<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

                      FOR THE QUARTER ENDED JUNE 30, 2004

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

Commission file number 333-43361

                         WESTERN RESERVE BANCORP, INC.
                         ------------------------------
       (Exact name of small business issuer as specified in its charter)

             Ohio                                             31-1566623
-------------------------------                            -------------------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                             Identification No.)

         4015 Medina Road, Suite 100, P.O. Box 585, Medina, Ohio 44256
         -------------------------------------------------------------
                    (Address of principal executive offices)

                                 (330) 764-3131
                                 --------------
                 Issuer's telephone number, including area code

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

                 Common Stock, no par value, $1.00 stated value
                 ----------------------------------------------
                                (Class of Stock)

                             397,428 common shares
                             ---------------------
              (number of shares outstanding as of August 9, 2004)

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

                                     Page 1
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                                  FORM 10-QSB
                          QUARTER ENDED JUNE 30, 2004

<TABLE>
<CAPTION>
                                                                                       Page
<S>                                                                                    <C>
PART I--FINANCIAL INFORMATION

ITEM 1     FINANCIAL STATEMENTS

           Consolidated Balance Sheets as of June 30, 2004
              and December 31, 2003                                                      3

           Consolidated Statements of Income for the three months
              and six months ended June 30, 2004 and 2003                                4

           Consolidated Statements of Comprehensive Income for the three months
              and six months ended June 30, 2004 and 2003                                5

           Consolidated Statements of Cash Flows for the
              six months ended June 30, 2004 and 2003                                    6

           Notes to Consolidated Financial Statements                                    7

ITEM 2     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             12

ITEM 3     CONTROLS AND PROCEDURES                                                      24

PART II -- OTHER INFORMATION                                                            25

SIGNATURES                                                                              28
</TABLE>

                                     Page 2
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                June 30,         December 31,
                                                                  2004              2003
                                                             -------------      -------------
<S>                                                          <C>                <C>
Assets
      Cash and due from financial institutions               $   2,543,191      $   2,186,363
      Federal funds sold and other short-term funds              7,427,000          4,103,000
                                                             -------------      -------------
           Cash and cash equivalents                             9,970,191          6,289,363

      Securities available for sale                              1,600,410          1,733,762

      Loans                                                    102,536,740         95,548,286
      Allowance for loan losses                                 (1,596,538)        (1,502,688)
                                                             -------------      -------------
           Loans, net                                          100,940,202         94,045,598

      Federal Reserve Bank stock                                   198,300            189,300
      Federal Home Loan Bank stock                                 273,100            195,300
      Premises and equipment, net                                  768,200            675,404
      Accrued interest receivable and other assets               1,437,486          1,187,821
                                                             -------------      -------------
                Total Assets                                 $ 115,187,889      $ 104,316,548
                                                             =============      =============
Liabilities and Shareholders' Equity
Deposits
      Noninterest-bearing                                    $  11,416,208      $   9,559,885
      Interest-bearing                                          89,735,231         82,220,372
                                                             -------------      -------------
           Total deposits                                      101,151,439         91,780,257
Federal Home Loan Bank advances                                  4,000,000          3,200,000
Other borrowings                                                   800,000            500,000
Accrued interest payable and other liabilities                     233,975            223,636
                                                             -------------      -------------
           Total Liabilities                                   106,185,414         95,703,893

Shareholders' equity
      Common stock, without par value, $1 stated value:
           750,000 shares authorized; 388,278 and
           388,052 shares issued and outstanding as of
           June 30, 2004 and December 31, 2003                     388,278            388,052
      Additional paid-in capital                                 7,564,399          7,557,845
      Common stock subscribed (1,750 shares)                        52,500                  -
      Retained earnings                                            999,357            654,171
      Accumulated other comprehensive income (loss)                 (2,059)            12,587
                                                             -------------      -------------
           Total Shareholders' Equity                            9,002,475          8,612,655
                                                             -------------      -------------
                Total Liabilities and Shareholders' Equity   $ 115,187,889      $ 104,316,548
                                                             =============      =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 3
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                            Three months ended June 30,       Six months ended June 30,
                                               2004            2003              2004           2003
                                            -----------     -----------       -----------   -----------
<S>                                         <C>             <C>               <C>           <C>
Interest income
     Loans, including fees                  $ 1,450,505     $ 1,233,541       $ 2,836,078   $ 2,396,502
     Securities                                  20,981          21,798            42,534        55,072
     Federal funds sold and other
        short-term funds                         14,759          16,401            22,490        26,763
                                            -----------     -----------       -----------   -----------
                                              1,486,245       1,271,740         2,901,102     2,478,337
Interest expense
     Deposits                                   445,840         375,065           883,391       722,140
     Borrowings                                  60,342          33,802           102,458        67,244
                                            -----------     -----------       -----------   -----------
                                                506,182         408,867           985,849       789,384
                                            -----------     -----------       -----------   -----------
         Net interest income                    980,063         862,873         1,915,253     1,688,953
Provision for Loan Losses                        30,450         105,200            93,850       155,200
                                            -----------     -----------       -----------   -----------
         Net interest income after
            provision for loan losses           949,613         757,673         1,821,403     1,533,753
Noninterest Income
     Service charges on deposit accounts         29,937          27,648            58,941        51,652
     Net gains on sales of loans                 45,404          26,953            46,896        61,969
     Other                                       36,502          16,072            67,698        33,833
                                            -----------     -----------       -----------   -----------
                                                111,843          70,673           173,535       147,454
Noninterest expense
     Salaries and employee benefits             399,878         361,759           796,025       702,237
     Premises and equipment, net                101,910          99,072           197,682       193,627
     Data processing                             58,760          55,674           115,733       110,221
     Professional fees                           53,661          48,723           109,938       102,465
     Taxes other than income and payroll         23,031          20,268            47,263        41,109
     Community and shareholder relations
         and contributions                       23,237          23,868            41,059        36,445
     Supplies, printing and postage              14,528          14,638            31,069        32,188
     Other                                       70,950          59,902           135,052       113,850
                                            -----------     -----------       -----------   -----------
                                                745,955         683,904         1,473,821     1,332,142
                                            -----------     -----------       -----------   -----------
Income before income taxes                      315,501         144,442           521,117       349,065
Income tax expense                              106,754          49,915           175,931       119,487
                                            -----------     -----------       -----------   -----------
Net income                                  $   208,747     $    94,527       $   345,186   $   229,578
                                            ===========     ===========       ===========   ===========

Average shares outstanding (basic)              388,054         388,052           388,053       388,052
                                            ===========     ===========       ===========   ===========
Average shares outstanding (diluted)            399,558         397,343           398,451       397,343
                                            ===========     ===========       ===========   ===========

Basic income per share                      $      0.54     $      0.24       $      0.89   $      0.59
                                            ===========     ===========       ===========   ===========
Diluted income per share                    $      0.52     $      0.24       $      0.87   $      0.58
                                            ===========     ===========       ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 4
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                 Three months ended June 30,      Six months ended June 30,
                                                     2004           2003            2004           2003
                                                 -----------    ------------      ----------   ------------
<S>                                              <C>            <C>               <C>          <C>
Net income                                       $   208,747    $     94,527      $  345,186   $    229,578
Other comprehensive income, net of tax:
      Unrealized gains/(losses) on securities
           arising during the period                 (13,766)            (39)        (14,646)        (7,893)

                                                 -----------    ------------      ----------   ------------
Comprehensive income                             $   194,981    $     94,488      $  330,540   $    221,685
                                                 ===========    ============      ==========   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 5
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                          Six months ended June 30,
                                                           2004             2003
                                                        -----------      -----------
<S>                                                     <C>              <C>
Cash flows from operating activities
      Net income                                        $   345,186      $   229,578
      Adjustments to reconcile net income to
        net cash from operating activities:
           Provision for loan losses                         93,850          155,200
           Depreciation                                      46,713           66,984
           Net amortization of securities                     6,600            8,993
           Loans originated for sale                     (1,700,436)      (6,494,618)
           Proceeds from sales of loan originations       1,747,332        6,644,707
           Gains on sales of loans                          (46,896)         (61,969)
           Federal Home Loan Bank stock dividends            (4,600)          (3,600)
           Net change in:
              Interest receivable                           (28,702)          22,564
              Interest payable                                9,015           12,636
              Other assets                                 (219,902)         (77,755)
              Other liabilities                               7,808          (79,962)
                                                        -----------      -----------
              Net cash from operating activities            255,968          422,758

Cash flows from investing activities
      Available for sale securities:
           Maturities, repayments and calls                 104,561        1,452,202
      Purchase of Federal Reserve Bank stock                 (9,000)          (3,200)
      Purchase of Federal Home Loan Bank stock              (73,200)               -
      Net increase in loans                              (6,988,454)      (9,423,330)
      Purchases of premises and equipment                  (139,509)         (57,242)
      Purchase of bank-owned life insurance                       -         (500,000)
                                                        -----------      -----------
           Net cash from investing activities            (7,105,602)      (8,531,570)

Cash flows from financing activities
      Net increase in deposits                            9,371,182        9,080,126
      Net change in short-term borrowings                         -          138,215
      Proceeds from Federal Home Loan Bank advances       2,500,000                -
      Repayments of Federal Home Loan Bank advances      (1,700,000)               -
      Proceeds from long-term borrowings                    300,000                -
      Cash received for stock subscriptions                  52,500                -
      Cash received from Employee Stock Purchase Plan         6,780                -
                                                        -----------      -----------
           Net cash from financing activities            10,530,462        9,218,341
                                                        -----------      -----------

Change in cash and cash equivalents                       3,680,828        1,109,529
Cash and cash equivalents at beginning of period          6,289,363        3,926,735
                                                        -----------      -----------
Cash and cash equivalents at end of period              $ 9,970,191      $ 5,036,264
                                                        ===========      ===========
Supplemental cash flow information:
      Interest paid                                     $   976,834      $   776,748
      Income taxes paid                                     301,000          211,000
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 6
<PAGE>

                          WESTERN RESERVE BANCORP, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization: Western Reserve Bancorp, Inc. (the Company) was incorporated under
the laws of the State of Ohio on February 27, 1997. Until November 6, 1998, the
Company was a development stage company and its efforts had been devoted to the
offering of its common shares to the general public and to obtaining regulatory
approvals, recruiting personnel and financial planning relating to the
organization of Western Reserve Bank (the Bank).

The Bank, which commenced operations on November 6, 1998, is chartered by the
State of Ohio, and is a member of the Federal Reserve System. Customer deposits
are insured up to applicable limits by the Federal Deposit Insurance Corporation
(FDIC). The Company is a bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended.

The Company began an intrastate common stock offering on May 15, 2004, for up to
83,333 shares at $30.00 per share. In conjunction with our upcoming expansion to
Brecksville, the offering was limited to residents of Brecksville and
surrounding communities through July 15. As of June 30, we had received
subscriptions for 1,750 shares. The remaining shares are being offered to any
resident of the State of Ohio, and the offering is expected to close on
September 15. However, we have reserved the right to extend the offering until
no later than November 30, or to close the offering earlier than September 15.
As of August 9, 22,767 shares have been subscribed. Shares of stock purchased in
this offering may not be resold outside of the State of Ohio for a period of
nine months after issuance.

Nature of Business: The Bank offers a full range of commercial and consumer
banking services primarily in its defined market area of Medina County, Ohio.
All of the financial service operations are considered by management to be
aggregated in one reportable operating segment, i.e., commercial banking.

Principles of Consolidation: The consolidated financial statements include the
accounts of Western Reserve Bancorp, Inc. and its wholly-owned subsidiary,
Western Reserve Bank. All material intercompany accounts and transactions have
been eliminated.

Cash Equivalents: For purposes of the Statements of Cash Flows, cash equivalents
include amounts due from banks and federal funds sold. Generally, federal funds
are sold for periods of less than thirty days.

Use of Estimates in Preparation of Financial Statements: In preparing financial
statements in conformity with accounting principles generally accepted in the
United States, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. Areas involving the use of management's estimates and assumptions
include the

                                     Page 7
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

allowance for loan losses, the realization of deferred tax assets and the
depreciation of premises and equipment.

Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. It is the opinion of management that all
adjustments necessary for a fair presentation have been made and that all
adjustments were of a normal recurring nature. The Annual Report of the Company
for the year ended December 31, 2003 contains consolidated financial statements
and related notes, which should be read in conjunction with the accompanying
consolidated financial statements.

Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at the date of
grant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock Based Compensation.

<TABLE>
<CAPTION>
                                        Three months ended June 30,  Six months ended June 30,
                                             2004         2003        2004          2003
                                             ----         ----        ----          ----
<S>                                        <C>          <C>        <C>           <C>
Net income as reported                     $ 208,747    $ 94,527   $ 345,186     $ 229,578
Deduct: stock based
   compensation expense
   determined under fair value
   based method                               (2,115)    (18,605)     (4,231)      (37,210)
                                           ---------    --------   ---------     ---------
Pro forma net income                       $ 206,632    $ 75,922   $ 340,955     $ 192,368
                                           =========    ========   =========     =========
Basic earnings per share
   as reported                             $    0.54    $   0.24   $    0.89     $    0.59
Pro forma basic earnings
   per share                               $    0.53    $   0.20   $    0.88     $    0.50

Diluted earnings per share
   as reported                             $    0.52    $   0.24   $    0.87     $    0.58
Pro forma diluted earnings
   per share                               $    0.52    $   0.19   $    0.86     $    0.48
</TABLE>

                                     Page 8
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2004

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In future years, the pro forma effect of not applying this standard is expected
to increase as additional options are granted. The pro forma effects are
computed using option-pricing models, using the following weighted-average
assumptions as of grant date:

<TABLE>
<CAPTION>
                                                  2003
                                                  ----
<S>                                              <C>
Risk-free interest rate                          3.18%
Expected option life (years)                        7
Expected stock price volatility                  7.70%
Dividend yield                                   0.00%
</TABLE>

In June 2003, options to purchase a total of 1,000 shares of stock at $26.00 per
share were granted to two non-executive employees. In December 2003, one
non-executive employee was granted an option to purchase 500 shares of stock at
$26.00 per share. No options have been granted in 2004.

Bank-Owned Life Insurance: The Bank has purchased a life insurance policy on a
key executive. Bank-owned life insurance is recorded at its cash surrender
value, or the amount that can be realized, and is included in other assets on
the consolidated balance sheet.

Earnings per Common Share: Basic earnings per common share equals net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under stock options. Stock options
for 9,618 shares of common stock were not considered in computing diluted
earnings per common share in either period because they were antidilutive.

Reclassifications: For comparative purposes, certain amounts in the 2003
consolidated financial statements have been reclassified to conform to the 2004
presentation.

                                     Page 9
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2004

NOTE 2 - LOANS

Loans at June 30, 2004 and December 31, 2003, were as follows:

<TABLE>
<CAPTION>
                                              June 30,       December 31,
                                                2004            2003
                                                ----            ----
<S>                                         <C>             <C>
Commercial real estate                      $  50,523,270   $ 49,695,518
Commercial business                            17,476,048     16,134,023
Commercial lines of credit                     17,508,450     13,243,461
Commercial construction                         4,503,560      5,126,269
Home equity                                     9,338,637      8,415,148
Residential mortgage
   and construction                             1,504,318      1,390,523
Consumer installment                            1,406,979      1,248,743
Credit card and other                             275,478        294,601
                                            -------------   ------------
                                            $ 102,536,740   $ 95,548,286
                                            =============   ============
</TABLE>

Activity in the Allowance for Loan Losses for the six months ended June 30, 2004
and 2003, was as follows:

<TABLE>
<CAPTION>
                                             Six months ended June 30,
                                                2004            2003
                                                ----            ----
<S>                                         <C>             <C>
Beginning balance                           $   1,502,688   $  1,042,309
Loans charged off                                      --             --
Recoveries                                             --          1,438
Provision for loan losses                          93,850        155,200
                                            -------------   ------------
Ending balance                              $   1,596,538   $  1,198,947
                                            =============   ============
</TABLE>

At June 30, 2004 and December 31, 2003, loans totaling $1,405,285 and $1,126,175
were in nonaccrual status. There were no other loans more than 90 days past due.
Of the nonaccrual loans as of June 30, 2004, $844,671 were less than 30 days
past due.

                                    Page 10
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2004

NOTE 3 - DEPOSITS

Deposits at June 30, 2004 and December 31, 2003, were as follows:

<TABLE>
<CAPTION>
                                              June 30,      December 31,
                                                2004            2003
                                                ----            ----
<S>                                         <C>             <C>
Noninterest-bearing demand                  $  11,416,208   $  9,559,885
Interest-bearing demand                         6,670,180      6,392,660
Market Rate Savings                            29,898,733     26,444,694
Time under $100,000                            31,316,019     31,349,601
Time $100,000 and over                         21,850,299     18,033,417
                                            -------------   ------------
                                            $ 101,151,439   $ 91,780,257
                                            =============   ============
</TABLE>

At June 30, 2004, the Bank had $23,002,000 in national market certificates of
deposit, primarily in amounts of $99,000. As of December 31, 2003, the Bank had
$23,292,000 in national market CDs.

NOTE 4 -- FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

At June 30, 2004 and December 31, 2003, advances from the Federal Home Loan Bank
were as follows:

<TABLE>
<CAPTION>
                                                         June 30,        December 31,
                                                           2004             2003
                                                           ----             ----
<S>                                                     <C>              <C>
Maturing June 2004, fixed rate advance at 4.28%         $        --      $  1,700,000
Maturing October 2004, fixed rate advance at 4.15%        1,500,000         1,500,000
Maturing March 2009, fixed rate advance at 3.25%          2,500,000                --
                                                        -----------      ------------
                                                        $ 4,000,000      $  3,200,000
                                                        ===========      ============
</TABLE>

Interest is payable monthly, and the advances are payable at their maturity
dates, with prepayment penalties for early payment. The advances are
collateralized by approximately $5,405,000 of loans secured by first mortgages
on 1-4 family residential properties, multi-family properties and home equity
lines of credit, and $273,100 of FHLB stock under a blanket lien agreement.

In May 2003, the Company entered into a line of credit agreement with another
financial institution to obtain funding to provide capital to the Bank as
needed. The line allows the Company to borrow up to $3,000,000 at 0.75% below
the prime rate. The line matures on March 31, 2005 and is secured by 100% of the
stock of the Bank. There are certain covenants on the line relating to the
Company's and the Bank's operating performance and capital status, and the Bank
and Company have remained in compliance with each of the covenants. As of June
30, 2004, the Company had borrowed $800,000 against the line of credit and
invested the proceeds in the Bank as additional paid-in capital. As of December
31, 2003, the balance outstanding on the line of credit was $500,000.

                                    Page 11
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

OVERVIEW

The following discussion compares the financial condition of Western Reserve
Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Western Reserve
Bank (the Bank) at June 30, 2004, to that of December 31, 2003, and the results
of operations for the three months and six months ended June 30, 2004 and 2003.
You should read this discussion in conjunction with the interim financial
statements and footnotes included herein.

Certain statements contained in this report that are not historical facts are
forward looking statements subject to certain risks and uncertainties. When used
herein, the terms "anticipates," "plans," "expects," "believes," and similar
expressions as they relate to the Company or its management are intended to
identify such forward looking statements. Our actual results, performance or
achievements may materially differ from those expressed or implied in the
forward-looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not limited to, general
economic conditions, the interest rate environment, competitive conditions in
the financial services industry, changes in law, governmental policies and
regulations, and rapidly changing technology affecting financial services.

FINANCIAL CONDITION

Our total assets as of June 30, 2004 increased 10.4%, or $10,871,000, to
$115,188,000, compared with $104,317,000 at December 31, 2003.

The primary reason for the growth in total assets was an increase in loans.
Total loans at June 30, 2004, were $102,537,000, an increase of $6,988,000, or
7.3% when compared to $95,548,000 at December 31, 2003. Most of the net loan
growth in the first six months of 2004 was in the commercial loan sector. This
growth was spread over several categories, including commercial real estate
loans, which increased approximately $828,000, commercial lines of credit, up
$4,265,000, and commercial business loans, up $1,342,000. As of June 30, 2004,
commercial loans totaled $90,011,000, or 87.8% of total loans.

Home equity lines of credit also increased, by $923,000, or 11.0%, primarily due
to a promotion of home equity lines during the first quarter of 2004, as well as
our efforts to cross-sell home equity lines when originating or refinancing
first mortgage loans. At June 30, 2004, residential real estate and home equity
loans totaled $10,843,000, or 10.6% of total loans, and consumer installment and
credit card loans were $1,682,000, or 1.6% of the loan portfolio.

As of June 30, 2004 and December 31, 2003 no loans were classified as held for
sale.

                                    Page 12
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

FINANCIAL CONDITION (CONTINUED)

We anticipate that loan demand will remain strong, especially in the commercial
loan segment. The loan-to-deposit ratio as of June 30, 2004, was 101.4%,
compared to 104.1% at December 31, 2003, and the loan-to-assets ratio was 89.0%
at June 30, 2004, compared to 91.6% at December 31, 2003. We expect that the
loan-to-deposit ratio throughout the rest of 2004 will remain in the range of
100%-105% and the loan-to-assets ratio will be between 90% to 95%.

Of the total loans at June 30, 2004, approximately $94,516,000 or 92.2% are at a
variable rate of interest, and $8,021,000 or 7.8% are fixed rate. Including
scheduled principal repayments, $82,940,000, or 80.9%, of our loans mature or
are scheduled to reprice within twelve months. Only $939,000 of total loan
principal matures or reprices in more than five years.

Cash and cash equivalents increased $3,681,000 to $9,970,000 at June 30, 2004,
from $6,289,000 at December 31, 2003. The increase is primarily a result of the
increase in deposits, and provides additional liquidity.

As of June 30, 2004, we had $763,000 of U.S. government agency securities and
$838,000 of mortgage-backed securities in the available-for-sale securities
portfolio. As of June 30, 2004, the maturity dates of the agency securities
ranged from November 2004 to May 2005.

In the second quarter of 2003, the Bank invested $500,000 in a single-premium
cash-surrender value life insurance policy. The Chief Executive Officer is the
named insured, and the Bank is the owner and sole beneficiary of the policy.
This is a tax-advantaged investment in that the increases in cash surrender
value and the eventual death benefit under the policy are not taxable income to
the Bank. The income from this policy is intended to help offset the cost of
providing a supplemental retirement plan for the Chief Executive Officer. As of
June 30, 2004, the cash surrender value of the policy is $526,065.

Deposits increased to $101,151,000 at June 30, 2004, an increase of $9,371,000,
or 10.2%, over the $91,780,000 at December 31, 2003. Deposits at June 30, 2004
consisted of $11,416,000 or 11.3% in noninterest-bearing demand deposits,
$6,670,000 or 6.6% in interest-bearing NOW accounts, $29,899,000 or 29.6% in
variable-rate savings and money market accounts (known as Market Rate Savings
Accounts), $49,574,000 or 49.0% in time deposits, and $3,592,000 or 3.6% in
Individual Retirement Arrangements.

The mix of deposits has been shifting since early 2002. There are two primary
reasons. First, as interest rates declined, depositors moved funds from our
market rate savings product to seek higher yields in certificates of deposit.
The market rate savings product is a liquid savings account that offers tiered
rates which, at balances of $15,000 or more, are indexed to a national money-

                                    Page 13
<PAGE>

                          WESTERN RESERVE BANCORP, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                  JUNE 30, 2004

FINANCIAL CONDITION (CONTINUED)

market average, plus 5 to 15 basis points. The weighted average cost of all
market rate savings accounts during the first six months of 2004 was 0.91%.
Market rate savings balances stabilized in the third quarter of 2003.

The second reason for the shift in the deposit mix is that we made the strategic
decision in early 2002 to begin obtaining longer-term CD funding to lock in the
historically low rates and to better match the repricing of our loans with our
deposits. A large portion of our commercial loans is in real estate loans, and
many have terms that fix the interest rate for three-year intervals. By
obtaining three-, four- and five-year CDs, we were better able to "match" the
repricing of our assets (loans) and liabilities (deposits). This was
accomplished in part by obtaining national market CDs, primarily in increments
of $99,000, with terms ranging from two years to five years, and rates ranging
from 1.80% to 5.25%. At June 30, 2004, there were $23,002,000 of national market
CDs, with a weighted average rate of 3.27%, and a weighted average remaining
maturity of 19.9 months. At December 31, 2003, we had $23,292,000 in national
market CDs.

We have obtained additional funding through the Federal Home Loan Bank. Most
recently, we obtained a $2,500,000, five-year fixed rate advance on March 11,
2004. The interest rate is 3.25%, and the advance matures on March 10, 2009. In
December 2001 we obtained an advance of $1,700,000 at a fixed rate of 4.28% that
matured on June 30, 2004, and that we repaid on that date. In April 2002 we
obtained an advance of $1,500,000 at a 4.15% fixed rate. This advance matures on
October 30, 2004. Interest is payable monthly, and the advances are payable at
their maturity dates, with prepayment penalties for early payment. The advances
are collateralized by approximately $5,405,000 of loans secured by first
mortgages on 1-4 family residential properties, multi-family properties and home
equity lines of credit, and $273,100 of FHLB stock under a blanket lien
agreement.

In the second quarter of 2003, the Company obtained a $3,000,000 line of credit
from an unaffiliated bank. At the end of the third quarter 2003, the Company
borrowed $500,000 from this line of credit. On March 31, 2004, the Company
borrowed an additional $300,000 on the line. The proceeds were invested in the
Bank in the form of additional paid-in capital. Please refer to Note 4 and the
discussion beginning on page 20 of this report, under the caption "Liquidity and
Capital Resources," for additional information.

On May 15, 2004, the Company began an intra-state offering of its common stock.
The offering is open exclusively to residents and businesspeople in Brecksville
and adjacent communities through July 15, 2004. After that date, any remaining
shares will be available to anyone in the state of Ohio, including current
shareholders. As of June 30, 2004, subscriptions for 1,750 shares at $30.00 per
share had been received.

                                    Page 14
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

FINANCIAL CONDITION (CONTINUED)

Total shareholders' equity increased $389,820, to $9,002,475 at June 30, 2004,
from $8,612,655 at December 31, 2003. This increase was due to our net income of
$345,186 for the first six months of 2004, the $52,500 in stock subscriptions
received through June 30, and $6,780 in common stock purchased by our employees
through the Employee Stock Purchase Plan. These increases were offset slightly
by the decrease in the fair value of available-for-sale securities, net of tax,
of $14,646.

RESULTS OF OPERATIONS

Net income for the first six months of 2004 was $345,186, compared to $229,578
in the same period in 2003. This is an increase of $115,608 or 50.4% over the
same period in the prior year. In the second quarter of 2004, net income was
$208,747, compared to $94,527 in the second quarter of 2003. This represents an
increase of $114,220, or 120.8% over the same quarter last year. The primary
reasons for the increases in both the quarter and year-to-date net income were
an increase in net interest income, a decrease in the provision for loan losses,
and an increase in noninterest income, offset somewhat by an increase in
noninterest expenses. The increases in noninterest expense were mainly in
salaries and employee benefits, which is discussed in further detail on page 19.

Net interest income before the provision for loan losses improved in both the
second quarter and first half of 2004 over the comparable periods in 2003. In
the first six months of 2004, net interest income before the provision was
$1,915,253, an increase of $226,300 or 13.4% over the $1,688,953 earned in the
first half of 2003. When comparing the second quarters, net interest income was
$980,063 in 2004, up 13.6% or $117,190 from the $862,873 recorded in the second
quarter of 2003.

The increase in net interest income is attributable to both loan growth and to
lower interest rates paid on deposits. However, the effects of these positive
factors were partially offset by lower yields on loans and other
interest-earning assets, as well as the increase in interest-bearing deposit
balances.

Total interest income increased $422,765 or 17.1% when comparing the six months
ended June 30, 2004 with the same period in 2003. Interest expense increased
$196,465 or 24.9% when comparing the same periods. For the second quarter,
interest income was up $215,404, or 16.9% when comparing 2004 with 2003.

                                    Page 15
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

RESULTS OF OPERATIONS (CONTINUED)

Interest and fee income on loans for the first six months of 2004 was
$2,836,078, up $439,576 or 18.3% from $2,396,502 in the first half of the prior
year. For the second quarter, loan income was up 17.6%, or $216,964, to
$1,450,505 in 2004 vs. $1,233,541 in 2003.

Interest income from securities and short-term funds decreased to $65,024
year-to-date in 2004, from $81,835 for the same period of 2003. The decrease in
2004 was primarily due to lower rates on both securities and Federal funds sold,
as well as lower average balances in securities in 2004 than in 2003.

Interest expense totaled $985,849 for the first six months of 2004, compared to
$789,384 in the same period of 2003. Interest on deposits increased $161,251, or
22.3%, to $883,391 in the first half of 2004, from $722,140 in the same period
last year. The increase in deposit interest expense was due to higher balances
in interest-bearing deposits, somewhat offset by decreases in the average rates
paid on those deposits, and new deposits that have been acquired at lower
interest rates than maturing deposits. In the second quarter, interest expense
increased $97,315 or 23.8%, from the $408,867 in 2003 to the $506,182 in 2004.

Interest on borrowings was $102,458 in the first six months of 2004, up $35,214
or 52.4% when compared to the same period in 2003. This is due to increased
borrowings from the Federal Home Loan Bank, and the $10,680 in interest expense
on the Holding Company's line of credit in 2004, compared to $0 in the same
period of 2003. In the second quarter, interest on borrowings was $60,342 in
2004, compared to $33,802 in 2003. This represents an increase of $26,540 or
78.5%, again due to FHLB advances and the Holding Company line of credit.

Although net interest income has increased, the net interest margin has been
decreasing. In the second quarter of 2004, the net interest margin was 3.54%,
down from 3.62% in the first quarter of 2004. In the second quarter of 2003, the
net interest margin was 3.88%. In the first half of 2004, the net interest
margin was 3.58%, down when compared with 3.97% in the same period in 2003.

The yield on earning assets has continued to decrease each quarter, reflecting
overall interest rate decreases, the scheduled repricing of existing loans, new
loans being booked at current, lower rates, and competitive factors in our
market area.

In the second and first quarters of 2004, the yield on loans was unchanged at
5.66%, compared with 5.72% in the second quarter of 2003. In the first half
2004, the yield on loans was 5.66%, compared with 6.17% in the first six months
of 2003.

                                    Page 16
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

RESULTS OF OPERATIONS (CONTINUED)

The overall cost of interest-bearing funds (deposits and borrowings) has also
decreased in the first two quarters of 2004. In the second quarter, the cost of
interest-bearing funds was 2.15%, down from 2.20% in the first quarter, and
compared with 2.25% in the second quarter of 2003. The cost of interest bearing
funds was 2.17% in the first six months of 2004, compared with 2.26% in the same
period of 2003.

The net interest margin has been impacted by our strategy, beginning in the
second quarter of 2002, to obtain longer-term funding. (See the discussion of
"Interest Rate Sensitivity" later in this section.) These funds have provided
additional liquidity but have had a negative effect on the net interest margin
in that excess funds were invested in lower-yielding Federal funds sold until
they could be deployed in higher-yielding loans. Also, these longer-term funds
are more expensive than short-term funding, which negatively impacts the net
interest margin.

In the first six months of 2004, the provision for probable loan losses was
$93,850, compared with $155,200 in the first half of 2003. The provision for
loan losses in the second quarter of 2004 was $30,450, versus $105,200 in the
second quarter of 2003.

At June 30, 2004 and December 31, 2003, loans totaling $1,405,285 and
$1,126,175, respectively, were in nonaccrual status (i.e., on which no interest
income is being recorded). There were no other loans more than 90 days past due.
$152,232 and $153,735 of the nonaccrual loans were guaranteed by the Small
Business Administration as of June 30, 2004 and December 31, 2003.

Our determination of the appropriate level of the allowance for loan losses is
based, in part, on an evaluation of specific loans, as well as the consideration
of historical loss experiences of other similar community financial institutions
which we believe are representative of the probable loss experience of the Bank.
Other factors we consider include the composition of the loan portfolio, current
economic conditions, the creditworthiness of our borrowers and other related
factors. The provision for loan losses has been impacted by the rapid loan
growth we have experienced, as well as the effects of the loan portfolio
maturing. Management and the Board believe the allowance for loan losses at June
30, 2004, is adequate to absorb probable losses in the loan portfolio.

Total noninterest income for the first six month of 2004 was $173,535, up
$26,081 or 17.7% compared to $147,454 in the same period of 2003. In the second
quarter of 2004, noninterest income was $111,843, up $41,170 or 58.3% compared
to the $70,673 in the second quarter of 2003.

                                    Page 17
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

RESULTS OF OPERATIONS (CONTINUED)

Service charges on deposit accounts have increased, to $58,941 year-to-date in
2004, compared to $51,652 in the same period of 2003, an increase of 14.1%. This
is mainly due to an increased number of checking accounts, and the increased
collection of fees for overdrafts and insufficient funds on checking accounts.

There has been a change in gains on sales of loans. In mid-2003, we changed the
way we provide mortgage services to our customers. Prior to that time, we
originated, closed and sold long-term fixed rate mortgages and the related
servicing and recorded a gain on the sale. In the first half of 2003, we
recorded $61,969 in gains on sales of mortgage loans. However, we expected
mortgage volume to decrease as longer-term interest rates stabilized and a
significant proportion of mortgage-holders had already refinanced their
mortgages. As a result, we changed the way we operate our mortgage lending area.
We have developed an arrangement with an outside entity so that our employee
meets with prospective borrowers, takes the mortgage application, and provides
certain additional services before referring the applicant to the other company
to complete the loan. We earn a fee from the other entity for providing these
mortgage processing services. This change allows us to offer a much wider range
of mortgage programs and products to our customers, while reducing the overhead
associated with the mortgage lending function. These fees amounted to $10,200 in
the first six months of 2004 and are included in "other noninterest income."

In the second quarter of 2004, we sold two commercial real estate loans totaling
$1,327,000 to enable the borrowers to lock in long-term fixed rates. As a result
of these transactions, we realized gains of $43,062.

"Other" noninterest income includes fee income from the bank's credit card and
ATM programs, which have increased over last year due to higher activity in both
programs and our changing the company that processes our ATM and debit card
transactions. Also, as discussed above, the Bank purchased a cash-value life
insurance policy on its Chief Executive Officer in the second quarter of 2003.
In the first six months of 2004 and 2003, we recorded increases in the policy's
cash surrender value of $11,026 and $5,013, respectively. In the second quarter,
the increases were $6,013 in 2004 and $5,013 in 2003.

                                    Page 18
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

RESULTS OF OPERATIONS (CONTINUED)

Noninterest expenses were $1,473,821 for the first six months of 2004, an
increase of $141,679 or 10.6% over the $1,332,142 for the same period of 2003.
The primary component of noninterest expense is salaries and employee benefits,
which amounted to $796,025, or 54.0% of noninterest expense in the first six
months of 2004. Salaries and benefits were $702,237, or 52.7% of noninterest
expense, in the same period of 2003. The increase of $93,788, or 13.4%, was
attributable to increased staffing, including the hiring of a Regional President
for the planned Brecksville location and an additional loan officer in the
commercial lending area, and the increased cost of employee benefits. Other
noninterest expenses were fairly level when comparing the first half of 2004
with the same period in 2003. In the second quarter of 2004, noninterest
expenses increased $62,051 or 9.1% when compared with the second quarter of
2003. The increases were primarily in salaries and employee benefits, up $38,119
or 10.5%.

Total other noninterest expenses in the first six months of 2004 and 2003
consisted of the following:

<TABLE>
<CAPTION>
                                     Three months ended              Six months ended
                                          June 30,                        June 30,
                                   2004            2003             2004           2003
                                   ----            ----             ----           ----
<S>                             <C>             <C>              <C>            <C>
Marketing and advertising       $   15,153      $    10,332      $    26,593    $      19,101
Loan expenses                        9,493            8,393           21,980           14,684
Insurance                           14,207            9,490           24,710           20,092
Travel and entertainment            11,475            8,464           21,318           18,608
Telephone                            6,104            6,706           11,992           13,277
Other                               14,518           16,517           28,459           28,088
                                ----------      -----------      -----------    -------------
                                $   70,950      $    59,902      $   135,052    $     113,850
                                ==========      ===========      ===========    =============
</TABLE>

We expect that noninterest expenses will increase significantly over the next
several quarters as start-up costs for the new Brecksville location are
incurred. Prior to its opening, there will be costs for staff who will be hired
pre-opening for training, as well as for marketing and advertising, public
relations and other expenses. Through June 30, 2004, we have incurred
approximately $51,000 of expense related to the Brecksville location.

                                    Page 19
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

LIQUIDITY AND CAPITAL RESOURCES

Liquidity refers to the ability to fund loan demand, meet deposit customers'
withdrawal needs and provide for operating expenses. As summarized in the
Consolidated Statements of Cash Flows, the main sources of cash flows are
receiving deposits from customers, and to a lesser extent, proceeds from FHLB
advances and borrowings, repayment of loan principal and interest income on
loans and investments.

Assets available to satisfy our liquidity needs include cash and due from banks,
federal funds sold, interest-bearing deposits in other banks, loans held for
sale and available-for-sale securities. These assets are commonly referred to as
liquid assets. Liquid assets were $11,571,000 at June 30, 2004, compared to
$8,023,000 at December 31, 2003.

To the extent that loan demand outpaced local deposit growth, we have used other
sources of funding, including national market CDs and Federal Home Loan Bank
advances (as previously discussed). Other potential sources of liquidity include
selling securities from the securities portfolio, selling loans, obtaining
additional Federal Home Loan Bank advances, purchasing federal funds, issuing
repurchase agreements, and obtaining brokered deposits.

As discussed above, total shareholders' equity increased $389,820, to $9,002,475
at June 30, 2004 from $8,612,655 at December 31, 2003. The increase was due to
$345,186 of net income, $52,500 in proceeds from stock subscriptions received in
the ongoing common stock offering and $6,780 from employee contributions to the
Employee Stock Purchase Plan, offset by the decrease in the fair value of
available-for-sale securities of $14,646, net of tax.

At June 30, 2004 and December 31, 2003, Western Reserve Bank's risk-based
capital ratios and the minimums to be considered well-capitalized under the
Federal Reserve Board's prompt corrective action guidelines were as follows:

<TABLE>
<CAPTION>
                                                                                  Minimum to
                                                       Western Reserve Bank     be considered
                                                     June 30,    December 31,       well-
                                                       2004          2003        capitalized
                                                     --------    ------------   -------------
<S>                                                  <C>         <C>            <C>
Tier 1 "core" capital to risk-weighted assets           7.8%          7.7%           6.0%
Total capital to risk-weighted assets                  10.5          10.6           10.0
Tier 1 leverage ratio                                   7.1           7.1            5.0
</TABLE>

                                    Page 20
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

We have grown rapidly in our five and one-half year history, and continued rapid
growth has required us to consider capital strategies to support that growth. We
have evaluated the growth trends and alternative mechanisms for supporting that
growth. Some of the options that management and the Board considered included
selling more common stock, issuing trust preferred securities, or borrowing
through a line of credit.

After evaluating all of the options, in May 2003 we obtained a $3,000,000 line
of credit from a regional bank outside of our market area. Under this plan, the
Company can borrow against the line of credit and then downstream capital as
needed to the Bank in order to maintain the Bank's capital levels above the
well-capitalized minimums. Factors that the Board and management considered in
choosing to use a line of credit include that this approach does not dilute
current shareholders' positions, and interest rates are extremely favorable at
this time. This line carries an interest rate of 0.75% below the prime rate, and
has a term of two years. Interest payments are due monthly, with the principal
due at maturity. The debt is secured by the common stock of the Bank. By
borrowing against the line of credit and then investing the funds into the Bank
as capital, we are able to manage the Bank's capital ratios. As of June 30,
2004, the Company had borrowed $800,000 under the line of credit, and invested
the proceeds in the Bank in the form of additional paid-in capital.

Management and the Board have been evaluating selected growth opportunities for
over a year. In October 2003, the Bank submitted an application to the Ohio
Division of Financial Institutions and the Federal Reserve Board for permission
to establish a banking office in Brecksville, Ohio. We received approval in
December 2003, and plans to open the office are proceeding. We expect that the
Brecksville office will open in October 2004. We expect that there will be a
negative impact on earnings during the early years of the new office's
operations, until it grows to a size that can cover its overhead.

In conjunction with our continuing growth in Medina as well as the expected
future growth of the Brecksville location, we have begun to raise additional
capital through a common stock offering. This offering, which began on May 15,
2004, is for up to 83,333 additional common shares at an offering price of
$30.00 per share, for a total of up to $2,499,990. As of June 30, 2004,
subscriptions for 1,750 shares had been received. In order to encourage
ownership and involvement in the Brecksville area, purchases of stock under the
offering are limited to residents and business people in Brecksville and the
immediately surrounding communities through July 15. After that date, any
remaining shares will be available for purchase by anyone in the State of Ohio.
Shares of stock purchased in the offering may not be resold for nine months
after their issuance to anyone outside of the State of Ohio. As of August 9, we
have received subscriptions for 22,767 shares of stock.

                                    Page 21
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

In October 2003, the Board of Directors approved The Western Reserve Bancorp,
Inc. Employee Stock Purchase Plan. We filed a Form S-8 Registration Statement
with the SEC on April 1, 2004, and the Plan became effective on that date. Under
this Plan, each of our employees is eligible to purchase, through payroll
deduction or direct payment to the Company, up to $3,000 worth of common stock
per year at market prices and without brokerage commissions. There are 5,000
shares of authorized but unissued shares of stock allocated to the Plan. Because
the Plan has been registered with the SEC, there will be no restrictions on the
resale of the stock, other than those applicable to "affiliates" as defined in
Rule 144 of the Securities and Exchange Commission. In the second quarter of
2004, employees purchased 226 shares of stock at $30.00 per share through the
Plan.

INTEREST RATE SENSITIVITY

One of our objectives in managing the balance sheet for interest rate
sensitivity is to reduce volatility in the net interest margin by matching, as
closely as possible, the timing of the repricing of interest rate sensitive
assets with interest rate sensitive liabilities.

In the past few years, interest rates have decreased significantly, to levels
not seen in over 40 years. In 2001, there were 11 interest rate decreases
totaling 475 basis points. In 2002, rates seemed to have stabilized, and then
there was another 50 basis point rate cut in November. Then, in June 2003,
short-term rates were decreased by another 25 basis points.

As short-term rates approached zero (the overnight Federal funds rate was as low
as 1.00%), already-low deposit rates could not be reduced as quickly or as
deeply as loan rates. This has caused downward pressure on most banks' net
interest margins, including ours.

At year-end 2002, approximately 55.5% of the interest-bearing assets on our
balance sheet matured or could reprice in one year or less. Nearly all of the
interest-bearing liabilities were variable-rate core deposits. As of December
31, 2002, there were $44,355,000 of assets and $45,126,000 of liabilities that
matured or could be repriced within one year. Our one-year GAP ratio was 98.3%.
Therefore, our balance sheet was in a balanced, or neutral, interest rate
sensitivity position.

                                    Page 22
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                 JUNE 30, 2004

INTEREST RATE SENSITIVITY (CONTINUED)

By mid-2002, we believed that rates were at or near their low point, and began
to change our strategy to position the balance sheet to benefit when rates would
begin to increase. In implementing this strategy, we made more loans tied to the
prime rate, which would reprice higher when rates begin to rise, and, on the
deposit side, emphasized longer-term CDs to lock in funding at the historically
low rates. The immediate impact of this strategy was to give up some interest
income, since variable rate loans are generally offered at a lower rate than
fixed rate loans, and also to include additional interest expense, since we had
to pay depositors a higher rate to accept longer-term deposits.

By year-end 2003, $74,010,000 of assets and $59,153,000 of liabilities matured
or could be repriced in one year. Thus the asset sensitivity, or GAP, in the
balance sheet had increased significantly, to $14,857,000, or 125.1%. As of June
30, 2004, the one-year GAP was 126.1%, and remains in a strongly asset-sensitive
position.

While this strategy will benefit our net interest income in a rising rate
environment, in the short term, the effect has been to compress the net interest
margin.

On June 30, 2004, the Federal Reserve changed its outlook and increased its
target overnight Federal funds rate by 25 basis points, to 1.25%. Provided the
Federal Reserve continues its bias toward increasing interest rates, we should
stand to benefit from an increase in our net interest margin.

CRITICAL ACCOUNTING POLICIES

The allowance for loan losses is a valuation allowance for probable incurred
credit losses, increased by the provision for loan losses and recoveries and
decreased by charge-offs. Management estimates the allowance balance by
considering the nature and volume of the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions and
other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off. Loan losses are charged against the allowance when
management believes the loan balance cannot be collected. Management considers
various factors, including portfolio risk, economic environment and loan
delinquencies, when determining the level of the provision for loan losses. Loan
quality is monitored on a monthly basis by management and at least annually by
an independent third party. Given the fact that the Company began operations in
1998, there is not sufficient historical data on the loan portfolio to identify
consistent or significant trends in loan losses.

                                    Page 23
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                            CONTROLS AND PROCEDURES
                                 JUNE 30, 2004

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of June 30, 2004, pursuant
to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were, to the best of their knowledge, effective as of
June 30, 2004, in timely alerting them to material information relating to the
Company (including its consolidated subsidiary) required to be included in the
Company's periodic SEC filings.

There was no change in the Company's internal control over financial reporting
that occurred during the Company's fiscal quarter ended June 30, 2004, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

                                    Page 24
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                                  FORM 10-QSB
                                 JUNE 30, 2004

                           PART II--OTHER INFORMATION

Items 1, 3 and 5 are not applicable.

Item 2 - Changes in Securities

      (c) The Company began an offering of up to 83,333 shares of its common
      stock on May 15, 2004. The offering was made first to persons that are
      residents of, operate businesses in, or otherwise have a connection to the
      City of Brecksville, Ohio and immediately surrounding communities. After
      July 15, 2004, the sale of any remaining shares will be opened to other
      residents of the State of Ohio. The offering price is $30.00 per share. As
      of June 30, 2004, 1,750 shares had been subscribed. Through August 9, a
      total of 22,767 shares have been subscribed. The offering is expected to
      conclude on September 15, 2004, but the Company has reserved the right to
      extend the offering through no later than November 30, 2004.

      The Company did not employ an underwriter or broker to sell the shares.
      Instead, the shares have been sold directly by the Company through its
      officers and directors without the payment of any commissions.

      The shares have been sold in reliance upon Section 3(a)(11) of the
      Securities Act of 1933 and Rule 147 promulgated thereunder solely to
      residents of the State of Ohio. A registration statement on Form 6(A)(1)
      was filed on May 3, 2004, with the Ohio Division of Securities pursuant to
      Section 1707.06(A)(1) of the Ohio Revised Code.

      Because of the requirements of Rule 147, the shares issued under the
      offering can not be sold outside of the State of Ohio for nine (9) months
      after issuance. The certificates representing the shares sold in the
      offering will bear a legend noting such restriction. A copy of the legend
      to be placed on the shares is attached hereto as Exhibit 4.2.

      The proceeds raised through the sale of the shares in the offering will be
      used for general corporate purposes. The majority of the proceeds will be
      used to augment the capital of Western Reserve Bank, the Company's wholly
      owned commercial bank subsidiary.

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<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                                  FORM 10-QSB
                                 JUNE 30, 2004

Item 4 - Submission of Matters to a Vote of Security Holders

      The Annual Meeting of the shareholders of Western Reserve Bancorp, Inc.
      was held on April 28, 2004 in accordance with the notice of meeting and
      proxy statement mailed to shareholders. Each of the following Class I
      directors was elected to a three-year term ending in 2007: Roland H.
      Bauer, Dr. Bijay K. Jayaswal, P.M. Jones and Ray E. Laribee. A total of
      252,521 shares were represented at the meeting. Mr. Jones and Mr. Laribee
      each received 252,121 votes "for" and 400 votes "withheld." Mr. Bauer
      received 250,851 votes "for" and 1,670 votes "withheld." Dr. Jayaswal
      received 250,621 votes "for" and 1,900 votes "withheld."

      Continuing directors whose terms end in 2005 are C. Richard Lynham, Edward
      J. McKeon, R. Hal Nichols and Rory H. O'Neil. Continuing directors whose
      terms end in 2006 are Michael R. Rose, Glenn M. Smith and Thomas A. Tubbs.

      No other matters were presented to the meeting.

Item 6 - Exhibits and Reports on Form 8-K:

      (a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER       DESCRIPTION
-------      -----------
<S>          <C>                                                                       <C>
  3.1        Articles of Incorporation of Western Reserve Bancorp, Inc.                 *
  3.2        Code of Regulations of Western Reserve Bancorp, Inc.                       *
  4.1        Stock Certificate of Western Reserve Bancorp, Inc.                         *
  4.2        Legend to be Placed on Certificates Representing Shares Issued in
             the Offering
 10.1        Employment Agreement of Edward J. McKeon, Dated December 14, 2001          *
 10.2        Lease Agreement by and between Michael Rose DBA Washington
             Properties and Western Reserve Bancorp, Inc.                               *
 10.3        Western Reserve Bancorp, Inc. 1998 Stock Option Plan, Amended and
             Restated as of April 20, 2000                                              *
 10.4        Agreement by and between Western Reserve Bancorp, Inc. and Brian K.
             Harr, dated June 18, 2001, as amended February 20, 2002                    *
 10.5        Agreement by and between Western Reserve Bancorp, Inc. and Cynthia
             A. Mahl, dated June 18, 2001, as amended February 20, 2002                 *
 10.6        Loan Agreement between Western Reserve Bancorp, Inc. and TCF
             National Bank, dated May 5, 2003                                           *
 10.7        Western Reserve Bank Supplemental Executive Retirement Plan, dated
             May 15, 2003                                                               *
</TABLE>

* Previously filed and incorporated herein by reference.

                                    Page 26
<PAGE>

Item 6 - Exhibits and Reports on Form 8-K:

      (a) Exhibits (continued)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER       DESCRIPTION
-------      -----------
<S>          <C>                                                                       <C>
 10.8        Western Reserve Bancorp, Inc. Employee Stock Purchase Plan                 *
  11         Earnings per Share
 31.1        Certification under Section 302 of the Sarbanes-Oxley Act by Edward
             J. McKeon, President and Chief Executive Officer
 31.2        Certification under Section 302 of the Sarbanes-Oxley Act by
             Cynthia A. Mahl, Senior Vice President and Chief Financial Officer
 32.1        Certification under Section 906 of the Sarbanes-Oxley Act by Edward
             J. McKeon, President and Chief Executive Officer
 32.2        Certification under Section 906 of the Sarbanes-Oxley Act by
             Cynthia A. Mahl, Senior Vice President and Chief Financial Officer
</TABLE>

* Previously filed and incorporated herein by reference.

      (b) Reports on Form 8-K

      May 4, 2004 -- Item 9 -- Western Reserve Bancorp, Inc. submitted a
      registration statement to the Ohio Division of Securities on Form 6(A)(1)
      for the registration by description of 83,333 of its common shares, no par
      value. The shares are being offered as part of an intrastate offering at
      the per share price of $30.00.

                                    Page 27
<PAGE>

                         WESTERN RESERVE BANCORP, INC.
                                  FORM 10-QSB
                          QUARTER ENDED JUNE 30, 2004

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                           Western Reserve Bancorp, Inc.
                                           By:

Date: August 12, 2004                      /s/ Edward J. McKeon
                                           Edward J. McKeon
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

                                           /s/ Cynthia A. Mahl
                                           Cynthia A. Mahl
                                           Senior Vice President/Chief Financial
                                               Officer
                                           (Principal Financial Officer)

                                    Page 28