Ohio Legacy 10Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

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

For the transition period from __________ to __________

Commission file number: 000-31673

OHIO LEGACY CORP

(Exact name of registrant as specified in its charter)

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

2375 Benden Drive Suite C, Wooster, OH, 44691

(Address of principal executive offices)

(330) 263-1955

Registrant's telephone number

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

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

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

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court Yes ¨ No ¨

As of May 14, 2009, the latest practicable date, there were 2,214,564 shares of the issuer’s Common Stock, without par value, issued and outstanding.

OHIO LEGACY CORP

FORM 10-Q

AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2009

FIRST QUARTER REPORT

	Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	3

Item 2. Management’s Discussion and Analysis	15

Item 3. Not Applicable for Smaller Reporting Companies	24

Item 4T. Controls and Procedures	24

PART II - OTHER INFORMATION	25

Item 1. Legal Proceedings	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3. Defaults Upon Senior Securities	25

Item 4. Submission of Matters to a Vote of Security Holders	25

Item 5. Other Information	25

Item 6. Exhibits	26

SIGNATURES	27

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

OHIO LEGACY CORP

CONSOLIDATED BALANCE SHEETS

As of March 31, 2009, and December 31, 2008

	March 31,			December 31,
	2009			2008
	(unaudited)
ASSETS
Cash and due from banks	$	15,201,603		$	7,652,710
Federal funds sold and interest-bearing deposits in financial institutions		2,030,536			3,815,227
Cash and cash equivalents		17,232,139			11,467,937
Certificate of deposit in financial institution		100,000			100,000
Securities available for sale		37,757,158			32,726,863
Securities held to maturity (fair value of $3,017,277 and $3,003,825 at March 31, 2009 and December 31, 2008)		2,999,022			2,999,813
Loans held for sale		308,422			1,012,038
Loans, net of allowance of $3,565,895 and $3,398,284 at March 31, 2009 and December 31, 2008		121,218,324			126,836,473
Federal bank stock		1,321,150			1,455,100
Premises and equipment, net		3,198,424			3,284,884
Intangible asset		43,642			59,901
Other real estate owned		4,691,564			5,215,696
Accrued interest receivable and other assets		1,289,867			1,375,369

Total assets	$	190,159,712		$	186,534,074

LIABILITIES
Deposits:
Noninterest-bearing demand	$	16,462,666		$	16,659,300
Interest-bearing demand		8,728,473			10,070,737
Savings and money market		58,640,302			53,483,533
Certificates of deposit, net		75,617,373			65,491,464
Total deposits		159,448,814			145,705,034
Repurchase agreements		1,207,730			1,405,619
Short term Federal Home Loan Bank advances		-			6,850,000
Federal Home Loan Bank advances		18,500,000			21,000,000
Capital lease obligations		462,411			469,060
Accrued interest payable and other liabilities		744,197			1,583,504
Total liabilities		180,363,152			177,013,217

SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 500,000 shares authorized, none outstanding		-			-
Common stock, no par value, 5,000,000 shares authorized, 2,214,564 shares issued and outstanding at March 31, 2009, and December 31, 2008, respectively		18,814,774			18,808,311
Accumulated earnings (loss)		(9,016,925	)		(9,519,307	)
Accumulated other comprehensive earnings		(1,289	)		231,853
Total shareholders’ equity		9,796,560			9,520,857

Total liabilities and shareholders’ equity	$	190,159,712		$	186,534,074

See notes to the consolidated financial statements.

OHIO LEGACY CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2009 and 2008

(Unaudited)

	For the Three Months Ended
	March 31,
	2009			2008
Interest and dividend income:
Loans, including fees	$	1,944,312		$	2,327,699
Securities, taxable		401,012			398,929
Securities, tax-exempt		28,554			28,566
Interest-bearing deposits, federal funds sold and other		6,263			32,116
Dividends on federal bank stock		16,464			21,209
Total interest and dividend income		2,396,605			2,808,519

Interest expense:
Deposits		939,478			1,231,588
Short term Federal Home Loan Bank advances		2,085			24,814
Long term Federal Home Loan Bank advances		177,273			163,440
Repurchases agreements		932			12,460
Capital leases		18,846			19,832

Total interest expense		1,138,614			1,452,134

Net interest income		1,257,991			1,356,385
Provision for loan losses		181,000			6,500

Net interest income after provision for loan losses		1,076,991			1,349,885

Noninterest income:
Service charges and other fees		212,186			214,248
Gain on sale of securities net of other than temporary impairment		574,748			-
Gain on sale of loans		19,489			31,025
Gain on redemption of equity interest in Visa		-			18,391
Gain on disposition of other real estate owned		38,020			9,170
Direct write-down of other real estate owned		(22,500	)		-
Other income		7,596			11,363
Total noninterest income		829,539			284,197

Noninterest expense:
Salaries and benefits		726,394			796,468
Occupancy and equipment		208,654			227,094
Professional fees		102,656			97,927
Franchise tax		37,500			50,250
Data processing		177,510			170,256
Marketing and advertising		27,050			59,911
Stationery and supplies		19,778			27,380
Amortization of intangible asset		16,259			26,242
Deposit expense and insurance		125,652			61,137
Other expenses		207,608			148,517
Total noninterest expense		1,649,061			1,665,182

Net earnings (loss) before income taxes		257,469			(31,100	)
Income tax expense (benefit)		(244,913	)		-

Net earnings (loss)	$	502,382		$	(31,100	)

Basic earnings (loss) per share	$	0.23		$	(0.01	)
Diluted earnings (loss) per share	$	0.23		$	(0.01	)

See notes to the consolidated financial statements.

OHIO LEGACY CORP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2009 and 2008

(Unaudited)

	For the Three Months Ended
	March 31,
	2009			2008

Shareholders’ equity, beginning of period	$	9,520,857		$	15,313,643

Net earnings (loss)		502,382			(31,100	)

Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on available for sale securitiesarising during the period net of adjustments for amounts realized on sales of securities and other than temporary impairment of securities included in net earnings		(233,142	)		128,690
Total comprehensive income (loss), net of tax		269,240			97,590

Additional paid in capital from stock based compensation expense		6,463			11,165

Balance, end of period	$	9,796,560		$	15,422,398

See notes to the consolidated financial statements.

OHIO LEGACY CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2009 and 2008

(Unaudited)

	For the Three Months Ended
	March 31,
	2009			2008
Cash flows from operating activities:
Net earnings (loss)	$	502,382		$	(31,100	)
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization		103,356			116,888
Securities amortization and accretion, net		9,874			6,817
Origination of loans held for sale		(634,039	)		(6,232,053	)
Proceeds from sales of loans held for sale		1,357,144			6,005,065
Provision for loan losses		181,000			6,500
Gain on sale of other real estate		(38,020	)		(8,952	)
Direct write-down of other real estate		22,500			-
Gain on sale of loans held for sale		(19,489	)		(31,025	)
Gain on sale of securities available for sale		(685,950	)
Other than temporary impairment of securities		111,202
FHLB stock dividend		-			(12,700	)
Stock based compensation expense		6,463			11,165
Net change in:
Accrued interest receivable and other assets		205,605			(299,248	)
Accrued interest payable and other liabilities		(839,307	)		(45,141	)
Deferred loan fees		(4,640	)		(9,886	)
Net cash from operating activities		278,081			(523,670	)

Cash flows from investing activities:
Purchases of securities available for sale		(34,049,155	)		-
Sale of securities available for sale		27,878,092
Maturities, calls and paydowns of securities available for sale		1,353,188			903,482
Redemptions of federal bank stock		133,950			-
Proceeds from sales of other real estate owned		694,600			13,148
Net change in loans		5,286,841			(1,683,225	)
Purchases of premises and equipment		(637	)		(55,009	)
Net cash from investing activities		1,296,879			(821,604	)

Cash flows from financing activities:
Net change in deposits		13,743,780			4,911,772
Net change in repurchase agreements		(197,889	)		(83,661	)
Repayment of capital lease obligations		(6,649	)		(5,687	)
Proceeds from short term FHLB advances, net of repayments		(6,850,000	)		(2,025,000	)
Proceeds from long term FHLB advances		3,000,000			6,000,000
Repayments of long term FHLB advances		(5,500,000	)		-
Net cash provided by financing activities		4,189,242			8,797,424

Net change in cash and cash equivalents		5,764,202			7,452,150
Cash and cash equivalents at beginning of period		11,467,937			7,115,205

Cash and cash equivalents at end of period	$	17,232,139		$	14,567,355

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,162,342		$	2,051,430
Federal income taxes		-			-
Non-cash transactions:
Transfer of loans to other real estate owned	$	154,948		$	29,321

See notes to the consolidated financial statements.

OHIO LEGACY CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Ohio Legacy Corp (Ohio Legacy) and its wholly-owned subsidiary, Ohio Legacy Bank, National Association (Bank). Intercompany transactions and balances are eliminated in consolidation. References to the Company include Ohio Legacy, consolidated with its subsidiary, the Bank.

Ohio Legacy is a bank holding company incorporated on July 1, 1999 under the laws of the State of Ohio. The Bank began operations on October 3, 2000. The Bank provides financial services through its full-service offices in Wooster and Canton, Ohio. Its primary deposit products are checking, savings and certificate of deposit accounts, and its primary lending products are residential mortgage, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business and consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

These consolidated financial statements are prepared without audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position of the Company at March 31, 2009, and its results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accounting principles used to prepare the consolidated financial statements are in compliance with U.S. GAAP. However, the financial statements have been prepared in accordance with the instructions of Form 10-Q and, therefore, do not purport to contain all necessary financial and footnote disclosures required by U.S. GAAP.

The financial information presented in this report should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2008, which includes information and disclosures not presented in this report. Reference is made to the accounting policies of the Company described in Note 1 of the Notes to Consolidated Financial Statements. The Company has consistently followed those policies in preparing this Form 10-Q.

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

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

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

OHIO LEGACY CORP

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Pronouncements:

Accounting for Business Combinations: On December 4, 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations,” with the objective to improve the comparability of information that a company provides in its financial statements related to a business combination. SFAS No. 141(R) establishes principles and requirements for how the acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The statement does not apply to combinations between entities under common control. The adoption of this statement on January 1, 2009, had no impact on the Company’s financial statements and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

Noncontrolling Interests in Consolidated Financial Statements: In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which amends Accounting Research Bulletin No. 51 “Consolidated Financial Statements” (“ARB 51”). A noncontrolling interest, also known as a “minority interest”, is the portion of equity in a subsidiary not attributable to a parent. The objective of this statement is to improve upon the consistency of financial information that a company provides in its consolidated financial statements. Consistent with SFAS No. 141(R), SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this Statement on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities: In March 2008, FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities”—an amendment to SFAS No. 133. This statement requires enhanced disclosures about an entity’s derivative and hedging activities and therefore should improve the transparency of financial reporting. This new accounting standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this Statement on January 1, 2009, did not have a material impact on the Company’s consolidated financial statements.

Recently Issued but not yet Effective Accounting Pronouncements:

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly: On April 9, 2009, the FASB issued FASB Staff Position (FSP) FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. Further, the FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The FSP amends Statement 157 to require certain additional disclosures in interim and annual periods to discuss the inputs and valuation technique(s) used to measure fair value. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and shall be applied prospectively. The Company will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP 157-4.

OHIO LEGACY CORP

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)

Interim Disclosures about Fair Value of Financial Instruments: On April 9, 2009, the FASB issued FASB FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP FAS 107-1 and APB 28-1.

Recognition and Presentation of Other-Than-Temporary Impairments: On April 9, 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP FAS 115-2 and FAS 124-2.

NOTE 3 – STOCK BASED COMPENSATION

The Company granted 150,000 warrants (Director Warrants) to organizers of the Company at the time of closing of the 2000 Offering. The Director Warrants vest in equal percentages each year over a three-year period from the date of grant. Each warrant entitles the holder to purchase a share of common stock at $10.00 per share and will expire ten years from the date of issuance. At March 31, 2009, all Director Warrants were vested and exercisable. No warrants have been exercised to date.

No options were granted or exercised during the first quarters of 2009 or 2008. Following is the activity under the plan.

OHIO LEGACY CORP

	Three months ended March 31, 2009 Total options outstanding
				Weighted
				Average
				Exercise
	Shares			Price

Options outstanding, beginning of period		184,700		$	10.86
Forfeited		(7,050	)		9.42
Exercised		-			-
Granted		-			-

Options outstanding, end of period		177,650		$	10.74

Options exercisable, end of period		158,250		$	10.90

The aggregate intrinsic value of all options outstanding and exercisable at March 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
	Costs

Remainder of 2009	$	7,832
2010		2,081
Total	$	9,913

NOTE 4 – EARNINGS (LOSS) PER SHARE

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

10.

OHIO LEGACY CORP

NOTE 4 – EARNINGS PER SHARE (continued)

	Three Months Ended March 31,
	2009		2008
BASIC:
Net earnings (loss)	$	502,382	$	(31,100	)

Weighted average common shares outstanding		2,214,564		2,214,564

Basic earnings (loss) per share	$	0.23	$	(0.01	)

DILUTED:
Net earnings (loss)	$	502,382	$	(31,100	)

Weighed average common shares outstanding	��	2,214,564		2,214,564
Dilutive effect of stock options		-		-
Dilutive effect of stock warrants		-		-
Total common shares and dilutive potential common shares		2,214,564		2,214,564

Diluted earnings (loss) per share	$	0.23	$	(0.01	)

The following table details, as of March 31, dilutive potential common shares that were excluded from the computation of diluted earnings per share during the periods then ended as the effect of their exercise was antidilutive:

	Three months ended March 31,
	2009		2008

Stock options		177,650		185,350
Stock warrants		150,000		150,000
Total		327,650		335,350

11.

OHIO LEGACY CORP

NOTE 5 – LOANS

Loans, by collateral type, were as follows at March 31, 2009, and December 31, 2008:

	March 31, 2009						December 31, 2008
	Balance			Percent			Balance			Percent

Residential real estate	$	35,963,923			28.8	%	$	37,091,918			28.5	%
Multifamily residential real estate		5,507,722			4.4			5,558,771			4.2
Commercial real estate		54,136,102			43.4			56,921,284			43.7
Construction		10,878,442			8.7			10,799,541			8.2
Commercial		11,802,685			9.5			12,082,242			9.3
Consumer and home equity		6,603,168			5.3			7,893,464			6.0
Total loans		124,892,042			100.	%		130,347,220			100.	%
Less:Allowance for loan losses		(3,565,895	)					(3,398,284	)
Net deferred loan fees		(107,823	)					(112,463	)
Loans, net	$	121,218,324					$	126,836,473

At March 31, 2009, and December 31, 2008, approximately $25,458,500 and $24,656,000, respectively of single-family residential real estate loans were pledged as collateral for advances from the Federal Home Loan Bank of Cincinnati.

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

	For the Three Months Ended
	March 31,
	2009			2008

Balance, beginning of period	$	3,398,284		$	1,622,906
Provision for loan losses		181,000			6,500
Loans charged-off		(14,919	)		(12,245	)
Recoveries		1,530			11,250

Balance, end of period	$	3,565,895		$	1,628,411

Allowance for loan losses, percent of total loans		2.86	%		1.21	%

Loans individually considered impaired and nonaccrual loans were as follows at March 31, 2009, and December 31, 2008:

	March 31, 2009		December 31, 2008

Loans past due over 90 days still on accrual	$	2,203,162	$	279,800
Nonaccrual loans, includes smaller balance homogeneous loans		6,915,196		4,636,376
Impaired loans with no allowance for loan losses allocated		5,679,480		3,380,537
Impaired loans with allowance for loan loss allocated		1,235,716		1,235,839
Amount of the allowance for loan losses allocated	$	772,000	$	772,000

12.

OHIO LEGACY CORP

NOTE 6 – OTHER REAL ESTATE OWNED

Other real estate owned was as follows at March 31, 2009 and December 31, 2008:

	March 31, 2009		December 31, 2008

Residential real estate	$	1,906,671	$	2,430,803
Land development		2,784,893		2,784,893
Total real estate owned		4,691,564		5,215,696

Less: valuation allowance		-		-

Real estate owned, net	$	4,691,564	$	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. Improvements 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 March 31, 2009 and December

31, 2008 includes a property placed into receivership until it can be improved and sold in an orderly fashion.

NOTE 7 – FAIR VALUE MEASUREMENT

Statement 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an 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. Statement 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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

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

The Company uses the following methods and significant assumptions to estimate fair value.

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely 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.

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

13.

OHIO LEGACY CORP

NOTE 7 – FAIR VALUE MEASUREMENT (continued)

	March 31, 2009		December 31, 2008

Available for sale securities	$	37,757,158	$	32,726,863

Quoted prices on active markets for identical assets (Level 1)		88,800		58,000
Significant other observable inputs (Level 2)		37,668,358		32,668,863
Significant unobservable inputs (Level 3)	$	-	$	-

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

	March 31, 2009		December 31, 2008

Impaired loans	$	982,860	$	1,002,322

Quoted prices on active markets for identical assets (Level 1)		-		-
Significant other observable inputs (Level 2)		-		-
Significant unobservable inputs (Level 3)	$	982,860		1,002,322

Other real estate	$	2,406,933	$	2,888,998

Quoted prices on active markets for identical assets (Level 1)		-		-
Significant other observable inputs (Level 2)		-		-
Significant unobservable inputs (Level 3)	$	2,406,933	$	2,888,998

Level 2 inputs, which are quoted prices from a third party in non-active markets were obtained on a limited number of loans. Impaired loans are generally measured for impairment using the fair value of the loan, or the fair value of the collateral for collateral-dependant loans, which is a Level 3 input. Some impaired loans are charged down to the fair value of the loan or the fair value of the collateral. Impaired loans carried at fair value had a principal balance after partial charge downs of $1,754,860, with an additional specific allocation of the allowance for loan losses of $772,000. Impairment charges which were reflected as charge-offs or specific allocations through the allowance for loans losses during the period were not material.

The Company recorded a write-down of $22,500 to other real estate during the first quarter of 2009.

NOTE 8 – CONSENT ORDER

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

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

Further details and projections regarding the Company’s capital levels are provided below in the Capital Resources portion of Management’s Discussion and Analysis.

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OHIO LEGACY CORP

Item 2. Management’s Discussion and Analysis

In the following section, management presents an analysis of Ohio Legacy Corp's financial condition as of March 31, 2009, and December 31, 2008 and results of operations for the three months ended March 31, 2009 and 2008. This discussion is provided to give shareholders a more comprehensive review of the operating results and financial condition 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 related footnotes and the selected financial data elsewhere in this report. As used herein and except as the context may otherwise require, references to "the Company," "we," "us," or "our" means, collectively, Ohio Legacy Corp (Ohio Legacy) and its wholly-owned subsidiary, Ohio Legacy Bank, N.A. (Bank).

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OHIO LEGACY CORP

FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology, such as: "may," "might," "could," "would," “should,” "believe," "expect," "intend," "plan," "seek," "anticipate," "estimate,"

"project" or "continue" or the negative thereof or comparable terminology. All statements other than statements of historical fact included in this MD&A regarding our financial position, capital adequacy and liquidity are forward-looking statements. These forward-looking statements also include, but are not limited to:

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

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

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

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

the adequacy of the allowance for loan losses; and

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

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

competition in the industry and markets in which we operate;

changes in general interest rates;

rapid changes in technology affecting the financial services industry;

changes in government regulation; and

general economic and business conditions.

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OHIO LEGACY CORP

OVERVIEW

The following key factors summarize changes in our financial condition during the three months ended March 31, 2009:

The total risk based capital ratio increased to 8.8% from 7.6% at year end

	·	Real estate owned declined by $524,100
	·	Non-accrual loans increased by $2.3 million

Loans declined $5.6 million

The following key factors summarize our results of operations during the three months ended March 31, 2009:

Net income for the period was $502,382

Noninterest income was $829,539 compared to $284,200 in 2008 as a result of gains on the sale of $27.9 million of securities

	·	The provision for loan losses was $181,000 compared to $6,500 in the prior year
	·	A prior year tax refund of $244,900 was recorded due to recent changes in the tax law

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

Credit quality continues to be the primary focus of the Company

Capital preservation is also a key priority for the Company

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

CRITICAL ACCOUNTING POLICIES

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

Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

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.

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OHIO LEGACY CORP

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 $1,551,000 will expire as follows: $1,419,000 on December 31, 2027 and $132,000 on December 31, 2028. 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.

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

Assets. At March 31, 2009, assets totaled $190.2 million, an increase of $3.6 million or 1.9%, from December 31, 2008. The overall mix of the balance sheet changed as part of the Company’s efforts to strengthen its risk based capital position.

Securities. Total securities increased by $5.0 million to $40.8 million. The portfolio consists primarily of mortgage backed securities issued by the Government National Mortgage Association (GNMA), which are guaranteed by the full faith and credit of the U.S. Government. At March 31, 2009 we believe the effective duration of the portfolio excluding equity investments is approximately 3.6 years. The unrealized loss on the portfolio, net of tax, was $2,000 compared to an unrealized gain of $231,900 at year end.

Loans. At March 31, 2009, the loan portfolio, net of the allowance for loan losses and deferred fees, totaled $121.2 million, a decrease of approximately $5.6 million compared to December 31, 2008. The Company is strategically working to change the composition of the portfolio to lower its risk profile.

Allowance for loan losses and asset quality. Nonperforming loans totaled $6.9 million at March 31, 2009 compared to $4.6 million at December 31, 2008. The increase is the result of the addition of one loan with a balance of $2.5 million, which was previously rated as substandard. The loan is a participation with multiple banks, and the borrower and the banking group are in the process of restructuring the debt. Since the property owners made the January 2009 payment and have indicated a willingness to consider an additional capital infusion, management has determined that no additional provision is needed at this time. The increase was offset in part by $151,500 that was transferred to REO and approximately $49,500 in payoffs. Loans are considered nonperforming if they are impaired or if they are in non-accrual status. We review nonperforming loans on a weekly basis to assess the risk of loss.

The allowance for loan losses totaled $3.6 million at March 31, 2009, compared to $3.4 million at year end 2008. As part of the Company’s quarterly reevaluation of the ALLL, the negative outlook for the commercial real estate market was increased, requiring the addition of $181,000 to the allowance. Credit quality and delinquencies are closely monitored, and the allowance for loan losses will be increased if we believe losses have been incurred.

Accrued interest receivable and other assets. Accrued interest receivable and other assets decreased by $85,500 during the first quarter. Prepaid franchise taxes and insurance that are booked at the beginning of the year and expensed on a monthly basis increased by $90,100. The Company recorded a tax refund of $289,000 as a result of changes in the tax code that allow net operating losses to be carried back five years, which was offset by a $585,100 reduction in the current tax provision.

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OHIO LEGACY CORP

Deposits. Total deposits increased $13.7 million to $159.4 million at March 31, 2009. Core deposit balances increased $3.6 million to $83.8 million, largely in response to deposit promotions introduced late in 2008 that continued throughout the early part of the quarter. Certificates of deposit increased $10.1 million, also due to a short term promotion that began late in the fourth quarter of 2008 and ended early in 2009. The Company’s strategy in the first quarter focused on developing business banking relationship in both markets and reducing other borrowings

Federal Home Loan Bank advances. The Company decreased its overnight borrowing position with the Federal Home Loan Bank by $6.9 million early in the quarter. In addition, a $3.0 million 24 month term advance maturing in January was renewed, reducing the rate from 4.89% to 3.19%. A $2.5 million term advance with a rate of 5.24% was paid off in February.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2009

Net earnings (loss) totaled $502,382 for the three months ended March 31, 2009, or $0.23 per diluted share, compared to ($31,100) or ($0.01) per diluted share during the first quarter of 2008.

Net interest income. During the three months ended March 31, 2009, net interest income was $1.3 million, compared to $1.4 million in the comparable quarter. Net interest income year-over-year was negatively impacted by both a decrease in earning assets and a decrease in the yield on those assets. Total interest bearing liabilities increased, but was offset by a significant decrease in the rates paid.

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

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OHIO LEGACY CORP

	Three months ended March 31,
	2009							2008
	Average		Interest					Average		Interest
	Outstanding		earned/		Yield/			outstanding		earned/		Yield/
(Dollars in thousands)	balance		Paid		Rate			balance		paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits and federal funds sold		4,602		6		0.55	%		3,992		32		3.24	%
Securities available for sale		32,203		401		4.99			28,688		399		5.56
Securities held to maturity		3,000		29		3.81			3,002		29		3.81
Federal agency stock		1,354		16		4.86			1,541		21		5.51
Loans (1)		122,963		1,944		6.41			131,011		2,328		7.15
Total interest-earning assets		164,122		2,397		5.92	%		168,234		2,809		6.71	%
Noninterest-earning assets		27,423							16,893
Total assets		191,545							185,127

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits		10,031		19		0.75	%		9,874		35		1.43	%
Savings accounts		15,757		85		2.19			5,414		11		0.85
Money market accounts		39,940		187		1.90			44,231		363		3.30
Certificates of deposit		74,714		649		3.52			74,395		822		4.45
Total interest-bearing deposits		140,442		940		2.72			133,914		1,231		3.70
Other borrowings		23,240		199		3.48			18,941		221		4.68
Total interest-bearing liabilities		163,682		1,139		2.82	%		152,855		1,452		3.82	%
Noninterest-bearing demand deposits		16,849							14,590
Noninterest-bearing liabilities		819							945
Total liabilities		181,350							168,390
Shareholders’ equity		10,195							16,737
Total liabilities and shareholders’ equity		191,545							185,127

Net interest income; interest-rate spread (2)				1,258		3.10	%				1,357		2.89	%
Net earning assets		440							15,379
Net interest margin (3)						3.12	%						3.24	%
Average interest-earning assets to interest-bearing liabilities		1.00X							1.10x

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

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

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

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OHIO LEGACY CORP

Interest income. Total interest income declined by $411,900 to $2.4 million from the same period a year ago. The decrease reflects both a decline in average earning assets year over year of $4.1 million, and a 77 basis point decline in the overall yield on earning assets from 6.71% to 5.94%. The yield on loans decreased to 6.43% in the first quarter of 2009 from 7.15% in the first quarter of 2008. These lower rates reflect the decrease in market rates during the past year. The yield on securities available for sale decreased to 4.98% from 5.56% during the same period as a result of restructuring the portfolio in the first quarter of 2009 as well as the overall decline in market rates. As part of a strategy to reduce the Company’s risk profile, approximately $28.0 million of agency-issued mortgage backed securities, collateralized mortgage obligations and notes with an average yield of 5.34% were sold in February and March, 2009. The Company recognized a gain of $685,900 on the transaction. The proceeds of the sales and additional cash were used to purchase $33.1 million of GNMA MBS, which are backed by the full faith and credit of the U.S. government, at an average yield of approximately 4.25%

Interest expense. Total interest expense declined by $313,500 to $1.1 million year over year. The average rate fell 99 basis points from 3.82% to 2.83%, and average total interest bearing liabilities increased $10.8 million from $152.9 million to $163.7 million. The increase in balances was primarily the result of deposit promotions offered late in 2008 and early in 2009. The average balances in transaction accounts increased $6.2 million, and the average rate declined 97 basis points. Total average certificates of deposit increased slightly from $74.4 million to $74.7 million, and the rate declined from 4.45% to 3.53%.

Provision for loan losses. The provision for loan losses totaled $181,000 during the first quarter of 2009, compared to $6,500 in the first quarter of 2008. As discussed above in the “Allowance for loan losses,” our provision for loan losses can be expected to fluctuate from period to period.

Noninterest income. Noninterest income increased by $545,300 during the first quarter of 2009 compared to the first quarter of 2008. In 2009, the Company recognized a gain of $685,900 on the sale of available for securities, which was partially offset by a $111,200 other than temporary impairment of FNMA and FHLMC preferred stock.

Noninterest expense. Although total noninterest expense was essentially the same in both quarters, there were significant changes in several categories.

Salary and benefits. Total salaries and benefits declined $70,100 as a result of the elimination of a number of positions at the end of 2008.

Deposit expense and insurance. As an FDIC insured institution, the Bank is required to pay deposit insurance premiums to the FDIC. Because the FDIC’s deposit insurance fund fell below prescribed levels in 2008, the FDIC has announced increased premiums for all insured depository institutions, including the Bank, in order to begin recapitalizing the fund. Insurance assessments range from 0.12% to 0.50% of total deposits for the first calendar quarter 2009 assessment. Effective April 1, 2009, insurance assessments will range from 0.07% to 0.78%, depending on an institution's risk classification and other factors.

In addition, under a proposed rule, the FDIC indicated its plans to impose a 20 basis point emergency assessment on insured depository institutions to be paid on September 30, 2009, based on deposits at June 30, 2009. FDIC representatives subsequently indicated the amount of this special assessment could decrease if certain events transpire. The proposed rule would also authorize the FDIC to impose an additional emergency assessment of up to 10 basis points after June 30, 2009, if necessary to maintain public confidence in federal deposit insurance.

These changes would result in increased deposit insurance expense for the Bank in 2009. These increases will be reflected in other expenses in the Bank's income statement in the period of enactment.

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OHIO LEGACY CORP

The increase of $64,500 from $61,600 to $125,700 was the result of the first scheduled increase in FDIC premiums as described above.

Other expenses. Other expenses increased by $59,100 to $207,600 in 2009 as compared to $148,500 in the first quarter of 2008. The decrease is primarily due to higher expenses to manage properties held in Other Real Estate.

Tax expense (benefit). As a result of a change in the tax law late in 2008 that allows net operating losses to be carried back five years, the Company was able to amend its 2003 tax return and record a refund of taxes paid for that year. The refund of $289,300 was offset by a $44,400 change in accrued taxes for 2008, resulting in a tax benefit of $244,900. The Company does not expect to recognize any further tax benefits in 2009.

STRATEGIC DEVELOPMENTS

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

The Company has been successful in disposing of a number of properties held in other real estate during the first quarter. A total of five properties were sold during the quarter, generating proceeds of $694,600 and gains of $38,000. Subsequent to the end of the quarter, three additional properties were sold, generating approximately $271,000 in proceeds. Another property is under contract for a gross selling price of $162,500. Two properties carried at a total value of $323,000 were sold at sheriff sale during the first quarter of 2009. In May, five properties carried at a total value of $510,000 are scheduled for sheriff sale. Once the deeds from the completed sheriff sales are received, the properties will be listed for sale. The total value of the properties discussed above is approximately $1.8 million; converting these balances to earning assets will generate interest income and eliminate the recurring expenses associated with managing and maintaining the properties.

The investment portfolio restructuring completed during the quarter benefited the Company’s risk-based capital ratio both by generating securities gains, which increased total capital, and by reducing total risk-weighted assets, which lessened the base on which the ratio is calculated. As loans continue to pay off, the Company intends to invest a portion of the proceeds into additional GNMA securities, which will keep total risk-weighted assets near their current level while generating interest income. Despite these improvements, second quarter results will be negatively impacted by the increased FDIC premium expense discussed above in “Deposit expense and insurance.”

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

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

At March 31, 2009, we had no active unconsolidated, related special purpose entities, nor did we engage in derivatives and hedging contracts, such as interest rate swaps, that may expose us to liabilities greater than the amounts recorded on the consolidated balance sheet. Our investment policy prohibits engaging in derivatives contracts for speculative trading purposes; however, we may pursue certain contracts, such as interest rate swaps, in our efforts to execute a sound and defensive interest rate risk management policy.

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OHIO LEGACY CORP

LIQUIDITY

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

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

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

The balances in cash and cash equivalents increased $5.8 million to $17.2 million at March 31, 2009 compared to year end 2008. Cash and cash equivalents represented 9.1% of total assets at March 31, 2009 and 6.2% of total assets at December 31, 2008. The increase in cash was due largely to deposit promotions early in 2009.

CAPITAL RESOURCES

Total shareholders’ equity was $9.8 million at March 31, 2009, an increase of $275,700 from the prior year-end balance. The increase in equity was due to net income of $502,400 for the period, partially offset by a $233,100 decrease in the unrealized gain of securities available for sale during the quarter.

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

On February 17, 2009, the Company entered into an Order of Consent with the Comptroller of the Currency of the United States of America. The Order requires the Bank to increase its Tier 1 capital to at least 8.75% of adjusted total assets and its total risk based capital to at least 13.25% of risk-weighted assets. To have achieved both those levels at March 31, 2009, the Bank would have needed approximately $7.3 million of additional capital.

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

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OHIO LEGACY CORP

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

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital to risk-weighted assets	$	11,032		8.8	%	$	9,974		8.0	%	$	12,467		10.0	%

Tier 1 capital to risk-weighted assets	$	9,449		7.6	%	$	4,987		4.0	%	$	7,480		6.0	%

Tier 1 capital to average assets	$	9,449		5.0	%	$	7,627		4.0	%	$	9,534		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 current year’s and the prior two years’ retained earnings, as defined. In addition, dividends may not reduce capital levels below the minimum regulatory requirements as described above. 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. In addition to the dividend restrictions above, the Bank is not permitted to issue brokered deposits without prior approval from its regulators

Item 3. Not applicable for Smaller Reporting Companies.

Item 4T. Controls and Procedures

As of March 31, 2009, an evaluation was conducted under the supervision and with the participation of Ohio Legacy Corp’s management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in Ohio Legacy Corp’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2009, that has materially affected, or is reasonably likely to materially affect, Ohio Legacy’s Corp’s internal control over financial reporting.

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OHIO LEGACY CORP

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.