WESTERN OHIO FINANCIAL CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period ended September 30, 2002

Commission File Number 0-24120

WESTERN OHIO FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)


Delaware		31-1403116

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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


Class: Common stock, $.01 par value		Outstanding at November 13, 2002 common shares 1,754,111

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION (UNAUDITED)
	Item 1. Condensed Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and procedures
PART II — OTHER INFORMATION
	Item 1- Legal Proceedings
	Item 2- Changes in Securities and Use of Proceeds
	Item 3- Defaults Upon Senior Securities
	Item 4- Submission of Matters to a Vote of Security Holders
	Item 5- Other Information
	Item 6- Exhibits and Reports on Form 8-K
SIGNATURES
EX-99.1
EX-99.2

WESTERN OHIO FINANCIAL CORPORATION
INDEX


		Page

PART I – FINANCIAL INFORMATION (UNAUDITED)




Item 1. Condensed Financial Statements




	Consolidated Balance Sheets		3




	Consolidated Statements of Income and Comprehensive Income		4




	Consolidated Statements of Cash Flows		5




	Notes to Condensed Consolidated Financial Statements		6




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11




Item 3. Quantitative and Qualitative Disclosure About Market Risk			16




Item 4. Controls and Procedures			17




PART II — OTHER INFORMATION




Item 1. Legal Proceedings			18




Item 2. Changes in Securities and Use of Proceeds			18




Item 3. Defaults Upon Senior Securities			18




Item 4. Submission of Matters to a Vote of Security Holders			18




Item 5. Other Information			18




Item 6. Exhibits and Reports on Form 8-K			18




SIGNATURES			19

WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

Item 1. Condensed Financial Statements


				September 30,			December 31,
(Amounts in thousands, except share data)				2002			2001

ASSETS




	Cash and cash equivalents			$	10,755		$	16,915




	Securities available for sale				56,918			39,648




	Federal Home Loan Bank stock				8,870			8,568




	Loans, net				260,421			269,300




	Premises and equipment, net				4,490			4,888




	Other assets				2,916			2,392

			Total assets	$	344,370		$	341,711

LIABILITIES AND SHAREHOLDERS’ EQUITY




	Deposits			$	215,161		$	220,287




	Borrowed funds				83,449			76,655




	Other liabilities				2,710			2,824

		Total liabilities			301,320			299,766

Shareholders’ equity




	Common stock, $.01 par value, 7,250,000 shares authorized, 2,645,000 shares issued				26			26




	Additional paid-in capital				40,625			40,622




	Accumulated other comprehensive income				648			63




	Unearned employee stock ownership plan shares				(417	)		(595	)




	Unearned management recognition plan shares				(62	)		(72	)




	Shares held by deferred compensation plan				(260	)		(173	)




	Treasury stock; 889,039 and 889,499 shares at cost, respectively				(18,121	)		(18,157	)




	Retained earnings				20,611			20,231

		Total shareholders’ equity			43,050			41,945

			Total liabilities and shareholders’ equity	$	344,370		$	341,711

See accompanying notes to condensed consolidated financial statements.

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


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

(Amounts in thousands, except per share data)		2002		2001		2002		2001

Interest and dividend income




	Loans, including fees	$	4,497	$	5,209	$	14,023	$	16,390




	Securities		671		631		1,981		2,075




	Interest-bearing deposits and overnight funds		17		50		45		91




	Other interest and dividend income		105		146		303		437

			5,290		6,036		16,352		18,993

Interest expense




	Deposits		1,770		2,556		5,703		7,984




	Borrowed funds		1,064		1,167		3,170		3,824

			2,834		3,723		8,873		11,808

Net interest income			2,456		2,313		7,479		7,185




Provision for loan losses			91		84		259		273

Net interest income after provision for loan losses			2,365		2,229		7,220		6,912

Noninterest income




	Service charges		581		377		1,641		1,079




	Net gain on sale of loans		152		75		346		138




	Net gain on sale of securities		—		—		28		3




	Other		21		6		33		16

			754		458		2,048		1,236




Noninterest expense




	Salaries and employee benefits		1,104		992		3,412		3,033




	Occupancy and equipment		253		191		741		617




	Federal deposit insurance		10		10		29		30




	State franchise taxes		133		132		406		399




	Professional services		171		108		444		302




	Advertising		56		107		209		240




	Data processing		208		199		618		595




	Other		295		287		881		798

			2,230		2,026		6,740		6,014

Income before income taxes			889		661		2,528		2,134




Income tax expense			298		226		856		745

Net income			591		435		1,672		1,389




Other comprehensive income			155		628		585		1,165

Comprehensive income		$	746	$	1,063	$	2,257	$	2,554

Earnings per common share




	Basic	$	.34	$	.25	$	.97	$	.80




	Diluted	$	.34	$	.25	$	.96	$	.80




Dividends per common share		$	.25	$	.25	$	.75	$	.75

See accompanying notes to condensed consolidated financial statements.

WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


			Nine Months Ended
			September 30,

(Amount in thousands)			2002			2001

Net cash from operating activities			$	2,032		$	1,740




Cash flows from investing activities




	Securities available for sale:




		Maturities and principal payments		8,153			6,131




		Purchases		(27,843	)		(2,469	)




		Sales		3,056			4,623




	Net (increase) decrease in loans			21,167			12,478




	Purchases of loans			(12,520	)		(1,582	)




	Premises and equipment expenditures			(109	)		(691	)




	Proceeds from sale of premises and equipment			2			20

		Net cash from investing activities		(8,094	)		18,510

Cash flows from financing activities




	Net change in deposits			(5,126	)		1,993




	Net decrease in advances from borrowers for taxes and insurance			(324	)		(303	)




	Purchase of treasury stock			(443	)		(853	)




	Cash dividends paid			(1,312	)		(1,316	)




	Proceeds from exercise of stock options			313			49




	Net increase (decrease) in short-term borrowings			(11,130	)		(16,075	)




	Proceeds from FHLB advances			21,693			2,500




	Repayments on FHLB advances			(3,769	)		(5,069	)

		Net cash from financing activities		(98	)		(19,074	)

Net change in cash and cash equivalents				(6,160	)		1,176




Cash and cash equivalents at beginning of period				16,915			4,805

Cash and cash equivalents at end of period			$	10,755		$	5,981

See accompanying notes to condensed consolidated financial statements.

WESTERN OHIO FINANCIAL CORPORATION
Notes To Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance accounting principles generally accepted in the United States for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation’s annual report on Form 10-K for the year ended December 31, 2001. The financial data and results of operations for interim periods presented may not necessarily reflect the results to be anticipated for the entire year. Internal financial information is primarily reported and aggregated solely in the line of the banking business.

Consolidation Policy: The financial statements include Western Ohio Financial Corporation (“Company”) and its wholly-owned subsidiary Cornerstone Bank (“Cornerstone”), together referred to as the Corporation. The financial statements of Cornerstone include the accounts of its wholly-owned subsidiaries, CornerstoneBanc Financial Services, Inc. (“CFSI”) and West Central Financial Services, Inc. (“WCFS”). Intercompany transactions and balances are eliminated in consolidation.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments and status of contingencies are particularly subject to change.

Income Taxes: Income tax expense is the total of the current-year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Income tax expense is based on the effective rate expected to be applicable for the entire year.

Earnings Per Common Share: Basic earnings per common share is based on net income divided by the weighted average number of common shares outstanding during the period. Employee Stock Ownership Plan (“ESOP”) shares are considered to be outstanding for the calculation unless unearned. Management Recognition Plan (“MRP”) shares are considered outstanding as they become vested. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.

New Accounting Standards: The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143 “Asset Retirement Obligation.” The provisions of this standard apply to asset retirements beginning in 2003. The Corporation does not believe this standard will have a material on its financial position or results of operations.

Effective January 1, 2002, the Corporation adopted SFAS No. 144, “Impairment or Disposal of Long-Lived Assets.” The effect of this standard on the financial position and results of operations of the Corporation was not material.

WESTERN OHIO FINANCIAL CORPORATION
Notes To Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections”. This Statement eliminates inconsistency between the required accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions and sale-leaseback transactions. The Corporation does not believe this statement will have a material effect on its financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement addresses the timing of recognition of a liability for exit and disposal cost at the time a liability is incurred, rather than at a plan commitment date, as previously required. Exit or disposal costs will be measured at fair value, and the recorded liability will be subsequently adjusted for changes in estimated cash flows. This Statement is required to be effective for exit or disposal activities entered after December 31, 2002, and early adoptions is encouraged. The Corporation does not believe this statement will have a material effect on its financial position or results or operations.

SFAS No. 147, “Acquisitions of Certain Financial Institutions” became effective October 1, 2002. This standard requires any unidentifiable intangible asset previously recorded as the result of a business combination to be reclassified as goodwill and the amortization of this asset will cease. The effect of this standard on the financial position and results of operations of the Corporation was not material, as the Corporation does not have any unidentified intangible assets.

NOTE 2 – SECURITIES

The amortized cost and fair values of securities available for sale were as follows:


				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
(Amounts in thousands)		Cost		Gains		Loss			Value

September 30, 2002




	U.S. government agencies	$	4,148	$	192	$	—		$	4,340




	Municipal securities		6,933		62		—			6,995




	Mortgage-backed securities		44,855		763		(35	)		45,583

	Total	$	55,936	$	1,017	$	(35	)	$	56,918

December 31, 2001




	U.S. government agencies	$	2,105	$	4	$	(30	)	$	2,079




	Municipal securities		1,634		—		(71	)		1,563




	Mortgage-backed securities		35,814		254		(62	)		36,006

	Total	$	39,553	$	258	$	(163	)	$	39,648

Gross proceeds from sales of securities during the nine-month period ending September 30, 2002 were $3,056,000, with gross gains of $28,000 included in earnings. Gross proceeds from sales of securities during the nine-month period ending September 30, 2001 were $4,623,000, with gross gains of $3,000 included in earnings. There were no sales for the three months ended September 30, 2002 or September 30, 2001.

WESTERN OHIO FINANCIAL CORPORATION
Notes To Condensed Consolidated Financial Statements
(Unaudited)

NOTE 3 – LOANS

Loans were as follows:


			September 30,			December 31,
(Amounts in thousands)			2002			2001

First mortgage loans secured by:




	One to four family residential		$	130,947		$	154,915




	Other properties			82,925			68,841




	Construction properties			5,934			3,737

				219,806			227,493




Consumer and other loans




	Consumer			957			1,289




	Commercial			22,888			24,415




	Home equity			21,391			19,468

				45,236			45,172

		Total loans		265,042			272,665




Less:




	Net deferred loan fees, premiums and discounts			(169	)		(117	)




	Loans in process			(2,621	)		(1,553	)




	Allowance for loan losses			(1,831	)		(1,695	)

			$	260,421		$	269,300

Activity in the allowance for loan losses was as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

(Amounts in thousands)	2002			2001			2002			2001

Beginning balance	$	1,802		$	1,611		$	1,695		$	1,665




Provision for loan losses		91			84			259			273




Recoveries		6			31			299			67




Charge-offs		(68	)		(127	)		(422	)		(406	)

Ending balance	$	1,831		$	1,599		$	1,831		$	1,599

Nonperforming loans were $1,671,818 and $2,818,000 at September 30, 2002 and December 31, 2001.

WESTERN OHIO FINANCIAL CORPORATION
Notes To Condensed Consolidated Financial Statements
(Unaudited)

NOTE 3 – LOANS (Continued)

Impaired loans were as follows:


	September 30,		December 31,
	2002		2001

Loans with no allocated allowance for loan losses	$	488		829




Loans with allocated allowance for loan losses		133		208

Total	$	621	$	1,037

Amount of the allowance for loan losses allocated	$	133	$	86

NOTE 4 – DEPOSITS

Deposits were as follows:


		September 30,		December 31,
(Amounts in thousands)		2002		2001

Checking — Noninterest bearing		$	10,367	$	8,637




Checking — Interest bearing			15,472		13,094




Money market accounts			62,273		57,500




Passbook and savings accounts			11,458		11,465




Certificates of deposit:




	In denominations under $100,000		94,898		107,843




	In denominations of $100,000 or more		20,693		21,748

		$	215,161	$	220,287

NOTE 5 – BORROWED FUNDS

Borrowed funds consist primarily of advances from the Federal Home Loan Bank of Cincinnati (“FHLB”) and are summarized by contractual maturity as follows:


		September 30, 2002					December 31, 2001

				Weighted					Weighted
(Amount in thousands)		Balance		Average Rate			Balance		Average Rate

Borrowed funds maturing in:




	One year or less	$	17,635		4.16	%	$	14,325		5.75	%




	Over 1 year to 3 years		12,046		5.24			9,335		6.58




	Over 3 years to 5 years		1,056		4.85			730		6.60




	Over 5 years		52,712		5.15			52,265		5.15

	Total	$	83,449		5.15	%	$	76,655		5.45	%

WESTERN OHIO FINANCIAL CORPORATION
Notes To Condensed Consolidated Financial Statements
(Unaudited)

NOTE 6 – EARNINGS PER COMMON SHARE

The factors used in the earnings per share computation were as follows:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(Amounts in thousands, except
per share data)		2002			2001			2002			2001

Basic earnings per common share




	Net income	$	591		$	435		$	1,672		$	1,389

	Weighted average common shares outstanding		1,755			1,773			1,760			1,784




	Less: Average unallocated ESOP shares		(30	)		(45	)		(33	)		(48	)




	Less: Average nonvested MRP shares		(4	)		(4	)		(4	)		(5	)

	Average shares		1,721			1,724			1,723			1,731

	Basic earnings per common share	$	.34		$	.25		$	.97		$	.80

Diluted earnings per common share




	Net income	$	591		$	435		$	1,672		$	1,389

	Weighted average common shares outstanding for basic earnings per common share		1,721			1,724			1,723			1,731




	Add: Dilutive effects of average nonvested MRP shares		—			—			—			—




	Add: Dilutive effects of stock options		18			11			17			11

	Average shares and dilutive potential common shares		1,739			1,735			1,740			1,742

	Diluted earnings per common share	$	.34		$	.25		$	.96		$	.80

Stock options covering 73,936 shares of common stock were not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2002, as they were antidilutive. In addition, nonvested MRP awards for 3,527 and 4,457 shares of common stock were not considered in computing diluted earnings per common share for the three months ended September 30, 2002 and September 20, 2001, respectively. Also, nonvested MRP awards for 3,480 and 4,565 were not considered in computing diluted earnings per common share for the nine months ended September 30, 2002 and September 30, 2001, respectively.

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discusses the financial condition of the Company as of September 30, 2002 as compared to December 31, 2001, and the results of operations for the three and nine months ended September 30, 2002, compared with the same periods in 2001. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

Forward-Looking Statements

When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Analysis of Financial Condition

Consolidated assets of the Company totaled $344.4 million at September 30, 2002, an increase of $2.7 million from the December 31, 2001, total of $341.7 million. Securities available for sale increased $17.3 million and was partially offset by decreases in net loans of $8.9 million and cash and cash equivalents of $6.1 million. Additional funding was provided by an increase in FHLB advances of $6.8 million, which offset the $5.1 million decline in deposits.

Net loans decreased $8.9 million, or 3.3%, from $269.3 million at December 31, 2001 to $260.4 million at September 30, 2002. Traditional one-to-four family residential mortgage loans decreased $24.0 million to $130.9 at September 30, 2002 from $154.9 million at December 31, 2001. During the period, the Bank originated $36.4 million of new one-to-four family loans and sold $19.7 million of those loans originated. This net new volume was offset during the period by payoffs and amortization of $16.7 million. For the period, this decrease was offset by other real estate mortgage loans increasing $14.1 million to $82.9 million at September 30, 2002 from $68.8 million at December 31, 2001. This increase is primarily the result of purchasing $12.5 million of non-residential real estate secured loan participations from within the Columbus, OH area. These changes continue Cornerstone’s effort to diversify its portfolio into more commercial and other real estate mortgage type loans. While such loans typically are associated with

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

more credit risk than traditional one-to-four family residential loans, they also typically provide increased margins.

Cash and cash equivalents decreased by $6.1 million to $10.8 million on September 30, 2002, from $16.9 million on December 31, 2001. Cash and cash equivalents consist of cash, checking deposits and federal funds deposited at other financial institutions. The decrease was primarily the result of purchasing securities and loans.

Securities available for sale increased $17.3 million from $39.6 million at December 31, 2001, to $56.9 million on September 30, 2002. The increase was due to purchases of securities of $27.8 million offset by a $3.0 million mortgage-backed security sale and principal repayments on existing mortgage-backed securities available for sale.

Deposits at September 30, 2002 totaled $215.2 million, a decrease of $5.1 million, or 2.3% from $220.3 million at December 31, 2001. The decrease occurred primarily in certificates of deposits, which decreased $14.0 million, or 10.8%, as deposits moved to shorter-term more liquid accounts and older, higher rate certificates were not renewed due to reduced liquidity requirements. Deposits in checking accounts increased $4.1 million to $25.8 million at September 30, 2002 from $21.7 million at December 31, 2001. Money market accounts increased $4.8 million to $62.3 million at September 30, 2002 compared to $57.5 million on December 31, 2001.

FHLB advances at September 30, 2002 totaled $83.4 million, an increase of $6.7 million or 8.9% from $76.7 million at December 31, 2001. The Bank increased its advances from the FHLB during the period to fund security purchases. The majority of borrowed funds are invested in loans to leverage the Company’s excess capital and improve the Company’s return on equity over time.

Total shareholders’ equity increased $1.1 million from $41.9 million at December 31, 2001, to $43.0 million at September 30, 2002. This increase is primarily due to net income of $1.7 million for the period, an improvement of $585,000 in accumulated other comprehensive income and stock options exercised. This is offset by dividend payments of $1.3 million and the Company purchasing $443,000, or 22,200 shares, of its common stock during the first nine months of 2002.

As of September 30, 2002, the Company had commitments to make $166,500 of residential loans and $3.2 million of non-residential real estate loans. It is expected that these loans will be funded within 30-90 days. The Company also had $2.6 million in commitments to fund loans on residential properties under construction as well as commitments to disburse $1.0 million on other mortgage loans. These commitments are anticipated to be filled within three to nine months. Unused commercial lines of credit were $7.0 million and unused home equity lines of credit were $14.5 million. Commitments to originate nonmortgage loans total $844,500.

Results of Operations

Operating results of the Company are affected by general economic conditions, monetary and fiscal policies of federal agencies and policies of agencies regulating financial institutions. The Company’s cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by demand for real estate and other types of loans, which, in turn, is affected by the interest rates at which such loans are made, general economic conditions and the availability of funds for lending activities.

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

The Company’s net income is primarily dependent on its net interest income (the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities). Net income is also affected by provisions for loan losses, service charges, gains on sale of assets, other income, noninterest expense and income taxes. The Company’s net income of $591,000 and $1,672,000 for the three and nine months ended September 30, 2002, represented an increase of $156,000, or 35.9%, for the three months and an increase of $283,000, or 20.4%, for the nine months ended September 30, 2002. The returns on average assets for the three and nine months ended September 30, 2002 were 0.68% and 0.64%, respectively, compared to 0.50% and 0.54% for the same period in 2001. The returns on average shareholders’ equity for the three and nine months ended September 30, 2002 were 5.43% and 5.23%, respectively, compared to 4.08% and 4.39% for the same periods ended September 30, 2001. Basic earnings per share increased $.09 from $.25 per share for the three-month period ended September 30, 2001 to $.34 per share for the period ended September 30, 2002. Basic earnings per share for the nine-month period ended September 30, 2002 was $.97 per share compared to $.80 per share for the same period ended September 30, 2001, an increase of $.17, or 21.3%.

Net interest income is the largest component of the Company’s income and is affected by the interest rate environment and volume and composition of interest-earning assets and interest-bearing liabilities. Net interest income totaled $2,456,000 and $7,479,000 for the three and nine months ended September 30, 2002, compared to $2,313,000 and $7,185,000 for the same periods in 2001. The increases of $143,000 and $294,000 for the three and nine month periods are due to lower interest rates on interest bearing liabilities and the shift of deposits from certificate of deposits to money market and checking accounts. For the three and nine months ended September 30, 2002, the average yield on earning assets was 6.22% and 6.59% compared to 7.22% and 7.52% for the same periods in 2001. The average cost of funds decreased to 3.73% and 3.93% for the three and nine months ended September 30, 2002 from 4.97% and 5.37% for the same periods in 2001. As a result of the net changes in earning asset yields and cost of funds, net interest margin increased to 2.89% and 3.01% for the three and nine months ended September 30, 2002 compared to 2.77% and 2.85% for the same periods in 2001.

Interest and fees on loans totaled $4,497,000 and $14,023,000 for the three and nine months ended September 30, 2002 compared to $5,209,000 and $16,390,000 the three and nine months ended September 30, 2001. The decreases were due primarily to a decrease in loan rates. The average yield earned on the portfolio decreased to 6.64% and 7.02% for the three and nine months ended September 30, 2002 from 7.50% and 7.78% for the same periods in 2001.

Interest and dividends on securities totaled $671,000 and $1,981,000 for the three and nine months ended September 30, 2002, and $631,000 and $2,075,000 for the three and nine months ended September 30, 2001. The increase for the three months was due to an increase in securities outstanding while the decrease for the nine-month period was due to lower interest rates partially offset by an increase in average securities held for sale.

Interest on deposits totaled $1,770,000 and $5,703,000 for the three and nine months ended September 30, 2002 compared to $2,556,000 and $7,984,000 for the three and nine months ended September 30, 2001. The decreases were due to lower interest rates on all deposits and the change from certificate of deposits to checking and money market accounts. The average cost of deposits decreased to 3.24% and 3.50% for the three and nine months ended September 30, 2002 from 4.79% and 5.07% for the same periods in 2001.

Interest on FHLB advances was $1,064,000 and $3,170,000 for the three and nine months ended September 30, 2002 compared to $1,167,000 and $3,824,000 for the three and nine months ended September 30, 2001. The decrease for the three and nine months ended September 30, 2002 is due to a decrease in average outstanding borrowings from the FHLB of approximately $9.9 million during the period and the lower cost of new advances.

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

The Company maintains an allowance for loan losses in an amount, which, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. While management utilizes its best judgment and information available, ultimate adequacy of the allowance is dependent on a variety of factors, including performance of the Company’s loan portfolio, the economy, changes in real estate values and interest rates and the view of the regulatory authorities toward loan classifications. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level considered adequate to absorb probable losses in the loan portfolio. The amount of the provision is based on management’s regular review of the loan portfolio and consideration of such factors as historical loss experience, changes in size and composition of the loan portfolio and specific borrower considerations, including ability of the borrower to repay the loan and the estimated value of the underlying collateral. The provision for loan losses totaled $91,000 and $259,000 for the three and nine months ended September 30, 2002, compared to $84,000 and $273,000 for the three and nine months ended September 30, 2001.

Net charge-offs were $62,000 and $123,000 for the three and nine months ended September 30, 2002 compared to $96,000 and $339,000 for the same periods in 2001. Due to the decrease in net charge-offs, the collateral supporting non-performing loans, area economic conditions, and the level of impaired and non-performing loans, management believes that the total allowance of $1.8 million on total loans of $265 million at September 30, 2002 is adequate. The Corporation will continue to review its allowance for loan losses and make further provisions as economic and asset quality conditions dictate.

Noninterest income totaled $754,000 and $2,048,000 for the three and nine months ended September 30, 2002 compared to $458,000 and $1,236,000 for the same periods in 2001. Service charges on loans and deposits increased $204,000 from $377,000 to $581,000 for the three-month period and $562,000 from $1,079,000 to $1,641,000 for the nine-month period. Service charges on deposits, including non-sufficient funds, increased $192,000 and $481,000 for the three and nine month period respectively. In November 2001, the Company initiated the overdraft honor program, which provides to most customers the courtesy of honoring checks drawn on insufficient balances, up to limits established by management. Standard non-sufficient fund fees and overdraft fees still apply. This program is the primary reason for the increase in service charges on deposits. The Company also recognized loan sale gains of $152,000 on loan sales of $4.8 million for the three months ended September 30, 2002 compared to $75,000 on loan sales of $3.3 million for the same period in 2001. For the nine months ended September 30, 2002, gains totaled $346,000 on loan sales of $19.7 million compared to $138,000 on loan sales of $7.2 million for the same period last year.

Noninterest expense increased $204,000 and $726,000 for the three and nine months ended September 30, 2002 to $2.2 million and $6.7 million from $2.0 million and $6.0 million in 2001. The increases are primarily due to increases in salaries and benefits of $112,000 and $379,000 for the three and nine month periods respectively. Professional services increased $63,000 and $142,000 for the three and nine months ended September 30, 2002 compared to the same periods last year. This is due primarily to the fees payable to the consultants on the overdraft honor program. As noted above, the service charges on deposits have more than offset this expenditure. Other noninterest expense consists of items such as telephone, printing and supplies, and loan expenses. Additionally, included in the total for the three and nine months ended September 30, 2002 is approximately $92,000 and $311,000 of expenses related to the Company’s Centerville, Ohio branch opened in September 2001.

The change in income tax is primarily attributable to the change in income before income taxes. Income tax expense totaled $299,000 and $856,000, or an effective rate of 33.6% and 33.9%, for the three and nine months ended September 30, 2002, compared to $226,000 and $745,000, or an effective rate of 34.2% and 34.0%, for the three and nine months ended September 30, 2001.

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

Liquidity

Office of Thrift Supervision (“OTS”) regulations presently require Cornerstone Bank to maintain sufficient liquidity to assure its safe and sound operation. To that end, Cornerstone Bank maintains investments having maturities of 5 years or less, sells loans into the secondary market and borrows funds from the FHLB. These activities are intended to provide a source of relatively liquid funds on which Cornerstone may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At September 30, 2002 Cornerstone had commitments to originate residential loans totaling $166,500 and $3.2 million of non-residential real estate loans. In addition, Cornerstone had $2.6 million in commitments to fund loans on residential properties under construction as well as $1.0 million in commitments to fund other mortgage loans. Unused commercial lines of credit were $7.0 million and unused home equity lines of credit were $14.5 million. Commitments to originate nonmortgage loans total $844,500. Cornerstone considers its liquidity and capital reserves sufficient to meet its outstanding short and long-term needs.

Capital Resources

Cornerstone is required by regulations to meet certain minimum capital requirements, which must be generally as stringent as standards established for commercial banks. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which, for Cornerstone, consists solely of tangible capital) of 4.0% of adjusted total assets, except for institutions with the highest examination rating and acceptable levels of risk, and risk-based capital (which, for Cornerstone, consists of core capital and general valuation allowances) of 8.0% of risk-weighted assets (assets are weighted at percentage levels ranging from 0% to 100% depending on their relative risk).

The following table summarizes Cornerstone’s regulatory capital requirements and actual capital at September 30, 2002.


											Excess of actual
											capital over current
	Actual capital					Current requirement					requirement

																Applicable
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Asset Total

Tangible capital	$	41,949		12.2	%	$	5,149		1.5	%	$	36,800		10.7	%	$	343,288




Core capital		41,949		12.2			13,771		4.0			28,178		8.2			343,288




Risk-based capital		43,618		18.1			19,255		8.0			24,363		10.1			240,683

Cornerstone is considered to be “well –capitalized” under current regulatory guidelines.

WESTERN OHIO FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. Interest rate risk is the risk that the Company’s financial condition will be adversely affected due to movements in interest rates. The income of financial institutions is primarily derived from the excess of interest earned on interest-earning assets over the interest paid on interest-bearing liabilities. One method used to analyze the Company’s sensitivity to changes in interest rates is the “net portfolio value” (“NPV”) methodology. NPV is generally considered to be the present value of the difference between expected incoming cash flows on interest-earning and other assets and expected outgoing cash flows on interest-bearing and other liabilities.

The following tables present an analysis of the potential sensitivity of the Bank’s net present value of its financial instruments to sudden and sustained changes in the prevailing interest rates.


	September 30, 2002									December 31, 2001
Change in
Interest Rate	$ Change			NPV			% Change			$ Change			% Change			NPV
(Basis Points)	In NPV			Ratio			In NPV			In NPV			In NPV			Ratio

(Dollars in Thousands)
+200	$	(2,774	)		(6	)%		12.66	%	$	(9,449	)		(23	)%		9.71	%




+100		1,700			3			13.72			(4,192	)		(10	)		11.05




-		—			—			13.11			—			—			12.05




(100)		(2,922	)		(6	)		12.19			2,619			6			12.62




(200)		(6,524	)		(13	)		11.11			2,754			7			12.51

Since December 31, 2001 interest rates have declined to historically low levels. As a result, many of the Bank’s deposits are within 200 basis points of a zero interest rate floor. As the September 30, 2002 table suggests, should overall rates and loan yields continue to decline, the Bank’s inability to reduce rates below the zero floor could negatively impact Cornerstone’s NPV and future earnings.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit would likely deviate significantly from those assumed in making risk calculations.

WESTERN OHIO FINANCIAL CORPORATION
CONTROLS AND PROCEDURES

Item 4. Controls and procedures

With the participation and under the supervision of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, and within 90 day s of the filing date of this quarterly report, the Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14© and 15(d) 14()) and, based on their evaluation, have concluded that the disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective action with regard to significant deficiencies and material weaknesses.

WESTERN OHIO FINANCIAL CORPORATION

PART II — OTHER INFORMATION


Item 1 -		Legal Proceedings
		None





Item 2 -		Changes in Securities and Use of Proceeds
		None





Item 3 -		Defaults Upon Senior Securities
		None





Item 4 -		Submission of Matters to a Vote of Security Holders
		None





Item 5 -		Other Information
		None





Item 6 -		Exhibits and Reports on Form 8-K
		(a) Exhibits
		99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 1992.
		99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 1992.

		(b) No current reports on Form 8-K were filed by the Registrant during the quarter ended
		September 30, 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WESTERN OHIO FINANCIAL CORPORATION (Registrant)

Date: November 13, 2002		/s/John W. Raisbeck John W. Raisbeck President and Chief Executive Officer (Principal Executive Officer)

Date: November 13, 2002		/s/Craig F. Fortin Craig F. Fortin Senior Vice President and Chief Financial Officer (Principal Financial Officer)

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q

I, John W. Raisbeck certify that:

1) I have reviewed this quarterly report on Form 10-Q of Western Ohio Financial Corporation;

2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

     c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6) The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002

/s/ John W. Raisbeck
John W. Raisbeck
President and Chief Executive Officer

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q

I, Craig F. Fortin certify that:

7) I have reviewed this quarterly report on Form 10-Q of Western Ohio Financial Corporation;

8) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

9) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

10) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

11) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

12) The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002

/s/ Craig F. Fortin
Craig F. Fortin
Chief Financial Officer

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1)		I have reviewed this quarterly report on Form 10-Q of Western Ohio Financial Corporation;

2)		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3)		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4)		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and