##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended March 31, 2006
 o
    
    Transition Report Under Section 13 or 15(d) of the Exchange Act
 Commission
file number 000-51264
 WESTERN RESERVE BANCORP, INC.
  Ohio
    
    31-1566623(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)
 4015
Medina Road, Suite 100, P.O. Box 585, Medina, Ohio 44256
 Issuers telephone
number, including area code
  þ o
 o þ
  Common
Stock, no par value, $1.00 stated value
 (number of shares
outstanding as of May 5, 2006)
 o þ




---



##### 



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
Quarter ended March 31, 2006
 PagePART IFinancial InformationITEM 1
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets as of March 31, 2006
and December 31, 2005
    
    
    3Consolidated Statements of Income for the three months
ended March 31, 2006 and 2005
    
    
    4Consolidated Statements of Comprehensive Income for the
three months
ended March 31, 2006 and 2005
    
    
    5Consolidated Statements of Cash Flows for the three months
ended March 31, 2006 and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2
    

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3
    
    CONTROLS AND PROCEDURES
    
    
    31PART IIOther Information
    
    
    32SIGNATURES
    
    
    35EX-4 LegendEX-31.1 CertificationEX-31.2 CertificationEX-32.1 CertificationEX-32.2 Certification
  Page 2




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(Unaudited)March 31,
    
    
    December 31,2006
    
    
    2005AssetsCash and due from financial institutions
    
    $
    2,578,274
    
    
    $
    2,228,258Federal funds sold and other short-term funds
    
    
    4,691,173
    
    
    
    5,114,748Cash and cash equivalents
    
    
    7,269,447
    
    
    
    7,343,006Securities available for sale
    
    
    7,297,694
    
    
    
    7,301,377Loans
    
    
    113,244,738
    
    
    
    111,189,355Allowance for loan losses
    
    
    (1,606,054
    )
    
    
    (1,541,654
    )Loans, net
    
    
    111,638,684
    
    
    
    109,647,701Restricted stock
    
    
    541,300
    
    
    
    537,200Premises and equipment, net
    
    
    1,268,081
    
    
    
    1,303,921Accrued interest receivable and other assets
    
    
    1,698,359
    
    
    
    1,650,798Total Assets
    
    $
    129,713,565
    
    
    $
    127,784,003Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    13,271,582
    
    
    $
    12,899,265Interest-bearing
    
    
    100,568,726
    
    
    
    99,388,145Total deposits
    
    
    113,840,308
    
    
    
    112,287,410Federal Home Loan Bank advances
    
    
    3,500,000
    
    
    
    3,500,000Accrued interest payable and other liabilities
    
    
    437,289
    
    
    
    398,254Total Liabilities
    
    
    117,777,597
    
    
    
    116,185,664Shareholders EquityCommon stock, without par value, $1 stated value:750,000 shares authorized; 457,518 and
457,331 shares issued and outstanding as of
March 31, 2006 and December 31, 2005
    
    
    457,518
    
    
    
    457,331Additional paid-in capital
    
    
    9,534,853
    
    
    
    9,528,376Retained earnings
    
    
    1,978,907
    
    
    
    1,639,369Accumulated other comprehensive income (loss)
    
    
    (35,310
    )
    
    
    (26,737
    )Total Shareholders Equity
    
    
    11,935,968
    
    
    
    11,598,339Total Liabilities and Shareholders Equity
    
    $
    129,713,565
    
    
    $
    127,784,003
  Page 3




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Three months ended March 31,2006
    
    
    2005Interest and dividend incomeLoans, including fees
    
    $
    2,123,273
    
    
    $
    1,653,360Securities
    
    
    75,451
    
    
    
    11,964Dividends on restricted stock
    
    
    7,711
    
    
    
    6,069Federal funds sold and other
short-term funds
    
    
    59,349
    
    
    
    27,1702,265,784
    
    
    
    1,698,563Interest expenseDeposits
    
    
    884,803
    
    
    
    562,144Borrowings
    
    
    31,303
    
    
    
    20,034916,106
    
    
    
    582,178Net interest income
    
    
    1,349,678
    
    
    
    1,116,385Provision for loan losses
    
    
    (130,600
    )
    
    
    28,900Net interest income after
provision for loan losses
    
    
    1,480,278
    
    
    
    1,087,485Noninterest incomeService charges on deposit accounts
    
    
    42,230
    
    
    
    28,551Net gains on sales of loans
    
    
    
    
    
    
    77,839Other
    
    
    39,219
    
    
    
    41,30681,449
    
    
    
    147,696Noninterest expenseSalaries and employee benefits
    
    
    536,214
    
    
    
    484,804Premises and equipment, net
    
    
    200,157
    
    
    
    194,179Data processing
    
    
    82,928
    
    
    
    74,267Professional fees
    
    
    73,055
    
    
    
    79,831Taxes other than income and payroll
    
    
    32,446
    
    
    
    26,309Community and shareholder relations
and contributions
    
    
    26,802
    
    
    
    21,682Supplies, printing and postage
    
    
    18,512
    
    
    
    15,761Other
    
    
    79,474
    
    
    
    74,4141,049,588
    
    
    
    971,247Income before income taxes
    
    
    512,139
    
    
    
    263,934Income tax expense
    
    
    172,601
    
    
    
    88,773Net income
    
    $
    339,538
    
    
    $
    175,161Average shares outstanding (basic)
    
    
    457,333
    
    
    
    455,676Average shares outstanding (diluted)
    
    
    474,025
    
    
    
    470,948Basic earnings per share
    
    $
    0.74
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.72
    
    
    $
    0.37
  Page 4




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##### Table of Contents



Three months ended March 31,2006
    
    
    2005Net income
    
    $
    339,538
    
    
    $
    175,161Other comprehensive income (loss), net of tax:Unrealized gains/(losses) on securities
arising during the period
    
    
    (8,573
    )
    
    
    (11,142
    )Comprehensive income
    
    $
    330,965
    
    
    $
    164,019
  Page 5




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##### Table of Contents



Three months ended March 31,2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    339,538
    
    
    $
    175,161Adjustments to reconcile net income
to net cash from operating activities:Provision for loan losses
    
    
    (130,600
    )
    
    
    28,900Depreciation
    
    
    42,550
    
    
    
    43,349Net amortization (accretion) of securities
    
    
    (52,431
    )
    
    
    1,742Stock-based compensation
    
    
    733
    
    
    
    Loans originated for sale
    
    
    
    
    
    
    (1,271,050
    )Proceeds from sales of loan originations
    
    
    
    
    
    
    1,348,889Gains on sales of loans
    
    
    
    
    
    
    (77,839
    )Federal Home Loan Bank stock dividends
    
    
    (4,100
    )
    
    
    (3,000
    )Net change in:Interest receivable
    
    
    (15,309
    )
    
    
    (15,766
    )Interest payable
    
    
    (63,150
    )
    
    
    (9,896
    )Other assets
    
    
    (27,836
    )
    
    
    (64,345
    )Other liabilities
    
    
    102,185
    
    
    
    17,416Net cash from operating activities
    
    
    191,580
    
    
    
    173,561Cash flows from investing activitiesAvailable for sale securities:Purchases
    
    
    
    
    
    
    (437,447
    )Maturities, repayments and calls
    
    
    43,125
    
    
    
    292,989Net increase in loans
    
    
    (1,860,383
    )
    
    
    (2,806,064
    )Purchases of premises and equipment
    
    
    (6,710
    )
    
    
    (69,892
    )Net cash from investing activities
    
    
    (1,823,968
    )
    
    
    (3,020,414
    )Cash flows from financing activitiesNet increase in deposits
    
    
    1,552,898
    
    
    
    1,175,070Proceeds from issuance of common stock
under Employee Stock Purchase Plan
    
    
    5,931
    
    
    
    4,761Proceeds from exercise of stock options
    
    
    
    
    
    
    2,340Net cash from financing activities
    
    
    1,558,829
    
    
    
    1,182,171Change in cash and cash equivalents
    
    
    (73,559
    )
    
    
    (1,664,682
    )Cash and cash equivalents at beginning of period
    
    
    7,343,006
    
    
    
    6,936,119Cash and cash equivalents at end of period
    
    $
    7,269,447
    
    
    $
    5,271,437Supplemental cash flow information:Interest paid
    
    $
    979,256
    
    
    $
    583,074Income taxes paid
    
    
    50,000
    
    
    
    Supplemental disclosure of noncash activities:Investing Activities:Non cash transfer from loans originated for sale to loans
    
    $
    
    
    
    $
    250,835
  Page 6




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       Page 7




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Page 8




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Three months ended March 31, 2006Using
    
    
    SFASPrevious
    
    
    123(R)
    
    
    AsAccounting
    
    
    Adjustments
    
    
    ReportedIncome before income taxes
    
    $
    512,872
    
    
    $
    (733
    )
    
    $
    512,139Income taxes
    
    
    172,850
    
    
    
    249
    
    
    
    172,601Net income
    
    $
    340,022
    
    
    $
    (484
    )
    
    $
    339,538Basic earnings per share
    
    $
    0.74
    
    
    $
    
    
    
    $
    0.74Diluted earnings per share
    
    $
    0.72
    
    
    $
    
    
    
    $
    0.72
 Page 9




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Three months ended March 31, 2005Pro Forma asAs
    
    
    Pro Forma
    
    
    if underReported
    
    
    Adjustments
    
    
    SFAS 123(R)Income before income taxes
    
    $
    263,934
    
    
    $
    (720
    )
    
    $
    263,214Income taxes
    
    
    88,773
    
    
    
    245
    
    
    
    89,018Net income$
    175,161
    
    
    $
    (475
    )
    
    $
    174,196Basic earnings per share
    
    $
    0.38
    
    
    $
    
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.37
    
    
    $
    
    
    
    $
    0.37
   Three months endedMarch 31, 2006Total options outstandingWeighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    FairShares
    
    
    Price
    
    
    ValueOptions outstanding, beginning of
period
    
    
    91,312
    
    
    $
    23.15
    
    
    $
    5.74Forfeited
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    91,312
    
    
    $
    23.15
    
    
    $
    5.74Options exercisable, end of period
    
    
    90,062
    
    
    $
    23.07
    
    
    $
    5.72
 Page 10




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Three months endedMarch 31, 2006WeightedAverageShares
    
    
    Fair ValueUnvested options, beginning of period
    
    
    1,250
    
    
    $
    7.17Vested
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Unvested options, end of period
    
    
    1,250
    
    
    $
    7.17
  Outstanding
    
    
    ExercisableWeighted
    
    
    
    
    
    
    WeightedAverage Remaining
    
    
    
    
    
    
    AverageContractual Life
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Number
    
    
    (in years)
    
    
    Number
    
    
    Price$20.00-$24.99
    
    
    70,694
    
    
    
    3.4
    
    
    
    70,694
    
    
    $
    21.04$25.00-$29.99
    
    
    10,250
    
    
    
    5.2
    
    
    
    9,750
    
    
    
    25.05$30.00-$39.99
    
    
    7,162
    
    
    
    3.3
    
    
    
    6,412
    
    
    
    34.00$40.00
    
    
    3,206
    
    
    
    2.6
    
    
    
    3,206
    
    
    
    40.00Outstanding at period
end
    
    
    91,312
    
    
    
    3.5
    
    
    
    90,062
    
    
    $
    23.07
  Page 11




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  2005Risk-free interest rate
    
    
    4.27
    %Expected option life (years)
    
    
    7Expected stock price volatility
    
    
    7.09
    %Dividend yield
    
    
    0.00
    %
   Three months endedMarch 31,2006
    
    
    2005Proceeds of options exercised
    
    $
    
    
    
    $
    2,000Related tax benefit recognized
    
    
    
    
    
    
    340Intrinsic value of options exercised
    
    
    
    
    
    
    1,000
  CompensationCostsRemainder of 2006
    
    $
    2,1992007
    
    
    1,4582008
    
    
    1,1862009
    
    
    8362010
    
    
    697Total
    
    $
    6,376
 Page 12




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Three months ended March 31,2006
    
    
    2005Numerator:Net income
    
    $
    339,538
    
    
    $
    175,161Denominator:Denominator for basic
earnings per share
weighted average shares
    
    
    457,333
    
    
    
    455,676Effect of dilutive securities:Nonqualified stock options
    
    
    16,692
    
    
    
    15,272Denominator for diluted
earnings per share
    
    
    474,025
    
    
    
    470,948Basic earnings per share
    
    $
    0.74
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.72
    
    
    $
    0.37
    Accounting Changes and Error Correctionsa replacement of
APB Opinion No. 20 and FASB Statement No. 3.
 Page 13




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Accounting for Certain Hybrid Financial Instrumentsan amendment of
FASB Statements No. 133 and 140.
 Accounting for Servicing of Financial Assets  an
amendment of FASB Statement No. 140,
 Page 14




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 2  LOANS
  March 31,
    
    
    December 31,2006
    
    
    2005Commercial real estate
    
    $
    65,951,706
    
    
    $
    65,367,133Commercial business
    
    
    11,013,317
    
    
    
    11,401,834Commercial lines of credit
    
    
    19,058,151
    
    
    
    16,991,017Commercial construction
    
    
    3,676,147
    
    
    
    4,465,089Home equity
    
    
    9,896,307
    
    
    
    9,589,660Residential mortgage
and construction
    
    
    806,138
    
    
    
    917,565Consumer installment
    
    
    2,473,090
    
    
    
    2,108,230Credit card and other
    
    
    369,882
    
    
    
    348,828$
    113,244,738
    
    
    $
    111,189,355
  Three months ended March 31,2006
    
    
    2005Beginning balance
    
    $
    1,541,654
    
    
    $
    1,605,933Loans charged off
    
    
    
    
    
    
    (4,000
    )Recoveries
    
    
    195,000
    
    
    
    Provision for loan losses
    
    
    (130,600
    )
    
    
    28,900Ending balance
    
    $
    1,606,054
    
    
    $
    1,630,833
  Page 15




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 3  DEPOSITS
  March 31,
    
    
    December 31,2006
    
    
    2005Noninterest-bearing demand
    
    $
    13,271,582
    
    
    $
    12,899,265Interest-bearing demand
    
    
    7,399,029
    
    
    
    6,300,341Market Rate Savings
    
    
    48,821,793
    
    
    
    45,930,275Time under $100,000
    
    
    27,569,914
    
    
    
    28,241,158Time $100,000 and over
    
    
    16,777,990
    
    
    
    18,916,371$
    113,840,308
    
    
    $
    112,287,410
  NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
  March 31,
    
    
    December 31,2006
    
    
    2005Maturing March 2009, fixed rate advance at 3.25%
    
    $
    2,500,000
    
    
    $
    2,500,000Maturing April 2010, fixed rate advance at 4.57%
    
    
    1,000,000
    
    
    
    1,000,000$
    3,500,000
    
    
    $
    3,500,000
  Page 16




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WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
 NOTE 4FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
    Page 17




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WESTERN RESERVE BANCORP, INC.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF
OPERATIONS
March 31, 2006
 OVERVIEW
   FINANCIAL CONDITION
 Assets
    Page 18




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WESTERN RESERVE BANCORP, INC  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 FINANCIAL CONDITION
       Page 19




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 FINANCIAL CONDITION
  Liabilities
     Shareholders Equity
  Page 20




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED MARCH 31, 2006
 Overview
  Net Interest Income
   Page 21




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WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 RESULTS OF OPERATIONS
  Three months ended March 31,($ in thousands)
    
    2006
    
    
    2005Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Cost
    
    
    Balance
    
    
    Expense
    
    
    CostLoans
    
    $
    111,492
    
    
    $
    2,123
    
    
    
    7.72
    %
    
    $
    106,498
    
    
    $
    1,653
    
    
    
    6.30
    %Investment securities-taxable
    
    
    6,707
    
    
    
    71
    
    
    
    4.25
    %
    
    
    1,062
    
    
    
    10
    
    
    
    3.88
    %Investment securities-tax exempt
    
    
    633
    
    
    
    7
    
    
    
    4.49
    %
    
    
    219
    
    
    
    3
    
    
    
    4.69
    %Federal funds sold and other
short-term funds
    
    
    5,463
    
    
    
    59
    
    
    
    4.45
    %
    
    
    4,546
    
    
    
    27
    
    
    
    2.42
    %Restricted stock
    
    
    537
    
    
    
    8
    
    
    
    5.82
    %
    
    
    477
    
    
    
    6
    
    
    
    5.16
    %Total interest earning assets
    
    
    124,832
    
    
    
    2,268
    
    
    
    7.37
    %
    
    
    112,802
    
    
    
    1,699
    
    
    
    6.11
    %Noninterest earning assets
    
    
    3,570
    
    
    
    
    
    
    
    
    
    
    
    3,995Total Assets
    
    $
    128,402
    
    
    
    
    
    
    
    
    
    
    $
    116,797Interest bearing deposits
    
    $
    99,625
    
    
    
    885
    
    
    
    3.60
    %
    
    $
    90,193
    
    
    
    562
    
    
    
    2.53
    %Borrowings
    
    
    3,500
    
    
    
    31
    
    
    
    3.63
    %
    
    
    2,500
    
    
    
    20
    
    
    
    3.25
    %Total interest bearing liabilities
    
    
    103,125
    
    
    
    916
    
    
    
    3.60
    %
    
    
    92,693
    
    
    
    582
    
    
    
    2.55
    %Noninterest bearing liabilities
    
    
    13,508
    
    
    
    
    
    
    
    
    
    
    
    13,406Shareholders equity
    
    
    11,769
    
    
    
    
    
    
    
    
    
    
    
    10,698Total Liabilities and
Shareholders Equity
    
    $
    128,402
    
    
    
    
    
    
    
    
    
    
    $
    116,797Net interest income
    
    
    
    
    
    
    1,352
    
    
    
    
    
    
    
    
    
    
    
    1,117Tax equivalent adjustment
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Net interest income per financial
statements
    
    
    
    
    
    $
    1,350
    
    
    
    
    
    
    
    
    
    
    $
    1,116Net yield on average earning assets
    
    
    
    
    
    
    
    
    
    
    4.39
    %
    
    
    
    
    
    
    
    
    
    
    4.02
    %
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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 RESULTS OF OPERATIONS
  Three months endedMarch 31, 2006 vs. 2005Increase (Decrease) inNet Interest Income Due to($ in thousands)
    
    Volume
    
    
    Rate
    
    
    NetInterest income:Loans
    
    $
    91
    
    
    $
    379
    
    
    $
    470Federal funds sold and
other short-term funds
    
    
    10
    
    
    
    22
    
    
    
    32Investment securities-taxable
    
    
    60
    
    
    
    1
    
    
    
    61Investment securities-tax exempt
    
    
    4
    
    
    
    
    
    
    
    4Restricted stock
    
    
    1
    
    
    
    1
    
    
    
    2Total interest-earning assets
    
    
    166
    
    
    
    403
    
    
    
    569Interest expense:Interest-bearing transaction
accounts
    
    
    (1
    )
    
    
    (5
    )
    
    
    (6
    )Market rate savings accounts
    
    
    (71
    )
    
    
    (191
    )
    
    
    (262
    )Certificates of deposit and IRAs
    
    
    20
    
    
    
    (75
    )
    
    
    (55
    )FHLB advances
    
    
    (9
    )
    
    
    (2
    )
    
    
    (11
    )Total interest-bearing liabilities
    
    
    (61
    )
    
    
    (273
    )
    
    
    (334
    )Change in net interest income
    
    $
    105
    
    
    $
    130
    
    
    $
    235
 Interest Income
   Page 23




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 RESULTS OF OPERATIONS
 Interest Expense
   Net Interest Margin
    Provision for Loan Losses
  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
March 31, 2006
 RESULTS OF OPERATIONS
    Noninterest Income
    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
March 31, 2006
 RESULTS OF OPERATIONS
  Noninterest Expenses
   Three months endedMarch 31,2006
    
    
    2005Marketing and advertising
    
    $
    21,000
    
    
    $
    18,000Loan expenses
    
    
    12,000
    
    
    
    12,000Insurance
    
    
    12,000
    
    
    
    13,000Travel and entertainment
    
    
    12,000
    
    
    
    9,000Telephone
    
    
    6,000
    
    
    
    6,000Other
    
    
    16,000
    
    
    
    16,000$
    79,000
    
    
    $
    74,000
   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
March 31, 2006
 LIQUIDITY AND CAPITAL RESOURCES
       Page 27




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 LIQUIDITY AND CAPITAL RESOURCES
 Minimum
    
    Minimumto be
    
    requiredWestern Reserve Bank
    
    considered
    
    for capitalMarch 31,
    
    December 31,
    
    well-
    
    adequacy2006
    
    2005
    
    capitalized
    
    purposesTier 1 core capital to
risk-weighted assets
    
    
    8.5
    %
    
    
    8.4
    %
    
    
    6.0
    %
    
    
    4.0
    %Total capital to
risk-weighted assets
    
    
    10.7
    %
    
    
    11.0
    %
    
    
    10.0
    %
    
    
    8.0
    %Tier 1 leverage ratio
    
    
    7.6
    %
    
    
    7.4
    %
    
    
    5.0
    %
    
    
    4.0
    %
    Page 28




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 INTEREST RATE SENSITIVITY
       Page 29




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2006
 CRITICAL ACCOUNTING POLICIES
  Page 30




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
 
 CONTROLS AND PROCEDURES
 March 31, 2006
   Page 31




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
March 31, 2006
 
 PART IIOTHER INFORMATION
        ExhibitNo.
    
    Description of Exhibits3.1
    
    Articles of Incorporation
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)
    
    *3.2
    
    Code of Regulations of
Western Reserve Bancorp,
Inc. (incorporated by
reference to the Companys
Report on Form SB-2 filed
with the Commission on
December 29, 1997)
    
    *4
    
    Legend Placed on
Certificates Representing
Shares Issued pursuant to
an exemption from
registration under Section
3(a)(11) of the Securities
Act and Rule 147 thereunder10.1
    
    Employment Agreement of
Edward J. McKeon, Dated
December 15, 2005.
(incorporated by reference
to the Companys Report on
Form 8-K filed with the
Commission on December 19,
2005)
    
    *10.2
    
    Lease Agreement by and
between Michael Rose DBA
Washington Properties and
Western Reserve Bancorp,
Inc. (incorporated by
reference to the Companys
Report on Form 10-KSB filed
with the Commission on
March 31, 1999)
    
    *10.3
    
    Western Reserve Bancorp,
Inc. 1998 Stock Option
Plan, Amended and Restated
as of April 20, 2000
(incorporated by reference
to the Companys Report on
Form 10-QSB filed with the
Commission on August 13,
2000)
    
    *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)
    
    *
 
 *
    
    Previously filed and incorporated herein by reference. Page 32




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
 March 31, 2006
 ExhibitNo.
    
    Description of Exhibits10.5
    
    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)
    
    *10.10
    
    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 (incorporated
by reference to the Companys
Report on Form 8-K filed with the
Commission on January 23, 2006)
    
    *11
    
    Statement re: Computation of Per
Share Earnings (incorporated by
reference to Note 1 of this Form
10-QSB)
    
    *14
    
    Western Reserve Bancorp, Inc.
Code of Ethics and Business
Conduct (incorporated by
reference to the Companys Report
on Form 10-KSB filed with the
Commission on March 30, 2004)
    
    *31.1
    
    Certification under Section 302
of the Sarbanes-Oxley Act by
Edward J. McKeon, President and
Chief Executive Officer31.2
    
    Certification under Section 302
of the Sarbanes-Oxley Act by
Cynthia A. Mahl, Senior Vice
President and Chief Financial
Officer32.1
    
    Certification under Section 906
of the Sarbanes-Oxley Act by
Edward J. McKeon, President and
Chief Executive Officer32.2
    
    Certification under Section 906
of the Sarbanes-Oxley Act by
Cynthia A. Mahl, Senior Vice
President and Chief Financial
Officer
 
 *
    
    Previously filed and incorporated herein by reference. Page 33




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
March 31, 2006
 (b)
    
    Reports on Form 8-KA report on Form 8-K was filed by the Company on January 23, 2006 under Item 1.01, Entry
into a Material Definitive Agreement, related to the adoption of the Western Reserve
Bancorp, Inc. and Western Reserve Bank Incentive Compensation Plan.
 Page 34




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##### Table of Contents



WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
Quarter ended March 31, 2006
 
 SIGNATURES
  Western Reserve Bancorp, Inc.Date: May 11, 2006
    
    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 35