##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period ended June 30, 2004 Commission File Number 0-24120 WESTERN OHIO FINANCIAL CORPORATION 
  Delaware
    
    31-1403116(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)
 28 East Main Street, Springfield, Ohio 45501-0509 
 
 (937) 325-9990 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x     No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes o     No x Indicate the number of shares outstanding of each of the registrants classes
of common stock, as of the latest practicable date. Class:
Common stock, $.01 par value
    
    Outstanding at August 13, 2004
common shares 1,811,885
  Traditional Small Business Disclosure Format
    
    Yes o     No x




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WESTERN OHIO FINANCIAL CORPORATION INDEX PagePART I  FINANCIAL INFORMATION (UNAUDITED)Item 1. Condensed Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    23SIGNATURES
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32
  2.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION 
   
 Item 1. Condensed Financial Statements (Amounts in thousands, except share data) June 30,
    
    December 31,2004
    
    2003ASSETSCash and cash equivalents
    
    $
    8,086
    
    
    $
    6,853Securities available for sale
    
    
    47,376
    
    
    
    32,735Federal Home Loan Bank stock
    
    
    9,521
    
    
    
    9,335Loans, net
    
    
    329,628
    
    
    
    334,469Real Estate Owned
    
    
    124
    
    
    
    323Premises and equipment, net
    
    
    4,061
    
    
    
    4,192Bank owned life insurance
    
    
    9,292
    
    
    
    9,122Other assets
    
    
    2,687
    
    
    
    2,511Total assets
    
    $
    410,775
    
    
    $
    399,540LIABILITIES AND SHAREHOLDERS EQUITYDeposits
    
    $
    257,441
    
    
    $
    248,681Borrowed funds
    
    
    105,084
    
    
    
    103,473Other liabilities
    
    
    2,920
    
    
    
    3,029Total liabilities
    
    
    365,445
    
    
    
    355,183Shareholders equityCommon stock, $.01 par value, 7,250,000 shares authorized,
2,645,000 shares issued
    
    
    26
    
    
    
    26Additional paid-in capital
    
    
    40,860
    
    
    
    40,709Unearned employee stock ownership plan shares
    
    
    
    
    
    
    (119
    )Unearned management recognition plan shares
    
    
    (65
    )
    
    
    (51
    )Shares held by deferred compensation plan
    
    
    (324
    )
    
    
    (325
    )Treasury stock; 834,448 and 889,889 shares at cost, respectively
    
    
    (16,776
    )
    
    
    (17,493
    )Accumulated other comprehensive income (loss)
    
    
    (135
    )
    
    
    (16
    )Retained earnings
    
    
    21,744
    
    
    
    21,626Total shareholders equity
    
    
    45,330
    
    
    
    44,357Total liabilities and shareholders equity
    
    $
    410,775
    
    
    $
    399,540
 See accompanying notes to condensed consolidated financial statements. 3.




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WESTERN OHIO FINANCIAL CORPORATION 
   (Amounts in thousands, except per share data) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Interest and dividend incomeLoans, including fees
    
    $
    4,398
    
    
    $
    4,193
    
    
    $
    8,939
    
    
    $
    8,336Securities
    
    
    386
    
    
    
    349
    
    
    
    618
    
    
    
    833Interest-bearing deposits and overnight funds
    
    
    15
    
    
    
    2
    
    
    
    23
    
    
    
    16Other interest and dividend income
    
    
    94
    
    
    
    90
    
    
    
    187
    
    
    
    1794,893
    
    
    
    4,634
    
    
    
    9,767
    
    
    
    9,364Interest expenseDeposits
    
    
    1,353
    
    
    
    1,272
    
    
    
    2,702
    
    
    
    2,625Borrowed funds
    
    
    1,063
    
    
    
    978
    
    
    
    2,089
    
    
    
    1,9622,416
    
    
    
    2,250
    
    
    
    4,791
    
    
    
    4,587Net interest income
    
    
    2,477
    
    
    
    2,384
    
    
    
    4,976
    
    
    
    4,777Provision for loan losses
    
    
    84
    
    
    
    84
    
    
    
    168
    
    
    
    168Net interest income after provision for loan losses
    
    
    2,393
    
    
    
    2,300
    
    
    
    4,808
    
    
    
    4,609Noninterest incomeService charges
    
    
    643
    
    
    
    621
    
    
    
    1,222
    
    
    
    1,185Net gain on sale of loans
    
    
    39
    
    
    
    104
    
    
    
    73
    
    
    
    189Net gain on sale of securities
    
    
    
    
    
    
    2
    
    
    
    16
    
    
    
    71Bank Owned Life Insurance
    
    
    105
    
    
    
    124
    
    
    
    188
    
    
    
    249Other
    
    
    65
    
    
    
    (70
    )
    
    
    77
    
    
    
    (88
    )852
    
    
    
    781
    
    
    
    1,576
    
    
    
    1,606Noninterest expenseSalaries and employee benefits
    
    
    1,177
    
    
    
    1,108
    
    
    
    2,376
    
    
    
    2,213Occupancy and equipment
    
    
    233
    
    
    
    237
    
    
    
    465
    
    
    
    476Federal deposit insurance
    
    
    10
    
    
    
    9
    
    
    
    18
    
    
    
    18State franchise taxes
    
    
    146
    
    
    
    146
    
    
    
    290
    
    
    
    287Professional services
    
    
    409
    
    
    
    126
    
    
    
    590
    
    
    
    274Advertising
    
    
    22
    
    
    
    55
    
    
    
    52
    
    
    
    90Data processing
    
    
    202
    
    
    
    191
    
    
    
    395
    
    
    
    390Other
    
    
    312
    
    
    
    365
    
    
    
    694
    
    
    
    7332,511
    
    
    
    2,237
    
    
    
    4,880
    
    
    
    4,481Income before income taxes
    
    
    734
    
    
    
    844
    
    
    
    1,504
    
    
    
    1,734Income tax expense
    
    
    229
    
    
    
    229
    
    
    
    487
    
    
    
    498Net income
    
    
    505
    
    
    
    615
    
    
    
    1,017
    
    
    
    1,236Other comprehensive income(loss) net of tax:Unrealized gain (loss) on securities available
for sale arising during this period
    
    
    (391
    )
    
    
    (167
    )
    
    
    (107
    )
    
    
    (325
    )Reclassification adjustment for amounts realized
on securities sales included in net income
    
    
    
    
    
    
    (1
    )
    
    
    (11
    )
    
    
    (47
    )Other comprehensive income (loss)
    
    
    (391
    )
    
    
    (168
    )
    
    
    (118
    )
    
    
    (372
    )Comprehensive income
    
    $
    114
    
    
    $
    447
    
    
    $
    899
    
    
    $
    864Earnings per common shareBasic
    
    $
    .28
    
    
    $
    .36
    
    
    $
    .57
    
    
    $
    .72Diluted
    
    $
    .27
    
    
    $
    .35
    
    
    $
    .55
    
    
    $
    .71Dividends per common share
    
    $
    .25
    
    
    $
    .25
    
    
    $
    .50
    
    
    $
    .50
 See accompanying notes to condensed consolidated financial statements. 4.




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WESTERN OHIO FINANCIAL CORPORATION 
   Six Months Ended(Amount in thousands)
    
    June 30,2004
    
    2003Net cash from operating activities
    
    $
    1,087
    
    
    $
    954Cash flows from investing activitiesSecurities available for sale:Maturities and principal payments
    
    
    6,562
    
    
    
    8,715Purchases
    
    
    (24,482
    )
    
    
    Sales
    
    
    2,977
    
    
    
    1,742Net (increase) decrease in loans
    
    
    33,296
    
    
    
    6,388Purchases of loans
    
    
    (28,449
    )
    
    
    (40,864
    )Sales of Real estate owned
    
    
    256
    
    
    
    178Premises and equipment expenditures
    
    
    (124
    )
    
    
    (112
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    3Net cash from investing activities
    
    
    (9,964
    )
    
    
    (23,950
    )Cash flows from financing activitiesNet change in deposits
    
    
    8,760
    
    
    
    (5,009
    )Net decrease in advances from borrowers for taxes and insurance
    
    
    (88
    )
    
    
    (128
    )Purchase of treasury stock
    
    
    
    
    
    
    (540
    )Cash dividends paid
    
    
    (899
    )
    
    
    (870
    )Proceeds from exercise of stock options
    
    
    726
    
    
    
    412Net increase (decrease) in short-term borrowings
    
    
    (17,881
    )
    
    
    2,985Proceeds from FHLB advances
    
    
    20,000
    
    
    
    12,672Repayments on FHLB advances
    
    
    (508
    )
    
    
    (428
    )Net cash from financing activities
    
    
    10,110
    
    
    
    9,094Net change in cash and cash equivalents
    
    
    1,233
    
    
    
    (13,902
    )Cash and cash equivalents at beginning of period
    
    
    6,853
    
    
    
    19,312Cash and cash equivalents at end of period
    
    $
    8,086
    
    
    $
    5,410
 See accompanying notes to condensed consolidated financial statements. 5.




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WESTERN OHIO FINANCIAL CORPORATION 
 
 NOTE 1   PLAN OF MERGER INFORMATION The Company entered into a definitive Agreement and Plan of Merger with
WesBanco, Inc. (WesBanco) of Wheeling, West Virginia on
April 1, 2004. Under the terms of the Agreement and Plan of Merger, WesBanco
will exchange a combination of its common stock and cash for the Companys
common stock. The Companys shareholders will be able to elect a fixed exchange
ratio of 1.18 shares of WesBanco common stock or $35.00 in cash subject to
certain limitations including that 55% of the Companys outstanding shares be
exchanged for WesBanco common stock. Common stock received by the Companys
shareholders is anticipated to qualify as a tax-free exchange. Based upon a per
share value of $35.00, the transaction is valued at $65.2 million. The
transaction, which has received initial regulatory approval, is expected to be
completed at the end of August of 2004, pending approval by the Companys
shareholders at the August 17, 2004 special shareholders meeting. NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Corporations annual report on Form 10-K for the year ended December 31, 2003.
The financial data and results of operations for interim periods presented may
not necessarily reflect the results to be anticipated for the entire year.
Internal financial information is primarily reported and aggregated solely in
the line of the banking business. Consolidation Policy: The financial statements include Western Ohio Financial
Corporation (Western) and its wholly-owned subsidiary Cornerstone Bank
(Cornerstone), together referred to as the Corporation. The financial
statements of Cornerstone include the accounts of its wholly-owned subsidiary,
CornerstoneBanc Financial Services, Inc. Intercompany transactions and balances
are eliminated in consolidation. Use of Estimates: To prepare financial statements in conformity with
accounting principles generally accepted in the United States of America,
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. The
allowance for loan losses, fair values of financial instruments and status of
contingencies are particularly subject to change. Income Taxes: Income tax expense is the total of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.
Income tax expense is based on the effective rate expected to be applicable for
the entire year. Earnings Per Common Share: Basic earnings per common share is based on net
income divided by the weighted average number of common shares outstanding
during the period. Employee Stock Ownership Plan (ESOP) shares are considered
to be outstanding for the calculation unless unearned. Management Recognition
Plan (MRP) shares are considered outstanding as they become vested. Diluted
earnings per 6.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) common share include the dilutive effect of additional potential common shares
issuable under stock options. 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 date of
grant. The following table illustrates the effect on net income and earnings
per share if expense were measured using the fair value recognition provisions
of FASB Statement No. 123, Accounting for StockBased Compensation. Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income:As reported
    
    $
    505
    
    
    $
    615
    
    
    $
    1,017
    
    
    $
    1,236Pro forma
    
    
    505
    
    
    
    615
    
    
    $
    1,010
    
    
    $
    1,236Earnings per share:As reportedBasic
    
    
    .28
    
    
    
    .36
    
    
    
    .57
    
    
    
    .72Diluted
    
    
    .27
    
    
    
    .35
    
    
    
    .55
    
    
    
    .71Pro formaBasic
    
    
    .28
    
    
    
    .36
    
    
    
    .57
    
    
    
    .72Diluted
    
    
    .27
    
    
    
    .35
    
    
    
    .55
    
    
    
    .71
 The pro forma effects are computed using option pricing models, with the
following weighted-average assumptions as of grant date. 2004
    
    2003Risk-free interest rate
    
    
    2.72
    %
    
    
    Expected option life
    
    5 Years
    
    
    Expected stock price volatility
    
    
    15.32
    
    
    
    Dividend yield
    
    
    3.06
    %
    
    
    Estimated fair value of options granted
    
    $
    3.61
    
    
    
    
 New Accounting Standards: There were no new accounting pronouncements for the
current reporting period that would potentially impact the Companys balance
sheet presentation or results of operations. 7.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) NOTE 3  SECURITIES Securities available for sale were as follows: (Amounts in thousands)
    
    
    
    
    
    Gross
    
    GrossFair
    
    Unrealized
    
    UnrealizedValue
    
    Gains
    
    LossJune 30, 2004U.S. government agencies
    
    $
    5,000
    
    
    $
    
    
    
    $
    (62
    )Municipal securities
    
    
    7,070
    
    
    
    5
    
    
    
    (18
    )Mortgage-backed securities
    
    
    35,306
    
    
    
    121
    
    
    
    (251
    )Total
    
    $
    47,376
    
    
    $
    126
    
    
    $
    (331
    )December 31, 2003U.S. government agencies
    
    $
    4,094
    
    
    $
    8
    
    
    $
    (4
    )Municipal securities
    
    
    6,833
    
    
    
    59
    
    
    
    Mortgage-backed securities
    
    
    21,808
    
    
    
    14
    
    
    
    (100
    )Total
    
    $
    32,735
    
    
    $
    81
    
    
    $
    (104
    )
 Gross proceeds from sales of securities during the six-month period ending June
30, 2004 were $2,900,000, with gross gains of $16,000 included in earnings.
Gross proceeds from sales of securities during the six-month period ending June
30, 2003 were $1,742,000 with gross gains of $71,000 included in earnings. 8.




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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) NOTE 4  LOANS Loans were as follows: (Amounts in thousands)
    
    June 30,
    
    December 31,2004
    
    2003First mortgage loans secured by:One to four family residential
    
    $
    178,076
    
    
    $
    175,139Other properties
    
    
    104,147
    
    
    
    113,472Construction properties
    
    
    4,119
    
    
    
    3,473Other loansHome equity
    
    
    25,428
    
    
    
    24,426Consumer
    
    
    743
    
    
    
    749Commercial
    
    
    20,104
    
    
    
    20,107Total loans
    
    
    332,617
    
    
    
    337,366Less:Net deferred loan fees, premiums and discounts
    
    
    414
    
    
    
    217Loans in process
    
    
    (1,508
    )
    
    
    (1,313
    )Allowance for loan losses
    
    
    (1,895
    )
    
    
    (1,801
    )$
    329,628
    
    
    $
    334,469
 Activity in the allowance for loan losses was as follows: (Amounts in thousands)
    
    
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Beginning balance
    
    $
    1,856
    
    
    $
    1,885
    
    
    $
    1,801
    
    
    $
    1,806Provision for loan losses
    
    
    84
    
    
    
    84
    
    
    
    168
    
    
    
    168Recoveries
    
    
    5
    
    
    
    2
    
    
    
    28
    
    
    
    4Charge-offs
    
    
    (50
    )
    
    
    (30
    )
    
    
    (102
    )
    
    
    (37
    )Ending balance
    
    $
    1,895
    
    
    $
    1,941
    
    
    $
    1,895
    
    
    $
    1,941
 Non-performing loans were as follows: June 30,
    
    December 31,2004
    
    2003Loans past due over 90 days still on accrual
    
    $
    
    
    
    $
    Nonaccrual loans
    
    
    1,010
    
    
    
    1,419
 9.




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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) Impaired loans were as follows: June 30,
    
    December 31,2004
    
    2003Loans with no allocated allowance for loan losses
    
    $
    
    
    
    $
    293Loans with allocated allowance for loan losses
    
    
    738
    
    
    
    Total
    
    $
    738
    
    
    $
    293Amount of the allowance for loan losses allocated
    
    $
    206
    
    
    $
    
 NOTE 5  DEPOSITS Deposits were as follows: (Amounts in thousands)
    
    June 30,
    
    December 31,2004
    
    2003Checking  Noninterest bearing
    
    $
    14,298
    
    
    $
    13,149Checking   Interest bearing
    
    
    17,121
    
    
    
    16,890Money market accounts
    
    
    78,763
    
    
    
    66,945Passbook and savings accounts
    
    
    12,164
    
    
    
    11,885Certificates of deposit:In denominations under $100,000
    
    
    84,838
    
    
    
    89,039In denominations of $100,000 or more
    
    
    19,582
    
    
    
    20,076Brokered Certificates of Deposit
    
    
    30,675
    
    
    
    30,697$
    257,441
    
    
    $
    248,681
  NOTE 6  BORROWED FUNDSBorrowed funds consisted of advances from the Federal Home Loan Bank of
Cincinnati (FHLB) and are summarized by contractual maturity as follows: (Amount in thousands)
    
    June 30, 2004
    
    December 31, 2003Weighted
    
    
    
    
    
    WeightedBalance
    
    Average Rate
    
    Balance
    
    Average RateFHLB advances maturing in:One year or less
    
    $
    7,071
    
    
    
    4.67
    %
    
    $
    23,386
    
    
    
    2.63
    %Over 1 year to 3 years
    
    
    32,867
    
    
    
    2.50
    
    
    
    13,656
    
    
    
    2.90Over 3 years to 5 years
    
    
    50,829
    
    
    
    4.73
    
    
    
    50,754
    
    
    
    4.72Over 5 years
    
    
    14,617
    
    
    
    4.91
    
    
    
    15,677
    
    
    
    4.90Total
    
    $
    105,084
    
    
    
    4.05
    %
    
    $
    103,473
    
    
    
    4.03
    %
 10.




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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) NOTE 7  EARNINGS PER COMMON SHARE The factors used in the earnings per share computation were as follows: (Amounts in thousands, except per share data) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Basic earnings per common shareNet income
    
    $
    505
    
    
    $
    615
    
    
    $
    1,017
    
    
    $
    1,236Weighted average common shares
outstanding
    
    
    1,809
    
    
    
    1,745
    
    
    
    1,802
    
    
    
    1,751Less: Average unallocated ESOP
shares
    
    
    (4
    )
    
    
    (18
    )
    
    
    (6
    )
    
    
    (20
    )Less: Average nonvested MRP shares
    
    
    (1
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (3
    )Average shares
    
    
    1,804
    
    
    
    1,724
    
    
    
    1,795
    
    
    
    1,728Basic earnings per common share
    
    $
    .28
    
    
    $
    .36
    
    
    $
    .57
    
    
    $
    .72Diluted earnings per common shareNet income
    
    $
    505
    
    
    $
    615
    
    
    $
    1,017
    
    
    $
    1,236Weighted average common shares
outstanding for basic earnings per
common share
    
    
    1,804
    
    
    
    1,724
    
    
    
    1,795
    
    
    
    1,728Add: Dilutive effects of average
nonvested MRP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Add: Dilutive effects of stock options
    
    
    41
    
    
    
    30
    
    
    
    40
    
    
    
    24Average shares and dilutive potential
common shares
    
    
    1,845
    
    
    
    1,754
    
    
    
    1,835
    
    
    
    1,752Diluted earnings per common share
    
    $
    .27
    
    
    $
    .35
    
    
    $
    .55
    
    
    $
    .71
 Stock options covering 2,000 shares of common stock for both the three and six
months ended June 30, 2004, respectively, and 4,000 and 31,536 shares of common
stock for the three and six months ended June 30, 2003, respectively, were not
considered in computing diluted earnings per common share, as they were
antidilutive. In addition, nonvested MRP awards for 980 and 822 shares of
common stock and 2,764 and 3,402 were not considered in computing diluted
earnings per common share for the three months ended June 30, 2004 and June 30,
2003, respectively. 11.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
  Item 2.
    Managements Discussion and Analysis of Financial Condition and Results of Operations The following discusses the financial condition of the Company as of June 30,
2004 as compared to December 31, 2003, and the results of operations for the
three months and six months ended June 30, 2004, compared with the same periods
in 2003. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein. Forward-Looking Statements When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Companys press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases would be,
will allow, intends to, will likely result, are expected to, will
continue, is anticipated, estimate, project or similar expressions are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to risks and uncertainties, including but not limited to changes in economic
conditions in the Companys market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Companys
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made
and advises readers that various factors, including regional and national
economic conditions, substantial changes in levels of market interest rates,
credit and other risks of lending and investment activities and competitive and
regulatory factors, could affect the Companys financial performance and could
cause the Companys actual results for future periods to differ materially from
those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements. Application of Critical Accounting Policies Western Ohios consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States and follow
general practices within the banking industry. Application of these principles
requires management to make estimates, assumptions and judgments that affect
the amounts reported in the financial statements and the accompanying notes.
These estimates, assumptions and judgments are based on information available
as of the date of the financial statements; accordingly, as this information
changes, the financial statements could reflect different estimates,
assumptions and judgments. Certain policies inherently have a greater reliance
on the use of estimates, assumptions and judgments and as such have a greater
possibility of producing results that could be materially different than
originally reported. The most significant policies followed by the Corporation are presented in
Note 2 to the consolidated financial statements. Management has identified the
determination of the allowance for loan losses and the valuation of retained
interests, including mortgage and other servicing assets, to be the accounting
areas that require the most subjective or complex judgments, and as such would
most likely be subject to subsequent revision as new information becomes
available. 12.




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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The allowance for loan losses represents managements estimate of probable
credit losses incurred in the loan portfolio at a particular balance sheet
date. Determining the amount of the allowance for loan losses is considered a
critical accounting estimate because it requires significant judgment and the
use of estimates related to the amount and the timing of expected future cash
flows on impaired loans, estimated losses on pools of homogeneous loans based
on historical loss experience, and consideration of current economic trends and
conditions and collateral values, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type
on the consolidated balance sheet. Retained interests, including Mortgage Servicing Rights (MSRs), are established
and accounted for based on discounted cash flow modeling techniques which
require management to make estimates regarding the amount and timing of
expected future cash flows, including assumptions about loan prepayment rates,
credit loss experience, and costs to service, as well as discount rates that
consider the risk involved. MSRs do not trade in an open market with active
trading with readily available market prices. Because the values of these
assets are sensitive to changes in assumptions, the valuation of retained
interests, which in part is provided by an independent third party, is
considered a critical accounting estimate. Management updates the valuation of
MSRs quarterly, in part due to the assumptions relating to the prepayment of
loans having a high degree of correlation with the movement of interest rates. Recent Corporate Developments The Company entered into a definitive Agreement and Plan of Merger with
WesBanco, Inc. of Wheeling, West Virginia, on April 1, 2004. See Item 5, Part
II, of this Form 10-Q. Analysis of Financial Condition Consolidated assets of the Company totaled $410.8 million at June 30, 2004, an
increase of $11.3 million from the December 31, 2003 total of $399.5 million.
The increase in assets was primarily attributable to an increase of $14.6
million in securities available for sale coupled with an increase of $1.2
million in cash and cash equivalents, which were partially offset by a decline
of $4.8 million in loans. Net loans declined $4.8 million, or 1.4%, from $334.5 million at December 31,
2003 to $329.6 million at June 30, 2004. Traditional one-to-four family
residential mortgage loans increased $2.9 million to $178.1 million at June 30,
2004 from $175.1 million at December 31, 2003, primarily due to the purchase of
two mortgage loan pools totaling $25.3 million during the first six months of
2004, which was significantly offset by loan payoffs during the same period. Cash and cash equivalents increased by $1.2 million to $8.1 million at June 30,
2004, from $6.9 million at December 31, 2003. Cash and cash equivalents
consist of cash, checking deposits and federal funds deposited at other
financial institutions. Securities available for sale amounted to $47.4 million at June 30, 2004, and
increased $14.6 million from $32.7 million at December 31, 2003. The increase
was due to the purchase of securities of $24.5 million, which was partially
offset by the sale of securities of $2.9 million and principal repayments and
prepayments amounting to $5.4 million. These earning assets were purchased to
replace the runoff of loans that occurred primarily in the second quarter of
2004. Deposits at June 30, 2004 totaled $257.4 million, an increase of $8.8 million
from $248.7 million at December 31, 2003. The increase occurred primarily in
money market accounts due to the Banks 13.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS promotional pricing and the desire of retail banking customers to maintain
balances in more liquid accounts in anticipation of rising rates. Certificates
of deposit, which amounted to $135.1 million at June 30, 2004, declined by $4.7
million from the level at December 31, 2003 resulting from maturing account
balances being transferred to money market accounts. FHLB advances at June 30, 2004 totaled $105.1 million reflecting a slight
increase from $103.5 million at December 31, 2003. The majority of borrowed
funds are invested in loans with the remainder in investment securities to
leverage the Companys excess capital with the long-term goal of improving the
Companys return on equity. Total shareholders equity increased $977,000, or 2.2%, from $44.4 million at
December 31, 2003, to $45.3 million at June 30, 2004. This increase was
primarily attributable to net income for the first six months of 2004 and stock
options exercised, which were partially offset by a decrease in accumulated
other comprehensive income for unrecognized gains on the available for sale
securities and dividend payments of $899,000 during the first half of 2004. As of June 30, 2004, the Company had commitments to make $894,000 of
residential loans and $7.5 million of non-residential real estate loans. It is
expected that these loans will be funded within 30-90 days. The Company also
had $3.1 million in commitments to fund loans on residential properties under
construction as well as commitments to disburse $5.3 million on other mortgage
loans. These commitments are anticipated to be filled within three to six
months. Unused commercial lines of credit were $7.1 million and unused home
equity lines of credit were $18.8 million. Commitments to originate
non-mortgage loans total $1.2 million. Results of Operations
Operating results of the Company are affected by general economic conditions,
monetary and fiscal policies of federal agencies and policies of agencies
regulating financial institutions. The Companys cost of funds is influenced
by interest rates on competing investments and general market rates of
interest. Lending activities are influenced by demand for real estate and
other types of loans, which, in turn, is affected by the interest rates at
which such loans are made, general economic conditions and the availability of
funds for lending activities. The Companys net income is primarily dependent on its net interest income (the
difference between interest income generated on interest-earning assets and
interest expense incurred on interest-bearing liabilities). Net interest
income is heavily dependent upon the fluctuations in market interest rates due
to the resulting impact on the spread, or difference, between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities. Net
income is also affected by the provision for loan losses, service charges,
gains on sale of assets, other income, noninterest expense and income taxes. The Companys net income of $505,000 and $1.0 million for the three and six
months ended June 30, 2004, represented decreases of $110,000, or 17.9%, and
$219,000, or 17.7%, compared to the comparable periods ending June 30, 2003.
The returns on average assets for the three and six months ended June 30, 2004,
on an annualized basis, were 0.49% and 0.51%, respectively, compared to 0.71%
and 0.72% for the same periods in 2003. The returns on average shareholders
equity for the three and six months ended June 30, 2004, on an annualized
basis, were 4.44% and 4.50%, respectively, compared to 5.65% and 5.67% for the
same periods ended June 30, 2003. Earnings per share on a fully diluted basis
for the three and six months ended June 30, 2004 amounted to $0.27 and $0.55,
respectively, compared to $0.35 and $0.71 for the comparable periods of 2003. 14.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The decline in the Companys financial results for the three and six months
ended June 30, 2004 from the comparable periods of 2003 was substantially
attributable to merger-related expenses for the recently announced merger with
WesBanco, Inc. of Wheeling, West Virginia, and to a lesser extent to increased
salaries and benefits during those periods. The exhibit below provides net
income and earnings per share in conformance with generally accepted accounting
principles (GAAP) and on a non-GAAP basis by excluding merger-related expenses
to provide comparability with the Companys operating results from the second
quarter and first six months of 2003. The adjusted operating results of the
Company for the second quarter of 2004 were net income of $660,000 and earnings
per share on a fully diluted basis of $0.36, reflecting increases of $45,000,
or 7.3%, and $0.01, or 2.9%, respectively above the results of the comparable
quarter of 2003. The adjusted operating results for the first six months of
2004 amounted to net income of $1.2 million and earnings per share on a fully
diluted basis of $0.64, resulting in modest declines of $64,000, or 5.2%, and
$0.07, or 9.9%, respectively for the comparable six months of 2003. Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net Income
    
    $
    505
    
    
    $
    615
    
    
    $
    1,017
    
    
    $
    1,236Earnings Per ShareBasic
    
    $
    0.28
    
    
    $
    0.36
    
    
    $
    0.57
    
    
    $
    0.72Diluted
    
    $
    0.27
    
    
    $
    0.35
    
    
    $
    0.55
    
    
    $
    0.71Net Income, excluding after-tax
merger-related expenses
    
    $
    660
    
    
    $
    615
    
    
    $
    1,172
    
    
    $
    1,236Basic EPS, excluding after-tax
merger-related expenses
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.65
    
    
    $
    0.72Diluted EPS, excluding after-tax merger-related
expenses
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.64
    
    
    $
    0.71Reconciliation of Non-GAAP Measures
(In Thousands)Computation of Net Income excluding
merger-related expenses:GAAP Net Income
    
    $
    505
    
    
    $
    615
    
    
    $
    1,017
    
    
    $
    1,236Plus: Merger-related expenses
    
    
    235
    
    
    
    
    
    
    
    235
    
    
    
    Less: Taxes on
merger-related expenses
    
    
    (80
    )
    
    
    
    
    
    
    (80
    )
    
    
    Net income, excluding
merger-related expenses
    
    $
    660
    
    
    $
    615
    
    
    $
    1,172
    
    
    $
    1,236
 Net interest income is the largest component of the Companys income and is
affected by the interest rate environment and volume and composition of
interest-earning assets and interest-bearing liabilities. Net interest income
totaled $2.5 million for the quarter ended June 30, 2004 compared to $2.4
million for the same period in 2003. The year-over-year increase of $92,000 was
due to a higher level of average interest-earning assets; however continued
margin compression negatively impacted net interest income. 15.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average interest-earning assets of $393.5 million for the second quarter of
2004 exceeded the comparable quarter of 2003 by $64.1 million, or 19.5%.
However, the net interest margin of 2.61% for the quarter ended June 30, 2004
declined by 29 basis points from 2.90% for the quarter ended June 30, 2003. The
net interest margin decline was mainly attributable to the yield on average
interest-earning assets of 5.00% for the second quarter of 2004 declining by 63
basis points from the level of the prior years comparable quarter of 2003
while the rate paid on average interest-bearing liabilities of 2.67% only
declined by 31 basis points from the comparable period of 2003. The accelerated
amortization of premiums, amounting to approximately $119,000, attributed to
prepayments on purchased mortgage loans of $13.5 million contributed to the
lower yield of interest-earning assets and the resulting margin compression
during the second quarter of 2004. Due to the historical low level of interest
rates, the Company also experienced a limited ability to lower interest rates
on deposit products. Net interest income for the first six months of 2004 amounted to $5.0 million,
reflecting an increase of $199,000, or 4.2%, from the comparable period of
2003. The increase was primarily related to the higher level of average
interest-earning assets, which was partially offset by the lower net interest
margin. In addition, the accelerated amortization of premiums associated with
prepayments of investment securities during the first quarter of 2004 also
mitigated the year-over-year increase. The Company remains liability sensitive whereby its interest-bearing
liabilities will generally reprice more quickly than its interest-earning
assets. Therefore, the Companys net interest margin will generally increase
in periods of falling interest rates in the market and will decrease in periods
of rising interest rates. Cornerstone is more sensitive to rising rates than
declining rates. In a rising interest rate environment, because Cornerstone
has primarily fixed-rate loans in its loan portfolio, the amount of interest
Cornerstone would receive on its loans could increase relatively slowly as
loans are slowly prepaid and new loans are made at higher rates. Moreover, the
interest Cornerstone would pay on its deposits could increase more rapidly as
interest rates increase because Cornerstones deposits generally have shorter
periods to repricing. Interest and fees on loans totaled $4.4 million and $8.9 million for the three
and six months ended June 30, 2004, respectively, compared to $4.2 million and
$8.3 million for the comparable periods of 2003. The increases were mainly
associated with higher average loan balances, primarily one to four family
residential mortgages, during the second quarter and first half of 2004 versus
the prior years comparable periods, which was partially offset by lower yields
on newly originated loans. The average yield earned on the portfolio on an
annualized basis, declined to 5.36% for the six months ended June 30, 2004 from
6.06% for the same period in 2003. Interest and dividends on securities totaled $386,000 and $618,000 for the
three and six months ended June 30, 2004, respectively, compared to $349,000
and $833,000 for the comparable periods of 2003. The increase in the second
quarter of 2004 above the comparable quarter of 2003 was primarily attributed
to a higher average balance of investment securities that were purchased to
replace the residential mortgage loan payoffs. The decline in the six-month,
year-over-year comparison was primarily attributed to accelerated prepayments
of collateralized mortgage obligations that resulted in accelerated
amortization of purchase premiums in the first quarter of 2004. Interest on deposits totaled $1.4 million and $2.7 million for the three and
six months ended June 30, 2004, respectively, compared to $1.3 million and $2.6
million for the comparable periods of 2003. Interest expense on deposits rose
modestly despite the increased level in average balances. The benefit of lower
interest rates on all deposit products and the shift in mix from certificates
of deposits to more cost- 16.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS effective checking and money market accounts offset the increased cost
associated with the higher balance. Interest on FHLB advances amounted to $1.1 million and $2.1 million for the
three and six months ended June 30, 2004, respectively, compared to $978,000
and $2.0 million for the comparable periods of 2003. The increases were due
principally to a higher average outstanding balance for FHLB advances in the
second quarter and first half of 2004 versus the comparable periods of 2003. The Company maintains an allowance for loan losses in an amount, which, in
managements judgment, is adequate to absorb probable losses in the loan
portfolio. While management utilizes its best judgment and information
available, ultimate adequacy of the allowance is dependent on a variety of
factors, including performance of the Companys loan portfolio, the economy,
changes in real estate values and interest rates and the view of the regulatory
authorities toward loan classifications. The provision for loan losses is
determined by management as the amount to be added to the allowance for loan
losses after net charge-offs have been deducted to bring the allowance to a
level considered adequate to absorb probable losses in the loan portfolio. The
amount of the provision is based on managements regular review of the loan
portfolio and consideration of such factors as historical loss experience,
changes in size and composition of the loan portfolio and specific borrower
considerations, including ability of the borrower to repay the loan and the
estimated value of the underlying collateral. The provision for loan losses
totaled $84,000 and $168,000 for the three and six months ended June 30, 2004,
respectively, consistent with the level for the three and six months ended June
30, 2003. The consistent results for the provision for loan losses reflected
the need to provide additional allowance for the growth in loans in the current
year relative to 2003, which was offset by an improvement in credit quality
resulting from a lower level of nonperforming loans in 2004. Net charge-offs amounted to $45,000 for the quarter ended June 30, 2004 as
compared to $28,000 for the comparable quarter of 2003. For the first six
months of 2004 net charge-offs amounted to $74,000 versus $33,000 for the
comparable period of 2003. Based upon the current level of charge-offs, the
level of impaired and nonperforming loans and the collateral supporting those
loans, and the local and regional economic conditions, management believes that
the total allowance of $1.9 million on total loans at June 30, 2004 is
adequate. The Corporation will continue to review its allowance for loan losses
and make further provisions as required dependent upon the economic and asset
quality conditions. Noninterest income totaled $852,000 for the quarter ended June 30, 2004
compared to $781,000 for the comparable period of 2003, reflecting an increase
of $71,000, or 9.1%. The increase was primarily related to gains from the sale
of Real Estate Owned (REO) coupled with an increase in the net mortgage
servicing income, both of which are included in Other income. This was
partially offset by a decline in gains on the sale of loans and Bank Owned Life
Insurance (BOLI) income. Gains related to the sale of REO property acquired
through foreclosure on delinquent residential mortgage loans amounted to
$56,000 in the second quarter of 2004 versus only $1,000 in the comparable
quarter of 2003. Mortgage servicing fees were relatively constant
year-over-year; however, the amortization of mortgage servicing rights related
to the servicing portfolio was accelerated in the second quarter of 2003 due to
a significantly higher level of prepayments on serviced loans resulting in an
impairment charge of approximately $70,000. There were no corresponding
impairment charges in the second quarter of 2004. Gains on the sale of loans of approximately $39,000 in the second quarter of
2004 declined by approximately $65,000 from the second quarter of the previous
year and was mainly attributable to a lower level of originations and
refinancing activity during the current quarter. The BOLI income, which is
based upon the increase in the cash surrender value of the life insurance
policies, amounted to $105,000 in 17.




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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS the second quarter of 2004, reflecting a decline in revenue of $19,000 from the
prior years comparable quarter due to the change from a guaranteed rate from
the insurance carriers in the initial year of the polices to market rates in
the current year. Noninterest income for the six months ended June 30, 2004 amounted to $1.6
million, representing a decline of $30,000, or 1.9%, from the comparable period
of 2003. In addition to the changes in gains on the sale of loans and REO
property, BOLI income and net mortgage servicing income already noted for the
quarterly comparison, gains on the sale of investments of $16,000 for the first
six months ended June 30, 2004 declined from $71,000 for the comparable period
of 2003. Noninterest expense amounted to $2.5 million for the second quarter of 2004,
which amounted to an increase of $274,000, or 12.3% above the level of $2.2
million in the comparable quarter of 2003. The increase in expenses was
comprised of professional services and salaries and benefits, which were
partially offset by a reversal of a contingency reserve for income taxes.
Professional services, which totaled $409,000 in the second quarter of 2004,
increased by approximately $283,000, or 225%, relative to the prior years
comparable quarter due primarily to legal and investment banking expenses of
$235,000 that was merger-related and legal and proxy solicitation expenses
totaling $52,000 related to the Companys defense of a potential proxy fight
with a large shareholder. Salaries and benefits expense of $1.2 million in the
second quarter of 2004 increased by $69,000, or 6.2%, above the comparable
quarter of 2003 due primarily to the increase in the employee stock ownership
plan (ESOP) expense of approximately $37,000, resulting from a significantly
higher stock price during the second quarter of 2004 relative to the prior
year. Expenses associated with occupancy and equipment, franchise taxes, and
data processing in the second quarter of 2004 were generally consistent with
the level of the comparable quarter of 2003. A successful appeal with the Internal Revenue Service related to the timing of
charged-off loans and the associated treatment of uncollectible interest
resulted in a reversal of $60,000 of a previously established contingency
reserve, which partially offset the increases noted above. Noninterest expense
in the second quarter of 2004 would have increased by $39,000, or 1.7%, from
the comparable quarter of 2003, if the merger-related expenses of $235,000 were
excluded form the operating results of the second quarter. Noninterest expense for the first six months of 2004 amounted to $4.9 million,
which represented an increase of $399,000, or 8.9%, above the comparable period
of 2003. The increase was mainly attributable to the merger-related costs,
proxy expenses and higher ESOP expense, which were partially offset by the
reversal of the contingency reserve for income taxes. If the merger-related
expenses of $235,000 were excluded from the results for the first six months of
2004, the year-over-year increase in noninterest expense would have been
$164,000, or 3.7%, from the comparable period of 2003. The change in income tax is primarily attributable to the change in income
before income taxes. Income tax expense totaled $229,000 for both the three
months ended June 30, 2004 and June 30, 2003 resulting in effective rates of
31.2% and 27.1%, respectively. For the six months ended June 30, 2004 and June
30, 2003, the income tax amounted to $487,000 and $498,000, respectively, or
effective tax rates of 32.4% and 28.7%, respectively. This effective tax rate
increase is due primarily to growth in earning assets year-over-year without a
corresponding increase in nontaxable assets. 18.




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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity Office of Thrift Supervision (OTS) regulations presently requires Cornerstone
Bank to maintain sufficient liquidity to assure its safe and sound operation.
To that end, Cornerstone Bank maintains investments having maturities of 5
years or less, sells loans into the secondary market and borrows funds from the
FHLB. These activities are intended to provide a source of relatively liquid
funds on which Cornerstone may rely, if necessary, to fund deposit withdrawals
or other short-term funding needs. At June 30, 2004 Cornerstone had
commitments to originate residential loans totaling $894,000 and $7.5 million
of non-residential real estate loans. In addition, Cornerstone had $3.1
million in commitments to fund loans on residential properties under
construction as well as $5.3 million in commitments to fund other mortgage
loans. Unused commercial lines of credit were $7.1 million and unused home
equity lines of credit were $18.8 million. Commitments to originate
nonmortgage loans total $1.2 million. Cornerstone considers its liquidity
sufficient to meet its outstanding short and long-term needs. The following table indicates the amounts of significant commitments at June
30, 2004. Fixed
    
    VariableRate
    
    Rate
    
    TotalFirst Mortgage Loans
    
    $
    894
    
    
    $
    
    
    
    $
    894Mortgage Construction Loans
    
    
    3,100
    
    
    
    
    
    
    
    3,100Consumer and Other Loans
    
    
    
    
    
    
    1,236
    
    
    
    1,236Commercial Loans
    
    
    
    
    
    
    7,541
    
    
    
    7,541Home Equity Lines of Credit
    
    
    
    
    
    
    18,754
    
    
    
    18,754Commercial Lines of Credit
    
    
    
    
    
    
    7,119
    
    
    
    7,119Stand-By Letters of Credit
    
    
    
    
    
    
    9,384
    
    
    
    9,384$
    3,994
    
    
    $
    44,034
    
    
    $
    48,028
 Other significant and fixed contractual obligations to third parties at June
30, 2004 amounted to $122.3 million for deposits without a maturity, $135.1
million for consumer and brokered deposits and $105.1 million for FHLB
advances. Capital Resources Cornerstone is required by regulations to meet certain minimum capital
requirements, which must be generally as stringent as standards established for
commercial banks. Current minimum capital requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which, for Cornerstone,
consists solely of tangible capital) of 4.0% of adjusted total assets, except
for institutions with the highest examination rating and acceptable levels of
risk, and risk-based capital (which, for Cornerstone, consists of core capital
and general valuation allowances) of 8.0% of risk-weighted assets (assets are
weighted at percentage levels ranging from 0% to 100% depending on their
relative risk). 19.




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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table summarizes Cornerstones minimum regulatory capital
requirements and actual capital at June 30, 2004. Excess of ActualMinimum
    
    Capital Over CurrentActual Capital
    
    Current Requirement
    
    RequirementApplicable(Dollars in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Asset TotalTangible capital
    
    $
    42,855
    
    
    
    10.4
    %
    
    $
    6,164
    
    
    
    1.5
    %
    
    $
    36,691
    
    
    
    8.9
    %
    
    $
    410,936Core capital
    
    
    42,855
    
    
    
    10.4
    
    
    
    16,437
    
    
    
    4.0
    
    
    
    26,418
    
    
    
    6.4
    
    
    
    410,936Risk-based capital
    
    
    44,720
    
    
    
    15.3
    
    
    
    23,434
    
    
    
    8.0
    
    
    
    21,286
    
    
    
    7.3
    
    
    
    292,924
 Cornerstone also exceeded the minimum requirements to be considered well
capitalized under the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991. 20.




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WESTERN OHIO FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 
 Item 3. Quantitative and Qualitative Disclosure About Market Risk The Companys primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. Interest rate risk is the risk that the
Companys financial condition will be adversely affected due to movements in
interest rates. The income of financial institutions is primarily derived from
the excess of interest earned on interest-earning assets over the interest paid
on interest-bearing liabilities. One method used to analyze the Companys
sensitivity to changes in interest rates is the net portfolio value (NPV)
methodology. NPV is generally considered to be the present value of the
difference between expected incoming cash flows on interest-earning and other
assets and expected outgoing cash flows on interest-bearing and other
liabilities. The following tables present an analysis of the potential sensitivity of the
Banks net present value of its financial instruments to sudden and sustained
changes in the prevailing interest rates. June 30, 2004
    
    December 31, 2003Change inInterest Rate
    
    $ Change
    
    % Change
    
    NPV
    
    $ Change
    
    % Change
    
    NPV(Basis Points)
    
    In NPV
    
    In NPV
    
    Ratio
    
    In NPV
    
    In NPV
    
    Ratio(Dollars in Thousands)+300
    
    $
    (12,817
    )
    
    
    (27
    )%
    
    
    8.72
    %
    
    $
    (10,018
    )
    
    
    (22
    )%
    
    
    9.01
    %+200
    
    
    (8,039
    )
    
    
    (17
    )
    
    
    9.79
    
    
    
    (4,928
    )
    
    
    (11
    )
    
    
    10.18+100
    
    
    (2,992
    )
    
    
    (6
    )
    
    
    10.89
    
    
    
    (4,089
    )
    
    
    (9
    )
    
    
    10.24
    
    
    
    
    
    
    
    
    
    
    11.47
    
    
    
    
    
    
    
    
    
    
    
    11.13(100)
    
    
    1,524
    
    
    
    3
    
    
    
    11.70
    
    
    
    1,019
    
    
    
    2
    
    
    
    11.26
 During the past few years interest rates have declined to historically low
levels and as a result many of the Banks deposits are priced within 100 basis
points of a zero interest rate floor. As the June 30, 2004 table suggests,
should overall rates and loan yields continue to decline, the Banks inability
to reduce rates below the zero floor could negatively impact Cornerstones NPV
and future earnings. The decline in NPV from prior periods is due to the
increase in prepayments in our loan portfolio and extended duration of our
Federal Home Loan Bank advances. Based upon the most recent movements in market
interest rates, increases in commodity prices and the general level of economic
activity, it appears that the greater risk for Cornerstone Bank within the next
year would be an increase in interest rates rather than a decrease. As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making risk calculations. 21.




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WESTERN OHIO FINANCIAL CORPORATION
CONTROLS AND PROCEDURES 
 Item 4. Controls and Procedures Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected. Disclosure Controls and Procedures The Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Companys disclosure controls and procedures (as such term is defined in
Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934
(Exchange Act)) as of the end of the period covered by this report. Based on
such evaluation, the Companys Chief Executive officer and Chief Financial
Officer have concluded that, as of the end of such period, the Companys
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act. Internal Control Over Financial Reporting There have not been any changes in the Companys internal control over
financial reporting (as such term is defined in Rules 13(a)-15(f) and
15(d)-15(f) under the Exchange Act) during the fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting. 22.




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WESTERN OHIO FINANCIAL CORPORATION 
  
 Item 1  Legal Proceedings The Company and its subsidiary are involved from time to
time as plaintiff or defendant in various legal actions arising
in the normal course of their business. While the ultimate
outcome of pending proceedings cannot be predicted with
certainty, it is the opinion of management, after consultation
with counsel representing the Company, the Bank or its subsidiary
in the proceedings, that the resolution of these proceedings
should not have a material effect on the Companys consolidated
financial position or results of operation. 
 Item 2  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None 
 Item 3   Defaults Upon Senior Securities None 
 Item 4   Submission of Matters to a Vote of Security Holders A special shareholders meeting is scheduled for August
17, 2004 for approval of the merger agreement with WesBanco, Inc.
of Wheeling, West Virginia. 
 Item 5  Other Information The Company entered into a definitive Agreement and Plan of Merger with WesBanco, Inc.
(WesBanco) of Wheeling, West Virginia on April 1, 2004. Under the
terms of the Agreement and Plan of Merger, WesBanco will exchange
a combination of its common stock and cash for the Companys
common stock. The Companys shareholders will be able to elect a
fixed exchange ratio of 1.18 shares of WesBanco common stock or
$35.00 in cash subject to certain limitations including that 55%
of the Companys outstanding shares be exchanged for WesBanco
common stock. Common stock received by the Companys shareholders
is anticipated to qualify as a tax-free exchange. Based upon a per
share value of $35.00, the transaction is valued at $65.2 million.
The transaction, which has received initial regulatory approval,
is expected to be completed at the end of August of 2004, pending
approval by the Companys shareholders (see Item 4 above). 
 Item 6  Exhibits and Reports on Form 8-K  (a)
    
    Exhibits 31.1 Certification by the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications by the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  (b)
    
    Western Ohio Financial Corporation issued a report on
Form 8-K, dated July 22, 2004, for a press release dated July 22,
2004 announcing the Companys financial results and earnings for
the second quarter and first half of 2004 and payment of the next
shareholder dividend. 23.




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WESTERN OHIO FINANCIAL CORPORATION
PART II  OTHER INFORMATION 
 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 OHIO FINANCIAL CORPORATION
(Registrant)Date:
    
    August 14, 2004
    
    /s/ John W. RaisbeckJohn W. RaisbeckPresident and Chief Executive Officer(Principal Executive Officer)Date:
    
    August 14, 2004
    
    /s/ Robert A. KuehlRobert A. KuehlSenior Vice President and Chief Financial Officer(Principal Financial Officer)
 24.