##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended September 30, 2007
 o
    
    Transition Report Under Section 13 or 15(d) of the Exchange Act
 Commission file number 000-51264
 WESTERN RESERVE BANCORP, INC.
  Ohio
    
    31-1566623(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 4015
Medina Road, Suite 100, P.O. Box 585, Medina, Ohio 44256
 (330) 764-3131
 þ o
 o þ
  Common
Stock, no par value, $1.00 stated value
 575,891
common shares
 o þ




---



##### 



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
Quarter ended September 30, 2007
 PagePART IFinancial InformationITEM 1
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets as of September 30, 2007
and December 31, 2006
    
    
    3Consolidated Statements of Income for the three and nine months
ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Comprehensive Income for the three
and nine months ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows for the nine months ended
September 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2
    

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS
    
    
    14ITEM 3
    
    CONTROLS AND PROCEDURES
    
    
    30PART IIOther Information
    
    
    31SIGNATURES
    
    
    
    
    34EX-4EX-10.16EX-31.1EX-31.2EX-32.1EX-32.2
  Page 2




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##### Table of Contents



(Unaudited)Sept. 30,
    
    
    Dec. 31,2007
    
    
    2006AssetsCash and due from financial institutions
    
    $
    3,373,748
    
    
    $
    2,923,863Federal funds sold and other short-term funds
    
    
    23,487,212
    
    
    
    15,172,614Cash and cash equivalents
    
    
    26,860,960
    
    
    
    18,096,477Interest-bearing deposits in other banks
    
    
    
    
    
    
    2,200,000Securities available for sale
    
    
    10,160,086
    
    
    
    10,964,783Restricted stock
    
    
    593,400
    
    
    
    568,800Loans
    
    
    118,514,061
    
    
    
    110,149,244Allowance for loan losses
    
    
    (1,695,631
    )
    
    
    (1,588,217
    )Loans, net
    
    
    116,818,430
    
    
    
    108,561,027Premises and equipment, net
    
    
    1,224,452
    
    
    
    1,237,761Bank owned life insurance
    
    
    1,129,282
    
    
    
    1,092,473Foreclosed assets
    
    
    
    
    
    
    265,000Accrued interest receivable and other assets
    
    
    1,232,805
    
    
    
    1,129,092Total Assets
    
    $
    158,019,415
    
    
    $
    144,115,413Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    14,724,098
    
    
    $
    16,115,340Interest-bearing
    
    
    124,824,692
    
    
    
    111,143,783Total deposits
    
    
    139,548,790
    
    
    
    127,259,123Federal Home Loan Bank advances
    
    
    3,500,000
    
    
    
    3,500,000Accrued interest payable and other liabilities
    
    
    1,383,619
    
    
    
    424,897Total Liabilities
    
    
    144,432,409
    
    
    
    131,184,020Shareholders EquityCommon
stock, without par value, $1 stated value: 1,500,000 shares authorized; 575,891 and
573,277 shares issued and outstanding as of
September 30, 2007 and December 31, 2006
    
    
    575,891
    
    
    
    573,277Additional paid-in capital
    
    
    9,637,999
    
    
    
    9,572,861Retained earnings
    
    
    3,407,326
    
    
    
    2,770,693Accumulated other comprehensive income (loss)
    
    
    (34,210
    )
    
    
    14,562Total Shareholders Equity
    
    
    13,587,006
    
    
    
    12,931,393Total Liabilities and Shareholders Equity
    
    $
    158,019,415
    
    
    $
    144,115,413
  Page 3




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest and dividend incomeLoans, including fees
    
    $
    2,335,549
    
    
    $
    2,330,445
    
    
    $
    6,877,996
    
    
    $
    6,703,311Securities:Taxable
    
    
    76,104
    
    
    
    30,772
    
    
    
    238,449
    
    
    
    168,044Tax exempt
    
    
    43,027
    
    
    
    20,014
    
    
    
    129,143
    
    
    
    31,656Dividends on restricted stock
    
    
    9,305
    
    
    
    8,158
    
    
    
    26,620
    
    
    
    23,583Federal funds sold and other short-term funds
    
    
    322,579
    
    
    
    184,675
    
    
    
    761,985
    
    
    
    335,0362,786,564
    
    
    
    2,574,064
    
    
    
    8,034,193
    
    
    
    7,261,630Interest expenseDeposits
    
    
    1,397,633
    
    
    
    1,101,785
    
    
    
    3,899,254
    
    
    
    2,972,429Borrowings
    
    
    31,999
    
    
    
    31,999
    
    
    
    94,952
    
    
    
    94,9521,429,632
    
    
    
    1,133,784
    
    
    
    3,994,206
    
    
    
    3,067,381Net interest income
    
    
    1,356,932
    
    
    
    1,440,280
    
    
    
    4,039,987
    
    
    
    4,194,249Provision (credit) for loan losses
    
    
    22,600
    
    
    
    (51,300
    )
    
    
    20,000
    
    
    
    (112,080
    )Net interest income after
provision (credit) for loan losses
    
    
    1,334,332
    
    
    
    1,491,580
    
    
    
    4,019,987
    
    
    
    4,306,329Noninterest incomeService charges on deposit accounts
    
    
    39,815
    
    
    
    45,354
    
    
    
    113,580
    
    
    
    133,540Net gains on sales of loans
    
    
    12,829
    
    
    
    7,451
    
    
    
    31,164
    
    
    
    7,451Gain on sale of credit card portfolio
    
    
    
    
    
    
    28,500
    
    
    
    
    
    
    
    28,500Other
    
    
    37,311
    
    
    
    37,523
    
    
    
    147,884
    
    
    
    133,81689,955
    
    
    
    118,828
    
    
    
    292,628
    
    
    
    303,307Noninterest expenseSalaries and employee benefits
    
    
    539,169
    
    
    
    558,334
    
    
    
    1,607,685
    
    
    
    1,616,781Premises and equipment, net
    
    
    217,963
    
    
    
    206,948
    
    
    
    651,523
    
    
    
    613,765Data processing
    
    
    85,710
    
    
    
    81,323
    
    
    
    256,698
    
    
    
    246,353Directors fees
    
    
    30,875
    
    
    
    30,300
    
    
    
    139,550
    
    
    
    91,750Professional fees
    
    
    45,222
    
    
    
    42,180
    
    
    
    141,340
    
    
    
    120,397Marketing and advertising
    
    
    24,211
    
    
    
    24,936
    
    
    
    91,331
    
    
    
    78,507FDIC insurance
    
    
    22,623
    
    
    
    3,505
    
    
    
    70,833
    
    
    
    10,618Taxes other than income and payroll
    
    
    32,602
    
    
    
    28,159
    
    
    
    102,818
    
    
    
    90,529Community and shareholder relations
and contributions
    
    
    17,539
    
    
    
    17,436
    
    
    
    75,011
    
    
    
    71,031Supplies, printing and postage
    
    
    18,077
    
    
    
    19,916
    
    
    
    54,402
    
    
    
    57,125Other
    
    
    81,070
    
    
    
    71,537
    
    
    
    222,866
    
    
    
    204,3421,115,061
    
    
    
    1,084,574
    
    
    
    3,414,057
    
    
    
    3,201,198Income before income taxes
    
    
    309,226
    
    
    
    525,834
    
    
    
    898,558
    
    
    
    1,408,438Income tax expense
    
    
    90,843
    
    
    
    172,387
    
    
    
    261,925
    
    
    
    468,079Net income
    
    $
    218,383
    
    
    $
    353,447
    
    
    $
    636,633
    
    
    $
    940,359Average shares outstanding (basic)
    
    
    575,760
    
    
    
    571,916
    
    
    
    574,770
    
    
    
    571,734Average shares outstanding (diluted)
    
    
    599,871
    
    
    
    598,948
    
    
    
    602,155
    
    
    
    595,336Basic earnings per share
    
    $
    0.38
    
    
    $
    0.62
    
    
    $
    1.11
    
    
    $
    1.64Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    1.06
    
    
    $
    1.58
  Page 4




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    218,383
    
    
    $
    353,447
    
    
    $
    636,633
    
    
    $
    940,359Other comprehensive income (loss), net of tax:Unrealized gains/(losses) on securities arising during the period
    
    
    124,497
    
    
    
    57,128
    
    
    
    (48,772
    )
    
    
    37,258Comprehensive income
    
    $
    342,880
    
    
    $
    410,575
    
    
    $
    587,861
    
    
    $
    977,617
  Page 5




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##### Table of Contents



Nine months ended September 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    636,633
    
    
    $
    940,359Adjustments to reconcile net income
to net cash from operating activities:Provision (credit) for loan losses
    
    
    20,000
    
    
    
    (112,080
    )Depreciation
    
    
    141,436
    
    
    
    127,662Net amortization (accretion) of securities
    
    
    (13,145
    )
    
    
    (102,377
    )Stock-based compensation
    
    
    16,865
    
    
    
    2,199Loans originated for sale
    
    
    (1,371,000
    )
    
    
    (474,500
    )Proceeds from sales of loan originations
    
    
    1,402,164
    
    
    
    481,951Gains on sales of loans and credit card portfolio
    
    
    (31,164
    )
    
    
    (35,951
    )Loss on disposal of fixed assets
    
    
    
    
    
    
    1,594Gain on sale of other real estate owned
    
    
    (2,285
    )
    
    
    Federal Home Loan Bank stock dividends
    
    
    
    
    
    
    (13,000
    )Increase in cash surrender value of life insurance
    
    
    (36,809
    )
    
    
    (21,081
    )Net change in other assets and other liabilities
    
    
    880,134
    
    
    
    (117,792
    )Net cash from operating activities
    
    
    1,642,829
    
    
    
    676,984Cash flows from investing activitiesAvailable for sale securities:Purchases
    
    
    
    
    
    
    (2,987,110
    )Maturities, repayments and calls
    
    
    743,945
    
    
    
    5,426,138Purchase of Federal Home Loan Bank stock
    
    
    (24,600
    )
    
    
    (13,800
    )Net decrease in interest-bearing deposits in other banks
    
    
    2,200,000
    
    
    
    Net (increase) in loans
    
    
    (8,277,403
    )
    
    
    (2,490,248
    )Purchases of premises and equipment
    
    
    (128,127
    )
    
    
    (15,966
    )Proceeds from sale of credit card portfolio
    
    
    
    
    
    
    313,497Purchase of bank owned life insurance
    
    
    
    
    
    
    (500,000
    )Acquisition of other real estate owned
    
    
    
    
    
    
    (136,946
    )Proceeds from sale of other real estate owned
    
    
    267,285
    
    
    
    Net cash from investing activities
    
    
    (5,218,900
    )
    
    
    (404,435
    )Cash flows from financing activitiesNet increase in deposits
    
    
    12,289,667
    
    
    
    10,797,587Proceeds from issuance of common stock
under Employee Stock Purchase Plan
    
    
    14,761
    
    
    
    17,030Proceeds and income tax benefit from exercise of stock options
    
    
    36,126
    
    
    
    Cash paid for fractional shares
    
    
    
    
    
    
    (4,802
    )Net cash from financing activities
    
    
    12,340,554
    
    
    
    10,809,815Change in cash and cash equivalents
    
    
    8,764,483
    
    
    
    11,082,364Cash and cash equivalents at beginning of period
    
    
    18,096,477
    
    
    
    7,343,006Cash and cash equivalents at end of period
    
    $
    26,860,960
    
    
    $
    18,425,370Supplemental cash flow information:Interest paid
    
    $
    4,084,518
    
    
    $
    3,110,208Income taxes paid
    
    
    290,000
    
    
    
    540,000Supplemental disclosure of noncash investing activities:Non cash transfer from loans to other real estate owned
    
    $
    
    
    
    $
    130,000
  Page 6




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WESTERN
RESERVE BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        Page 7




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Three months ended Sept. 30,
    
    
    Nine months ended Sept. 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    218,383
    
    
    $
    353,447
    
    
    $
    636,633
    
    
    $
    940,359Denominator:Denominator for basic
earnings per share
weighted average shares
    
    
    575,760
    
    
    
    571,916
    
    
    
    574,770
    
    
    
    571,734Effect of dilutive securities:Nonqualified stock options
    
    
    24,111
    
    
    
    27,032
    
    
    
    27,385
    
    
    
    23,602Denominator for diluted
earnings per share
    
    
    599,871
    
    
    
    598,948
    
    
    
    602,155
    
    
    
    595,336Basic earnings per share
    
    $
    0.38
    
    
    $
    0.62
    
    
    $
    1.11
    
    
    $
    1.64Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    1.06
    
    
    $
    1.58
  Page 8




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Accounting
for Uncertainty in Income Taxes
 Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangement. Employers Accounting
for Postretirement Benefits Other Than Pensions.
 Fair Value Measurements.
 Page 9




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  The Fair Value Option for Financial Assets and
Financial Liabilities.
 NOTE 2  LOANS
  September 30,
    
    
    December 31,2007
    
    
    2006Commercial real estate
    
    $
    70,353,713
    
    
    $
    66,570,136Commercial business
    
    
    34,960,960
    
    
    
    28,987,234Commercial construction
    
    
    2,361,662
    
    
    
    2,214,763Home equity lines of credit
    
    
    6,501,209
    
    
    
    7,860,647Residential mortgage
and construction
    
    
    1,280,281
    
    
    
    1,226,016Consumer installment
    
    
    3,027,130
    
    
    
    3,261,615Other
    
    
    29,106
    
    
    
    28,833$
    118,514,061
    
    
    $
    110,149,244
 Page 10




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 2
 LOANS
  Three months ended Sept. 30,
    
    
    Nine months ended Sept. 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning balance
    
    $
    1,663,031
    
    
    $
    1,603,649
    
    
    $
    1,588,217
    
    
    $
    1,541,654Loans charged off
    
    
    
    
    
    
    (66,656
    )
    
    
    
    
    
    
    (148,881
    )Recoveries
    
    
    10,000
    
    
    
    19,595
    
    
    
    87,414
    
    
    
    224,595Provision
(credit) for loan losses
    
    
    22,600
    
    
    
    (51,300
    )
    
    
    20,000
    
    
    
    (112,080
    )Ending balance
    
    $
    1,695,631
    
    
    $
    1,505,288
    
    
    $
    1,695,631
    
    
    $
    1,505,288
  NOTE 3  DEPOSITS
  September 30,
    
    
    December 31,2007
    
    
    2006Noninterest-bearing demand
    
    $
    14,724,098
    
    
    $
    16,115,340Interest-bearing demand
    
    
    5,819,328
    
    
    
    7,859,550Market Rate Savings
    
    
    80,696,297
    
    
    
    58,528,182Time under $100,000
    
    
    23,429,234
    
    
    
    26,049,710Time $100,000 and over
    
    
    14,879,833
    
    
    
    18,706,341$
    139,548,790
    
    
    $
    127,259,123
  Page 11




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
  September 30,
    
    
    December 31,2007
    
    
    2006Maturing March 2009, fixed rate advance at 3.25%
    
    $
    2,500,000
    
    
    $
    2,500,000Maturing April 2010, fixed rate advance at 4.57%
    
    
    1,000,000
    
    
    
    1,000,000$
    3,500,000
    
    
    $
    3,500,000
     Page 12




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2007
 NOTE 5
 STOCK COMPENSATION PLAN
  Nine months ended
    
    Nine months endedSeptember 30, 2007
    
    September 30, 2006Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    PriceOptions
outstanding, beginning of period
    
    
    113,136
    
    
    $
    18.53
    
    
    
    114,136
    
    
    $
    18.52Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,625
    )
    
    
    17.48
    
    
    
    
    
    
    
    Granted
    
    
    500
    
    
    
    29.00
    
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    112,011
    
    
    $
    18.59
    
    
    
    114,136
    
    
    $
    18.52Options exercisable, end of period
    
    
    110,730
    
    
    $
    18.50
    
    
    
    112,964
    
    
    $
    18.47
   2007Risk-free interest rate
    
    
    4.49
    %Expected option life (years)
    
    
    7Expected stock price volatility
    
    
    11.24
    %Dividend yield
    
    
    0.00
    %
   Page 13




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS
 September 30, 2007
 OVERVIEW
   FINANCIAL CONDITION
 Assets
     Page 14




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WESTERN RESERVE BANCORP, INC  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 FINANCIAL CONDITION
      Page 15




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 FINANCIAL CONDITION
  Liabilities
     Page 16




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 FINANCIAL CONDITION
 Shareholders Equity
  RESULTS
OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
 Overview
  Net Interest Income
   Page 17




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
  Nine months ended September 30,2007
    
    
    2006Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/($ in thousands)
    
    Balance
    
    
    Expense
    
    
    Cost
    
    
    Balance
    
    
    Expense
    
    
    CostLoans
    
    $
    115,347
    
    
    $
    6,878
    
    
    
    7.97
    %
    
    $
    112,861
    
    
    $
    6,703
    
    
    
    7.94
    %Investment securities-taxable
    
    
    6,132
    
    
    
    238
    
    
    
    5.20
    %
    
    
    5,123
    
    
    
    168
    
    
    
    4.39
    %Investment securities-tax exempt
    
    
    4,460
    
    
    
    172
    
    
    
    5.15
    %
    
    
    1,156
    
    
    
    42
    
    
    
    4.92
    %Restricted stock
    
    
    585
    
    
    
    27
    
    
    
    6.09
    %
    
    
    550
    
    
    
    24
    
    
    
    5.73
    %Federal funds sold and other
short-term funds
    
    
    19,618
    
    
    
    762
    
    
    
    5.19
    %
    
    
    8,972
    
    
    
    335
    
    
    
    4.99
    %Total interest earning assets
    
    
    146,142
    
    
    
    8,077
    
    
    
    7.39
    %
    
    
    128,662
    
    
    
    7,272
    
    
    
    7.56
    %Noninterest earning assets
    
    
    4,466
    
    
    
    
    
    
    
    
    
    
    
    3,904Total Assets
    
    $
    150,608
    
    
    
    
    
    
    
    
    
    
    $
    132,566Interest-bearing transaction accounts
    
    $
    6,601
    
    
    
    50
    
    
    
    1.00
    %
    
    $
    7,053
    
    
    
    53
    
    
    
    1.00
    %Market rate savings
    
    
    69,826
    
    
    
    2,449
    
    
    
    4.69
    %
    
    
    51,078
    
    
    
    1,598
    
    
    
    4.18
    %Certificate of deposit and IRAs
    
    
    41,842
    
    
    
    1,400
    
    
    
    4.47
    %
    
    
    44,730
    
    
    
    1,321
    
    
    
    3.95
    %Borrowings
    
    
    3,500
    
    
    
    95
    
    
    
    3.63
    %
    
    
    3,500
    
    
    
    95
    
    
    
    3.63
    %Total interest bearing liabilities
    
    
    121,769
    
    
    
    3,994
    
    
    
    4.38
    %
    
    
    106,361
    
    
    
    3,067
    
    
    
    3.86
    %Noninterest bearing liabilities
    
    
    15,632
    
    
    
    
    
    
    
    
    
    
    
    14,136Shareholders equity
    
    
    13,207
    
    
    
    
    
    
    
    
    
    
    
    12,069Total Liabilities and
Shareholders Equity
    
    $
    150,608
    
    
    
    
    
    
    
    
    
    
    $
    132,566Net interest income
    
    
    
    
    
    
    4,083
    
    
    
    
    
    
    
    
    
    
    
    4,205Tax equivalent adjustment
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Net interest income per financial
statements
    
    
    
    
    
    $
    4,040
    
    
    
    
    
    
    
    
    
    
    $
    4,194Net yield on average earning assets
    
    
    
    
    
    
    
    
    
    
    3.73
    %
    
    
    
    
    
    
    
    
    
    
    4.37
    %
 Page 18




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
   Nine months endedSeptember 30, 2007 vs. 2006Increase (Decrease) inNet Interest Income Due to($ in thousands)
    
    Volume
    
    
    Rate
    
    
    NetInterest income:Loans
    
    $
    80
    
    
    $
    95
    
    
    $
    175Investment securities-taxable
    
    
    36
    
    
    
    34
    
    
    
    70Investment securities-tax exempt
    
    
    127
    
    
    
    3
    
    
    
    130Restricted stock
    
    
    2
    
    
    
    1
    
    
    
    3Federal funds sold and other short-term funds
    
    
    413
    
    
    
    14
    
    
    
    427Total interest-earning assets
    
    
    658
    
    
    
    147
    
    
    
    805Interest expense:Interest-bearing transaction accounts
    
    
    3
    
    
    
    
    
    
    
    3Market rate savings accounts
    
    
    (640
    )
    
    
    (211
    )
    
    
    (851
    )Certificates of deposit and IRAs
    
    
    87
    
    
    
    (166
    )
    
    
    (79
    )Borrowings
    
    
    
    
    
    
    
    
    
    
    Total interest-bearing liabilities
    
    
    (550
    )
    
    
    (377
    )
    
    
    (927
    )Change in net interest income
    
    $
    108
    
    
    $
    (230
    )
    
    $
    (122
    )
 Interest Income
   Page 19




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
 Interest Expense
  Net Interest Margin
     Page 20




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
  Provision for Loan Losses
     Noninterest Income
  Page 21




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
    Noninterest Expenses
     Page 22




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
   Nine months endedSeptember 30,2007
    
    
    2006Collection expenses
    
    $
    82,000
    
    
    $
    41,000Loan expense
    
    
    25,000
    
    
    
    15,000Insurance
    
    
    25,000
    
    
    
    28,000Travel and entertainment
    
    
    35,000
    
    
    
    35,000Telephone
    
    
    19,000
    
    
    
    18,000Other
    
    
    37,000
    
    
    
    67,000$
    223,000
    
    
    $
    204,000
   RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
  Page 23




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
 Net Interest Income
   Provision for Loan Losses
  Noninterest Income
  Noninterest Expense
  Page 24




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
   Three months endedSeptember 30,2007
    
    
    2006Collection expenses
    
    $
    27,000
    
    
    $
    19,000Loan expenses
    
    
    7,000
    
    
    
    4,000Insurance
    
    
    9,000
    
    
    
    10,000Travel and entertainment
    
    
    13,000
    
    
    
    15,000Telephone
    
    
    7,000
    
    
    
    6,000Other
    
    
    18,000
    
    
    
    17,000$
    81,000
    
    
    $
    71,000
 LIQUIDITY AND CAPITAL RESOURCES
    Page 25




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 LIQUIDITY AND CAPITAL RESOURCES
    Minimum
    
    
    Minimumto be
    
    
    requiredWestern Reserve Bank
    
    
    considered
    
    
    for capitalSept. 30,
    
    
    December 31,
    
    
    well-
    
    
    adequacy2007
    
    
    2006
    
    
    capitalized
    
    
    purposesTier 1 core capital to risk-weighted assets
    
    
    8.9
    %
    
    
    9.0
    %
    
    
    6.0
    %
    
    
    4.0
    %Total capital to risk-weighted assets
    
    
    10.9
    %
    
    
    11.3
    %
    
    
    10.0
    %
    
    
    8.0
    %Tier 1 leverage ratio
    
    
    7.2
    %
    
    
    7.5
    %
    
    
    5.0
    %
    
    
    4.0
    %
    Page 26




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 LIQUIDITY AND CAPITAL RESOURCES
     Page 27




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 LIQUIDITY AND CAPITAL RESOURCES
  INTEREST RATE SENSITIVITY
     CRITICAL ACCOUNTING POLICIES
  Page 28




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2007
 CRITICAL ACCOUNTING POLICIES
  Page 29




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 CONTROLS AND PROCEDURES
September 30, 2007
   Page 30




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
September 30, 2007
 
 PART IIOTHER INFORMATION
         Page 31




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
September 30, 2007
 ExhibitNo.
    
    Description of Exhibits3.1
    
    Amended and Restated
Articles of Incorporation of
Western Reserve Bancorp,
Inc. (incorporated by
reference to the Companys
Report on Form 10-QSB filed
with the Commission on
August 14, 2007)
    
    *3.2
    
    Code of Regulations of
Western Reserve Bancorp,
Inc. (incorporated by
reference to the Companys
Report on Form SB-2 filed
with the Commission on
December 29, 1997)
    
    *4
    
    Legend Placed on
Certificates Representing
Shares Issued pursuant to an
exemption from registration
under Section 3(a)(11) of
the Securities Act and Rule
147 thereunder10.1
    
    Employment Agreement of
Edward J. McKeon, Dated
December 15, 2005.
(incorporated by reference
to the Companys Report on
Form 8-K filed with the
Commission on December 19,
2005)
    
    *10.2
    
    Lease Agreement by and
between Michael Rose DBA
Washington Properties and
Western Reserve Bancorp,
Inc. (incorporated by
reference to the Companys
Report on Form 10-KSB filed
with the Commission on March
31, 1999)
    
    *10.3
    
    Western Reserve Bancorp,
Inc. 1998 Stock Option Plan,
Amended and Restated as of
June 21, 2007 (incorporated
by reference to the
Companys Report on Form 8-K
filed with the Commission on
June 26, 2007)
    
    *10.4
    
    Agreement by and between
Western Reserve Bancorp,
Inc. and Brian K. Harr,
dated June 18, 2001, as
amended February 20, 2002
(incorporated by reference
to the Companys Report on
Form 10-KSB filed with the
Commission on March 28,
2003)
    
    *10.5
    
    Agreement by and between
Western Reserve Bancorp,
Inc. and Cynthia A. Mahl,
dated June 18, 2001, as
amended February 20, 2002
(incorporated by reference
to the Companys Report on
Form 10-KSB filed with the
Commission on March 28,
2003)
    
    *10.6
    
    Loan Agreement between
Western Reserve Bancorp,
Inc. and TCF National Bank,
dated May 5, 2003
(incorporated by reference
to the Companys Report on
Form 10-QSB filed with the
Commission on August 14,
2003)
    
    *10.7
    
    Western Reserve Bank
Supplemental Executive
Retirement Plan, dated May
15, 2003 (incorporated by
reference to the Companys
Report on Form 10-QSB filed
with the Commission on
August 14, 2003)
    
    *10.8
    
    Western Reserve Bancorp,
Inc. Employee Stock Purchase
Plan (incorporated by
reference to the Companys
Report on Form 10-QSB filed
with the Commission on
November 14, 2003)
    
    *10.9
    
    Lease Agreement by and
between Western Reserve of
Brecksville, LLC and Western
Reserve Bank (incorporated
by reference to the
Companys Report on Form
10-KSB filed with the
Commission on March 30,
2005)
    
    *
 
 *
    
    Previously filed and incorporated herein by reference. Page 32




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
September 30, 2007
 ExhibitNo.
    
    Description of Exhibits10.10
    
    First amendment to the Loan Agreement by and between Western
Reserve Bancorp, Inc. and TCF National Bank, dated March 31,
2005 (incorporated by reference to the Companys Report on
Form 10-QSB filed with the Commission on May 16, 2005)
    
    *10.11
    
    Second amendment to the Loan Agreement by and between Western
Reserve Bancorp, Inc. and TCF National Bank, dated June 30,
2005 (incorporated by reference to the Companys Report on
Form 10-QSB filed with the Commission on August 15, 2005)
    
    *10.12
    
    Western Reserve Bancorp, Inc. and Western Reserve Bank
Incentive Compensation Plan, Amended and Restated as of
January 18, 2007 (incorporated by reference to the Companys
Report on Form 10-KSB filed with the Commission on March 29,
2007)
    
    *10.13
    
    Third amendment to the Loan Agreement by and between Western
Reserve Bancorp, Inc. and TCF National Bank, dated July 20,
2006 (incorporated by reference to the Companys Report on
Form 10-QSB filed with the Commission on November 14, 2006)
    
    *10.14
    
    Fourth Amendment to the Loan Agreement by and between Western
Reserve Bancorp, Inc. and TCF National Bank, dated February 6,
2007 (incorporated by reference to the Companys Report on
Form 10-QSB filed with the Commission on August 14, 2007)
    
    *10.15
    
    Fifth Amendment to the Loan Agreement and Waiver by and
between Western Reserve Bancorp, Inc. and TCF National Bank,
dated June 21, 2007 (incorporated by reference to the
Companys Report on Form 10-QSB filed with the Commission on
August 14, 2007)
    
    *10.16
    
    Sixth Amendment to the Loan Agreement by and between Western
Reserve Bancorp, Inc. and TCF National Bank, dated September
28, 200711
    
    Statement re: Computation of Per Share Earnings (incorporated
by reference to Note 1 of this Form 10-QSB)
    
    *14
    
    Western Reserve Bancorp, Inc. Code of Ethics and Business
Conduct (incorporated by reference to the Companys Report on
Form 10-KSB filed with the Commission on March 30, 2004)
    
    *31.1
    
    Certification under Section 302 of the Sarbanes-Oxley Act by
Edward J. McKeon, President and Chief Executive Officer31.2
    
    Certification under Section 302 of the Sarbanes-Oxley Act by
Cynthia A. Mahl, Senior Vice President and Chief Financial
Officer32.1
    
    Certification under Section 906 of the Sarbanes-Oxley Act by
Edward J. McKeon, President and Chief Executive Officer32.2
    
    Certification under Section 906 of the Sarbanes-Oxley Act by
Cynthia A. Mahl, Senior Vice President and Chief Financial
Officer
 
 *
    
    Previously filed and incorporated herein by reference. Page 33




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
Quarter ended September 30, 2007
 
 SIGNATURES
  Western Reserve Bancorp, Inc.Date: November 14, 2007
    By:
    /s/ Edward J. McKeonEdward J. McKeon 
President and Chief Executive Officer
(Principal Executive Officer)/s/ Cynthia A. MahlCynthia A. Mahl 
Senior Vice President/Chief Financial Officer
(Principal Financial Officer)
 Page 34