Compensation Plan

Western Reserve Bancorp, Inc. And Western Reserve Bank Senior Executive Incentive Compensation Plan

Western Reserve Bancorp, Inc. and
Western Reserve Bank
Senior Executive 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 Senior Executives of the Bank that will achieve the following objectives:

    Allow the Company to attract and retain talented senior executives;

    Align the interests of the Company’s senior executives 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 each of the Company’s senior executives.

To this end, the Board of Directors has adopted the Revised and Amended Senior Executive 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).

This plan covers the following senior executives:

    President and Chief Executive Officer; and

    Senior Vice Presidents.

The Plan provides for varying Bonus Percentages in relation to Base Compensation. Base Compensation is defined as the senior executive’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 seven Performance Factors in three broad categories:

Page 1 of 5

Adopted: January 19, 2006
Revised: January 18, 2007
Revised: May 1, 2008

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Western Reserve Bancorp, Inc. and
Western Reserve Bank
Senior Executive 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:

—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 example, each senior executive’s potential bonus is based 45% on Overall Profitability, 30% on Growth, 16% on Asset Quality, and 9% 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 accrual for any Profit Sharing, Special Awards and Senior Executive Incentive Compensation ) of at least 85% 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 85% 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 senior executive must be in the Company’s employ at the time any payment is made under the Plan to receive the payment.

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

Page 2 of 5

Adopted: January 19, 2006
Revised: January 18, 2007
Revised: May 1, 2008

2

Western Reserve Bancorp, Inc. and Western Reserve Bank
Senior Executive Incentive Compensation Plan

Exhibit 1

A. Potential Bonuses as Percent of Base Compensation

                 
    Groups
Performance        
Level   CEO   Senior VPs
1
    10 %     10 %
2
    20 %     15 %
3
    30 %     20 %
4
    40 %     25 %
5
    50 %     30 %
6
    60 %     35 %
7
    70 %     40 %

Page 3 of 5

Adopted: January 19, 2006
Revised: January 18, 2007
Revised: May 1, 2008

3

Western Reserve Bancorp, Inc. and Western Reserve Bank
Senior Executive Incentive Compensation Plan

Exhibit 1

B. Performance Factors and Weightings

                         
            CEO   Senior VPs
Overall Profitability   45%   45%
Return on Avg. Equity
    15 %     15 %
Net Interest Margin
    15 %     15 %
Core EPS Growth
            15 %     15 %
Growth Rates
            30 %     30 %
 
                       
Loan Growth
            15 %     15 %
Local Deposit Growth
    15 %     15 %
Asset Quality
            16 %     16 %
 
                       
Non-Performing
                       
Assets/Total Assets
    8 %     8 %
Net Charge-Offs/Avg Loans
    8 %     8 %
Discretionary
            9 %     9 %
 
                       
Total Weighting
            100 %     100 %
 
                       

Page 4 of 5

Adopted: January 19, 2006
Revised: January 18, 2007
Revised: May 1, 2008

4

Western Reserve Bancorp, Inc. and Western Reserve Bank
Senior Executive Incentive Compensation Plan

Exhibit 1

C. Performance Targets

                                                         
                                            Non-   Net
                                            Performing   Charge-
Performance   Return on   Net Interest   EPS   Loan   Local Deposit   Assets/   Offs/
Level   Avg. Equity   Margin   Growth   Growth   Growth   Total Assets   Avg. Loans
1
    8.00 %     3.75 %     6.0 %     8.0 %     10.0 %     0.75 %     0.15 %
2
    10.00 %     3.85 %     9.0 %     10.0 %     12.0 %     0.65 %     0.13 %
3
    12.00 %     3.95 %     12.0 %     12.0 %     14.0 %     0.55 %     0.10 %
4
    14.00 %     4.05 %     15.0 %     14.00 %     16.0 %     0.45 %     0.07 %
5
    16.00 %     4.15 %     18.0 %     16.00 %     18.0 %     0.35 %     0.04 %
6
    18.00 %     4.25 %     21.0 %     18.00 %     20.0 %     0.25 %     0.02 %
7
    20.00 %     4.35 %     24.0 %     20.00 %     22.0 %     0.15 %     0.00 %

Page 5 of 5

Adopted: January 19, 2006
Revised: January 18, 2007
Revised: May 1, 2008

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