<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 333-43361
---------
WESTERN RESERVE BANCORP, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1566623
---- -----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4015 Medina Road, Suite 100, P.O. Box 585, Medina, Ohio 44256
-------------------------------------------------------------
(Address of principal executive offices)
(330) 764-3131
--------------
Issuer's telephone number, including area code
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, no par value, $1.00 stated value
----------------------------------------------
(Class of Stock)
320,267 common shares
---------------------
(number of shares outstanding as of April 30, 2000)
1
<PAGE> 2
WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
PART I--FINANCIAL INFORMATION
Page
<TABLE>
<CAPTION>
ITEM 1 FINANCIAL STATEMENTS
<S> <C>
Consolidated Statements of Financial Condition as of March 31, 2000
and December 31, 1999 .......................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 ................................... 4
Consolidated Statements of Comprehensive Income for the three months
ended March 31, 2000 and 1999 ................................... 5
Consolidated Statements of Cash Flows for the three months
Ended March 31, 2000 and 1999 ................................... 6
Notes to Consolidated Financial Statements ......................... 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................. 11
PART II--OTHER INFORMATION
OTHER INFORMATION .................................................. 16
SIGNATURES ......................................................... 17
</TABLE>
2
<PAGE> 3
WESTERN RESERVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks $ 1,087,651 $ 1,263,553
Interest-bearing deposits in other banks -- 8,063
Federal funds sold 3,162,000 166,000
------------ ------------
Cash and cash equivalents 4,249,651 1,437,616
Securities available-for-sale, at fair value 5,877,850 5,892,340
Loans 27,363,854 23,371,219
Less allowance for loan losses (348,754) (307,000)
------------ ------------
Net loans 27,015,100 23,064,219
Federal Reserve Bank stock 148,800 174,050
Federal Home Loan Bank stock 85,300 --
Premises and equipment, net 737,369 759,355
Accrued interest receivable and other assets 349,528 215,272
------------ ------------
Total Assets $ 38,463,598 $ 31,542,852
============ ============
Liabilities
Deposits
Noninterest-bearing $ 4,432,934 $ 3,639,186
Interest-bearing 28,855,104 22,964,282
------------ ------------
Total deposits 33,288,038 26,603,468
Securities sold under agreements to repurchase 266,989 --
Accrued interest payable and other liabilities 54,020 71,141
------------ ------------
Total Liabilities 33,609,047 26,674,609
Shareholders' Equity
Common stock, without par value, $1 stated value:
750,000 shares authorized, 320,267 shares
issued and outstanding at March 31, 2000 and
December 31, 1999 320,267 320,267
Additional paid-in capital 6,048,232 6,048,232
Retained deficit (1,393,506) (1,394,542)
Accumulated other comprehensive income (loss) (120,442) (105,714)
------------ ------------
Total Shareholders' Equity 4,854,551 4,868,243
------------ ------------
Total Liabilities and Shareholders' Equity $ 38,463,598 $ 31,542,852
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
WESTERN RESERVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
--------- ---------
<S> <C> <C>
Interest Income
Loans $ 564,270 $ 28,873
Investment securities 90,622 2,611
Federal funds sold and other
short-term funds 21,405 159,617
--------- ---------
Total interest income 676,297 191,101
Interest Expense
Deposits 298,568 91,847
Other short-term funds 2,750 -
--------- ---------
Total interest expense 301,318 91,847
--------- ---------
Net interest income 374,979 99,254
Provision for Loan Losses 56,500 26,000
--------- ---------
Net interest income after
provision for loan losses 318,479 73,254
Other income
Service charges on deposit accounts 12,129 3,113
Gains on sales of mortgage loans 7,902 6,583
Other income 7,542 2,947
--------- ---------
Total other income 27,573 12,643
Other expenses
Salaries and benefits 167,459 158,930
Premises and equipment 64,661 61,458
Data processing 33,610 27,092
Taxes other than income and payroll 15,800 20,287
Marketing and advertising 8,730 6,353
Other expenses 54,756 36,937
--------- ---------
Total noninterest expense 345,016 311,057
--------- ---------
Net income (loss) $ 1,036 $(225,160)
========= =========
Average shares outstanding 320,267 320,267
========= =========
Basic and diluted earnings (loss) per share $ 0.00 $ (0.70)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
WESTERN RESERVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net income (loss) $ 1,036 $(225,160)
Other comprehensive income, net of tax:
Unrealized gains/(losses) on securities:
Unrealized losses arising during the period (14,708)
--------- ---------
Unrealized losses on securities (14,708) -
--------- ---------
Comprehensive income $ (13,672) $(225,160)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
WESTERN RESERVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,036 $ (225,160)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Provision for loan losses 56,500 26,000
Depreciation 23,183 21,871
Net accretion of discounts on securities (238) -
Loans originated for sale (1,081,050) (668,300)
Proceeds from sale of loan originations 1,088,952 514,883
Gains on sales of loans (7,902) (6,583)
Net change in interest receivable (85,425) (10,713)
Net change in interest payable 18,950 1,921
Net change in other assets (48,832) (44,590)
Net change in other liabilities (36,070) (496,513)
------------ ------------
Net cash from operating activities (70,896) (887,184)
Cash flows from investing activities
Redemption of Federal Reserve Bank stock 25,250
Purchase of Federal Home Loan Bank stock (85,300)
Net increase in loans (4,007,382) (1,708,678)
Purchases of premises and equipment (1,197) (10,313)
------------ ------------
Net cash from investing activities (4,068,629) (1,718,991)
Cash flows from financing activities
Net increase in deposits 6,684,571 8,560,328
Net change in short-term funds 266,989 -
------------ ------------
Net cash from financing activities 6,951,560 8,560,328
------------ ------------
Change in cash and cash equivalents 2,812,035 5,954,153
Cash and cash equivalents at beginning of period 1,437,616 10,391,933
------------ ------------
Cash and cash equivalents at end of period $ 4,249,651 $ 16,346,086
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Cash paid during the period for
Interest $ 282,368 $ 89,925
Taxes 0 0
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Western Reserve Bancorp, Inc. (the Company) was incorporated under
the laws of the State of Ohio on February 27, 1997. Until November 6, 1998, the
Company was a development stage company, and its efforts had been devoted to the
offering of its common shares to the general public and to obtaining regulatory
approvals, recruiting personnel and financial planning relating to the
organization of Western Reserve Bank (the Bank). The Company completed its
public stock offering on July 1, 1998. A total of 320,267 shares of the
Company's common stock were sold. Proceeds, net of offering costs, were
$6,368,499. Approximately $5,800,000 of the proceeds were used to purchase all
of the capital stock of the Bank. The Bank, which commenced operations on
November 6, 1998, is chartered by the State of Ohio, and is a member of the
Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). The
Company is a bank holding company pursuant to the Bank Holding Company Act of
1956, as amended.
Nature of Business: The Bank offers a full range of commercial and consumer
banking services primarily in its defined market area of Medina County, Ohio.
Principles of Consolidation: The consolidated financial statements include the
accounts of Western Reserve Bancorp, Inc. and its wholly-owned subsidiary,
Western Reserve Bank. All material intercompany accounts have been eliminated.
Cash Equivalents: For purposes of the Statements of Cash Flows, cash equivalents
include amounts due from banks and federal funds sold. Generally, federal funds
are sold for periods of less than thirty days.
Use of Estimates in Preparation of Financial Statements: In preparing financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions based on available information. These
estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. Areas
involving the use of management's estimates and assumptions include the
allowance for loan losses, the realization of deferred tax assets and the
depreciation of premises and equipment.
Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. It is the opinion of management that all adjustments necessary for a
fair
7
<PAGE> 8
WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
presentation have been made and that all adjustments were of a normal recurring
nature. The Annual Report of the Company for the year ended December 31, 1999
contains consolidated financial statements and related notes which should be
read in conjunction with the accompanying consolidated financial statements.
Reclassifications: Certain amounts in the 1999 consolidated financial statements
have been reclassified to conform to the 2000 presentation.
NOTE 2 - LOANS
Loans at March 31, 2000 and December 31, 1999, were as follows:
March 31, December 31,
2000 1999
---- ----
Commercial $21,072,784 $18,459,745
Home equity 2,989,722 2,091,354
Residential mortgage
and construction 2,022,100 1,563,911
Consumer installment 1,188,403 1,184,246
Credit card and other 90,845 71,963
----------- -----------
$27,363,854 $23,371,219
=========== ===========
NOTE 3 - DEPOSITS
Deposits at March 31, 2000 and December 31, 1999, were as follows:
March 31, December 31,
2000 1999
---- ----
Noninterest-bearing demand $ 4,432,934 $ 3,639,186
Interest-bearing demand 2,888,957 2,132,099
Savings 13,198,591 11,107,154
Money market 7,232,850 6,960,429
Time under $100,000 2,544,838 1,623,193
Time $100,000 and over 2,989,868 1,141,407
----------- -----------
Total $33,288,038 $26,603,468
=========== ===========
8
<PAGE> 9
WESTERN RESERVE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company and the Bank lease their facility under an operating lease from a
member of the Board of Directors. The lease term is for ten years, with two
five-year renewal options. The Company has recorded $27,101 of rent expense
under the lease year-to-date through March 31, 2000.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with the Chief Executive Officer. The
agreement, which expires December 31, 2001, provides a base annual salary of
$125,000. In the event the officer is terminated without cause, the Company has
an obligation to pay the officer's salary through the date of termination, plus
eighteen months salary as severance, which totals approximately $195,000.
NOTE 6 - INCOME TAXES
The Company records income taxes using the liability method. This method
provides that deferred tax assets and liabilities, which are the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, are computed using current tax rates and
recorded on the balance sheet. The tax benefit associated with the net operating
loss carryforward has been offset with a valuation allowance as of March 31,
2000, since the Company has no history of generating taxable income. Also, the
unrealized loss on available-for-sale securities is presented on a gross basis,
since any related deferred tax asset has been offset with a valuation allowance.
9
<PAGE> 10
WESTERN RESERVE BANCORP, INC.
MARCH 31, 2000
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL INFORMATION
($000's except per share data) 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 38,464 $ 31,543 $ 28,433 $ 25,835 $ 20,105
Securities available for sale 5,878 5,892 5,921 5,952 --
Total loans 27,364 23,371 15,953 9,039 2,734
Allowance for loan losses 349 307 209 123 38
Total deposits 33,288 26,603 23,371 20,584 14,552
Shareholders' equity 4,855 4,868 5,011 5,184 5,467
INCOME STATEMENT DATA:
Total interest income $ 676 $ 561 $ 445 $ 307 $ 191
Total interest expense 301 240 191 147 92
--------- --------- --------- --------- ---------
Net interest income 375 321 254 159 99
Provision for loan losses 57 98 86 85 26
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses 318 223 168 74 73
Noninterest income 28 19 17 13 13
Noninterest expense 345 356 328 324 311
--------- --------- --------- --------- ---------
Net income (loss) before income taxes $ 1 $ (113) $ (142) $ (237) $ (225)
========= ========= ========= ========= =========
PER SHARE DATA:
Basic and diluted earnings (loss)
per common share $ 0.00 $ (0.35) $ (0.44) $ (0.74) $ (0.70)
Book value per share 15.16 15.20 15.64 16.19 17.07
Cash dividends per share 0.00 0.00 0.00 0.00 0.00
Average shares used for net earnings
per share calculations 320,267 320,267 320,267 320,267 320,267
OPERATING RATIOS (%):
Total net loans to total deposits 81.16% 86.70% 67.36% 43.32% 18.53%
Total shareholders' equity to total assets 12.62 15.43 17.62 20.07 27.19
Average shareholders' equity to average assets 13.93 16.14 18.89 22.94 33.12
Return on average equity (annualized) 0.09 (9.16) (11.18) (17.80) (16.13)
Return on average assets (annualized) 0.01 (1.48) (2.11) (4.08) (5.34)
Allowance for loan losses to total loans 1.27 1.31 1.31 1.36 1.38
AVERAGE BALANCES:
Average assets $ 34,769 $ 30,707 $ 26,957 $ 23,208 $ 16,859
Average shareholders' equity 4,843 4,955 5,092 5,325 5,584
</TABLE>
10
<PAGE> 11
WESTERN RESERVE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
OVERVIEW
The following discussion compares the financial condition of Western Reserve
Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Western Reserve
Bank (the Bank) at March 31, 2000, to December 31, 1999, and the results of
operations for the three months ended March 31, 2000 and 1999. This discussion
should be read in conjunction with the interim financial statements and
footnotes included herein.
Certain statements contained in this report that are not historical facts are
forward looking statements that are subject to certain risks and uncertainties.
When used herein, the terms "anticipates," "plans," "expects," "believes," and
similar expressions as they relate to the Company or its management are intended
to identify such forward looking statements. The company's actual results,
performance or achievements may materially differ from those expressed or
implied in the forward-looking statements. Risks and uncertainties that could
cause or contribute to such material differences include, but are not limited
to, general economic conditions, the interest rate environment, competitive
conditions in the financial services industry, changes in law, governmental
policies and regulations, and rapidly changing technology affecting financial
services.
FINANCIAL CONDITION
Total assets as of March 31, 2000 increased 21.9%, or $6,920,746, to
$38,463,598, compared with $31,542,852 at December 31, 1999. The increase in
total assets was funded primarily by the Bank's continuing growth of new deposit
accounts. Deposits increased to $33,288,038 at March 31, 2000, an increase of
$6,684,570, or 25.1%, compared to the $26,603,468 at December 31, 1999. Of the
increased deposits, approximately $3,993,000 was used to make loans to the
bank's borrowers, and $2,996,000 was placed in short-term federal funds sold in
anticipation of continuing loan demand and for liquidity purposes. Cash and cash
equivalents increased $2,812,035 to $4,249,651 at March 31, 2000 from $1,437,616
at December 31, 1999.
Total loans at March 31, 2000, were $27,363,854, compared to $23,371,219 at
December 31, 1999, an increase of $3,992,635, or 17.1%. As of March 31, 2000,
commercial loans to businesses were $21,072,784, or 77.0% of total loans.
$5,011,822, or 18.3%, of total loans were residential real estate and home
equity loans, and $1,279,248, or 4.7%, were consumer installment and credit card
loans. There were no mortgage loans held for sale at March 31, 2000 or December
31, 1999. At March 31, 2000 and December 31, 1999, there were no loans that were
past due or considered to be impaired. Management anticipates that loan demand
will continue to be strong, especially in the commercial loan segment. The
Bank's loan-to-deposit ratio as of March 31, 2000, was 82.2%. Management expects
that the loan-to-deposit ratio will increase to approximately 85%-90%.
11
<PAGE> 12
WESTERN RESERVE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
FINANCIAL CONDITION (CONTINUED)
The Bank currently holds approximately $6 million of short-term U.S. government
agency securities in its available-for-sale investment portfolio. These
securities were purchased in the second quarter of 1999 to enhance yield. As
loan demand continues to increase, if the Bank needs additional funds it could
sell these securities or use them as collateral for short-term borrowings. As of
March 31, 2000, the maturity dates of these securities ranged from April 2001 to
October 2003.
As discussed above, total deposits increased to $33,288,038 at March 31, 2000,
compared to $26,603,468 at December 31, 1999. Deposits at March 31, 2000
consisted of $4,432,934 or 13.3% in noninterest-bearing demand deposits,
$2,888,957 or 8.7% in interest-bearing NOW accounts, $20,440,266 or 61.4% in
savings and money market accounts, $4,856,160 or 14.6% in certificates of
deposit, and $669,721 or 2.0% in IRAs. During the first quarter of 2000,
deposits increased more rapidly than in the previous two quarters. This was due
in part to the Bank obtaining approximately $1,550,000 in six-month CDs through
the State of Ohio's Bid Ohio program. The rates on these CDs range from 6.01% to
6.251%. Also, the Bank offered a 13-month CD special which brought in
approximately $1,041,600 at an average rate of 6.135% in the first quarter of
2000. As anticipated, much of the deposit growth continues to be in Market Rate
Savings accounts. This product is a liquid savings account that offers tiered
rates which, at balances of $15,000 or more, are indexed to a national
money-market average, plus 5 to 15 basis points. The weighted average cost of
all market rate savings accounts during the first quarter of 2000 was 5.00%.
Total shareholders' equity decreased $13,692, to $4,854,551 at March 31, 2000,
from $4,868,243 at December 31, 1999. This decrease was due to $14,728
additional unrealized losses on available-for-sale securities, which was
partially offset by net income of $1,036 for the first quarter of 2000.
RESULTS OF OPERATIONS
The Bank recorded its first monthly profit in February 2000, and continued to be
profitable from that point. For the first three months of 2000, consolidated net
income was $1,036, compared to a net loss of $225,160 for the same period in
1999. To facilitate understanding of the Bank's growth and activities during
1999 and year-to-date 2000, a comparison of each of the quarters of 1999 will be
presented in addition to comparisons of the first quarter of 2000.
12
<PAGE> 13
WESTERN RESERVE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
RESULTS OF OPERATIONS (CONTINUED)
The Corporation's net income for the first three months of 2000 was $1,036. This
compares with 1999 quarterly net losses of $113,488 in the fourth quarter, and
$142,323, $236,950 and $225,160 in the third, second and first quarters,
respectively.
Net interest income before the provision for loan losses for the first three
months of 2000 was $374,979, compared to $99,254 in the first quarter of 1999.
Interest income on loans was $564,270 in the first quarter of 2000, up from
$28,873 in the first quarter of 1999. Interest income from investments and
short-term funds was $112,027 in the first three months of 2000, compared to
$162,228 in the first quarter of 1999. The decrease in 2000 was due to more of
the Bank's funds being used to fund higher-yielding loans. Interest expense
totaled $301,318 in the first three months of 2000, compared to $91,847 in the
first quarter of 1999.
The Bank's net interest margin for the first three months of 2000 was 4.53%
(including loan fees of $15,418, which contributed 0.19% to the net interest
margin). In 1999, the net interest margin by quarter (including loan fees) was
4.45% in the fourth quarter, 4.04% in the third, 3.01% in the second and 2.62%
in the first quarter. The net interest margin has continued to improve as more
of the Bank's assets have been shifted from short-term investments and federal
funds sold to higher-yielding loans. The Bank's yield on earning assets
continues to strengthen, to 8.17% (including loan fees) in the first quarter of
2000, up from 7.76% in the fourth quarter of 1999, 7.08% during the third
quarter, 5.80% in the second quarter and 5.04% in the first quarter. The cost of
interest-bearing funds has increased as well, to 4.70% in the first quarter of
2000, up from 4.37% in the fourth quarter 1999, 4.11% in the third quarter,
3.99% in the second quarter and 4.10% in the first quarter of 1999.
The provision for loan losses is directly related to the rapid loan growth
experienced by the Bank. In the first three months of 2000, the Bank provided
$56,500 for future loan losses. During 1999, $98,000 was expensed in the fourth
quarter, $86,000 in the third quarter, $85,300 in the second quarter and $26,000
in the first quarter. Management's determination of the appropriate level of the
provision for loan losses and the adequacy of the allowance for loan losses is
based, in part, on the consideration of historical loss experiences of other
similar community financial institutions which management believes are
representative of the expected loss experience of the Bank. Other factors
considered by management include the composition of the loan portfolio, current
and anticipated economic conditions, the creditworthiness of the Bank's
borrowers and other related factors. As of March 31, 2000 and December 31, 1999,
there were no loans more than 15 days delinquent. One loan, in the amount of
$14,746, was charged-off in January 2000. Although the loan was just 40 days
past due, management determined that it was probable that the amounts due under
the terms of the loan would not be repaid, and therefore the loan was placed
into nonaccrual status, interest earned but not yet collected was reversed, and
the loan was charged off.
13
<PAGE> 14
WESTERN RESERVE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
RESULTS OF OPERATIONS (CONTINUED)
Total noninterest income for the first three months of 2000 was $27,573, up from
$12,643 for the same period in 1999. Noninterest income was $19,182 in the
fourth quarter of 1999, compared with $16,983, $13,129 and $12,643 in the third,
second and first quarters, respectively. The largest components of other
noninterest income are fee income from the bank's credit card and ATM programs,
the rental of safe deposit boxes, and the sales of checks to depositors.
Noninterest expenses were $345,016 for the first three months of 2000, compared
with $311,057 in the same period of 1999. During 1999, noninterest expenses were
relatively level, with $355,885 in the fourth quarter, $327,712 in the third
quarter, $323,960 in the second quarter and $311,057 in the first quarter. Total
"other expenses" of $63,486 in the first three months of 2000 consisted
primarily of the following:
Supplies, printing and postage $ 11,191
Public relations and contributions 9,394
Marketing and advertising 8,730
Professional fees 8,643
Loan expenses 8,000
Insurance 6,301
Travel and entertainment 3,247
Telephone 2,906
Other 5,074
--------
Total $ 63,486
========
Management expects that noninterest expenses will continue to increase slightly
during the next several quarters in conjunction with the growth of the Bank.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability to fund loan demand, meet deposit
customers' withdrawal needs and provide for operating expenses. As summarized in
the Statement of Cash Flows, the Company's main source of cash flow is from
receiving deposits from its customers, and to a lesser extent, repayment of loan
principal and the interest income on loans and investments. The primary uses of
cash are lending to the Bank's borrowers, and investing in securities and
short-term interest-earning assets. Management believes its current liquidity
level is sufficient to meet future anticipated growth. However, if loan demand
significantly outpaces deposit growth, alternative sources of liquidity include
the sale of available-for-sale securities from the Bank's investment portfolio,
Federal Home Loan Bank advances, the purchase of federal funds, repurchase
agreements, or brokered deposits.
14
<PAGE> 15
WESTERN RESERVE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At March 31, 2000 and December 31, 1999, Western Reserve Bank's risk-based
capital ratios based on Federal Reserve Board guidelines were as follows:
<TABLE>
<CAPTION>
March 31, December 31, Well-
2000 1999 capitalized
---- ---- -----------
<S> <C> <C> <C>
Tier 1 "core" capital to risk-weighted assets 15.1% 17.6% 6.0%
Total capital to risk-weighted assets 16.1 18.7 10.0%
Tier 1 leverage ratio 14.1 16.0 5.0%
</TABLE>
As the Bank continues to grow, management expects its risk-based capital ratios
to continue to decrease to more typical levels.
As a de novo, or start-up, institution, the Bank is required, under the terms of
its approval order from the State of Ohio, to maintain a minimum ratio of its
shareholders' equity to total assets of at least 9% during its first three years
of operations. At March 31, 2000, the Bank's ratio of shareholders' equity to
total assets was 12.47%, compared to 15.24% at December 31, 1999. Based on
management's projections of continuing strong growth of the Bank, the Bank may
need additional capital in late 2000 to maintain this requirement. One source
the Bank is considering is the Company's raising additional capital through a
limited stock offering.
As discussed above, total shareholders' equity decreased $13,692, to $4,854,551
at March 31, 2000 from $4,868,243 at December 31, 1999. The decrease was due to
an increase in the unrealized loss on available-for-sale securities, partially
offset by the Corporation's net income.
15
<PAGE> 16
WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
PART II--OTHER INFORMATION
Items 1 - 3 and 5 are not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) No matters were submitted to a vote of security holders in the
quarter ended March 31, 2000
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of Western Reserve Bancorp, Inc. *
3.2 Bylaws of Western Reserve Bancorp, Inc. *
4.0 Stock Certificate of Western Reserve Bancorp, Inc. *
10.1 Employment Contract of Edward J. McKeon *
10.2 Lease Agreement by and between Michael Rose DBA Washington
Properties and Western Reserve Bancorp, Inc. *
10.3 Western Reserve Bancorp, Inc. 1998 Stock Option Plan *
27.1 Financial Data Schedule **
* Previously filed and incorporated herein by reference.
** Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
(b) No current reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2000
16
<PAGE> 17
WESTERN RESERVE BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Western Reserve Bancorp, Inc.
Date: May 15, 2000 By: /s/ Edward J. McKeon
--------------------
Edward J. McKeon
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Cynthia A. Mahl
--------------------
Cynthia A. Mahl
Senior Vice President/Chief Financial Officer
(Principal Financial Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION OF WESTERN RESERVE BANCORP, INC.
AS OF MARCH 31, 2000 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,087,651
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,162,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,877,850
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 27,363,854
<ALLOWANCE> 348,754
<TOTAL-ASSETS> 38,463,598
<DEPOSITS> 33,288,038
<SHORT-TERM> 266,989
<LIABILITIES-OTHER> 54,020
<LONG-TERM> 0
0
0
<COMMON> 320,267
<OTHER-SE> 4,534,284
<TOTAL-LIABILITIES-AND-EQUITY> 38,463,598
<INTEREST-LOAN> 564,270
<INTEREST-INVEST> 90,622
<INTEREST-OTHER> 21,405
<INTEREST-TOTAL> 676,297
<INTEREST-DEPOSIT> 298,568
<INTEREST-EXPENSE> 301,318
<INTEREST-INCOME-NET> 374,979
<LOAN-LOSSES> 56,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 345,016
<INCOME-PRETAX> 1,036
<INCOME-PRE-EXTRAORDINARY> 1,036
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,036
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
<YIELD-ACTUAL> 4.53
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 307,000
<CHARGE-OFFS> 14,746
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 348,754
<ALLOWANCE-DOMESTIC> 348,754
<ALLOWANCE-FOREIGN> 0
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