Western Reserve Bancorp, Inc. 1KSB

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB


þ		Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007


o		Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 000-51264

Western Reserve Bancorp, Inc.

(Name of Small Business Issuer in Its Charter)


Ohio		31-1566623

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4015 Medina Road, Suite 100, Medina, Ohio		44256

(Address of principal executive offices)		(Zip Code)

(330) 764-3131

(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value, $1.00 stated value

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d)of the Exchange Act. o

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes þ No o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The Issuer’s gross revenues for its most recent fiscal year were $11,248,386.

The aggregate market value of the voting stock held by non-affiliates of the Issuer as of March 14, 2008 was approximately $10,559,610 (which excludes 112,868 shares held by directors and executive officers). As of said date, the Issuer had 582,184 shares of Common Stock issued and outstanding.


Documents incorporated by reference:
Parts I and II:		Portions of Registrant’s 2007 Annual Report to Shareholders
Part III:		Portions of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held April 30, 2008

Transitional Small Business Disclosure Format (check one): Yes o No þ

TABLE OF CONTENTS


PART I
	Item 1. Description of Business
	Item 1. Business-Statistical Disclosure
	Item 2. Description of Property
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
	Item 6. Management’s Discussion and Analysis and Results of Operations
	Item 7. Financial Statements
	Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 8A(T). Controls and Procedures
	Item 8B. Other Information
PART III
	Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act
	Item 10. Executive Compensation
	Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 12. Certain Relationships and Related Transactions
	Item 13. Exhibits
	Item 14. Principal Accountant Fees and Services
SIGNATURES
EXHIBIT INDEX
EX-4
EX-13
EX-21
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. Description of Business

General

Western Reserve Bancorp, Inc. (“the Company”), an Ohio corporation incorporated on February 25, 1997, is a bank holding company that owns all of the capital stock of the Western Reserve Bank, an Ohio state-chartered bank headquartered in Medina, Ohio (the “Bank”). From the date of the Company’s inception through October 1998, the Company and the Bank conducted no business other than matters incidental to their organization and opening for business. On February 24, 1998, the Company commenced an initial public offering (the “Offering”) of up to 625,000 shares of its Common Stock pursuant to a Registration Statement on Form SB-2 filed with the Securities and Exchange Commission (“SEC”) on February 12, 1998, as amended. The Offering was concluded on July 1, 1998. A total of 400,334 shares of the Company’s common stock were sold, with proceeds, net of offering costs, of $6,368,499. Approximately $5,800,000 of the proceeds was used to provide initial capitalization for the Bank. The Bank commenced business on November 6, 1998.

During 2000, the Company sold an additional 84,731 shares of common stock in an intra-state offering exempt from the Securities Act of 1933 pursuant to Section 3(a)(11) and Rule 147 promulgated thereunder. A registration statement was filed with the Ohio Division of Securities on Form 6(A)(1) on September 11, 2000. The Offering resulted in proceeds, net of offering costs, of approximately $1,577,000.

During 2004, the Company sold an additional 83,277 shares of common stock in an intra-state offering exempt from the Securities Act of 1933 pursuant to Section 3(a)(11) and Rule 147 promulgated thereunder. A registration statement was filed with the Ohio Division of Securities on Form 6(A)(1) on May 3, 2004. The Offering resulted in proceeds, net of offering costs, of approximately $1,968,000.

The Company declared a five-for-four stock split as of September 22, 2006 for shareholders of record as of September 5, 2006. A total of 114,270 new shares were issued and cash of $4,803 was paid for 141 fractional shares. All share and per share amounts have been adjusted to reflect the stock split.

The Company and the Bank currently maintain their offices at 4015 Medina Road, Suite 100, Medina, Ohio 44256. On October 4, 2004, the Bank opened a second full-service office located at 8751 Brecksville Road, Brecksville, Ohio 44141.

The Company’s telephone number is (330) 764-3131, and its web site is www.westernreservebank.com.

Business Strategy

In the mid- to late-1990s, many of the financial institutions in the Medina County market area had been acquired by large regional organizations headquartered outside of the area. As a result, the organizers believed that the competitive and economic environment was right for a new, independent, locally owned and managed bank to serve the financial needs of the residents and businesses in the Medina area. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended. Currently, the only business the Company is engaged in is the ownership of its wholly owned bank subsidiary, Western Reserve Bank. However, in the future, the holding company structure could provide flexibility for the expansion of the Company’s business through additional banking-related services which commercial banks are currently unable to provide under present law.

The Bank offers a broad range of deposit services for consumers and businesses, including noninterest-bearing and interest-bearing checking accounts, savings and money market accounts, time certificates of deposit and individual retirement accounts. The Bank engages in a full line of lending activities, including all types of commercial loans to businesses, consumer loans to individuals for household, family and other personal expenditures, and real estate loans including first mortgage loans, home equity loans and construction loans. The Bank offers both fixed rate and variable rate residential mortgage loans. Generally, the Bank does not keep longer-term fixed rate mortgages in its portfolio, but participates in a Mortgage Purchase Program with the Federal Home Loan Bank of Cincinnati to assist the Bank’s customers in obtaining fixed rate mortgage loans. The Bank also offers other services, including debit and ATM cards with access to regional and national automated teller networks, a courier service for business deposits, remote deposit capture, cash management services, internet banking for both businesses and consumers, safe deposit boxes, cashiers checks, traveler’s checks and two ATMs.

Under applicable law, the Bank is permitted to make loans to individual borrowers in aggregate amounts of up to 15 percent of the sum of the Bank’s total capital and allowance for loan losses. At December 31, 2007, the Bank’s legal lending limit was

approximately $2,233,000. The Board of Directors has established an “in-house” lending limit of $1,500,000, although, under certain circumstances, the Board Loan Committee can authorize, on a case-by-case basis, lending relationships in excess of this “in-house” limit. The Board may from time to time raise or lower the “in-house” limit as it deems appropriate to comply with safe and sound banking practices and respond to overall economic conditions. The Board approved an increase to the “in-house” limit on January 17, 2008 to $1,800,000. The Company believes that the Bank’s legal lending limit is adequate to satisfy the credit needs of most of its clients. For credit needs that exceed the Bank’s legal lending limit, the Bank has the ability to participate with other banks to meet the credit need. In such instances, the Bank intends to be the lead bank in the loan arrangement.

The Bank’s market area is competitive. There are at least fifteen commercial banks, savings institutions and credit unions with nearly thirty offices in the Bank’s primary service areas of Medina and Brecksville. In recent years, several banks and savings institutions headquartered outside of Medina County acquired or opened new branches in the Medina area. However, in the past few years, many of the area’s financial institutions have been acquired by large regional organizations headquartered outside of the Medina area. The rapid growth of the Bank in the nine years since it opened has confirmed that belief. The Bank also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services.

Employees

At December 31, 2007, the Bank has 37 full-time-equivalent employees (33 full-time and 8 part-time). None of its employees is covered by a collective bargaining agreement. The Company considers its employee relations to be excellent.

Reports to Security Holders

The Company files annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and proxy solicitation materials, as applicable, under Commission Regulation 14A. The public may read and copy any materials the Company files with the Commission at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov.

SUPERVISION AND REGULATION

General

Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities including, but not limited to, the Board of Governors of the Federal Reserve System (the “FRB”), the Federal Deposit Insurance Corporation (the “FDIC”), the Ohio Division of Financial Institutions (the “Division”), the Internal Revenue Service (the “IRS”), the state taxing authorities and the Securities and Exchange Commission (the “SEC”). The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions such as the Company and the Bank regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and the Bank establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds and the depositors, rather than the shareholders, of financial institutions.

The following references to material statutes and regulations affecting the Company and the Bank are brief summaries thereof and do not purport to be complete. As such, they are qualified in their entirety by reference to such statutes and regulations. Any change in applicable law or regulations may have a material effect on the business of the Company and the Bank.

The Company

General. The Company, as the sole stockholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the FRB under the Bank Holding Company Act of 1956 (the “BHCA”) as amended. In accordance with FRB policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank. Under the BHCA, the Company is subject to periodic examination by the FRB and is required to file with the FRB periodic reports of its operations and such additional information as the FRB may require. The Company is also subject to regulation by the Division under Ohio law.

Investments and Activities. Under the BHCA, a bank holding company must obtain FRB approval before acquiring substantially all the assets of any bank or bank holding company or ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, it would own or control, directly or indirectly, more than five percent (5%) of the voting shares of such bank or bank holding company. The BHCA also prohibits the Company, with certain limited exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. The principal exception to this prohibition allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking as to be a proper incident thereto.

Affiliate Transactions. Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, limit borrowings by holding companies and other non-bank subsidiaries from affiliated insured depository institutions, and also limit other transactions between holding companies and their non-bank subsidiaries and their affiliated insured depository institutions. Section 23A of the Federal Reserve Act generally requires that an insured depository institution’s loan to its non-bank affiliates be secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution’s transactions with its non-bank affiliates be on arms-length terms.

Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been notified and has not objected to the transaction. Under the rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.

Gramm-Leach-Bliley Act. The Financial Services Modernization Act of 1999, better known as the Gramm-Leach-Bliley Act (the “GLBA”), permits bank holding companies to become “financial holding companies” and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed and has at least a satisfactory rating under the Community Reinvestment Act. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. The GLBA defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the FRB has determined to be closely related to banking. The Company has not elected to become a financial holding company under this regulatory framework.

The Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s Chief Executive Officer and Chief Financial Officer are required which attest that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. Additionally, the Chief Executive Officer and Chief Financial Officer are required to certify that the Company has effective disclosure controls and procedures. In accordance with Section 404 of the Sarbanes-Oxley Act, the Company implemented a program to monitor the Company’s internal control over financial reporting for its fiscal year ended December 31, 2007. This included the identification of significant processes and accounts, documentation of the design of control effectiveness over process and entity level controls and testing of the operating effectiveness of key controls over financial reporting. The Company’s independent registered public auditing firm will be required to issue an opinion on the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2009. See Item 8A(T) of the Company’s annual report on Form 10-KSB for more information regarding management’s evaluation of the Company’s disclosure controls and procedures, and the Company’s internal control over financial reporting.

Also in response to the Sarbanes-Oxley Act, the Company adopted a series of policies and procedures to improve its corporate governance practices, including the adoption of charters for the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. The charters for these three committees are designed to help the committees function more efficiently and with greater independence from the Board of Directors, which was one of the primary goals in the adoption of Sarbanes-Oxley. The members of each of these three committees are currently and, under the terms of the respective charters, will continue to be “independent” pursuant to standards adopted by NASDAQ. Further, the Board of Directors has determined that under the NASDAQ “independence” standards, a majority of the members of the Board of Directors is currently independent. The Board of Directors also has adopted a Code of Business Conduct and Ethics (the “Code”) which applies to all officers, directors and employees of the Company and the Bank. The Code addresses topics such as compliance with laws and regulations, honest and ethical conduct, conflicts of interest, confidentiality and protection of Company assets, fair dealing and accurate and timely periodic reports, and also provides for enforcement mechanisms. The administration of the Code has been delegated to the Nominating and Governance Committee of the Board of Directors. Copies of the Company’s Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter and Code of Business Conduct and Ethics are available on the Company’s website at www.westernreservebank.com.

The Bank

General. The Bank is an Ohio-chartered bank and member of the Federal Reserve System. The Bank is therefore regulated by the Division as well as the FRB. The regulatory agencies have the authority to regularly examine the Bank, which is subject to all applicable rules and regulations promulgated by its supervisory agencies. In addition, the deposits of the Bank are insured by the Federal Deposit Insurance Corporation up to applicable limits through the Deposit Insurance Fund (DIF) and, therefore, the Bank is subject to FDIC regulations.

Deposit Insurance. Deposit accounts of the Bank are insured by the FDIC, generally up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The Company is required to pay deposit insurance premium assessments to the FDIC. On February 15, 2006, federal legislation to reform federal deposit insurance was enacted which requires, among other things, the deposit reserve ratio be modified to provide for a range between 1.15% and 1.50% of estimated insured deposits. The FDIC has designated the reserve ratio for the deposit insurance fund during 2007 at 1.25% of estimated insured deposits.

Effective March 31, 2006, the FDIC merged the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) to form the Deposit Insurance Fund (DIF). The merger of the BIF and the SAIF into the Deposit Insurance Fund does not affect the authority of the Financing Corporation (FICO) to impose and collect assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980’s to recapitalize the Federal Savings and Loan Insurance Corporation. The annual FICO assessment rate as of the first quarter of 2008 is 1.12 basis points.

On November 2, 2006, the FDIC adopted final regulations that assess deposit insurance premiums based on risk. The new regulation will enable the FDIC to more closely tie each financial institution’s deposit insurance premiums to the risk it poses to the DIF. Under the new risk-based assessment system, the FDIC will evaluate the risk of each financial institution based on its supervisory rating, its financial ratios and its long-term debt issuer rating. For institutions deemed by the FDIC to pose the least amount of risk to the DIF, the new rates vary between five and seven cents for every $100 of domestic deposits. The assessment paid by the Company during the year ended December 31, 2007 was approximately six cents for every $100 of domestic deposits and it is expected to remain near this amount for the year ended December 31, 2008. The maximum assessment rate for high risk institutions is currently forty-three cents per $100 in assessable deposits.

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank.

Capital Requirements. The FRB, Division and FDIC require banks and holding companies to maintain minimum capital ratios. The “risk-adjusted” capital guidelines for the Bank involve a mathematical process of assigning various risk weights to different classes of assets, then evaluating the sum of the risk-weighted balance sheet structure against the Bank’s capital base. The rules set the minimum guidelines for the ratio of capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) at 8%. Tier 1 Capital is comprised of common equity, retained earnings, and a limited amount of perpetual preferred stock less certain intangible items. At least half of the total capital is to be Tier 1 Capital. The remainder may consist of a limited amount of subordinated debt, other preferred stock, and a portion of the loan loss reserves (not to exceed 1.25% of risk-weighted assets). The Bank anticipates maintaining capital at a level sufficient to be classified as “well capitalized” pursuant to the Federal Reserve guidelines.

In addition, the federal banking regulatory agencies have adopted leverage capital guidelines for banks and bank holding companies. Under these guidelines, banks and bank holding companies must maintain a minimum ratio of three percent (3%) Tier 1 Capital to total assets. However, most banking organizations are expected to maintain capital ratios well in excess of the minimum level and generally must keep their Tier 1 ratio at or above 5%. The Bank intends to maintain capital well above the regulatory minimum.

The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

In addition to the minimum regulatory capital requirements discussed above, provisions contained in the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) expressly provide for certain supervisory actions which are directly keyed to the capital levels of an insured depository institution. These “prompt corrective action” provisions impose progressively more restrictive constraints on operations, management and capital distributions of a particular institution as its regulatory capital decreases. Using Tier 1 risk-based, total risk-based, and Tier 1 leverage capital ratios as the relevant measures, FDIC insured depository institutions are grouped into one of the following five prompt corrective action capital categories: well capitalized, adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. An institution is considered well capitalized if it has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a Tier 1 leverage capital ratio of at least 5%, provided, however, such institution is not subject to a written advisement, order or capital directive to meet and maintain a specific capital level for any particular capital measure. An adequately capitalized institution must have a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4% and a Tier 1 leverage capital ratio of at least 4% (3% if the institution has achieved the highest composite rating in its most recent examination).

As of December 31, 2007, the Bank was considered “well-capitalized” and exceeded its minimum regulatory capital requirements with a total risk-based capital ratio of 10.9%, a Tier 1 risk-based capital ratio of 9.0% and a leverage ratio of 7.3%. As a result of the Corporation’s equity offering in the second half of 2000, the Bank, on January 2, 2001, issued $1,500,000 of subordinated debt to the Corporation. This debt is treated as Tier 2 capital (subject to certain limitations) for the Bank’s risk-based capital calculations. Also, as of December 31, 2007, the Company has approximately $200,000 remaining from the Company’s equity offering in 2004 available to invest in the Bank as the Bank needs additional capital. During 2007, the Company downstreamed $300,000 to the Bank as capital. No funds were downstreamed from the Holding Company to the Bank to maintain capital adequacy requirements during 2006.

The Bank has grown rapidly in its nine-year history, and continued rapid growth will require it to consider capital strategies to support that growth. The Company has a $4,000,000 line of credit through an unaffiliated financial institution, with up to $1,000,000 for the purpose of providing additional capital to the Bank as needed, and up to $3,000,000 for liquidity purposes. By the Company borrowing against the line of credit and then investing the funds into the Bank as capital, the Bank is able to manage its capital ratios. The interest rate on the line is variable, at 1.10% below the prime rate or LIBOR plus 1.50%, which is at the Company’s option at the time the line is drawn. The line is secured by 100% of the stock of the Bank. There are certain covenants on the line relating to the Company’s and the Bank’s operating performance and capital status. As of December 31, 2007 and December 31, 2006, the Company and the Bank were in compliance with all covenants. The Company did not borrow against the line of credit during 2007 or 2006. As of December 31, 2007 and December 31, 2006 the balance on the line of credit was zero. Other capital-raising strategies that the Company could consider in the future include issuing trust preferred securities, selling more common stock or issuing subordinated debt at the Bank level.

Dividends. Ohio law and FRB provisions prohibit the Bank, without the prior approval of both the Division and the FRB, from paying dividends in an amount greater than the lesser of its undivided profits or the total of its net income for that year, combined with its retained net income from the preceding two years. Accordingly, the Bank will have approximately $1,960,000, plus its net income in 2008, available to be paid as dividends to the Company. The payment of dividends by any financial institution or its holding company is also affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be under-capitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2007.

Branching Authority. Ohio chartered banks have the authority under Ohio law to establish branches anywhere in the State of Ohio, subject to receipt of all required regulatory approvals. Additionally, in May 1997 Ohio adopted legislation “opting in” to the provisions of Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) which allows banks to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is also allowed by the Riegle-Neal Act and authorized by Ohio law.

Management and the Board, on an ongoing basis, evaluate selected growth opportunities, including branching. Several criteria are considered to be essential for an expansion, including: the area must have a large deposit base, the community must have a strong community identity; there should not be another community bank located in the same area; and there must be significant opportunities for profit.

After extensive study and evaluation throughout 2003, the Board authorized the Bank to pursue expansion into the Brecksville, Ohio market area. In December 2003, the Ohio Division of Financial Institutions approved the Bank’s application to establish a banking office in Brecksville. The City of Brecksville granted its approval for the project, and remodeling began in March 2004 of a building located at 8751 Brecksville Road. The Bank became the anchor tenant of this building in October 2004, leasing nearly half of the available square footage. This office has a Regional President and offers all of the services and amenities that are offered in the Medina banking office. There is also a local advisory board of directors that offers guidance and assistance.

Depositor Preference. The Federal Deposit Insurance Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non deposit creditors and shareholders of the institution.

Privacy Provisions of Gramm-Leach-Bliley Act. Under GLB, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of GLB affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

Federal Home Loan Bank. The Federal Home Loan Banks (“FHLBs”) provide credit to their members in the form of advances. As a member of the FHLB of Cincinnati, the Bank must maintain an investment in the capital stock of an FHLB in an amount equal to the greater of 1% of the aggregate outstanding principal amount of the Bank’s residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of its advances from the FHLB.

Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in collateral in one or more of the following categories: fully-disbursed, whole first mortgage loans on improved residential property not more than 90 days delinquent or securities representing a whole interest in such loans; securities issued, insured or guaranteed by the United States Government or an agency thereof; deposits in any FHLB; or other real estate-related collateral acceptable to the applicable FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral.

Anti-Money Laundering Provisions of the USA Patriot Act of 2001. On October 26, 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was signed into law. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence community’s ability to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide-ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including: (a) due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons; (b) standards for verifying customer identification at account opening; and (c) rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Fiscal and Monetary Policies. The Bank’s business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Bank is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the FRB can have a material effect on the earnings of the Bank.

Additional and Pending Regulation. The Bank is also subject to federal regulation as to such matters as the maintenance of required reserves against deposits, limitations in connection with affiliate transactions, limitations as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement by the Bank of its own securities and other aspects of banking operations. In addition, the activities and operations of the Bank are subject to a number of additional detailed, complex and sometimes overlapping laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-in-Lending Act (Regulation Z), the Federal Equal Credit Opportunity Act (Regulation B), the Fair Credit Reporting Act (Regulation V), the Truth in Savings Act (Regulation DD), the Community Reinvestment Act (Regulation BB), anti-redlining legislation and antitrust laws.

Congress regularly considers legislation that may have an impact upon the operation of the Company and the Bank. At this time, the Company is unable to predict whether any proposed legislation will be enacted and, therefore, is unable to predict the impact such legislation may have on the operations of the Company and the Bank.

Item 1. Business-Statistical Disclosure

I.		DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

		The information on pages 37-40 of the Company’s 2007 Annual Report to Shareholders under the caption “Net Interest Income” of “Management’s Discussion and Analysis” is incorporated by reference.

II.		INVESTMENT PORTFOLIO

		The estimated fair values of securities available for sale at December 31, 2007 and 2006 are as follows:


			Gross		Gross			Weighted
	Fair		Unrealized		Unrealized			Average
	Value		Gains		Losses			Yield
2007
U.S. Government sponsored agencies	$	2,505,915	$	6,412	$	(518	)		4.82	%
Mortgage-backed		3,931,094		54,803		(5,483	)		5.29	%
Municipal		4,545,956		46,929		(12,181	)		5.53	%⁽¹⁾

	$	10,982,965	$	108,144	$	(18,182	)		5.28	%


2006
U.S. Government sponsored agencies	$	2,018,404	$	—	$	(6,596	)		4.85	%
Mortgage-backed		4,470,140		22,847		(10,163	)		5.24	%
Municipal		4,476,239		25,787		(9,811	)		5.54	%⁽¹⁾

	$	10,964,783	$	48,634	$	(26,570	)		5.29	%

Maturities of Investment Securities


	Due in one					Due in one					Due in five					Greater
	year or less					to five years					to ten years					than ten years
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
	Amount		Yields			Amount		Yields			Amount		Yields			Amount		Yields
U.S. Government sponsored agencies	$	500,021		4.23	%	$	1,501,684		4.88	%	$	504,210		5.25	%	$	—		—
Mortgage-backed		—		—			—		—			166,077		5.08			3,765,017		5.30	%
Municipal		—		—			338,087		5.27	⁽¹⁾		1,868,223		5.39	⁽¹⁾		2,339,646		5.68	⁽¹⁾

	$	500,021		4.23	%	$	1,839,771		4.95	%	$	2,538,510		5.34	%	$	6,104,663		5.45	%

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.


(1)		Fully tax-equivalent based on federal income tax structure applicable at December 31, 2007.

III.

LOAN PORTFOLIO

Types of Loans — Total loans on the balance sheet are comprised of the following classifications at December 31, 2007 and 2006.


	2007		2006
Commercial	$	110,433,677	$	97,772,133
Home equity lines of credit		6,663,412		7,860,647
Residential mortgage and construction		1,513,902		1,226,016
Consumer installment		2,985,560		3,261,615
Other		31,506		28,833

	$	121,628,057	$	110,149,244

Concentrations of Credit Risk: Western Reserve Bank grants commercial, residential real estate mortgage and installment loans to businesses and individuals mainly in Medina, Cuyahoga and contiguous counties in Ohio. Commercial loans include loans collateralized by business assets. At December 31, 2007, commercial loans secured by real estate make up approximately 61.7% of the loan portfolio. Other commercial loans to businesses comprise 29.1% of total loans, and are expected to be repaid from cash flows from operations of the businesses. Variable rate home equity lines of credit make up approximately 5.5% of the loan portfolio and are collateralized

III.

LOAN PORTFOLIO (Continued)

			by residential real estate. Residential mortgage and construction loans are 1.2% of the loan portfolio and are secured primarily by first mortgages on residential property. Installment loans to individuals and other loans make up approximately 2.5% of the loan portfolio and are primarily collateralized by consumer assets or are unsecured. At December 31, 2007, approximately 1.1% of the Bank’s total loan portfolio was unsecured.

	B.		Maturities and Sensitivities of Loans to Changes in Interest Rates — The following table shows the maturity distribution and sensitivity to changes in interest rates of loans outstanding as of December 31, 2007. Fixed rate loans are presented based on their maturity date, and variable rate loans with floating or adjustable interest rates are included based on their earliest repricing opportunity.

Loan Maturities and Sensitivity to Changes in Interest Rates


	Within		One to		After
	one year		five years		five years		Total
Commercial	$	59,032,514	$	50,452,581	$	948,582	$	110,433,677
Home equity lines of credit		6,663,412		—		—		6,663,412
Residential mortgage and construction		823,577		379,371		310,954		1,513,902
Consumer installment		2,638,972		226,107		120,481		2,985,560
Other		31,506		—		—		31,506

	$	69,189,981	$	51,058,059	$	1,380,017	$	121,628,057

			Of the loans due after one year, approximately $27,556,000 have variable interest rates, and $24,882,000 have fixed interest rates.

	C.		Risk Elements

Nonaccrual, Past Due, Restructured and Impaired Loans — The following schedule summarizes nonaccrual, past due, restructured and impaired loans at December 31.


		2007			2006
(a)	Loans accounted for on a nonaccrual basis	$	720,356		$	1,698,377
(b)	Accruing loans which are contractually past due 90 days or more as to interest or principal payments		—			—
(c)	Loans not included in (a) or (b) which are “Troubled Debt Restructurings” as defined by Statement of Financial Accounting Standards No. 15		—			—
(d)	Other loans defined as “impaired”		—			—


		$	720,356		$	1,698,377


	Percentage of allowance to non-performing loans		223	%		94	%

Management believes the allowance for loan losses at December 31, 2007 is adequate to absorb probable losses on nonperforming loans, as the allowance balance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on the Company’s loss experience, the loss experience of comparable companies, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time.

III.

LOAN PORTFOLIO (Continued)


	2007
Gross interest income that would have been recorded in 2007 on nonaccrual loans outstanding at December 31, 2007 if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period	$	40,617

Interest income actually recorded on nonaccrual loans and included in net income for the period		—

Interest income not recognized during the period	$	40,617

			Discussion of the Nonaccrual Policy

			The accrual of interest income is discontinued when the collection of a loan’s principal or interest, in whole or in part, is doubtful. When interest accruals are discontinued, interest income accrued in the current period is reversed. In general, while loans which are past due 90 days or more as to interest or principal payments are considered for nonaccrual status, management may elect to continue the accrual of interest when the estimated net realizable value of collateral, in management’s judgment, is sufficient to cover the principal balance and accrued interest and the loan is in process of collection.

	2.		Potential Problem Loans

			As of December 31, 2007, in addition to the $720,356 of loans reported under Item III, C.1., there are no other outstanding loans where known information about possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans pursuant to Item III. C.1 at some future date. There were no loans classified for regulatory purposes as loss, doubtful or substandard that have not been disclosed in Section 1 above.

	3.		Foreign Loans Outstanding

			None

	4.		Loan Concentrations

			As of December 31, 2007, commercial loans to entities classified as real estate holding companies comprise approximately $35,085,000, or 28.8% of the total loan portfolio. However, this category includes a significant proportion of loans for buildings that are owner-occupied, and that are classified as real estate holding companies solely because the owner of the operating company has formed a real estate holding company for the single purpose of owning the building that they then lease to their operating company.

	D.		Other Interest-Bearing Assets

			There are no other interest-bearing assets as of December 31, 2007 that would be required to be disclosed under Item III. C.1 or 2 if such assets were loans.

IV.

SUMMARY OF LOAN LOSS EXPERIENCE

The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31:


	2007			2006
Loans
Loans outstanding at end of period	$	121,628,057		$	110,149,244


Average loans outstanding during period	$	116,805,656		$	112,385,151


Allowance for loan losses
Balance at beginning of period	$	1,588,217		$	1,541,654

Loans charged-off
Commercial		202,300			47,264
Home equity lines of credit		—			96,656
Residential mortgage and construction		—			—
Consumer installment		1,368			—
Credit card		—			4,961

		203,668			148,881
Recoveries of loans previously charged-off
Commercial		104,795			235,674
Residential mortgage and construction		—			—
Consumer installment		220			—
Credit card		—			—

		105,015			235,674

Net loans charged-off (recovered)		98,653			(86,793	)
Provision (credit) for loan losses		116,202			(40,230	)


Balance at end of period	$	1,605,766		$	1,588,217


Ratio of net charge-offs (recoveries) during the period to average loans outstanding during the period		0.08	%		(0.08	)%

			The allowance for loan losses balance and the provision for loan losses are judgmentally determined by management based upon periodic reviews of the loan portfolio. In addition, management considers the level of charge-offs on loans as well as the fluctuations of charge-offs and recoveries on loans including the factors which caused these changes. Estimating the risk of loss and the amount of loss is inherently subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently probable based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values and other factors and estimates which are subject to change over time.

	B.		The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios.


					Percentage of Loans in
					Each Category to
	Allowance Amount				Total Loans
	2007		2006		2007			2006
Commercial	$	1,550,730	$	1,510,114		90.8	%		88.8	%
Home equity lines of credit		33,118		39,104		5.5			7.1
Residential mortgage & construction		5,241		4,624		1.2			1.1
Installment and credit card loans to individuals		16,442		34,299		2.5			3.0
Unallocated		235		76		0.0			0.0

Total	$	1,605,766	$	1,588,217		100.0	%		100.0	%

IV.

SUMMARY OF LOAN LOSS EXPERIENCE (Continued)

While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur.

V.		DEPOSITS

		The average amount of deposits and average rates paid are summarized as follows for the year ended December 31:


	2007					2006
	Average		Average			Average		Average
	Amount		Rate			Amount		Rate
Noninterest bearing demand deposits	$	15,569,503		0.00	%	$	14,004,469		0.00	%
Interest bearing demand deposits		6,435,294		1.00			7,011,898		1.00
Savings and money market accounts		73,089,677		4.63			52,889,525		4.31
Certificates of deposit and IRAs		40,857,055		4.48			44,604,064		4.04

	$	135,951,529		3.88		$	118,509,956		3.50

At December 31, 2007, the Bank had $12,847,567 of time certificates of deposit of $100,000 or more outstanding. Remaining maturities of these time deposits are as follows:


Three months or less	$	4,065,029
Over three through six months		3,258,034
Over six through twelve months		2,569,823
Over twelve months		2,954,681

	$	12,847,567

VI.		RETURN ON EQUITY AND ASSETS

		The ratio of net income to average shareholders’ equity and average total assets and certain other ratios are as follows:


	2007			2006
Average total assets	$	153,374,000		$	134,805,000
Average shareholders’ equity	$	13,345,000		$	12,223,000
Net income	$	817,214		$	1,151,166
Return on average total assets		0.53	%		0.85	%
Return on average shareholders’ equity		6.12	%		9.42	%
Cash dividends declared	$	0.00		$	0.00
Dividend payout percentage		n/a			n/a
Average shareholders’ equity to average total assets		8.70	%		9.07	%

VII.		SHORT-TERM BORROWINGS

		The Company did not have any reportable categories of short-term borrowings during or at the end of the reported periods.

Item 2. Description of Property

The Company leases premises for the Bank’s main office at 4015 Medina Road, Suite 100, Medina, Ohio, which also serve as the Company’s corporate headquarters. The leased premises consist of approximately 7,884 square feet of a three-story multi-tenant brick building constructed in 1998 with ample parking. The building is located on State Route 18, a major thoroughfare in Medina, approximately 1.5 miles west of Interstate 71 and 1 mile east of downtown Medina. The Bank has five interior teller stations (two of which are sit-down teller desks and three of which are traditional stand-up teller counters), a two-lane drive-through, a drive-up ATM and a night depository facility.

During 2002, the Bank leased additional office space in an adjacent building in the same office complex to accommodate the growth of the commercial lending department. There are approximately 2,500 square feet in this area. During 2007, the Company received $9,000 in rental income from subleasing this space.

In February 2004, the Bank leased approximately 3,900 additional square feet of office space adjacent to its headquarters at 4015 Medina Road, and the Loan Department moved back into the main building.

The leases described above have a primary term of ten years with options for two five-year extensions. The annual lease payment was $255,247 for 2007 and $250,246 for 2006, and is subject to increases each subsequent year. The facility is leased under an operating lease from a member of the Board of Directors. Refer to Note 4 on page 19 of the Company’s 2007 Annual Report to Shareholders (incorporated herein by reference) for additional discussion about the lease.

On October 4, 2004, the Company opened a second full-service facility located at 8751 Brecksville Road, Brecksville, Ohio. The Bank entered into an operating lease agreement with an unrelated entity for approximately 5,600 square feet of space for this location. The lease is for a term of ten years beginning October 1, 2004, with two five-year renewal options. Rent for 2007 was $157,806 and $154,712 for 2006, with a provision for annual increases of two percent.

The Bank occupies a small office inside Western Reserve Masonic Community, a retirement community at 4931 Nettleton Road, Medina. The Bank also occupies a small office inside Summerville at Camelot (formerly Camelot Place), an assisted living facility located at 49 Leisure Lane, Medina. The Bank operates a full-service, limited-hours branch at each location. Rent for both offices is de minimis.


Item 3.		Legal Proceedings

The Company is not aware of any legal proceedings against it or the Bank.


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

No matters were submitted to a vote of the Company’s security holders during the fourth quarter of 2007.

PART II


Item 5.		Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

The Company’s Common Stock was held by approximately 505 holders of record as of December 31, 2007. During 2005, the Company enlisted the services of Howe Barnes Investments to begin making a market in the Company’s shares of stock. Howe Barnes Investments is a ninety year old Chicago based investment firm that specializes in the research and trading of small and medium sized community bank stocks. The Company’s shares are quoted on the OTC “Pink Sheets” under the symbol WRBO. To date there has been no regular and liquid market for the common stock, and there can be no assurance that a regular and liquid trading market will develop in the foreseeable future although management believes the arrangement with Howe Barnes Investments will provide shareholders with improved liquidity of their shares. The Company declared a five-for-four stock split as of September 22, 2006 for shareholders of record as of September 5, 2006. A total of 114,270 new shares were issued and cash of $4,803 was paid for 141 fractional shares. The high and low bid information in the table below has been compiled from NASDAQ.com and has been adjusted for the five-for-four stock split. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.


2007	High		Low
Fourth quarter	$	26.05	$	24.10
Third quarter	$	29.00	$	29.00
Second quarter	$	28.65	$	28.65
First quarter	$	31.50	$	31.50


2006	High		Low
Fourth quarter	$	31.00	$	30.10
Third quarter	$	30.00	$	30.00
Second quarter	$	29.60	$	29.60
First quarter	$	26.40	$	25.40

The Company filed a Registration Statement on Form 8-A with the SEC on April 28, 2005 to register its common shares under Section 12(g) of the 1934 Act.

The Company has a nonqualified stock option plan, the Western Reserve Bancorp, Inc. 1998 Stock Option Plan, as Amended. All participants of the Plan are Ohio residents. In December 2006, options to purchase 1,000 shares of stock were exercised by a director at $17.60 per share. Before May 31, 2007 options to purchase 1,500 shares of stock were exercised by a director at $17.60 per share and options to purchase 125 shares of stock at $16.00 were exercised by a non-executive officer of the Company. The shares were issued in reliance upon Section 3(a)(11) of the Securities Act of 1933 and Rule 147 promulgated thereunder. Because of the requirements of Rule 147, the shares issued under the Plan cannot be sold outside of the State of Ohio for nine (9) months after issuance.

On May 31, 2007, the Company filed a Registration Statement on Form S-8 with the SEC to register the 125,000 Shares covered by the Plan. Subsequent to the filing of this Registration Statement, during 2007 options to purchase 3,000 shares of stock were exercised by two directors at $17.60 per share pursuant to such Registration Statement.

No cash or other dividends were declared or paid since the Company’s inception on February 25, 1997. The Company expects that all Company and Bank earnings, if any, will be retained to finance the growth of the Company and the Bank and that no cash dividends will be paid for the foreseeable future. If and when dividends are declared, the Company will probably be largely dependent upon dividends paid by the Bank for funds to pay dividends on the Common Stock. It is also possible, however, that the Company could pay dividends in the future generated from investment income and other activities of the Company. As part of the conditions for renewal of a line of credit with another financial institution described in Note 6 on pages 20 and 21 of the Company’s 2007 Annual Report to Shareholders, the Company may, over the life of the loan agreement, declare or pay dividends subject to an aggregate limit of $100,000.

Under Ohio law, the Bank will be restricted as to the maximum amount of dividends it may pay on its Common Stock. For additional discussion regarding dividend restrictions, please refer to the discussion regarding Supervision and Regulation in Part I of this Form 10-KSB.

Item 6. Management’s Discussion and Analysis and Results of Operations

The information on pages 34-46 of the Company’s 2007 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis” is incorporated by reference.

Item 7. Financial Statements

The following financial statements and related notes from the 2007 Annual Report to Shareholders are incorporated by reference:


	Annual Report
	Page No.
Report of Independent Registered Public Accounting Firm		5
Consolidated Balance Sheets		6
Consolidated Statements of Income		7
Consolidated Statements of Changes in Shareholders’ Equity		8
Consolidated Statements of Cash Flows		9
Notes to Consolidated Financial Statements		10-32

Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 8A(T). Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of Western Reserve Bancorp, Inc.’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)/15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by Western Reserve Bancorp, Inc. in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as well as COSO’s Guidance for Smaller Public Companies. Based on this evaluation, management has concluded that internal control over financial reporting was effective as of December 31, 2007.

This annual report does not include an attestation report of the Company’s registered public accounting firm, Crowe Chizek and Company LLC, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.


/s/ Edward J. McKeon				/s/ Cynthia A. Mahl

Edward J. McKeon				Cynthia A. Mahl
President and				Senior Vice President and
Chief Executive Officer				Chief Financial Officer

March 12, 2008

Item 8B. Other Information

None.

PART III


Item 9.		Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act

Directors. The information on pages 12-13 of the Company’s Proxy Statement under the caption “Election of Directors” is incorporated by reference.

B.		Executive Officers. The information on page 16 of the Company’s Proxy Statement under the caption “Summary Compensation Table” is incorporated by reference.

C.		Family Relationships. None.

D.		Involvement in Certain Legal Proceedings. None.

Audit Committee Financial Expert. The Company’s Board of Directors has determined that C. Richard Lynham, Chairman of the Audit Committee, is a “financial expert” as defined under the regulations promulgated under the Sarbanes-Oxley Act and is “independent” defined under Rule 4200 of the National Association of Securities Dealers (“NASD”) Marketplace Rules.

Identification of the Audit Committee. The information on pages 8-9 of the Company’s Proxy Statement under the caption “Board Structure and Committees” is incorporated by reference.

Code of Ethics. As noted above in Part I, Item 1, the Company has adopted a Code of Ethics and Business Conduct applicable to the Company’s Chief Executive Officer, the Chief Financial Officer, the principal accounting officer and other senior financial officers performing accounting, auditing, financial management or similar functions. A copy of the Code of Ethics and Business Conduct is available free of charge upon request. Shareholders desiring a copy of the Code should address written requests to Ms. Cynthia A. Mahl, Senior Vice President, Chief Financial Officer and Secretary, Western Reserve Bancorp, Inc., 4015 Medina Road, P.O. Box 585, Medina, Ohio 44258-0585. A copy of the Company’s Code is available on the Company’s website at www.westernreservebank.com.

Item 10. Executive Compensation

The information on pages 16-18 of the Proxy Statement under the caption “Executive Compensation” is incorporated by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information on pages 14-15 of the Proxy Statement, under the caption “Beneficial Ownership” is incorporated by reference.

The information on page 12 of the Proxy Statement under the caption “Election of Directors” is incorporated by reference.

The Company has a nonqualified stock option plan that provides for up to 125,000 shares of the Company’s common stock to be available for grant to officers, employees, directors and others. The exercise price is at least the market price at date of grant. The maximum option term is ten years, and options generally vest over three years as follows: 25% one year from the grant date, 50% after two years, and 100% after three years. Options granted after 2004 vest 100% after five years. As of December 31, 2007, the following equity securities are authorized for issuance under the plan:

Equity Compensation Plan Information

Number of securities

remaining available for

Number of securities

future issuance under

to be issued upon

Weighted-average

equity compensation

exercise of outstanding

exercise price of

plans (excluding

options, warrants and

outstanding options,

securities reflected in

rights

warrants and rights

column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

n/a

Equity compensation plans not approved by security holders

109,886

18.71

7,797

Total

109,886

18.71

7,797

The Plan provides for adjustment of the number of shares in the event the outstanding shares of stock of the Company are changed into or exchanged for a different number or kind of shares by reason of any merger, consolidation, reorganization, recapitalization, combination, stock split or stock dividend.

Item 12. Certain Relationships and Related Transactions

The information on page 20 of the Proxy Statement under the caption “Transactions with Related Persons, Promoters and Certain Control Persons “ is incorporated by reference. The Company has determined that the following members of its Board of Directors qualify as “independent” under Rule 4200(a)(15) of the NASDAQ Marketplace Rules: Roland H. Bauer, Bijay K. Jayaswal, Ray E. Laribee, C. Richard Lynham, R. Hal Nichols, Rory H. O’Neil, Glenn M. Smith and Thomas A. Tubbs.

Item 13. Exhibits

The Exhibit Index that immediately follows the signature page to this Form 10-KSB is incorporated by reference. The exhibits required to be filed with this Form 10-KSB are included with this Form 10-KSB and are located immediately following the Exhibit Index to this Form 10-KSB.

Item 14. Principal Accountant Fees and Services

The information on page 19 of the Proxy Statement under the caption “Audit Fees” is incorporated by reference.

WESTERN RESERVE BANCORP, INC.

EXHIBIT INDEX


Exhibit No.		Description of Exhibits

3.1		Amended and Restated Articles of Incorporation of Western Reserve Bancorp, Inc. (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on August 14, 2007)

3.2		Code of Regulations of Western Reserve Bancorp, Inc. (incorporated by reference to the Company’s Report on Form SB-2 filed with the Commission on December 29, 1997)

4		Legend Placed on Certificates Representing Shares Issued pursuant to an exemption from registration under Section 3(a)(11) of the Securities Act and Rule 147 thereunder

10.1		Employment Agreement of Edward J. McKeon, Dated December 15, 2005. (incorporated by reference to the Company’s Report on Form 8-K filed with the Commission on December 19, 2005)

10.2		Lease Agreement by and between Michael Rose DBA Washington Properties and Western Reserve Bancorp, Inc. (incorporated by reference to the Company’s Report on Form 10-KSB filed with the Commission on March 31, 1999)

10.3		Western Reserve Bancorp, Inc. 1998 Stock Option Plan, Amended and Restated as of June 21, 2007 (incorporated by reference to the Company’s Report on Form 8-K filed with the Commission on June 26, 2007)

10.4		Agreement by and between Western Reserve Bancorp, Inc. and Brian K. Harr, dated June 18, 2001, as amended February 20, 2002 (incorporated by reference to the Company’s Report on Form 10-KSB filed with the Commission on March 28, 2003)

10.5		Agreement by and between Western Reserve Bancorp, Inc. and Cynthia A. Mahl, dated June 18, 2001, as amended February 20, 2002 (incorporated by reference to the Company’s Report on Form 10-KSB filed with the Commission on March 28, 2003)

10.6		Loan Agreement between Western Reserve Bancorp, Inc. and TCF National Bank, dated May 5, 2003 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on August 14, 2003)

10.7		Western Reserve Bank Supplemental Executive Retirement Plan, Amended and Restated as of December 21, 2006 (incorporated by reference to the Company’s Report on Form 8-K filed with the Commission on December 27, 2006)

10.8		Western Reserve Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on November 14, 2003)

10.9		Lease Agreement by and between Western Reserve of Brecksville, LLC and Western Reserve Bank (incorporated by reference to the Company’s Report on Form 10-KSB filed with the Commission on March 30, 2005)

10.10		First amendment to the Loan Agreement by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated March 31, 2005 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on May 16, 2005)

10.11		Second amendment to the Loan Agreement by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated June 30, 2005 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on August 15, 2005)

10.12		Western Reserve Bancorp, Inc. and Western Reserve Bank Incentive Compensation Plan, Amended and Restated as of January 18, 2007 (incorporated by reference to the Company’s Report on Form 10-KSB filed with the Commission on March 29, 2007)

10.13		Third amendment to the Loan Agreement by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated July 20, 2006 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on November 14, 2006)


Exhibit No.		Description of Exhibits

10.14		Fourth amendment to the Loan Agreement by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated February 6, 2007 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on August 14, 2007)

10.15		Fifth Amendment to the Loan Agreement and Waiver by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated June 21, 2007 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on August 14, 2007)

10.16		Sixth Amendment to the Loan Agreement by and between Western Reserve Bancorp, Inc. and TCF National Bank, dated September 28, 2007 (incorporated by reference to the Company’s Report on Form 10-QSB filed with the Commission on November 14, 2007)

11		Statement re: Computation of Per Share Earnings (incorporated by reference to page 32 of the Company’s 2007 Annual Report to Shareholders)

13		2007 Annual Report to Shareholders (Except for sections incorporated by reference into this Form 10-KSB, the Annual Report to Shareholders shall not be deemed to be “filed” with the Commission.)

21		Subsidiary of Western Reserve Bancorp, Inc.

23		Consent of Crowe Chizek and Company LLC

31.1		Certification under Section 302 of the Sarbanes-Oxley Act by Edward J. McKeon, President and Chief Executive Officer

31.2		Certification under Section 302 of the Sarbanes-Oxley Act by Cynthia A. Mahl, Senior Vice President and Chief Financial Officer

32.1		Certification under Section 906 of the Sarbanes-Oxley Act by Edward J. McKeon, President and Chief Executive Officer

32.2		Certification under Section 906 of the Sarbanes-Oxley Act by Cynthia A. Mahl, Senior Vice President and Chief Financial Officer


	WESTERN RESERVE BANCORP, INC.
	By:	/s/ Edward J. McKeon
		Edward J. McKeon, President, Chief
		Executive Officer and Director


/s/ P.M. Jones		/s/ Edward J. McKeon
P.M. Jones, Chairman of the Board		Edward J. McKeon, President, Chief
		Executive Officer and Director

/s/ Roland H. Bauer		/s/ Bijay K. Jayaswal
Roland H. Bauer, Director		Bijay K. Jayaswal, Director

/s/ Ray E. Laribee		/s/ C. Richard Lynham
Ray E. Laribee, Director		C. Richard Lynham, Director

/s/ R. Hal Nichols		/s/ Rory H. O’Neil
R. Hal Nichols, Director		Rory H. O’Neil, Director

/s/ Michael R. Rose		/s/ Glenn M. Smith
Michael R. Rose, Director		Glenn M. Smith, Director

/s/ Thomas A. Tubbs		/s/ Cynthia A. Mahl
Thomas A. Tubbs, Director		Cynthia A. Mahl, Senior Vice President
		and Principal Financial and Accounting
		Officer

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