UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

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☐Soliciting Material Pursuant to Section 240.14a-12

 

SB Financial Group, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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20172020 Proxy Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SB FINANCIAL GROUP, INC.

401 Clinton Street

Defiance, Ohio 43512

(419) 783-8950

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

Defiance, Ohio

March 10, 20176, 2020

 

Dear Shareholders:

 

The 34th36th Annual Meeting of Shareholders (the “Annual Meeting”) of SB Financial Group, Inc. (“SB Financial”) will be held on Wednesday,Wednesday, April 19, 2017,15, 2020, at 10:30 a.m., Eastern Daylight Savings Time, for the following purposes:

 

1.To elect three (3) directors, each to serve for a term of three years.

 

2.To ratify the appointment of BKD, LLP as the independent registered public accounting firm of SB Financial for the fiscal year ending December 31, 2017.2020.

 

3.To consider and vote upon a proposal to approve the 2017 SB Financial Group Stock Incentive Plan.

4.To consider and vote upon a non-binding advisory resolution to approve the compensation of SB Financial’s named executive officers.

 

5.4.To transact such other business as may properly come before the Annual Meeting and any adjournment(s) thereof.

 

Your Board of Directors recommends that you vote “FOR” the election as SB Financial directors of the nominees listed in SB Financial’s proxy statement for the Annual Meeting, and “FOR” Proposals 2 3 and 4.3.

 

This year’s Annual Meeting will again be held “virtually” through a live webcast. Shareholders will be able to vote and submit questions by visitingSBFG.onlineshareholdermeeting.comwww.virtualshareholdermeeting.com/SBFG2020and participating live in the webcast. A secure control number that will allow you to participate in the meeting electronically can be found on the enclosed proxy card.

Additionally, this year SB Financial’s senior management will be hosting regional meetings for shareholders and investors to provide greater insight to our 2016 financial results and scheduled plans. Please call Melissa Martin at 419-782-7656 to obtain more information regarding the dates, times and locations of these regional meetings.

 

Shareholders of record at the close of business on February 23, 201721, 2020 are entitled to receive notice of, and to vote at, the Annual Meeting and any adjournment(s) thereof. All shareholders are cordially invited to participate in the Annual Meeting. Whether or not you plan to participate in the Annual Meeting virtually, it is important that your Common Shares be represented. Accordingly, you are encouraged to vote electronically via the Internet in advance of the Annual Meeting in accordance with the instructions onyon the enclosed proxy card. Alternatively, please fill in, date, sign and return your proxy card promptly.

 

 By Order of the Board of Directors,
 
 /s/ Mark A. Klein
 Mark A. Klein
 Chairman, President & CEO
 SB Financial Group, Inc.

 

 

 

SB FINANCIAL GROUP, INC.

401 Clinton Street

Defiance, Ohio 43512

(419) 783-8950

 

PROXY STATEMENT FOR

THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON WEDNESDAY, APRIL 19, 201715, 2020

 

GENERAL INFORMATION

 

This proxy statement and related materials are being made available to shareholders of SB Financial Group, Inc. (the “Company”, “SB Financial” or “SBFG”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board”) for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Wednesday, April 19, 2017,15, 2020, at 10:30 a.m., Eastern Daylight Savings Time, and at any adjournment(s) thereof. The Annual Meeting will be hosted at the Company’s headquarters located at 401 Clinton St., Defiance, Ohio 43512, and will be held “virtually” through a live webcast atSBFG.onlineshareholdermeeting.comwww.virtualshareholdermeeting.com/SBFG2020. Shareholders may attend the Annual Meeting in person or may participate by accessing the Annual Meeting online, voting their shares electronically and submitting questions online during the meeting. To participate in the live webcast of the Annual Meeting, you will need your unique control number, which is provided on your proxy card, to enter the meeting.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING TO BE HELD ON APRIL 19, 201715, 2020

 

The Company’s Notice of Annual Meeting, this proxy statement, and the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2016,2019, are each available athttp://www1.snl.com/irweblinkx/FinancialDocs.aspx?iid=101021.101021.

 

Copies of the Company’s Annual Report on Form 10-K for the 20162019 fiscal year may be obtained at the Company’s website atwww.YourSBFinancial.comby first clicking, “Corporate Governance” and then “SEC Filings”. Or, you can obtain paper copies, without charge, by sending a written request to: Anthony V. Cosentino, Chief Financial Officer, SB Financial Group, Inc., 401 Clinton Street, Defiance, OH 43512.

 

The Company is furnishing proxy materials for the Annual Meeting over the Internet to certain shareholders of the Company, who will receive a Notice of Internet Availability of Proxy Materials instead of paper copies of the Notice of Annual Meeting of Shareholders, this proxy statement, the form of proxy card and the Company’s Annual Report to Shareholders for the fiscal year endedDecember 31, 20162019 (the “2016“2019 fiscal year”), which includes the audited consolidated financial statements of the Company for the 20162019 fiscal year (the “Annual Report”). The Notice of Internet Availability of Proxy Materials contains instructions on how to access the Company’s proxy materials over the Internet and how shareholders can receive a paper copy of the proxy materials.Shareholders who receive a Notice of Internet Availability of Proxy Materials are reminded that the Notice is not itself a proxy card.

 

On or about March 10, 2017,6, 2020, the Company will mail to all holders of record as of February 23, 2017 (the “Record Date”) of Common Sharescommon shares of the Company (“Common Shares”) as of February 21, 2020 (the “Record Date”) either (1) a copy of theNotice of Annual Meeting of Shareholders, this proxy statement, the form of proxy card and the Annual Report, or (2) a Notice of Internet Availability of Proxy Materials, which will indicate how to access the Company’s proxy materials on the Internet.

 

Only holders of record of the 4,907,3377,864,652 Common Shares of the Company eligible to vote on February 23, 2017as of the Record Date are entitled to receive notice of and to vote at the Annual Meeting. Each such holder is entitled to one vote for each Common Share held as of the February 23, 2017 record dateRecord Date with respect to all matters acted upon at the Annual Meeting. The shares represented by all properly executed proxies submitted to the Company will be voted as designated. Each person giving a proxy may revoke it at any time before it is voted at the Annual meetingMeeting by giving written notice of revocation to the Secretary of the Company at the address listed above, or electronically andby giving notice of revocation at the meeting. The last-dated proxy you submit by any means will supersede any previously submitted proxy. If your Common Shares are held in “street name” and you have instructed your broker, financial institution or other nominee to vote your Common Shares, you must follow directions received from your broker, financial institution or other nominee to change your vote. No appraisal or dissenters’ rights exist for any action proposed to be taken at the Annual Meeting.

 

Annually, the Company provides each registered shareholder at a shared address, not previously notified, with a separate notice of the Company’s intention to “household” proxy materials. Only one copy of the Notice of Annual Meeting of Shareholders and this proxy statement, or Notice of Internet Availability of Proxy Materials, as applicable, is being delivered to previously notified multiple registered shareholders who share an address unless the Company has received contrary instructions from one or more of the shareholders. Registered shareholders who share an address and would like to receive a separate copy of the Annual Report, this proxy statement for the Annual Meeting and/or Notice of Internet Availability of Proxy Materials delivered to them, or have questions regarding the householding process, may contact Investor Relations by calling 419-783-8920 or 419-785-3663, or by forwarding a written request addressed to SB Financial Group, Inc., Attention: Investor Relations, Anthony V. Cosentino, 401 Clinton Street, Defiance, Ohio 43512. Promptly upon receipt of a request, an additional copy of the Annual Report, this proxy statement and/or Notice of Internet Availability of Proxy Materials, as applicable, will be sent. By contacting Investor Relations, registered shareholders sharing an address can also (i) notify the Company that the registered shareholders wish to receive separate annual reports to shareholders, proxy statements or Notices of Internet Availability of Proxy Materials, as applicable, in the future or (ii) request delivery of a single copy of annual reports to shareholders, proxy statements or Notices of Internet Availability of Proxy Materials, as applicable, in the future if they are receiving multiple copies. Beneficial shareholders, who hold Common Shares through a broker, financial institution or other nominee, should contact their broker, financial institution or other nominee for specific information on the householding process as it applies to their accounts.

 

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VIRTUAL MEETING INFORMATION

 

Again this year, we will be hosting a virtual Annual Meeting. Shareholders will be able to participate in the Annual Meeting online via live webcast. Provided below is the summary of the information that you will need to participate in the Annual Meeting:

 

●Shareholders can participate in the Annual Meeting via live webcast over the Internet atSBFG.onlineshareholdermeeting.comwww.virtualshareholdermeeting.com/SBFG2020.

 

●You will need your unique control number, which is provided on your proxy card, to enter the Annual Meeting.

 

●The webcast of the Annual Meeting will begin at 10:30 a.m., Eastern Daylight Savings Time, on April 19, 2017.15, 2020.

 

●Shareholders will have the ability to vote and submit questions during the Annual Meeting webcast.

 

●Instructions as to how to participate via the Internet, including how to verify stock ownership, are available atSBFG.onlineshareholdermeeting.comwww.virtualshareholdermeeting.com/SBFG2020.

 

●If you have questions regarding how to participate via the Internet, you may call Mark A. Klein, Chairman, President and CEO at 419-783-8920 or Anthony V. Cosentino, CFO at 419-785-3663.

 

●Replay of the Annual Meeting webcast will be available until April 18, 2018.15, 2021.

 

We will be hosting the virtual Annual Meeting at our headquarters located 401 Clinton Street, Defiance, Ohio 43512, and shareholders may attend the Annual Meeting and vote in person if they so choose.

 

VOTING INFORMATION

 

Whether or not you plan to participate in the Annual Meeting, you may ensure your representation by voting your Common Shares by one of the following methods:

 

●by submitting a traditional paper proxy card;

 

●by submitting a proxy via the Internet prior to the Annual Meeting; or

 

●by participating in the Annual Meeting online and voting electronically during the meeting; or

●by participating in the Annual Meeting online and voting electronically during the meeting, or by attending the Annual Meeting at 401 Clinton St., Defiance, Ohio and voting in person.

 

Submitting a Proxy via the Internet. You may submit a proxy via the Internet by following the instructions set forth on the form of proxy card or the Notice of Internet Availability of Proxy Materials. If your Common Shares are registered in the name of a broker, financial institution or other nominee (i.e., you hold your Common Shares in “street name”), your nominee may allow you to submit a proxy via the Internet. In that case, the voting form your nominee sent you will provide instructions for submitting your proxy via the Internet. For shareholders whose Common Shares are registered in the name of a broker, financial institution or other nominee, please consult the instructions provided by your nominee for information about the deadline for submitting a proxy via the Internet.

 

Voting atElectronically during the Annual Meeting. If you participate in the live webcast of the Annual Meeting, you will have the opportunity to vote your Common Shares electronically during the Annual Meeting webcast. Shareholders can participate in the Annual Meeting via live webcast and vote electronically over the Internet atSBFG.onlineshareholdermeeting.comwww.virtualshareholdermeeting.com/SBFG2020.

 

In accordance with Companycompany policy, proxy cards, ballots and voting instructions that identify individual shareholders will be kept confidential. Exceptions to this policy, however, may be necessary in limited instances to comply with applicable legal requirements and, in the event of a contested proxy solicitation, to verify the validity of proxies presented by any person and the results of the voting.

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Quorum Requirement for the Annual Meeting

 

Under the Company’s Amended and Restated Regulations (the “Regulations”), a quorum is a majority of the Common Shares outstanding. Holders of Common Shares may be present in person, including via participation in the online webcast or represented by proxy at the Annual Meeting. Both abstentions and broker non-votes arewill be counted as being present for purposes of determining the presence of a quorum.

In general, broker non-votes occur when Common Shares held by a broker for a beneficial owner are not voted with respect to a particular proposal because the broker has not received voting instructions from the beneficial owner and the broker lacks discretionary authority to vote such Common Shares on the proposal(s). Brokers have discretionary authority to vote their customers’ Common Shares on “routine” proposals, even if they do not receive voting instructions from their customers. Brokers cannot, however, vote their customers’ Common Shares on “non-routine” matters without instructions from their customers. Pursuant to applicable stock exchange rules, the ratification of the appointment of the Company’s independent registered public accounting firm (Proposal No. 2) is the only routine matter. The election of directors and each of the other Proposals are considered non-routine matters and, therefore, your broker may vote on these matters only if you provide voting instructions.

 

Cost of Proxy Solicitation

 

The Company will bear the costs of preparing, printing and delivering this proxy statement, the form of proxy card and any other related materials, as well as all other costs incurred in connection with the solicitation of proxies on behalf of the Board (other than the Internet usage charges incurred if a shareholder appoints a proxy electronically). Proxies will be solicited by U.S. mail and electronic mail and may be further solicited, for no additional compensation, by officers, directors or employees of the Company and its subsidiaries by further mailing and/or electronic mail, by telephone or by personal contact. The Company will also pay the standard charges and expenses of brokers, voting trustees, financial institutions and other custodians, nominees and fiduciaries who are record holders of Common Shares not beneficially owned by them, for forwarding materials to and obtaining proxies from the beneficial owners of Common Shares entitled to vote at the Annual Meeting.

 

The Company has retained MacKenzie Partners, Inc. of New York, New York to aid in the solicitation of proxies for the Annual Meeting. MacKenzie Partners, Inc. will receive a base fee of $9,500, plus reimbursement of out-of-pocket fees and expenses, for its proxy solicitation services.

If you have any questions concerning this proxy solicitation, or the proposals to be considered at the Annual Meeting, please call MacKenzie Partners, Inc., at 1-800-322-2885. This is a toll-free number.

Your Vote Is Important. Your prompt cooperation in voting your Common Shares is greatly appreciated.

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PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

Inaccordance with the Regulations of the Company, three directors will be elected at the Annual Meeting for terms of three years.The Board proposes that each of the threedirectornominees identified below bere-elected re-elected for a new term of three years expiring in 2020.2023. Each of these nominees was approved by the Board upon the recommendation of the Governance and Nominating Committee.

 

Each individual elected as a director at the Annual Meeting will hold office for a term of three years and until his or her successor is elected and qualified, or until his or her earlier resignation, removal from office or death. Pursuant to the procedures set forth under the Regulations and Ohio law, the three nominees who receive the greatest number of votes will be elected as directors of the Company. Common Shares represented by properly submitted proxies will be votedFOR the election of the Board’s nominees unless authority to vote for one or more nominees is withheld. Shareholders may withhold authority to vote for the entire slate as nominated or may withhold the authority to vote for one or more nominees. Common Shares as to which the authority to vote is withheld will be counted for quorum purposes, but will not be counted toward the election of directors or toward the election of the individual nominees for whom the authority to vote has been withheld. If a nominee who would otherwise receive the required number of votes becomes unavailable or unable to serve as a director for any reason prior to the Annual Meeting, the individuals designated as proxy holders reserve full discretion to vote the Common Shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board. The Board has no reason to believe that any of the nominees named below will not serve if elected.

 

The Board of Directors proposes the election of the following persons, all of whom were recommended by the Governance and Nominating Committee, to three-year terms that will expire in 2020:2023:

 

Name Age Position(s) Held Director Since Age Position(s) Held Director Since
Robert A. Fawcett, Jr. 75 Director, SBFG and State Bank 1992 78 Director, SBFG and State Bank 1992
Gaylyn J. Finn 68 Director, SBFG and State Bank 2010 71 Director, SBFG and State Bank 2010
Rita A. Kissner 71 Director, SBFG, State Bank and RDSI 2004 74 Director, SBFG and State Bank 2004

 

YOUR BOARD RECOMMENDS THAT SHAREHOLDERS

VOTEFORTHE ELECTION OF ALL OF THE BOARD’S NOMINEES

 

The following directors will continue to serve after the Annual Meeting for the terms indicated:

 

Name Age Position(s) Held Director Since Term Expires Age Position(s) Held Director Since Term Expires
George W. Carter 57 Director, SBFG and State Bank 2013 2018 60 Director, SBFG and State Bank 2013 2021
Gary M. Cates 57 Director, SBFG and State Bank 2013 2018
Richard L. Hardgrove 78 Lead Independent Director, SBFG, State Bank and RDSI 2004 2019 81 Lead Independent Director, SBFG and State Bank 2004 2022
Tom R. Helberg 60 Director, SBFG and State Bank 2018 2021
Mark A. Klein 62 Director, Chairman, President and Chief Executive Officer, SBFG, State Bank and RDSI 2010 2019 65 Director, Chairman, President and Chief Executive Officer, SBFG and State Bank 2010 2022
William G. Martin 50 Director, SBFG and State Bank 2014 2019 53 Director, SBFG and State Bank 2014 2022
Timothy J. Stolly 58 Director, SBFG and State Bank 2010 2018 62 Director, SBFG and State Bank 2010 2021

 

There are no family relationships among any of the directors, nominees for election as directors and executive officers of the Company.

 

The following gives certain information, as of the record date,Record Date, concerning each nominee for election as a director of the Company and each director whose term will continue after the Annual Meeting. The following also provides an overview of certain specific skills that qualify each of our current directors and director nominees to serve as a director or to be nominated for re-election as a director. Unless otherwise indicated, each person has held his or her principal occupation for more than five years.

 

Mr. Carter has over 2932 years of experience in the utility industry. He currently serves as President and Chief Executive Officer of the Paulding Putnam Electric Cooperative, an electric utility serving Ohio and Indiana, and has held that position since 2005. Mr. Carter also serves as a Director of Buckeye Power Inc., an electric generation companycooperative that has assets of $2 billion, and serves on its Loan Management, Executiveexecutive and Audit Committees.audit committees. He also serves as a director of United Utility Supply, a materials supply company. Mr. Carter is an active member of his community, currently serving on the Paulding County Economic Development board and formerly servingserved as a board member and past President of the United Way of Paulding County. He also serves on the board of the Regional Growth Partnership, Toledo, OH. Mr. Carter was appointed to the Boards of Directors of the Company and State Bank in 2013. He currently is the Chairman of the Loan Review Committee and also serves on the Compensation and Loan Review Committees.Committee.

 

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Mr. Cates is a senior level healthcare executive with over 31 years’ experience. He has a strong background in strategic planning, business development and human resource development in multiple industries. He brings a significant background in management, leadership and communication skills as well as experience with hospital acute care and post-acute care operations, marketing and board relationships. He currently serves as the Chief Philanthropy Officer of Promedica Health System overseeing the system’s thirteen foundations and sits on the system Executive Team. He also has significant board service experience, having served on the boards of directors of numerous for-profit and non-profit organizations including the United Way of Defiance County, Defiance College and multiple ProMedica boards. Mr. Cates was appointed to the Boards of Directors of the Company and State Bank in 2013. He currently serves on the Audit and Compensation Committees.

Mr. Fawcett haspreviously owned and operated a medium-sized insurance business for over 30 years and currently serves as an insurance sales consultant.years. He brings entrepreneurial and business leadership to the Board. He also has significant board service experience, having served on the boards of directors of numerous for-profit and non-profit organizations. Mr. Fawcett currently serves as a director of the Putnam County DD Housing Board and the Putnam County YMCA Board. Mr. Fawcett has been a director of the Company and State Bank since 1992. He currently serves on the Governance and Compensation Committees.

 

Mr. Finn brings to the Board an extensive financial and risk management background. He served as Treasurer and Associate Vice President for Finance for Bowling Green State University until 2008. While serving at Bowling Green State University, Mr. Finn was responsible for receipts, disbursement, financial reporting and investing functions of the university as well as the risk management function. He is a holder of a CPA certificate (currently inactive) and previously worked for a large public accounting firm. Mr. Finn also served as a corporate controller for seven years. He has over thirty-three34 years’ experience as a financial executive in the for-profit and non-profit arenas. He currently serves as trustee of the Wood County Hospital while providing leadership as past Chairman in 2014 and 2015. He also serves on the finance committee of The Cocoon Shelter, a non-profit organization. Mr. Finn’s experience in finance has qualified him as an “audit committee financial expert” under SECSecurities and Exchange Commission (“SEC”) guidelines. Mr. Finn has been a director of the Company and State Bank since 2010. He currently is the Chairman of the Audit Committee and also serves on the Board’s Loan Review Committee.

 

Mr. Hardgrove brings an extensive background in finance and financial institution management. He has over 50 years of banking experience, during which he served as the CEO of three different banks with assets of $500 million to $5 billion, as well as serving 16 years as the CEO of a bank holding company. As CEO of financial institutions, he led these financial institutions through a number of successful mergers. Mr. Hardgrove also formerly served as the Deputy Superintendent of Banks for the State of Ohio. He has served as a bank director for 3740 years. Mr. Hardgrove currently serves as Lead Independent Director of eachthe Company and State Bank. Mr. Hardgrove has been a director of the Company and State Bank and RDSI.since 2004. He is a member of the Compensation Committee and the Governance and Nominating Committee.

 

Mr. Helberghas extensive knowledge and experience in real estate law. He is of counsel specializing in real estate related matters at the law firm of Liebenthal Levine Ltd in Toledo, OH. He has also served as the General Manager, Legal Counsel and Principal of a commercial real estate development and investment company since 1984. Mr. Helberg has significant board service experience having served on the boards of directors of numerous for-profit and non-profit organizations. Prior to his appointment to the Board of the Company and State Bank, Mr. Helberg served on State Bank’s Toledo Advisory Board. He currently is a member of the Toledo, OH and American Bar Associations and a Director of the Toledo Hospital Foundation Board. Mr. Helberg formerly served on the Board of Directors of two mid-west Ohio banks. Mr. Helberg was appointed as a director of the Company and State Bank in February 2018 and is a member of the Audit and Compensation Committees.

Ms. Kissner has broad knowledge of finance and leadership in local government. Her diverse professional background includes having served as Mayor of Defiance, a mid-sized Northwest Ohio town, as well as finance director and auditor. She exercised her leadership skills as the former Main Street Director of the Defiance Development and Visitors Bureau, and she also currently serves as a trustee and past Board Chair of Defiance College. Ms. Kissner has been a director of the Company and State Bank since 2004. Ms. Kissner currently serves on the Audit Committee and is Chairperson of the Board’s Compensation Committee.

 

Mr. Klein brings to the Board extensive experience in the financial servicesinstitution industry. He has served as thewas appointed Chairman, President and CEO of State Bank since 2006, andthe Board of Directors of SB Financial Group, Inc. in 2015.  Previously, he served as President and CEO of the CompanySB Financial Group, Inc. since 2010.2010 and State Bank since 2006. Mr. Klein currently serves as Chairmanis a graduate of eachDefiance College in Defiance, Ohio with a Bachelor of Science Degree in Finance.  He is a graduate of the Company,University of Wisconsin – Madison Graduate School of Banking, and received his Master of Business Administration (MBA) from Bowling Green State Bank and RDSI.University.  Mr. Klein is currently pursuing a Certificate of Management Excellence at Harvard Business School. Prior to joining the Company and State Bank, Mr. Kleinhe was Senior Vice President Private Banking of Sky Bank, Toledo, Ohio from 2004 to January 2006, and Vice President and Team Leader of Sky Bank, Toledo, Ohio from 2000 to 2004. From 1994 to 1999, Mr. Kleinhe was Executive Vice President and Senior Lender at a $450 million Sky Bank affiliate. Currently, Mr. Klein isserved as the past Chair of the ProMedica Defiance Regional Hospital Board.  He previously served as a board member of the Defiance City Schools where he has served the past 19for 20 years while providing leadershipserving as pastits president in 2001, 2006, 2011 and 2016.for four terms.  In 2013, Governor Kasich appointed Mr. Klein is the Chairman of the ProMedica Defiance Regional Hospital Board and serves on the Toledo Promedica Board of Trustees. Mr. Klein was also appointed by Governor Kasich in 2013 to serve the banking industry as a member ofon the State of Ohio Banking Commission.Commission and served until 2018.  In 2015, he was appointed tojoined the Defiance College Board of Trustees.  In March 2017, Mr. Klein was named to serve on the Federal Reserve Bank of Cleveland’s Fourth District, Community Depository Institutions Advisory Council (CDIAC) and served until 2020.  The CDIAC provides insight to the Cleveland Reserve Bank from the prospective of community depository institutions. In June 2017, Mr. Klein was appointed to serve as a representative of the Ohio Bankers’ League to the Graduate School of Banking at Wisconsin’s Banker Advisory Board. Mr. Klein is active in his community including his involvement in Defiance 2100; a diverse group of community leaders driving economic progress. He now serves on the local Community Investment Corporation Board. He is also a past member of the Defiance Area Foundation and Defiance City School Foundation.


Mr. Martin has extensive background in finance and leadership within his community. He has over 2930 years’ experience in finance and has been a certified public accountant since 1993 (currently inactive). He started his career at a “Big 8” accounting firm and held the position of Controller at a furniture company. Mr. Martin is currently President and Chief Financial Officer (CFO) of Spangler Candy Company, a 114 year old family-owned private candy making company headquartered in Bryan, Ohio where he has been employed for the past 1821 years. As President, and CFO, Mr. Martin is responsible for the overall strategic and tactical direction of Spangler Candy Company as well as the accomplishment of stated objectives in addition to being responsible for finance, accounting, Information Technology, Human Resources, supply chain, IT, logistics and purchasing.objectives. Mr. Martin is very community involved serving as past treasurer of the Bryan Athletic Boosters and ispast Chairman of the Bryan Area Foundation. Mr. Martin was appointed as a director of the Company and State Bank in 2014. Mr. Martin currently serves on the Company’s Governance and Nominating Committee and also Chairman of State Bank’s Executive Loan Committee.

 

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Mr. Stolly brings to the Board over 3841 years’ experience in the insurance industry, as well as a strong sales and services background as a true entrepreneur with a strong business acumen. Mr. Stolly is very community involved. He currently is President ofserves on the Lima Interfaith Senior Housing board and was past President, was past President of the Shawnee Country Club and serves on the board of Heat Treat Technology, Inc. Mr. Stolly has been a director of the Company and State Bank since 2010. He currently is Chairman of the Board’s Governance and Nominating Committee and also serves on the Company’s Audit Committee.

 

CORPORATE GOVERNANCE

 

Director Independence

 

The Board has reviewed, considered and discussed each director’s relationships, both direct and indirect, with the Company and its subsidiaries, including those described under the heading“TRANSACTIONS WITH RELATED PERSONS” beginning on page 2027 of this proxy statement. As part of its review, the Board has considered and discussed the compensation and other payments, if any, each director has, both directly and indirectly, received from or made to the Company and its subsidiaries in order to determine whether such director qualifies as independent based on the definition of an “independent director” set forth in Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market (“NASDAQ”).

 

The Board has affirmatively determined that the Board has at least a majority of independent directors, and that each of the following individuals who currently serve as directors, or who served as a director of the Company during the 2019 fiscal year, has and had no financial or personal relationships, either directly or indirectly, with the Company or its subsidiaries (other than compensation as a director of the Company and its subsidiaries, banking relationships in the ordinary course of business with the Company’s banking subsidiaries and ownership of the Company’s Common Shares as described in this proxy statement) and thus qualifies as an “independent director” under NASDAQ Marketplace Rule 5605(a)(2): George W. Carter, Gary M. Cates, Robert A. Fawcett, Jr., Gaylyn J. Finn, Richard L. Hardgrove, Tom R. Helberg, Rita A. Kissner, William G. Martin and Timothy J. Stolly. The Board has determined that Mark A. Klein does not qualify as an independent director because he currently serves as an executive officer of the Company and certain of its subsidiaries.

 

Director Qualifications and Review of Director Nominees

 

To fulfill its responsibility to recruit and recommend to the full Board nominees for election as Directors, the Governance and Nominating Committee reviews the composition of the Board to determine the qualifications and areas of expertise needed to further enhance the composition of the Board, and works to attract candidates with those qualifications. The Governance and Nominating Committee has adopted a written policy regarding qualifications of directors. Pursuant to this policy, individuals who are nominated for election to the Board must possess certain minimum personal and professional qualities, including, without limitation, personal integrity and ethical character; demonstrated achievement in business, professional, governmental, communal, scientific or educational fields; sound judgment borne of management or policy-making experience; and a general appreciation regarding major issues facing public companies of a size and operational scope similar to the Company. The policy also requires the Governance and Nominating Committee to consider the contributions that a candidate can be expected to make to the collective functioning of the Board based upon the totality of the candidate’s credentials, experience and expertise, the composition of the Board at the time, and other relevant circumstances.


The Governance and Nominating Committeeconsiderscandidates for the Board from any reasonable source, including shareholder recommendations. The Governance and Nominating Committee does not evaluate candidates differently based on who has made the recommendation or the source of the recommendation. The Governance and Nominating Committee has the authority under its charter to hire and pay a fee to consultants or search firms to assist in the process of identifying and evaluating candidates. No such consultants or search firms have been used to date and, accordingly, no fees have been paid to consultants or search firms.

 

The Company does not have a formal policy that requires the consideration of diversity in identifying nominees for election to the Board. However, the Governance and Nominating Committee’s policy regarding qualifications of directors provides that the Company will seek to promote through the nominations process appropriate diversity on the Board of professional background, experience, expertise, perspective, age, gender, ethnicity and country of citizenship.

 

The Board believes that each nominee and current Board member brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, insurance, accounting and finance, real estate, marketing and government.

 

6

Board Leadership Structure and Role in Risk Oversight

 

In April of 2015, the Board of Directors elected to combine the roles of Chief Executive Officer and Chairman and appointed Mark A. Klein as Chairman of the Board. This decision was based upon a variety of factors, including the composition of the Board, which is comprised of all independent directors other than Mr. Klein, and Mr. Klein’s demonstrated leadership qualities and extensive knowledge and experience with respect to the banking industry in general and the Company’s operations in particular. Based on the foregoing, the Board of Directors determined that Mr. Klein was in the best position to fill the strategic role of Chairman of the Board.Board, and the Board of Directors continues to believe this to be the case.

 

To also provide independent leadership for the Board, the Board appointed Richard L. Hardgrove to serve as Lead Independent Director upon Mr. Klein’s appointment as Chairman in April of 2015. The Lead Independent Director’s duties include acting as a liaison between the Board and management, approving the agenda for each Board meeting, leading the annual evaluation of the Chairman and CEO and acting as the Chairman for executive sessions of the Board. Because the Board is comprised of other strong independent directors and conducts regular executive sessions, which are led by the Lead Independent Director, the Board believes that its current leadership structure is appropriate.

 

The Board of Directors is responsible for consideration and oversight of risks facing the Company and is responsible for ensuring that material risks are identified and managed appropriately. Several oversight functions are delegated to committees of the Board with such committees regularly reporting to the full Board the results of their respective oversight activities. For example, the Audit Committee meets periodically with management in order to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. As part of this process, the Audit Committee reviews management’s risk-assessment process and reports its findings to the full Board. Also, the Compensation Committee periodically reviews the most important enterprise risks to ensure that compensation programs do not encourage excessive risk-taking.  Additional review or reporting on enterprise risks is conducted as needed or as requested by the Board or Board committees.

Nominations of Directors

Shareholders may recommend director candidates for consideration to the Governance and Nominating Committee by writing to Richard L. Hardgrove, Lead Independent Director of the Company, or Mark A. Klein, Chairman, President and Chief Executive Officer of the Company. To be considered, recommendations must be received at the Company’s principal office located at 401 Clinton Street, Defiance, Ohio 43512, no later than June 30th of the year preceding the Annual Meeting and must state the qualifications of the proposed candidate.

Shareholders may also nominate an individual for election as a director of the Company by following the procedures set forth in the Regulations. Pursuant to the Regulations, all shareholder nominations must be made in writing and delivered or mailed (by first class mail, postage prepaid) to Keeta J. Diller, Secretary of the Company at the Company’s principal office located at 401 Clinton Street, Defiance, Ohio 43512. To nominate an individual as a director for an Annual Meeting, the nomination must be received by the Secretary of the Company on or before the later of (a) the February 1st immediately preceding the date of the Annual Meetings or (b) the 60th day prior to the first anniversary of the most recent Annual Meeting at which directors were elected. However, if the Annual Meeting is not held on or before the 31st day following the first anniversary of the most recent Annual Meeting at which directors were elected, nominations must be received by the Secretary of the Company within a reasonable time prior to the date of the Annual Meeting. Nominations for a special meeting of shareholders at which directors are to be elected must be received by the Secretary of the Company no later than the close of business on the 7th day following the day on which the notice of the special meeting was mailed to shareholders. In any event, each nomination must contain the following information: (a) the name, age and business or residence address of each proposed nominee; (b) the principal occupation or employment of each proposed nominee; (c) the number of Common Shares owned beneficially and of record by each proposed nominee and the length of time the proposed nominee has owned such shares; and (d) any other information required to be disclosed with respect to a nominee for election as a director under the proxy rules promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).


Communications with the Board

 

Shareholders may initiate communication with the directors of the Board. Any shareholder wishing to do so may write to the Board of Directors or to specified individual directors at the Company’s principal business address, 401 Clinton Street, Defiance, OH 43512. Any shareholder communication so addressed will be delivered to the director or a member of the group of directors to whom it is addressed or to the Lead Independent Director and/or Chairman if addressed to the Board of Directors. In addition, communication via the Company’s website atwww.YourSBFinancial.com may be used. There is no screening process in respect to shareholder communications. All shareholder communications received by an officer of SB Financial for the attention of the Board of Directors or specified individual directors are forwarded to the appropriate members of the Board.

 

MEETINGS AND COMMITTEES OF THE BOARD

 

Each member of the Board is expected to devote sufficient time, energy and attention to ensure diligent performance of his or her duties and to attend all Board, committee and shareholder meetings. The Board met twelve13 times during 2016,2019, of which all were regularly scheduled meetings. Eachdirectorattended 75% or more of the aggregate of the number of meetings held by the Board and the number of meetings held by the Board committees on which he or she served during 2016.2019. The Board has four standing committees: Audit, Committee, Compensation, Committee, Governance and Nominating Committee and Loan Review Committee.Review. In accordance with the NASDAQ Marketplace Rules, the independent directors meet in executive session as appropriate matters for their consideration arise. The Company encourages all incumbent directors and director nominees to attend each annual meeting of shareholders.Annual Meeting. All of the incumbent directors and director nominees attended the Company’s last annual meeting of shareholdersAnnual Meeting held on April 20, 2016.17, 2019.

 

The Board’s standing committees of independent directors facilitate and assist the Board in the execution of its responsibilities. Each of these committees operates under a written charter, which is available on the Company’s website at www.YourSBFinancial.com by first clicking “Corporate Governance”, and then “Supplementary Info.”

 

Director Audit Committee Member Compensation Committee Member Governance and Nominating Committee Member Loan Review Committee Member Audit Committee Member Compensation Committee Member Governance and Nominating Committee Member Loan Review Committee Member
George W. Carter   X   X(Chair)   X   X(Chair)
Gary M. Cates X X    
Robert A. Fawcett Jr.   X X     X X  
Gaylyn J. Finn X (Chair)     X X (Chair)     X
Richard L. Hardgrove   X X     X X  
Tom R. Helberg X X    
Rita A. Kissner X X(Chair)     X X(Chair)    
Mark A. Klein                
William G. Martin     X       X  
Timothy J. Stolly X   X(Chair)   X   X(Chair)  
                
Number of meetings held – 2016 4 2 5 4
Number of meetings held – 2019 4 2 4 4

 

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Audit Committee

 

The function of the Audit Committee is to assist the Board in its oversight of:

 

●the accounting and financial reporting principles and policies and the internal accounting and disclosure controls and procedures of the Company and its subsidiaries;

 

●the Company’s internal audit function;

 

●the certification of the Company’s quarterly and annual financial statements and disclosures; and

 

●the Company’s consolidated financial statements and the independent audit thereof.


The Audit Committee is also directly responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged by the Company for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services. The independent registered public accounting firm reports directly to the Audit Committee. The Audit Committee evaluates the independence of the independent registered public accounting firm on an ongoing basis. Additionally,the Audit Committee reviews and pre-approves all audit services and permitted non-audit services provided by the independentregistered public accounting firmto the Company or any of its subsidiaries and ensures that the independentregistered public accounting firmis not engaged to perform the specific non-audit services prohibited by law, rule or regulation. TheThe Audit Committee is also responsible for establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

 

The Board has determined that each member of the Audit Committee is able to read and understand financial statements, including the Company’s balance sheets, income statements and cash flow statements, and is qualified to discharge his or her duties to the Company and its subsidiaries. In addition, the Board has determined that Gaylyn J. Finn qualifies as an “audit committee financial expert” for purposes of Item 407(d)(5) of Regulation S-K promulgated by the SEC by virtue of his service as the Treasurer and Associate Vice President for Finance of Bowling Green State University prior to his retirement and his CPA certification (currently inactive).

 

Compensation Committee

 

The function of the Compensation Committee is to review and recommend to the Board the salary, bonus and other compensation to be paid to, and the other benefits to be received by, the Company’s named executive officers.officers (“NEOs”). In addition, the Compensation Committee evaluates and makes recommendations regarding the compensation of the directors, including their compensation for services on Board committees. The Compensation Committee also administers the Company’s stock incentive plans. A full listing of the Compensation Committee’s duties and responsibilities is set forth in the Compensation Committee’s charter, a copy of which is available on the Company’s website atwww.YourSBFinancial.comby first clicking “Corporate Governance”, and then “Supplementary Info.”

 

Governance and Nominating Committee

 

The function of the Governance and Nominating Committee is to assist the Board in identifying qualified individuals to become directors of the Company and its subsidiaries, determining the composition of the boards of directors and their committees, monitoring a process to assess the effectiveness of the boards of directors and their committees and developing and implementing the Company’s corporate governance guidelines. The Governance and Nominating Committee also evaluates the performance of the current members of the boards of directors of the Company and its subsidiaries on an annual basis. Members of the boards of directors participate in director education programs throughout the year. Education activities potentiallymay include participation in conferences, seminars, or webinars conducted from time to time by national or state associations or industry experts.

 

Shareholders may recommend director candidates for consideration to the Governance and Nominating Committee by writing to Richard L. Hardgrove, Lead Independent Director of the Company, or Mark A. Klein, Chairman, President and Chief Executive Officer of the Company. To be considered, recommendations must be received at the Company’s principal office located at 401 Clinton Street, Defiance, Ohio 43512, no later than June 30thof the year preceding the annual meeting of shareholders and must state the qualifications of the proposed candidate.

8

Shareholders may also nominate an individual for election as a director of the Company by following the procedures set forth in the Regulations. Pursuant to the Regulations, all shareholder nominations must be made in writing and delivered or mailed (by first class mail, postage prepaid) to Keeta J. Diller, Secretary of the Company at the Company’s principal office located at 401 Clinton Street, Defiance, Ohio 43512. To nominate an individual as a director for an annual meeting of shareholders, the nomination must be received by the Secretary of the Company on or before the later of (a) the February 1st immediately preceding the date of the annual meeting of shareholders or (b) the 60th day prior to the first anniversary of the most recent annual meeting of shareholders at which directors were elected. However, if the annual meeting of shareholders is not held on or before the 31st day following the first anniversary of the most recent annual meeting of shareholders at which directors were elected, nominations must be received by the Secretary of the Company within a reasonable time prior to the date of the annual meeting of shareholders. Nominations for a special meeting of shareholders at which directors are to be elected must be received by the Secretary of the Company no later than the close of business on the 7th day following the day on which the notice of the special meeting was mailed to shareholders. In any event, each nomination must contain the following information: (a) the name, age and business or residence address of each proposed nominee; (b) the principal occupation or employment of each proposed nominee; (c) the number of Common Shares owned beneficially and of record by each proposed nominee and the length of time the proposed nominee has owned such shares; and (d) any other information required to be disclosed with respect to a nominee for election as a director under the proxy rules promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Loan Review Committee

 

The function of the Loan Review Committee is to assist the Board in fulfilling its oversight responsibilities of credit quality at State Bank. The Loan Review Committee is comprised of independent directors who are not involved in the loan approval process at State Bank, except when full Board approval is required due to the nature or size of a particular credit being presented.

 

COMPENSATION OF EXECUTIVE OFFICERS

 

OverviewSummary

The following discusses our executive compensation program for our NEOs listed below and describes the process followed by the Compensation Committee for making pay decisions, as well as its rationale for specific compensation related decisions with respect to the compensation of our NEOs and other executive officers in 2019.

 

The Company has no direct employees. All officers and other employees performing services for SBFG are employees of the State Bank (the “Bank”). The Compensation Committee is a committee of the Board hasof Directors, composed solely of independent directors, and is responsible for developing the responsibility for establishing, implementingBank’s executive compensation principles, policies and continually monitoring adherenceprograms and approving the compensation to the Company’s compensation philosophy. The Compensation Committee ensures that the total compensationbe paid to the executive officers of the Company is fair, reasonable and competitive. The Compensation Committee also provides oversight for all significant compensation plans for all officers, non-officers, and directors.

Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer, Chief Financial Officer and Senior Lender duringeach of the 2016 fiscal year,other NEOs of the Company and who are includedthe Bank. The Compensation Committee consults with Mark A. Klein, Chairman, President and Chief Executive Officer, concerning executive officer compensation, however, he does not participate in the Summary Compensation Tabledeliberations regarding his compensation as Chairman, President and Chief Executive Officer.


The primary objectives of the Bank’s executive officer compensation programs are to:

●Maintain a compensation program that is equitable in a competitive marketplace.

●Provide opportunities that integrate compensation with the Company’s annual and long-term performance goals.

●Encourage achievement of strategic objectives and creation of shareholder value.

●Recognize and reward individual initiative and achievements.

●Maintain an appropriate balance between base salary and short and long-term incentive opportunity.

●Allow the Company to compete for, retain, and motivate talented executives critical to its success consistent with its quality of life philosophy.

The total compensation package for executive officers of the Company and the Bank includes: base salary, short-term incentives (cash), long-term incentives (equity) and supplemental benefits such as Supplemental Executive Retirement Plan (“SERP”) and supplemental disability benefits. The long-term incentive opportunities may consist of equity incentives under the Company’s 2008 and 2017 equity incentive plans. Executive officers also receive other employee benefits, such as health and life insurance, that are generally available to all employees. Generally, the NEOs of the Bank, with the exception of The Chairman, President and CEO, are employed “at will” without severance agreements or employment contracts. The Company believes that its compensation levels and structure, as well as the Company’s culture and intangibles, alleviate the need for the Company to utilize employment agreements with NEOs other than its President and CEO. However, the Company has entered into Change in Control Agreements with other NEOs that provide them with protection in the form of severance payments in the case of a change-in-control related termination of employment. For additional information, see “AGREEMENTS WITH EXECUTIVE OFFICERS - CHANGE IN CONTROL AGREEMENTS” beginning on page 1219 of this proxy statement, are referred to as the “named executive officers.”statement.

 

Compensation PhilosophySince 2013, the Company has held a “say-on-pay” advisory shareholder vote on the compensation of the Company’s NEOs at the Annual Meeting each year. These “say-on-pay” proposals have been approved by a significant majority of the Common Shares voted at each of the last seven Annual Meetings. At the 2019 Annual Meeting, 94.45% of the Common Shares voted on the “say-on-pay” proposal (including abstentions but excluding broker non-votes) voting in favor of the non-binding advisory vote on executive compensation.

 

While the advisory vote was only one of several factors that influenced the Company’s executive compensation decisions and policies for 2019, the Compensation Committee viewed the results of this advisory vote as a continued indication that shareholders are in general support of the Company’s compensation philosophy and policies. Based on the results of the 2019 “say-on-pay” vote, no specific component of the executive compensation program was altered from fiscal year 2018. The Compensation Committee and the Company’s Board of Directors believe that the Company’s executive compensation has been appropriately tailored to its business strategies, aligns pay with performance, and reflects best practices regarding executive compensation. The Compensation Committee will continue to consider shareholder sentiments about the Company’s core principles and objectives when determining executive compensation going forward.

Compensation Philosophy

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific, long-term and strategic goals set by the Company, and which aligns executives’ interests with those of the shareholders by rewarding performance above established goals, with the ultimate objective of improving shareholder value. In general, for short and long-term incentive plans, the Company targets the 50th percentile (median) of its peer group when performance expectations are met, and targets the upper quartile (75th percentile) when performance expectations are exceeded. The Compensation Committee evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain quality employees in key positions. The Compensation Committee attempts to ensure that the compensation provided to key employees of the Company and its subsidiaries, including the named executive officers,NEOs, remains competitive relative to the compensation paid to similarly situated employees at comparable companies. The Compensation Committee further believes that such compensation should include both cash and equity-based compensation that rewards performance as measured against established goals.

Engagement of Independent Compensation Consultant

 

The Compensation Committee formally adopted ahas the sole authority to engage the services of any compensation philosophy in 2012 which drives compensation decisions. The summarized philosophy is as follows:

The Company is committed to providing all executives with fair and equitable compensation programs. For “named executive officers”, this includes a competitive base salary, incentive compensation, both long-term and short-term, and other ancillary benefit programs. For non-executive employees, this includes a competitive base salary, short-term performance-based incentives, and other ancillary benefits as recommended by management. For directors this includes retainers, attendance fees, equity awards and other benefits as approved by the Board of Directors. The Company’s objectives are to ensure its compensation arrangements are competitive as compared to peers in the financial industry and are consistent with the safety and soundness of the Company.

consultant or advisor.

It is the policy of the Compensation Committee to conduct a periodic, independent review of the Company’s compensation programs to verify the reasonableness of its compensation programs for executives, directors and key officers as compared to peer groups and all applicable federal and state laws, rules and regulations. The independent review is to bereviews are conducted by a nationally recognized independent compensation consulting company. Thefirm or individual who does not provide other services or products to the Company. In addition, the independent firm maymust not have any other personal or business relationships with any Board member or any officer of the Company.

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The Compensation Committee utilizesconsiders all relevant factors, including those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, in determining that the work performed by its compensation consultants does not raise a conflict of interest.


In 2018, the Compensation Committee engaged the services of Blanchard Consulting Group (“Blanchard”BCG”), a nationally recognized independent banking compensation consulting company. This 2018 engagement focused on a board of director compensation study, as well as a study focusing on all aspects of executive total compensation, including base salaries, cash incentives/bonuses, equity incentives and grants, other compensation and perquisites, and executive benefits and retirement programs. The information and analyses provided by BCG was used by the Compensation Committee engages Blanchardin making its compensation decisions for projects that address compliance oversight and other services, including, but not limited to, developmentthe 2019 fiscal year.

As part of comparativethis executive total compensation review, BCG utilized a peer group reviews, evaluation of various planstwenty (20) publicly traded banks. The peer group was developed jointly by BCG and the Company. The Company’s peer group was comprised of public banks with similar attributes to the Company, such as: asset size, geography, and a similar business model. The peer group focused on banks with assets between $600 million and $2.0 billion as of 2017 fiscal year-end (2017Y) and located in Indiana, Kentucky, Michigan, Ohio, and Pennsylvania, along with historical peers located in Missouri and Wisconsin. The same peer group was used in theBoard Compensation Review,also conducted in 2018, by BCG. The peer group is slightly larger in median assets compared to the Company at year-end 2017, but this was intentional based on the Bank’s growth goals in 2018 along with the fact that impactthe Bank has $2.3 billion assets under care (including $0.4 billion for wealth management and a real estate mortgage portfolio of $1 billion). These BCG studies on board of director and executive compensation contained peer group information on total compensation, but also included additional banking industry survey data and meeting withbanking industry trend information. The industry survey and providing instructiontrend information was derived from BCG databases and surveys that focus almost exclusively on the banking marketplace. The results/findings from the board and executive studies were used to assist the Compensation Committee with regard toits compensation decisions in 2018.

A listing of the elementsspecific peer group banks utilized in the 2018 studies are provided below.

Peer Group Banks

The peer group banks utilized in the executive total compensation review included the following:

CompanyLocation
Macatawa Bank CorporationHolland, MI
Southern Missouri Bancorp, Inc.Poplar Bluff, MO
ACNB CorporationGettysburg, PA
MutualFirst Financial, Inc.Muncie, IN
Civista Bancshares, Inc.Sandusky, OH
County Bancorp, Inc.Manitowoc, WI
Citizens Financial Services, Inc.Mansfield, PA
MBT Financial Corp.Monroe, MI
LCNB Corp.Lebonon, OH
Citizens & Northern CorporationWellsboro, PA
AmeriServ Financial, Inc.Johnstown, PA
Norwood Financial Corp.Honesdale, PA
Farmers & Merchants Bancorp, Inc.Archbold, OH
Middlesfield Banc Corp.Middlefield, OH
Kentucky Bancshares, Inc.Paris, KY
Ohio Valley Banc Corp.Gallipolis, OH
First Keystone CorporationBerwick, PA
Porter Bancorp, Inc.Louisville, KY
NorthWest Indiana BancorpMunster, IN
First Savings Financial Group, Inc.Clarksville, IN

In its review of executive compensation, planning.the Compensation Committee reviewed the following data provided by BCG:

●Total cash compensation = Base salary + Annual cash incentives / bonus;

●Direct compensation = Total cash compensation + Three-year average equity awards (equity granted in years 2015-2017 by the 20 peer banks); and

●Total compensation = Direct compensation + Other compensation + Retirement Benefits / Perquisites

The Committee’s evaluation of the peer group comparison and BCG’s assessment of our compensation practices and levels concluded:

●The Company’s financial performance was strong versus peers. Although the Company’s size measures such as assets and Market Cap were on the low end of the peer group range; the Company’s financial performance metrics such as ROAA, ROAE, and Core EPS Growth were very strong, near the 95th percentile compared to peer;

●The Company has adequate and appropriate compensation tools available to attract, motivate and retain high-quality, skilled executives and to provide a mix of short and long-term compensation opportunities;

●“Total cash compensation” of the Company’s NEOs was considered competitive compared to peers when the Compensation Committee factored in the individual officers, their performance, and the Company’s performance;

●For “Direct compensation,” the Company was near median levels of the peer group; and

●“Total compensation” remains competitive to peer and supports that the Company has competitive executive benefits.

Individual Executive Position Responsibilities & Expectations

The Compensation Committee establishes subjective performance objectives for each executive officer on an annual basis. The performance objectives are tailored to the particular executive officer’s area of responsibility within the Company and the Bank. Whether these performance objectives are achieved is one of the factors considered by the Compensation Committee when establishing annual base salaries for the following fiscal year. Annual increases are at the discretion exclusively of the Compensation Committee. For fiscal year 2019, NEOs were evaluated on the performance criteria set forth below:

 

ComponentsMark A. Klein –Act as Chairman, President and Chief Executive Officer of Executive Compensationthe Company and the Bank, providing leadership and motivation to achieve Board approved goals and objectives. Be a spokesperson for the Company to shareholders, customers, employees, and the media. Ensure the integrity of corporate records and various regulatory reports while supervising compliance with all applicable laws and regulations. Ensure that proper internal controls are in place and followed to protect the integrity of financial reporting. Support shareholder relations by acting as a primary Company contact. Communicate to the Board the progress toward goals and objectives, compliance issues, policy exceptions, and operational issues and risks.

 

Base SalaryAnthony V. Cosentino –Act as the Chief Financial Officer of the Company and the Bank, assuring the integrity and

accuracy of corporate financial records and various regulatory reports. Ensure that proper internal controls are in place and followed to protect the integrity of financial reporting. Prepare the budget and advise the executive management team and the Board of Directors on progress toward budget goals. Support shareholder relations by acting as a primary Company contact. Participate as a member of the Bank’s executive management team to develop direction and goals and to assist in communicating and supporting management’s priorities.

 

Keeta J. Diller – Act as the Chief Risk Officer and Corporate Secretary of the Company accountable for enabling the efficient and effective governance of significant risks, and related opportunities including strategic, reputational, operational, financial, or compliance-related risks and related opportunities. Assess and mitigate significant competitive, regulatory, and technological threats to the Company’s capital and earnings. Ensure the Company is compliant with government regulations, such as Sarbanes-Oxley. Responsible for the Company’s risk management operations, including managing, identifying, evaluating, reporting and overseeing the firm’s risks externally and internally. Particpate as a member of the Bank’s executive management team to develop direction and goals and to assist in communicating and supporting management’s priorities.

Ernesto Gaytan – Act as the Chief Technology Innovation & Operations Officer of the Bank, providing leadership in the day-to-day administration and operation of the Company focusing on executing the Company’s business plans. Responsible for the alignment of the technology vision of the Bank’s overall business strategy. Be the bridge between the Bank and the technology team responsible for the delivery of the optimal technology enabled banking solutions. Responsible for formulation of a detailed plan to direct and coordinate the necessary changes to optimize technological effectiveness. Responsible for ensuring all information is accurately processed and reported, legal and regulatory compliance is maintained and practices and technologies are in place to provide security for our client’s computer systems and data.

Jonathan R. Gathman – Act as the Senior Lending Officer of the Bank, supervising the Bank’s loan department to ensure compliance with all applicable laws and regulations. Maintain high asset quality in the Bank’s loan portfolio by ensuring compliance with the Bank’s loan policy and managing any policy exceptions through the Loan Committee and the Board of Directors. Ensure the proper maintenance and control of customer and bank records to ensure the integrity of those records. Manage the growth of the loan department to meet budgeted goals using individual goals, incentives, and marketing. Participate as a member of the Bank’s executive management team to develop direction and goals and to assist in communicating and supporting management’s priorities.

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2019 Executive Compensation Components

Annual Base Salaries

The determination of the base salaries of the executive officersNEOs of the Company is based upon an overall evaluation of a number of factors, including a subjective evaluation of individual performance, contributions to the Company and its subsidiaries, and analysis of how the Company’s and its subsidiaries’ compensation of its executive officers compares to compensation of individuals holding comparable positions with companies of similar asset size and complexity of operations.

 

During its review of each executive’s base salary, the Compensation Committee primarily considers:

 

●market data provided by independent outside consultants, such as Blanchard Consulting Group;BCG (peer group and banking industry survey data);

 

●internal review of the executive’s compensation, both individually and relative to other officers; and

 

●the individual performance of the executive.

 

The following table sets forth the amounts of the base salaries paid to our NEOs during the 2019 and 2018 fiscal years.

NEO Name 2019
Base Salary		  2018
Base Salary		  % of Increase 
Mark A. Klein $396,378  $372,186   6.5%
Anthony V. Cosentino $219,356  $210,920   4.0%
Keeta J. Diller $130,000  $116,830   11.27%
Ernesto Gaytan $209,000  $200,000   4.5%
Jonathan R. Gathman $206,908  $193,373   7.0%

Non-Equity Incentive Compensation

 

The Incentive Compensation Plan is a company-wide performance-based incentive compensation program which is intended to link incentive compensation directly to the Company’s and individual’s performance and, thereby, to shareholder value. The following were some of the 20162019 organization-wide objectives supported by the plan:

 

●build a high-performance financial company;

 

●grow the business;

 

●ensure sound operations, policies and procedures; and

 

●build on the value proposition strength within each business unit.


The following table sets forth the range of potential payouts under the 20162019 Incentive Compensation Plan for the named executive officers.NEOs. When determining the incentive plan opportunity levels, the Compensation Committee evaluated competitive market data along with the experience level, duties, and responsibilities expected of each NEO position. The Plan has a minimum after tax net income ($5.5 million in 2019) “circuit breaker” [below which no incentive payouts will be made] and requires employees to be in “good standing” in order to receive a payout.

 

Incentive Compensation Plan Opportunity Levels for 20162019 Fiscal Year

 

  Estimated Possible Payouts Under Non-Equity Incentive Plan 
Executive Officer Threshold  Target  Maximum 
Mark A. Klein $35,748  $71,496  $142,992 
Anthony V. Cosentino $18,910  $37,820  $75,641 
Jonathan R. Gathman $16,810  $33,620  $67,240 

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  Payouts Under Non-Equity Incentive Plan
(as a % of Base Salary)		 
Executive Officer Threshold  Target  Maximum 
Mark A. Klein  15.0%  30.0%  60.0%
Anthony V. Cosentino  12.5%  25.0%  50.0%
Keeta J. Diller  12.5%  25.0%  50.0%
Ernesto Gaytan  12.5%  25.0%  50.0%
Jonathan R. Gathman  12.5%  25.0%  50.0%

 

For the 20162019 fiscal year, Incentive Compensation awards were approved by the Compensation Committee for Mr. Klein ($138,732)81,597 or 20.59% of base salary), Mr. Cosentino ($73,466)39,552 or 18.03% of base salary), Ms. Diller ($16,785 or 12.91% of base salary), Mr. Gaytan ($19,360 or 9.26% of base salary) and Mr. Gathman ($56,874)34,221 or 16.54% of base salary), determined as follows:

 

Mark A. Klein 2016 Non-Equity Incentive Results
Mark A. Klein 2019 Non-Equity Incentive ResultsMark A. Klein 2019 Non-Equity Incentive Results 
Goal Maximum  Target  Threshold  Actual 2016 Result  Cash Reward  Weighting Maximum Target Threshold Actual 2019 Result Cash Reward 
Return on Assets (%)  1.24  1.00  0.95   1.11(Modified by 12 bps to 1.23 by achieving the 92nd percentile, or 12 bps above the 80th percentile.) $35,003   25%  1.34   1.20   1.13   1.16  $19,939 
Diluted EPS $1.40  $1.28  $1.20  $1.38  $13,108   10% $1.74  $1.56  $1.47  $1.51  $8,064 
Efficiency Ratio (%)  68.50   70.50   72.50   68.76  $33,424   25%  67.50   69.50   71.50   70.78  $18,981 
Non-performing Asset Ratio (%)  0.65   0.85   1.00   0.65  $14,299 
Chargeoffs & Loss on Assets $400,000  $600,000  $750,000  $61,871  $14,299 
Common Stock Price $14.50  $12.85  $12.00  $16.05  $28,598 
Non-performing Asset Ratio*  10%  80%  70%  65%  71% $12,282 
Chargeoffs & Loss on Assets*  10%  65%  50%  40%  65% $22,331 
Common Stock Price**  20%  120%  100%  90%  61%  -- 
              TOTAL  $138,732                   TOTAL  $81,597 

 

Anthony V. Cosentino 2016 Non-Equity Incentive Results
Anthony V. Cosentino 2019 Non-Equity Incentive ResultsAnthony V. Cosentino 2019 Non-Equity Incentive Results 
Goal Maximum  Target  Threshold  Actual 2016 Result  Cash Reward  Weighting Maximum Target Threshold Actual 2019 Result Cash Reward 
Return on Assets (%)  1.24  1.00  0.95   1.11(Modified by 12 bps to 1.23 by achieving the 92nd percentile, or 12 bps above the 80th percentile.) $14,813   20%  1.34   1.20   1.13   1.16  $7,533 
Diluted EPS $1.40  $1.28  $1.20  $1.38  $6,934   10% $1.74  $1.56  $1.47  $1.51  $3,808 
Efficiency Ratio (%)  68.50   70.50   72.50   68.76  $17,681   25%  67.50   69.50   71.50   70.78  $8,964 
Non-performing Asset Ratio  0.65%  0.85%  1.00%  0.65% $11,346 
Chargeoffs & Loss on Assets $400,000  $600,000  $750,000  $61,871  $7,564 
Common Stock Price $14.50  $12.85  $12.00  $16.05  $15,128 
Non-performing Asset Ratio*  15%  80%  70%  65%  71% $8,701 
Chargeoffs & Loss on Assets*  10%  65%  50%  40%  65% $10,546 
Common Stock Price**  20%  120%  100%  90%  61%  -- 
              TOTAL  $73,466                   TOTAL  $39,552 

 

Jonathan R. Gathman 2016 Non-Equity Incentive Results
Goal Maximum  Target  Threshold  Actual 2016 Result  Cash Reward 
Commercial Loan Balance Growth $40,000,000  $30,000,000  $22,000,000  $86,483,573  $13,448 
Chargeoffs & Loss on Assets $400,000  $600,000  $750,000  $61,871  $13,448 
Return on Assets (%)  1.24   1.00   0.95   1.11(Modified by 12 bps to 1.23 by achieving the 92nd percentile, or 12 bps above the 80th percentile.) $13,168 
Commercial Loan Fees (includes SBA Gains) $2,416,550  $2,016,200  $1,579,300  $1,052,211   -- 
Criticized & Classified Loan Reduction $(4,000,000) $(2,250,000) $(1,000,000) $(5,252,907) $6,724 
Non-performing Asset Ratio (%)  0.65   0.85   1.00   0.65  $10,086 
               TOTAL  $56,874 
Keeta J. Diller 2019 Non-Equity Incentive Results 
Goal Weighting  Maximum  Target  Threshold  Actual 2019 Result  Cash Reward 
Diluted EPS  15% $1.74  $1.56  $1.47  $1.51  $3,164 
Audit Performance  25%  100%  90%  80%  85% $5,476 
Return on Assets (%)  20%  1.34   1.20   1.13   1.16  $4,173 
Efficiency Ratio (%)  20%  67.50   69.50   71.50   70.78  $3,972 
Common Stock Price**  20%  120%  100%  90%  61%  -- 
                   TOTAL  $16,785 

Ernesto Gaytan 2019 Non-Equity Incentive Results 
Goal Weighting  Maximum  Target  Threshold  Actual 2019 Result  Cash Reward 
Diluted EPS  15% $1.74  $1.56  $1.47  $1.51  $5,417 
IT Audit Performance  30%  100%  90%  80%  54%  -- 
Return on Assets (%)  20%  1.34   1.20   1.13   1.16  $7,143 
Efficiency Ratio (%)  20%  67.50   69.50   71.50   70.78  $6,800 
Common Stock Price**  15%  120%  100%  90%  61%  -- 
                   TOTAL  $19,360 

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Jonathan R. Gathman 2019 Non-Equity Incentive Results 
Goal Weighting  Maximum  Target  Threshold  Actual 2019 Result  Cash Reward 
Commercial Loan Balance Growth  20% $80,000,000  $65,000,000  $55,000,000  $51,409,097   -- 
Chargeoffs & Loss on Assets*  20%  65%  50%  40%  65% $19,338 
Return on Assets (%)  20%  1.34   1.20   1.13   1.16  $6,906 
Commercial Loan Fees (includes SBA Gains)  15% $3,546,402  $3,140,724  $2,294,402  $1,325,877   -- 
Criticized & Classified Loan Reduction  10% $(3,500,000) $(1,500,000) $500,000  $1,727,698   -- 
Non-performing Asset Ratio*  15%  80%  70%  65%  71% $7,977 
                   TOTAL  $34,221 

*As compared to 65 Bank internal Peer group of publically traded banks of asset size between $500 million and $1.3 billion

**As compared to the KBW NASDAQ Bank Index (BKX)

 

Equity-Based Awards

 

The Company believes that it is also important to provide equity compensation, which serves as an incentive for long-term corporate financial performance. The Company’s stockequity incentive plans are intended to encourage participants to acquire or increase and retain a financial interest in the Company, to remain in the service of the Company and to put forth maximum efforts for the success of the Company, and toCompany. Equity based awards enable the Company and its subsidiaries to compete effectively for the services of potential employees and directors by furnishing an additional incentive to join and/or remain with the Company and its subsidiaries.

 

During 2016,Our equity incentive plans authorize grants of incentive stock options, nonqualified stock options, stock appreciation rights, and restricted stock units. The Plans prohibit back-dating or re-pricing of stock options and the minimum vesting period for restricted stock is six months. In recent years, the Company awarded 5,872, 2,936 and 2,936has granted equity in the form of restricted common shares (“Restricted Shares”) with a four-year ratable vesting schedule (25% per year, beginning one year from date of grant). The Compensation Committee determined that the use of Restricted Shares respectively,or full-value equity grants is very prevalent within the banking industry based on our independent compensation consulting studies and regulatory best practices and, as such, determined that it was appropriate from a market competitive standpoint to Mark A. Klein, Anthony V. Cosentino and Jonathan R. Gathman underutilize this type of equity award in 2019. As a result, pursuant to the SB Financial Long-Term Compensation Plan, the Company granted Restricted Shares to NEOs as determined by the Company’s 2008 Stock Incentive Plan.Return on Average Assets (ROAA) performance for the 2019 fiscal year. The table below sets forth the 2020 grant levels based on 2019 ROAA performance. For the 2019 fiscal year, the Company’s incentive ROAA was 3 basis points above the threshold level.

 

Retirement, SeveranceEquity Incentive Plan Restricted Share Grant Levels

  Actual  Share Grants Under Equity Incentive Plan 
Executive Officer Award  Threshold  Target  Maximum 
Mark A. Klein  2,140   1,500   3,000   6,000 
Anthony V. Cosentino  1,068   750   1,500   3,000 
Keeta J. Diller  1,068   750   1,500   3,000 
Ernesto Gaytan  1,068   750   1,500   3,000 
Jonathan R. Gathman  1,068   750   1,500   3,000 

Clawback Policy

The Company’s incentive compensation policy specifies that any and all cash bonus payments, retention awards, and/or equity incentive compensation which may be paid to executive officers are subject to recovery or “clawback” by the Company if such payments were based on financial statements or other performance metric criteria which are later found to be materially inaccurate. We feel this clawback policy is appropriate and assists with risk mitigation throughout our Company.


Stock Ownership/Holding Requirements

The Company has established stock ownership guidelines for all NEOs and directors. We feel it is important that our NEOs and directors maintain and/or obtain stock ownership in the Company they are leading. The specific requirements call for at a minimum, 10,000 shares of Common Stock to be owned by each NEO and director within five years of adoption of the revised stock ownership guidelines on July 19, 2017. Currently, all NEOs and directors are in compliance with the Company’s stock ownership guidelines.

Employment, Change in Control Benefits and Severance Benefits

 

Employment AgreementsAgreement.The Company entered into an Amended and Restated Employment Agreement, dated as of July 15, 2015,January 22, 2018, with Mark A. Klein, Chairman, President and Chief Executive Officer of the Company and State Bank (the “Employment“A&R Employment Agreement”). which superseded Mr. Klein’s Employment Agreement dated July 15, 2015. Under the terms of the A&R Employment Agreement, Mr. Klein is entitled to receive certain severance or change in control payments and benefits if he is terminated by the Company under certain circumstances. Information regarding the payments and benefits provided under the A&R Employment Agreement is set forth under the heading“AGREEMENTS WITH EXECUTIVE OFFICERS - EMPLOYMENT AGREEMENT”beginning on page 15 of this proxy statement.

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SERP Agreements.The Company has entered into Supplemental Executive Retirement Plan Agreements with Mark A. Klein and Anthony V. Cosentino (the “SERP Agreements”). Under the terms of the SERP Agreements, the executive officers are entitled to receive certain benefits following retirement. Information regarding the payments and benefits provided under the SERP Agreements is set forth under the heading“SERP AGREEMENTS” beginning on page 1418 of this proxy statement.

 

Change in Control Agreements.The Company has entered into Amended and Restated Change in Control Agreements with Mark A. Klein, Anthony V. Cosentino, Keeta J. Diller and Jonathan R. Gathman and other executive officers (the “Change“A&R Change in Control Agreements”). Under the terms of the A&R Change in Control Agreements, each of the executive officersNEOs is entitled to receive certain benefits, including a lump sum cash payment, if the executive officerNEO is terminated by the Company under certain circumstances in connection with a “change in control” of the Company. We feel these agreements are valuable to the Company as they provide additional protection and incentive for our NEOs to work through a potential change in control if the board and leadership determines this is in the best interest of the shareholders. Information regarding the A&R Change in Control Agreements is set forth under the heading“AGREEMENTS WITH EXECUTIVE OFFICERS - CHANGE IN CONTROL AGREEMENTS”beginning on page 1319 of this proxy statement.

SERP Agreements.The Company has entered into Amended and Restated Supplemental Executive Retirement Plan Agreements with Mark A. Klein and Anthony V. Cosentino (the “A&R SERP Agreements”). Under the terms of the A&R SERP Agreements, the executive officers are entitled to receive certain benefits following retirement. We feel these agreements provide a strong retention vehicle for two of our key leaders at the Company. These type of agreements are exclusively used for only a select few of our leaders. Information regarding the payments and benefits provided under the A&R SERP Agreements is set forth under the heading“AGREEMENTS WITH EXECUTIVE OFFICERS - SERP AGREEMENTS” beginning on page 20 of this proxy statement.

 

The Company also provides named executive officersNEOs with a few additional perquisites and other personal benefits that the Company and the Compensation Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain quality employees for key positions.

 


Summary Compensation Table for 2019

The following table sets forth the cash compensation as well as certain other compensation awarded or paid to, or earned by, each of the named executive officersNEOs of the Company.

 

Summary Compensation Table for 2016 and 2015 Fiscal Years

(a) (b) (c) (d) (e) (f) (g) (h)  (b) (c) (d) (e) (f) (g) (h) (h) 
Name and Principal Position(s) Year Salary  

Nonequity

Incentive Plan Compensation

(1)

  

Stock Awards

(2)

  

Change in Pension Value & Deferred Compensation 

Earnings

(3)		  

All Other Compensation

(4)

 Total  Year Salary Bonus Stock Awards
(1)		 Nonequity Incentive Plan Compensation
(2)		 Change in Pension Value & Deferred Compensation Earnings
(3)		 All Other Compensation
(4)		 Total 
                              
Mark A. Klein                                                         
Chairman, President & CEO of the Company, State Bank and RDSI 2016  $309,386 $138,732 $110,628 $120,686 $89,190 $768,622 
Chairman, President & 2019 $388,201   --  $58,880  $81,597  $162,337  $32,957  $723,972 
CEO of the Company and State Bank 2018 $361,789   --  $63,360  $100,580  $137,447  $29,270  $692,446 
  2015  $275,480  $84,082  $39,960  $90,557  $37,586  $527,665                               
Anthony V. Cosentino                                                         
Executive Vice President & Chief Financial Officer of the Company , State Bank, and RDSI  2016  $191,991 $73,466 $55,314 $22,531 $21,979 $365,281 
Executive Vice President & 2019 $215,637   --  $29,440  $39,552  $33,135  $15,846  $333,610 
Chief Financial Officer of the Company and State Bank 2018 $207,129   --  $31,680  $48,382  $25,294  $18,115  $330,600 
                              
Keeta J. Diller                              
Exective Vice President & 2019 $123,625      $12,512  $16,785   --  $8,977  $161,899 
Chief Risk Officer, Corporate Secretary 2018 $116,103      $13,728  $19,517   --  $8,664  $158,012 
                              
Ernesto Gaytan                              
Executive Vice President and 2019 $204,204   --  $29,440  $19,360   --  $10,993  $263,997 
Chief Technology Innovation & Operations Officer of State Bank 2018 $186,609   --  $35,360  $26,612   --  $7,935  $256,516 
  2015  $183,905  $42,903  $19,980  $21,424  $22,658  $290,870                               
Jonathan R. Gathman                                                         
Executive Vice President and Senior Lender of State Bank  2016  $172,808 $56,874 $55,314 -- $18,952 $303,948 
  2015  $162,882  $22,432  $19,980   --  $19,363  $224,657 
Executive Vice President and 2019 $199,746   --  $29,440  $34,221   --  $12,538  $275,945 
Senior Lender of State Bank 2018 $189,419   --  $31,680  $33,964   --  $14,820  $269,883 

 

(1)The amounts shown in column (d) reflect bonuses earned under the Company’s Incentive Compensation Plan.

(2)The amounts shown in column (e) reflect the equity award payouts under the SB Financial Long-Term Compensation Plan.Plan and are computed in accordance with FASB ASC Topic 718. Such equity award payouts in 20162019 and 20152018 consisted of restricted stock awards of Restricted Shares granted under the 2017 Stock Incentive Plan of the Company with a grant date fair value of $18.40 in 2019 and awards of Restricted Shares granted under the 2008 Stock Incentive Plan of the Company with a grant date fair value of $18.84$17.60 in 2016 and $10.03 in 2015 and2018. Grants of Restricted Shares have a four-year ratable vesting schedule. There were no stock option awards made during 20162019 or 2015.2018. The number of Restricted Shares granted in 2019 included 3,200 shares to Mr. Klein, 1,600 to each of Mr. Cosentino, Mr. Gaytan and Mr. Gathman and 680 shares to Ms. Diller. In 2018, 3,600 Restricted Shares were awarded to Mr. Klein, 780 shares to Ms. Diller and 1,800 to each of Mr. Cosentino and Mr. Gathman. Mr. Gaytan was awarded 2,000 shares of Restricted Shares in November 2017 as part of his employment. Mr. Gaytan did not receive any additional Restricted Shares in 2018.


(2)The amounts shown in column (f) reflect cash incentives earned under the Company’s Incentive Compensation Plan.

 

(3)The amounts shown in column (f)(g) reflect the actuarial increase in the present value of the named executive officer’sNEO’s accumulated benefits under his SERP Agreement determined using assumptions consistent with those used in the Company’s financial statements and includes amounts that the named executive officerNEO may not currently be entitled to receive because such amounts are not vested.

 

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(4)The amount shown in column (g)(h) reflects “All Other Compensation”, which includes the following perquisites and personal benefits:

 

All Other Compensation Table

All Other Compensation TableAll Other Compensation Table
Name    401(k)/ HSA Match Contribution  Auto Allowance  Whole Life Insurance Benefit  ESOP Contributions  Social Dues & Membership  Other (2)  Total All Other Compensation    401(k)/ HSA Match Contribution  Auto Allowance  Whole Life Insurance Benefit  ESOP Contributions  Social Dues & Membership  Other (2)  Total All Other Compensation 
Mark A. Klein  2016  $10,496  $3,141  $2,710   --(1) $2,135  $70,708  $89,190  2019 $11,042  $2,871  $8,609   --(1) $2,895  $7,540  $32,957 
  2015  $9,587  $2,343  $2,630  $6,816  $2,320  $13,890  $37,586  2018 $10,771  $2,207  $6,177  $3,191  $2,242  $4,682  $29,270 
Anthony V. Cosentino  2016  $10,174   --  $1,719   --(1)  --  $10,086  $21,979  2019 $11,250   --  $2,730   --(1)  --  $1,866  $15,846 
  2015  $9,121   --  $876  $4,730  $1,250  $6,682  $22,659  2018 $11,353   --  $2,569  $2,411   --  $1,782  $18,115 
Keeta J. Diller 2019 $6,435   --  $1,806   --   --  $736  $8,977 
 2018 $6,079   --  $436  $1,347   --  $802  $8,664 
Ernesto Gaytan 2019 $9,233   --  $644   --   --  $1,116  $10,993 
 2018 $4,564   --  $566  $2,165   --  $640  $7,935 
Jonathan R. Gathman  2016  $8,528   --  $417   --(1)  --  $10,006  $18,951  2019 $10,065   --  $703   --   --  $1,770  $12,538 
  2015  $8,164   --  $392  $4,189   --  $6,618  $19,363  2018 $10,272   --  $663  $2,199   --  $1,686  $14,820 

 

(1)As of the date of this proxy, the ESOP allocation for 20162019 had not yet been determined. A Form 8-K will be filed once determined.

 

(2)Includes the vesting of prior year restricted stock grants and dividends on unvested restricted stock. In addition, Mr. Klein and Mr. Cosentino were reimbursed for personal income tax preparation.preparation in 2019 and 2018. For Mr. Klein, it also includes reimbursement for a $50,000 bonus awarded in 2015 in recognition for achieving the vision of high-performance at the 88th percentile of the peer group and for receiving the Best Value CEO for 2015 by the Fort Wayne Business journal for the third time in four years.physical examination.

 

Change in Control Agreements with Executive Officers

 

TheEmployment Agreement

On January 22, 2018, the Company entered into an updated Change of ControlAmended and Restated Employment Agreement on July 15, 2015 with Mark A. Klein Chairman,(the “A&R Employment Agreement”). The A&R Employment Agreement supersedes Mr. Klein’s Employment Agreement dated July 15, 2015.

Under the A&R Employment Agreement, Mr. Klein continues to be employed as the President and Chief Executive Officer of the Company. The Company also hasand as the President of State Bank and will perform duties assigned to him from time to time by the Board. Mr. Klein must devote his full business time and attention to the Company’s business, and he may not render services of a Change in Control Agreement dated April 21, 2010 with Anthony V. Cosentino, which was entered into in connection with his appointment as Executive Vice President and Chief Financial Officerbusiness, commercial or professional nature to any person or organization without the prior written consent of the Company,Board (except for limited charitable, community and a Change in Control Agreement dated April 30, 2012other activities that do not interfere with Jonathan R. Gathman, which relates tothe performance of his role as Executive Vice Presidentduties and Senior Lender of State Bank.responsibilities under the A&R Employment Agreement).

 

Each Change in ControlThe A&R Employment Agreement has a rolling term of 36 months with themonths. The initial term beingof the A&R Employment Agreement commenced on January 22, 2018 and continues for a period of 36 consecutive months thereafter. The term will be automatically extended for an additional 12 months12-month period on each 12-month anniversary of the January 22, 2018 effective date of the Change in Control Agreement unless the Company notifies the executive officerMr. Klein in writing to the contrary at least 90 days before the anniversary date. Each


During the term of the A&R Employment Agreement, Mr. Klein will be paid an annual base salary of $396,378, subject to annual increases approved by the Board in its sole discretion. Mr. Klein is also entitled to: (a) receive incentive bonuses from time to time as the Board, in its sole discretion, deems appropriate; (b) receive or participate in health and life insurance coverages, disability programs, tax-qualified retirement plans, equity compensation programs, paid holidays, paid vacation, and other fringe benefits as the Company may provide from time to time to actively employed and similarly situated employees (subject to the Company’s right at any time to discontinue or terminate any employee benefit plan); (c) receive reimbursement for all reasonable business expenses he incurs in accordance with the policies and procedures of the Company; (d) use of a vehicle provided by the Company; and (e) receive liability insurance coverage under any policies covering directors and officers of the Company.

If Mr. Klein’s employment is terminated by the Board for “Cause” (as defined in the A&R Employment Agreement) or by Mr. Klein without “Good Reason” (as defined in the A&R Employment Agreement), the A&R Employment Agreement will terminate automatically and Mr. Klein will only be entitled to receive any accrued but unpaid base salary through the date of termination and any unreimbursed business expenses or other payments and benefits to which Mr. Klein is entitled under the employee benefit plans of the Company as of the date of termination (the “Accrued Obligations”).

If Mr. Klein’s employment is terminated by the Company without Cause or by Mr. Klein with Good Reason (and such termination does not occur in connection with a Change of Control as described below), the Company will: (i) pay to Mr. Klein any Accrued Obligations; (ii) continue to pay Mr. Klein his base salary in effect on the date of his termination of employment for 24 months following the date of his termination; and (iii) pay to Mr. Klein a lump sum cash amount equal to 24 times the monthly COBRA premium for the group health, dental and vision insurance in which Mr. Klein (and his family, if applicable) was enrolled immediately before the termination. The Company’s obligations to make the payments under clauses (ii) and (iii) are conditioned upon Mr. Klein’s execution of an irrevocable release of any and all claims he may have against the Company and its affiliates and their respective employees and directors.

If Mr. Klein dies or becomes permanently disabled during the term of the A&R Employment Agreement, Mr. Klein will be entitled to a severance benefit equal to the difference between the benefits that would be provided upon a termination without Cause or with Good Reason, as described above, and the benefits otherwise payable in connection with Mr. Klein’s death or disability under the Company’s fringe benefit programs.

In the event that Mr. Klein’s employment is terminated within six months before or 24 months after a Change of Control (as defined in the A&R Employment Agreement), Mr. Klein will not be entitled to any benefit payments under the A&R Employment Agreement. Instead, Mr. Klein’s rights and obligations in the event of a Change of Control will be governed by the provisions of his separate Amended and Restated Change of Control Agreement (described below).

If Mr. Klein’s employment is terminated other than for Cause and the Company subsequently learns within six months following his termination that Cause to terminate Mr. Klein existed, Mr. Klein will forfeit any right to future benefits under the A&R Employment Agreement (other than any Accrued Obligations) and, at the discretion of the Board or the board of directors of an affiliate of the Company, shall be further required to repay any amounts previously paid to Mr. Klein following his termination of employment. The A&R Employment Agreement also requires Mr. Klein to reimburse the Company or an affiliate of the Company for amounts received under incentive compensation plans, programs or arrangements in the event the Company or an affiliate of the Company is required to prepare an accounting restatement due to material non-compliance by the Company or such affiliate, as a result of misconduct by Mr. Klein, with any financial reporting requirement under any applicable laws.

The A&R Employment Agreement contains non-competition provisions that prohibit Mr. Klein from engaging in business in competition with the Company and from soliciting employees, customers or referral sources of the Company and its affiliates during his employment term and for a period of two years following the termination of his employment (unless Mr. Klein’s termination occurs in connection with a Change of Control). The A&R Employment Agreement also imposes customary confidentiality and non-disclosure obligations on Mr. Klein.

Change in Control Agreements

On January 22, 2018, the Company entered into Amended and Restated Change of Control Agreements (each, an “A&R COC Agreement” and collectively, the “A&R COC Agreements”) with each of Mark A. Klein, Anthony V. Cosentino and Jonathan R. Gathman which superseded their existing Change of Control Agreements dated July 15, 2015, April 21, 2010 and April 30, 2012, respectively. On January 22, 2018, the Company entered into a Change of Control Agreement with Keeta J. Diller.


Each A&R COC Agreement has a rolling term of 36 months. The initial term of each A&R COC Agreement commenced on January 22, 2018 and continues for a period of 36 consecutive months thereafter. The term will generally renewbe automatically extended for an additional 12-months12-month period on each 12-month anniversary of the January 22, 2018 effective date unless the Company notifies the executive officerNEO in writing to the contrary at least 90 days before the endanniversary date. No notice of non-renewal may be provided by the Company, however, during the period beginning six months before or 24 months after a “Change of Control of the then-current term thatCompany (as defined in the Company does not wish to renewA&R COC Agreements), and each A&R COC Agreement will remain in effect throughout such period regardless of whether the Change in Control Agreement.A&R COC Agreement would otherwise expire earlier.

 

Under each Change in ControlA&R COC Agreement, if (1) if an executive officerthe NEO is terminated by the Company or its successor in connection withwithin six months before or 24 months after a “Change in Control”Change of Control of the Company (as defined in the Change in Control Agreements but(but excluding any termination for “Cause” as defined in the Change of ControlA&R COC Agreements) during the “Protection Period” (as defined in the Change in Control Agreements and extending for 12 months following a Change in Control) or (2) if the executive officerNEO terminates employment for “Good Reason” during the Protection Period,such period, the Company or its successor will:

 

●(a)pay the executive officerNEO a lump sum cash payment equal to 2.99 times (Mr. Klein) or 2.0 times (Mr. Cosentino, Ms. Diller and Mr. Gathman) the executive officer’sNEO’s “Annual Direct Salary” (i.e., the executive officer’sNEO’s annualized base salary based on the highest base salary rate in effect for any pay period ending with or within the 36-month period preceding the termination of his employment);

 

●(b)provide the executive officer and the executive officer’s family (if the executive officer elected family coverage priorpay to the NEO a lump sum cash amount equal to 36 times for Mr. Klein or 24 times for the other NEO’s the sum of (i) the monthly COBRA premium for the group health, dental and vision insurance in which the NEO (and the NEO’s family, if applicable) was enrolled immediately before the termination, of his employment) with continued health care,and (ii) the monthly premium for the Company’s group life insurance and disability insurance coverage without cost tofor the executive for a period of three years (Mr. Klein) or two years (Mr. Cosentino and Mr. Gathman), at the same level and subject to the same terms that were in effect on the first day of the Protection Period;NEO; and

 

●(c)providepay to the NEO any other payments or benefits to which the executive officer is entitled under the terms of any other agreement, arrangement, plan or program in which the executive officer participates.Accrued Obligations.

 

If a terminationThe Company’s obligations to make the payments under clauses (a) and (b) above are conditioned upon the circumstances described above in connection with a ChangeNEO’s execution of Controlan irrevocable release of any and all claims he may have against the Company had occurred on December 31, 2016, Mr. Klein, Mr. Cosentino and Mr. Gathman would have been entitled to receive lump sum cash payments of $1,004,593, $390,397its successor and $356,200, respectively. In addition, Mr. Klein, Mr. Cosentinoaffiliates and Mr. Gathman (and their respective families) would have been entitled to receive continued health care, life insuranceemployees and disability insurance coverage for a period of three years (Mr. Klein) or two years (Mr. Cosentino and Mr. Gathman) following termination, at an annual cost to the Company of approximately $11,000 for each executive officer.directors.

13

 

Under each Change in ControlA&R COC Agreement, if an executive officer’sthe NEO’s employment is terminated for “Cause” (as defined in the Change in ControlA&R COC Agreements) or if the executive officerNEO voluntarily terminates his employment without “Good Reason” (as defined in the Change in ControlA&R COC Agreements), the Change in ControlA&R COC Agreement will terminate immediately and the executive officerNEO will not be entitled to any compensation or benefits other than salary accrued through the date his employment terminated and benefits to which the executive officer is entitled under the terms of the Company’s (or any successor entity’s) benefit plans.Accrued Obligations.

 

If an executive officer dies or becomes permanently disabled during his employment, his Change in ControlEach A&R COC Agreement will terminate andcontains non-competition provisions that prohibit the Company will have no further obligations to the executive officer under his Change in Control Agreement. However, any compensation that becomes payable to an executive officer under his Change in Control Agreement prior to his death or permanent disability will continue to be paid to the executive officer or his designated beneficiary or estate, as appropriate.

If a Change in Control occurs and the executive officer receives payments under his Change in Control Agreement, the executive officer will be prohibitedNEO from engaging in certain prohibited activitiesbusiness in competition with the Company and from soliciting employees, customers or referral sources of the Company and its affiliates during his employment term and for a period of two years following the termination of his employment (unless the executive officer’s employmentNEO’s termination occurs in connection with the Company or its successor.a Change of Control). The Change in ControlA&R COC Agreements also impose customary confidentiality and non-disclosure obligations on the executive officers.each NEO. The non-competition obligations for Messrs. Klein and Cosentino lapse upon change in control.

 

SERP Agreements

 

Effective July 15, 2015,On January 22, 2018, the Company entered into aAmended Supplemental Executive Retirement Plan Agreements (each, an “A&R SERP AgreementAgreement” and collectively, the “A&R SERP Agreements”) with each of Mark A. Klein and Anthony V. Cosentino which amendedsuperseded their existing Supplemental Executive Retirement Plan Agreements dated July 20, 2015 and restated the prior SERP Agreement for Mr. Klein that originally became effective on March 1, 2006. Effective April 21, 2010, the Company also entered into a SERP Agreement with Anthony V. Cosentino.respectively.

 

Under theeach A&R SERP Agreements,Agreement, if the executive officerNEO remains in the continuous employment of the Company until the executive officer’sNEO’s “Retirement Date” (i.e.,age 65, for Mr. Klein and Mr. Cosentino, unless shortened or extended by agreement of the Board)Board and the NEO), beginning on the first day of the month following the executive officer’sNEO’s termination of employment after the Retirement Date, the executive officerNEO will receive an annual benefit equal to 25% (Mr. Klein), or 15% (Mr. Cosentino) of his “Annual Direct Salary” in equal monthly installments of 1/12th of the annual benefit for a period of 180 months. “Annual Direct Salary” means the executive officer’s annualized base salary based on theNEO’s highest annual base salary rate in effect for any pay period ending with or within the 36-month period preceding 20 years of service with the termination of his employment.Company and/or its affiliates.

 

If there is a “Change inof Control” of the Company (as defined in the A&R SERP Agreements) and the executive officerNEO is terminated within 24 months after suchthe date of the Change in Control, the executive officerNEO will be entitled to receive an annual retirement benefit equal to 25% (Mr. Klein), or 15% (Mr. Cosentino) of his Annual Direct Salary calculated as of the date of the change in controlor the date the executive officer’sNEO’s employment is terminated, whichever is higher. TheThis annual retirement benefit will be paid in equal monthly installments of 1/12th of the annual benefit for a period of 180 months beginning on the first day of the month following the executive officer’sNEO’s termination. At the time that all necessary approvals of the Change of Control have been obtained from the Company’s shareholders and from all applicable federal and state bank regulatory authorities, the Company is required to irrevocably deposit with an independent bank trustee cash in an amount sufficient to accrue the retirement benefit payment obligations under the A&R SERP Agreements.

 


If an executive officerNEO voluntarily terminates his employment prior to the executive officer’shis Retirement Date, the executive officer’sNEO’s SERP Agreement will terminate immediately and the Company will pay the executive officerNEO an early retirement benefit equal to:

 

●For Mr. Klein, 10% of his Annual Direct Salary if he terminates employment between age 55 and 60, 15% of his Annual Direct Salary if he terminates employment between age 60 and 65, and 25% of his Annual Direct Salary if he terminates employment at age 65; or

 

●For Mr. Cosentino, 5% of his Annual Direct Salary if he terminates employment between age 55 and 60, 10% of his Annual Direct Salary if he terminates employment between age 60 and 65, andor 15% of his Annual Direct Salary if he terminates employment at age 65.

 

The early retirement compensationbenefit described above will be paid beginning on the first day of the month following the executive officer’s termination in equal monthly installments of 1/12th of the annual benefit for a period of 180 months. months, at the same time as the full retirement benefit would be payable were the executive to work until the NEO’s Retirement Date.

If the executive officer dies at any time prior to the executive officer’s Retirement Date while employedNEO is terminated by the Company the executive officer’s death will be treated as a termination prior to Retirement Date and the executive officer’s designated beneficiary or estate will receive an early retirement benefit as described above. If the executive officer voluntarily terminates his employment prior to age 55 or if the executive officer is discharged for “Cause” (as defined in the A&R SERP Agreements), the executive officerNEO will not be entitled to any compensationbenefit under his A&R SERP Agreement.

 

If an executive officerthe NEO dies or becomes permanently disabled during hisbefore termination of employment, the executive officer’sNEO’s beneficiary is entitled to the benefit, if any, payable under the NEO’s Split Dollar Agreement (described below) instead of any other benefit payable under his A&R SERP Agreement will terminate andAgreement. If the NEO dies after termination of employment but before all retirement, early retirement, or disability benefit payments have been made, the Company will have no further obligationscontinue making such payments to the executive officer underNEO’s beneficiary.

If the NEO terminates because of a “Disability” (as defined in the A&R SERP Agreement. However, any compensation that becomes payable to an executive officer under his SERP AgreementAgreements) prior to the executive officer’s death or permanent disability (i.e., compensation arising from termination on or afterhis Retirement Date, priorthe Company will pay the NEO a disability benefit calculated as the amount that fully amortizes (over 15 years) the accrual balance existing at the end of the month immediately before the month in which separation from service occurs. If the NEO becomes disabled after termination of employment but before all retirement or early retirement benefit payments have been made, the Company will continue making such payments to Retirement Datethe NEO or followinghis designated representative, as applicable

If a Change of Control occurs at any time after an NEO’s termination of employment, any remaining retirement, early retirement or disability benefit installment payments will cease and, in Control)lieu of such installment payments, the NEO will continuebe entitled to be paid toreceive the executive officerfull amount of the remaining payments in a single lump sum payment on the later of (a) the five-year anniversary of the date on which the first payment of the retirement, early retirement or disability benefit was made or (b) the executive officer’s designated beneficiary or estate, as appropriate.effective date of the Change of Control.

 

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During the term of the SERPSplit Dollar Agreements and for a period of two years thereafter, the executive officers are prohibited from engaging in certain prohibited activities in competition with the Company. The SERP Agreements also impose customary confidentiality obligations on the executive officers.

 

Employment Agreement

TheOn January 22, 2018, the Company entered into a 2017 Split Dollar Agreement and Endorsement (each, a “Split Dollar Agreement” and collectively, the Employment Agreement“Split Dollar Agreements”) with each of Mark A. Klein on July 15, 2015.and Anthony V. Cosentino. Under the Employmentterms of each Split Dollar Agreement, State Bank owns a life insurance policy (each, a “Policy” and collectively, the “Policies”) to which the Split Dollar Agreement relates, has the obligation to pay the premiums on the Policy and has the right to exercise all incidents of ownership with respect to the Policy. Each of Mr. Klein is employed asand Mr. Cosentino, however, has the Chief Executive Officerright to designate the beneficiaries to whom a portion of the Company and will perform any duties assigneddeath proceeds payable under the applicable Policy is to him from time to time by the Board. Mr. Klein must devote his full time and attention to the Company’s business, and he may not engage in any activities which compete with activities of the Company or its subsidiaries. Mr. Klein is also prohibited from serving any company which competes with the Company or its subsidiaries.

The term of the Employment Agreement runs from July 15, 2015 to July 15, 2018 and the term thereafter automatically extends for additional one-year periods unless terminated.

During the term of the Employment Agreement, Mr. Klein will be paid an annual base salary of $335,984 or a higher amount set by the Company. Mr. Klein is also entitled to: (a) receive bonuses from time to time as the Company, in its sole discretion, deems appropriate; (b) receive paid vacation time in accordance with policies established by the Board; (c) participate in any of the Company’s employee benefit plans (provided that the Company may not change any of its employee benefits in any way that would adversely affect Mr. Klein, unless the change would apply to all of the Company’s executive officers and would not affect Mr. Klein disproportionately); (d) receive prompt reimbursement for all reasonable business expenses he incurs in accordance with the policies and procedures established byterms of his Split Dollar Agreement. State Bank is entitled to any death proceeds payable under the Board; (e) use of a vehicle provided byPolicy remaining after the Company; and (f) receive any liability insurance coverage covering directors and officers of the Company.payment to Mr. Klein’s or Mr. Cosentino’s beneficiaries, as applicable.

 

Termination for “Cause” or Without “Good Reason”. IfPursuant to the Split Dollar Agreements, in the event of Mr. Klein’s employment is terminated by the Board for “Cause”or Mr. Cosentino’s death prior to his “Separation of Service” (as defined in the Employment Agreement)Split Dollar Agreements), his designated beneficiaries will be entitled to receive death benefit proceeds in an amount equal to the lesser of (a) $1,724,320 (for Mr. Klein) or by$649,790 (for Mr. Klein without “Good Reason” (as definedCosentino), or (b) 100% of the difference between the total death proceeds of the Policy minus the cash surrender value of the Policy (after giving effect to the NEO’s death proceeds received under State Bank’s Executive Supplemental Insurance Plan effective March 24, 2004). The foregoing rights to receive death benefits under the Split Dollar Agreements will be extinguished in the Employment Agreement), the Employment Agreement (and all of Mr. Klein’s rights under the Employment Agreement) will terminate automatically. If Mr. Klein’s employment is terminated other than for Cause and the Company subsequently learnsevent that Mr. Klein actively concealed conductor Mr. Cosentino, as applicable, experiences a Separation of Service prior to his death, in which event his beneficiaries will not be entitled to any benefits under the Split Dollar Agreements.

Upon termination of each Split Dollar Agreement, State Bank is required to provide Mr. Klein or Mr. Cosentino, as applicable, with the option to purchase the Policy to which the Split Dollar Agreement relates for a purchase price equal to the cash surrender value of the Policy.


Potential Payments Upon Termination or Change-in-Control

The following table sets forth the payments that would have entitled the Company to terminate his employment for Cause, the Company may recover any amounts paid to Mr. Klein (or his beneficiaries) under the Employment Agreement in connection with the termination of his employment.

Termination by the Company without “Cause” or by Mr. Klein for “Good Reason”. If Mr. Klein’s employment is terminated by the Company without Cause or by Mr. Klein with “Good Reason” (and such termination does not occur in connection with a “Change in Control” as defined below), the Company will: (a) pay all accrued obligations and continue to pay Mr. Klein his base salary in effect on the date of his termination of employment for two years following the date of his termination; and (b) provide Mr. Klein and his family (if he elected family coverage priorbeen made to the terminationNEOs if any of his employment) with continued group health, dental and vision insurance coverage without cost to the executive for a period of one year.

If a termination of Mr. Klein’s employment underevents detailed in the circumstances described abovetable had occurred on December 31, 2016, Mr. Klein would have been entitled to continue to receive his annual base salary2019. These payments reflect amounts and benefits payable under each of $335,984 for two years following the date of termination. It would begin to be paid to Mr. Klein within 60 days following the date of termination and would be payable in accordanceagreements withthe Company’s normal payroll practices. In addition, Mr. Klein (and his family) would have been entitled to receive continued group health, dental and vision insurance coverage for a period of one year following termination, at an annual cost to the Company of approximately $5,500. NEOs.

Name Voluntary Termination on 12/31/19  Termination without cause under Change in Control on 12/31/19  Death on 12/31/19  Early Retirement on 12/31/19  Disability on 12/31/19 
Mark A. Klein  --  $1,185,170   --   --   -- 
Cobra $28,000  $42,000   --   --   -- 
Group Term Life Insurance  --   --  $792,756   --  $792,756 
Value of Stock $153,740  $153,740  $153,740  $153,740  $153,740 
SERP $

2,576,458

  $

2,576,458

   --   --   -- 
Bank Owned Life Insurance  --   --  $1,724,320   --   -- 
                     
Anthony V. Cosentino  --  $438,712   --   --   -- 
Cobra  --  $28,000   --   --   -- 
Group Term Life Insurance  --   --  $438,712   --  $438,712 
Value of Stock $76,830  $76,830  $76,830  $76,830  $76,830 
SERP $164,517  $493,551   --  $164,517  $267,159 
Bank Owned Life Insurance  --   --  $649,790   --   -- 
                     
Keeta J. Diller  --  $260,000   --   --   -- 
Cobra  --  $28,000   --   --   -- 
Group Term Life Insurance  --   --  $260,000   --  $260,000 
Value of Stock $44,657  $44,657  $44,657  $44,657  $44,657 
SERP  --   --   --   --   -- 
Bank Owned Life Insurance  --   --  $100,000   --   -- 
                     
Jonathan R. Gathman  --  $413,816   --   --   -- 
Cobra  --  $28,000   --   --   -- 
Group Term Life Insurance  --   --  $413,816   --  $413,816 
Value of Stock $76,830  $76,830  $76,830  $76,830  $76,830 
SERP  --   --   --   --   -- 
Bank Owned Life Insurance  --   --  $100,000   --   -- 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

If Mr. Klein dies or becomes permanently disabled during his employment, the Employment Agreement will terminate and the Company will have no further obligations to Mr. Klein under the Employment Agreement. However, any compensation that becomes payable to Mr. Klein under the Employment Agreement prior to his death or permanent disability will continue to be paid to Mr. Klein or his designated beneficiary or estate, as appropriate.

In the event of a Change of ControlThe Compensation Committee of the Company is currently comprised of George W. Carter, Tom R. Helberg, Robert A. Fawcett Jr., Richard L. Hardgrove and Rita A. Kissner (Chairperson). All of the respective rightsmembers of the Compensation Committee are independent directors for purposes of applicable NASDAQ rules, and obligations will be pursuant tonone of them is a present or past officer or employee of the termsCompany or any of Mr. Klein’s separate Changeits subsidiaries. In 2019, no executive officer of Control agreement. If Mr. Klein becomes entitled to receive paymentsthe Company served on the board of directors or benefits undercompensation committee (or other committee serving an equivalent function) of any entity that compensates any member of the separate ChangeCompany’s Board of Control agreement, then Mr. Klein would not be entitled to receive payments under the Employment Agreement for termination without CauseDirectors or for Good Reason.Compensation Committee.

 

If Mr. Klein receives compensation under his Employment Agreement in connection with the termination of his employment, he will be prohibited from engaging in certain activities in competition with the Company for one year following the termination of his employment. The Employment Agreement also imposes customary confidentiality obligations on Mr. Klein.

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EQUITY COMPENSATIONINCENTIVE PLAN INFORMATION

 

As of December 31, 2016,2019, the Company had one compensationequity incentive plan under which Common Shares of the Company arewere authorized for issuance to directors, officers or employees of the Company and our subsidiaries in exchange for consideration in the form of goods or services – the 2008 Stock Incentive Plan. The 20082017 Stock Incentive Plan (the “2017 Plan”), which was approved by the Company’s shareholders at the 2008 annual meeting of shareholders.2017 Annual Meeting.

 

The following table shows the number of Common Shares subject to restricted stock awards, the number of Common Shares issuable upon vesting of outstanding stock options and the number of Common Shares remaining available for awards under the 2008 Stock Incentive Plan, in each case at December 31, 2016.

Plan category 

(a)

Number of common shares to be issued upon exercise
of outstanding options, warrants and rights

  

(b)

Weighted-average exercise price of outstanding options,
warrants and rights (1)

  

(c)

Number of common shares remaining available for future issuance under equity compensation plans (excluding common shares reflected in column (a))

 
Equity compensation plans approved by shareholders  

Options: 99,810
Restricted Stock: 35,530

   

Options: $7.85

Restricted Stock: N/A

   132,780 
Equity compensation plans not approved by shareholders  --   --   -- 
Total  135,340  $7.85   132,780 

(1)Weighted-average exercise price does not apply to the outstanding shares of restricted stock since they require no cash contribution upon the issuance of the Common Shares or any subsequent vesting.

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Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth information regarding the unexercised stock options and unvested restricted stock held by each of the named executive officersNEOs as of the end of the 2016 fiscal year.December 31, 2019. All of these stock options and restricted stock awards were granted under the Company’s 2008 and 2017 Stock Incentive Plan.Plans. Dollar amounts have been rounded up to the nearest whole dollar.

 

Outstanding Equity Awards at Fiscal Year-End for 2016

 

 Option Awards (2) (3) Stock Awards (4)  Option Awards (1)  Stock Awards (2) 
Name Number of Securities Underlying Unexercised Options (#) Exercisable (1) Number of Securities Underlying Unexercised Options (#) Unexercisable  

Option Exercise Price

($)

  Option Expiration Date Number of Shares or Units of Stock that have not Vested
(2)		  

Market Value of Shares or Units of Stock that have not Vested 

($)

  Number of Securities Underlying Unexercised Options (#) Exercisable
(1)		 Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock that have not Vested
(2)		 Market Value of Shares or Units of Stock that have not Vested ($) 
Mark A. Klein  15,000   --  $6.98   02/17/2020   --   --   5,000   --  $6.98   02/17/2020   --   -- 
                 525(a) $9,891                   4,164(a) $76,618 
                 1,084(b) $20,423                   3,168(b) $58,291 
                 2,988(c) $56,924                   1,700(c) $31,280 
                 5,872(d) $110,629                   800(d) $14,720 
                                               
Anthony V. Cosentino  5,000   --  $6.66   03/16/2020   --   --   --   --   --   --   --   -- 
                 263(a) $4,955                   2,082(a) $38,309 
                 542(b) $10,212                   1,584(b) $29,146 
                 1,494(c) $28,147                   850(c) $15,640 
                 2,936(d) $55,315                   400(d) $7,360 
                                               
Keeta J. Diller  --   --   --   --   --   -- 
                  965(a) $17,756 
                  665(b) $12,236 
                  365(c) $6,716 
                  170(d) $3,128 
                        
Ernesto Gaytan  --   --   --   --   --   -- 
                  900(a) $16,560 
                  900(b) $16,560 
                  900(c) $16,560 
                  400(d) $7,360 
                        
Jonathan R. Gathman  5,000   --  $6.98   02/17/2020   --   --   --   --   --   --   --   -- 
                 263(a) $4,955                   2,082(a) $38,309 
                 542(b) $10,212                   1,584(b) $29,146 
                 1,494(c) $28,147                   850(c) $15,640 
                 2,963(d) $55,315                   400(d) $7,360 

 

(1)Unless otherwise indicated, all amounts reflect Common Shares of the Company underlying stock options granted pursuant to the 2008 Plan.

 

(2)Restricted Shares awarded pursuant to the 2008 Stock Incentive Plan and 2017 Stock Incentive Plan. Restricted Shares are subject to restrictions on transferability and risk of forfeiture until they become fully vested on (a) February 5, 2018,2020, (b) February 5, 2019,2021, (c) February 5, 20202022 and (d) February 5, 2021.2023. The Market value of Restricted Shares was computed based on the closing market price of the Company’s Common Shares on February 3, 20175, 2019 ($18.84). During 2016, shares vested as follows: Mr. Klein (2,813), Mr. Cosentino (1,407) and Mr Gathman (1,407)18.40).

 


DIRECTOR COMPENSATION

 

The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time and expertise that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board.

 

It is the policy of the Compensation Committee to conduct a periodic, independent review of the Company’s director compensation programs to verify the reasonableness of its director compensation program as compared to peer groups and all applicable federal and state laws, rules and regulations. The independent reviews are conducted by a firm or individual who does not provide other services or products to the Company beyond compensation consulting. In addition, the independent firm must not have any other personal or business relationships with any Board member or any officer of the Company. The Compensation Committee considers all relevant factors, in determining that the work performed by its compensation consultants does not raise a conflict of interest.

In early 2018, the Compensation Committee engaged the services of BCG, a nationally recognized independent banking compensation consulting company. This engagement focused on all aspects of director compensation, including board retainer and meeting fees, committee fees, equity grants and other compensation and perquisites. As part of this director compensation review, BCG utilized the same peer group of twenty (20) publicly traded banks that was used in connection with the review of executive compensation (see “COMPENSATION OF EXECUTIVE OFFICERS – Summary” beginning on page 9) and gathered and reviewed total director compensation and performance data for these peer banks. BCG also provided additional banking industry survey data regarding director compensation and trends. The report of findings from this study was utilized by the Compensation Committee to assist it in making board compensation recommendations and decisions in 2019.

Cash Compensation Paid to Board Members

 

In 2016,2019, each director of the Company who was not an employee of the Company or one of its subsidiaries (a “non-employee director”) received an annual cash retainer in the amount of $32,550, which was paid in twelve monthly installments of $2,712.50 each. This retainer included payment for attendance at twelve Company board meetings including two full-day planning sessions (Mid Year(Mid-Year Update and Strategic Thinking), two Company standing committee appointments, four meetings per committee per year and representation at Advisory Board meetings. The Lead Independent Director of the Board (currently Richard L. Hardgrove) received an additional annual cash retainer of $16,500.$17,500. Each non-employee director that served as a Chairperson of a committee of the Board also received an additional annual cash retainer of $2,500,$3,500, except that the member of the Audit Committee designated as the “audit committee financial expert” (currently Gaylyn J. Finn) received an additional annual cash retainer of $6,000. Each non-employee director also received an additional $500 per meeting that exceeded the twelve board meetings and four committee meetings per year. Certain non-employee directors of the Company also serve on the board of directors of one or more of the Company’s subsidiaries, and receive an annual cash retainer for such service.

 

Stock-based Incentive Compensation Awarded to Board Members

17

 

The Compensation Committee and the Board of Directors feel that director equity grants are an important part of the Company’s director compensation program as they truly tie the directors to the shareholders they represent. As a result, on February 5, 2019, seven hundred and fifty (750) Restricted Shares were awarded to each director of the Company pursuant to the 2017 Stock Incentive Plan. The market value of the Restricted Shares was computed based on the closing market price of the Company’s Common Shares on August 5, 2019 ($16.26). The Restricted Shares were subject to restrictions on transferability and risk of forfeiture until they became fully vested on August 5, 2019.

 

Director Compensation for 20162019 Fiscal Year

 

The table below summarizes the compensation awarded or paid to, or earned by, each of the non-employee directors of the Company during the 20162019 fiscal year. No director who is also an employee of the Company or one of its subsidiaries receives compensation for his service as a director or as a committee member of the Company or any of its subsidiaries. No equity grants were made to directors in 2016.

 


Director Compensation Table for 20162019 Fiscal Year

 

 Fees Earned or Paid in Cash ($)       Fees Earned or Paid in Cash ($)        
Name SBFG Director State Bank Director RDSI Director All Other Compensation Total (2)  SBFG Director State Bank Director     Stock Awards(1) All Other Compensation Total 
George W. Carter $22,030  $13,820   --   --  $35,850  $23,030  $13,720   --  $12,195   --  $48,945 
Gary M. Cates $19,530  $15,135   --   --  $34,665 
Robert A. Fawcett, Jr. $19,530  $13.920   --  $1,132 (1)  $34,582  $19,530  $14,620   --  $12,195   $1,568(2) $47,913 
Gaylyn J. Finn $25,530  $13,720   --   --  $39,250  $29,030  $13,820   --  $12,195   --  $55,045 
Richard L. Hardgrove $36,030  $14,220  $6,000   --  $56,250  $37,030  $16,406   --  $12,195   --  $65,631 
Tom R. Helberg $19,530  $15,020   --  $12,195   --  $46,745 
Rita A. Kissner $22,030  $14,220  $6,000   --  $42,250  $23,030  $14,020   --  $12,195   --  $49,245 
William G. Martin $19,830  $15,320   --   --  $35,150  $19,530  $16,446   --  $12,195   --  $48,171 
Timothy J. Stolly $22,030  $13,770   --   --  $35,800  $23,030  $14,824   --  $12,195   --  $50,049 

 

(1)Amounts reflect the aggregate grant date fair value of Restricted Shares, computed in accordance with FASB ASC Topic 718. Seven hundred and fifty (750) Restricted Shares were granted to each director of the Company in February 2019 and vested in August 2019 ($16.26).

(2)The amount reflects premiums paid by the Company on the split-dollar BOLI policies allocable to the death benefit of $150,000 assigned to Mr. Fawcett’s beneficiaries.

(2)Includes a partial year with a per meeting methodology.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information concerning the only persons known to the Company to own beneficially more than 5% of the outstandingvoting Common Shares of the Company.Company as of the Record Date.

 

Name and Address of Beneficial Owner Amount
Beneficially Owned		  Percent of Common Shares Outstanding 
The State Bank and Trust Company, Trustee
SB Financial Group Employee Stock Ownership Plan (ESOP) (1)
401 Clinton Street
Defiance, Ohio 43512		  466,422   9.51%
Phronesis Partners, L.P. (2)
James Wiggins
130 East Chestnut Street, Suite 403
Columbus, OH 43215		  355,519   7.25%
Wellington Management Group, LLP (3)
280 Congress Street
Boston, MA 02210		  295,786   6.03%
Name and Address of Beneficial Owner Amount Beneficially Owned  Percent of Common Shares Outstanding (1) 
The State Bank and Trust Company, Trustee
SB Financial Group Employee Stock Ownership Plan (2)
401 Clinton Street
Defiance, Ohio 43512		  415,286   5.28%
EJF Capital LLC (3)
2107 Wilson Blvd. Suite 410
Arlington, VA 22201		  629,151   8.00%
Manulife Investment Management (4)
197 Claredon Street
Boston, MA 02116		  444,849   5.66%

 

(1)Percent of Common Shares outstanding is based on 7,864,652 Common Shares outstanding and entitled to vote on the Record Date.

(2)As reported in Schedule 13G/A filed with the Securities and Exchange CommissionSEC on February 15, 2017.14, 2020. All Common Shares reflected in the table are held by The State Bank and Trust Company, as Trustee. Pursuant to the ESOP,Employee Stock Ownership Plan (“ESOP”), the Trustee has the power to vote in its sole discretion all ESOP shares that have not been allocated to the accounts of participants. As of February 15, 2017, a total of 18,597 Common Shares had not been allocated to participants in the ESOP. The Trustee is permitted to dispose of shares held in the ESOP only under limited circumstances specified in the ESOP or by law.

 

(2)As reported in Schedule 13G/Afiled with the Securities and Exchange Commission on February 15, 2017.

(3)As reported in Schedule 13G/A filed with the Securities and Exchange Commission on February 9, 2017.14, 2020.

 

18(4)As reported in Schedule 13G filed with the Securities and Exchange Commission on February 12, 2020

The following table sets forth information concerning the beneficial ownership of voting Common Shares of the Company, as of the Record Date, by each current director of the Company, by each individual nominated for election as a director of the Company, by each named executive officerNEO of the Company, and by all executive officers and directors of the Company as a group:

 

 Amount and Nature of Beneficial Ownership (1)  Amount and Nature of Beneficial Ownership (1) 
Name of Beneficial Owner Common Shares Held as of the Record Date Common Shares Which Can Be Acquired Upon Exercise of Options Currently Exercisable Common Shares Which Can Be Acquired Upon Conversion of Depositary Shares (2) Total Percent of Class
(3)/(4)		 
Name of Beneficial Owner (1)/(2) Common Shares Held as of the Record Date  Common Shares Which Can Be Acquired Upon Exercise of Options Currently Exercisable
(3)		   Total Percent of Class
(4)/(5)		 
            
George W. Carter  1,325   --   2,421   3,746       8,409   --       8,409     
Gary M. Cates  5,328(6)  --   968   6,296     
Anthony V. Cosentino (5)(6)  17,434(7)  5,000   14,524   36,958       42,133(7)  --       42,133     
Keeta J. Diller (6)  20,952(8)  --       20,952     
Robert A. Fawcett, Jr.  14,540(8)  5,000   2,421   21,961       23,322(9)  --       23,322     
Gaylyn J. Finn  10,620   --   1,452   12,072       15,225   --       15,225     
Jonathan R. Gathman (5)  24,150(9)  5,000   4,841   33,991     
Jonathan R. Gathman (6)  37,900(10)  --       37,900     
Richard L. Hardgrove  7,500   5,000   2,421   14,921       17,300   --       17,300     
Ernesto Gaytan (6)  5,086   --       5,086     
Tom R. Helberg  6,841   --       6,841     
Rita A. Kissner  13,325   --   484   13,809       13,750   --       13,750     
Mark A. Klein (5)  49,526(10)  15,000   9,750   74,276   1.51%
Mark A. Klein (6)  88,052(11)  --       88,052   1.12%
William G. Martin  4,089   --   1,451   5,540       9,054   --       9,054     
Timothy J. Stolly  6,213   --   968   7,181       10,280   --       10,280     
                                                
All executive officers and directors as a group (11 persons)  154,050   35,000   41,701   230,751   4.66%
All named executive officers and directors as a group (13 persons)  298,304   --       298,304   3.79%

 

(1)The Company has established stock ownership guidelines for all NEOs and directors. At a minimum, 10,000 shares of stock is required to be owned, within five years of adoption of the revised stock ownership guidelines on July 19, 2017. Currently, all NEOs and directors are in compliance with the Company’s current stock ownership guidelines.

(2)Unless otherwise noted, the beneficial owner has sole voting and investment power with respect to all of the Common Shares reflected in the table. All fractional Common Shares have been rounded to the nearest whole common share. The mailing address of the current directors and executive officers is 401 Clinton Street, Defiance, Ohio 43512.

 

(2)(3)Represents the number of Common SharesThere were no outstanding stock options as to which the named person or group has the right to acquire beneficial ownership upon the conversion of depositary shares which are beneficially owned by the named person or group. Each depositary share (“depositary shares” ) represents a 1/100th ownership interest in a 6.50% Noncumulative Convertible Perpetual Preferred Share, Series A, of the Company.Record Date. The last stock options granted expired on February 17, 2020.

 

(3)(4)The Percent of Class is based upon the sum of (a) 4,907,3377,864,652 Common Shares outstanding and eligible to vote on the Record Date, (b) the number of Common Shares, if any, as to which the named person or group has the right to acquire beneficial ownership upon the exercise of options which are currently exercisable or will become exercisable within 60 days after the Record Date and (c) the number of Common Shares, if any, as to which the named person or group has the right to acquire beneficial ownership upon the conversion of depositary shares which are beneficially owned by the named person or group.

 

(4)(5)Unless otherwise stated, reflects ownership of less than 1% of the outstanding Common Shares of the Company.

 

(5)(6)Individual named in the Summary Compensation Table. Mr. Klein also serves as a director of the Company.

 

(6)Includes 5,328 Common Shares held by the Gary M. Cates and Deborah A. Cates Trust, as to which Mr. Cates and his wife exercise shared voting and investment power.

(7)Includes 200100 Common Shares held in the names of Mr. Cosentino’s children for which Mr. Cosentino is custodian. Includes 4,5475,389 Common Shares held for the account of Mr. Cosentino in the Company’s ESOP.

 

(8)Includes 10,7078,737 Common Shares held for the account of Ms. Diller in the Company’s ESOP.


(9)Includes 6,737 Common Shares held by the Robert A. Fawcett Jr. Trust, as to which Mr. Fawcett exercises sole voting and investment power and 5,4483,673 Common Shares held by the Brenda C. Fawcett Trust, as to which Mr. Fawcett’s wife exercises sole voting and investment power.

 

(9)(10)Includes 8,5669,647 Common Shares held for the account of Mr. Gathman in the Company’s ESOP.

 

(10)(11)Includes 10,25211,679 Common Shares held for the account of Mr. Klein in the Company’s ESOP.

 

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DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS

 

To the Company’s knowledge, based solely on a review of the reports furnished to the Company and written representations that no other reports were required, all filing requirements applicablereports required to be filed by officers, directors and beneficial owners of more than 10% of the outstanding Common Shares of the Company under Section 16(a) of the Exchange Act were complied withfiled on a timely basis during the 20162019 fiscal year.

 

TRANSACTIONS WITH RELATED PERSONS

 

The Governance and Nominating Committee is responsible, pursuant to its Charter, for reviewing and approving any transaction between the Company and any director or officer of the Company or members of their immediate family or entities with which they are affiliated. On an annual basis, each director and executive officer is obligated to complete a “Director and Officer Questionnaire” which requires the director or executive to disclose any related party transactions or business relationships involving the Company or its subsidiaries which are required to be disclosed pursuant to Item 404 of SEC Regulation S-K. In addition, the Company’s Code of Conduct and Ethics prohibits the Company’s directors, executive officers and employees from self-dealing or otherwise trading on their positions with the Company or accepting, from anyone doing or seeking to do business with the Company, a business opportunity not available to other persons or that is made available because of the person’s position with the Company. The Code of Conduct and Ethics requires all directors, officers and employees to disclose all potential and actual conflicts of interest, including those in which they have been inadvertently placed due to either business or personal relationships with customers, suppliers, business associates, or competitors of the Company or its subsidiaries. Conflicts or potential conflicts of interest which are disclosed by a director, officer or employee of the Company are referred to and resolved by the Company’s Risk Management Officer, with the approval of the Governance and Nominating Committee of the Board.

 

During the Company’s 20162019 and 2018 fiscal year,years, certain of the current directors and executive officers of the Company and State Bank, as well as members of their respective immediate families and firms, corporations or other entities with which they are affiliated, were customers of and had banking transactions (including loans and loan commitments) with State Bank in the ordinary course of its business and in compliance with applicable federal and state laws and regulations. It is expected that similar banking transactions will be entered into in the future. Loans to these persons have been made on substantially the same terms, including the interest rate charged and collateral required, as those prevailing at the time for comparable transactions with persons not affiliated with the Company or any of its subsidiaries. These loans have been, and are presently, subject to no more than a normal risk of uncollectibility and present no other unfavorable features. As of the date of this proxy statement, each of the loans described in this paragraph was performing in accordance with its original terms. Each of the loans described in this paragraph was subject to our written policies, procedures and standard underwriting criteria applicable to loans generally as well as made in accordance with the requirements of Regulation O promulgated by Federal Reserve Board governing prior approval of the loan by the Board of Directors of State Bank.

 

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PROPOSAL NO. 2

 

RATIFICATION OF THE APPOINTMENT OF THE

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The appointment of the Company’s independent registered public accounting firm is made annually by the Audit Committee. The Audit Committee has appointed BKD, LLP (“BKD”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.2020. The Audit Committee and the Board have decided to submit the appointment of BKD to the shareholders for ratification as a matter of good corporate governance and because of the important role of the Company’s independent registered public accounting firm in reviewing the quality and integrity of the Company’s financial statements.

 

BKD has served as the Company’s independent auditor/independent registered public accounting firm since November 2002, and BKD audited the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2016.2019. The Company expects that representatives of BKD will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

 

The affirmative vote of a majority of the Common Shares represented at the Annual Meeting, in person (including electronically via the live webcast) or by proxy, and entitled to vote on the proposal, is required to ratify the appointment of BKD as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.2020. The effect of an abstention is the same as a vote “AGAINST”“AGAINST the proposal”. Even if the appointment of BKD is ratified by the shareholders, the Audit Committee, in its discretion, could decide to terminate the engagement of BKD and to engage another firm if the Audit Committee determines such action is necessary or desirable. If the appointment of BKD is not ratified by the shareholders, the Audit Committee will reconsider the appointment (but may nonetheless, in its discretion, decide to maintain the appointment).

 

THE AUDIT COMMITTEE AND YOUR BOARD RECOMMEND THAT

SHAREHOLDERS VOTEFOR

THE RATIFICATION OF THE APPOINTMENT OF BKD, LLP

 

21

PROPOSAL NO. 3

APPROVAL OF THE 2017 SB FINANCIAL GROUP

STOCK INCENTIVE PLAN

General

On February 15, 2017, upon the recommendation of the Compensation Committee, the Company’s Board of Directors unanimously adopted, subject to approval by the Company’s shareholders, the 2017 SB Financial Group Stock Incentive Plan (the “2017 Stock Incentive Plan”). Pursuant to this Proposal No. 3, the Company’s shareholders are asked to approve the 2017 Stock Incentive Plan, as proposed, including approval of a reserve of 500,000 Common Shares available for the grants of awards under the 2017 Stock Incentive Plan.

The Company currently maintains one equity-based incentive plan under which employees and directors of the Company and its subsidiaries are eligible to receive awards – the Company’s 2008 Stock Incentive Plan. If approved by the Company’s shareholders, the 2017 Stock Incentive Plan is intended to replace the provisions of the Company’s 2008 Stock Incentive Plan and the Company will not grant any further awards under the 2008 Stock Incentive Plan to any employees or directors of the Company.

As of February 23, 2017, Common Shares which may be delivered under the 2008 Stock Incentive Plan are shown below:

Use of Common Shares
Which May be Delivered
Under the SB Financial 2008 Stock Incentive Plan		Number of Common
Shares as of
February 23,
2017
●       Total outstanding stock options(1)70,000
●       Total outstanding shares of restricted stock(2)46,361
●       Total Common Shares available for grants of future awards(3)108,428

(1)All outstanding awards of stock options are fully vested and are held by employees or directors of the Company and/or its subsidiaries.

(2)All outstanding awards of restricted stock are held by employees of the Company or of one of its subsidiaries.

(3)During any fiscal year, the aggregate number of Common Shares which may be subject to all forms of awards granted to all participants in the 2008 Stock Incentive Plan (employees, non-employee directors and non-employee affiliate/advisory board members) may not exceed 50,000 Common Shares.

The 2017 Stock Incentive Plan will allow the Company to grant equity-based awards and cash-based awards to employees and directors of the Company and its subsidiaries. The Company’s Board believes it is desirable to utilize equity-based awards as well as cash-based awards to attract and retain talented employees and to promote the long-term growth and financial success of the Company and its subsidiaries by encouraging ownership of the Company’s Common Shares, motivating long-range performance, and strengthening employee retention. Therefore, the 2017 Stock Incentive Plan makes equity-based awards and cash-based awards (collectively, “2017 Stock Incentive Plan Awards”) available for grant to eligible participants in the form of:

●Incentive Stock Options;

●Nonqualified Stock Options (together with the Incentive Stock Options, the “Options”);

●Stock appreciation rights (“SARs”);

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●Restricted Common Shares (“Restricted Stock”); and

●Restricted Stock Unit Awards that may be settled in Common Shares, cash or a combination of the two (“Restricted Stock Units”).

The following summary of the material provisions of the 2017 Stock Incentive Plan is qualified in its entirety by reference to the specific provisions of the 2017 Stock Incentive Plan, the full text of which is attached to this proxy statement asAppendix A.

Purpose

The purpose of the 2017 Stock Incentive Plan is to foster and promote the long-term financial success of The Company and its subsidiaries and increase shareholder value by motivating performance through incentive compensation. The 2017 Stock Incentive Plan also is intended to encourage participants to acquire and maintain ownership interests in the Company and to attract and retain the services of talented individuals as employees upon whose judgment and efforts the successful conduct of the business of the Company and its subsidiaries is largely dependent.

Effective Date and Expiration of the 2017 Stock Incentive Plan

The 2017 Stock Incentive Plan will become effective on the date of approval by the Company’s shareholders, which will be April 19, 2017 if the shareholders approve the 2017 Stock Incentive Plan at the Annual Meeting. Unless earlier terminated by the Company’s Board of Directors, the 2017 Stock Incentive Plan will terminate on the tenth anniversary of the effective date. No 2017 Stock Incentive Plan Award may be made after the termination date, but 2017 Stock Incentive Plan Awards made prior to the termination date will remain in effect in accordance with their respective terms. In addition, no Incentive Stock Option may be granted after February 15, 2027, the tenth anniversary of the date the Company’s Board of Directors adopted the 2017 Stock Incentive Plan.

Administration of the 2017 Stock Incentive Plan

The 2017 Stock Incentive Plan will be administered by the Compensation Committee. The Compensation Committee will determine the individuals to be granted 2017 Stock Incentive Plan Awards, the type(s) of 2017 Stock Incentive Plan Award(s) to be granted and the terms and conditions of each 2017 Stock Incentive Plan Award. The Compensation Committee will also have full power and authority to: (i) interpret the 2017 Stock Incentive Plan and any award agreement; (ii) establish, amend and rescind any rules relating to the 2017 Stock Incentive Plan; and (iii) make any other determinations the Compensation Committee deems necessary or desirable for the administration of the 2017 Stock Incentive Plan. Any decision made by or action taken by the Compensation Committee will be final, conclusive and binding on all parties.

In the Compensation Committee’s sole discretion, the Compensation Committee may delegate any ministerial duties associated with the 2017 Stock Incentive Plan to any person (including employees) the Compensation Committee deems appropriate, including the authority to execute award agreements on behalf of the Company or one of the Company’s subsidiaries. The Compensation Committee may not, however, delegate (a) any duties that the Compensation Committee is required to discharge to comply with applicable law, (b) the Compensation Committee’s authority to grant 2017 Stock Incentive Plan Awards to any participant who is subject to Section 16 of the Exchange Act, and (c) the Compensation Committee’s authority under the Company’s equity award granting policy that may be in effect from time to time.

The Company or one of its subsidiaries will enter into a written award agreement with each participant in the 2017 Stock Incentive Plan that describes the terms and conditions of each 2017 Stock Incentive Plan Award granted, including (a) the type of 2017 Stock Incentive Plan Award and when and how the 2017 Stock Incentive Plan Award can be exercised or earned, (b) any exercise price associated with the 2017 Stock Incentive Plan Award, (c) how the 2017 Stock Incentive Plan Award will or may be settled, and (d) any other applicable terms and conditions affecting the 2017 Stock Incentive Plan Award. 2017 Stock Incentive Plan Awards need not be uniform among all participants, whether or not such participants are similarly situated. All 2017 Stock Incentive Plan Awards are subject to the terms and conditions of the 2017 Stock Incentive Plan and any other terms and conditions determined in the sole discretion of the Compensation Committee, to the extent such terms and conditions are consistent with the terms of the 2017 Stock Incentive Plan.

Subject to the provisions of the 2017 Stock Incentive Plan governing the termination of employment of a participant and the effect of a defined “applicable event” and except as provided in the related award agreement with respect to a participant’s death, termination due to disability and/or retirement, (i) no condition on the vesting of a 2017 Stock Incentive Plan Award that is based on the achievement of specified performance goals may be based on performance over a period of less than one year; and (ii) no condition on the vesting of a 2017 Stock Incentive Plan Award that is based upon the continued employment of the participant or the passage of time may provide for vesting in full of the 2017 Stock Incentive Plan Award more quickly than three years from the date the 2017 Stock Incentive Plan Award is made provided that such vesting may occur ratably over the three-year period.

23

Eligibility and Participation

The Compensation Committee may select any “Employee” or “Director” to participate in the 2017 Stock Incentive Plan. These selections will be made in the sole discretion of the Compensation Committee. For purposes of the 2017 Stock Incentive Plan and the discussion which follows, an “Employee” means any person who is a common law employee of the Company or of any subsidiary of the Company. A person who is classified as other than a common law employee, but who is subsequently reclassified as a common law employee, of the Company or of any subsidiary of the Company for any reason and on any basis will be treated as a common law employee only from the date such reclassification occurs and will not retroactively be reclassified as an Employee for any purpose under the 2017 Stock Incentive Plan. For purposes of the 2017 Stock Incentive Plan and the discussion which follows, a “Director” means any person who is a member of the Board of Directors of the Company, a member of the board of directors of any subsidiary of the Company or a member of an advisory board appointed by the Board of Directors of the Company.

As of the date of this proxy statement, no determination has been made regarding the identity of the Employees or Directors to whom 2017 Stock Incentive Plan Awards will be granted in the future and the number of Common Shares to be subject to any 2017 Stock Incentive Plan Awards granted. However, based upon the awards which were granted during the 2016 fiscal year under the Company’s 2008 Stock Incentive Plan to executive officers and key employees of the Company and its subsidiaries, the Company estimates that between 15 and 30 Employees will be eligible to receive 2017 Stock Incentive Plan Awards, including Mark A. Klein, Anthony V. Cosentino, and Jonathan R. Gathman.

Common Shares Available Under the 2017 Stock Incentive Plan

Subject to the adjustments discussed below, the aggregate number of Common Shares with respect to which 2017 Stock Incentive Plan Awards may be granted will be 500,000. The Common Shares to be issued and delivered under the 2017 Stock Incentive Plan may consist of either authorized and unissued Common Shares or Common Shares currently held or subsequently acquired by the Company as treasury shares.

The following Common Shares will not be counted against the Common Share limit:

●Common Shares covered by a 2017 Stock Incentive Plan Award that expires or is forfeited, canceled, surrendered or otherwise terminated without the issuance of such Common Shares; and

●Common Shares covered by a 2017 Stock Incentive Plan Award that, by its terms, may be settled only in cash.

However, Common Shares surrendered upon exercise of a 2017 Stock Incentive Plan Award as payment of the applicable exercise price or withheld to satisfy any applicable taxes will not become available for future grants of 2017 Stock Incentive Plan Awards.

In addition to the overall Common Share maximum referenced above, during any fiscal year of the Company the number of Common Shares which may be subject to all forms of 2017 Stock Incentive Plan Awards granted to a single Employee during a year may not exceed 50,000 Common Shares.

In the event of any Common Share dividend or split, recapitalization (including payment of an extraordinary dividend), merger, reorganization, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of Common Shares or any other change affecting the Common Shares, the Compensation Committee will make such substitutions and adjustments, if any, as the Compensation Committee deems equitable and appropriate to (a) the aggregate number of Common Shares with respect to which 2017 Stock Incentive Plan Awards may be granted, (b) any Common Share-based limits imposed under the 2017 Stock Incentive Plan, and (c) the exercise price, number of Common Shares and other terms or limitations applicable to outstanding 2017 Stock Incentive Plan Awards.

24

Types of Awards

Options

The Compensation Committee may grant Options, in such number and upon such terms and conditions as it determines, to the extent that such terms and conditions are consistent with the provisions of the 2017 Stock Incentive Plan. Each Option will be evidenced by an award agreement that specifies whether the Option is intended to be a Nonqualified Stock Option or an Incentive Stock Option, the term of the Option, the exercise price of the Option, the number of Common Shares for which the Option may be exercised, the conditions upon which the Option will vest and become exercisable, and such other terms and conditions as the Compensation Committee determines.

The Company may grant Incentive Stock Options covering all 500,000 Common Shares available for issuance under the 2017 Stock Incentive Plan. Incentive Stock Options will, however, be subject to the additional restrictions and requirements of Section 422 of the Internal Revenue Code. The aggregate fair market value of the Common Shares (determined as of the date of grant) with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year may not be greater than $100,000 (or such other amount specified in Section 422 of the Internal Revenue Code), as calculated under Section 422 of the Internal Revenue Code. Options in excess of the limit will be treated as Nonqualified Stock Options.

Options may be granted for terms up to, but not exceeding, ten years from the date of grant. The exercise price of each Option must be at least equal to the fair market value of a Common Share as determined on the date of grant. For purposes of the 2017 Stock Incentive Plan, the “fair market value” of a Common Share on any particular date will generally be the “closing price” of a Common Share as reported on the NASDAQ Stock Market on that date or, if the grant day is not a trading day, the reported closing price on the immediately preceding trading day. The reported closing price of the Company’s Common Shares on February 23, 2017 was $18.40 per share.

Once vested, an Option may be exercised at any time during the term upon notice to the Company or its designee as specified in the award agreement. The exercise price of any Option may be paid (a) in cash, (b) by tendering (either by actual delivery or attestation) previously acquired Common Shares, (c) by a cashless exercise (including by withholding Common Shares deliverable upon exercise or through a broker-assisted arrangement to the extent permitted by applicable law), (d) by a combination of the foregoing methods, or (e) through any other method approved by the Compensation Committee.

Stock Appreciation Rights

A Stock Appreciation Right or SAR represents the right of a participant to receive payment of an amount equal to (a) the amount by which the fair market value of one Common Share on the date of exercise of the SAR exceeds the exercise price, multiplied by (b) the number of Common Shares covered by the SAR. The Compensation Committee may grant SARs in such number and upon such terms and conditions as it determines, to the extent that such terms and conditions are consistent with the provisions of the 2017 Stock Incentive Plan. Each SAR will be evidenced by an award agreement that specifies the grant price, the term of the SAR, the vesting terms and conditions, and such other terms and conditions as the Compensation Committee determines.

SARs may be granted for terms up to, but not exceeding, ten years from the date of grant. The exercise price for each SAR must be at least equal to the fair market value of a Common Share as determined on the date of grant. A SAR will become exercisable at such times and upon such terms and conditions as determined by the Compensation Committee and as set forth in the award agreement. A SAR may be exercised at any time during the term upon notice the Company or its designee. A SAR may be settled in full Common Shares, cash or a combination of the two.

Restricted Stock

Restricted Stock consists of Common Shares that are issued to a participant but are subject to forfeiture based upon satisfaction of certain terms, conditions and restrictions. The Compensation Committee may grant shares of Restricted Stock in such number and upon such terms and conditions as it determines, to the extent that such terms and conditions are consistent with the provisions of the 2017 Stock Incentive Plan. Each award of Restricted Stock will be evidenced by an award agreement that specifies the restrictions applicable to the Restricted Stock, the period(s) of restriction, the number of Common Shares covered by the award, and such other terms, conditions and restrictions as the Compensation Committee determines.

The Compensation Committee may impose restrictions including, for example: (a) a requirement that participants pay a purchase price for each share of Restricted Stock; (b) restrictions based on the achievement of specific performance goals; (c) time-based restrictions; or (d) holding requirements or sale restrictions upon vesting. During the period that the shares of Restricted Stock remain subject to forfeiture, (i) the Company may retain the certificates representing the shares of Restricted Stock and (ii) a participant may not sell or otherwise transfer the shares of Restricted Stock. However, unless otherwise provided in the award agreement, a participant will be entitled to exercise full voting rights and receive all dividends paid with respect to the shares of Restricted Stock (except that receipt of any such dividends will be subject to the same terms, conditions and restrictions as apply to the shares of Restricted Stock with respect to which they are paid). This means that cash dividends and dividends paid in Common Shares will be retained by the Company and subject to the same risk of forfeiture as the shares of Restricted Stock with respect to which the cash or Common Share dividends are paid until the underlying restrictions lapse. At the end of the restricted period, the participant will forfeit the shares of Restricted Stock (and any related dividends) if the terms, conditions and restrictions specified in the award agreement have not been met. If all specified terms, conditions and restrictions have been satisfied, the Company will distribute the shares of Restricted Stock (and any related dividends) to the participant.

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Restricted Stock Units

The Compensation Committee may grant Restricted Stock Units in such number and upon such terms and conditions as it determines, to the extent that such terms and conditions are consistent with the provisions of the 2017 Stock Incentive Plan. Each award of Restricted Stock Units will be evidenced by an award agreement that specifies the number of Common Shares underlying the Restricted Stock Units, the restricted period(s), the conditions upon which restrictions will lapse, the time and form in which the Restricted Stock Units will be settled, and such other terms and conditions as the Compensation Committee determines.

The Compensation Committee may impose restrictions including, for example: (a) restrictions based on the achievement of specific performance goals; (b) time-based restrictions; and (c) holding requirements or sale restrictions on the underlying Common Shares upon vesting of such Restricted Stock Units. An award of Restricted Stock Units may provide the participant with dividend equivalents. However, the participant will not be entitled to any dividend equivalents with respect to any unearned award subject to specified performance goals. Any dividend equivalents provided with an award of Restricted Stock Units will be subject to the same terms and conditions, including the applicable forfeiture conditions, as the related Restricted Stock Units. This means that no amount will be paid in connection with a dividend equivalent right until Common Shares are issued or cash is paid in connection with the related Restricted Stock Units and any dividend equivalents will be forfeited to the extent that the participant forfeits the related Restricted Stock Units. A participant will not have voting rights with respect to the Common Shares underlying the Restricted Stock Units. An award of Restricted Stock Units may be settled in Common Shares, cash or a combination of the two.

Termination of Employment

The Compensation Committee will determine the extent to which each 2017 Stock Incentive Plan Award will vest and whether a participant will have the right to exercise or settle the 2017 Stock Incentive Plan Award in connection with a participant’s termination of employment. Each award agreement will contain provisions regarding the effects of a participant’s termination from employment. Such provisions need not be uniform among all 2017 Stock Incentive Plan Awards and may reflect distinctions based on the reasons for termination of employment.

Change in Control

Except as otherwise provided in the related award agreement and subject to the provisions of the immediately following paragraph, the Compensation Committee may take any action it deems necessary or desirable with respect to any outstanding 2017 Stock Incentive Plan Award as of the date of the consummation of an “applicable event” (as defined below), including (i) the acceleration of the vesting, settlement or exercisability of a 2017 Stock Incentive Plan Award, (ii) the payment of a cash amount in exchange for cancellation of a 2017 Stock Incentive Plan Award or (iii) the issuance of substitute awards that substantially preserve the value, rights and benefits of any 2017 Stock Incentive Plan Award affected by the applicable event.

For purposes of the 2017 Stock Incentive Plan, an “applicable event” means the occurrence of any of the following:

●the acquisition by any person or group (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Company, any subsidiary of the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of the Company;

●the consummation of a merger or consolidation of the Company with or into another entity, as a result of which the shareholders of the Company immediately prior to such merger, consolidation, other business combination or acquisition do not immediately thereafter beneficially own, directly or indirectly, 80% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such merger, consolidation or other business combination of the Company; or

●the sale or other disposition of all or substantially all of the assets of the Company.

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Amendment or Termination of the 2017 Stock Incentive Plan

The Company’s Board of Directors may amend the 2017 Stock Incentive Plan at any time, except that no amendment or termination may be made without the approval of the Company’s shareholders if such consent is required (a) to satisfy the requirements of Rule 16b-3 under the Exchange Act or any successor rule or regulation; (b) to satisfy applicable requirements of the Code; or (c) to satisfy applicable requirements of the NASDAQ Stock Market or any securities exchange on which are listed any of the Company’s equity securities.

No Repricing without Shareholder Approval

Except in connection with a corporate transaction involving the Company (including any share dividend, share split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the terms of outstanding 2017 Stock Incentive Plan Awards may not be amended to reduce the exercise price of outstanding Options or SARs or cancel outstanding Options or SARs in exchange for cash, other 2017 Stock Incentive Plan Awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs without shareholder approval.

Transferability and Beneficiaries

Except as provided in a related award agreement, a participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate a 2017 Stock Incentive Plan Award, except by will or the laws of descent and distribution. In addition, during a participant’s lifetime, a 2017 Stock Incentive Plan Award may be exercised only by that participant or that participant’s guardian or legal representative. No 2017 Stock Incentive Plan Award may be transferred for value or consideration. A 2017 Stock Incentive Plan Award may be subject to such terms, conditions and restrictions on sale or transfer as the Compensation Committee deems appropriate or advisable and as set forth in the related award agreement.

Unless specifically designated by a participant in writing, a participant’s beneficiary under the 2017 Stock Incentive Plan is the executor of the participant’s estate.

Tax Withholding

The Company or one of the Company’s subsidiaries, as applicable, will have the power and the right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to a 2017 Stock Incentive Plan Award granted under the 2017 Stock Incentive Plan.

Subject to the approval of the Compensation Committee, a participant may elect to satisfy the tax withholding requirement, in whole or in part, by having the Company or any of the Company’s subsidiary withhold Common Shares having a fair market value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. Any Common Shares to be withheld to satisfy tax withholding requirements must otherwise be distributable to the participant at the time of the withholding or if such Common Shares are not otherwise distributable at the time of withholding, the participant must have a vested right to distribution of such Common Shares at such time. Any such election is irrevocable, must be made in writing and signed by the participant and will be subject to such additional terms and conditions as the Compensation Committee determines.

No Rights as a Shareholder

Except as otherwise provided in the 2017 Stock Incentive Plan or in a related award agreement, a participant will not have any rights as a shareholder with respect to Common Shares covered by a 2017 Stock Incentive Plan Award unless and until the participant becomes the record holder of such Common Shares.

U.S. Federal Income Tax Consequences

The following paragraphs provide a summary of the general U.S. federal income tax consequences relating to participation in the 2017 Stock Incentive Plan. This summary is based on U.S. federal income tax laws and Treasury Regulations in effect on the date of this proxy statement and does not purport to be a complete description of the U.S. federal income tax laws. In addition, this summary is not intended to be exhaustive, does not constitute tax advice, and does not describe federal employment, state, local or foreign tax consequences. Each participant will be advised to consult with his or her own tax advisor concerning the U.S. federal income tax and other tax consequences of participating in the 2017 Stock Incentive Plan.

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Incentive Stock Options

Incentive Stock Options are intended to qualify for the special treatment available under Section 422 of the Internal Revenue Code. A participant will not recognize taxable income when an Incentive Stock Option is granted and the Company will not receive a deduction at that time. A participant will not recognize ordinary income upon the exercise of an Incentive Stock Option provided that the participant was, without a break in service, an employee of the Company or a subsidiary of the Company during the period beginning on the grant date of the Incentive Stock Option and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant’s employment is terminated due to death or disability).

If a participant acquires Common Shares by exercising an Incentive Stock Option and holds those Common Shares for one year or, if longer, until the second anniversary of the grant date (the “ISO Holding Period”), then, upon disposition of such Common Shares, any amount realized by the participant in excess of the exercise price will be taxed to the participant at long-term capital gain (or loss) rates. To the extent the amount the participant receives upon disposition of the Common Shares is greater than the exercise price, the participant will realize a capital gain. If the amount the participant receives upon disposition is less than the exercise price, the participant will realize a capital loss. Upon such disposition, the Company is not entitled to a deduction.

If a participant disposes of the Common Shares before the end of the ISO Holding Period, the participant will generally recognize ordinary income in an amount equal to the lesser of (a) the excess of the fair market value of the Common Shares on the date of exercise over the exercise price, or (b) the excess, if any, of the amount realized upon disposition of the Common Shares over the exercise price. The Company will be entitled to a deduction equal to the ordinary income recognized by the participant. Any amount realized in excess of the fair market value of the Common Shares on the date of exercise will be capital gain. If the amount realized is less than the exercise price, the participant will generally recognize a capital loss equal to the excess of the exercise price over the amount realized upon the disposition of the Common Shares.

The rules that generally apply to Incentive Stock Options do not apply when calculating any alternative minimum tax liability. The rules governing the application of the alternative minimum tax are complex and their effect depends on individual circumstances, including whether a participant has items of adjustment other than those derived from Incentive Stock Options.

Nonqualified Stock Options

A participant will not recognize any income when a Nonqualified Stock Option is granted, and the Company will not receive a deduction at that time. However, when a Nonqualified Stock Option is exercised, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the Common Shares that the participant purchased on the date of exercise over the exercise price. If a participant uses Common Shares or a combination of Common Shares and cash to pay the exercise price of a Nonqualified Stock Option, the participant will recognize ordinary income equal to the value of the excess of the number of Common Shares that the participant purchases over the number of Common Shares that the participant surrenders, less any cash the participant uses to pay the exercise price. When a Nonqualified Stock Option is exercised, the Company will be entitled to a deduction equal to the ordinary income that the participant recognizes.

If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a Nonqualified Stock Option is greater than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the Nonqualified Stock Option. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a Nonqualified Stock Option is less than the sum of the aggregate exercise price the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the Nonqualified Stock Option.

Stock Appreciation Rights

A participant will not recognize taxable income when a SAR is granted, and the Company will not receive a deduction at that time. When a SAR is exercised, a participant will recognize ordinary income equal to the excess of the cash and/or the fair market value of the Common Shares the participant receives over the aggregate exercise price of the SAR, if any, and the Company will be entitled to a corresponding deduction. If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is greater than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is less than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR.

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Restricted Stock

Unless a participant makes an election under Section 83(b) of the Internal Revenue Code (a ”Section 83(b) Election”), the participant generally will not recognize taxable income when Restricted Stock is granted, and the Company will not receive a deduction at that time. Instead, a participant will recognize ordinary income when the Restricted Stock vests (i.e., when the underlying Common Shares are freely transferable or not subject to a substantial risk of forfeiture) equal to the fair market value of the Common Shares that the participant receives when the terms, conditions and restrictions have been met, less any consideration paid for the Restricted Stock, and the Company generally will be entitled to a deduction equal to the income that the participant recognizes.

If the amount a participant receives upon disposition of these Common Shares is greater than the fair market value of the Common Shares when the Restricted Stock vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares when the Restricted Stock vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested.

If a participant makes a Section 83(b) Election, the participant will recognize ordinary income on the grant date equal to the fair market value of the Common Shares subject to the Restricted Stock award on the grant date, and the Company will be entitled to a deduction equal to the income that the participant recognizes at that time. However, the participant will not recognize income when (and if) the Restricted Stock vests. If a participant who has made a Section 83(b) Election earns the Common Shares subject to a Restricted Stock award, any appreciation between the grant date and the date the participant disposes of the Common Shares will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the grant date. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares on the grant date, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the grant date. Also, if a participant forfeits his or her Restricted Stock, the participant cannot take a tax deduction in connection with the forfeiture of the Restricted Stock subject to a Section 83(b) Election.

Restricted Stock Units

A participant will not recognize taxable income when a Restricted Stock Unit is granted, and the Company will not receive a deduction at that time. When a Restricted Stock Unit vests and is settled, the participant will recognize ordinary income equal to the cash and/or the fair market value of the Common Shares the participant receives at the time of settlement, and the Company will be entitled to a corresponding deduction.

If the amount a participant receives upon disposition of the Common Shares received upon settlement of the Restricted Stock Unit is greater than the fair market value of the Common Shares when the Restricted Stock Unit vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock Unit vested. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares when the Restricted Stock Unit vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock Unit vested.

Section 409A of the Internal Revenue Code

Section 409A of the Internal Revenue Code imposes certain restrictions on amounts deferred under non-qualified deferred compensation plans and a 20% additional tax on amounts that are subject to, but do not comply with, Section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code includes a broad definition of non-qualified deferred compensation plans, which includes certain types of equity incentive compensation. It is intended that the 2017 Stock Incentive Plan Awards comply with or be exempt from the requirements of Section 409A of the Internal Revenue Code and the Treasury Regulations promulgated thereunder.

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Sections 280G and 4999 of the Internal Revenue Code

Sections 280G and 4999 of the Internal Revenue Code impose penalties on excess parachute payments. A “parachute payment” occurs when payments in an amount equal to or greater than 300% of the recipient’s taxable compensation averaged over the five calendar years ending before the change in control (or over the entire period of employment if the participant has been employed less than five calendar years) are made to a “disqualified individual” (as defined under Section 280G of the Internal Revenue Code) in connection with a change in control. This average is called the “base amount.” An excess parachute payment is an amount equal to the excess of any parachute payments over 100% of the base amount.

Some participants in the 2017 Stock Incentive Plan may receive payments in connection with a change in control. If this happens, the value of those participants’ payments from the 2017 Stock Incentive Plan must be combined with all other payments the participant receives in connection with a change in control from the Company or the Company’s subsidiaries. If the participant is a disqualified individual and the combined value of all payments is equal to or greater than 300% of the base amount, the participant would be required to pay a 20% excise tax on all amounts in excess of the base amount.

The 2017 Stock Incentive Plan provides that, unless specified otherwise in the related award agreement, if any payment or benefit due to a participant under the 2017 Stock Incentive Plan, when combined with other payments and benefits from the Company or any of the Company’s subsidiary would result in an excess parachute payment, the Company or its subsidiary, as applicable, will reduce the payments and benefits due to the participant to $1.00 less than the amount that would otherwise be considered a parachute payment.

Recommendation and Vote Required

The affirmative vote of a majority of the Common Shares represented at the Annual Meeting, in person (including electronically via the live webcast) or by proxy, and entitled to vote on the proposal is required to approve the SB Financial Group 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”). The effect of an abstention is the same as a vote “AGAINST” the proposal. Broker non-votes will not be counted in determining whether the proposal has been approved.

THE COMPENSATION COMMITTEE AND YOUR BOARD RECOMMEND THAT
SHAREHOLDERS VOTEFOR THE APPROVAL OF
ThE 2017 SB FInancial Group Stock Incentive Plan

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PROPOSAL NO. 4

 

NON-BINDING ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and corresponding SEC rules enable shareholders to vote to approve, on an advisory and non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules. As a result, the following resolution will be submitted for shareholder approval at the Annual Meeting:

 

“RESOLVED, that the shareholders of SB Financial Group, Inc. hereby approve, on an advisory basis, the compensation of the corporation’s named executive officers as disclosed in the corporation’s Proxy Statement for its 20172020 Annual Meeting of Shareholders pursuant to Item 402 of SEC Regulation S-K, including in the compensation tables, notes and narrative disclosures, contained under the heading “COMPENSATION OF EXECUTIVE OFFICERS” in the corporation’s Proxy Statement.

 

The Board believes that the Company’s compensation policies and procedures, which are reviewed and approved by the Compensation Committee, are effective in aligning the compensation of our named executive officers with the Company’s short-term and long-term goals and that such compensation and incentives are designed to attract, retain and motivate our key executives who are directly responsible for the Company’s continued success. The Board of Directors believes that the Company’s compensation policies and practices do not threaten the value of the Company or the investments of our shareholders or create incentives to engage in behaviors or business activities that are reasonably likely to have a material adverse impact on the Company. The Board believes that the Company’s culture focuses on sound risk management and appropriately rewards executives for performance. The Board further believes that the Company’s compensation policies and procedures are reasonable in comparison both to the Company’s peer bank holding companies and to the Company’s performance during the 20162019 fiscal year.

 

Shareholders are encouraged to carefully review the information provided in this proxy statement regarding the compensation of the Company’s named executive officers in the section captioned “COMPENSATION OF EXECUTIVE OFFICERS” beginning on page 9 of this proxy statement.

 

Because your vote is advisory, the outcome of the vote will not: (i) be binding upon the Board or the Compensation Committee with respect to future executive compensation decisions, including those relating to our named executive officers, or otherwise; (ii) overrule any decision made by the Board or the Compensation Committee; or (iii) create or imply any additional fiduciary duty by the Board or the Compensation Committee. However, the Board and the Compensation Committee expect to take into account the outcome of the advisory vote when considering future executive compensation arrangements.

 

The affirmative vote of a majority of the Common Shares represented at the Annual Meeting, in person (including electronically via the live webcast) or by proxy, and entitled to vote on the proposal is required to approve the non-binding advisory resolution to approve the compensation paid to the Company’s named executive officers as disclosed in this proxy statement. The effect of an abstention is the same as a vote “AGAINST” the proposal. Broker non-votes will not be counted in determining whether the proposal has been approved.

 

YOUR BOARD RECOMMENDS THAT

SHAREHOLDERS VOTEFOR

ThE NON-BINDING ADVISORY RESOLUTION TO APPROVE THE COMPENSATION OF

NAMED EXECUTIVE OFFICERS COMPENSATION

 

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AUDIT COMMITTEE DISCLOSURE

 

Role of the Audit Committee

 

The Audit Committee assists the Board in fulfilling its responsibility for the oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. The Audit Committee is comprised solely of independent directors. The specific responsibilities of the Audit Committee are set forth in the Audit Committee Charter and described under the heading“MEETINGS AND COMMITTEES OF THE BOARD–Committees of the Board–Audit Committee” beginning on page 78 of this proxy statement.

 

Management is responsible for the Company’s consolidated financial statements and the accounting and financial reporting processes of the Company, including the establishment and maintenance of adequate internal controls over financial reporting. The Company’s independent registered public accounting firm is responsible for auditing the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing its report on the Company’s consolidated financial statements.

 

Pre-Approval of Services Performed by Independent Registered Public Accounting Firm

 

Under applicable SEC rules, the Audit Committee is required to pre-approve all audit and non-audit services performed by the Company’s independent registered public accounting firm in order to assure that they do not impair the independent registered public accounting firm’s independence from the Company. The SEC’s rules specify the types of non-audit services that an independent registered public accounting firm may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm. Accordingly, the Audit Committee pre-approves all audit and permitted non-audit services proposed to be provided by the Company’s independent registered public accounting firm.

 

The pre-approval of audit and non-audit services and fees of the independent registered public accounting firm may be documented by a member of the Audit Committee signing annual or periodic engagement letters that define in general terms the type of services to be provided and the range of fees that are considered acceptable for such services, or as otherwise documented in the minutes of the Audit Committee meetings. The actual compensation paid to the independent registered public accounting firm for all such pre-approved services and fees is reported to the Audit Committee on at least a quarterly basis. All services rendered by BKD during 20162019 and 20152018 were pre-approved by the Audit Committee.

Services of Independent Registered Public Accounting Firm

 

During the fiscal years ended December 31, 20162019 and 2015,2018, the Company paid the following amounts to BKD for audit, audit-related, tax and other services rendered:

 

 2016 2015  2019 2018 
          
Audit Fees (1) $171,200  $169,655  $322,250  $437,681 
Audit-Related Fees (2)  --   --   26,100   23,000 
Tax Fees (3)  19,500   23,500   20,300   17,700 
All Other Fees (4)  --   8,996   69,800   70,238 
TOTAL $190,700  $202,151  $438,450  $548,619 

 

(1)Audit fees consist of fees for the audit of the Company’s annual financial statements, review of interim condensed financial statements included in the Company’s Quarterly Reports on Form 10-Q, audit procedures with respect to acquisitions, and services in connection with statutory and regulatory filings including annual reports on Form 10-K and registration statements under the Securities Act of 1933, as amended. Additional review was necessitated due to the Company’s increased market capitalization, which required expanded audit testing and review. Also includes comfort letter procedures.

 

(2)Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements. These services include consultations concerning financial and reporting matters.employee benefit plans.

 

(3)Tax fees consist of fees for tax return preparation services, tax planning advice and assistance with tax examination.

 

(4)OtherAll other fees consist of a Cost Segregation Study performed in 2015 in relationfees related to the building of the Company’s office building in Dublin, Ohio.compliance reviews.

 

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AUDIT COMMITTEE REPORT

 

In fulfilling its oversight responsibilities with respect to the Company’s audited financial statements for the year ended December 31, 2016,2019, the Audit Committee:

 

●reviewed and discussed the Company’s audited financial statements with management;management and with BKD, the Company’s independent registered public accounting firm for 2019;

 

●discussed with BKD the Company’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted bythe applicable requirements of the Public Company Accounting Oversight Board in Rule 3200T;and the SEC; and

 

●received the written disclosures and the letter from BKD the Company’s independent registered public accounting firm, required by applicable requirements of the Public Company Accounting Oversight Board regarding BKD’s communications with the Audit Committee concerning independence, and discussed with BKD its independence.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board has approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019 for filing with the SEC.

 

 THE AUDIT COMMITTEESubmitted by the Members of the Audit Committee
  
 Gaylyn J. Finn, Chairperson
 Gary M. CatesTom R. Helberg
 Rita A. Kissner
 Timothy J. Stolly

 

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SHAREHOLDER PROPOSALS FOR THE 20182021 ANNUAL MEETING

 

Proposals by shareholders intended to be presented at the 20182021 Annual Meeting of Shareholders must be received by the Corporate Secretary of the Company by no later than November 10, 2017,6, 2020, to be eligible for inclusion in the Company’s proxy card, notice of meeting and proxy statement relating to the 20182020 Annual Meeting. Upon receipt of a shareholder proposal, the Company will determine whether or not to include the proposal in the proxy materials in accordance with the applicable rules and regulations of the SEC.The SEC has promulgated rules relating to the exercise of discretionary voting authority under proxies solicited by the Board. If a shareholder intends to present a proposal at the 20182021 Annual Meeting of Shareholders, and does not notify the Corporate Secretary of the Company of the proposal by January 24, 2018,20, 2021, the proxies solicited by the Board for use at the 20182021 Annual Meeting may be voted on the proposal, without any discussion of the proposal in the Company’s proxy statement for the 20182021 Annual Meeting. In each case, written notice must be given to the Corporate Secretary of the Company at the following address:Keeta J. Diller, Corporate Secretary, SB Financial Group, Inc., 401 Clinton Street, Defiance, Ohio 43512.

 

OTHER MATTERS

 

As of the date of this proxy statement, the Board knows of no other business to be presented for action by the shareholders at the Annual Meeting other than those discussed in this proxy statement. If any other matter is properly presented at the Annual Meeting, or at any adjournment of the Annual Meeting, the persons named and acting under the proxies solicited by the Board will vote the Common Shares represented by such proxies on such matters in accordance with their best judgment in light of the conditions then prevailing, to the extent permitted under applicable law.

 

IT IS IMPORTANT THAT PROXIES BE SUBMITTED PROMPTLY. EVEN IF YOU PLAN TO PARTICIPATE IN THE ANNUAL MEETING VIA THE LIVE WEBCAST, YOU ARE ENCOURAGED TO VOTE ELECTRONICALLY VIA THE INTERNET IN ADVANCE OF THE ANNUAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS ON YOUR PROXY CARD. ALTERNATIVELY, PLEASE FILL IN, DATE, SIGN AND RETURN YOUR PROXY CARD PROMPTLY.

 

March 10, 20176, 2020By Order of the Board of Directors,
  
 /s/Mark A. Klein
 Mark A. Klein
 Chairman, President & CEO
 SB Financial Group, Inc.

 

The Company will also be hosting six shareholder gatherings for “informational purposes only” to further discuss 2019 performance and 2020 expectations at the following locations, dates and times:

Monday, April 20, 2020Defiance College Serrick Center5:30-6:00 pm – Cocktails & Hors de’oeuvres
 34701 North Clinton Street 

APPENDIX6:00-7:00 pm – Presentation and Q & A

SB FINANCIAL GROUP

2017 STOCK INCENTIVE PLAN

ARTICLE I

Definitions

Section 1.1 Definitions. As used herein, the following terms shall have the meaning set forth below, unless the context clearly requires otherwise:

(a)“Applicable Event” shall mean:

 (i)Any “person,” including a “group” (as such terms are used in Subsections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules promulgated thereunder, but excluding the Company, any Subsidiary or any employee benefit plan of the Company or any Subsidiary) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of, or acquires the power to direct, directly or indirectly, the exercise of voting power with respect to, securities which represent 50% or more of the combined voting power of the Company’s outstanding securities thereafter;Defiance, OH 43512

 (ii)Any merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) 80% or more of the combined voting power of the Company or surviving entity immediately after the merger or consolidation with another entity; or

(iii)The consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect).

(b)“Award” shall mean any Option, Restricted Stock, Restricted Stock Unit or Stock Appreciation Right granted under the Plan.

(c)“Award Agreement” shall mean an agreement between the Company and a Participant that describes the terms and conditions of each Award.

(d)“Board” shall mean the Board of Directors of the Company.

(e)“Change in Control Price” shall mean the transaction price per share of Stock (whether paid in cash or other property) paid in conjunction with any transaction resulting in an Applicable Event or, in the case of an Applicable Event occurring solely by reason of events not related to a transfer of Stock, the Fair Market Value of a share of Stock on the last trading day before the Applicable Event occurs.

(f)“Code” shall mean the Internal Revenue Code of 1986, as amended.

(g)“Committee” shall mean the Compensation Committee of the Board.

(h)“Company” shall mean SB Financial Group.

(i)“Director” shall mean an individual (i) who is a member of the Board, a member of the Board of Directors of a Subsidiary, or a member of an advisory board who is appointed by the Board and (ii) who is not an Employee.

(j)“Disability” shall mean:

(i)With respect to Incentive Stock Options, disability as defined in Section 22(e)(3) of the Code; and

(ii)With respect to any other Award, (A) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (B) the Participant is determined to be totally disabled by the Social Security Administration.

(k)“Effective Date” shall mean, with respect to the Plan, the date specified in Section 2.3 as the Effective Date.

A-1

(l)“Employee” shall mean any person, including an executive officer, who is employed by the Company or any of its Subsidiaries.

(m)“Fair Market Value” shall mean the value of a share of Stock on any relevant date, determined as follows:

(i)If the Stock is traded on an exchange, the reported “closing price” on the relevant date if it is a trading day or, otherwise, the reported “opening price” on the next trading day;

(ii)If Section 1.1(m)(i) does not apply:

(1)With respect to any Incentive Stock Option, fair market value within the meaning of Section 422 of the Code;

(2)With respect to any Award that is subject to Section 409A of the Code or any Nonqualified Stock Option or Stock Appreciation Right, fair market value shall be determined by the reasonable application of a reasonable valuation method within the meaning of Treasury Regulation §1.409A-1(b)(5)(iv)(B); and

(3)With respect to any other Award, fair market value shall be determined by application of such reasonable valuation methods as the Committee shall adopt or apply.

(n)“Incentive Stock Option” shall mean an Option to purchase shares of Stock which is designated as an Incentive Stock Option by the Committee and is intended to meet the requirements of Section 422 of the Code.

(o)“Nonqualified Stock Option” shall mean an Option to purchase shares of Stock which is not an Incentive Stock Option.

(p)“Option” shall mean an option to purchase shares of Stock granted pursuant to the provisions of the Plan. Options granted under the Plan shall be either Nonqualified Stock Options or Incentive Stock Options.

(q)“Participant” shall mean a Director or Employee to whom an Award has been granted under the Plan.

(r)“Plan” shall mean the SB Financial Group 2017 Stock Incentive Plan, the terms of which are set forth herein and in any amendment which may be made hereto.

(s)“Restricted Stock” shall mean a share of Stock granted to a Participant pursuant to Article VIII of the Plan.

(t)“Restricted Stock Unit” shall mean an Award granted pursuant to Article IX of this Plan under which a Participant is issued a right to receive a specified number of shares of Stock or a cash payment equal to a specified number of shares of Stock, the settlement of which is subject to specified restrictions on vesting and transferability.

(u)“Retirement” shall mean a voluntary termination by the Participant after (i) attaining the age of 65 and (ii) completing five years of service to the Company or a Subsidiary.

(v)“Stock” shall mean the common shares, without par value, of the Company or, in the event that the outstanding shares of Stock are changed into or exchanged for different shares or securities of the Company or some other entity, such other shares or securities.

(w)“Stock Appreciation Right” shall mean a right to receive an amount equal to the excess of the Fair Market Value on the exercise date over the Fair Market Value on the date the Stock Appreciation Right is granted pursuant to the provisions of the Plan.

(x)“Subsidiary” shall mean:

(i)With respect to an Incentive Stock Option, a “subsidiary corporation” as defined in Section 424(f) of the Code; and7:00-7:30 pm – Reception
   
Tuesday, April 21, 2020Findlay Country Club5:30-6:00 pm – Cocktails & Hors de’oeuvres
 (ii)

With respect to any other Award, any person with whom the Company would be considered to have a controlling interest, as defined in Treasury Regulation §1.409A-1(b)(5)(iii)(E)(1).

1500 Country Club Drive		6:00-7:00 pm – Presentation and Q & A

 A-2Findlay, OH 45840 

ARTICLE II

The Plan

Section 2.1 Name. The Plan shall be known as the “SB Financial Group 2017 Stock Incentive Plan.”

Section 2.2 Purpose. The purpose of the Plan is to advance the interests of the Company and its shareholders by affording to Directors and Employees an opportunity to acquire or increase their proprietary interest in the Company by the grant to such persons of Awards under the terms set forth herein. By encouraging such persons to become owners of the Company, the Company seeks to attract, motivate, reward and retain those highly competent individuals upon whose judgment, initiative, leadership and efforts are key to the success of the Company.

Section 2.3 Effective Date and Termination of Plan.The Plan shall become effective upon the affirmative vote of the Board on February 15, 2017 (the “Effective Date”); provided, however, that if the Plan is not approved by the shareholders of the Company within twelve (12) months following such adoption, the Plan and all outstanding Awards, if any, shall be deemed null and void and shall be of no force or effect. No shares of Stock may be issued pursuant to this Plan prior to approval of the Plan by the shareholders of the Company. The Plan shall terminate upon the earliest of (a) February 15, 2027; (b) the date on which all Stock available for issuance under the Plan has been issued pursuant to the exercise or settlement, as applicable, of Awards granted hereunder or with respect to which payments have been made upon the exercise of Stock Appreciation Rights or other rights; or (c) the determination of the Board that the Plan shall terminate. No Awards may be granted under the Plan after such termination date, provided that the Awards granted and outstanding on such date shall continue to have force and effect in accordance with the provisions of the Award Agreements evidencing such Awards.

ARTICLE III

Administration

Section 3.1 Administration.

(a)The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have sole discretion and authority to determine from time to time the individuals to whom Awards may be granted, the number of shares of Stock to be subject to each Award, the period during which each Option or Stock Appreciation Right may be exercised, the price at which each Option or Stock Appreciation Right may be exercised, and the terms and conditions of any Award.

(b)Meetings of the Committee shall be held at such times and places as shall be determined from time to time by the Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business. The vote of a majority of the members of the Committee shall decide any question brought before the meeting. In addition, the Committee may take any action otherwise proper under the Plan by the execution of a written action, taken without a meeting, and signed by all of the members of the Committee.

(c)All questions of interpretation and application with respect to the Plan or Awards granted thereunder shall be subject to the determination, which shall be final and binding, of a majority of the whole Committee.

(d)The Committee shall have the sole discretion and authority to determine whether an Option shall be an Incentive Stock Option or a Nonqualified Stock Option; provided that Incentive Stock Options may be granted only to persons who are Employees.

(e)Notwithstanding any provision contained herein, a grant of an Award to a Director must be approved by the full Board.

(f)Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of judgment in any such action, suit or proceeding against him; provided that he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company’s articles of incorporation or regulations, as a matter of law, or otherwise, or any power that the Company may have to indemnify him or hold him harmless.

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Section 3.2 Company Assistance. The Company and its Subsidiaries shall supply full and timely information to the Committee on all matters relating to eligible Employees, their employment, death, Retirement, Disability or other termination of employment and such other pertinent facts as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties.

Section 3.3 Repricing. Except in connection with a corporate transaction involving the Company (including, without limitation, any Stock dividend, Stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares of Stock), the terms of outstanding Awards may not be amended without shareholder approval to reduce the exercise price of outstanding Options or Stock Appreciation Rights or to cancel outstanding Options or Stock Appreciation Rights in exchange for cash, Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights, or other Awards or property.

ARTICLE IV

Participants

Section 4.1 Eligibility. Directors and Employees shall be eligible to participate in the Plan. The Committee may grant Awards to any eligible individual subject to the provisions of Sections 3.1(e) and 5.1.

ARTICLE V

Shares of Stock Subject to Plan

Section 5.1 Grant of Awards and Limitations.

(a)Grant of Awards. The Committee shall designate the Employees and Directors eligible to receive Awards and the number of shares of Stock subject to such Awards.

(b)Stock Available for Awards. Subject to adjustment pursuant to the provisions of Section 11.4 hereof, the aggregate number of shares of Stock with respect to which Awards may be granted during the term of the Plan shall not exceed 500,000. Shares with respect to which Awards may be granted may be either authorized and unissued shares of Stock or shares of Stock issued and thereafter acquired by the Company.

(c)Incentive Stock Options. In the case of Incentive Stock Options, the aggregate Fair Market Value of the shares of Stock (under all plans of the Company and all of its Subsidiaries), with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, may not exceed $100,000. Such Options that exceed $100,000 shall be treated as Nonqualified Stock Options. The maximum number of shares of Stock that may be granted under the Plan through the exercise of Incentive Stock Options shall be 500,000.

(d)Fiscal Year Limits. Subject to Section 12.4 of this Plan, during any fiscal year of the Company, the Committee may not make grants of all forms of Awards to a single Participant in this Plan covering more than an aggregate of 50,000 shares of Stock.

Section 5.2 Awards Under the Plan. Shares of Stock with respect to which an Award granted hereunder shall have been exercised or settled, as applicable, shall not again be available for grant hereunder. If Awards granted hereunder shall expire, terminate or be canceled for any reason without being wholly exercised or settled, as applicable, new Awards may be granted hereunder covering the number of shares of Stock to which such Award’s expiration, termination or cancellation relates. For purposes of clarity, shares of Stock that are withheld from or that are tendered by a Participant (either by delivery or attestation) in payment of an exercise price or to cover withholding tax obligations shall not be available to future grants under the Plan.

ARTICLE VI

Options

Section 6.1 Grant of Options. Subject to the terms, restrictions and conditions specified in the Plan and the associated Award Agreement, the Committee may grant Nonqualified Stock Options and Incentive Stock Options to Employees and Nonqualified Stock Options to Directors at any time during the term of the Plan. Each Option granted hereunder shall be evidenced by minutes of a meeting or the written consent of all of the members of the Committee or the Board, as applicable, and by a written Award Agreement in such form as the Committee shall approve from time to time. The Award Agreement shall set forth such terms and conditions of the Option as may be determined by the Committee, consistent with the Plan.

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Section 6.2 Exercise Price. The exercise price of the Stock subject to an Option shall not be less than the Fair Market Value on the date the Option is granted; provided, however, that the exercise price for an Incentive Stock Option granted to a Participant who owns or who is deemed to own shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or any Subsidiary as determined under Section 422 of the Code (a “10 Percent Owner”), shall not be less than 110% of the Fair Market Value on the date the Incentive Stock Option is granted.

Section 6.3 Option Grant and Exercise Periods.No Option may be granted after the tenth anniversary of the Effective Date. The period for exercise of each Option shall be determined by the Committee, but in no instance shall such period extend beyond the tenth anniversary of the date of grant of the Option. The period of exercise for each Incentive Stock Option granted to a 10 Percent Owner may not be more than 5 years from the date of grant of the Option.

Section 6.4 Option Exercise.

(a)Subject to Section 6.4(b) and such terms and conditions as may be determined by the Committee in its sole discretion upon the grant of an Option, an Option may be exercised in whole or in part (but with respect to whole shares only) and from time to time by delivering to the Company at its principal office written notice of intent to exercise the Option with respect to a specified number of shares of Stock.

(b)Options shall be exercisable according to respective vesting schedules set forth in each Award Agreement as determined by the Committee;provided that vesting of any Option that is based in whole or in part on performance conditions and/or the level of achievement versus such performance conditions shall be subject to a performance period of not less than one year, and vesting of any Option based solely upon continued employment or the passage of time shall vest over a period of not less than three years from the date the Award is made,provided thatsuch vesting may occur in pro rata installments over the three-year period, with the first installment vesting no sooner than the first anniversary of the date of grant of such Award.

(c)Subject to such terms and conditions as may be determined by the Committee in its sole discretion upon grant of any Option, payment for the shares of Stock to be acquired pursuant to exercise of the Option shall be made as follows:

(i)By delivering to the Company at its principal office a check payable to the order of “SB Financial Group” in the amount of the exercise price for the number of shares of Stock with respect to which the Option is then being exercised; or

(ii)By tendering to the Company shares of Stock owned by the Participant for at least six months prior to the date the Option is exercised (or such other period acceptable under the generally accepted accounting principles) having an aggregate Fair Market Value as of the date of exercise equal to the exercise price for the number of shares of Stock with respect to which the Option is then being exercised; or

(iii)By a cashless exercise (including by withholding shares of Stock deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by applicable law); or

(iv)By any combination of payments delivered pursuant to paragraphs (c)(1), (c)(2), and (c)(3) above.

Section 6.5 Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to any share of Stock subject to such Option prior to the exercise of the Option and the purchase of such shares of Stock.

ARTICLE VII

Stock Appreciation Rights

Section 7.1 Stock Appreciation Rights. Subject to the terms and conditions of the Plan, the Committee may grant Stock Appreciation Rights to Participants at any time during the term of the Plan, either alone or in tandem with other Awards. Such Stock Appreciation Rights shall be evidenced by an Award Agreement in such form as the Committee shall from time to time approve. Such Award Agreements shall comply with, and be subject to, the following terms and conditions:

(a)Exercise Price. The exercise price of a Stock Appreciation Right may not be less than 100% of the Fair Market Value on the date of grant.

(b)Period and Exercise. The Award Agreement will specify the period over which a Stock Appreciation Right may be exercised and the terms and conditions that must be met before it may be exercised; provided, however, that an Award Agreement may not permit the Stock Appreciation Right to be exercisable more than 10 years after the date of grant. A Participant may exercise a Stock Appreciation Right by giving written notice of exercise on a form acceptable to the Committee specifying the portion of the Stock Appreciation Right being exercised.

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(c)Vesting. Stock Appreciation Rights shall be exercisable according to respective vesting schedules set forth in each Award Agreement as determined by the Committee;provided that vesting of any Stock Appreciation Right that is based in whole or in part on performance conditions and/or the level of achievement versus such performance conditions shall be subject to a performance period of not less than one year, and vesting of any Stock Appreciation Rights based solely upon continued employment or the passage of time shall vest over a period of not less than three years from the date the Award is made,provided that such vesting may occur in pro rata installments over the three-year period, with the first installment vesting no sooner than the first anniversary of the date of grant of such Award.

(d)Calculation of Appreciation. Upon the exercise of Stock Appreciation Right, the Participant shall be entitled to receive either (i) cash equal to the excess of the Fair Market Value on the exercise date over the Fair Market Value on the date the Stock Appreciation Right was granted, multiplied by the number shares of Stock with respect to which the Stock Appreciation Right is being exercised (the “Cash Amount”), or (ii) a number of shares of Stock equal to the Cash Amount, divided by the Fair Market Value on the exercise date of the Stock Appreciation Right.

(e)Payment of Appreciation. The total appreciation available to a Participant from an exercise of a Stock Appreciation Right shall be paid in a single lump sum payment in either cash or shares of Stock, as determined by the Committee.

(f)Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to any share of Stock subject to a Stock Appreciation Right.

ARTICLE VIII

Restricted Stock

Section 8.1 Grant of Restricted Stock. Subject to the terms and conditions of the Plan, the Committee may grant Restricted Stock to Participants at any time during the term of the Plan. Such Restricted Stock shall be subject to the terms and conditions that the Committee specifies in the Award Agreement and to the terms and conditions of the Plan. At the Committee’s sole discretion, all shares of Restricted Stock will be held by the Company as escrow agent or issued to the Participant in the form of certificates bearing a legend describing the restrictions imposed on the shares.

Section 8.2 Earning Restricted Stock. Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the terms, restrictions and conditions imposed on the Restricted Stock have lapsed as described in the Award Agreement. Restricted Stock will be (a) forfeited if all terms, restrictions and conditions described in the Award Agreement have not been satisfied or (b) released from escrow and distributed (or any restrictions described in the certificates removed) as soon as practicable after all terms, restrictions and conditions described in the Award Agreement have been satisfied. Vesting of any Restricted Stock that is based in whole or in part on performance conditions and/or the level of achievement versus such performance conditions shall be subject to a performance period of not less than one year, and vesting of any Restricted Stock based solely upon continued employment or the passage of time shall vest over a period of not less than three years from the date the Award is made,provided that such vesting may occur in pro rata installments over the three-year period, with the first installment vesting no sooner than the first anniversary of the date of grant of such Award.

Section 8.3 Rights Associated with Restricted Stock.During the applicable period of restriction and unless the Award Agreement provides otherwise, each Participant to whom Restricted Stock has been granted (a) may exercise full voting rights associated with that Restricted Stock and (b) will be entitled to receive all dividends and other distributions paid with respect to that Restricted Stock; provided, however, that such dividends or other distributions shall be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were issued. This means that no accrued dividends shall be paid to the Participant until the restrictions on the Restricted Stock lapse and such dividends shall be forfeited to the extent that the Participant forfeits the related Restricted Stock.

ARTICLE IX

RESTRICTED STOCK UNITS

Section 9.1 Grant of Restricted Stock Units. Subject to the terms and conditions of this Plan, the Committee may grant Restricted Stock Units to Participants at any time during the term of the Plan. Such Restricted Stock Units shall be subject to the terms and conditions that the Committee specifies in the Award Agreement and the terms and conditions of the Plan.

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Section 9.2 Award Agreement. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that specifies the number of shares of Stock underlying the Award, the restricted period, the conditions upon which the restrictions on the Restricted Stock Units will lapse, the time at which and form in which the Restricted Stock Units will be settled, and such other terms and conditions as the Committee determines and which are not inconsistent with the terms and conditions of this Plan.

Section 9.3 Terms, Conditions and Restrictions. The Committee shall impose such other terms, conditions and restrictions on any Award of Restricted Stock Units as the Committee may deem advisable, including, without limitation, restrictions based on the achievement of specific performance goals, time-based restrictions, holding requirements or sale restrictions placed on the underlying shares of Stock by the Company upon vesting of such Restricted Stock Units. Vesting of any Restricted Stock Unit that is based in whole or in part on performance conditions and/or the level of achievement versus such performance conditions shall be subject to a performance period of not less than one year, and vesting of any Restricted Stock Unit based solely upon continued employment or the passage of time shall vest over a period of not less than three years from the date the Award is made,provided that such vesting may occur in pro rata installments over the three-year period, with the first installment vesting no sooner than the first anniversary of the date of grant of such Award.

Section 9.4 Form of Settlement. An Award of Restricted Stock Units may be settled in full shares of Stock, in cash or in a combination thereof, as specified by the Committee in the related Award Agreement.

Section 9.5 Dividend Equivalents. Awards of Restricted Stock Units may provide the Participant with dividend equivalents, as determined by the Committee in the Committee’s sole discretion and as set forth in the related Award Agreement; provided, however, that such dividend equivalents shall be subject to the same terms and conditions, including the applicable forfeiture conditions, as the Restricted Stock Units. This means that no amount shall be paid in connection with a dividend equivalent right until shares of Stock are issued or cash is paid in connection with the Restricted Stock Units and any dividend equivalents shall be forfeited to the extent that the Participant forfeits the related Restricted Stock Units.

Section 9.6 No Voting Rights. In no event will a Participant have any voting rights with respect to the shares of Stock underlying the Restricted Stock Units.

ARTICLE X

Amendment and Modification of Plan

Section 10.1 Amendment. The Board may from time to time amend or modify or make such changes in and additions to the Plan as it may deem desirable, without further action on the part of the shareholders of the Company except as such shareholder approval may be required (a) to satisfy the requirements of Rule 16b-3 under the Exchange Act or any successor rule or regulation; (b) to satisfy applicable requirements of the Code; or (c) to satisfy applicable requirements of the NASDAQ Stock Market or any securities exchange on which are listed any of the Company’s equity securities. No such action to amend the Plan shall reduce the then-existing number of Awards granted to any Participant or adversely change the terms and conditions thereof without such Participant’s consent.

ARTICLE XI

Taxation and Withholding

Section 11.1 Tax Withholding. With respect to Employees, the Company shall have the power and the right to deduct or withhold an amount sufficient to satisfy federal, state and local taxes required by law to be withheld with respect to any grant, exercise, or payment made under or as a result of the Plan. At the discretion of the Committee, a Participant may be permitted to pay to the Company the withholding amount in the form of cash, shares of Stock owned by the Participant for at least the previous six months (or such other period acceptable under the generally accepted accounting principles) or by having the Company withhold shares of Stock from the settlement of the Award. If payment of the withholding amount is made by tendering shares of Stock, the value of the shares of Stock delivered shall equal the Fair Market Value on the applicable day.

Section 11.2 Required Consent to and Notification of Code Section 83(b) Election. No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provision of the laws of a jurisdiction outside the United States may be made unless expressly permitted by the terms of the Award document or by action of the Committee in writing prior to the making of such election. In any case in which a Participant is permitted to make such an election in connection with an Award, the Participant shall notify the Company of such election within ten days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision.

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Section 11.3 Requirement of Notification Upon Disqualifying Disposition Under Code Section 421(b). If any Participant shall make any disposition of shares of Stock delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described in Code Section 421(b) (i.e., a disqualifying disposition), such Participant shall notify the Company of such disposition within ten days thereof.

ARTICLE XII

Miscellaneous

Section 12.1 Transferability. Except as specifically permitted in an Award Agreement, during the Participant’s lifetime, any Award may be exercised only by the Participant or any guardian or legal representative of the Participant, and the Award shall not be transferable except by will or the laws of descent and distribution.

Section 12.2 Designation of Beneficiary. A Participant may file a written designation of a beneficiary who is to receive any Stock that is unsettled and/or cash that is unpaid in the event of the Participant’s death. Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. Upon the death of a Participant and upon receipt by the Company of proof of identity and the existence of a beneficiary at the time of the Participant’s death validly designated by the Participant under the Plan, the Company shall deliver such Stock and/or cash to such beneficiary. In the event of the death of a Participant in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall deliver such Stock and/or cash to the executor or the administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Stock and/or cash to the spouse or to any one or more dependents of the Participant as the Company may designate. No beneficiary shall, prior to the death of the Participant by whom he has been designated, acquire any interest in the Stock and/or cash credited to the Participant under the Plan.

Section 12.3 Effect of Termination, Death, Disability and Retirement. Unless otherwise specified in the Award Agreement, all Awards will be exercisable or forfeited as described in this Section 12.3:

(a)Termination. If a Participant’s service as a Director or an Employee terminates for any reason, other than his Retirement, death or Disability, before the date of expiration of the Awards held by such Participant, (i) any Options and Stock Appreciation Rights that are not exercisable and any unvested Restricted Stock shall become null and void on the date of such termination and (ii) all exercisable Options and Stock Appreciation Rights shall terminate on the earlier of (1) the date of expiration of the Options and Stock Appreciation Rights, as applicable, or (2) 7:00-7:30 days following the date of the Participant’s termination. A Participant who terminates employment with the Company, but retains his status as a Director is not considered terminated with respect to any outstanding Award until the date the Participant ceases to be both a Director and an Employee of the Company, provided that any Incentive Stock Option that is outstanding as of the date that the Participant terminates employment with the Company shall be treated as a Nonqualified Stock Options following the date of the Participant’s termination as an employee.

(b)Death. If a Participant’s service as a Director or an Employee terminates due to his death before the expiration of the Awards held by the Participant, (i) any Options and Stock Appreciation Rights that are not exercisable shall become exercisable and all Options and Stock Appreciation Rights shall terminate on the earlier of (1) the date of expiration of the Options and Stock Appreciation Rights, as applicable, or (2) one year following the date of the Participant’s death; and (ii) any unvested Restricted Stock shall become fully vested. The executor, administrator or personal representative of the estate of a deceased Participant, or the person or persons to whom an Award granted hereunder shall have been validly transferred by the executor, the administrator or the personal representative of the Participant’s estate, shall have the right to exercise the Participant’s Option or Stock Appreciation Right or receive the Participant’s Restricted Stock. To the extent that such Options and Stock Appreciation Rights would otherwise be exercisable under the terms of the Plan and the Participant’s Award Agreement, such exercise may occur at any time prior to the termination date specified in this Section 12.3(b).

(c)Disability. If a Participant’s service as a Director or an Employee terminates due to his Disability before the expiration of the Awards held by the Participant, (i) any Options and Stock Appreciation Rights that are not exercisable shall become exercisable and all Options and Stock Appreciation Rights shall terminate on the earlier of (1) the date of expiration of the Options and Stock Appreciation Rights, as applicable, or (2) one year following the date of the Participant’s termination of service due to Disability; and (ii) any unvested Restricted Stock shall become fully vested.

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(d)Retirement. If a Participant Retires before the date of expiration of the Awards held by such Participant, (i) any Options and Stock Appreciation Rights that are not exercisable shall become exercisable and all Options and Stock Appreciation Rights shall terminate on the earlier of (1) the date of expiration of the Options and Stock Appreciation Rights, as applicable, or (2) one year following the date of the Participant’s Retirement; provided, however, that an Incentive Stock Option that is not exercised within three months after the date of the Participant’s Retirement shall be treated as a Nonqualified Stock Option; and (ii) any unvested Restricted Stock shall become fully vested.

Section 12.4 Antidilution. If there is a Stock dividend, Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares or other similar corporate change affecting the Stock, the Committee will appropriately adjust (a) the number of shares of Stock that may be issued subject to Awards that may be granted to Participants during any period, (b) the aggregate number of shares of Stock available for Awards or subject to outstanding Awards (as well as any Stock-based limits imposed under the Plan), (c) the respective exercise price, number of shares of Stock and other limitations applicable to outstanding Awards, and (d) and other factors, limits or terms affecting any outstanding Awards. Notwithstanding the foregoing, an adjustment pursuant to this Section 12.4 shall be made only to the extent such adjustment complies, to the extent applicable, with Section 409A of the Code.

Section 12.5 Applicable Event. In the event an Applicable Event occurs, (a) if determined by the Committee in the applicable Award Agreement or otherwise determined by the Committee in its sole discretion, any outstanding Awards then held by Participants which are unexercisable or otherwise unvested or subject to lapse restrictions may automatically be deemed exercisable or otherwise vested or no longer subject to lapse restrictions, as the case may be, immediately prior to such Applicable Event and (b) the Committee may, but shall not be obligated to (i) cancel such Awards for the Change in Control Price or (ii) provide for the issuance of substitute Awards that will substantially preserve the otherwise applicable terms of any affected Awards previously granted hereunder as determined by the Committee in its sole discretion or (iii) provide that for a period of at least fifteen (15) days prior to the Applicable Event, any Options or Stock Appreciation Rights shall be exercisable as to all shares of Stock subject thereto and that upon the occurrence of the Applicable Event, such Options and Stock Appreciation Rights shall terminate and be of no further force and effect.

Section 12.6 Application of Funds. The proceeds received by the Company from the sale of Stock pursuant to Awards shall be used for general corporate purposes.

Section 12.7 Tenure. Nothing in the Plan or in any Award granted hereunder or in any Award Agreement relating thereto shall confer upon any Director or Employee the right to continue in such position with the Company or any Subsidiary.

Section 12.8 Other Compensation Plans. The adoption of the Plan shall not affect any other stock option or incentive or other compensation plans in effect for the Company or any Subsidiary, nor shall the Plan preclude the Company or any Subsidiary from establishing any other forms of incentive or other compensation for Directors or Employees.

Section 12.9 No Obligation to Exercise Awards.The granting of an Award shall impose no obligation upon the Participant to exercise or accept such Award.

Section 12.10 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company.

Section 12.11 Compliance with Section 16. If the Company has a class of equity securities registered under Section 12 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent that any transaction or action by the Committee fails to so comply, the Committee may amend the Plan and the terms of any outstanding Award, and any action of the Committee which fails to comply shall be deemed void to the extent permitted by law and deemed advisable by the Committee.

Section 12.12 Requirements of Law. The grant of Awards and the issuance of shares of Stock will be subject to all applicable laws, rules and regulations and to all required approvals of any governmental agencies or exchange, market or other quotation system on or though which the securities of the Company are then traded. Also, no shares of Stock will be issued under the Plan unless the Company is satisfied that the issuance of those shares of Stock will comply with applicable federal and state securities laws. Shares of Stock tendered under the Plan may be subject to any stock transfer orders and other restrictions that the Committee believes to be advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any exchange, market or other quotation system on or through which the Company’s securities are then traded, or any other applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this section.

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Section 12.13 Singular, Plural and Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine.

Section 12.14 Headings. Headings are inserted for convenience of reference; they constitute no part of the Plan.

Section 12.15 Governing Law. Except as otherwise required by law, the validity, construction and administration of the Plan shall be determined under the laws of the State of Ohio.

Section 12.16 Section 409A of the Code. It is intended that Awards granted under the Plan comply with or be exempt from the requirements of Section 409A of the Code and the Treasury Regulations promulgated thereunder (and any subsequent notices or guidance issued by the Internal Revenue Service), and the Plan will be interpreted, administered and operated accordingly. Nothing herein shall be construed as an entitlement to or guarantee of any particular tax treatment to a Participant.

Section 12.17 Additional Award Forfeiture Provisions.

(a)Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises or Award Settlements. Unless otherwise determined by the Committee, each Award granted shall be subject to the following additional forfeiture conditions, to which the Participant, by accepting an Award hereunder, agrees. If any of the events specified in Section 12.17(b) occurs (a “Forfeiture Event”), all of the following forfeitures will result:

(i)The unexercised portion of each Option held by the Participant, whether or not vested, and any other Award not then settled will be immediately forfeited and canceled upon the occurrence of the Forfeiture Event; andpm – Reception
   
Wednesday, April 22, 2020Shawnee Country Club5:30-6:00 pm – Cocktails & Hors de’oeuvres
 (ii)

The Participant will be obligated to repay to the Company, in cash, within five business days after demand is made therefor by the Company, the total amount of Award Gain (as defined herein) realized by the Participant upon each exercise of an Option or settlement of an Award that occurred on or after (A) the date that is six months prior to the occurrence of the Forfeiture Event, if the Forfeiture Event occurred while the Participant was employed by the Company or a subsidiary or affiliate of the Company, or (B) the date that is six months prior to the date the Participant’s employment by the Company or a subsidiary or affiliate of the Company terminated, if the Forfeiture Event occurred after the Participant ceased to be so employed. For purposes of this Section, the term “Award Gain” shall mean (X) in respect of a given Option exercise, the product of (1) the Fair Market Value per share of Stock at the date of such exercise (without regard to any subsequent change in the market price of shares) minus the exercise price times (2) the number of shares as to which the Option was exercised at that date,1700 Shawnee Road

6:00-7:00 pm – Presentation and (Y) in respect of any other settlement of an Award granted to the Participant, the Fair Market Value of the cash or Stock paid or payable to the Participant less any cash or the Fair Market Value of any Stock or property (other than an Award or award which would have itself then been forfeitable hereunder and excluding any payment of tax withholding) paid by the Participant to the Company as a condition of or in connection such settlement.

Q & A

(b)Events Triggering Forfeiture. The forfeitures specified in Section 12.17(a) will be triggered upon the occurrence of any one of the following Forfeiture Events at any time during a Participant’s employment by the Company or a subsidiary or affiliate of the Company, or during the one-year period following termination of such employment:

(i)If the Company or a Subsidiary is required to prepare an accounting restatement due to material non-compliance of the Company or a Subsidiary with any financial reporting requirement under any applicable laws;

(ii)The Participant, acting alone or with others, directly or indirectly, (A) engages, either as employee, employer, consultant, advisor, or director, or as an owner, investor, partner, or stockholder unless the Participant’s interest is insubstantial, in any business in an area or region in which the Company or any of its Subsidiaries conducts business at the date the event occurs, which is directly in competition with a business then conducted by the Company or s Subsidiary; (B) induces any customer or supplier of the Company or any Subsidiary with which the Company or a Subsidiary has a business relationship, to curtail, cancel, not renew, or not continue his or her or its business with the Company or such Subsidiary; or (C) induces, or attempts to influence, any associate of or service provider to the Company or a Subsidiary to terminate such employment or service. The Committee shall, in its discretion, determine which lines of business the Company and its Subsidiaries conduct on any particular date and which third parties may reasonably be deemed to be in competition with the Company or a Subsidiary. For purposes of this Section 12.17(b)(i), a Participant’s interest as a stockholder is insubstantial if it represents beneficial ownership of less than five percent of the outstanding class of stock, and a Participant’s interest as an owner, investor, or partner is insubstantial if it represents ownership, as determined by the Committee in its discretion, of less than five percent of the outstanding equity of the entity;

 A-10Lima, OH 45805 

(iii)

The Participant discloses, uses, sells, or otherwise transfers, except in the course of employment with or other service to the Company or any Subsidiary, any confidential or proprietary information of the Company or any Subsidiary, including but not limited to information regarding the Company’s and its Subsidiaries’ current and potential customers, organization, associates, finances, and methods of operations and investments, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain (other than by the Participant’s breach of this provision), except as required by law or pursuant to legal process, or the Participant makes statements or representations, or otherwise communicates, directly or indirectly, in writing, orally, or otherwise, or takes any other action which may, directly or indirectly, disparage or be damaging to the Company or any of its Subsidiaries or their respective officers, directors, associates, advisors, businesses or reputations, except as required by law or pursuant to legal process; or

7:00-7:30 pm – Reception
   
Thursday, April 23, 2020Pine Valley Country Club6:00-6:30 pm – Cocktails & Hors de’oeuvres
 (iv)

The Participant fails to cooperate with the Company or any Subsidiary in any way, including, without limitation, by making himself or herself available to testify on behalf of the Company or such Subsidiary in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, or otherwise fails to assist the Company or any Subsidiary in any way, including, without limitation, in connection with any such action, suit, or proceeding by providing information10900 Pine Mills Road

6:30-7:30 pm – Presentation and meeting and consulting with members of management of, other representatives of, or counsel to, the Company or such Subsidiary, as reasonably requested.

Q & A
Lima, OH 458057:30-8:00 pm – Reception
   
Tuesday, April 28, 2020Inverness Club5:30-6:00 pm – Cocktails & Hors de’oeuvres
 (v)

The Participant, alone or in conjunction with another person, (A) interferes with or harms, or attempts to interfere with or harm, the relationship of the Company or any Subsidiary with any person who at any time was a customer or supplier of the Company or any Subsidiary or otherwise had a business relationship with the Company or any Subsidiary; or (A) hires, solicits for hire, aids in or facilitates the hire, or causes to be hired, either as an employee, contractor or consultant, any person who is currently employed, or was employed at any time during the six-month period prior thereto, as an employee, contractor or consultant of the Company or any Subsidiary.

4601 Door Street		6:00-7:00 pm – Presentation and Q & A

(c) Agreement Does Not Prohibit Competition or Other Participant Activities. Although the conditions set forth in this Section 12.17 shall be deemed to be incorporated into an Award, a Participant is not thereby prohibited from engaging in any activity set forth in Section 12.17(b), including but not limited to competition with the CompanyToledo, OH 436157:00-7:30 pm – Reception
Wednesday, April 29, 2020Embassy Suites6:00-6:30 pm – Cocktails & Hors de’oeuvres
5100 Upper Metro Place6:30-7:30 pm – Presentation and its Subsidiaries. The non-occurrence of the Forfeiture Events set forth in Section 12.17(b) is a condition to the Participant’s right to realize and retain value from his or her compensatory Options and Awards, and the consequence under the Plan if the Participant engages in an activity giving rise to any such Forfeiture Event are the forfeitures specified herein. The Company and a Participant shall not be precluded by this provision or otherwise from entering into other agreements concerning the subject matter of Section 12.17.Q & A

(d) Committee Discretion. The Committee may, in its discretion, waive in whole or in part the Company’s right to forfeiture under this Section 12.17, but no such waiver shall be effective unless evidenced by a writing signed by a duly authorized officer of the Company. In addition, the Committee may impose additional conditions on Awards, by inclusion of appropriate provisions in the document evidencing or governing any such Award.Dublin, OH 430177:30-8:00 pm – Reception

 

 

A-1132