EX-10.13






Western Reserve Bancorp, Inc. and

Western Reserve Bank

Incentive Compensation Plan




The Board of Directors of Western Reserve Bancorp, Inc. and Western Reserve Bank desires to provide
an Incentive Compensation Plan for the employees of the Bank that will achieve the following
objectives:




	 	•	 	Allow the Company to attract and retain talented employees;






	 	•	 	Align the interests of the Company’s employees with those of the Company’s shareholders;






	 	•	 	Recognize that there are several components to the Company’s financial success,
including profitability, growth and asset quality; and






	 	•	 	Provide a quantitative way to measure each of the components of the Company’s financial
success and to allocate rewards equitably among all of the Company’s employees.





To this end, the Board of Directors has adopted The Incentive Compensation Plan (“the Plan”), which
is attached as Exhibit 1.



The Plan seeks to provide a range of potential rewards based on the Company’s results in each of
eight Performance Factors, discussed below. The Plan involves seven Performance Levels, ranging
from acceptable (Level 1) to spectacular (Level 7).



The Plan recognizes that different groups of employees may have different impacts on various
aspects of the Company’s success. Therefore, the Plan divides the Company’s employees into five
Groups:





	 	•	 	CEO;






	 	•	 	Senior Vice Presidents;






	 	•	 	Loan Department Officers;






	 	•	 	Other Officers; and






	 	•	 	Staff.





The Plan also recognizes that certain Groups have a greater impact on all areas of the Company’s
overall results, and thus provides for varying Bonus Percentages in relation to Base Compensation.
Base Compensation is defined as the employee’s actual earnings for the year, exclusive of any
bonuses or fringe benefits.



The Board believes that a properly-designed incentive plan does not over-emphasize one type of
behavior to the detriment of another. For instance, if Loan Growth were the only Performance
Factor, Asset Quality could potentially suffer. Or, if Profitability were the only measure, Growth
might be hampered. Therefore, the Plan provides for eight Performance Factors in three broad
categories:



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Adopted: January 19, 2005



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Western Reserve Bancorp, Inc. and

Western Reserve Bank

Incentive Compensation Plan




Overall Profitability:




—Return on Average Consolidated Equity


—Net Interest Margin


—Earnings Per Share Growth



Growth Rates:




—Loan Growth


—Local Deposit Growth



Asset Quality:




—Allowance for Loan Losses as a Percentage of Nonperforming Assets


—Nonperforming Assets as a Percentage of Total Assets


—Net Charge-offs as a Percentage of Average Net Loans



There is also a provision for a Discretionary component of the Incentive Compensation payment.
This component is based on the Company’s overall Performance Level, as determined by the Board of
Directors.



Likewise, the Plan is designed to assign an appropriate Weighting to each of the Performance
Factors for each Group of employees. For example, the CEO’s potential bonus is based 45% on
Overall Profitability, 30% on Growth, 15% on Asset Quality, and 10% on the Board’s Discretion.
Loan Department Officers’ bonuses are based 30% on Overall Profitability, 30% on Growth, 15% on
Asset Quality, and 25% on the Board’s discretion. Staff, who have no control over Asset Quality,
have their bonuses calculated 30% on Overall Profitability, 30% on Growth, 0% on Asset Quality, and
40% on the Board’s discretion.



The Plan provides for a Minimum Threshold to be met before any payments may be made under the Plan.
This Threshold is based on the Board-approved budget for the Plan year. The Threshold is computed
as follows:




	 	•	 	The Company must have Net Income (after payment of any Incentive Compensation) of at
least 50% of budget in order for any payments to be made under the Plan. (Obviously, at
this level of performance, the Profitability targets would not have been met.)






	 	•	 	If the Company earns between 50% and 99% of budgeted net income, any payments otherwise
earned under the Plan will be pro-rated to that percentage.






	 	•	 	If the Company earns at least 100% of budgeted net income, the payments will be computed
as per the Plan.





No payment of Incentive Compensation for the Plan year will be made until after the Company’s
year-end results are finalized and released.



The Board of Directors reserves the right to modify or terminate this Plan at any time.



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Western Reserve Bancorp, Inc. and Western Reserve Bank


Incentive Compensation Plan



Exhibit 1



A. Potential Bonuses as Percent of Base Compensation



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Groups
	Performance	 	 	 	 	 	Senior	 	Loan Dept.	 	Other	 	 
	Level	 	CEO	 	VPs	 	Officers	 	Officers	 	Staff
	1

	 	 	10	%	 	 	10	%	 	 	5	%	 	 	5	%	 	 	3.0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2

	 	 	20	%	 	 	15	%	 	 	8	%	 	 	8	%	 	 	3.5	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3

	 	 	30	%	 	 	20	%	 	 	11	%	 	 	11	%	 	 	4.0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4

	 	 	40	%	 	 	25	%	 	 	14	%	 	 	14	%	 	 	4.5	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5

	 	 	50	%	 	 	30	%	 	 	17	%	 	 	17	%	 	 	5.0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	6

	 	 	60	%	 	 	35	%	 	 	20	%	 	 	20	%	 	 	5.5	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	7

	 	 	70	%	 	 	40	%	 	 	23	%	 	 	23	%	 	 	6.0	%






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Western Reserve Bancorp, Inc. and Western Reserve Bank


Incentive Compensation Plan



Exhibit 1



B. Performance Factors and Weightings



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Senior	 	Loan Dept.	 	Other	 	 
	 	 	CEO	 	VPs	 	Officers	 	Officers	 	Staff
	Overall Profitability	 	45%	 	45%	 	30%	 	45%	 	30%
	Return on Avg. Equity
	 	 	15	%	 	 	15	%	 	 	10	%	 	 	15	%	 	 	10	%
	Net Interest Margin
	 	 	15	%	 	 	15	%	 	 	10	%	 	 	15	%	 	 	10	%
	Core EPS Growth
	 	 	15	%	 	 	15	%	 	 	10	%	 	 	15	%	 	 	10	%
	Growth Rates
	 	 	30	%	 	 	30	%	 	 	30	%	 	 	30	%	 	 	30	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loan Growth
	 	 	15	%	 	 	15	%	 	 	15	%	 	 	15	%	 	 	15	%
	Local Deposit Growth
	 	 	15	%	 	 	15	%	 	 	15	%	 	 	15	%	 	 	15	%
	Asset Quality
	 	 	15	%	 	 	15	%	 	 	15	%	 	 	0	%	 	 	0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loan Loss Reserves/
Non-Performing Assets
	 	 	5	%	 	 	5	%	 	 	5	%	 	 	 	 	 	 	 	 
	Non-Performing
Assets/Total Assets
	 	 	5	%	 	 	5	%	 	 	5	%	 	 	 	 	 	 	 	 
	Net Charge-Offs/
Average. Loans
	 	 	5	%	 	 	5	%	 	 	5	%	 	 	 	 	 	 	 	 
	Discretionary
	 	 	10	%	 	 	10	%	 	 	25	%	 	 	25	%	 	 	40	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Weighting
	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






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Western Reserve Bancorp, Inc. and Western Reserve Bank


Incentive Compensation Plan



Exhibit 1



C. Performance Targets



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Loan Loss	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Reserves/	 	Non-	 	Net
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Local	 	Non-	 	Performing	 	Charge-
	Performance	 	Return on	 	Net Interest	 	EPS	 	Loan	 	Deposit	 	Performing	 	Assets/	 	Offs/
	Level	 	Avg. Equity	 	Margin	 	Growth	 	Growth	 	Growth	 	Assets	 	Total Assets	 	Avg. Loans
	1

	 	 	8.00	%	 	 	4.00	%	 	 	6.0	%	 	 	14.0	%	 	 	12.0	%	 	 	200	%	 	 	0.60	%	 	 	0.15	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2

	 	 	10.00	%	 	 	4.25	%	 	 	9.0	%	 	 	17.0	%	 	 	15.0	%	 	 	250	%	 	 	0.50	%	 	 	0.13	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3

	 	 	12.00	%	 	 	4.50	%	 	 	12.0	%	 	 	20.0	%	 	 	18.0	%	 	 	300	%	 	 	0.40	%	 	 	0.10	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4

	 	 	14.00	%	 	 	4.75	%	 	 	15.0	%	 	 	23.0	%	 	 	21.0	%	 	 	400	%	 	 	0.30	%	 	 	0.07	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5

	 	 	16.00	%	 	 	5.00	%	 	 	18.0	%	 	 	26.0	%	 	 	24.0	%	 	 	500	%	 	 	0.20	%	 	 	0.04	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	6

	 	 	18.00	%	 	 	5.25	%	 	 	21.0	%	 	 	29.0	%	 	 	27.0	%	 	 	600	%	 	 	0.10	%	 	 	0.02	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	7

	 	 	20.00	%	 	 	5.50	%	 	 	24.0	%	 	 	32.0	%	 	 	30.0	%	 	 	700	%	 	 	0.00	%	 	 	0.00	%






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