##### 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 September 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 
incorporation or organization)
    
    (IRS Employer
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(Do not check if a smaller reporting company)
 o þ




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##### 



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
Quarter ended September 30, 2008
 PagePART IFinancial InformationITEM 1 FINANCIAL STATEMENTSConsolidated Balance Sheets as of September 30, 2008 
and December 31, 2007
    
    
    3Consolidated Statements of Income for the three and nine months 
ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Comprehensive Income for the three 
and nine months ended September 30, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the nine months ended 
September 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    14ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    N/AITEM 4 CONTROLS AND PROCEDURES
    
    
    29PART IIOther Information
    
    
    30SIGNATURES
    
    
    33Exhibit 10.17Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   Page 2




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##### Table of Contents



(Unaudited)September 30,
    
    
    Dec. 31,2008
    
    
    2007AssetsCash and due from financial institutions
    
    $
    3,454,920
    
    
    $
    2,486,243Federal funds sold and other short-term funds
    
    
    7,154,059
    
    
    
    21,332,285Cash and cash equivalents
    
    
    10,608,979
    
    
    
    23,818,528Securities available for sale
    
    
    10,842,065
    
    
    
    10,982,965Restricted stock
    
    
    677,400
    
    
    
    593,400Loans
    
    
    140,842,501
    
    
    
    121,628,057Allowance for loan losses
    
    
    (1,639,457
    )
    
    
    (1,605,766
    )Loans, net
    
    
    139,203,044
    
    
    
    120,022,291Premises and equipment, net
    
    
    1,098,434
    
    
    
    1,187,302Bank owned life insurance
    
    
    2,205,761
    
    
    
    1,142,580Foreclosed assets
    
    
    371,000
    
    
    
    371,000Accrued interest receivable and other assets
    
    
    1,471,083
    
    
    
    1,241,651Total Assets
    
    $
    166,477,766
    
    
    $
    159,359,717Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    15,328,704
    
    
    $
    17,080,851Interest-bearing
    
    
    127,273,992
    
    
    
    124,348,417Total deposits
    
    
    142,602,696
    
    
    
    141,429,268Federal Home Loan Bank advances
    
    
    9,000,000
    
    
    
    3,500,000Accrued interest payable and other liabilities
    
    
    470,085
    
    
    
    501,476Total Liabilities
    
    
    152,072,781
    
    
    
    145,430,744Shareholders EquityCommon stock, without par value, $1 stated value:1,500,000 shares authorized; 582,953 and
579,059 shares issued and outstanding as of
September 30, 2008 and December 31, 2007
    
    
    582,953
    
    
    
    579,059Additional paid-in capital
    
    
    9,774,374
    
    
    
    9,702,632Retained earnings
    
    
    4,074,133
    
    
    
    3,587,907Accumulated other comprehensive income (loss)
    
    
    (26,475
    )
    
    
    59,375Total Shareholders Equity
    
    
    14,404,985
    
    
    
    13,928,973Total Liabilities and Shareholders Equity
    
    $
    166,477,766
    
    
    $
    159,359,717
   Page 3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and dividend incomeLoans, including fees
    
    $
    2,176,366
    
    
    $
    2,335,549
    
    
    $
    6,659,567
    
    
    $
    6,877,996Securities:Taxable
    
    
    82,308
    
    
    
    76,104
    
    
    
    250,848
    
    
    
    238,449Tax exempt
    
    
    43,451
    
    
    
    43,027
    
    
    
    130,390
    
    
    
    129,143Dividends on restricted stock
    
    
    8,875
    
    
    
    9,305
    
    
    
    25,132
    
    
    
    26,620Federal funds sold and other
short-term funds
    
    
    46,847
    
    
    
    322,579
    
    
    
    241,155
    
    
    
    761,9852,357,847
    
    
    
    2,786,564
    
    
    
    7,307,092
    
    
    
    8,034,193Interest expenseDeposits
    
    
    805,943
    
    
    
    1,397,633
    
    
    
    2,737,384
    
    
    
    3,899,254Borrowings
    
    
    60,964
    
    
    
    31,999
    
    
    
    145,038
    
    
    
    94,952866,907
    
    
    
    1,429,632
    
    
    
    2,882,422
    
    
    
    3,994,206Net interest income
    
    
    1,490,940
    
    
    
    1,356,932
    
    
    
    4,424,670
    
    
    
    4,039,987Provision (credit) for loan losses
    
    
    258,500
    
    
    
    22,600
    
    
    
    398,800
    
    
    
    20,000Net interest income after
provision (credit) for loan losses
    
    
    1,232,440
    
    
    
    1,334,332
    
    
    
    4,025,870
    
    
    
    4,019,987Noninterest incomeService charges on deposit accounts
    
    
    49,300
    
    
    
    39,815
    
    
    
    132,894
    
    
    
    113,580Net gains on sales of loans
    
    
    
    
    
    
    12,829
    
    
    
    1,446
    
    
    
    31,164Other
    
    
    52,246
    
    
    
    37,311
    
    
    
    152,692
    
    
    
    147,884101,546
    
    
    
    89,955
    
    
    
    287,032
    
    
    
    292,628Noninterest expenseSalaries and employee benefits
    
    
    533,551
    
    
    
    539,169
    
    
    
    1,734,526
    
    
    
    1,607,685Premises and equipment, net
    
    
    232,359
    
    
    
    217,963
    
    
    
    695,494
    
    
    
    651,523Data processing
    
    
    93,746
    
    
    
    85,710
    
    
    
    278,007
    
    
    
    256,698Directors fees
    
    
    35,725
    
    
    
    30,875
    
    
    
    109,800
    
    
    
    139,550Professional fees
    
    
    58,692
    
    
    
    45,222
    
    
    
    161,181
    
    
    
    141,340Marketing and advertising
    
    
    18,152
    
    
    
    24,211
    
    
    
    64,776
    
    
    
    91,331FDIC insurance
    
    
    29,261
    
    
    
    22,623
    
    
    
    81,302
    
    
    
    70,833Taxes other than income and payroll
    
    
    36,414
    
    
    
    32,602
    
    
    
    112,706
    
    
    
    102,818Community and shareholder relations
and contributions
    
    
    16,417
    
    
    
    17,539
    
    
    
    70,092
    
    
    
    75,011Supplies, printing and postage
    
    
    16,951
    
    
    
    18,077
    
    
    
    53,876
    
    
    
    54,402Other
    
    
    132,611
    
    
    
    81,070
    
    
    
    302,598
    
    
    
    222,8661,203,879
    
    
    
    1,115,061
    
    
    
    3,664,358
    
    
    
    3,414,057Income before income taxes
    
    
    130,107
    
    
    
    309,226
    
    
    
    648,544
    
    
    
    898,558Income tax expense
    
    
    22,568
    
    
    
    90,843
    
    
    
    162,318
    
    
    
    261,925Net income
    
    $
    107,539
    
    
    $
    218,383
    
    
    $
    486,226
    
    
    $
    636,633Average shares outstanding (basic)
    
    
    582,657
    
    
    
    575,760
    
    
    
    581,986
    
    
    
    574,770Average shares outstanding (diluted)
    
    
    586,753
    
    
    
    599,871
    
    
    
    593,669
    
    
    
    602,155Basic earnings per share
    
    $
    0.18
    
    
    $
    0.38
    
    
    $
    0.84
    
    
    $
    1.11Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.36
    
    
    $
    0.82
    
    
    $
    1.06
   Page 4




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Three months ended 
September 30,
    
    
    Nine months ended 
September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    107,539
    
    
    $
    218,383
    
    
    $
    486,226
    
    
    $
    636,633Other comprehensive income (loss), net of tax:Unrealized gains/(losses) on securities
arising during the period
    
    
    34,578
    
    
    
    124,497
    
    
    
    (85,850
    )
    
    
    (48,772
    )Comprehensive income
    
    $
    142,117
    
    
    $
    342,880
    
    
    $
    400,376
    
    
    $
    587,861
   Page 5




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##### Table of Contents



Nine months ended September 30,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    486,226
    
    
    $
    636,633Adjustments to reconcile net income
to net cash from operating activities:Provision (credit) for loan losses
    
    
    398,800
    
    
    
    20,000Depreciation
    
    
    141,240
    
    
    
    141,436Net amortization (accretion) of securities
    
    
    (9,879
    )
    
    
    (13,145
    )Stock-based compensation
    
    
    2,337
    
    
    
    16,865Loans originated for sale
    
    
    (97,500
    )
    
    
    (1,371,000
    )Proceeds from sales of loan originations
    
    
    98,946
    
    
    
    1,402,164Gains on sales of loans
    
    
    (1,446
    )
    
    
    (31,164
    )Gain on sale of other real estate owned
    
    
    
    
    
    
    (2,285
    )Federal Home Loan Bank stock dividends
    
    
    (14,500
    )
    
    
    Increase in cash surrender value of life insurance
    
    
    (63,181
    )
    
    
    (36,809
    )Net change in other assets and other liabilities
    
    
    (216,597
    )
    
    
    880,134Net cash from operating activities
    
    
    724,446
    
    
    
    1,642,829Cash flows from investing activitiesAvailable for sale securities:Purchases
    
    
    (2,020,806
    )
    
    
    Maturities, repayments and calls
    
    
    2,041,509
    
    
    
    743,945Purchase of Federal Home Loan Bank stock
    
    
    (60,500
    )
    
    
    (24,600
    )Purchase of Federal Reserve Bank stock
    
    
    (9,000
    )
    
    
    Net (increase) decrease in interest-bearing deposits in other banks
    
    
    
    
    
    
    2,200,000Net (increase) in loans
    
    
    (14,885,923
    )
    
    
    (8,277,403
    )Purchase of auto loan portfolio
    
    
    (4,693,630
    )
    
    
    Purchases of premises and equipment
    
    
    (52,372
    )
    
    
    (128,127
    )Proceeds from sale of other real estate owned
    
    
    
    
    
    
    267,285Purchase of Bank Owned Life Insurance
    
    
    (1,000,000
    )
    
    
    Net cash from investing activities
    
    
    (20,680,722
    )
    
    
    (5,218,900
    )Cash flows from financing activitiesNet increase in deposits
    
    
    1,173,428
    
    
    
    12,289,667Proceeds from Federal Home Loan Bank advances
    
    
    5,500,000
    
    
    
    Proceeds from issuance of common stock
under Employee Stock Purchase Plan
    
    
    15,890
    
    
    
    14,761Proceeds and income tax benefit from exercise of stock options
    
    
    57,418
    
    
    
    36,126Cash paid for fractional shares
    
    
    (9
    )
    
    
    Net cash from financing activities
    
    
    6,746,727
    
    
    
    12,340,554Change in cash and cash equivalents
    
    
    (13,209,549
    )
    
    
    8,764,483Cash and cash equivalents at beginning of period
    
    
    23,818,528
    
    
    
    18,096,477Cash and cash equivalents at end of period
    
    $
    10,608,979
    
    
    $
    26,860,960Supplemental cash flow information:Interest paid
    
    $
    2,879,607
    
    
    $
    4,084,518Income taxes paid
    
    
    197,461
    
    
    
    290,000
   Page 6




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WESTERN RESERVE BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
September 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
September 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    107,539
    
    
    $
    218,383
    
    
    $
    486,226
    
    
    $
    636,633Denominator:For basic earnings per common
share - weighted-average shares
    
    
    582,657
    
    
    
    575,760
    
    
    
    581,986
    
    
    
    574,770Effect of dilutive securities:Nonqualified stock options
    
    
    4,096
    
    
    
    24,111
    
    
    
    11,683
    
    
    
    27,385For diluted earnings
per common share
    
    $
    586,753
    
    
    $
    599,871
    
    
    $
    593,669
    
    
    $
    602,155Basic earnings per common share
    
    $
    0.18
    
    
    $
    0.38
    
    
    $
    0.84
    
    
    $
    1.11Diluted earnings per common share
    
    $
    0.18
    
    
    $
    0.36
    
    
    $
    0.82
    
    
    $
    1.06
   Page 8




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   NOTE 2  LOANS
  September 30,
    
    
    December 31,2008
    
    
    2007Commercial real estate
    
    $
    81,679,918
    
    
    $
    73,122,859Commercial business
    
    
    40,305,323
    
    
    
    35,391,508Commercial construction
    
    
    3,032,433
    
    
    
    1,919,310Home equity lines of credit (HELOC)
    
    
    7,698,892
    
    
    
    6,663,412Residential mortgage and construction
    
    
    1,291,111
    
    
    
    1,513,902Consumer installment
    
    
    2,998,670
    
    
    
    2,985,560Purchased auto loans
    
    
    3,807,330
    
    
    
    Other
    
    
    28,824
    
    
    
    31,506$
    140,842,501
    
    
    $
    121,628,057
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    1,419,639
    
    
    $
    1,663,031
    
    
    $
    1,605,766
    
    
    $
    1,588,217Loans charged off
    
    
    (38,947
    )
    
    
    
    
    
    
    (367,580
    )
    
    
    Recoveries
    
    
    265
    
    
    
    10,000
    
    
    
    2,471
    
    
    
    87,414Provision for loan losses
    
    
    258,500
    
    
    
    22,600
    
    
    
    398,800
    
    
    
    20,000Ending balance
    
    $
    1,639,457
    
    
    $
    1,695,631
    
    
    $
    1,639,457
    
    
    $
    1,695,631
   Page 9




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
 NOTE 2  LOANS
  NOTE 3  DEPOSITS
  September 30,
    
    
    December 31,2008
    
    
    2007Noninterest-bearing demand
    
    $
    15,328,704
    
    
    $
    17,080,851Interest-bearing demand
    
    
    6,479,772
    
    
    
    6,662,678Market rate savings
    
    
    72,809,614
    
    
    
    79,987,868Time under $100,000
    
    
    25,748,996
    
    
    
    22,604,561Time over $100,000
    
    
    22,235,610
    
    
    
    15,093,310$
    142,602,696
    
    
    $
    141,429,268
   Page 10




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
 NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
  Rate or
    
    
    Average
    
    
    September 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 June 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
    
    
    
    3,500,000Variable rate advancesMaturing
November
2008,
Reprices
daily
    
    
    2.95
    %
    
    
    2.95
    %
    
    
    2,500,000
    
    
    
    Total FHLB Advances
    
    
    
    
    
    
    
    
    
    $
    9,000,000
    
    
    $
    3,500,000
    Page 11




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
 NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
  NOTE 5  STOCK COMPENSATION PLAN
  Nine Months EndedSeptember 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
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2008Proceeds of options exercised
    
    $
    
    
    
    $
    54,800Related tax benefit recognized
    
    
    
    
    
    
    2,618Intrinsic value of options exercised
    
    
    
    
    
    
    7,700
  Page 12




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
 NOTE 6  FAIR VALUE
 
       QuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Securities
available for
sale
    
    $
    10,842,065
    
    
    
    
    
    
    $
    10,842,065
    
    
    
    
   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, 2008
 OVERVIEW
 wholly-owned
  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, 2008
 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, 2008
 FINANCIAL CONDITION
  Liabilities
  Type of deposit
    
    Balance
    
    
    % TotalNoninterest-bearing demand
    
    $
    15,329,000
    
    
    
    10.8
    %Interest-bearing NOW
    
    
    6,480,000
    
    
    
    4.5
    %Variable rate savings/money market (Market Rate
Savings Accounts)
    
    
    72,809,000
    
    
    
    51.1
    %Time deposits
    
    
    47,985,000
    
    
    
    33.6
    %Total
    
    $
    142,603,000
    
    
    
    100.0
    %
    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, 2008
 FINANCIAL CONDITION
   Shareholders Equity
  RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Overview
  Net Interest Income
    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
September 30, 2008
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Nine months ended September 30,2008
    
    
    2007Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/($ in thousands)
    
    Balance
    
    
    Expense
    
    
    Cost
    
    
    Balance
    
    
    Expense
    
    
    CostLoans
    
    $
    133,252
    
    
    $
    6,660
    
    
    
    6.68
    %
    
    $
    115,347
    
    
    $
    6,878
    
    
    
    7.97
    %Investment securities-taxable
    
    
    6,609
    
    
    
    251
    
    
    
    5.10
    %
    
    
    6,081
    
    
    
    238
    
    
    
    5.20
    %Investment securities-tax exempt
    
    
    4,558
    
    
    
    186
    
    
    
    5.52
    %
    
    
    4,492
    
    
    
    172
    
    
    
    5.15
    %Restricted stock
    
    
    628
    
    
    
    25
    
    
    
    5.35
    %
    
    
    585
    
    
    
    27
    
    
    
    6.09
    %Federal funds sold and other

short-term funds
    
    
    10,971
    
    
    
    241
    
    
    
    2.94
    %
    
    
    19,618
    
    
    
    762
    
    
    
    5.19
    %Total interest earning assets
    
    
    156,018
    
    
    
    7,363
    
    
    
    6.31
    %
    
    
    146,123
    
    
    
    8,077
    
    
    
    7.39
    %Noninterest earning assets
    
    
    5,628
    
    
    
    
    
    
    
    
    
    
    
    4,485Total Assets
    
    $
    161,646
    
    
    
    
    
    
    
    
    
    
    $
    150,608Interest-bearing transaction
accounts
    
    $
    6,963
    
    
    $
    52
    
    
    
    1.00
    %
    
    $
    6,601
    
    
    $
    50
    
    
    
    1.00
    %Market rate savings
    
    
    78,302
    
    
    
    1,555
    
    
    
    2.65
    %
    
    
    69,826
    
    
    
    2,449
    
    
    
    4.69
    %Certificate of deposit and IRAs
    
    
    39,671
    
    
    
    1,130
    
    
    
    3.81
    %
    
    
    41,842
    
    
    
    1,400
    
    
    
    4.47
    %Borrowings
    
    
    5,717
    
    
    
    145
    
    
    
    3.39
    %
    
    
    3,500
    
    
    
    95
    
    
    
    3.63
    %Total interest bearing liabilities
    
    
    130,653
    
    
    
    2,882
    
    
    
    2.95
    %
    
    
    121,769
    
    
    
    3,994
    
    
    
    4.38
    %Noninterest bearing liabilities
    
    
    16,101
    
    
    
    
    
    
    
    
    
    
    
    15,632Shareholders equity
    
    
    14,892
    
    
    
    
    
    
    
    
    
    
    
    13,207Total Liabilities and
Shareholders Equity
    
    $
    161,646
    
    
    
    
    
    
    
    
    
    
    $
    150,608Net interest income
    
    
    
    
    
    
    4,481
    
    
    
    
    
    
    
    
    
    
    
    4,083Tax equivalent adjustment
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    (43
    )Net interest income per financial
Statements
    
    
    
    
    
    $
    4,425
    
    
    
    
    
    
    
    
    
    
    $
    4,040Net yield on average earning assets
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    3.73
    %
    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, 2008
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Nine months endedSeptember 30, 2008 vs. 2007Increase (Decrease) inNet Interest Income Due to($ in thousands)
    
    Volume
    
    
    Rate
    
    
    NetInterest income:Loans
    
    $
    973
    
    
    $
    (1,191
    )
    
    $
    (218
    )Investment securities-taxable
    
    
    17
    
    
    
    (4
    )
    
    
    13Investment securities-tax exempt
    
    
    2
    
    
    
    12
    
    
    
    14Restricted stock
    
    
    2
    
    
    
    (4
    )
    
    
    (2
    )Federal funds sold and other short-term funds
    
    
    ( 239
    )
    
    
    ( 282
    )
    
    
    ( 521
    )Total interest-earning assets
    
    
    755
    
    
    
    (1,469
    )
    
    
    ( 714
    )Interest expense:Interest-bearing transaction accounts
    
    
    (2
    )
    
    
    0
    
    
    
    (2
    )Market rate savings accounts
    
    
    ( 271
    )
    
    
    1,165
    
    
    
    894Certificates of deposit and IRAs
    
    
    68
    
    
    
    202
    
    
    
    270Borrowings
    
    
    (57
    )
    
    
    7
    
    
    
    (50
    )Total interest-bearing liabilities
    
    
    ( 262
    )
    
    
    1,374
    
    
    
    1,112Change in net interest income
    
    $
    493
    
    
    $
    (95
    )
    
    $
    398
 Interest Income
   Interest Expense
   Page 19




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2008
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Net Interest Margin
    Provision for Loan Losses
    Page 20




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2008
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
   Noninterest Income
     Page 21




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2008
 RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Noninterest Expenses
   Nine months endedSeptember 30,2008
    
    
    2007Collection and other real estate
owned expenses
    
    $
    85,000
    
    
    $
    82,000Reversal of prior year interest
income on nonaccrual loans
    
    
    78,000
    
    
    
    Travel and entertainment
    
    
    32,000
    
    
    
    34,000Loan expenses
    
    
    24,000
    
    
    
    25,000Insurance
    
    
    25,000
    
    
    
    25,000Telephone
    
    
    19,000
    
    
    
    19,000Dues and subscriptions
    
    
    22,000
    
    
    
    21,000Other
    
    
    18,000
    
    
    
    17,000$
    303,000
    
    
    $
    223,000
   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, 2008
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
  Net Interest Income
   Provision for Loan Losses
  Noninterest Income
   Page 23




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
September 30, 2008
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
 Noninterest Expense
   Three months endedSeptember 30,2008
    
    
    2007Collection and other real estate
owned expenses
    
    $
    37,000
    
    
    $
    27,000Reversal of prior year interest
income on a nonaccrual loan
    
    
    45,000
    
    
    
    Travel and entertainment
    
    
    10,000
    
    
    
    13,000Loan expenses
    
    
    8,000
    
    
    
    7,000Insurance
    
    
    12,000
    
    
    
    10,000Telephone
    
    
    6,000
    
    
    
    7,000Dues and subscriptions
    
    
    8,000
    
    
    
    9,000Other
    
    
    7,000
    
    
    
    8,000$
    133,000
    
    
    $
    81,000
  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, 2008
 LIQUIDITY AND CAPITAL RESOURCES
      Minimum to be
    
    
    Minimum requiredWestern Reserve Bank
    
    
    considered
    
    
    for capitalSeptember 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
    
    
    10.6
    %
    
    
    10.9
    %
    
    
    10.0
    %
    
    
    8.0
    %Tier 1 leverage ratio
    
    
    8.5
    %
    
    
    7.3
    %
    
    
    5.0
    %
    
    
    4.0
    %
  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, 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
September 30, 2008
 INTEREST RATE RISK
        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, 2008
 CRITICAL ACCOUNTING POLICIES
   Page 28




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 CONTROLS AND PROCEDURES
 September 30, 2008
    Page 29




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
September 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
    
    NoneItem 5. Other Information
    
    None
  Page 30




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
September 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
August 21, 2008
(incorporated by reference
to the Companys Report on
Form 8-K filed with the
Commission on August 26,
2008)
    
    *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 31




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-Q
September 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)
    
    *10.17
    
    
    Seventh Amendment to the
Loan Agreement by and
between Western Reserve
Bancorp, Inc. and TCF
National Bank, dated July 1,
2008.11
    
    
    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 32




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.

FORM 10-Q

Quarter ended September 30, 2008
 
 SIGNATURES
  Western Reserve Bancorp, Inc.Date: November 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 33




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##### Table of Contents



EXHIBIT INDEX
 10.17
    
    
    Seventh Amendment to the
Loan Agreement by and
between Western Reserve
Bancorp, Inc. and TCF
National Bank, dated July 1,
2008.31.1
    
    
    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
  Page 34