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, 2008 and 2007. 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 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. (the Bank).

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis (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 (Exchange Act), as amended, 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 thereof or comparable terminology. All statements other than statements of historical fact included in this MD&A regarding our outlook, financial position and results of operation, liquidity, capital resources and interest rate sensitivity 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.

OVERVIEW OF STRATEGIC DEVELOPMENTS

The major focus of the Company at the current time is credit quality and capital restoration. Continued weakness in the overall economy has had a negative impact on the performance of loans in the portfolio. The effort to manage the Company's portfolio of other real estate represents a significant commitment of time and resources. The OREO portfolio at year end consisted of 12 relationships and a total of 31 properties. The market for these types of impaired properties is extremely distressed at this time. However, during the fourth quarter the company acquired the deeds to two residential real estate subdivisions and four residential rental properties. During the same period we disposed of two residential rental properties. Since year-end, the Company has entered into contracts to sell five single family properties, totaling nearly $1,000,000 in carrying value. Management continues to work to sell the remaining inventory. We anticipate acquiring another seven property deeds in 2009, with a goal of disposing of 22 existing properties during the year. With the housing economy continuing to struggle, disposal of these assets without taking additional losses will be difficult. Our preference is to acquire the deeds through negotiated agreement but in several instances we have been forced to initiate foreclosure proceedings. Given the extent of the backlog in the foreclosure courts, this process continues to be unusually slow and long, which further delays the point at which we can begin to market the properties.

As a result of credit-related charges and the loss associated with the Fannie Mae and Freddie Mac securities, our capital has been reduced by over $8.9 million in the last two years. On an operating basis, we continue to focus on reducing funding costs and operating expense and maintaining or increasing our margins. To that end, during the fourth quarter we eliminated several positions, reducing our projected 2009 salary and benefit costs over $400,000. However, these savings will be offset, at least in part, by rising Federal Deposit Insurance Corporation premiums and other regulatory related costs. The loss of capital and our strategies to effectively deal with this situation is a compelling challenge on which management and the Board of Directors is focused.

The Board of Directors of the Bank entered into a Consent Order with the OCC on February 17, 2009, the details of which were announced in an 8-K filed with the SEC on February 20, 2009. The Order has four articles focusing on capital adequacy and asset quality. Management and the Board of Directors of the Bank are committed to being in compliance with each article within the prescribed timeframes, to the best of their ability. Management and the Board of Directors of the Bank are exploring each and every option that will enable the Bank to reach the capital minimums and asset quality ratios prescribed by the Order. The Board of Directors has retained the services of the investment banking firm Stifel, Nicolaus to explore the specific option of raising private equity capital or merging with or being acquired by another financial institution or other interested investors. Additionally, 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. The gain of $685,900 realized from the sales will result in an increase in capital of the same amount. The Company also expects to recognize a tax refund of approximately $245,000 as the result of a recent change in the tax code that extends the ability to carry net operating losses back five years. Management anticipates the results of these strategies will return the Bank to adequately capitalized as defined under the prompt corrective action regulations at March 31, 2009. See Note 17 for additional discussion on these matters.

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.

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 $2,138,000 will expire as follows:
$1,419,000 on December 31, 2027 and $1,094,000 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. Additional information is included in Notes 1 and 11 to our audited consolidated financial statements.

FINANCIAL CONDITION - DECEMBER 31, 2008, COMPARED TO DECEMBER 31, 2007

Cash and cash equivalents. Cash and cash equivalents increased by $4.4 million during the year. The change was primarily the result of growth in deposits in response to special deposit promotions begun in mid-December, 2008.

Securities. The portfolio increased by $3.7 million to $35.7 million at year end. As the economy continued to worsen throughout the year, available funds were added to the portfolio as opportunities for profitable loan growth diminished. The increase was offset in part by a $2.9 million write-down due to an other-than-temporary impairment of the Company's holdings of preferred stock issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC.)

Loans. At December 31, 2008, the loan portfolio, net of the allowance for loan losses and deferred fees, was $126.8 million, a decrease of $4.8 million, or 3.7% from December 31, 2007. This was largely the result of the Company's continued emphasis on reducing its concentration of commercial real estate loans as that sector of the market started showing weaknesses that transferred from the subprime mortgage sector.

Allowance for loan losses. The allowance for loan losses increased to $3.4 million at December 31, 2008 compared to $1.6 million at December 31, 2007. The allowance for loan losses as a percentage of loans increased from 1.22% at December 31, 2007, to 2.61% at December 31, 2008. The increase in both the dollar amount and the ratio is due in part to a revision in the calculation method for the allowance that more heavily weights recent loss experience and also to increases in reserves for two specific loans.

Provision for loan loss expense year-over-year decreased from $3.5 million in 2007 to $2.4 million in 2008. Provision expense replaces reserves used to charge off or write down existing loans as well as to provide reserves for probable future losses. Of the total expensed in 2008, $620,000 was related to valuation write-downs and charge-offs of specific non-performing loans, $969,000 was to increase the overall level of reserves to total loans and $772,000 was to create specific reserves for two loans as a result of events subsequent to December 31, 2008. During the first quarter of 2009, management has determined that the collateral pledged to secure a $572,000 loan to a real estate developer has little or no value and the ability of the borrower to fulfill his personal guarantee is impaired. The loan was 90 days past due at year-end. The second loan, with a balance of $663,800, involves a condominium project that has experienced construction issues requiring the project to be stopped and vacated. Management has determined that this loan has impairment characteristics that necessitate a specific reserve of $200,000. The owners, the bank group participants and the insurance company providing the builder's risk policy have agreed to a mediation hearing, scheduled for May, 2009. This hearing will provide more clarity as to the potential risk of loss for this property.

Premises and equipment. The net investment in premises and equipment increased from $2.9 million at December 31, 2007 to $3.3 million at December 31, 2008, as a result of the purchase of the Milltown branch building that was previously leased.

Intangible assets. The Company continues to amortize its intangible assets on an accelerated schedule. These assets are the identified intangibles associated with the acquisition of certain core deposits in 2004. At year-end, approximately $60,000 remains to be amortized by 2010.

Federal bank stock. We are required to purchase shares of stock in the Federal Reserve Bank and the Federal Home Loan Bank based on our capital and borrowing levels. During 2008, the Company redeemed 2,514 shares totaling $125,700 to the Federal Reserve Bank as a result of losses recorded in 2007 and 2008. The Company acquired 396 additional shares of Federal Home Loan Bank stock totaling $39,600 through the mandatory reinvestment of dividends. The outstanding balances at December 31, 2008 were $435,100 and $1,020,000, respectively.

Accrued interest receivable and other assets. Accrued interest receivable and other assets decreased from $1.5 million to $1.4 million as a result of normal business activities.

Deposits. During 2008, total deposits decreased $1.6 million to $145.7 million. The Company continued to focus on growing low cost core deposits and reducing higher cost certificate of deposit balances, especially in cases where no other deposit or loan relationship exists. As a result, non-interest bearing deposits increased by 16.3% to $16.7 million and savings account balances grew by 166.2% to $14.5 million. Money market accounts decreased by $5.1 million or 11.6%.and certificates of deposit decreased by $8.0 million or 10.8%.

Repurchase agreements. During the year repurchase agreements decreased from $2.0 million to $1.4 million. As interest rates declined throughout the year, this product became a less attractive option for clients.

FHLB advances. At year end 2008, Federal Home Loan Bank advances were $27.9 million versus $14.0 million for the same period a year ago. The Company took advantage of the low rate environment to lock in rates for two and three year terms in lieu of higher cost certificates of deposit.

Accrued interest payable and other liabilities. Accrued interest payable and other liabilities increased from $1.1 million to $1.6 million during the year. The difference is primarily the result of an increase in accrued taxes on the unrealized gain in the securities portfolio.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2008 AND 2007

Net interest income. For the year ended December 31, 2008, net interest income was lower at $5.7 million, compared to $6.1 million for 2007. Net interest margin increased to 3.38% compared to 3.10% in 2007.

Interest income. Interest income decreased from $13.8 million to $10.7 million as a result of both a reduction in average earning assets of approximately $31.0 million and a 57 basis point decrease in the average yield on those assets. The level of earning assets reflects the full year impact of the sale of the Millersburg branch in the third quarter of 2007. The decline in the average yield is the result of the Federal Reserve Board's 425 basis point reduction in interest rates during 2008.

Interest expense. Total interest expense declined from $7.7 million to $5.0 million, a decrease of 34.9%. Interest expense on deposits decreased $2.4 million to $4.1 million compared to $6.5 million in 2007. This decline is due to a number of factors, including the full-year impact of the sale of the Millersburg branch, the strategies to reduce the level of higher cost deposits and the overall decline in market rates. Total interest expense on Federal Home Loan Bank advances increased $16,000 as the Company increased its total advances to take advantage of low rates during periods when regional pressures kept deposit rates at extremely high levels in comparison to national averages. Lower market rates contributed to a 71.9% reduction in expense on repurchase agreements from $87,500 to $24,600. The Company paid off its subordinated debentures in the third quarter of 2007, resulting in a $190,000 decrease in 2008 by comparison. Capital lease expense also declined as the Company purchased its Milltown building during the third quarter of 2008.

Provision for loan losses. The provision for loan losses in 2008 was $2.4 million compared to $3.5 million in 2007. Although the amount declined significantly, it is still high from a historical perspective. Approximately $970,000 of the provision was the result of a change in the calculation of the Bank's historical loan loss experience included in the allowance estimate to more heavily weight recent years with higher levels of loan charge-offs. An additional $772,000 was to establish specific reserves on two loans, and the remainder was to replace balances charged off throughout the year.

Noninterest income. For the year ended December 31, 2008, noninterest income decreased from $1.9 million to $(2.1 million). This decrease was predominately the result of a $2.9 million other than temporary impairment charge related to the Company's holdings of FNMA and FHLMC preferred stock and a $544,000 direct writedown of other real estate. Service charge income declined $123,000, reflecting the full-year impact of the sale of the Millersburg branch in 2007. The gain on the sale of loans held for sale fell $27,300, or 13.2% as the secondary residential mortgage market continued to experience widespread disruption. Other income increased by $107,100, which was primarily the result of the Company's arrangement with a third party mortgage processor. The Company terminated this arrangement in the fourth quarter of 2008. Noninterest income for 2007 also included a number of significant items, including a $2.1 million gain on the sale of the Millersburg branch, a $1.2 million direct write-down of other real estate owned and a $340,100 loss of the sale of securities available for sale.

Noninterest expense. Total noninterest expense decreased by $786,200 to $7.3 million. The three areas detailed below account were significant contributors to the total.

Salaries and benefits decreased $791,600 from 2007, reflecting the full-year impact of the positions eliminated from the sale of the Millersburg branch and the restructuring during the fourth quarter of 2007.

Professional fees decreased $294,200 from the prior year. The total for 2007 included legal fees associated with a number of problem credits and investment banking fees associated with the sale of the Millersburg office, and also included expenses associated with the development of several new deposit products and services.

Other expenses were approximately $481,900 higher in 2008 than in 2007. The increases were due to various expenses related to maintaining and managing properties in the OREO portfolio.

Income taxes. The Company has no income tax expense or benefit for the year. A valuation allowance has been recorded to reduce to zero the tax benefits that would otherwise have been recorded as a result of the Company's operating loss for 2008.

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

The following table presents, as of December 31, 2008, our significant fixed and
determinable contractual obligations by payment date. The payment amounts
represent those amounts contractually due to the recipient and do not include
any unamortized premiums or discounts, hedge basis adjustments, or other similar
adjustments. Further discussion of the nature of each obligation is included in
the referenced Note to the consolidated financial statements.

(Dollars in        Note
thousands)       Reference         2009          2010          2011          2012          2013         Thereafter
Certificates
of deposit                 7     $  35,111     $  19,723     $   8,521     $   1,998     $     138     $          -
Repurchase
agreements                 8         1,406             -             -             -             -                -
FHLB
advances                   9         5,500        13,500         2,000             -             -                -
Capital
lease
obligations
(1)                        5           102           102           111           116           116              270
Operating
leases                     5           156           161            82            67            40               94
Deposits
without
maturity                            80,214             -             -             -             -                -

Note 14 to the consolidated financial statements discuses in greater detail
other commitments and contingencies and the various obligations that exist under those agreements. Examples of these commitments and contingencies include commitments to extend credit to borrowers under lines of credit.

At December 31, 2008, 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 $7.1 million to $11.5 million at December 31, 2008. Cash and cash equivalents represented 6.1% of total assets at year-end 2008, and 3.9% of total assets at year-end 2007. The increase is primarily due to deposit promotions that were in effect in December, 2008.

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, is sufficient to meet anticipated future growth in loans and deposits under our three-year strategic plan and to maintain compliance with regulatory capital ratios.

The Company was successful in extending the average maturity of the certificate of deposit portfolio from eight months to over 14 months at year end, which reduces the magnitude of fluctuations in liquidity needs as well as the pricing risk associated with high volumes of maturities in any one month. We continued to utilize our overnight borrowing capacity at the Federal Home Loan Bank to provide temporary liquidity as deposit rates in the market remained at historically wide spreads to market rates. The Company plans to broaden its base of low cost core deposits by continuing the successful strategies implemented in 2008.

CAPITAL RESOURCES

Total shareholders' equity was $9.5 million at December 31, 2008, compared to $15.3 million at December 31, 2007. The decrease was due to net losses posted 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 initiate regulatory action.

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, the Bank no longer meets the definition of adequately capitalized (see Note 13 to the consolidated financial statements). 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 capital to specific levels above the minimum for well capitalized by August 31, 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.

The payment of dividends by the Bank to Ohio Legacy and by Ohio Legacy to shareholders is subject to restrictions by regulatory agencies. These . . .