TABLE OF CONTENTS




|                                                                                              |                                                                                                           |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Item 1. Condensed Financial Statements                                                       
|                                                                                              | WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)                               
|                                                                                              | WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
|                                                                                              | WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS                                 
|                                                                                              | WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                  
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|Item 4. Controls and procedures                                                              
|WESTERN OHIO FINANCIAL CORPORATION                                                           
|PART II- OTHER INFORMATION                                                                   
|Item 1   Legal Proceedings                                                                  
|Item 2   Changes in Securities and Use of Proceeds                                          
|Item 3   Defaults Upon Senior Securities                                                    
|Item 4   Submission of Matters to a Vote of Security Holders                                
|Item 5   Other Information                                                                  
|Item 6   Exhibits and Reports on Form 8-K                                                   
|SIGNATURES                                                                                   
|EX-31.1  302 CEO Cert                                                                        
|EX-31.2  302 CFO Cert                                                                        
|EX-32.1  906 CEO Cert                                                                        
|EX-32.2  906 CFO Cert                                                                        



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##### 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, 2003

Commission File Number 0-24120

WESTERN OHIO FINANCIAL CORPORATION

---

(Exact name of registrant as specified in its charter)


Delaware
    
    31-1403116(State or other jurisdiction of
incorporation or organization)
    
    (IRS EmployerIdentification No.)


28 East Main Street, Springfield, Ohio 45501-0509
(Address of principal executive offices)
(Zip Code)

(937) 325-9990
(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes X No

Indicate the number of shares outstanding of each of the registrants classes
of common stock, as of the latest practicable date.

Class:
    
    Outstanding at August 14, 2003Common stock, $.01 par value
    
    common shares 1,748,578






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##### Table of Contents



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 ofFinancial Condition and Results of Operations
    
    12Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    17Item 4. Controls and Procedures
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    19Item 2. Changes in Securities and Use of Proceeds
    
    19Item 3. Defaults Upon Senior Securities
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    19Item 5. Other Information
    
    19Item 6. Exhibits and Reports on Form 8-K
    
    19SIGNATURES
    
    20


2.



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WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

Item 1. Condensed Financial Statements

(Amounts in thousands, except share data)

June 30,
    
    December 31,2003
    
    2002ASSETSCash and cash equivalents
    
    $
    5,410
    
    
    $
    19,312Securities available for sale
    
    
    34,785
    
    
    
    46,001Federal Home Loan Bank stock
    
    
    9,150
    
    
    
    8,971Loans, net
    
    
    291,172
    
    
    
    256,883Real Estate Owned
    
    
    344
    
    
    
    494Premises and equipment, net
    
    
    4,207
    
    
    
    4,352Bank owned life insurance
    
    
    8,915
    
    
    
    8,683Other assets
    
    
    2,399
    
    
    
    2,099Total assets
    
    $
    356,382
    
    
    
    346,795LIABILITIES AND SHAREHOLDERS EQUITYDeposits
    
    $
    214,160
    
    
    $
    219,169Borrowed funds
    
    
    96,472
    
    
    
    81,243Other liabilities
    
    
    2,508
    
    
    
    3,178Total liabilities
    
    
    313,140
    
    
    
    303,590Shareholders equityCommon stock, $.01 par value, 7,250,000 shares authorized,
2,645,000 shares issued
    
    
    26
    
    
    
    26Additional paid-in capital
    
    
    40,641
    
    
    
    40,642Unearned employee stock ownership plan shares
    
    
    (238
    )
    
    
    (357
    )Unearned management recognition plan shares
    
    
    (67
    )
    
    
    (71
    )Shares held by deferred compensation plan
    
    
    (308
    )
    
    
    (260
    )Treasury stock; 893,922 and 889,889 shares at cost, respectively
    
    
    (18,134
    )
    
    
    (18,102
    )Accumulated other comprehensive income
    
    
    100
    
    
    
    472Retained earnings
    
    
    21,222
    
    
    
    20,855Total shareholders equity
    
    
    43,242
    
    
    
    43,205Total liabilities and shareholders equity
    
    $
    356,382
    
    
    $
    346,795


3.



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WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

(Amounts in thousands, except per share data)

Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Interest and dividend incomeLoans, including fees
    
    $
    4,193
    
    
    $
    4,781
    
    
    $
    8,336
    
    
    $
    9,526Securities
    
    
    349
    
    
    
    708
    
    
    
    833
    
    
    
    1,310Interest-bearing deposits and overnight funds
    
    
    2
    
    
    
    1
    
    
    
    16
    
    
    
    28Other interest and dividend income
    
    
    90
    
    
    
    103
    
    
    
    179
    
    
    
    1984,634
    
    
    
    5,593
    
    
    
    9,364
    
    
    
    11,062Interest expenseDeposits
    
    
    1,272
    
    
    
    1,898
    
    
    
    2,625
    
    
    
    3,933Borrowed funds
    
    
    978
    
    
    
    1,069
    
    
    
    1,962
    
    
    
    2,1062,250
    
    
    
    2,967
    
    
    
    4,587
    
    
    
    6,039Net interest income
    
    
    2,384
    
    
    
    2,626
    
    
    
    4,777
    
    
    
    5,023Provision for loan losses
    
    
    84
    
    
    
    84
    
    
    
    168
    
    
    
    168Net interest income after provision for loan losses
    
    
    2,300
    
    
    
    2,542
    
    
    
    4,609
    
    
    
    4,855Noninterest incomeService charges
    
    
    621
    
    
    
    552
    
    
    
    1,185
    
    
    
    1,060Net gain on sale of loans
    
    
    104
    
    
    
    134
    
    
    
    189
    
    
    
    194Net gain on sale of securities
    
    
    2
    
    
    
    28
    
    
    
    71
    
    
    
    28Other
    
    
    54
    
    
    
    6
    
    
    
    161
    
    
    
    12781
    
    
    
    720
    
    
    
    1,606
    
    
    
    1,294Noninterest expenseSalaries and employee benefits
    
    
    1,108
    
    
    
    1,180
    
    
    
    2,213
    
    
    
    2,308Occupancy and equipment
    
    
    237
    
    
    
    261
    
    
    
    476
    
    
    
    488Federal deposit insurance
    
    
    9
    
    
    
    10
    
    
    
    18
    
    
    
    19State franchise taxes
    
    
    146
    
    
    
    139
    
    
    
    287
    
    
    
    273Professional services
    
    
    126
    
    
    
    188
    
    
    
    274
    
    
    
    273Advertising
    
    
    55
    
    
    
    70
    
    
    
    90
    
    
    
    153Data processing
    
    
    191
    
    
    
    208
    
    
    
    390
    
    
    
    410Other
    
    
    365
    
    
    
    246
    
    
    
    733
    
    
    
    5862,237
    
    
    
    2,302
    
    
    
    4,481
    
    
    
    4,510Income before income taxes
    
    
    844
    
    
    
    960
    
    
    
    1,734
    
    
    
    1,639Income tax expense
    
    
    229
    
    
    
    328
    
    
    
    498
    
    
    
    558Net income
    
    
    615
    
    
    
    632
    
    
    
    1,236
    
    
    
    1,081Other comprehensive income(loss) net of tax:Unrealized gain (loss) on securities available
for sale arising during this period
    
    
    (167
    )
    
    
    639
    
    
    
    (325
    )
    
    
    449Reclassification adjustment for amounts realized
on securities sales included in net income
    
    
    (1
    )
    
    
    (19
    )
    
    
    (47
    )
    
    
    (19
    )Other comprehensive income
    
    
    (168
    )
    
    
    620
    
    
    
    (372
    )
    
    
    430Comprehensive income
    
    $
    447
    
    
    $
    1,252
    
    
    $
    864
    
    
    $
    1,511Earnings per common shareBasic
    
    $
    .36
    
    
    $
    .37
    
    
    $
    .72
    
    
    $
    .63Diluted
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .71
    
    
    $
    .62Dividends per common share
    
    $
    .25
    
    
    $
    .25
    
    
    $
    .50
    
    
    $
    .50


See accompanying notes to condensed financial statements.

4.



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WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended2003
    
    2002(Amount in thousands)Net cash from operating activities
    
    $
    954
    
    
    $
    1,454Cash flows from investing activitiesSecurities available for sale:Maturities and principal payments
    
    
    8,715
    
    
    
    6,041Purchases
    
    
    
    
    
    
    (20,482
    )Sales
    
    
    1,742
    
    
    
    3,056Net (increase) decrease in loans
    
    
    6,388
    
    
    
    8,896Purchases of loans
    
    
    (40,864
    )
    
    
    (10,857
    )Sales of Real estate owned
    
    
    178
    
    
    
    Premises and equipment expenditures
    
    
    (112
    )
    
    
    (88
    )Proceeds from sale of premises and equipment
    
    
    3
    
    
    
    2Net cash from investing activities
    
    
    (23,950
    )
    
    
    (13,432
    )Cash flows from financing activitiesNet change in deposits
    
    
    (5,009
    )
    
    
    (3,567
    )Net decrease in advances from borrowers for taxes and insurance
    
    
    (128
    )
    
    
    (477
    )Purchase of treasury stock
    
    
    (540
    )
    
    
    (342
    )Cash dividends paid
    
    
    (870
    )
    
    
    (883
    )Proceeds from exercise of stock options
    
    
    412
    
    
    
    259Net increase (decrease) in short-term borrowings
    
    
    2,985
    
    
    
    (1,040
    )Proceeds from FHLB advances
    
    
    12,672
    
    
    
    12,538Repayments on FHLB advances
    
    
    (428
    )
    
    
    (3,704
    )Net cash from financing activities
    
    
    9,094
    
    
    
    2,784Net change in cash and cash equivalents
    
    
    (13,902
    )
    
    
    (9,194
    )Cash and cash equivalents at beginning of period
    
    
    19,312
    
    
    
    16,915Cash and cash equivalents at end of period
    
    $
    5,410
    
    
    $
    7,721


See accompanying notes to condensed consolidated financial statements.

5.



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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1  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, 2002.
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 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.

6.



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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Net income:As reported
    
    $
    615
    
    
    $
    632
    
    
    $
    1,236
    
    
    $
    1,081Pro forma
    
    
    615
    
    
    
    616
    
    
    $
    1,237
    
    
    $
    1,046Earnings per share:As reportedBasic
    
    
    .36
    
    
    
    .37
    
    
    
    .72
    
    
    
    .63Diluted
    
    
    .35
    
    
    
    .36
    
    
    
    .71
    
    
    
    .62Pro formaBasic
    
    
    .36
    
    
    
    .37
    
    
    
    .72
    
    
    
    .63Diluted
    
    
    .35
    
    
    
    .35
    
    
    
    .71
    
    
    
    .60


The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.

2003
    
    
    
    2002Risk-free interest rate
    
    
    -
    
    
    
    4.48
    %Expected option life
    
    
    -
    
    
    
    5 YearsExpected stock price volatility
    
    
    -
    
    
    
    22.73Dividend yield
    
    
    -
    
    
    
    4.76
    %Estimated fair value of options granted
    
    
    -
    
    
    $
    3.23


New Accounting Standards: The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 143 Asset
Retirement Obligation. The provisions of this standard apply to asset
retirements beginning in 2003. The adoption of this standard did not have a
material effect on the Corporations financial position or results of
operations.

In June 2002, the FASB issued No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses the timing of
recognition of a liability for exit and disposal cost at the time a liability
is incurred, rather than at a planned commitment date, as previously required.
Exit or disposal costs will be measured at fair value, and the recorded
liability will be subsequently adjusted for changes in estimated cash flows.
This Statement was effective for exit or disposal activities entered after
December 31, 2002. This statement did not have a material effect on the
Corporations financial position or results or operations.

Newly Issued But Not Yet Effective Accounting Standards: The Financial
Accounting Standards Board (FASB) recently issued two new accounting standards,
Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, and Statement 150 Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equities, both of which generally
become effective in the quarter beginning July 1, 2003. Because the Company
does not have these instruments or is only nominally involved in these
instruments, the new accounting standards will not materially affect the
Companys operating results or financial condition.

7.



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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 2  SECURITIES

Securities available for sale were as follows:

Gross
    
    GrossFair
    
    Unrealized
    
    UnrealizedValue
    
    Gains
    
    Loss(Amounts in thousands)June 30, 2003U.S. government agencies
    
    $
    1,105
    
    
    
    84
    
    
    
    Municipal securities
    
    
    7,009
    
    
    
    77
    
    
    
    Mortgage-backed securities
    
    
    26,671
    
    
    
    227
    
    
    
    (236
    )Total
    
    $
    34,785
    
    
    
    388
    
    
    $
    (236
    )December 31, 2002U.S. government agencies
    
    $
    2,180
    
    
    
    128
    
    
    
    Municipal securities
    
    
    6,955
    
    
    
    23
    
    
    
    Mortgage-backed securities
    
    
    36,866
    
    
    
    595
    
    
    
    (30
    )Total
    
    $
    46,001
    
    
    
    746
    
    
    $
    (30
    )


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.
Gross proceeds from sales of securities during the six-month period ending June
30, 2002 were $3,056,000 with gross gains of $28,000 included in earnings.

NOTE 3  LOANS

Loans were as follows:

June 30,
    
    December 31,2003
    
    2002(Amounts in thousands)First mortgage loans secured by:One to four family residential
    
    $
    146,905
    
    
    $
    124,117Other properties
    
    
    97,341
    
    
    
    87,031Construction properties
    
    
    3,878
    
    
    
    4,644Other loansConsumer
    
    
    816
    
    
    
    848Commercial
    
    
    22,491
    
    
    
    21,977Home equity
    
    
    22,389
    
    
    
    21,587Total loans
    
    
    293,820
    
    
    
    260,204Less:Net deferred loan fees, premiums and discounts
    
    
    385
    
    
    
    (125
    )Loans in process
    
    
    (1,092
    )
    
    
    (1,390
    )Allowance for loan losses
    
    
    (1,941
    )
    
    
    (1,806
    )$
    291,172
    
    
    $
    256,883


8.



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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 3  LOANS(Continued)

Activity in the allowance for loan losses was as follows:

(Amounts in thousands)Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2003
    
    2002
    
    2003
    
    2002Beginning balance
    
    $
    1,885
    
    
    $
    1,752
    
    
    $
    1,806
    
    
    $
    1,695Provision for loan losses
    
    
    84
    
    
    
    84
    
    
    
    168
    
    
    
    168Recoveries
    
    
    2
    
    
    
    42
    
    
    
    4
    
    
    
    293Charge-offs
    
    
    (30
    )
    
    
    (76
    )
    
    
    (37
    )
    
    
    (354
    )Ending balance
    
    $
    1,941
    
    
    $
    1,802
    
    
    $
    1,941
    
    
    $
    1,802


Nonperforming loans were $1,312,000 and $1,779,000 at June 30, 2003 and
December 31, 2002.

Impaired loans were as follows:

June 30,
    
    December 31,2003
    
    2002Loans with no allocated allowance for loan losses
    
    $
    366
    
    
    
    216Loans with allocated allowance for loan losses
    
    
    267
    
    
    
    268Total
    
    $
    633
    
    
    $
    484Amount of the allowance for loan losses allocated
    
    $
    267
    
    
    $
    129


NOTE 4  DEPOSITS

Deposits were as follows:

June 30,
    
    December 31,2003
    
    2002(Amounts in thousands)Checking  Noninterest bearing
    
    $
    11,679
    
    
    $
    10,778Checking   Interest bearing
    
    
    17,283
    
    
    
    18,596Money market accounts
    
    
    62,290
    
    
    
    66,466Passbook and savings accounts
    
    
    12,166
    
    
    
    11,502Certificates of deposit:In denominations under $100,000
    
    
    90,077
    
    
    
    91,210In denominations of $100,000 or more
    
    
    20,665
    
    
    
    20,617$
    214,160
    
    
    $
    219,169




9.



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WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 5  BORROWED FUNDS

Borrowed 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, 2003
    
    December 31, 2002Weighted
    
    
    
    
    
    WeightedBalance
    
    Average Rate
    
    Balance
    
    Average RateFHLB advances maturing in:One year or less
    
    $
    20,202
    
    
    
    2.36
    %
    
    $
    15,674
    
    
    
    3.90
    %Over 1 year to 3 years
    
    
    17,142
    
    
    
    3.95
    
    
    
    11,978
    
    
    
    5.25Over 3 years to 5 years
    
    
    6,000
    
    
    
    2.64
    
    
    
    1,089
    
    
    
    4.74Over 5 years
    
    
    53,128
    
    
    
    5.10
    
    
    
    52,502
    
    
    
    5.15Total
    
    $
    96,472
    
    
    
    4.17
    %
    
    $
    81,243
    
    
    
    4.92
    %


NOTE 6  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 30,2003
    
    2002
    
    2003
    
    2002Basic earnings per common shareNet income
    
    $
    615
    
    
    $
    632
    
    
    $
    1,236
    
    
    $
    1,081Weighted average common shares
outstanding
    
    
    1,745
    
    
    
    1,765
    
    
    
    1,751
    
    
    
    1,762Less: Average unallocated ESOP
shares
    
    
    (18
    )
    
    
    (34
    )
    
    
    (20
    )
    
    
    (35
    )Less: Average nonvested MRP shares
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )Average shares
    
    
    1,724
    
    
    
    1,728
    
    
    
    1,728
    
    
    
    1,724Basic earnings per common share
    
    $
    .36
    
    
    $
    .37
    
    
    $
    .72
    
    
    $
    .63


10.



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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 6  EARNINGS PER COMMON SHARE(Continued)

Diluted earnings per common shareNet income
    
    $
    615
    
    
    $
    632
    
    
    $
    1,236
    
    
    $
    1,081Weighted average common shares
outstanding for basic earnings per
common share
    
    
    1,724
    
    
    
    1,728
    
    
    
    1,728
    
    
    
    1,724Add: Dilutive effects of average
nonvested MRP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Add: Dilutive effects of stock options
    
    
    30
    
    
    
    19
    
    
    
    24
    
    
    
    17Average shares and dilutive potential
common shares
    
    
    1,754
    
    
    
    1,747
    
    
    
    1,752
    
    
    
    1,741Diluted earnings per common share
    
    $
    .35
    
    
    $
    .36
    
    
    $
    .71
    
    
    $
    .62


Stock
options covering 4,000 and 31,536 shares of common stock and 74,136 and
79,136 were not considered in computing diluted earnings per common share for
the three and six months ended June 30, 2003 and June 30, 2002 respectively, as
they were antidilutive. In addition, nonvested MRP awards for 2,764 and 3,402
shares of common stock and 3,063 and 4,531 were not considered in computing
diluted earnings per common share for the three months ended June 30, 2003 and
June 30, 2002 respectively.

11.



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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,
2003 as compared to December 31, 2002, and the results of operations for the
three months and six months ended June 30, 2003, compared with the same periods
in 2002. 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.

Analysis of Financial Condition

Consolidated assets of the Company totaled $356.4 million at June 30, 2003, an
increase of $9.6 million from the December 31, 2002 total of $346.8 million.
The increase in assets is a result of an increase of $34.3 million in loans
and was partially offset by decrease of $11.2 million in securities available
for sales. This activity was funded by a decrease of $13.9 million in cash and
cash equivalents and an increase in FHLB advances of $15.2 million.

Net loans increased $34.3 million, or 13.4%, from $256.9 million at December
31, 2002 to $291.2 million at June 30, 2003. Traditional one-to-four family
residential mortgage loans increased $22.8 million to $146.9 at June 30, 2003
from $124.1 million at December 31, 2002, primarily due to the purchase of
$40.9 million of servicing retained residential real estate loans during the
period. For the period, other real estate mortgage loans increased $10.3
million to $97.3 million at June 30, 2003 from $87.0 million at December 31,
2002. These loans are primarily non-residential participation loans originated
within the Columbus, OH area and secured by real estate. These changes
continue Cornerstones effort to increase its portfolio of commercial and
retail real estate mortgage type loans.

12.



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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash and cash equivalents decreased by $13.9 million to $5.4 million on June
30, 2003, from $19.3 million on December 31, 2002. Cash and cash equivalents
consist of cash, checking deposits and federal funds deposited at other
financial institutions. The decrease was the result of originating and
purchasing loans.

Securities available for sale decreased $11.2 million from $46.0 million at
December 31, 2002, to $34.8 million on June 30, 2003. The decrease was due to
sale of securities of $1.7 million and principal repayments on existing
mortgage-backed securities available for sale. The cash flows were reinvested
in loans.

Deposits at June 30, 2003 totaled $214.2 million, a decrease of $5.0 million,
or 2.3% from $219.2 million at December 31, 2002. The decrease occurred
principally in money market accounts, which decreased $4.2 million, or 6.3%.
Certificates of Deposit accounts decreased $1.1 million to $110.7 million at
June 30, 2003 compared to $111.8 million on December 31, 2002.

FHLB advances at June 30, 2003 totaled $96.5 million, an increase of $15.3
million or 18.7% from $81.2 million at December 31, 2002. The Bank increased
its advances from the FHLB during the period to fund loan originations and
purchases. The majority of borrowed funds are invested in loans to leverage the
Companys excess capital and improve the Companys return on equity over time.

Total shareholders equity increased $37,000 or .09% to $43.2 million at June
30, 2003. This increase is chiefly due to net income for the period and stock
options exercised; partially offset by a decrease in accumulated other
comprehensive income of $372,000, dividend payments of $870,000 and purchase of
treasury stock of $540,000.

As of June 30, 2003, the Company had commitments to make $7.4 million of
residential loans, $5.6 million of non-residential real estate loans, and $5.4
million of multifamily loans. It is expected that these loans will be funded
within 30-90 days. The Company also had $1.1 million in commitments to fund
loans on residential properties under construction as well as commitments to
disburse $3.9 million on other mortgage loans. These commitments are
anticipated to be filled within three to six months. Unused commercial lines
of credit were $9.3 million and unused home equity lines of credit were $15.6
million. Commitments to originate nonmortgage loans total $1.1 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 income is also
affected by provisions for loan losses, service charges, gains on sale of
assets, other income, noninterest expense and income taxes. The Companys net
income of $615,000 and $1,236,000 for the three and six months ended June 30,
2003, represented a decrease of $17,000, or 2.7%, for the three months and an
increase of $155,000, or 14.34%, for the six months ended June 30, 2003. The
returns on average assets for the three and six months ended June 30, 2003 were
0.71% and 0.72%, respectively, compared to 0.72% and 0.62% for the same period
in 2002. The returns on average

13.



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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

shareholders equity for the three and six months ended June 30, 2003 were
5.65% and 5.67%, respectively, compared to 5.92% and 5.08% for the same periods
ended June 30, 2002. Basic earnings per share decreased $.01 from $.37 per
share for the three-month period ended June 30, 2002 to $.36 per share for the
period ended June 30, 2003. Basic earnings per share for the six-month period
ended June 30, 2003 was $.72 per share compared to $.63 per share for the same
period ended June 30, 2002, an increase of $.09, or 14.3%.

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 $2,384,000 and $4,777,000 for the three and six months ended June 30,
2003, compared to $2,626,000 and $5,023,000 for the same periods in 2002. The
decreases of $242,000 and $246,000 for the three and six month periods are due
to lower interest rates on interest earning assets. A further decline in
interest rates will cause the balance sheet to become asset sensitive whereby a
further decline in rates will cause its interest-earning assets to reprice more
quickly than its interest-bearing liabilities due to deposits reaching the rate
floor. If interest rates rise, the Companys net interest margin will
generally decrease due to deposits repricing faster. 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 would
increase relatively slowly as loans are slowly prepaid and new loans at higher
rates are originated. Moreover, the interest Cornerstone would pay on its
deposits would increase relatively rapidly because Cornerstones deposits
generally have shorter periods to repricing.

Interest and fees on loans totaled $4,193,000 and $8,336,000 for the three and
six months ended June 30, 2003 compared to $4,781,000 and $9,526,000 the three
and six months ended June 30, 2002. The decreases were due primarily to a
decrease in loan rates from the same period in 2002. The average yield earned
on the portfolio on an annualized basis, decreased to 5.69% for the six months
ended June 30, 2003 from 6.53% for the same period in 2002.

Interest and dividends on securities totaled $349,000 and $833,000 for the
three and six months ended June 30, 2003, and $708,000 and $1,310,000 for the
three and six months ended June 30, 2002. The decrease for the three and six
months was due to lower average outstanding balances as well as lower interest
rates on those outstanding balances.

Interest on deposits totaled $1,272,000 and $2,625,000 for the three and six
months ended June 30, 2003 compared to $1,898,000 and $3,933,000 for the three
and six months ended June 30, 2002. The decreases were due to lower interest
rates on all deposits.

Interest on FHLB advances was $978,000 and $1,962,000 for the three and six
months ended June 30, 2003 compared to $1,069,000 and $2,106,000 for the three
and six months ended June 30, 2002. The decrease for the three and six months
ended June 30, 2003 is due to the lower cost of new advances that were
partially offset by an increase in average outstanding borrowings from the
FHLB.

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

14.



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WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2003, compared to $84,000
and $168,000 for the three and six months ended June 30, 2002.

Net charge-offs were $28,000 and $33,000 for the three and six months ended
June 30, 2003 compared to $34,000 and $61,000 for the same periods in 2002. Due
to the decrease in net charge-offs, the collateral supporting non-performing
loans, area economic conditions, and the level of impaired and non-performing
loans, management believes that the total allowance of $1.9 million on total
loans of $291 million at June 30, 2003 is adequate. The Corporation will
continue to review its allowance for loan losses and make further provisions as
economic and asset quality conditions dictate.

Noninterest income totaled $781,000 and $1,606,000 for the three and six months
ended June 30, 2003 compared to $720,000 and $1,294,000 for the same periods in
2002. Service charges on loans and deposits increased $69,000 from $552,000 to
$621,000 for the three-month period and $125,000 from $1,060,000 to $1,185,000
for the six-month period. Service charges on deposits, including non-sufficient
funds, increased $68,000 and $123,000 for the three and six month period
respectively. The Companys overdraft honor program, which provides to most
customers the courtesy of honoring checks drawn on insufficient balances, up to
limits established by management, continues to be the primary reason for the
increase in service charges on deposits. Gains on the sale of investments were
$2,000 and $71,000 for the three and six month period ending June 30, 2003
compared to $28,000 and $28,000 for the same period ending June 30, 2002.
Other noninterest income increased $48,000 and $149,000 for the three and six
months ended June 30, 2003 compared to the same periods in June 30, 2002. This
was due primarily to the cash surrender value of the Companys bank owned life
insurance policies offset by the $80,000 decline in the market value of the
mortgage servicing rights.

Noninterest expense decreased $65,000 and $29,000 for the three and six months
ended June 30, 2003 to $2.2 million and $4.5 million from $2.3 million and $4.5
million in 2002. The decreases are due to decreases in items such as telephone,
printing and supplies, insurance, employee benefits and marketing, offset by
the increase in other noninterest expenses related to real estate owned and
education.

Income tax expense decreased $99,000 and $60,000 for the three and six month
period ending June 30, 2003 to $229,000 and $498,000 from $328,000 and $558,000
for the period ending June 30, 2002. The decrease is due primarily to the
decrease in the effective tax rate from 34.2% and 34.0% for the three and six
months ended June 30, 2002 to 27.1% and 28.7% in June 30, 2003. This is
attributable to the tax-exempt income on the Companys owned life insurance
policies.

Liquidity

Office of Thrift Supervision (OTS) regulations presently require 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, 2003 Cornerstone had
commitments to originate residential loans totaling $7.4 million, $5.4 million
of multifamily loans, and $5.6 million of non-residential real estate loans.
In addition, Cornerstone had $1.1 million in commitments to fund loans on
residential properties under construction as well as $3.9 million in
commitments to fund other mortgage loans. Unused commercial lines of credit
were $9.3 million and unused home equity lines of credit were $15.8 million.
Commitments to originate

15.



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##### Table of Contents



WESTERN OHIO FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

nonmortgage loans total $1.1 million. Cornerstone considers its liquidity
sufficient to meet its outstanding short and long-term needs.

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).

The following table summarizes Cornerstones minimum regulatory capital
requirements and actual capital at June 30, 2003.

Excess of actualMinimum
    
    capital over currentActual capital
    
    Current requirement
    
    requirement
    
    Applicable(Dollars in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Asset TotalTangible capital
    
    $
    40,671
    
    
    
    11.4
    %
    
    $
    5,342
    
    
    
    1.5
    %
    
    $
    35,329
    
    
    
    9.9
    %
    
    $
    356,160Core capital
    
    
    40,671
    
    
    
    11.4
    
    
    
    14,246
    
    
    
    4.0
    
    
    
    26,425
    
    
    
    7.4
    
    
    
    356,160Risk-based capital
    
    
    42,335
    
    
    
    15.7
    
    
    
    21,638
    
    
    
    8.0
    
    
    
    20,697
    
    
    
    7.70
    
    
    
    270,469


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.

16.



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WESTERN OHIO FINANCIAL CORPORATION
QUATITATIVE 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.

Change in
    
    June 30, 2003
    
    
    
    December 31, 2002Interest Rate
    
    $ Change
    
    % Change
    
    NPV
    
    $ Change
    
    % Change
    
    NPV(Basis Points)
    
    In NPV
    
    In NPV
    
    Ratio
    
    In NPV
    
    In NPV
    
    Ratio(Dollars in Thousands)+200
    
    $(3,864)
    
    (8)%
    
    11.82%
    
    $
    (5,756
    )
    
    
    (12
    )%
    
    
    11.72
    %+100
    
    (167)
    
    0
    
    12.65
    
    
    (2,103
    )
    
    
    (4
    )
    
    
    12.57
    
    
    
    
    
    12.53
    
    
    
    
    
    
    
    
    
    
    13.01(100)
    
    (1,742)
    
    (4)
    
    11.93
    
    
    978
    
    
    
    2
    
    
    
    13.17(200)
    
    (4,176)
    
    (9)
    
    11.20
    
    
    2,234
    
    
    
    5
    
    
    
    13.40


Since December 31, 2002 interest rates have declined to historically low
levels. As a result, many of the Banks deposits are within 200 basis points of
a zero interest rate floor. As the June 30, 2003 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.

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.

17.



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WESTERN OHIO FINANCIAL CORPORATION
QUATITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK







Item 4. Controls and procedures

With the participation and under the supervision of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer,
and as of the end of the period covered by this quarterly report, the Companys
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e) and,
based on their evaluation, have concluded that the disclosure controls and
procedures are effective.

18.



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WESTERN OHIO FINANCIAL CORPORATION







PART II- OTHER INFORMATION







Item 1   Legal Proceedings

None







Item 2   Changes in Securities and Use of Proceeds

None







Item 3   Defaults Upon Senior Securities

None







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

The annual meeting of shareholders was held on April 24, 2003. Two items
were presented to shareholders for consideration and action:

1
    )
    
    The re-election of two directors John
E. Field and William N. Scarff for terms expiring in
2006. Both directors were re-elected receiving
1,447,385 and 1,443,854 votes respectively. The
remaining directors continuing after the meeting are: David L. Dillahunt, John W. Raisbeck, Howard V. Dodds,
Aristides G. Gianakopoulos, and Jeffrey L. Levine.2
    )
    
    The ratification of Crowe Chizek and Company LLC as
auditors for the Corporation for the fiscal year ending December
31, 2003. The appointment of auditors was ratified with votes cast
for 1,438,592 and 9,740 against.








Item 5   Other Information

None







Item 6   Exhibits and Reports on Form 8-K

(a)
    
    Exhibits31.1* 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** Certification by the CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2** Certification by the CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*Filed
herewith.**Furnished
herewith.(b)
    
    Western Ohio Financial Corporation filed a report on
Form 8-K, dated July 22, 2003, furnishing under Item 9 a press
release, dated July 17, 2003, announcing the Companys results
for its second quarter ended June 30, 2003.


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##### Table of Contents









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, 2003
    
    /s/John W. RaisbeckJohn W. RaisbeckPresident and Chief Executive Officer(Principal Executive Officer)Date:August 14, 2003
    
    /s/Richard K. SmithRichard K. SmithSenior Vice President and Chief Financial Officer(Principal Financial Officer)


20.