##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended June 30, 2008
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number 000-51264
 WESTERN RESERVE BANCORP, INC.
  Ohio
    
    31-1566623(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 4015 Medina Road, Suite 100, P.O. Box 585, Medina, Ohio 44256
 Registrants telephone number, including area code
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 2008
 PagePART IFinancial InformationITEM 1 FINANCIAL STATEMENTSConsolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007
    
    
    4Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    N/AITEM 4 CONTROLS AND PROCEDURES
    
    
    30PART IIOther Information
    
    
    31SIGNATURES
    
    
    34Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   Page 2




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(Unaudited)June 30,
    
    
    Dec. 31,2008
    
    
    2007AssetsCash and due from financial institutions
    
    $
    3,857,583
    
    
    $
    2,486,243Federal funds sold and other short-term funds
    
    
    8,202,825
    
    
    
    21,332,285Cash and cash equivalents
    
    
    12,060,408
    
    
    
    23,818,528Interest-bearing deposits in other banks
    
    
    3,000,000
    
    
    
    Securities available for sale
    
    
    10,986,148
    
    
    
    10,982,965Restricted stock
    
    
    634,700
    
    
    
    593,400Loans
    
    
    135,077,529
    
    
    
    121,628,057Allowance for loan losses
    
    
    (1,419,639
    )
    
    
    (1,605,766
    )Loans, net
    
    
    133,657,890
    
    
    
    120,022,291Premises and equipment, net
    
    
    1,136,696
    
    
    
    1,187,302Bank owned life insurance
    
    
    2,180,690
    
    
    
    1,142,580Foreclosed assets
    
    
    371,000
    
    
    
    371,000Accrued interest receivable and other assets
    
    
    1,554,537
    
    
    
    1,241,651Total Assets
    
    $
    165,582,069
    
    
    $
    159,359,717Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    18,596,032
    
    
    $
    17,080,851Interest-bearing
    
    
    125,752,046
    
    
    
    124,348,417Total deposits
    
    
    144,348,078
    
    
    
    141,429,268Federal Home Loan Bank advances
    
    
    6,500,000
    
    
    
    3,500,000Accrued interest payable and other liabilities
    
    
    477,632
    
    
    
    501,476Total Liabilities
    
    
    151,325,710
    
    
    
    145,430,744Shareholders EquityCommon stock, without par value, $1 stated value:1,500,000 shares authorized; 582,654 and
579,059 shares issued and outstanding as of
June 30, 2008 and December 31, 2007
    
    
    582,654
    
    
    
    579,059Additional paid-in capital
    
    
    9,768,164
    
    
    
    9,702,632Retained earnings
    
    
    3,966,594
    
    
    
    3,587,907Accumulated other comprehensive income (loss)
    
    
    (61,053
    )
    
    
    59,375Total Shareholders Equity
    
    
    14,256,359
    
    
    
    13,928,973Total Liabilities and
Shareholders Equity
    
    $
    165,582,069
    
    
    $
    159,359,717
   Page 3




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and dividend incomeLoans, including fees
    
    $
    2,204,118
    
    
    $
    2,316,908
    
    
    $
    4,483,201
    
    
    $
    4,542,447Securities:Taxable
    
    
    88,029
    
    
    
    79,753
    
    
    
    168,540
    
    
    
    162,345Tax exempt
    
    
    43,489
    
    
    
    43,085
    
    
    
    86,939
    
    
    
    86,116Dividends on restricted stock
    
    
    8,260
    
    
    
    8,925
    
    
    
    16,257
    
    
    
    17,315Federal funds sold and other
short-term funds
    
    
    59,019
    
    
    
    245,230
    
    
    
    194,308
    
    
    
    439,4062,402,915
    
    
    
    2,693,901
    
    
    
    4,949,245
    
    
    
    5,247,629Interest expenseDeposits
    
    
    824,673
    
    
    
    1,298,480
    
    
    
    1,931,441
    
    
    
    2,501,621Borrowings
    
    
    51,371
    
    
    
    31,650
    
    
    
    84,074
    
    
    
    62,953876,044
    
    
    
    1,330,130
    
    
    
    2,015,515
    
    
    
    2,564,574Net interest income
    
    
    1,526,871
    
    
    
    1,363,771
    
    
    
    2,933,730
    
    
    
    2,683,055Provision (credit) for loan losses
    
    
    42,400
    
    
    
    2,000
    
    
    
    140,300
    
    
    
    (2,600
    )Net interest income after
provision (credit) for
loan losses
    
    
    1,484,471
    
    
    
    1,361,771
    
    
    
    2,793,430
    
    
    
    2,685,655Noninterest incomeService charges on deposit accounts
    
    
    43,483
    
    
    
    38,611
    
    
    
    83,594
    
    
    
    73,765Net gains on sales of loans
    
    
    1,446
    
    
    
    4,882
    
    
    
    1,446
    
    
    
    18,335Other
    
    
    61,416
    
    
    
    73,883
    
    
    
    100,446
    
    
    
    110,573106,345
    
    
    
    117,376
    
    
    
    185,486
    
    
    
    202,673Noninterest expenseSalaries and employee benefits
    
    
    589,977
    
    
    
    536,171
    
    
    
    1,200,975
    
    
    
    1,068,516Premises and equipment, net
    
    
    230,815
    
    
    
    218,536
    
    
    
    463,135
    
    
    
    433,560Data processing
    
    
    91,688
    
    
    
    84,495
    
    
    
    184,261
    
    
    
    170,988Directors fees
    
    
    34,200
    
    
    
    66,475
    
    
    
    74,075
    
    
    
    108,675Professional fees
    
    
    49,048
    
    
    
    51,359
    
    
    
    102,489
    
    
    
    96,118Marketing and advertising
    
    
    23,525
    
    
    
    39,482
    
    
    
    46,624
    
    
    
    67,120FDIC insurance
    
    
    25,155
    
    
    
    34,686
    
    
    
    52,041
    
    
    
    48,210Taxes other than income and payroll
    
    
    37,088
    
    
    
    34,088
    
    
    
    76,292
    
    
    
    70,216Community and shareholder relations
and contributions
    
    
    29,497
    
    
    
    35,058
    
    
    
    53,675
    
    
    
    57,472Supplies, printing and postage
    
    
    18,470
    
    
    
    17,517
    
    
    
    36,925
    
    
    
    36,325Other
    
    
    97,736
    
    
    
    82,169
    
    
    
    169,987
    
    
    
    141,7961,227,199
    
    
    
    1,200,036
    
    
    
    2,460,479
    
    
    
    2,298,996Income before income taxes
    
    
    363,617
    
    
    
    279,111
    
    
    
    518,437
    
    
    
    589,332Income tax expense
    
    
    102,492
    
    
    
    80,815
    
    
    
    139,750
    
    
    
    171,082Net income
    
    $
    261,125
    
    
    $
    198,296
    
    
    $
    378,687
    
    
    $
    418,250Average shares outstanding (basic)
    
    
    582,400
    
    
    
    575,242
    
    
    
    581,646
    
    
    
    574,266Average shares outstanding (diluted)
    
    
    594,176
    
    
    
    604,222
    
    
    
    596,162
    
    
    
    603,219Basic earnings per share
    
    $
    0.45
    
    
    $
    0.34
    
    
    $
    0.65
    
    
    $
    0.73Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.33
    
    
    $
    0.64
    
    
    $
    0.69
   Page 4




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Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    261,125
    
    
    $
    198,296
    
    
    $
    378,687
    
    
    $
    418,250Other comprehensive income (loss), net of tax:Unrealized gains/(losses) on securities
arising during the period
    
    
    (213,414
    )
    
    
    (161,333
    )
    
    
    (120,428
    )
    
    
    (173,269
    )Comprehensive income
    
    $
    47,711
    
    
    $
    36,963
    
    
    $
    258,259
    
    
    $
    244,981
   Page 5




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##### Table of Contents



Six months ended June 30,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    378,687
    
    
    $
    418,250Adjustments to reconcile net income
to net cash from operating activities:Provision (credit) for loan losses
    
    
    140,300
    
    
    
    (2,600
    )Depreciation
    
    
    94,753
    
    
    
    94,466Net amortization (accretion) of securities
    
    
    (6,900
    )
    
    
    (8,779
    )Stock-based compensation
    
    
    1,649
    
    
    
    16,478Loans originated for sale
    
    
    (97,500
    )
    
    
    (690,000
    )Proceeds from sales of loan originations
    
    
    98,946
    
    
    
    708,335Gains on sales of loans
    
    
    (1,446
    )
    
    
    (18,335
    )Gain on sale of other real estate owned
    
    
    
    
    
    
    (2,285
    )Federal Home Loan Bank stock dividends
    
    
    (9,400
    )
    
    
    Increase in cash surrender value of life insurance
    
    
    (38,110
    )
    
    
    (24,307
    )Net change in other assets and other liabilities
    
    
    (274,691
    )
    
    
    (167,451
    )Net cash from operating activities
    
    
    286,288
    
    
    
    323,772Cash flows from investing activitiesAvailable for sale securities:Purchases
    
    
    (2,020,806
    )
    
    
    Maturities, repayments and calls
    
    
    1,842,056
    
    
    
    582,386Purchase of Federal Home Loan Bank stock
    
    
    (22,900
    )
    
    
    (24,600
    )Purchase of Federal Reserve Bank stock
    
    
    (9,000
    )
    
    
    Net (increase) decrease in interest-bearing deposits in other banks
    
    
    (3,000,000
    )
    
    
    2,200,000Net (increase) in loans
    
    
    (9,082,269
    )
    
    
    (6,945,967
    )Purchase of auto loan portfolio
    
    
    (4,693,630
    )
    
    
    Purchases of premises and equipment
    
    
    (44,147
    )
    
    
    (117,268
    )Purchase of Bank Owned Life Insurance
    
    
    (1,000,000
    )
    
    
    267,285Net cash from investing activities
    
    
    (18,030,696
    )
    
    
    (4,038,164
    )Cash flows from financing activitiesNet increase in deposits
    
    
    2,918,810
    
    
    
    8,357,636Proceeds from Federal Home Loan Bank advances
    
    
    3,000,000
    
    
    
    Proceeds from issuance of common stock
under Employee Stock Purchase Plan
    
    
    10,069
    
    
    
    10,924Proceeds and income tax benefit from exercise of stock options
    
    
    57,418
    
    
    
    36,126Cash paid for fractional shares
    
    
    (9
    )
    
    
    Net cash from financing activities
    
    
    5,986,288
    
    
    
    8,404,686Change in cash and cash equivalents
    
    
    (11,758,120
    )
    
    
    4,690,294Cash and cash equivalents at beginning of period
    
    
    23,818,528
    
    
    
    18,096,477Cash and cash equivalents at end of period
    
    $
    12,060,408
    
    
    $
    22,786,771Supplemental cash flow information:Interest paid
    
    $
    2,022,890
    
    
    $
    2,592,176Income taxes paid
    
    
    197,461
    
    
    
    205,000
   Page 6




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WESTERN RESERVE BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 June 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        Page 7




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    261,125
    
    
    $
    198,296
    
    
    $
    378,687
    
    
    $
    418,250Denominator:Denominator for basic earnings per common
share  weighted-average shares
    
    
    582,400
    
    
    
    575,242
    
    
    
    581,646
    
    
    
    574,266Effect of dilutive securities:Nonqualified stock options
    
    
    11,776
    
    
    
    28,980
    
    
    
    14,516
    
    
    
    28,953Denominator for diluted earnings
per common share
    
    
    594,176
    
    
    
    604,222
    
    
    
    596,162
    
    
    
    603,219Basic earnings per common share
    
    $
    0.45
    
    
    $
    0.34
    
    
    $
    0.65
    
    
    $
    0.73Diluted earnings per common share
    
    $
    0.44
    
    
    $
    0.33
    
    
    $
    0.64
    
    
    $
    0.69
   Page 8




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   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
 The Fair Value Option for Financial Assets and
Financial Liabilities
  Page 9




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Written Loan Commitments
Recorded at Fair Value through Earnings Application of Accounting
Principles to Loan Commitments
 NOTE 2  LOANS
  June 30,
    
    
    December 31,2008
    
    
    2007Commercial real estate
    
    $
    81,356,578
    
    
    $
    73,122,859Commercial business
    
    
    35,379,886
    
    
    
    35,391,508Commercial construction
    
    
    2,675,034
    
    
    
    1,919,310Home equity lines of credit (HELOC)
    
    
    7,166,402
    
    
    
    6,663,412Residential mortgage and construction
    
    
    1,293,468
    
    
    
    1,513,902Consumer installment
    
    
    3,033,606
    
    
    
    2,985,560Purchased auto loans
    
    
    4,139,846
    
    
    
    Other
    
    
    32,709
    
    
    
    31,506$
    135,077,529
    
    
    $
    121,628,057
  Page 10




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 2  LOANS
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    1,705,091
    
    
    $
    1,626,316
    
    
    $
    1,605,766
    
    
    $
    1,588,217Loans charged off
    
    
    (327,852
    )
    
    
    
    
    
    
    (328,633
    )
    
    
    Recoveries
    
    
    
    
    
    
    34,715
    
    
    
    2,206
    
    
    
    77,414Provision
(credit) for loan losses
    
    
    42,400
    
    
    
    2,000
    
    
    
    140,300
    
    
    
    (2,600
    )Ending balance
    
    $
    1,419,639
    
    
    $
    1,663,031
    
    
    $
    1,419,639
    
    
    $
    1,663,031
   NOTE 3  DEPOSITS
  June 30,
    
    
    December 31,2008
    
    
    2007Noninterest-bearing demand
    
    $
    18,596,032
    
    
    $
    17,080,851Interest-bearing demand
    
    
    8,312,733
    
    
    
    6,662,678Market rate savings
    
    
    76,544,135
    
    
    
    79,987,868Time under $100,000
    
    
    21,719,829
    
    
    
    22,604,561Time over $100,000
    
    
    19,175,349
    
    
    
    15,093,310$
    144,348,078
    
    
    $
    141,429,268
   Page 11




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
  Rate or
    
    
    Average
    
    
    June 30,
    
    
    December 31,Range of Rates
    
    
    Rate
    
    
    2008
    
    
    2007Fixed-rate advances:Maturing March 2009
    
    
    2.39% - 3.25%
    
    
    
    3.08
    %
    
    $
    3,100,000
    
    
    $
    2,500,000Maturing March 2010
    
    
    2.70%
    
    
    
    2.70
    %
    
    
    500,000
    
    
    
    Maturing April 2010
    
    
    4.57%
    
    
    
    4.57
    %
    
    
    1,000,000
    
    
    
    1,000,000Maturing March 2011
    
    
    3.06%
    
    
    
    3.06
    %
    
    
    400,000
    
    
    
    Maturing May 2011
    
    
    3.65%
    
    
    
    3.65
    %
    
    
    1,000,000
    
    
    
    Maturing March 2012
    
    
    3.50%
    
    
    
    3.50
    %
    
    
    300,000
    
    
    
    Maturing March 2013
    
    
    3.75%
    
    
    
    3.75
    %
    
    
    200,000
    
    
    
    $
    6,500,000
    
    
    $
    3,500,000
       Page 12




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 5  STOCK COMPENSATION PLAN
  Six Months EndedJune 30, 2008Weighted AverageShares
    
    
    Exercise PriceOptions outstanding, beginning of period
    
    
    109,886
    
    
    $
    18.71Forfeited
    
    
    ( 500
    )
    
    
    28.00Exercised
    
    
    (3,125
    )
    
    
    17.54Granted
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    106,261
    
    
    $
    18.70Options exercisable, end of period
    
    
    104,636
    
    
    $
    18.57
    Three months ended
    
    
    Six months endedJune 30, 2008
    
    
    June 30, 2008Proceeds of options exercised
    
    $
    
    
    
    $
    54,800Related tax benefit recognized
    
    
    
    
    
    
    2,618Intrinsic value of options exercised
    
    
    
    
    
    
    7,700
  Page 13




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
 NOTE 6  FAIR VALUE
 
       QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsJune 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Securities
available for
sale
    
    $
    10,986,148
    
    
    
    
    
    
    $
    10,986,148
    
    
    
    
   Page 14




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS
 June 30, 2008
 OVERVIEW
   FINANCIAL CONDITION
 Assets
     Page 15




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WESTERN RESERVE BANCORP, INC  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
 FINANCIAL CONDITION
       Page 16




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
 FINANCIAL CONDITION
  Liabilities
      Page 17




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
June 30, 2008
 FINANCIAL CONDITION
  Shareholders Equity
  RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
 Overview
  Net Interest Income
    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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
  Six months ended June 30,2008
    
    
    2007Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/($ in thousands)
    
    Balance
    
    
    Expense
    
    
    Cost
    
    
    Balance
    
    
    Expense
    
    
    CostLoans
    
    $
    130,426
    
    
    $
    4,483
    
    
    
    6.91
    %
    
    $
    114,455
    
    
    $
    4,542
    
    
    
    8.00
    %Investment securities-taxable
    
    
    6,617
    
    
    
    169
    
    
    
    5.12
    %
    
    
    6,277
    
    
    
    162
    
    
    
    5.22
    %Investment securities-tax exempt
    
    
    4,511
    
    
    
    120
    
    
    
    5.36
    %
    
    
    4,460
    
    
    
    115
    
    
    
    5.19
    %Restricted stock
    
    
    617
    
    
    
    16
    
    
    
    5.30
    %
    
    
    580
    
    
    
    17
    
    
    
    6.02
    %Federal funds sold and other
short-term funds
    
    
    12,251
    
    
    
    194
    
    
    
    3.18
    %
    
    
    16,854
    
    
    
    440
    
    
    
    5.26
    %Total interest earning assets
    
    
    154,422
    
    
    
    4,982
    
    
    
    6.49
    %
    
    
    142,626
    
    
    
    5,276
    
    
    
    7.46
    %Noninterest earning assets
    
    
    5,490
    
    
    
    
    
    
    
    
    
    
    
    4,588Total Assets
    
    $
    159,912
    
    
    
    
    
    
    
    
    
    
    $
    147,214Interest-bearing transaction accounts
    
    $
    6,900
    
    
    $
    34
    
    
    
    1.00
    %
    
    $
    6,756
    
    
    $
    34
    
    
    
    1.00
    %Market rate savings
    
    
    79,880
    
    
    
    1,139
    
    
    
    2.87
    %
    
    
    66,186
    
    
    
    1,539
    
    
    
    4.69
    %Certificate of deposit and IRAs
    
    
    37,599
    
    
    
    758
    
    
    
    4.04
    %
    
    
    42,242
    
    
    
    928
    
    
    
    4.43
    %Borrowings
    
    
    4,868
    
    
    
    84
    
    
    
    3.46
    %
    
    
    3,500
    
    
    
    63
    
    
    
    3.63
    %Total interest bearing liabilities
    
    
    129,247
    
    
    
    2,015
    
    
    
    3.14
    %
    
    
    118,684
    
    
    
    2,564
    
    
    
    4.36
    %Noninterest bearing liabilities
    
    
    16,447
    
    
    
    
    
    
    
    
    
    
    
    15,419Shareholders equity
    
    
    14,218
    
    
    
    
    
    
    
    
    
    
    
    13,111Total Liabilities and
Shareholders Equity
    
    $
    159,912
    
    
    
    
    
    
    
    
    
    
    $
    147,214Net interest income
    
    
    
    
    
    
    2,967
    
    
    
    
    
    
    
    
    
    
    
    2,712Tax equivalent adjustment
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )Net interest income per financial
Statements
    
    
    
    
    
    $
    2,934
    
    
    
    
    
    
    
    
    
    
    $
    2,683Net yield on average earning assets
    
    
    
    
    
    
    
    
    
    
    3.85
    %
    
    
    
    
    
    
    
    
    
    
    3.83
    %
    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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
 Six months endedJune 30, 2008 vs. 2007Increase (Decrease) inNet Interest Income Due to($ in thousands)
    
    Volume
    
    
    Rate
    
    
    NetInterest income:Loans
    
    $
    591
    
    
    
    ($650
    )
    
    
    ($59
    )Investment securities-taxable
    
    
    9
    
    
    
    (   2
    )
    
    
    7Investment securities-tax exempt
    
    
    1
    
    
    
    4
    
    
    
    5Restricted stock
    
    
    1
    
    
    
    (   2
    )
    
    
    (1
    )Federal funds sold and other short-term funds
    
    
    (92
    )
    
    
    ( 154
    )
    
    
    ( 246
    )Total interest-earning assets
    
    
    510
    
    
    
    ( 804
    )
    
    
    ( 294
    )Interest expense:Interest-bearing transaction accounts
    
    
    0
    
    
    
    0
    
    
    
    0Market rate savings accounts
    
    
    ( 278
    )
    
    
    678
    
    
    
    400Certificates of deposit and IRAs
    
    
    96
    
    
    
    74
    
    
    
    170Borrowings
    
    
    (  24
    )
    
    
    3
    
    
    
    (21
    )Total interest-bearing liabilities
    
    
    ( 206
    )
    
    
    755
    
    
    
    549Change in net interest income
    
    $
    304
    
    
    
    ($49
    )
    
    $
    255
 Interest Income
   Interest Expense
   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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
 Net Interest Margin
    Provision for Loan Losses
    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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
   Noninterest Income
     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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2008
 Noninterest Expenses
   Six months endedJune 30,2008
    
    
    2007Collection and other real estate
owned expenses
    
    $
    48,000
    
    
    $
    56,000Reversal of prior year interest
income on a nonaccrual loan
    
    
    33,000
    
    
    
    Travel and entertainment
    
    
    22,000
    
    
    
    22,000Loan expenses
    
    
    17,000
    
    
    
    17,000Insurance
    
    
    14,000
    
    
    
    16,000Telephone
    
    
    13,000
    
    
    
    12,000Dues and subscriptions
    
    
    13,000
    
    
    
    12,000Other
    
    
    10,000
    
    
    
    7,000$
    170,000
    
    
    $
    142,000
   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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED JUNE 30, 2008
  Net Interest Income
   Provision for Loan Losses
  Noninterest Income
   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
June 30, 2008
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED JUNE 30, 2008
 Noninterest Expense
   Three months endedJune 30,2008
    
    
    2007Collection and other real estate
owned expenses
    
    $
    17,000
    
    
    $
    40,000Reversal of prior year interest
income on a nonaccrual loan
    
    
    33,000
    
    
    
    Travel and entertainment
    
    
    10,000
    
    
    
    12,000Loan expenses
    
    
    8,000
    
    
    
    5,000Insurance
    
    
    9,000
    
    
    
    9,000Telephone
    
    
    6,000
    
    
    
    6,000Dues and subscriptions
    
    
    7,000
    
    
    
    5,000Other
    
    
    8,000
    
    
    
    5,000$
    98,000
    
    
    $
    82,000
  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
June 30, 2008
 LIQUIDITY AND CAPITAL RESOURCES
      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
June 30, 2008
 LIQUIDITY AND CAPITAL RESOURCES
  Minimum
    
    
    Minimumto be
    
    
    required forWestern Reserve Bank
    
    
    considered
    
    
    capitalJune 30,
    
    
    December 31,
    
    
    well-
    
    
    Adequacy2008
    
    
    2007
    
    
    capitalized
    
    
    purposesTier 1
core capital to risk-weighted assets
    
    
    9.5
    %
    
    
    9.0
    %
    
    
    6.0
    %
    
    
    4.0
    %Total
capital to risk-weighted assets
    
    
    10.5
    %
    
    
    10.9
    %
    
    
    10.0
    %
    
    
    8.0
    %Tier 1 leverage ratio
    
    
    8.4
    %
    
    
    7.3
    %
    
    
    5.0
    %
    
    
    4.0
    %
     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
June 30, 2008
 INTEREST RATE RISK
        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
June 30, 2008
 CRITICAL ACCOUNTING POLICIES
   Page 29




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 CONTROLS AND PROCEDURES
 June 30, 2008
    Page 30




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
June 30, 2008
 
 PART II-OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
    
    NoneItem 1a.
    
    Risk Factors
    
    Not applicableItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    NoneItem 3.
    
    Defaults Upon Senior Securities
    
    NoneItem 4.
    
    Submission of Matters to a Vote of Security Holders
  For
    
    
    Withheld
    
    
    AbstainC. Richard Lynham
    
    
    402,176
    
    
    
    2,718
    
    
    
    0Edward J. McKeon
    
    
    402,176
    
    
    
    2,718
    
    
    
    0R. Hal Nichols
    
    
    401,864
    
    
    
    3,030
    
    
    
    0Rory H. ONeil
    
    
    402,176
    
    
    
    2,718
    
    
    
    0
   Item 5.
    
    Other Information
    
    None
  Page 31




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
June 30, 2008
 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 thereunder
(incorporated by reference
to the Companys Report on
Form 10-KSB filed with the
Commission on March 28,
2007)
    
    *10.1
    
    
    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-Q
June 30, 2008
 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 May 1, 2008
(incorporated by reference
to the Companys Report on
Form 8-K filed with the
Commission on May 7, 2008)
    
    *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, 2007
(incorporated by reference
to the Companys Report on
Form 10-QSB filed with the
Commission on November 14,
2007)
    
    *11
    
    
    Statement re: Computation
of Per Share Earnings
(incorporated by reference
to the Companys Report on
Form 10-Q filed with the
Commission on May 14, 2008)
    
    *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-Q
Quarter ended June 30, 2008
 
 SIGNATURES
  Western Reserve Bancorp, Inc.Date: August 14, 2008
    
    By:
    
    /s/ Edward J. McKeonEdward J. McKeonPresident and Chief Executive Officer(Principal Executive Officer)/s/ Cynthia A. MahlCynthia A. MahlSenior Vice President/Chief Financial Officer(Principal Financial Officer)
 
  Page 34




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 2008
 
 EXHIBIT INDEX
 ExhibitNo.
    
    Description of Exhibits31.1
    
    
    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
  Page 35