##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 o
    
    Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to
 Commission file number 000-51264
 Western Reserve Bancorp, Inc.
  Ohio
    
    31-1566623(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 4015 Medina Road, Suite 100, Medina, Ohio
    
    44256(Address of principal executive offices)
    
    (Zip Code)
  
  
 
 o
 þ o
 þ
 o þ
   Documents incorporated by reference:Parts I and II:
    
    Portions of Registrants 2005 Annual Report to ShareholdersPart III:
    
    Portions of Registrants 2005 Proxy Statement for the Annual Meeting of Shareholdersto be held April 26, 2006
 Transitional Small Business Disclosure Format (check one):
    
    Yes o No þ




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TABLE OF CONTENTS  PART IItem 1. Description of BusinessItem 1. Business-Statistical DisclosureItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity SecuritiesItem 6. Managements Discussion and Analysis of Financial Condition or Plan of OperationItem 7. Financial StatementsItem 8. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresItem 8B. Other InformationPART IIIItem 9. Directors and Executive Officers of the RegistrantItem 10. Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Certain Relationships and Related TransactionsItem 13. ExhibitsItem 14. Principal Accountant Fees and ServicesSIGNATURESEXHIBIT INDEXEX-4 Legend Placed on Certificates Representing SharesEX-13 Annual ReportEX-21 Subsidiary of Western Reserve Bancorp, Inc.EX-23 Consent of Crowe Chizek and Company LLCEX-31.1 CertificationEX-31.2 CertificationEX-32.1 CertificationEX-32.2 Certification    Table of Contents  
 PART I
 
 Item 1. Description of Business
 General
     www.westernreservebank.com
 Business Strategy




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Employees
  SUPERVISION AND REGULATION
 General
    The Company
 General.
 Investments and Activities.




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Affiliate Transactions
 Control Acquisitions
 Gramm-Leach-Bliley Act.
 The Sarbanes-Oxley Act of 2002




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The Bank
 General
 Deposit Insurance .
  FICO Assessments
 Capital Requirements .




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Dividends
 Branching Authority de novo




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Depositor Preference
 Privacy Provisions of Gramm-Leach-Bliley Act
 Federal Home Loan Bank
  Anti-Money Laundering Provisions of the USA Patriot Act of 2001
 Fiscal and Monetary Policies
 Additional and Pending Regulation




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Item 1. Business-Statistical Disclosure
 I.
    
    DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY; INTEREST RATES AND INTEREST
DIFFERENTIALThe information on pages 35-36 of the Companys 2005 Annual Report to Shareholders under
the caption Net Interest Income of Managements Discussion and Analysis is incorporated by
reference.II.
    
    INVESTMENT PORTFOLIOThe estimated fair values of securities available for sale at December 31, 2005 and 2004
are as follows:
 Gross
    
    
    Gross
    
    
    WeightedFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AverageValue
    
    
    Gains
    
    
    Losses
    
    
    Yield2005U.S. Government
sponsored agencies
    
    $
    1,012,221
    
    
    $
    
    
    
    $
    (10,954
    )
    
    
    4.11
    %U.S. Treasury
    
    
    4,901,067
    
    
    
    
    
    
    
    
    
    
    
    4.28
    %Mortgage-backed
    
    
    772,822
    
    
    
    620
    
    
    
    (12,564
    )
    
    
    4.38
    %Municipal
    
    
    615,267
    
    
    
    
    
    
    
    (17,513
    )
    
    
    4.79
    %(1)$
    7,301,377
    
    
    $
    620
    
    
    $
    (41,131
    )
    
    
    4.31
    %2004U.S. Government
sponsored agencies
    
    $
    502,165
    
    
    $
    1,658
    
    
    $
    
    
    
    
    3.78
    %Mortgage-backed
    
    
    702,521
    
    
    
    430
    
    
    
    (6,355
    )
    
    
    3.68
    %$
    1,204,686
    
    
    $
    2,088
    
    
    $
    (6,355
    )
    
    
    3.72
    %
 Maturities of Investment Securities
 Due in one
    
    
    Due in one
    
    
    Due in five
    
    
    Greateryear or less
    
    
    to five years
    
    
    to ten years
    
    
    than ten yearsWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Yields
    
    
    Amount
    
    
    Yields
    
    
    Amount
    
    
    Yields
    
    
    Amount
    
    
    YieldsU.S. Government
sponsored agencies
    
    $
    246,733
    
    
    
    3.50
    %
    
    $
    765,488
    
    
    
    4.30
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    U.S. Treasury
    
    
    4,901,067
    
    
    
    4.28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,958
    
    
    
    4.98
    %
    
    
    530,864
    
    
    
    4.11
    %Municipal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405,485
    
    
    
    5.01
    (1)
    
    
    209,782
    
    
    
    4.29
    (1)$
    5,147,800
    
    
    
    4.25
    %
    
    $
    765,488
    
    
    
    4.30
    %
    
    $
    647,443
    
    
    
    5.00
    %
    
    $
    740,646
    
    
    
    4.16
    %
  
 (1)
    
    Fully tax-equivalent based on federal income tax structure applicable at December 31,
2005.




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III.
    
    LOAN PORTFOLIO
 A.
    
    Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at December 31, 2005 and 2004.
 2005
    
    
    2004Commercial
    
    $
    98,225,073
    
    
    $
    92,455,886Home equity lines of credit
    
    
    9,589,660
    
    
    
    9,857,867Residential mortgage and construction
    
    
    917,565
    
    
    
    821,658Consumer installment
    
    
    2,108,230
    
    
    
    1,308,084Credit card and other
    
    
    348,827
    
    
    
    291,760$
    111,189,355
    
    
    $
    104,735,255
  B.
    
    Maturities and Sensitivities of Loans to Changes in Interest Rates  The
following table shows the maturity distribution and sensitivity to changes in interest
rates of loans outstanding as of December 31, 2005. Fixed rate loans are presented based
on their maturity date, and variable rate loans with floating or adjustable interest
rates are included based on their earliest repricing opportunity.
 Loan Maturities and Sensitivity to Changes in Interest Rates
 Within
    
    
    One to
    
    
    Afterone year
    
    
    five years
    
    
    five years
    
    
    TotalCommercial
    
    $
    61,793,956
    
    
    $
    36,059,968
    
    
    $
    371,149
    
    
    $
    98,225,073Home equity lines of credit
    
    
    9,589,660
    
    
    
    
    
    
    
    
    
    
    
    9,589,660Residential mortgage
and construction
    
    
    594,826
    
    
    
    322,739
    
    
    
    
    
    
    
    917,565Consumer installment
    
    
    1,859,696
    
    
    
    235,325
    
    
    
    13,209
    
    
    
    2,108,230Credit card and other
    
    
    348,827
    
    
    
    
    
    
    
    
    
    
    
    348,827$
    74,186,965
    
    
    $
    36,618,032
    
    
    $
    384,358
    
    
    $
    111,189,355




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III.
    
    LOAN PORTFOLIO(Continued)
 C.
    
    Risk Elements
 1.
    
    Nonaccrual, Past Due, Restructured and Impaired Loans  The following
schedule summarizes nonaccrual, past due, restructured and impaired loans at
December 31.
 2005
    
    
    2004(a)Loans accounted for on a nonaccrual basis
    
    $
    1,011,879
    
    
    $
    1,114,668(b)Accruing loans which are contractually past due 90
days or more as to interest or principal payments
    
    
    
    
    
    
    (c)Loans not included in (a) or (b) which are
Troubled Debt Restructurings as defined by
Statement of Financial Accounting Standards No. 15
    
    
    
    
    
    
    (d)Other loans defined as impaired
    
    
    
    
    
    
    174,885$
    1,011,879
    
    
    $
    1,289,553Percentage of allowance to non-performing loans
    
    
    152
    %
    
    
    125
    %
  2005Gross interest income that would have been recorded in 2005 on nonaccrual loans
outstanding at December 31, 2005 if the loans had been current, in accordance with
their original terms and had been outstanding throughout the period or since
origination if held for part of the period
    
    $
    61,330Interest income actually recorded on nonaccrual loans and
included in net income for the period
    
    
    Interest income not recognized during the period
Discussion of the Nonaccrual Policy
    
    $
    61,330
  2.
    
    Potential Problem Loans




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##### Table of Contents



III. LOAN PORTFOLIO
 3.
    
    Foreign Loans Outstanding
  4.
    
    Loan Concentrations
  D.
    
    Other Interest-Bearing Assets
  IV.
    
    SUMMARY OF LOAN LOSS EXPERIENCE
 A.
    
    The following schedule presents an analysis of the allowance for loan losses, average
loan data and related ratios for the years ended December 31:
 2005
    
    
    2004LoansLoans outstanding at end of period
    
    $
    111,189,355
    
    
    $
    104,735,255Average loans outstanding during period
    
    $
    110,035,638
    
    
    $
    102,726,927Allowance for loan lossesBalance at beginning of period
    
    $
    1,605,933
    
    
    $
    1,502,688Loans charged-offCommercial
    
    
    83,971
    
    
    
    1,321,207Residential mortgage and construction
    
    
    
    
    
    
    Consumer installment
    
    
    
    
    
    
    Credit card
    
    
    
    
    
    
    83,971
    
    
    
    1,321,207Recoveries of loans previously charged-offCommercial
    
    
    1,881
    
    
    
    99,688Residential mortgage and construction
    
    
    
    
    
    
    Consumer installment
    
    
    
    
    
    
    Credit card
    
    
    
    
    
    
    1,881
    
    
    
    99,688Net loans charged-off (recoveries)
    
    
    82,090
    
    
    
    1,221,519Provision for loan losses
    
    
    17,811
    
    
    
    1,324,764Balance at end of period
    
    $
    1,541,654
    
    
    $
    1,605,933Ratio of net charge-offs during the period to
average loans outstanding during the period
    
    
    0.07
    %
    
    
    1.19
    %




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IV.
    
    SUMMARY OF LOAN LOSS EXPERIENCE(Continued)
  B.
    
    The following schedule is a breakdown of the allowance for loan losses allocated by
type of loan and related ratios.
 Percentage of Loans inEach Category toAllowance Amount
    
    
    Total Loans2005
    
    
    2004
    
    
    2005
    
    
    2004Commercial
    
    $
    1,414,537
    
    
    $
    1,526,102
    
    
    
    88.4
    %
    
    
    88.3
    %Home equity lines of credit
    
    
    77,798
    
    
    
    49,289
    
    
    
    8.6
    
    
    
    9.4Residential mortgage & construction
    
    
    2,753
    
    
    
    2,465
    
    
    
    0.8
    
    
    
    0.8Installment and credit card
loans to individuals
    
    
    46,522
    
    
    
    28,000
    
    
    
    2.2
    
    
    
    1.5Unallocated
    
    
    44
    
    
    
    77
    
    
    
    0.0
    
    
    
    0.0Total
    
    $
    1,541,654
    
    
    $
    1,605,933
    
    
    
    100.0
    %
    
    
    100.0
    %
  V.
    
    DEPOSITS
  2005
    
    
    2004Average
    
    
    Average
    
    
    Average
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest bearing demand deposits
    
    $
    12,509,668
    
    
    
    0.00
    %
    
    $
    11,322,887
    
    
    
    0.00
    %Interest bearing demand deposits
    
    
    6,559,063
    
    
    
    0.78
    
    
    
    6,431,519
    
    
    
    0.60Savings and money market accounts
    
    
    39,881,658
    
    
    
    2.77
    
    
    
    29,184,606
    
    
    
    1.14Certificates of deposit and IRAs
    
    
    48,674,531
    
    
    
    3.42
    
    
    
    51,535,151
    
    
    
    2.86$
    107,624,920
    
    
    
    2.62
    
    
    $
    98,474,163
    
    
    
    1.88
  Three months or less
    
    $
    4,772,833Over three through six months
    
    
    2,086,157Over six through twelve months
    
    
    2,061,488Over twelve months
    
    
    9,050,575$
    17,971,053




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VI.
    
    RETURN ON EQUITY AND ASSETS
  2005
    
    2004Average total assets
    
    $
    122,439,000
    
    
    $
    112,943,000Average shareholders equity
    
    $
    11,072,000
    
    
    $
    9,546,000Net income
    
    $
    960,718
    
    
    $
    24,480Return on average total assets
    
    
    0.78
    %
    
    
    0.02
    %Return on average shareholders equity
    
    
    8.68
    %
    
    
    0.25
    %Cash dividends declared
    
    $
    0.00
    
    
    $
    0.00Dividend payout percentage
    
    
    n/a
    
    
    
    n/aAverage shareholders equity to average total assets
    
    
    9.04
    %
    
    
    8.45
    %
 VII.
    
    SHORT-TERM BORROWINGS
  
 Item 2. Description of Property
      de minimis
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders




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PART II
 
 Item 5. Market for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
  2005
    
    High
    
    LowFirst quarter
    
    $
    30.00
    
    
    $
    30.00Second quarter
    
    $
    30.50
    
    
    $
    30.00Third quarter
    
    $
    30.50
    
    
    $
    30.00Fourth quarter
    
    $
    32.00
    
    
    $
    30.00
       
 Item 6. Managements Discussion and Analysis of Financial Condition or Plan of Operation




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Item 7. Financial Statements
  Annual ReportPage No.Report of Independent Registered Public Accounting Firm
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Income
    
    
    5Consolidated Statements of Changes in Shareholders Equity
    
    
    6Consolidated Statements of Cash Flows
    
    
    7Notes to Consolidated Financial Statements
    
    
    8-28
 
 Item 8.
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
  
 Item 8A.
Controls and Procedures
   
 Item 8B. Other Information
  
 PART III
 
 Item 9. Directors and Executive Officers of the Registrant
 A.
    
    Directors. The information on pages 6-8 of the Companys 2005 Proxy Statement under the
caption Election of Directors is incorporated by reference.B.
    
    Executive Officers. The information on page 13 of the Companys 2005 Proxy Statement
regarding the Executive Officers of the Company is incorporated by reference.C.
    
    Audit Committee Financial Expert. The Companys Board of Directors has determined that C.
Richard Lynham, Chairman of the Audit Committee, is a financial expert as defined under the
regulations promulgated under the Sarbanes-Oxley Act and is independent defined under Rule
4200 of the National Association of Securities Dealers (NASD) Marketplace Rules.D.
    
    Code of Ethics. As noted above in Part I, Item 1, the Company has adopted a Code of Ethics
and Business Conduct applicable to the Companys Chief Executive Officer, the Chief Financial
Officer, the principal accounting officer and other senior financial officers performing
accounting, auditing, financial management or similar functions. A copy of the Code of Ethics
and Business Conduct is available free of charge upon request. Shareholders desiring a copy
of the Code should address written requests to Ms. Cynthia A. Mahl, Senior Vice President,
Chief Financial Officer and Secretary, Western Reserve Bancorp, Inc., 4015 Medina Road, P.O.
Box




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##### Table of Contents



585, Medina, Ohio 44258-0585. A copy of the Companys Code was attached to the 2003 Form
10-KSB as Exhibit 14.
 
 Item 10. Executive Compensation
  
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
      Number of securities
    
    Weighted-average
    
    Number of securitiesto be issued upon
    
    exercise price of
    
    remaining available forexercise of
    
    outstanding options,
    
    future issuance underoutstanding
    
    warrants and rights
    
    equity compensationoptions, warrants and
    
    
    
    plans (excludingrights
    
    
    
    securities reflected incolumn (a))(a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders

    
    
    0
    
    
    
    n/a
    
    
    
    0Equity compensation plans not
approved by security holders

    
    
    91,312
    
    
    $
    23.15
    
    
    
    7,338Total

    
    
    91,312
    
    
    $
    23.15
    
    
    
    7,338
  
 Item 12. Certain Relationships and Related Transactions




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Item 13. Exhibits
  
 Item 14. Principal Accountant Fees and Services




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SIGNATURES
  WESTERN RESERVE BANCORP, INC.By:
    
    /s/ Edward J. McKeonEdward J. McKeon, President, ChiefExecutive Officer and DirectorBy:
    
    /s/ Cynthia A. MahlCynthia A. Mahl, Senior Vice President,Principal Financial and Accounting Officer
  /s/ P.M. Jones
    
    /s/ Edward J. McKeonP.M. Jones, Chairman of the Board
    
    Edward J. McKeon, President, ChiefExecutive Officer and Director/s/ Roland H. Bauer
    
    /s/ Bijay K. JayaswalRoland H. Bauer, Director
    
    Bijay K. Jayaswal, Director/s/ Ray E. Laribee
    
    /s/ C. Richard LynhamRay E. Laribee, Director
    
    C. Richard Lynham, Director/s/ R. Hal Nichols
    
    /s/ Rory H. ONeilR. Hal Nichols, Director
    
    Rory H. ONeil, Director/s/ Michael R. Rose
    
    /s/ Glenn M. SmithMichael R. Rose, Director
    
    Glenn M. Smith, Director/s/ Thomas A. TubbsThomas A. Tubbs, Director




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WESTERN RESERVE BANCORP, INC.
 
 EXHIBIT INDEX
 Exhibit No.
    
    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)10.5
    
    Agreement by and between Western Reserve Bancorp, Inc. and
Cynthia A. Mahl, dated June 18, 2001, as amended February 20,
2002 (incorporated by reference to the Companys Report on
Form 10-KSB filed with the Commission on March 28, 2003)10.6
    
    Loan Agreement between Western Reserve Bancorp, Inc. and TCF
National Bank, dated May 5, 2003 (incorporated by reference to
the Companys Report on Form 10-QSB filed with the Commission
on August 14, 2003)10.7
    
    Western Reserve Bank Supplemental Executive Retirement Plan,
dated May 15, 2003 (incorporated by reference to the Companys
Report on Form 10-QSB filed with the Commission on August 14,
2003)10.8
    
    Western Reserve Bancorp, Inc. Employee Stock Purchase Plan
(incorporated by reference to the Companys Report on Form
10-QSB filed with the Commission on November 14, 2003)10.9
    
    Lease Agreement by and between Western Reserve of Brecksville,
LLC and Western Reserve Bank (incorporated by reference to the
Companys Report on Form 10-KSB filed with the Commission on
March 30, 2005)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)11
    
    Statement re: Computation of Per Share Earnings (incorporated
by reference to page 27 of the Companys 2005 Annual Report to
Shareholders)13
    
    2005 Annual Report to Shareholders (Except for sections
incorporated by reference into this Form 10-KSB, the Annual
Report to Shareholders shall not be deemed to be filed with
the Commission.)




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##### Table of Contents



Exhibit No.
    
    Description of Exhibits14
    
    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)21
    
    Subsidiary of Western Reserve Bancorp, Inc.23
    
    Consent of Crowe Chizek and Company LLC31.1
    
    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