                
                
                
                153
                
                
                
                (7
                )
                
                
                39
                
                
                
                32Money
      market accounts
                
                
                (99
                )
                
                
                (478
                )
                
                
                (577
                )
                
                
                6
                
                
                
                (572
                )
                
                
                (566
                )Certificates
      of deposit
                
                
                79
                
                
                
                (390
                )
                
                
                (311
                )
                
                
                (1,128
                )
                
                
                (694
                )
                
                
                (1,822
                )Other
      borrowings
                
                
                (75
                )
                
                
                (104
                )
                
                
                (179
                )
                
                
                73
                
                
                
                (359
                )
                
                
                (286
                )Total
      interest-bearing liabilities
                
                $
                43
                
                
                $
                (991
                )
                
                $
                (948
                )
                
                $
                (1,058
                )
                
                $
                (1,620
                )
                
                $
                (2,678
                )Change
      in net interest income
                
                
                
                
                
                
                
                
                
                $
                (1,025
                )
                
                
                
                
                
                
                
                
                
                $
                (430
                )





Industry
Guide 3 - Item II. Investment Portfolio





A. This
information is contained in Note 3 to the consolidated financial statements,
which is incorporated herein by reference.





B.  Other
securities consist of a certificate of deposit and Fannie Mae and Freddie Mac
preferred stock that has a stated rate and an initial call date of five years
from the date of issuance. Based on actions taken by the Treasury Department on
September 7, 2008, the dividend on the preferred stock has been suspended
indefinitely.


11





Maturities
      of Investment Securities (Dollars in thousands)No
      Stated Maturity
                
                
                Due
      in one
                    year
      or less
                
                
                Due
      after one
                    through
      five years
                
                
                Due
      after five
                    through
      ten yearsAmount
                
                
                Weighted
                    Average
                    Yields
                
                
                Amount
                
                
                Weighted
                    Average
                    Yields
                
                
                Amount
                
                
                Weighted
                    Average
                    Yields
                
                
                Amount
                
                
                Weighted
                    Average
                    YieldsU.S.
      Government sponsored agencies
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -Agency
      pass- through MBS
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                47
                
                
                
                5.7
                %Other
      MBS
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -State
      and political
                
                
                -
                
                
                
                -
                
                
                
                187
                
                
                
                4.3
                %
                
                
                633
                
                
                
                5.1
                %
                
                
                2,231
                
                
                
                5.7Other
      securities
                
                
                123
                
                
                
                0.0
                %
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      securities
                
                $
                123
                
                
                
                0.0
                %
                
                $
                187
                
                
                
                4.3
                %
                
                $
                633
                
                
                
                5.1
                %
                
                $
                2,278
                
                
                
                5.7
                %





Due
      after ten years
                  
                  
                  TotalAmount
                  
                  
                  Weighted
                      Average
                      Yields
                  
                  
                  Amount
                  
                  
                  Weighted
                      Average
                      YieldsU.S.
      Government sponsored agencies
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -Agency
      pass-through MBS
                  
                  
                  26,326
                  
                  
                  
                  4.1
                  %
                  
                  
                  26,373
                  
                  
                  
                  4.1
                  %Other
      MBS
                  
                  
                  396
                  
                  
                  
                  5.0
                  
                  
                  
                  396
                  
                  
                  
                  5.0State
      and political
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,051
                  
                  
                  
                  5.5Other
      securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  123
                  
                  
                  
                  0.0$
                  26,722
                  
                  
                  
                  4.1
                  %
                  
                  $
                  29,943
                  
                  
                  
                  4.2
                  %





Actual
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations.





C.  At
December 31, 2009, the following table lists holdings of securities of issuers,
other than mortgage-backed securities issued by U.S. Government sponsored
enterprises, in amounts greater than 10% of shareholders’
equity.





Book
      Value
                  
                  
                  Fair
      ValueLakewood
      Ohio City School District
                  
                  $
                  324,065
                  
                  
                  $
                  328,588Meigs
      Ohio Local School District
                  
                  
                  300,616
                  
                  
                  
                  313,059Beachwood
      Ohio Municipal Complex
                  
                  
                  291,563
                  
                  
                  
                  304,615Hicksville
      Ohio Exempted Village School District
                  
                  
                  346,059
                  
                  
                  
                  357,081North
      Canton Ohio Water System
                  
                  
                  537,431
                  
                  
                  
                  539,878Portsmouth
      Ohio City School District
                  
                  
                  333,973
                  
                  
                  
                  331,478Wadsworth
      Ohio City School District
                  
                  
                  254,214
                  
                  
                  
                  256,328Fredericktown
      Ohio Local School District
                  
                  
                  426,893
                  
                  
                  
                  433,113GMAC
      Mortgage
                  
                  
                  423,843
                  
                  
                  
                  396,370$
                  3,238,657
                  
                  
                  $
                  3,260,510


12





Industry
Guide 3 - Item III. Loan Portfolio





A. Types
of Loans





This
information is contained in Note 4 to the consolidated financial
statements, which is incorporated herein by reference.





B.  Maturities
and Sensitivities of Loans to Changes in Interest Rates





The
following is a schedule of maturities of loans based on contractual terms and
assuming no amortization or prepayments, excluding residential real estate and
consumer loans, as of December 31, 2009:





Maturing(Dollars
      in thousands)
                
                One
      year
                    or
      less
                
                
                After
      one
                    through
                    five
      years
                
                
                After
      five
                    years
                
                
                TotalCommercial
                
                $
                2,375
                
                
                $
                1,810
                
                
                $
                3,488
                
                
                $
                7,673Commercial
      real estate
                
                
                1,004
                
                
                
                7,063
                
                
                
                45,330
                
                
                
                53,397Real
      estate construction
                
                
                2,655
                
                
                
                993
                
                
                
                311
                
                
                
                3,959Total
                
                $
                6,034
                
                
                $
                9,866
                
                
                $
                49,129
                
                
                $
                65,029





Amount of
loans reported above due after one year which have adjustable interest rates
(dollars in thousands):





Fixed
      rate
                  
                  $
                  4,657Adjustable
      rate
                  
                  
                  54,338Total
                  
                  $
                  58,995





C.  Risk
Elements





1.   Nonaccrual,
Past Due and Restructured Loans - This information is contained in Note 4
to the consolidated financial statements, which is incorporated herein by
reference.





The
Bank’s policy for placing loans on nonaccrual status is to cease accruing
interest on loans when management believes that collection of interest is
doubtful or when loans are past due as to principal and interest for 90 days or
more, except that, in certain circumstances, interest accruals are continued on
loans deemed by management to be fully collectible. In such cases, loans are
evaluated individually in order to determine whether to continue income
recognition after 90 days beyond the due dates. When loans are placed on
nonaccrual status, any accrued interest that will not be collected is charged
against interest income.





When an
analysis of a borrower's operating results and financial condition indicates the
borrower’s underlying cash flows are not adequate to meet debt service
requirements, the loan is evaluated for impairment. Smaller-balance homogeneous
loans are evaluated for impairment in total. These loans include residential
first mortgage and construction loans secured by one- to four-family residences,
consumer loans, credit card loans and home equity loans. Commercial,
agricultural and commercial real estate loans are evaluated individually for
impairment. In addition, loans held for sale and leases are excluded from
consideration of impairment.





Loans
individually considered impaired are carried at (a) the present value of
expected cash flows, discounted at the loan’s effective interest rate, or (b)
the fair value of collateral, if the loan is collateral dependent. A portion of
the allowance for loan losses is allocated to impaired loans. Impaired loans, or
portions thereof, are charged off when deemed uncollectible.





2.   Potential
Problem Loans - At December 31, 2009, management did not identify any loans as
to which it had serious doubts about the borrowers’ ability to comply with
present loan repayment terms other than those included above in Industry Guide 3
- Item III.C.1, except $4,655,007 of loans not included above but classified as
substandard assets for regulatory purposes.





3.   Foreign
Outstandings - There were no foreign loans outstanding during any period
presented.


13





4.    Loan
Concentrations - At December 31, 2009, approximately $4,984,500 of loans were
made to individuals or companies involved in the rental of residential real
estate. This concentration accounts for 4.8% of total loans at that date. Loans
to individuals or companies involved in the leasing of commercial real estate
totaled $7,896,300, or 7.5% of total loans, at December 31, 2009.





D.  Other
Interest-bearing Assets





At
December 31, 2009, there were no other interest-bearing assets required to be
disclosed under Industry Guide 3 - Items III.C.1. or 2 if such assets were
loans.





Industry
Guide 3 - Item IV.  Summary of Loan Loss Experience





A.
Analysis of the Allowance for Loan Losses





Activity
in the allowance for loan losses for the years ended December 31 2009 and 2008
was as follows:





2009
                
                
                2008Balance,
      January 1
                
                $
                3,398,284
                
                
                $
                1,622,906Provision
      for loan losses
                
                
                4,507,055
                
                
                
                2,361,496Loans
      charged-off:Commercial
                
                
                (1,463,167
                )
                
                
                (162,775
                )Commercial
      real estate
                
                
                (1,219,370
                )
                
                
                -Residential
      real estate
                
                
                (221,830
                )
                
                
                (19,190
                )Construction
                
                
                (1,501,839
                )
                
                
                (544,000
                )Consumer
      and home equity
                
                
                (22,242
                )
                
                
                (39,630
                )Total
      loans charged-off
                
                
                (4,428,448
                )
                
                
                (765,595
                )Recoveries:Commercial
                
                
                4,558
                
                
                
                104,354Commercial
      real estate
                
                
                55,279
                
                
                
                -Residential
      real estate
                
                
                9,868
                
                
                
                20,603Construction
                
                
                380,870
                
                
                
                -Consumer
      and home equity
                
                
                18,204
                
                
                
                54,520Total
      recoveries
                
                
                468,779
                
                
                
                179,477Balance,
      December 31
                
                $
                3,945,670
                
                
                $
                3,398,284Balance
      as a percentage of total loans
                
                
                3.76
                %
                
                
                2.61
                %





The
allowance for loan losses balance and the provision for loan losses charged to
operating expense are determined by management based on periodic reviews of the
Bank’s loan portfolio, economic conditions and various other circumstances that
are subject to change over time. In making this judgment, management reviews
selected large loans as well as loans individually considered impaired, other
delinquent, nonaccrual and problem loans and loans to industries experiencing
economic difficulties. The collectability of these loans is evaluated after
considering the current operating results and financial position of the
borrower, estimated market value of collateral, guarantees and the Company’s
collateral position versus other creditors. Judgments, which are necessarily
subjective, as to the probability of losses and the amounts of such losses are
formed on these loans, as well as other loans taken together.





B.   Allocation of the
Allowance for Loan Losses





While
management’s periodic analysis of the adequacy of the allowance for loan losses
may allocate portions of the allowance to specific problem loan situations, the
entire allowance is available for any loan charge-offs that occur. The following
schedule is a breakdown of the allowance for loan losses allocated by type of
loan and related ratios at December 31 2009 and 2008:


14





2009
                
                
                2008Allowance
                    Amount
                
                
                Percentage
      of
                    Loans
      in Each
                    Category
      to
                    Total
      Loans
                
                
                Allowance
                    Amount
                
                
                Percentage
      of
                    Loans
      in Each
                    Category
      to
                    Total
      LoansCommercial
                
                $
                313,888
                
                
                
                7.3
                %
                
                $
                911,294
                
                
                
                9.3
                %Commercial
      real estate (1)
                
                
                1,681,022
                
                
                
                45.4
                
                
                
                1,040,594
                
                
                
                43.7Multifamily
      residential real estate
                
                
                577,800
                
                
                
                5.5
                
                
                
                182,758
                
                
                
                4.2Residential
      real estate
                
                
                629,057
                
                
                
                31.6
                
                
                
                485,628
                
                
                
                28.5Construction
                
                
                554,659
                
                
                
                3.8
                
                
                
                617,375
                
                
                
                8.3Consumer
      and home equity
                
                
                189,244
                
                
                
                6.4
                
                
                
                160,635
                
                
                
                6.0Total
                
                $
                3,945,670
                
                
                
                100.0
                %
                
                $
                3,398,284
                
                
                
                100.0
                %





Industry
Guide 3 - Item V. Deposits





A. Average
Amount and Average Rate Paid On Deposits.


The
following is a schedule of the average amount and average rate paid on
deposits:
  2009
              
              
              2008(Dollars
      in thousands)
              
              Average
      Balances
              
              
              Average
      Rate
              
              
              Average
      Balances
              
              
              Average
      RateNoninterest-bearing
      demand deposits
              
              $
              15,855
              
              
              
              N/A
              
              
              $
              15,930
              
              
              
              N/AInterest-bearing
      demand deposits
              
              
              8,716
              
              
              
              0.75
              %
              
              
              9,299
              
              
              
              1.07
              %Savings
      accounts
              
              
              16,505
              
              
              
              1.48
              %
              
              
              6,737
              
              
              
              1.36
              %Money
      market accounts
              
              
              41,134
              
              
              
              1.42
              %
              
              
              45,317
              
              
              
              2.56
              %Certificates
      of deposit
              
              
              71,340
              
              
              
              3.41
              %
              
              
              69,298
              
              
              
              3.95
              %Total
      deposits
              
              $
              153,550
              
              
              
              
              
              
              $
              146,581





B.  Other
categories – not applicable.





C.  Foreign
deposits – not applicable.





D.  The
following is a schedule of maturities of certificates of deposit in amounts of
$100,000 or more as of December 31, 2009:





Three
      months or less
                  
                  $
                  510,781Over
      three through six months
                  
                  
                  297,618Over
      six through twelve months
                  
                  
                  400,000Over
      twelve months
                  
                  
                  1,007,993Total
                  
                  $
                  2,216,392





E.  Time
deposits greater than $100,000 issued by foreign offices – not
applicable.





Industry
Guide 3 - Item VI.  Return on Equity and Assets





2009
                
                
                2008Return
      on average assets
                
                
                (3.63
                )
                
                
                (3.28
                )Return
      on average equity
                
                
                (76.72
                )
                
                
                (42.27
                )Dividend
      payout ratio
                
                
                0.0
                
                
                
                0.0Average
      shareholders’ equity to average assets
                
                
                4.73
                
                
                
                7.77





Industry
Guide 3 - Item VII. Short-Term Borrowings





During
2009, the Company entered into repurchase agreements and Federal Home Loan Bank
(“FHLB”) advances.  This information is contained in Notes 9
and 10 to the consolidated financial statements, which are incorporated
herein by reference.





Item
1B.  Unresolved Staff Comments.





None.


15





Item
2. Properties.





The Bank
currently owns or leases and operates four banking offices, including its main
office, and an operations center:





·
            Wooster
      Main Office, 305 West Liberty Street, Wooster, Ohio, 44691 (capital
      lease)


·
            Canton
      Branch Office, 4026 Dressler Road N.W., North Canton, Ohio, 44735
      (lease)


·
            Wooster
      Milltown Branch Office, 3562 Commerce Parkway, Wooster, Ohio 44681
      (own)


·
            North
      Canton Branch Office, 600 South Main Street, North Canton, Ohio 44720
      (own)


·
            Wooster
      Operations Center, 2375 Benden Drive, Suite C, Wooster, Ohio, 44691
      (operating lease)





The Bank
considers the physical properties it occupies to be suitable and adequate for
the purposes for which they are being used.  See Note 6 to the
consolidated financial statements for additional information regarding our
properties.





Item
3. Legal Proceedings.





The
Company is not a party to any material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the
Company.  No routine litigation in which the Company is involved is
expected to have a material adverse impact on the financial position or results
of operations of the Company.





See Note
18 to the consolidated financial statements for information regarding the
Consent Order that the Bank agreed to with its primarily federal regulator, the
OCC, on February 17, 2009.





PART
II





Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Market for the Company’s
Common Stock





Ohio
Legacy’s common stock is publicly traded on the NASDAQ Capital Market under the
symbol “OLCB.” As of March 15, 2010, there were 19,714,564 shares of Ohio
Legacy’s common stock issued and outstanding and there were approximately 268
holders of record. The following table summarizes the highest and lowest sales
prices for Ohio Legacy’s common stock for each quarter during 2009 and 2008, as
reported on the NASDAQ Stock Market:





2009
                
                
                2008HIGH
                
                
                LOW
                
                
                HIGH
                
                
                LOWFirst
      Quarter
                
                $
                2.75
                
                
                $
                1.22
                
                
                $
                7.00
                
                
                $
                5.02Second
      Quarter
                
                
                3.50
                
                
                
                1.25
                
                
                
                6.75
                
                
                
                5.50Third
      Quarter
                
                
                2.40
                
                
                
                0.70
                
                
                
                6.75
                
                
                
                4.36Fourth
      Quarter
                
                
                2.07
                
                
                
                0.55
                
                
                
                5.08
                
                
                
                1.20





No cash
dividends were declared or paid by Ohio Legacy during 2009 or 2008. The payment
of dividends by the Bank to Ohio Legacy and by Ohio Legacy to its shareholders
is subject to restrictions by regulatory agencies.  The Company is
currently not able to declare or pay dividends without prior approval from its
regulators.  See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Capital Resources” and Note 14 to the
consolidated financial statements for information regarding the restrictions on
the Company’s ability to pay dividends.





Recent Sales of Unregistered
Securities





As
previously announced, on November 15, 2009, Ohio Legacy and the Bank entered
into a Stock Purchase Agreement with Excel Financial.  Under the terms
of the Stock Purchase Agreement, Excel Financial agreed to purchase 15 million
shares of Ohio Legacy’s common stock at a price of $1.00 per
share.  As a condition to Excel Financial’s purchase of the shares,
Ohio Legacy agreed to sell a minimum of 1.5 million shares of its common stock
to investors other than Excel Financial in a private offering, and to use its
best efforts to sell an additional one million shares of its common stock in the
same private offering, all at a purchase price of $1.00 per
share.


16





On
February 19, 2010, Ohio Legacy closed (i) the sale of 15 million shares of its
common stock, pursuant to the Stock Purchase Agreement, to Excel Bancorp, at a
price of $1.00 per share and (ii) the sale of 2.5 million shares of its common
stock to other local investors at a price of $1.00 per share.  The
aggregate proceeds from the sales were $17.5 million.  Net proceeds
from the sales were $16.8 million, after the Company’s payment of legal,
investment banking, accounting and other issuance expenses of approximately
$700,000.  Through its purchase of 15 million shares of Ohio Legacy’s
common stock, Excel Bancorp, which did not own any Ohio Legacy securities before
the closing, acquired approximately 76% of Ohio Legacy’s total outstanding
shares of common stock.





The
shares of Ohio Legacy common stock sold in these transactions were not
registered under the Securities Act of 1933, as amended (the “Securities Act”),
or the securities laws of any state, and were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) and Regulation D (Rule
506) under the Securities Act and corresponding provisions of state securities
laws, which exempt transactions by an issuer not involving any public
offering.  The offering was made solely to “accredited investors,” as
that term is defined in Regulation D under the Securities Act.  The
shares of common stock sold in the offering may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements.  Certificates representing these shares of
Ohio Legacy common stock contain a legend stating the same.  See Note
2 to the consolidated financial statements for additional information regarding
these transactions.





Issuer Purchases of Equity
Securities





There
were no purchases made by or on behalf of the Company or any affiliated
purchaser of shares of Ohio Legacy’s common stock during the fourth quarter of
2009.





Item
7.  Management’s Discussion and Analysis.





In the
following section, management presents an analysis of Ohio Legacy Corp's
financial condition and results of operations as of and for the years ended
December 31, 2009 and 2008. This discussion is provided to give shareholders a
more comprehensive review of the issues facing management than could be obtained
from an examination of the financial statements alone.  This analysis
should be read in conjunction with the consolidated financial statements and the
accompanying notes included in this Form 10-K.





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





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





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





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


17





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





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





·
            rapid
      changes in technology affecting the financial services
      industry;





·
            changes
      in government regulation;





·
            general
      economic and business conditions;





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





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





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





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





·
            the
      adequacy of our allowance for loan losses;
and





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





OVERVIEW
OF STRATEGIC DEVELOPMENTS





During
2008 and 2009, the Company was burdened by high levels of problem loans and a
sizeable portfolio of other real estate owned (“OREO”).  In February
2009, the Company entered into a Consent Order with the OCC focusing on capital
adequacy and credit quality.  Although capital preservation was a key
priority for the Company during the year, the combination of credit-related
charges, the expenses and resources required for the administration of problem
assets, and impairment losses associated with Fannie Mae and Freddie Mac
securities resulted in charges to capital that left the Company critically
undercapitalized by year-end 2009.





Throughout
2009, management explored various strategies to raise capital in an unfavorable
capital market when many financial institutions were facing significant credit
challenges.  In November 2009, the Company entered into a Stock
Purchase Agreement with Excel Financial.  The Stock Purchase Agreement
closed in February 2010 and resulted in combined gross proceeds to the Company
from the issuance of 17.5 million shares of common stock to Excel Bancorp and
other local investors totaling $17.5 million. Subsequent to closing and in
accordance with the terms of the Stock Purchase Agreement, the Company appointed
a new executive management team, accepted the resignations of seven directors,
and appointed seven new directors to fill the resulting
vacancies.  The Company invested $16.2 million of the proceeds of the
stock offering in the Bank as additional capital, resulting in compliance with
provisions of the Consent Order that required the Bank to achieve certain
minimum capital levels.  See Notes 2 and 18 for additional information
related to the Consent Order and the Company’s sale of common
stock.





The
following key factors summarize the Company’s financial condition at year-end
2009 compared to year-end 2008:





·
            Total
      assets decreased by $23.3 million from $186.5 million to $163.2
      million;


·
            Total
      deposits decreased by $5.9 million from $145.7 million to $139.8
      million;


·
            Total
      shareholders’ equity decreased by $7.2 million from $9.6 million to $2.4
      million;


18





·
            Tier
      1 capital declined by $6.2 million to $2.6
  million;


·
            Net
      loans decreased by $26.0 million to $100.9
  million;


·
            Nonaccrual
      loans increased by $1.2 million from $4.6 million to $5.8 million;
      and


·
            Other
      Real Estate Owned decreased by $2.0 million from $5.2 million to $3.2
      million.





The
following key factors summarize our results of operations for 2009 compared to
2008:





·
            Net
      interest income decreased by $1,024,374, from $5.7 million in 2008 to $4.7
      million in 2009;


·
            The
      provision for loan losses increased to $4,507,055 in 2009 from $2,361,496
      in 2008, an increase of $2,145,559;


·
            Gains
      on the sale of available securities, net of charges for other than
      temporary impairment (“OTTI”) of investment securities, totaled $806,987
      for 2009 compared to an OTTI charge of $2,859,024 for
  2008;


·
            The
      direct write-down of other real estate owned totaled $1,665,004 for 2009
      compared to $537,770 for 2008; and


·
            Savings
      realized from cost cutting measures were largely offset by increases in
      FDIC premiums, professional fees, and other insurance
    costs.





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





·
            Credit
      quality is expected to remain a primary focus of the
    Company;


·
            We
      successfully closed on our recapitalization in February 2010 and expect to
      incur significant costs associated with the recapitalization during the
      first quarter of 2010;


·
            As
      part of our transition to a new management team, we expect to hire new
      management staff and improve our credit administration and collection
      efforts which will increase our personnel costs;
  and


·
            We
      expect to begin offering trust, investment and wealth management services
      during the first half of 2010, which will likely result in higher
      operating costs.





CRITICAL
ACCOUNTING POLICIES





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





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





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


19





Valuation allowance for deferred tax
assets. Another critical accounting policy relates to valuation of the
deferred tax asset for net operating losses. Net operating loss carryforwards of
approximately $6,503,000 will expire as follows: $1,419,000on December 31, 2027 and $132,000on December 31, 2028 and $4,952,000 on December 31, 2029. A valuation
allowance has been recorded for the related deferred tax asset for these
carryforwards and other net deferred tax assets recorded by the Company to
reduce the carrying amount of these assets to zero. Additional information is
included in Notes 1 and 12to our audited consolidated financial statements.





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





Assets.At December 31, 2009,
assets totaled $163.2 million, down $23.3 million 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.  A smaller asset base
requires less capital to meet regulatory capital requirements.  The
investment portfolio was restructured to reduce investments with a 20% risk
weighting and proceeds were reinvested in alternative investments with a 0% risk
weighting.  Reductions to loan balances from repayments and payoffs
were generally used to increase cash and liquid assets and to fund deposit
outflows.





Cash and Cash
Equivalents.  Cash and Cash Equivalents increased by $12.7
million to $24.2 million at year-end 2009 compared to $11.5 million at year-end
2008.  The Company increased its liquidity position as a defensive
measure due to the decline in its capital ratios and losses realized during 2009
and 2008 by reducing the size of its loan portfolio through principal
repayments, maturities and payoffs.





Securities. Total securities
classified as available for sale decreased by $5.8 million to $26.9 million. The
portfolio consists primarily of 30-year mortgage backed securities issued by
GNMA, an agency guaranteed by the full faith and credit of the U.S.
government.  During 2009, the Bank sold approximately $59.4 million of
15, 20 and 30 year mortgage backed securities and reinvested the proceeds into
GNMA securities to improve its risk weighted capital ratio.   The
monthly cash flow of principal and interest was used to repay liabilities during
2009, but is available to fund loan growth or be reinvested should the Bank
choose that strategy. The proceeds from the sale of securities sold for a
substantial gain during 2009 were reinvested in long-term GNMA securities
at lower yields.   At December 31, 2009, the effective duration
of the portfolio excluding equity investments was approximately 4.9
years,  compared to 2.1 years 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 net
unrealized loss on the portfolio at December 31, 2009 was approximately
$237,000, compared to a gain of $351,292 at year-end 2008.





Loans.  At December
31, 2009, the loan portfolio, net of the allowance for loan losses and deferred
fees, totaled $100.9 million, a decrease of $26.0 million compared to December
31, 2008. The Company reduced the size and changed the composition of the
portfolio to lower its risk profile.





Allowance for Loan Losses and Asset
Quality.The
allowance for loan losses totaled $3.9 million at December 31, 2009, an increase
of $547,000 compared to $3.4 million at December 31, 2008. The amount of the
allowance is based on a combination of actual experiential factors such as
historical losses for each category of loans and information about specific
borrowers as well as projections for various other factors, including
delinquencies, general economic conditions and the outlook for specific
industries, which are more subjective in nature.  During 2009, the
Company recognized loan charge-offs totaling $4.4 million, including $2.7
million during the fourth quarter of 2009. The fourth quarter
charge-offs  included all specific reserves previously allocated at
the end of the third quarter of 2009.  Loan charge-offs for 2008
totaled $$765,595.   Recoveries of $470,000 were collected during
2009 due primarily to a $366,800 mediated insurance settlement related to
construction defects in one of the loans charged off and a recovery of $54,800
on a commercial loan that was repaid.




As a
percentage of total loans, the allowance for loan losses increased from 2.61% at
year-end 2008 to 3.76% at the end of 2009.   We continue to
closely monitor credit quality and delinquencies as our loan portfolio ages, and
will increase the allowance for loan losses if we believe losses have been
incurred.


20




Loans are
considered nonperforming if they are impaired or if they are in nonaccrual
status. Nonperforming loans totaled $5.8 million at December 31, 2009 compared
to $4.6 million at December 31, 2008.  During 2009, 34 loans totaling
approximately $7.4 million converted to nonaccrual status, four loans totaling
$372,961 were paid off, ten loans totaling $1.5 million were charged off,
sixteen loans were charged down by $2.7 million, and ten loans totaling $1.0
million were transferred to OREO.




Other Real Estate
Owned.OREO consisted of 15 properties and totaled $3.2
million at year-end 2009 compared to $5.2 million and 13 properties at year-end
2008.   During 2009, 12 properties were sold from OREO generating
$1.6 million in sales proceeds.




Accrued interest receivable and
other assets.Accrued interest receivable and other assets decreased by
$735,000 from the previous year end.  Of this amount, changes in the
accounting for income taxes as the result of the net loss booked in 2008
resulted in a decrease of $570,800 and other changes in prepaid assets and
accrued interest arising from normal business activities comprised the
remainder.




Deposits. Total deposits
decreased $5.9 million from year end 2008 to $139.8 million at December 31,
2009. Overall, core deposit balances increased 2.2% to $82.0 million from $80.2
million at year end. Noninterest bearing demand deposits decreased 6.8% to $15.5
million. Our certificate of deposit portfolio decreased $7.7 million during the
period to $57.8 million or 41.3% of total deposits compared to $65.5 million, or
44.9% of total deposits, at year-end 2008.  The decrease was largely
the result of promotional certificates maturing without reinvestment into
currently offered certificate of deposit products.  Furthermore, the
Company’s regulatory risk profile may have encouraged some depositors to
withdraw funds.  Under applicable FDIC rules and regulations, a less
than well-capitalized insured depository institution may not pay a rate of
interest that significantly exceeds the prevailing rate in the institution's
market area or the prevailing rate in the market area from which the deposit is
accepted.  These restrictions prohibited the Company from offering
promotional rates on deposits during 2009 that it may have otherwise
offered.




Federal Home Loan Bank
Advances.  Total advances decreased $9.4 million from $27.9
million at December 31, 2008 to $18.5 million at December 31,
2009.  An overnight advance of $6.9 million was repaid early in the
first quarter of 2009. A $3.0 million 4.89% advance that matured in January 2009
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 2009.





RESULTS
OF OPERATIONS – YEARS ENDED DECEMBER 31, 2009 AND 2008





The
Company incurred losses for both 2009 and 2008. The loss for 2009 was
$6,659,595, or $3.01 per share.  The loss for 2008 was $6,047,089, or
$2.73 per share.





Net interest income. For the
year ended December 31, 2009, net interest income was $4.7 million, compared to
$5.7 million for 2008. The Company’s net interest margin decreased to 2.77% in
2009 compared to 3.38% in 2008.  Low interest rates prevailed across
the yield curve during 2009 following the financial crisis that occurred during
the fall of 2008, the ensuing economic events, and the Federal Reserve Bank’s
efforts to assist an economic recovery.





Interest income. Interest
income decreased from $10.7 million in 2008 to $8.7 million in 2009 due to a
change in the mix of earning assets and lower yields on earning
assets.  The yield on earning assets declined from 6.36% in 2008 to
5.18% in 2009 on a nearly unchanged earning asset base of approximately $168.0
million.  The decline in average loan balances from 2008 to 2009
resulted in a reduction to interest income of $1.1 million and the decline in
the yield on the loan portfolio resulted in a reduction to interest income of
approximately $0.6 million.  Lower yields on our securities portfolio
and our higher liquidity position during 2009 in the form of interest bearing
deposits and federal funds sold also contributed to the decline in interest
income.


21


Interest expense. Total
interest expense declined from $5.0 million in 2008 to $4.1 million in 2009, a
decrease of 19.0%.  The cost of interest bearing funds averaged 2.56%
for 2009 compared to 3.26% for 2008.  Interest expense on deposits
decreased $769,000 to $3.3 million in 2009 compared to $4.1 million in
2008.  The most significant declines in deposit interest expense were
for lower rates paid for money market and certificates of deposit balances;
interest paid for these two deposit types declined by $888,000.  Other
borrowing costs also declined by $179,000 due to lower rates and outstanding
balances.





Provision for loan losses.
The provision for loan losses was $4.5 million in 2009 compared to $2.4 million
in 2008.  Charge-offs taken during 2009, particularly during the
fourth quarter of 2009, contributed to higher loss experience ratios, thus
requiring a higher loan loss provision. In 2009, we had charge-offs totaling
$1.8 million for two participation loans; both loans funded construction of
hotel/water park properties outside of the Company’s local lending
area.  Both properties are in Chapter 11 bankruptcy proceedings, and
the loans were charged down based on appraised values less selling
costs.





Noninterest
income.  For the year ended December 31, 2009, noninterest
income increased to $225,681 from a loss of $2.1 million for 2008.  In
both 2008 and 2009, the Company recognized OTTI charges for FNMA
and FHLMC preferred stock owned.  In 2008, the OTTI charge was
$2,859,024, and for 2009 the OTTI charge was $111,200.  The current
carrying value of these securities is $122,800 and includes an unrealized gain
of $34,000.  The impact of the OTTI charge for 2009 was more than
offset by gains realized on securities available for sale totaling
$918,187.





In both
2008 and 2009, we recognized losses on the disposition or direct write-down of
other real estate owned.  For 2009, the net loss on disposition or
direct write-down of other real estate owned totaled $1,522,008 on twenty-two
properties compared to a net loss of $537,770 for 2008.





Service
charges and other fees declined by $125,817 to $829,409 in 2009 compared to
$955,226 for 2008.  The reduction was due to both changes in customer
behavior in response to general economic conditions and a decrease in accounts
previously maintained in conjunction with loan relationships.  Gains
on the sale of loans declined by $122,123 to $57,351 in 2009, down from $179,474
in 2008.  The Company pursued a strategy to preserve capital
by  decreasing its lending activities.  Other income
decreased by $144,541 to $58,729 in 2009 from $203,270 in 2008.  The
decrease was primarily the result a decline in mortgage lending activity
resulting in lower fees associated with that activity.





Noninterest
expense.  Total noninterest expenses remained flat at $7.3
million in 2009 and 2008. Cost cutting efforts in several areas of the Company
were offset by increases in FDIC deposit insurance expense and professional
fees and costs associated with OREO properties.  From 2008 to 2009,
salaries and benefits decreased $563,670, occupancy and equipment expense
decreased $124,962, Ohio franchise tax decreased $76,800, marketing costs were
down $77,010, supplies costs were down $36,907 and amortization expense was down
by $30,521.  These combined cost savings of $909,870 were almost
completely offset by increases in FDIC deposit insurance expense of $625,766,
professional and consulting fees of $204,193, data processing costs of $4,053
and other expenses, including loan and OREO expenses, of
$53,924.  Professional and consulting fees included $70,000 for
accrued fees due to Excel Financial, with whom the Company entered into a Stock
Purchase Agreement in November 2009.  Management expects that
improvements to the Company’s risk profile due to the closing of the Stock
Purchase Agreement in February 2010 will assist in reducing its FDIC deposit
insurance costs during 2010 since FDIC premiums are lower for adequately
capitalized banks.





Tax expense (benefit).As a
result of a change in tax laws 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
partially offset by a $38,311 change in accrued taxes for 2008, resulting in a
tax benefit of $250,989.


22





OFF-BALANCE
SHEET ARRANGEMENTS





At
December 31, 2009, we had no 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, in the future,
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 our 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, repurchase agreements, loan and
security repayments and maturities, sales of securities, capital transactions
and borrowings from the FHLB and correspondent banks.  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.





Our
liquidity contingency funding plan identifies liquidity thresholds and raises
red flags that may evidence liquidity issues. Additionally, the 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.





Cash and
cash equivalents increased from $11.5 million at December 31, 2008 to $24.2
million at December 31, 2009. Cash and cash equivalents represented 14.8% of
total assets at year-end 2009, compared to 6.2% of total assets at year-end
2008. The increase was primarily due to the implementation of strategies to
lower the risk profile of the Bank’s balance sheet during 2009. As loans were
paid off throughout 2009, higher cost deposits were allowed to mature. During
2009, excess funds were used to increase the Company’s cash position at the
Federal Reserve Bank.  These funds were derived from loan payments and
investment securities  maturities, calls and paydowns.





We
monitor our liquidity position on a regular basis in conjunction with our
asset/liability and interest rate risk management activities. We believe our
current liquidity level, including contingency funding available through
borrowing facilities at the Federal Home Loan Bank and the Federal Reserve Bank,
is sufficient to meet anticipated future growth in loans and deposits and
general liquidity needs.





CAPITAL
RESOURCES





Total
shareholders’ equity was $2.4 million at December 31, 2009, compared to $9.6
million at December 31, 2008. The decrease was due to net losses for the
year.





Banks are
subject to regulatory capital requirements administered by federal banking
agencies. Capital adequacy guidelines and prompt corrective action regulations
involve quantitative measures of assets, liabilities and certain off balance
sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators.
Failure to meet capital requirements can result in regulatory
action.


23


Current
regulations require a total risk-based capital ratio of 8.0%, at least half of
which must be tier 1 capital, and a leverage ratio of 4.0%. The Bank’s total
risk-based capital is made up of tier 1 capital and tier 2 capital. Tier 1
capital is total shareholders’ equity, less any intangible assets. Tier 2
capital is tier 1 capital plus the allowance for loan losses (includible up to a
maximum of 1.25% of risk-weighted assets). As a result of the write-downs in
value of both loans and securities , as of December 31, 2009, the Bank did not
meet the definition of adequately capitalized (see Note 14 to the consolidated
financial statements). On February 17, 2009, the Company agreed to a Consent
Order with the OCC that required the Bank to reach and maintain tier 1 capital
of at least 8.75% of adjusted total assets and total risk-based capital of at
least 13.25% of risk-weighted assets by August 31, 2009 August 31,
2009.  In response to the Consent Order, the Bank initiated several
short and intermediate term strategies to improve its capital
position.  During the first quarter of 2009, the Bank sold
approximately $28.4 million of debt and mortgage backed securities issued
by FNMA or FHLMC, which have a 20% risk weighting, and purchased the same
amount of mortgage backed securities issued by GNMA, which have a 0% risk
weighting. In addition, the Bank 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.  At December 31, 2009, the Company had not
met the terms of the Consent Order.  On February 19, 2010, pursuant to
a Stock Purchase Agreement entered into on November 15, 2009 with Excel
Financial, the Company received $15.0 million from Excel Bancorp in connection
with Excel Bancorp’s purchase of 15 million shares of common stock, and raised
an additional $2.5 million in connection with a private placement of 2.5 million
shares of common stock.  After the closing of these transactions, Ohio
Legacy contributed approximately $16.2 million to the capital of the
Bank.  With the additional capital invested in the Bank, the Company
exceeded the minimum capital ratios required under the Consent Order. However,
until the Consent Order is terminated, the Bank cannot be classified as
well-capitalized under prompt corrective action provisions.  See Notes
2 and 18 to the consolidated financial statements for additional information
regarding the Consent Order and Ohio Legacy’s sale of its common
stock.





With the
additional capital invested in the Bank, the Bank’s regulatory capital levels
improved significantly. Depicted in the following table are pro forma regulatory
capital ratios based on the capital investment made in February 2010 with the
average assets and risk weighted assets used to compute the regulatory capital
ratios as of December 31, 2009.





To
      Be Well-Capitalized
      UnderFor
      Capital
                  
                  
                  Prompt
      CorrectivePro
      forma
                  
                  
                  Adequacy
      Purposes
                  
                  
                  Action
      ProvisionsAmount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  RatioTotal
      capital to risk-weighted assets
                  
                  $
                  20,038
                  
                  
                  
                  19.34
                  %
                  
                  $
                  8,031
                  
                  
                  
                  8.00
                  %
                  
                  $
                  10,039
                  
                  
                  
                  10.00
                  %Tier
      1 capital to risk-weighted assets
                  
                  
                  18,750
                  
                  
                  
                  18.09
                  %
                  
                  
                  4,016
                  
                  
                  
                  4.00
                  %
                  
                  
                  6,023
                  
                  
                  
                  6.00
                  %Tier
      1 capital to average assets
                  
                  
                  18,750
                  
                  
                  
                  10.06
                  %
                  
                  
                  6,805
                  
                  
                  
                  4.00
                  %
                  
                  
                  8,506
                  
                  
                  
                  5.00
                  %





The
payment of dividends by the Bank to Ohio Legacy and by Ohio Legacy to its
shareholders is subject to restrictions by regulatory agencies.  These
restrictions generally limit the Bank’s dividends to the sum of its current
year’s and the prior two years’ retained earnings. In addition, dividends may
not reduce capital levels below the minimum regulatory requirements as described
above. As of February 28, 2010, based on its year to date and previous year’s
earnings, the Company is not able to declare dividends without prior approval
from its regulators. Pursuant to the Consent Order, prior to paying any
dividends, the Bank must provide a written request to the OCC for review and
determination of no supervisory objection.  In addition to the
dividend restrictions above, the Bank is not permitted to accept brokered
deposits without prior approval from its regulators.





INTEREST
RATE SENSITIVITY





The
following table details the variable rate composition of our interest-earning
assets at December 31 2009 and 2008:


24





Percent
      variable rate2009
                
                
                2008Interest-bearing
      deposits and federal funds sold
                
                
                100
                %
                
                
                100
                %Securities
                
                
                8
                
                
                
                19Loans
                
                
                75
                
                
                
                76Federal
      bank stock
                
                
                100
                
                
                
                100Total
      interest-earning assets
                
                
                66
                %
                
                
                64
                %





The
Company performs liquidity risk analysis at least monthly and interest rate risk
analysis at least quarterly. This information is used to assist in managing the
balance sheet to reduce the impact of changes in interest rates on earnings and
equity. Approximately 34.2% of the interest-earning assets and 72.4% of the
interest-bearing liabilities on our balance sheet at December 31, 2009 were
scheduled to mature or subject to repricing during 2010.





We
believe that the Bank is "liability sensitive" over a twelve-month horizon at
December 31, 2009. Usually, this would mean an increasing interest rate
environment would cause a drop in net interest income and a falling interest
rate scenario would have the inverse effect. However, we cannot be certain that
our net interest income would contract if interest rates increased because the
composition of our assets and liabilities is constantly changing due to the
variability of our loan prepayment experience, the behavior of core deposit
customers and other factors.





IMPACT
OF INFLATION AND CHANGING PRICES





The
majority of our assets and liabilities are monetary in nature; therefore, we
differ greatly from most commercial and industrial companies that have
significant investments in fixed assets or inventories. However, inflation does
have an important impact on the growth of total assets in the banking industry
and the resulting need to increase equity capital at higher than normal rates in
order to maintain an appropriate equity-to-assets ratio. Inflation significantly
affects noninterest expense, which tends to rise during periods of general
inflation. Deflation, or a decrease in overall prices from one period to the
next, could have a negative impact on the Company’s operations and financial
condition. Deflationary periods impute a higher borrowing cost to debtors as the
purchasing power of a dollar increases with time. This may decrease the demand
for loan products offered by the Bank.





We
believe the most significant impact on our financial results is our ability to
react to changes in interest rates. While we seek to maintain a fairly balanced
position between interest rate sensitive assets and liabilities and to actively
manage our balance sheet in order to protect against the effects of wide
interest rate fluctuations on our net income and shareholders’ equity,
constraints on capital and other factors may also affect our ability to minimize
the impact of changes in interest rates.


25


Item
8.  Financial Statements and Supplementary Data.





CONSOLIDATED
BALANCE SHEETS


As of
December 31, 2009 and 2008





2009
              
              
              2008ASSETSCash
      and due from banks
              
              $
              1,970,133
              
              
              $
              7,652,710Federal
      funds sold and interest-bearing deposits in financial
      institutions
              
              
              22,195,657
              
              
              
              3,815,227Cash
      and cash equivalents
              
              
              24,165,790
              
              
              
              11,467,937Certificate
      of deposit in financial institution
              
              
              100,000
              
              
              
              100,000Securities
      available for sale
              
              
              26,892,105
              
              
              
              32,726,863Securities
      held to maturity (fair value 2009 - $3,050,740, 2008 -
      $3,003,825)
              
              
              2,996,826
              
              
              
              2,999,813Loans
      held for sale
              
              
              195,247
              
              
              
              1,012,038Loans,
      net of allowance of $3,945,670 and $3,398,284
              
              
              100,855,165
              
              
              
              126,836,473Federal
      bank stock
              
              
              1,267,250
              
              
              
              1,455,100Premises
      and equipment, net
              
              
              2,952,392
              
              
              
              3,284,884Intangible
      assets
              
              
              -
              
              
              
              59,901Other
      real estate owned
              
              
              3,175,658
              
              
              
              5,215,696Accrued
      interest receivable and other assets
              
              
              640,595
              
              
              
              1,375,369Total
      assets
              
              
              163,241,028
              
              
              
              186,534,074LIABILITIESDeposits:Noninterest-bearing
      demand
              
              
              15,521,829
              
              
              
              16,659,300Interest-bearing
      demand
              
              
              9,372,841
              
              
              
              10,070,737Savings
      and money market
              
              
              57,119,495
              
              
              
              53,483,533Certificates
      of deposit, net
              
              
              57,784,548
              
              
              
              65,491,464Total
      deposits
              
              
              139,798,713
              
              
              
              145,705,034Repurchase
      agreements
              
              
              1,037,776
              
              
              
              1,405,619Short
      term Federal Home Loan Bank advances
              
              
              -
              
              
              
              6,850,000Federal
      Home Loan Bank advances
              
              
              18,500,000
              
              
              
              21,000,000Capital
      lease obligations
              
              
              440,786
              
              
              
              469,060Accrued
      interest payable and other liabilities
              
              
              1,097,242
              
              
              
              1,583,504Total
      liabilities
              
              
              160,874,517
              
              
              
              177,013,217Commitments
      and contingent liabilities (Note 15)SHAREHOLDERS’
      EQUITYPreferred
      stock, no par value, 500,000 shares authorized and none
      outstanding
              
              
              -
              
              
              
              -Common
      stock, no par value, 5,000,000 shares authorized; 2,214,564 outstanding in
      2009 and 2008
              
              
              18,782,779
              
              
              
              18,808,311Accumulated
      deficit
              
              
              (16,178,901
              )
              
              
              (9,519,307
              )Accumulated
      other comprehensive income (loss)
              
              
              (237,367
              )
              
              
              231,853Total
      shareholders’ equity
              
              
              2,366,511
              
              
              
              9,520,857Total
      liabilities and shareholders’ equity
              
              $
              163,241,028
              
              
              $
              186,534,074





See
accompanying notes to consolidated financial statements.




26




CONSOLIDATED
STATEMENTS OF OPERATIONS


For the
years ended December 31, 2009 and 2008





2009
              
              
              2008Interest
      and dividends income:Loans,
      including fees
              
              $
              6,984,552
              
              
              $
              8,681,282Securities,
      taxable
              
              
              1,504,830
              
              
              
              1,731,333Securities,
      tax-exempt
              
              
              114,396
              
              
              
              114,443Interest-bearing
      deposits, federal funds sold and other
              
              
              37,238
              
              
              
              69,435Dividends
      on federal bank stock
              
              
              64,465
              
              
              
              81,115Total
      interest and dividends income
              
              
              8,705,481
              
              
              
              10,677,608Interest
      expense:Deposits
              
              
              3,321,169
              
              
              
              4,090,296Short
      term Federal Home Loan Bank advances
              
              
              2,085
              
              
              
              76,638Federal
      Home Loan Bank advances
              
              
              648,426
              
              
              
              728,176Repurchase
      agreements
              
              
              4,464
              
              
              
              24,598Capital
      leases
              
              
              73,709
              
              
              
              77,898Total
      interest expense
              
              
              4,049,853
              
              
              
              4,997,606Net
      interest income
              
              
              4,655,628
              
              
              
              5,680,002Provision
      for loan losses
              
              
              4,507,055
              
              
              
              2,361,496Net
      interest income after provision for loan losses
              
              
              148,573
              
              
              
              3,318,506Noninterest
      income:Service
      charges and other fees
              
              
              829,409
              
              
              
              955,226Gain
      on sales of loans
              
              
              57,351
              
              
              
              179,474Gain
      on sales of securities available for sale, net
              
              
              918,187
              
              
              
              -Other
      than temporary impairment of securities
              
              
              (111,200
              )
              
              
              (2,859,024
              )Loss
      on disposition or direct write-down of other real estate
    owned
              
              
              (1,522,008
              )
              
              
              (537,770
              )Loss
      on disposition of fixed assets
              
              
              (4,787
              )
              
              
              -Other
      income
              
              
              58,729
              
              
              
              203,270Total
      other income
              
              
              225,681
              
              
              
              (2,058,824
              )Noninterest
      expense:Salaries
      and benefits
              
              
              2,822,371
              
              
              
              3,386,041Occupancy
      and equipment
              
              
              840,933
              
              
              
              965,895Professional
      fees
              
              
              537,541
              
              
              
              333,348Franchise
      tax
              
              
              112,209
              
              
              
              189,009Data
      processing
              
              
              681,719
              
              
              
              677,666Marketing
      and advertising
              
              
              100,208
              
              
              
              177,218Stationery
      and supplies
              
              
              69,000
              
              
              
              105,907Amortization
      of intangible asset
              
              
              59,900
              
              
              
              90,421Deposit
      expenses and insurance
              
              
              908,413
              
              
              
              282,647Other
      expenses
              
              
              1,152,543
              
              
              
              1,098,619Total
      noninterest expense
              
              
              7,284,837
              
              
              
              7,306,771Loss
      before income taxes
              
              
              (6,910,583
              )
              
              
              (6,047,089
              )Income
      tax expense (benefit)
              
              
              (250,989
              )
              
              
              -Net
      loss
              
              $
              (6,659,594
              )
              
              $
              (6,047,089
              )Basic
      net earnings (loss) per share
              
              $
              (3.01
              )
              
              $
              (2.73
              )Diluted
      net earnings (loss) per share
              
              $
              (3.01
              )
              
              $
              (2.73
              )





See
accompanying notes to consolidated financial statements.


27


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


For the
years ended December 31, 2009 and 2008





Outstanding
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          AccumulatedShares of
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          Other
                                          
                                          
                                          TotalCommon
                                          
                                          
                                          Common
                                          
                                          
                                          Accumulated
                                          
                                          
                                          Comprehensive
                                          
                                          
                                          Shareholders’Stock
                                          
                                          
                                          Stock
                                          
                                          
                                          Deficit
                                          
                                          
                                          Income (Loss)
                                          
                                          
                                          EquityBalance,
      January 1, 2008
                                          
                                          
                                          2,214,564
                                          
                                          
                                          $
                                          18,781,925
                                          
                                          
                                          $
                                          (3,472,218
                                          )
                                          
                                          $
                                          3,936
                                          
                                          
                                          $
                                          15,313,643Stock
      based compensation expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          26,386
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          26,386Comprehensive
      income (loss):Net
      loss
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,047,089
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,047,089
                                          )Net
      unrealized loss on securities available for sale arising during the
      period
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          227,917
                                          
                                          
                                          
                                          227,917Total
      comprehensive loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (5,819,172
                                          )Balance,
      December 31, 2008
                                          
                                          
                                          2,214,564
                                          
                                          
                                          
                                          18,808,311
                                          
                                          
                                          
                                          (9,519,307
                                          )
                                          
                                          
                                          231,853
                                          
                                          
                                          
                                          9,520,857Stock
      based compensation expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,532
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,532
                                          )Comprehensive
      income (loss):Net
      income (loss)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,659,594
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,659,594
                                          )Net
      unrealized loss on securities available for sale  arising during
      the period, including effect of reclassifications
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (469,220
                                          )
                                          
                                          
                                          (469,220
                                          )Total
      comprehensive loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (7,128,814
                                          )Balance,
      December 31, 2009
                                          
                                          
                                          2,214,564
                                          
                                          
                                          $
                                          18,782,779
                                          
                                          
                                          $
                                          (16,178,901
                                          )
                                          
                                          $
                                          (237,367
                                          )
                                          
                                          $
                                          2,366,511




See
accompanying notes to consolidated financial statements.


28


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For the
years ended December 31, 2009 and 2008





2009
              
              
              2008Cash flows from operating
      activities:Net
      loss
              
              $
              (6,659,594
              )
              
              $
              (6,047,089
              )Adjustments
      to reconcile net loss to net cash from operating
    activities:Provision
      for loan losses
              
              
              4,507,055
              
              
              
              2,361,496Depreciation
      and amortization
              
              
              402,421
              
              
              
              500,519Securities
      amortization and accretion, net
              
              
              127,335
              
              
              
              19,006Gain
      on sale of securities available for sale
              
              
              (918,187
              )
              
              
              -Other
      than temporary impairment of securities
              
              
              111,200
              
              
              
              2,859,024Gain
      on sale of loans held for sale
              
              
              (57,351
              )
              
              
              (179,474
              )Stock
      based compensation expense
              
              
              (25,532
              )
              
              
              26,386Federal
      Home Loan Bank (FHLB) stock dividends
              
              
              -
              
              
              
              (39,600
              )Origination
      of loans held for sale
              
              
              (2,325,069
              )
              
              
              (14,199,868
              )Proceeds
      from sale of loans held for sale
              
              
              3,199,211
              
              
              
              14,279,210Loss
      on write-down and disposition of other real estate owned
              
              
              1,522,008
              
              
              
              537,770Loss
      on disposition of fixed assets
              
              
              4,787
              
              
              
              -Net
      change in:Accrued
      interest receivable and other assets
              
              
              734,773
              
              
              
              112,845Accrued
      interest payable and other liabilities
              
              
              (366,820
              )
              
              
              389,445Deferred
      loan fees
              
              
              17,257
              
              
              
              (47,517
              )Net
      cash from operating activities
              
              
              273,494
              
              
              
              572,153Cash
      flows from investing activities:Available
      for sale securitiesPurchases
              
              
              (58,739,297
              )
              
              
              (9,920,610
              )Sales
              
              
              59,368,575
              
              
              
              -Maturities,
      calls and paydowns
              
              
              5,299,459
              
              
              
              3,674,321Proceeds
      from sale of other real estate owned
              
              
              1,599,970
              
              
              
              385,614Redemptions
      of federal bank stock
              
              
              187,850
              
              
              
              125,700Net
      change in loans
              
              
              20,444,909
              
              
              
              (874,530
              )Improvements
      to real estate owned
              
              
              (69,855
              )
              
              
              (356,164
              )Proceeds
      from sale of premises and equipment
              
              
              2,350
              
              
              
              -Purchases
      of premises and equipment
              
              
              (17,164
              )
              
              
              (793,076
              )Net
      cash from investing activities
              
              
              28,076,797
              
              
              
              (7,758,745
              )Cash
      flows from financing activities:Net
      change in deposits
              
              
              (5,906,321
              )
              
              
              (1,644,318
              )Net
      change in repurchase agreements
              
              
              (367,843
              )
              
              
              (617,250
              )Repayment
      of capital lease obligations
              
              
              (28,274
              )
              
              
              (24,108
              )Proceeds
      from short term FHLB advances, net of repayments
              
              
              (6,850,000
              )
              
              
              4,825,000Proceeds
      from FHLB advances
              
              
              3,000,000
              
              
              
              11,000,000Repayments
      of FHLB advances
              
              
              (5,500,000
              )
              
              
              (2,000,000
              )Net
      cash from financing activities
              
              
              (15,652,438
              )
              
              
              11,539,324Net
      change in cash and cash equivalents
              
              
              12,697,853
              
              
              
              4,352,732Cash
      and cash equivalents at beginning of period
              
              
              11,467,937
              
              
              
              7,115,205Cash
      and cash equivalents at end of period
              
              $
              24,165,790
              
              
              $
              11,467,937Supplemental
      disclosures of cash flow information:Cash
      received during the year for:Federal
      income tax refund
              
              $
              250,989
              
              
              
              -Cash
      paid during the year for:Interest
              
              $
              4,137,853
              
              
              $
              5,040,396Federal
      income taxes
              
              
              -
              
              
              
              -Noncash
      transactions:Transfer
      of loans to other real estate owned
              
              $
              1,017,541
              
              
              $
              3,366,549





See
accompanying notes to consolidated financial statements.


29


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 (the “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 in July 1999 under the laws of
the State of Ohio.  The Bank provides financial services through its
full-service offices in Wooster, North Canton 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 assets, 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. Loans to lessors of buildings, warehouse and residential properties
represent 1,288.0% of capital. Additionally, loans to new housing builders,
dentists and used car dealers represent 72.0%, 48.0% and 31.0% of capital,
respectively. Other financial instruments that potentially represent
concentrations of credit risk include deposit accounts in other financial
institutions and federal funds sold.





Use of
Estimates:  To prepare financial statements in conformity with
U.S. generally accepted accounting principles, 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.





Cash Flows:  Cash
and cash equivalents includes cash, deposits with other financial institutions
with original maturities of less than 90 days and federal funds sold. Net cash
flows are reported for customer loan and deposit transactions, interest bearing
deposits in other financial institutions, repurchase agreements, and short term
FHLB advances.





Interest–Bearing Deposits in Other
Financial Institutions: Interest-bearing deposits in other financial
institutions mature within one year and are carried at cost.





Restrictions on
Cash:  Cash on hand or on deposit with the Federal Reserve Bank
of $1,167,000 and $1,287,000 was required to meet regulatory reserve and
clearing requirements at December 31, 2009 and 2008, respectively.





Securities:  Securities
are classified as held to maturity and carried at amortized cost when management
has the positive intent and ability to hold them to maturity. Debt securities
are classified as available for sale when they might be sold before
maturity.  Equity securities with readily determinable fair values are
classified as available for sale. Securities available for sale are carried at
fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax.





Interest
income includes amortization of purchase premium or
discount.  Premiums and discounts on securities are amortized on the
level-yield method without anticipating prepayments, except for mortgage-backed
securities where prepayments are anticipated.  Gains and losses on
sales are recorded on the trade date and determined using the specific
identification method.





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 evaluation.


30


Loans Held for
Sale:  Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or market, as
determined by outstanding commitments from investors.  Net unrealized
losses, if any, are recorded as a valuation allowance and charged to earnings.
Mortgage loans held for sale are generally sold with servicing rights released.
Gains and losses on sales of mortgage loans are based on the difference between
the selling price and the carrying value of the related loan sold.





Loans:  Loans that
management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at the principal balance outstanding, net
of deferred loan fees and costs and an allowance for loan losses.





Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and recognized in interest income
using the level-yield method without anticipating prepayments.





Interest
income on loans is discontinued at the time the loan becomes 90 days delinquent
unless the credit is well-secured and in process of collection. In all cases,
loans are placed on nonaccrual status or charged-off at an earlier date if
collection of principal or interest is considered doubtful. Delinquency status
is based on contractual payment due date.





All
interest accrued but not received for loans placed on nonaccrual status are
reversed against interest income. Interest received on such loans is accounted
for on the cash-basis or cost-recovery method until qualifying for return to
accrual. Loans are returned to accrual status when all principal and interest
amounts contractually due are brought current and future payments are reasonable
assured.





Allowance for loan and lease
losses:  The allowance for loan and lease losses (“ALLL”) 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 and assigned a
probable loss amount.  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.  The Company then divides the remaining loans by risk
into three grades: pass, special mention and substandard. Loans with a pass
grade are divided into nine separate categories. Total charge-offs for a
specified time period, currently 2.5 years, are divided into the same categories
and used as a starting point to estimate credit losses in each category. Other
subjective factors, such as industry conditions, local economic trends and
similar items are assigned a numeric value by category and are also applied to
the balances in the pass grade. Historic loss percentages are applied separately
to the special mention and substandard pools of loans based on actual
charge-offs for each pool in total regardless of the category.


- 31
-





Transfers of Financial Assets:Transfers of financial assets are accounted for as sales, when control
over the assets has been relinquished. Control over transferred assets is deemed
to be surrendered when the assets have been isolated from the Company, the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and the
Company does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.





Federal Bank
Stock:The Bank is a member of the Federal Home Loan Bank (the
“FHLB”) system. Members are required to own a certain amount of stock based on
the level of borrowing and other factors, and may invest in additional amounts.
FHLB stock is carried at cost, classified as federal bank stock on the balance
sheet, and periodically evaluated for impairment based on ultimate recovery of
par value. Both cash and stock dividends are reported as income. Federal Reserve
Bank stock is also carried at cost. Cash dividends are reported as income. At
December 31, 2009, federal bank stock consisted of Federal Home Loan Bank stock
of $1,021,000 and Federal Reserve Bank stock of $246,250. As of December 31,
2008, federal bank stock consisted of Federal Home Loan Bank stock of $1,020,000
and Federal Reserve Bank stock of $435,100.





Premises and
Equipment:Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed over an
asset’s useful life, primarily using the straight line method. Leasehold
improvements and office buildings under a capital lease are amortized over the
original term of the lease. Furniture, fixture and equipment have useful lives
ranging from 3 to 7 years. Buildings have useful lives ranging from 15 to 20
years. Premises and equipment and other long-lived assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable
through future undiscounted cash flows. If impaired, the assets are recorded at
fair value.





Intangible
Assets:Intangible assets typically consist of core deposit
intangible assets arising from a branch acquisition. They are initially measured
at fair value and then are amortized on an accelerated method over their useful
lives, which range from 7 to 10 years.




Other Real Estate
Owned: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 subsequent to foreclosure,
a valuation allowance is recorded through expense or direct write-downs are
recorded to the carrying amount of the asset. Costs after acquisition are
expensed. Improvements that improve the fair value of the property are
capitalized. Real estate owned at December 31, 2009 and 2008 includes a property
placed into receivership until it can be improved and sold in an orderly
fashion.





Long-Term Assets: Premises and
equipment, intangible assets, and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
fair value.





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 the 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.





The
Company adopted guidance issued by the Financial Accounting Standards Board
(“FASB”) with respect to accounting for uncertainty in income taxes as of
January 1, 2007. A tax position is recognized as a benefit only if it is “more
likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded. The adoption had no effect on the Company’s
financial statements. The Company recognizes interest and/or penalties related
to income tax matters in income tax expense.





Earnings Per
Share:  Basic earnings (loss) per share is net income (loss)
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share includes the dilutive effect of
additional potential common shares that may be issued upon the exercise of stock
options and stock warrants. The following table details the calculation of basic
and diluted earnings (loss) per share for the years ended December
31:


- 32
-





2009
                
                
                2008BASIC:Net
      loss
                
                $
                (6,659,594
                )
                
                $
                (6,047,089
                )Weighted
      average common shares outstanding
                
                
                2,214,564
                
                
                
                2,214,564Basic
      loss per share
                
                $
                (3.01
                )
                
                $
                (2.73
                )





2009
                    
                    
                    2008DILUTED:Net
      loss
                    
                    $
                    (6,659,594
                    )
                    
                    $
                    (6,047,089
                    )Weighted
      average common shares outstanding
                    
                    
                    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
                    
                    
                    
                    2,214,564Diluted
      loss per share
                    
                    $
                    (3.01
                    )
                    
                    $
                    (2.73
                    )





The
computation of diluted loss per share excludes potential dilutive common shares
if the effect of their exercise would be antidilutive. The number of shares
excluded in 2009 and 2008 was 312,300 and 334,700, respectively.





Stock-Based
Compensation:  Compensation cost is recognized for stock
options and restricted stock awards issued to employees, based on the fair value
of these awards at the date of grant. A Black-Scholes model is utilized to
estimate the fair value of stock options, while the market price of the
Company’s common stock at the date of grant is used for restricted stock awards.
Compensation cost is recognized over the required service period, generally
defined as the vesting period. For awards with graded vesting, compensation cost
is recognized on a straight-line basis over the requisite service period for the
entire award.





Loan Commitments and Related
Financial Instruments:  Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans and
commercial letters of credit issued to meet customer financing needs. The face
amount for these items represents the exposure to loss before considering
customer collateral or ability to repay. Such financial instruments are recorded
when they are funded.





Comprehensive Income
(Loss):  Comprehensive income (loss) consists of net income
(loss) and other comprehensive income (loss). Other comprehensive income (loss)
includes unrealized gains and losses on securities available for sale, which are
also recognized as a separate component of equity, net of tax.





Loss Contingencies:Loss
contingencies, including claims and legal actions arising in the ordinary course
of business, are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated. Management does not
believe there are any such matters that will have a material effect on the
financial statements.





Dividend
Restriction:  Banking regulations require the Bank to maintain
certain capital levels and may limit the dividends paid by the Bank to Ohio
Legacy.  See Notes 14 and 18 for a further description of regulatory
restrictions.


- 33
-





Fair Values of Financial
Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in Note 11. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or market conditions could significantly affect the
estimates.





Operating
Segments:While the Company’s chief decision-makers monitor
the revenue streams of the Company’s various products and services, the
identifiable segments are not material and operations are managed and financial
performance is evaluated on a Company-wide basis. Accordingly, all of the
Company’s financial services operations are considered by management to be
aggregated into one reportable operating segment.





Reclassifications:  Some
items in the prior-year financial statements were reclassified to conform to the
current year’s presentation.





Adoption of New Accounting
Standards:  In September 2006, the FASB issued guidance that
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. This guidance also establishes a fair
value hierarchy about the assumptions used to measure fair value and clarifies
assumptions about risk and the effect of a restriction on the sale or use of an
asset. The guidance was effective for fiscal years beginning after November 15,
2007. In February 2008, the FASB issued guidance that delayed the effective date
of this fair value guidance for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The effect of adopting the
guidance effective this year was not material in 2009.





In April
2009, the FASB amended existing guidance for determining whether impairment is
other-than-temporary for debt securities. The guidance 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 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 as impairment
through earnings. For securities that do not meet the aforementioned criteria,
the amount of impairment is split into two components as follows: (1)
other-than-temporary impairment (“OTTI”) related to other factors, which is
recognized in other comprehensive income; and (2) OTTI related to credit loss,
which must be recognized in the income statement. The credit loss is defined as
the difference between the present value of the cash flows expected to be
collected and the amortized cost basis. Additionally, disclosures about
other-than-temporary impairments for debt and equity securities were expanded.
This guidance was effective for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. The effect of adopting this new guidance was not material in
2009.





In April
2009, the FASB issued guidance that emphasizes that the objective of a fair
value measurement does not change even when market activity for the asset or
liability has decreased significantly. Fair value is the price that would be
received for an asset sold or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market conditions.
When observable transactions or quoted prices are not considered orderly, then
little, if any, weight should be assigned to the indication of the asset or
liability’s fair value. Adjustments to those transactions or prices should be
applied to determine the appropriate fair value. The guidance, which was applied
prospectively, was effective for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. The effect of adopting this new guidance was not material in
2009.


- 34
-





Newly Issued Not Yet
Effective Standards





In June
2009, the FASB amended previous guidance relating to transfers of financial
assets and eliminated the concept of a qualifying special purpose
entity.  This guidance must be applied as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. This guidance must be applied
to transfers occurring on or after the effective date. Additionally, on and
after the effective date, the concept of a qualifying special-purpose entity is
no longer relevant for accounting purposes. Therefore, formerly qualifying
special-purpose entities should be evaluated for consolidation by reporting
entities on and after the effective date in accordance with the applicable
consolidation guidance. The disclosure provisions were also amended and apply to
transfers that occurred both before and after the effective date of this
guidance. The effect of adopting this new guidance is not expected to be
material.





NOTE
2 - SUBSEQUENT EVENTS





At a
special meeting held January 8, 2010, the Ohio Legacy’s shareholders approved
the issuance and sale of up to 17,500,000 additional shares of Ohio Legacy
common stock. Shareholder approval was obtained in conjunction with a Stock
Purchase Agreement that the Company entered into with Excel Financial on
November 15, 2009.  At the special meeting, shareholders
approved:  (1) an amendment to Ohio Legacy’s articles of incorporation
to increase the number of authorized shares of common stock from 5,000,000 to
22,500,000; (2) the issuance of 15,000,000 shares of common stock to Excel
Bancorp, pursuant to the Stock Purchase Agreement, and the issuance of up to
2,500,000 additional shares to other investors in a private offering made in
connection with the sale of shares to Excel Bancorp; and (3) the control share
acquisition by Excel Bancorp of 15,000,000 shares of common stock.





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





The net
proceeds to the Company of the stock offering were $16,766,257 after payment of
various costs totaling $733,743.  Proceeds were used by the Company to
increase the capital level of the Bank in the amount of $16,184,135, to pay
direct offering costs including legal, investment banking, accounting and
issuance expenses of $733,743, and to repay notes payable and accrued interest
to the organizers of Excel Bancorp and Excel Financial in the amount of $526,915
for advances made to Excel Financial for organization and operating expenses
related to its pursuit of a bank acquisition.  The Company accepted
the assignment of the notes payable to the organizers of Excel Bancorp and Excel
Financial in exchange for their agreement to waive a closing condition that
required the Bank to maintain a minimum tier 1 capital level of $5.7
million.





As
discussed in Notes 14 and 18, the Bank entered into a Consent Order in 2009 that
specified achievement of higher capital ratios. Following the Closing, the Bank
exceeded the minimum capital ratios required under the Consent Order with the
OCC of tier 1 capital of at least 8.75% of adjusted total assets and total
risk-based capital of at least 13.25% of risk-weighted assets. However, until
the Consent Order is terminated, the Bank cannot be classified as
well-capitalized under prompt corrective action provisions.





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





The
issuance of common stock to Excel Bancorp resulted in an “ownership change” of
the Company, as broadly defined in Section 382 of the Internal Revenue
Code.  As a result of the ownership change, utilization of the
Company’s net operating loss carryforwards and certain built-in losses under
federal income tax laws will be subject to annual limitation.  The
annual limitation placed on the Company’s ability to utilize these potential tax
deductions will equal the product of an applicable interest rate mandated under
federal income tax laws and the Company’s value immediately before the ownership
change.  Given the limited carryforward period assigned to these tax
deductions in excess of this annual limit, some portion of these potential
deductions will be lost and, consequently, the related tax benefits will not be
recorded in the financial statements.


- 35
-





NOTE
3 – SECURITIES





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





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





Gross
                          
                          
                          GrossAmortized
                          
                          
                          Unrealized
                          
                          
                          Unrealized
                          
                          
                          FairCost
                          
                          
                          Gains
                          
                          
                          Losses
                          
                          
                          ValueAvailable
      for sale, carried at fair value:December
      31, 2008U.S.
      Government-sponsored enterprises
                          
                          $
                          1,000,001
                          
                          
                          $
                          31,762
                          
                          
                          
                          -
                          
                          
                          $
                          1,031,763Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                          
                          
                          30,630,212
                          
                          
                          
                          622,755
                          
                          
                          
                          (72,487
                          )
                          
                          
                          31,180,480Other
      mortgage-backed securities
                          
                          
                          545,358
                          
                          
                          
                          -
                          
                          
                          
                          (88,738
                          )
                          
                          
                          456,620Equity
      securities
                          
                          
                          200,000
                          
                          
                          
                          -
                          
                          
                          
                          (142,000
                          )
                          
                          
                          58,000Total
                          
                          $
                          32,375,571
                          
                          
                          $
                          654,517
                          
                          
                          $
                          (303,225
                          )
                          
                          $
                          32,726,863





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





Carrying
                    Amount
                
                
                Gross
                    Unrecognized
                    Gains
                
                
                Gross
                    Unrecognized
                    Losses
                
                
                Fair ValueHeld
      to maturity, carried at amortized cost:December 31, 2009Municipal
      securities
                
                $
                2,996,826
                
                
                $
                56,408
                
                
                $
                (2,494
                )
                
                $
                3,050,740December 31, 2008Municipal
      securities
                
                $
                2,999,813
                
                
                $
                19,143
                
                
                $
                (15,131
                )
                
                $
                3,003,825





Proceeds
from sales of securities available for sale were $59.4 million for 2009. Gross
gains of $918,200 were realized on the sales during 2009. Purchases for 2009
totaled $58.7 million, all of which were Government National Mortgage
Association (“GNMA”)  pass-through mortgage backed securities. There
were no sales of securities during 2008.


- 36
-





Securities
with unrealized losses for less than one year and one year or more at December
31, 2009 were as follows:





Less than 12 months
                        
                        
                        12 Months or More
                        
                        
                        TotalFair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        Unrealized(Dollars
      in thousands)
                        
                        Value
                        
                        
                        Loss
                        
                        
                        Value
                        
                        
                        Loss
                        
                        
                        Value
                        
                        
                        LossAvailable for sale:Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                        
                        $
                        15,499
                        
                        
                        $
                        (269
                        )
                        
                        $
                        273
                        
                        
                        $
                        (6
                        )
                        
                        $
                        15,772
                        
                        
                        $
                        (275
                        )Other
      mortgage-backed securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        396
                        
                        
                        
                        (27
                        )
                        
                        
                        396
                        
                        
                        
                        (27
                        )Total
                        
                        $
                        15,499
                        
                        
                        $
                        (269
                        )
                        
                        $
                        669
                        
                        
                        $
                        (33
                        )
                        
                        $
                        16,168
                        
                        
                        $
                        (302
                        )Held to maturity:Municipal
      securities
                        
                        $
                        331
                        
                        
                        $
                        (2
                        )
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        331
                        
                        
                        $
                        (2
                        )





Securities
with unrealized losses for less than one year and one year or more at December
31, 2008 were as follows:





Less than 12 months
                        
                        
                        12 Months or More
                        
                        
                        TotalFair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        Unrealized
                        
                        
                        Fair
                        
                        
                        Unrealized(Dollars
      in thousands)
                        
                        Value
                        
                        
                        Loss
                        
                        
                        Value
                        
                        
                        Loss
                        
                        
                        Value
                        
                        
                        LossAvailable for sale:Mortgage-backed
      securities
                        
                        $
                        1,494
                        
                        
                        $
                        (28
                        )
                        
                        $
                        1,766
                        
                        
                        $
                        (133
                        )
                        
                        $
                        3,260
                        
                        
                        $
                        (161
                        )Equity
      securities
                        
                        
                        58
                        
                        
                        
                        (142
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        58
                        
                        
                        
                        (142
                        )Total
                        
                        $
                        1,552
                        
                        
                        $
                        (170
                        )
                        
                        $
                        1,766
                        
                        
                        $
                        (133
                        )
                        
                        $
                        3,318
                        
                        
                        $
                        (303
                        )Held to maturity:Municipal
      securities
                        
                        $
                        1,539
                        
                        
                        $
                        (15
                        )
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,539
                        
                        
                        $
                        (15
                        )





Other-Than-Temporary-Impairment





Management
evaluates securities for OTTI at least on a quarterly basis, and more frequently
when economic or market conditions warrant such an evaluation.





As of
December 31, 2009, the Company’s security portfolio consisted of thirty-seven
securities, ten of which were in an unrealized loss position for less than
twelve months and two of which were in an unrealized loss position for twelve
months or longer. The unrealized losses are primarily related to the Company’s
mortgage-backed securities, as discussed below:




Equity
Securities


As a
result of actions of the Treasury Department in 2008, the Company recognized an
other than temporary impairment of the value of preferred equity securities
issued by FNMA and FHLMC.  These charges to earnings were $111,200 and
$2,859,024 in 2009 and 2008, respectively.  At December 31, 2009, the
fair value of the equities was $122,800, compared to a book value of
$88,800.


Mortgage-backed
securities





At
December 31, 2009, 93.9% of the mortgage-backed securities held by the Company
were issued by GNMA, which are backed by the full faith and credit of the U.S.
government, and an additional 4.6% were issued by the Federal National Mortgage
Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”),
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 December 31, 2009.


- 37
-





The
Company’s mortgage-backed securities portfolio includes one non-agency security
with a fair value of $396,400 which represents an unrealized loss of
approximately $27,500 at December 31, 2009. This non-agency mortgage-backed
security was rated AAA and Aaa by Standard and Poor’s and Moody’s, respectively,
when it was purchased and rated AAA and Aa2 at the balance sheet date. 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 mortgage loans available to support this
security had balances that were 6.6 times the estimated potential loss, an
increase from 3.5 times at issuance. As of February 28, 2010, 0.33% of the loans
serving as collateral for this security were 30 days delinquent, no loans were
60 days delinquent, 2.5% were 90 days delinquent, and 2.67% were in bankruptcy.
The loans are mortgages with an initial fixed rate for 10 years, which then
adjust annually at 2.75% over one year LIBOR. The average first rate reset will
occur in June, 2014. Although the borrowers are not required to make principal
payments during the initial 10 year period, 57.8% of the original principal had
been repaid as of December 31, 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. The Company does not have the intent to sell this security
and it is not more likely than not that the Company will be required
to sell the security before its anticipated recovery.  Based on these
factors, as of December 31, 2009, the Company believes there is no
OTTI.





The fair
value of debt securities and the carrying amount, if different, at year end 2009
by contractual maturity were as follows. Securities not due at a single maturity
date, mortgage-backed securities and equity securities, are shown
separately.


Held-to-maturity
                
                
                Available for
                    sale(Dollars in thousands)
                
                Carrying
                    Amount
                
                
                Fair Value
                
                
                Fair ValueDue
      in one year or less
                
                $
                -
                
                
                $
                -
                
                
                $
                -Due
      from one to five years
                
                
                798
                
                
                
                820
                
                
                
                -Due
      from five to ten years
                
                
                2,199
                
                
                
                2,231
                
                
                
                -Due
      after ten years
                
                
                -
                
                
                
                -
                
                
                
                -Equity
      securities
                
                
                -
                
                
                
                -
                
                
                
                123Mortgage-backed
      securities
                
                
                -
                
                
                
                -
                
                
                
                26,769Total
                
                $
                2,997
                
                
                $
                3,051
                
                
                $
                26,892





Securities
with a fair value of $4,243,000 and $4,514,000 were pledged as collateral for
public fund deposits at December 31, 2009 and 2008, respectively. Available for
sale securities with a fair value of $2,979,000 and $3,844,000 were pledged as
collateral for repurchase agreements (see Note 9) as of December 31, 2009 and
2008, respectively. Available for sale securities with a fair value of
$1,626,000 and $10,165,000 were pledged as collateral to the Federal Home Loan
Bank as of December 31, 2009 and 2008, respectively.





At
December 31, 2009, holdings of securities of specific issuers, other than
mortgage backed securities issued by U.S. Government-sponsored enterprises, in
an amount greater than 10% of shareholders’ equity, were as
follows:


Amortized Cost
                  
                  
                  Fair ValueLakewood
      Ohio City School District
                  
                  $
                  324,065
                  
                  
                  $
                  328,588Meigs
      Ohio Local School District
                  
                  
                  300,616
                  
                  
                  
                  313,059Beachwood
      Ohio Municipal Complex
                  
                  
                  291,563
                  
                  
                  
                  304,615Hicksville
      Ohio Exempted Village School District
                  
                  
                  346,059
                  
                  
                  
                  357,081North
      Canton Ohio Water System
                  
                  
                  537,431
                  
                  
                  
                  539,878Portsmouth
      Ohio City School District
                  
                  
                  333,973
                  
                  
                  
                  331,478Wadsworth
      Ohio City School District
                  
                  
                  254,214
                  
                  
                  
                  256,328Fredericktown
      Ohio Local School District
                  
                  
                  426,893
                  
                  
                  
                  433,113GMAC
      Mortgage
                  
                  
                  423,843
                  
                  
                  
                  396,370$
                  3,238,657
                  
                  
                  $
                  3,260,510


- 38
-





At
December 31, 2008, there were no such holdings except mortgage-backed securities
issued by U.S. Government-sponsored enterprises and debentures issued by the
Federal Home Loan Bank.





NOTE
4 – LOANS





Loans, by
collateral type, were as follows at December 31:





2009
                
                
                2008Balance
                
                
                Percent
                
                
                Balance
                
                
                PercentResidential
      real estate
                
                $
                33,147,634
                
                
                
                31.6
                %
                
                $
                37,091,918
                
                
                
                28.5
                %Multifamily
      residential real estate
                
                
                5,757,491
                
                
                
                5.5
                
                
                
                5,558,771
                
                
                
                4.2Commercial
      real estate
                
                
                47,639,944
                
                
                
                45.4
                
                
                
                56,921,284
                
                
                
                43.7Construction
                
                
                3,958,572
                
                
                
                3.8
                
                
                
                10,799,541
                
                
                
                8.3Commercial
                
                
                7,673,195
                
                
                
                7.3
                
                
                
                12,082,242
                
                
                
                9.3Consumer
      and home equity
                
                
                6,719,205
                
                
                
                6.4
                
                
                
                7,893,464
                
                
                
                6.0Total
      loans
                
                
                104,896,041
                
                
                
                100.0
                %
                
                
                130,347,220
                
                
                
                100.0
                %Less:
      Allowance for loan losses
                
                
                (3,945,670
                )
                
                
                
                
                
                
                (3,398,284
                )Net deferred loan fees
                
                
                (95,206
                )
                
                
                
                
                
                
                (112,463
                )Loans,
      net
                
                $
                100,855,165
                
                
                
                
                
                
                $
                126,836,473





Approximately
$23,436,000 and $24,656,000 of residential real estate loans were pledged as
collateral for FHLB advances at December 31, 2009 and 2008,
respectively.





Activity
in the allowance for loan losses for the years ended December 31 2009 and 2008
was as follows:





2009
                
                
                2008Balance,
      January 1
                
                $
                3,398,284
                
                
                $
                1,622,906Provision
      for loan losses
                
                
                4,507,055
                
                
                
                2,361,496Loans
      charged-off
                
                
                (4,428,448
                )
                
                
                (765,595
                )Recoveries
      of charged-off loans
                
                
                468,779
                
                
                
                179,477Balance,
      December 31
                
                $
                3,945,670
                
                
                $
                3,398,284Balance
      as a percentage of total loans
                
                
                3.76
                %
                
                
                2.61
                %





Loans
individually considered impaired and nonperforming loans were as follows at
December 31, 2009 and 2008, and during the years then ended:





2009
                
                
                2008At December 31:Loans
      past due over 90 days still on accrual
                
                $
                -
                
                
                $
                279,800Nonaccrual
      loans, includes smaller balance homogeneous loans
                
                
                5,826,976
                
                
                
                4,636,376Impaired
      loans, included in nonaccrual loans
                
                
                5,826,976
                
                
                
                4,616,376Impaired
      loans with no allowance for loan losses allocated
                
                
                5,826,976
                
                
                
                3,380,537Amount
      of the allowance for loan losses allocated
                
                
                -
                
                
                
                772,000During the year ended December
      31:Average
      of impaired loans during the year
                
                $
                6,800,848
                
                
                $
                3,522,152Interest
      income recognized during impairment
                
                
                500
                
                
                
                44,835Cash-basis
      interest income recognized during impairment
                
                
                500
                
                
                
                44,835Interest
      income foregone on nonaccrual loans
                
                $
                382,418
                
                
                $
                238,239


- 39
-





Loans to
principal officers, directors and their affiliates in 2009 were as
follows:





Balances,
      January 1
                  
                  $
                  3,911,750New
      loans
                  
                  
                  25,070Repayments
                  
                  
                  (211,588
                  )Balances,
      December 31
                  
                  $
                  3,725,232





NOTE
5 – OTHER REAL ESTATE OWNED





Other
real estate owned was as follows for the years ended December 31 2009 and
2008:





2009
                
                
                2008Residential
      real estate
                
                $
                1,357,309
                
                
                $
                2,430,803Land
      development
                
                
                1,818,349
                
                
                
                2,784,893Total
      real estate owned
                
                $
                3,175,658
                
                
                $
                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
December 31, 2009 and 2008 includes a property placed into receivership until it
can be improved and sold in an orderly fashion.





NOTE
6 - PREMISES AND EQUIPMENT





Premises
and equipment were as follows at December 31 2009 and 2008:





2009
                
                
                2008Land
                
                $
                638,786
                
                
                $
                638,786Office
      building
                
                
                2,031,368
                
                
                
                2,031,368Leasehold
      improvements
                
                
                764,767
                
                
                
                764,767Furniture,
      fixtures and equipment
                
                
                1,663,535
                
                
                
                1,769,025Premises
      and equipment, cost
                
                
                5,098,456
                
                
                
                5,203,946Less:  Accumulated
      depreciation
                
                
                (2,146,064
                )
                
                
                (1,919,062
                )Premises
      and equipment, net
                
                $
                2,952,392
                
                
                $
                3,284,884





During
the years ended December 31, 2009 and 2008, depreciation expense was $342,520
and $410,098, respectively.  Depreciation expense includes
amortization of assets leased under capital leases.





The
Company’s main banking office is located in a leased premises at 305 West
Liberty Street in Wooster, Ohio.  Monthly rent for the first five
years, which ended in April 2006, was $4,200 plus an amount equal to the monthly
payment to amortize the construction costs of $550,000 over 180 months, with an
interest rate of 10%.  The base rent increases every five years by the
percentage increase in the Consumer Price Index over the same five-year
period.  The monthly base rent increased to $5,562 in May
2006.  The final scheduled increase in base rent will occur in May
2011. Base rent will remain at that level until the expiration of the lease in
April 2016. The building portion of the lease is accounted for as a capital
lease while the land portion of the lease is accounted for as an operating
lease, due to the land exceeding 25% of the total fair value of the
property.


- 40
-





The
Bank’s operations center is located at 2375 Benden Drive, Suite C, Wooster,
Ohio. In 2007, the Bank entered into a five year operating lease agreement for
the property. Annual rent payments are $23,004 for the first year, then increase
annually as follows: $28,752 for the second year, $34,500 for the third year,
$40,248 for the fourth year and $45,996 for the fifth year. At the end of the
initial five years, the Bank has the right to extend the term of the lease for
five additional one year terms. The rent will increase 3.0% for each renewal
term.





The
Canton banking office is located at 4026 Dressler Road in Canton, Ohio. In 2001,
the Bank entered into a ten-year operating lease agreement for the property with
two five-year renewal options.  The annual rent under the lease
increased to $88,851 for the second five years of the original term of the
lease.





The
Milltown banking office is located at 3562 Commerce Parkway in Wooster, Ohio.
The Bank assumed an operating lease on the property upon the consummation of a
purchase and assumption agreement (discussed in Note 7) in August 2004, and
subsequently purchased the building in 2008.





The North
Canton banking office is located at 600 South Main Street in North Canton, Ohio.
The Bank owns the land and building, which was constructed during
2005.





Rent
expense was $186,800 and $264,800 for the years ended December 31, 2009 and
2008, respectively. Estimated rental commitments under all leases for their
non-cancelable periods were as follows as of December 31, 2009:





Operating
                    Leases
                
                
                Capital
                    Leases2010
                
                $
                161,434
                
                
                $
                101,9832011
                
                
                81,537
                
                
                
                111,1432012
                
                
                67,328
                
                
                
                115,7242013
                
                
                40,497
                
                
                
                115,7242014
                
                
                40,497
                
                
                
                115,724Thereafter
                
                
                53,996
                
                
                
                154,299Total
      minimum lease payments
                
                $
                445,289
                
                
                $
                714,597Amounts
      representing interest
                
                
                
                
                
                
                (273,811
                )Present
      value of minimum lease payments
                
                
                
                
                
                $
                440,786





NOTE
7 – INTANGIBLE ASSETS





As a
result of the Bank’s acquisition of its Milltown branch in 2004, the Bank
recorded intangible assets of $749,600 related to identifiable intangibles.
Accumulated amortization at December 31, 2009 and 2008 totaled $749,600 and
$689,700 respectively. The asset was amortized over an estimated life of six
years using the sum-of-the-years’ digits method. Amortization expense totaled
$59,900 and $90,400 during 2009 and 2008, respectively.





NOTE
8 - DEPOSITS





Certificates
of deposit in denominations of $100,000 or more were $2,216,400 and $27,911,600
at December 31, 2009 and 2008, respectively.





Scheduled
maturities of certificates of deposit were as follows at December 31,
2009:





2010
                  
                  $
                  37,254,6592011
                  
                  
                  19,987,7112012
                  
                  
                  2,169,1042013
                  
                  
                  368,8412014
                  
                  
                  4,233Thereafter
                  
                  
                  -$
                  57,784,548


- 41
-





Included
in certificates of deposit at December 31, 2009 and 2008 were deposits totaling
$472,700 and $3,159,300, respectively, obtained through the Certificate of
Deposit Account Registry Service (the “CDARS”). This service allows deposit
customers to maintain fully insured balances in excess of the $100,000 FDIC
insurance limit without the inconvenience of having multiple banking
relationships. Under the reciprocal program, customers agree to allow the Bank
to place their deposits with other participating banks in the CDARS program in
insurable amounts under $100,000. In exchange, other banks in the program agree
to place their deposits with the Bank, also in insurable amounts under
$100,000.





NOTE
9 – REPURCHASE AGREEMENTS





Repurchase
agreements are financing arrangements that mature daily. Under the agreements,
customers agree to maintain funds on deposit with the Bank and in return acquire
an interest in a pool of securities pledged as collateral against the funds. The
securities are held in a segregated safekeeping account at the Federal Home Loan
Bank.  Information concerning the repurchase agreements for 2009 and
2008 is summarized as follows:





2009
                
                
                2008Average
      daily balance during the year
                
                $
                1,059,040
                
                
                $
                1,642,594Average
      interest rate during the year
                
                
                0.47
                %
                
                
                1.33
                %Maximum
      month-end balance during the year
                
                $
                1,403,643
                
                
                $
                2,130,469Interest
      rate at year-end
                
                
                0.56
                %
                
                
                0.37
                %





NOTE
10 - FEDERAL HOME LOAN BANK ADVANCES





There
were no overnight borrowings from the FHLB at December 31, 2009. At December 31,
2008, overnight borrowings were $6,850,000 with a variable rate of 0.54%. The
following table details FHLB term advances as of December 31 2009 and
2008:





2009
                
                
                2008Three-year
      interest-only advance
                  4.89%
      fixed rate, maturing January 16, 2009
                
                $
                -
                
                
                $
                3,000,000Three-year
      interest-only advance
                  5.24%
      fixed rate, maturing February 23, 2009
                
                
                -
                
                
                
                2,500,000Four-year
      interest-only advance
                  4.98%
      fixed rate, maturing January 25, 2010
                
                
                2,000,000
                
                
                
                2,000,000Four-year
      interest-only advance
                  5.25%
      fixed rate, maturing February 23, 2010
                
                
                2,500,000
                
                
                
                2,500,000Two-year
      interest-only advance
                  3.02%
      fixed rate, maturing February 26, 2010
                
                
                2,000,000
                
                
                
                2,000,000Two-year
      interest-only advance
                  2.65%
      fixed rate, maturing March 4, 2010
                
                
                2,000,000
                
                
                
                2,000,000Two-year
      interest-only advance
                  3.19%
      fixed rate, maturing September 16, 2010
                
                
                5,000,000
                
                
                
                5,000,000Two-year
      interest-only advance
                  2.08%
      fixed rate, maturing January 14, 2011
                
                
                3,000,000
                
                
                
                -Three-year
      interest only advance
                  2.96%
      fixed rate, maturing March 11, 2011
                
                
                2,000,000
                
                
                
                2,000,000$
                18,500,000
                
                
                $
                21,000,000





Each
interest-only advance is payable at its maturity date and has a prepayment
penalty if repaid prior to maturity. The advances were collateralized by a
blanket pledge of eligible residential real estate loans and specific securities
in the available for sale securities portfolio.  At December 31, 2009,
the Bank had approximately $19,100,000 in additional borrowing capacity
available for future advances based upon current collateral. As of December 31,
2009, required principal payments on all FHLB advances over the next five years
were as follows:


- 42
-





2010
                  
                  $
                  13,500,0002011
                  
                  
                  5,000,0002012
                  
                  
                  -2013
                  
                  
                  -2014
                  
                  
                  -$
                  18,500,000





NOTE
11 – FAIR VALUE





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





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





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





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





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





Securities:  The
fair values for securities are determined by quoted market prices, if available
(Level 1). For securities where quoted prices are not available, fair values are
calculated based on market prices of similar securities (Level 2). For
securities where quoted prices or market prices of similar securities are not
available, fair values are calculated using matrix pricing, which is a
mathematical technique used in the industry to value debt securities without
relying exclusively on quoted prices for the specific securities but rather by
relying on the securities’ relationship to other benchmark quoted securities
(Level 3).





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





Such
adjustments are typically significant and result in a Level 3 classification of
the inputs for determining fair value.





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





December 31,
                    2009
                
                
                December 31,
                    2008Available
      for sale securities
                
                $
                26,892,105
                
                
                $
                32,726,863Quoted
      prices on active markets for identical assets (Level 1)Equity
      securities
                
                
                122,800
                
                
                
                58,000Significant
      other observable inputs (Level 2)U.S.
      government sponsored enterprises
                
                
                -
                
                
                
                1,031,763Mortgage-backed
      securities issued by U.S. Government-sponsored enterprises
                
                
                26,372,935
                
                
                
                31,180,480Other
      mortgage backed securities
                
                
                396,370
                
                
                
                456,620Significant
      unobservable inputs (Level 3)
                
                
                -
                
                
                
                -


- 43
-





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





December 31,
                    2009
                
                
                December 31,
                    2008Impaired
      loans
                
                $
                4,670,389
                
                
                $
                1,002,322Quoted
      prices on active markets for identical assets (Level 1)
                
                
                -
                
                
                
                -Significant
      other observable inputs (Level 2)
                
                
                -
                
                
                
                -Significant
      unobservable inputs (Level 3)
                
                $
                4,670,389
                
                
                $
                1,002,322Other
      real estate
                
                $
                3,131,658
                
                
                $
                2,888,998Quoted
      prices on active markets for identical assets (Level 1)
                
                
                -
                
                
                
                -Significant
      other observable inputs (Level 2)
                
                
                -
                
                
                
                -Significant
      unobservable inputs (Level 3)
                
                $
                3,131,658
                
                
                na





Impaired
loans, which are measured for impairment using the fair value of the collateral
for collateral dependent loans, had a carrying amount of $4,670,389 with no
specific allocation of the allowance for loan losses at December 31, 2009. Provisions
for loan losses as a result of charge-offs or write-downs to the fair value of
collateral were $4,234,997 in 2009.  Impaired loans carried at fair
value had a principal balance after partial charge downs of $1,774,322, with an
additional specific allocation of $772,000 at December 31,
2008.  Impairment charges which were reflected as charge-offs of
specific allocations through the allowance for loan losses resulted in a
provision for loan losses during the period of $824,493 .





Gross
write downs totaling $1.7 million were recorded on other real estate during the
year to date period.





The
carrying amounts and estimated fair values of financial assets and liabilities
at December 31 are as follows:





December 31, 2009
                
                
                December 31, 2008Carrying
                    Amounts
                
                
                Estimated Fair
                    Value
                
                
                Carrying
                    Amounts
                
                
                Estimated Fair
                    ValueFinancial
      assetsCash
      and cash equivalents
                
                $
                24,166,000
                
                
                $
                24,166,000
                
                
                $
                11,468,000
                
                
                $
                11,468,000Certificate
      of deposit in financial institution
                
                
                100,000
                
                
                
                100,000
                
                
                
                100,000
                
                
                
                100,000Securities
      available for sale
                
                
                26,892,000
                
                
                
                26,892,000
                
                
                
                32,727,000
                
                
                
                32,727,000Securities
      held to maturity
                
                
                2,997,000
                
                
                
                3,051,000
                
                
                
                3,000,000
                
                
                
                3,004,000Loans
      held for sale
                
                
                195,000
                
                
                
                195,000
                
                
                
                1,012,000
                
                
                
                1,038,000Loans,
      net
                
                
                100,855,000
                
                
                
                101,308,000
                
                
                
                126,836,000
                
                
                
                133,500,000Accrued
      interest receivable
                
                
                413,000
                
                
                
                413,000
                
                
                
                602,000
                
                
                
                602,000Financial
      liabilitiesDeposits
                
                
                (139,799,000
                )
                
                
                (140,668,000
                )
                
                
                (145,705,000
                )
                
                
                (146,982,000
                )Repurchase
      agreements
                
                
                (1,038,000
                )
                
                
                (1,038,000
                )
                
                
                (1,406,000
                )
                
                
                (1,406,000
                )Overnight
      FHLB advances
                
                
                -
                
                
                
                -
                
                
                
                (6,850,000
                )
                
                
                (6,850,000
                )FHLB
      advances
                
                
                (18,500,000
                )
                
                
                (18,638,000
                )
                
                
                (21,000,000
                )
                
                
                (21,286,000
                )Accrued
      interest payable
                
                
                (148,000
                )
                
                
                (148,000
                )
                
                
                (236,000
                )
                
                
                (236,000
                )


- 44
-





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





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





NOTE
12 - INCOME TAXES




Income
tax expense (benefit) was as follows during the years ended December 31 2009 and
2008:
 
 2009
              
              
              2008Current
      federal
              
              $
              250,989
              
              
              $
              -Deferred
      federal
              
              
              (2,080,651
              )
              
              
              (2,109,363
              )Change
      in valuation allowance
              
              
              2,080,651
              
              
              
              2,109,363Total
      income tax expense
              
              $
              (250,989
              )
              
              $
              -
 
 Effective
tax rates differ from federal statutory rates applied to financial statement
earnings (loss) due to the following:
 
 2009
              
              
              2008Federal
      statutory rate (34%) times financial statement earnings
    (loss)
              
              $
              (2,349,599
              )
              
              $
              (2,056,010
              )Effect
      of:Tax
      exempt income net of disallowed interest expense
              
              
              (34,497
              )
              
              
              (36,673
              )Stock
      based compensation
              
              
              (8,681
              )
              
              
              8,971Change
      in valuation allowance
              
              
              2,080,651
              
              
              
              2,109,363Dividends
      received deduction
              
              
              -
              
              
              
              (32,526
              )Other,
      net
              
              
              61,137
              
              
              
              6,875Total income tax expense
      (benefit)
              
              $
              (250,989
              )
              
              $
              -
 
 Deferred
tax assets and liabilities were due to the following at December 31, 2009 and
2008:
 
 2009
              
              
              2008Deferred
      tax assets:Allowance
      for loan losses
              
              $
              950,284
              
              
              $
              882,306Deferred
      loan fees
              
              
              33,675
              
              
              
              40,156Deferred
      and accrued compensation
              
              
              4,694
              
              
              
              15,280Unrealized
      loss on securities available for sale
              
              
              80,705
              
              
              
              -Intangible
      asset amortization
              
              
              164,248
              
              
              
              160,873Stock
      based compensation
              
              
              13,410
              
              
              
              13,410REO
      valuation allowance
              
              
              1,062,688
              
              
              
              518,007Net
      operating loss carryforward
              
              
              2,211,012
              
              
              
              854,390Other
      than temporary impairment of securities
              
              
              1,009,876
              
              
              
              972,068Depreciation
              
              
              98,687
              
              
              
              40,177Tax
      credit carryforward
              
              
              45,715
              
              
              
              14,093Other
              
              
              8,913
              
              
              
              17,484Total
      deferred tax assets
              
              
              5,683,907
              
              
              
              3,528,244Deferred
      tax liabilities:Unrealized
      gain on securities available for sale
              
              
              -
              
              
              
              (119,439
              )Prepaid
      expenses
              
              
              (26,530
              )
              
              
              (32,270
              )FHLB
      stock dividends
              
              
              (58,480
              )
              
              
              (58,480
              )Other
              
              
              (137
              )
              
              
              (90
              )Total
      deferred tax liabilities
              
              
              (85,147
              )
              
              
              (210,279
              )Net
      deferred tax assets before valuation allowance
              
              
              5,598,760
              
              
              
              3,317,965Less
      valuation allowance
              
              
              (5,598,760
              )
              
              
              (3,437,404
              )Net
      deferred tax assets (liabilities)
              
              $
              -
              
              
              $
              (119,439
              )
 
 A
valuation allowance of $5,598,760 was recorded to reduce the carrying amount of
the Company’s net deferred tax assets to zero.
 
 At
December 31, 2009, the Company had net operating loss carryforwards of
approximately $6,503,000 that will expire as follows: $1,419,000 on December 31,
2027, $132,000 on December 31, 2028, and $4,952,000 on December 31,
2029.  See Note 2 for information regarding the annual limitations on
the use of net operating loss carryforwards resulting from an “ownership change”
as broadly defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”).
 
 In
addition, the Company has approximately $46,000 of alternative minimum tax
credits that may be carried forward indefinitely.
 
 At
December 31, 2009 and 2008, the Company had no unrecognized tax benefits
recorded. The Company does not expect the amount of unrecognized tax benefits to
change significantly within the next twelve months.
 
 The
Company and the Bank are subject to U.S. federal income tax. The Company is no
longer subject to examination by federal taxing authorities for tax years prior
to 2006. The tax years 2006, 2007 and 2008 remain open to examination by the
U.S. taxing authorities.





- 45
-




NOTE
13 - STOCK-BASED COMPENSATION





In
connection with the Company’s initial public offering in 2000, the Company
granted an aggregate of 150,000 warrants to certain of its directors and
officers in recognition of the financial risks and efforts they undertook to
organize the Company.  These warrants vested in one-third increments
over a three-year period following the date of grant.  Each warrant
entitles its holder to purchase a specified number of shares of Ohio Legacy
common stock at $10.00 per share and will expire ten years from the date of
grant.  As of December 31, 2009, all warrants were fully vested and
exercisable, and no warrants had been exercised or forfeited.





In
accordance with the terms of the Stock Purchase Agreement between the Company
and Excel Financial (see Note 18), all outstanding warrants held by the
Company’s directors and officers were cancelled and extinguished without
consideration effective February 19, 2010.





In 1999,
the Company adopted the Omnibus Stock Option, Stock Ownership and Long-Term
Incentive Plan (the “Stock Ownership Plan”). A total of 400,000 common shares
were available for awards under the Stock Ownership Plan. Under the Stock
Ownership Plan, the Company was authorized to grant nonqualified stock options,
incentive stock options and restricted stock to eligible participants, including
nonemployee directors and employees.  The Stock Ownership Plan expired
by its terms in September 2009, although awards granted under the plan will
remain in effect in accordance with their respective terms.





Under the
Stock Ownership Plan, each nonemployee director was typically granted
nonqualified options to purchase 2,500 shares at the time or soon after that
person first became a director. These initial option grants vest annually in
equal amounts over a five-year term. Each nonemployee director also typically
received an annual grant of nonqualified options to purchase up to 1,000 shares
during his or her tenure on the Board.  These annual option grants
vested immediately. No options were granted to the Company’s nonemployee
directors in 2008 or 2009.


- 46
-





Options
granted to employees under the Stock Ownership Plan generally vest three years
from the date of grant. The exercise price of options granted to employees may
not be less than the fair market value of the Company’s common stock on the date
of grant.





In the
event of a change in control of the Company (as defined in the Stock Ownership
Plan), all outstanding options may become immediately exercisable in full at the
discretion of the Compensation Committee of the Board of Directors. If the
Compensation Committee does not elect to accelerate the vesting of outstanding
options, all outstanding options will terminate upon a change in control unless
the successor corporation agrees to assume or replace such options with an
equivalent award.





The
following table details stock option grants under the Stock Ownership Plan
during the year ended December 31, 2009:





2009Options
                
                
                Weighted
                    Average
                    Exercise
                    PriceOutstanding
      at January 1
                
                
                184,700
                
                
                $
                10.69Granted
                
                
                -
                
                
                
                -Forfeited
                
                
                (22,400
                )
                
                
                9.94Exercised
                
                
                -
                
                
                
                -Outstanding
      at December 31
                
                
                162,300
                
                
                $
                10.79Exercisable
      at December 31
                
                
                157,300
                
                
                $
                10.87





No
options were granted or exercised under the Stock Ownership Plan in 2009 or
2008.





Options
outstanding at December 31, 2009 were as follows:





Outstanding
                
                
                ExercisableRange of Exercise
                  Prices
                
                
                Number
                
                
                Weighted
                    Average
                    Remaining
                    Contractual
                    Life (years)
                
                
                Weighted
                    Average
                    Exercise
                    Price
                
                
                Number
                
                
                Weighted
                    Average
                    Exercise
                    Price$8.28
      - $9.99
                
                
                
                38,050
                
                
                
                5.34
                
                
                $
                8.97
                
                
                
                33,050
                
                
                $
                9.07$10.00
                
                
                
                40,500
                
                
                
                2.43
                
                
                
                10.00
                
                
                
                40,500
                
                
                
                10.00$12.00
                
                
                
                83,750
                
                
                
                4.96
                
                
                
                12.00
                
                
                
                83,750
                
                
                
                12.00162,300
                
                
                
                4.42
                
                
                $
                10.79
                
                
                
                157,300
                
                
                $
                10.87





The
intrinsic value of options outstanding and options exercisable as of December
31, 2009 was $0.





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





Compensation
                    Costs2010
                
                
                2,081Total
                
                $
                2,081


- 47
-





In
accordance with the terms of the Stock Purchase Agreement between the Company
and Excel Financial (see Note 18), all outstanding stock options held by the
Company’s directors, officers and employees were cancelled and extinguished
without consideration effective February 19, 2010.





NOTE
14 – REGULATORY MATTERS





The Bank,
through its Board of Directors, agreed to a Consent Order (the “Consent Order”)
with the Bank’s primary federal regulator, the Office of the Comptroller of the
Currency (the “OCC”), dated February 17, 2009. The Consent Order required the
Board of Directors to submit a capital plan to the Assistant Deputy Controller
that included specific plans to achieve and maintain tier 1 capital of at least
8.75% of adjusted total assets and total risk-based capital of at least 13.25%
of risk-weighted assets by August 31, 2009.  The Board of Directors
submitted the capital plan to the OCC, which included 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
capital plan also called 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.  As of December 31, 2009, the Bank had not achieved
the minimum capital ratios specified in the Consent Order.  To have
achieved both these levels at December 31, 2009, the Bank would have needed
approximately $12.3 million of additional capital.





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





On
February 19, 2010, pursuant to a Stock Purchase Agreement entered into on
November 15, 2009 with Excel Financial, LLC (“Excel Financial”) (see Note 2),
the Company received $15.0 million from Excel Bancorp, LLC, an affiliate of
Excel Financial (“Excel Bancorp”), in connection with Excel Bancorp’s purchase
of 15 million shares of common stock, and raised an additional $2.5 million in
connection with a private placement of 2.5 million shares of common
stock.  After the closing of these transactions, Ohio Legacy
contributed approximately $16.2 million to the capital of the
Bank.  If the additional capital had been invested in the Bank as of
December 31, 2009, the Company would have exceeded the minimum capital ratios
required under the Consent Order. However, until the Consent Order is
terminated, the Bank cannot be classified as well-capitalized under prompt
corrective action provisions.





Banks are
subject to regulatory capital requirements administered by federal banking
agencies. Capital adequacy guidelines and prompt corrective action regulations
involve quantitative measures of assets, liabilities and certain off-balance
sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators.
Prompt corrective action regulations provide five classifications: (i) well
capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv)
significantly undercapitalized; and (v) critically undercapitalized, although
these terms are not used to represent overall financial condition. Failure to
meet capital requirements can initiate regulatory action. At December 31, 2009,
the Bank met the definition of critically undercapitalized.


- 48
-





Actual
and required capital amounts (in thousands) and ratios are presented below at
December 31, 2009 and 2008:





Actual
                
                
                For Capital
                    Adequacy Purposes
                
                
                To Be Well-
                    Capitalized Under
                    Prompt Corrective
                    Action Provisions(Dollars in thousands)
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio2009Total
      capital to risk-weighted assetsOhio
      Legacy Bank
                
                $
                3,854
                
                
                
                3.8
                %
                
                $
                8,031
                
                
                
                8.0
                %
                
                $
                10,039
                
                
                
                10.0
                %Tier
      1 capital to risk-weighted assetsOhio
      Legacy Bank
                
                
                2,566
                
                
                
                2.6
                
                
                
                4,016
                
                
                
                4.0
                
                
                
                6,023
                
                
                
                6.0Tier
      1 capital to average assetsOhio
      Legacy Bank
                
                
                2,566
                
                
                
                1.5
                
                
                
                6,805
                
                
                
                4.0
                
                
                
                8,506
                
                
                
                5.02008Total
      capital to risk-weighted assetsOhio
      Legacy Bank
                
                $
                10,454
                
                
                
                7.6
                %
                
                $
                10,938
                
                
                
                8.0
                %
                
                $
                13,673
                
                
                
                10.0
                %Tier
      1 capital to risk-weighted assetsOhio
      Legacy Bank
                
                
                8,734
                
                
                
                6.4
                
                
                
                5,469
                
                
                
                4.0
                
                
                
                8,204
                
                
                
                6.0Tier
      1 capital to average assetsOhio
      Legacy Bank
                
                
                8,734
                
                
                
                4.8
                
                
                
                7,262
                
                
                
                4.0
                
                
                
                9,078
                
                
                
                5.0





The
payment of dividends by the Bank to Ohio Legacy is subject to restrictions by
regulatory agencies.  These restrictions generally limit dividends to
the sum of the current year’s and prior two years’ retained earnings. In
addition, dividends may not reduce capital levels below the minimum regulatory
requirements as described above. Based on its year to date and previous year’s
earnings, the Company is not able to declare dividends without prior approval
from its regulators. Pursuant to the Consent Order, prior to paying any
dividends, the Bank must provide a written request to the OCC for review and
determination of no supervisory objection. In addition to the dividend
restrictions above, the Bank is not permitted to issue brokered deposits without
prior approval from its regulators.





NOTE
15 - LOAN COMMITMENTS AND RELATED ACTIVITIES





Some
financial instruments, such as loan commitments, credit lines, letters of credit
and overdraft protection, are issued to meet customer financing
needs.  These are agreements to provide credit or support the credit
of others, as long as conditions established in the contract are met, and
usually have expiration dates. Commitments may expire without being
used.  Off-balance sheet risk to credit loss exists up to the face
amount of these instruments, although material losses are not anticipated. The
same credit policies are used to make such commitments as are used for loans,
including obtaining collateral upon exercise of the commitment.





Commitments
to make loans are generally made for periods of 30 days or less. The contractual
amount of loan commitments with off-balance sheet risk was as follows at
December 31 2009 and 2008:


- 49
-




2009
                
                
                2008Commitments
      to make loans:Variable
      rate
                
                $
                -
                
                
                $
                1,485,724Fixed
      rate
                
                
                -
                
                
                
                201,000Unused
      lines of credit, variable-rate
                
                
                9,403,134
                
                
                
                14,523,560Standby
      letters of credit
                
                $
                -
                
                
                $
                153,164





NOTE
16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION





CONDENSED BALANCE SHEETS
                
                As of December 31,2009
                
                
                2008ASSETSCash
      and cash equivalents
                
                $
                73,022
                
                
                $
                862,533Investment
      in subsidiary, Ohio Legacy Bank, N.A.
                
                
                2,327,503
                
                
                
                9,166,566Other
      assets
                
                
                92,254
                
                
                
                11,257Total
      assets
                
                $
                2,492,779
                
                
                $
                10,040,356LIABILITIES
      AND SHAREHOLDERS’ EQUITYOther
      liabilities
                
                
                126,268
                
                
                
                519,499Shareholders’
      equity
                
                
                2,366,511
                
                
                
                9,520,857Total
      liabilities and shareholders’ equity
                
                $
                2,492,779
                
                
                $
                10,040,356





CONDENSED STATEMENTS OF OPERATIONS
                      
                      For the year ended
                          December 31,2009
                      
                      
                      2008Interest
      income
                      
                      $
                      -
                      
                      
                      $
                      -Interest
      expense
                      
                      
                      -
                      
                      
                      
                      -Net
      interest income
                      
                      
                      -
                      
                      
                      
                      -Professional
      fees
                      
                      
                      (234,676
                      )
                      
                      
                      (140,872
                      )Other
      expense
                      
                      
                      (80,607
                      )
                      
                      
                      (85,414
                      )Loss
      before undistributed earnings of subsidiary
                      
                      
                      (315,283
                      )
                      
                      
                      (226,286
                      )Equity
      in undistributed loss of subsidiary
                      
                      
                      (6,344,311
                      )
                      
                      
                      (5,820,803
                      )Loss
      before income taxes
                      
                      
                      (6,659,594
                      )
                      
                      
                      (6,047,089
                      )Income
      tax expense (benefit)
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      $
                      (6,659,594
                      )
                      
                      $
                      (6,047,089
                      )CONDENSED
      STATEMENTS OF CASH FLOWS
                      
                      For
      the year endedDecember
      31,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (6,659,594
                      )
                      
                      $
                      (6,047,089
                      )Adjustments:Equity
      in undistributed loss of subsidiary
                      
                      
                      6,344,311
                      
                      
                      
                      5,820,803Net
      change in other assets and other liabilities
                      
                      
                      (474,228
                      )
                      
                      
                      620,370Net
      cash used by operating activities
                      
                      
                      (789,511
                      )
                      
                      
                      394,084Net
      change in cash and cash equivalents
                      
                      
                      (789,511
                      )
                      
                      
                      394,084Beginning
      cash and cash equivalents
                      
                      
                      862,533
                      
                      
                      
                      468,449Ending
      cash and cash equivalents
                      
                      $
                      73,022
                      
                      
                      $
                      862,533


- 50
-





NOTE
17 – OTHER COMPREHENSIVE INCOME (LOSS)





Components
of other comprehensive income (loss) and the related tax effects were as follows
during the year ended December 31 2009 and 2008:





2009
              
              
              2008Unrealized
      holding gains (losses) on available for sale securities during the
      period
              
              $
              218,328
              
              
              $
              (2,513,695
              )Reclassification
      adjustment for (gains) losses realized in income
              
              
              (806,987
              )
              
              
              2,859,024(588,659
              )
              
              
              345,329Tax
      effect
              
              
              119,439
              
              
              
              (117,412
              )Other
      comprehensive income (loss)
              
              $
              (469,220
              )
              
              $
              227,917





NOTE
18 – CONSENT ORDER





The Bank,
through its Board of Directors, entered into the Consent Order with the Bank’s
primary federal regulator, the OCC, dated February 17, 2009. The Consent Order
required the Board of Directors to submit a capital plan to the Assistant Deputy
Controller that included specific plans to achieve and maintain tier 1 capital
of at least 8.75% of adjusted total assets and total risk-based capital of at
least 13.25% of risk-weighted assets by August 31, 2009.  The Board of
Directors submitted the capital plan to the OCC, which included 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
capital plan also called 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.





In
response to the Consent Order, the Bank initiated several short and intermediate
term strategies to improve its capital position.  During the first
quarter of 2009, the Bank sold approximately $28.4 million of debt and mortgage
backed securities issued by FNMA or FHLMC, which have a 20% risk weighting,
and purchased the same amount of mortgage backed securities issued by GNMA,
which have a 0% risk weighting. In addition, the Bank retained the services of
the investment banking firm of Stifel, Nicolaus & Company, Incorporated to
explore the options of raising private equity capital, or merging with or being
acquired by another financial institution or other interested investors. As of
December 31, 2009, the Bank had not achieved the minimum capital ratios
specified in the Consent Order.  To have achieved both these levels at
December 31, 2009, the Bank would have needed approximately $12.3 million of
additional capital.





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





On
February 19, 2010, pursuant to a Stock Purchase Agreement entered into on
November 15, 2009 with Excel Financial (see Note 2), the Company received $15.0
million from Excel Bancorp in connection with Excel Bancorp’s purchase of 15
million shares of common stock, and raised an additional $2.5 million in
connection with a private placement of 2.5 million shares of common
stock.  After the closing of these transactions, Ohio Legacy
contributed approximately $16.2 million to the capital of the
Bank.  If the additional capital had been in the Bank as of December
31, 2009, the Bank would have exceeded the minimum capital ratios required under
the Consent Order.  However, until the Consent Order is terminated,
the Bank cannot be classified as well-capitalized under prompt corrective action
provisions.


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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors and Shareholders
 Ohio
Legacy Corp
 North
Canton, Ohio
 
 We have
audited the accompanying consolidated balance sheets of Ohio Legacy Corporation
as of December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ohio Legacy Corporation at
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
 
 As
discussed in Note 2 to the consolidated financial statements, the Company issued
15 million shares of common stock to Excel Bancorp LLC and 2.5 million shares of
common stock to other investors in a private offering, both of which closed on
February 19, 2010.  Excel Bancorp LLC became the majority shareholder
of the Company with a 76% ownership interest in the common stock of the
Company.  The proceeds received by the Company were principally used
to increase the capital levels of its bank subsidiary, which was considered
critically under-capitalized under Prompt Corrective Action provisions at
December 31, 2009.
 
 Crowe
      Horwath LLP
 
 Cleveland,
Ohio
 March 31,
2010




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EXECUTIVE
OFFICERS OF OHIO LEGACY CORP AND OHIO LEGACY BANK, NATIONAL
ASSOCIATION





Rick L.
Hull, President and Chief Executive Officer


Denise M.
Penz, Executive Vice President and Chief Operating Officer


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





DIRECTORS
OF OHIO LEGACY CORP





Louis
      Altman
              
              Robert
      F. BeldenManaging
      Member, A. Altman Company
              
              President,
      Belden Brick CompanyCanton,
      Ohio
              
              Canton,
      OhioBruce
      A. Cassidy, Sr.
              
              Heather
      L. DavisRetired
      Business Executive
              
              Chief
      Financial Officer, Hammond ConstructionSarasota,
      Florida
              
              North
      Canton, OhioJ.
      Edward Diamond
              
              Rick
      L. HullPrivate
      Investor
              
              Executive
      OfficerCanton,
      Ohio
              
              North
      Canton, OhioDenise
      M. Penz
              
              Wilbur
      R. Roat, ChairmanExecutive
      Officer
              
              Retired
      Bank ExecutiveSt.
      Clairsville, Ohio
              
              Kennett
      Square, PennsylvaniaMichael
      Steiner
              
              Frank
      WenthurRetired
      Insurance Executive
              
              Retired
      Business ExecutiveWooster,
      Ohio
              
              North
      Canton, OhioMichael
      WursterCEO,
      BookMasters, Inc.Ashland,
      Ohio





CORPORATE
AND BANK LOCATIONS





Wooster Office
                      
                      Canton Office305
      West Liberty Street
                      
                      4026
      Dressler Road NWWooster
      Ohio 44691
                      
                      Canton,
      Ohio 44718Milltown Office
                      
                      North Canton  Corporate Office and
      Banking3562
      Commerce Parkway
                      
                      CenterWooster,
      Ohio 44691
                      
                      600
      South Main StreetNorth
      Canton, Ohio 44720Operations Center2375
      Benden Drive Suite CWooster,
      Ohio 44691


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-


Item 9. Changes in and Disagreements
With Accountants on Accounting and Financial Disclosure.





None.





Item 9A(T). Controls and
Procedures.





Evaluation of Disclosure
Controls and Procedures





Management
of Ohio Legacy Corp is responsible for establishing and maintaining effective
disclosure controls and procedures, as defined under Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).





As of the
end of the period covered by this report, an evaluation was performed under the
supervision, and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as of December
31, 2009, were effective in ensuring that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
(1) accumulated and communicated to management, including the Chief Executive
Officer and the Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure and (2) recorded, processed, summarized
and reported within the time period required by the Securities and Exchange
Commission's rules and forms.





Management’s Report on
Internal Control Over Financial Reporting





Management
of Ohio Legacy Corp is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States. Internal control over financial reporting
includes those policies and procedures that:  (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are made only in accordance with authorizations of
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial
statements.





A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation or
assessment of controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected.  The Company’s
internal control over financial reporting system is designed to provide
reasonable assurance of achieving its objectives.





Management
of Ohio Legacy Corp, including the Chief Executive Officer and the Chief
Financial Officer, has assessed the Company’s internal control over financial
reporting as of December 31, 2009, based on criteria for effective internal
control over financial reporting described in “Internal Control – Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management has concluded that the
Company’s internal control over financial reporting was effective as of December
31, 2009, based on the specified criteria.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.


- 54
-





Changes in Internal Control
Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting that
occurred during the fourth quarter of 2009 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





Item
9B. Other Information.





There are
no matters to be reported under this item.





PART
III





Item
10. Directors, Executive Officers and Corporate Governance





The
information required by this item is incorporated herein by reference from the
disclosure to be included under the captions “Board of Directors,“ “Executive
Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,”
“Information Regarding the Board of Directors, its Committees and Corporate
Governance—Code of Business Conduct and Ethics” and “Information Regarding the
Board of Directors, its Committees and Corporate Governance—Audit and Compliance
Committee”  in our definitive proxy statement relating to our 2010
annual meeting of shareholders to be filed pursuant to SEC Regulation 14A (our
“2010 Proxy Statement”).





Item 11. Executive
Compensation.





The
information required by this item is incorporated herein by reference from the
disclosure to be included under the captions “Compensation of Executive
Officers” and “Compensation of Directors” in our 2010 Proxy
Statement.





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.





The
information required by this item is incorporated herein by reference from the
disclosure to be included under the captions “Equity Compensation Plan
Information” and “Security Ownership of Certain Beneficial Owners and
Management” in our 2010 Proxy Statement.





Item 13. Certain Relationships and
Related Transactions, and Director Independence.





The
information required by this item is incorporated herein by reference from the
disclosure to be included under the captions “Certain Relationships and Related
Transactions” and “Information Regarding the Board of Directors, its Committees
and Corporate Governance—Director Independence” in our 2010 Proxy
Statement.





Item
14. Principal Accounting Fees and Services.





The
information required by this item is incorporated herein by reference from the
disclosure to be included under the caption “Audit and Compliance Committee
Matters—Independent Registered Public Accounting Firm Services and Fees” in our
2010 Proxy Statement.





PART
IV





Item
15. Exhibits





(a)
            (1)  Financial
      Statements.





The
following consolidated financial statements of Ohio Legacy Corp are contained in
Item 8 of this Annual Report on Form 10-K and are incorporated herein by
reference:





Consolidated
Balance Sheets as of December 31, 2009 and 2008


Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008


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-





Consolidated
      Statements of Changes in Shareholders’ Equity for the years ended December
      31, 2009 and 2008


Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008


Notes to
Consolidated Financial Statements


Report of
Independent Registered Public Accounting Firm





(2)  Financial Statement
Schedules.





Financial
statement schedules are omitted as they are not required or are not applicable,
or the required information is included in the financial
statements.





(3)  Exhibits.





Reference
is hereby made to the Index to Exhibits beginning on page 61 of this Annual
Report on Form 10-K.





(b)  Exhibits.





Reference
is hereby made to the Index to Exhibits beginning on page 61 of this Annual
Report on Form 10-K.  The documents listed in the Index to Exhibits
are filed with this Annual Report on Form 10-K as exhibits or incorporated into
this Annual Report on Form 10-K by reference.





(c)  Financial Statement
Schedules.





None.


- 56
-


SIGNATURES





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





OHIO
      LEGACY CORPDate:  March
      31, 2010By:
              /s/ Rick L. HullRick
      L. HullPresident
      and Chief Executive Officer





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





By:
                  /s/ Rick L. HullRick
      L. Hull, President and Chief Executive Officer and
  Director(principal
      executive officer)Date:
      March 31, 2010By:
                  /s/ Jane MarshJane
      Marsh, Senior Vice President, Chief Financial Officer and
      Treasurer(principal
      financial officer and principal accounting officer)Date:
      March 31, 2010By:
                  /s/ Wilbur R. RoatWilbur
      R. Roat, Chairman of the Board and DirectorDate:
      March 31, 2010By:
                  /s/ Louis AltmanLouis
      Altman, DirectorDate:
      March 31, 2010By:
                  /s/ Robert F. BeldenRobert
      F. Belden, DirectorDate:
      March 31, 2010By:
                  /s/ Bruce A. Cassidy,
Sr.Bruce
      A. Cassidy, DirectorDate:
      March 31, 2010By:
                  /s/Heather
      L. DavisHeather
      L. Davis, DirectorDate:
      March 31, 2010By:
                  /s/ J. Edward DiamondJ.
      Edward Diamond, DirectorDate:
      March 31, 2010By:
                  /s/ Denise M. PenzDenise
      M. Penz, DirectorDate:
      March 31, 2010By:
                  /s/ Michael S. SteinerMichael
      S. Steiner, DirectorDate:
      March 31, 2010By:
                  /s/ Frank WenthurFrank
      Wenthur, DirectorDate:
      March 31, 2010By:
                  /s/ David B. WursterDavid
      B. Wurster, DirectorDate:
      March 31,
2010


- 57
-


INDEX
TO EXHIBITS





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





Exhibit
                Number
            
            Description of Exhibit2.1
            
            Stock
      Purchase Agreement, dated as of November 15, 2009, by and among Excel
      Financial, LLC, Ohio Legacy Corp and Ohio Legacy Bank, National
      Association (incorporated herein by reference to Exhibit 99.2 to Ohio
      Legacy Corp’s Current Report on Form 8-K filed on November 16, 2009 (File
      No. 0-31673))3.1
            
            Second
      Amended and Restated Articles of Incorporation of Ohio Legacy Corp as
      filed with the Ohio Secretary of State on August 5, 2003 (incorporated
      herein by reference to Exhibit 3.1 to Ohio Legacy Corp’s Quarterly Report
      on Form 10QSB for the fiscal quarter ended June 30, 2003 (File No.
      0-31673))3.2
            
            Amendment
      to Article Fourth of the Second Amended and Restated Articles of
      Incorporation of Ohio Legacy Corp as filed with the Ohio Secretary of
      State on February 5, 2010 (filed herewith)3.3
            
            Code
      of Regulations of Ohio Legacy Corp (incorporated herein by reference to
      Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB for the
      fiscal year ended December 31, 2003 (File No. 0-31673))3.4
            
            Amendment
      No. 1 to Code of Regulations of Ohio Legacy Corp (incorporated herein by
      reference to Exhibit 3.2 to Ohio Legacy Corp’s Annual Report on Form 10KSB
      for the fiscal year ended December 31, 2003 (File No.
      0-31673))4.1
            
            Form
      of Ohio Legacy Corp Organizer Stock Purchase Warrant (incorporated herein
      by reference to Exhibit 4.3 to Ohio Legacy Corp’s Registration Statement
      on Form SB-2 filed on June 30, 2000 (File No.
  333-38328))10.1*
            
            Ohio
      Legacy Corp Omnibus Stock Option, Stock Ownership and Long Term Incentive
      Plan (incorporated herein by reference to Exhibit 10.1 to Ohio Legacy
      Corp’s Registration Statement on Form SB-2 filed on June 30, 2000 (File
      No. 333-38328))10.2*
            
            2002
      Amendment to Ohio Legacy Corp Omnibus Stock Option, Stock Ownership and
      Long Term Incentive Plan (incorporated herein by reference to Exhibit 4.2
      to Ohio Legacy Corp’s Registration Statement on Form S-8 filed on May 22,
      2002 (File No. 333-88842))10.3*
            
            2004
      Amendment to Ohio Legacy Corp Omnibus Stock Option, Stock Ownership and
      Long Term Incentive Plan (incorporated herein by reference to Exhibit 4.4
      to Ohio Legacy Corp’s Annual Report on Form 10KSB for the fiscal year
      ended December 31, 2003 (File No. 0-31673))10.4*
            
            Amended
      and Restated Employment Agreement, dated as of May 24, 2005, by and among
      Ohio Legacy Corp, Ohio Legacy Bank, N.A., and Michael D. Kramer
      (incorporated herein by reference to Exhibit 10.11 to Ohio Legacy Corp’s
      Current Report on Form 8-K filed May 26, 2005 (File No.
      0-31673))10.5*
            
            Change
      in Control Agreement, dated as of December 18, 2007, by and between Ohio
      Legacy Bank and Gregory A. Spradlin (incorporated herein by reference to
      Exhibit 10.13 to Ohio Legacy Corp’s Annual Report on Form 10KSB for the
      fiscal year ended December 31, 2007 (File No. 0-31673))10.6*
            
            Change
      in Control Agreement, dated as of February 4, 2009, by and between Ohio
      Legacy Bank and Vanessa Richards (incorporated herein by reference to
      Exhibit 10.8 to Ohio Legacy Corp’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2008 (File No.
  0-31673))


- 58
-





10.7*
            
            Form
      of Stock Option and Warrant Cancellation and Surrender Agreement,
      effective as of February 19, 2010, by and between Ohio Legacy Corp and
      each of its directors and executive officers (filed
    herewith)10.8*
            
            Termination
      Agreement, effective as of February 19, 2010, by and between Ohio Legacy
      Corp D. Michael Kramer (filed herewith)10.9*
            
            Termination
      Agreement, effective as of February 19, 2010, by and between Ohio Legacy
      Corp and Vanessa Richards (filed herewith)10.10*
            
            Termination
      Agreement, effective as of February 19, 2010, by and between Ohio Legacy
      Corp and Gregory A. Spradlin (filed herewith)21
            
            Subsidiary
      of Ohio Legacy Corp23
            
            Consent
      of Independent Registered Public Accounting Firm31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification (Principal Executive
      Officer)31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification (Principal Financial
      Officer)32.1
            
            Section
      1350 Certification (Principal Executive Officer and Principal Financial
      Officer)





* Denotes
management contract or compensatory arrangement.


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