SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For Quarterly Period ended June 30, 2004

Commission File Number 0-24120

WESTERN OHIO FINANCIAL CORPORATION

28 East Main Street, Springfield, Ohio 45501-0509

(937) 325-9990

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

Yes x     No o

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

Yes o     No x

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

WESTERN OHIO FINANCIAL CORPORATION

INDEX

2.

WESTERN OHIO FINANCIAL CORPORATION

Item 1. Condensed Financial Statements

(Amounts in thousands, except share data)

See accompanying notes to condensed consolidated financial statements.

3.

WESTERN OHIO FINANCIAL CORPORATION

(Amounts in thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

4.

WESTERN OHIO FINANCIAL CORPORATION

See accompanying notes to condensed consolidated financial statements.

5.

WESTERN OHIO FINANCIAL CORPORATION

NOTE 1 — PLAN OF MERGER INFORMATION

The Company entered into a definitive Agreement and Plan of Merger with WesBanco, Inc. (“WesBanco”) of Wheeling, West Virginia on April 1, 2004. Under the terms of the Agreement and Plan of Merger, WesBanco will exchange a combination of its common stock and cash for the Company’s common stock. The Company’s shareholders will be able to elect a fixed exchange ratio of 1.18 shares of WesBanco common stock or $35.00 in cash subject to certain limitations including that 55% of the Company’s outstanding shares be exchanged for WesBanco common stock. Common stock received by the Company’s shareholders is anticipated to qualify as a tax-free exchange. Based upon a per share value of $35.00, the transaction is valued at $65.2 million. The transaction, which has received initial regulatory approval, is expected to be completed at the end of August of 2004, pending approval by the Company’s shareholders at the August 17, 2004 special shareholders meeting.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation’s annual report on Form 10-K for the year ended December 31, 2003. The financial data and results of operations for interim periods presented may not necessarily reflect the results to be anticipated for the entire year. Internal financial information is primarily reported and aggregated solely in the line of the banking business.

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

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

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

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

6.

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

common share include the dilutive effect of additional potential common shares issuable under stock options.

Stock Compensation: Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense were measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock–Based Compensation.

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

New Accounting Standards: There were no new accounting pronouncements for the current reporting period that would potentially impact the Company’s balance sheet presentation or results of operations.

7.

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

NOTE 3 – SECURITIES

Securities available for sale were as follows:

Gross proceeds from sales of securities during the six-month period ending June 30, 2004 were $2,900,000, with gross gains of $16,000 included in earnings. Gross proceeds from sales of securities during the six-month period ending June 30, 2003 were $1,742,000 with gross gains of $71,000 included in earnings.

8.

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

NOTE 4 – LOANS

Loans were as follows:

Activity in the allowance for loan losses was as follows:

Non-performing loans were as follows:

9.

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

Impaired loans were as follows:

NOTE 5 — DEPOSITS

Deposits were as follows:

		NOTE 6 – BORROWED FUNDS
		Borrowed funds consisted of advances from the Federal Home Loan Bank of Cincinnati (“FHLB”) and are summarized by contractual maturity as follows:

10.

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

NOTE 7 – EARNINGS PER COMMON SHARE

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

(Amounts in thousands, except per share data)

Stock options covering 2,000 shares of common stock for both the three and six months ended June 30, 2004, respectively, and 4,000 and 31,536 shares of common stock for the three and six months ended June 30, 2003, respectively, were not considered in computing diluted earnings per common share, as they were antidilutive. In addition, nonvested MRP awards for 980 and 822 shares of common stock and 2,764 and 3,402 were not considered in computing diluted earnings per common share for the three months ended June 30, 2004 and June 30, 2003, respectively.

11.

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

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

The following discusses the financial condition of the Company as of June 30, 2004 as compared to December 31, 2003, and the results of operations for the three months and six months ended June 30, 2004, compared with the same periods in 2003. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

Forward-Looking Statements

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

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

Application of Critical Accounting Policies

Western Ohio’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and the accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

The most significant policies followed by the Corporation are presented in Note 2 to the consolidated financial statements. Management has identified the determination of the allowance for loan losses and the valuation of retained interests, including mortgage and other servicing assets, to be the accounting areas that require the most subjective or complex judgments, and as such would most likely be subject to subsequent revision as new information becomes available.

12.

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

The allowance for loan losses represents management’s estimate of probable credit losses incurred in the loan portfolio at a particular balance sheet date. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and the timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions and collateral values, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet.

Retained interests, including Mortgage Servicing Rights (MSRs), are established and accounted for based on discounted cash flow modeling techniques which require management to make estimates regarding the amount and timing of expected future cash flows, including assumptions about loan prepayment rates, credit loss experience, and costs to service, as well as discount rates that consider the risk involved. MSRs do not trade in an open market with active trading with readily available market prices. Because the values of these assets are sensitive to changes in assumptions, the valuation of retained interests, which in part is provided by an independent third party, is considered a critical accounting estimate. Management updates the valuation of MSRs quarterly, in part due to the assumptions relating to the prepayment of loans having a high degree of correlation with the movement of interest rates.

Recent Corporate Developments

The Company entered into a definitive Agreement and Plan of Merger with WesBanco, Inc. of Wheeling, West Virginia, on April 1, 2004. See Item 5, Part II, of this Form 10-Q.

Analysis of Financial Condition

Consolidated assets of the Company totaled $410.8 million at June 30, 2004, an increase of $11.3 million from the December 31, 2003 total of $399.5 million. The increase in assets was primarily attributable to an increase of $14.6 million in securities available for sale coupled with an increase of $1.2 million in cash and cash equivalents, which were partially offset by a decline of $4.8 million in loans.

Net loans declined $4.8 million, or 1.4%, from $334.5 million at December 31, 2003 to $329.6 million at June 30, 2004. Traditional one-to-four family residential mortgage loans increased $2.9 million to $178.1 million at June 30, 2004 from $175.1 million at December 31, 2003, primarily due to the purchase of two mortgage loan pools totaling $25.3 million during the first six months of 2004, which was significantly offset by loan payoffs during the same period.

Cash and cash equivalents increased by $1.2 million to $8.1 million at June 30, 2004, from $6.9 million at December 31, 2003. Cash and cash equivalents consist of cash, checking deposits and federal funds deposited at other financial institutions.

Securities available for sale amounted to $47.4 million at June 30, 2004, and increased $14.6 million from $32.7 million at December 31, 2003. The increase was due to the purchase of securities of $24.5 million, which was partially offset by the sale of securities of $2.9 million and principal repayments and prepayments amounting to $5.4 million. These earning assets were purchased to replace the runoff of loans that occurred primarily in the second quarter of 2004.

Deposits at June 30, 2004 totaled $257.4 million, an increase of $8.8 million from $248.7 million at December 31, 2003. The increase occurred primarily in money market accounts due to the Bank’s

13.

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

promotional pricing and the desire of retail banking customers to maintain balances in more liquid accounts in anticipation of rising rates. Certificates of deposit, which amounted to $135.1 million at June 30, 2004, declined by $4.7 million from the level at December 31, 2003 resulting from maturing account balances being transferred to money market accounts.

FHLB advances at June 30, 2004 totaled $105.1 million reflecting a slight increase from $103.5 million at December 31, 2003. The majority of borrowed funds are invested in loans with the remainder in investment securities to leverage the Company’s excess capital with the long-term goal of improving the Company’s return on equity.

Total shareholders’ equity increased $977,000, or 2.2%, from $44.4 million at December 31, 2003, to $45.3 million at June 30, 2004. This increase was primarily attributable to net income for the first six months of 2004 and stock options exercised, which were partially offset by a decrease in accumulated other comprehensive income for unrecognized gains on the available for sale securities and dividend payments of $899,000 during the first half of 2004.

As of June 30, 2004, the Company had commitments to make $894,000 of residential loans and $7.5 million of non-residential real estate loans. It is expected that these loans will be funded within 30-90 days. The Company also had $3.1 million in commitments to fund loans on residential properties under construction as well as commitments to disburse $5.3 million on other mortgage loans. These commitments are anticipated to be filled within three to six months. Unused commercial lines of credit were $7.1 million and unused home equity lines of credit were $18.8 million. Commitments to originate non-mortgage loans total $1.2 million.

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

The Company’s net income is primarily dependent on its net interest income (the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities). Net interest income is heavily dependent upon the fluctuations in market interest rates due to the resulting impact on the spread, or difference, between the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Net income is also affected by the provision for loan losses, service charges, gains on sale of assets, other income, noninterest expense and income taxes.

The Company’s net income of $505,000 and $1.0 million for the three and six months ended June 30, 2004, represented decreases of $110,000, or 17.9%, and $219,000, or 17.7%, compared to the comparable periods ending June 30, 2003. The returns on average assets for the three and six months ended June 30, 2004, on an annualized basis, were 0.49% and 0.51%, respectively, compared to 0.71% and 0.72% for the same periods in 2003. The returns on average shareholders’ equity for the three and six months ended June 30, 2004, on an annualized basis, were 4.44% and 4.50%, respectively, compared to 5.65% and 5.67% for the same periods ended June 30, 2003. Earnings per share on a fully diluted basis for the three and six months ended June 30, 2004 amounted to $0.27 and $0.55, respectively, compared to $0.35 and $0.71 for the comparable periods of 2003.

14.

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

The decline in the Company’s financial results for the three and six months ended June 30, 2004 from the comparable periods of 2003 was substantially attributable to merger-related expenses for the recently announced merger with WesBanco, Inc. of Wheeling, West Virginia, and to a lesser extent to increased salaries and benefits during those periods. The exhibit below provides net income and earnings per share in conformance with generally accepted accounting principles (GAAP) and on a non-GAAP basis by excluding merger-related expenses to provide comparability with the Company’s operating results from the second quarter and first six months of 2003. The adjusted operating results of the Company for the second quarter of 2004 were net income of $660,000 and earnings per share on a fully diluted basis of $0.36, reflecting increases of $45,000, or 7.3%, and $0.01, or 2.9%, respectively above the results of the comparable quarter of 2003. The adjusted operating results for the first six months of 2004 amounted to net income of $1.2 million and earnings per share on a fully diluted basis of $0.64, resulting in modest declines of $64,000, or 5.2%, and $0.07, or 9.9%, respectively for the comparable six months of 2003.

Net interest income is the largest component of the Company’s income and is affected by the interest rate environment and volume and composition of interest-earning assets and interest-bearing liabilities. Net interest income totaled $2.5 million for the quarter ended June 30, 2004 compared to $2.4 million for the same period in 2003. The year-over-year increase of $92,000 was due to a higher level of average interest-earning assets; however continued margin compression negatively impacted net interest income.

15.

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

Average interest-earning assets of $393.5 million for the second quarter of 2004 exceeded the comparable quarter of 2003 by $64.1 million, or 19.5%. However, the net interest margin of 2.61% for the quarter ended June 30, 2004 declined by 29 basis points from 2.90% for the quarter ended June 30, 2003. The net interest margin decline was mainly attributable to the yield on average interest-earning assets of 5.00% for the second quarter of 2004 declining by 63 basis points from the level of the prior years’ comparable quarter of 2003 while the rate paid on average interest-bearing liabilities of 2.67% only declined by 31 basis points from the comparable period of 2003. The accelerated amortization of premiums, amounting to approximately $119,000, attributed to prepayments on purchased mortgage loans of $13.5 million contributed to the lower yield of interest-earning assets and the resulting margin compression during the second quarter of 2004. Due to the historical low level of interest rates, the Company also experienced a limited ability to lower interest rates on deposit products.

Net interest income for the first six months of 2004 amounted to $5.0 million, reflecting an increase of $199,000, or 4.2%, from the comparable period of 2003. The increase was primarily related to the higher level of average interest-earning assets, which was partially offset by the lower net interest margin. In addition, the accelerated amortization of premiums associated with prepayments of investment securities during the first quarter of 2004 also mitigated the year-over-year increase.

The Company remains liability sensitive whereby its interest-bearing liabilities will generally reprice more quickly than its interest-earning assets. Therefore, the Company’s net interest margin will generally increase in periods of falling interest rates in the market and will decrease in periods of rising interest rates. Cornerstone is more sensitive to rising rates than declining rates. In a rising interest rate environment, because Cornerstone has primarily fixed-rate loans in its loan portfolio, the amount of interest Cornerstone would receive on its loans could increase relatively slowly as loans are slowly prepaid and new loans are made at higher rates. Moreover, the interest Cornerstone would pay on its deposits could increase more rapidly as interest rates increase because Cornerstone’s deposits generally have shorter periods to repricing.

Interest and fees on loans totaled $4.4 million and $8.9 million for the three and six months ended June 30, 2004, respectively, compared to $4.2 million and $8.3 million for the comparable periods of 2003. The increases were mainly associated with higher average loan balances, primarily one to four family residential mortgages, during the second quarter and first half of 2004 versus the prior years’ comparable periods, which was partially offset by lower yields on newly originated loans. The average yield earned on the portfolio on an annualized basis, declined to 5.36% for the six months ended June 30, 2004 from 6.06% for the same period in 2003.

Interest and dividends on securities totaled $386,000 and $618,000 for the three and six months ended June 30, 2004, respectively, compared to $349,000 and $833,000 for the comparable periods of 2003. The increase in the second quarter of 2004 above the comparable quarter of 2003 was primarily attributed to a higher average balance of investment securities that were purchased to replace the residential mortgage loan payoffs. The decline in the six-month, year-over-year comparison was primarily attributed to accelerated prepayments of collateralized mortgage obligations that resulted in accelerated amortization of purchase premiums in the first quarter of 2004.

Interest on deposits totaled $1.4 million and $2.7 million for the three and six months ended June 30, 2004, respectively, compared to $1.3 million and $2.6 million for the comparable periods of 2003. Interest expense on deposits rose modestly despite the increased level in average balances. The benefit of lower interest rates on all deposit products and the shift in mix from certificates of deposits to more cost-

16.

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

effective checking and money market accounts offset the increased cost associated with the higher balance.

Interest on FHLB advances amounted to $1.1 million and $2.1 million for the three and six months ended June 30, 2004, respectively, compared to $978,000 and $2.0 million for the comparable periods of 2003. The increases were due principally to a higher average outstanding balance for FHLB advances in the second quarter and first half of 2004 versus the comparable periods of 2003.

The Company maintains an allowance for loan losses in an amount, which, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. While management utilizes its best judgment and information available, ultimate adequacy of the allowance is dependent on a variety of factors, including performance of the Company’s loan portfolio, the economy, changes in real estate values and interest rates and the view of the regulatory authorities toward loan classifications. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level considered adequate to absorb probable losses in the loan portfolio. The amount of the provision is based on management’s regular review of the loan portfolio and consideration of such factors as historical loss experience, changes in size and composition of the loan portfolio and specific borrower considerations, including ability of the borrower to repay the loan and the estimated value of the underlying collateral. The provision for loan losses totaled $84,000 and $168,000 for the three and six months ended June 30, 2004, respectively, consistent with the level for the three and six months ended June 30, 2003. The consistent results for the provision for loan losses reflected the need to provide additional allowance for the growth in loans in the current year relative to 2003, which was offset by an improvement in credit quality resulting from a lower level of nonperforming loans in 2004.

Net charge-offs amounted to $45,000 for the quarter ended June 30, 2004 as compared to $28,000 for the comparable quarter of 2003. For the first six months of 2004 net charge-offs amounted to $74,000 versus $33,000 for the comparable period of 2003. Based upon the current level of charge-offs, the level of impaired and nonperforming loans and the collateral supporting those loans, and the local and regional economic conditions, management believes that the total allowance of $1.9 million on total loans at June 30, 2004 is adequate. The Corporation will continue to review its allowance for loan losses and make further provisions as required dependent upon the economic and asset quality conditions.

Noninterest income totaled $852,000 for the quarter ended June 30, 2004 compared to $781,000 for the comparable period of 2003, reflecting an increase of $71,000, or 9.1%. The increase was primarily related to gains from the sale of Real Estate Owned (REO) coupled with an increase in the net mortgage servicing income, both of which are included in Other income. This was partially offset by a decline in gains on the sale of loans and Bank Owned Life Insurance (BOLI) income. Gains related to the sale of REO property acquired through foreclosure on delinquent residential mortgage loans amounted to $56,000 in the second quarter of 2004 versus only $1,000 in the comparable quarter of 2003. Mortgage servicing fees were relatively constant year-over-year; however, the amortization of mortgage servicing rights related to the servicing portfolio was accelerated in the second quarter of 2003 due to a significantly higher level of prepayments on serviced loans resulting in an impairment charge of approximately $70,000. There were no corresponding impairment charges in the second quarter of 2004.

Gains on the sale of loans of approximately $39,000 in the second quarter of 2004 declined by approximately $65,000 from the second quarter of the previous year and was mainly attributable to a lower level of originations and refinancing activity during the current quarter. The BOLI income, which is based upon the increase in the cash surrender value of the life insurance policies, amounted to $105,000 in

17.

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

the second quarter of 2004, reflecting a decline in revenue of $19,000 from the prior years’ comparable quarter due to the change from a guaranteed rate from the insurance carriers in the initial year of the polices to market rates in the current year.

Noninterest income for the six months ended June 30, 2004 amounted to $1.6 million, representing a decline of $30,000, or 1.9%, from the comparable period of 2003. In addition to the changes in gains on the sale of loans and REO property, BOLI income and net mortgage servicing income already noted for the quarterly comparison, gains on the sale of investments of $16,000 for the first six months ended June 30, 2004 declined from $71,000 for the comparable period of 2003.

Noninterest expense amounted to $2.5 million for the second quarter of 2004, which amounted to an increase of $274,000, or 12.3% above the level of $2.2 million in the comparable quarter of 2003. The increase in expenses was comprised of professional services and salaries and benefits, which were partially offset by a reversal of a contingency reserve for income taxes. Professional services, which totaled $409,000 in the second quarter of 2004, increased by approximately $283,000, or 225%, relative to the prior years’ comparable quarter due primarily to legal and investment banking expenses of $235,000 that was merger-related and legal and proxy solicitation expenses totaling $52,000 related to the Company’s defense of a potential proxy fight with a large shareholder. Salaries and benefits expense of $1.2 million in the second quarter of 2004 increased by $69,000, or 6.2%, above the comparable quarter of 2003 due primarily to the increase in the employee stock ownership plan (ESOP) expense of approximately $37,000, resulting from a significantly higher stock price during the second quarter of 2004 relative to the prior year. Expenses associated with occupancy and equipment, franchise taxes, and data processing in the second quarter of 2004 were generally consistent with the level of the comparable quarter of 2003.

A successful appeal with the Internal Revenue Service related to the timing of charged-off loans and the associated treatment of uncollectible interest resulted in a reversal of $60,000 of a previously established contingency reserve, which partially offset the increases noted above. Noninterest expense in the second quarter of 2004 would have increased by $39,000, or 1.7%, from the comparable quarter of 2003, if the merger-related expenses of $235,000 were excluded form the operating results of the second quarter.

Noninterest expense for the first six months of 2004 amounted to $4.9 million, which represented an increase of $399,000, or 8.9%, above the comparable period of 2003. The increase was mainly attributable to the merger-related costs, proxy expenses and higher ESOP expense, which were partially offset by the reversal of the contingency reserve for income taxes. If the merger-related expenses of $235,000 were excluded from the results for the first six months of 2004, the year-over-year increase in noninterest expense would have been $164,000, or 3.7%, from the comparable period of 2003.

The change in income tax is primarily attributable to the change in income before income taxes. Income tax expense totaled $229,000 for both the three months ended June 30, 2004 and June 30, 2003 resulting in effective rates of 31.2% and 27.1%, respectively. For the six months ended June 30, 2004 and June 30, 2003, the income tax amounted to $487,000 and $498,000, respectively, or effective tax rates of 32.4% and 28.7%, respectively. This effective tax rate increase is due primarily to growth in earning assets year-over-year without a corresponding increase in nontaxable assets.

18.

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

Liquidity

Office of Thrift Supervision (“OTS”) regulations presently requires Cornerstone Bank to maintain sufficient liquidity to assure its safe and sound operation. To that end, Cornerstone Bank maintains investments having maturities of 5 years or less, sells loans into the secondary market and borrows funds from the FHLB. These activities are intended to provide a source of relatively liquid funds on which Cornerstone may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At June 30, 2004 Cornerstone had commitments to originate residential loans totaling $894,000 and $7.5 million of non-residential real estate loans. In addition, Cornerstone had $3.1 million in commitments to fund loans on residential properties under construction as well as $5.3 million in commitments to fund other mortgage loans. Unused commercial lines of credit were $7.1 million and unused home equity lines of credit were $18.8 million. Commitments to originate nonmortgage loans total $1.2 million. Cornerstone considers its liquidity sufficient to meet its outstanding short and long-term needs.

The following table indicates the amounts of significant commitments at June 30, 2004.

Other significant and fixed contractual obligations to third parties at June 30, 2004 amounted to $122.3 million for deposits without a maturity, $135.1 million for consumer and brokered deposits and $105.1 million for FHLB advances.

Capital Resources

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

19.

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

The following table summarizes Cornerstone’s minimum regulatory capital requirements and actual capital at June 30, 2004.

Cornerstone also exceeded the minimum requirements to be considered well capitalized under the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991.

20.

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.

During the past few years interest rates have declined to historically low levels and as a result many of the Bank’s deposits are priced within 100 basis points of a zero interest rate floor. As the June 30, 2004 table suggests, should overall rates and loan yields continue to decline, the Bank’s inability to reduce rates below the zero floor could negatively impact Cornerstone’s NPV and future earnings. The decline in NPV from prior periods is due to the increase in prepayments in our loan portfolio and extended duration of our Federal Home Loan Bank advances. Based upon the most recent movements in market interest rates, increases in commodity prices and the general level of economic activity, it appears that the greater risk for Cornerstone Bank within the next year would be an increase in interest rates rather than a decrease.

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

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WESTERN OHIO FINANCIAL CORPORATION
CONTROLS AND PROCEDURES

Item 4. Controls and Procedures

Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

22.

WESTERN OHIO FINANCIAL CORPORATION

Item 1 — Legal Proceedings

The Company and its subsidiary are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of their business. While the ultimate outcome of pending proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing the Company, the Bank or its subsidiary in the proceedings, that the resolution of these proceedings should not have a material effect on the Company’s consolidated financial position or results of operation.

Item 2 — Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None

Item 3 — Defaults Upon Senior Securities

None

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

A special shareholders’ meeting is scheduled for August 17, 2004 for approval of the merger agreement with WesBanco, Inc. of Wheeling, West Virginia.

Item 5 — Other Information

The Company entered into a definitive Agreement and Plan of Merger with WesBanco, Inc. (“WesBanco”) of Wheeling, West Virginia on April 1, 2004. Under the terms of the Agreement and Plan of Merger, WesBanco will exchange a combination of its common stock and cash for the Company’s common stock. The Company’s shareholders will be able to elect a fixed exchange ratio of 1.18 shares of WesBanco common stock or $35.00 in cash subject to certain limitations including that 55% of the Company’s outstanding shares be exchanged for WesBanco common stock. Common stock received by the Company’s shareholders is anticipated to qualify as a tax-free exchange. Based upon a per share value of $35.00, the transaction is valued at $65.2 million. The transaction, which has received initial regulatory approval, is expected to be completed at the end of August of 2004, pending approval by the Company’s shareholders (see Item 4 above).

Item 6 — Exhibits and Reports on Form 8-K

(a)

Exhibits

31.1 Certification by the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications by the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Western Ohio Financial Corporation issued a report on Form 8-K, dated July 22, 2004, for a press release dated July 22, 2004 announcing the Company’s financial results and earnings for the second quarter and first half of 2004 and payment of the next shareholder dividend.

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WESTERN OHIO FINANCIAL CORPORATION
PART II – OTHER INFORMATION

SIGNATURES

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

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