Western Ohio Financial (WOFC) 10-Q 2001 Q1 Quarterly report

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION (UNAUDITED)
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF INCOME
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	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
Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II — OTHER INFORMATION
SIGNATURES

UNITED STATES

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 the Quarterly Period ended March 31, 2001

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 May 7, 2001
1,778,567 common shares

WESTERN OHIO FINANCIAL CORPORATION

INDEX

		Page
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1.	Condensed Financial Statements
	Consolidated Balance Sheets		3
	Consolidated Statements of Income		4
	Consolidated Statements of Comprehensive Income		5
	Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		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

2

WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

Item 2. Condensed Financial Statements

(Amounts in thousands, except share data)

				March 31,			December 31,
				2001			2000
ASSETS
	Cash and cash equivalents			$	7,771		$	4,805
	Securities available for sale				43,662			48,653
	Federal Home Loan Bank stock				8,157			8,014
	Loans, net				283,332			283,604
	Premises and equipment, net				4,483			4,566
	Other assets				3,311			2,920
			Total assets	$	350,716		$	352,562
LIABILITIES AND SHAREHOLDERS’ EQUITY
	Noninterest bearing deposits			$	7,213		$	8,112
	Interest bearing deposits				205,570			200,220
	Borrowed funds				93,432			100,225
	Other liabilities				2,798			2,195
		Total liabilities			309,013			310,752
Shareholders’ equity
	Common stock, $.01 par value, 7,250,000 shares authorized, 2,645,000 shares issued				26			26
	Additional paid-in capital				40,622			40,617
	Accumulated other comprehensive income (loss)				(313	)		(740	)
	Unearned employee stock ownership plan shares				(774	)		(833	)
	Unearned management recognition plan shares				(91	)		(102	)
	Shares held by deferred compensation plan				(168	)		(168	)
	Treasury stock; 866,433 and 829,166 shares, at cost				(17,736	)		(17,055	)
	Retained earnings				20,137			20,065
		Total shareholders’ equity			41,703			41,810
			Total liabilities and shareholders’ equity	$	350,716		$	352,562

See accompanying notes to condensed consolidated financial statements.

3

WESTERN OHIO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(Amounts in thousands, except per share data)

		Three Months Ended
		March 31,
		2001		2000
Interest and dividend income
	Loans, including fees	$	5,679	$	5,599
	Securities		767		850
	Interest-bearing deposits and overnight funds		10		33
	Other interest and dividend income		143		129
			6,599		6,611
Interest expense
	Deposits		2,716		2,469
	Borrowed funds		1,398		1,720
			4,114		4,189
Net interest income			2,485		2,422
Provision for loan losses			105		84
Net interest income after provision for loan losses			2,380		2,338
Noninterest income
	Service charges		375		293
	Net gain on sale of loans		22		1
	Net gain on sale of securities		3		—
	Other		5		5
			405		299
Noninterest expense
	Salaries and employee benefits		1,015		1,021
	Occupancy and equipment		211		199
	Federal deposit insurance		10		11
	State franchise taxes		135		129
	Advertising		70		81
	Data processing		185		244
	Other		344		321
			1,970		2,006
Income before income taxes			815		631
Income tax expense			293		226
Net income		$	522	$	405
Earnings per common share
	Basic	$	.30	$	.22
	Diluted	$	.30	$	.22
Dividends per common share		$	.25	$	.25

See accompanying notes to condensed consolidated financial statements.

4

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

(Amounts in thousands)

		Three Months Ended
		March 31,
		2001			2000
Net income		$	522		$	405
Other comprehensive income (loss), net of tax:
	Unrealized gain (loss) on securities available for sale arising during the period		429			(63	)
	Reclassification adjustment for amounts realized on securities sales included in net income		(2	)		—
	Total other comprehensive income (loss)		427			(63	)
Comprehensive income (loss)		$	949		$	342

See accompanying notes to condensed consolidated financial statements.

5

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

(Amount in thousands)

			Three Months Ended
			March 31,
			2001			2000
Net cash from operating activities			$	1,050		$	(162	)
Cash flows from investing activities
	Loans:
		Loan originations, net of payments received		(245	)		(12,188	)
		Purchase of loans		(773	)		—
		Proceeds from sale of loans		1,224			—
	Securities available for sale:
		Maturities and principal payments		1,485			961
		Purchases		(497	)		—
		Sales		4,622			—
	Premises and equipment expenditures			(90	)		(473	)
	Proceeds from sale of premises and equipment			21			9
		Net cash from investing activities		5,747			(11,691	)
Cash flows from financing activities
	Net change in deposits			4,451			2,527
	Net change in advances from borrowers for taxes and insurance			(342	)		(313	)
	Purchase of treasury stock			(689	)		(1,147	)
	Cash dividends paid			(463	)		(469	)
	Proceeds from exercise of stock options			5			—
	Net increase (decrease) in short-term borrowings			(8,900	)		107
	Proceeds from FHLB advances			2,500			7,985
	Repayments on FHLB advances			(393	)		(159	)
		Net cash from financing activities		(3,831	)		8,531
Net change in cash and cash equivalents				2,966			(3,322	)
Cash and cash equivalents at beginning of period				4,805			9,614
Cash and cash equivalents at end of period			$	7,771		$	6,292
Supplemental disclosures of cash flow information
	Cash paid during the period for:
		Interest	$	3,889		$	4,072
		Income taxes		—			—
	Noncash activities
		Transfer of loans held for sale to portfolio loans		—			217

See accompanying notes to condensed consolidated financial statements.

6

FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

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

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 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, 2000. 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 (the “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 subsidiaries, CornerstoneBanc Financial Services, Inc. (“CFSI”) and West Central Financial Services, Inc. (“WCFS”). Intercompany transaction and balances are eliminated in consolidation.

Use of Estimates: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. 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 includes the dilutive effect of additional potential common shares issuable under stock options.

Accounting for Derivative Instruments and Hedging Activities: Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flow. SFAS 133, does not allow hedging of a security which is classified as held to maturity, accordingly, upon adoption of SFAS 133, companies may reclassify any security from held to maturity to available for sale if they wish to be able to hedge the security in the future. SFAS 133 became effective for the Company beginning January 1, 2001. The adoption of SFAS 133 did not have a significant impact on the Company’s financial statements since no derivatives are currently held.

See accompanying notes to condensed consolidated financial statements.

7

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

NOTE 2 — SECURITIES

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

(Amounts in thousands)

				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Loss			Value
March 31, 2001
	U.S. government agencies	$	10,000	$	—	$	(366	)	$	9,634
	Mortgage-backed securities		34,136		82		(190	)		34,028
	Total	$	44,136	$	82	$	(556	)	$	43,662
December 31, 2000
	U.S. government agencies	$	10,000	$	—	$	(566	)	$	9,434
	Mortgage-backed securities		39,774		39		(594	)		39,219
	Total	$	49,774	$	39	$	(1,160	)	$	48,653

Gross proceeds from sales of securities during the three months ended March 31, 2001 were $4,589,000, with gross gains of $3,000 included in earnings. There were no sales during the three months ended March 31, 2000.

NOTE 3 — LOANS

Loans were as follows:

(Amounts in thousands)

			March 31,			December 31,
			2001			2000
First mortgage loans secured by:
	One- to four- family residential		$	176,540		$	178,106
	Other properties			68,729			67,919
	Construction properties			6,444			8,476
				251,713			254,501
Consumer and other loans
	Consumer			1,463			1,608
	Commercial			15,045			14,090
	Home equity			18,531			17,766
				35,039			33,464
		Total loans		286,752			287,965
Less:
	Net deferred loan fees, premiums and discounts			(98	)		(87	)
	Loans in process			(1,582	)		(2,609	)
	Allowance for loan losses			(1,740	)		(1,665	)
			$	283,332		$	283,604

See accompanying notes to condensed consolidated financial statements.

8

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

NOTE 3 – LOANS (Continued)

Activity in the allowance for loan losses was as follows:
(Amount in thousands)

	Three Months Ended
	March 31,
	2001			2000
Beginning balance	$	1,665		$	2,781
Provision for loan losses		105			84
Recoveries		20			24
Charge-offs		(50	)		(59	)
Ending balance	$	1,740		$	2,830

Nonperforming loans were $2,718,000 and $3,601,000 at March 31, 2001 and December 31, 2000.

	2001		2000
Year-end loans with no allocated allowance for loan losses	$	776		32
Year-end loans with allocated allowance for loan losses		204		843
Total	$	980	$	875

NOTE 4 — DEPOSITS

Deposits were as follows:
(Amounts in thousands)

	March 31,		December 31,
	2001		2000
Checking – Noninterest bearing	$	7,213	$	8,112
Checking — Interest bearing		11,995		10,839
Money market accounts		45,209		44,859
Passbook and savings accounts		10,939		10,994
Certificates of deposit		137,427		133,528
	$	212,783	$	208,332

See accompanying notes to condensed consolidated financial statements.

9

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

NOTE 5 – EARNINGS PER COMMON SHARE

The factors used in the earnings per share computation were as follows:
(Amounts in thousands, except per share data)

		Three Months Ended
		March 31,
		2001			2000
Basic earnings per common share
	Net income	$	522		$	405
	Weighted average common shares outstanding		1,804			1,995
	Less: Average unallocated ESOP shares		(52	)		(67	)
	Less: Average nonvested MRP shares		(4	)		(48	)
	Average shares		1,748			1,880
	Basic earnings per common share	$	.30		$	.22

		Three Months Ended
		March 31,
		2001		2000
Diluted earnings per common share
	Net income	$	522	$	405
	Weighted average common shares outstanding for basic earnings per common shares		1,748		1,880
	Add: Dilutive effects of average nonvested MRP shares		—		—
	Add: Dilutive effects of stock options		11		1
	Average shares and dilutive potential common shares		1,759		1,881
	Diluted earnings per common share	$	.30	$	.22

Stock options covering 105,808 shares of common stock were not considered in computing diluted earnings per common share for the three months ended March 31, 2001 as they were antidilutive.

See accompanying notes to condensed consolidated financial statements.

10

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

NOTE 6 — STOCK OPTION PLANS

The following is a summary of activity in the stock option and incentive plan:

	Stock Options
	Options						Weighted Average
	Available			Options			Exercise
	for Grant			Outstanding			Price
December 31, 2000		161,532			241,346		$	18.56
Granted		(500	)		500			18.50
Forfeited		4,628			(4,628	)		17.50
Exercised		—			(330	)		14.75
March 31, 2001		165,660			237,218		$	18.58

See accompanying notes to condensed consolidated financial statements.

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 Corporation as of March 31, 2001 as compared to December 31, 2000, and the results of operations for the three months ended March 31, 2001, compared with the same periods in 2000. 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 Corporation with the Securities and Exchange Commission, in the Corporation’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 Corporation’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Corporation’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 Corporation 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 Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected.

The Corporation 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 Corporation totaled $350.7 million at March 31, 2001, a decrease of $1.9 million from the December 31, 2000, total of $352.6 million. The primary decrease in assets is a result of a decrease of $5.0 million in securities available for sale offset by a $3.0 million increase in cash and cash equivalents. The decrease in securities available for sale is due to sales to reduce interest rate sensitivity within the investment portfolio.

Net loans decreased $300,000 during the three months ended March 31, 2001 to $283.3 from $283.6 million at December 31, 2000. For the period, commercial loans increased $1.0 million to $15.0 million at March 31, 2001. Other real estate properties also increased $.8 million from $68.0 million at December 31, 2000 to $68.8 million at March 31, 2001. Traditional one-to-four family residential mortgage loans decreased $1.6 million to $176.5 at March 31, 2001 from $178.1 million at December 31, 2000. In addition, home equity lines of credit increased $.7 million from $17.8 million at December 31, 2000 to $18.5 million at March 31, 2001.

See accompanying notes to condensed consolidated financial statements.

12

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

Cash and cash equivalents increased by $3.0 million to $7.8 million on March 31, 2001, from $4.8 million on December 31, 2000. Cash and cash equivalents consist of cash, checking deposits and federal funds deposited at other financial institutions. The increase was primarily the result of the proceeds from the sales and maturities of securities during the quarter.

Securities available for sale decreased $5.0 million from $48.7 million at December 31, 2000, to $43.7 million on March 31, 2001. The decline was due to the sale of existing mortgage-backed securities available for sale. These fixed-rate lower coupon securities were sold to reduce interest rate sensitivity within the investment portfolio.

Deposits at March 31, 2001 totaled $212.8 million, an increase of $4.5 million, or 2.1% from $208.3 million at December 31, 2000. The increase occurred primarily in certificates of deposits which increased $3.9 million, or 2.9%. The Bank continues to offer competitive certificate of deposit rates. Savings and money market accounts increased $300,000 to $45.2 million as of March 31, 2001 compared to $44.9 on December 31, 2000.

FHLB advances at March 31, 2001 totaled $93.4 million, a decrease of $6.8 million or 6.8% from $100.2 million at December 31, 2000. The majority of borrowed funds are invested in loans to leverage the Corporation’s excess capital and improve the Corporation’s return on equity over time.

Total shareholders’ equity decreased $100,000 from $41.8 million at December 31, 2000, to $41.7 million at March 31, 2001. This decrease is primarily due to the Corporation purchasing approximately $700,000, or 37,600 shares, of its common stock during the first three months of 2001.

As of March 31, 2001, the Corporation had commitments to make $1.3 million of residential loans. It is expected that these loans will be funded within 30 days. The Corporation also had $1.6 million in commitments to fund loans on residential properties under construction as well as $4.8 million in commitments to disburse on nonresidential loans. These commitments are anticipated to be filled within three to six months. Unused commercial lines of credit were $3.9 million and unused home equity lines of credit were $11.0 million. Commitments to originate nonmortgage loans total $600,000.

Results of Operations

Operating results of the Corporation are affected by general economic conditions, monetary and fiscal policies of federal agencies and policies of agencies regulating financial institutions. The Corporation’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 availability of funds for lending activities.

The Corporation’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 Corporation’s net income of $522,000 for the three months ended March 31, 2001, represented an increase of $117,000 compared to the same period in 2000. Basic earnings per share increased $.08 per share from $.22 per share for 2000 to $.30 per share for 2001.

See accompanying notes to condensed consolidated financial statements.

13

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

Net interest income is the largest component of the Corporation’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 $2,485,000 for the three months ended March 31, 2001, compared to $2,422,000 for the same period in 2000. The Corporation remains liability sensitive whereby its interest-bearing liabilities will generally reprice more quickly than its interest-earning assets. Therefore, the Corporation’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. Accordingly, in a rising interest rate environment, the Corporation may need to increase rates to attract and retain deposits. Since the Corporation’s loans generally mature or reprice over longer time periods than its deposits, the rise in interest rates may not have such an immediate impact on interest-earning assets. This lag could negatively affect net interest income in future periods

Interest and fees on loans totaled $5,679,000 for the three months ended March 31, 2001 compared to $5,599,000 for the three months ended March 31, 2000. The increase was due primarily to the overall increase in average balances of commercial and commercial real estate loans.

Interest and dividends on securities totaled $767,000 for the three months ended March 31, 2001, and $850,000 for the three months ended March 31, 2000. The decrease was due to principal payments on securities as well as the sale of securities in the first quarter of 2001.

Interest on deposits totaled $2,716,000 for the three months ended March 31, 2001 and $2,469,000 for the three months ended March 31, 2000. This increase was due to higher interest rates to attract and retain both certificates of deposit and money market accounts.

Interest on FHLB advances was $1,398,000 for the three months ended March 31, 2001 compared to $1,720,000 for the three months ended March 31,2000. The decrease is due to a $6.8 million decrease in borrowings from the FHLB and lower cost of new advances.

The Corporation 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 Corporation’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 $105,000 for the three months ended March 31, 2001, compared to $84,000 for the three months ended March 31, 2000.

Loan charge-offs were $50,000 for the three months ended March 31, 2001 compared to $59,000 for the same period in 2000. Recoveries were $20,000 for the three months ended March 31, 2001 compared to $24,000 for the three months ended March 31, 2000. Due to the increase in commercial and commercial real estate loans, management increased the loan loss provision for the quarter ended March 31, 2001 by $21,000. The Corporation will continue to review its allowance for loan losses and make further provisions as economic and asset quality conditions dictate. The Corporation maintains its allowance for loan losses at a level that it considers to be adequate to provide for probable incurred losses.

See accompanying notes to condensed consolidated financial statements.

14

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

Noninterest income totaled $405,000 for the three months ended March 31, 2001 compared to $299,000 for the same period in 2000. The increase is primarily due to an increase in loan service and prepayment fees. Additionally, the Corporation realized gains on loans sold of approximately $22,000, compared to only $1,000 for the similar period last year.

Noninterest expense totaled $1,970,000 for the three months ended March 31, 2001 compared to $2,006,000 for the same period in 2000. Noninterest expense is comprised of employee compensation and benefits, occupancy, deposit insurance premiums, state franchise taxes and miscellaneous other expenses. Data processing expenses decreased $59,000 for the three month period ending March 31, 2001 compared to the same period in 2000.

The Corporation recently announced its intent to open a new full service branch office. This new office will be located in Centerville, Ohio and is expected to open during the summer. The branch opening will contribute to an increase in operating expenses.

The change in income tax is primarily attributable to the change in income before income taxes. Income tax expense totaled $293,000, or an effective rate of 35.9%, for the three months ended March 31, 2001, compared to $226,000, or an effective rate of 35.8% , for the three months ended March 31, 2000.

See accompanying notes to condensed consolidated financial statements.

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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 of 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 March 31, 2001 Cornerstone had commitments to originate fixed rate loans totaling $1.3 million. In addition, Cornerstone had $1.6 million in commitments to fund loans on residential properties under construction as well as $4.8 million in commitments to fund nonresidential loans. Unused commercial lines of credit were $3.9 million and unused home equity lines of credit were $11.0 million. Cornerstone had no commitments to purchase or sell loans. Cornerstone considers it’s 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 March 31, 2001.

	Actual capital					Current requirement
(Dollars in thousands)	Amount		Percent			Amount		Percent
Tangible capital	$	39,678		11.30	%	$	5,268		1.5	%
Core capital		39,678		11.30			14,049		4.0
Risk-based capital		41,005		17.21			19,055		8.0

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Excess of actual
	capital over current
	requirement
						Applicable
(Dollars in thousands)	Amount		Percent			Asset Total
Tangible capital	$	34,410		9.80	%	$	351,237
Core capital		25,629		7.30			351,237
Risk-based capital		21,950		9.21			238,187

See accompanying notes to condensed consolidated financial statements.

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WESTERN OHIO FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in the quantitative and qualitative disclosures about market risk as of March 31, 2001, from that presented in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

See accompanying notes to condensed consolidated financial statements.

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WESTERN OHIO FINANCIAL CORPORATION

PART II — OTHER INFORMATION

Item 1 -	Legal Proceedings None
Item 2 -	Changes in Securities and Use of Proceeds
	None
Item 3 -	Defaults Upon Senior Securities
	None
Item 4 -	Submission of Matters to a Vote of Security Holders
	None
Item 5 -	Other Information
	None
Item 6 -	Exhibits and Reports on Form 8-K
	(a) Exhibits

Exhibit Number	Description
Not required

(b) No current reports on Form 8-K were filed by the Registrant during the quarter ended March 31, 2001.

See accompanying notes to condensed consolidated financial statements.

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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:	5/11/01	/s/  John Raisbeck
		President and Chief Executive Officer (Principal Executive Officer)
Date:	5/11/01	/s/  Craig F. Fortin
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

See accompanying notes to condensed consolidated financial statements.

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