10-12B

As filed with the Securities and Exchange Commission on March 4, 2022

File No.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES 

Pursuant to Section 12(b) or (g) of the Securities Exchange Act Of 1934

John Marshall Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

Virginia	81-5424879
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
1943 Isaac Newton Square, Suite 100, Reston, Virginia	20190
(Address of Principal Executive Offices)	(Zip Code)

(703) 584-0840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class to be so registered	Name of each exchange on which each class is to be registered
Common Stock, par value $0.01 per share	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x

TABLE OF CONTENTS

		Page
Item 1.	Business	4
Item 1A.	Risk Factors	21
Item 2.	Financial Information	40
Item 3.	Properties	59
Item 4.	Security Ownership of Certain Beneficial Owners and Management	60
Item 5.	Directors and Executive Officers	61
Item 6.	Executive Compensation	65
Item 7.	Certain Relationships and Related Transactions, and Director Independence	73
Item 8.	Legal Proceedings	74
Item 9.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	75
Item 10.	Recent Sales of Unregistered Securities	77
Item 11.	Description of Registrant’s Securities to be Registered	78
Item 12.	Indemnification of Directors and Officers	81
Item 13.	Financial Statements and Supplementary Data	82
Item 14.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	121
Item 15.	Financial Statements and Exhibits	122
Signatures		124

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EXPLANATORY NOTE

John Marshall Bancorp, Inc. (the “Company”) is filing this General Form for Registration of Securities on Form 10 to register its common stock, par value $0.01 per share, pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Once this registration statement is deemed effective, the Company will be required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (the “SEC”), and to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(b) of the Exchange Act.

In this registration statement, all references to “we,” “us” and “our” refer to the Company and John Marshall Bank (the “Bank”), unless the context otherwise requires or when otherwise indicated.

The Company is an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”). The Company is also a “smaller reporting company” as defined in Exchange Act Rule 12b-2. As such, the Company may elect to comply with certain reduced public company reporting requirements in future reports that it files with the SEC.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this registration statement contains forward-looking statements that are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. These forward-looking statements are based on our beliefs and assumptions and on the information available to us at the time that these disclosures were prepared, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to have been correct. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition and results of operations. Factors that could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, the following:

• the impacts of the COVID-19 pandemic and the associated efforts to limit the spread of the virus;

• deteriorating economic conditions, either nationally or in our market area, including higher unemployment and lower real estate values;

• the concentration of our business in the Washington, DC metropolitan area and the effect of changes in the economic, political and environmental conditions on this market;

• inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments;

• adverse changes in the securities markets;

• changes in the financial condition or future prospects of issuers of securities that we own;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements;

• changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

• results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for loan losses or to write-down assets or take similar actions;

• changes in accounting policies and practices;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• additional risks related to new lines of business, products, product enhancements or services;

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• increased competition with other financial institutions and fintech companies;

• changes in consumer spending, borrowing and savings habits;

• our ability to retain key employees;

• changes in our financial condition or results of operations that reduce capital;

• adequacy of our allowance for loan losses;

• deterioration of our asset quality;

• future performance of our loan portfolio with respect to recently originated loans;

• the level of prepayments on loans and mortgage-backed securities;

• the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting;

• liquidity, interest rate and operational risks associated with our business;

• implications of our status as a smaller reporting company and as an emerging growth company; and

• other factors discussed in Item 1A. Risk Factors in this registration statement.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary note.

FURTHER INFORMATION ABOUT THE COMPANY

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information about issuers, like the Company, that file electronically with the SEC. The address of the SEC’s website is www.sec.gov.

Upon the effectiveness of this registration statement, the Company will become subject to the reporting and information requirements of the Exchange Act, and as a result will file periodic reports and other information with the SEC. You may inspect and obtain copies of these reports and proxy statements and other information on the SEC’s website at the address set forth above, as well as on the Company’s website, at no cost. The Company’s website address is www.johnmarshallbank.com. Information on the Company’s website is not and should not be considered a part of this registration statement.

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Item 1.            Business

General Overview

John Marshall Bancorp, Inc. was organized as a Virginia corporation in 2016 to serve as the holding company for John Marshall Bank. The Company and the Bank are each headquartered in Reston, Virginia (approximately 20 miles west of Washington, D.C.). The Company commenced operations as a bank holding company on March 1, 2017 following a reorganization transaction in which it became the Bank’s holding company. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of the Company. As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve. The Company has no material operations other than its sole ownership of the Bank. The Bank is a Virginia chartered commercial bank that commenced operations in 2006. The Bank is supervised and regulated by the Federal Reserve and the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Virginia BFI”).

We primarily serve small to medium-sized businesses, their owners and employees, professional corporations, non-profits and individuals with a broad range of banking products and financial services. Some of the products and services that we offer include commercial checking, savings and money market accounts, certificates of deposit, treasury and cash management services, commercial and industrial loans, commercial real estate loans, residential and commercial construction and development loans, online banking, and mobile banking. As of December 31, 2021, we had total consolidated assets of $2.1 billion, gross loans of $1.7 billion, total deposits of $1.9 billion and total shareholders’ equity of $208 million.

Market Area

A key factor in our ability to achieve our strategic goals and create shareholder value is the attractiveness of our market area. The market area in which we operate has seen considerable population and economic growth over the past several decades. The most recent economic data suggest that the relative economic strength of our market area will continue, enabling us to further grow our customer base and opportunities to grow our market share.

The Bank’s primary service area includes Arlington, Fairfax, Loudoun and Prince William counties in Virginia, Montgomery County in Maryland and the District of Columbia. The Bank has eight full service branch offices located in these contiguous cities or counties. The Bank has one loan production office in Arlington, Virginia.

Our primary service area comprises the majority of the population and household income of the Washington-Arlington-Alexandria, DC-VA-MD-WV (“Washington, D.C.”) Metropolitan Statistical Area (“MSA”). The Washington, D.C. MSA, according to U.S. Bureau of Economic Analysis data, ranked fifth among all MSAs for 2020 gross domestic product. According to data sourced from S&P Global Market Intelligence, among the largest MSAs ranked by gross domestic product (Chicago, Los Angeles, New York and San Francisco), the Washington D.C. MSA ranked second for 2021 median household income at $109,185, first in 2021 to 2026 projected population growth at 4.1% and first in the percentage of inhabitants 25 or older with a bachelor’s degree or higher educational attainment at 51%. According to the U.S. Bureau of Labor Statistics, the Washington, D.C. MSAs November 2021 unemployment rate was 3.6%, the lowest among the aforementioned MSAs.

Based upon Federal Deposit Insurance Corporation (the “FDIC”) data as of June 30, 2021, the Washington D.C. MSA housed $279 billion of deposits, with the top five financial institutions controlling 66.3%. At June 30, 2021, our deposits were $1.82 billion, ranked 17^th in the MSA and represented a 0.7% market share. Eleven of the sixteen banks ranked ahead of the Company are headquartered outside of the Washington, D.C. MSA. Our market area has experienced a significant degree of banking consolidation over the last several decades. Since the Company’s inception, banking assets in excess of $43 billion have been acquired. We believe that as financial institutions are merged with or acquired by remote, larger institutions, their customers can become further removed from the point of decision making. The consolidation trend provides an opportunity for the Company to execute a focused strategy of offering personalized services to attract potential customers who are underserved or dissatisfied.

Given the Company’s proximity to Washington, D.C., the federal government has both contributed to the growth and played a stabilizing role in our market area’s economy. In recent years, local governments have made great strides in diversifying their local economies. Virginia Tech selected the City of Alexandria as the site for its innovation campus which aims to graduate 25,000 new bachelor’s and master’s students in computer science and related fields over the next 20 years. The $1 billion, 600,000 square foot campus will confer over 850 graduate degrees annually and provide talent to spur further technology growth. By 2030, Amazon’s headquarters in Arlington County is expected to occupy at least 4 million square feet of office space. Fairfax County is home to ten Fortune 500 company headquarters. Loudoun County is known as “data center alley” as it has the world’s highest concentration of data centers with more than 25 million square feet of data center space. Prince William County has partnered with George Mason University to found the Prince William Science Accelerator, a fast-growing biotechnology cluster to foster the study of life sciences. Montgomery County had 41 companies named to the 2021 Inc. 5,000 list of the fastest-growing, privately-owned companies.

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We believe the size, growth, economic diversity and banking consolidation within the Washington, D.C. MSA, when combined with our business strategy, provide us with excellent opportunities for long-term, sustainable growth.

Business Strategy

The Company’s goal is to enhance its franchise and shareholder value by achieving significant growth in assets and profitability while maintaining strong asset quality and providing exceptional customer experiences. We embrace innovation and provide value-added solutions our customers need and expect. We intend to execute on this goal by focusing on the following objectives:

• Maintain financial and credit quality discipline. We are committed to being a high performing bank, with above average growth and returns. For the year ended December 31, 2021, the Company achieved record earnings of $25.5 million, which resulted in returns on average assets and equity of 1.25% and 12.90%, respectively. We will strive continue to grow our loan and deposit portfolios, but will do so in a disciplined manner. Gross loans net of unearned income and excluding U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans grew $150.7 million or 10.4% during 2021. Total assets, demand deposits and total deposits grew 14.0%, 34.9% and 14.7%, respectively, during 2021. The Company’s asset quality remains outstanding, with the fourth quarter of 2021 marking the 9^th consecutive quarter with no non-performing loans, other real estate owned or loans 30 or more days past due.

• Hire experienced commercial banking officers. Our growth strategy centers around the hiring of highly experienced, local banking professionals with successful track records and established customer relationships with small to medium-sized businesses, their owners, professionals and non-profits. We anticipate that these officers will be able to attract customers with whom they have built relationships over the years, enhancing our loan and deposit production. We typically hire one or more officers for a specific target sub-market or business segment and then, if applicable, establish a branch office to support business generation once a significant market presence has been established. This strategy allows us to open branch offices that are profitable at or shortly after opening, further enhancing our franchise value as we continue to grow.

• Expand in high growth markets. The market areas in which the Company operates and those contemplated for potential expansion are characterized by high concentrations of small to medium-sized businesses, professionals or non-profits. The Company will look for opportunities to expand its franchise in these markets on a selective and opportunistic basis. While the Company has not completed any acquisitions to date, it has, on several occasions, investigated and engaged in discussion with respect to the possibility of such acquisitions, and it expects that it may do so in the future. We may seek additional branching opportunities, centered on experienced lending officers with a significant portfolio of commercial customers. We plan to increase our market share by selective expansion, and by establishing and marketing commercial loan, deposit and cash management products and services, with a high level of personal service, to our desired customer base.

• Maintain commercial bank, customer-centric orientation among specific segments in our communities. The banking market in the Washington, D.C. MSA has experienced significant consolidation among financial institutions over the last several decades. We compete against larger banks operating in our market by targeting specific customer segments and minimizing layers of management and distance between the customer and the Bank’s decision makers. The Bank is a commercially oriented bank focused on the following customer segments: small to medium-sized businesses, professional services, builders and developers, associations, government contractors, health services companies, nonprofits, private schools, property management companies, trade contractors and title companies. We leverage personal relationships established by our officers, directors and employees with our customers. We strive to provide innovative products and value-added advice to our customers. We believe that the larger financial institutions’ desire to realize efficiencies oftentimes results in more distance and delay in serving customers. Our strategic focus, coupled with the dislocation caused by bank consolidation in our market area, provides an excellent opportunity for the Company to gain market share through a more timely delivery of customer-driven products and services through a personalized sales approach.

• Continue to leverage our infrastructure and drive profitability. Since our inception, our management team has been successful in implementing its high-touch, technology focused approach to serving customers while maintaining cost consciousness throughout the organization, thereby achieving profitability and return metrics above peer averages. We are able to successfully execute this strategy because of our customers’ limited need for an expansive retail branching network. Our branch-lite strategy allows us to invest in and leverage our digital platform. We have been able to enhance the customer experience through services such as remote deposit capture, mobile banking, online banking, sophisticated internet-based cash management systems and same day Automated Clearing House (ACH), electronic funds transfers. The Company’s successful deployment of technology has enabled us to grow our balance sheet and increase returns by lowering overhead ratios. For the year ended December 31, 2021, the Company’s efficiency and overhead-to-average assets ratios were 47.7% and 1.58%, respectively. The Company’s efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. The Company’s overhead-to-average asset ratio is calculated by dividing non-interest expense by average assets.

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Competition

The banking business is highly competitive, and we face competition in our market area from many other local, regional, and national financial institutions. Competition among financial institutions is based on interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking services, and, in the case of loans to commercial borrowers, relative lending limits. We compete with commercial banks, credit unions, savings institutions, mortgage banking firms, finance companies, including “fintech” companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market area and elsewhere. The competing major commercial banks have greater resources that may provide them a competitive advantage by enabling them to maintain numerous branch offices, mount extensive advertising campaigns and invest in new technologies. The increasingly competitive environment is the result of changes in regulation, changes in technology and product delivery systems, additional financial service providers, and the accelerating pace of consolidation among financial services providers.

The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer most types of financial services, including banking, securities underwriting and insurance. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Some of our non-banking competitors, such as fintech companies, have fewer regulatory constraints and may have lower cost structures. In addition, some of our competitors have assets, capital and lending limits greater than that of the Bank, have greater access to capital markets and can offer a broader range of products and services than the Bank. These institutions may have the ability to finance wide-ranging advertising campaigns and may also be able to offer lower rates on loans and higher rates on deposits than we can offer.

We compete with these institutions by focusing on our position as an independent, commercial business bank and rely upon relationships established by our officers, directors, and employees with our customers, promotional activities and specialized services tailored to meet the needs of the customers we serve. We strive to provide innovative products to our customers that are value-driven. We actively cultivate relationships with our customers that extend beyond a single loan to a full suite of products that serve the needs of our commercial customers. Our goal is to develop long-standing connections with our customers and the communities that we serve. Our management believes that we can compete effectively as a result of local market knowledge, local decision making, awareness of customer needs, and by providing exceptional customer experiences.

Strengths

We believe that we are well-positioned to execute our banking strategy as a result of our competitive strengths:

• Experienced management team. Our executive management team brings decades of in-market experience. Christopher W. Bergstrom, our President and Chief Executive Officer, has a banking career spanning nearly 40 years. Mr. Bergstrom joined the Company in 2018. Prior to joining the Company, Mr. Bergstrom served in executive management capacities at banks in our market area that were significantly larger than the Company. Carl E. Dodson, our Chief Risk Officer and Chief Operating Officer, joined the organizing group of the Company in May 2005. He has almost 40 years of banking experience, all of it in the Washington, D.C. MSA. William J. Ridenour, our Chief Banking Officer has over 45 years of banking experience, all of it in the Washington, D.C. MSA. He joined the Company in 2008. Messrs. Bergstrom, Dodson and Ridenour have deepened the management team by recruiting experienced financial services professionals who have demonstrated their ability to drive organic growth, improve operating efficiencies and establish a robust risk management framework. The interests of our executive officers and directors are aligned with our shareholders through meaningful ownership, with beneficial ownership by our executive officers and directors amounting to approximately 18.07% of our outstanding common stock as of January 31, 2022.

• Disciplined credit culture. In originating loans, our relationship managers focus on experienced business owners with demonstrated capacity to fulfill their financial obligations. Loan officers have relatively low individual discretionary loan authority levels, which generally results in loan committee vetting to uphold appropriate structure and terms prior to approval. Loan committee meetings are held regularly and on an as-needed basis to promote prompt decisions. We utilize an independent, nationally recognized independent loan review firm to validate our risk ratings and assess our underwriting and loan administration. We believe that our rigorous underwriting and diligent monitoring of the loan portfolio have created a “credit first” mentality that permeates the Company and is reflected in our asset quality statistics. The fourth quarter of 2021 marked the ninth consecutive quarter that the Company had no non-performing loans, other real estate owned or loans 30 days or more past due. In each of the past five fiscal years, net charge-offs have not exceeded 0.07% of gross loans.

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• Conservative balance sheet. The Company’s balance sheet provides the foundation for prudent growth. The Bank’s capital ratios exceed the thresholds required of a well capitalized institution. As of December 31, 2021, the Bank had the capacity to add over $750 million of risk-weighted assets to its balance sheet and still maintain well capitalized status. The Company has ample liquidity to meet its obligations and fund anticipated loan growth. As of December 31, 2021, the Bank had over $360 million of liquid assets, defined as cash and unpledged securities, over $345 million of available secured borrowing facilities and $105 million of available unsecured borrowing facilities. The Company has retained a nationally recognized asset/liability management consultancy, and we believe our interest rate risk position to be neutral as of December 31, 2021. Management believes the Company’s balance sheet is well-positioned for organic growth and potential acquisitions.

• Proven ability to grow. We have demonstrated an ability to grow our loans and deposits. For the four year period ended December 31, 2021, the Company’s compound annual growth rates in assets, loans, deposits and non-interest bearing deposits were 16.3%, 13.4%, 20.3% and 29.3%, respectively. Our team of professionals has been an important driver of our organic growth by developing banking relationships with current and potential customers. We believe our ability to recruit and retain talented, customer service-oriented professionals has been at the core of our growing and expanding banking relationships.

• Strong earnings. The Company reported net income of $7.5 million for the three months ended December 31, 2021, a 57.1% increase over the $4.8 million reported for the three months ended December 31, 2020. Fourth quarter 2021 earnings represented the Company’s twelfth consecutive quarter of record earnings. Annualized return on average assets (“ROAA”) was 1.41% and annualized return on average equity (“ROAE”) was 14.52% for the three months ended December 31, 2021. Annualized ROAA is calculated by dividing annualized fourth quarter reported net income by quarter-to-date average assets. Annualized ROAE is calculated by dividing annualized fourth quarter reported net income by quarter-to-date average equity. Earnings per diluted share for the three months ended December 31, 2021 were $0.54, a 54.3% increase over the $0.35 reported for the three months ended December 31, 2020. The Company reported net income of $25.5 million for the twelve months ended December 31, 2021, a 37.4% increase over the $18.5 million reported for the twelve months ended December 31, 2020. Our ROAA was 1.25% and ROAE was 12.90% for the twelve months ended December 31, 2021. Earnings per diluted share for the twelve months ended December 31, 2021 were $1.83, a 35.6% increase over the $1.35 reported for the twelve months ended December 31, 2020.

• Attractive markets. As of June 30, 2021, the most recent FDIC data available, the Washington, D.C. MSA had $279 billion in deposits. Owing in large part to the presence of the United States government, the unemployment rate in the Washington, D.C. MSA has consistently been lower than that of the country as a whole. The Washington, D.C. MSA has undergone a significant amount of bank consolidation in the past several decades. These mergers and acquisitions can disenfranchise customers as the decision makers and procedures of the selling institutions are made to conform to those of the acquiring institutions. This dislocation creates additional opportunities for the Company to develop new business relationships with dissatisfied customers and to hire experienced banking professionals.

Our Products and Services

We emphasize providing commercial banking services. Our dedicated relationship managers serve as direct points of contact for owners, management and employees of small and medium-sized businesses. We provide subject matter expertise in a variety of niche industries including charter and private schools, government contractors, health services, nonprofits and associations, professional services, property management companies, and title companies. We focus on customers living and working in and near our service area. We offer retail banking services to accommodate the needs of both corporate customers as well as individuals residing and working in the communities we serve. We also offer online banking, mobile banking and a remote deposit service, which allows customers to facilitate and expedite deposit transactions through the use of electronic devices. A sophisticated suite of treasury management products is a key feature of our customer focused, relationship driven marketing. We have partnered with experienced service providers in both insurance and merchant services to further augment the products available to our customers.

Lending Services

We provide a range of commercial lending services, including commercial real estate loans, residential and commercial construction and development loans, commercial and industrial loans, and residential mortgage loans to customers generally located or conducting business in our market area. Loan terms, including interest rates, loan-to-value ratios, and maturities, are tailored as much as possible to meet the needs of the borrower. A special effort is made to keep loan products as flexible as possible within the guidelines of prudent banking practices in terms of interest rate risk and credit risk.

When considering loan requests, the primary factors taken into consideration are the cash flow and financial condition of the borrower, the value of the underlying collateral, if applicable, and the character and integrity of the borrower. These factors are evaluated in a number of ways including an analysis of financial statements, credit reviews, trade reviews, and visits to the borrower’s place of business. We have implemented comprehensive loan policies and procedures to provide our loan officers with term, collateral, loan-to-value and pricing guidelines. The policy and sound credit analysis, together with independent, third-party loan review, have resulted in a profitable loan portfolio with minimal delinquencies or problem loans.

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Our aim is to build and maintain a commercial loan portfolio consisting of term loans, demand loans, lines of credit and commercial real estate loans provided to primarily locally-based borrowers. These types of loans are generally considered to have a higher degree of risk of default or loss than other types of loans, such as well underwritten, prime residential real estate loans, because repayment may be affected by general economic conditions, interest rates, the quality of management of the business and other factors which may cause a borrower to be unable to repay its obligations. Traditional installment loans and personal lines of credit are available on a selective basis. General economic conditions can directly affect the quality of a small and mid-sized business loan portfolio.

Loan business is generated primarily through direct-calling efforts and referrals. Referrals of loan business come from directors, current customers and professionals such as lawyers, accountants and financial intermediaries.

At December 31, 2021, the Bank’s statutory lending limit to any single borrower was approximately $37.9 million, subject to certain exceptions provided under applicable law. As of December 31, 2021, the Bank’s credit exposure to its largest borrower was $26.1 million.

Commercial Loans. Commercial loans are written for any prudent business purpose, including the financing of plant and equipment, the carrying of accounts receivable, contract administration, and the acquisition and construction of real estate projects. Special attention is paid to the commercial real estate market, which is particularly active in the Washington, D.C. MSA. The Bank’s commercial loan portfolio reflects a diverse group of borrowers with no concentration in any borrower, or group of borrowers.

The lending activities in which we engage carry the risk that the borrowers will be unable to perform on their obligations. As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in our primary market area, will have a significant impact on our results of operations. To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to the Bank in full, in a timely manner, resulting in decreased earnings or losses to the Bank. To the extent that loans are secured by real estate, adverse conditions in the real estate market may reduce the ability of the borrower to generate the necessary cash flow for repayment of the loan, and reduce our ability to collect the full amount of the loan upon a default. To the extent that the Bank makes fixed rate loans, general increases in interest rates will tend to reduce our spread as the interest rates we must pay for deposits increase while interest income is flat. Economic conditions and interest rates may also adversely affect the value of property pledged as security for loans.

We constantly strive to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of an economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include carefully enforcing loan policies and procedures, evaluating each borrower’s industry and business plan during the underwriting process, identifying and monitoring primary and alternative sources for repayment, and obtaining collateral that is margined to minimize loss in the event of liquidation.

Commercial real estate loans will generally be owner occupied or managed investment transactions with a principal reliance on the borrower’s ability to repay, as well as prudent guidelines for assessing real estate values. Risks inherent in managing a commercial real estate portfolio primarily relate to either sudden or gradual drops in property values as a result of a general or local economic downturn. A decline in real estate values can cause loan-to-value margins to increase and diminish the Bank’s equity cushion on both an individual and portfolio basis. The Bank attempts to mitigate commercial real estate lending risks by carefully underwriting each loan of this type to address the perceived risks in the individual transaction. Generally, the Bank requires a loan-to-value ratio of 75% of the lower of an appraisal or cost. A borrower’s ability to repay is carefully analyzed and policy generally calls for an ongoing cash flow to debt service requirement of 1.10:1.0. An approved list of commercial real estate appraisers selected on the basis of consistent standards has been established. Each appraisal is scrutinized in an effort to ensure current comparable market values.

As noted above, commercial real estate loans are generally made on owner occupied or managed investment properties where there is both a reliance on the borrower’s financial health and the ability of the borrower and the business to repay. The Bank generally requires personal guarantees on all commercial loans as a matter of policy; exceptions to policy are documented. Most borrowers are required to forward annual corporate, partnership and personal financial statements to comply with Bank policy and enforced through loan covenants. Interest rate risks to the Bank are mitigated by using either floating interest rates or by fixing rates, generally less than 10 years. While loan amortizations may be approved for up to 360 months, loans generally have a call provision (maturity date) of 10 years or less. Specific and non-specific provisions for loan loss reserves are generally set based upon a methodology developed by management and approved by the board of directors and described more fully under “Critical Accounting Policies and Estimates” in Item 2, Financial Information, of this registration statement. At December 31, 2021, approximately 20.7% of our loan portfolio related to owner occupied commercial real estate loans, and approximately 31.4% of our loan portfolio related to managed investment commercial real estate.

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Stress testing has become an important component of our organization, including oversight of commercial real estate loans. We have incorporated stress testing into our traditional risk management procedures, which examine the commercial real estate portfolio for expected losses, provision levels, criticized or classified loans, and loan concentrations. Our loan level stress tests are conducted quarterly and assess the impact to capital, if any, resulting from decreased collateral value or debt service coverage under various economic scenarios.

Construction and Development Loans. We offer fixed and adjustable rate residential and commercial construction loan financing to builders and developers and to consumers who wish to build their own home. The term of construction and development loans generally is limited to maximum of 24 months, although payments may be structured on a longer amortization basis. Most loans will mature and require payment in full upon the sale of the property. We believe that construction and development loans generally carry a higher degree of risk than long-term financing of stabilized, rented, and owner-occupied properties because repayment depends on the ultimate completion of the project and usually on the subsequent sale of the property. Specific risks include:

• cost overruns;

• mismanaged construction;

• inferior or improper construction techniques;

• economic changes or downturns during construction;

• a downturn in the real estate market;

• rising interest rates which may prevent sale of the property; and

• failure to sell or stabilize completed projects in a timely manner.

We attempt to reduce risk associated with construction and development loans by obtaining personal guaranties and by keeping the maximum loan-to-value ratio at or below 75% of the appraised value and maximum loan-to-cost ratio at or below 85%, depending on the project type. All construction loans are administered by a centralized department within the Bank that is comprised of experienced loan administrators that specialize in residential, commercial and consumer construction project oversight.   Further, all construction loans are loaded into, and managed on, a third party, nationally recognized construction loan administration platform, which is a fintech solution that provides a unique customer experience, consistency in loan administration, and risk management through portfolio monitoring, market/asset type/borrower concentration analysis, and disbursement efficiency.  Finally, the Bank works with highly sophisticated sponsors that are experienced, well capitalized, and positioned to manage through a downturn.  As of December 31, 2021, construction and development loans made up approximately 13.9% of our loan portfolio.

Commercial Term Loans. We provide funds for equipment and general corporate needs. This loan category is designed to support borrowers who have a proven ability to service debt over a term generally not to exceed 60 months. The Bank generally requires a first lien position on all collateral and guarantees from owners having at least a 20% interest in the involved business. Interest rates on commercial term loans are generally floating, or are fixed for a term not to exceed five years. Management carefully monitors industry and collateral concentrations to avoid loan exposures to a large group of similar industries and/or similar collateral. Commercial loans are evaluated for historical and projected cash flow attributes, balance sheet strength, and primary and alternate resources of personal guarantors. Commercial term loan documents require borrowers to forward regular financial information on both the business and on personal guarantors. Loan covenants require at least annual submission of complete financial information and in certain cases this information is required more frequently, depending on the degree to which the Bank requires information for monitoring a borrower’s financial condition and compliance with loan covenants. Collateral borrowing certificates may be required to monitor certain collateral categories on a monthly or quarterly basis. Key person life insurance is required as appropriate and as necessary to mitigate the risk of loss of a primary owner or manager.

Commercial Lines of Credit. We finance a business borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. In addition to the risks inherent in term loan facilities, line of credit borrowers typically require additional monitoring to protect the lender against increasing loan volumes and diminishing collateral values. Commercial lines of credit are generally revolving in nature and require close scrutiny. The Bank usually requires an annual out of debt period (for seasonal borrowers) or regular financial information (monthly or quarterly financial statements, borrowing base certificates, etc.) for borrowers with more growth and greater permanent working capital financing needs. Advances against collateral are generally in the same percentages as in term loan lending. Lines of credit and term loans to the same borrowers are typically cross-defaulted and cross-collateralized. Industry and collateral concentration, general and specific reserve allocation and risk rating disciplines are the same as those used in managing the commercial term loan portfolio. Interest rate charges on this group of loans generally float at a factor at or above the prime lending rate, subject in many cases to a minimum rate. Generally, personal guarantees are required on these loans.

Combined, commercial term loans and lines of credit represent approximately 7.4% of our loan portfolio as of December 31, 2021.

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Mortgage Lending. The Bank originates, funds and services non-conforming 1-4 family residential mortgage loans for its own portfolio. Such loans are generally made at no more than the lesser of 80% loan to collateral value or cost. Mortgage loans are underwritten with full documentation, including verification of income and assets. Although the mortgage loans the Bank originates often carry amortization periods of up to 30 years, interest rate risk is controlled through balloon payments or interest rate adjustments of generally six years or less. At December 31, 2021, Bank originated 1-4 residential mortgage loans represented 8.3% of our loan portfolio.

The Bank also purchases and services 5/1, 7/1 and 10/1 adjustable rate mortgages. These mortgages are made on primary residences within our market area and are subject to a strict, uniform set of underwriting criteria. Management views purchased mortgages as a managed risk means of diversifying our earning asset portfolio and achieving a yield, net of the amortized premium, superior to that which may be available in the fixed income market. At December 31, 2021, approximately 10.9% of our loan portfolio related to purchased mortgages.

Other Loans. Loans are considered for any worthwhile personal or business purpose on a case-by-case basis, such as the financing of equipment, receivables, contract administration expenses, and automobile financing. Consumer credit facilities are underwritten to focus on the borrower’s credit record, length of employment and cash flow to debt service. Car, residential real estate and similar loans generally require advances of the lesser of 80% loan to collateral value or cost.

Investment Activities

We manage our securities portfolio and cash to, in order of priority, ensure the safety and preservation of invested principal, maintain adequate liquidity and focus on yield and returns. Specific goals of our investment portfolio are as follows:

• provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition;

• serve as a means for diversification of our assets with respect to credit quality, maturity and other attributes;

• serve as a tool for modifying our interest rate risk profile pursuant to our established policies; and

• provide collateral to secure local governmental agency and business deposits.

The securities in which the Company may invest are subject to regulation and are limited to securities which are considered investment grade securities. Our investment portfolio is comprised primarily of U.S. Treasury bonds, U.S. government agency securities and mortgage-backed or collateralized mortgage obligation securities issued by government-sponsored entities, though we may hold other securities, such as municipal bonds, certificates of deposit and corporate debt securities.

Our investment policy is reviewed annually by our board of directors. The Company’s board of directors has delegated the responsibility of monitoring our investment activities to management consistent with the requirements of the Bank’s Asset Liability Management policy. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our Chief Financial Officer and Chief Executive Officer. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We also review our securities for potential other-than-temporary impairment at least quarterly.

Deposit Activities

Deposits sourced through our relationship managers and obtained through bank offices have traditionally been the principal source of the Bank’s funds for use in lending and for other general business purposes. In order to serve the needs of its customers, the Bank offers several types of deposit accounts including demand, NOW, money market and savings accounts as well as certificates of deposit. The Bank typically pays a competitive rate on the interest-bearing deposits. As a relationship-oriented organization, we seek to obtain deposit relationships with our loan customers. We offer a full range of consumer and commercial deposit products, including online banking with free bill pay, cash management with the means to detect and prevent fraud, sweep accounts, wire transfer, check imaging and remote deposit capture. Through our membership in the IntraFi Network®, we can arrange FDIC insurance of up to $150 million of transaction deposits, certificates of deposits or some combination of the two.

As the Bank’s overall balance sheet positions dictate, we may become more or less competitive in our interest rate structure as our liquidity position changes. Additionally, we may use wholesale or municipal deposits to augment our funding position or achieve a desired interest rate risk management position.

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Other Services

The Bank has an ownership interest in one of the nation’s largest privately-owned insurance agencies. Through this investment we are able to offer our customers a broad array of business and personal insurance. Also, through third- party networks, we offer our customers access credit and purchase card products.

Our technology products include, among other things, remote deposit capture, sophisticated online internet-based cash management systems, mobile banking, and deposit sweep services that allow businesses to earn interest on their excess funds. Typically, we provide our remote deposit capture hardware and software to our commercial customers free of charge, which provides current and potential customers with a convenient means to bank with us.

COVID-19 Pandemic

The outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on economic conditions and created uncertainty in financial markets worldwide. In March 2020, the Company began preparing for potential disruptions and government limitations on activity in our market area. We deployed our business continuity plan and were able to quickly execute on multiple initiatives to adjust our operations to protect the health and safety of our employees and customers. Currently, a significant portion of our workforce is working remotely without materially impacting our productivity while continuing to provide a high level of customer service. Since the beginning of the crisis, we have been in close contact with our customers, assessing the level of impact on their businesses, and providing relief programs according to each customer’s specific situation and qualifications. Currently, all eight of the Company’s branches and our loan production office remain open. We have enhanced awareness of digital banking offerings and limited the number of customers in branch offices and have taken steps to comply with various government directives regarding “social distancing,” as well as enhanced cleaning and disinfecting of surface areas to protect our customers and employees.

We believe that the extraordinary demands of the COVID-19 pandemic and U.S. government encouragement to extend additional loans provided us a unique opportunity to demonstrate our agility in assisting existing and new customers. As of December 31, 2021, we have provided approximately $229.2 million in loans under the PPP, created by the Coronavirus Aid, Relief and Economic Security Act, (“CARES Act”), passed in March 2020. We provided these loans to 730 customers, approximately 30% of which were new customers. Because of our relationship-based banking approach, the influx of new customers contributed to a corresponding increase in deposits during the year ended December 31, 2021.

In response to the COVID-19 pandemic, we had previously implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program’s qualifications. Initial modifications under the program were predominantly for 90 days. These types of loan modifications are no longer being granted. As of December 31, 2021, all loans that had previously been granted a short-term loan modification owing to COVID-19 had resumed making regularly scheduled payments and there were no ongoing temporary modifications.

We continue to monitor the impact of COVID-19 closely. In addition, we continue to monitor the effects that have resulted from legislative and regulatory developments related to COVID-19; however, the extent to which the COVID-19 pandemic could impact our operations and financial results during 2022 is uncertain.

Community Reinvestment Act

The Company is committed to serving the banking needs of the communities in which we are located, including low and moderate income areas, and is a supporter of the Community Reinvestment Act (“CRA”). There are several ways in which the Company attempts to fulfill this commitment, including funding no-fee checking accounts, free ATM usage worldwide, mortgage products subject to maximum income limit, small business loans, financing of affordable housing projects, and becoming involved with local groups that support community outreach programs.

The Company encourages its directors and officers to participate in community, civic and charitable organizations. Management and members of our board of directors periodically review the various CRA activities of the Company, including its credit granting process and its involvement with community leaders on a personal level.

Risk Management

We believe that effective risk management is of primary importance. Risk management refers to the activities by which we identify, measure, monitor, evaluate and manage the risks we face in the course of our banking activities. These include liquidity, interest rate, credit, operational, compliance, cybersecurity, regulatory, strategic, financial and reputational risk exposures. Our board of directors, both directly and through its committees, is responsible for overseeing our risk management processes, including quarterly enterprise risk management assessments and annual cyber, Bank Secrecy Act (“BSA”)/anti-money laundering and third-party risk assessments, with each of the committees of our board of directors assuming a different and important role in overseeing the management of the risks we face.

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The Audit Committee of our board of directors is responsible for overseeing risks associated with financial matters (particularly financial reporting, accounting practices and policies, disclosure controls and procedures and internal control over financial reporting). The Compensation Committee of our board of directors has primary responsibility for risks and exposures associated with our compensation policies, plans and practices, regarding both executive compensation and our compensation structure generally. In particular, our Compensation Committee, in conjunction with our President and Chief Executive Officer, as appropriate, reviews our incentive compensation arrangements to ensure these programs are consistent with applicable laws and regulations, including safety and soundness requirements, and do not encourage imprudent or excessive risk-taking by our employees. The Nominating Committee of our board of directors oversees risks associated with the independence of our board of directors and potential conflicts of interest.

Our senior management is responsible for implementing our risk management processes, including by assessing and managing the risks we face, including strategic, operational, regulatory, investment and execution risks, on a day-to-day basis, and reporting to our board of directors regarding our risk management processes. Our senior management is also responsible for creating and recommending to our board of directors for approval appropriate risk appetite metrics reflecting the aggregate levels and types of risk we are willing to accept in connection with the operation of our business and pursuit of our business objectives.

The role of our board of directors in our risk oversight is consistent with our leadership structure, with our President and Chief Executive Officer, Chief Operating Officer and Chief Risk Officer, Chief Financial Officer and the other members of senior management having responsibility for assessing and managing our risk exposure, and our board of directors and its committees providing oversight in connection with those efforts. We believe this division of risk management responsibilities presents a consistent, systemic and effective approach for identifying, managing and mitigating risks throughout our operations.

We believe a disciplined and conservative underwriting approach has been the key to our strong asset quality. Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms and the risk that credit assets will suffer significant deterioration in market value. We manage and control credit risk in our loan portfolio by adhering to well-defined underwriting criteria and account administration standards established by management, and approved by the board of directors. Our written loan policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification is actively managed to mitigate concentration risk. In addition, credit risk management includes an independent credit review process that assesses compliance with policies, risk rating standards and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history. Our management and board of directors place significant focus on maintaining a healthy risk profile and ensuring sustainable growth. Our risk appetite seeks to balance the risks necessary to achieve our strategic goals while ensuring that our risks are appropriately managed and remain within our defined limits.

Our management of interest rate and liquidity risk is overseen by our Asset and Liability Committee, based on a risk management infrastructure approved by our board of directors that outlines reporting and measurement requirements. In particular, this infrastructure reviews financial performance, trends and significant variances to budget; reviews and recommends for board approval risk limits and tolerances; reviews ongoing monitoring and reporting regarding our performance with respect to these areas of risk, including compliance with board-approved risk limits and stress-testing; ensures annual back-testing and independent validation of models at a frequency commensurate with risk level; reviews and recommends our contingency funding plan; establishes wholesale borrowing limits to be submitted to the board of directors; and reviews information and reports submitted for the purpose of identifying, investigating, and assuring remediation, to its satisfaction, of errors or irregularities, if any.

Emerging Growth Company Status

We qualify as an “emerging growth company” under the JOBS Act and as defined in Section 2(a) of the Securities Act. For as long as we are an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies.

As an emerging growth company:

• we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations, in contrast to other reporting companies which must provide audited financial statements for three fiscal years;

• we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002;

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• we are permitted to provide less extensive disclosure about our executive compensation arrangements; and

• we are permitted to include less extensive narrative disclosures than required of other reporting companies, including with respect to executive compensation.

In this registration statement we have elected to take advantage of the reduced disclosure requirements relating to executive compensation, and in the future we may take advantage of any or all of these exemptions for so long as we remain an emerging growth company. We could remain an emerging growth company for up to five years, or until the earliest of (i) the end of the first fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iii) the date on which we are deemed to be a “large accelerated filer” as defined in Exchange Act Rule 12b-2.

In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected not to take advantage of this extended transition period, which means that the financial statements included in this registration statement, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies.

See Item 1A, Risk Factors, of this registration statement for more information on emerging growth companies.

Nasdaq Listing Application

We have applied for approval to list the shares of our common stock on the Nasdaq Capital Market under our current trading symbol “JMSB.”

Employees

As of December 31, 2021, we had 138 full-time employees and 2 part-time employees. None of our employees is covered by a collective bargaining agreement. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.

We provide a competitive compensation and benefits program to our employees. In addition to salaries, these programs include annual bonus opportunities, a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, profit sharing, flexible spending accounts, paid time off and an employee assistance program.

General Corporate Information

Our principal executive offices are located at 1943 Isaac Newton Square, Suite 100, Reston, Virginia 20190 and our telephone number at that address is (703) 584-0840. Additional information can be found on our website: www.johnmarshallbank.com. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this registration statement.

Public Information

After this registration statement becomes effective, we will file annual, quarterly and current reports, proxy statements and other documents with the SEC. Our SEC filings will be available to the public on the SEC’s Internet site at http://www.sec.gov. You may also obtain these documents, free of charge, from the investor relations section of our website at http://www.johnmarshallbank.com.

Supervision and Regulation

The Company and the Bank are highly regulated under both federal and state laws. The following description briefly addresses certain provisions of federal and state laws and regulations, and their potential effects on the Company and the Bank. To the extent statutory or regulatory provisions or proposals are described in this registration statement, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals.

The Company

General. As a bank holding company registered under the Bank Holding Company Act of 1956 (the “BHCA”), the Company is subject to supervision, regulation and examination by the Federal Reserve. The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation and examination by the Virginia BFI.

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Permitted Activities. The permitted activities of a bank holding company are limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be closely related to banking or managing or controlling banks. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company may result from such an activity.

Banking Acquisitions; Changes in Control. The BHCA and related regulations require, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company. In determining whether to approve a proposed bank acquisition, the Federal Reserve will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, any outstanding regulatory compliance issues of any institution that is a party to the transaction, the projected capital ratios and levels on a post-acquisition basis, the financial condition of each institution that is a party to the transaction and of the combined institution after the transaction, the parties’ managerial resources and risk management and governance processes and systems, the parties’ compliance with the BSA and anti-money laundering requirements, and the acquiring institution’s performance under the Community Reinvestment Act of 1977 and compliance with fair housing and other consumer protection laws.

Subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company’s acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered its securities with the SEC under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the acquisition.

In addition, Virginia law requires prior approval from the Virginia BFI for (i) the acquisition by a Virginia bank holding company of more than 5% of the voting shares of a Virginia bank or any holding company that controls a Virginia bank, or (ii) the acquisition by a Virginia bank holding company of a bank or its holding company domiciled outside Virginia.

Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Safety and Soundness. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance fund in the event of a depository institution insolvency, receivership, or default. For example, under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

Under the Federal Deposit Insurance Act (“FDIA”), federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to capital management, internal controls and information systems, data security, loan documentation, credit underwriting, interest rate exposure, risk management, vendor management, corporate governance, asset growth, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.

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Capital Requirements. Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements. Certain capital requirements applicable to the Bank are described below under “The Bank – Capital Requirements.” Subject to capital requirements and certain other restrictions, the Company is able to borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid by the Bank to the Company.

Limits on Dividends and Other Payments. The Company is a legal entity, separate and distinct from its subsidiary. A significant portion of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company and to the payment of dividends by the Company to its shareholders. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Company. Under current regulations, prior approval from the Federal Reserve is required if cash dividends declared by the Bank in any given year exceed net income for that year plus retained net profits of the two preceding years. The payment of dividends by the Bank or the Company may be limited by other factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit the Bank and the Company from engaging in unsafe or unsound practices in conducting their respective businesses. The payment of dividends, depending on the financial condition of the Bank or the Company, could be deemed to constitute such an unsafe or unsound practice.

Under the FDIA, insured depository institutions, such as the Bank, are prohibited from making capital distributions, including the payment of dividends, if after making such distributions the institution would become “undercapitalized” (as such term is used in the statute). Any non-bank subsidiaries of the Company may pay dividends to the Company periodically, subject to certain statutory restrictions.

The Company may receive fees from or pay fees to its affiliated companies for expenses incurred related to certain activities performed by or for the Company for the benefit of its affiliated companies or for its benefit. These fees are charged to/received from each affiliated company based upon various specific allocation methods measuring the estimated usage of such services by that company. The fees are eliminated from reported financial statements in the consolidation process.

The Bank

General. The Bank is supervised and regularly examined by the Federal Reserve and the Virginia BFI. The various laws and regulations administered by the bank regulatory agencies affect corporate practices, such as the payment of dividends, incurrence of debt, and the acquisition of financial institutions and other companies. These laws and regulations also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, credit policies, the types of business conducted, and the location of offices. Certain of these laws and regulations are referenced above under “The Company.”

Capital Requirements. The Federal Reserve and the other federal banking agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. Those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.

The Federal Reserve has adopted final rules regarding capital requirements and calculations of risk-weighted assets to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. These rules require the Bank to comply with the following minimum capital ratios: (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of 4.5%, plus a 2.5% capital conservation buffer, resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of 7.0%, (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the 2.5% capital conservation buffer, resulting in a minimum Tier 1 capital ratio of 8.5%, (iii) a minimum ratio of total risk-based capital to risk-weighted assets of 8.0%, plus the 2.5% capital conservation buffer, resulting in a minimum total risk-based capital ratio of 10.5%, and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets. The capital conservation buffer, which was phased in ratably over a four year period beginning January 1, 2016, is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and discretionary compensation paid to certain officers, based on the amount of the shortfall. As of December 31, 2021 and 2020, the capital ratios of the Bank were in excess of the fully phased-in requirements.

As discussed below, the Basel III capital reforms also integrated the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA. The Federal Reserve’s final rules (i) introduced a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well capitalized status, (ii) increased the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well capitalized status being 8.0%, and (iii) eliminated the provision that provided that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well capitalized. The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well capitalized status were unchanged by the final rules.

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In December 2017, the Basel Committee on Banking Supervision published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV on the Company and the Bank will depend on the manner in which the standards are implemented by the federal bank regulatory agencies.

As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act, on November 4, 2019, the federal banking agencies jointly issued a final rule that permits qualifying banks that have less than $10 billion in total consolidated assets to elect to be subject to a 9% “community bank leverage ratio” (“CBLR”). Under this rule, which became effective January 1, 2020, a qualifying bank that has chosen the proposed framework would not be required to calculate the existing risk-based and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well capitalized” under prompt corrective action rules provided it has a CBLR greater than 9%. The CBLR rules were modified in response to the COVID-19 pandemic. See “– Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021” below. The Bank has not yet opted into the CBLR framework.

In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires financial institutions to estimate and establish an allowance for credit losses using a current expected credit loss (“CECL”) model. The CECL model will estimate credit losses over the lifetime of our financial assets measured at amortized cost at the date of origination or acquisition, as opposed to reserving for incurred or probable losses through the balance sheet date. The Company will be required to implement ASU 2016-13 on January 1, 2023, and upon implementation, will recognize a one-time cumulative effect adjustment to the allowance through retained earnings as a result of applying this ASU. The Federal Reserve and FDIC have adopted a rule providing for an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard. See “Item 2. Financial Information” of this Form 10 for further information regarding the expected impact of the implementation of CECL on the Company’s regulatory capital.

Prompt Corrective Action. Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their capital requirements. The federal bank regulatory agencies have additional enforcement authority with respect to undercapitalized depository institutions. As described above, the final rules to implement the Basel III regulatory capital framework also integrated new requirements into the prompt corrective action framework. “Well capitalized” institutions may generally operate without additional supervisory restriction. With respect to “adequately capitalized” institutions, such banks cannot normally pay dividends or make any capital contributions that would leave the bank undercapitalized; they cannot pay a management fee to a controlling person if after paying the fee, it would be undercapitalized; and they cannot accept, renew, or rollover any brokered deposit unless the bank has applied for and been granted a waiver by the FDIC.

Immediately upon becoming “undercapitalized,” a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the Deposit Insurance Fund of the FDIC (“DIF”), subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of being “well capitalized” as of December 31, 2021 and 2020.

Deposit Insurance. The deposits of the Bank are insured up to applicable limits by the DIF. The basic limit on FDIC deposit insurance coverage is $250,000 per depositor. Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations as an insured depository institution, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes.

The Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance pricing is based on CAMELS composite ratings and certain other financial ratios to determine assessment rates for small-established institutions with less than $10 billion in assets. The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity, and sensitivity to market risk (“CAMELS”). CAMELS composite ratings set a maximum insurance assessment for CAMELS 1 and 2 rated banks and set minimum assessments for lower rated institutions.

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In March 2016, the FDIC implemented by final rule certain Dodd-Frank Act provisions by raising the DIF’s minimum reserve ratio from 1.15% to 1.35%. The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions with total consolidated assets of $10 billion or more. The rule granted credits to smaller banks for the portion of their regular assessments that contributed to increasing the reserve ratio from 1.15% to 1.35%. For the years ended December 31, 2021 and 2020, the Company recorded expense of $887 thousand and $681 thousand, respectively, for FDIC insurance premiums.

Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of the Bank to engage in transactions with related parties or “affiliates,” or to make loans to insiders, is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between the Bank and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to the Bank, as those prevailing for comparable nonaffiliated transactions. In addition, the Bank generally may not purchase securities issued or underwritten by affiliates.

Loans to executive officers, directors, or to any person who directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10% of any class of voting securities of a bank are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act, relating to the prohibition on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the bank’s unimpaired capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act identifies limited circumstances in which a bank is permitted to extend credit to executive officers.

Community Reinvestment Act. The Bank is subject to the requirements of the Community Reinvestment Act of 1977. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities they serve, including low and moderate income neighborhoods. The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting such credit needs. Furthermore, such assessment is also required of banks that have applied, among other things, to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch. In the case of a bank holding company applying for approval to acquire a bank or another bank holding company, the record of each subsidiary bank of the applicant bank holding company is subject to assessment in considering the application. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank received a “satisfactory” CRA rating in its most recent examination.

Privacy Legislation. Several laws, including the Right to Financial Privacy Act and the Gramm-Leach-Bliley Act (“GLB Act”), and related regulations issued by the federal bank regulatory agencies, provide protections against the transfer and use of customer information by financial institutions. A financial institution must provide its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice to and approval from the customer.

Anti-Money Laundering Laws and Regulations. The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”). This category of laws includes the BSA, the Money Laundering Control Act of 1986, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), and the Anti-Money Laundering Act of 2020.

The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Bank has implemented appropriate internal practices, procedures, and controls.

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Reporting Terrorist Activities. The Office of Foreign Assets Control (“OFAC”), which is a division of the Department of the Treasury, is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various executive orders and acts of Congress. OFAC has sent, and will send, our bank regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the Federal Bureau of Investigation. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons. 

Consumer Financial Protection. The Bank is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. If the Bank fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition transactions the Bank may wish to pursue or being prohibited from engaging in such transactions even if approval is not required.

The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (the “CFPB”), and giving it responsibility for implementing, examining, and enforcing compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-depository companies that offer one or more consumer financial products or services. The CFPB is responsible for implementing, examining, and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets. While the Bank, like all banks, is subject to federal consumer protection rules enacted by the CFPB, because the Company and the Bank have total consolidated assets of less than $10 billion, the Federal Reserve oversees most consumer protection aspects of the Dodd-Frank Act and other laws and regulations applicable to the Bank.

The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction. Further regulatory positions taken by the CFPB may influence how other regulatory agencies may apply the subject consumer financial protection laws and regulations.

Cybersecurity. The federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services. The federal bank regulatory agencies expect financial institutions to establish lines of defense and to ensure that their risk management processes address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution’s operations after a cyberattack. If the Company or the Bank fails to meet the expectations set forth in this regulatory guidance, the Company or the Bank could be subject to various regulatory actions and any remediation efforts may require significant resources of the Company or the Bank.

On November 18, 2021, the federal bank regulatory agencies issued a final rule, effective April 1, 2022, imposing new notification requirements for cybersecurity incidents. The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.

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To date, neither the Company nor the Bank has experienced a significant compromise, significant data loss, or material financial losses related to cybersecurity attacks, but its systems and those of its customers and third-party service providers are under constant threat, and it is possible that the Company or the Bank could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking, and other technology-based products and services by the Company and the Bank and its customers. 

Incentive Compensation. The federal bank regulatory agencies have issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company and the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the institution’s safety and soundness, and the financial institution is not taking prompt and effective measures to correct the deficiencies. At December 31, 2021, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.

Mortgage Banking Regulation. In connection with making mortgage loans, the Bank is subject to rules and regulations that, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers, in some cases restrict certain loan features and fix maximum interest rates and fees, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level. The Bank is also subject to rules and regulations that require the collection and reporting of significant amounts of information with respect to mortgage loans and borrowers. The Bank’s mortgage origination activities are subject to Regulation Z, which implements the Truth in Lending Act. Certain provisions of Regulation Z require creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms.

Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021. In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was signed into law on December 27, 2020. Among other things, the CARES Act and Appropriations Act include the following provisions impacting financial institutions:

·  Community Bank Leverage Ratio. The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or December 31, 2020. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provided that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provided a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It established a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. As of December 31, 2021, the Bank was a qualifying community banking organization, but elected not to measure capital adequacy under the CBLR framework.

·  Temporary Troubled Debt Restructurings Relief. The CARES Act allowed banks to elect to suspend requirements under U.S. generally accepted accounting principles (“GAAP”) for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a troubled debt restructuring, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. Federal banking agencies are required to defer to the determination of the banks making such suspension. The Appropriations Act extended this temporary relief until January 1, 2022. The Company did not have any COVID-19 pandemic loan modifications as of December 31, 2021 or December 31, 2020.

·  Small Business Administration Paycheck Protection Program. The CARES Act created the SBA’s PPP and it was extended by the Appropriations Act. Under the PPP, money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans were provided through participating financial institutions, such as the Bank, that processed loan applications and service the loans.

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Effect of Governmental Monetary Policies

The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates money and credit conditions and interest rates to influence general economic conditions. These policies have a significant effect on overall growth and distribution of loans, investments, and deposits, and they affect interest rates charged on loans or paid for deposits. Federal Reserve monetary policies have had significant effects on the operating results of commercial banks, including the Bank, in the past and are expected to do so in the future.

Future Legislation and Regulation

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or effect of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could affect the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategies, and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations, or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition, and results of operations of the Company and the Bank.

Reporting Obligations under Securities Laws

Upon the effectiveness of this registration statement, the Company will be subject to the periodic and other reporting requirements of the Exchange Act, including the filing of annual, quarterly, and other reports with the SEC. The Company’s SEC filings will be posted and available at no cost on its website as soon as reasonably practicable after the reports are filed electronically with the SEC. The Company’s website address is www.johnmarshallbank.com. The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

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Item 1A. Risk Factors

An investment in our common stock involves risks and uncertainties. In addition to the other information set forth in this registration statement, including the information addressed under “Cautionary Note Regarding Forward-Looking Statements,” investors in our common stock should carefully consider the factors discussed below. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations, and capital position and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this registration statement, in which case the trading price of our common stock could decline. The Risk Factor Summary that follows should be read in conjunction with the detailed description of risk factors below.

Risk Factor Summary

o Risks Related to the COVID-19 Pandemic

· The ongoing global COVID-19 pandemic could harm our business and results of operations.

o Risks Related to Our Lending Activities

· We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability.

· Our allowance for loan losses may be inadequate to absorb probable losses inherent in the loan portfolio.

· If our non-performing assets increase, our earnings will be adversely affected.

· Our focus on lending to small to medium-sized businesses may increase our credit risk.

· Adverse changes in the real estate market or economy in the Washington, D.C. metropolitan area could adversely affect our earnings and financial condition.

· We are exposed to higher credit risk by commercial real estate, commercial and industrial and construction and development-based lending as well as large lending relationships.

· We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with that ownership.

· A significant percentage of our loans are attributable to a relatively small number of borrowers.

· Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.

· As a participating lender in the SBA’s PPP, we are subject to added risks, including credit, fraud, and litigation risks.

· The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property and other real estate owned may not accurately reflect the net value of the asset.

o Risks Related to Funding and Liquidity

· Our deposit portfolio includes significant concentrations.

· Limits on our ability to use brokered deposits as part of our funding strategy may adversely affect our ability to grow.

· Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.

o Risks Related to Our Business, Industry and Markets

· We operate in a highly competitive market and face increasing competition.

· Failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability.

· We follow a relationship-based operating model and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

· We are dependent on our management team and key employees.

· Interest rate shifts may reduce net interest income and otherwise negatively impact our business.

· Monetary policies and regulations of the Federal Reserve could have an adverse effect on our business.

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o Risks Related to Our Operations

· We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

· System failure or breaches of our network security, including as a result of cyber-attacks or data security breaches, could subject us to increased operating costs, litigation and other liabilities.

· We are dependent on the use of data and modeling in both our management’s decision-making generally and in meeting regulatory expectations in particular.

· We rely on third parties to provide key components of our business infrastructure.

· We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.

· We may be adversely affected by the lack of soundness of other financial institutions or market utilities.

· Our risk management framework may not be effective in mitigating risks and/or losses to us.

· We depend on the accuracy and completeness of information provided by customers and counterparties.

· The requirements of being a public company may strain our resources and divert management’s attention.

· Changes in accounting standards could materially impact our financial statements.

· The fair value of our investment securities can fluctuate due to factors outside of our control.

o Risks Related to Our Regulatory Environment

· Our industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.

· We are subject to stringent capital requirements, which could have an adverse effect on our operations.

· We face a risk of noncompliance and enforcement action with the BSA and other anti-money laundering statutes and regulations.

· We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or other incident could adversely affect our business.

· Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention.

· The expected replacement or discontinuation of the London Interbank Bank Offered Rate (“LIBOR”) and a transition to an alternative reference interest rate could present operational problems and result in market disruption.

· Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.

o Risks Related to an Investment in Our Common Stock

· Our common stock currently has a limited trading market and is thinly traded, which may limit the ability of shareholders to sell their shares and may increase price volatility.

· We currently qualify as an “emerging growth company” and a “smaller reporting company,” which may make our common stock less attractive to investors.

· The obligations associated with being a public company will require significant resources and management attention, which may divert from our business operations.

· If we fail to design, implement and maintain effective internal control over financial reporting or remediate any future material weakness in our internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

· We have no current plans to pay cash dividends.

· We may issue additional equity securities, or engage in other transactions, which could affect the priority of our common stock, which may adversely affect the market price of our common stock.

· Our common stock is subordinate to our existing and future indebtedness.

· Our corporate governance documents, and corporate and banking laws applicable to us, could make a takeover more difficult and adversely affect the market price of our common stock.

· An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.

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Risks Related to the COVID-19 Pandemic

The ongoing global COVID-19 pandemic could harm our business and results of operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the pandemic, it is difficult to predict the impact of COVID-19 on our business and on our customers, and there is no guarantee that our efforts to address the adverse impacts of COVID-19 will be effective. Global health concerns relating to COVID-19 and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility, if it continues, could have an adverse impact on our customers, our borrowers and on our business, financial condition and results of operations. We may also incur additional costs to remedy damages caused by business disruptions.

Additionally, actions by U.S. federal, state and foreign governments to address the pandemic may also have a significant adverse effect on the markets in which we conduct our business. The extent of impacts resulting from the COVID-19 pandemic and other events beyond our control and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the pandemic and actions taken to contain COVID-19 or its impact, among others.

Risks Related to Our Lending Activities

We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability.

Our business depends on our ability to successfully measure and manage credit risk. As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are exposed to risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual loans and borrowers. The creditworthiness of a borrower is affected by many factors, including local market conditions and general economic conditions. Many of our loans are made to small to medium-sized businesses that are less able to withstand competitive, economic and financial pressures than larger borrowers. If the overall economic climate in the United States, generally, or in our market specifically, experiences material disruption, particularly due to the continuing effects of the COVID-19 pandemic, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for loan losses. Additional factors related to the credit quality of multifamily residential, real estate construction and other commercial real estate loans include the quality of management of the business and tenant vacancy rates.

Our risk management practices, such as monitoring the concentration of our loans within specific markets and our credit approval, review and administrative practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations.

Our allowance for loan losses may be inadequate to absorb probable losses inherent in the loan portfolio.

Experience in the banking industry indicates that a portion of our loans will become delinquent, and that some may only be partially repaid or may never be repaid at all. We may experience losses for reasons beyond our control, such as the impact of general economic conditions on customers and their businesses. Accordingly, we maintain an allowance for loan losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio. In determining the size of our allowance for loan losses, we rely on an analysis of our loan portfolio considering historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and nonaccruals, economic conditions and other pertinent information. The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us to use significant judgment to estimate the level of credit risk and probable losses of the institution based on an evaluation the factors and circumstances that exist as of the applicable measurement date, all of which may change materially. Although we endeavor to maintain our allowance for loan losses at a level adequate to absorb any inherent losses in the loan portfolio, these estimates of loan losses are necessarily subjective and their accuracy depends on the outcome of future events. As of December 31, 2021, the allowance for loan losses was $20.0 million or 1.20% of total loans, net of unearned income.

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Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring loan losses in excess of our current allowance for loan losses, requiring us to make material additions to our allowance for loan losses, which could have an adverse effect on our business, financial condition and results of operations.

Additionally, federal and state banking regulators, as an integral part of their supervisory function, periodically review the allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours. If we need to make significant and unanticipated increases in the loss allowance in the future, or to take additional charge-offs for which we have not established adequate reserves, our business, financial condition and results of operations could be adversely affected at that time.

Finally, FASB has issued a new accounting standard that will replace the current approach under GAAP, for establishing our allowance for loan losses, which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired. This standard, referred to as the Current Expected Credit Loss standard will be effective for us on January 1, 2023. The CECL standard will require us to record, at the time of origination, credit losses expected throughout the life of our loans and held-to-maturity securities, as opposed to the current practice of recording losses when it is probable that a loss event has occurred.

If our non-performing assets increase, our earnings will be adversely affected.

At December 31, 2021, we had no non-performing assets. Non-performing assets consist of non-accrual loans, loans 90 days or more past due and still accruing interest, and other real estate owned. Non-performing assets held by the Company will adversely affect our net income in various ways:

· we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned;

· we must provide for probable loan losses through a current period charge to the provision for loan losses;

· non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values;

· there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and

· the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity. ​

If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase, which could have a material adverse effect on our financial condition and results of operations.

Our focus on lending to small to medium-sized businesses may increase our credit risk.

We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility in operating results, any of which may impair their ability as a borrower to repay a loan. These factors may be especially true given the effects of the COVID-19 pandemic. If general economic conditions in the markets in which we operate negatively impact this customer segment, our results of operations and financial condition and the value of our common stock may be adversely affected. Moreover, a portion of these loans have been made by us in recent years and the borrowers may not have experienced a complete business or economic cycle. The deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations.

A substantial portion of our loans are and will continue to be real estate related loans in the Washington, D.C. metropolitan area. Adverse changes in the real estate market or economy in this area could lead to higher levels of problem loans and charge-offs, adversely affecting our earnings and financial condition.

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We make loans primarily to borrowers in the Washington, D.C. MSA, focusing on the Virginia counties of Arlington, Fairfax, Loudoun and Prince William and the independent cities located within those counties, and Washington D.C. and its Maryland suburbs, and have a substantial portion of our loans secured by real estate. These concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in such areas, or the continuation of such adverse developments, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and deposit growth. In that event, we would likely experience lower earnings or losses. Additionally, if economic conditions in the area deteriorate, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, our provision for loan losses may increase, the value of collateral may decline and loan demand may be reduced.

We are exposed to higher credit risk by commercial real estate, commercial and industrial and construction and development-based lending as well as relationship exposure with a number of large borrowers.

Commercial real estate, commercial and industrial and construction and development based lending usually involve higher credit risks than 1-4 family residential real estate lending. As of December 31, 2021, the following loan types accounted for the stated percentages of our loan portfolio: commercial real estate (both owner-occupied and non-owner occupied) -  52.1%; commercial and industrial -  7.4%; and construction and land -  13.9%. These types of loans also involve larger loan balances to a single borrower or groups of related borrowers. These higher credit risks are further heightened when the loans are concentrated in a small number of larger borrowers leading to relationship exposure. As of December 31, 2021, we had 28 relationships with over $10 million of outstanding borrowings with us. While we are not dependent on any of these relationships and while none of these large relationships have directly impacted our allowance for loan losses, a deterioration of any of these large credits could require us to increase our allowance for loan losses or result in significant losses to us.

Non-owner occupied commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, in addition to the factors affecting residential real estate borrowers. These loans also involve greater risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or sell the underlying property in a timely manner.

Commercial and industrial loans and owner-occupied commercial real estate loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the assets securing the loans have the following characteristics: (i) they depreciate over time, (ii) they are difficult to appraise and liquidate, and (iii) they fluctuate in value based on the success of the business.

Real estate construction and development loan lending involves additional risks because funds are advanced based on the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.

Additionally, commercial real estate loans, commercial and industrial loans and construction and development loans are more susceptible to a risk of loss during a downturn in the business cycle. Our underwriting, review and monitoring cannot eliminate all of the risks related to these loans.

We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to the costs and potential risks associated with the ownership of real property, or consumer protection initiatives or changes in state or federal law may substantially raise the cost of foreclosure or prevent us from foreclosing at all.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a foreclosure depends on factors outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liabilities, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, our ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters. Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or write-downs in the value of other real estate owned (“OREO”) could have an adverse effect on our business, financial condition and results of operations. The Company did not have any OREO as of December 31, 2021.

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Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and expenses associated with the foreclosure process or prevent us from foreclosing at all. A number of states in recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and expensive for lenders to foreclose on properties in default. Additionally, federal and state regulators have prosecuted or pursued enforcement action against a number of mortgage servicing companies for alleged consumer law violations. If new federal or state laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers to foreclosure, they could have an adverse effect on our business, financial condition and results of operations.

A significant percentage of our loans are attributable to a relatively small number of borrowers.

Our 10 largest borrowing relationships accounted for approximately 11.1% of our loans at December 31, 2021. Our largest single borrowing relationship accounted for approximately 1.5% of our loans at December 31, 2021. The loss of any combination of these borrowers, or a significant decline in their borrowings due to fluctuations related to their business needs, could adversely affect our results of operations if we are unable to replace their borrowings with similarly priced new loans or investments. In addition, with this concentration of credit risk among a limited number of borrowers, we may face a greater risk of material credits losses if any one or several of these borrowers fail to perform in accordance with their loans, compared to a bank with a more diversified loan portfolio.

Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.

As a result of our organic growth over the past several years, as of December 31, 2021, approximately $1.07 billion, or 64.5%, of the loans in our loan portfolio were first originated during the past three years. The average age by loan type for loans originated in the past three years is: commercial real estate loans—1.37 years; commercial and industrial loans—1.16 years; commercial construction loans—0.83 years; and consumer residential loans—1.33 years. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Therefore, the recent and current level of delinquencies and defaults may not represent the level that may prevail as the portfolio becomes more seasoned and may not serve as a reliable basis for predicting the health and nature of our loan portfolio, including net charge-offs and the ratio of nonperforming assets in the future. Our limited experience with these loans may not provide us with a significant history with which to judge future collectability or performance. However, we believe that our stringent credit underwriting process, our ongoing credit review processes, and our history of successful management of our loan portfolio, mitigate these risks. Nevertheless, if delinquencies and defaults increase, we may be required to increase our provision for loan losses, which could have a material adverse effect on our business, financial condition and results of operations.

As a participating lender in the SBA’s PPP, we are subject to added risks, including credit, fraud, and litigation risks.

In April 2020, we began processing loan applications under the PPP as an eligible lender with the benefit of a government guarantee of loans to small business clients, many of whom may face difficulties even after being granted such a loan. As a participant in the PPP, we face increased risks, particularly in terms of credit, fraud and litigation risks. The PPP opened to borrower applications shortly after the enactment of its authorizing legislation, and, as a result, there was some ambiguity in the laws, rules and guidance regarding the program’s operation. Subsequent rounds of legislation and associated agency guidance have not provided needed clarity and in certain instances have potentially created additional inconsistencies and ambiguities. Accordingly, we are exposed to risks relating to compliance with PPP requirements, including the risk of becoming the subject of governmental investigations, enforcement actions, private litigation and negative publicity.

We have additional credit risk with respect to PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guarantee or, if it has already paid under the guarantee, seek recovery of any loss related to the deficiency from the Bank.

Also, PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven. If PPP borrowers fail to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.

Furthermore, since the launch of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be exposed to the risk of litigation, from both customers and non-customers that approached us regarding PPP loans, relating to these or other matters. Also, many financial institutions throughout the country have been named in putative class actions regarding the alleged nonpayment of fees that may be due to certain agents who facilitated PPP loan applications. The costs and effects of potential litigation related to PPP participation could have an adverse effect on our business, financial condition and results of operations.

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As of December 31, 2021, the Company had 361 PPP loans with outstanding balances totaling $67.7 million, net of deferred costs and fees.

The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property and other real estate owned may not accurately reflect the net value of the asset.

In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may change significantly in value in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately reflect the net value of the collateral after the loan is made. As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals and other valuation techniques to establish the value of OREO that we acquire through foreclosure proceedings and to determine loan impairments. If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, if any, and our allowance for loan losses may not reflect accurate loan impairments. Inaccurate valuation of OREO or inaccurate provisioning for loan losses could have an adverse effect on our business, financial condition and results of operations. The Company did not have any OREO as of December 31, 2021.

Risks Related to Funding and Liquidity

Our deposit portfolio includes significant concentrations and a large percentage of our deposits are attributable to a relatively small number of customers.

We rely on a small number of large deposit customers, including high-average balance municipal deposits, as a source of funds. Our 10 largest depositor relationships accounted for approximately 17.4% of our deposits at December 31, 2021. Our largest depositor relationship accounted for approximately 3.2% of our deposits at December 31, 2021. These deposits can and do fluctuate substantially. The loss of any combination of these depositors, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ operations, could adversely affect our liquidity and require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits. Depending on the interest rate environment and competitive factors, low cost deposits may need to be replaced with higher cost funding, resulting in a decrease in net interest income and net income.

Limits on our ability to use brokered deposits as part of our funding strategy may adversely affect our ability to grow.

A “brokered deposit” is any deposit that is obtained from, or through the mediation or assistance of, a deposit broker. These deposit brokers attract deposits from individuals and companies throughout the country and internationally whose deposit decisions are based almost exclusively on obtaining the highest interest rates. Recently enacted legislation excludes reciprocal deposits of up to the lesser of $5 billion or 20.0% of an institution’s deposits from the definition of brokered deposits, where the institution is well capitalized and has a composite supervisory rating of 1 or 2. We have used brokered deposits in the past, and we intend to continue to use brokered deposits as one of our funding sources to support future growth. We have established a brokered deposit to total deposit tolerance ratio of 15.0%. As of December 31, 2021, brokered deposits represented approximately 11.6% of our total deposits. Reciprocal deposits represented an additional 14.4% of total deposits at December 31, 2021. Currently, our brokered deposits have a comparable deposit cost to our core deposits.

There are risks associated with using brokered deposits. In order to continue to maintain our level of brokered deposits, we may be forced to pay higher interest rates than those contemplated by our asset-liability pricing strategy which could have an adverse effect on our net interest margin. In addition, banks that become less than “well capitalized” under applicable regulatory capital requirements may be restricted in their ability to accept or renew, or prohibited from accepting or renewing, brokered deposits. If this funding source becomes more difficult to access, we will have to seek alternative funding sources in order to continue to fund our growth. This may include increasing our reliance on Federal Home Loan Bank of Atlanta (“FHLB”) borrowing, attempting to attract additional non-brokered deposits, and selling loans. There can be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth. The unavailability of a sufficient volume of brokered deposits could have a material adverse effect on our business, financial condition and results of operations. 

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Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.

Liquidity is essential to our business and we monitor our liquidity and manage our liquidity risk at the holding company and bank level. We require sufficient liquidity to fund asset growth, meet customer loan requests, customer deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. Liquidity risk can increase due to a number of factors, which include, but are not limited to, an over-reliance on a particular source of funding, changes in the liquidity needs of our depositors, an increase in borrowing by our customers, adverse regulatory actions against us, or a downturn in the markets in which our loans are concentrated.

Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely manner, and without adverse consequences. The actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers’ companies may be more dependent on our credit commitments due to the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from other sources. Our inability to raise funds through deposits, borrowings, the sale of loans, and other sources could have an adverse effect on our business, financial condition and results of operations, and could result in the closure of the Bank.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and proceeds from issuance and sale of our equity and debt securities. Additional liquidity is provided by the ability to borrow from the FHLB, and the Federal Reserve Bank of Richmond (“Reserve Bank”) to fund our operations. We may also borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization specifically or the financial services industry or economy in general. Our access to funding sources could also be affected by a decrease in the level of our business activity as a result of a downturn in our primary market or by one or more adverse regulatory actions against us.

Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair our ability to fund operations and meet our obligations as they become due and could have an adverse effect on our business, financial condition and results of operations. Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if our financial condition, the financial condition of the FHLB or market conditions change. FHLB borrowings and other current sources of liquidity may not be available or, if available, sufficient to provide adequate funding for operations and to support our continued growth. The unavailability of a sufficient funding could have an adverse effect on our business, financial condition and results of operations.

Risks Related to Our Business, Industry and Markets

We operate in a highly competitive market and face increasing competition from a variety of traditional and new financial services providers.

We have many competitors. Our principal competitors are commercial and community banks, credit unions, savings and loan associations, mortgage banking firms and online mortgage lenders and consumer finance companies, including large national financial institutions that operate in our market. Many of these competitors are larger than us, have significantly more resources, greater brand recognition and more extensive and established branch networks or geographic footprints than we do, and may be able to attract customers more effectively than we can. Because of their scale, many of these competitors can be more aggressive than we can on loan and deposit pricing, and may better afford and make broader use of media advertising, support services and electronic technology than we do. Also, many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures. We compete with these other financial institutions both in attracting deposits and making loans. We expect competition to continue to increase as a result of legislative, regulatory and technological changes, the continuing trend of consolidation in the financial services industry and the emergence of alternative banking sources. Our profitability in large part depends upon our continued ability to compete successfully with traditional and new financial services providers, some of which maintain a physical presence in our market and others of which maintain only a virtual presence. Increased competition could require us to increase the rates we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability.

Failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we have. We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to our customers. Failure to keep pace successfully with technological change affecting the financial services industry could harm our ability to compete effectively and could have an adverse effect on our business, financial condition and results of operations. As these technologies improve in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses and have an adverse effect on our business, financial condition and results of operations.

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We follow a relationship-based operating model and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining bankers and other associates who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. Furthermore, maintaining our reputation also depends on our ability to protect our brand name and associated trademarks.

However, reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding our Company and the financial institutions industry generally, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including business and lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract customers and employees and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our customers and communities, this risk will always be present given the nature of our business.

If our reputation is negatively affected by the actions of our employees or otherwise, our business and operating results may be materially adversely affected.

We are dependent on our management team and key employees.

We believe that our continued growth and future success will depend on the retention of our management team and key employees. Our management team and other key employees, including those who conduct our loan origination and other business development activities, have significant industry experience. We cannot ensure that we will be able to retain the services of any members of our management team or other key employees. Though we have employment agreements in place with certain members of our management team they may still elect to leave at any time. The loss of any of our management team or our key employees could adversely affect our ability to execute our business strategy, and we may not be able to find adequate replacements on a timely basis, or at all.

Our future success also depends on our continuing ability to attract, develop, motivate and retain key employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. Because the market for qualified individuals is highly competitive, we may not be able to attract and retain qualified officers or candidates. Failure to attract and retain a qualified management team and qualified key employees could have an adverse effect on our business, financial condition and results of operations.

Interest rate shifts may reduce net interest income and otherwise negatively impact our financial condition and results of operations.

The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings are significantly dependent on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest-earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply, and international disorder and instability in domestic and foreign financial markets.

Interest rate increases often result in larger payment requirements for our borrowers, which increase the potential for default. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates.

Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. 

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If short-term interest rates remain at their historically low levels for a prolonged period, and assuming longer term interest rates fall further, we could experience net interest margin compression as our interest earning assets would continue to re-price downward while our interest-bearing liability rates could fail to decline in tandem. Such an occurrence would have a material adverse effect on our net interest income and our results of operations.

Although we believe that we have implemented effective asset and liability management strategies to mitigate the potential adverse effects of changes in interest rates on our results of operations, any substantial or unexpected change in, or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Monetary policies and regulations of the Federal Reserve could have an adverse effect on our business, financial condition and results of operations.

Our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Risks Related to Our Operations

We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.

We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

In addition, we rely heavily upon information supplied by third parties, including the information contained in credit applications, property appraisals, title information, equipment pricing and valuation and employment and income documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information upon which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to asset funding, the value of the asset may be significantly lower than expected, or we may fund a loan that we would not have funded or on terms we would not have extended. Whether a misrepresentation is made by the applicant or another third party, we generally bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to repurchase if it is sold prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to locate, and it is often difficult to recover any of the monetary losses we may suffer.

System failure or breaches of our network security, including as a result of cyber-attacks or data security breaches, could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we use may be vulnerable to physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes breakdowns or disruptions in our customer relationship management, general ledger, deposit, loan and other systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny for failure to comply with required information security standards, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on us.

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Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure. Information security risks have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. Our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. In addition, to access our products and services, our customers may use devices that are beyond our control systems. Although we believe we have robust information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of the Bank’s or our customers’ confidential, proprietary and other information, or otherwise disrupt the Bank’s or our customers’ or other third parties’ business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

The Bank is under continuous threat of loss due to hacking and cyber-attacks especially as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customer or our accounts. Attempts to breach sensitive customer data, such as account numbers and social security numbers, present significant reputational, legal and/or regulatory costs to us if successful. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. We cannot assure that we will not be the victim of successful hacking or cyberattacks in the future that could cause us to suffer material losses. The occurrence of any cyber-attack or information security breach could result in potential liability to customers, reputational damage and the disruption of our operations, and regulatory concerns, all of which could adversely affect our business, financial condition or results of operations.

We are dependent on the use of data and modeling in both our management’s decision-making generally and in meeting regulatory expectations in particular.

The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision making and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in our operations. Liquidity stress testing, interest rate sensitivity analysis, allowance for loan loss measurement, portfolio stress testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlie them. We anticipate that model-derived insights will be used more widely in our decision making in the future. While these quantitative techniques and approaches improve our decision making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny. Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition and results of operations.

We rely on third parties to provide key components of our business infrastructure.

We rely on third parties to provide key components for our business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, internet connections, and network access. While we select these third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a vendor, failure of a vendor to provide services for any reason, or poor performance of services by a vendor, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to serve us. Replacing these third-party vendors could create significant delays and expense that adversely affect our business and performance.

We are exposed to risk of environmental liabilities with respect to properties to which we obtain title.

A significant portion of our loan portfolio is secured by real estate. In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations and prospects.

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We may be adversely affected by the lack of soundness of other financial institutions or market utilities.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies may be interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries. As a result, defaults by, declines in the financial condition of, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or other institutions. These losses could have an adverse effect on our business, financial condition and results of operations.

Our risk management framework may not be effective in mitigating risks and/or losses to us.

Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances. Our risk management framework may not adequately mitigate any risk or loss to us. If our risk management framework is not effective, we could suffer unexpected losses and our business, financial condition and results of operations could be adversely affected. We may also be subject to potentially adverse regulatory consequences.

We depend on the accuracy and completeness of information provided by customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished by or on behalf of customers and counterparties, including financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information. In deciding whether to extend credit, we may rely upon customers’ representations that their financial statements conform to GAAP and present fairly the financial condition, results of operations and cash flows of the customer. We also may rely on customer representations and certifications, or other audit or accountants’ reports, with respect to the business and financial condition of our customers. Our business, financial condition and results of operations could be adversely affected if we rely on misleading, false, inaccurate or fraudulent information.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make certain activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.

Changes in accounting standards could materially impact our financial statements.

From time to time, FASB or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.

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The fair value of our investment securities can fluctuate due to factors outside of our control.

As of December 31, 2021, the fair value of our portfolio of investment in debt securities was approximately $342.6 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments (“OTTI”) and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, financial condition or results of operations. The process for determining whether impairment of a security is OTTI usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer, any collateral underlying the security and our intent and ability to hold the security for a sufficient period of time to allow for any anticipated recovery in fair value, in order to assess the probability of receiving all contractual principal and interest payments on the security. Our failure to correctly and timely assess any impairments or losses with respect to our securities could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to our Regulatory Environment

Our industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.

The banking industry is highly regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking system as a whole or the DIF, not for the protection of our shareholders and creditors. We are subject to regulation and supervision by the Federal Reserve, and our Bank is subject to regulation and supervision by the FDIC and the Virginia BFI. These regulatory agencies periodically examine our business, including our compliance with laws and regulations, and have the power take a number of different remedial actions if they discover violations of law or regulations, or they determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations have become unsatisfactory. See Item 1 (“Business”) under “Supervision and Regulation” for further discussion of the laws and regulations applicable to us.

Compliance with these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs. We must obtain approval from our regulators before engaging in certain activities, and there is risk that such approvals may not be granted, either in a timely manner or at all. These requirements may constrain our operations, and the adoption of new laws and changes to, or repeal of, existing laws may have an adverse effect on our business, financial condition and results of operations. Also, the burden imposed by those federal and state regulations may place banks in general, including our Bank in particular, at a competitive disadvantage compared to their non-bank competitors. Compliance with current and potential regulation, as well as supervisory scrutiny by our regulators, may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital, and limit our ability to pursue business opportunities in an efficient manner by requiring us to expend significant time, effort and resources to ensure compliance and respond to any regulatory inquiries or investigations. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have an adverse effect on our business, financial condition and results of operations.

Applicable laws, regulations, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to significant future changes. Additionally, federal and state regulatory agencies may change the manner in which existing regulations are applied. We cannot predict the substance or effect of pending or future legislation or regulation or changes to the application of laws and regulations to us. Future changes may have an adverse effect on our business, financial condition and results of operations.

We are subject to stringent capital requirements, which could have an adverse effect on our operations.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and defines “capital” for calculating these ratios. The capital rules require bank holding companies and banks to maintain a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.0% (a minimum of 4.5% plus a capital conservation buffer of 2.5%), a Tier 1 capital to risk-weighted assets ratio of at least 8.5% (a minimum of 6.0% plus a capital conservation buffer of 2.5%), a total capital to risk-weighted assets ratio of at least 10.5% (a minimum of 8% plus a capital conservation buffer of 2.5%), and a leverage ratio of Tier 1 capital to total consolidated assets of at least 4.0%. An institution’s failure to exceed the capital conservation buffer with common equity Tier 1 capital would result in limitations on an institution’s ability to make capital distributions and discretionary bonus payments. In addition, for an insured depository institution to be “well capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.5%, Tier 1 capital ratio of at least 8.0%, a total capital ratio of at least 10.0%, and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal or state banking regulator to meet and maintain a specific capital level for any capital measure.

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We operate under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts from the Federal Reserve’s risk-based-capital and leverage rules bank holding companies with assets of less than $3.0 billion that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC. Historically, the Federal Reserve has not usually deemed a bank holding company ineligible for application of this policy statement solely because its common stock is registered under the Exchange Act. However, there can be no assurance that the Federal Reserve will continue this practice, and as a result the registration of our common shares may result in the loss of our status as a small bank holding company for these purposes. Additionally, if our consolidated assets increase to $3.0 billion or larger, the Company would be subject to the consolidated holding company capital requirements similar to those applicable to the Bank. The application of additional capital requirements could, among other things, result in lower returns on equity, requiring the raising of additional capital, and resulting in regulatory actions constraining us from paying dividends or repurchasing shares if we were unable to comply with such requirements.

The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks. Under the “source of strength” doctrine that was codified by the Dodd-Frank Act, the Federal Reserve may require a bank holding company to make capital injections into a subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. Accordingly, we could be required to provide financial assistance to the Bank if it experiences financial distress. A capital injection may be required at a time when our resources are limited, and we may be required to borrow the funds or raise capital to make the required capital injection.

Any new or revised standards adopted in the future may require us to maintain materially more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities to comply with formulaic capital requirements. We may not be able to raise additional capital at all, or on terms acceptable to us. Failure to maintain capital to meet current or future regulatory requirements could have an adverse effect on our business, financial condition and results of operations.

We face a risk of noncompliance and enforcement action with the BSA and other anti-money laundering statutes and regulations.

The BSA, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. Our federal and state banking regulators, the Financial Crimes Enforcement Network, and other government agencies are authorized to impose significant civil money penalties for violations of anti-money laundering requirements. We are also subject to increased scrutiny of compliance with the regulations issued and enforced by OFAC, which is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. If our program is deemed deficient, we could be subject to liability, including fines, civil money penalties and other regulatory actions, which may include restrictions on our business operations and our ability to pay dividends, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have significant reputational consequences for us. Any of these circumstances could have an adverse effect on our business, financial condition and results of operations.

We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or other incident involving personal, confidential, or proprietary information of individuals could damage our reputation and otherwise adversely affect our business.

Our business requires the collection and retention of large volumes of customer data, including personally identifiable information (“PII”), in various information systems that we maintain and in those maintained by third party service providers. We also maintain important internal company data such as PII about our employees and information relating to our operations. We are subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including customers, employees, and other third parties). For example, our business is subject to the GLB Act, which, among other things: (i) imposes certain limitations on our ability to share nonpublic PII about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach.

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Ensuring that our collection, use, transfer and storage of PII complies with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that customers and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of our measures to safeguard PII, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers and thereby reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our business, financial condition and results of operations.

Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention.

We regularly use third party vendors in our business and we rely on some of these vendors for critical functions including, but not limited to, our core processing function. Third party relationships are subject to increasingly demanding regulatory requirements and attention by bank regulators. We expect our regulators to hold us responsible for deficiencies in our oversight or control of our third party vendor relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or that such vendors have not performed adequately, we could be subject to administrative penalties or fines as well as requirements for consumer remediation, any of which could have a material adverse effect on our business, financial condition and results of operations.

The expected replacement or discontinuation of LIBOR as a benchmark interest rate and a transition to an alternative reference interest rate could present operational problems and result in market disruption.

Although we expect that the capital and debt markets will cease to use LIBOR as a benchmark in the near future and the administrator of LIBOR has announced its intention to extend the publication of most tenors of LIBOR for U.S. Dollars through June 30, 2023, we cannot predict whether or when LIBOR will actually cease to be available, whether the Secured Overnight Funding Rate (“SOFR”), will become the market benchmark in its place or what impact such a transition may have on our business, financial condition and results of operations.

The Federal Reserve, based on the recommendations of the New York Federal Reserve’s Alternative Reference Rate Committee, has begun publishing SOFR, which is intended to replace LIBOR, and has encouraged banks to transition away from LIBOR as soon as practicable. Although SOFR appears to be the preferred replacement rate for LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States. The replacement of LIBOR also may result in economic mismatches between different categories of instruments that now consistently rely on the LIBOR benchmark. Markets are slowly developing in response to these new rates, and questions around liquidity in these rates and how to appropriately adjust these rates to eliminate any economic value transfer at the time of transition remain a significant concern.

Certain of our financial products are tied to LIBOR. Inconsistent approaches to a transition from LIBOR to an alternative rate among different market participants and for different financial products may cause market disruption and operational problems, which could adversely affect us, including by exposing us to increased basis risk and resulting costs in connection, and by creating the possibility of disagreements with counterparties. As of December 31, 2021, the Company had three loans indexed to LIBOR and was in process of modifying the rate on these loans with the respective borrowers. The Company is also considering modifications to the repricing of the subordinated debt that will be indexed to LIBOR when it converts to a floating rate in July 2022.

Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability.

The federal banking agencies have issued guidance regarding concentrations in commercial real estate lending for institutions that are deemed to have particularly high concentrations of commercial real estate loans within their lending portfolios. Under this guidance, an institution that has (i) total reported loans for construction, land development, and other land which represent 100% or more of the institution’s total risk-based capital; or (ii) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital, where the outstanding balance of the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential commercial real estate concentration risk. An institution that is deemed to have concentrations in commercial real estate lending is expected to employ heightened levels of risk management with respect to its commercial real estate portfolios, and may be required to maintain higher levels of capital.

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As of December 31, 2021, commercial real estate loans represent 337.9% of our total risk-based capital and had increased 14.5% during the prior 36 months. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to our commercial real estate portfolio. Nevertheless, we could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could limit our growth, require us to obtain additional capital, and have an adverse effect on our business, financial condition and results of operations.

Risks Related to an Investment in Our Common Stock

Our common stock currently has a limited trading market and is thinly traded, and a more liquid market for our common stock may not develop, which may limit the ability of shareholders to sell their shares and may increase price volatility.

Our common stock is currently quoted on the OTC Markets Group’s OTCQB marketplace under the trading symbol “JMSB.” Our common stock is thinly traded and has substantially less liquidity than the stock of many other bank holding companies. We have applied to have our common stock listed on the Nasdaq Capital Market under the symbol “JMSB.” We believe that we will satisfy the listing requirements and expect that our common stock will be listed on the Nasdaq Capital Market concurrently with the effectiveness of this registration statement. Such listing, however, is not guaranteed. Even if such listing is approved, there can be no assurance that an active, liquid trading market in our common stock will develop or, if developed, that the market will continue. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to expand our business by using our common stock as consideration in an acquisition. In addition, thinly traded stocks can be more volatile than more widely traded stocks. Our stock price has been volatile in the past and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control and may be unrelated to our actual operating performance.

We currently qualify as an “emerging growth company” and a “smaller reporting company,” and the reduced disclosures and relief from certain other significant disclosure requirements that are available to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the federal securities laws, and we intend to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements to hold non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company for up to five years, though we may cease to be an emerging growth company earlier if our gross revenues exceed $1.07 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31.

We are also a “smaller reporting company,” as defined in the federal securities laws, and will remain a smaller reporting company until the fiscal year following the determination that the market value of our common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations, such as an exemption from providing selected financial data and an ability to provide simplified executive compensation information and only two years of audited financial statements. If we qualify as a smaller reporting company at the time we cease to qualify as an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Investors and securities analysts may find it more difficult to evaluate our common stock because we will rely on one or more of these exemptions. If, as a result, some investors find our common stock less attractive, there may be a less active trading market for our common stock, which could result in reductions and greater volatility in the prices of our common stock.

The obligations associated with being a public company will require significant resources and management attention, which may divert from our business operations.

As a result of this registration, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition with the SEC. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will be required to:

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· prepare and distribute periodic reports, proxy statements and other shareholder communications in compliance with the federal securities laws and rules;

· expand the roles and duties of our board of directors and committees thereof;

· institute more comprehensive financial reporting and disclosure compliance procedures;

· involve and retain to a greater degree outside counsel and accountants in activities listed above;

· enhance our investor relations function;

· establish new internal policies, including those relating to trading in our securities and disclosure controls and procedures;

· retain additional personnel;

· comply with Nasdaq Stock Market listing standards; and

· comply with applicable requirements of the Sarbanes-Oxley Act.

We expect these rules and regulations and changes in laws, regulations and standards relating to corporate governance and public disclosure, which have created uncertainty for public companies, to increase legal and financial compliance costs and make some activities more time consuming and costly. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Our investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses that we did not previously incur. We anticipate that these costs will materially increase our general and administrative expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our strategic plan, which could prevent us from successfully implementing our growth initiatives and improving our business, results of operations and financial condition.

As an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

If we fail to design, implement and maintain effective internal control over financial reporting or remediate any future material weakness in our internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Effective internal control over financial reporting is necessary for us to provide reliable reports and prevent fraud. We may not be able to identify all significant deficiencies and/or material weaknesses in our internal control over financial reporting in the future, and our failure to maintain effective internal control over financial reporting could have an adverse effect on our business, financial condition and results of operations.

In the normal course of our operations, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for certification of our internal control over financial reporting. A material weakness is defined by the standards issued by the Public Company Accounting Oversight Board, as a deficiency, or combination of deficiencies, in internal control over financial reporting that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a consequence, we would have to disclose in periodic reports we file with the SEC any material weakness in our internal control over financial reporting. The existence of a material weakness would preclude management from concluding that our internal control over financial reporting is effective and, when we cease to be an emerging growth company under the JOBS Act, preclude our independent registered public accounting firm from rendering their report addressing an assessment of the effectiveness of our internal control over financial reporting. In addition, disclosures of deficiencies of this type in our SEC reports could cause investors to lose confidence in our financial reporting, and may negatively affect the market price of our common stock, and could result in the delisting of our securities from the securities exchanges on which they trade. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal control over financial reporting, such deficiencies may adversely affect us.

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We have no current plans to pay cash dividends.

Holders of our common stock are entitled to receive only such dividends as our board of directors may declare out of funds legally available for such payments. The Bank is our primary operating business and the source of substantially all of our earnings, and our ability to pay dividends will be subject to the earnings, capital levels, capital needs and limitations relating to the payment of dividends by the Bank to us. The amount of dividends that a bank may pay is limited by state and federal laws and regulations. While we have sufficient retained earnings and expect our future earnings to be sufficient to pay cash dividends, our board of directors currently intends to retain earnings for the purpose of capitalizing future growth. In addition, we are a bank holding company, and our ability to declare and pay dividends to our shareholders is dependent on federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. It is the policy of the Federal Reserve that bank holding companies should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the organization’s expected future needs, asset quality and financial condition.

We may issue additional equity securities, or engage in other transactions, which could affect the priority of our common stock, which may adversely affect the market price of our common stock.

Our board of directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock. We are not restricted from issuing additional shares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be effected. Such offerings could be dilutive to common shareholders. We may also issue shares of preferred stock that will provide new investors with rights, preferences and privileges that are senior to, and that adversely affect, our then current common shareholders. Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation, holders of our debt securities and shares of preferred stock, and lenders with respect to other borrowings, will receive distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.

Our common stock is subordinate to our existing and future indebtedness.

Shares of our common stock are equity interests and do not constitute indebtedness. As such, our common stock ranks junior to all our customer deposits and indebtedness, and other non-equity claims on us, with respect to assets available to satisfy claims. In addition, the shares of common stock rank junior to the noteholders of the $25.0 million in subordinated debt that we issued in July 2017.

Our corporate governance documents, and corporate and banking laws applicable to us, could make a takeover more difficult and adversely affect the market price of our common stock.

Certain provisions of our articles of incorporation and bylaws, and Virginia corporate and federal banking laws, could delay, defer, or prevent a third party from acquiring control of our organization or conducting a proxy contest, even if those events were perceived by many of our shareholders as beneficial to their interests. These provisions and regulations applicable to us:

· enable our board of directors to issue additional shares of authorized, but unissued capital stock;

· enable our board of directors to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the board;

· do not provide for cumulative voting rights;

· enable our board of directors to amend certain provisions of our bylaws without shareholder approval;

· limit the right of shareholders to call a special meeting;

· require advance notice for director nominations and other shareholder proposals;

· require prior regulatory application and approval of any transaction involving control of our organization;

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· may limit the ability of the Company to enter into certain business combination transactions with affiliated shareholders, without prior board and shareholder approval; and

· may limit the ability of holders of more than 20% of our common stock from voting certain of their shares.

These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.

An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of your investment.

An investment in our common stock is not a deposit account or other obligation of the Bank and, therefore, is not insured against loss or guaranteed by the FDIC, any other deposit insurance fund or by any other governmental, public or private entity. An investment in our common stock is inherently risky for the reasons described herein. As a result, if you acquire our common stock, you could lose some or all of your investment.

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Item 2.            Financial Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the consolidated financial condition and results of operations of the Company and its subsidiary should be read in conjunction with the consolidated financial statements and related notes presented in Item 13, Financial Statements and Supplementary Data, of this registration statement. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate results of operations or trends in operations for any future periods.

Overview

We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. MSA. The material business operations of our organization are performed through the Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.

As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. The Bank establishes and maintains this allowance by recording a provision for loan losses against earnings. In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, income from bank owned life insurance, and merchant services fee income. In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

As of December 31, 2021, the Company had total consolidated assets of $2.15 billion, total loans net of unearned income of $1.67 billion, total deposits of $1.88 billion and total shareholders’ equity of $208.5 million.

Critical Accounting Policies and Estimates

The Company’s accounting and reporting policies conform to GAAP, as well as general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

The following is a discussion of the critical accounting policy and significant estimates that requires us to make complex and subjective judgments. Additional information about this policy can be found in Note 1 of our consolidated financial statements included in Item 13 of this registration statement.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged off when management believes the collectability of a loan balance is unlikely, which reduces the allowance. Loans are generally written down to the estimated net realizable value of the underlying collateral when the loan is 180 days past due. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans by segment in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors used for each segment include an analysis of the levels of and trends in delinquencies, nonaccrual loans, and watch list loans; trends in concentrations, volume and term of loans; effects of any changes in lending policies and practices; experience, ability, and depth of management; national and local economic trends and conditions; and any other factor, as deemed appropriate. The qualitative factors in 2021 and 2020 included considerations related to the ongoing COVID-19 pandemic. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, construction, and commercial mortgage loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures unless the loan has been modified in a troubled debt restructuring.

Reference Rate Reform

In 2017, the U.K. Financial Conduct Authority, the body that regulates LIBOR, announced it will no longer compel banks to submit rates for the calculation of LIBOR after December 31, 2021. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, confirmed its intention to cease publication of the 1-week and 2-month U.S. Dollar LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining U.S. Dollar LIBOR tenors (overnight, 1, 3, 6, and 12 months) immediately following the LIBOR publication on June 30, 2023. Central banks and regulators around the world have commissioned working groups to find suitable replacements for Interbank Offered Rates and other benchmark rates and to implement financial benchmark reforms more generally. These actions have resulted in uncertainty regarding the use of alternative reference rates and could cause disruptions in a variety of markets, as well as adversely impact our business, operations and financial results.

As of December 31, 2021, the Company had three loans indexed to LIBOR and was in process of modifying the rate on these loans with the respective borrowers. The Company is also considering modifications to the repricing of our subordinated debt that was issued in 2017 and will be indexed to LIBOR when it converts to a floating rate in July 2022.

COVID-19 Pandemic

The Company’s financial performance is highly dependent on the business environment in its primary markets where it operates and in the United States as a whole. The COVID-19 pandemic has significantly impacted all facets of the United States economy, including the banking sector. The duration and extent of the pandemic’s effects over the longer term are dependent on future developments and cannot be reasonably estimated at this time. Risks arising from the pandemic may impact the future earnings, cash flows and financial condition of the Company. These risks, which are inherently uncertain, primarily include: the financial impact of the pandemic on our customers, the ability of those customers to fulfill their financial obligations to the Company, potential operational disruptions, the Company’s ability to generate demand for its products and services, and adverse changes in the valuation of collateral or other assets which may result in impairment charges. Accordingly, estimates used in the preparation of the financial statements may be subject to significant adjustments in future periods due to the unprecedented and evolving nature of the pandemic. The greater the duration and severity of the pandemic, the more likely that estimates will be materially impacted by its effects.

The Company has continued to implement enhanced safety and wellness practices for employees and customers. The Company maintained physical presence in all of the Bank’s branches in 2021 while practicing social distancing procedures to continue to serve our community. Customers were also able to continue their banking activities uninterrupted using our online banking platform, automated teller machines, and via telephone with loan, deposit, branch and treasury management support personnel.

The COVID-19 pandemic has also changed the way we work together. Starting in 2021, management implemented a new policy allowing a hybrid of in-person and remote work to promote flexibility and teaming for a majority of our workforce.

In continuing the Company’s mission of serving our community, the Company approved 1,096 PPP loans, totaling $229.2 million during the first and second rounds of the PPP. The outstanding balance of PPP loans as of December 31, 2021 was $67.7 million, net of deferred fees and costs.

The Company has also aided consumer and commercial customers impacted by the COVID-19 pandemic through its loan deferral program whereby customers experiencing hardships due to COVID-19 were eligible for a deferral in loan payments for up to six months. For the year ended December 31, 2020, the Company was able to approve and process 172 loan payment deferrals for loans that totaled $250.2 million. There were no loan deferrals requested during 2021 and as of December 31, 2020 and 2021 no loans remained on deferral. All of the loans with deferrals in 2020 have continued to make regularly scheduled payments subsequent to the conclusion of their deferral periods.

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Selected Financial Data

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of December 31, 2021 and 2020 and the selected income statement data for the years ended December 31, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this registration statement and should be read in conjunction with the other information contained in this registration statement, including the information contained within this “Item 2 – Financial Information” and “Item 13 – Financial Statements and Supplementary Data.”

(Dollars in thousands, except per share data)	December 31, 2021			December 31, 2020
Balance Sheet Data:
Loans, net of unearned income	$	1,666,469		$	1,562,524
Allowance for loan losses		(20,032	)		(17,017	)
Total Assets		2,149,309			1,885,496
Deposits		1,881,553			1,640,120
Shareholders’ Equity		208,470			186,081
Asset Quality Data:
Net (charge-offs) recoveries to average total loans, net of unearned income (annualized)		(0.01	)%		0.00	%
Allowance for loan losses to nonperforming loans		NM			NM
Allowance for loan losses to total gross loans net of unearned income(1)		1.20	%		1.09	%
Non-performing assets to total assets		0.00	%		0.00	%
Non-performing loans to total loans		0.00	%		0.00	%
Capital Ratios:
Total risk-based capital ratio (Bank level)		15.3	%		14.6	%
Tier 1 risk-based capital ratio (Bank level)		14.0	%		13.5	%
Leverage ratio (Bank level)		11.0	%		11.0	%
Common equity tier 1 ratio (Bank level)		14.0	%		13.5	%
Equity-to-total assets ratio		9.70	%		9.87	%
Income Statement Data:
Interest and dividend income	$	74,119		$	72,446
Interest expense		8,211			15,607
Net interest income	$	65,908		$	56,839
Provision for loan losses		3,105			6,217
Non-interest income		1,719			1,613
Non-interest expense		32,262			29,163
Income before taxes	$	32,260		$	23,072
Income tax expense		6,799			4,546
Net income	$	25,461		$	18,526
Per Share Data and Shares Outstanding:
Weighted average common shares (basic)		13,581,586			13,460,940
Weighted average common shares (diluted)		13,879,595			13,658,618
Common shares outstanding		13,745,598			13,606,558
Earnings per share, basic	$	1.87		$	1.37
Earnings per share, diluted	$	1.83		$	1.35
Book value (at period end)	$	15.17		$	13.68
Performance Ratios:
Return on average assets(2)		1.25	%		1.06	%
Return on average equity(3)		12.90	%		10.49	%
Net interest margin(4)		3.29	%		3.33	%
Efficiency ratio		47.7	%		49.9	%

NM – Not meaningful

(1) Excluding PPP loan balances, the allowance for loan losses as a percentage of gross loans, net of unearned income was 1.25% and 1.17% at December 31, 2021 and December 31, 2020, respectively.

(2) ROAA is calculated by dividing year-to-date net income by year-to-date average assets.

(3) ROAE is calculated by dividing year-to-date net income by year-to-date average equity.

(4) Net interest margin for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

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Financial Overview

General

For the years ended December 31, 2021 and 2020, the Company continued to grow high-quality loans and core deposits. The Company has leveraged its investments in technology to become more efficient and continues to have a strong capital position, excellent asset quality, and a liquid balance sheet. The following highlights the Company’s significant accomplishments during the year ended December 31, 2021:

• Year-over-year total assets increased 14.0% or $263.8 million to $2.15 billion at December 31, 2021.

• Gross loans net of unearned income grew $103.9 million or 6.7% from December 31, 2020 to December 31, 2021. Excluding PPP loans, gross loans net of unearned income grew $150.7 million or 10.4% from December 31, 2020 to December 31, 2021.

• Total deposits grew $241.4 million or 14.7% from December 31, 2020 to December 31, 2021. Non-interest bearing demand deposits grew $126.3 million or 34.8% from December 31, 2020 to December 31, 2021.

• Net income increased 37.4% year-over-year to $25.5 million for the year ended December 31, 2021 and is the highest net income in the Company’s history. ROAA was 1.25% and ROAE was 12.90% for the twelve months ended December 31, 2021.

• The Company had no non-performing loans, no loans 30 days or more past due, and no other real estate owned assets at December 31, 2021.

Results of Operations – Years Ended December 31, 2021 and December 31, 2020

Overview

Net income increased $6.9 million or 37.4% to $25.5 million for the year ended December 31, 2021, compared to net income of $18.5 million for the year ended December 31, 2020.

Diluted earnings per share increased $0.48 or 35.6% to $1.83 for the year ended December 31, 2021, compared to diluted earnings per share of $1.35 for the year ended December 31, 2020.

Net interest income increased $9.1 million to $65.9 million for the year ended December 31, 2021, compared to $56.8 million for the year ended December 31, 2020. Balance sheet growth, improved funding composition, and downward repricing of our funding base resulted in an increase in net interest income of 16.0% for the twelve months ended December 31, 2021 when compared to the twelve months ended December 31, 2020.

The provision for loan losses was $3.1 million for the year ended December 31, 2021, compared to $6.2 million for the same period of 2020. The decrease in the provision for loan losses as compared to the same period in 2020 primarily reflects changes in the Company’s evaluation of environmental factors impacting our loan portfolio during 2021. During 2020 and into 2021, the environmental or qualitative factor allocations within the allowance for loan losses were adjusted to account for the risks to certain industry subgroups and portfolio segments within our portfolio as a result of the emergence of the COVID-19 pandemic. Additional discussion of the provision for loan losses is included below under the heading Provision Expense and Allowance for Loan Losses.

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Non-interest income increased $106 thousand or 6.6% to $1.7 million for the year ended December 31, 2021 as compared to $1.6 million for the year ended December 31, 2020. The increase was primarily attributable to increases in insurance commissions of $229 thousand and other service charges and fees of $77 thousand, as well as mark-to-market adjustments on certain equity investments. The increase was offset by a decrease in the gain on sale of securities year-over-year. Excluding gains on securities recorded in 2021 and 2020 of $10 thousand and $309 thousand, respectively, non-interest income increased 31.1% year-over-year.

Non-interest expense increased $3.1 million or 10.6% to $32.3 million for the year ended December 31, 2021 as compared to $29.2 million for the year ended December 31, 2020. The increase was primarily attributable to increases in employee compensation as a result of merit based compensation adjustments and incentive compensation tied to performance. Remaining increases were primarily due to increases in professional fees associated with legal and consulting expenses, marketing expenses, state bank franchise taxes, and expense associated with higher FDIC deposit insurance that correlates directly to the Bank’s increase of insured deposit balances.

The ROAA for the years ended December 31, 2021 and 2020 was 1.25% and 1.06%, respectively. The ROAE for the year ended December 31, 2021 and 2020 was 12.90% and 10.49%, respectively.

Net Interest Income and Net Interest Margin

Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings, and is the Company’s primary revenue source. Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings. The Company’s interest-earning assets include loans, investment securities and interest-bearing deposits in other banks, while our interest-bearing liabilities include interest-bearing deposits and borrowings. Net interest margin represents the difference between interest received and interest paid as a percentage of average total interest-earning assets. Management seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through management’s asset and liability management policies. Interest rate risk is managed by monitoring the pricing, maturity, and repricing options of all classes of interest-bearing assets and liabilities. Management expects net interest income and net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of the Company’s interest-earning assets and interest-bearing liabilities.

The following table presents the annual average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the years ended December 31, 2021 and 2020.

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Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

	December 31, 2021							December 31, 2020
(Dollars in thousands)	Average Balance		Interest Income / Expense		Average Rate			Average Balance		Interest Income / Expense		Average Rate
Assets:
Securities:
Taxable	$	275,071	$	4,409		1.60	%	$	130,033	$	3,210		2.47	%
Tax-exempt(1)		5,007		152		3.04	%		9,319		149		1.60	%
Total securities	$	280,078	$	4,561		1.63	%	$	139,352	$	3,359		2.39	%
Loans, net of unearned income(2):
Taxable		1,577,418		68,685		4.35	%		1,445,457		68,240		4.72	%
Tax-exempt(1)		19,631		924		4.71	%		17,506		600		3.43	%
Total loans, net of unearned income	$	1,597,049	$	69,609		4.36	%	$	1,462,963	$	68,840		4.70	%
Interest-bearing deposits in other banks	$	135,360	$	175		0.13	%	$	108,654	$	404		0.37	%
Total interest-earning assets	$	2,012,487	$	74,345		3.69	%	$	1,710,969	$	72,603		4.23	%
Total non-interest earning assets		31,132							36,878
Total assets	$	2,043,619						$	1,747,847
Liabilities & Shareholders' equity:
Interest-bearing deposits
NOW accounts	$	262,319	$	798		0.30	%	$	196,776	$	1,086		0.55	%
Money market accounts		337,993		1,256		0.37	%		310,789		2,202		0.71	%
Savings accounts		83,032		300		0.36	%		47,263		330		0.70	%
Time deposits		657,986		4,245		0.65	%		588,239		10,124		1.72	%
Total interest-bearing deposits	$	1,341,330	$	6,599		0.49	%	$	1,143,068	$	13,742		1.20	%
Federal funds purchased		—		—		0.00	%		184		1		0.54	%
Subordinated debt		24,702		1,487		6.02	%		24,653		1,487		6.03	%
Other borrowed funds		18,375		125		0.68	%		31,481		377		1.20	%
Total interest-bearing liabilities	$	1,384,407	$	8,211		0.59	%	$	1,199,386	$	15,607		1.30	%
Demand deposits		448,723							359,598
Other liabilities		13,146							12,323
Total liabilities	$	1,846,276						$	1,571,307
Shareholders' equity	$	197,343						$	176,540
Total liabilities and shareholders' equity	$	2,043,619						$	1,747,847
Net interest spread						3.10	%						2.93	%
Net interest income and margin			$	66,134		3.29	%			$	56,996		3.33	%

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) Balances of non-accrual loans are included in the average loan balances for the years ended December 31, 2021 and 2020. The Company did not have any loans on non-accrual as of December 31, 2021 or December 31, 2020.

Net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets. Net interest income, on a tax equivalent basis, is a financial measure that the Company believes provides a more accurate picture of the interest margin for comparative purposes. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure.

Tax-Equivalent Net Interest Income

	Years Ended
(Dollars in thousands)	December 31, 2021		December 31, 2020
GAAP Financial Measurements:
Interest Income - Loans	$	69,415	$	68,714
Interest Income - Securities and Other Interest-Earning Assets		4,704		3,732
Interest Expense - Deposits		6,599		13,742
Interest Expense - Borrowings		1,612		1,865
Total Net Interest Income	$	65,908	$	56,839
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans		194		126
Add: Tax Benefit on Tax-Exempt Interest Income - Securities		32		31
Total Tax Benefit on Tax-Exempt Interest Income (1)	$	226	$	157
Tax-Equivalent Net Interest Income	$	66,134	$	56,996

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

45

Net interest income increased $9.1 million or 16.0% to $66.1 million on a fully tax-equivalent basis for the year ended December 31, 2021, compared to $57.0 million for the year ended December 31, 2020. The increase in net interest income was driven by a significant increase in loan production during the year coupled with a decrease in cost of interest-bearing liabilities year-over-year.

On a fully tax-equivalent basis, the net interest margin was 3.29% for the year ended December 31, 2021, compared to 3.33% for the year ended December 31, 2020. The decline in net interest margin was primarily due to a decrease in benchmark rates since the onset of the COVID-19 pandemic in March 2020, repricing of the Company’s portfolios, and changes in rates on variable rate loans, resulting in a lower yield on the Company’s loan and investment portfolios. The decrease was partially offset by a decrease in cost of interest-bearing liabilities of 0.71% from 1.30% for the twelve months ended December 31, 2020 to 0.59% for the twelve months ended December 31, 2021. The decrease in interest-bearing liabilities was primarily attributable to the decline in benchmark rates since the onset of the COVID-19 pandemic in March 2020, an increase in the composition of non-interest bearing deposits to total deposits, and the repricing of existing certificates of deposit.

The loan portfolio’s yield for the year ended December 31, 2021 was 4.36% compared to 4.70% for the year ended December 31, 2020. The decrease was primarily attributable to a decrease in benchmark interest rates resulting in newly originated loans having a lower yield relative to loans originated in 2020 as well as a decrease in yield on floating rate loans year-over-year.

The investment securities portfolio’s yield for the year ended December 31, 2021 was 1.63% compared to 2.39% for the year-ended December 31, 2020. The decrease of 0.76% was primarily due to lower yields on investment securities purchased during the period.

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to volume.

Rate/Volume Analysis

	For the Twelve Months Ended December 31, 2021 and 2020
	Increase (Decrease) Due to
(Dollars in thousands)	Volume			Rate			Total Increase (Decrease)
Interest Earings Assets:
Federal funds sold	$	—		$	—		$	—
Securities:
Taxable	$	1,821		$	(622	)	$	1,199
Tax-exempt(1)		11			(8	)		3
Total securities	$	1,832		$	(630	)	$	1,202
Loans, net of unearned income:
Taxable		5,610			(5,165	)		445
Tax-exempt(1)		352			(28	)		324
Total loans, net of unearned income(2)	$	5,962		$	(5,193	)	$	769
Interest-bearing deposits in other banks	$	102		$	(331	)	$	(229	)
Total interest-earning assets	$	7,896		$	(6,154	)	$	1,742
Interest-bearing Liabilities:
Interest-bearing deposits
NOW accounts	$	341		$	(629	)	$	(288	)
Money market accounts		66			(1,012	)		(946	)
Savings accounts		250			(280	)		(30	)
Time deposits		1,028			(6,907	)		(5,879	)
Total interest-bearing deposits	$	1,685		$	(8,828	)	$	(7,143	)
Federal funds purchased		(1	)		—			(1	)
Subordinated debt		—			—			—
Other borrowed funds		(158	)		(94	)		(252	)
Total interest-bearing liabilities	$	1,526		$	(8,922	)	$	(7,396	)
Change in net interest income	$	6,370		$	2,768		$	9,138

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Interest Income

Interest income increased by $1.7 million or 2.4% to $74.3 million on a fully tax-equivalent basis for the year ended December 31, 2021 compared to $72.6 million for the year ended December 31, 2020, primarily due to an increase in volume in average earning assets, and in particular an increase in loans and investment securities balances. Interest income earned on loans for the year ended December 31, 2021 was approximately $69.6 million, including $2.7 million in loan fee income, compared to $68.9 million, including $2.6 million in loan fee income, for the year ended December 31, 2020.

In addition to the increase in interest earned on loans, in 2021 fully tax-equivalent interest income also increased by approximately $1.2 million as a result of volume growth in investment securities. In 2021 average investment securities increased approximately $140.7 million. The increase in investment securities was funded primarily by PPP loan payoffs and deposit growth.

Interest Expense

Interest expense decreased by $7.4 million or 47.4% to $8.2 million for the year ended December 31, 2021 compared to $15.6 million for the year ended December 31, 2020, primarily due to the decline in rates offered on non-maturity deposits subsequent to the onset of the COVID-19 pandemic which continued into 2021 and the repricing of existing certificates of deposit. Our overall cost of deposits was 0.49% in 2021 compared to 1.20% in 2020 as the decrease in cost of average interest-bearing deposits offset the growth in average interest-bearing demand deposits. Average non-interest bearing demand deposits of $448.7 million in 2021 represented 25.1% of total average deposits compared to $359.6 million in 2020 or 23.9% of total average deposits, further contributing to the decrease in cost of interest-bearing liabilities. Our ability to manage the cost of our deposit funding is partially dependent on our ability to continue to attract non-interest-bearing demand deposits as part of a business banking relationship with our customers.

Provision Expense and Allowance for Loan Losses

The Company maintains an allowance for loan losses that represents management’s best estimate of probable losses inherent in the loan portfolio as of each balance sheet date. Both the amount of the provision, which is charged to earnings, and the level of the allowance for loan losses are impacted by many factors, including general, industry-specific, and geographic-specific economic conditions, current and historical credit losses, conditions specific to individual borrowers, the value of collateral underlying secured loans, among other factors. The Company is not required to implement the new CECL standard until January 1, 2023, and until adoption, the Company has and will continue to account for its allowance for losses using an incurred loss model.

The Company recorded a provision for loan losses of $3.1 million for the year ended December 31, 2021 compared to a provision for loan losses of $6.2 million for the year ended December 31, 2020. A significantly larger provision for loan losses was recorded in 2020 as compared to 2021 primarily due to the onset of the COVID-19 pandemic and the resultant increased risk of probable losses inherent in the portfolio based on our evaluation qualitative factors included in the general component of the allowance for loan losses. In 2021, a substantial portion of the recorded provision was related to growth in the portfolio, with the remainder attributable to changes in the rate of qualitative factors assessed in relation to changes in watch list credits, offset in part by a decline in certain economic considerations like unemployment which showed improvement year-over-year. The allowance for loan losses at December 31, 2021 was $20.0 million compared to $17.0 million at December 31, 2020. The allowance for loan losses as a percent of total gross loans net of unearned income as of December 31, 2021 and December 31, 2020 was 1.20% and 1.09%, respectively. The Company does not maintain an allowance on PPP loan balances, as they are 100% guaranteed by the SBA.

The increase in the balance of the allowance for loan losses during 2021 as compared to 2020 primarily reflects continued uncertainty from the ongoing COVID-19 pandemic as a result of new and emerging variants and our year over year evaluation of qualitative factors, coupled with an increase in loan origination volume during 2021

See “Asset Quality” section below for additional information on the credit quality of the loan portfolio.

Non-interest Income

The Company’s recurring sources of non-interest income consist primarily of bank owned life insurance income, service charges on deposit accounts and insurance commissions. Generally speaking, loan fees are included in interest income on the loan portfolio and not reported as non-interest income.

The following table summarizes non-interest income for the years ended December 31, 2021 and December 31, 2020.

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Non-Interest Income
Years Ended December 31, 2021 and 2020
(Dollars in thousands)	December 31, 2021		December 31, 2020
Service charges on deposit accounts
Overdrawn account fees	$	76	$	71
Account service fees		186		166
Other service charges and fees
Interchange income		379		310
Other charges and fees		98		90
Bank owned life insurance		411		469
Gain on sale of securities		10		309
Net gains on premises and equipment		29		44
Insurance commissions		284		55
Other operating income		246		99
Total non-interest income	$	1,719	$	1,613

Non-interest income for the year ended December 31, 2021 increased $106 thousand or 6.6% to $1.7 million compared to $1.6 million for the year ended December 31, 2020. Excluding gains on securities recorded in 2021 and 2020 of $10 thousand and $309 thousand, respectively, non-interest income increased 31.1% year-over-year. The increase in non-interest income was primarily due to an increase in insurance commissions as a result of higher production and related incentives, increases in other service charges primarily associated with interchange fees, as well as mark-to-market adjustments on certain equity investments. These increases were partially offset by a decrease in bank owned life insurance income as a result of a decrease in yield on the underlying investments.

Non-interest Expense

Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.

The following table summarizes non-interest expense for the years ended December 31, 2021 and December 31, 2020.

Non-Interest Expense
Years Ended December 31, 2021 and 2020
(Dollars in thousands)	2021		2020
Salaries and employee benefits expense	$	20,411	$	18,167
Occupancy expense of premises		1,985		1,950
Furniture and equipment expenses		1,436		1,626
Advertising expense		395		263
Data processing		1,471		1,674
FDIC insurance		887		681
Professional fees		1,418		842
State franchise tax		1,849		1,654
Bank insurance		176		180
Vendor services		574		565
Supplies, printing, and postage		181		267
Director costs		797		683
Other operating expenses		682		611
Total non-interest expense	$	32,262	$	29,163

Non-interest expense for the year ended December 31, 2021 increased $3.1 million or 10.6% to $32.3 million compared to $29.2 million for the year ended December 31, 2020 primarily as a result of increases in salaries and employee benefit expenses of $2.2 million, professional fees of $576 thousand and FDIC insurance fees of $206 thousand.

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The increase in salaries and employee benefits was primarily related to merit based compensation adjustments and incentive compensation tied to performance. Incentive compensation expense can fluctuate from quarter to quarter, based upon the Company’s financial performance and conditions measured against, among other evaluation criteria, our strategic plan and budget. The increase in professional service fee expenses was primarily related to increases in legal and consulting expenses, including activities associated with our contemplated registration of the Company’s voting common shares with the SEC. The increase in FDIC insurance fees was a direct result of the increase of insured deposit balances. The increase in furniture and equipment expenses is a result of timing of capital expenditures and related depreciation year-over-year. The increase in state franchise taxes year-over-year is due to an increase in the Bank’s equity as that is the basis the state of Virginia uses to assess taxes on banking institutions. The decrease in data processing expenses is a result of contract renegotiations during the year.

Income Taxes

Income tax expense increased $2.3 million or 49.6% to $6.8 million for the year ended December 31, 2021 compared to $4.5 million for the year ended December 31, 2020. Our effective tax rate for the year ended December 31, 2021 was 21.1%, compared to 19.7% for the same period ended December 31, 2020. The year-over-year increase in our effective tax rate is primarily attributable to a decrease in the tax benefit associated with exercises of nonqualified stock options, which decreased during the year ended December 31, 2021 when compared to the same period in 2020.

Discussion and Analysis of Financial Condition – Years Ended December 31, 2021 and December 31, 2020

Assets, Liabilities, and Shareholders’ Equity

The Company’s total assets increased $263.8 million or 14.0% to $2.15 billion at December 31, 2021 compared to $1.89 billion at December 31, 2020. The increase in total assets is primarily attributable to an increase in loans net of unearned income of $103.9 million and an increase in the carrying value of the Company’s fixed income investment portfolio of $192.9 million. The increase was partially offset due to a decrease in interest-bearing deposits in banks of $27.4 million.

The Company’s total liabilities increased $241.4 million or 14.2% to $1.94 billion compared to $1.70 billion at December 31, 2020. The increase in total liabilities was primarily attributable to an increase in total deposits of $241.4 million with the largest contributors being non-interest bearing deposits of $126.3 million and interest-bearing demand deposits of $69.9 million.

The Company’s total shareholders’ equity increased $22.4 million or 12.0% to $208.5 million at December 31, 2021 compared to $186.1 million at December 31, 2020. Total common shares outstanding increased from 13,606,558, including 74,000 shares relating to unvested stock awards, at December 31, 2020, to 13,745,598, including 75,826 shares relating to unvested stock awards, at December 31, 2021. The year-over-year increase in shares outstanding was the result of exercises of stock options and additional grants of restricted stock awards.

49

Investment Securities

The Company maintains a fixed income investment securities portfolio that had a total carrying value of $344.8 million at December 31, 2021 and $151.9 million at December 31, 2020. The investment portfolio is used as a source of interest income, credit risk diversification and liquidity, as well as to manage rate sensitivity and provide collateral for secured public funds. Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale. The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $5.0 million and $1.9 million, respectively, as of December 31, 2021 and $5.7 million and $1.0 million, respectively, as of December 31, 2020.

The Company purchased $242.4 million of investment securities during 2021, which were comprised of $114.6 million of mortgage-backed securities, $51.5 million of collateralized mortgage obligation securities, $37.4 million of U.S. government and federal agency securities, $36.8 million of U.S. Treasuries and $2.1 million of municipal securities. The Company had $43.7 million in maturities, calls and principal repayments on securities during 2021, which is comprised of $24.1 million of mortgage-backed securities, $10.7 million of collateralized mortgage obligation securities, $7.0 million of U.S. government and federal agency securities and $1.9 million in municipal securities.

The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of December 31, 2021 and December 31, 2020, respectively.

	December 31, 2021				December 31, 2020
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Held-to-maturity
U.S Treasuries	$	6,000	$	5,850	$	—	$	—
U.S. government and federal agencies		35,720		34,994		—		—
Collateralized mortgage obligations		25,606		25,072		—		—
Taxable municipal		6,089		5,895		—		—
Mortgage-backed		32,094		31,447		—		—
Total Held-to-maturity Securities	$	105,509	$	103,258	$	—	$	—
Available-for-sale
U.S Treasuries	$	30,954	$	30,543	$	—	$	—
U.S. government and federal agencies		34,803		34,537		39,830		40,703
Corporate bonds		1,000		1,031		1,000		1,001
Collateralized mortgage obligations		39,596		39,049		25,387		26,071
Tax-exempt municipal		5,007		5,262		5,457		5,789
Taxable municipal		1,653		1,685		7,199		7,344
Mortgage-backed		127,287		127,193		68,234		70,992
Total Available-for-sale Securities	$	240,300	$	239,300	$	147,107	$	151,900

In the prevailing rate environment as of December 31, 2021 and December 31, 2020, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 4.5 years and 3.7 years, respectively.

During 2021, the Company transferred investment securities with a carrying value of $99.0 million, including an unrealized gain of $593 thousand from available-for-sale to held-to-maturity and began classifying certain newly purchased debt securities as held-to-maturity, as it has the intent and ability to hold these securities to maturity. The unrealized gain at the time of transfer is being amortized over the remaining lives of the securities. The Company did not have any investment securities classified as held-to-maturity as of December 31, 2020.

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The following table summarizes the maturity composition of our investment securities as of December 31, 2021, including the weighted average yield of each maturity band. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

	December 31, 2021
	Amortized		Fair		Weighted-Average
(Dollars in thousands)	Cost		Value		Yield
Held-to-maturity
Due in one year or less	$	—	$	—		—
Due after one year through five years		—		—		—
Due after five years through ten years		43,373		42,394		1.08	%
Due after ten years		62,136		60,864		1.32	%
Total Held-to-maturity Securities	$	105,509	$	103,258		1.22	%
Available-for-sale
Due in one year or less	$	1,051	$	1,062		2.39	%
Due after one year through five years		36,024		35,867		1.23	%
Due after five years through ten years		80,730		80,397		1.44	%
Due after ten years		122,495		121,974		1.54	%
Total Available-for-sale Securities	$	240,300	$	239,300		1.46	%

Loan Portfolio

Gross loans net of unearned income increased $103.9 million or 6.7% to $1.67 billion as of December 31, 2021 compared to $1.56 billion as of December 31, 2020. Excluding PPP loans, gross loans held for investment net of unearned income increased $150.7 million or 10.4% from December 31, 2020 to December 31, 2021. PPP loans held for investment net of unearned income totaled $67.7 million at December 31, 2021, a decrease from $112.5 million at December 31, 2020. PPP loans forgiven during the twelve months ended December 31, 2021 and December 31, 2020 totaled $119.6 million and $37.0 million, respectively. Deferred fees recognized in interest income on PPP loans, including those forgiven, totaled $2.5 million and $2.1 million for the years ended December 31, 2021 and December 31, 2020, respectively.

The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of December 31, 2021 and December 31, 2020.

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	December 31, 2021						December 31, 2020
(Dollars in thousands)	Amount			Percent			Amount			Percent
Real Estate Loans:
Residential	$	342,491			20.56	%	$	278,763			17.84	%
Commercial		968,442			58.15	%		857,256			54.86	%
Construction and land development		231,090			13.87	%		243,741			15.60	%
Commercial - Non Real Estate:
Commercial loans(1)		122,945			7.38	%		181,960			11.64	%
Consumer - Non-Real Estate:
Consumer loans		586			0.04	%		1,000			0.06	%
Total Gross Loans	$	1,665,554			100.00	%	$	1,562,720			100.00	%
Allowance for loan losses		(20,032	)					(17,017	)
Net deferred loan costs (fees)		915						(196	)
Total net loans	$	1,646,437					$	1,545,507

(1)            Includes gross PPP loans of $69.6 million and $114.4 million as of December 31, 2021 and December 31, 2020, respectively.

The following table summarizes the contractual maturities of the loans as of December 31, 2021 by loan type. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The table also summarizes the fixed and floating rate composition of loans held for investment for contractual maturities greater than one year.

	December 31, 2021
(Dollars in thousands)	Within 1 Year		After 1 Year Within 5 Years		After 5 years Within 15 Years		Maturing After 15 Years		Total
Real Estate Loans:
Residential	$	9,692	$	39,938	$	34,543	$	258,318	$	342,491
Commercial		70,529		172,368		722,760		2,785		968,442
Construction and land development		158,053		51,872		17,955		3,210		231,090
Commercial – Non-Real Estate:
Commercial loans		17,321		91,940		11,515		2,169		122,945
Consumer - Non-Real Estate:
Consumer loans		181		383		—		22		586
Total Gross Loans	$	255,776	$	356,501	$	786,773	$	266,504	$	1,665,554
For Maturities Over One Year:
Floating rate loans			$	111,840	$	347,946	$	263,842	$	723,628
Fixed rate loans				244,661		438,827		2,662		686,150
			$	356,501	$	786,773	$	266,504	$	1,409,778

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Asset Quality

The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Lending Officer in conjunction with the Chief Credit Officer are responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions.

The Company’s asset quality remained strong through 2021. The Company did not have any nonperforming assets, which includes nonperforming loans and OREO, as of December 31, 2021 or December 31, 2020. As a result, the Company did not have any nonperforming loans, which consists of loans that are 90 days or more past due or loans placed on nonaccrual as of December 31, 2021 or December 31, 2020.

The Company did not have any nonaccrual loans as of December 31, 2021 or December 31, 2020 nor were there any loans placed on nonaccrual during those periods. A loan is placed on nonaccrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection. As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the twelve months ended December 31, 2021 or the twelve months ended December 31, 2020.

The Company may, for economic or legal reasons related to a borrower’s financial condition, grant a concession to the borrower that it would not otherwise consider, which results in the related loan being classified as a troubled debt restructuring (“TDR”). All modifications are evaluated by management on a loan-by-loan basis to determine whether the loan modification constitutes a TDR. Total TDRs were $549 thousand and $604 thousand as of December 31, 2021 and December 31, 2020, respectively, and were performing in accordance with their modified terms as of those dates.

The following table summarizes the Company’s asset quality as of December 31, 2021 and December 31, 2020.

(Dollars in thousands)	December 31, 2021			December 31, 2020
Nonaccrual loans	$	—		$	—
Loans past due 90 days and accruing interest		—			—
Other real estate owned and repossessed assets		—			—
Total nonperforming assets	$	—		$	—
Allowance for loan losses to nonperforming assets		NM			NM
Nonaccrual loans to gross loans		0.00	%		0.00	%
Nonperforming assets to period end loans and OREO		0.00	%		0.00	%

NM – Not meaningful

Allowance for Loan Losses

Refer to the discussion in the “Critical Accounting Policies and Estimates” section above for management’s approach to estimating the allowance for loan losses.

Gross charged-off loans were $91 thousand and $1 thousand for the years ended December 31, 2021 and December 31, 2020 respectively. The charge-off in 2021 related to a loan that the Company sold as part of a portfolio management strategy. Gross recoveries totaled $1 thousand and $44 thousand for the years ended December 31, 2021 and December 31, 2020. The allowance for loan loss as a percentage of gross loans, net of unearned income was 1.20% and 1.09% as of December 31, 2021 and December 31, 2020, respectively. Excluding PPP loan balances, the allowance for loan losses as a percentage of gross loans, net of unearned income was 1.25% and 1.17% at December 31, 2021 and December 31, 2020, respectively. The Company does not have a reserve on PPP loan balances, as they are 100% guaranteed by the SBA. The increase in the allowance coverage ratio was due to an increase in the rate of qualitative factors in relation to changes in watch list credits among other factors, as well as the heighted uncertainty that persisted at year-end stemming from the ongoing COVID-19 pandemic and its downstream impacts on the economy as a whole, including the Company’s borrowers.

The provision for loan losses totaled $3.1 million for the year ended December 31, 2021 compared to $6.2 million for the year ended December 31, 2020. The decrease in the provision for loan losses as compared to the same period in 2020 primarily reflects changes in the Company’s evaluation of environmental factors impacting our loan portfolio during 2021. During 2020 and into 2021, the environmental or qualitative factor allocations within the allowance for loan losses were adjusted to account for the risks to certain industry subgroups and portfolio segments within our portfolio as a result of the emergence of the COVID-19 pandemic.

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The following table summarizes the Company’s loan loss experience by loan portfolio for the years ended December 31, 2021 and December 31, 2020.

	December 31, 2021						December 31, 2020
(Dollars in thousands)	Net (charge-offs) recoveries			Net (charge-off) recovery rate (1)			Net (charge-offs) recoveries		Net (charge-off) recovery rate (1)
Real estate loans:
Residential	$	—			—		$	—		—
Commercial		(90	)		(0.01	)%		—		—
Construction and land development		—			—			—		—
Commercial loans		—			—			43		0.02	%
Consumer loans		—			—			—		—
Total	$	(90	)				$	43		.
Average loans outstanding during the period	$	1,597,125					$	1,463,580
Allowance coverage ratio (2)					1.20	%				1.09	%
Total net (charge-off) recovery rate (1)					(0.01	)%				0.00	%
Allowance to nonaccrual loans ratio(3)					NM					NM

NM – Not meaningful

(1) The net (charge-off) recovery rate is calculated by dividing total net (charge-offs) recoveries during the year by average gross loans outstanding during the year.

(2) The allowance coverage ratio is calculated by dividing the allowance for loan losses at the end of the period by gross loans, net of unearned income at the end of the period.

(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan losses at the end of the period by nonaccrual loans at the end of the period.

The following table summarizes the allowance for loan losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan losses and total loans as of December 31, 2021 and December 31, 2020.

	December 31, 2021
(Dollars in thousands)	Allowance for Loan Losses		Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans
Real Estate Loans:
Residential	$	2,769		14.27	%		20.56	%
Commercial		13,091		67.48	%		58.15	%
Construction and land development		2,824		14.56	%		13.87	%
Commercial - Non-Real Estate:
Commercial loans(1)		711		3.66	%		7.38	%
Consumer - Non-Real Estate:
Consumer loans		5		0.03	%		0.04	%
Unallocated		632		-			-
Total	$	20,032		100.00	%		100.00	%

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	December 31, 2020
(Dollars in thousands)	Allowance for Loan Losses		Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans
Real Estate Loans:
Residential	$	2,430		14.58	%		17.84	%
Commercial		10,602		63.61	%		54.86	%
Construction and land development		2,617		15.70	%		15.60	%
Commercial - Non-Real Estate:
Commercial loans(1)		1,007		6.04	%		11.64	%
Consumer - Non-Real Estate:
Consumer loans		11		0.07	%		0.06	%
Unallocated		350		-			-
Total	$	17,017		100.00	%		100.00	%

Management believes that the allowance for loan losses is adequate to absorb credit losses inherent in the portfolio as of December 31, 2021. There can be no assurance, however, that adjustments to the provision for loan losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for loan losses necessary.

Deposits

Total deposits increased $241.4 million or 14.7% to $1.88 billion as of December 31, 2021 compared to $1.64 billion as of December 31, 2020.

Non-interest bearing demand deposits increased $126.3 million or 34.8% to $488.8 million as of December 31, 2021 compared to $362.6 million at December 31, 2020. Non-interest bearing demand deposits represented 26.0% and 22.1% of total deposits at December 31, 2021 and December 31, 2020, respectively.

Interest-bearing deposits, which include NOW accounts, regular savings accounts, money market accounts, and time deposits, increased $115.2 million or 9.0% to $1.39 billion as of December 31, 2021 compared to $1.28 billion as of December 31, 2020. Interest-bearing demand deposits represented 74.0% and 77.9% of total deposits at December 31, 2021 and December 31, 2020, respectively.

The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts, time deposits, reciprocal IntraFi Demand^® deposits, IntraFi Money Market^® deposits and IntraFi CD^® deposits. Core deposits totaled $1.64 billion or 87.1% of total deposits and $1.40 billion or 85.5% of total deposits at December 31, 2021 and December 31, 2020, respectively.

The following table sets forth the average balances of deposits and the average interest rates paid for the years ended December 31, 2021 and 2020.

	December 31, 2021					December 31, 2020
(Dollars in thousands)	Average Amount		Rate			Average Amount		Rate
Non-interest bearing	$	448,723				$	359,598
Interest bearing:
NOW accounts		262,319		0.30	%		196,776		0.55	%
Money market accounts		337,993		0.37	%		310,789		0.71	%
Savings accounts		83,032		0.36	%		47,263		0.70	%
Time deposits		657,986		0.65	%		588,239		1.72	%
Total interest-bearing		1,341,330		0.49	%		1,143,067		1.20	%
Total	$	1,790,053				$	1,502,665

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The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2021.

	December 31, 2021
(Dollars in thousands)	Total		Uninsured
Three months or less	$	57,754	$	38,504
Over three through 6 months		64,600		41,600
Over 6 through 12 months		49,593		34,593
Over 12 months		83,008		70,008
Total	$	254,955	$	184,705

The Company has estimated total uninsured deposits of $1.01 billion and $783.9 million as of December 31, 2021, and December 31, 2020, respectively.

Capital Resources

The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act. As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory requirements.

The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision.

The rules adopted by the Federal Reserve require the Bank to maintain the following minimum capital ratios: (i) a ratio of common equity Tier 1 to risk-weighted assets of 4.5%, plus a 2.5% capital conservation buffer, resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of 7.0%, (ii) a ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the 2.5% capital conservation buffer, resulting in a minimum Tier 1 capital ratio of 8.5%, (iii) a ratio of total risk-based capital to risk-weighted assets of 8.0%, plus the 2.5% capital conservation buffer, resulting in a minimum total risk-based capital ratio of 10.5%, and (iv) a leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets. The capital conservation buffer, which was phased in ratably over a four year period beginning January 1, 2016, is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and discretionary compensation paid to certain officers, based on the amount of the shortfall. As of December 31, 2021 and 2020, ratios of the Bank were in excess of the fully phased-in requirements.

The Basel III capital reforms also integrated the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA. The Federal Reserve’s final rules (i) introduced a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well capitalized status, (ii) increased the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well capitalized status being 8.0%, and (iii) eliminated the provision that provided that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well capitalized. The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well capitalized status were unchanged by the final rules. As of December 31, 2021 and 2020, the most recent notification from the Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.

On January 1, 2020, the federal banking agencies adopted the CBLR framework, which provides a simple measure of capital adequacy for community banking organizations that meet certain qualifying criteria and elect to be subject to the rule. Under the final rule, a qualifying community banking organization is any depository institution or depository institution holding company that has less than $10 billion in total consolidated assets, off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. The banking organization also cannot be an advanced approaches banking organization.

The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provided that, as of the second quarter of 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provided a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It established a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.

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Under the final rule, an eligible bank can opt out of the CBLR framework and revert back to the risk-weighted framework without restriction. As of December 31, 2021, both the Company and Bank were qualifying community banking organizations, but elected not to measure capital adequacy under the CBLR framework.

The federal banking agencies adopted rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over a three-year transition period ending January 1, 2026 the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model (“CECL Transition Election”). The Company is required to implement the CECL model as of January 1, 2023 and we intend to make the CECL Transition Election effective in the first quarter of 2023. We currently expect our adoption of this guidance will result in an increase to our allowance for credit losses on financial instruments due to the requirement to record expected losses over the remaining contractual lives of our financial instruments; however, the actual impact will depend on the characteristics of our financial instruments, economic conditions, and our economic and loss forecasts at the adoption date. As a result, the adoption of CECL may have an adverse effect on our regulatory capital.

Note 15 to the Consolidated Financial Statements, included in Item 13 of this registration statement, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements.

Shareholders’ equity increased $22.4 million or 14.0% to $208.5 million as of December 31, 2021 compared to $186.1 million as of December 31, 2020. The increase in shareholders’ equity was primarily attributable to 2021 net income of $25.5 million, which was partially offset by a decrease of $3.8 million in accumulated other comprehensive income as a result of changes in fair value in the Company’s available-for-sale investment portfolio.

In August of 2021, the Company’s Board of Directors approved a share repurchase program whereby the Company was authorized to repurchase up to 675,000 shares of its outstanding common stock, or 4.9% of outstanding shares as of December 31, 2021. The stock repurchase program will expire on August 31, 2022 or earlier if all the authorized shares have been repurchased. The Company has not repurchased any its outstanding common stock under the program as of December 31, 2021.

Liquidity

Liquidity reflects a financial institution’s ability to fund assets and meet current and future financial obligations. Liquidity is essential in all banks to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth. Monitoring and managing both liquidity measurements is critical in developing prudent and effective balance sheet management. Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn.

The Company’s principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Company’s lending and investment activities is determined through monitoring loan demand. Liquidity needs are also met with cash and cash equivalents and unencumbered securities classified as available-for-sale. Liquid assets totaled $299.3 million as of December 31, 2021 compared to $222.9 million at December 31, 2020. These amounts represented 16.8% and 11.6% of total assets as of December 31, 2021 and December 31, 2020, respectively.

In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as credit lines with the FHLB, the Reserve Bank and other correspondent banks. Specifically, the Company has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and the Reserve Bank. Additional borrowing capacity at the FHLB was approximately $315.7 million as of December 31, 2021. Additional borrowing capacity with the Reserve Bank was approximately $29.8 million as of December 31, 2021. Undrawn lines of credit with other correspondent banks totaled $105.0 million at December 31, 2021.

Liquidity is a core pillar of the Company’s operations. Conditions may arise in the future that could negatively impact the Company’s future liquidity position resulting in funding mismatches. These include market constraints on the ability to convert assets into cash or accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks also can affect a bank’s liquidity. Management maintains that the Company has a strong liquidity position, any of the factors referenced above could materially impact that in the future.

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Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors. For further information, see Note 10 to the Consolidated Financial Statements, included in Item 13 of this registration statement, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.

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Item 3.            Properties

The Company is headquartered in Reston, Virginia and conducts business through its headquarters office, eight full-service bank branches and one loan production office. The following table sets forth information regarding our offices, which are all leased.

Location	Year Leased
Headquarters:
1943 Isaac Newton Sq. E, Suites 100, 125, 200, and 220 Reston, VA 20190		2011	1
Other Properties:
Reston Branch 1943 Isaac Newton Sq. E, Ste. 150 Reston, VA 20190		2011
Alexandria Branch 640 Franklin St., Suites 120 and 230 Alexandria, VA 22314		2013
Arlington Branch 2300 Wilson Blvd., Ste. 120 Arlington, VA 22201		2014
Arlington Loan Production Office 4600 N. Fairfax Dr., Ste. 106 Arlington, VA 22203		2017
Washington, D.C. Branch 1401 H St., NW, Ste. 702 Washington, DC 20005		2017
Loudoun Branch 842 South King St. Leesburg, VA 20175		2008
Prince William Branch 12701 Marblestone Dr., Ste. 150 Woodbridge, VA 22192		2021
Rockville Branch 11 N. Washington St., Ste. 100 Rockville, MD 20850		2010
Tysons Branch 8229 Boone Blvd., Ste. 102 Tysons, VA 22182		2016

(1) Suite 200 of the Company’s headquarters was leased starting in 2016.

We believe that the current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion. We believe that upon expiration of each lease we will be able to extend the lease on satisfactory terms or relocate to another acceptable location. See Note 5 of Notes to the December 31, 2021, Consolidated Financial Statements, for additional disclosures related to the Company’s properties.

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Item 4.            Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of January 31, 2022 concerning the number and percentage of shares of the Company’s common stock beneficially owned by its directors, executive officers whose compensation is disclosed in this registration statement, and by its directors and all executive officers as a group. Except as otherwise indicated, all shares are owned directly, and the named person possesses sole voting and sole investment power with respect to all such shares. The Company knows of no person or persons, who is a beneficial owner of more than 5% of the Company’s common stock as defined by Rule 13d-3 of the Exchange Act.

Name	Position	Common Stock Beneficially Owned(1)			Exercisable Options Included in Common Stock Beneficially Owned		Percentage(2)
Directors
Philip W. Allin	Director		180,661	(3)		20,625		1.30	%
Christopher W. Bergstrom	Director, President and Chief Executive Officer		64,252	(3)		15,000		*
Philip R. Chase	Director		110,643	(3)		20,625		*
Jean M. Edelman	Director		321,493	(3), (4)		—		2.32	%
Michael T. Foster	Director		331,021	(3)		20,625		2.39	%
Michael A. Garcia	Director		16,536	(3)		—		*
Subhash K. Garg	Director		244,891	(3), (5)		—		1.77	%
Ronald J. Gordon	Director		161,062	(3)		20,625		1.16	%
Jonathan C. Kinney	Chairman of the Board		546,504	(3), (6)		20,625		3.94	%
O. Leland Mahan	Director		112,754	(3)		14,625		*
Lim P. Nguonly	Director		82,651	(3)		20,625		*
Named Executive Officers who are not Directors
Carl E. Dodson	Senior Executive Vice President - Chief Operating Officer and Chief Risk Officer		146,355			37,500		1.05	%
William J. Ridenour	Senior Executive Vice President –Chief Banking Officer		169,932	(7)		37,500		1.22	%
All directors and executive officers of the Company as a group (15 persons)			2,543,007	(8)		228,375		18.07	%

* Percentage of ownership is less than one percent of the Company’s outstanding common stock.

(1)	For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Exchange Act under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within 60 days.
(2)	Represents percentage of 13,844,535 shares issued and outstanding as of January 31, 2022, except with respect to individuals holding options exercisable within 60 days of said date, in which case represents percentage of shares issued and outstanding plus the number of shares with respect to which such person holds options exercisable within 60 days of January 31, 2022, and except with respect to all directors and executive officers of the Company as a group, in which case represents percentage of shares issued and outstanding plus the number of shares with respect to which all such person hold options exercisable within 60 days of January 31, 2022.
(3)	Includes 2,786 shares of unvested restricted stock for each of Mr. Allin, Mr. Chase, Ms. Edelman, Mr. Foster, Mr. Garcia, Mr. Garg, Mr. Gordon, Mr. Kinney, Mr. Mahan and Mr. Nguonly. Includes 12,570 shares of unvested restricted stock for Mr. Bergstrom. These shares are subject to a vesting schedule, forfeiture risk and other restrictions. They may be voted at meetings of the Company’s shareholders.
(4)	Includes 268,957 shares as to which Ms. Edelman shares voting and/or investment power with her spouse.
(5)	Includes 89,940 shares held by a 401(k) plan for the benefit of Mr. Garg as to which he is co-trustee and shares voting and/or investment power; 3,610 shares held by an employee plan relating to an affiliated company of Mr. Garg as to which he is co-trustee and shares voting and/or investment power; 28,125 shares held by a trust as to which Mr. Garg is the sole beneficiary, serves as co-trustee and shares voting and/or investment power; 32,000 shares held by company as to which Mr. Garg shares voting and/or investment power; and 85,555 shares held by an affiliated company of Mr. Garg. Also includes 14,625 shares as to which Mr. Garg shares voting and/or investment power with his spouse.
(6)	Includes 275,026 shares held by an affiliated company of Mr. Kinney.
(7)	Includes 115,415 shares as to which Mr. Ridenour shares voting and/or investment power with his spouse.
(8)	Includes 52,200 shares of unvested restricted stock. These shares are subject to a vesting schedule, forfeiture risk and other restrictions. They may be voted at meetings of the Company’s shareholders.

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Item 5.            Directors and Executive Officers

Board of Directors

The following table sets forth certain information about our directors, including their names, ages and years in which they began serving as directors (including service on the board of directors of the Bank prior to the Company becoming the bank holding company for the Bank in 2017).

Name	Age	Position	Director Since
Philip W. Allin	63	Director	2006
Christopher W. Bergstrom	61	Director, President and Chief Executive Officer	2018
Philip R. Chase	64	Director	2006
Jean M. Edelman	62	Director	2008
Michael T. Foster	59	Director	2008
Michael A. Garcia	62	Director	2018
Subhash K. Garg	70	Director	2008
Ronald J. Gordon	67	Director	2006
Jonathan C. Kinney	75	Chairman of the Board	2008
O. Leland Mahan	82	Director	2008
Lim P. Nguonly	61	Director	2008

The business experience of each of the directors is set forth below. No director has any family relationship, as defined in Item 401 of Regulation S-K, with any other director or with any of our executive officers. There are no arrangements or understandings between any of the directors and any other person pursuant to which he or she was selected as a director.

Philip W. Allin is the Executive Vice President of Interiors by Guernsey, the furniture-focused division of Guernsey, Inc., a supplier of furniture and office products in the Mid-Atlantic. Prior to merging his company to create Interiors by Guernsey in 2017, Mr. Allin owned Systems Furniture Gallery, Inc., SEI Furniture and Design ~ Supplies Express, Inc. and Office Outfitters, Inc. Mr. Allin is an owner, Treasurer, and Principal in Barrel Oak Winery. Mr. Allin earned a Bachelor of Science degree in Business Administration and Finance from the University of Maryland, College Park. Since 2006, Mr. Allin has been Chairman of the Board of Fairfax Water, serving quality water to more than 2,000,000 residents and businesses in Northern Virginia. He has been on the Fairfax Water Board since 1992 and previously served as Vice-Chairman and Treasurer. Mr. Allin has been involved in several de novo banks in the Northern Virginia area. He is an organizer and founding shareholder of the Bank. Mr. Allin’s position as a member of the board of directors is supported by his educational background in the area of business administration and finance, and his professional experience as principal and senior executive of several local small businesses.

Christopher W. Bergstrom has been President and Chief Executive Officer of the Bank and Chief Executive Officer of the Company since April 2018. He has over 39 years of experience in the banking industry. Before joining John Marshall Bank, Mr. Bergstrom served in a variety of executive positions during 19 years with Cardinal Financial Corporation and Cardinal Bank (collectively “Cardinal”), most recently serving as President and Chief Executive Officer from October 2015 until United Bankshares, Inc.’s acquisition of Cardinal in April 2017. He was also President of United Bank from April 2017 to April 2018. Mr. Bergstrom received his Master of Science in Finance from Virginia Commonwealth University and a Bachelors of Business Administration degree from James Madison University. Mr. Bergstrom’s position as a member of the board of directors is supported by his professional experience of over 39 years in banking, including his prior experience in organizing and leading Cardinal Bank as its President and Chief Executive Officer.

Philip R. Chase retired from his position as Chief Financial Officer of NT Concepts, a leading technology firm that supports the U.S. Government with software engineering, geospatial, data analytics and investigative services solutions, in December 2019. He leads the board’s Finance and Risk Committee. His prior engagements have included positions as Senior Vice President/Chief Financial Officer of a leading provider of mission-critical intelligence and cyber security services to the Armed Forces and the Federal Government, Vice President of Finance and Chief Financial Officer for an e-learning company primarily supporting the Office of Personnel Management, and Director of Corporate Operations at an information technology and professional services firm. Prior to that, Mr. Chase was an owner, Vice President, and Chief Financial Officer of CCI, Incorporated, a professional services government contractor acquired by Stanley Associates in 2002. Throughout his career, and currently, he has consulted as Owner/Principal at Synergis LLC, a management and business advisory firm which focuses on strategic planning and chief financial officer consulting support in the government contracting industry. He also previously worked in the banking industry in a lending and risk management capacity for approximately eight years. Mr. Chase’s position as a member of the board of directors is supported by his professional experience in the banking industry, and as principal of a local small business focusing on the government contracting industry, which is one of the Bank’s target markets.

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Jean M. Edelman is a founder of Edelman Financial Engines, the largest independent financial planning and investment management firm in the nation, and the largest provider of financial advice and services to 401(k) plans in the country. She is a Trustee of Rowan University, and benefactor, along with her husband, of the Edelman Planetarium and Edelman Fossil Park at Rowan, as well as the Edelman Nursing Center at Inova Hospital and the Edelman Arena at the Northern Virginia Therapeutic Riding Program. Ms. Edelman is also on the boards of NVTRP and the Wolf Trap Foundation for the Performing Arts, as well as Inova Hospital’s Holistic Nursing Council. Ms. Edelman’s position as a member of the board of directors is supported by her extensive professional experience in business management and the financial services industry.

Michael T. Foster, a Fellow of the American Institute of Architects, is the founder and president of MTFA Architecture, Inc., an award-winning architecture, interiors, historic preservation, and urban planning firm. MTFA Architecture is a regional leader in sustainable design and development for institutional, commercial, educational, and government buildings. Mr. Foster is active in the community having served on the Arlington Economic Development Commission, past Chair of the Arlington Planning Commission and past Chair of the Arlington Chamber of Commerce. He is currently appointed to the Arlington Board of Code Appeals, serves on The Virginia Hospital Center Foundation Board, The Virginia Tech College of Architecture Board, and is a mentor for the Urban Land Institute. He is active in numerous professional, civic, philanthropic, and arts organizations serving the community and the region. Mr. Foster’s position as a member of the board of directors is supported by his professional experience as founder and principal of a successful local business and his extensive civic and business contacts in the community.

Michael A. Garcia is president of Mike Garcia Construction Inc., a family-owned business. He established his Prince William County-based company in 1981, and during the past seven years, Mike Garcia Construction has been voted Best Builder of Prince William County by Prince William County residents. Mr. Garcia was a director of Cardinal Bank from 1999 and served on the board’s loan committee until Cardinal’s acquisition by United Bank in 2017. Mr. Garcia currently is Chairman of the Prince William County Commercial Development Committee, lending his knowledge and experience in residential and commercial real estate development to support and guide business owners through the entire process of commercial real estate development projects. Mr. Garcia supports the community by exclusively hiring talent within Prince William County, and by supporting multiple community projects and youth organizations. He has received numerous awards over the years for his community service. Mr. Garcia’s position as a member of the board of directors is supported by his professional experience of a local small business and his extensive contacts in the local business community.

Subhash K. Garg is a co-founder and managing member of Wiener & Garg LLC, a certified public accounting firm in Rockville, Maryland. Since June 1978, Mr. Garg has been a member of the American Institute of Certified Public Accountants and the Virginia Society of Certified Public Accountants. Mr. Garg is involved with several non-profit organizations in the Washington, D.C. metropolitan area which are helping to bring and expand Indian sub-continent culture in the community. Mr. Garg’s position as a member of the board of directors is supported by his professional experience as founder and principal of a local certified public accounting firm and his extensive contacts in the local business community.

Ronald J. Gordon was the Chairman and CEO of ZGS Communications (“ZGS”), a Hispanic-owned Spanish-language media company with interests in television, radio and the internet. Founded in 1983 by Mr. Gordon, ZGS owned and operated Spanish-language television stations, representing the largest group of independent stations affiliated with the Telemundo television network. In 2017, ZGS entered into agreement to sell all its broadcast assets to Comcast/NBC Universal. The transaction closed in January 2018. Mr. Gordon serves on the Board of Trustees of WETA, the flagship PBS television station in the nation’s capital. Mr. Gordon’s position as a member of the board of directors is supported by his professional experience as founder and principal of a local small business, overseeing the operation of a national television network, and his extensive contacts in the local business community.

Jonathan C. Kinney is a shareholder at the law firm of Bean, Kinney and Korman, P.C. in Arlington, Virginia. Mr. Kinney serves as the President of the Arlington County Retirement Board, a Trustee Emeritus of the Arlington Community Foundation and Community Residence Foundation. For the last 45 years, he has been actively involved in Arlington civic matters including being the 2016 recipient of the Spirit Award by the Arlington Community Foundation. Mr. Kinney earned an undergraduate degree from Duke University and a Juris Doctor from the University of Chicago Law School. Mr. Kinney became the Chairman of the board of directors in 2019. Mr. Kinney’s position as the Chairman and a member of the board of directors is supported by his legal education, his professional experience as principal of a local law firm, and his extensive contacts in the local business community.

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O. Leland Mahan has practiced law in Leesburg, Virginia, for over 53 years. Currently, he is a senior partner at the law firm of Hall, Monahan, Engle, Mahan & Mitchell in Leesburg, Virginia. His primary areas of practice have been litigation, business, land use, real estate, wills and estate administration. Mr. Mahan earned a B.S. degree from Virginia Tech in 1961, and a Juris Doctor from the University of Richmond School of Law in 1964. He served as President of the University of Richmond Law School Alumni Association from 1988 to 1990. He served as a Captain in the United States Air Force, serving in the Judge Advocate General’s Corp from 1964 to 1967. He is active in legal and community affairs, being a member of the Virginia Trial Lawyers Association, Virginia State Bar, Virginia Bar Association and past president of the Loudoun County Bar Association. Mr. Mahan served as a director and President of the Loudoun Small Business Development Center. He has served in leadership roles as a member of the Loudoun County Redistricting Committee and the Loudoun County Economic Development Committee. Mr. Mahan has served on the advisory boards of Virginia National Bank (including as chairman from 1980 to 1984), NationsBank and George Mason Bank. Mr. Mahan’s position as a member of the board of directors is supported by his legal education, his professional experience as principal of a local law firm, and his extensive contacts in the local business community.

Lim P. Nguonly is the founder and President of Princess Jewelers. Since 1988, Princess Jewelers has built its reputation as a prominent Washington full-service quality jewelry store. Mr. Nguonly is an Alumnus of College de Valleyfield in Quebec, Canada and holds a Diamond Diploma from the Gemological Institute of America (G.I.A.). Mr. Nguonly is now actively involved with numerous real estate investments. Mr. Nguonly’s position as a member of the board of directors is supported by his professional experience as founder and partner of a local small business, and as a local commercial real estate investor.

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Executive Officers

The following table sets forth certain information regarding our executive officers, including their names, ages and positions:

Name	Age	Position
Christopher W. Bergstrom	61	President and Chief Executive Officer
Carl E. Dodson	67	Senior Executive Vice President - Chief Operating Officer and Chief Risk Officer
William J. Ridenour	70	Senior Executive Vice President – Chief Banking Officer
Kent D. Carstater	54	Executive Vice President – Chief Financial Officer
Andrew J. Peden	44	Executive Vice President – Chief Lending Officer

The business experience of each of our executive officers, other than Mr. Bergstrom, is set forth below. No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our directors. There are no arrangements or understandings between any of the officers and any other person pursuant to which he was selected as an officer.

Carl E. Dodson is the Senior Executive Vice President – Chief Operating Officer and Chief Risk Officer of the Company and served as the Bank’s President from its initial organization until June 2008. Mr. Dodson has over 40 years of community banking experience in the Washington metropolitan area. Mr. Dodson was one of the original officers of Palmer National Bank in Washington, D.C., serving as Executive Vice President and senior commercial lender from 1983 to 1996. Following Palmer’s sale to George Mason Bankshares in 1996, he served as a Senior Vice President of George Mason Bank until 1998. In 1998, Mr. Dodson joined Cardinal Bank as Chief Credit Officer. In 2001, Mr. Dodson was named Executive Vice President and Chief Operating Officer of the parent company, Cardinal Financial Corporation. Mr. Dodson holds a Bachelor of Arts in Economics from the University of Virginia, and Masters of Business Administration from the Darden School of Business at the University of Virginia.

William J. Ridenour is the Senior Executive Vice President – Chief Banking Officer of the Company and was previously the President of the Bank from June 2008 through June 2019. Prior to joining the Company, Mr. Ridenour was Executive Vice President and Chief Lending Officer at James Monroe Bank from July 2003 until its sale to Mercantile in July 2006, and served with Mercantile and its acquirer, PNC Financial Services Group, until January 2008. Mr. Ridenour has over 46 years of community banking experience in the Northern Virginia/Washington, D.C. market. Mr. Ridenour holds a Bachelor of Arts in Economics from Thiel College, a Masters of Science in Finance from American University and is a graduate of the Commercial Lending Training Program of Chase Manhattan Bank.

Kent D. Carstater is the Executive Vice President – Chief Financial Officer of the Company and has been since June 2017. He has responsibility for accounting, administrative, financial, and risk management operations. Mr. Carstater also chairs the Company’s Asset/Liability management committee. He has over 23 years of financial services experience. He joined John Marshall Bank in July 2016 as Senior Vice President of Market Risk Management, overseeing the Bank’s liquidity, asset/liability, investment, capital planning and strategic planning functions. From 2012 to 2016, Mr. Carstater served as a Senior Vice President and Treasurer at the Bank of Georgetown. In that role, he was responsible for financial and risk management, investor relations, capital markets activities and strategic planning. Prior to becoming a commercial banker in 2012, he advised community bank executives on strategic matters as an investment banker and founded a private equity firm focused on investing in financial institutions. Mr. Carstater earned his Bachelors of Science from Virginia Tech in Finance and Masters of Business Administration from the Darden School of Business at the University of Virginia.

Andrew J. Peden is the Executive Vice President – Chief Lending Officer of the Company and has been since May 2018. He has over 20 years of banking experience. Prior to joining the Company, Mr. Peden spent one year at United Bank serving as a Market Executive. Prior to that, Mr. Peden spent 17 years with Cardinal Bank where he most recently served as Executive Vice President of Commercial Real Estate Lending. Mr. Peden earned his Bachelors of Science from the University of Richmond – Robins School of Business in Business. Mr. Peden is also very involved in the community, having served for 15 years on the steering committee of a fundraising event for the Inova Kellar Center and as a youth sports coach.

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Item 6.            Executive Compensation

Overview

The primary objective of our executive compensation program is to attract and retain highly skilled and motivated executive officers that significantly contribute to the Company’s success. The executive officers are expected to manage the Company to promote its growth and profitability, minimize risk as well as advancing the interests of our shareholders. As such, the compensation program is designed to provide levels of compensation that reflect the executive’s role in the organization and reward the individual’s performance within the context of the organization’s performance.

We assess our executive officers’ performance both objectively and subjectively using both financial measures (such as return on average assets, return on average equity, efficiency ratio, credit quality, net income to budget and total return to shareholders) and non-financial goals and objectives (including strategic objectives, safety and soundness, risk management, status of our relationship with bank regulatory agencies and community service). The Compensation Committee of our board of directors believes that evaluating performance in this manner aligns the interests of our executive officers with the achievement of long-term sustainable financial performance and resulting increases in shareholder value. We believe that our compensation program contributes to achieving these results. In this Item 6 only, we sometimes refer to the Compensation Committee as the “Committee.”

The principal elements of our executive compensation program are annual base salary, short-term incentive compensation through annual cash bonuses, long-term incentives through the grants of equity-based awards and participation in our deferred income plans. In addition, we provide our executives with benefits that are generally available to all of our salaried employees.

We view the principal elements of our executive compensation as related but distinct, and target to deliver competitive annual total compensation opportunities to the Company’s executive officers commensurate with individual and Company performance. Our Compensation Committee has not adopted any formal policies or guidelines for allocating total compensation between long-term and short-term compensation, between cash and non-cash compensation, or among different forms of compensation. We determine the appropriate level for each compensation element based, in part, but not exclusively, on our view of internal equity and consistency, performance, the competitive landscape and other information we deem relevant. We believe that equity-based awards are a motivator in attracting and retaining executives over the long-term, and that salary and cash bonuses are important considerations in the short-term.

Annually, our Compensation Committee performs a strategic review of our executive officers’ total compensation. Through this review, the Committee determines whether the Company adequately compensates our executive officers for both individual and organizational results, relative to external compensation benchmarks. The Committee considers the Company’s internal objectives (financial and non-financial), the individual executive’s contribution to Company objectives, external peer compensation levels and peer performance in making annual compensation decisions for the Company’s executive officers. The Compensation Committee also receives annual assessments prepared by the Chief Executive Officer regarding the performance of each named executive officer other than the Chief Executive Officer.

The following table sets forth an overview of the compensation for Christopher W. Bergstrom, President & Chief Executive Officer, Carl E. Dodson, Senior Executive Vice President, Chief Operating Officer & Chief Risk Officer, and William J. Ridenour, Senior Executive Vice President, Chief Banking Officer. Messrs. Bergstrom, Dodson and Ridenour collectively constitute our named executive officers for the year ended December 31, 2021. The compensation of the named executive officers is not necessarily indicative of how we will compensate our named executive officers in the future. Evaluation and changes, as needed, are made to our compensation structure to ensure compensation packages remain competitive and align with our compensation philosophy.

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Summary Compensation Table

Name and Principal Position	Year		Salary		Bonus		Stock Awards(1)		Nonqualified Deferred Compensation Earnings		All Other Compensation (2)		Total
Christopher W. Bergstorm, President & Chief Executive Officer		2021	$	650,000	$	685,000	$	150,018	$	—	$	290,419	$	1,775,437
Carl E. Dodson, Senior Executive Vice President — Chief Operating Officer & Chief Risk Officer		2021	$	370,000	$	250,000	$	—	$	—	$	113,885	$	733,885
William J. Ridenour, Senior Executive Vice President – Chief Banking Officer		2021	$	370,000	$	155,000	$	—	$	—	$	186,263	$	711,263

(1) The amounts represent the aggregate grant date fair value of restricted stock awards granted in 2021 calculated in accordance with Financial Accounting Standards Board Account Standards Codification Topic 718 (“FASB ASC Topic 718”). See Note 13 of Notes to the December 31, 2021, Consolidated Financial Statements, for additional information about the Company’s share-based compensation plans, including the assumptions made in the valuation of restricted stock awards. The awards vest ratably, including the grant date and the three years following the grant date.

(2)  The amounts include discretionary contributions made by the Company to its nonqualified deferred compensation plan for Messrs. Bergstrom, Dodson and Ridenour in the amounts of $250,000, $80,000 and $145,000, respectively. Each other perquisite and personal benefit received by the officer was less than $25,000. Please see “— Deferred Compensation Plan” and “— Employment Agreements” below for more information on the deferred compensation plan and perquisites and other personal benefits.

Base Salary

We generally set annual base salaries for the executive officers based on the executive’s experience, individual performance for the prior year and our prior year financial results. We also consider comparative peer salary data and believe that base salaries are set at levels that enable us to hire and retain individuals in the banking/finance industry that can drive achievement of the Company’s overall objectives.

The Committee annually evaluates the performance of the Chief Executive Officer based on our financial performance, achievements in implementing our long-term strategy and the personal observations of the Chief Executive Officer’s performance by the members of the Committee and board of directors. For other executive officers, the Committee reviews with the Chief Executive Officer the performance evaluations for those executive officers, along with competitive salary data for the Company’s peers.

Effective January 1, 2022, Messrs. Bergstrom, Dodson and Ridenour were entitled to annual base salaries of $685,000, $382,000 and $382,000, respectively.

As part of the Company’s succession planning, effective June 1, 2022, both Messrs. Dodson and Ridenour will reduce their current duties and responsibilities and assume roles as advisors to the Chief Executive Officer. The current duties and responsibilities that Messrs. Dodson and Ridenour will not perform in their roles as advisors to the Chief Executive Officer are currently being transitioned to existing members of the Company’s executive management team. Effective June 1, 2022, Messrs. Dodson’s and Ridenour’s annual base salaries will each be reduced to $200,000. Their perquisites will be reduced or eliminated on or before June 1, 2023. See “— Employment Agreements” below.

Short-Term Incentive Compensation

We annually review the Company’s performance relative to internal goals and each executive officer’s individual performance and responsibility to assess the payment of short-term incentive compensation. The Committee makes a discretionary assessment of actual financial results compared to budget and non-financial performance metrics relative to strategic objectives, safety and soundness, effectiveness in managing risk, and status of our relationship with bank regulatory agencies. Financial measures such as return on average assets, return on average equity, efficiency ratio, credit quality, net income to budget, and total return to shareholder are considered but each measure is not assigned a specific weight or given a higher or lower position of importance relative to the other measures. The Committee believes that total compensation for executive officers (base salary, short-term and long-term compensation) should vary based on the Company’s performance and return to shareholders, and should be generally consistent relative to performance against the Company’s peers. These considerations are taken into account in determining the cash bonus, if any, for each executive officer.

Based on assessment of performance, the Committee approves at the end of each year an overall pool of discretionary cash bonuses to be awarded to all officers. The Committee determines the annual cash bonus for the Chief Executive Officer. The Chief Executive Officer determines and reviews with the Committee the annual cash bonuses for executive officers other than the Chief Executive Officer based upon actual Company and individual results compared to the targeted results. Certain members of the executive management team, along with the Chief Executive Officer, then allocate discretionary bonuses to all other employees, not including executive officers.

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Long-Term Incentive Compensation – Equity Incentive Plan

Each year, the Committee also considers the desirability of granting long-term incentive equity awards under our 2015 Stock Incentive Plan (the “2015 Plan”). The 2015 Plan was approved by shareholders of the Bank and assumed by the Company in connection with the formation of the holding company, to attract, retain and motivate key employees and directors. We believe that equity awards focus our executive management on building long-term profitability and shareholder value by closely aligning the interests of management with those of our shareholders. As a result, it is our view that equity awards afford a desirable long-term compensation method.

Under the 2015 Plan, incentive stock options, non-qualified stock options, shares of restricted stock and restricted stock units may be awarded to such officers and employees as the Compensation Committee may designate, and non-qualified stock options, shares of restricted stock and restricted stock units may be awarded to directors. The Company’s previous share-based compensation plan, the 2006 Stock Option Plan (the “2006 Plan”), provided for the grant of share-based awards in the form of incentive stock options and non-qualified stock options to directors and employees. In April 2015, the 2006 Plan was terminated and replaced with the 2015 Plan.

The 2015 Plan is administered by the Committee, each member of which meets the definition of an “independent director” under the listing standards of The Nasdaq Stock Market. Subject to the terms of the 2015 Plan, the Committee has the authority to select participants and to grant options, shares of restricted stock and restricted stock units, to determine the terms of those awards, and otherwise to administer and interpret the 2015 Plan. Neither the Committee nor the board of directors may reprice any option unless the repricing is approved in advance by the shareholders of the Company. Upon a “change in control” (as defined in the 2015 Plan) of the Company, all awards are immediately exercisable and fully vested. At the time of a change in control, the Committee may cancel outstanding options and give the holder the right to receive a cash payment in an amount equal to the excess of the market value of the shares subject to the option over the exercise price of the option.

Under the 2015 Plan, of the 976,211 shares authorized, 318,907 shares were available for granting purposes as of December 31, 2021.

For 2021, the Committee determined to grant Mr. Bergstrom time-based restricted stock awards totaling 7,654 shares that vest ratably, including the grant date and the three years following the grant date.

Deferred Compensation Plan

We currently have in place the John Marshall Bancorp Deferred Compensation Plan (the “Nonqualified Plan”), which offers certain executive officers and directors the opportunity to voluntarily defer current compensation for retirement income and other significant future financial needs for themselves, their families and other dependents. The Nonqualified Plan is also designed to provide the Company with a vehicle to address limitations on our contributions under any tax-qualified defined contribution plan. Any of our officers holding the position of senior vice president or above may be eligible to participate in the Nonqualified Plan.

Pursuant to the Nonqualified Plan, eligible executive officers can defer up to 25% of base salary and 100% of cash bonus on an annual basis, and our directors can defer up to 100% of director fees on an annual basis. Participants are 100% vested in such deferral amounts and may elect from various investment funds to earn a return for the amounts of compensation that they defer. The Company may also provide discretionary contributions to the named executive officers, subject to certain vesting criteria including age, length of service with the Bank, and length of participation in the Nonqualified Plan. In 2021, the Company made discretionary contributions to the plan for Messrs. Bergstrom, Dodson and Ridenour in the amounts of $250,000, $80,000 and $145,000, respectively, which is included in the amounts under the “All Other Compensation” column in the Summary Compensation Table above.

401(k) Plan

Our 401(k) Plan is designed to provide retirement benefits to all eligible full-time employees. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax deferred basis. Our named executive officers, all of whom were eligible to participate in the 401(k) Plan during 2021, may elect to participate in the 401(k) Plan on the same basis as all other eligible employees. We have elected a safe harbor 401(k) Plan and as such make matching contributions of up to 100% of employee salary contribution deferrals of up to 3% of pay and 50% of employee salary contributions that exceed 3% but do not exceed 5% of pay, subject to a cap of $58,000 for any employee in 2021. An employee must contribute to receive the matching contribution. Matching contributions are subject to a vesting schedule.

In addition, we may make a discretionary employer profit sharing contribution to all eligible employees. Profit sharing contributions, if any, are made annually and are a function of the Company’s net income, among other factors. In the event a profit sharing contribution is made by the Company, each eligible employee receives the same amount. Profit sharing contributions are subject to a vesting schedule.

Health and Welfare Benefits

Our named executive officers are eligible to participate in the same benefit plans designed for all of our eligible full-time and part-time employees, including health, dental, vision, disability and basic group life insurance coverage, on the same basis as other participants. The purpose of our employee benefit plans is to help us attract and retain quality employees, including executives, by offering benefit plans similar to those typically offered by our competitors.

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Perquisites

We provide our named executive officers with a limited number of perquisites that we believe are reasonable and consistent with our overall compensation program and better enable us to attract and retain superior employees for key positions. See “— Employment Agreements” below for a general description of the types of perquisites provided to our named executive officers.

Outstanding Equity Awards at Fiscal Year-End

The following tables set forth, on an award by award basis, information concerning all stock options and restricted stock awards held by the named executive officers at December 31, 2021. All options were granted at 100% of market value as determined in accordance with the Company’s 2006 Plan and 2015 Plan.

Option Awards
Name	Number of securities underlying unexercised options exercisable		Number of securities underlying unexercised options unexercisable		Equity incentive plan awards: Number of securities underlying unexercised unearned options		Option exercise price		Option expiration date
Christopher W. Bergstorm		15,000		—		—	$	17.36	4/30/2028
Carl E. Dodson		25,000		—		—	$	6.00	6/26/2022
		37,500		—		—	$	11.77	4/28/2025
William J. Ridenour		37,500		—		—	$	11.77	4/28/2025

Stock Awards
Name	Number of shares or units of stock that have not vested		Market value of shares or units of stock that have not vested (1),(2)			Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested		Equity incentive plan award: Market or payout value of unearned shares, units or other rights that have not vested
Christopher W. Bergstorm		2,942	$	58,546	(3)		—	$	—
		5,358	$	106,624	(4)		—	$	—
		5,741	$	114,246	(5)		—	$	—
Carl E. Dodson		—	$	—			—	$	—
William J. Ridenour		—	$	—			—	$	—

(1)	Based on the $19.90 closing price of our common stock on December 31, 2021.
(2)	The awards vest ratably, including the grant date and the three years following the grant date.
(3)	Represents award of restricted stock granted on January 21, 2020.
(4)	Represents award of restricted stock granted on December 15, 2020.
(5)	Represents award of restricted stock granted on December 21, 2021.

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Director Compensation

Our non-employee directors may receive both cash and equity compensation. Mr. Bergstrom does not receive additional compensation for his service on the board of directors. During the year ended December 31, 2021, directors received $3,000 for each board of directors’ meeting attended ($6,000 for the Chairman) and $600 for each Committee meeting attended ($900 for each Committee Chairman). In addition, as indicated in the table below, restricted stock awards were made to the directors in 2021 based on the Company’s performance, with each director receiving 1,786 shares.

The following table sets forth information regarding compensation paid to non-employee directors during the year ended December 31, 2021.

Name	Fees Earned or Paid in Cash		Stock Awards(1)		Option Awards		Nonqualified Deferred Compensation Earnings		All Other Compensation		Total
Directors
Jonathan C. Kinney (Chairman)	$	99,000	$	35,006	$	—	$	—	$	—	$	134,006
Philip W. Allin	$	39,600	$	35,006	$	—	$	—	$	—	$	74,606
Philip R. Chase	$	57,000	$	35,006	$	—	$	—	$	—	$	92,006
Jean M. Edelman	$	30,600	$	35,006	$	—	$	—	$	—	$	65,606
Michael T. Foster	$	36,900	$	35,006	$	—	$	—	$	—	$	71,906
Michael A. Garcia	$	53,400	$	35,006	$	—	$	—	$	—	$	88,406
Subhash K. Garg	$	41,400	$	35,006	$	—	$	—	$	—	$	76,406
Ronald J. Gordon	$	33,000	$	35,006	$	—	$	—	$	—	$	68,006
O. Leland Mahan	$	54,600	$	35,006	$	—	$	—	$	—	$	89,606
Lim P. Nguonly	$	36,600	$	35,006	$	—	$	—	$	—	$	71,606

(1) Reflects aggregate grant date fair value of stock awards provided in 2021 based upon the stock price on the date of grant in accordance with FASB ASC Topic 718. The awards presented vest in two substantially equal annual installments beginning on the first anniversary of the grant date. At December 31, 2021, each non-employee director had outstanding unvested stock awards of 3,786 shares.

Employment Agreements

The following provides a summary description of the employment agreements we have with each of our named executive officers.

Christopher W. Bergstrom. The Company and the Bank entered into an employment agreement with Christopher W. Bergstrom effective April 30, 2018 pursuant to which he serves as President and Chief Executive Officer. The employment agreement is effective until Mr. Bergstrom’s employment with the Company and the Bank is terminated. The employment agreement provides for a base salary that may be increased by the Company in its discretion, as well as eligibility for an annual bonus that may be awarded by the Company. Mr. Bergstrom is eligible to receive equity awards from the Company in such amounts and subject to such terms and conditions as the board of directors determines in its discretion, and is eligible to participate in the Bank’s split dollar life insurance plan. He is entitled to a Company-owned automobile, with the Company paying the associated insurance, taxes, maintenance, fuel and toll expenses for the automobile. The Company pays an annual membership fee for concierge medical care on behalf of Mr. Bergstrom and he is eligible for any other benefits provided to the Company’s employees generally.

If Mr. Bergstrom dies during the term of the agreement, Mr. Bergstrom’s spouse or his estate would be entitled to all compensation and benefits that Mr. Bergstrom would otherwise be entitled to receive through the date of termination. In addition, if Mr. Bergstrom’s spouse or other family members are covered by the Company’s health plan at the time of his death, the Company will pay their health insurance premiums under Section 4980B of the Internal Revenue Code of 1986, as amended (“COBRA”), for 12 months following his death. If Mr. Bergstrom is terminated due to his “incapacity” (as defined in the agreement), he will be entitled to all compensation and benefits earned through the date of termination.

In the event of a termination of Mr. Bergstrom’s employment by the Company or the Bank without “cause” or by Mr. Bergstrom for “good reason” (as such terms are defined in the agreement), Mr. Bergstrom would be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, and to his continued compliance with certain noncompetition and nonsolicitation provisions in the agreement, for a period of 12 months, his base salary in effect immediately preceding such termination, and payment of his health insurance premiums under COBRA for a period of two years to the extent he is eligible for such benefits. In the event of a termination of Mr. Bergstrom’s employment by the Company or the Bank with “cause,” he would be entitled to receive all compensation and benefits earned through the date of termination.

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If there is a “change of control” (as defined in the agreement) of the Company during the term of the agreement, then, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, Mr. Bergstrom would be entitled to receive (i) a lump sum cash payment equal to 2.99 times the sum of (a) his base salary when the change of control occurs, plus (b) the average of the highest three years’ annual cash bonus earned with respect to the five complete fiscal-year periods immediately preceding the year in which the change of control occurs, with such lump sum payment to be made on the date the change of control occurs. In addition, if Mr. Bergstrom is terminated by the Company without cause within two years after a change of control, he will also be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, payment of his health insurance premiums under COBRA for a period of two years following his termination date.

Mr. Bergstrom’s agreement contains post-employment noncompetition and nonsolicitation restrictions. Under such provisions, for a period of 12 months following the termination of his employment, Mr. Bergstrom is prohibited from providing duties that are the same as or substantially similar to those duties performed by him for the Company and the Bank during the last 12 months of employment within a 25 mile radius of the Bank’s (or successor’s) headquarters for a bank or other financial institution that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time employment ceases. Mr. Bergstrom has also agreed that, during such period, he will not, directly or indirectly, solicit the customers of the Company or the Bank with whom he had “material contact” (as defined in the agreement) for the benefit of any other competitive business, and will not hire any person employed by the Company or the Bank during the six months preceding cessation of employment, or solicit for hire or encourage any such person to terminate employment with the Company or Bank, if the purpose is to compete with the Company or the Bank.

The agreement provides that any incentive compensation that Mr. Bergstrom receives is subject to repayment (“clawback”) to the Company to the extent required by law or under a clawback policy adopted by the Company.

Carl E. Dodson. The Company and the Bank entered into an employment agreement with Carl E. Dodson effective April 30, 2018 and subsequently amended effective January 1, 2020, pursuant to which he serves as Senior Executive Vice President, Chief Operating Officer & Chief Risk Officer. The employment agreement was to be effective until Mr. Dodson’s employment with the Company and the Bank is terminated but has been modified pursuant a letter agreement between the parties as described below. The employment agreement provides for a base salary that may be increased by the Company in its discretion, as well as eligibility for an annual bonus that may be awarded by the Company. Mr. Dodson is eligible to receive equity awards from the Company in such amounts and subject to such terms and conditions as the board of directors determines in its discretion, and participates in the Bank’s split dollar life insurance plan. He is entitled to a Company-owned automobile, with the Company paying the associated insurance, taxes and maintenance expenses for the automobile, and reimbursement of 50% of his country club dues incurred each month, not to exceed $350 a month. Mr. Dodson is eligible for any other benefits provided to the Company’s employees generally.

If Mr. Dodson dies during the term of the agreement, Mr. Dodson’s spouse or his estate would be entitled to all compensation and benefits that Mr. Dodson would otherwise be entitled to receive through the date of termination. If Mr. Dodson is terminated due to his “incapacity” (as defined in the agreement), he will be entitled to all compensation and benefits earned through the date of termination.

In the event of a termination of Mr. Dodson’s employment by the Company or the Bank without “cause” or by Mr. Dodson for “good reason” (as such terms are defined in the agreement), Mr. Dodson would be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, and to his continued compliance with certain noncompetition and nonsolicitation provisions in the agreement, for a period of 12 months, his base salary in effect immediately preceding such termination, and payment of his health insurance premiums under COBRA, for a period of two years to the extent he is eligible for such benefits. In the event of a termination of Mr. Dodson’s employment by the Company or the Bank with “cause,” he would be entitled to receive all compensation and benefits earned through the date of termination.

If there is a “change of control” (as defined in the agreement) of the Company during the term of the agreement, then, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, Mr. Dodson would be entitled to receive (i) a lump sum cash payment equal to 2.5 times the sum of (a) his base salary when the change of control occurs, plus (b) the average of the highest three years’ annual cash bonus earned with respect to the five complete fiscal-year periods immediately preceding the year in which the change of control occurs, with such lump sum payment to be made on the date the change of control occurs. In addition, if Mr. Dodson is terminated by the Company without cause within two years after a change of control, he will also be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, payment of his health insurance premiums under COBRA for a period of two years following his termination date.

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Mr. Dodson’s agreement contains post-employment noncompetition and nonsolicitation restrictions. Under such provisions, for a period of 12 months following the termination of his employment, Mr. Dodson is prohibited from providing duties that are the same as or substantially similar to those duties performed by him for the Company and the Bank during the last 12 months of employment within a 25 mile radius of the Bank’s (or successor’s) headquarters for a bank or other financial institution that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time employment ceases. Mr. Dodson has also agreed that, during such period, he will not, directly or indirectly, solicit the customers of the Company or the Bank with whom he had “material contact” (as defined in the agreement) for the benefit of any other competitive business, and will not hire any person employed by the Company or the Bank during the six months preceding cessation of employment, or solicit for hire or encourage any such person to terminate employment with the Company or Bank, if the purpose is to compete with the Company or the Bank.

Mr. Dodson entered into a letter agreement with the Company and the Bank, dated June 23, 2021, concerning his transition to Vice President and Advisor to the Chief Executive Officer effective June 1, 2022. Pursuant to the letter agreement, in connection with his transition, Mr. Dodson’s base salary will be reduced to $200,000 effective June 1, 2022, his country club dues reimbursement will terminate effective June 1, 2022, his split dollar life insurance benefit will terminate effective June 1, 2023, and he will no longer be provided a Company-owned automobile effective June 1, 2023. Mr. Dodson’s employment agreement will terminate effective June 2, 2023; provided, however, that it may be extended to December 31, 2023 under limited circumstances.

The agreement provides that any incentive compensation that Mr. Dodson receives is subject to repayment to the Company to the extent required by law or under a clawback policy adopted by the Company.

William J. Ridenour. The Company and the Bank entered into an employment agreement with William J. Ridenour effective April 30, 2018 and subsequently amended effective January 1, 2020, pursuant to which he serves as Senior Executive Vice President, Chief Banking Officer. The employment agreement was to be effective until Mr. Ridenour’s employment with the Company and the Bank is terminated but has been modified pursuant a letter agreement between the parties as described below. The employment agreement provides for a base salary that may be increased by the Company in its discretion, as well as eligibility for an annual bonus that may be awarded by the Company. Mr. Ridenour is eligible to receive equity awards from the Company in such amounts and subject to such terms and conditions as the board of directors determines in its discretion, and participates in the Bank’s split dollar life insurance plan. He is entitled to an automobile allowance of $650 per month, and reimbursement of $395 in country club dues per month. Mr. Ridenour is eligible for any other benefits provided to the Company’s employees generally.

If Mr. Ridenour dies during the term of the agreement, Mr. Ridenour’s spouse or his estate would be entitled to all compensation and benefits that Mr. Ridenour would otherwise be entitled to receive through the date of termination. If Mr. Ridenour is terminated due to his “incapacity” (as defined in the agreement), he will be entitled to all compensation and benefits earned through the date of termination.

In the event of a termination of the agreement by the Company or the Bank without “cause” or by Mr. Ridenour for “good reason” (as such terms are defined in the agreement), Mr. Ridenour would be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, and to his continued compliance with certain noncompetition and nonsolicitation provisions in the agreement, for a period of 12 months, his base salary in effect immediately preceding such termination, and payment of his health insurance premiums under COBRA, for a period of two years to the extent he is eligible for such benefits. In the event of a termination of Mr. Ridenour’s employment by the Company or the Bank with “cause,” he would be entitled to receive all compensation and benefits earned through the date of termination.

If there is a “change of control” (as defined in the agreement) of the Company during the term of the agreement, then, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, Mr. Ridenour would be entitled to receive (i) a lump sum cash payment equal to 2.5 times the sum of (a) his base salary when the change of control occurs, plus (b) the average of the highest three years’ annual cash bonus earned with respect to the five complete fiscal-year periods immediately preceding the year in which the change of control occurs, with such lump sum payment to be made on the date the change of control occurs. In addition, if Mr. Ridenour is terminated by the Company without cause within two years after a change of control, he will also be entitled to receive all compensation and benefits earned through the date of termination and, subject to his timely execution and delivery of a general release that becomes effective and irrevocable, payment of his health insurance premiums under COBRA for a period of two years following his termination date.

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Mr. Ridenour’s agreement contains post-employment noncompetition and nonsolicitation restrictions. Under such provisions, for a period of 12 months following the termination of his employment, Mr. Ridenour is prohibited from providing duties that are the same as or substantially similar to those duties performed by him for the Company and the Bank during the last 12 months of employment within a 25 mile radius of the Bank’s (or successor’s) headquarters for a bank or other financial institution that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time employment ceases. Mr. Ridenour has also agreed that, during such period, he will not, directly or indirectly, solicit the customers of the Company or the Bank with whom he had “material contact” (as defined in the agreement) for the benefit of any other competitive business, and will not hire any person employed by the Company or the Bank during the six months preceding cessation of employment, or solicit for hire or encourage any such person to terminate employment with the Company or Bank, if the purpose is to compete with the Company or the Bank.

Mr. Ridenour entered into a letter agreement with the Company and the Bank, dated June 23, 2021, concerning his transition to Vice President and Advisor to the Chief Executive Officer effective June 1, 2022. Pursuant to the letter agreement, in connection with his transition, Mr. Ridenour’s base salary will be reduced to $200,000 effective June 1, 2022, his country club dues reimbursement will terminate effective June 1, 2022, his split dollar life insurance benefit will terminate effective June 1, 2023, and he will no longer be provided an automobile allowance effective June 1, 2023. Mr. Ridenour’s employment agreement will terminate effective June 2, 2023; provided, however, that it may be extended to December 31, 2023 under limited circumstances.

The agreement provides that any incentive compensation that Mr. Ridenour receives is subject to repayment to the Company to the extent required by law or under a clawback policy adopted by the Company.

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Item 7.            Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

The Company and the Bank, during the normal course of business, have made loans and provided other banking services to the directors and executive officers of the Company, including their family members and businesses and professional organizations with which they are associated, and management expects that the Company and the Bank will continue to engage in such banking transactions in the future. Such loans and other banking services were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans and banking services with persons not related to the Company or the Bank, and did not involve more than the normal risk of collectability or present other features unfavorable to the Company or the Bank. Neither the Company nor the Bank has engaged in any transaction reportable pursuant to Item 404(d) of Regulation S-K during the periods specified therein.

The maximum aggregate amount of loans to executive officers, directors and affiliates of the Company during the year ended December 31, 2021, amounted to $12.0 million, representing approximately 5.8% of the Company’s total shareholders’ equity at December 31, 2021. On December 31, 2021, $12.0 million of loans were outstanding to individuals who, during 2021, were executive officers, directors or affiliates of the Company. None of such loans were classified as Substandard, Doubtful or Loss. In addition, the executive officers, directors, and affiliates of the Company had deposits totaling $35.4 million with the Company as of December 31, 2021.

The Company has procedures in place to identify, review, approve and disclose, if necessary, transactions between the Company and executive officers and directors of the Company and its subsidiaries, immediate family members of executive officers and directors, entities directly or indirectly controlled by a director or executive officer, and persons known by the Company to be beneficial owners of more than 5% of the Company’s common stock. As part of management’s related party transaction monitoring, each director and executive officer completes a questionnaire on an annual basis that is designed to elicit information about any potential related party transactions.

Director Independence

The board of directors annually evaluates the independence of its members based on the standards set forth in Nasdaq Rule 5605(a)(2). In addition, the board of directors annually evaluates the independence of its audit committee and compensation committee members based on the standards set forth in Nasdaq Rules 5605(c)(2) and (d)(2), respectively. The board of directors has concluded that all of the members of the Company’s board of directors are independent under the standards set forth in Nasdaq Rule 5605(a)(2) other than Christopher W. Bergstrom, the Company’s President and Chief Executive Officer. The board of directors has also concluded that (i) the members of the audit committee meet the independence standards set forth in Nasdaq Rule 5605(c)(2) and SEC Rule 10A-3, (ii) the members of the compensation committee meet the independence standards set forth in Nasdaq Rule 5605(d)(2), and (iii) the members of the nominating committee are independent under the standards set forth in Nasdaq Rule 5605(a)(2). In making these determinations, the board of directors was aware of and considered the loan and deposit relationships with directors and their related interests that the Company enters into in the ordinary course of its business as disclosed under “Certain Relationships and Related Transactions” above.

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Item 8.            Legal Proceedings

In the ordinary course of our operations, the Company and its subsidiary are parties to various claims and lawsuits. Currently, we are not party to any material legal proceedings, and no such proceedings are, to management’s knowledge, threatened against us. Although the ultimate outcome of legal proceedings cannot be ascertained at this time, it is the opinion of management that the liabilities (if any) resulting from such legal proceedings will not have a material adverse effect on the Company’s business, including its consolidated financial position, results of operations, or cash flows.

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Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Market Information

Our common stock is quoted on the OTC Markets Group’s OTCQB marketplace, under the symbol “JMSB.” Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

We have applied for approval to list our common stock on the Nasdaq Capital Market under our current symbol “JMSB” upon effectiveness of this Registration Statement. We cannot assure you that our application will be approved or that a more active trading market will develop for our common stock. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited. Our shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for an indefinite period. In addition, the prices of thinly traded stocks can be more volatile than more widely traded stocks.

Holders

At January 31, 2022, the Company had 13,844,535 shares of common stock outstanding held by approximately 825 shareholders of record.

Dividends

To date, we have not paid a cash dividend on our common stock. Holders of our common stock are only entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available for dividends. As the Company is a bank holding company and does not engage directly in business activities of a material nature, its ability to pay dividends depends, in large part, upon the receipt of dividends from the Bank. Any future determination relating to our dividend policy will be made by the Board of Directors and will depend on a number of factors, including general and economic conditions, industry standards, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, our ability to service debt obligations senior to our common stock, banking regulations, contractual, legal, tax and regulatory restrictions, and limitations on the payment of dividends by the Company to its shareholders or by the Bank, and such other factors as the Board of Directors may deem relevant.

A discussion of applicable regulatory restrictions on dividends by the Company and the Bank is provided in Item 1 (“Business”) under “Supervision and Regulation – The Company – Limits on Dividends and Other Payments.”

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes information, as of December 31, 2021, relating to the Company’s share-based compensation plans, pursuant to which awards may be granted in the form of incentive stock options, non-qualified stock options, restricted stock and restricted stock units to directors and employees. See Note 13 of Notes to the December 31, 2021, Consolidated Financial Statements, for additional information about the Company’s share-based compensation plans.

	Number of Shares To be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Shares Remaining Available For Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by shareholders		534,236	$	10.45		318,907
Equity compensation plans not approved by shareholders		—	$	—		—
Total		534,236	$	10.45		318,907

Repurchases

On August 18, 2021, our board of directors authorized a stock repurchase program, whereby the Company may repurchase up to 675,000 shares of its common stock, or approximately 5% of its outstanding shares of common stock. The repurchase program will expire on August 31, 2022, or earlier if the total authorized number of shares have been repurchased.

The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares. The repurchase program may be extended, modified, suspended or terminated at any time without notice, in the Company’s discretion, based upon a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, the need for capital in the Company’s operations and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases.

No shares were repurchased under the stock repurchase program from the date of its approval through December 31, 2021.

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Item 10.            Recent Sales of Unregistered Securities

The Company’s share-based compensation plan, approved by shareholders and effective April 28, 2015, provides for the grant of share-based awards in the form of incentive stock options, non-qualified stock options, restricted stock and restricted stock units to directors and employees. The Company has reserved 976,211 shares of voting common stock for issuance under the 2015 Plan, which will remain in effect until April 28, 2025. The Company’s previous share-based compensation plan, the 2006 Stock Option Plan, provided for the grant of share-based awards in the form of incentive stock options and non-qualified stock options to directors and employees. As amended, the 2006 Plan provided for awards of up to 1,490,700 shares. In April 2015, the 2006 Plan was terminated and replaced with the 2015 Plan. Options outstanding prior to April 28, 2015 were granted under the 2006 Plan and are subject to the provisions of the 2006 Plan. Copies of the 2015 Plan and 2006 Plan are included as exhibits to this registration statement.

Set forth below is information for the years ended December 31, 2019, December 31, 2020 and December 31, 2021 concerning (i) the issuance of shares of restricted stock and (ii) the issuance of shares of common stock upon the exercise of outstanding options. The issuances of these securities were exempt from the registration requirements of the Securities Act in reliance on Rule 701. The Company did not have any sales or issuances outside of the Company’s share-based compensation plans during the three-year period ended December 31, 2021.

	2019		2020		2021
Restricted Stock under 2015 Plan(1)		2,950		63,098		38,309
Stock Options under 2015 Plan(2)		20,925		4,125		5,250
Stock Options under 2006 Plan(3)		209,700		438,198		104,249

(1)	This represents the number of shares of restricted stock granted during each year. There were 36,125, 40,646, and 36,483 shares of restricted stock under the 2015 Plan that vested for the years ended December 31, 2019, December 31, 2020, and December 31, 2021, respectively. The weighted average grant date fair value of restricted stock vested during the years ended December 31, 2019, December 31, 2020, and December 31, 2021 was $16.72, $16.56, and $16.25, respectively.
(2)	This represents the number of shares of common stock issued upon the exercise of outstanding options during each year. The weighted average exercise price of stock options exercised under the 2015 Plan during the years ended December 31, 2019, December 31, 2020, and December 31, 2021 was $11.81, $12.26, and $12.53, respectively.
(3)	This represents the number of shares of common stock issued upon the exercise of outstanding options during each year. The weighted average exercise price of stock options exercised under the 2006 Plan during the years ended December 31, 2019, December 31, 2020, and December 31, 2021 was $6.03, $5.39, and $6.24, respectively.

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Item 11.            Description of Registrant’s Securities to be Registered

The following summary description of the material features of the voting common stock of the Company does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Company’s articles of incorporation and bylaws, each as amended. For more information, refer to the Company’s articles of incorporation and bylaws and any applicable provisions of relevant law, including the Virginia Stock Corporation Act (the “VSCA”) and federal laws governing banks and bank holding companies.

General

The Company is authorized to issue 30,000,000 shares of voting common stock, par value $0.01 per share, 1,000,000 shares of nonvoting common stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share. The nonvoting common stock and undesignated preferred stock are not being registered hereby. As of January 31, 2022, there were 13,844,535 shares of voting common stock outstanding, options outstanding to purchase 497,165 shares of voting common stock, and no shares of nonvoting common stock or preferred stock outstanding.

Except with respect to voting, each share of the Company’s common stock has the same relative rights as, and is identical in all respects to, each other share of its common stock. The Company’s voting common stock is quoted on the OTC Markets Group’s OTCQB marketplace, under the symbol “JMSB.” We have applied for approval to list the common stock on the Nasdaq Capital Market under our current symbol “JMSB” upon effectiveness of this Registration Statement. We cannot assure you that our application will be approved.

Dividends

The Company’s shareholders are entitled to receive dividends or distributions that its board of directors may declare out of funds legally available for those payments. The payment of distributions by the Company is subject to the restrictions of Virginia law applicable to the declaration of distributions by a corporation. A Virginia corporation generally may not authorize and make distributions if, after giving effect to the distribution, it would be unable to meet its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it were dissolved at that time, to satisfy the preferential rights of shareholders whose rights are superior to the rights of those receiving the distribution. In addition, the payment of distributions to shareholders is subject to any prior rights of outstanding preferred stock.

As a bank holding company, the Company’s ability to pay dividends is affected by the ability of the Bank to pay dividends to the holding company. The ability of the Bank, as well as the Company, to pay dividends is influenced by bank regulatory requirements and capital guidelines.

Liquidation Rights

In the event of any liquidation, dissolution or winding up of the Company, the holders of shares of its common stock will be entitled to receive, after payment of all debts and liabilities of the Company and after satisfaction of all liquidation preferences applicable to any preferred stock, all remaining assets of the Company available for distribution in cash or in kind.

Voting Rights

The holders of the Company’s voting common stock are entitled to one vote per share and, in general, the affirmative vote of a majority of the shares issued, outstanding and entitled to vote is sufficient to authorize action upon routine matters. Directors are elected by a plurality of the votes cast, and shareholders do not have the right to accumulate their votes in the election of directors.

No Preemptive or Conversion Rights; Redemption and Assessment

Holders of shares of the Company’s common stock do not have preemptive rights to purchase additional shares of common stock and have no conversion or redemption rights. The Company’s common stock is not subject to redemption or any sinking fund and the outstanding shares are fully paid and nonassessable.

Nonvoting Common Stock

Shares of nonvoting common stock, which may hereafter become outstanding, will have all of the rights and privileges of shares of voting common stock except that they will not be able to be voted except as required by Virginia law.

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Preferred Stock

The Company’s board of directors is empowered to authorize the issuance of shares of preferred stock, in one or more classes or series, at such times, for such purposes and for such consideration as it may deem advisable without shareholder approval. The Company’s board may fix the designations, voting powers, preferences, participation, redemption, sinking fund, conversion, dividend and other relative rights, qualifications, limitations and restrictions of any such series of preferred stock.

Anti-takeover Provisions

Certain provisions of the Company’s articles of incorporation and bylaws, and Virginia law, may have the effect of discouraging, delaying, or preventing a change of control of the Company by means of a tender offer, a proxy fight, open market purchases of shares of its common stock, or otherwise in a transaction not approved by the Company’s board of directors. These provisions are designed to reduce, or have the effect of reducing, the Company’s vulnerability to coercive takeover practices and inadequate takeover bids. However, the existence of these provisions could prevent the Company’s shareholders from receiving a premium over the then prevailing market price of the Company’s common stock or a transaction that may otherwise be in the best interest of the Company’s shareholders. In addition, these provisions make it more difficult for the Company’s shareholders, should they choose to do so, to remove the Company’s board of directors or management. These provisions include the following:

Authorized Preferred Stock. The Company’s articles of incorporation authorize the Company’s board of directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the preferences, rights, and other terms of such series. Under this authority, the Company’s board could create and issue a series of preferred stock with rights, preferences, or restrictions that have the effect of discriminating against an existing or prospective holder of the Company’s common stock as a result of such holder beneficially owning or commencing a tender offer for a substantial amount of common stock. One of the effects of authorized but unissued and unreserved shares of preferred stock may be to render it more difficult for, or to discourage an attempt by, a potential acquirer to obtain control of the Company by means of a merger, tender offer, proxy contest, or otherwise, and thereby protect the continuity of the Company’s management.

Board Vacancies. Virginia law and the Company’s articles of incorporation and bylaws provide that any vacancy occurring on the Company’s board may be filled by the remaining members of the board. These provisions may discourage, delay, or prevent a third party from voting to remove incumbent directors and simultaneously gaining control of the Company’s board by filling the vacancies created by that removal with its own nominees.

No Cumulative Voting. the Company’s articles of incorporation do not provide for cumulative voting for any purpose. The absence of cumulative voting may afford anti-takeover protection by making it more difficult for the shareholders to elect nominees opposed by the board of directors.

Shareholder Meetings. Pursuant to its bylaws, special meetings of shareholders may be called only by the Company’s secretary at the request of the chairman of the board of directors or by resolution approved by a majority vote of the board of directors. As a result, shareholders are not able to act on matters other than at annual shareholders’ meetings unless they are able to persuade the chairman or a majority of the board of directors to call a special meeting.

Advance Notification Requirements. The Company’s bylaws require a shareholder who desires to raise new business or nominate a candidate for election to the board of directors at an annual meeting of shareholders to provide advance notice of not later than 90 days prior to the anniversary date of the immediately preceding annual meeting. The Company’s bylaws also require shareholders who desire to raise new business to provide certain information concerning the nature of the new business, the shareholder and the shareholder’s interest in the business matter. Such requirements may discourage the shareholders from submitting nominations and proposals.

Merger Considerations. The articles of incorporation of the Company provide that the Company’s board of directors, when evaluating a transaction that would or may involve a change in control of the Company, shall consider, among other things, the following factors: the effect of the transaction on the Company and its subsidiaries, and their respective shareholders, employees, customers and the communities which they serve; the timing of the proposed transaction; the risk that the proposed transaction will not be consummated; the reputation, management capability and performance history of the person proposing the transaction; the current market price of the Company’s capital stock; the relation of the price offered to the current value of the Company in a freely negotiated transaction and in relation to the directors’ estimate of the future value of the Company and its subsidiaries as an independent entity or entities; tax consequences of the transaction to the Company and its shareholders; and such other factors deemed by the directors to be relevant. This provision provides the Company’s board the latitude to consider additional factors, aside from the price of a proposed merger or other business combination, in determining whether the transaction is in the best interests of the Company and its shareholders.

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Affiliated Transactions Statute. The VSCA contains provisions governing “affiliated transactions.” These include various transactions such as mergers, share exchanges, sales, leases, or other material dispositions of assets, issuances of securities, dissolutions, and similar transactions with an “interested shareholder.” An interested shareholder is generally the beneficial owner of more than 10% of any class of a corporation’s outstanding voting shares. During the three years following the date a shareholder becomes an interested shareholder, any affiliated transaction with the interested shareholder must be approved by both a majority of the “disinterested directors” (those directors who were directors before the interested shareholder became an interested shareholder or who were recommended for election by a majority of disinterested directors) and by the affirmative vote of the holders of two-thirds of the corporation’s voting shares other than shares beneficially owned by the interested shareholder. These requirements do not apply to affiliated transactions if, among other things, a majority of the disinterested directors approve the interested shareholder’s acquisition of voting shares making such a person an interested shareholder before such acquisition. Beginning three years after the shareholder becomes an interested shareholder, the corporation may engage in an affiliated transaction with the interested shareholder if:

• the transaction is approved by the holders of two-thirds of the corporation’s voting shares, other than shares beneficially owned by the interested shareholder;

• the affiliated transaction has been approved by a majority of the disinterested directors; or

• subject to certain additional requirements, in the affiliated transaction the holders of each class or series of voting shares will receive consideration meeting specified fair price and other requirements designed to ensure that all shareholders receive fair and equivalent consideration, regardless of when they tendered their shares.

The provisions of the Affiliated Transactions Statute are only applicable to public corporations that have more than 300 shareholders.

Control Share Acquisitions Statute. Under the VSCA’s control share acquisitions statute, voting rights of shares of stock of a Virginia corporation acquired by an acquiring person or other entity at ownership levels of 20%, 33 1/3%, and 50% of the outstanding shares may, under certain circumstances, be denied. The voting rights may be denied:

• unless conferred by a special shareholder vote of a majority of the outstanding shares entitled to vote for directors, other than shares held by the acquiring person and officers and directors of the corporation; or

• among other exceptions, unless such acquisition of shares is made pursuant to an affiliation agreement with the corporation or the corporation’s articles of incorporation or bylaws permit the acquisition of such shares before the acquiring person’s acquisition thereof.

If authorized in the corporation’s articles of incorporation or bylaws, the statute also permits the corporation to redeem the acquired shares at the average per share price paid for them if the voting rights are not approved or if the acquiring person does not file a “control share acquisition statement” with the corporation within 60 days of the last acquisition of such shares. If voting rights are approved for control shares comprising more than 50% of the corporation’s outstanding stock, objecting shareholders may have the right to have their shares repurchased by the corporation for “fair value.” The provisions of the Control Share Acquisition Statute are only applicable to public corporations that have more than 300 shareholders. Corporations may provide in their articles of incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but the Company has not done so.

Transfer Agent

The transfer agent for the Company’s common stock is American Stock Transfer & Trust Company, LLC, 6201 15th Avenue Brooklyn, NY 11219.

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Item 12.            Indemnification of Directors and Officers

The articles of incorporation of the Company provide that to the full extent that the VSCA permits the limitation or elimination of the liability of directors or officers, a director or officer of the Company will not be liable to the Company or its shareholders for monetary damages. The VSCA provides that the liability of a director or officer in a proceeding brought by or in the right of shareholders, or on behalf of shareholders may be eliminated, except that the liability of a director or officer may not be eliminated if the director or officer engaged in willful misconduct or a knowing violation of the criminal law or of any state or federal securities law, including any claim of unlawful insider trading or manipulation of the market for any security.

The articles of incorporation of the Company provide that to the full extent permitted by the VSCA and other applicable law, the Company will indemnify a director or officer of the Company who is or was a party to any proceeding by reason of the fact that he or she is or was such a director or officer or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and the board of directors of the Company may contract in advance to indemnify any director or officer. The VSCA provides that except as limited by its articles of incorporation, a corporation shall indemnify a director who entirely prevails in the defense of any proceeding to which he or she was a party because he or she is or was a director of the corporation against reasonable expenses incurred in connection with the proceeding. The VSCA further provides that a corporation may indemnify an individual made a party to a proceeding because he or she is or was a director against liability incurred in the proceeding if: (i) the director conducted himself or herself in good faith; (ii) he or she believed (a) in the case of conduct in his or her official capacity, that his or her conduct was in the best interests of the corporation and (b) in all other cases, that his or her conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, the director had no reasonable cause to believe that his or her conduct was unlawful; provided however, no indemnification may be made if: (x) the proceeding was by or in the right of the corporation and the director is adjudged liable to the corporation; or (y) in any other proceeding charging improper personal benefit to the director, the director is adjudged liable to the corporation for the receipt of an improper personal benefit. The board of directors may also indemnify an employee or agent of the Company who was or is a party to any proceeding by reason of the fact that he or she is or was an employee or agent of the Company.

The Company has limited its exposure to liability for indemnification of directors and officers by purchasing directors and officers liability insurance coverage. The rights of indemnification provided in the articles of incorporation of the Company are not exclusive of any other rights that may be available under any insurance or other agreement, by vote of shareholders or disinterested directors, or otherwise.

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Item 13.            Financial Statements and Supplementary Data

John Marshall Bancorp, Inc. Audited Consolidated Financial Statements:  

	Page
Report of Independent Registered Public Accounting Firm	83
Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020	84
Consolidated Statements of Income for the Years Ended December 31, 2021 and 2020	85
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021 and 2020	86
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2021 and 2020	87
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020	88
Notes to the Consolidated Financial Statements	89

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

John Marshall Bancorp, Inc.

Reston, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of John Marshall Bancorp, Inc. and its subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 2008.

Winchester, Virginia

February 24, 2022

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John Marshall Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

December 31, 2021 and 2020

(In thousands, except share and per share data)

	2021			2020
Assets
Cash and due from banks	$	2,920		$	8,228
Interest-bearing deposits in banks		102,879			130,229
Total cash and cash equivalents		105,799			138,457
Securities available-for-sale, at fair value		239,300			151,900
Securities held-to-maturity, fair value of $103,258 as of December 31, 2021		105,509			—
Restricted securities, at cost		4,951			5,676
Equity securities, at fair value		1,869			967
Loans, net of unearned income		1,666,469			1,562,524
Allowance for loan losses		(20,032	)		(17,017	)
Net loans		1,646,437			1,545,507
Bank premises and equipment, net		1,620			2,422
Accrued interest receivable		4,943			5,308
Bank owned life insurance		20,998			20,587
Right of use assets		4,913			5,944
Other assets		12,970			8,728
Total assets	$	2,149,309		$	1,885,496
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Non-interest bearing demand deposits	$	488,838		$	362,582
Interest bearing demand deposits		633,901			563,956
Savings deposits		101,376			62,138
Time deposits		657,438			651,444
Total deposits		1,881,553			1,640,120
Federal Home Loan Bank advances		18,000			22,000
Subordinated debt		24,728			24,679
Accrued interest payable		843			877
Lease liabilities		5,182			6,208
Other liabilities		10,533			5,531
Total liabilities	$	1,940,839		$	1,699,415
Commitment and contingencies
Shareholders’ Equity
Preferred stock, par value $0.01 per share; authorized 1,000,000 shares; none issued	$	—		$	—
Common stock, nonvoting, par value $0.01 per share; authorized 1,000,000 shares; none issued		—			—
Common stock, voting, par value $0.01 per share; authorized 30,000,000 shares; issued and outstanding, 13,745,598 at December 31, 2021, including 75,826 unvested shares, 13,606,558 shares at December 31, 2020, including 74,000 unvested shares		137			135
Additional paid-in capital		91,107			89,995
Retained earnings		117,626			92,165
Accumulated other comprehensive income (loss)		(400	)		3,786
Total shareholders’ equity	$	208,470		$	186,081
Total liabilities and shareholders’ equity	$	2,149,309		$	1,885,496

See Notes to Consolidated Financial Statements.  

84

John Marshall Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

Years Ended December 31, 2021 and 2020

(In thousands, except per share data)

	2021		2020
Interest and Dividend Income
Interest and fees on loans	$	69,415	$	68,714
Interest on investment securities, taxable		4,146		2,896
Interest on investment securities, tax-exempt		120		117
Dividends		263		315
Interest on deposits in banks		175		404
Total interest and dividend income	$	74,119	$	72,446
Interest Expense
Deposits	$	6,599	$	13,742
Federal Home Loan Bank advances		125		377
Subordinated debt		1,487		1,487
Other short-term borrowings		—		1
Total interest expense	$	8,211	$	15,607
Net interest income	$	65,908	$	56,839
Provision for loan losses		3,105		6,217
Net interest income after provision for loan losses	$	62,803	$	50,622
Non-interest Income
Service charges on deposit accounts	$	262	$	237
Bank owned life insurance		411		469
Other service charges and fees		477		400
Gain on sales and calls of securities		10		309
Insurance commissions		284		55
Other operating income		275		143
Total non-interest income	$	1,719	$	1,613
Non-interest Expenses
Salaries and employee benefits	$	20,411	$	18,167
Occupancy expense of premises		1,985		1,950
Furniture and equipment expenses		1,436		1,626
Other operating expenses		8,430		7,420
Total non-interest expenses	$	32,262	$	29,163
Income before income taxes	$	32,260	$	23,072
Income tax expense		6,799		4,546
Net income	$	25,461	$	18,526
Earnings per share, basic	$	1.87	$	1.37
Earnings per share, diluted	$	1.83	$	1.35

See Notes to Consolidated Financial Statements.

85

John Marshall Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2021 and 2020

(In thousands)

	2021			2020
Net Income	$	25,461		$	18,526
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax of $(1,089) and $865 for 2021 and 2020, respectively		(4,098	)		3,253
Reclassification adjustment for gains on available-for-sale securities included in net income, net of tax of $(2) and $(65) for 2021 and 2020, respectively		(8	)		(244	)
Amortization of unrealized gains on securities transferred to held-to-maturity, net of tax of $(21) for 2021		(80	)		—
Total other comprehensive income (loss)	$	(4,186	)	$	3,009
Total comprehensive income	$	21,275		$	21,535

See Notes to Consolidated Financial Statements.

86

John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2021 and December 31, 2020
(In thousands, except share data)
	Shares		Common Stock		Additional Paid- In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, December 31, 2019		13,076,113	$	131	$	87,435		$	73,639	$	777		$	161,982
Net income		—		—		—			18,526		—			18,526
Other comprehensive income		—		—		—			—		3,009			3,009
Exercise of stock options, net of 22,809 shares surrendered		419,514		4		2,035			—		—			2,039
Restricted stock vesting, net of 3,715 shares surrendered		36,931		—		(62	)		—		—			(62	)
Share-based compensation		—		—		587			—		—			587
Balance, December 31, 2020		13,532,558	$	135	$	89,995		$	92,165	$	3,786		$	186,081
Net income		—		—		—			25,461		—			25,461
Other comprehensive loss		—		—		—			—		(4,186	)		(4,186	)
Exercise of stock options, net of 8,742 shares surrendered		100,757		1		554			—		—			555
Restricted stock vesting, net of 26 shares surrendered		36,457		1		(2	)		—		—			(1	)
Share-based compensation		—		—		560			—		—			560
Balance, December 31, 2021		13,669,772	$	137	$	91,107		$	117,626	$	(400	)	$	208,470

See Notes to Consolidated Financial Statements.

87

John Marshall Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2021 and 2020
(In thousands)
	2021			2020
Cash Flows from Operating Activities
Net income	$	25,461		$	18,526
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation		814			791
Right of use asset amortization		1,416			1,823
Provision for loan losses		3,105			6,217
Share-based compensation expense		560			587
Net amortization of securities		488			404
Fair value adjustment on equity securities		(194	)		(96	)
Amortization of debt issuance costs		49			49
Net gains on premises and equipment		(29	)		(44	)
Gains on sales and calls of available-for-sale securities		(10	)		(309	)
Deferred tax (benefit)		(678	)		(1,310	)
Increase in cash surrender value of life insurance		(411	)		(469	)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable		365			(1,298	)
(Increase) decrease in other assets		861			(162	)
Increase (decrease) in accrued interest payable		(34	)		(229	)
Increase (decrease) in other liabilities		591			(52	)
Net cash provided by operating activities	$	32,354		$	24,428
Cash Flows from Investing Activities
Net increase in loans	$	(104,035	)	$	(236,948	)
Purchase of available-for-sale securities		(231,353	)		(70,100	)
Purchase of held-to-maturity securities		(11,025	)		—
Proceeds from sales of available-for-sale securities		—			10,816
Proceeds from maturities, calls and principal repayments of available-for-sale securities		39,315			33,827
Proceeds from maturities, calls and principal repayments of held-to-maturity securities		4,378			—
Net redemption of restricted securities		725			1,512
Purchase of equity securities		(708	)		(440	)
Insurance casualty proceeds		22			63
Proceeds from sale of premises and equipment		35			—
Purchases of bank premises and equipment		(353	)		(584	)
Net cash (used in) investing activities	$	(302,999	)	$	(261,854	)
Cash Flows from Financing Activities
Net increase in deposits	$	241,433		$	331,416
Net repayment of FHLB advances		(4,000	)		(40,000	)
Decrease in federal funds purchased		—			(12,000	)
Issuance of common stock for share options exercised		716			2,411
Repurchase of shares for tax withholding on share-based compensation		(162	)		(434	)
Net cash provided by investing activities	$	237,987		$	281,393
Net increase (decrease) in cash and cash equivalents	$	(32,658	)	$	43,967
Cash and cash equivalents, beginning of year		138,457			94,490
Cash and cash equivalents, end of year	$	105,799		$	138,457
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	8,196		$	15,787
Income taxes		6,829			5,396
Supplemental Disclosures of Noncash Transactions
Unrealized gain (loss) on securities available for sale	$	(5,197	)	$	3,809
Carrying value of securities available-for-sale transferred to held-to-maturity		99,002			—
Right of use asset obtained in exchange for new operating lease liability		385			—

See Notes to Consolidated Financial Statements.

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Note 1— Nature of Business and Summary of Significant Accounting Policy

Nature of Banking Activities

John Marshall Bancorp, Inc. (the “Company”), headquartered in Reston, Virginia, became the registered bank holding company under the Bank Holding Company Act of 1956 for its wholly-owned subsidiary, John Marshall Bank (the “Bank”), on March 1, 2017. This reorganization was completed through a one-for-one share exchange in which the Bank’s shareholders received one share of voting common stock of the Company in exchange for each share of the Bank’s voting common stock.

The Company was formed on April 21, 2016 under the laws of the Commonwealth Virginia. The Bank formed on April 5, 2005 under the laws of the Commonwealth of Virginia and was chartered as a bank on February 9, 2006, by the Virginia Bureau of Financial Institutions. The Bank is a member of the Federal Reserve System and is subject to the rules and regulations of the Virginia Bureau of Financial Institutions, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank opened for business on April 17, 2006 and provides banking services to its customers primarily in the Washington, D.C. metropolitan area.

The accounting and reporting policies of John Marshall Bancorp, Inc. conform to generally accepted accounting principles in the United States of America and reflect practices of the banking industry. The significant accounting policies are summarized below.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Restriction on Dividends

The Bank is subject to certain restrictions on the amount of dividends that it may pay to the Company without prior regulatory approval. At December 31, 2021, the Bank had $64.3 million available to distribute in the form of dividends to the Company.

Significant Accounting Policies

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.

Reclassifications

Certain items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

Concentration of Credit Risk

Most of the Company’s activities are with customers located in the Washington, D.C. metropolitan area. Real estate loans, including commercial and construction and land development loans, represented 93% of the total loan portfolio at December 31, 2021 and 88% of the total loan portfolio at December 31, 2020. The Company does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents

For the purposes of the statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits in banks (items with an original maturity of three months or less).

Securities

Certain debt securities that management has the positive intent and ability to hold-to-maturity are classified as “held-to-maturity” and recorded at amortized cost. Debt securities not classified as held-to-maturity or trading, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported net of deferred tax in accumulated other comprehensive income (loss) within shareholders’ equity. Purchase premiums and discounts on debt securities are recognized in interest income using the interest method over the terms of the securities.

Transfers of debt securities into the held-to-maturity classification from the available-for-sale classification are made at fair value on the date of transfer. The unrealized holding gain or loss on the date of the transfer is reported in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining contractual lives of the securities.

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Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (a) the intent is to sell the security or (b) it is more likely than not that it will be necessary to sell the security prior to recovery of its amortized cost basis. If, however, the Company’s intent is not to sell the security and it is not more than likely that the Company will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income.

The Company regularly reviews each debt security for other-than-temporary impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the security’s ratings, the Company’s best estimate of the present value of cash flows expected to be collected from debt securities, the intention with regards to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.

Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in net income. Any equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Restricted equity securities are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value. The entirety of any impairment on the equity securities is recognized in earnings.

Gains and losses on sales of securities are recorded on the trade date and determined using the specific identification method.

Loans

The Company grants real estate, commercial and consumer loans to customers (representing the Company’s loan segments). A substantial portion of the loan portfolio is represented by commercial real estate loans in the Washington, D.C. metropolitan area. Within the real estate segment, the Company has also identified the residential, commercial and construction classes. The ability of the Company’s debtors to honor their real estate loan contracts is dependent upon the real estate market and general economic conditions in this area, among other factors.

Underwriting and risk characteristics of each loan class are summarized as follows:

• Real estate residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

• Real estate commercial mortgage loans carry risks associated with the successful operation of a business, the continued creditworthiness of the borrower and any related guarantors and changes in the value of the collateral. In the case of investor-owned commercial real estate, risks are expanded to include the financial strength of the tenants occupying the property and the stability of occupancy and lease rates.

• Real estate construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a customer of the Company, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

• Commercial loans carry risks associated with the successful operation of a business and the financial strength of any related guarantors. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

• Consumer loans carry the risks associated with the continued creditworthiness of the borrower and the value of any collateral. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

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The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in the process of collection. Other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The determination of days past due or delinquency status uses the first contractual payment date that has not been paid-in-full by the borrower.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

In 2021, the Company continued to participate in the Paycheck Protection Program (“PPP”). The PPP commenced subsequent to the passage of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in March 2020, and was later expanded by the Paycheck Protection Program and Health Care Enhancement Act of April 2020. The PPP was designed to provide U.S. small businesses with cash-flow assistance during the COVID-19 pandemic through loans that are fully guaranteed by the U.S. Small Business Administration (“SBA”) which may be forgiven upon satisfaction of certain criteria. In efforts to assist local businesses during the COVID-19 pandemic, the Company approved 1,096 PPP loans, totaling $229.2 million during the first and second rounds of the program. As compensation for originating the loans, the Company received lender processing fees from the SBA, which were deferred, along with the related loan origination costs. These net fees are being accreted to interest income over the remaining contractual lives of the loans. Upon forgiveness of a PPP loan and repayment by the SBA, which may be prior to the loan’s maturity, the remainder of any unrecognized net fees are recognized in interest income. PPP loans forgiven during the twelve months ended December 31, 2021 and December 31, 2020 totaled $119.6 million and $37.0 million, respectively. Net deferred fees recognized in interest income on PPP loans, including those forgiven, totaled $2.5 million and $2.1 million for the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, the Company had 361 PPP loans with outstanding balances totaling $67.7 million, net of deferred costs and fees. As of December 31, 2020, the Company had 554 PPP loans with outstanding balances totaling $112.5 million, net of deferred costs and fees.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged off when management believes the collectability of a loan balance is unlikely, which reduces the allowance. Loans are generally written down to the estimated net realizable value of the underlying collateral when the loan is 180 days past due. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans by segment in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors used for each segment include an analysis of the levels of and trends in delinquencies, nonaccrual loans, and watch list loans; trends in concentrations, volume and term of loans; effects of any changes in lending policies and practices; experience, ability, and depth of management; national and local economic trends and conditions; and any other factor, as deemed appropriate. Our qualitative factors in 2021 and 2020 included considerations related to the ongoing COVID-19 pandemic. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, construction, and commercial mortgage loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures unless the loan has been modified in a troubled debt restructuring.

Troubled Debt Restructurings (“TDR”)

The Company may, for economic or legal reasons related to a borrower’s financial condition, grant a concession to the borrower that it would not otherwise consider, which results in the related loan being classified as a TDR. The Company strives to identify borrowers in financial difficulty early and work with them to modify their loan before their loan reaches nonaccrual status. The modified terms for a TDR may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. All restructured loans are considered impaired loans and may either be in accruing status or nonaccruing status. Nonaccruing restructured loans may return to accruing status provided doubt has been removed concerning the collectability of principal and interest as evidenced by a sufficient period of payment performance in accordance with the restructured terms. Loans may be removed from the restructured category in the year subsequent to the restructuring if their revised loan terms are considered to be consistent with terms that can be obtained in the credit market for loans with comparable risk and if they meet certain performance criteria.

On March 27, 2020, the CARES Act was passed by the U.S. Congress. Section 4013 of the CARES Act addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 were not TDRs. In March 2020 (revised in April 2020), the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.” This guidance was issued in response to the COVID-19 pandemic and encouraged financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance explains that, in consultation with the Financial Accounting Standards Board (“FASB”) staff, the federal banking agencies have concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings. The Consolidated Appropriations Act of 2021, enacted in December 2020, extended this relief to the earlier of January 1, 2022 or the first day of a bank’s fiscal year that begins after the national emergency ends. The Company did not have any COVID-19 related deferrals at December 31, 2021 or December 31, 2020.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed on the straight-line method over the useful lives of the assets, ranging from three to fifteen years, or the expected term of leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably certain. Maintenance and repairs of property and equipment are expensed as incurred, while major improvements are capitalized and amortized over their respective useful life.

Bank Owned Life Insurance

The Company has purchased life insurance on certain key executives and officers. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Changes in cash surrender value are reflected in non-interest income in the Consolidated Statements of Income.

Other Real Estate Owned

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Operating costs after acquisition are expensed as incurred. The Company had no other real estate owned as of December 31, 2021 and 2020. At December 31, 2021 and 2020, there were no consumer mortgage loans secured by residential real estate for which formal foreclosure proceedings were in progress.

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Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (a) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in the event of bankruptcy or other receivership, (b) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (c) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, operating loss carryforwards, and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recorded no liability for unrecognized tax benefits at December 31, 2021 or 2020.

Earnings Per Common Share

Earnings per common share is calculated in accordance with Accounting Standard Codification (“ASC”) 260 - Earnings Per Share, which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.

Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Earnings per share are restated for all stock splits and dividends through the date the financial statements are issued.

Advertising Costs

The Company follows the policy of charging the production costs of advertising to expense as incurred. Advertising expense was $395 thousand and $263 thousand for the years ended December 31, 2021 and 2020, respectively.

Share-Based Compensation

The Company recognizes the compensation cost relating to share-based payment transactions based on the grant date fair value of the equity instruments issued. The share compensation accounting guidance requires that compensation cost for all share-based awards be calculated and recognized over the vesting period. A Black-Scholes model is used to estimate the fair value of stock options. Restricted stock awards are valued using the closing stock price on the date of grant. The Company’s accounting policy is to recognized forfeitures as they occur.

Comprehensive Income (Loss)

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains (losses) on securities available-for-sale and the amortization of unrealized losses or accretion of unrealized gains on securities transferred from available-for-sale to held-to-maturity, which are also recognized as a separate component of equity. Items reclassified out of accumulated other comprehensive income (loss) to net income relate solely to realized gains (losses) on sales of securities available-for-sale and appear under the caption “Gain on sales and calls of securities” in the Company’s Consolidated Statements of Income.

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Fair Value of Financial Instruments

Fair values of various assets and liabilities are estimated using relevant market information, valuation techniques and other assumptions, as more fully disclosed in Note 11. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASUs 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (“SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. As part of the Company’s implementation efforts, we have engaged a third-party vendor, reconciled historical loan, charge-off and recovery data and determined segmentation of the loan portfolio for application of the current expected credit losses calculation. The Company is currently in the process of designing calculation methodologies under the new guidance and quantifying the approximate impact on the Company’s financial position and results of operation. We have engaged an external vendor to assist with model validation.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. As of December 31, 2021, the Company had three loans indexed to LIBOR and was in process of modifying the rate on these loans with the respective borrowers. The Company is also considering modifications to the repricing of the subordinated debt that will be indexed to LIBOR when it converts to a floating rate in July 2022.

Note 2— Investment Securities

The following table summarizes the amortized cost and fair value of securities held-to-maturity and available-for-sale and the corresponding amounts of gross unrealized gains and losses at December 31, 2021 and December 31, 2020.

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Table 2.1: Investment Securities Held-to-Maturity and Available-for-sale

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		(Losses)			Value
Held-to-maturity
U.S Treasuries	$	6,000	$	—	$	(150	)	$	5,850
U.S. government and federal agencies		35,720		—		(726	)		34,994
Collateralized mortgage obligations		25,606		—		(534	)		25,072
Taxable municipal		6,089		—		(194	)		5,895
Mortgage-backed		32,094		—		(647	)		31,447
Total Held-to-maturity Securities	$	105,509	$	—	$	(2,251	)	$	103,258
Available-for-sale
U.S Treasuries	$	30,954	$	—	$	(411	)	$	30,543
U.S. government and federal agencies		34,803		258		(524	)		34,537
Corporate bonds		1,000		31		—			1,031
Collateralized mortgage obligations		39,596		179		(726	)		39,049
Tax-exempt municipal		5,007		255		—			5,262
Taxable municipal		1,653		37		(5	)		1,685
Mortgage-backed		127,287		1,232		(1,326	)		127,193
Total Available-for-sale Securities	$	240,300	$	1,992	$	(2,992	)	$	239,300

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		(Losses)			Value
Available-for-sale
U.S. government and federal agencies	$	39,830	$	961	$	(88	)	$	40,703
Corporate bonds		1,000		1		—			1,001
Collateralized mortgage obligations		25,387		688		(4	)		26,071
Tax-exempt municipal		5,457		332		—			5,789
Taxable municipal		7,199		151		(6	)		7,344
Mortgage-backed		68,234		2,778		(20	)		70,992
Total Available-for-sale Securities	$	147,107	$	4,911	$	(118	)	$	151,900

During 2021, the Company transferred investment securities with a carrying value of $99.0 million, including an unrealized gain of $593 thousand from available-for-sale to held-to-maturity and began classifying certain newly purchased debt securities as held-to-maturity, as it has the intent and ability to hold these securities to maturity. The unrealized gain at the time of transfer is being amortized over the remaining lives of the securities. The Company did not have any investment securities classified as held-to-maturity as of December 31, 2020.

The Company did not sell any available-for-sale debt securities for the twelve months ended December 31, 2021. A gain of $10 thousand was recognized on the call of a security in 2021. The Company sold $10.8 million of available-for-sale debt securities resulting in gross gains of $297 thousand and no gross losses for the twelve months ended December 31, 2020. An additional gain of $12 thousand was recognized on the call of a security in 2020.

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Securities having a market value of $78.6 million and $70.1 million at December 31, 2021 and 2020, respectively, were pledged to secure public deposits and for other purposes required by law. These securities had an amortized cost of $78.8 million and $67.5 million at December 31, 2021 and 2020, respectively.

The following table summarizes the fair value of securities held-to-maturity and securities available-for-sale at December 31, 2021 and December 31, 2020 and the corresponding amounts of gross unrealized losses. Management uses the valuations as of month-end in determining when securities are in an unrealized loss position. Therefore, a security’s market value could have exceeded its amortized cost on other days during the prior twelve-month period.

Table 2.2: Securities in a Gross Unrealized Loss Position

	December 31, 2021
	Less than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
Held-to-maturity
U.S Treasury	$	5,851	$	(150	)	$	—	$	—		$	5,851	$	(150	)
U.S. government and federal agencies		31,617		(645	)		3,376		(81	)		34,993		(726	)
Corporate bonds		—		—			—		—			—		—
Collateralized mortgage obligations		25,072		(534	)		—		—			25,072		(534	)
Tax-exempt municipal		—		—			—		—			—		—
Taxable municipal		3,971		(133	)		1,923		(61	)		5,894		(194	)
Mortgage-backed		27,995		(573	)		3,452		(74	)		31,447		(647	)
Total Held-to-maturity Securities	$	94,506	$	(2,035	)	$	8,751	$	(216	)	$	103,257	$	(2,251	)
Available-for-sale
U.S Treasury	$	30,543	$	(411	)	$	—	$	—		$	30,543	$	(411	)
U.S. government and federal agencies		14,154		(301	)		6,877		(223	)		21,031		(524	)
Corporate bonds		—		—			—		—			—		—
Collateralized mortgage obligations		30,352		(726	)		—		—			30,352		(726	)
Tax-exempt municipal		—		—			—		—			—		—
Taxable municipal		265		(5	)		—		—			265		(5	)
Mortgage-backed		93,129		(1,280	)		918		(46	)		94,047		(1,326	)
Total Available-for-sale Securities	$	168,443	$	(2,723	)	$	7,795	$	(269	)	$	176,238	$	(2,992	)

	December 31, 2020
	Less than 12 Months					12 Months or Longer				Total
			Gross					Gross				Gross
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses		Value		Losses
Available-for-sale
U.S. government and federal agencies	$	13,003	$	(88	)	$	—	$	—	$	13,003	$	(88	)
Corporate bonds		—		—			—		—		—		—
Collateralized mortgage obligations		996		(4	)		—		—		996		(4	)
Tax-exempt municipal		—		—			—		—		—		—
Taxable municipal		2,013		(6	)		—		—		2,013		(6	)
Mortgage-backed		5,007		(20	)		—		—		5,007		(20	)
Total Available-for-sale Securities	$	21,019	$	(118	)	$	—	$	—	$	21,019	$	(118	)

96

U.S. Treasuries - The unrealized losses in 15 U.S. Treasury debt securities at December 31, 2021 were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2021. The Company did not hold any U.S. Treasury debt securities as of December 31, 2020.

U.S. Government and Federal Agencies - The unrealized losses in 40 and 12 investments in direct obligations of U.S. government agencies at December 31, 2021 and December 31, 2020, respectively, were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2021 or December 31, 2020.

Collateralized Mortgage Obligation Securities - The unrealized losses in 35 and one investments in collateralized mortgage obligation investments at December 31, 2021 and December 31, 2020, respectively, were caused by interest rate changes. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to change in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider the investment to be other-than-temporarily impaired at December 31, 2021 or December 31, 2020.

Municipal Securities - The unrealized losses in eight and two investments in municipal securities at December 31, 2021 and December 31, 2020, respectively, were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company did not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2021 or December 31, 2020.

Mortgage-Backed Securities - The unrealized losses on the Company’s investment in 75 and five federal agency mortgage-backed securities at December 31, 2021 and December 31, 2020, respectively, were caused by interest rate changes. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to change in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2021 or December 31, 2020.

The Company reviews each debt security for other-than-temporary impairment on at least a quarterly basis based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the security’s ratings, the Company’s best estimate of the present value of cash flows expected to be collected from debt securities, the intention with regards to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery. The Company did not consider those investments to be other-than-temporary impaired at December 31, 2021 or 2020. Additionally, the Company has not recognized any other-than-temporary impairment on any of the investments owned as of December 31, 2021.

The table below summarizes, by major security type, the contractual maturities of our investment securities as of December 31, 2021. Borrowers may have the right to call or prepay certain obligations and as such, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below.

97

Table 2.3: Contractual Maturities of Investment Securities

	December 31, 2021
	Amortized		Fair
(Dollars in thousands)	Cost		Value
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		43,373		42,394
Due after ten years		62,136		60,864
Total Held-to-maturity Securities	$	105,509	$	103,258
Available-for-sale
Due in one year or less	$	1,051	$	1,062
Due after one year through five years		36,024		35,867
Due after five years through ten years		80,730		80,397
Due after ten years		122,495		121,974
Total Available-for-sale Securities	$	240,300	$	239,300

The table below summarizes the carrying amount of restricted securities as of December 31, 2021 and December 31, 2020.

Table 2.4: Carrying Value of Restricted Securities

(Dollars in thousands)	December 31, 2021		December 31, 2020
Federal Reserve Bank Stock	$	3,275	$	3,258
Federal Home Loan Bank Stock		1,616		2,358
Community Bankers’ Bank Stock		60		60
Total Restricted Securities	$	4,951	$	5,676

The Company held equity securities with readily determinable fair values totaling $1.9 million and $967 thousand at December 31, 2021 and December 31, 2020, respectively. Changes in the fair value of these securities are reflected in earnings. A gain of $194 thousand and $96 thousand was recorded in other non-interest income in the Consolidated Statements of Income for the twelve months ended December 31, 2021 and December 31, 2020, respectively. These securities consist of mutual funds held in a trust and were obtained for the purpose of economically hedging changes in the Company’s nonqualified deferred compensation liability.

98

Note 3— Loans 

The following table presents the composition of the Company’s loan portfolio as of December 31, 2021 and December 31, 2020.

Table 3.1: Loan Portfolio Composition

(Dollars in thousands)	December 31, 2021			December 31, 2020
Real Estate Loans:
Residential	$	342,491		$	278,763
Commercial		968,442			857,256
Construction and land development		231,090			243,741
Commercial – Non-Real Estate:
Commercial loans		122,945			181,960
Consumer - Non-Real Estate:
Consumer loans		586			1,000
Total Gross Loans	$	1,665,554		$	1,562,720
Allowance for loan losses		(20,032	)		(17,017	)
Net deferred loan costs (fees)		915			(196	)
Total net loans	$	1,646,437		$	1,545,507

Note 4— Allowance for Loan Losses

The following tables present the activity in the allowance for loan losses for the years ended December 31, 2021 and December 31, 2020, as well as the total allowance for loan losses, the allowance by impairment methodology and loans by impairment methodology as of December 31, 2021 and December 31, 2020.

Table 4.1: Allowance for Loan Losses Activity

	December 31, 2021
	Real Estate
Dollars in thousands	Commercial			Construction & Land Development		Residential		Commercial			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance, December 31, 2020	$	10,602		$	2,617	$	2,430	$	1,007		$	11		$	350	$	17,017
Charge-offs		(90	)		—		—		(1	)		—			—		(91	)
Recoveries		—			—		—		1			—			—		1
Provision		2,579			207		339		(296	)		(6	)		282		3,105
Ending Balance, December 31, 2021	$	13,091		$	2,824	$	2,769	$	711		$	5		$	632		20,032
Individually evaluated for impairment	$	—		$	—	$	—	$	—		$	—		$	—		—
Collectively evaluated for impairment	$	13,091		$	2,824	$	2,769	$	711		$	5		$	632		20,032
Financing Receivables:
Ending Balance, December 31, 2021	$	968,442		$	231,090	$	342,491	$	122,945		$	586		$	—		1,665,554
Individually evaluated for impairment	$	—		$	—	$	549	$	—		$	—		$	—		549
Collectively evaluated for impairment	$	968,442		$	231,090	$	341,942	$	122,945		$	586		$	—		1,665,005

99

	December 31, 2020
	Real Estate
Dollars in thousands	Commercial		Construction & Land Development		Residential		Commercial		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance, December 31, 2019	$	7,096	$	1,867	$	1,062	$	704	$	6	$	21	$	10,756
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		44		—		—		44
Provision		3,506		750		1,368		259		5		329		6,217
Ending Balance, December 31, 2020	$	10,602	$	2,617	$	2,430	$	1,007	$	11	$	350		17,017
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—		—
Collectively evaluated for impairment	$	10,602	$	2,617	$	2,430	$	1,007	$	11	$	350		17,017
Financing Receivables:
Ending Balance, December 31, 2020	$	857,256	$	243,741	$	278,763	$	181,960	$	1,000	$	—		1,562,720
Individually evaluated for impairment	$	—	$	—	$	452	$	152	$	—	$	—		604
Collectively evaluated for impairment	$	857,256	$	243,741	$	278,311	$	182,112	$	1,000	$	—		1,562,116

Gross commercial loans include $69.6 million and $114.4 million of PPP loans as of December 31, 2021 and December 31, 2020, respectively. The Company does not maintain an allowance on these loan balances, as they are 100% guaranteed by the SBA. Management believes the ending allowances at each of the dates indicated were sufficient to absorb the probable losses inherent in the loan portfolio at those dates.

The following tables present a summary of impaired loans and the related allowance as of December 31, 2021 and 2020.

Table 4.2: Impaired Loans by Class

	December 31, 2021
(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Real Estate Loans
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—		—		—
Residential		549		549		—		549		—		569		24
Commercial						—
Consumer		—		—		—		—		—		—		—
Total Impaired Loans	$	549	$	549	$	—	$	549	$	—	$	569	$	24

	December 31, 2020
(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Real Estate Loans
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development		—		—		—		—		—		—		—
Residential		452		452		—		452		—		460		17
Commercial		152		152		—		152		—		173		11
Consumer		—		—		—		—		—		—		—
Total Impaired Loans	$	604	$	604	$	—	$	604	$	—	$	633	$	28

100

The following tables present a summary of past due and non-accrual loans by class as of December 31, 2021 and December 31, 2020.

Table 4.3: Past Due and Non-Accrual Loans

	December 31, 2021
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days or More Past Due and Still Accruing		Nonaccrual Loans
Real Estate Loans
Commercial	$	—	$	—	$	—	$	—	$	968,442	$	968,442	$	—	$	—
Construction and land development		—		—		—		—		231,090		231,090		—		—
Residential		—		—		—		—		342,491		342,491		—		—
Commercial		—		—		—		—		122,945		122,945		—		—
Consumer		—		—		—		—		586		586		—		—
Total Impaired Loans	$	—	$	—	$	—	$	—	$	1,665,554	$	1,665,554	$	—	$	—

	December 31, 2020
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days or More Past Due and Still Accruing		Nonaccrual Loans
Real Estate Loans
Commercial	$	—	$	—	$	—	$	—	$	857,256	$	857,256	$	—	$	—
Construction and land development		—		—		—		—		243,741		243,741		—		—
Residential		—		—		—		—		278,763		278,763		—		—
Commercial		—		—		—		—		181,960		181,960		—		—
Consumer		—		—		—		—		1,000		1,000		—		—
Total Impaired Loans	$	—	$	—	$	—	$	—	$	1,562,720	$	1,562,720	$	—	$	—

The following tables present a summary of credit quality information for loans by class as of December 31, 2021 and December 31, 2020.

Table 4.4: Credit Quality Information by Loan Class

	December 31, 2021
(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
Real Estate Loans
Commercial	$	961,177	$	7,029	$	236	$	—	$	—	$	968,442
Construction and land development		230,704		—		386		—		—		231,090
Residential		342,377		—		114		—		—		342,491
Commercial		122,945		—		—		—		—		122,945
Consumer		586		—		—		—		—		586
Total Impaired Loans	$	1,657,789	$	7,029	$	736	$	—	$	—	$	1,665,554

	December 31, 2020
(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total Loans
Real Estate Loans
Commercial	$	849,801	$	7,213	$	242	$	—	$	—	$	857,256
Construction and land development		243,354		—		387		—		—		243,741
Residential		278,763		—		—		—		—		278,763
Commercial		180,632		1,063		265		—		—		181,960
Consumer		1,000		—		—		—		—		1,000
Total Impaired Loans	$	1,553,550	$	8,276	$	894	$	—	$	—	$	1,562,720

101

The Company assesses credit quality based on internal risk rating of loans. Internal risk rating definitions are:

Pass: These include satisfactory loans that have acceptable levels of risk.

Special Mention: Loans classified as special mention have a potential weakness that requires close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. These credits do not expose the Company to sufficient risk to warrant further adverse classification.

Substandard: A substandard asset is inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be received in the future.

As part of the Company’s loan modification program to borrowers experiencing financial difficulty, the Company may provide concessions to minimize the economic loss and improve long-term loan performance and collectability. The following table summarizes the Company’s loans that were determined to be TDRs during the year ended December 31, 2021. There were no new TDRs for the year ended December 31, 2020.

Table 4.5: Troubled Debt Restructurings

	December 31, 2021
(Dollars in thousands)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Real Estate Loans
Commercial		—	$	—	$	—
Construction and land development		—		—		—
Residential		1		115		113
Commercial		—		—		—
Consumer		—		—		—
Total Impaired Loans		—	$	—	$	—

The modification of the one loan in 2021 resulted in a reduction of the loan’s interest rate.

The Company had a recorded investment in TDRs of $549 thousand and $604 thousand as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021 and 2020, all loans in TDR status were in compliance with their modified terms. There were no loans modified in TDRs that subsequently defaulted within 12 months of their modification date during the years ended December 31, 2021 and 2020.

All TDRs are considered impaired and impairment is determined on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. As of December 31, 2021 and 2020, none of the Bank’s TDRs required the recordation of a specific reserve. As of December 31, 2021 and 2020, there were no additional commitments to disburse funds on loans classified as TDRs.

102

Note 5— Bank Premises and Equipment, Net

The following table summarizes major classes of bank premises and equipment and the total accumulated depreciation as of December 31, 2021 and December 31, 2020.

Table 5.1: Components of Bank Premises and Equipment, Net

(Dollars in thousands)	December 31,2021			December 31, 2020
Leasehold improvements	$	2,840		$	2,808
Furniture and equipment		6,157			6,233
Total Bank Premises and Equipment	$	8,997		$	9,041
Less: Accumulated depreciation		(7,377	)		(6,619	)
Total Bank Premises and Equipment, Net	$	1,620		$	2,422

Depreciation expense was $814 thousand and $791 thousand for the years ended December 31, 2021 and December 31, 2020, respectively.

Note 6— Deposits and Borrowings

The following table shows the components of the Company’s funding sources.

Table 6.1: Composition of Deposits, Short-Term Borrowings and Long-Term Debt

(Dollars in thousands)	December 31, 2021		December 31, 2020
Deposits:
Non-interest bearing demand deposits(1)	$	488,838	$	362,582
Interest-bearing demand deposits(1)		633,901		563,956
Savings deposits		101,376		62,138
Time deposits		657,438		651,444
Total Deposits(2)	$	1,881,553	$	1,640,120

						December 31, 2021		December 31, 2020
(Dollars in thousands)	Stated Interest Rates		Weighted-Average Interest Rate			Carrying Value		Carrying Value
Long-term Debt:
Subordinated debt		5.75%		5.75	%	$	24,728	$	24,679
FHLB advances		0.63% - 0.69%		0.67	%		18,000		22,000
Total Long-term Debt:						$	42,728	$	46,679

(1) Overdraft demand deposits reclassified to loans totaled $2 thousand and $1 thousand at December 31, 2021 and December 31, 2020, respectively.

(2) The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was $255.0 million and $264.7 million at December 31, 2021 and December 31, 2020, respectively.

The Company obtains certain deposits through the efforts of third-party brokers. Brokered deposits totaled $217.7 million and $207.6 million at December 31, 2021 and December 31, 2020, respectively, and were included primarily in time deposits on the Company’s Consolidated Balance Sheets. Reciprocal IntraFi certificates of deposit totaled $61.3 million and $39.7 million at December 31, 2021 and December 31, 2020, respectively. Reciprocal IntraFi demand and money market deposits totaled $209.6 million and $235.8 million at December 31, 2021 and December 31, 2020, respectively.

At December 31, 2021, there were no depositors that represented 5% or more of the Company’s total deposits.

The Company completed a private placement of $25.0 million of fixed-to-floating subordinated notes on July 6, 2017. Subject to limited exceptions permitting earlier redemption, the notes may be redeemed on or after July 15, 2022. Unless redeemed earlier, the notes will mature on July 15, 2027. The notes bear a fixed rate of 5.75% to but excluding July 15, 2022, and will bear a floating rate equal to three-month LIBOR plus 388 basis points thereafter. The notes qualify as Tier 2 capital for regulatory purposes. The notes are carried at their principal amount, less unamortized issuance costs. The subordinated notes are callable, in whole or in part, commencing July 15, 2022.

103

The Company’s Federal Home Loan Bank (“FHLB”) advances are secured by a blanket floating lien on all real estate mortgage loans secured by 1-to-4 family residential, multi-family and commercial real estate properties. Total collateral under the blanket lien amounted to approximately $333.7 million as of December 31, 2021. Total FHLB available borrowing capacity was $505.3 million at December 31, 2021. In order to access the line amount in excess of the collateral pledged, the Bank would be required to pledge additional collateral.

The Company also has federal funds lines of credit with correspondent banks available for overnight borrowing of $105 million of which $0 had been drawn upon at December 31, 2021.

The Company also has the capacity to borrow up to $29.8 million at the Federal Reserve discount window of which $0 had been drawn upon at December 31, 2021. The Bank had loans pledged at the Federal Reserve discount window totaling $39.5 million as of December 31, 2021.

The following table shows the carrying amount of the Company’s time deposits by contractual maturity as of December 31, 2021.

Table 6.2: Scheduled Maturities of Time Deposits and FHLB Advances

(Dollars in thousands)	December 31, 2021
2022	$	411,803
2023		188,032
2024		53,528
2025		1,870
2026		2,205
Thereafter		18,000
Total	$	675,438

Note 7— Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following table presents an overview of the Company’s leases as of December 31, 2021 and December 31, 2020.

Table 7.1: Leases Overview

(Dollars in thousands)	December 31, 2021			December 31, 2020
Lease liabilities	$	5,182		$	6,208
Right-of-use assets		4,913			5,944
Weighted average remaining lease term (Years)		4.07 years			4.78 years
Weighted average discount rate		2.25	%		2.35	%

The following table presents a composition of the Company’s lease costs for the years ended December 31, 2021 and December 31, 2020.

104

Table 7.2: Cost of Leases

(Dollars in thousands)	December 31, 2021		December 31, 2020
Operating lease cost	$	1,496	$	1,463
Variable lease cost		—		—
Short-term lease cost		—		—
Total Lease Cost	$	1,496	$	1,463

The total cash paid for amounts included in the measurement of lease liabilities totaled $1.5 million and $1.4 million for the years ended December 31, 2021 and December 31, 2020, respectively.

The following table is a maturity schedule of the Company’s future lease payments and reconciles the undiscounted total obligation to the total recorded lease liabilities as of December 31, 2021.

Table 7.3: Lease Maturity Schedule

(Dollars in thousands)	December 31, 2021
2022	$	1,491
2023		1,335
2024		1,020
2025		861
2026		685
Thereafter		29
Total Undiscounted Cash Flows	$	5,421
Discount		(239	)
Lease Liabilities	$	5,182

Total rent expense, including building expenses and real estate taxes for certain locations, amounted to $1.6 million and $1.6 million for the years ended December 31, 2021 and 2020, respectively. Rental expenses are classified as a component of the occupancy expense of premises line item in the Consolidated Statements of Income.

Note 8— Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, the Commonwealth of Virginia, the District of Columbia, the State of Maryland, the State of North Carolina and the State of West Virginia. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2018.

The following table presents the significant components of the Company’s deferred tax assets and deferred tax liabilities as of December 31, 2021 and December 31, 2020.

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Table 8.1: Significant Components of Deferred Tax Assets and Liabilities

(Dollars in thousands)	December 31, 2021		December 31, 2020
Deferred Tax Assets:
Allowance for loan losses	$	4,387	$	3,727
Lease liabilities		1,135		1,360
Net deferred loan fees		—		43
Share-based compensation expense		208		239
Unrealized losses on debt securities		106		—
Other		398		237
Total Deferred Tax Assets	$	6,234	$	5,606
Deferred Tax Liabilities :
Right-of-use assets		1,076		1,302
Depreciation		104		256
Unrealized gains on debt securities		—		1,006
Net deferred loan costs		200		—
Other		41		19
Total Deferred Tax Liabilities	$	1,421	$	2,583
Net Deferred Tax Assets	$	4,813	$	3,023

The following table summarizes the Company’s provision for income taxes charged to operations for the years ended December 31, 2021 and December 31, 2020, respectively.

Table 8.2: Provision for Income Taxes

(Dollars in thousands)	December 31, 2021			December 31, 2020
Current tax expense	$	7,477		$	5,856
Deferred tax benefit		(678	)		(1,310	)
Total Income Tax Expense	$	6,799		$	4,546

The following table presents the factors driving the difference between the amount of income tax determined by applying the statutory federal income tax rate to income before income taxes and the amount of income tax expense reflected in the Consolidated Statements of Income for the years ended December 31, 2021 and December 31, 2020, respectively.

Table 8.3: Effective Income Tax Reconciliation

(Dollars in thousands)	December 31, 2021			December 31, 2020
Computed “expected” tax expense	$	6,775		$	4,845
Increase (decrease) in income taxes resulting from:
Bank-owned life insurance		(86	)		(98	)
Tax-exempt interest income		(161	)		(94	)
State income taxes, net of federal benefit		444			258
Excess tax benefit on share-based compensation		(125	)		(311	)
Other, net		(48	)		(54	)
Total	$	6,799		$	4,546

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Note 9— Restriction on Cash

Prior to March 2020, the Company was required to maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. In March 2020, the Federal Reserve reduced the reserve requirement to zero percent effective March 26, 2020. Prior to the change effective March 26, 2020, reserve requirement ratios on net transactions accounts differed based on the amount of net transaction accounts at the depository institution. As a result, the Company was not required to maintain a cash reserve requirement as of December 31, 2021 and December 31, 2020.

Note 10— Commitments and Contingencies

The Company is party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Company does not anticipate any material losses as a result of these transactions.

The following table summarizes the contract or notional amount of the Company’s exposure to off-balance sheet risk as of December 31, 2021 and December 31, 2020.

Table 10.1: Unfunded Lending Commitments

(Dollars in thousands)	December 31, 2021		December 31, 2020
Commitments to extend credit	$	272,701	$	259,006
Standby letters of credit	$	14,485	$	15,589

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, income-producing commercial properties, and other real estate properties.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which the Company is committed.

Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Note 11— Fair Value Measurements

Determination of Fair Value

The Company determines the fair values of its financial instruments based on the fair value hierarchy established by ASC Topic 820 – Fair Value Measurement, which defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market and in an orderly transaction between market participants on the measurement date.

The fair value measurements and disclosures topic specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.

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Fair Value Hierarchy

In accordance with this guidance, the Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets Measured at Fair Value on a Recurring Basis

In accordance with ASC Topic 820, the following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a recurring basis in the financial statements.

Securities Available-for-sale and Equity Securities

Securities available-for-sale and equity securities with readily determinable fair values are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity then the security would fall to the lowest level of the hierarchy (Level 3).

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its portfolio of debt securities. The vendor’s primary source for security valuation is ICE Data Services, which evaluates securities based on market data. ICE Data Services utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance and rating to incorporate additional spreads to the industry benchmark curves.

The following table summarizes the fair value of assets measured at fair value on a recurring basis as of December 31, 2021 and December 31, 2020.

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Table 11.1: Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements at December 31, 2021 Using
(Dollars in thousands)	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
		December 31, 2021		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available-for-sale:
U.S Treasury	$	30,543	$	—	$	30,543	$	—
U.S. government and federal agencies		34,537		—		34,537		—
Corporate bonds		1,031		—		1,031		—
Collateralized mortgage obligations		39,049		—		39,049		—
Tax-exempt municipal		5,262		—		5,262		—
Taxable municipal		1,685		—		1,685		—
Mortgage-backed		127,193		—		127,193		—
Equity securities, at fair value		1,869		1,869		—		—
Total assets at fair value	$	241,169	$	1,869	$	239,300	$	-

			Fair Value Measurements at December 31, 2020 Using
(Dollars in thousands)	Balance as of December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale:
U.S. government and federal agencies	$	40,703	$	—	$	40,703	$	—
Corporate bonds		1,001		—		1,001		—
Collateralized mortgage obligations		26,071		—		26,071		—
Tax-exempt municipal		5,789		—		5,789		—
Taxable municipal		7,344		—		7,344		—
Mortgage-backed		70,992		—		70,992		—
Equity securities, at fair value		967		967		—		—
Total assets at fair value	$	152,867	$	967	$	151,900	$	-

Assets Measured at Fair Value on a Nonrecurring Basis

Under certain circumstances, the Company makes adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal, of one year or less, conducted by an independent, licensed appraiser using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than one-year-old and not solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. The Company had no impaired loans with a recorded reserve as of December 31, 2021 and 2020.

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Other Real Estate Owned

Other real estate owned is carried at the lower of cost or fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value using observable market data, the Company records the property as Level 2. When an appraised value using observable market data is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the property as Level 3 valuation. Any fair value adjustments are recorded in the period incurred and expensed against current earnings. The Company had no other real estate owned as of December 31, 2021 and December 31, 2020.

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of the Company’s financial instruments as of December 31, 2021 and December 31, 2020.

Table 11.2: Fair Value of Financial Instruments

			Fair Value Measurements at December 31, 2021 Using
(Dollars in thousands)	Carrying Value as of December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2021
Assets:
Cash and cash equivalents	$	105,799	$	105,799	$	—	$	—	$	105,799
Securities:
Available-for-sale		239,300		—		239,300		—		239,300
Held-to-Maturity		105,509		—		103,258		—		103,258
Equity securities		1,869		1,869		—		—		1,869
Loans, net		1,646,437		—		—		1,659,396		1,659,396
Bank owned life insurance		20,998		—		20,998		—		20,998
Accrued interest receivable		4,943		—		4,943		—		4,943
Liabilities:
Deposits	$	1,881,553	$	—	$	1,882,132	$	—	$	1,882,132
FHLB advances		18,000		—		17,837		—		17,837
Subordinated debt		24,728		—		—		25,325		25,325
Accrued interest payable		843		—		843		—		843

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			Fair Value Measurements at December 31, 2020 Using
(Dollars in thousands)	Carrying Value as of December  31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2020
Assets:
Cash and cash equivalents	$	138,457	$	138,457	$	—	$	—	$	138,457
Securities:
Available-for-sale		151,900		—		151,900		—		151,900
Equity securities		967		967		—		—		967
Loans, net		1,545,507		—		—		1,557,694		1,557,694
Bank owned life insurance		20,587		—		20,587		—		20,587
Accrued interest receivable		5,308		—		5,308		—		5,308
Liabilities:
Deposits	$	1,640,120	$	—	$	1,642,788	$	—	$	1,642,788
FHLB advances		22,000		—		22,005		—		22,005
Subordinated debt		24,679		—		—		25,194		25,194
Accrued interest payable		877		—		877		—		877

Note 12— Earnings per Common Share

Earnings per common share is calculated in accordance with ASC 260 - Earnings Per Share, which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.

Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of voting common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

The following table summarizes the computation of earnings per share for the years December 31, 2021 and December 31, 2020.

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Table 12.1: Computation of Basic and Diluted Earnings per Common Share

	December 31, 2021			December 31, 2020
Earnings per common share - basic:
Income available to common shareholders (in thousands):
Net income	$	25,461		$	18,526
Less: Income attributable to unvested restricted stock awards		(119	)		(70	)
Net income available to common shareholders	$	25,342		$	18,456
Weighted average shares outstanding:
Common shares outstanding, including unvested restricted stock		13,645,600			13,511,635
Less: Unvested restricted stock		(64,014	)		(50,695	)
Weighted-average common shares outstanding - basic		13,581,586			13,460,940
Earnings per common share - basic	$	1.87		$	1.37
Earnings per common share - diluted:
Income available to common shareholders (in thousands):
Net income	$	25,461		$	18,526
Less: Income attributable to unvested restricted stock awards		(117	)		(69	)
Net income available to common shareholders	$	25,344		$	18,457
Weighted average shares outstanding:
Common shares outstanding, including unvested restricted stock		13,645,600			13,511,635
Less: Unvested restricted stock		(64,014	)		(50,695	)
Plus: Effect of dilutive options		298,009			197,678
Weighted-average common shares outstanding - diluted		13,879,595			13,658,618
Earnings per common share - diluted	$	1.83		$	1.35

Outstanding options to purchase common stock were considered in the computation of diluted earnings per share for the periods presented. Stock options representing 19,109 weighted average shares were not included in computing diluted earnings per share at December 31, 2020 because their effects were anti-dilutive. All stock options outstanding as of December 31, 2021 were included as none had anti-dilutive effects.

Note 13— Stock Based Compensation Plan

The Company’s share-based compensation plan, approved by stockholders and effective April 28, 2015 (the “2015 Plan”), provides for the grant of share-based awards in the form of incentive stock options, non-incentive stock options, restricted stock and restricted stock units to directors and employees. The Company has reserved 976,211 shares of voting common stock for issuance under the 2015 Plan, which will remain in effect until April 28, 2025. The Company’s Personnel and Compensation Committee administers the 2015 Plan and has the authority to determine the terms and conditions of each award thereunder. As of December 31, 2021, 318,907 shares are available to grant in future periods under the 2015 Plan. The number of shares reserved under the 2015 Plan includes 400,000 additional shares approved at the 2018 annual shareholders meeting in May 2018.

The Company’s previous share-based compensation plan, the 2006 Stock Option Plan (the “2006 Plan”), provided for the grant of share-based awards in the form of incentive stock options and non-incentive stock options to directors and employees. As amended, the 2006 Plan provided for awards of up to 1,490,700 shares. In April 2015, the 2006 Plan was terminated and replaced with the 2015 Plan. Options outstanding prior to April 28, 2015 were granted under the 2006 Plan and shall be subject to the 2006 provisions of the 2006 Plan.

To date, options granted under the 2015 Plan typically vest over five years and expire 10 years from the grant date. Under the 2015 Plan, the exercise price of options may not be less than 100% of fair market value at the grant date with a maximum term for an option award of 10 years from the date of grant.

The table below provides a summary of the stock options activity for the year ended December 31, 2021.

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Table 13.1: Summary of Stock Options Activity

	December 31, 2021
				Weighted Average		Aggregate Intrinsic
	Shares			Exercise Price		Value
Outstanding at beginning of year		664,720		$	9.73
Granted		—			—
Exercised		(109,499	)		6.54
Forfeited or expired		(20,985	)		7.90
Outstanding at end of year		534,236			10.45	$	5,047,091
Exercisable at end of year		534,236		$	10.45	$	5,047,091

The aggregate intrinsic value of stock options in the table above represents the total amount by which the current market value of the underlying stock exceeds the exercise price of the option that would have been received by the Company had all option holders exercised their options on December 31, 2021. The intrinsic value of options exercised was $1.3 million for the year ended December 31, 2021 and $4.2 million for the year ended December 31, 2020. These amounts and the intrinsic values noted in the table above change based on changes in the market value of the Company’s voting common stock.

The table below provides a summary of the stock options outstanding and exercisable as of December 31, 2021.

Table 13.2: Summary of Stock Options Outstanding and Exercisable

	December 31, 2021
	Options Outstanding				Options Exercisable
			Weighted Average				Weighted Average
			Remaining				Remaining
	Number		Contractual Life		Number		Contractual Life
Exercise Prices		Outstanding		in Years		Exercisable		in Years
$0.00 - $11.00		137,777		0.43		137,777		0.43
$11.01 - $12.00		374,522		3.17		374,522		3.17
$12.01 - $16.00		6,937		2.87		6,937		2.87
$16.01 - $18.16		15,000		6.33		15,000		6.33
Total		534,236		2.55		534,236		2.55

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility of the Company’s voting common stock. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on the average of the contractual life and vesting schedule. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. There were no options granted during 2021 or 2020.

Share-based compensation expense applicable to the Company’s share-based compensation plans for stock options was $11 thousand and $109 thousand for the years ended December 31, 2021 and December 31, 2020, respectively.

The Company does not have any unrecognized share-based compensation expense related to nonvested options as of December 31, 2021.

The table below provides a summary of the restricted stock awards granted under the 2015 plan.

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Table 13.3: Summary of Restricted Stock Awards

	December 31, 2021
				Weighted Average
	Shares			Grant Date Fair Value
Nonvested at January 1, 2021		74,000		$	16.02
Granted		38,309			18.67
Vested		(36,483	)		16.25
Forfeited		—			—
Nonvested at December 31, 2021		75,826		$	17.25

Compensation expense for restricted stock grants is recognized over the vesting period of the awards based on the fair value of the Company’s voting common stock at issue date. The fair value of the stock was determined using the closing stock price on the day of grant. The restricted stock grants vest over two to five years. The weighted average grant date fair value of restricted stock grants in 2020 was $15.54 per share.

Share-based compensation expense applicable to the Company’s share-based compensation plans for restricted stock grants was $548 thousand and $478 thousand for the years ended December 31, 2021 and December 31, 2020, respectively. The total fair value of the shares, which vested during 2021 and 2020, was $656 thousand and $627 thousand, respectively.

Unrecognized share-based compensation expense related to nonvested restricted stock grants amounted to $1.0 million as of December 31, 2021. This amount is expected to be recognized over a weighted-average period of 1.7 years.

Note 14— Employee Benefit Plans

Effective August 1, 2006, the Company adopted a contributory 401(k) savings plan (the “401(k) Plan”) covering substantially all employees. Eligible employees may elect to defer a portion of their compensation to the 401(k) Plan. The Board of Directors may elect to match a portion of each employee’s contribution. The Company made contributions of $495 thousand and $461 thousand during the years ended December 31, 2021 and December 31, 2020, respectively. The costs associated with the Company’s 401(k) Plan are included in the salaries and employee benefits line item in the Consolidated Statements of Income.

The Company approved a deferred compensation plan in 2017 that provides key employees an additional way to defer their salary on a pre-tax basis. Key employees are highly compensated employees as defined by the Internal Revenue Service (“IRS”). Board members may also participate in the plan to defer their board fees. The plan is voluntary and not subject to IRS/Department of Labor discrimination testing.

The deferred compensation liability was $1.8 million and $837 thousand at December 31, 2021 and December 31, 2020, respectively, and was included in other liabilities on the Consolidated Balance Sheets. The Company incurred expenses for discretionary contributions of $497 thousand and $263 thousand for the years ended December 31, 2021 and December 31, 2020, respectively. These discretionary contributions vest for the participants over a period of three years unless years of service and age criteria are met. The costs associated with the Company’s deferred compensation plan are included in the salaries and employee benefits line item in the Consolidated Statements of Income.

Note 15— Regulatory Capital

The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Securities Exchange Act of 1934, as amended. As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory requirements.

The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision. Failure to meet minimum capital requirements can initiate certain mandatory – possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Management believes that the Bank met all capital adequacy requirements to which it was subject as of December 31, 2021 and December 31, 2020.

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Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, common equity Tier 1 to risk-weighted assets, and Tier 1 capital to average assets.

In addition to the minimum regulatory capital required for capital adequacy purposes, the Bank is required to maintain a minimum capital conservation buffer above those minimums in the form of common equity. The capital conservation buffer, which was phased in ratably over a four year period beginning January 1, 2016, is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and discretionary compensation paid to certain officers, based on the amount of the shortfall. The capital conservation buffer was 2.5% at December 31, 2021, and is applicable for the common equity Tier 1, Tier 1, and total capital ratios. The Bank’s institution specific capital conservation buffer above the required minimums was 7.3% at December 31, 2021.

As of December 31, 2021, the most recent notification from the Federal Reserve Bank of Richmond categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the institution must maintain minimum total risk-based, common equity Tier 1, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category.

On November 4, 2019, the federal banking agencies jointly issued a final rule that permits qualifying banks that have less than $10 billion in total consolidated assets to elect to be subject to a 9% community bank leverage ratio (“CBLR”). Under this rule, which became effective January 1, 2020, a qualifying bank that has chosen the proposed framework would not be required to calculate the existing risk-based and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well capitalized” under prompt corrective action rules provided it has a CBLR greater than 9%. The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the CBLR from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provided that, as of the second quarter of 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provided a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It established a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement. As of December 31, 2021, the Bank was a qualifying community banking organization, but elected not to measure capital adequacy under the CBLR framework.

The table below provides a summary of the Company’s capital ratios as of December 31, 2021 and December 31, 2020.

Table 15.1: Capital Ratios

	Actual					Minimum Capital Requirement(1)					Minimum To Be Well Capitalized Under Prompt Corrective Action
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2021
Total capital (to risk weighted assets)	$	252,843		15.3	%	$	173,923		10.5	%	$	165,641		10.0	%
Tier 1 capital (to risk weighted assets)		232,458		14.0	%		140,795		8.5	%		132,513		8.0	%
Common equity tier 1 capital (to risk weighted assets)		232,458		14.0	%		115,948		7.0	%		107,666		6.5	%
Tier 1 capital (to average assets)		232,458		11.0	%		84,799		4.0	%		105,999		5.0	%
As of December 31, 2020
Total capital (to risk weighted assets)	$	221,745		14.6	%	$	159,207		10.5	%	$	151,625		10.0	%
Tier 1 capital (to risk weighted assets)		204,385		13.5	%		106,138		8.5	%		98,556		8.0	%
Common equity tier 1 capital (to risk weighted assets)		204,385		13.5	%		128,882		7.0	%		121,300		6.5	%
Tier 1 capital (to average assets)		204,385		11.0	%		74,286		4.0	%		92,857		5.0	%

(1) Including Capital Conservation Buffer

Note 16— Revenue

Certain of the Company’s non-interest revenue streams are derived from short-term contacts associated with services provided to deposit account holders as well as other ancillary services, which are accounted for in accordance with ASC 606 – Revenue Recognition. For most of these revenue streams, the duration of the contract does not extend beyond the services performed. Due to the short duration of most customer contracts that generate non-interest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.

115

The following table shows the components of non-interest income for the years ended December 31, 2021 and December 31, 2020.

Table 16.1: Components of Non-Interest Income

(Dollars in thousands)	December 31, 2021		December 31, 2020
Service charges on deposit accounts (1)
Overdrawn account fees	$	76	$	71
Account service fees		186		166
Other service charges and fees (1)
Interchange income		379		310
Other charges and fees		98		90
Bank owned life insurance		411		469
Gain on sale of securities		10		309
Net gains on premises and equipment (1)		29		44
Insurance commissions (1)		284		55
Other operating income (2)		246		99
Total non-interest income	$	1,719	$	1,613

(1) Income within the scope of ASC 606 – Revenue Recognition.

(2) Includes other income within the scope of ASC 606 – Revenue Recognition amounting to $52 thousand and a gain of $194 thousand related to the fair value adjustment on equity securities carried at fair value as of December 31, 2021, which is outside the scope of ASC 606. Includes other income within the scope of ASC 606 – Revenue Recognition amounting to $3 thousand and a gain of $96 thousand outside the scope of ASC 606 for the year ended December 31, 2020.

A description of the Company’s revenue streams accounted for under ASC 606 follows:

Service charges on deposit accounts

Service charges on deposit accounts consist of overdrawn account fees and account service fees. Overdrawn account fees are recognized at the point in time that the overdraft occurs. Account service fees consist primarily of account analysis and other maintenance fees and are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Payment for service charges on deposit accounts is received immediately or in the following month through a direct charge to customers’ accounts.

Other service charges and fees

Other service charges and fees are primarily comprised of interchange income and other charges and fees. Interchange income is earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. Other charges and fees include revenue from processing wire transfers, cashier’s checks, and other transaction based services. The Company’s performance obligation for these charges and fees are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Net gains on premises and equipment

The Company records a gain or loss on the disposition of premises and equipment when control of the property transfers or is involuntarily converted to a monetary asset (e.g., insurance proceeds). This income is reflected in other operating income on the Company’s Consolidated Statements of Income.

Insurance commissions

The Company performs the function of an insurance intermediary by introducing the policyholder and insurer and is compensated in the form of a commission for placement of an insurance policy based on a percentage of premiums issued and maintained during the period. Revenue is recognized when received.

Note 17— Other Operating Expenses

The following table shows the components of other operating expenses for the years ended December 31, 2021 and December 31, 2020.

116

Table 17.1: Components of Other Operating Expenses

(Dollars in thousands)	December 31, 2021		December 31, 2020
Advertising expense	$	395	$	263
Data processing		1,471		1,674
FDIC insurance		887		681
Professional fees		1,418		842
State franchise tax		1,849		1,654
Director costs		797		683
Other operating expenses		1,613		1,623
Total other operation expenses	$	8,430	$	7,420

Note 18— Low Income Housing Tax Credit Investments

The Company has invested in seven separate housing equity funds as of December 31, 2021. The general purpose of these funds is to encourage and assist with participation in investing in low-income residential rental properties primarily located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver Federal Low Income Housing Credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the Company’s Consolidated Balance Sheets and were $5.8 million and $3.3 million at December 31, 2021 and December 31, 2020, respectively. The expected terms of these investments and the related tax benefits run through 2038. The net impact of amortization of the investments, tax credits and other tax benefits recognized as a component of income tax expense in the Consolidated Statements of Income during the years ended December 31, 2021 and December 31, 2020 was a benefit of $77 thousand and $76 thousand, respectively. Additional capital calls expected for the funds totaled $3.0 million and $90 thousand at December 31, 2021 and December 31, 2020, respectively, and are included in other liabilities on the Company’s Consolidated Balance Sheets.

Note 19— Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss), by category, net of tax for the years ended December 31, 2021 and December 31, 2020.

Table 19.1: Changes in Accumulated Other Comprehensive Income (Loss), Net of Tax

	December 31, 2021
				Unrealized Gains on
				Securities Transferred from
	Unrealized Gain (Loss) on			Available-for-sale to		Accumulated Other
(Dollars in thousands)	Available-for-sale Securities			Held-to-maturity		Comprehensive Income (Loss)
Beginning balance	$	3,786		$	—	$	3,786
Net change during the year		(4,575	)		389		(4,186	)
Ending balance	$	(789	)	$	389	$	(400	)

	December 31, 2020
			Unrealized Gains on
			Securities Transferred from
	Unrealized Gain (Loss) on		Available-for-sale to		Accumulated Other
(Dollars in thousands)	Available-for-sale Securities		Held-to-maturity		Comprehensive Income (Loss)
Beginning balance	$	777	$	—	$	777
Net change during the year		3,009		—		3,009
Ending balance	$	3,786	$	—	$	3,786

117

Items reclassified out of accumulated other comprehensive income (loss) to net income during 2021 and 2020 consisted of net gains on sales and calls of securities available-for-sale. In 2021, net gains on these transactions totaled $10 thousand and their related tax was $2 thousand. In 2020, net gains on these transactions totaled $309 thousand and their related tax was $65 thousand. Gains are included in the “Gain on sale and calls of securities” line item and the related tax is presented in the “Income tax expense” line item in the Consolidated Statements of Income.

Note 20— Parent Company Financials

The following tables summarize John Marshall Bancorp Inc.’s (Parent Company only) condensed financial statements as of and for the years ended December 31, 2021 and December 31, 2020.

Table 20.1: Condensed Parent Company Financials

Parent Company Only Condensed Balance Sheets
(Dollars in thousands)	December 31, 2021		December 31, 2020
Assets
Cash and due from banks	$	1,591	$	2,927
Equity securities, at fair value		1,869		967
Investment in subsidiary		232,058		208,170
Other assets		310		251
Total assets	$	235,828	$	212,315
Liabilities and Shareholders’ Equity
Subordinated debt, net of unamortized issuance costs	$	24,728	$	24,679
Accrued interest payable		659		659
Other liabilities		1,971		896
Total liabilities	$	27,358	$	26,234
Total shareholders’ equity	$	208,470	$	186,081
Total liabilities and shareholders’ equity	$	235,828	$	212,315

118

Parent Company Only Condensed Statements of Income
Years Ended December 31, 2021 and 2020
(Dollars in thousands)	December 31, 2021			December 31, 2020
Income:
Other income	$	194		$	96
Total income		194			96
Expense:
Subordinated debt interest expense		1,487			1,487
Salaries and employee benefits		958			466
Other operating expenses		348			139
Total expense		2,793			2,092
Net loss before income tax benefit and equity in undistributed earnings of subsidiary		(2,599	)		(1,996	)
Income tax benefit		546			446
Equity in undistributed earnings of subsidiary		27,514			20,076
Net income	$	25,461		$	18,526

Parent Company Only Statements of Cash Flows
Years Ended December 31, 2021 and 2020
(Dollars in thousands)	2021			2020
Cash Flows from Operating Activities
Net income	$	25,461		$	18,526
Adjustment to reconcile net income to net cash (used in) operating activities:
Equity in undistributed earnings of subsidiary		(27,514	)		(20,076	)
Fair value adjustment on equity securities		(194	)		(96	)
Amortization of debt issuance costs		49			49
Deferred tax (benefit)		(157	)		(91	)
Changes in assets and liabilities:
Decrease (increase) in other assets		98			(97	)
Increase in other liabilities		1,075			494
Net cash (used in) operating activities	$	(1,182	)	$	(1,291	)
Cash Flows from Investing Activities
Purchase of equity securities		(708	)		(440	)
Net cash (used in) investing activities	$	(708	)	$	(440	)
Cash Flows from Financing Activities
Issuance of common stock for share options exercised		716			2,411
Repurchase of shares for tax withholding on share-based compensation		(162	)		(434	)
Net cash provided by investing activities	$	554		$	1,977
Net increase (decrease) in cash and cash equivalents	$	(1,336	)	$	246
Cash and cash equivalents, beginning of year		2,927			2,681
Cash and cash equivalents, end of year	$	1,591		$	2,927

119

Note 21— Related Party Transactions

The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, principal shareholders, executive officers, their immediate families and affiliated companies in which they are principal owners (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with parties not related to the Company. These loans totaled $12.0 million and $8.0 million as of December 31, 2021 and December 31, 2020, respectively. During 2021, there were total principal additions of $4.9 million and total principal payments of $0.9 million with respect to such loans. Deposits of directors, executive officers and other related parties totaled $35.4 million and $46.8 million at December 31, 2021 and December 31, 2020, respectively.

120

Item 14.            Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

121

Item 15.            Financial Statements and Exhibits

(a)           FINANCIAL STATEMENTS: The following financial statements are included in Item 13 of this registration statement:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income for the years ended December 31, 2021 and 2020

Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

(b)          EXHIBITS: The following exhibits are included as part of this registration statement:

Exhibit No.	Description
3.1	Articles of Incorporation of John Marshall Bancorp, Inc., as amended.
3.2	Amended and Restated Bylaws of John Marshall Bancorp, Inc.
4.1	Specimen certificate for the common stock of John Marshall Bancorp, Inc., $0.01 par value.
4.2	Form of 5.75% Fixed to Floating Rate Subordinated Notes due July 15, 2027.
10.1	Amended and Restated John Marshall Bancorp, Inc. 2015 Stock Incentive Plan.*
10.2	Amended and Restated John Marshall Bank 2006 Stock Option Plan.*
10.3	Form of Restricted Stock Award Agreement – Amended and Restated John Marshall Bancorp, Inc. 2015 Stock Incentive Plan.*
10.4	Form of Non-qualified Stock Option Agreement – Amended and Restated John Marshall Bancorp, Inc.  2015 Stock Incentive Plan.*
10.5	Form of Incentive Stock Option Agreement – Amended and Restated John Marshall Bancorp, Inc. 2015 Stock Incentive Plan.*
10.6	Form of Non-qualified Stock Option Agreement – Amended and Restated John Marshall Bank 2006 Stock Option Plan.*
10.7	Form of Incentive Stock Option Agreement – Amended and Restated John Marshall Bank 2006 Stock Option Plan.*
10.8	John Marshall Bancorp, Inc. Deferred Compensation Plan, as amended and restated.*
10.9	Employment Agreement, dated as of April 30, 2018, by and among John Marshall Bancorp, Inc., John Marshall Bank and Christopher W. Bergstrom.*
10.10	Employment Agreement, dated as of April 30, 2018, by and among John Marshall Bancorp, Inc., John Marshall Bank and Carl E. Dodson, as amended.*

122

10.11	Employment Agreement, dated as of April 30, 2018, by and among John Marshall Bancorp, Inc., John Marshall Bank and William J. Ridenour, as amended.*
10.12	Employment Agreement, dated as of January 22, 2020, by and among John Marshall Bancorp, Inc., John Marshall Bank and Kent D. Carstater.*
21.1	Subsidiaries of John Marshall Bancorp, Inc.
__________
*	Indicates a management contract or compensatory plan.

123

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 4, 2022 John Marshall Bancorp, Inc.

By:	/s/ Christopher W. Bergstrom
Name:	Christopher W. Bergstrom
Title:	President and Chief Executive Officer

124

EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

OF

John Marshall Bancorp, Inc.

ARTICLE I.      Name. The name of the corporation is John Marshall Bancorp, Inc. (the “Corporation”).

ARTICLE II.      Purpose. The purpose for which the Corporation is formed is to serve as a holding company for banking institutions and to engage in any or all lawful business, including without limitation insurance agency and related businesses, not required to be stated in the Articles of Incorporation for which corporations may be incorporated under the Virginia Stock Corporation Act as amended from time to time.

ARTICLE III.      Capital Stock. The number of shares of stock of all classes which the Corporation shall have authority to issue shall be twenty two million (22,000,000), twenty million (20,000,000) of which shall be voting Common Stock, par value $0.01 per share, one million (1,000,000) of which shall be nonvoting Common Stock, par value $0.01 per share, and one million (1,000,000) of which shall be preferred stock, par value $0.01 per share. Each share of voting common stock shall have one vote per share in respect of all matters submitted to the vote of shareholders, including the election of directors. Except as may be expressly required by the laws of general applicability of the Commonwealth of Virginia, the holders of the nonvoting common stock shall not be entitled to vote on any matter submitted for the vote of shareholders, including but not limited to the election of Directors. Except as expressly set forth herein with respect to voting, the shares of common stock which the Corporation shall have authority to issue shall be identical, and shall have equal rights and privileges. The Board of Directors, by action of a majority of the full Board of Directors, shall have the authority to issue the shares of preferred stock from time to time on such terms as it may determine, and to divide the preferred stock into one or more classes or series, and, in connection with the creation of such classes or series to fix by resolution or resolutions the designations, voting powers, preferences, participation, redemption, sinking fund, conversion, dividend, and other optional or special rights of such classes or series, and the qualifications, limitations or restrictions thereof.

ARTICLE IV.      Preemptive Rights. The holders of the capital stock of the Corporation shall not have any preemptive or preferential rights to purchase or otherwise acquire any shares of any class of capital stock of the corporation, whether now or hereafter authorized, except as the Board of Directors may specifically provide.

ARTICLE V.      Cumulative Voting. The holders of the capital stock of the Corporation shall not have the right to cumulate votes in the election of directors.

-1 -

ARTICLE VI.      Limitation of Liability and Indemnification.

(1)  To the full extent that the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers, a director or officer of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages.

(2)  To the full extent permitted and in the manner prescribed by the Virginia Stock Corporation Act and any other applicable law, the Corporation shall indemnify a director or officer of the Corporation who is or was a party to any proceeding by reason of the fact that he or she is or was such a director or officer or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The Board of Directors is hereby empowered, by majority vote of a quorum of disinterested directors, to contract in advance to indemnify any director or officer.

(3)  The Board of Directors is hereby empowered, by majority vote of a quorum of disinterested directors, to cause the Corporation to indemnify or contract in advance to indemnify any director, and to cause the Corporation to indemnify or contract in advance to indemnify any person not specified in Section 2 of this Article who was or is a party to any proceeding, by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such person were specified as one to whom indemnification is granted in Section 2.

(4)  Notwithstanding any other provisions in this Article VI, the Corporation shall indemnify a director who entirely prevails in the defense of any proceeding to which he or she was a party because he or she is or was a director of the Corporation against reasonable expenses incurred by him or her in connection with the proceeding.

(5)  The Corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article and may also procure insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by any such person in any such capacity or arising from his or her status as such, whether or not the Corporation would have power to indemnify him or her against such liability under the provisions of this Article.

(6)  In the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to Section 2 of this Article VI shall be made by special legal counsel agreed upon by the Board of Directors and the proposed indemnitee. If the Board of Directors and the proposed indemnitee are unable to agree upon such special legal counsel, the Board of Directors and the proposed indemnitee each shall select a nominee, and the nominees shall select such special legal counsel.

-2 -

(7)  The provisions of this Article VI shall be applicable to all actions, claims, suits or proceedings commenced after the adoption hereof, whether arising from any action taken or failure to act before or after such adoption. No amendment, modification or repeal of this Article shall diminish the rights provided hereby or diminish the right to indemnification with respect to any claim, issue or matter in any then pending or subsequent proceeding that is based in any material respect on any alleged action or failure to act prior to such amendment, modification or repeal.

(8)  The provisions of this Article VI shall not be exclusive of any other indemnification to which such persons may be entitled under any bylaw, agreement, statute, vote of shareholders or disinterested directors, or otherwise.

(9)  Reference herein to directors, officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators.

ARTICLE VII.      Registered Office. The Corporation's initial registered office shall be located at 1943 Isaac Newton Square, Suite 100, Reston, Virginia 20190, County of Fairfax. The Corporation's initial registered agent shall be John R. Maxwell, a resident of Virginia and a Director of the Corporation.

ARTICLE VIII. Directors. The number of Directors constituting the entire Board shall be not less than five (5) nor more than fifteen (15), the exact number of which as may be fixed from time to time in accordance with the By-Laws, provided that the number of Directors shall not be reduced so as to shorten the term of any Director then in office, and further provided that the number of directors shall be ten (10) until otherwise fixed by a majority of the Board.

ARTICLE IX.      Factors to be Considered in Certain Transactions. In the event the Board of Directors shall evaluate a business combination or other offer of another party to make a tender or exchange offer for any equity security of the Corporation; merge or consolidate the Corporation with another corporation; purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation; engage in any transaction similar to, or having similar effects as, any of the foregoing (each of the foregoing, a "Business Combination"), the Directors shall consider, among other things, the following factors: the effect of the Business Combination on the Corporation and its subsidiaries, and their respective shareholders, employees, customers and the communities which they serve; the timing of the proposed Business Combination; the risk that the proposed Business Combination will not be consummated; the reputation, management capability and performance history of the person proposing the Business Combination; the current market price of the Corporation's capital stock; the relation of the price offered to the current value of the Corporation in a freely negotiated transaction and in relation to the Directors' estimate of the future value of the Corporation and its subsidiaries as an independent entity or entities; tax consequences of the Business Combination to the Corporation and its shareholders; and such other factors deemed by the Directors to be relevant. In such considerations, the Board of Directors may consider all or certain of such factors as a whole and may or may not assign relative weights to any of them. The foregoing is not intended as a definitive list of factors to be considered by the Board of Directors in the discharge of their fiduciary responsibility to the Corporation and its shareholders, but rather to guide such consideration and to provide specific authority for the consideration by the Board of Directors of factors which are not purely economic in nature in light of the circumstances of the Corporation and its subsidiaries at the time of such proposed Business Combination.

[Remainder of page intentionally blank]

-3 -

Dated: April 19, 2016	/s/ John R. Maxwell
	John R. Maxwell
	Incorporator

Signature Page to John Maxwell Bancorp, Inc. Articles of Incorporation

ARTICLES OF AMENDMENT

TO THE ARTICLES OF INCORPORATION OF

JOHN MARSHALL BANCORP, INC.

I.            Name. The name of the corporation is John Marshall Bancorp, Inc.

II.         Text of Amendment.  Article III of the corporation’s Articles of Incorporation shall be amended and restated in its entirety as follows:

“ARTICLE III.      Capital Stock. The number of shares of stock of all classes which the Corporation shall have authority to issue shall be thirty two million (32,000,000), thirty million (30,000,000) of which shall be voting Common Stock, par value $0.01 per share, one million (1,000,000) of which shall be nonvoting Common Stock, par value $0.01 per share, and one million (1,000,000) of which shall be preferred stock, par value $0.01 per share. Each share of voting common stock shall have one vote per share in respect of all matters submitted to the vote of shareholders, including the election of directors. Except as may be expressly required by the laws of general applicability of the Commonwealth of Virginia, the holders of the nonvoting common stock shall not be entitled to vote on any matter submitted for the vote of shareholders, including but not limited to the election of Directors. Except as expressly set forth herein with respect to voting, the shares of common stock which the Corporation shall have authority to issue shall be identical, and shall have equal rights and privileges. The Board of Directors, by action of a majority of the full Board of Directors, shall have the authority to issue the shares of preferred stock from time to time on such terms as it may determine, and to divide the preferred stock into one or more classes or series, and, in connection with the creation of such classes or series to fix by resolution or resolutions the designations, voting powers, preferences, participation, redemption, sinking fund, conversion, dividend, and other optional or special rights of such classes or series, and the qualifications, limitations or restrictions thereof.”

III.        Board Adoption and Shareholder Approval. The amendment was unanimously adopted by the Board of Directors of the corporation on February 16, 2021. The amendment was submitted to the shareholders of the corporation by its Board of Directors in accordance with the requirements of the Virginia Stock Corporation Act (the “Act”) at the annual meeting of shareholders held on May 18, 2021, and the amendment was duly approved by the shareholders of the corporation in the manner required by the Act and the corporation’s Articles of Incorporation.

IV.        Effective Date. The Certificate of Amendment to be issued as a result of the filing of these Articles of Amendment shall become effective upon issuance in accordance with Section 13.1-606 of the Act.

[Signature on next page]

Dated: June 2, 2021	JOHN MARSHALL BANCORP, INC.
	By:	/s/ Kent D. Carstater
		Kent D. Carstater
		Executive Vice President and
		Chief Financial Officer

2

EX-3.2

Exhibit 3.2

JOHN MARSHALL BANCORP, INC.

BY-LAWS

(as Amended and Restated on April 21, 2020)

ARTICLE I

Meetings of Shareholders

Section 1.1 Annual Meeting. The regular annual meeting of shareholders for the election of Directors and for the transaction of whatever other business may properly come before the meeting, shall be held at such place or, in the case of a virtual-only meeting, at no physical place but solely by means of remote communication, in each case, as the Board of Directors may in its discretion determine, each year on such day as the Board of Directors determines. Notice of such meeting shall be mailed, postage prepaid, at least ten (10) days prior to the date thereof, addressed to each shareholder at his or her address appearing on the books of the Corporation unless notice is waived by unanimous consent of all shareholders. If, for any cause, an election of Directors is not made on the said day, the Board of Directors shall order the election to be held on some subsequent day, as soon thereafter as practicable, according to the provisions of law; and notice thereof shall be given in the manner therein provided for the annual meeting.

Section 1.2 Special Meetings. Except as otherwise specifically provided by statute, special meetings of the shareholders shall be called for any purpose at any time by the Secretary at the request of the Chairman of the Board of Directors, or the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Every such special meeting, unless otherwise provided by law, shall be called by mailing, postage prepaid, not less than ten (10) days prior to the dated fixed for such meeting, to each shareholder at his or her address appearing on the books of the Corporation a notice stating the purpose, time and place of such meeting or, in the case of a virtual-only meeting, stating that the meeting shall be held at no physical place but solely by means of remote communication, in each case as the Board of Directors may in its discretion determine.

Section 1.3 Nominations for Director. Nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder entitled to vote in the election of Directors generally. However, any shareholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if written notice of such shareholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (a) with respect to an election to be held at the annual meeting of shareholders, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting, and (b) with respect to an election to be held at a special meeting of the shareholders for the election of Directors, the close of business on the seventh (7^th) day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (i) the name, age, business address and, if known, the residence address of each nominee proposed, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of each class of stock of the Corporation beneficially owned or directly or indirectly controlled by each such nominee, (iv) such other information regarding each such nominee as would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended (the “34 Act”), (v) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder and (vi) as to the shareholder making such nomination (y) his name and address as they appear on the stock transfer books of the Corporation, and (z) the number of shares of each class of stock of the Corporation beneficially owned or directly or indirectly controlled by such shareholder. For purposes of this paragraph, beneficial ownership of shares shall be determined in accordance with Rule 13d-3 and Rule 13d-5 under the 1934 Act, and a proposed nominee or shareholder shall be deemed to control all shares which such proposed nominee or shareholder would be deemed or presumed to control in a control determination made in accordance with the provisions of applicable bank regulatory laws and regulations. Notwithstanding any other provision hereof, failure of any shareholder nomination for election as director to comply with the provisions of this Article I shall result in the proposed nomination not being presented to the shareholders at the meeting.

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Section 1.4 Shareholder Proposals. Any shareholder entitled to vote in the election of Directors generally may propose one or more matters for presentation to the shareholders at any annual meeting of shareholders, provided that such shareholder has provided written notice of such shareholder's intent to make such proposal or proposals, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting. Each such notice shall set forth: (i) the name and address of the shareholder(s) who intends to make the proposal, (ii) the number of shares of each class of stock of the Corporation beneficially owned or directly or indirectly controlled by each such person; (iii) such other information regarding each such proposal as would be required to be included in a proxy statement soliciting proxies for the approval of such proposal pursuant to Regulation 14A under the 34 Act, and (iv) a description of all arrangements or understandings between the shareholder(s) and any other person or persons (naming such person or persons) pursuant to which the proposal or proposals are to be made by the shareholder(s). For purposes of this paragraph, beneficial ownership of shares shall be determined in accordance with Rule 13d-3 and Rule 13d-5 under the 34 Act, and a shareholder shall be deemed to control all shares which such shareholder would be deemed or presumed to control in a control determination made in accordance with the provisions of applicable bank regulatory laws and regulations. The presiding officer of the meeting may refuse to acknowledge or present any proposal of any person not made in compliance with the foregoing procedure. Nothing contained in this By-law shall require the presentation for the vote or consideration of the shareholders of any matter which is not appropriate for action by the shareholders. No business or proposal shall be presented for the vote or consideration of shareholders at a special meeting of shareholders other than that contained in the notice of meeting and matters incidental to the conduct of such meeting.

Section 1.5 Judges of Election. Every election of Directors shall be managed by three (3) judges, who shall be appointed by the Board of Directors. The judges of election shall hold and conduct the election at which they are appointed to serve; and, after the election, they shall file with the Treasurer, the officer performing the functions of a Treasurer, or the Secretary, a certificate under their hands, certifying the result thereof and names of the Directors elected. The judges of an election, at the request of the Chairman of the meeting, shall act as tellers of any other vote by ballot taken at such meeting, and shall certify the result thereof.

Section 1.6 Proxies. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and shall be filed with the records of the meeting.

Section 1.7 Quorum. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless otherwise required by law, by the Articles of Incorporation or by these By-Laws, a majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of that voting group for action on that matter; but less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice.

Section 1.8 Presiding Officer and Secretary. Unless the Board of Directors shall appoint another person with respect to any meeting, the Chairman of the Board of Directors, or in his absence, the President, shall serve as the presiding officer for each annual or special meeting of shareholders, and the Treasurer, the person performing the functions of Treasurer, or the Secretary, shall serve as Secretary for the meeting.

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Section 1.9 Action by Shareholders. All action by holders of the Corporation's outstanding voting securities shall be taken at an annual or special meeting of the shareholders duly called as provided by statute, the Articles of Incorporation and these By-Laws. Shareholders of the Corporation shall not have the power to act by written consent.

Section 1.10 Voting. Whenever Directors are to be elected at a meeting, they shall be elected by a plurality of the votes cast at the meeting by the holders of stock entitled to vote thereat. Whenever any corporate action, other than the election of Directors, is to be taken by vote of shareholders at a meeting, such action shall be approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or by the Articles of Incorporation.

Except as otherwise provided by law or by the Articles of Incorporation, each holder of record of capital stock of the Corporation entitled to vote on any matter shall be entitled to one vote for each share of capital stock standing in the name of such holder on the stock ledger of the Corporation on the record date for the determination of the shareholders entitled to vote on such matter.

ARTICLE II

Directors

Section 2.1 Board of Directors. The Board of Directors (hereinafter occasionally referred to as the "Board") shall have power to manage and administer the business affairs of the Corporation. Except as expressly limited by law, all corporate powers of the Corporation shall be vested in and may be exercised by said Board.

Section 2.2 Number. The Board shall consist of not less than five (5) nor more than fifteen (15) persons, the exact number within such minimum and maximum limits to be fixed and determined from time to time by the Articles of Incorporation, by resolution of a majority of the full Board or by resolution of the shareholders at any meeting thereof.

Section 2.3 Organization Meeting. The Treasurer, or the Secretary, upon receiving the certificate of the judges of the results of any election, shall notify the Directors-elect of their election and of the time at which they are required to meet at the Main Office of the Corporation or such other designated location for the purpose of organizing the new Board and electing and appointing officers of the Corporation for the succeeding year. Such meeting shall be held on the day of the election or as soon thereafter as practicable, and, in any event, within thirty (30) days thereof. If, at the time fixed for such meeting, there shall not be a quorum present, the Directors present may adjourn the meeting, from time to time, until a quorum is obtained.

Section 2.4 Regular Meetings. The Regular Meetings of the Board of Directors shall be held monthly on a day agreed to by a majority of the Board of Directors at the Main Office, or such other designated location. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next business day unless the Board shall designate some other day.

Section 2.5 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, or at the request of three (3) or more Directors. Each member of the Board shall be given notice stating time and place, by telephone, telegram, facsimile, letter or in person, of each such special meeting, except that notice of such special meeting may be waived by an instrument signed by all of the Directors before or after such special meeting and filed with the minutes of such meeting.

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Section 2.6 Quorum. A majority of the Directors then in office shall constitute a quorum at any meeting, except when otherwise provided by law; but a lesser number may adjourn any meeting, from time to time, and the meeting may be held, as adjourned without further notice. If a quorum is present, action by a majority of those Directors in attendance shall constitute action of the Board.

Section 2.7 Written Consents and Telephonic Participation. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing and the writings are filed with the minutes of proceedings of the Board or committee. Members of the Board of Directors or any committee designated by the Board may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment. Participation in a meeting by communications means pursuant to this section shall constitute presence in person at such meeting.

Section 2.8 Vacancies. When any vacancy occurs among the Directors, the remaining members of the Board, in accordance with the laws of the Commonwealth of Virginia, may appoint a Director to fill such vacancy at any regular meeting of the Board or at a special meeting called for that purpose, or if the Directors remaining in office constitute less than a quorum, by the vote of a majority of the Directors remaining in office, or by shareholders at a special meeting called for that purpose.

Section 2.9 Chairman of the Board. The Board of Directors shall elect from among their number a Chairman of the Board. The Chairman of the Board shall preside over the Board of Directors in the performance of its functions. He or she shall have shall perform all duties and exercise all powers as are incident to the office of Chairman of the Board and as may be prescribed by these By-Laws. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. He or she shall have such other powers and shall perform such other duties as may be prescribed by the Board of Directors from time to time.

Section 2.10 Vice-Chairman. The Board of Directors may elect from among their number a Vice-Chairman of the Board. The Vice-Chairman shall, in the absence of the Chairman of the Board, preside over all meetings of shareholders and of the Board of Directors. He or she shall have such other powers and shall perform such other duties as may be prescribed by the Board of Directors from time to time.

ARTICLE III

Committees of the Board

The Board of Directors may from time to time, by resolution passed by a majority of the Board, designate an executive committee and such other committee of committees as it may determine, each committee to consist of two (2) or more Directors of the Corporation. Any such committee, to the extent provided in the resolution, shall have and may exercise any of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it, all subject to the exceptions set forth in Virginia law. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any committee and of any alternate member designated by the Board, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any of such absent or disqualified member. Any such committee may adopt rules governing the method of calling and time and place of holding its meetings. Unless otherwise provided by the Board of Directors, a majority of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of such committee present at a meeting at which a quorum is present shall constitute action of the committee. Each committee shall keep a record of its acts and proceedings and shall report thereon to the Board of Directors whenever requested so to do. Any or all members of any such committees may be removed, with or without cause, by resolution of the Board of Directors, adopted by a majority of the Board.

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ARTICLE IV

Officers

Section 4.1 Officers. The officers of the bank, who shall be elected by the Board of Directors, shall be a Chief Executive Officer (hereinafter occasionally referred to as the “CEO”); a President; and one or more Vice Presidents who may have such designations, if any, as the Board of Directors may determine; a Secretary; and a Treasurer. The Board of Directors from time to time may elect such other officers or assistant officers as the Board of Directors may from time to time deem necessary or appropriate. Any two (2) or more of the foregoing offices may be held by the same person. The Chief Executive Officer shall be chosen from among the Directors.

Section 4.2 Term. The term of office of each officer shall be until the first meeting of the Board of Directors following the next annual meeting of shareholders, or until his or her respective successor has been elected and qualified, or until his or her earlier resignation or removal. Any officer may be removed from office at any time with or without cause by the affirmative vote of a majority of the members of the Board of Directors then in office. The removal of an officer without cause shall be without prejudice to his contract rights, if any, but the election or appointment of an officer shall not of itself create contract rights.

Section 4.3 Chief Executive Officer. The Board of Directors shall appoint one of its members to be the CEO. The CEO shall have general executive powers and shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, to the office of CEO, or imposed by these By-Laws. He or she may vote the stock or other securities of any other domestic or foreign corporation which may at any time be owned by the Corporation, may execute any shareholders' or other consents in respect thereof and may in his or her discretion delegate such powers by executing proxies, or otherwise, on behalf of the Corporation. He or she shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned to, him or her by the Board. The CEO shall see that the books, reports, statements and certificates required by Virginia law are properly kept, made and filed according to law.

Section 4.4 President and Vice Presidents. The President and each Vice President, including any given a special or other designation by the Board of Directors in accordance with Section 4.1 of this Article IV, shall have such powers and shall perform such duties which are in the normal and usual business and affairs of the operating division or divisions or staff department, the operations for which he or she is responsible, including, subject to any and all limitations imposed by the Board or contained in the operating procedures and policies of the Corporation, the authority to sign contracts and other agreements which are within the ordinary course of the business of such division or divisions or staff departments.

Section 4.5 Other Officers. Subject to the authority of the CEO and the Board, the Secretary, Treasurer, and any other officers appointed by the Board shall have such duties and responsibilities as shall from time to time be prescribed by the person who is such officer's immediate superior, including such duties and responsibilities as are usually performed by persons holding such corporate office.

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ARTICLE V

Stock and Stock Certificates

Section 5.1 Transfers. Transfers of stock shall be made only upon the books of the Corporation by the holder, in person or by duly authorized attorney, and on the surrender of the certificate or certificates for such stock properly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Articles of Incorporation and these By-laws, as the Board may deem appropriate concerning the issue, transfer and registration of certificates for stock of the Corporation. The Board may appoint one or more transfer agents or registrars of transfers, or both, and may require all stock certificates to bear the signature of either or both, which signature or signatures may be in facsimile form if the Board by resolution authorizes such procedure.

Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions and to vote as such owner, and hold such person liable for calls and assessments. The Corporation shall not be bound to recognize any equitable, legal, or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by law.

Section 5.2 Uncertificated Shares; Certificates for Shares. The Board of Directors may authorize the issuance of uncertificated shares by the Corporation, and may prescribe procedures for the issuance and registration of transfer thereof, and with respect such other matters relating to uncertificated shares as the Board of Directors may deem appropriate. No such authorization shall affect previously issued and outstanding shares represented by certificates until such certificates shall have been surrendered to the Corporation. At the time of the issuance or transfer of any uncertificated shares, the Corporation shall issue or cause to be issued to the holder of such shares a written statement of the information required by these bylaws and such other information as may be required to be included on share certificates under Virginia law. Notwithstanding the adoption of any resolution providing for uncertificated shares, each registered holder of shares represented by uncertificated shares shall be entitled, upon request to the custodian of the stock transfer books of the Corporation, or other person designated as the custodian of the records of uncertificated shares, to have physical certificates representing such shares registered in such holder’s name.

Each certificate representing shares shall recite on its face the name of the Corporation and that it is organized under the laws of the Commonwealth of Virginia, the name of the person to whom issued; and the number and class of shares and the description of the series, if any, the certificate represents Certificates representing shares of the Corporation shall be signed by the Chairman of the Board of Directors, the President or a Vice-President and by the Treasurer or an assistant treasurer or by the Secretary or an assistant secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof.

When the Corporation is authorized to issue shares of more than one class, there shall be set forth upon the face or back of each certificate, or each certificate shall have a statement that the Corporation will furnish to any shareholder upon request and without charge a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the Corporation is authorized to issue different series within a class, the variations in the relative rights, preferences and limitations between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine variations of future series..

Section 5.3 Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issue in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such a manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

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Section 5.4 Shareholder Record Date. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than seventy (70) days before the date of such meeting, nor more than seventy (70) days prior to any other action. Only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, and vote at, such meeting and any adjournment thereof, or to receive payment of such dividend or other distribution, or to exercise such rights in respect of any such change, conversion or exchange of stock, or to participate in such action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date so fixed.

If no record date is fixed by the Board of Directors, (i) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the date next preceding the date on which notice is given, and (ii) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting to the extent permitted by Virginia law; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

ARTICLE VI

Seal

The CEO, the President, the Treasurer, the Secretary or any assistant Treasurer or assistant Secretary, or other officer thereunto designated by the Board of Directors shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. Such seal shall be substantially in the following form:

( Impression )

(      of      )

(    Seal    )

ARTICLE VII

Miscellaneous Provisions

Sections 7.1 Fiscal Year. The Fiscal Year of the Corporation shall be the calendar year.

Section 7.2 Execution of Instruments. All agreements, indentures, mortgages, deeds, conveyance, transfers, satisfactions, declarations, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies, and other documents may be signed, executed, acknowledged, verified, delivered or accepted on behalf of the Corporation by the CEO, President or any Vice President, or the Secretary, or the Treasurer, or the officer vested with the authority of a Treasurer, subject to any and all limitations imposed by the Board of Directors or contained in the operating procedures and policies of the Corporation. Any such instruments may also be executed, acknowledged, verified, delivered or accepted in behalf of the Corporation in such other manner and by such other officers as the Board of Directors may from time to time direct. The provisions of this Section 7.2 are supplementary to any other provisions of these By-Laws.

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Section 7.3 Records. The Articles of Incorporation, these By-Laws and the proceedings of all meetings of the shareholders, the Board of Directors, and standing committees of the Board, shall be recorded in appropriate minute books provided for the purpose. The minutes of each meeting shall be signed by the Secretary, Treasurer, or other officer appointed to act as Secretary of the meeting.

ARTICLE VIII

By-laws

Section 8.1 Inspection. A copy of these By-laws, with all amendments thereof, shall at all times be kept in a convenient place at the Main Office of the Corporation, and shall be open for inspection to all shareholders, during business hours.

Section 8.2 Amendments. These By-laws may be amended, altered or repealed at any regular meeting of the Board of Directors, by a vote of a majority of the total number of Directors, or at any special or annual meeting of shareholders, by a vote of a majority of the shares of the Corporation's capital stock issued, outstanding and entitled to vote.

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EX-4.1

Exhibit 4.1

J O H N M ARSHALL BANCORP, IN C .. CORPORATE V I R G I N I A CUSIP 47805L 10 1 SEE REVERSE FOR CERTAIN DEFINITIONS Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC 6201 15th Avenue, Brooklyn, NY 11219 By _________________________________ Transfer Agent and Registrar Authorized Officer INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA AUTHORIZED: 30,000,000 COMMON SHARES, $0.01 PAR VALUE PER SHARE This Certifies That is the owner of Fully Paid and Non-Assessable Common Stock, $0.01 Par Value of JOHN MARSHALL BANCORP, INC. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized officers and to be sealed with the facsimile seal of the Corporation.          Dated: PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY OF THE BOARD OF DIRECTORS JM XXXX

JOHN MARSHALL BANCORP, INC. AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC TRANSFER FEE: AS REQUIRED The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties UNIF GIFT MIN ACT - ____________ Custodian ____________ JT TEN - as joint tenants with right (Cust)                               (Minor) of survivorship and not as under Uniform Gifts to Minors tenants in common Act _________________________________         (State) Additional abbreviations may also be used though not in the above list. _______________________________________________________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER       IDENTIFYING NUMBER OF ASSIGNEE FOR VALUE RECEIVED,__________________________________________________________hereby sell, assign and transfer unto ___________________________________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ _____________________________________________________________________________________________________ Shares of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint ___________________________________________________________________________________________Attorney to transfer the said stock on the books of the within-named Corporation, with full power of substitution in the premises. Dated:___________________20________, Signature: X___________________________________________________________ Signature(s) Guaranteed: Signature: X___________________________________________________________ THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.

EX-4.2

Exhibit 4.2

SUBORDINATED NOTE

JOHN MARSHALL BANCORP, INC.

5.75% FIXED TO FLOATING RATE Subordinated Note due July 15, 2027

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS (AS DEFINED IN SECTION 3 OF THIS SUBORDINATED NOTE) OF JOHN MARSHALL BANCORP, INC., (THE “COMPANY”), INCLUDING OBLIGATIONS OF THE COMPANY TO ITS GENERAL CREDITORS AND SECURED CREDITORS, DEPOSIT OBLIGATIONS OF THE COMPANY’S DEPOSITARY INSTITUTION SUBSIDIARIES, AND IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE COMPANY OR ANY OF ITS SUBSIDIARIES. IN THE EVENT OF LIQUIDATION ALL HOLDERS OF SENIOR INDEBTEDNESS OF THE COMPANY SHALL BE ENTITLED TO BE PAID IN FULL WITH SUCH INTEREST AS MAY BE PROVIDED BY LAW BEFORE ANY PAYMENT SHALL BE MADE ON ACCOUNT OF PRINCIPAL OF OR INTEREST ON THIS SUBORDINATED NOTE. AFTER PAYMENT IN FULL OF ALL SUMS OWING TO SUCH HOLDERS OF SENIOR INDEBTEDNESS, THE HOLDER OF THIS SUBORDINATED NOTE, TOGETHER WITH THE HOLDERS OF ANY OBLIGATIONS OF THE COMPANY RANKING ON A PARITY WITH THE SUBORDINATED NOTES, SHALL BE ENTITLED TO BE PAID FROM THE REMAINING ASSETS OF THE COMPANY THE UNPAID PRINCIPAL AMOUNT OF THIS SUBORDINATED NOTE PLUS ACCRUED AND UNPAID INTEREST THEREON BEFORE ANY PAYMENT OR OTHER DISTRIBUTION, WHETHER IN CASH, PROPERTY OR OTHERWISE, SHALL BE MADE (i) with respect to any obligation that by its terms expressly is junior to in the right of payment to the Subordinated Notes, (ii) ANY INDEBTEDNESS BETWEEN THE COMPANY AND ANY OF ITS SUBSIDIARIES OR AFFILIATES (OTHER THAN ANY INSURED DEPOSITARY INSTITUTION SUBSIDIARY OR AFFILIATE), or (iii) on account OF ANY SHARES OF CAPITAL STOCK OF THE COMPANY.

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS NOT A DEPOSIT, IS NOT AN OBLIGATION OF AN INSURED DEPOSITARY INSTITUTION AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE “FDIC”) OR ANY OTHER GOVERNMENT AGENCY OR FUND.

THIS SUBORDINATED NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $1,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SUBORDINATED NOTE IN A DENOMINATION OF LESS THAN $1,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SUBORDINATED NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PAYMENTS ON THIS SUBORDINATED NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SUBORDINATED NOTE.

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THIS SUBORDINATED NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SUBORDINATED NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

CERTAIN ERISA CONSIDERATIONS:

THE HOLDER OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER: (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLANS, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN ASSETS” OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLANS TO FINANCE SUCH PURCHASE OR (ii) SUCH PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT AVAILABLE UNDER APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE ACQUISITION OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN SHOULD CONSULT WITH SUCH FIDUCIARY’S LEGAL COUNSEL PRIOR TO ACQUIRING THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN.

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No. 2027-[ ]	CUSIP (Accredited Investors) 47805L AB7 / US47805LAB71
	CUSIP (QIBs) 47805L AA9 / US47805LAA98

JOHN MARSHALL BANCORP, INC.

5.75% FIXED TO FLOATING RATE Subordinated Note due July 15, 2027

1.            Subordinated Notes. This Subordinated Note is one of an issue of notes of John Marshall Bancorp, Inc., a Virginia corporation (the “Company”), designated as the “5.75% Fixed to Floating Rate Subordinated Notes due July 15, 2027” (the “Subordinated Notes”).

2.            Payment. The Company, for value received, promises to pay to _________ or its registered assigns, the principal sum of [ ] (U.S.) ($ ), plus accrued but unpaid interest on July 15, 2027 (“Stated Maturity”) and to pay interest thereon (i) from and including the original issue date of the Subordinated Notes to but excluding July 15, 2022 or the earlier redemption date contemplated by Section 4 of this Subordinated Note, at the rate of 5.75% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months and payable semi-annually in arrears on January 15and July15 of each year (each, a “Fixed Interest Payment Date”), beginning January 15, 2018, and (ii) from and including July 15, 2022 to but excluding the Stated Maturity or the earlier redemption date contemplated by Section 4 of this Subordinated Note, at the rate per annum, reset quarterly, equal to LIBOR determined on the determination date of the applicable interest period plus 388.0 basis points, computed on the basis of a 360-day year and the actual number of days elapsed and payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year (each, a “Floating Interest Payment Date”). An “Interest Payment Date” is either a Fixed Interest Payment Date or a Floating Interest Payment Date, as applicable. “LIBOR” means the 3-month USD LIBOR, which will be the offered rate for 3-month deposits in U.S. dollars, as that rate appears on the Reuters Screen LIBOR01 Page (or any successor page thereto) as of 11:00 a.m., London time, as observed two London banking days prior to the first day of the applicable floating rate interest period. If 3-month USD LIBOR is not displayed as of such time with respect to any applicable floating rate interest period, then the Company will request the principal London offices of at least two banks to provide a quotation of their rates for deposits in U.S. dollars for a period comparable to the applicable floating rate interest period and the 3-month USD LIBOR for such floating rate interest period shall be the arithmetic mean of such quotations. A London banking day is a day on which commercial banks and foreign currency markets settle payments and are open for general business in London. Notwithstanding the foregoing, in the event that 3-month USD LIBOR as determined in accordance with this Section 2 is less than zero, the 3-month USD LIBOR for such interest period shall be deemed to be zero.

Any payment of principal of or interest on this Subordinated Note that would otherwise become due and payable on a day which is not a Business Day shall become due and payable on the next succeeding Business Day, with the same force and effect as if made on the date for payment of such principal or interest, and no interest will accrue in respect of such payment for the period after such day. The term “Business Day” means any day that is not a Saturday or Sunday and that is not a day on which banks in the Commonwealth of Virginia are generally authorized or required by law or executive order to be closed.

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3.            Subordination.

(a)            The indebtedness of the Company evidenced by this Subordinated Note, including the principal and interest on this Subordinated Note, shall be subordinate and junior in right of payment to the prior payment in full of all existing claims of creditors of the Company and creditors, including depositors, of John Marshall Bank (together with any insured depositary institution subsidiary of the Company hereinafter acquired, the “Bank”), whether now outstanding or subsequently created, assumed, guaranteed or incurred (collectively, “Senior Indebtedness”), which shall consist of principal of (and premium, if any) and interest, if any, on: (i) all indebtedness and obligations of, or guaranteed or assumed by, the Company for money borrowed, whether or not evidenced by bonds, debentures, securities, notes or other similar instruments, and including, but not limited to, deposits and other liabilities of the Bank, and all obligations to the Company’s general creditors and secured creditors; (ii) any deferred obligations of the Company for the payment of the purchase price of property or assets acquired other than in the ordinary course of business; (iii) all obligations, contingent or otherwise, of the Company in respect of any letters of credit, bankers’ acceptances, security purchase facilities and similar direct credit substitutes; (iv) any capital lease obligations of the Company; (v) all obligations of the Company in respect of interest rate swap, cap or other agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity contracts and other similar arrangements or derivative products; (vi) all obligations that are similar to those in clauses (i) through (v) of other persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise arising from an off-balance sheet guarantee; and (vii) all obligations of the types referred to in clauses (i) through (vi) of other persons secured by a lien on any property or asset of the Company, and (viii) in the case of (i) through (vii) above, all amendments, renewals, extensions, modifications and refundings of such indebtedness and obligations; except “Senior Indebtedness” does not include (A) the Subordinated Notes, (B) any obligation that by its terms expressly is junior to, or ranks equally in right of payment with, the Subordinated Notes, or (C) any indebtedness between the Company and any of its subsidiaries or Affiliates (other than any insured depositary institution subsidiary or Affiliate). This Subordinated Note is not secured by any assets of the Company or any subsidiary or Affiliate. The term “Affiliate(s)” means, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations, and any other Person directly or indirectly controlling, controlled by, or under common control with said Person and their respective Affiliates.

(b)            In the event of liquidation of the Company, holders of Senior Indebtedness of the Company shall be entitled to be paid in full with such interest as may be provided by law before any payment shall be made on account of principal of or interest on this Subordinated Note. Additionally, in the event of any insolvency, dissolution, assignment for the benefit of creditors or any liquidation or winding up of or relating to the Company, whether voluntary or involuntary, holders of Senior Indebtedness shall be entitled to be paid in full before any payment shall be made on account of the principal of or interest on the Subordinated Notes, including this Subordinated Note. In the event of any such proceeding, after payment in full of all sums owing with respect to the Senior Indebtedness, the registered holders of the Subordinated Notes from time to time (each a “Noteholder” and, collectively, the “Noteholders”), together with the holders of any obligations of the Company ranking on a parity with the Subordinated Notes, shall be entitled to be paid from the remaining assets of the Company the unpaid principal thereof, and the unpaid interest thereon before any payment or other distribution, whether in cash, property or otherwise, shall be made (i) with respect to any obligation that by its terms expressly is junior to in the right of payment to the Subordinated Notes, (ii) any indebtedness between the Company and any of its subsidiaries or Affiliates (other than any insured depositary institution subsidiary or Affiliate) or (iii) on account of any capital stock.

(c)            If there shall have occurred and be continuing (i) a default in any payment with respect to any Senior Indebtedness or (ii) an event of default with respect to any Senior Indebtedness as a result of which the maturity thereof is accelerated, unless and until such payment default or event of default shall have been cured or waived or shall have ceased to exist, no payments shall be made by the Company with respect to the Subordinated Notes. The provisions of this paragraph shall not apply to any payment with respect to which Section 3(b) would be applicable.

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(d)            Nothing herein shall act to prohibit, limit or impede the Company from issuing additional debt of the Company having the same rank as the Subordinated Notes or which may be junior or senior in rank to the Subordinated Notes. Each Noteholder, by its acceptance hereof, agrees to and shall be bound by the provisions of this Section 3. Each Noteholder, by its acceptance hereof, further acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration for each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Subordinated Notes, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold or in continuing to hold such Senior Indebtedness.

4.            Redemption.

(a)            Redemption Prior to Fifth Anniversary. This Subordinated Note shall not be redeemable by the Company in whole or in part prior to the fifth anniversary of the date upon which this Subordinated Note was originally issued (the “Issue Date”), except in the event of: (i) a Tier 2 Capital Event (as defined below); (ii) a Tax Event (as defined below); or (iii) an Investment Company Event (as defined below). Upon the occurrence of a Tier 2 Capital Event, a Tax Event or an Investment Company Event, the Company may redeem this Subordinated Note in whole or in part at any time, upon giving not less than 10 calendar days’ notice to the holder of this Subordinated Note at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued but unpaid interest, to but excluding the redemption date. “Tier 2 Capital Event” means the receipt by the Company of an opinion of counsel to the Company to the effect that there is a material risk that this Subordinated Note no longer qualifies as “Tier 2” Capital (as defined by the Board of Governors of the Federal Reserve System (the “Federal Reserve”)) (or its then equivalent) as a result of a change in interpretation or application of law or regulation by any judicial, legislative or regulatory authority that becomes effective after the date of issuance of this Subordinated Note. “Tax Event” means the receipt by the Company of an opinion of counsel to the Company that as a result of any amendment to, or change (including any final and adopted (or enacted) prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, there exists a material risk that interest payable by the Company on the Subordinated Notes is not, or within 120 days after the receipt of such opinion will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes. “Investment Company Event” means the receipt by the Company of an opinion of counsel to the Company to the effect that there is a material risk that the Company is or, within 120 days after the receipt of such opinion will be, required to register as an investment company pursuant to the Investment Company Act of 1940, as amended.

(b)            Redemption on or after Fifth Anniversary. On or after the fifth anniversary of the Issue Date, this Subordinated Note shall be redeemable at the option of and by the Company, in whole or in part at any time and from time to time upon any Interest Payment Date, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued but unpaid interest, to but excluding the redemption date, but in all cases in a principal amount with integral multiples of $1,000

(c)            Partial Redemption. If less than the then outstanding principal amount of this Subordinated Note is redeemed, (i) a new Subordinated Note shall be issued representing the unredeemed portion without charge to the holder thereof and (ii) such redemption shall be effected on a pro rata basis as to the Noteholders. For purposes of clarity, upon a partial redemption, a like percentage of the principal amount of every Subordinated Note held by every Noteholder shall be redeemed.

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(d)            No Redemption at Option of Noteholder. This Subordinated Note is not subject to redemption at the option of the holder of this Subordinated Note.

(e)            Effectiveness of Redemption. If notice of redemption has been duly given and notwithstanding that this Subordinated Note has been called for redemption but has not yet been surrendered for cancellation, on and after the date fixed for redemption, interest shall cease to accrue on the portion of this Subordinated Note called for redemption, this Subordinated Note shall no longer be deemed outstanding with respect to the portion called for redemption and all rights with respect to the portion of this Subordinated Note called for redemption shall forthwith on such date fixed for redemption cease and terminate unless the Company shall default in the payment of the redemption price, except only the right of the holder hereof to receive the amount payable on such redemption, without interest.

(f)            Regulatory Approvals. Any such redemption shall be subject to receipt of any and all required federal and state regulatory approvals, including, but not limited to, the consent of the Federal Reserve. In the case of any redemption of this Subordinated Note pursuant to paragraphs (b) and (c) of this Section 4, the Company will give the holder hereof notice of redemption, which notice shall indicate the aggregate principal amount of Subordinated Notes to be redeemed, not less than 30 nor more than 60 calendar days prior to the redemption date.

(g)            Purchase and Resale of the Subordinated Notes. Subject to any required federal and state regulatory approvals and the provisions of this Subordinated Note, the Company shall have the right to purchase any of the Subordinated Notes at any time in the open market, private transactions or otherwise. If the Company purchases any Subordinated Notes, it may, in its discretion, hold, resell or cancel any of the purchased Subordinated Notes.

5.            Events of Default; Acceleration; Compliance Certificate. Each of the following events shall constitute an “Event of Default”:

(a)            the entry of a decree or order for relief in respect of the Company by a court having jurisdiction in the premises in an involuntary case or proceeding under any applicable bankruptcy, insolvency, or reorganization law, now or hereafter in effect of the United States or any political subdivision thereof, and such decree or order will have continued unstayed and in effect for a period of 60 consecutive days;

(b)            the commencement by the Company of a voluntary case under any applicable bankruptcy, insolvency or reorganization law, now or hereafter in effect of the United States or any political subdivision thereof, or the consent by the Company to the entry of a decree or order for relief in an involuntary case or proceeding under any such law;

(c)            the Company (i) becomes insolvent or is unable to pay its debts as they mature, (ii) makes an assignment for the benefit of creditors, (iii) admits in writing its inability to pay its debts as they mature, or (iv) ceases to be a bank holding company or financial holding company under the Bank Holding Company Act of 1956, as amended;

(d)            the failure of the Company to pay any installment of interest on any of the Subordinated Notes as and when the same will become due and payable, and the continuation of such failure for a period of 30 days;

(e)            the failure of the Company to pay all or any part of the principal of any of the Subordinated Notes as and when the same will become due and payable;

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(f)            the liquidation of the Company (for avoidance of doubt, “liquidation” does not include any merger, consolidation, sale of equity or assets or reorganization (exclusive of a reorganization in bankruptcy) of the Company or any of its subsidiaries); or

(g)            the failure of the Company to perform any other covenant or agreement on the part of the Company contained in the Subordinated Notes, and the continuation of such failure for a period of 60 days after the date on which notice specifying such failure, stating that such notice is a “Notice of Default” hereunder and demanding that the Company remedy the same, will have been given, in the manner set forth in Section 21, to the Company by Noteholders holding at least a majority in principal amount of the outstanding Subordinated Notes.

If an Event of Default described in Section 5(a) or Section 5(b) occurs, then the principal amount of all of the outstanding Subordinated Notes, and accrued and unpaid interest, if any, on all outstanding Subordinated Notes will become and be immediately due and payable without any declaration or other act on the part of any Noteholder, and the Company waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices. As the Company will treat the Subordinated Notes as Tier 2 Capital, upon the occurrence of an Event of Default other than an Event of Default described in Section 5(a) or Section 5(b), the Noteholders may not accelerate the Stated Maturity of the Subordinated Notes and make the principal of, and any accrued and unpaid interest on, the Subordinated Notes, immediately due and payable. The Company, within 45 calendar days after the receipt of written notice from any Noteholder of the occurrence of an Event of Default with respect to this Subordinated Note, shall mail to all Noteholders, at their addresses shown on the Security Register (as defined in Section 14 below), such written notice of Event of Default, unless such Event of Default shall have been cured or waived before the giving of such notice as certified by the Company in writing.

6.            Failure to Make Payments. In the event of an Event of Default under Section 5(d) or Section 5(e) above, the Company will, upon demand of the holder of this Subordinated Note, pay to the holder of this Subordinated Note the amount then due and payable on this Subordinated Note for principal and interest (without acceleration of the Note in any manner), with interest on the overdue principal and interest at the rate borne by this Subordinated Note, to the extent permitted by applicable law. If the Company fails to pay such amount upon such demand, the holders of at least a majority in principal amount of the outstanding Subordinated Notes may, among other things, institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the amounts adjudged or decreed to be payable in the manner provided by law out of the property of the Company.

Upon the occurrence of (x) a failure by the Company to make any required payment of principal or interest on this Subordinated Note, or (y) an Event of Default, until such Event of Default is cured by the Company, the Company shall not, except as required by any federal or state governmental agency: (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock; (b) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any indebtedness of the Company that ranks equal with or junior to the Subordinated Notes; or (c) make any payments under any guarantee that ranks equal with or junior to the Subordinated Notes, other than (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of the Company’s common stock; (ii) any declaration of a non-cash dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification of the Company’s capital stock or the exchange or conversion of one class or series of the Company’s capital stock for another class or series of the Company’s capital stock; (iv) the purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of any class of the Company’s common stock related to the issuance of common stock or rights under any benefit plans for the Company’s directors, officers or employees or any of the Company’s dividend reinvestment plans.

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7.            Affirmative Covenants of the Company.

(a)            Notice of Certain Events. To the extent permitted by applicable statute, rule or regulation, the Company shall provide written notice to the Holder of the occurrence of any of the following events as soon as practicable, but in no event later than fifteen (15) Business Days following the Company becoming aware of the occurrence of such event:

(i)            The Bank is no longer “adequately capitalized” as contemplated by applicable federal banking laws and regulations; or

(ii)            The Company, or any officer of the Company, becomes subject to any formal, written regulatory enforcement action (as defined by any federal or state agency charged with the supervision or regulation of depositary institutions or holding companies of depositary institutions, or engaged in the insurance of depositary institution deposits, or any court, administrative agency or commission or other authority, body or agency having supervisory or regulatory authority with respect to the Company, or any of their subsidiaries).

(b)            Payment of Principal and Interest. The Company covenants and agrees for the benefit of the holder of this Subordinated Note that it will duly and punctually pay the principal of, and interest on, this Subordinated Note, in accordance with the terms hereof. Principal and interest will be considered paid on the date due if the Company or a subsidiary thereof holds, as of 11:00 A.M., Reston, Virginia time, on any Interest Payment Date, an amount in immediately available funds provided by the Company that is designated for and sufficient to pay all principal and interest then due.

(c)            Maintenance of Office. The Company will maintain an office or agency in the city of Reston, Virginia where Subordinated Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Subordinated Notes may be served. The Company may also from time to time designate one or more other offices or agencies where the Subordinated Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the city of Reston, Virginia. The Company will give prompt written notice to the Noteholders of any such designation or rescission and of any change in the location of any such other office or agency.

(d)            Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect: (i) the corporate existence of the Company; (ii) the existence (corporate or other) of each subsidiary; and (iii) the rights (charter and statutory), licenses and franchises of the Company and each of its subsidiaries; provided, however, that the Company will not be required to preserve the existence (corporate or other) of any of its subsidiaries or any such right, license or franchise of the Company or any of its subsidiaries if the Board of Directors of the Company determines that the preservation thereof is no longer desirable in the conduct of the business of the Company and its subsidiaries taken as a whole and that the loss thereof will not be disadvantageous in any material respect to the Noteholders.

(e)            Maintenance of Properties. The Company will, and will cause each subsidiary to, cause all its properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section will prevent the Company or any subsidiary from discontinuing the operation and maintenance of any of their respective properties if such discontinuance is, in the judgment of the Board of Directors of the Company or of any subsidiary, as the case may be desirable in the conduct of its business.

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(f)            Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 7(a), Section 7(b), Section 7(c), Section 7(d) or Section 7(e) above, with respect to this Subordinated Note if before the time for such compliance the Noteholders of at least a majority in principal amount of the outstanding Subordinated Notes, by act of such Noteholders, either will waive such compliance in such instance or generally will have waived compliance with such term, provision or condition, but no such waiver will extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver will become effective, the obligations of the Company in respect of any such term, provision or condition will remain in full force and effect.

(g)            Company Statement as to Compliance. The Company will deliver to the Noteholders, within 120 days after the end of each fiscal year, an Officer’s Certificate covering the preceding calendar year, stating whether or not, to the best of his or her knowledge, the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Subordinated Note (without regard to notice requirements or periods of grace) and if the Company will be in default, specifying all such defaults and the nature and status thereof of which he or she may have knowledge.

(h)            Tier 2 Capital. If all or any portion of the Subordinated Notes ceases to be deemed to be Tier 2 Capital, other than due to the limitation imposed on the capital treatment of subordinated debt during the five years immediately preceding the Stated Maturity of the Subordinated Notes, the Company will immediately notify the Noteholders and thereafter the Company and the Noteholders will work together in good faith to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations evidenced by the Subordinated Notes to qualify as Tier 2 Capital; provided, however, that nothing contained in this Section 7(h) shall limit the Company’s right to redeem the Subordinated Notes upon the occurrence of a Tier 2 Capital Event pursuant to Section 4(a) or Section 4(b).

(i)            Compliance with Laws. The Company shall comply with the requirements of all laws, regulations, orders and decrees applicable to it or its properties, except for such noncompliance that would not reasonably be expected to result in a material adverse effect (i) in the condition (financial or otherwise), or in the earnings of the Company, whether or not arising in the ordinary course of business, or (ii) on the ability of the Company to perform its obligations under this Subordinated Note.

(j)            Taxes and Assessments. The Company shall punctually pay and discharge all material taxes, assessments, and other governmental charges or levies imposed upon it or upon its income or upon any of its properties; provided, that no such taxes, assessments or other governmental charges need be paid if they are being contested in good faith by the Company.

8.            Negative Covenants of the Company.

(a)            Limitation on Dividends. The Company shall not declare or pay any dividend or make any distribution on capital stock or other equity securities of any kind of the Company if the Company is not “well capitalized” for regulatory purposes immediately prior to the declaration of such dividend or distribution, except for dividends payable solely in shares of common stock of the Company.

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(b)            Merger or Sale of Assets. The Company shall not merge into another entity or convey, transfer or lease substantially all of its properties and assets to any person, unless:

(i)            the continuing entity into which the Company is merged or the person which acquires by conveyance or transfer or which leases substantially all of the properties and assets of the Company shall be a corporation, association or other legal entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and expressly assumes the due and punctual payment of the principal of and any premium and interest on the Subordinated Notes according to their terms, and the due and punctual performance of all covenants and conditions hereof on the part of the Company to be performed or observed; and

(ii)            immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing.

9.            Global Subordinated Notes.

(a)            Provided that applicable depository eligibility requirements are met, upon the written election of any Noteholder that is a Qualified Institutional Buyer, as defined in Rule 144A under the Securities Act, the Company shall use its commercially reasonable efforts to provide that the Subordinated Notes owned by Noteholders that are Qualified Institutional Buyers shall be issued in the form of one or more Global Subordinated Notes (each a “Global Subordinated Note”) registered in the name of The Depository Trust Company or another organization registered as a clearing agency under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and designated as Depositary by the Company or any successor thereto (the “Depositary”) or a nominee thereof and delivered to such Depositary or a nominee thereof.

(b)            Notwithstanding any other provision herein, no Global Subordinated Note may be exchanged in whole or in part for Subordinated Notes registered, and no transfer of a Global Subordinated Note in whole or in part may be registered, in the name of any person other than the Depositary for such Global Subordinated Note or a nominee thereof unless (i) such Depositary advises the Company in writing that such Depositary is no longer willing or able to properly discharge its responsibilities as Depositary with respect to such Global Subordinated Note, and no qualified successor is appointed by the Company within 90 days of receipt by the Company of such notice, (ii) such Depositary ceases to be a clearing agency registered under the Exchange Act and no successor is appointed by the Company within 90 days after obtaining knowledge of such event, (iii) the Company elects to terminate the book-entry system through the Depositary or (iv) an Event of Default shall have occurred and be continuing. Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv) of this Section 9(b) above, the Company or its agent shall notify the Depositary and instruct the Depositary to notify all owners of beneficial interests in such Global Subordinated Note of the occurrence of such event and of the availability of Subordinated Notes to such owners of beneficial interests requesting the same.

(c)            If any Global Subordinated Note is to be exchanged for other Subordinated Notes or canceled in part, or if another Subordinated Note is to be exchanged in whole or in part for a beneficial interest in any Global Subordinated Note, then either (i) such Global Subordinated Note shall be so surrendered for exchange or cancellation as provided in this Section 9 or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Subordinated Note to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Company or, if applicable, the Company’s registrar and transfer agent (“Registrar”), whereupon the Company or, if applicable, the Registrar, in accordance with the applicable rules and procedures of the Depositary (“Applicable Depositary Procedures”), shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Subordinated Note by the Depositary, accompanied by registration instructions, the Company shall execute and deliver any Subordinated Notes issuable in exchange for such Global Subordinated Note (or any portion thereof) in accordance with the instructions of the Depositary.

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(d)            Every Subordinated Note executed and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Subordinated Note or any portion thereof shall be executed and delivered in the form of, and shall be, a Global Subordinated Note, unless such Subordinated Note is registered in the name of a person other than the Depositary for such Global Subordinated Note or a nominee thereof.

(e)            The Depositary or its nominee, as the registered owner of a Global Subordinated Note, shall be the holder of such Global Subordinated Note for all purposes under this Subordinated Note, and owners of beneficial interests in a Global Subordinated Note shall hold such interests pursuant to Applicable Depositary Procedures. Accordingly, any such owner’s beneficial interest in a Global Subordinated Note shall be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Depositary participants. If applicable, the Registrar shall be entitled to deal with the Depositary for all purposes relating to a Global Subordinated Note (including the payment of principal and interest thereon and the giving of instructions or directions by owners of beneficial interests therein and the giving of notices) as the sole holder of the Subordinated Note and shall have no obligations to the owners of beneficial interests therein. The Registrar shall have no liability in respect of any transfers affected by the Depositary.

(f)            The rights of owners of beneficial interests in a Global Subordinated Note shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such owners and the Depositary and/or its participants.

(g)            No holder of any beneficial interest in any Global Subordinated Note held on its behalf by a Depositary shall have any rights with respect to such Global Subordinated Note, and such Depositary may be treated by the Company and any agent of the Company as the owner of such Global Subordinated Note for all purposes whatsoever. Neither the Company nor any agent of the Company will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Subordinated Note or maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, nothing herein shall prevent the Company or any agent of the Company from giving effect to any written certification, proxy or other authorization furnished by a Depositary or impair, as between a Depositary and such holders of beneficial interests, the operation of customary practices governing the exercise of the rights of the Depositary (or its nominee) as holder of any Subordinated Note.

(h)            Company, within 30 calendar days after the receipt of written notice from the Noteholder or any other holder of the Subordinated Notes of the occurrence of an Event of Default with respect to this Note, shall mail to all the Noteholders, at their addresses shown on the Security Register (as defined in Section 14 below), such written notice of Event of Default, unless such Event of Default shall have been cured or waived before the giving of such notice as certified by Company in writing.

10.            Denominations. The Subordinated Notes are issuable only in registered form without interest coupons in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof.

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11.            Charges and Transfer Taxes. No service charge will be made for any registration of transfer or exchange of this Subordinated Note, or any redemption or repayment of this Subordinated Note, or any conversion or exchange of this Subordinated Note for other types of securities or property, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of this Subordinated Note from the Noteholder requesting such transfer or exchange.

12.            Payment Procedures. Payment of the principal and interest payable on the Stated Maturity will be made by check, or by wire transfer in immediately available funds to a bank account in the United States designated by the Noteholder of this Subordinated Note if such Noteholder shall have previously provided wire instructions to the Company, upon presentation and surrender of this Subordinated Note at the Payment Office (as defined in Section 21 below) or at such other place or places as the Company shall designate by notice to the Noteholders as the Payment Office, provided that this Subordinated Note is presented to the Company in time for the Company to make such payments in such funds in accordance with its normal procedures. Payments of interest (other than interest payable on the Stated Maturity) shall be made by wire transfer in immediately available funds or check mailed to the registered Noteholder of this Subordinated Note, as such person’s address appears on the Security Register (as defined below). Interest payable on any Interest Payment Date shall be payable to the Noteholder in whose name this Subordinated Note is registered at the close of business on the fifteenth calendar day prior to the applicable Interest Payment Date, without regard to whether such date is a Business Day (such date being referred to herein as the “Regular Record Date”), except that interest not paid on the Interest Payment Date, if any, will be paid to the Noteholder in whose name this Subordinated Note is registered at the close of business on a special record date fixed by the Company (a “Special Record Date”), notice of which shall be given to the Noteholder of this Subordinated Note not less than 10 calendar days prior to such Special Record Date. (The Regular Record Date and Special Record Date are referred to herein collectively as the “Record Dates”). To the extent permitted by applicable law, interest shall accrue, at the rate at which interest accrues on the principal of this Subordinated Note, on any amount of principal or interest on this Subordinated Note not paid when due. All payments on this Subordinated Note shall be applied first against interest due hereunder; and then against principal due hereunder. The Noteholder of this Subordinated Note acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Subordinated Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Subordinated Notes. In the event that the Noteholder of this Subordinated Note receives payments in excess of its pro rata share of the Company’s payments to the Noteholders of all of the Subordinated Notes, then the Noteholder of this Subordinated Note shall hold in trust all such excess payments for the benefit of the Noteholders of the other Subordinated Notes and shall pay such amounts held in trust to such other Noteholders upon demand by such Noteholders.

13.            Form of Payment. Payments of principal and interest on this Subordinated Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.

14.            Registration of Transfer, Security Register. Except as otherwise provided herein, this Subordinated Note is transferable in whole or in part, and may be exchanged for a like aggregate principal amount of Subordinated Notes of other authorized denominations, by the holder of this Subordinated Note in person, or by his attorney duly authorized in writing, at the Payment Office. The Company shall maintain a register providing for the registration of the Subordinated Notes and any exchange or transfer thereof (the “Security Register”). Upon surrender or presentation of this Subordinated Note for exchange or registration of transfer, the Company shall execute and deliver in exchange therefor a Subordinated Note or Subordinated Notes of like aggregate principal amount, each in a minimum denomination of $1,000 or any amount in excess thereof which is an integral multiple of $1,000 (and, in the absence of an opinion of counsel satisfactory to the Company to the contrary, bearing the restrictive legend(s) set forth hereinabove) and that is or are registered in such name or names requested by the Noteholder. Any Subordinated Note presented or surrendered for registration of transfer or for exchange shall be duly endorsed and accompanied by a written instrument of transfer in such form as is attached hereto and incorporated herein, duly executed by the holder of this Subordinated Note or his attorney duly authorized in writing, with such tax identification number or other information for each person in whose name a Subordinated Note is to be issued, and accompanied by evidence of compliance with any restrictive legend(s) appearing on such Subordinated Note or Subordinated Notes as the Company may reasonably request to comply with applicable law. No exchange or registration of transfer of this Subordinated Note shall be made on or after (i) the fifteenth day immediately preceding the Stated Maturity or (ii) the due delivery of notice of redemption.

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15.            Priority. The Subordinated Notes rank pari passu among themselves and pari passu, in the event of any insolvency proceeding, dissolution, assignment for the benefit of creditors, reorganization, restructuring of debt, marshaling of assets and liabilities or similar proceeding or any liquidation or winding up of the Company, with all other present or future unsecured subordinated debt obligations of the Company, except any unsecured subordinated debt that, pursuant to its express terms, is senior or subordinate in right of payment to the Subordinated Notes.

16.            Ownership. Prior to due presentment of this Subordinated Note for registration of transfer, the Company may treat the Noteholder in whose name this Subordinated Note is registered in the Security Register as the absolute owner of this Subordinated Note for receiving payments of principal and interest on this Subordinated Note and for all other purposes whatsoever, whether or not this Subordinated Note be overdue, and the Company shall not be affected by any notice to the contrary.

17.            Waiver and Consent.

(a)            Any consent or waiver given by the Noteholder of this Subordinated Note shall be conclusive and binding upon such Noteholder and upon all future Noteholders of this Subordinated Note and of any Subordinated Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Subordinated Note. Any holder of this Subordinated Note or which otherwise shall have any beneficial ownership interest in this Subordinated Note shall, by its acceptance of such Subordinated Note (or beneficial interest therein), be deemed to have waived any right of offset with respect to repayment of the indebtedness evidenced thereby.

(b)            No waiver or amendment of any term, provision, condition, covenant or agreement in the Subordinated Notes shall be effective except with the consent of the holders of not less than more than fifty percent (50%) in aggregate principal amount (excluding any Subordinated Notes held by Company or any of its Affiliates) of the Subordinated Notes at the time outstanding; provided, however, that without the consent of each Noteholder of an affected Subordinated Note, no such amendment or waiver may: (i) reduce the principal amount of any Subordinated Note; (ii) reduce the rate of or change the time for payment of interest on any Subordinated Note; (iii) extend the maturity of any Subordinated Note, (iv) change the currency in which payment of the obligations of Company under the Subordinated Notes are to be made; (v) lower the percentage of aggregate principal amount of outstanding Subordinated Notes required to approve any amendment of the Subordinated Notes, (vi) make any changes to Section 6 (Failure to Make Payments) of the Subordinated Notes that adversely affects the rights of any Noteholder; or (vii) disproportionately affect any of the Noteholders of the then outstanding Subordinated Notes. Notwithstanding the foregoing, Company may amend or supplement the Subordinated Notes without the consent of the Noteholders of the Subordinated Notes to cure any ambiguity, defect or inconsistency or to provide for uncertificated Subordinated Notes in addition to or in place of certificated Subordinated Notes, or to make any change that does not adversely affect the rights of any Noteholder of any of the Subordinated Notes. No failure to exercise or delay in exercising, by any Noteholder of the Subordinated Notes, of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right or remedy provided by law, except as restricted hereby. The rights and remedies provided in this Subordinated Note are cumulative and not exclusive of any right or remedy provided by law or equity. No notice or demand on Company in any case shall, in itself, entitle Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Noteholders to any other or further action in any circumstances without notice or demand. No consent or waiver, expressed or implied, by Noteholders to or of any breach or default by Company in the performance of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Company hereunder. Failure on the part of the Noteholders to complain of any acts or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Noteholders of their rights hereunder or impair any rights, powers or remedies on account of any breach or default by Company.

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18.            Absolute and Unconditional Obligation of the Company. No provisions of this Subordinated Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest on this Subordinated Note at the times, places and rate, and in the coin or currency, herein prescribed.

19.            No Sinking Fund; Convertibility. This Subordinated Note is not entitled to the benefit of any sinking fund. This Subordinated Note is not convertible into or exchangeable for any of the equity securities, other securities or assets of the Company or any subsidiary.

20.            No Recourse Against Others. No recourse under or upon any obligation, covenant or agreement contained in this Subordinated Note, or for any claim based thereon or otherwise in respect thereof, will be had against any past, present or future shareholder, employee, officer, or director, as such, of the Company or of any predecessor or successor, either directly or through the Company or any predecessor or successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Subordinated Note by the holder of this Subordinated Note and as part of the consideration for the issuance of this Subordinated Note.

21.            Notices. All notices to the Company under this Subordinated Note shall be in writing and addressed to the Company at 1943 Isaac Newton Square, Reston, Virginia, 20190, Attention: Kent D. Carstater, Chief Financial Officer, or to such other address as the Company may notify to the Holder (the “Payment Office”). All notices to the Noteholders shall be in writing and sent by first-class mail to each Noteholder at his or its address as set forth in the Security Register.

22.            Further Issues. The Company may, without the consent of the Noteholders of the Subordinated Notes, create and issue additional notes having the same terms and conditions of the Subordinated Notes (except for the Issue Date) so that such further notes shall be consolidated and form a single series with the Subordinated Notes.

23.            Governing Law; Interpretation. THIS SUBORDINATED NOTE WILL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. THIS SUBORDINATED NOTE IS INTENDED TO MEET THE CRITERIA FOR QUALIFICATION OF THE OUTSTANDING PRINCIPAL AS TIER 2 CAPITAL UNDER THE REGULATORY GUIDELINES OF THE FEDERAL RESERVE, AND THE TERMS HEREOF SHALL BE INTERPRETED IN A MANNER TO SATISFY SUCH INTENT.

[Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note to be duly executed and attested.

JOHN MARSHALL BANCORP, INC.
By:
	Name:	Kent D. Carstater
	Title:	Executive Vice President, Chief Financial Officer

ATTEST:

Name: Carl E. Dodson

Title:   Assistant Secretary

[Signature Page to Subordinated Note]

ASSIGNMENT FORM

To assign this Subordinated Note, fill in the form below: (I) or (we) assign and transfer this Subordinated Note to:

(Print or type assignee’s name, address and zip code)

(Insert assignee’s social security or tax I.D. No.)

and irrevocably appoint _______________________ agent to transfer this Subordinated Note on the books of the Company. The agent may substitute another to act for him.

Date:	Your signature:
	(Sign exactly as your name appears on the face of this Subordinated Note)
	Tax Identification No:

Signature Guarantee: 

(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

The undersigned certifies that it [is / is not] an Affiliate of the Company and that, to its knowledge, the proposed transferee [is / is not] an Affiliate of the Company.

In connection with any transfer or exchange of this Subordinated Note occurring prior to the date that is one year after the later of the date of original issuance of this Subordinated Note and the last date, if any, on which this Subordinated Note was owned by the Company or any Affiliate of the Company, the undersigned confirms that this Subordinated Note is being:

CHECK ONE BOX BELOW:

¨ (1) acquired for the undersigned’s own account, without transfer;

¨ (2) transferred to the Company;

¨ (3) transferred in accordance and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”);

¨ (4) transferred under an effective registration statement under the Securities Act;

¨ (5) transferred in accordance with and in compliance with Regulation S under the Securities Act;

¨ (6) transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)

¨ (7) transferred to an “accredited investor” (as defined in Rule 501(a)(4) under the Securities Act), not referred to in item (6) that has been provided with the information designated under Section 4(d) of the Securities Act of 1933; or

¨ (8) transferred in accordance with another available exemption from the registration requirements of the Securities Act.

Unless one of the boxes is checked, the Company will refuse to register this Subordinated Note in the name of any person other than the registered holder thereof; provided, however, that if box (5), (6), (7) or (8) is checked, the Company may require, prior to registering any such transfer of this Subordinated Note, in its sole discretion, such legal opinions, certifications and other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, such as the exemption provided by Rule 144 under such Act.

Signature:

Signature Guarantee:

(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Exchange Act Rule 17Ad-l5).

TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Subordinated Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Date: Signature:

EX-10.1

Exhibit 10.1

JOHN MARSHALL BANCORP, INC.

2015 STOCK INCENTIVE PLAN

(as Amended and Restated on May 15, 2018)

1.            Purpose of the Plan. The purpose of this Amended and Restated John Marshall Bancorp, Inc. 2015 Stock Incentive Plan (the “Plan”) is to advance the interests of the Company by providing directors and selected key employees of the Company and its Affiliates with the opportunity to acquire Shares. By encouraging stock ownership, the Company seeks to attract, retain and motivate the best available personnel for positions of substantial responsibility; to provide additional incentive to directors and key employees of the Company and its Affiliates to promote the success of the business as measured by the value of its Shares; and generally to increase the commonality of interests among directors, key employees, and other shareholders.

2.            Definitions. In this Plan:

(a)            “Affiliate” means any “parent corporation” or “subsidiary corporation” of the Company as such terms are defined in Section 424(e) and (f), respectively, of the Code.

(b)            “Agreement” means a written agreement entered into in accordance with Section 5(c).

(c)            “Awards” means, collectively Options, Restricted Stock and Restricted Stock Units, unless the context clearly indicates a different meaning.

(d)            “Bank” means John Marshall Bank.

(e)            “Board” means the Board of Directors of the Company.

(f)            “Company” means John Marshall Bancorp, Inc.

(g)            “Change in Control” means any one of the following events occurring after the Effective Date: (1) except as provided in Section 10(c), any consolidation, merger, share exchange, or similar transaction relating to the Company, or pursuant to which shares of the Company’s capital stock are converted into cash, securities of another entity and/or other property, other than a transaction in which the holders of the Company’s voting stock immediately before such transaction shall, upon consummation of such transaction, own at least fifty percent (50%) of the voting power of the surviving entity, (2) any sale of all or substantially all of the assets of the Company, other than a transfer of assets to a related person which is not treated as a change in control event under §1.409A-3(i)(5)(vii)(B) of the US Treasury Regulations, (3) the exercise of a controlling influence over the management or policies of the Company by any person or by persons acting as a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (4) where over a twelve month period, a majority of the members of the Board are replaced by directors whose appointment or election was not endorsed by a majority of the members of the Board in office prior to such appointment or election. For purposes of this subsection only, the term “person” refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Committee as to whether a Change in Control has occurred shall be conclusive and binding. A Change in Control does not include acquisition of ownership or control of voting securities of the Company by an employee benefit plan sponsored by the Company or Bank or; acquisition of voting securities by the Company through share repurchase or otherwise; or acquisition by an exchange of voting securities with a successor to the Company in a reorganization, such as a reincorporation, that does not have the purpose or effect of significantly changing voting power or control. The decision of the Committee as to whether a change in control has occurred is conclusive and binding, subject to the terms of the Plan.

(h)            “Code” means the Internal Revenue Code of 1986, as amended to date or hereafter.

(i)            “Committee” means the Committee appointed by the Board in accordance with Section 5(a) hereof.

(j)            “Common Stock” means the common stock, par value $0.01 per share, of the Company.

(k)            “Continuous Service” means the absence of any interruption or termination of service as an Employee or Director of the Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between payroll locations of the Company or between the Company, an Affiliate or a successor.

(l)            “Director” means a member of the Board.

(m)            “Effective Date” means the date specified in Section 14 hereof.

(n)            “Employee” means any person employed by the Company or by an Affiliate.

(o)            “Exercise Price” means the price per Optioned Share at which an Option may be exercised.

(p)            “Independent Director” means an independent director as defined for purposes other than audit committee service, but considering the additional factors required for determining the independence of compensation committee members, in the listing standards and regulations of The NASDAQ Stock Market, or if the Company’s Common Stock is primarily traded on a national securities exchange other than The NASDAQ Stock Market (including any level or submarket thereof), then the listing standards and regulations of such other national securities exchange. Not in limitation of the foregoing, all Independent Directors must be Non-Employee Directors.

(q)            “ISO” means an option to purchase Common Stock that meets the requirements set forth in the Plan, and which is intended to be and is identified as an “incentive stock option” within the meaning of Section 422 of the Code.

(r)            “Just Cause” has the meaning set forth for “cause,” “just cause” or similar phrase, in any unexpired employment or severance agreement between the Participant and the Company and/or any Affiliate, or, in the absence of any such agreement, means termination because of (in the Board’s sole discretion) the Participant’s personal dishonesty, moral turpitude, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than misdemeanor traffic violations or similar offenses) or final cease-and-desist order.

(s)            “Market Value” means the fair market value of the Common Stock, as determined under Section 7(b) hereof.

(t)            “Non-Employee Director” means any member of the Board who, at the time discretion under the Plan is exercised, is a “Non-Employee Director” within the meaning of Rule 16b-3.

(u)            “Non-ISO” means an option to purchase Common Stock that meets the requirements set forth in the Plan but which is not intended to be, and is not identified as, an ISO.

(v)            “Option” means an ISO or Non-ISO.

(w)            “Optioned Shares” means Shares subject to an Option or Award of Restricted Stock or Restricted Stock Units granted pursuant to this Plan.

(x)            “Outstanding Shares” means the total shares of Common Stock which have been issued and which (a) are not held as treasury shares, and (b) have not been cancelled or retired by the Company.

(y)            “Participant” means any person who receives an Award pursuant to the Plan.

(z)            “Performance Based Award” means an Award, the vesting, exercise or retention of which is subject to or based upon Performance Based Conditions.

(aa)      “Performance Based Conditions” means the specific corporate, divisional, or individual performance or achievement standards or goals set forth in an Agreement.

(bb)      “Permanent and Total Disability” mean “permanent and total disability” as defined in Section 22(e)(3) of the Code.

(cc)      “Plan” means the John Marshall Bancorp, Inc. 2015 Stock Incentive Plan.

(dd)      “Restricted Stock” means Common Stock that is subject to forfeiture, restrictions against transfer, specific Performance Based Conditions, or other conditions or restrictions set forth in an Agreement.

(ee)      “Restricted Stock Unit” means an Award of the right to receive Shares of Common Stock, the grant, issuance or vesting of which is subject to such conditions or restrictions, as set forth in an Agreement.

(ff)      “Rule 16b-3” means Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

(gg)      “Share” means one share of Common Stock.

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(hh)      “Transaction” means: (i) the liquidation or dissolution of the Company; (ii) a merger, consolidation, share exchange or similar transaction in which the Company is not the surviving entity; or (iii) the sale or disposition of all or substantially all of the Company’s assets.

3.            Term of the Plan and Options.

(a)            Term of the Plan. The Plan shall continue in effect for a term of ten years from the Effective Date unless sooner terminated pursuant to Section 17. No Award may be granted under the Plan after ten years from the Effective Date.

(b)            Term of Options. The Committee shall establish the term of each Option granted under the Plan. No Option may have a term that exceeds 10 years. No ISO granted to an Employee who owns Shares representing more than 10% of the outstanding shares of Common Stock at the time an ISO is granted may have a term that exceeds five years.

4.            Shares Subject to the Plan. Except as otherwise required by the provisions of Section 11, the aggregate number of Shares that may be delivered upon the exercise or vesting of Awards shall be 976,211. Optioned Shares may either be authorized but unissued Shares or Shares held in treasury to the extent allowed by Virginia law. If Awards should expire, become unexercisable or be forfeited for any reason without having been exercised or become vested in full, the Optioned Shares shall be available for the grant of additional Awards under the Plan, unless the Plan shall have been terminated.

5.            Administration of the Plan.

(a)            Composition of the Committee. The Plan shall be administered by the Committee, which shall consist of not less than three (3) members of the Board who are Non-employee Directors. In the absence at any time of a duly appointed Committee, the Plan shall be administered by the Non-Employee Directors serving on the Board’s Human Resources Committee. Members of the Committee shall serve at the pleasure of the Board. Notwithstanding the foregoing, at any time when any class of security of Company is traded on any national securities exchange or on the automated inter-dealer quotation system of national securities association, or the Company is otherwise subject to listing requirements comparable to those provided in Rule 10A-3 under the Securities Exchange Act of 1934, then: (i) all members of the Committee shall be Independent Directors; and (ii) In the absence at any time of a duly appointed Committee, the Plan shall be administered by the members of the Board who are Independent Directors. The members of the Committee shall serve at the pleasure of the Board.

(b)            Powers of the Committee. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion: (i) to select Participants and grant Awards; (ii) to determine the form and content of Awards to be issued in the form of Agreements under the Plan, including but not limited to Performance Based Conditions of Performance Based Awards, which need not be identical among Participants granted Awards at the same time; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; and (v) to make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be deemed the action of the Committee.

(c)            Agreement. Each Award shall be evidenced by a written agreement containing such provisions as may be approved by the Committee. Each such Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of such Agreement, shall be bound by the terms and restrictions of the Plan and of such Agreement. The terms of each such Agreement shall be in accordance with the Plan, but each Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, the Committee shall set forth in each Agreement: (i) the Exercise Price of an Option; (ii) the number of Shares subject to, and the expiration date of, the Option; (iii) the Restriction Period of an Award of Restricted Stock or Restricted Stock Units; (iv) the amount, if any, payable for the receipt or vesting of Shares of Restricted Stock or Shares subject to Restricted Stock Units; (v) the manner, time and rate (cumulative or otherwise) of exercise or vesting of such Award; and (vi) the restrictions, if any, to be placed upon such Award, or upon Shares which may be issued upon exercise or vesting of such Award. The Chairman of the Committee and such other officers as shall be designated by the Committee are hereby authorized to execute Agreements on behalf of the Company and to cause them to be delivered to the recipients of Awards.

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(d)            Effect of the Committee’s Decisions. All decisions, determinations, and interpretations of the Committee shall be final and conclusive on all persons affected thereby. The Committee’s determination whether a Participant’s Continuous Service has ceased, the effective date thereof, and whether a Performance Based Condition shall have been met in the event of the death or Permanent and Total Disability shall be final and conclusive on all persons affected thereby.

(e)            Indemnification. In addition to such other rights of indemnification as they may have, the members of the Committee shall be indemnified by the Company in connection with any claim, action, suit or proceeding relating to any action taken or failure to act under or in connection with the Plan or any Award, granted hereunder, to the full extent provided for under the Company’s Articles of Incorporation or Bylaws with respect to the indemnification of Directors.

6.            Grant of Options.

(a)            General Rule. The Committee, in its sole discretion, may grant ISOs or Non-ISOs to Employees of the Company or its Affiliates and may grant Non-ISOs to Company Directors and directors of Affiliates

(b)            Special Rules for ISOs. The aggregate Market Value, as of the date the Option is granted, of the Shares with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans, as defined in Section 422 of the Code, of the Company or any present or future “parent” or “subsidiary” of the Company) shall not exceed $100,000. Notwithstanding the prior provisions of this section, the Committee may grant Options in excess of the foregoing limitations, in which case such Options granted in excess of such limitation shall be Options which are Non-ISOs.

7.            Exercise Price for Options.

(a)            Limits on Committee Discretion. The Exercise Price as to any particular Option granted under the Plan shall not be less than the Market Value of the Optioned Shares on the date of grant. In the case of an Employee who owns Shares representing more than 10% of the Company’s Outstanding Shares of Common Stock at the time an ISO is granted, the Exercise Price shall not be less than 110% of the Market Value of the Optioned Shares at the time the ISO is granted.

(b)            Standards for Determining Exercise Price. If the Common Stock is listed on a national securities exchange (including The NASDAQ Stock Market) on the date in question, then the Market Value per Share shall be not less than the last reported selling price on such exchange on such date, or if there were no sales on such date, then the Exercise Price shall be not less than the mean between the closing bid and asked prices on such date. If the Common Stock is traded otherwise than on a national securities exchange on the date in question, then the Market Value per Share shall be not less than the mean between the closing bid and asked price on such date. If no such bid and asked price is available, then the Market Value per Share shall be its fair market value as determined by the Committee, in its sole and absolute discretion in a manner consistent with the rules prescribed under Section 422 of the Code.

8.            Exercise of Options.

(a)            Generally. Any Option shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Agreement. An Option may not be exercised for a fractional Share. In the event that any adjustment of an Option pursuant to Section 11 or otherwise would result in an Optionee being entitled to exercise for a fractional Share, then upon such adjustment, the number of Shares which may be acquired upon exercise of such Option shall be rounded down to the next whole share, and the Optionee shall not be entitled to any payment, compensation or alternative Award in lieu thereof.

(b)            Procedure for Exercise. A Participant may exercise Options, subject to provisions relative to its termination and limitations on its exercise, only by: (1) written notice of intent to exercise the Option with respect to a specified number of Shares; and (2) payment to the Company (contemporaneously with delivery of such notice) of the amount of the Exercise Price with respect to the Options being exercised (i) in cash, (ii) in Common Stock, (iii) payment through a “net exercise” such that, without the payment of any funds, the Participant may exercise the Option and receive the net number of shares of Common Stock equal to (A) the number of shares as to which the Option is being exercised, multiplied by (B) a fraction, the numerator of which is the Market Value per share less the Exercise Price per share, and the denominator of which is the Market Value per share (the number of net shares to be received shall be rounded down to the nearest whole number of shares, without any payment or other compensation in lieu of such fractional share); or (iv) any combination of the foregoing methods of payment. Each such notice (and payment where required) shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Company at the Company’s executive offices. Common Stock utilized in full or partial payment of the Exercise Price for Options shall be valued at its Market Value at the date of exercise. In connection with the exercise of Options, a Participant shall also deliver to the Company, in accordance with the provisions of Section 19 hereof, an amount sufficient to satisfy all applicable federal, state and local income and employment tax withholding obligations, which amount may be paid by any of the methods available for payment of the Exercise Price.

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(c)            Period of Exercisability-ISOs. An ISO may be exercised by a Participant only while the Participant is an Employee and has maintained Continuous Service from the date of the grant of the ISO, or within three months after termination of such Continuous Service (but not later than the date on which the Option would otherwise expire), except if the Employee’s Continuous Service terminates by reason of –

(1) Just Cause, in which case the Participant’s rights to exercise such ISO shall expire on the date of such termination;

(2) death, in which case, to the extent that the Participant would have been entitled to exercise the ISO immediately prior to his death, such ISO of the deceased Participant may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or person or persons to whom his rights under such ISO shall have passed by will or by laws of descent and distribution;

(3) Permanent and Total Disability, in which case, to the extent that the Participant would have been entitled to exercise the ISO immediately prior to his termination of service as a result of Permanent and Total Disability, such ISO may be exercised within one year from the date of such termination of service as a result of Permanent and Total Disability, but not later than the date on which the ISO would otherwise expire.

(d)            Period of Exercisability-Non-ISOs. A Non-ISO may be exercised by a Participant only while the Participant is an Employee or Director and has maintained Continuous Service from the date of the grant of the Non-ISO, or within three months after termination of such Continuous Service in the case of an Employee who is not a Director, or one year after termination of Continuous Service in the case of a Director (and in any case not later than the date on which the Option would otherwise expire), except if the Continuous Service terminates by reason of –

(i) Just Cause, in which case the Participant’s rights to exercise such Non-ISO shall expire on the date of such termination;

(ii) death, in which case, to the extent that the Participant would have been entitled to exercise the Non-ISO immediately prior to his death, such Non-ISO of the deceased Participant may be exercised during the normal term of the Option by the personal representatives of his estate or person or persons to whom his rights under such Non-ISO shall have passed by will or by laws of descent and distribution;

(iii) Permanent and Total Disability, in which case, to the extent that the Participant would have been entitled to exercise the Non-ISO immediately prior to his termination of service as a result of Permanent and Total Disability, such Non-ISO may be exercised during the normal term of the Option.

(e)            Exercisability at Death or Permanent and Total Disability. Notwithstanding the provisions of any Option that provides for its exercise in installments as designated by the Committee, such Option shall become immediately exercisable upon the Participant’s death or termination of service as a result of Permanent and Total Disability.

9.            Restricted Stock and Restricted Stock Units.

The Committee, in its sole discretion, may grant Awards of Restricted Stock or Restricted Stock Units to Directors or Employees of the Company or an Affiliate. Any Share of Restricted Stock or Restricted Stock Unit which is the subject of an Award shall be subject to the following terms and conditions, and otherwise to such other terms and conditions as are either applicable generally to Awards, or prescribed by the Committee in the applicable Agreement.

(a)            Restriction Period. At the time of each Award of Restricted Stock or a Restricted Stock Unit, there shall be established a restriction period (the “Restriction Period”). Such Restriction Period may differ among Participants and may have different expiration dates with respect to portions of the Shares covered by the same Award. In no event: (i) may the Performance Based Condition measurement date for a Performance Based Award be less than one year from the date of grant; or (ii) may the Restriction Period for any other Award of Restricted Stock or Restricted Stock Unit be less than three years, provided that restrictions may terminate ratably over the vesting period.

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(b)            Vesting Restrictions. The Committee shall determine the conditions and restrictions applicable to the Award, including, but not limited to, requirements of Continuous Service for a specified term, or, for Performance Based Awards of Restricted Stock or Restricted Stock Units, the attainment of Performance Based Conditions, which condition and restrictions may differ with respect to each Participant granted an Award at the same time. The Agreement shall provide for forfeiture of Shares covered thereby if the specified conditions and restrictions are not met during the Restriction Period. Awards of Restricted Stock may provide for the issue of Shares upon grant, subject to forfeiture if the specified conditions and restrictions are not met. Restricted Stock Units shall provide for the issuance of Shares only upon the achievement of the conditions and restrictions at the end of the Restriction Period or upon the achievement of the Performance Based Conditions, subject to earlier vesting as provided herein.

(c)            Vesting upon Death or Permanent and Total Disability. The Committee shall set forth in the Agreement the percentage of an Award, if any, which shall vest in the Participant in the event of death, or Permanent and Total Disability prior to the expiration of the Restriction Period or the satisfaction of the conditions and restrictions applicable to an Award.

(d)            Acceleration of Vesting. Notwithstanding the Restriction Period and the conditions or restrictions imposed on an Award of Restricted Stock or Restricted Stock Units, as set forth in any Agreement, the Committee may shorten the Restriction Period or waive any conditions or restrictions, if the Committee concludes that it is in the best interests of the Company to do so, provided that any such actions not done in connection with a Change in Control or the death, Permanent and Total Disability, or termination of employment of a Participant shall not be effective unless specifically approved or ratified by the affirmative votes of the holders of a majority of the Common Stock present or represented and entitled to vote at a meeting duly held on date no later than the next annual meeting of shareholders.

(e) Ownership; Voting. Where stock certificates are issued in respect of Awards of Restricted Stock, which are subject to forfeiture if the conditions or restrictions are not satisfied, such certificates shall be registered in the name of the Participant, whereupon the Participant shall become a shareholder of the Company with respect to such Restricted Stock and shall, to the extent not inconsistent with express provisions of the Plan, have all the rights of a shareholder, including but not limited to the right to vote and to receive all dividends paid on such Shares, and the certificates shall be deposited with the Company or its designee, together with a stock power endorsed in blank, and the following legend shall be placed upon such certificates reflecting that the shares represented thereby are subject to restrictions against transfer and forfeiture:

“The transferability of this certificate and the shares of stock represented thereby are subject to the terms and conditions (including forfeiture) contained in the John Marshall Bancorp, Inc. 2015 Stock Incentive Plan, and an agreement entered into between the registered owner and John Marshall Bancorp, Inc. Copies of such Plan and Agreement are on file in the offices of the Secretary of John Marshall Bancorp, Inc.”

Where an Award of Restricted Stock Units is subject to issuance upon the achievement of Performance Based Award standards or goals or other conditions, no certificates shall be issued until satisfaction of such conditions.

(f)            Lapse of Restrictions. At the expiration of the Restriction Period applicable to the Restricted Stock, or upon the satisfaction of conditions to receipt of the Shares subject to Restricted Stock Units, as applicable, the Company shall deliver to the Participant, or the legal representative of the Participant’s estate, or if the personal representative of the Participant’s estate shall have assigned the estate’s interest in the Restricted Stock or Restricted Stock Units, to the person or persons to whom his rights under such Restricted Stock or Restricted Stock Units shall have passed by assignment pursuant to his will or to the laws of descent and distribution, the stock certificates deposited with it or its designee, or if no such certificates have been issued and deposited stock certificates reflecting the Shares, as to which the Restriction Period has expired and the requirements of the restrictions have been met. If a legend has been placed on such certificates, the Company shall cause such certificates to be reissued without the legend.

(g)            Forfeiture of Restricted Stock. Any Shares of Restricted Stock which are not vested in the Participant or for which the restrictions have not been satisfied during the Restriction Period shall be forfeited and cancelled without compensation, and shall thereafter not be considered to be Outstanding Shares.

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10. Conditions Upon Issuance of Shares.

(a)            Compliance with Securities Laws. Shares of Common Stock shall not be issued with respect to any Award unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. The Plan is intended to comply with Rule 16b-3, and any provision of the Plan that the Committee determines in its sole and absolute discretion to be inconsistent with said Rule shall, to the extent of such inconsistency, be inoperative and null and void, and shall not affect the validity of the remaining provisions of the Plan.

(b)            Special Circumstances. The inability of the Company to obtain approval from any regulatory body or authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares. As a condition to the grant or exercise of an Award, the Company may require the Participant (or permitted successor) to make such representations and warranties as the Committee determines may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law.

(c)            Committee Discretion. The Committee shall have the discretionary authority to impose in Agreements such restrictions on Shares as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal, to establish repurchase rights or both of these restrictions, or to provide for the mandatory exercise or forfeiture of any outstanding Options in the event that the Company’s primary federal regulator directs the Company to so require if the Company does not meet minimum regulatory capital requirements.

(d)            Construction; Compliance with 409A, Delay in Payment. It is intended and anticipated that this Plan and Awards hereunder shall not be subject to, or shall be in accordance with, 409A of the Code and the regulations and administrative guidance promulgated thereunder (“Section 409A”), and thus avoid the imposition of any excise tax and interest on Participants pursuant to Section 409A(a)(1)(B) of the Code, as a result of the grant, award, exercise, vesting or lapse of restrictions of any Award, and this Plan shall be interpreted and construed consistent with this intent. Notwithstanding anything to the contrary contained herein, any Award or vesting, issuance or payment of an Award hereunder or any Agreement that is considered “nonqualified deferred compensation” that is to be made to a Participant while such Participant is a “specified employee,” in each case as defined and determined for purposes of Section 409A, within six months following such Participant’s “separation from service” (as determined in accordance with Section 409A), then to the extent that such Award, vesting, issuance or payment of an Award is not otherwise permitted under Section 409A such that it would be exempt from the excise tax thereunder, such Award, vesting, issuance or payment of an Award shall be delayed and shall be effected on the first business day of the seventh calendar month following the Participant’s separation from service, or, if earlier upon Participant’s death. Notwithstanding anything to the contrary contained herein, the Company shall have no liability whatsoever to any Participant or any other person in the event that any Award vesting, issuance or payment of an Award is determined to be subject to, and is not in compliance with, Section 409A.

11.            Effect of Changes in Control and Changes in Common Stock Subject to the Plan.

(a) Effects of Change in Control.

(1) Notwithstanding the provisions of any Award that provides for its exercise or vesting in installments, all Awards shall be immediately exercisable and fully vested upon a Change in Control.

(2) At the time of a Change in Control which does not constitute a Transaction, any or all outstanding Options may, in the discretion of the Board and without the individual consent of a Participant, be cancelled, in exchange for which cancellation the Participant shall receive a cash payment in an amount equal to the excess of the Market Value at the time of the Change in Control of the Shares subject to such Option over the Exercise Price of such Options, provided that in no event may an Option be cancelled in exchange for cash within the six-month period following the date of its grant.

(3) In the event there is a Transaction, all outstanding Awards shall be surrendered. With respect to each Award so surrendered, the Board of Directors shall in its sole and absolute discretion determine whether the holder of each Award so surrendered shall receive—

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(A) for each Share then subject to an outstanding Award, an Award for the number and kind of shares (or amount of cash or other property, or combination thereof) into which each Outstanding Share (other than Shares held by dissenting shareholders) is changed or exchanged, together with an appropriate adjustment to the Exercise Price in the case of an Option, or other amount, if any, payable in the event of an Award of Restricted Stock or Shares subject to a Restricted Stock Unit; or

(B) the number and kind of shares (or amount cash or other property, or combination thereof) into which each Outstanding Share (other than Shares held by dissenting shareholders) is changed or exchanged in the Transaction that are equal in market value to the excess of the Market Value on the date of the Transaction of the Shares subject to the Award, over the Exercise Price of the Option, or other amount, if any, payable in the event of an Award of Restricted Stock or Shares subject to a Restricted Stock Unit; or

(C) a cash payment (from the Company or the successor corporation), in an amount equal to the excess of the Market Value on the date of the Transaction of the Shares subject to the Award, over the Exercise Price of the Option, or other amount, if any, payable in the event of an Award of Restricted Stock or Shares subject to a Restricted Stock Unit.

(b)            Recapitalizations; Stock Splits, Etc. The number and kind of shares reserved for issuance under the Plan, and the number and kind of shares subject to outstanding Awards and the Exercise Price of Options or the amount, if any, payable in respect of an Award of Shares of Restricted Stock or Restricted Stock Units, shall be proportionately adjusted for any increase, decrease, change or exchange of Shares for a different number or kind of shares or other securities of the Company which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Company. In the event that any such adjustment would result in a Participant being entitled to exercise for or receive a fractional Share, then upon such adjustment, the number of Shares which may be acquired upon exercise or vesting of such Award shall be rounded down to the next whole share, and such fraction cancelled, and the Participant shall not be entitled to any payment, compensation or alternative award in lieu thereof.

(c)            Special Rule for ISOs. Any adjustment made pursuant to subsections (a)(3)(A) or (b) of this section shall be made in such a manner as not to constitute a modification, within the meaning of Section 424(h) of the Code, of outstanding ISOs.

(d)            Conditions and Restrictions on New, Additional, or Different Shares or Securities. If, by reason of any adjustment made pursuant to this Section, a Participant becomes entitled to new, additional, or different shares of stock or securities, such new, additional, or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares issued pursuant to the Award before the adjustment was made.

(e)            Other Issuances. Except as expressly provided in this Section, the issuance by the Company or an Affiliate of shares of stock of any class, or of securities convertible into Shares or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, shall not affect, and no adjustment shall be made with respect to, the number, class, Exercise Price, in the case of Options, or other amount, if any, payable in the case of an Award of Restricted Stock or Shares subject to a Restricted Stock Unit, then subject to Awards or reserved for issuance under the Plan.

12.            Non-Transferability of Awards.

(a)            ISOs, and prior to their vesting, Restricted Stock and Restricted Stock Units, may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution.

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(b)            Non-ISO’s may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, pursuant to the terms of a “qualified domestic relations order” (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder), or, in the sole discretion of the Committee, in connection with a transfer for estate or retirement planning purposes to a trust established for such purposes.

13.            Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the later of the date on which the Committee makes the determination of granting such Award and the Effective Date. Notice of the determination shall be given to each Participant to whom an Award is so granted within a reasonably prompt period after the date of such grant.

14.            Effective Date. The Plan shall be effective as of the date on which the Plan is approved by the shareholders of the Company.

15.            Approval by Stockholders. The Plan shall be approved by shareholders of the Company within twelve (12) months of the date on which this Plan is approved by the Board.

16.            Modification of Awards. At any time, and from time to time, the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Award, provided no such modification shall confer on the holder of said Award any right or benefit which could not be conferred on him by the grant of a new Award at such time, or impair the Award without the consent of the holder of the Award. Regardless of any other provision of this Plan or an Agreement, neither the Board or the Committee may reprice (as defined under rules of the New York Stock Exchange or The NASDAQ Stock Market) any Award unless the repricing is approved in advance by the shareholders of the Company.

17.      Amendment and Termination of the Plan.      The Board may from time to time amend the terms of the Plan and, with respect to any Shares at the time not subject to Awards, suspend or terminate the Plan; provided that shareholder approval shall be required to increase the number of Shares subject to the Plan provided in Section 4 or to extend the term of the Plan, or to make any other change which may be required under the listing requirements of any national securities exchange upon which the Company’s common stock is listed. No amendment, suspension, or termination of the Plan shall, without the consent of any affected holders of an Award, alter or impair any rights or obligations under any Award theretofore granted.

18.            Reservation of Shares. The Company, during the term of the Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan.

19.            Withholding Tax. The Company’s obligation to deliver Shares upon exercise or vesting of Awards (or such earlier time that the Participant makes an election under Section 83(b) of the Code) shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that he already owns, having a value equal to the amount required to be withheld. The value of Shares to be withheld, or delivered to the Company, shall be based on the Market Value of the Shares on the date the amount of tax to be withheld is to be determined. As an alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld.

20.            No Employment or Other Rights. In no event shall a Director’s or Employee’s eligibility to participate or participation in the Plan create or be deemed to create any legal or equitable right of the Director or Employee or any other party to continue service with the Company or any Affiliate of such corporations. No Director or Employee shall have a right to be granted an Award or, having received an Award, the right to be granted an additional Award.

21.      Governing Law.      The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply.

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EX-10.2

Exhibit 10.2

JOHN MARSHALL BANK

2006 STOCK OPTION PLAN

(as Amended and Restated on April 22, 2014)

1.            Purpose of the Plan. The purpose of this John Marshall Bank 2006 Stock Option Plan (the “Plan”) is to advance the interests of the Bank by providing directors and selected key employees of the Bank and its Affiliates with the opportunity to acquire Shares. By encouraging stock ownership, the Bank seeks to attract, retain and motivate the best available personnel for positions of substantial responsibility; to provide additional incentive to directors and key employees of the Bank and its Affiliates to promote the success of the business as measured by the value of its Shares; and generally to increase the commonality of interests among directors, key employees, and other shareholders.

2.            Definitions. In this Plan:

(a)            “Affiliate” means any “parent corporation” or “subsidiary corporation” of the Bank as such terms are defined in Section 424(e) and (f), respectively, of the Code.

(b)            “Agreement” means a written agreement entered into in accordance with Paragraph 5(c).

(c)            “Bank” means John Marshall Bank.

(d)            “Board” means the Board of Directors of the Bank.

(e)            “Change in Control” means any one of the following events occurring after the Effective Date: (1) except as provided in Section 11(c), the acquisition of ownership, holding or power to vote more than 25% of the Bank’s voting stock, (2) the acquisition of the power to control the election of a majority of the Bank’s directors, (3) the exercise of a controlling influence over the management or policies of the Bank by any person or by persons acting as a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or (4) the failure of Continuing Directors to constitute at least two-thirds of the Board during any period of two consecutive years. For purposes of this Plan, “Continuing Directors” shall include only those individuals who were members of the Board at the Effective Date and those other individuals whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office. For purposes of this subparagraph only, the term “person” refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of the Committee as to whether a Change in Control has occurred shall be conclusive and binding.

(f)            “Code” means the Internal Revenue Code of 1986, as amended to date or hereafter.

(g)            “Committee” means the Committee appointed by the Board in accordance with Paragraph 5(a) hereof.

(h)            “Common Stock” means the common stock, par value $5.00 per share, of the Bank.

(i)            “Continuous Service” means the absence of any interruption or termination of service as an Employee or Director of the Bank or an Affiliate. Continuous Service shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Bank or in the case of transfers between payroll locations of the Bank or between the Bank, an Affiliate or a successor.

(j)            “Director” means a member of the Board.

(k)            “Effective Date” means the date specified in Paragraph 14 hereof.

(l)            “Employee” means any person employed by the Bank or by an Affiliate.

(m)            “Exercise Price” means the price per Optioned Share at which an Option may be exercised.

(n)            “ISO” means an option to purchase Common Stock that meets the requirements set forth in the Plan, and which is intended to be and is identified as an “incentive stock option” within the meaning of Section 422 of the Code.

(o)            “Just Cause” has the meaning set forth for “cause”, “just cause” or similar phrase, in any unexpired employment or severance agreement between the Participant and the Bank and/or any Affiliate, or, in the absence of any such agreement, means termination because of (in the Board’s sole discretion) the Participant’s personal dishonesty, moral turpitude, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than misdemeanor traffic violations or similar offenses) or final cease-and-desist order.

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(p)            “Market Value” means the fair market value of the Common Stock, as determined under Paragraph 7(b) hereof.

(q)            “Non-Employee Director” means any member of the Board who, at the time discretion under the Plan is exercised, is a “Non-Employee Director” within the meaning of Rule 16b-3.

(r)            “Non-ISO” means an option to purchase Common Stock that meets the requirements set forth in the Plan but which is not intended to be, and is not identified as, an ISO.

(s)            “Option” means an ISO or Non-ISO.

(t)            “Optioned Shares” means Shares subject to an Option granted pursuant to this Plan.

(u)            “Outstanding Shares” means the total shares of Common Stock which have been issued and which (a) are not held as treasury shares, and (b) have not been cancelled or retired by the Bank.

(v)            “Participant” means any person who receives an Option pursuant to the Plan.

(w)            “Permanent and Total Disability” mean “permanent and total disability” as defined in Section 22(e)(3) of the Code.

(x)            “Plan” means the John Marshall Bank 2006 Stock Option Plan.

(y)            “Rule 16b-3” means Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

(z)            “Share” means one share of Common Stock.

(aa)      “Transaction” means (i) the liquidation or dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not the surviving entity, or (iii) the sale or disposition of all or substantially all of the Bank’s assets.

3.            Term of the Plan and Options.

(a)            Term of the Plan. The Plan shall continue in effect for a term of ten years from the Effective Date unless sooner terminated pursuant to Paragraph 17. No Option may be granted under the Plan after ten years from the Effective Date.

(b)            Term of Options. The Committee shall establish the term of each Option granted under the Plan. No Option may have a term that exceeds 10 years. No ISO granted to an Employee who owns Shares representing more than 10% of the outstanding shares of Common Stock at the time an ISO is granted may have a term that exceeds five years.

4.            Shares Subject to the Plan. Except as otherwise required by the provisions of Paragraph 11, no more than 1,242,250 may be issued upon exercise of Options. Optioned Shares may either be authorized but unissued Shares or Shares held in treasury to the extent allowed by Virginia law. If Options should expire, become unexercisable or be forfeited for any reason without having been exercised or become vested in full, the Optioned Shares shall be available for the grant of additional Options under the Plan, unless the Plan shall have been terminated.

5.            Administration of the Plan.

(a)            Composition of the Committee. The Plan shall be administered by the Committee, which shall consist of not less than three (3) members of the Board who are Non-Employee Directors. Until the Board shall determine otherwise, the Committee shall consist of the Non-Employee Directors serving on the Board’s Human Resources Committee. Members of the Committee shall serve at the pleasure of the Board. In the absence at any time of a duly appointed Committee, the Plan shall be administered by the Non-Employee members Board

(b)            Powers of the Committee. Except as limited by the express provisions of the Plan or by resolutions adopted by the Board, the Committee shall have sole and complete authority and discretion, subject to ratification by the Board, (i) to select Participants and grant Options, (ii) to determine the form and content of Options to be issued in the form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules and regulations relating to the Plan, and (v) to make other determinations necessary or advisable for the administration of the Plan. The Committee shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be deemed the action of the Committee.

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(c)            Agreement. Each Option shall be evidenced by a written agreement containing such provisions as may be approved by the Committee. Each such Agreement shall constitute a binding contract between the Bank and the Participant, and every Participant, upon acceptance of such Agreement, shall be bound by the terms and restrictions of the Plan and of such Agreement. The terms of each such Agreement shall be in accordance with the Plan, but each Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, the Committee shall set forth in each Agreement (i) the Exercise Price of an Option, (ii) the number of Shares subject to, and the expiration date of, the Option, (iii) the manner, time and rate (cumulative or otherwise) of exercise or vesting of such Option, and (iv) the restrictions, if any, to be placed upon such Option, or upon Shares which may be issued upon exercise of such Option. The Chairman of the Committee and such other officers as shall be designated by the Committee are hereby authorized to execute Agreements on behalf of the Bank and to cause them to be delivered to the recipients of Options.

(d)            Effect of the Committee’s Decisions. All decisions, determinations, and interpretations of the Committee shall be final and conclusive on all persons affected thereby.

(e)            Indemnification. In addition to such other rights of indemnification as they may have, the members of the Committee shall be indemnified by the Bank in connection with any claim, action, suit or proceeding relating to any action taken or failure to act under or in connection with the Plan or any Option, granted hereunder to the full extent provided for under the Bank’s Articles of Incorporation or Bylaws with respect to the indemnification of Directors.

6.            Grant of Options.

(a)            General Rule. The Committee, in its sole discretion, may grant ISO’s or Non-ISOs to Employees of the Bank or its Affiliates and may grant Non-ISOs to Bank Directors or directors of Affiliates.

(b)            Special Rules for ISOs. The aggregate Market Value, as of the date the Option is granted, of the Shares with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans, as defined in Section 422 of the Code, of the Bank or any present or future “parent” or “Subsidiary” of the Bank) shall not exceed $100,000. Notwithstanding the prior provisions of this paragraph, the Committee may grant Options in excess of the foregoing limitations, in which case such Options granted in excess of such limitation shall be Options which are Non-ISOs.

7.            Exercise Price for Options.

(a)            Limits on Committee Discretion. The Exercise Price as to any particular Option granted under the Plan shall not be less than the Market Value of the Optioned Shares on the date of grant. In the case of an Employee who owns Shares representing more than 10% of the Bank’s Outstanding Shares of Common Stock at the time an ISO is granted, the Exercise Price shall not be less than 110% of the Market Value of the Optioned Shares at the time the ISO is granted.

(b)            Standards for Determining Exercise Price. If the Common Stock is listed on a national securities exchange (including the NASDAQ National Market) on the date in question, then the Market Value per Share shall be not less than the last reported selling price on such exchange on such date, or if there were no sales on such date, then the Exercise Price shall be not less than the mean between the closing bid and asked prices on such date. If the Common Stock is traded otherwise than on a national securities exchange on the date in question, then the Market Value per Share shall be not less than the mean between the closing bid and asked price on such date, or, if there is no bid and asked price on such date, then on the next prior business day on which there was a bid and asked price. If no such bid and asked price is available, then the Market Value per Share shall be its fair market value as determined by the Committee, in its sole and absolute discretion.

(c)            Reissuance of Options. Notwithstanding anything herein to the contrary, the Committee shall have the authority to cancel outstanding Options with the consent of the Participant and to reissue new Options at a lower Exercise Price equal to the then Market Value per share of Common Stock in the event that the Market Value per share of Common Stock at any time prior to the date of exercise of outstanding Options falls below the Exercise Price.

8.            Exercise of Options.

(a)            Generally. Any Option shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Agreement. An Option may not be exercised for a fractional Share. In the event that any adjustment of an Option pursuant to Section 11 or otherwise would result in an Optionee being entitled to exercise for a fractional Share, then upon such adjustment, the number of Shares which may be acquired upon exercise of such Option shall be rounded down to the next whole share, and the Optionee shall not be entitled to any payment, compensation or alternative award in lieu thereof.

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(b)            Procedure for Exercise. A Participant may exercise Options, subject to provisions relative to its termination and limitations on its exercise, only by (1) written notice of intent to exercise the Option with respect to a specified number of Shares, and (2) payment to the Bank (contemporaneously with delivery of such notice) in cash, in Common Stock, or a combination of cash and Common Stock, of the amount of the Exercise Price for the number of Shares with respect to which the Option is then being exercised. Each such notice (and payment where required) shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Bank at the Bank’s executive offices. Common Stock utilized in full or partial payment of the Exercise Price for Options shall be valued at its Market Value at the date of exercise. In connection with the exercise of Options, a Participant shall also deliver to the Bank, in accordance with the provisions of Section 19 hereof, an amount sufficient to satisfy all applicable federal, state and local income and employment tax withholding obligations. Notwithstanding the foregoing, a Share acquired upon the exercise of an Option (or otherwise directly acquired from the Bank) may not be surrendered in payment of any portion of the exercise price of an Option unless such Share shall have been held for at least six months, or the Committee shall have determined that the use of such Share shall not result in adverse tax or accounting consequences to the Bank.

(c)            Period of Exercisability-ISOs. An ISO may be exercised by a Participant only while the Participant is an Employee and has maintained Continuous Service from the date of the grant of the ISO, or within three months after termination of such Continuous Service (but not later than the date on which the Option would otherwise expire), except if the Employee’s Continuous Service terminates by reason of –

(1) Just Cause, in which case the Participant’s rights to exercise such ISO shall expire on the date of such termination;

(2) death, in which case, to the extent that the Participant would have been entitled to exercise the ISO immediately prior to his death, such ISO of the deceased Participant may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or person or persons to whom his rights under such ISO shall have passed by will or by laws of descent and distribution;

(3) Permanent and Total Disability, in which case, to the extent that the Participant would have been entitled to exercise the ISO immediately prior to his termination of service as a result of Permanent and Total Disability, such ISO may be exercised within one year from the date of such termination of service as a result of Permanent and Total Disability, but not later than the date on which the ISO would otherwise expire.

(d)            Period of Exercisability-Non-ISOs. A Non-ISO may be exercised by a Participant only while the Participant is an Employee or Director and has maintained Continuous Service from the date of the grant of the Non-ISO, or within three months after termination of such Continuous Service in the case of an Employee who is not a Director, or one year after termination of Continuous Service in the case of a Director (and in any case not later than the date on which the Option would otherwise expire), except if the Continuous Service terminates by reason of –

(1) Just Cause, in which case the Participant’s rights to exercise such Non-ISO shall expire on the date of such termination;

(2) death, in which case, to the extent that the Participant would have been entitled to exercise the Non-ISO immediately prior to his death, such Non-ISO of the deceased Participant may be exercised during the normal term of the option by the personal representatives of his estate or person or persons to whom his rights under such Non-ISO shall have passed by will or by laws of descent and distribution;

(3) Permanent and Total Disability, in which case, to the extent that the Participant would have been entitled to exercise the Non-ISO immediately prior to his termination of service as a result of Permanent and Total Disability, such Non-ISO may be exercised during the normal term of the option.

(e)            Exercisability at Death or Permanent and Total Disability. Notwithstanding the provisions of any Option that provides for its exercise in installments as designated by the Committee, such Option shall become immediately exercisable upon the Participant’s death or termination of service as a result of Permanent and Total Disability.

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(f)            Effect of the Committee’s Decisions. The Committee’s determination whether a Participant’s Continuous Service has ceased, and the effective date thereof shall be final and conclusive on all persons affected thereby.

9. Conditions Upon Issuance of Shares.

(a)            Compliance with Securities Laws. Shares of Common Stock shall not be issued with respect to any Option unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. The Plan is intended to comply with Rule 16b-3, and any provision of the Plan that the Committee determines in its sole and absolute discretion to be inconsistent with said Rule shall, to the extent of such inconsistency, be inoperative and null and void, and shall not affect the validity of the remaining provisions of the Plan.

(b)            Special Circumstances. The inability of the Bank to obtain approval from any regulatory body or authority deemed by the Bank’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Bank of any liability in respect of the non-issuance or sale of such Shares. As a condition to the exercise of an Option, the Bank may require the person exercising the Option to make such representations and warranties as the Committee determines may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law.

(c)            Committee Discretion. The Committee shall have the discretionary authority to impose in Agreements such restrictions on Shares as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal, to establish repurchase, or to provide for the mandatory exercise or forfeiture of any outstanding Options in the event that the Bank’s primary federal regulator directs the Bank to so require if the Bank does not meet minimum regulatory capital requirements.

10.            Intentionally Omitted.

11.            Effect of Changes in Control and Changes in Common Stock Subject to the Plan.

(a) Effects of Change in Control.

(1) Notwithstanding the provisions of any Option that provides for its exercise or vesting in installments, all Options shall be immediately exercisable and fully vested upon a Change in Control.

(2) At the time of a Change in Control which does not constitute a Transaction, any or all outstanding Options may be cancelled, in exchange for which cancellation the Participant shall receive a cash payment in an amount equal to the excess of the Market Value at the time of the Change in Control of the Shares subject to such Option over the Exercise Price of such Options provided that in no event may an Option be cancelled in exchange for cash within the six-month period following the date of its grant.

(3) In the event there is a Transaction, all outstanding Options shall be surrendered. With respect to each Option so surrendered, the Committee shall in its sole and absolute discretion determine whether the holder of each Option so surrendered shall receive—

(A) for each Share then subject to an outstanding Option, an Option for the number and kind of shares (or amount of cash or other property, or combination thereof) into which each Outstanding Share (other than Shares held by dissenting shareholders) is changed or exchanged, together with an appropriate adjustment to the Exercise Price; or

(B) the number and kind of shares (or amount cash or other property, or combination thereof) into which each Outstanding Share (other than Shares held by dissenting shareholders) is changed or exchanged in the Transaction that are equal in market value to the excess of the Market Value on the date of the Transaction of the Shares subject to the Option, over the Exercise Price of the Option; or

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(C) a cash payment (from the Bank or the successor corporation), in an amount equal to the excess of the Market Value on the date of the Transaction of the Shares subject to the Option, over the Exercise Price of the Option.

(b)            Recapitalizations; Stock Splits, Etc. The number and kind of shares reserved for issuance under the Plan, and the number and kind of shares subject to outstanding Options and the Exercise Price thereof, shall be proportionately adjusted for any increase, decrease, change or exchange of Shares for a different number or kind of shares or other securities of the Bank which results from a merger, consolidation, recapitalization, reorganization, reclassification, stock dividend, split-up, combination of shares, or similar event in which the number or kind of shares is changed without the receipt or payment of consideration by the Bank.

(c)            Holding Company Formation. Notwithstanding anything to the contrary contained herein, in the event that the Bank converts into the holding company form of ownership, by means of a merger, share exchange or other transaction, immediately following the consummation of which the holders of Common Stock immediately preceding the consummation of such transaction, hold the same percentage ownership interest in such holding company as they held in the Bank, subject only to adjustments necessary to reflect the elimination of Common Stock interests held by holders of Common Stock exercising their rights as objecting or dissenting shareholders, and/or the elimination of fractional share interests resulting from the use of an exchange ratio other than one share of holding company common stock for each share of Bank common stock, then such transaction shall not constitute a Change in Control or Transaction. Following consummation of such transaction, said holding company shall be deemed to have assumed this Plan and the Options outstanding hereunder as successor to the Bank, and each reference to the Bank herein shall be read to refer to said holding company, and each reference to the Common Stock shall be read to refer to the common stock of said holding company.

(d)            Special Rule for ISOs. Any adjustment made pursuant to subparagraphs (a)(3)(A) or (b) of this paragraph shall be made in such a manner as not to constitute a modification, within the meaning of Section 424(h) of the Code, of outstanding ISOs.

(e)            Conditions and Restrictions on New, Additional, or Different Shares or Securities. If, by reason of any adjustment made pursuant to this Paragraph, a Participant becomes entitled to new, additional, or different shares of stock or securities, such new, additional, or different shares of stock or securities shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares pursuant to the Option before the adjustment was made.

(f)            Other Issuances. Except as expressly provided in this Paragraph, the issuance by the Bank or an Affiliate of shares of stock of any class, or of securities convertible into Shares or stock of another class, for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, shall not affect, and no adjustment shall be made with respect to, the number, class, or Exercise Price of Shares then subject to Options or reserved for issuance under the Plan.

12.            Non-Transferability of Options.

(a)            ISOs may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution.

(b)            Non-ISO’s may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, pursuant to the terms of a “qualified domestic relations order” (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder), or, in the sole discretion of the Committee, in connection with a transfer for estate or retirement planning purposes to a trust established for such purposes.

13.            Time of Granting Options. The date of grant of an Option shall, for all purposes, be the later of the date on which the Committee makes the determination of granting such Option and the Effective Date. Notice of the determination shall be given to each Participant to whom an Option is so granted within a reasonable time after the date of such grant.

14.            Effective Date. The Plan shall be effective upon shareholder approval. Option grants may be made prior to approval of the Plan by the shareholders of the Bank, if the exercise of Options is conditioned upon shareholder approval of the Plan.

15.            Approval by Stockholders. To be effective, the Plan must be approved by shareholders of the Bank.

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16.            Modification of Options. At any time, and from time to time, the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Option, provided no such modification shall confer on the holder of said Option any right or benefit which could not be conferred on him by the grant of a new Option at such time, or impair the Option without the consent of the holder of the Option.

17.      Amendment and Termination of the Plan.      The Board may from time to time amend the terms of the Plan and, with respect to any Shares at the time not subject to Options, suspend or terminate the Plan; provided that shareholder approval shall be required to increase the number of Shares subject to the Plan provided in Paragraph 4 or to extend the term of the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of any affected holders of an Option, alter or impair any rights or obligations under any Option theretofore granted.

18.            Reservation of Shares. The Bank, during the term of the Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan.

19.            Withholding Tax. The Bank’s obligation to deliver Shares upon exercise of Options (or such earlier time that the Participant makes an election under Section 83(b) of the Code) shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Bank withhold Shares, or to deliver to the Bank Shares that he already owns, having a value equal to the amount required to be withheld. The value of Shares to be withheld, or delivered to the Bank, shall be based on the Market Value of the Shares on the date the amount of tax to be withheld is to be determined. As an alternative, the Bank may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld.

20.            No Employment or Other Rights. In no event shall a Director’s or Employee’s eligibility to participate or participation in the Plan create or be deemed to create any legal or equitable right of the Director or Employee or any other party to continue service with the Bank or any Affiliate of such corporations. No Director or Employee shall have a right to be granted an Option or, having received an Option, the right to be granted an additional Option.

21.      Governing Law.      The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply.

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EX-10.3

Exhibit 10.3

RESTRICTED STOCK AWARD AGREEMENT

JOHN MARSHALL BANCORP, INC.

2015 STOCK INCENTIVE PLAN

THIS RESTRICTED STOCK AWARD AGREEMENT (“Agreement”) is made pursuant to the John Marshall Bancorp, Inc. (the “Company”) 2015 Stock Incentive Plan (the “Plan”), the terms and conditions of which are incorporated by reference herein. Capitalized terms used but not defined herein have the meaning ascribed to them in the Plan.

Award. The Company hereby grants to __________________ (the “Participant”) an award of ________ shares of the Company’s Common Stock, $0.01 par value. The Restriction Period for this Award of Restricted Stock is up to ________ (___) years, provided that the Restrictions on the shares will terminate in accordance with the Vesting Schedule set forth below, and subject to the provisions of the Plan providing for acceleration of vesting. Until the lapse of the Restrictions, the shares subject to this Agreement shall be referred to as “Restricted Stock”.

Date of Grant. ____________, 20____ (the “Grant Date”).

Vesting. The restrictions will terminate and the Shares will vest in accordance with the following schedule, this Agreement, and the terms of the Plan (including provisions regarding acceleration of vesting):

  Date Portion of Total Award
That First Becomes Vested (1)

(1) Or such lesser number of whole shares as shall be necessary to avoid the vesting of a fractional share, provided that such fractional share shall be rolled forward until the sum of all fractional shares shall result in the vesting of a whole share.

Acceleration of Vesting; Forfeiture. Notwithstanding the above Vesting Schedule, all unvested shares of Restricted Stock subject to this Award shall automatically vest in the event of (1) the death of the Participant, (2) the Permanent and Total Disability of Participant, (3) the occurrence of a Change in Control, (4) an involuntary termination of the Participant by the Company or any Affiliate other than due to Just Cause [, or (5) a voluntary termination by the Participant for Good Reason (as “Good Reason” is defined in the employment agreement between the Participant and the Company dated ___________, 20___)] (each of the above is a “vesting acceleration event”). Any shares of Restricted Stock subject to this Award which have not vested as of the date of termination of Participant’s employment or service with the Company or any Affiliate and which are not subject to a vesting acceleration event shall be forfeited as of the date of the termination of Participant’s employment or service.

Certificates. Shares of Restricted Stock awarded hereunder shall be credited to the account of the Participant in the direct registration or other book-entry system (“book-entry”) maintained by the Company for the Company’s Common Stock, whereupon the Participant shall become a shareholder of the Company with respect to such Restricted Stock, subject to forfeiture, and shall, to the extent not inconsistent with express provisions of the Plan, have all the rights of a shareholder, including but not limited to the right to receive all dividends paid on such shares and the right to vote such shares. The Participant agrees that the Company shall cause a notation to be included on its book-entry records to reflect the restricted character of the Restricted Stock, and the vested/unvested status of such Restricted Stock, and to enforce the terms and conditions of this Agreement with respect to such shares of Restricted Stock, including but not limited to the forfeiture of unvested shares in accordance with the terms of this Agreement. Notwithstanding the foregoing, at the election of the Company, stock certificates may be issued in respect of shares of Restricted Stock awarded hereunder in lieu of the utilization of the book entry system. Said stock certificates shall be deposited with the Company or its designee, together with a stock power endorsed in blank, and the following legends shall be placed upon such certificates reflecting that the shares represented thereby are subject to restrictions against transfer and forfeiture:

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[“The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities law. No sale, transfer, pledge, assignment or other disposition of these shares shall be valid unless such transfer (a) is made pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) is exempt from the registration requirements of the Securities Act and applicable state securities laws.” (Legend #1)]

“The transferability of this certificate and the shares of stock represented thereby are subject to the terms and conditions (including forfeiture) contained in the John Marshall Bancorp, Inc. 2015 Stock Incentive Plan, and an agreement entered into between the registered owner and John Marshall Bancorp, Inc. Copies of such Plan and Agreement are on file in the offices of the Secretary of John Marshall Bancorp, Inc.” (Legend #2)

At the expiration of the Restricted Period applicable to shares, the Company shall cause Legend #2 to be removed from book entry. If Legend #2 has been placed on any certificates for shares no longer subject to the Restricted Period, the Company shall cause such certificates to be reissued without Legend #2.

Investment Representations; Restrictions on Transfer under Securities Laws. The Participant acknowledges and agrees that unless the Company shall have registered the shares of Common Stock issuable pursuant to this Award Agreement under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), the Restricted Stock of the Company will constitute “restricted securities” under the Securities Act, and will be subject to restrictions on transfer. The Company may require the Participant, as a condition to receipt of the Restricted Stock, to give a written representation and undertaking to the Company which is satisfactory in form and scope to counsel for the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that the Participant will make no transfer of the Award Shares except (a) pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) pursuant to a transaction that is exempt from the registration requirements of the Securities Act and applicable state securities laws.

No Cash Settlement. Upon vesting of this Award, the Participant will only have the right to receive the shares of Restricted Stock which have vested. In no event will the Participant be entitled to receive from the Company a cash payment of the value of any portion of the vested shares in lieu of such vested shares.

Clawback. The Award reflected hereby, including the proceeds of the subsequent sale of the shares subject to this Award, is subject to cancellation, disgorgement and/or recovery by the Company, and the Participant agrees that he/she shall upon request by the Company, return, or consent to the return of, the Restricted Stock subject to this award, or any proceeds thereof, in the event that the award was based on materially inaccurate financial statements (which includes, but is not limited to, statements of earnings, revenues, or gains) or any other materially inaccurate performance metric criteria, or as may otherwise be required by applicable law, regulation or exchange listing standard.

Other Limitations. No shares of Restricted Stock may be issued if the issuance of Common Stock upon vesting would constitute a violation of any applicable federal or state securities or other applicable law or regulation. As a condition to the Participant’s receipt of Restricted Stock, the Company may require the Participant or other person receiving the Restricted Stock to make any representation and warranty to the Company as may be required by any applicable law or regulation.

Withholding. The Participant hereby agrees that the vesting of any Restricted Stock will not be effective until the Participant makes appropriate arrangements with the Company for such tax withholding as may be required of the Company under federal, state, or local law on account of such vesting. Participant may elect to provide for such withholding obligations by directing the Company to retain and withhold a number of shares of the Common Stock having a Market Value not less than the amount of such taxes and cancel any such shares so withheld in order to pay or reimburse the Company, or any of its Affiliates, for any such taxes, or may pay such taxes in cash. Participant or any successor in interest is authorized to deliver shares of the Company’s Common Stock in satisfaction of minimum statutorily required tax withholding obligations.

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Non-transferability. This Agreement and the Restricted Stock subject hereto may not be transferred in any manner otherwise than by will or the laws of descent or distribution, or pursuant to a “qualified domestic relations order” (within the meaning of Section 414(p) of the Code and the regulations and rulings thereunder) prior to vesting hereunder. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors, and assigns of the Participant.

No Employment Right. Nothing in this Agreement or the Plan shall be construed as creating any contract of employment or as conferring on Participant any legal or equitable right to continue employment or other service with the Company or any Affiliate, or any level of compensation.

Tax Election. The Participant acknowledges that the Participant may have the right, within 30 days of the Grant Date, to make an irrevocable election to include the value of the Restricted Stock in income at the time of grant, based on the Market Value of the Restricted Stock at the Grant Date, rather than including only the value of vested and earned shares at the date of vesting. The Participant acknowledges that the Company has not and is not providing any tax advice to Participant and that Participant shall make his/her own determination with respect to the Section 83 election, alone or in consultation with his/her own personal tax advisors.

Construction; Compliance with 409A, Delay in Payment. (a) It is the intention of the parties hereto that this Agreement and the award provided for hereunder shall be in accordance with Section 409A, and thus avoid the imposition of any excise tax and interest on Participant pursuant to Section 409A(a)(1)(B) of the Code, and this Agreement shall be interpreted and construed consistent with this intent. Participant acknowledges and agrees that he shall be solely responsible for the payment of any excise tax or penalty which may be imposed or to which he may become subject as a result of the award under this Agreement.

(b)            Notwithstanding anything to the contrary contained herein, any award or payment hereunder that is considered “nonqualified deferred compensation” that is to be made to a Participant while the Participant is a “specified employee”, in each case as defined and determined for purposes of Section 409A, within six months following Participant’s “separation from service” (as determined in accordance with Section 409A), then to the extent that such award or payment is not otherwise permitted under Section 409A such that it would be exempt from the excise tax thereunder, such payment shall be delayed and shall be paid on the first business day of the seventh calendar month following Participant’s separation from service, or, if earlier upon Participant’s death.

(c)            The parties hereto agree that they shall take such actions as may be necessary and permissible under applicable law, regulation and guidance to amend or revise this Agreement in order to fully comply with Section 409A.

Receipt Acknowledgment. The Participant hereby acknowledges that Participant has received a copy of the Plan.

[Signature Block on Next Page]

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JOHN MARSHALL BANCORP, INC.
	By:
	Name:
		For the Board of Directors

Employee must accept this Agreement by signing below and returning the original signed Agreement to ____________ no later than _____ calendar days after the Grant Date. If the original executed Agreement is not actually received by such date, this Agreement shall terminate and the Award shall be forfeited on _________ (due date +1).

Accepted and Agreed as of this ______ day of ______________, 20____.

[insert name]

4

EX-10.4

Exhibit 10.4

STOCK OPTION AGREEMENT 

FOR NONINCENTIVE STOCK OPTIONS UNDER SECTION 422 

OF THE INTERNAL REVENUE CODE 

PURSUANT TO THE

JOHN MARSHALL BANCORP, INC. 

2015 STOCK INCENTIVE PLAN

STOCK OPTION for a total of _________ shares of Common Stock, par value $0.01 per share, of John Marshall Bancorp, Inc. (the “Company”), which Option does not qualify as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986 as amended, is hereby granted to ______________ (the “Optionee”) at the price determined as provided in, and in all respects subject to the terms, definitions and provisions of, the John Marshall Bancorp, Inc. 2015 Stock Option Plan (the “Plan”), which is incorporated by reference herein, receipt of which is hereby acknowledged, to be effective on _____________, 20____ (the “Date of Grant”).

1.              Option Price. The option price is $________ for each share, being 100% of the fair market value, as determined by the Board of Directors, of the Common Stock on the Date of Grant.

2.              Exercise of Option. This Option shall be exercisable in accordance with provisions of the Plan as follows:

(i)  Schedule of rights to exercise.

Date Becomes First Exercisable    Portion of Total Grant That First Becomes Exercisable 

(ii)  Method of Exercise. This Option shall be exercisable by a written notice which shall:

(a)  state the election to exercise the Option, the number of shares with respect to which it is being exercised, the person in whose name the stock certificate or certificates for such shares of Common Stock is to be registered, his address and social security number (or if more than one, the names, addresses and social security numbers of such persons);

(b)  contain or be accompanied by such representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be satisfactory to the Company’s counsel;

(c)  be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and

(d)  be in writing and delivered in person or by certified mail to the Secretary of the Company.

Payment of the purchase price of any shares with respect to which the Option is being exercised shall be maid by certified or bank cashier’s or teller’s check and/or shares of Common Stock.

The certificate or certificates for shares of Common Stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Option and shall contain the following legend:

[“The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities law. No sale, transfer, pledge, assignment or other disposition of these shares shall be valid unless such transfer (a) is made pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) is exempt from the registration requirements of the Securities Act and applicable state securities laws.”]

(iii)            Investment Representations; Restrictions on Exercise; Restrictions on Transfer under Securities Laws. This Option may not be exercised if the issuance of the shares of Common Stock upon such exercise would constitute a violation of any applicable federal or state securities or other law or valid regulation. As a condition to the Optionee’s exercise of this Option, the Company may require the person exercising this Option to give a written representation and undertaking to the Company which is satisfactory in form and scope to counsel for the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that the Optionee will make no transfer of the shares of Common Stock received upon exercise of the Option except (a) pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) pursuant to a transaction that is exempt from the registration requirements of the Securities Act and applicable state securities laws. The Optionee acknowledges and agrees that unless the Company shall have registered the shares of Common Stock issuable pursuant to this Award Agreement under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), the shares of Common Stock issuable upon exercise of this Option will constitute “restricted securities” under the Securities Act, and will be subject to restrictions on transfer.

(iv)          Acceleration of Vesting/Exercisability. Notwithstanding the above schedule of rights to exercise, this Option shall be immediately and fully exercisable in the event of (1) the death of the Optionee, (2) the Permanent and Total Disability of Optionee, (3) the occurrence of a Change in Control, (4) an involuntary termination of the Optionee by the Company or any Affiliate other than due to Just Cause [, or (5) a voluntary termination by the Optionee for Good Reason (as “Good Reason” is defined in the employment agreement between the Optionee and the Company dated __________,20___)] (each of the above is a “vesting acceleration event”). The time period for exercising this Option following termination of employment or service is determined under Section 5 of this Agreement.

3.             Withholding. The Optionee hereby agrees that the exercise of the Option or any installment thereof will not be effective, and no shares will become transferable to the Optionee, until the Optionee makes appropriate arrangements with the Company for such tax withholding as may be required of the Company under federal, state, or local law on account of such exercise.

4.             Non-transferability of Option. This Option may not be transferred in any manner otherwise than by will or the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5.              Term of Option and Exercisability. This Option may not be exercised more than ten (10) years from the Date of Grant of this Option, as set forth below, and may be exercised during such term only in accordance with the terms of the Plan, including but not limited to Section 8 of the Plan regarding post-termination exercise, and the terms of this Option.

[Signature Block on Next Page]

JOHN MARSHALL BANCORP, INC.

By:

[insert name]

For the Board of Directors

EMPLOYEE

[insert name]

EX-10.5

Exhibit 10.5

STOCK OPTION AGREEMENT 

FOR INCENTIVE STOCK OPTIONS UNDER SECTION 422 

OF THE INTERNAL REVENUE CODE 

PURSUANT TO THE 

JOHN MARSHALL BANCORP, INC. 

2015 STOCK INCENTIVE PLAN

STOCK OPTION for a total of _________ shares of Common Stock, par value $0.01 per share, of John Marshall Bancorp, Inc. (the “Company”), which Option is intended to qualify as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986 as amended, is hereby granted to ______________ (the “Optionee”) at the price determined as provided in, and in all respects subject to the terms, definitions and provisions of, the John Marshall Bancorp, Inc. 2015 Stock Option Plan (the “Plan”), which is incorporated by reference herein, receipt of which is hereby acknowledged, to be effective on _____________, 20____ (the “Date of Grant”).

1.              Option Price. The option price is $________ for each share, being 100% of the fair market value, as determined by the Board of Directors, of the Common Stock on the Date of Grant.

2.              Exercise of Option. This Option shall be exercisable in accordance with provisions of the Plan as follows:

(i)  Schedule of rights to exercise.

Date Becomes First Exercisable     Portion of Total Grant That First Becomes Exercisable

(ii)  Method of Exercise. This Option shall be exercisable by a written notice which shall:

(a)  state the election to exercise the Option, the number of shares with respect to which it is being exercised, the person in whose name the stock certificate or certificates for such shares of Common Stock is to be registered, his address and social security number (or if more than one, the names, addresses and social security numbers of such persons);

(b)  contain or be accompanied by such representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be satisfactory to the Company’s counsel;

(c)  be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and

(d)  be in writing and delivered in person or by certified mail to the Secretary of the Company.

Payment of the purchase price of any shares with respect to which the Option is being exercised shall be paid by certified or bank cashier’s or teller’s check and/or shares of Common Stock.

The certificate or certificates for shares of Common Stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Option and shall contain the following legend:

[“The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities law. No sale, transfer, pledge, assignment or other disposition of these shares shall be valid unless such transfer (a) is made pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) is exempt from the registration requirements of the Securities Act and applicable state securities laws.”]

(iii)          Investment Representations; Restrictions on Exercise; Restrictions on Transfer under Securities Laws. This Option may not be exercised if the issuance of the shares of Common Stock upon such exercise would constitute a violation of any applicable federal or state securities or other law or valid regulation. As a condition to the Optionee’s exercise of this Option, the Company may require the person exercising this Option to give a written representation and undertaking to the Company which is satisfactory in form and scope to counsel for the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that the Optionee will make no transfer of the shares of Common Stock received upon exercise of the Option except (a) pursuant to an effective registration statement under the Securities Act and in compliance with any applicable state securities law, or (b) pursuant to a transaction that is exempt from the registration requirements of the Securities Act and applicable state securities laws. The Optionee acknowledges and agrees that unless the Company shall have registered the shares of Common Stock issuable pursuant to this Award Agreement under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), the shares of Common Stock issuable upon exercise of this Option will constitute “restricted securities” under the Securities Act, and will be subject to restrictions on transfer.

(iv)          Acceleration of Vesting/Exercisability. Notwithstanding the above schedule of rights to exercise, this Option shall be immediately and fully exercisable in the event of (1) the death of the Optionee, (2) the Permanent and Total Disability of Optionee, (3) the occurrence of a Change in Control, (4) an involuntary termination of the Optionee by the Company or any Affiliate other than due to Just Cause [, or (5) a voluntary termination by the Optionee for Good Reason (as “Good Reason” is defined in the employment agreement between the Optionee and the Company dated __________,20___)] (each of the above is a “vesting acceleration event”). The time period for exercising this Option following termination of employment or service is determined under Section 5 of this Agreement.

3.            Withholding. The Optionee hereby agrees that the exercise of the Option or any installment thereof will not be effective, and no shares will become transferable to the Optionee, until the Optionee makes appropriate arrangements with the Company for such tax withholding as may be required of the Company under federal, state, or local law on account of such exercise.

4.            Non-transferability of Option. This Option may not be transferred in any manner otherwise than by will or the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5.            Term of Option and Exercisability. This Option may not be exercised more than ten (10) years from the Date of Grant of this Option, as set forth below, and may be exercised during such term only in accordance with the terms of the Plan, including but not limited to Section 8 of the Plan regarding post-termination exercise, and the terms of this Option.

[Signature Block on Next Page]

JOHN MARSHALL BANCORP, INC.

By:

[insert name]

For the Board of Directors

EMPLOYEE

[insert name]

EX-10.6

Exhibit 10.6

STOCK OPTION AGREEMENT 

FOR NONINCENTIVE STOCK OPTIONS UNDER SECTION 422 

OF THE INTERNAL REVENUE CODE 

PURSUANT TO THE

JOHN MARSHALL BANK 

2006 STOCK OPTION PLAN

STOCK OPTION for a total of ______ shares of Common Stock, par value $5.00 per share, of John Marshall Bank (the “Company”), which Option does not qualify as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986 as amended, is hereby granted to _______________________ (the “Optionee”) at the price determined as provided in, and in all respects subject to the terms, definitions and provisions of, the 2006 Stock Option Plan (the “Plan”) adopted by the Company which is incorporated by reference herein, receipt of which is hereby acknowledged.

1.            Option Price. The option price is $______ for each share, being 100% of the fair market value, as determined by the Board of Directors, of the Common Stock on the date of grant of this option.

2.            Exercise of Option. This Option shall be exercisable in accordance with provisions of the Plan as follows:

(i)  Schedule of rights to exercise.

Years of Continuous Employment /Service After Date of
Grant of Option  Portion of Total Grant That Becomes Immediately Exercisable 

Notwithstanding any provisions in this section, in no event shall this Option be exercisable prior to ratification of the Plan by the Company’s stockholders as required by the Plan.

(ii)  Method of Exercise. This Option shall be exercisable by a written notice which shall:

(a)  state the election to exercise the Option, the number of shares with respect to which it is being exercised, the person in whose name the stock certificate or certificates for such shares of Common Stock is to be registered, his address and social security number (or if more than one, the names, addresses and social security numbers of such persons;

(b)  contain or be accompanied by such representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be satisfactory to the Company’s counsel;

(c)  be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and

(d)  be in writing and delivered in person or by certified mail to the Secretary of the Company.

Payment of the purchase price of any shares with respect to which the Option is being exercised shall be made by certified or bank cashier’s or teller’s check and/or shares of Common Stock.

The certificate or certificates for shares of Common Stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Option unless otherwise designated by the Optionee.

(iii)          Restrictions on exercise. This Option may not be exercised if the issuance of the shares upon such exercise would constitute a violation of any applicable federal or state securities or other law or valid regulation. As a condition to the Optionee’s exercise of this option, the Company may require the person exercising this option to make any representation and warranty to the Company as may be required by any applicable law or regulation. In the event that the Company’s primary federal regulatory authority determines that the Company’s capital fails to meet minimum capital requirements, such regulatory authority may direct the Company to call all outstanding options. Any options not exercised will be thereafter forfeited.

(iv)         Acceleration of Vesting. Notwithstanding the above schedule of rights to exercise, this Option shall be immediately and fully exercisable upon the events specified in the Plan.

3.            Withholding. The optionee hereby agrees that the exercise of the Option or any installment thereof will not be effective, and no shares will become transferable to the Optionee, until the Optionee makes appropriate arrangements with the Company for such tax withholding as may be required of the Company under federal, state, or local law on account of such exercise.

4.            Non-transferability of Option. This Option may not be transferred in any manner otherwise than by will or the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5.            Restriction on Sale of Shares. Shares that have been acquired upon exercise of this Option may not be sold or otherwise disposed of before the end of the six-month period beginning on the date of grant of this Option, except as provided in the Plan.

6.            Term of Option. This Option may not be exercised more than __ years from the date of grant of this Option, as set forth below, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

Date of Grant: ____________.

JOHN MARSHALL BANK
By:
Name:
	For the Board of Directors
Employee:
Name

EX-10.7

Exhibit 10.7

STOCK OPTION AGREEMENT 

FOR INCENTIVE STOCK OPTIONS UNDER SECTION 422 

OF THE INTERNAL REVENUE CODE 

PURSUANT TO THE

JOHN MARSHALL BANK 

2006 STOCK OPTION PLAN

STOCK OPTION for a total of ______ shares of Common Stock, par value $5.00 per share, of John Marshall Bank (the “Company”), which Option is intended to qualify as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986 as amended, is hereby granted to _______________________ (the “Optionee”) at the price determined as provided in, and in all respects subject to the terms, definitions and provisions of, the 2006 Stock Option Plan (the “Plan”) adopted by the Company which is incorporated by reference herein, receipt of which is hereby acknowledged.

1.              Option Price. The option price is $______ for each share, being 100% of the fair market value, as determined by the Board of Directors, of the Common Stock on the date of grant of this option.

2.              Exercise of Option. This Option shall be exercisable in accordance with provisions of the Plan as follows:

(i)  Schedule of rights to exercise.

Years of Continuous Employment After Date of Grant of Option     Portion of Total Grant That First Becomes Exercisable  

Notwithstanding any provisions in this section, in no event shall this Option be exercisable prior to ratification of the Plan by the Company’s stockholders as required by the Plan.

(ii)  Method of Exercise. This Option shall be exercisable by a written notice which shall:

(a)  state the election to exercise the Option, the number of shares with respect to which it is being exercised, the person in whose name the stock certificate or certificates for such shares of Common Stock is to be registered, his address and social security number (or if more than one, the names, addresses and social security numbers of such persons;

(b)  contain or be accompanied by such representations and agreements as to the holder’s investment intent with respect to such shares of Common Stock as may be satisfactory to the Company’s counsel;

(c)  be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Optionee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and

(d)  be in writing and delivered in person or by certified mail to the Secretary of the Company.

Payment of the purchase price of any shares with respect to which the Option is being exercised shall be paid by certified or bank cashier’s or teller’s check and/or shares of Common Stock.

The certificate or certificates for shares of Common Stock as to which the Options shall be exercised shall be registered in the name of the person or persons exercising the Option.

(iii)          Restrictions on exercise. This Option may not be exercised if the issuance of the shares upon such exercise would constitute a violation of any applicable federal or state securities or other law or valid regulation. As a condition to the Optionee’s exercise of this option, the Company may require the person exercising this option to make any representation and warranty to the Company as may be required by any applicable law or regulation. In the event that the Company’s primary federal regulatory authority determines that the Company’s capital fails to meet minimum capital requirements, such regulatory authority may direct the Company to call all outstanding options. Any options not exercised will be thereafter forfeited.

(iv)          Acceleration of Vesting. Notwithstanding the above schedule of rights to exercise, this Option shall be immediately and fully exercisable upon the events specified in the Plan.

3.            Withholding. The optionee hereby agrees that the exercise of the Option or any installment thereof will not be effective, and no shares will become transferable to the Optionee, until the Optionee makes appropriate arrangements with the Company for such tax withholding as may be required of the Company under federal, state, or local law on account of such exercise.

4.            Non-transferability of Option. This Option may not be transferred in any manner otherwise than by will or the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5.            Restriction on Sale of Shares. Shares that have been acquired upon exercise of this Option may not be sold or otherwise disposed of before the end of the six-month period beginning on the date of grant of this Option, except as provided in the Plan.

6.            Term of Option. This Option may not be exercised more than __ years from the date of grant of this Option, as set forth below, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

Date of Grant: ____________.

JOHN MARSHALL BANK
By:
Name:
	For the Board of Directors
Employee:
Name

EX-10.8

Exhibit 10.8

JOHN MARSHALL BANCORP DEFERRED COMPENSATION PLAN

WHEREAS, John Marshall Bancorp (the “Company”) heretofore adopted the “John Marshall Bancorp Deferred Compensation Plan” as restated effective January 1, 2021 by Board resolution dated December 15, 2020 (the “Plan”), an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of the United States Code of Federal Regulations Section 2520.104-23 and Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”); and

WHEREAS, the Company desires to restate and amend the Plan effective December 1, 2021.

NOW, THEREFORE, effective December 1, 2021, the Plan is hereby amended and restated to read in its entirety as follows:

SECTION 1. PURPOSE OF PLAN

The Plan is unfunded and is maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company within the meaning of the United States Code of Federal Regulations Section 2520.104-23 and Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan will be administered in accordance with such purpose and in accordance with the provisions of Section 409A of the Code.

SECTION 2. DEFINITIONS

2.1 “Administrator” means the committee appointed pursuant to Section 16.1.

2.2 “Beneficiary” means the person or entity determined to be a Participant’s beneficiary pursuant to Section 14.

2.3 “Board” means the board of directors of the Company.

2.4 “Change in Control” means a “change in ownership” of the Company, a “change in effective control” of the Company, or a “change in the ownership of a substantial portion of the assets” of the Company (within the meaning of Section 409A of the Code).

2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.6 “Company” means John Marshall Bancorp and any subsidiaries or affiliated entities (in accordance with the Treasury Regulation Section 1.409A-1(g)), which would be considered a single employer with the Company, and which have elected to participate in the Plan, pursuant to rules and procedures established by John Marshall Bancorp. John Marshall Bancorp shall have the sole authority to administer, interpret and amend the Plan, as the “Company”.

1

2.7 “Compensation” means, in the case of a Participant who is a member of the Board, directors’ fees. In the case of any other Participant, Compensation means the base salary (“Regular Salary”) paid to, as well as any bonus and or commission payments earned by, a Participant for the Plan Year as reported on the Participant’s IRS Form W-2. Regular Salary for a Participant shall also include amounts excludible from gross income that are contributed by the participant on a pre-tax basis to a salary reduction retirement or welfare plan (including amounts contributed to this Plan, but excluding any irregular payments.

2.8 “Disability” means a condition in which the Participant:

(a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which, in the opinion of the Administrator, 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) is, by reason of any medically physical or mental impairment which, in the opinion of the Administrator, can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or

(c) is determined to be disabled in accordance with a disability insurance program that applies a definition of disability that complies with the requirements of (a) or (b) above; or

(d) is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board.

2.9 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.10 “In-Service Account” means an Account to record the Compensation deferral amounts payable at a future time, as specified in the Participant’s Deferral Election.

2.11 In-Service Account Distribution Date” means the first day of the taxable year which occurs three (3), five (5) or ten (10) years after the end of the tax year to which the Compensation deferrals subject to a specified In-Service Account Distribution Date relate.

2.12 “Normal Retirement Age” means the date the Participant attains age sixty-five (65).

2.13 “Participant” means a member of the Board of Directors or an employee of the Company who is eligible to participate in the Plan pursuant to Section 3.

2.14 “Plan” means the John Marshall Bancorp Deferred Compensation Plan, as set forth herein and as amended from time to time.

2.15 “Plan Year” means the calendar year.

2.16 “Separation from Service Account” means an Account to record the amounts payable to a Participant due to such Participant’s separation from service (in accordance with Section 409A)

whether such separation from service from the Company occurs prior to, or on or after the Participant’s Normal Retirement Age. Unless the Participant has established an In-Service Account(s), all Compensation deferrals and any Company Contributions (including any contributions made pursuant to Addendums A and/or B) shall be allocated to a Separation from Service Account on behalf of the Participant. A Participant shall be eligible to make a different distribution election for a separation from service in the event such distribution is to occur prior to the Participant’s attainment of Normal Retirement Age as well as in the event such a distribution does not occur until on or after the Participant’s attainment of Normal Retirement Age.

2

2.17 “Year of Vesting Service” means, effective for Plan Years beginning on or after January 1, 2022, each 12-consecutive month period commencing on each date as of which a Company contribution (within the meaning of Section 7) is credited to a Participant’s account(s) and the anniversary of such date with respect to such Company contribution.

SECTION 3. ELIGIBLE EMPLOYEES

The Administrator shall determine which employees of the Company (who must be employed as a senior vice president or above) and/or which members of the Board of Directors shall be eligible to participate in the Plan from time to time, the eligibility waiting period and such other conditions as may be applicable from time to time.

SECTION 4. ELECTION TO DEFER COMPENSATION

A Participant may elect to defer a specified percentage of his Regular Salary (from one percent (1%) to twenty-five percent (25%)) for a Plan Year, by filing an election with the Administrator (pursuant to Section 5) on or prior to such date that the Administrator may specify (but no later than the last day of the preceding Plan Year). Separate elections may be made with respect to any bonus, commissions and/or director’s fees to be earned for the Plan Year, pursuant to which a Participant may elect to defer a specified percentage (from one percent (1%) to one hundred percent (100%)) for a Plan Year. Effective as of January 1, 2022, any election so made shall not be binding for any following Plan Year. Thus, a new election must be filed for any following Plan Year on such date that the Administrator may specify (but no later than the last day of the preceding Plan Year). Notwithstanding the foregoing, however, and subject to the provisions of Section 409A of the Code, a Participant who first becomes eligible to participate in the Plan after the beginning of a Plan Year shall be entitled to make a deferral election (with respect to Regular Salary, bonus, commission and/or director’s fees to be earned after the date of the election) within thirty (30) days of becoming eligible.

In addition, each Participant may elect to establish one or more separate “in-service withdrawal account(s)”, to which shall be credited such portion of his deferrals as the Participant may designate, and subject to the provisions of Section 11, which shall be distributed as of a date selected by the Participant on the election form used to make his deferral election for the applicable contribution class year.

Notwithstanding the foregoing, if a Participant receives a distribution under the Plan as a result of an unforeseeable emergency pursuant to Section 12, the Participant’s deferral election under the Plan shall be cancelled for the balance of the Plan Year in which such distribution is received.

3

SECTION 5. MANNER OF ELECTION

Any election made by a Participant pursuant to this Plan shall be made by executing such form(s) (including via electronic methods), as the Administrator shall from time to time prescribe.

SECTION 6. ACCOUNTS

The Company shall establish and maintain on its books with respect to each Participant a separate account (including any subaccounts necessary to separately identify amounts contributed for specific plan years (“class year accounts”), which shall record (a) any Compensation deferred by the Participant under the Plan pursuant to the Participant’s election, (b) any Company contributions made on behalf of the Participant pursuant to Section 7 below, and (c) the allocation of any hypothetical investment experience.

If a Participant elects to establish one or more “in-service withdrawal account(s)” under Section 4, such account(s) shall be established and maintained on the Company’s books and shall record (a) any Compensation deferred by the Participant under the Plan which the Participant has elected to be credited to the applicable account, and (b) the allocation of any hypothetical investment experience. There shall also be established for each Participant a “separation from service account” which shall record (a) any Compensation deferred by the Participant, and any Company contributions made on his behalf, under the Plan which the Participant has not elected to be credited to an “in-service withdrawal account” and (b) the allocation of any hypothetical investment experience.

To the extent no election is made, or if an election fails to comply with the terms of the Plan, all amounts shall be allocated to a Participant’s Account to be distributed upon separation from service in accordance with Section 11 of the Plan.

SECTION 7. COMPANY CONTRIBUTIONS

For any Plan Year, the Company may elect to credit to the class year account of each eligible Participant, an amount equal to a specified percentage of such Participant’s Compensation, a flat dollar amount and/or an amount equal to a specified percentage of any Compensation deferred under Section 4. Any such credit to any Participant, other than the Chief Executive Officer, shall be made entirely at the discretion of the Chief Executive Officer and the amount of any such credit may be different for different Participants. Any such credit to the Chief Executive Officer shall be made entirely at the discretion of the Compensation Committee of the Board.

In addition, for any Plan Year, the Board of Directors, or the Chief Executive Officer, as applicable, may determine to credit to certain Participants, a discretionary Company contribution amount, which shall be subject to the provisions specified in Addendums A and/or B of the Plan. All such Addendums are incorporated into the Plan by reference. In the event of a conflict between the Plan and any Addendums, the provisions contained in the Addendums shall apply

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SECTION 8. ADJUSTMENTS TO ACCOUNTS

Each Participant’s account(s) shall be reduced by the amount of any distributions to the Participant from the applicable account, by any federal, state and/or local tax withholding and any social security withholding tax as may be required by law, and by any applicable administrative expenses. Pursuant to procedures established by the Administrator, each Participant’s account(s) shall be adjusted as of each business day the New York Stock Exchange is open to reflect the earnings or losses of any hypothetical investment media as may be designated by the Administrator and, if applicable, elected by the Participant.

SECTION 9. INVESTMENT OF ACCOUNTS

For purposes of determining the amount of earnings and appreciation and losses and depreciation to be credited to a Participant’s account(s), each Participant’s account(s) shall be deemed invested in the investment options (as designated by the Administrator as available under the Plan) as the Participant may elect, from time to time, in accordance with such rules and procedures as the Administrator may establish. In the event a Participant fails to make an investment election, such account(s) shall be deemed to be invested in a default investment fund specified by the Administrator.

Furthermore, no provision of the Plan shall require the Company to actually invest any amounts in any fund or in any other investment vehicle and no amounts shall be segregated or otherwise allocated with respect to any Participant account(s).

Notwithstanding the foregoing, however, the account(s) of each Participant may be subject to proportionate adjustment for the allocable share of the expenses or costs associated with maintenance of such Participant’s account(s) under the Plan.

SECTION 10. VESTED STATUS

Subject to the provisions of Section 19, and/or Addendum A or Addendum B (as appropriate with respect to Company Discretionary Credits) (the “Addendums”), if a Participant “separates from service” with the Company (within the meaning of Code Section 409A) for any reason on or after his Normal Retirement Age, or prior to that date as a result of the Participant’s Disability, death, a change in control of the Company (within the meaning of Section 2.4 of the Plan), or as a result of an involuntary separation from service without good cause (as defined in Section 21 of the Plan), such Participant shall have a nonforfeitable (vested) right to the fair market value of the Participant’s account(s). If a Participant separates from service prior to his Normal Retirement Age for any reason other than separation from service on or after his Normal Retirement Age, or prior to that date as a result of the Participant’s Disability, death, a change in control of the Company (within the meaning of Section 2.4 of the Plan), or as a result of an involuntary separation from service without good cause (as defined in Section 21 of the Plan), such Participant shall be entitled to receive the vested value of his account(s). For this purpose, each Participant shall at all times have a nonforfeitable (vested) right to his account(s) derived from any Compensation deferred pursuant to Section 4.

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However, with respect to any Company contributions made on the Participant’s behalf pursuant to Section 7, if a Participant separates from service for any reason other than separation on or after his Normal Retirement Age, or prior to that date as a result of the Participant’s Disability, death, a change in control of the Company (within the meaning of Section 2.4 of the Plan), or as a result of an involuntary separation from service without good cause (as defined in Section 21 of the Plan), then such Participant shall have a nonforfeitable (vested) right to a percentage of the fair market value of such portion of his applicable account(s). With respect to any Company contributions made on the Participant’s behalf pursuant to Section 7, for Plan Years prior to January 1, 2022, the Participant shall have a nonforfeitable (vested) right to a percentage of the fair market value of such portion of his applicable account(s) as follows:

Years of Vesting Service	Vested Percentage
Less than 1 year		0	%
1 year but less than 2		20	%
2 years but less than 3		40	%
3 years but less than 4		60	%
4 years but less than 5		80	%
5 years or more		100	%

Notwithstanding the foregoing, however, effective for Plan Years beginning on or after January 1, 2022, with respect to Company contributions earned for services performed on or after such date, each class year Company contribution credited to a Participant’s account(s) on the Participant’s behalf pursuant to Section 7 shall vest separately. A Participant shall receive credit for a Year of Vesting Service (pursuant to Section 2.17 of the Plan) with respect to a specific class year Company contribution allocation, each year on the anniversary of the date as of which such class year Company contribution was allocated to such Participant’s account(s) (a “Crediting Date”). The Participant shall have a nonforfeitable (vested) right to a percentage of the fair market value of such portion of his applicable account(s) in accordance with the schedule set forth above.

Notwithstanding anything in the foregoing to the contrary, vesting with respect to Company Discretionary Credits as set forth in Addendum A and/or Addendum B shall be governed by the vesting provisions set forth on the respective Addendum A or B, as appropriate. In the event of a conflict between the provisions of this Section 10 and Addendum A and/or Addendum B, with respect to such Company Discretionary Credit amounts pursuant to such Addendums, the provisions of the appropriate Addendum A and/or B shall take precedence.

SECTION 11. TIME AND MANNER OF DISTRIBUTION

Distribution of a Participant’s vested “separation from service account” (within the meaning of Section 6) shall be made or commence within ninety (90) days following the date which is six (6) months after the date as of which the Participant separates from service with the Company (within the meaning of Section 409A of the Code). Payment may be delayed, however, under any of the circumstances permitted under said Section 409A. Furthermore, if any amounts credited to a Participant’s vested account(s) become subject to tax under Section 409A of the Code, such amount(s) shall be immediately distributed to the Participant.

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Each Participant shall elect, on the class year election form used to make his deferral election for a Plan Year, to have the account established for such Plan Year, for his vested separation from service account (whether such separation from service occurs either prior to, or on or after, the Participant’s attainment of Normal Retirement Age), from the following modes of distribution:

(a) a single lump sum payment; or

(b) annual installments over a period of five (5), ten (10) or fifteen (15) years, the amount of each installment to equal the balance of the Participant’s vested separation from service account immediately prior to the installment divided by the number of installments remaining to be paid. The first installment shall be made within ninety (90) days following the date which is six (6) months following the date as of which the Participant separates from service with the Company.

In addition, any “in-service” withdrawal account(s) established for a Participant pursuant to Section 6, shall be distributed in a lump-sum cash payment, as of the date(s) previously designated by the Participant on the applicable class year deferral election form, which is the first day of the taxable year which occurs three (3), five (5) or ten (10) years after the end of the tax year to which such Compensation deferrals relate. Notwithstanding the foregoing, however, if a Participant separates from service prior to the scheduled in-service payment date of any class year in-service withdrawal account(s), such accounts(s) shall be distributed to the Participant at the same time and in the same manner as set forth in the first paragraph of this Section 11 with respect to distribution upon separation from service.

However, if the Company is subject to the provisions of Section 409A(2)(B)(i) of the Code, and if distribution is to be made or commence as a result of the Participant’s separation from service with the Company, and if the Participant is a “specified employee” of the Company (as determined under said Section 409A), distribution of the Participant’s vested retirement account shall, in no event, be made or commence earlier than six (6) months after the date the Participant separated from service with the Company. For purposes of identifying a “specified employee,” the definition of compensation under Section 1.415(c)-2(a) of the Income Tax Regulations shall apply, the specified employee identification date shall be December 31, and the specified employee effective date shall be the first day of the fourth month following such identification date.

Notwithstanding the foregoing, effective as of January 1, 2022, the Plan shall permit a Participant to make an election to receive distribution of his Accounts in the event the Company experiences a change in control as defined in Section 2.4 of the Plan. With respect to individuals participating in the Plan prior to January 1, 2022, such “initial” election shall only apply to amounts contributed with respect to tax years beginning on or after January 1, 2022. Any individual who first becomes eligible to participate in the Plan on or after January 1, 2022, shall make such election on the election form or the electronic method used to make his initial deferral election. In the event of Change in Control, a Participant who has made an election to receive a Change in Control distribution, shall receive a single lump sum payment equal to the unpaid balance of his Account(s), attributable to Plan Years beginning on or after January 1, 2022, within ninety (90) days following the date of the Change in Control.

Furthermore, in the event the Company experiences a “change in the ownership of a substantial portion of the assets” of the Company (within the meaning of Section 2.4 of the Plan and Section 409A of the Code) and elects to terminate the Plan as a result of such change in control, a Participant shall receive a single distribution equal to the unpaid balance of all of his Account(s), within ninety (90) days following the date of the termination of the Plan, pursuant to Section 19 of this Plan.

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Each Participant must also elect, on the election form or the electronic method used to make his initial deferral election to have his distribution in the event of Disability (within the meaning of Section 2.8 of the Plan) distributed in:

(a) a single lump sum payment; or

(b) annual installments over a period of five (5), ten (10) or fifteen (15) years, the amount of each installment to equal the balance of the Participant’s vested separation from service account immediately prior to the installment divided by the number of installments remaining to be paid. The first installment shall be made within ninety (90) days following the date which is six (6) months following the date as of which the Participant separates from service with the Company as a result of his Disability.

With respect to individuals participating in the Plan prior to January 1, 2022, such election with respect to Disability was made at the time such Participant initially elected to participate in the Plan. Any individual who first becomes eligible to participate in the Plan on or after January 1, 2022, shall make such election on the election form or the electronic method used to make his initial deferral election.

Furthermore, notwithstanding the foregoing provisions of this Section, except as otherwise provided under Section 409A of the Code, if a Participant fails to make a distribution election, or the election made is otherwise invalid, the Participant shall be deemed to have selected a single, lump sum payment of his account(s) under the Plan upon his separation from service. Such distribution shall be made in accordance with the first paragraph of this Section 11, except as otherwise required.

Notwithstanding the foregoing provisions of this Section, except as otherwise provided under Section 409A of the Code, if the total fair market value of a Participant’s vested account(s) does not exceed

$10,000 as of the date of the Participant’s separation from service, the Participant’s vested account(s) shall be distributed to the Participant in a single lump-sum payment within ninety (90) days following the date which is six (6) months after the date as of which the Participant separates from service with the Company (within the meaning of Section 409A of the Code).

Prior to January 1, 2022, a Participant may subsequently elect to change the mode of distribution of his separation from service account, or to delay the date on which distribution of the Participant’s separation from service account is to be made or commence, subject to the following conditions: (i) any such election may not take effect until twelve (12) months after the date on which the election is made; (ii) payment with respect to such election must be deferred for a period of at least five (5) years from the date on which payment would otherwise have been made or commence; and (iii) if the subsequent election relates to a payment that was scheduled to be made on a specified date, the subsequent election must be made at least twelve (12) months prior to the date the first amount was scheduled to be paid.

Any “in-service” withdrawal account(s) established for a Participant under Section 6 shall be distributed in a lump-sum cash payment, as of the date(s) previously designated by the Participant. Provided, however, that prior to January 1, 2022, a Participant may subsequently elect to delay the date on which distribution of an in-service withdrawal account is to be made, subject to the following conditions: (i) the subsequent election must be made at least twelve (12) months prior to the date the in-service withdrawal account was scheduled to be paid, and (ii) payment must be deferred for a period of at least five (5) years from the date on which payment was initially to have been made. Provided, further, that if a Participant separates from service prior to the scheduled payment date of any in-service withdrawal account(s), such accounts(s) shall be distributed to the Participant at the same time and in the same manner as the Participant’s separation from service account as set forth in the preceding paragraphs of this Section 11.

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Payment shall be treated as made upon the date specified under the Plan if payment is made on such date or a later date within the same taxable year of the Participant or, if later, by the 15th day of the third calendar month following the date specified under the Plan, provided the Participant is not permitted, directly or indirectly, to designate the taxable year of the payment.

SECTION 12. DISTRIBUTION IN THE EVENT OF UNFORESEEABLE EMERGENCY

In the event of an “unforeseeable emergency” (within the meaning of Section 409A of the Code), a Participant may, by filing an election with the Administrator (in such form and manner as may be prescribed by the Administrator), request to receive a distribution from the Plan in an amount not to exceed the lesser of (i) the fair market value of the Participant’s vested account(s) or (ii) the amount necessary to satisfy the unforeseeable emergency. Any such distribution request shall be granted at the sole discretion of the Administrator, in accordance with the rules and procedures established by the Administrator, and subject to the provisions of Section 409A of the Code.

SECTION 13. DEATH BENEFIT

In the event of the death of a Participant while in the employ of the Company, vesting in the Participant’s account(s) shall be one hundred percent (100%), if not otherwise one hundred percent (100%) vested under Section 10, with the fair market value of the Participant’s account(s) being distributed to the Participant’s Beneficiary, in a single lump sum payment, within the ninety (90) day period following the close of the Plan Year in which the Participant’s death occurs.

In the event a Participant dies after distribution has commenced under the Plan, the vested balance of the Participant’s account(s), if any, shall be distributed to the Participant’s Beneficiary, in a single lump sum payment, within the ninety (90) day period following the close of the Plan Year in which the Participant’s death occurs.

Payment shall be treated as made upon the date specified under the Plan if payment is made at such date or a later date within the same taxable year of the Beneficiary or, if later, by the 15th day of the third calendar month following the date specified under the Plan and if the Beneficiary is not permitted, directly or indirectly, to designate the taxable year of the payment.

SECTION 14. BENEFICIARY DESIGNATION

A Participant may designate the person or persons to whom the Participant’s account(s) under the Plan shall be paid in the event of the Participant’s death, by filing a designation of beneficiary form with the Administrator. If no Beneficiary is designated, or no Beneficiary survives the Participant, payment shall be made to the Participant’s surviving spouse, or if none, to the Participant’s surviving domestic partner, or if none, to the Participant’s estate. If a Beneficiary survives the Participant but dies before the balance payable to the Beneficiary has been distributed, any remaining balance shall be paid to the Beneficiary’s estate.

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For purposes of the Plan, a “domestic partner” is an individual over age eighteen (18) who is in a committed relationship with the Participant. Such committed relationship shall include the following characteristics: the parties have shared the same regular and permanent residence for at least six (6) months; neither party is legally married to any other person; the parties have no blood relationship that would preclude marriage; both parties have attained the age of legal majority in their state of residence; and the parties are financially interdependent.

SECTION 15. DOMESTIC RELATIONS ORDERS

If a domestic relations order issued by any court of proper authority directs assignment of all or any portion of a Participant’s vested account(s) to the Participant’s spouse or former spouse as part of a divorce settlement, the portion so assigned shall be distributed, in a lump-sum, to the spouse or former spouse within ninety (90) days following the close of the Plan Year in which order was received by the Administrator or, if later, following the close of the Plan Year in which the order clearly specifies the amount to be assigned and any other terms necessary to comply with such order and with the provisions of Code Section 409A.

SECTION 16. PLAN ADMINISTRATION

16.1       Administration. The Plan shall be administered by a committee (the “Committee”), appointed by the Chief Executive Officer of the Company and shall include at least three, and up to five, senior officers of the Company. All references in the Plan to the Administrator shall be understood to refer to the Committee.

Where the Committee serves as Administrator, in the event that a vacancy on the Committee occurs on account of the resignation of a member or the removal of a member, a successor member shall be appointed by the Chief Executive Officer. The Administrator shall select one of its members as Chairman and may hold meetings at such times and places as it may determine. A majority shall constitute a quorum, and acts of the Administrator at which a quorum is present, or acts reduced to or approved in writing by all its members, shall be the valid acts of the Administrator.

The Administrator is authorized to interpret and construe any provision of the Plan, to determine eligibility and benefits under the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to adopt such forms as it may deem appropriate for the administration of the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan or the provisions of Section 409A of the Code and the regulations and rulings promulgated thereunder. The Administrator shall be responsible for the day-to- day administration of the Plan. Determinations, interpretations or other actions made or taken by the Administrator under the Plan shall be final and binding for all purposes and upon all persons.

The Company shall indemnify, hold harmless and defend the Administrator from any liability which the Administrator may incur in connection with the performance of its duties in connection with this Plan, so long as the Administrator was acting in good faith and within what the Administrator reasonably understood to be the scope of its duties.

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16.2 Review Procedure.

(a) Pursuant to procedures established by the Administrator, claims for benefits under the Plan made by a Participant or Beneficiary (the "claimant") must be submitted in writing to the Administrator. Such a claim for Disability benefits must be submitted in writing to the Director of Human Resources. Approved claims shall be processed, and instructions issued to the Trustee or custodian authorizing payment as claimed.

If a claim is denied in whole or in part, the Administrator or the Director of Human Resources, as appropriate, shall notify the claimant within ninety (90) days (or forty-five (45) days if the claim relates to a determination of Disability) after receipt of the claim (or within one hundred eighty (180) days (or seventy-five (75) days for a Disability claim), if special circumstances require an extension of time for processing the claim, and provided written notice indicating the special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the initial ninety (90) day period, or forty-five (45) day period, as the case may be). If notification is not given in such period, the claim shall be considered denied as of the last day of such period and the claimant may request a review of the claim.

If, prior to the end of the seventy five (75) day extended period for Disability claims, the Director of Human Resources determines that a decision cannot be rendered within the initial extension period due to special circumstances, the period for making a determination may be extended for up to an additional thirty (30) days, provided written notice indicating the special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the originally extended seventy-five (75) day period.

The notice of the denial of the claim shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(i) the specific reason or reasons for the denial of the claim;

(ii) the specific references to the pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary; and

(iv) a statement that any appeal of the denial must be made by giving to the Administrator, or Director of Human Resources, as appropriate, within sixty (60) days (or one hundred eighty (180) days in the case of a Disability claim) after receipt of the denial of the claim, written notice of such appeal, such notice to include a full description of the pertinent issues and basis of the claim.

(v) a statement about the claimant’s right to bring civil action under Section 502(a) under ERISA if the claim is denied on review.

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With respect to any denial of a Disability claim, if disability is determined by the Director of Human Resources (rather than a third party such as the Social Security Administration), the denial, written in a culturally and linguistically appropriate manner, shall also include an explanation of the basis for disagreeing with, or not following: (A) the views, presented by the claimant, of health care professionals treating the claimant and/or vocational professionals who evaluated the claimant; (B) the views, obtained on behalf of the Plan in connection with the claim, of medical or vocational experts (whether or not the advice was relied upon in denying the claim); and (C) a Disability determination made by the Social Security Administration, presented by the claimant, if applicable. The denial shall also include either a copy of any internal rules, guidelines, protocols, standards, or similar criteria relied upon in denying the claim, or, alternatively, include a statement that such internal rules, guidelines, protocols, standards or other similar criteria do not exist. In addition, the denial shall include a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim.

(b) Upon denial of a claim in whole or part, the claimant (or his duly authorized representative) shall have the right to submit a written request to the Administrator or, the Deferred Compensation Committee with respect to a Disability claim, for a full and fair review of the denied claim, to be permitted to review documents pertinent to the denial (free of charge), and to submit issues and comments in writing. Any appeal of the denial must be given to the Administrator, or the Deferred Compensation Committee with respect to a Disability claim, within the period of time prescribed under (a)(iv) above. If the claimant (or his duly authorized representative) fails to appeal the denial to the Administrator or the Deferred Compensation Committee with respect to a Disability claim, within the prescribed time, the Administrator’s, or, with respect to a Disability claim, the Director of Human Resource’s adverse determination shall be final, binding and conclusive.

The Administrator, or the Deferred Compensation Committee with respect to a Disability claim, may hold a hearing or otherwise ascertain such facts as it deems necessary and shall render a decision which shall be binding upon both parties. The Administrator or the Deferred Compensation Committee with respect to a Disability claim, shall advise the claimant of the results of the review within sixty (60) days (or forty-five (45) days in the case of a Disability claim) after receipt of the written request for the review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than one hundred twenty (120) days (or ninety (90) days in the case of a Disability claim) after receipt of the request for review. If such extension of time is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension.

With respect to any Disability claim, the Deferred Compensation Committee shall consider the full record of the claimant’s appeal without deference to the initial determination and, if the determination is based in whole or in part on a medical judgment, shall consult with a health care professional experienced in the field of medicine involved in the medical judgment. The health care professional consulted on the appeal shall be an individual who was not consulted in connection with the initial denied claim (nor a subordinate of any individual consulted in connection with the initial denied claim) and whose identity shall be disclosed to the claimant upon written request of the claimant, regardless of whether the health care professional’s advice was relied upon in making the subsequent claim determination.

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During the appeal and before a final decision on a Disability claim is made by the Deferred Compensation Committee, the Deferred Compensation Committee will provide the claimant, with any new or additional evidence considered, relied up, or generated by the Plan in connection with the claim. Such evidence shall be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided in order to give the claimant a reasonable opportunity to respond to such additional information before a final decision is made by the Deferred Compensation Committee. If the Deferred Compensation Committee expects to issue a denial for reasons other than, or in addition to, the initial claim denial, the claimant will be notified as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided of the reasons for the expected denial, as well as the new or additional evidence considered, relied up, or generated by the Plan in connection with the claim, in order to give the claimant a reasonable opportunity to respond before a final decision is made by the Deferred Compensation Committee.

The decision of the review shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(A) the specific reason or reasons for the denial of the claim;

(B) the specific references to the pertinent Plan provisions on which the denial is based;

(C) the claimant’s right to receive free of charge, reasonable access to and copies of, all Plan documents, records, and other information relevant to the claim;

(D) a statement about the claimant’s right to bring a civil action under Section 502(a) of ERISA;

(E) in the case of a claim for disability benefits, if disability is determined by the Deferred Compensation Committee (rather than a third party such as the Social Security Administration), then the following additional information will be provided:

(i) to the extent that an internal rule, guideline, protocol, standard, or other similar criterion was relied upon in the denial, the notification shall set forth the specific rule, guideline, protocol, standard, or criterion or, alternatively, include a statement that such internal rules, guidelines, protocols, standards, or other similar criteria do not exist.

(ii) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim.

(iii) All claims and appeals for benefits shall be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) shall not be made based upon the likelihood that the individual will support the denial of benefits.

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(iv) Notice of a claim denied upon appeal, shall be provided in a culturally and linguistically appropriate manner.

(v) If the time for determining the claim upon appeal is extended, and the extension of time was required because the claimant has not provided requested information necessary to decide the appeal, the deadline for the decision by the on the appeal may be extended by the time during which the claimant is providing the additional information.

(vi) If the claim upon appeal is denied, the notice of denial shall also include: an explanation of the basis for disagreeing with, or not following: (1) the views, presented by the claimant as part of the claim, of health care professionals treating the Participant and/or vocational professionals who evaluated the Participant; (2) the views, obtained on behalf of the Plan in connection with the claim, of medical or vocational experts (whether or not their advice was relied upon in denying the claim); (3) a disability determination made by the Social Security Administration and presented by the claimant as part of the claim; and (4) if applicable, the latest date by which the claimant can bring a civil action under Section 502(a) of ERISA.

The decision of the Administrator shall be final, binding and conclusive.

SECTION 17. FUNDING

17.1       Plan Unfunded. The Plan is unfunded for tax purposes and for purposes of Title I of ERISA. Accordingly, the obligation of the Company to make payments under the Plan constitutes solely an unsecured (but legally enforceable) promise of the Company to make such payments, and no person, including any Participant or Beneficiary shall have any lien, prior claim or other security interest in any property of the Company as a result of this Plan. Any amounts payable under the Plan shall be paid out of the general assets of the Company and each Participant and Beneficiary shall be deemed to be a general unsecured creditor of the Company.

17.2       Rabbi Trust. The Company may create a grantor trust to pay its obligations hereunder (a so-called rabbi trust), the assets of which shall be, for all purposes, the assets of the Company. In the event the trustee of such trust is unable or unwilling to make payments directly to Participants and Beneficiaries and such trustee remits payments to the Company for delivery to Participants and Beneficiaries, the Company shall promptly remit such amount, less applicable income and other taxes required to be withheld, to the Participant or Beneficiary.

SECTION 18. AMENDMENT

The Company, by resolution of the Board, shall have the right to make material amendments, suspend or terminate the Plan at any time subject to the provisions of Section 409A of the Code; provided, however, that no such action shall, without the Participant’s consent, impair the Participant’s right with respect to any existing account under the Plan. Immaterial amendments to the Plan, as determined by the Administrator, may be made by a majority vote of the Committee. The termination of the Plan, with respect to some or all of the Participants, and any resulting distribution of the account balances of such affected Participants, shall be made in accordance with the provisions of Section 409A of the Code and shall not constitute the impairment of such Participant’s rights hereunder.

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SECTION 19. TERMINATION OF THE PLAN

The Company, by resolution of the Board, and subject to the provisions of Section 409A of the Code, may elect to terminate and liquidate the Plan within the thirty (30) days preceding or the twelve (12) months following a Change in Control as defined in Section 2.4 of the Plan, provided all agreements, methods, programs and other arrangements sponsored by the Company immediately after the time of the Change in Control with respect to which deferrals of Compensation are treated as having been deferred under a single plan under Section 409A of the Code are terminated and liquidated with respect to each Participant that experienced the Change in Control, so that under the terms of the termination and liquidation, all such Participants are required to receive their vested accounts under the terminated agreements, methods, programs and other arrangements within twelve (12) months of the date the Company irrevocably takes all necessary action to terminate and liquidate the agreements, methods, programs and other arrangements.

The Company, by resolution of the Board, and subject to the provisions of Section 409A of the Code, may elect to terminate and liquidate the Plan, provided that: (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Company; (ii) the Company terminates and liquidates all agreements, methods, programs, and other arrangements sponsored by the Company that would be aggregated with any terminated and liquidated agreements, methods, programs, and other arrangements under Section 409A of the Code, if the same employee had deferrals of compensation under all of the agreements, methods, programs and other arrangements that are terminated and liquidated; (iii) no payments in liquidation of the Plan are made within twelve (12) months of the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan other than payments that would be payable under the terms of the Plan if the action to terminate and liquidate the Plan had not occurred; (iv) all payments are made within twenty-four (24) months of the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan; and (v) the Company does not adopt a new plan that would be aggregated with the terminated Plan under Section 409A of the Code if the same employee participated in both plans, at any time within three (3) years following the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan.

SECTION 20. NO ASSIGNMENT

A Participant’s right to the amount credited to his account under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or the Participant’s Beneficiary.

SECTION 21. TERMINATION FOR CAUSE

Notwithstanding anything to the contrary herein contained, in the event a Participant’s employment with the Company is terminated “for cause”, no benefits (other than those attributable to the Participant’s deferrals under Section 4) shall be due or payable under the Plan, and such Participant’s “separation from service account” (within the meaning of Section 6) (less such Participant’s interest attributable to deferrals under Section 4) shall be forfeited. For this purpose, termination “for cause” shall mean a termination resulting from (i) a conviction of robbery, extortion, embezzlement, fraud, grand larceny, burglary, perjury, income tax evasion, misapplication of Company funds, false statements in violation of 18 U.S.C. Sec. 1001, and any other felony that is punishable by a term of imprisonment of more than one year, or (ii) any breach of the Participant’s duty of loyalty to the Company, any acts of omission in the performance of his duties not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction in the performance of his duties from which the Participant derived an improper personal benefit.

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SECTION 22. COMPANY-OWNED LIFE INSURANCE (“COLI”)

22.1       Company Owns All Rights. In the event that, in its discretion, the Company purchases a life insurance policy or policies insuring the life of any Participant to allow the Company to informally finance and/or recover, in whole or in part, the cost of providing the benefits hereunder, neither the Participant nor any Beneficiary shall have any rights whatsoever therein. The Company shall be the sole owner and beneficiary of any such policy or policies and shall possess and may exercise all incidents of ownership therein, except in the event of the establishment of and transfer of said policy or policies to a trust by the Company as described in Section 17.2 hereof.

22.2       Participant Cooperation. If the Company decides to purchase a life insurance policy or policies on any Participant, the Company shall so notify such Participant. Such Participant shall consent to being insured for the benefit of the Company and shall take whatever actions may be necessary to enable the Company to timely apply for and acquire such life insurance and to fulfill the requirements of the insurance carrier relative to the issuance thereof as a condition of eligibility to participate in the Plan.

SECTION 23. SUCCESSORS AND ASSIGNS

The provisions of this Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participant, his Beneficiaries, heirs, legal representatives and assigns.

SECTION 24. NO CONTRACT OF EMPLOYMENT

Nothing contained herein shall be construed as a contract of employment between a Participant and the Company, or as a right of the Participant to continue in employment with the Company, or as a limitation of the right of the Company to discharge the Participant at any time, with or without cause.

SECTION 25. ENFORCEABILITY

If any term or condition of the Plan shall be invalid or unenforceable to any extent or in any application, then the remainder of the Plan, and such term or condition except to such extent or in such application, shall not be affected thereby, and each and every term and condition of the Plan shall be valid and enforced to the fullest extent and in the broadest application permitted by law.

SECTION 26. CONSTRUCTION

Wherever appropriate, the use of the masculine gender shall be extended to include the feminine and/or neuter, and the singular form of word extended to include the plural, or vice versa.

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SECTION 27. GOVERNING LAW

This Plan shall be interpreted in a manner consistent with Code Section 409A and the guidance issued thereunder by the Department of the Treasury and the Internal Revenue Service and shall also be subject to and construed in accordance with the provisions of ERISA, where applicable, and otherwise by the laws of the Commonwealth of Virginia, without regard to the conflict of law provisions of any jurisdiction.

IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Plan to be executed as of the 14th day of December, 2021.

JOHN MARSHALL BANCORP
By:	/s/ Carl E. Dodson
	Authorized Officer

17

John Marshall Bank

Nonqualified Deferred Compensation

Addendum A

“Chief Executive Officer Discretionary Credit”

- The Board of Directors can approve at its discretion an Employer credit to the account of Christopher W. Bergstrom, CEO.

- Discretionary Credits awarded pursuant to this Addendum A will be subject to the following vesting schedule effective on the start of the plan year, January 1, 2019.

End of Year	Vesting
1	33%
2	66%
3	100%

- Accelerated Vesting

The occurrence of any of the following events will result in 100% vesting of Discretionary Credits:

o After Participant reaches age 65, has six years of tenure with the bank, and has been a plan participant for three years he will become 100% vested.

o The Participant’s Death while employed.

o The Participant’s Disability while employed

o The Participant’s involuntary Separation from Service Without Good Cause.

o The Participant’s voluntary Separation from Service For Good Reason.

o A Change in Control Event (as defined in the Plan Documents) occurs.

- Forfeiture:

o In the event of Separation of Service For Cause, any unvested credits will be forfeited.

- The CEO Discretionary Credit is subject to all provisions of the John Marshall Bank Nonqualified Deferred Compensation Plan except where specifically defined in this addendum.

Effective January 1 2019

EX-10.9

 

Exhibit 10.9

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of this 24th day of April, 2018, is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and Christopher W. Bergstrom (“Executive”) and is effective as of the first day of his employment, which shall be April 30, 2018 (the “Effective Date”).

 

WHEREAS, Employer wishes to employ Executive as a key executive of Employer and it is the desire of Employer to have the benefit of Executive’s continued loyalty and service; and

 

WHEREAS, Executive wishes to be in the employ of Employer; and

 

WHEREAS, the Employer and Executive desire to set forth in this Agreement the terms and conditions of Executive’s employment; and

 

WHEREAS, references in this Agreement to Internal Revenue Code section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under section 409A (hereinafter collectively referred to as “Code Section 409A”); and

 

WHEREAS, as of the Effective Date, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 C.F.R. 359.1(f)(1)(ii)] exists or, to the Employer’s best knowledge, is contemplated insofar as the Employer or any affiliates are concerned.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein the parties agree as follows:

 

1.             Employment and Board Service.

 

(a)            Executive shall be employed as Chief Executive Officer of the Company and President and Chief Executive Officer of the Bank (the “Position”) on the terms and subject to the conditions of this Agreement. Executive accepts such employment and agrees to perform the duties and responsibilities of the Position, as may be assigned to Executive by the Board of Directors of the Company (the “Company Board”) or the Board of Directors of the Bank (the “Bank Board”) (collectively, the “Boards”). Executive shall serve under the direction of the Boards and in accordance with Employer’s Articles of Incorporation and Bylaws, as each may be amended or restated from time to time. Executive shall report directly to the Boards.

 

(b)            Executive shall devote Executive’s best efforts and full time to rendering services on behalf of Employer in furtherance of its best interests. Executive shall comply with all policies, standards and regulations of Employer now or hereafter promulgated, and shall perform all duties under this Agreement to the best of Executive’s abilities and in accordance with the ethics and standards of conduct applicable to employees in the banking industry.

 

     

 

 

(c)            Executive will be appointed as a Director on the Boards. The Company Board will nominate Executive for reelection as a Director of the Company Board at such times as necessary so that Executive will, if elected by shareholders, remain a Director of the Company Board while he remains Chief Executive Officer of the Company. The Company Board will recommend to shareholders that they vote in favor of his election to the Company Board. Unless the parties otherwise agree or the applicable governing documents of the Boards require otherwise, Executive shall be deemed to have resigned as a Director effective immediately upon termination of Executive’s employment, regardless of whether Executive submits a formal, written resignation as Director. If the applicable governing documents of the Boards require formal, written resignation as Director, Executive agrees to comply with such requirements and execute the applicable documents at the time of his termination of employment. Executive shall not receive any board fees or additional compensation (other than the compensation provided in Section 2) for his service on the Boards.

 

2.             Compensation.

 

(a)            Base Salary. While employed, Employer shall cause Executive to be paid an annual base salary of $475,000, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company Board or its designee, in its discretion, may increase Executive’s base salary, but may not decrease it without Executive’s written consent. The term “Base Salary” as utilized in this Agreement shall refer to Base Salary as adjusted in accordance with the preceding sentence. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

(b)            Bonuses. Executive shall receive only such annual bonuses, if any, as the Company Board, or its designee, in its sole discretion, decides to pay to Executive. Any such bonus payable under this Section 3(b) shall be paid annually by March 15 of the year following the fiscal year for which performance is being evaluated provided Executive remains employed through the date of payment.

 

(c)            Clawback. Executive agrees that any incentive compensation that Executive receives from Employer or a related entity shall be subject to repayment (i.e., clawback) to Employer or such related entity to the extent required by law or under the clawback policy adopted by Employer on April 17, 2018 (the “Clawback Policy”). Executive shall be subject to any subsequent changes to, or replacement of, the Clawback Policy only to the extent Executive has separately agreed in writing.

 

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3.             Benefits and Perquisites.

 

(a)            Corporate Benefit Plans. Executive shall be entitled to participate in or become a participant in any employee benefit plan maintained by Employer for which Executive is or will become eligible on such terms as the Company Board or its designee may, in its discretion, establish, modify or otherwise change.

 

(b)            Personal Time Off. Executive shall be entitled to five (5) weeks (twenty-five (25) business days) of paid time off (“PTO”) each year (or such greater annual number of days allowed under Employer’s PTO policy) which shall be taken in accordance with Employer’s PTO Policy.

 

(c)            Split Dollar Life Insurance Benefit. Executive shall participate in the John Marshall Bank Split Dollar Life Insurance Plan in accordance with the terms of such plan, which may be amended from time to time.

 

(d)            Automobile Allowance. Employer shall provide an Employer-owned automobile for use by Executive. The Employer will pay insurance, taxes, maintenance expenses for the automobile, and EZ Pass fees and charges incurred by Executive in connection with the use of his company-owned car, subject to applicable W-2 income reporting for personal use.

 

(e)            Health Benefits. Employer will pay the annual membership fee for Executive to receive concierge medical care in the Inova VIP 360 Concierge Medicine Membership.

 

(f)            Equity Awards. Executive may be eligible to receive equity awards from Employer, in such manner and subject to such terms and conditions as the Company Board or its designee, in its sole discretion, may determine, if at all. Additionally, as initial awards to Executive, the Company shall grant Executive an award of twenty-five thousand (25,000) shares of common stock of the Company in the form of restricted stock and an award of stock options with the option to purchase fifteen thousand (15,000) shares of common stock of the Company, subject to, and in accordance with, the terms of the John Marshall Bancorp, Inc. 2015 Stock Incentive Plan and with the specific terms provided in the applicable award agreements, drafts of which were agreed upon by the parties prior to the Effective Date.

 

4.             Reimbursement of Expenses.

 

(a)            Reimbursements. Executive shall be reimbursed upon Executive’s incurring reasonable and customary business expenses in connection with the performance of Executive’s duties, subject to presentation of adequate substantiation, including receipts, for the reasonable business travel, entertainment, lodging, and other business expenses incurred by Executive. In no event will such reimbursements be made later than the last day of the calendar month following the calendar month in which Executive submits the request for payment of the reimbursable expense, which shall be submitted no later than sixty (60) days after the expense is incurred.

 

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(b)            Compliance with Code Section 409A. If any reimbursement or in-kind benefits under this Agreement constitute deferred compensation under Code Section 409A, the reimbursement or in-kind benefits will be provided in accordance with Code Section 409A. The reimbursement or in-kind benefit payments will not be paid later than the last day of Executive’s tax year immediately after Executive’s tax year in which the expense is incurred, amounts eligible for payment during any one taxable year under this Agreement do not affect eligibility for payment in any other taxable year under this Agreement, Executive’s right to the payment is not subject to liquidation or exchange for another benefit, and the Employer’s obligation to make payment does not apply after Executive’s death.

 

5.             Indemnification and Insurance.

 

(a)           Indemnification. Employer acknowledges that Executive entered into an Employment Agreement with United Bankshares, Inc., United Bank, and UBV Holding Company, LLC. (“collectively “United”) dated as of December 19, 2016 (the “United Employment Contract”). Executive represents that the “Term” of the United Employment Contract, as defined therein, ended Saturday, April 21, 2018. Executive represents that the restrictive covenants in Section 7(b) of the United Employment Contract do not apply to Executive.  Provided the foregoing representations are accurate, in the event United sends Executive a cease and desist letter or claim or initiates any litigation or takes any other action against Executive based on allegations that Executive has breached Sections 7(b) or 8 of the United Employment Contract, Employer agrees to defend and reimburse Executive for attorneys’ fees and costs incurred by Executive as a result of such cease and desist letter, claim, litigation or action to the extent such fees and costs are incurred defending claims that Executive has breached Sections 7(b) or 8 of the United Employment Contract; provided, however, that (i) if a judgment or verdict is rendered against Executive based on violations of Sections 7(b) or 8 of the United Employment Contract, Executive must reimburse Employer upon demand for all attorney’s fees and costs expended on his behalf; or (ii) if Employer determines, in good faith and based on objective evidence, that Executive has violated Sections 7(b) or 8, Employer’s obligations under this Section 5(a) shall immediately cease, and Executive must reimburse Employer for all attorney’s fees and costs expended on his behalf.

 

(b)            Insurance. Employer will maintain or cause to be maintained directors and officers liability insurance covering Executive throughout his employment and will otherwise indemnify him in a manner that is no less favorable than the indemnity provided to other directors and officers.

 

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6.             Termination of Employment.

 

(a)            Death or Incapacity. Executive’s employment under this Agreement shall terminate automatically upon Executive’s death. Executive’s spouse, if the spouse survives Executive, or, if not, Executive’s estate shall receive (i) any unpaid base salary which otherwise would be payable to Executive through the date of termination payable in a lump sum as soon as administratively feasible following termination, but not later than thirty (30) days thereafter; (ii) any annual bonus compensation earned and awarded pursuant to Section 3(b) above, but not yet paid as of the date of termination, payable on the earlier of (A) the thirtieth (30^th) day after the date of termination, or (B) when otherwise due; and (iii) any benefits vested, due and owing pursuant to the terms of any other plans, policies or programs, payable when otherwise due (hereinafter subsections (i) – (iii) collectively are referred to as the “Accrued Obligations”). Additionally, if Executive’s spouse or other family is covered by Employer’s health plan at the time of his death, Employer shall provide Executive’s family with continuing health care coverage as required under Employer’s health plan in accordance with the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). To the extent such COBRA coverage is properly elected and continues in place, Employer will reimburse premiums paid, or otherwise provide payment for, such COBRA coverage such that there is no cost to Executive’s family for a period of twelve (12) months following Executive’s death. If Employer determines that Incapacity (as defined below) of Executive has occurred, it may terminate Executive’s employment and this Agreement upon ninety (90) days’ written notice, provided that, within ninety (90) days after receipt of such notice, Executive shall not have returned to full-time performance of Executive’s assigned duties. In the event of a termination due to “Incapacity,” Employer shall pay the Accrued Obligations to Executive. For purposes of this Agreement, “Incapacity” shall occur if (i) Executive is unable to perform the material functions of Executive’s position for thirteen (13) consecutive weeks and is then deemed to be permanently unable to continue in the Position by a physician selected by Employer or its insurer, and acceptable to Executive or Executive’s legal representative, which consent shall not be unreasonably withheld, or (ii) Executive is deemed disabled as defined in the policy of disability insurance maintained by Employer for the benefit of Executive (and others if a group policy). Notwithstanding any other provision in this Agreement, Employer shall comply with all requirements of the Americans with Disabilities Act. Further, if Executive’s employment is terminated due to death or “Incapacity,” then no payments (other than the Accrued Obligations and, in the event of Executive’s death, the family health coverage payments) shall be owed or paid, including those under Section 7(a) or Section 8(a) or Section 8(b).

 

(b)            Termination by Employer With or Without Cause. Employer may terminate Executive’s employment at any time without Cause, upon written notice ninety (90) days in advance. Employer may, at its option, require that Executive perform no services for Employer or limit Executive’s services during all or part of the notice period. Employer may also terminate Executive’s employment immediately for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i)            Executive’s willful misconduct in connection with the performance of Executive’s duties;

 

(ii)           Executive’s misappropriation or embezzlement of funds or material property of Employer or any affiliate;

 

(iii)          Executive’s fraud or dishonesty with respect to Employer or any affiliate;

 

(iv)          Executive’s failure to perform any of the material duties and responsibilities required by the Position (other than by reason of Incapacity), or Executive’s failure to follow reasonable instructions or policies of Employer, in either case after being advised in writing of such failure and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such failure (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

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(v)           Executive’s conviction of or entering of a guilty plea or plea of no contest with respect to any felony, or any misdemeanor involving moral turpitude;

 

(vi)          Executive’s breach of a material term of this Agreement, or violation in any material respect of any policy, code or standard of behavior or ethics generally applicable to officers of Employer, after being advised in writing of such breach or violation and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such breach or violation (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

(vii)         Executive’s willful violation of any final cease and desist order; or

 

(viii)        Executive’s breach of any fiduciary duty owed to Employer or its affiliates.

 

(c)            Termination by Executive for Good Reason. Executive may terminate employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

 

(i)            The assignment of duties to Executive by Employer which result in Executive having materially less authority or responsibility than Executive has on the Effective Date, without Executive’s express written consent;

 

(ii)           The relocation of Executive to any other primary place of employment that is located more than twenty-five (25) miles from Executive’s assigned place of employment as of the Effective Date, without Executive’s express written consent to such relocation, provided that such relocation of Executive is not as a result of, and at the same location as, the relocation of the headquarters of the Company; or

 

(iii)          A material reduction of Executive’s base salary, without Executive’s express written consent; or

 

(iv)          A material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer or employee instead of reporting directly to the Boards; or

 

(v)          Any action or inaction by Employer that constitutes a material breach of this Agreement.

 

As a condition to invoking “Good Reason”, Executive is required to provide written notice to Employer detailing the existence of a condition described above in this Section 6(c) within a sixty (60) day period after the initial existence of the condition, and Employer shall have thirty (30) days after notice to remedy the condition without liability. In addition to the foregoing requirements, to trigger payment under this Section 6(c), Executive must also terminate employment within one hundred twenty (120) days after the initial occurrence of the event constituting “Good Reason” and Employer must have been allowed the full opportunity to cure, as set forth above.

 

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Notwithstanding the above, “Good Reason” shall not include and shall not apply to any resignation by Executive where there exists objective evidence sufficient to justify a termination for Cause under Section 6(b), provided that the basis for such Cause is conduct by Executive that either (x) is unknown to Employer prior to the time written notice of Good Reason is provided by Executive or (y) occurred within the ninety (90) days preceding the date written notice of Good Reason is provided by Executive.

 

(d)            Other. Executive’s employment hereunder may be terminated voluntarily by Executive without Good Reason upon ninety (90) days’ prior written notice to Employer or at any time by mutual agreement in writing. In the event of such voluntary termination notice by Executive without Good Reason, Employer may terminate Executive’s employment prior to the expiration of the notice period without incurring any liability under Sections 7 or 8, and Employer shall be required only to pay Executive’s Base Salary through the termination date (with such payment to be made in accordance with Employer’s established payroll practices), plus any Accrued Obligations (as defined Section 6(a)).

 

7.             Obligations Upon Termination of Employment.

 

(a)            Without Cause or for Good Reason. Except as otherwise provided in Section 8, if Employer terminates Executive’s employment without Cause or Executive terminates Executive’s employment for Good Reason, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 20 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a)); and

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release:

 

(A)            A payment in a monthly amount equal to one-twelfth (1/12) of Executive’s annual base salary in effect immediately preceding such termination (but without applying, if applicable, any reduction of base salary that was the basis for Executive’s termination for Good Reason under Section 6(c)(iii)) for twelve (12) consecutive months, less all applicable withholdings, payable in accordance with Employer’s established payroll practices (but no less frequently than monthly), provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 20 (the “Severance Benefit”); and

 

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(B)            For a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 20. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 7(a)(ii)(B) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 7(a)(ii)(B) shall immediately terminate.

 

Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 7(a)(ii) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, breaches or engages in any activity prohibited in Section 7(c) or any of its sub-parts or Section 10.

 

(b)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(c)            Covenants. The restrictions in this Section 7(c) apply in the event of any termination of Executive’s employment, regardless of the reason and including terminations both before and after a Change of Control.

 

(i)            Non-Competition. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that Executive will not engage in “Competition” for a period of twelve (12) months after Executive’s employment with Employer ceases for any reason. For purposes hereof, “Competition” means Executive’s performing duties that are the same as or substantially similar to those duties performed by Executive for Employer or its affiliates during the last twelve (12) months of Executive’s employment, as an officer, a director, an employee, a partner or in any other capacity, within a twenty-five (25) mile radius of the headquarters of the Bank (or any Virginia, District of Columbia or Maryland headquarters of any successor of the Bank in the event of a merger consummated as of the last day of employment), as such location exists as of the date Executive’s employment ceases, if those duties are performed for a bank or other financial institution, that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time Executive’s employment ceases.

 

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(ii)           Non-Piracy. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, solicit, divert from Employer or transact business with any “Customer” of Employer with whom Executive had “Material Contact” during the last twelve (12) months of Executive’s employment or about whom Executive obtained information not known generally to the public while acting within the scope of Executive’s employment during the last twelve (12) months of employment, if the purpose of such solicitation, diversion or transaction is to provide products or services that are the same as or substantially similar to, and competitive with, those offered by Employer at the time Executive’s employment ceases. “Material Contact” means that Executive personally communicated with the Customer, either orally or in writing, for the purpose of providing, offering to provide or assisting in providing products or services of Employer during the last twelve (12) months of Executive’s employment. “Customer” means any person or entity with whom Employer had a depository or other contractual relationship, pursuant to which Employer provided products or services during the last twelve (12) months of Executive’s employment.

 

(iii)          Non-Solicitation. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, hire any person employed by Employer during the six (6) months preceding Executive’s cessation of employment, or solicit for hire or encourage any such person to terminate employment with Employer, if the purpose is to compete with Employer.

 

(iv)          Remedies. Executive acknowledges that the covenants set forth in Section 7(c) are just, reasonable, and necessary to protect the legitimate business interests of Employer. Executive further acknowledges that if Executive breaches or threatens to breach any provision of Section 7(c), all payments otherwise due under Sections 7(a)(ii) or 8(b)(ii) (below) shall immediately cease, but Employer’s remedies at law will be inadequate, and Employer will be irreparably harmed. Accordingly, Employer shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, such injunctive relief not to preclude Employer from pursuing all available legal and equitable remedies.

 

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8.             Obligations Related to Change of Control.

 

(a)            Change of Control Benefit. If a Change of Control occurs during the term of this Agreement, subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release, the Company shall make or cause to be made a lump-sum payment to Executive in an amount in cash equal to 2.99 times Executive’s annual compensation. For this purpose annual compensation means (i) Executive’s Base Salary when the Change of Control occurs plus (ii) the average of the highest three years’ annual cash bonus earned by Executive for the five complete fiscal years immediately preceding the year in which the Change of Control occurs. If the number of complete fiscal years preceding the Change of Control is less than five, the average of the annual cash bonuses will the highest three out of the preceding four years, or the highest two of the preceding three years, or the highest one out of the two preceding years, as applicable. If only one complete fiscal year precedes the Change of Control, the average of the annual cash bonuses will be the cash bonus paid with respect to that fiscal year. If no cash bonus was paid to Executive with respect to an applicable fiscal year, then such bonus amount shall be zero (0) in calculating the amount of the average. The amount payable to Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this Section 8(a) is payable on the date the Change of Control occurs, subject to the Release requirements and provided that, if the period for execution set forth in the Release should cover two calendar years, payment shall be made in the later calendar year. If Executive receives payment under this Section 8(a), Executive shall not be entitled to any additional severance benefits under Section 7(a) after employment termination but may be entitled to the severance benefits under Section 8(b), subject to the requirements of Section 8(b), including execution of a separate Release at the time of termination as provided in Section 8(b). Executive shall be entitled to benefits under this Section 8(a) on no more than one occasion during the term of this Agreement.

 

(b)            Termination of Employment without Cause. If Executive’s employment terminates without Cause on the date of a Change of Control or within two (2) years after a Change of Control, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 20 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a));

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release for a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 20. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 8(b)(ii) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 8(b)(ii) shall immediately terminate.

 

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Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 8(b) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, engages in any activity prohibited by Section 7(c) or any of its subparts or Section 10.

 

(c)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, on the date of a Change of Control or within two (2) years after a Change of Control, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(d)            Superseding Provisions. The benefits and payments set forth in Section 8 that may be due in connection with a Change of Control shall supersede all payments, entitlements and benefits of Executive otherwise payable under Section 7(a). The benefits and payments due under Section 8 replace those in Section 7(a), and are not cumulative thereof.

 

9.            Change of Control Defined. For purposes of this Agreement, the term “Change of Control” means a change in control as defined in Code Section 409A, as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change of Control, as of the effective date of this Agreement, a change in control as defined in Rule 1.409A-3(i)(5) would include the following:

 

(a)            Change in Ownership: a change in ownership of the Employer occurs on the date any one person or group accumulates ownership of Company stock constituting more than 50% of the total fair market value or total voting power of Company stock, or

 

(b)            Change in Effective Control: (i) any one person or more than one person acting as a group acquires within a twelve (12)-month period ownership of Company stock possessing thirty percent (30%) or more of the total voting power of the Company’s stock, or (ii) a majority of the Company Board is replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed in advance by a majority of the Company Board, or

 

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(c)            Change in Ownership of a Substantial Portion of Assets: a change in ownership of a substantial portion of the Company’s assets occurs if in a twelve (12)-month period any one person or more than one person acting as a group acquires from the Company assets having a total gross fair market value equal to or exceeding forty percent (40%) of the total gross fair market value of all of the Company’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of the Company’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

10.           Confidentiality. As an employee of Employer, Executive will have access to and may participate in the origination of non-public, proprietary and confidential information relating to Employer and/or its affiliates and Executive acknowledges a fiduciary duty owed to Employer and its affiliates not to disclose any such information. Confidential information may include, but is not limited to, trade secrets, customer lists and information, internal corporate planning, methods of marketing and operation, and other data or information of or concerning Employer and its affiliates or their customers that is not generally known to the public or generally in the banking industry. Executive agrees that for a period of three (3) years following the cessation of employment, Executive will not use or disclose to any third party any such confidential information, either directly or indirectly, except as may be authorized in writing specifically by Employer; provided, however that to the extent the information covered by this Section 10 is otherwise protected by the law, such as “trade secrets,” as defined by the Virginia Uniform Trade Secrets Act, or customer information protected by banking privacy laws, that information shall not be disclosed or used for however long the legal protections applicable to such information remain in effect. Nothing in this Agreement is intended to or will be used in any way to limit Executive’s rights to voluntarily communicate with, file a claim or report with, or to otherwise participate in an investigation with, any federal, state, or local government agency, as provided for, protected under or warranted by applicable law. Executive does not need prior approval before making any such communication, report, claim, disclosure or participation and is not required to notify Employer that such communication, report, claim, or participation has been made. Additionally, federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, Executive may not be held criminally or civilly liable under any state or federal trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a state, federal or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding; or (c) in a lawsuit alleging retaliation by Employer against Executive for reporting a suspected violation of law, Executive discloses to Executive’s attorney and uses in the court proceeding, as long as any document containing the trade secret is filed under seal and Executive does not disclose the trade secret except pursuant to a court order.

 

11.           Documents. All documents, records, tapes and other media of any kind or description relating to the business of Employer or any of its affiliates or subsidiaries (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of Employer. The Documents (and any copies) shall be returned to Employer upon Executive’s termination of employment for any reason or at such earlier time or times as the Company Board or its designee may specify.

 

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12.            Suspension or Temporary Prohibition of Services; Permanent Prohibition of Services. If Executive is suspended and/or temporarily prohibited from participating in the conduct of Employer’s affairs by a notice served pursuant to the Federal Deposit Insurance Act, Employer’s obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Employer may in its discretion (a) pay Executive all or part of the compensation withheld while its contract obligations were suspended, and (b) reinstate (in whole or in part) any of its obligations which were suspended. If Executive is removed and/or permanently prohibited from participating in the conduct of Employer’s affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

 

13.            Severability/Breach Not Excuse Performance. If any provision of this Agreement, or part thereof, is determined to be unenforceable for any reason whatsoever, it shall be severable from the remainder of this Agreement and shall not invalidate or affect the other provisions of this Agreement, which shall remain in full force and effect and shall be enforceable according to their terms. No covenant shall be dependent upon any other covenant or provision herein, each of which stands independently.

 

14.            Payment of Legal Fees. Employer agrees to reimburse Executive for reasonable attorneys’ fees incurred in 2018 not to exceed fifteen thousand dollars ($15,000) for preparation and negotiation of this Agreement.

 

15.            Governing Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. The parties further agree that venue in the event of a dispute shall be exclusively in the Circuit Court of Fairfax County, or the applicable federal court encompassing that jurisdiction, at the sole option of Employer, and Executive agrees not to object to venue.

 

16.            Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:	Chairman of the Board of Directors
	John Marshall Bancorp, Inc.
	1943 Isaac Newton Square
	Reston, Virginia 20190
To Executive:	At Executive’s home address as shown on the records of Employer.

 

17.            Amendment and Termination of Agreement. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the parties hereto or their legal representatives. Except as specifically set forth herein, including pursuant to the provisions of Section 6, this Agreement may not be terminated except by an instrument in writing executed by the parties hereto or their legal representatives, provided, however, and notwithstanding anything in this Agreement to the contrary, Employer or its successor has the unilateral right to terminate this Agreement and pay out the full value of all benefits provided under Section 8 in one lump sum payment in connection with a Change of Control pursuant to, and in compliance with, Treasury Regulation § 1.409A-3(j)(4)(ix)(B).

 

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18.          Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of Executive and Employer, its successors and assigns on the Effective Date, subject to the approval by the Boards. Employer will require any successor to all or substantially all of the business, stock or assets of Employer to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall be freely assignable by Employer.

 

19.          No Construction Against Any Party. This Agreement is the product of informed negotiations between Executive and Employer. If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. Executive and Employer agree that neither party was in a superior bargaining position regarding the substantive terms of this Agreement.

 

20.          Code Section 409A Compliance.

 

(a)            The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption from the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A.

 

(b)            Neither Executive nor Employer shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)            A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the form or timing of payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of any such provision of this Agreement under which (and to the extent) deferred compensation subject to Code Section 409A is paid, references to a “termination” or “termination of employment” or like references shall mean separation from service. A “separation from service” shall not occur under Code Section 409A unless such Executive has completely severed Executive’s relationship with Employer or Executive has permanently decreased Executive’s services to twenty percent (20%) or less of the average level of bona fide services over the immediately preceding thirty-six (36) month period (or the full period if Executive has been providing services for less than thirty-six (36) months). A leave of absence shall only trigger a termination of employment that constitutes a separation from service at the time required under Code Section 409A. If Executive is deemed on the date of separation from service with Employer to be a “specified employee”, within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Employer from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed for six (6) months in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall be paid with interest on the earlier of (i) the first day of the seventh (7^th) month measured from the date of Executive’s separation from service or (ii) the date of Executive’s death. The amount of interest to be paid shall be based on the prime rate of interest in effect on the first day of the month following Executive’s separation from service as reported in the Wall Street Journal. In the case of benefits required to be delayed under Code Section 409A, however, Executive may pay the cost of benefit coverage, and thereby obtain benefits, during such six (6) month delay period and then be reimbursed by Employer thereafter on the first day of the seventh (7^th) month following the date of Executive’s separation from service or, if earlier, on the date of Executive’s death.

 

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(d)            If under this Agreement, an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment.

 

(e)            When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Employer. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Regulation § 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(f)            Notwithstanding any other provision of this Agreement, Executive shall be solely liable, and Employer shall not be liable in any way to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Code Section 409A otherwise fails to comply with, or be exempt from, the requirements of Code Section 409A.

 

21.          Regulatory Limitation. Notwithstanding any other provision of this Agreement, neither Employer nor any subsidiary or affiliate shall be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement that would violate any law, regulation or regulatory order applicable to Employer or the subsidiary or affiliate at the time such payment or benefit is due, including without limitation, any regulation or order of the Federal Deposit Insurance Corporation or the Board of Governors of the Federal Reserve System. Executive agrees that compliance by Employer with such regulatory restrictions, even to the extent that compensation or other benefits paid or otherwise due to Executive are limited, shall not be a breach of this Agreement by Employer.

 

22.          Waiver of Breach. The failure at any time to enforce or exercise any right under any of the provisions of this Agreement or to require at any time performance by the other parties of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement, or the right of any party hereafter to enforce or exercise its rights under each and every provision in accordance with the terms of this Agreement.

 

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23.            No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 23 shall preclude the assumption of such rights by executors, administrators or other legal representatives of Executive or Executive’s estate and their assigning any rights under this Agreement to the person or persons entitled hereto.

 

24.            Full Capacity. The persons signing this Agreement represent that they have full authority and representative capacity to execute this Agreement in the capacities indicated below and to perform all obligations under this Agreement.

 

25.            Representation and Warranty of Executive. Executive represents and warrants to Employer that Executive is not under any obligation, contractual or otherwise, to any other firm or corporation, which would prevent Executive from entering into the employ of Employer under this Agreement or prevent Executive from performing the terms of this Agreement.

 

26.            Entire Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement of the parties with respect to the matters addressed herein and, upon the Effective Date, it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement.

 

27.            Survivability. The provisions of Section 7(c) shall survive the termination, expiration or non-renewal of this Agreement.

 

28.            Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

29.            Case and Gender. Wherever required by the context of this Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

 

30.            Title. The titles and sub-headings of each Section and Sub-Section in this Agreement are for convenience only and should not be considered part of this Agreement to aid in interpretation or construction.

 

[Signature Block on Next Page]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

Date: April 24, 2018	/s/ Christopher W. Bergstrom
	Christopher W. Bergstrom
Date: April 23, 2018	John Marshall Bancorp, Inc. and
	John Marshall Bank
	By:	/s/ John R. Maxwell
		John R. Maxwell
		CEO

 

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EXHIBIT A

 

RELEASE

 

In consideration of the benefits promised in the Employment Agreement to which this Release is attached as Exhibit A (and further defined below), Christopher W. Bergstrom (“Executive”), hereby irrevocably and unconditionally releases, acquits, and forever discharges John Marshall Bancorp, Inc. and John Marshall Bank (collectively, the “Bank”), and each of its agents, directors, members, shareholders, affiliated entities, officers, employees, former employees, attorneys, and all persons acting by, through, under or in concert with any of them (collectively “Releasees”) from any and all charges, complaints, claims, liabilities, grievances, obligations, promises, agreements, controversies, damages, policies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, any rights arising out of alleged violations or breaches of any contracts, express or implied, or any tort, or any legal restrictions on Releasees’ right to terminate employees, or any federal, state or other governmental statute, regulation, law or ordinance, including without limitation (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991; (2) the Americans with Disabilities Act; (3) 42 U.S.C. § 1981; (4) the federal Age Discrimination in Employment Act (age discrimination); (5) the Older Workers Benefit Protection Act; (6) the Equal Pay Act; (7) the Family and Medical Leave Act; and (8) the Employee Retirement Income Security Act (“Claim” or “Claims”), which Executive now has, owns or holds, or claims to have, own or hold, or which Executive at any time heretofore had owned or held, or claimed to have owned or held, against each or any of the Releasees at any time up to and including the date of the execution of this Release; provided, however, that nothing herein shall preclude Executive from filing or participating in a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”), but Executive waives any right to monetary relief arising therefrom.

 

Executive hereby acknowledges and agrees that the execution of this Release [and the cessation of Executive’s employment] and all actions taken in connection therewith are in compliance with the federal Age Discrimination in Employment Act and the Older Workers Benefit Protection Act and that the releases set forth above shall be applicable, without limitation, to any claims brought under these Acts. Executive further acknowledges and agrees that:

 

a.            This Release given by Executive is given solely in exchange for the benefits set forth in the Employment Agreement dated as of April 30, 2018 between the Bank and Executive (the “Employment Agreement”) to which this Release was initially attached and such consideration is in addition to anything of value which Executive was entitled to receive prior to entering into this Release;

 

b.            By entering into this Release, Executive does not waive rights or claims that may arise after the date this Release is executed;

 

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c.            Executive has been advised to consult an attorney prior to entering into this Release, and this provision of this Release satisfies the requirements of the Older Workers Benefit Protection Act that Executive be so advised in writing;

 

d.            Executive has been offered twenty-one (21) days [or forty-five (45) days if applicable] from receipt of this Release within which to consider whether to sign this Release; and

 

e.            For a period of seven (7) days following Executive’s execution of this Release, Executive may revoke this Release by delivering the revocation to the Chief Human Resources Officer of John Marshall Bank, and it shall not become effective or enforceable until such seven (7) day period has expired.

 

This Release shall be binding upon the heirs and personal representatives of Executive and shall inure to the benefit of the successors and assigns of the Bank.

 

Date		Christopher W. Bergstrom

 

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EX-10.10

 

Exhibit 10.10

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of this 30th day of April, 2018, is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and Carl E. Dodson (“Executive”) and is effective as of April 30, 2018 (the “Effective Date”).

 

WHEREAS, Employer wishes to continue the employment of Executive as a key executive of Employer and it is the desire of Employer to have the benefit of Executive’s continued loyalty and service; and

 

WHEREAS, Executive wishes to be in the employ of Employer on the terms and subject to the conditions set forth herein.

 

WHEREAS, references in this Agreement to Internal Revenue Code section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under section 409A (hereinafter collectively referred to as “Code Section 409A”); and

 

WHEREAS, as of the Effective Date, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 C.F.R. 359.1(f)(1)(ii)] exists or, to the Employer’s best knowledge, is contemplated insofar as the Employer or any affiliates are concerned.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein the parties agree as follows:

 

1.             Employment and Duties.

 

(a)            Executive shall be employed as Senior Executive Vice President, Chief Operating Officer & Chief Risk Officer of Employer (the “Position”) on the terms and subject to the conditions of this Agreement. Executive accepts such employment and agrees to perform the duties and responsibilities of the Position, as may be assigned to Executive by the Chief Executive Officer or Board of Directors of the Company or the Bank.

 

(b)            Executive shall devote Executive’s best efforts and full time to rendering services on behalf of Employer in furtherance of its best interests. Executive shall comply with all policies, standards and regulations of Employer now or hereafter promulgated, and shall perform all duties under this Agreement to the best of Executive’s abilities and in accordance with the ethics and standards of conduct applicable to employees in the banking industry.

 

     

 

 

2.             Compensation.

 

(a)            Base Salary. During the Term, Employer shall cause Executive to be paid an annual base salary of $325,000, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company’s Board of Directors (the “Board of Directors”) or its designee, in its discretion, may increase Executive’s base salary during the Term. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

(b)            Bonuses. Executive shall receive only such annual bonuses, if any, as the Board of Directors or its designee, in its sole discretion, decides to pay to Executive. Notwithstanding the prior sentence, to the extent that, during the Term, Employer establishes an annual bonus plan covering executive employees, Executive shall be eligible for a bonus in accordance with the terms of such plan. Any such bonus payable under this Section 2(b) shall be paid annually by March 15 of the year following the fiscal year for which performance is being evaluated.

 

(c)            Equity Awards. Executive may be eligible to receive equity awards from Employer, in such manner and subject to such terms and conditions as the Board of Directors or its designee, in its sole discretion, may determine, if at all.

 

(d)            Clawback. Executive agrees that any incentive compensation that Executive receives from Employer or a related entity shall be subject to repayment (i.e., clawback) to Employer or such related entity to the extent required by law or under the clawback policy adopted by Employer on April 17, 2018 (the “Clawback Policy”). Executive shall be subject to any subsequent changes to, or replacement of, the Clawback Policy only to the extent Executive has separately agreed in writing.

 

(e)            Automobile. Employer shall provide an Employer-owned automobile for use by Executive. The Employer will pay insurance, taxes, maintenance expenses for the automobile, and EZ Pass fees and charges incurred by Executive in connection with the use of his company-owned car, subject to applicable W-2 income reporting for personal use.

 

(f)            Club Dues. Employer shall reimburse Executive for fifty percent (50%) of club dues incurred each month, not to exceed $350.00 per month. Executive shall submit expense reports related to the Executive’s club dues on a monthly basis and Employer shall reimburse such expenses on a monthly basis.

 

3.             Benefits.

 

(a)            Corporate Benefit Plans. Executive shall be entitled to participate in or become a participant in any employee benefit plan maintained by Employer for which Executive is or will become eligible on such terms as the Board of Directors or its designee may, in its discretion, establish, modify or otherwise change.

 

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(b)            Executive Supplemental Disability Insurance. Employer shall pay premiums on the supplemental disability income policy number 8866898 with Massachusetts Mutual Life Insurance Company, or a replacement policy agreed upon by Employer and Executive, when such premiums are due under, and subject to the terms of, such policy.

 

(c)            Personal Time Off. Executive shall be entitled to five (5) weeks (twenty-five (25) business days) of paid time off (“PTO”) each year (or such greater annual number of days allowed under Employer’s PTO policy) which shall be taken in accordance with Employer’s PTO Policy.

 

(d)            Split Dollar Life Insurance Benefit. Executive shall participate in the John Marshall Bank Split Dollar Life Insurance Plan in accordance with the terms of such plan, which may be amended from time to time.

 

4.             Reimbursement of Expenses.

 

(a)            Reimbursements. Executive shall be reimbursed upon Executive’s incurring reasonable and customary business expenses in connection with the performance of Executive’s duties, subject to presentation of adequate substantiation, including receipts, for the reasonable business travel, entertainment, lodging, and other business expenses incurred by Executive. In no event will such reimbursements be made later than the last day of the calendar month following the calendar month in which Executive submits the request for payment of the reimbursable expense, which shall be submitted no later than sixty (60) days after the expense is incurred.

 

(b)            Compliance with Code Section 409A. If any reimbursement or in-kind benefits under this Agreement constitute deferred compensation under Code Section 409A, the reimbursement or in-kind benefits will be provided in accordance with Code Section 409A. The reimbursement or in-kind benefit payments will not be paid later than the last day of Executive’s tax year immediately after Executive’s tax year in which the expense is incurred, amounts eligible for payment during any one taxable year under this Agreement do not affect eligibility for payment in any other taxable year under this Agreement, Executive’s right to the payment is not subject to liquidation or exchange for another benefit, and the Employer’s obligation to make payment does not apply after Executive’s death.

 

5.             Insurance. Employer will maintain or cause to be maintained directors and officers liability insurance covering Executive throughout his employment and will otherwise indemnify him in a manner that is no less favorable than the indemnity provided to other directors and officers.

 

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6.             Termination of Employment.

 

(a)            Death or Incapacity. Executive’s employment under this Agreement shall terminate automatically upon Executive’s death. Executive’s spouse, if the spouse survives Executive, or, if not, Executive’s estate shall receive (i) any unpaid base salary which otherwise would be payable to Executive through the date of termination payable in a lump sum as soon as administratively feasible following termination, but not later than thirty (30) days thereafter; (ii) any annual bonus compensation earned and awarded pursuant to Section 2(b) above, but not yet paid as of the date of termination, payable on the earlier of (A) the thirtieth (30^th) day after the date of termination, or (B) when otherwise due; (iii) any benefits vested, due and owing pursuant to the terms of any other plans, policies or programs, payable when otherwise due (hereinafter subsections (i) – (iii) collectively are referred to as the “Accrued Obligations”). If Employer determines that Incapacity (as defined below) of Executive has occurred, it may terminate Executive’s employment and this Agreement upon ninety (90) days’ written notice, provided that, within ninety (90) days after receipt of such notice, Executive shall not have returned to full-time performance of Executive’s assigned duties. In the event of a termination due to “Incapacity,” Employer shall pay the Accrued Obligations to Executive. For purposes of this Agreement, “Incapacity” shall occur if (i) Executive is unable to perform the material functions of Executive’s position for thirteen (13) consecutive weeks and is then deemed to be permanently unable to continue in the Position by a physician selected by Employer or its insurer, and acceptable to Executive or Executive’s legal representative, which consent shall not be unreasonably withheld, or (ii) Executive is deemed disabled as defined in the policy of disability insurance maintained by Employer for the benefit of Executive (and others if a group policy). Notwithstanding any other provision in this Agreement, Employer shall comply with all requirements of the Americans with Disabilities Act. Further, if Executive’s employment is terminated due to death or “Incapacity,” then no payments (other than the Accrued Obligations) shall be owed or paid, including those under Section 7(a) or Section 8(a).

 

(b)            Termination by Employer With or Without Cause. Employer may terminate Executive’s employment at any time without Cause, upon written notice ninety (90) days in advance. Employer may, at its option, require that Executive perform no services for Employer or limit Executive’s services during all or part of the notice period. Employer may also terminate Executive’s employment immediately for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i)            Executive’s willful misconduct in connection with the performance of Executive’s duties;

 

(ii)           Executive’s misappropriation or embezzlement of funds or material property of Employer or any affiliate;

 

(iii)          Executive’s fraud or dishonesty with respect to Employer or any affiliate;

 

(iv)          Executive’s failure to perform any of the material duties and responsibilities required by the Position (other than by reason of Incapacity), or Executive’s failure to follow reasonable instructions or policies of Employer, in either case after being advised in writing of such failure and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such failure (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

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(v)           Executive’s conviction of or entering of a guilty plea or plea of no contest with respect to any felony, or any misdemeanor involving moral turpitude;

 

(vi)          Executive’s breach of a material term of this Agreement, or violation in any material respect of any policy, code or standard of behavior or ethics generally applicable to officers of Employer, after being advised in writing of such breach or violation and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such breach or violation (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

(vii)         Executive’s willful violation of any final cease and desist order; or

 

(viii)         Executive’s breach of any fiduciary duty owed to Employer or its affiliates.

 

(c)            Termination by Executive for Good Reason. Executive may terminate employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

 

(i)            The assignment of duties to Executive by Employer which result in Executive having materially less authority or responsibility than Executive has on the Effective Date, without Executive’s express written consent; or

 

(ii)           The relocation of Executive to any other primary place of employment that is located more than twenty-five (25) miles from Executive’s assigned place of employment as of the Effective Date, without Executive’s express written consent to such relocation, provided that such relocation of Executive is not as a result of, and at the same location as, the relocation of the headquarters of the Company; or

 

(iii)          A material reduction of Executive’s base salary, without Executive’s express written consent; or

 

(iv)          A material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer or employee instead of reporting directly to the Boards; or

 

(v)           Any action or inaction by Employer that constitutes a material breach of this Agreement.

 

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As a condition to invoking “Good Reason”, Executive is required to provide written notice to Employer detailing the existence of a condition described above in this Section 6(c) within a sixty (60) day period after the initial existence of the condition, and Employer shall have thirty (30) days after notice to remedy the condition without liability. In addition to the foregoing requirements, to trigger payment under this Section 6(c), Executive must also terminate employment within one hundred twenty (120) days after the initial occurrence of the event constituting “Good Reason” and Employer must have been allowed the full opportunity to cure, as set forth above.

 

Notwithstanding the above, “Good Reason” shall not include and shall not apply to any resignation by Executive where there exists objective evidence sufficient to justify a termination for Cause under Section 6(b), provided that the basis for such Cause is conduct by Executive that either (x) is unknown to Employer prior to the time written notice of Good Reason is provided by Executive or (y) occurred within the ninety (90) days preceding the date written notice of Good Reason is provided by Executive.

 

(d)            Other. Executive’s employment hereunder may be terminated voluntarily by Executive without Good Reason upon ninety (90) days’ prior written notice to Employer or at any time by mutual agreement in writing. In the event of such voluntary termination notice by Executive without Good Reason, Employer may terminate Executive’s employment prior to the expiration of the notice period without incurring any liability under Sections 7 or 8, and Employer shall be required only to pay Executive’s Base Salary through the termination date (with such payment to be made in accordance with Employer’s established payroll practices), plus any Accrued Obligations (as defined Section 6(a)).

 

7.             Obligations Upon Termination of Employment.

 

(a)            Without Cause or for Good Reason. Except as otherwise provided in Section 8, if Employer terminates Executive’s employment without Cause or Executive terminates Executive’s employment for Good Reason, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a)); and

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release:

 

(A)            A payment in a monthly amount equal to one-twelfth (1/12) of Executive’s annual base salary in effect immediately preceding such termination (but without applying, if applicable, any reduction of base salary that was the basis for Executive’s termination for Good Reason under Section 6(c)(iii)) for twelve (12) consecutive months, less all applicable withholdings, payable in accordance with Employer’s established payroll practices (but no less frequently than monthly), provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19 (the “Severance Benefit”); and

 

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(B)            For a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 7(a)(ii)(B) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 7(a)(ii)(B) shall immediately terminate.

 

Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 7(a)(ii) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, breaches or engages in any activity prohibited in Section 7(c) or any of its sub-parts or Section 10.

 

(b)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(c)            Covenants. The restrictions in this Section 7(c) apply in the event of any termination of Executive’s employment, regardless of the reason and including terminations both before and after a Change of Control.

 

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(i)            Non-Competition. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that Executive will not engage in “Competition” for a period of twelve (12) months after Executive’s employment with Employer ceases for any reason. For purposes hereof, “Competition” means Executive’s performing duties that are the same as or substantially similar to those duties performed by Executive for Employer or its affiliates during the last twelve (12) months of Executive’s employment, as an officer, a director, an employee, a partner or in any other capacity, within a twenty-five (25) mile radius of the headquarters of the Bank (or any Virginia, District of Columbia or Maryland headquarters of any successor of the Bank in the event of a merger consummated as of the last day of employment), as such location exists as of the date Executive’s employment ceases, if those duties are performed for a bank or other financial institution, that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time Executive’s employment ceases.

 

(ii)           Non-Piracy. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, solicit, divert from Employer or transact business with any “Customer” of Employer with whom Executive had “Material Contact” during the last twelve (12) months of Executive’s employment or about whom Executive obtained information not known generally to the public while acting within the scope of Executive’s employment during the last twelve (12) months of employment, if the purpose of such solicitation, diversion or transaction is to provide products or services that are the same as or substantially similar to, and competitive with, those offered by Employer at the time Executive’s employment ceases. “Material Contact” means that Executive personally communicated with the Customer, either orally or in writing, for the purpose of providing, offering to provide or assisting in providing products or services of Employer during the last twelve (12) months of Executive’s employment. “Customer” means any person or entity with whom Employer had a depository or other contractual relationship, pursuant to which Employer provided products or services during the last twelve (12) months of Executive’s employment.

 

(iii)          Non-Solicitation. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, hire any person employed by Employer during the six (6) months preceding Executive’s cessation of employment, or solicit for hire or encourage any such person to terminate employment with Employer, if the purpose is to compete with Employer.

 

(iv)          Remedies. Executive acknowledges that the covenants set forth in Section 7(c) are just, reasonable, and necessary to protect the legitimate business interests of Employer. Executive further acknowledges that if Executive breaches or threatens to breach any provision of Section 7(c), all payments otherwise due under Sections 7(a)(ii) or 8(b)(ii) (below) shall immediately cease, but Employer’s remedies at law will be inadequate, and Employer will be irreparably harmed. Accordingly, Employer shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, such injunctive relief not to preclude Employer from pursuing all available legal and equitable remedies.

 

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8.             Obligations Related to Change of Control.

 

(a)            Change of Control Benefit. If a Change of Control occurs during the term of this Agreement, subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release, the Company shall make or cause to be made a lump-sum payment to Executive in an amount in cash equal to 2.50 times Executive’s annual compensation. For this purpose annual compensation means (i) Executive’s Base Salary when the Change of Control occurs plus (ii) the average of the highest three years’ annual cash bonus earned by Executive for the five complete fiscal years immediately preceding the year in which the Change of Control occurs. If the number of complete fiscal years preceding the Change of Control is less than five, the average of the annual cash bonuses will the highest three out of the preceding four years, or the highest two of the preceding three years, or the highest one out of the two preceding years, as applicable. If only one complete fiscal year precedes the Change of Control, the average of the annual cash bonuses will be the cash bonus paid with respect to that fiscal year. If no cash bonus was paid to Executive with respect to an applicable fiscal year, then such bonus amount shall be zero (0) in calculating the amount of the average. The amount payable to Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this Section 8(a) shall be paid within sixty (60) days following the date the Change of Control occurs, subject to the Release requirements and provided that, if the period for execution and revocation set forth in the Release should cover two calendar years, payment shall be made in the later calendar year. If Executive receives payment under this Section 8(a), Executive shall not be entitled to any additional severance benefits under Section 7(a) after employment termination but may be entitled to the severance benefits under Section 8(b), subject to the requirements of Section 8(b), including execution of a separate Release at the time of termination as provided in Section 8(b). Executive shall be entitled to benefits under this Section 8(a) on no more than one occasion during the term of this Agreement.

 

(b)            Termination of Employment without Cause. If Executive’s employment terminates without Cause on the date of a Change of Control or within two (2) years after a Change of Control, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a));

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release for a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 8(b)(ii) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 8(b)(ii) shall immediately terminate.

 

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Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 8(b) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, engages in any activity prohibited by Section 7(c) or any of its subparts or Section 10.

 

(c)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, on the date of a Change of Control or within two (2) years after a Change of Control, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(d)            Superseding Provisions. The benefits and payments set forth in Section 8 that may be due in connection with a Change of Control shall supersede all payments, entitlements and benefits of Executive otherwise payable under Section 7(a). The benefits and payments due under Section 8 replace those in Section 7(a), and are not cumulative thereof.

 

9.             Change of Control Defined. For purposes of this Agreement, the term “Change of Control” means a change in control as defined in Code Section 409A, as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change of Control, as of the effective date of this Agreement, a change in control as defined in Rule 1.409A-3(i)(5) would include the following:

 

(a)            Change in Ownership: a change in ownership of the Employer occurs on the date any one person or group accumulates ownership of Company stock constituting more than 50% of the total fair market value or total voting power of Company stock, or

 

(b)            Change in Effective Control: (i) any one person or more than one person acting as a group acquires within a twelve(12)-month period ownership of Company stock possessing thirty percent (30%) or more of the total voting power of the Company’s stock, or (ii) a majority of the Company Board is replaced during any twelve(12)-month period by directors whose appointment or election is not endorsed in advance by a majority of the Company Board, or

 

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(c)            Change in Ownership of a Substantial Portion of Assets: a change in ownership of a substantial portion of the Company’s assets occurs if in a twelve(12)-month period any one person or more than one person acting as a group acquires from the Company assets having a total gross fair market value equal to or exceeding forty percent (40%) of the total gross fair market value of all of the Company’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of the Company’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

10.            Confidentiality. As an employee of Employer, Executive will have access to and may participate in the origination of non-public, proprietary and confidential information relating to Employer and/or its affiliates and Executive acknowledges a fiduciary duty owed to Employer and its affiliates not to disclose any such information. Confidential information may include, but is not limited to, trade secrets, customer lists and information, internal corporate planning, methods of marketing and operation, and other data or information of or concerning Employer and its affiliates or their customers that is not generally known to the public or generally in the banking industry. Executive agrees that for a period of three (3) years following the cessation of employment, Executive will not use or disclose to any third party any such confidential information, either directly or indirectly, except as may be authorized in writing specifically by Employer; provided, however that to the extent the information covered by this Section 10 is otherwise protected by the law, such as “trade secrets,” as defined by the Virginia Uniform Trade Secrets Act, or customer information protected by banking privacy laws, that information shall not be disclosed or used for however long the legal protections applicable to such information remain in effect. Nothing in this Agreement is intended to or will be used in any way to limit Executive’s rights to voluntarily communicate with, file a claim or report with, or to otherwise participate in an investigation with, any federal, state, or local government agency, as provided for, protected under or warranted by applicable law. Executive does not need prior approval before making any such communication, report, claim, disclosure or participation and is not required to notify Employer that such communication, report, claim, or participation has been made. Additionally, federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, Executive may not be held criminally or civilly liable under any state or federal trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a state, federal or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding; or (c) in a lawsuit alleging retaliation by Employer against Executive for reporting a suspected violation of law, Executive discloses to Executive’s attorney and uses in the court proceeding, as long as any document containing the trade secret is filed under seal and Executive does not disclose the trade secret except pursuant to a court order.

 

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11.            Documents. All documents, records, tapes and other media of any kind or description relating to the business of Employer or any of its affiliates or subsidiaries (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of Employer. The Documents (and any copies) shall be returned to Employer upon Executive’s termination of employment for any reason or at such earlier time or times as the Company Board or its designee may specify.

 

12.            Suspension or Temporary Prohibition of Services; Permanent Prohibition of Services. If Executive is suspended and/or temporarily prohibited from participating in the conduct of Employer’s affairs by a notice served pursuant to the Federal Deposit Insurance Act, Employer’s obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Employer may in its discretion (a) pay Executive all or part of the compensation withheld while its contract obligations were suspended, and (b) reinstate (in whole or in part) any of its obligations which were suspended. If Executive is removed and/or permanently prohibited from participating in the conduct of Employer’s affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

 

13.            Severability/Breach Not Excuse Performance. If any provision of this Agreement, or part thereof, is determined to be unenforceable for any reason whatsoever, it shall be severable from the remainder of this Agreement and shall not invalidate or affect the other provisions of this Agreement, which shall remain in full force and effect and shall be enforceable according to their terms. No covenant shall be dependent upon any other covenant or provision herein, each of which stands independently.

 

14.            Governing Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. The parties further agree that venue in the event of a dispute shall be exclusively in the Circuit Court of Fairfax County, or the applicable federal court encompassing that jurisdiction, at the sole option of Employer, and Executive agrees not to object to venue.

 

15.            Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:	Chairman of the Board of Directors
	John Marshall Bancorp, Inc.
	1943 Isaac Newton Square
	Reston, Virginia 20190
To Executive:	At Executive’s home address as shown on the records of Employer.

 

16.            Amendment and Termination of Agreement. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the parties hereto or their legal representatives. Except as specifically set forth herein, including pursuant to the provisions of Section 6, this Agreement may not be terminated except by an instrument in writing executed by the parties hereto or their legal representatives, provided, however, and notwithstanding anything in this Agreement to the contrary, Employer or its successor has the unilateral right to terminate this Agreement and pay out the full value of all benefits provided under Section 8 in one lump sum payment in connection with a Change of Control pursuant to, and in compliance with, Treasury Regulation § 1.409A-3(j)(4)(ix)(B).

 

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17.            Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of Executive and Employer, its successors and assigns on the Effective Date, subject to the approval by the Boards. Employer will require any successor to all or substantially all of the business, stock or assets of Employer to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall be freely assignable by Employer.

 

18.            No Construction Against Any Party. This Agreement is the product of informed negotiations between Executive and Employer. If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. Executive and Employer agree that neither party was in a superior bargaining position regarding the substantive terms of this Agreement.

 

19.            Code Section 409A Compliance.

 

(a)            The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption from the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A.

 

(b)            Neither Executive nor Employer shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)            A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the form or timing of payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of any such provision of this Agreement under which (and to the extent) deferred compensation subject to Code Section 409A is paid, references to a “termination” or “termination of employment” or like references shall mean separation from service. A “separation from service” shall not occur under Code Section 409A unless such Executive has completely severed Executive’s relationship with Employer or Executive has permanently decreased Executive’s services to twenty percent (20%) or less of the average level of bona fide services over the immediately preceding thirty-six (36) month period (or the full period if Executive has been providing services for less than thirty-six (36) months). A leave of absence shall only trigger a termination of employment that constitutes a separation from service at the time required under Code Section 409A. If Executive is deemed on the date of separation from service with Employer to be a “specified employee”, within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Employer from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed for six (6) months in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall be paid with interest on the earlier of (i) the first day of the seventh (7^th) month measured from the date of Executive’s separation from service or (ii) the date of Executive’s death. The amount of interest to be paid shall be based on the prime rate of interest in effect on the first day of the month following Executive’s separation from service as reported in the Wall Street Journal. In the case of benefits required to be delayed under Code Section 409A, however, Executive may pay the cost of benefit coverage, and thereby obtain benefits, during such six (6) month delay period and then be reimbursed by Employer thereafter on the first day of the seventh (7^th) month following the date of Executive’s separation from service or, if earlier, on the date of Executive’s death.

 

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(d)            If under this Agreement, an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment.

 

(e)            When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Employer. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Regulation § 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(f)            Notwithstanding any other provision of this Agreement, Executive shall be solely liable, and Employer shall not be liable in any way to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Code Section 409A otherwise fails to comply with, or be exempt from, the requirements of Code Section 409A.

 

20.            Regulatory Limitation. Notwithstanding any other provision of this Agreement, neither Employer nor any subsidiary or affiliate shall be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement that would violate any law, regulation or regulatory order applicable to Employer or the subsidiary or affiliate at the time such payment or benefit is due, including without limitation, any regulation or order of the Federal Deposit Insurance Corporation or the Board of Governors of the Federal Reserve System. Executive agrees that compliance by Employer with such regulatory restrictions, even to the extent that compensation or other benefits paid or otherwise due to Executive are limited, shall not be a breach of this Agreement by Employer.

 

21.            Waiver of Breach. The failure at any time to enforce or exercise any right under any of the provisions of this Agreement or to require at any time performance by the other parties of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement, or the right of any party hereafter to enforce or exercise its rights under each and every provision in accordance with the terms of this Agreement.

 

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22.            No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 22 shall preclude the assumption of such rights by executors, administrators or other legal representatives of Executive or Executive’s estate and their assigning any rights under this Agreement to the person or persons entitled hereto.

 

23.            Full Capacity. The persons signing this Agreement represent that they have full authority and representative capacity to execute this Agreement in the capacities indicated below and to perform all obligations under this Agreement.

 

24.            Representation and Warranty of Executive. Executive represents and warrants to Employer that Executive is not under any obligation, contractual or otherwise, to any other firm or corporation, which would prevent Executive from entering into the employ of Employer under this Agreement or prevent Executive from performing the terms of this Agreement.

 

25.            Entire Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement of the parties with respect to the matters addressed herein and, upon the Effective Date, it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement.

 

26.            Survivability. The provisions of Section 7(c) shall survive the termination, expiration or non-renewal of this Agreement.

 

27.            Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

28.            Case and Gender. Wherever required by the context of this Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

 

29.            Title. The titles and sub-headings of each Section and Sub-Section in this Agreement are for convenience only and should not be considered part of this Agreement to aid in interpretation or construction.

 

[Signature Block on Next Page]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

Date: May 22, 2018	/s/ Carl E. Dodson
	Carl E. Dodson
Date: May 22, 2018	John Marshall Bancorp, Inc. and
	John Marshall Bank
	By:	/s/ John R. Maxwell
		John R. Maxwell
		Executive Chairman of the Board

 

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EXHIBIT A

 

RELEASE

 

In consideration of the benefits promised in the Employment Agreement to which this Release is attached as Exhibit A (and further defined below), Carl E. Dodson (“Executive”), hereby irrevocably and unconditionally releases, acquits, and forever discharges John Marshall Bancorp, Inc. and John Marshall Bank (collectively, the “Bank”), and each of its agents, directors, members, shareholders, affiliated entities, officers, employees, former employees, attorneys, and all persons acting by, through, under or in concert with any of them (collectively “Releasees”) from any and all charges, complaints, claims, liabilities, grievances, obligations, promises, agreements, controversies, damages, policies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, any rights arising out of alleged violations or breaches of any contracts, express or implied, or any tort, or any legal restrictions on Releasees’ right to terminate employees, or any federal, state or other governmental statute, regulation, law or ordinance, including without limitation (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991; (2) the Americans with Disabilities Act; (3) 42 U.S.C. § 1981; (4) the federal Age Discrimination in Employment Act (age discrimination); (5) the Older Workers Benefit Protection Act; (6) the Equal Pay Act; (7) the Family and Medical Leave Act; and (8) the Employee Retirement Income Security Act (“Claim” or “Claims”), which Executive now has, owns or holds, or claims to have, own or hold, or which Executive at any time heretofore had owned or held, or claimed to have owned or held, against each or any of the Releasees at any time up to and including the date of the execution of this Release; provided, however, that nothing herein shall preclude Executive from filing or participating in a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”), but Executive waives any right to monetary relief arising therefrom.

 

Executive hereby acknowledges and agrees that the execution of this Release [and the cessation of Executive’s employment] and all actions taken in connection therewith are in compliance with the federal Age Discrimination in Employment Act and the Older Workers Benefit Protection Act and that the releases set forth above shall be applicable, without limitation, to any claims brought under these Acts. Executive further acknowledges and agrees that:

 

a.            This Release given by Executive is given solely in exchange for the benefits set forth in the Employment Agreement dated as of April 30, 2018 between the Bank and Executive (the “Employment Agreement”) to which this Release was initially attached and such consideration is in addition to anything of value which Executive was entitled to receive prior to entering into this Release;

 

b.            By entering into this Release, Executive does not waive rights or claims that may arise after the date this Release is executed;

 

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c.            Executive has been advised to consult an attorney prior to entering into this Release, and this provision of this Release satisfies the requirements of the Older Workers Benefit Protection Act that Executive be so advised in writing;

 

d.            Executive has been offered twenty-one (21) days [or forty-five (45) days if applicable] from receipt of this Release within which to consider whether to sign this Release; and

 

e.            For a period of seven (7) days following Executive’s execution of this Release, Executive may revoke this Release by delivering the revocation to the Chief Human Resources Officer of John Marshall Bank, and it shall not become effective or enforceable until such seven (7) day period has expired.

 

This Release shall be binding upon the heirs and personal representatives of Executive and shall inure to the benefit of the successors and assigns of the Bank.

 

 

Date   Carl E. Dodson

 

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AMENDMENT TO EMPLOYMENT AGREEMENT

 

THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”), dated as of this 22^nd day of January, 2020 is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and Carl E. Dodson (“Executive”) and is effective as of January 1, 2020 (the “Effective Date”).

 

WHEREAS, Employer and Executive entered into an Employment Agreement, dated April 30, 2018 (the “Original Agreement”); and

 

WHEREAS, Employer and Executive wish to amend the Original Agreement as set forth herein.

 

NOW, THEREFORE, the Employer and Executive agree to amend the Original Agreement as follows:

 

1. Section 2(a) shall be amended by replacing it in its entirety with the following:

 

(a)            Base Salary. During the Term, Employer shall cause Executive to be paid an annual Base Salary of $358,500, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company’s Board of Directors (the “Board of Directors”) or its designee, in its discretion, may increase Executive’s Base Salary, but may not decrease it without Executive’s prior written consent. The term “Base Salary” as utilized in this Agreement shall refer to the Base Salary as adjusted in accordance with the preceding sentence. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

2.              All references in the Original Agreement to base salary shall mean the term “Base Salary”.

 

3. Section 6(c)(iv) shall be amended by replacing it in its entirety with the following:

 

(iv) A material diminuition in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer other than the Chief Executive Officer.; or

 

     

 

 

4. Section 15 shall be amended by replacing it in its entirely with the following:

 

15. Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:	Chief Executive Officer
	John Marshall Bancorp, Inc.
	1943 Isaac Newton Square
	Reston, Virginia 20190

 

To Executive: At Executive’s home address as shown on the records of Employer.

 

5.              All provisions of the Original Agreement that have not been amended by this Amendment shall remain in full force and effect. Notwithstanding the foregoing, to the extent there is any inconsistency between the provisions of the Original Agreement and this Amendment, the provisions of this Amendment shall control.

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

 

Date: January 22, 2020	/s/ Carl E. Dodson
	Carl E. Dodson

 

Date: January 22, 2020	John Marshall Bancorp, Inc.
	and John Marshall Bank
	By:	/s/ Christopher W. Bergstrom
		Christopher W. Bergstrom
		President & Chief Executive Officer

 

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Memorandum

 

Date:	June 23, 2021
To:	Carl Dodson, Senior EVP – Chief Operating/Risk Officer
From:	Christopher Bergstrom, Chief Executive Officer (CEO)
Subject:	Employment Arrangement

 

This memo outlines our mutual understanding of your employment arrangement which will be effective as of June 1, 2022.

 

• Position – Exempt, Vice President, Advisor to the CEO, reporting to the CEO

 

• Annual Salary – $200,000 effective June 1, 2022, evaluated no less than annually

 

• Cash Bonus – Remain fully eligible through 2021 bonus cycle. Eligible at the discretion of the CEO thereafter. It is acknowledged that 2022 will be a partial year with existing responsibilities until just after the annual meeting in 2022 (June 1, 2022).

 

• Terminate existing 50% club membership reimbursement effective June 1, 2022.

 

• Terminate existing $1 million BOLI split dollar beneficiary benefit effective June 1, 2023.

 

• Terminate existing company car use effective June 1, 2023. Option to purchase vehicle at the greater of the unamortized book value or CarMax (or equivalent) valuation.

 

• You can continue to make voluntary deferrals of salary or bonus to the Bank’s deferred comp plan through the 2022 plan subject to eligibility requirements. You will not be eligible for employer credits beyond the 2021 plan year.

 

• Terminate existing supplemental disability insurance at the existing policy expiration (January 5, 2022).

 

• Work schedule to be satisfactory to the Chief Executive Officer. Work schedule and responsibilities to be adjusted with reductions in initial salary/compensation.

 

• Remote working allowed but mutually agreeable on-site office schedule to be maintained.

 

• Duties and responsibilities:

 

⮚ Advisor to CEO, Secretary to the Board of Directors, Manage Board of Directors, Audit Committee and Risk Management Committee agendas including quarterly meetings for Risk Management Committee.

 

⮚ Internal Audit Liaison to the Audit Committee. Coordinate and manage internal audit schedule and processes. Coordinate regulatory examinations.

 

⮚ Assist and provide best effort to assure satisfactory transition of replacement

 

⮚ Other duties and special projects as assigned by the CEO

 

• Maintain effectiveness of original existing employment agreement in effect as of April 30, 2018 (attached for reference) through June 1, 2023 with modifications to reflect your new role and compensation outlined in this memorandum. After June 1, 2023, your employment agreement will terminate. If you are still employed on June 1, 2023, there will be an option to extend the effectiveness of your employment agreement until December 31, 2023 if necessary, to receive a benefit related to a change of control. This will be the only reason that the agreement would be extended. If the agreement is extended, the agreement will terminate on December 31, 2023, and no other extensions will be offered, even if the closing of a change of control is scheduled to occur after December 31, 2023.

 

 

     

 

 

 

• All compensation, benefits and perquisites terminate immediately if you are no longer employed by the company.

 

• As of June 1, 2022, your cell phone reimbursement will adjust from $125/month to $75/month based on your title change to Vice President.

 

• The Bank will pay your long term care insurance premium that is due on June 1, 2022 and will allow you to reimburse the Bank over the year through payroll deductions. Regardless of this reimbursement arrangement or your employment status, you will be fully responsible for full reimbursement to the Bank for any long term care premium amount paid for your benefit by the Bank. If you leave employment for any reason, any outstanding amount will be deducted from your final paycheck. The long term care insurance premium that is due on June 1, 2022, described above, will be the final long term care insurance reimbursement arrangement facilitated by the Bank for your benefit.

 

You have indicated that this role outlined above is acceptable. You will remain on an at-will, active, regular employee status.

 

Please indicate your acknowledgement and acceptance of your employment arrangement below and return it to me at your earliest convenience.

 

/s/ Carl E. Dodson		June 24, 2021
Carl Dodson		Date

 

/s/ Christopher W. Bergstrom		July 26, 2021
Christopher Bergstrom		Date

 

 

     

 

EX-10.11

 

Exhibit 10.11

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of this 30th day of April, 2018, is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and William J. Ridenour (“Executive”) and is effective as of April 30, 2018 (the “Effective Date”).

 

WHEREAS, Employer wishes to continue the employment of Executive as a key executive of Employer and it is the desire of Employer to have the benefit of Executive’s continued loyalty and service; and

 

WHEREAS, Executive wishes to be in the employ of Employer on the terms and subject to the conditions set forth herein.

 

WHEREAS, references in this Agreement to Internal Revenue Code section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under section 409A (hereinafter collectively referred to as “Code Section 409A”); and

 

WHEREAS, as of the Effective Date, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 C.F.R. 359.1(f)(1)(ii)] exists or, to the Employer’s best knowledge, is contemplated insofar as the Employer or any affiliates are concerned.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein the parties agree as follows:

 

1.              Employment and Duties.

 

(a)            Executive shall be employed as Senior Executive Vice President, Chief Banking Officer of Employer (the “Position”) on the terms and subject to the conditions of this Agreement. Executive accepts such employment and agrees to perform the duties and responsibilities of the Position, as may be assigned to Executive by the Chief Executive Officer or Board of Directors of the Company or the Bank.

 

(b)            Executive shall devote Executive’s best efforts and full time to rendering services on behalf of Employer in furtherance of its best interests. Executive shall comply with all policies, standards and regulations of Employer now or hereafter promulgated, and shall perform all duties under this Agreement to the best of Executive’s abilities and in accordance with the ethics and standards of conduct applicable to employees in the banking industry.

 

     

 

 

2.              Compensation.

 

(a)            Base Salary. During the Term, Employer shall cause Executive to be paid an annual base salary of $325,000, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company’s Board of Directors (the “Board of Directors”) or its designee, in its discretion, may increase Executive’s base salary during the Term. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

(b)            Bonuses. Executive shall receive only such annual bonuses, if any, as the Board of Directors or its designee, in its sole discretion, decides to pay to Executive. Notwithstanding the prior sentence, to the extent that, during the Term, Employer establishes an annual bonus plan covering executive employees, Executive shall be eligible for a bonus in accordance with the terms of such plan. Any such bonus payable under this Section 2(b) shall be paid annually by March 15 of the year following the fiscal year for which performance is being evaluated.

 

(c)            Equity Awards. Executive may be eligible to receive equity awards from Employer, in such manner and subject to such terms and conditions as the Board of Directors or its designee, in its sole discretion, may determine, if at all.

 

(d)            Clawback. Executive agrees that any incentive compensation that Executive receives from Employer or a related entity shall be subject to repayment (i.e., clawback) to Employer or such related entity to the extent required by law or under the clawback policy adopted by Employer on April 17, 2018 (the “Clawback Policy”). Executive shall be subject to any subsequent changes to, or replacement of, the Clawback Policy only to the extent Executive has separately agreed in writing.

 

(e)            Automobile Allowance. Employer shall provide Executive the sum of $650.00 per month as an automobile allowance. This allowance will be included in Executive’s regular payroll payments.

 

(f)            Club Dues. Employer shall reimburse Executive for up to $395.00 per month of monthly club dues. Executive shall submit expense reports related to the Executive’s club dues on a monthly basis and Employer shall reimburse such expenses on a monthly basis.

 

3.              Benefits.

 

(a)            Corporate Benefit Plans. Executive shall be entitled to participate in or become a participant in any employee benefit plan maintained by Employer for which Executive is or will become eligible on such terms as the Board of Directors or its designee may, in its discretion, establish, modify or otherwise change.

 

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(b)            Executive Supplemental Disability Insurance. Employer shall pay premiums on the supplemental disability income policy number 8866135 with Massachusetts Mutual Life Insurance Company, or a replacement policy agreed upon by Employer and Executive, when such premiums are due under, and subject to the terms of, such policy.

 

(c)            Personal Time Off. Executive shall be entitled to five (5) weeks (twenty-five (25) business days) of paid time off (“PTO”) each year (or such greater annual number of days allowed under Employer’s PTO policy) which shall be taken in accordance with Employer’s PTO Policy.

 

(d)            Split Dollar Life Insurance Benefit. Executive shall participate in the John Marshall Bank Split Dollar Life Insurance Plan in accordance with the terms of such plan, which may be amended from time to time.

 

4.              Reimbursement of Expenses.

 

(a)            Reimbursements. Executive shall be reimbursed upon Executive’s incurring reasonable and customary business expenses in connection with the performance of Executive’s duties, subject to presentation of adequate substantiation, including receipts, for the reasonable business travel, entertainment, lodging, and other business expenses incurred by Executive. In no event will such reimbursements be made later than the last day of the calendar month following the calendar month in which Executive submits the request for payment of the reimbursable expense, which shall be submitted no later than sixty (60) days after the expense is incurred.

 

(b)            Compliance with Code Section 409A. If any reimbursement or in-kind benefits under this Agreement constitute deferred compensation under Code Section 409A, the reimbursement or in-kind benefits will be provided in accordance with Code Section 409A. The reimbursement or in-kind benefit payments will not be paid later than the last day of Executive’s tax year immediately after Executive’s tax year in which the expense is incurred, amounts eligible for payment during any one taxable year under this Agreement do not affect eligibility for payment in any other taxable year under this Agreement, Executive’s right to the payment is not subject to liquidation or exchange for another benefit, and the Employer’s obligation to make payment does not apply after Executive’s death.

 

5.              Insurance. Employer will maintain or cause to be maintained directors and officers liability insurance covering Executive throughout his employment and will otherwise indemnify him in a manner that is no less favorable than the indemnity provided to other directors and officers.

 

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6.              Termination of Employment.

 

(a)            Death or Incapacity. Executive’s employment under this Agreement shall terminate automatically upon Executive’s death. Executive’s spouse, if the spouse survives Executive, or, if not, Executive’s estate shall receive (i) any unpaid base salary which otherwise would be payable to Executive through the date of termination payable in a lump sum as soon as administratively feasible following termination, but not later than thirty (30) days thereafter; (ii) any annual bonus compensation earned and awarded pursuant to Section 2(b) above, but not yet paid as of the date of termination, payable on the earlier of (A) the thirtieth (30^th) day after the date of termination, or (B) when otherwise due; (iii) any benefits vested, due and owing pursuant to the terms of any other plans, policies or programs, payable when otherwise due (hereinafter subsections (i) – (iii) collectively are referred to as the “Accrued Obligations”). If Employer determines that Incapacity (as defined below) of Executive has occurred, it may terminate Executive’s employment and this Agreement upon ninety (90) days’ written notice, provided that, within ninety (90) days after receipt of such notice, Executive shall not have returned to full-time performance of Executive’s assigned duties. In the event of a termination due to “Incapacity,” Employer shall pay the Accrued Obligations to Executive. For purposes of this Agreement, “Incapacity” shall occur if (i) Executive is unable to perform the material functions of Executive’s position for thirteen (13) consecutive weeks and is then deemed to be permanently unable to continue in the Position by a physician selected by Employer or its insurer, and acceptable to Executive or Executive’s legal representative, which consent shall not be unreasonably withheld, or (ii) Executive is deemed disabled as defined in the policy of disability insurance maintained by Employer for the benefit of Executive (and others if a group policy). Notwithstanding any other provision in this Agreement, Employer shall comply with all requirements of the Americans with Disabilities Act. Further, if Executive’s employment is terminated due to death or “Incapacity,” then no payments (other than the Accrued Obligations) shall be owed or paid, including those under Section 7(a) or Section 8(a).

 

(b)            Termination by Employer With or Without Cause. Employer may terminate Executive’s employment at any time without Cause, upon written notice ninety (90) days in advance. Employer may, at its option, require that Executive perform no services for Employer or limit Executive’s services during all or part of the notice period. Employer may also terminate Executive’s employment immediately for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i)            Executive’s willful misconduct in connection with the performance of Executive’s duties;

 

(ii)           Executive’s misappropriation or embezzlement of funds or material property of Employer or any affiliate;

 

(iii)          Executive’s fraud or dishonesty with respect to Employer or any affiliate;

 

(iv)          Executive’s failure to perform any of the material duties and responsibilities required by the Position (other than by reason of Incapacity), or Executive’s failure to follow reasonable instructions or policies of Employer, in either case after being advised in writing of such failure and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such failure (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

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(v)           Executive’s conviction of or entering of a guilty plea or plea of no contest with respect to any felony, or any misdemeanor involving moral turpitude;

 

(vi)          Executive’s breach of a material term of this Agreement, or violation in any material respect of any policy, code or standard of behavior or ethics generally applicable to officers of Employer, after being advised in writing of such breach or violation and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such breach or violation (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days;

 

(vii)         Executive’s willful violation of any final cease and desist order; or

 

(viii)        Executive’s breach of any fiduciary duty owed to Employer or its affiliates.

 

(c)            Termination by Executive for Good Reason. Executive may terminate employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

 

(i)            The assignment of duties to Executive by Employer which result in Executive having materially less authority or responsibility than Executive has on the Effective Date, without Executive’s express written consent; or

 

(ii)           The relocation of Executive to any other primary place of employment that is located more than twenty-five (25) miles from Executive’s assigned place of employment as of the Effective Date, without Executive’s express written consent to such relocation, provided that such relocation of Executive is not as a result of, and at the same location as, the relocation of the headquarters of the Company; or

 

(iii)          A material reduction of Executive’s base salary, without Executive’s express written consent; or

 

(iv)          A material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer or employee instead of reporting directly to the Boards; or

 

(v)           Any action or inaction by Employer that constitutes a material breach of this Agreement.

 

As a condition to invoking “Good Reason”, Executive is required to provide written notice to Employer detailing the existence of a condition described above in this Section 6(c) within a sixty (60) day period after the initial existence of the condition, and Employer shall have thirty (30) days after notice to remedy the condition without liability. In addition to the foregoing requirements, to trigger payment under this Section 6(c), Executive must also terminate employment within one hundred twenty (120) days after the initial occurrence of the event constituting “Good Reason” and Employer must have been allowed the full opportunity to cure, as set forth above.

 

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Notwithstanding the above, “Good Reason” shall not include and shall not apply to any resignation by Executive where there exists objective evidence sufficient to justify a termination for Cause under Section 6(b), provided that the basis for such Cause is conduct by Executive that either (x) is unknown to Employer prior to the time written notice of Good Reason is provided by Executive or (y) occurred within the ninety (90) days preceding the date written notice of Good Reason is provided by Executive.

 

(d)            Other. Executive’s employment hereunder may be terminated voluntarily by Executive without Good Reason upon ninety (90) days’ prior written notice to Employer or at any time by mutual agreement in writing. In the event of such voluntary termination notice by Executive without Good Reason, Employer may terminate Executive’s employment prior to the expiration of the notice period without incurring any liability under Sections 7 or 8, and Employer shall be required only to pay Executive’s Base Salary through the termination date (with such payment to be made in accordance with Employer’s established payroll practices), plus any Accrued Obligations (as defined Section 6(a)).

 

7.              Obligations Upon Termination of Employment.

 

(a)            Without Cause or for Good Reason. Except as otherwise provided in Section 8, if Employer terminates Executive’s employment without Cause or Executive terminates Executive’s employment for Good Reason, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a)); and

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release:

 

(A)            A payment in a monthly amount equal to one-twelfth (1/12) of Executive’s annual base salary in effect immediately preceding such termination (but without applying, if applicable, any reduction of base salary that was the basis for Executive’s termination for Good Reason under Section 6(c)(iii)) for twelve (12) consecutive months, less all applicable withholdings, payable in accordance with Employer’s established payroll practices (but no less frequently than monthly), provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19 (the “Severance Benefit”); and

 

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(B)            For a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 7(a)(ii)(B) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 7(a)(ii)(B) shall immediately terminate.

 

Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 7(a)(ii) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, breaches or engages in any activity prohibited in Section 7(c) or any of its sub-parts or Section 10.

 

(b)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(c)            Covenants. The restrictions in this Section 7(c) apply in the event of any termination of Executive’s employment, regardless of the reason and including terminations both before and after a Change of Control.

 

(i)            Non-Competition. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that Executive will not engage in “Competition” for a period of twelve (12) months after Executive’s employment with Employer ceases for any reason. For purposes hereof, “Competition” means Executive’s performing duties that are the same as or substantially similar to those duties performed by Executive for Employer or its affiliates during the last twelve (12) months of Executive’s employment, as an officer, a director, an employee, a partner or in any other capacity, within a twenty-five (25) mile radius of the headquarters of the Bank (or any Virginia, District of Columbia or Maryland headquarters of any successor of the Bank in the event of a merger consummated as of the last day of employment), as such location exists as of the date Executive’s employment ceases, if those duties are performed for a bank or other financial institution, that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time Executive’s employment ceases.

 

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(ii)           Non-Piracy. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, solicit, divert from Employer or transact business with any “Customer” of Employer with whom Executive had “Material Contact” during the last twelve (12) months of Executive’s employment or about whom Executive obtained information not known generally to the public while acting within the scope of Executive’s employment during the last twelve (12) months of employment, if the purpose of such solicitation, diversion or transaction is to provide products or services that are the same as or substantially similar to, and competitive with, those offered by Employer at the time Executive’s employment ceases. “Material Contact” means that Executive personally communicated with the Customer, either orally or in writing, for the purpose of providing, offering to provide or assisting in providing products or services of Employer during the last twelve (12) months of Executive’s employment. “Customer” means any person or entity with whom Employer had a depository or other contractual relationship, pursuant to which Employer provided products or services during the last twelve (12) months of Executive’s employment.

 

(iii)          Non-Solicitation. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, hire any person employed by Employer during the six (6) months preceding Executive’s cessation of employment, or solicit for hire or encourage any such person to terminate employment with Employer, if the purpose is to compete with Employer.

 

(iv)          Remedies. Executive acknowledges that the covenants set forth in Section 7(c) are just, reasonable, and necessary to protect the legitimate business interests of Employer. Executive further acknowledges that if Executive breaches or threatens to breach any provision of Section 7(c), all payments otherwise due under Sections 7(a)(ii) or 8(b)(ii) (below) shall immediately cease, but Employer’s remedies at law will be inadequate, and Employer will be irreparably harmed. Accordingly, Employer shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, such injunctive relief not to preclude Employer from pursuing all available legal and equitable remedies.

 

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8.              Obligations Related to Change of Control.

 

(a)            Change of Control Benefit. If a Change of Control occurs during the term of this Agreement, subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release, the Company shall make or cause to be made a lump-sum payment to Executive in an amount in cash equal to 2.50 times Executive’s annual compensation. For this purpose annual compensation means (i) Executive’s Base Salary when the Change of Control occurs plus (ii) the average of the highest three years’ annual cash bonus earned by Executive for the five complete fiscal years immediately preceding the year in which the Change of Control occurs. If the number of complete fiscal years preceding the Change of Control is less than five, the average of the annual cash bonuses will the highest three out of the preceding four years, or the highest two of the preceding three years, or the highest one out of the two preceding years, as applicable. If only one complete fiscal year precedes the Change of Control, the average of the annual cash bonuses will be the cash bonus paid with respect to that fiscal year. If no cash bonus was paid to Executive with respect to an applicable fiscal year, then such bonus amount shall be zero (0) in calculating the amount of the average. The amount payable to Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this Section 8(a) shall be paid within sixty (60) days following the date the Change of Control occurs, subject to the Release requirements and provided that, if the period for execution and revocation set forth in the Release should cover two calendar years, payment shall be made in the later calendar year. If Executive receives payment under this Section 8(a), Executive shall not be entitled to any additional severance benefits under Section 7(a) after employment termination but may be entitled to the severance benefits under Section 8(b), subject to the requirements of Section 8(b), including execution of a separate Release at the time of termination as provided in Section 8(b). Executive shall be entitled to benefits under this Section 8(a) on no more than one occasion during the term of this Agreement.

 

(b)            Termination of Employment without Cause. If Executive’s employment terminates without Cause on the date of a Change of Control or within two (2) years after a Change of Control, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a));

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release for a period of two (2) years from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 8(b)(ii) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twenty-four (24) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 8(b)(ii) shall immediately terminate.

 

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Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 8(b) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, engages in any activity prohibited by Section 7(c) or any of its subparts or Section 10.

 

(c)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, on the date of a Change of Control or within two (2) years after a Change of Control, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(d)            Superseding Provisions. The benefits and payments set forth in Section 8 that may be due in connection with a Change of Control shall supersede all payments, entitlements and benefits of Executive otherwise payable under Section 7(a). The benefits and payments due under Section 8 replace those in Section 7(a), and are not cumulative thereof.

 

9.              Change of Control Defined. For purposes of this Agreement, the term “Change of Control” means a change in control as defined in Code Section 409A, as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change of Control, as of the effective date of this Agreement, a change in control as defined in Rule 1.409A-3(i)(5) would include the following:

 

(a)            Change in Ownership: a change in ownership of the Employer occurs on the date any one person or group accumulates ownership of Company stock constituting more than 50% of the total fair market value or total voting power of Company stock, or

 

(b)            Change in Effective Control: (i) any one person or more than one person acting as a group acquires within a twelve(12)-month period ownership of Company stock possessing thirty percent (30%) or more of the total voting power of the Company’s stock, or (ii) a majority of the Company Board is replaced during any twelve(12)-month period by directors whose appointment or election is not endorsed in advance by a majority of the Company Board, or

 

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(c)            Change in Ownership of a Substantial Portion of Assets: a change in ownership of a substantial portion of the Company’s assets occurs if in a twelve(12)-month period any one person or more than one person acting as a group acquires from the Company assets having a total gross fair market value equal to or exceeding forty percent (40%) of the total gross fair market value of all of the Company’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of the Company’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

10.            Confidentiality. As an employee of Employer, Executive will have access to and may participate in the origination of non-public, proprietary and confidential information relating to Employer and/or its affiliates and Executive acknowledges a fiduciary duty owed to Employer and its affiliates not to disclose any such information. Confidential information may include, but is not limited to, trade secrets, customer lists and information, internal corporate planning, methods of marketing and operation, and other data or information of or concerning Employer and its affiliates or their customers that is not generally known to the public or generally in the banking industry. Executive agrees that for a period of three (3) years following the cessation of employment, Executive will not use or disclose to any third party any such confidential information, either directly or indirectly, except as may be authorized in writing specifically by Employer; provided, however that to the extent the information covered by this Section 10 is otherwise protected by the law, such as “trade secrets,” as defined by the Virginia Uniform Trade Secrets Act, or customer information protected by banking privacy laws, that information shall not be disclosed or used for however long the legal protections applicable to such information remain in effect. Nothing in this Agreement is intended to or will be used in any way to limit Executive’s rights to voluntarily communicate with, file a claim or report with, or to otherwise participate in an investigation with, any federal, state, or local government agency, as provided for, protected under or warranted by applicable law. Executive does not need prior approval before making any such communication, report, claim, disclosure or participation and is not required to notify Employer that such communication, report, claim, or participation has been made. Additionally, federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, Executive may not be held criminally or civilly liable under any state or federal trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a state, federal or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding; or (c) in a lawsuit alleging retaliation by Employer against Executive for reporting a suspected violation of law, Executive discloses to Executive’s attorney and uses in the court proceeding, as long as any document containing the trade secret is filed under seal and Executive does not disclose the trade secret except pursuant to a court order.

 

11.            Documents. All documents, records, tapes and other media of any kind or description relating to the business of Employer or any of its affiliates or subsidiaries (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of Employer. The Documents (and any copies) shall be returned to Employer upon Executive’s termination of employment for any reason or at such earlier time or times as the Company Board or its designee may specify.

 

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12.            Suspension or Temporary Prohibition of Services; Permanent Prohibition of Services. If Executive is suspended and/or temporarily prohibited from participating in the conduct of Employer’s affairs by a notice served pursuant to the Federal Deposit Insurance Act, Employer’s obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Employer may in its discretion (a) pay Executive all or part of the compensation withheld while its contract obligations were suspended, and (b) reinstate (in whole or in part) any of its obligations which were suspended. If Executive is removed and/or permanently prohibited from participating in the conduct of Employer’s affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

 

13.            Severability/Breach Not Excuse Performance. If any provision of this Agreement, or part thereof, is determined to be unenforceable for any reason whatsoever, it shall be severable from the remainder of this Agreement and shall not invalidate or affect the other provisions of this Agreement, which shall remain in full force and effect and shall be enforceable according to their terms. No covenant shall be dependent upon any other covenant or provision herein, each of which stands independently.

 

14.            Governing Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. The parties further agree that venue in the event of a dispute shall be exclusively in the Circuit Court of Fairfax County, or the applicable federal court encompassing that jurisdiction, at the sole option of Employer, and Executive agrees not to object to venue.

 

15.            Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:	Chairman of the Board of Directors
	John Marshall Bancorp, Inc.
	1943 Isaac Newton Square
	Reston, Virginia 20190
To Executive:	At Executive’s home address as shown on the records of Employer.

 

16.            Amendment and Termination of Agreement. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the parties hereto or their legal representatives. Except as specifically set forth herein, including pursuant to the provisions of Section 6, this Agreement may not be terminated except by an instrument in writing executed by the parties hereto or their legal representatives, provided, however, and notwithstanding anything in this Agreement to the contrary, Employer or its successor has the unilateral right to terminate this Agreement and pay out the full value of all benefits provided under Section 8 in one lump sum payment in connection with a Change of Control pursuant to, and in compliance with, Treasury Regulation § 1.409A-3(j)(4)(ix)(B).

 

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17.            Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of Executive and Employer, its successors and assigns on the Effective Date, subject to the approval by the Boards. Employer will require any successor to all or substantially all of the business, stock or assets of Employer to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall be freely assignable by Employer.

 

18.            No Construction Against Any Party. This Agreement is the product of informed negotiations between Executive and Employer. If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. Executive and Employer agree that neither party was in a superior bargaining position regarding the substantive terms of this Agreement.

 

19.            Code Section 409A Compliance.

 

(a)            The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption from the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A.

 

(b)            Neither Executive nor Employer shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)            A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the form or timing of payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of any such provision of this Agreement under which (and to the extent) deferred compensation subject to Code Section 409A is paid, references to a “termination” or “termination of employment” or like references shall mean separation from service. A “separation from service” shall not occur under Code Section 409A unless such Executive has completely severed Executive’s relationship with Employer or Executive has permanently decreased Executive’s services to twenty percent (20%) or less of the average level of bona fide services over the immediately preceding thirty-six (36) month period (or the full period if Executive has been providing services for less than thirty-six (36) months). A leave of absence shall only trigger a termination of employment that constitutes a separation from service at the time required under Code Section 409A. If Executive is deemed on the date of separation from service with Employer to be a “specified employee”, within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Employer from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed for six (6) months in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall be paid with interest on the earlier of (i) the first day of the seventh (7^th) month measured from the date of Executive’s separation from service or (ii) the date of Executive’s death. The amount of interest to be paid shall be based on the prime rate of interest in effect on the first day of the month following Executive’s separation from service as reported in the Wall Street Journal. In the case of benefits required to be delayed under Code Section 409A, however, Executive may pay the cost of benefit coverage, and thereby obtain benefits, during such six (6) month delay period and then be reimbursed by Employer thereafter on the first day of the seventh (7^th) month following the date of Executive’s separation from service or, if earlier, on the date of Executive’s death.

 

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(d)            If under this Agreement, an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment.

 

(e)            When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Employer. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Regulation § 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

(f)            Notwithstanding any other provision of this Agreement, Executive shall be solely liable, and Employer shall not be liable in any way to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Code Section 409A otherwise fails to comply with, or be exempt from, the requirements of Code Section 409A.

 

20.            Regulatory Limitation. Notwithstanding any other provision of this Agreement, neither Employer nor any subsidiary or affiliate shall be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement that would violate any law, regulation or regulatory order applicable to Employer or the subsidiary or affiliate at the time such payment or benefit is due, including without limitation, any regulation or order of the Federal Deposit Insurance Corporation or the Board of Governors of the Federal Reserve System. Executive agrees that compliance by Employer with such regulatory restrictions, even to the extent that compensation or other benefits paid or otherwise due to Executive are limited, shall not be a breach of this Agreement by Employer.

 

21.            Waiver of Breach. The failure at any time to enforce or exercise any right under any of the provisions of this Agreement or to require at any time performance by the other parties of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement, or the right of any party hereafter to enforce or exercise its rights under each and every provision in accordance with the terms of this Agreement.

 

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22.            No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 22 shall preclude the assumption of such rights by executors, administrators or other legal representatives of Executive or Executive’s estate and their assigning any rights under this Agreement to the person or persons entitled hereto.

 

23.            Full Capacity. The persons signing this Agreement represent that they have full authority and representative capacity to execute this Agreement in the capacities indicated below and to perform all obligations under this Agreement.

 

24.            Representation and Warranty of Executive. Executive represents and warrants to Employer that Executive is not under any obligation, contractual or otherwise, to any other firm or corporation, which would prevent Executive from entering into the employ of Employer under this Agreement or prevent Executive from performing the terms of this Agreement.

 

25.            Entire Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement of the parties with respect to the matters addressed herein and, upon the Effective Date, it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement.

 

26.            Survivability. The provisions of Section 7(c) shall survive the termination, expiration or non-renewal of this Agreement.

 

27.            Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

28.            Case and Gender. Wherever required by the context of this Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

 

29.            Title. The titles and sub-headings of each Section and Sub-Section in this Agreement are for convenience only and should not be considered part of this Agreement to aid in interpretation or construction.

 

[Signature Block on Next Page]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

Date: May 22, 2018	/s/ William J. Ridenour
	William J. Ridenour
Date: May 22, 2018	John Marshall Bancorp, Inc. and
	John Marshall Bank
	By:	/s/ John R. Maxwell
		John R. Maxwell
		Executive Chairman of the Board

 

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EXHIBIT A

 

RELEASE

 

In consideration of the benefits promised in the Employment Agreement to which this Release is attached as Exhibit A (and further defined below), William J. Ridenour (“Executive”), hereby irrevocably and unconditionally releases, acquits, and forever discharges John Marshall Bancorp, Inc. and John Marshall Bank (collectively, the “Bank”), and each of its agents, directors, members, shareholders, affiliated entities, officers, employees, former employees, attorneys, and all persons acting by, through, under or in concert with any of them (collectively “Releasees”) from any and all charges, complaints, claims, liabilities, grievances, obligations, promises, agreements, controversies, damages, policies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, any rights arising out of alleged violations or breaches of any contracts, express or implied, or any tort, or any legal restrictions on Releasees’ right to terminate employees, or any federal, state or other governmental statute, regulation, law or ordinance, including without limitation (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991; (2) the Americans with Disabilities Act; (3) 42 U.S.C. § 1981; (4) the federal Age Discrimination in Employment Act (age discrimination); (5) the Older Workers Benefit Protection Act; (6) the Equal Pay Act; (7) the Family and Medical Leave Act; and (8) the Employee Retirement Income Security Act (“Claim” or “Claims”), which Executive now has, owns or holds, or claims to have, own or hold, or which Executive at any time heretofore had owned or held, or claimed to have owned or held, against each or any of the Releasees at any time up to and including the date of the execution of this Release; provided, however, that nothing herein shall preclude Executive from filing or participating in a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”), but Executive waives any right to monetary relief arising therefrom.

 

Executive hereby acknowledges and agrees that the execution of this Release [and the cessation of Executive’s employment] and all actions taken in connection therewith are in compliance with the federal Age Discrimination in Employment Act and the Older Workers Benefit Protection Act and that the releases set forth above shall be applicable, without limitation, to any claims brought under these Acts. Executive further acknowledges and agrees that:

 

a.            This Release given by Executive is given solely in exchange for the benefits set forth in the Employment Agreement dated as of April 30, 2018 between the Bank and Executive (the “Employment Agreement”) to which this Release was initially attached and such consideration is in addition to anything of value which Executive was entitled to receive prior to entering into this Release;

 

b.            By entering into this Release, Executive does not waive rights or claims that may arise after the date this Release is executed;

 

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c.            Executive has been advised to consult an attorney prior to entering into this Release, and this provision of this Release satisfies the requirements of the Older Workers Benefit Protection Act that Executive be so advised in writing;

 

d.            Executive has been offered twenty-one (21) days [or forty-five (45) days if applicable] from receipt of this Release within which to consider whether to sign this Release; and

 

e.            For a period of seven (7) days following Executive’s execution of this Release, Executive may revoke this Release by delivering the revocation to the Chief Human Resources Officer of John Marshall Bank, and it shall not become effective or enforceable until such seven (7) day period has expired.

 

This Release shall be binding upon the heirs and personal representatives of Executive and shall inure to the benefit of the successors and assigns of the Bank.

 

 

Date   William J. Ridenour

 

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AMENDMENT TO EMPLOYMENT AGREEMENT

 

THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”), dated

 

as of this 22nd day of January, 2020, is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and William J. Ridenour (“Executive”) and is effective as of January 1, 2020 (the “Effective Date”).

 

WHEREAS, Employer and Executive entered into an Employment Agreement, dated April 30, 2018 (the “Original Agreement”); and

 

WHEREAS, Employer and Executive wish to amend the Original Agreement as set forth herein.

 

NOW, THEREFORE, the Employer and Executive agree to amend the Original Agreement as follows:

 

1. Section 2(a) shall be amended by replacing it in its entirety with the following:

 

(a)            Base Salary. During the Term, Employer shall cause Executive to be paid an annual Base Salary of $358,500, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company’s Board of Directors (the “Board of Directors”) or its designee, in its discretion, may increase Executive’s Base Salary, but may not decrease it without Executive’s prior written consent. The term “Base Salary” as utilized in this Agreement shall refer to the Base Salary as adjusted in accordance with the preceding sentence. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

2.              All references in the Original Agreement to base salary shall mean the term “Base Salary”.

 

3. Section 6(c)(iv) shall be amended by replacing it in its entirety with the following:

 

(iv) A material diminuition in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer other than the Chief Executive Officer.; or

 

     

 

 

4. Section 15 shall be amended by replacing it in its entirely with the following:

 

15. Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:	Chief Executive Officer
	John Marshall Bancorp, Inc.
	1943 Isaac Newton Square
	Reston, Virginia 20190
To Executive:	At Executive’s home address as shown on the records of Employer.

 

5.              All provisions of the Original Agreement that have not been amended by this Amendment shall remain in full force and effect. Notwithstanding the foregoing, to the extent there is any inconsistency between the provisions of the Original Agreement and this Amendment, the provisions of this Amendment shall control.

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

 

Date: January 22, 2020	/s/ William J. Ridenour
	William J. Ridenour
Date: January 22, 2020	John Marshall Bancorp, Inc.
	and John Marshall Bank
	By:	/s/ Christopher W. Bergstrom
		Christopher W. Bergstrom
		President & Chief Executive Officer

 

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Memorandum

 

Date:	June 23, 2021
To:	Bill Ridenour, Senior EVP – Chief Banking Officer From:
	Christopher Bergstrom, Chief Executive Officer (CEO) Subject:
	Employment Arrangement

 

This memo outlines our mutual understanding of your employment arrangement which will be effective as of June 1, 2022.

 

• Position – Exempt, Vice President, Advisor to the CEO, reporting to the CEO

 

• Annual Salary – $200,000 effective June 1, 2022, evaluated no less than annually

 

• Cash Bonus – Remain fully eligible through 2021 bonus cycle. Eligible at the discretion of the CEO thereafter. It is acknowledged that 2022 will be a partial year with existing responsibilities until just after the annual meeting in 2022 (June 1, 2022).

 

• Terminate existing club membership reimbursement effective June 1, 2022.

 

• Terminate existing $1 million BOLI split dollar beneficiary benefit effective June 1, 2023.

 

• Terminate existing company car stipend effective June 1, 2023.

 

• You can continue to make voluntary deferrals of salary or bonus to the Bank’s deferred comp plan through the 2022 plan subject to eligibility requirements. You will not be eligible for employer credits beyond the 2021 plan year.

 

• Terminate existing supplemental disability insurance at the existing policy expiration (January 5, 2022).

 

• Work schedule to be satisfactory to the Chief Executive Officer. Work schedule and responsibilities to be adjusted with reductions in initial salary/compensation.

 

• Remote working allowed but mutually agreeable on-site office schedule to be maintained.

 

• Duties and responsibilities:

 

⮚ Advisor to CEO

 

⮚ Continue activities related to business development/prospecting and maintaining/expanding existing customer relationships

 

⮚ Actively assist with growing loans, deposits, and non-interest income at or above budgeted levels along with a focus on improving the company’s efficiency

 

⮚ Assist and provide best effort to assure satisfactory transition of replacement

 

⮚ Other duties and special projects as assigned by the CEO

 

• Maintain effectiveness of original existing employment agreement in effect as of April 30, 2018 (attached for reference) through June 1, 2023 with modifications to reflect your new role and compensation outlined in this memorandum. After June 1, 2023, your employment agreement will terminate. If you are still employed on June 1, 2023, there will be an option to extend the effectiveness of your employment agreement until December 31, 2023 if necessary, to receive a benefit related to a change of control. This will be the only reason that the agreement would be extended. If the agreement is extended, the agreement will terminate on December 31, 2023, and no other extensions will be offered, even if the closing of a change of control is scheduled to occur after December 31, 2023.

 

 

     

 

 

• All compensation, benefits and perquisites terminate immediately if you are no longer employed by the company.

 

• As of June 1, 2022, your cell phone reimbursement will adjust from $125/month to $75/month based on your title change to Vice President.

 

You have indicated that this role outlined above is acceptable. You will remain on an at-will, active, regular employee status.

 

Please indicate your acknowledgement and acceptance of your employment arrangement below and return it to me at your earliest convenience.

 

/s/ William J. Ridenour		July 2, 2021
Bill Ridenour		Date
/s/ Christopher W. Bergstrom		July 26, 2021
Christopher Bergstrom		Date

 

 

     

 

EX-10.12

 Exhibit 10.12

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of this 22nd day of January, 2020, is made by and between John Marshall Bancorp, Inc. (the “Company”) and John Marshall Bank (the “Bank”) (collectively, “Employer”) and Kent D. Carstater (“Executive”) and is effective as of January 1, 2020 (the “Effective Date”).

 

WHEREAS, Employer wishes to continue the employment of Executive as a key executive of Employer and it is the desire of Employer to have the benefit of Executive’s continued loyalty and service; and

 

WHEREAS, Executive wishes to be in the employ of Employer on the terms and subject to the conditions set forth herein.

 

WHEREAS, references in this Agreement to Internal Revenue Code section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under section 409A (hereinafter collectively referred to as “Code Section 409A”); and

 

WHEREAS, as of the Effective Date, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 C.F.R. 359.1(f)(1)(ii)] exists or, to the Employer’s best knowledge, is contemplated insofar as the Employer or any affiliates are concerned.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein the parties agree as follows:

 

1.              Employment and Duties.

 

(a)            Executive shall be employed as Executive Vice President and Chief Financial Officer of Employer (the “Position”) on the terms and subject to the conditions of this Agreement. Executive accepts such employment and agrees to perform the duties and responsibilities of the Position, as may be assigned to Executive by the Chief Executive Officer or Board of Directors of the Company or the Bank.

 

(b)            Executive shall devote Executive’s best efforts and full time to rendering services on behalf of Employer in furtherance of its best interests. Executive shall comply with all policies, standards and regulations of Employer now or hereafter promulgated, and shall perform all duties under this Agreement to the best of Executive’s abilities and in accordance with the ethics and standards of conduct applicable to employees in the banking industry.

 

2.              Compensation.

 

(a)            Base Salary. During the Term, Employer shall cause Executive to be paid an annual Base Salary of $250,000, paid in equal installments to Executive in accordance with Employer’s established payroll practices (but no less frequently than monthly). The Company’s Board of Directors (the “Board of Directors”) or its designee, in its discretion, may increase Executive’s Base Salary, but may not decrease it without Executive’s written consent during the Term. The term “Base Salary” as utilized in this Agreement shall refer to the Base Salary as adjusted in accordance with the preceding sentence. Employer shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Executive and Employer. Employer shall also withhold and remit to the proper party any amounts agreed to in writing by Employer and Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

 

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(b)            Bonuses. Executive shall receive only such annual bonuses, if any, as the Board of Directors or its designee, in its sole discretion, decides to pay to Executive. Notwithstanding the prior sentence, to the extent that, during the Term, Employer establishes an annual bonus plan covering executive employees, Executive shall be eligible for a bonus in accordance with the terms of such plan. Any such bonus payable under this Section 2(b) shall be paid annually by March 15 of the year following the fiscal year for which performance is being evaluated.

 

(c)            Equity Awards. Executive may be eligible to receive equity awards from Employer, in such manner and subject to such terms and conditions as the Board of Directors or its designee, in its sole discretion, may determine, if at all.

 

(d)            Clawback. Executive agrees that any incentive compensation that Executive receives from Employer or a related entity shall be subject to repayment (i.e., clawback) to Employer or such related entity to the extent required by law or under the clawback policy adopted by Employer on April 16, 2019 (the “Clawback Policy”). Executive shall be subject to any subsequent changes to, or replacement of, the Clawback Policy only to the extent Executive has separately agreed in writing.

 

3.              Benefits.

 

(a)            Corporate Benefit Plans. Executive shall be entitled to participate in or become a participant in any employee benefit plan maintained by Employer for which Executive is or will become eligible on such terms as the Board of Directors or its designee may, in its discretion, establish, modify or otherwise change.

 

(b)            Personal Time Off. Executive shall be entitled to five (5) weeks (twenty-five (25) business days) of paid time off (“PTO”) each year (or such greater annual number of days allowed under Employer’s PTO policy) which shall be taken in accordance with Employer’s PTO Policy.

 

(c)            Health Benefits. Employer will pay the annual membership fee for Executive to receive concierge medical care in the Inova VIP 360 Concierge Medicine Membership.

 

4.              Reimbursement of Expenses.

 

(a)            Reimbursements. Executive shall be reimbursed upon Executive’s incurring reasonable and customary business expenses in connection with the performance of Executive’s duties, subject to presentation of adequate substantiation, including receipts, for the reasonable business travel, entertainment, lodging, and other business expenses incurred by Executive. In no event will such reimbursements be made later than the last day of the calendar month following the calendar month in which Executive submits the request for payment of the reimbursable expense, which shall be submitted no later than sixty (60) days after the expense is incurred.

 

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(b)            Compliance with Code Section 409A. If any reimbursement or in-kind benefits under this Agreement constitute deferred compensation under Code Section 409A, the reimbursement or in-kind benefits will be provided in accordance with Code Section 409A. The reimbursement or in-kind benefit payments will not be paid later than the last day of Executive’s tax year immediately after Executive’s tax year in which the expense is incurred, amounts eligible for payment during any one taxable year under this Agreement do not affect eligibility for payment in any other taxable year under this Agreement, Executive’s right to the payment is not subject to liquidation or exchange for another benefit, and the Employer’s obligation to make payment does not apply after Executive’s death.

 

5.              Insurance. Employer will maintain or cause to be maintained directors and officers liability insurance covering Executive throughout his employment and will otherwise indemnify him in a manner that is no less favorable than the indemnity provided to other directors and officers.

 

6.              Termination of Employment.

 

(a)            Death or Incapacity. Executive’s employment under this Agreement shall terminate automatically upon Executive’s death. Executive’s spouse, if the spouse survives Executive, or, if not, Executive’s estate shall receive (i) any unpaid Base Salary which otherwise would be payable to Executive through the date of termination payable in a lump sum as soon as administratively feasible following termination, but not later than thirty (30) days thereafter; (ii) any annual bonus compensation earned and awarded pursuant to Section 2(b) above, but not yet paid as of the date of termination, payable on the earlier of (A) the thirtieth (30^th) day after the date of termination, or (B) when otherwise due; (iii) any benefits vested, due and owing pursuant to the terms of any other plans, policies or programs, payable when otherwise due (hereinafter subsections (i) – (iii) collectively are referred to as the “Accrued Obligations”). If Employer determines that Incapacity (as defined below) of Executive has occurred, it may terminate Executive’s employment and this Agreement upon ninety (90) days’ written notice, provided that, within ninety (90) days after receipt of such notice, Executive shall not have returned to full-time performance of Executive’s assigned duties. In the event of a termination due to “Incapacity,” Employer shall pay the Accrued Obligations to Executive. For purposes of this Agreement, “Incapacity” shall occur if (i) Executive is unable to perform the material functions of Executive’s position for thirteen (13) consecutive weeks and is then deemed to be permanently unable to continue in the Position by a physician selected by Employer or its insurer, and acceptable to Executive or Executive’s legal representative, which consent shall not be unreasonably withheld, or (ii) Executive is deemed disabled as defined in the policy of disability insurance maintained by Employer for the benefit of Executive (and others if a group policy).

 

Notwithstanding any other provision in this Agreement, Employer shall comply with all requirements of the Americans with Disabilities Act. Further, if Executive’s employment is terminated due to death or “Incapacity,” then no payments (other than the Accrued Obligations) shall be owed or paid, including those under Section 7(a) or Section 8(a).

 

(b)            Termination by Employer With or Without Cause. Employer may terminate Executive’s employment at any time without Cause, upon written notice ninety (90) days in advance. Employer may, at its option, require that Executive perform no services for Employer or limit Executive’s services during all or part of the notice period. Employer may also terminate Executive’s employment immediately for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i)            Executive’s willful misconduct in connection with the performance of Executive’s duties; or

 

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(ii)           Executive’s misappropriation or embezzlement of funds or material property of Employer or any affiliate; or

 

(iii)          Executive’s fraud or dishonesty with respect to Employer or any affiliate; or

 

(iv)          Executive’s failure to perform any of the material duties and responsibilities required by the Position (other than by reason of Incapacity), or Executive’s failure to follow reasonable instructions or policies of Employer, in either case after being advised in writing of such failure and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such failure (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days; or

 

(v)           Executive’s conviction of or entering of a guilty plea or plea of no contest with respect to any felony, or any misdemeanor involving moral turpitude; or

 

(vi)          Executive’s breach of a material term of this Agreement, or violation in any material respect of any policy, code or standard of behavior or ethics generally applicable to officers of Employer, after being advised in writing of such breach or violation and being given a reasonable opportunity and period (as determined by Employer in its reasonable business judgment) to remedy such breach or violation (if such breach or violation is capable of being remedied), which period shall be not less than thirty (30) days; or

 

(vii)         Executive’s willful violation of any final cease and desist order; or

 

(viii)        Executive’s breach of any fiduciary duty owed to Employer or its affiliates.

 

(c)            Termination by Executive for Good Reason. Executive may terminate employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

 

(i)            The assignment of duties to Executive by Employer which result in Executive having materially less authority or responsibility than Executive has on the Effective Date, without Executive’s express written consent; or

 

(ii)           The relocation of Executive to any other primary place of employment that is located more than twenty-five (25) miles from Executive’s assigned place of employment as of the Effective Date, without Executive’s express written consent to such relocation, provided that such relocation of Executive is not as a result of, and at the same location as, the relocation of the headquarters of the Company; or

 

(iii)          A material reduction of Executive’s Base Salary, without Executive’s express written consent; or

 

(iv)          A material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer or employee other than the Chief Executive Officer; or

 

(v)           Any action or inaction by Employer that constitutes a material breach of this Agreement.

 

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As a condition to invoking “Good Reason”, Executive is required to provide written notice to Employer detailing the existence of a condition described above in this Section 6(c) within a sixty (60) day period after the initial existence of the condition, and Employer shall have thirty (30) days after notice to remedy the condition without liability. In addition to the foregoing requirements, to trigger payment under this Section 6(c), Executive must also terminate employment within one hundred twenty (120) days after the initial occurrence of the event constituting “Good Reason” and Employer must have been allowed the full opportunity to cure, as set forth above.

 

Notwithstanding the above, “Good Reason” shall not include and shall not apply to any resignation by Executive where there exists objective evidence sufficient to justify a termination for Cause under Section 6(b), provided that the basis for such Cause is conduct by Executive that either (x) is unknown to Employer prior to the time written notice of Good Reason is provided by Executive or (y) occurred within the ninety (90) days preceding the date written notice of Good Reason is provided by Executive.

 

(d)            Other. Executive’s employment hereunder may be terminated voluntarily by Executive without Good Reason upon ninety (90) days’ prior written notice to Employer or at any time by mutual agreement in writing. In the event of such voluntary termination notice by Executive without Good Reason, Employer may terminate Executive’s employment prior to the expiration of the notice period without incurring any liability under Sections 7 or 8, and Employer shall be required only to pay Executive’s Base Salary through the termination date (with such payment to be made in accordance with Employer’s established payroll practices), plus any Accrued Obligations (as defined Section 6(a)).

 

7.              Obligations Upon Termination of Employment Other Than Termination Related to Change of Control.

 

(a)            Without Cause or for Good Reason. Except as otherwise provided in Section 8(a), if either Employer terminates Executive’s employment without Cause, or Executive terminates Executive’s employment for Good Reason, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

(i)            The Accrued Obligations (as defined in Section 6(a)); and

 

(ii)           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release:

 

(A)            A payment in a monthly amount equal to one-twelfth (1/12) of Executive’s annual Base Salary in effect immediately preceding such termination (but without applying, if applicable, any reduction of Base Salary that was the basis for Executive’s termination for Good Reason under Section 6(c)(iii)) for six (6) consecutive months, less all applicable withholdings, payable in accordance with Employer’s established payroll practices (but no less frequently than monthly), provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19 (the “Severance Benefit”); and

 

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(B)            For a period of one (1) year from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 7(a)(ii)(B) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates.

 

Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twelve (12) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 7(a)(ii)(B) shall immediately terminate.

 

Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 7(c)(iv), all such payments and benefits under Section 7(a)(ii) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, breaches or engages in any activity prohibited in Section 7(c) or any of its sub-parts or Section 10.

 

(b)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(c)            Covenants. The restrictions in this Section 7(c) apply in the event of any termination of Executive’s employment other than a termination on or within two (2) years after a Change of Control as provided in Section 8(c).

 

(i)            Non-Competition. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that Executive will not engage in “Competition” for a period of six (6) months after Executive’s employment with Employer ceases for any reason. For purposes hereof, “Competition” means Executive’s performing duties that are the same as or substantially similar to those duties performed by Executive for Employer or its affiliates during the last twelve (12) months of Executive’s employment, as an officer, a director, an employee, a partner or in any other capacity, within a twenty-five (25) mile radius of the headquarters of the Bank (or any Virginia, District of Columbia or Maryland headquarters of any successor of the Bank in the event of a merger consummated as of the last day of employment), as such location exists as of the date Executive’s employment ceases, if those duties are performed for a bank or other financial institution, that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time Executive’s employment ceases.

 

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(ii)           Non-Piracy. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of six (6) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, solicit, divert from Employer or transact business with any “Customer” of Employer with whom Executive had “Material Contact” during the last twelve (12) months of Executive’s employment or about whom Executive obtained information not known generally to the public while acting within the scope of Executive’s employment during the last twelve (12) months of employment, if the purpose of such solicitation, diversion or transaction is to provide products or services that are the same as or substantially similar to, and competitive with, those offered by Employer at the time Executive’s employment ceases. “Material Contact” means that Executive personally communicated with the Customer, either orally or in writing, for the purpose of providing, offering to provide or assisting in providing products or services of Employer during the last twelve (12) months of Executive’s employment. “Customer” means any person or entity with whom Employer had a depository or other contractual relationship, pursuant to which Employer provided products or services during the last twelve (12) months of Executive’s employment.

 

(iii)          Non-Solicitation. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of six (6) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, hire any person employed by Employer during the six (6) months preceding Executive’s cessation of employment, or solicit for hire or encourage any such person to terminate employment with Employer, if the purpose is to compete with Employer.

 

(iv)          Remedies. Executive acknowledges that the covenants set forth in Section 7(c) are just, reasonable, and necessary to protect the legitimate business interests of Employer. Executive further acknowledges that if Executive breaches or threatens to breach any provision of Section 7(c), all payments otherwise due under Sections 7(a)(ii) shall immediately cease, but Employer’s remedies at law will be inadequate, and Employer will be irreparably harmed. Accordingly, Employer shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, such injunctive relief not to preclude Employer from pursuing all available legal and equitable remedies.

 

8.              Obligations Upon Termination of Employment Related to Change of Control.

 

(a)            Without Cause or for Good Reason. If Executive’s employment is terminated without Cause on the date of a Change of Control or within two (2) years after a Change of Control (as defined below) shall have occurred, or if Executive terminates Executive’s employment for Good Reason on the date of a Change of Control or within two (2) years after a Change of Control shall have occurred, Executive shall be entitled to receive, subject to any applicable delay set forth in Section 19 below:

 

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i.            The Accrued Obligations (as defined in Section 6(a));

 

ii.           Subject to Executive’s signing, delivering and not revoking the Release attached as Exhibit A, which Release must be signed, delivered and not revoked within the period set forth in the Release:

 

(A)            The Company shall make or cause to be made a lump-sum payment to Executive in an amount in cash equal to two (2.0) times Executive’s annual compensation. For this purpose annual compensation means (i) Executive’s Base Salary when the Change of Control occurs plus (ii) the average of the highest three years’ annual cash bonus earned by Executive for the five complete fiscal years immediately preceding the year in which the Change of Control occurs. If the number of complete fiscal years preceding the Change of Control is less than five, the average of the annual cash bonuses will the highest three out of the preceding four years, or the highest two of the preceding three years, or the highest one out of the two preceding years, as applicable. If only one complete fiscal year precedes the Change of Control, the average of the annual cash bonuses will be the cash bonus paid with respect to that fiscal year. If no cash bonus was paid to Executive with respect to an applicable fiscal year, then such bonus amount shall be zero (0) in calculating the amount of the average. The amount payable to Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this Section 8(a) shall be paid within sixty (60) days following Executive’s termination of employment, subject to the Release requirements and provided that, if the period for execution and revocation set forth in the Release should cover two calendar years, payment shall be made in the later calendar year and, if applicable, also subject to the delay provided for in Section 19.

 

(B)            For a period of one (1) year from and after the date of Executive’s termination of employment, Employer shall pay Executive a cash amount on a monthly basis equal to the full monthly cost (including COBRA administrative fees, if applicable) of the medical and dental coverage for Executive (“Continued Health Coverage”) under the current or any successor health plan provided by Employer to its employees (the “Employer Plan”) (with Executive eligible to elect any health plan option for Executive and his family that is then available under the Employer Plan), with the full amount of such payment taxable to Executive; provided that the amounts Executive would otherwise have received during the sixty (60) days after Executive’s termination had the payments begun immediately after Executive’s termination of employment shall be paid in a lump sum on the sixtieth (60^th) day after Executive’s termination of employment and provided further that, if applicable, subject to the delay provided for in Section 19. Employer shall not be required to continue actual coverage under the Employer Heath Plan to the extent it is not required by COBRA or in the event such coverage is not agreed upon by any insurer under the Employer Plan; provided, however, that in such event Employer shall continue to be obligated to make the payment required under this Section 7(a)(ii)(B) and the amount of such monthly payment will be based on the applicable premiums immediately prior to when coverage terminates. Notwithstanding the above, if Executive becomes eligible for qualifying health care coverage through a subsequent employer within twelve (12) months after his last day of employment, Employer’s obligations hereunder with respect to the foregoing payments provided in this Section 7(a)(ii)(B) shall immediately terminate.

 

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Notwithstanding the foregoing, and in addition to Employer’s remedies set forth in Section 8(c)(iv), all such payments and benefits under Section 8(a)(ii) otherwise to be made after Executive’s termination of employment shall cease to be paid, and Employer shall have no further obligation with respect thereto, in the event Executive, without the consent of Employer, engages in any activity prohibited by Section 8(c) or any of its subparts or Section 10.

 

(b)            For Cause; Other Than for Good Reason. If Executive’s employment is terminated for Cause or if Executive terminates Executive’s employment other than for Good Reason, on the date of a Change of Control or within two (2) years after a Change of Control, this Agreement shall terminate without any further obligation of Employer to Executive other than the payment to Executive of the Accrued Obligations.

 

(c)            Covenants. The restrictions in this Section 8(c) apply in the event of any termination of Executive’s employment on the date of a Change of Control or within two (2) years after a Change of Control.

 

(i)            Non-Competition. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that Executive will not engage in “Competition” for a period of twelve (12) months after Executive’s employment with Employer ceases for any reason. For purposes hereof, “Competition” means Executive’s performing duties that are the same as or substantially similar to those duties performed by Executive for Employer or its affiliates during the last twelve (12) months of Executive’s employment, as an officer, a director, an employee, a partner or in any other capacity, within a twenty-five (25) mile radius of the headquarters of the Bank (or any Virginia, District of Columbia or Maryland headquarters of any successor of the Bank in the event of a merger consummated as of the last day of employment), as such location exists as of the date Executive’s employment ceases, if those duties are performed for a bank or other financial institution, that provides products or services that are the same as or substantially similar to, and competitive with, any of the products or services provided by the Bank at the time Executive’s employment ceases.

 

(ii)           Non-Piracy. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, solicit, divert from Employer or transact business with any “Customer” of Employer with whom Executive had “Material Contact” during the last twelve (12) months of Executive’s employment or about whom Executive obtained information not known generally to the public while acting within the scope of Executive’s employment during the last twelve (12) months of employment, if the purpose of such solicitation, diversion or transaction is to provide products or services that are the same as or substantially similar to, and competitive with, those offered by Employer at the time Executive’s employment ceases. “Material Contact” means that Executive personally communicated with the Customer, either orally or in writing, for the purpose of providing, offering to provide or assisting in providing products or services of Employer during the last twelve (12) months of Executive’s employment. “Customer” means any person or entity with whom Employer had a depository or other contractual relationship, pursuant to which Employer provided products or services during the last twelve (12) months of Executive’s employment.

 

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(iii)          Non-Solicitation. In consideration for Employer’s entering into this Agreement and in exchange for the benefits promised herein, and other valuable consideration, Executive agrees that for a period of twelve (12) months after Executive’s employment ceases for any reason, Executive will not, directly or indirectly, hire any person employed by Employer during the six (6) months preceding Executive’s cessation of employment, or solicit for hire or encourage any such person to terminate employment with Employer, if the purpose is to compete with Employer.

 

(iv)          Remedies. Executive acknowledges that the covenants set forth in Section 8(c) are just, reasonable, and necessary to protect the legitimate business interests of Employer. Executive further acknowledges that if Executive breaches or threatens to breach any provision of Section 8(c), all payments otherwise due under 8(b)(ii) shall immediately cease, but Employer’s remedies at law will be inadequate, and Employer will be irreparably harmed. Accordingly, Employer shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, such injunctive relief not to preclude Employer from pursuing all available legal and equitable remedies.

 

(d)            Superseding Provisions. The benefits and payments set forth in Section 8(a) that may be due in connection with a Change of Control shall supersede all payments, entitlements and benefits of Executive otherwise payable under Section 7(a). The benefits and payments due under Section 8(a) replace those in Section 7(a), and are not cumulative thereof and under no circumstances shall Executive have a right to payment under both Section 7 and Section 8.

 

9.              Change of Control Defined. For purposes of this Agreement, the term “Change of Control” means a change in control as defined in Code Section 409A, as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change of Control, as of the effective date of this Agreement, a change in control as defined in Rule 1.409A-3(i)(5) would include the following:

 

(a)            Change in Ownership: a change in ownership of the Employer occurs on the date any one person or group accumulates ownership of Company stock constituting more than 50% of the total fair market value or total voting power of Company stock, or

 

(b)            Change in Effective Control: (i) any one person or more than one person acting as a group acquires within a twelve (12)-month period ownership of Company stock possessing thirty percent (30%) or more of the total voting power of the Company’s stock, or (ii) a majority of the Company Board is replaced during any twelve(12)-month period by directors whose appointment or election is not endorsed in advance by a majority of the Company Board, or

 

(c)            Change in Ownership of a Substantial Portion of Assets: a change in ownership of a substantial portion of the Company’s assets occurs if in a twelve(12)-month period any one person or more than one person acting as a group acquires from the Company assets having a total gross fair market value equal to or exceeding forty percent (40%) of the total gross fair market value of all of the Company’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of the Company’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

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10.            Confidentiality. As an employee of Employer, Executive will have access to and may participate in the origination of non-public, proprietary and confidential information relating to Employer and/or its affiliates and Executive acknowledges a fiduciary duty owed to Employer and its affiliates not to disclose any such information. Confidential information may include, but is not limited to, trade secrets, customer lists and information, internal corporate planning, methods of marketing and operation, and other data or information of or concerning Employer and its affiliates or their customers that is not generally known to the public or generally in the banking industry. Executive agrees that for a period of three (3) years following the cessation of employment, Executive will not use or disclose to any third party any such confidential information, either directly or indirectly, except as may be authorized in writing specifically by Employer; provided, however that to the extent the information covered by this Section 10 is otherwise protected by the law, such as “trade secrets,” as defined by the Virginia Uniform Trade Secrets Act, or customer information protected by banking privacy laws, that information shall not be disclosed or used for however long the legal protections applicable to such information remain in effect. Nothing in this Agreement is intended to or will be used in any way to limit Executive’s rights to voluntarily communicate with, file a claim or report with, or to otherwise participate in an investigation with, any federal, state, or local government agency, as provided for, protected under or warranted by applicable law. Executive does not need prior approval before making any such communication, report, claim, disclosure or participation and is not required to notify Employer that such communication, report, claim, or participation has been made. Additionally, federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, Executive may not be held criminally or civilly liable under any state or federal trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a state, federal or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding; or (c) in a lawsuit alleging retaliation by Employer against Executive for reporting a suspected violation of law, Executive discloses to Executive’s attorney and uses in the court proceeding, as long as any document containing the trade secret is filed under seal and Executive does not disclose the trade secret except pursuant to a court order.

 

11.            Documents. All documents, records, tapes and other media of any kind or description relating to the business of Employer or any of its affiliates or subsidiaries (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of Employer. The Documents (and any copies) shall be returned to Employer upon Executive’s termination of employment for any reason or at such earlier time or times as the Board of Directors or its designee may specify.

 

12.            Suspension or Temporary Prohibition of Services; Permanent Prohibition of Services. If Executive is suspended and/or temporarily prohibited from participating in the conduct of Employer’s affairs by a notice served pursuant to the Federal Deposit Insurance Act, Employer’s obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Employer may in its discretion (a) pay Executive all or part of the compensation withheld while its contract obligations were suspended, and (b) reinstate (in whole or in part) any of its obligations which were suspended. If Executive is removed and/or permanently prohibited from participating in the conduct of Employer’s affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

 

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13.            Severability/Breach Not Excuse Performance. If any provision of this Agreement, or part thereof, is determined to be unenforceable for any reason whatsoever, it shall be severable from the remainder of this Agreement and shall not invalidate or affect the other provisions of this Agreement, which shall remain in full force and effect and shall be enforceable according to their terms. No covenant shall be dependent upon any other covenant or provision herein, each of which stands independently.

 

14.            Governing Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. The parties further agree that venue in the event of a dispute shall be exclusively in the Circuit Court of Fairfax County, or the applicable federal court encompassing that jurisdiction, at the sole option of Employer, and Executive agrees not to object to venue.

 

15.            Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by overnight or registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

 

To Employer:        Chief Executive Officer
John Marshall Bancorp, Inc.
1943 Isaac Newton Square
Reston, Virginia 20190

 

To Executive:       At Executive’s home address as shown on the records of Employer.

 

16.            Amendment and Termination of Agreement. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the parties hereto or their legal representatives. Except as specifically set forth herein, including pursuant to the provisions of Section 6 above, this Agreement may not be terminated except by an instrument in writing executed by the parties hereto or their legal representatives, provided, however, and notwithstanding anything in this Agreement to the contrary, Employer or its successor has the unilateral right to terminate this Agreement and pay out the full value of all benefits hereunder in one lump sum payment in connection with a Change of Control pursuant to, and in compliance with, Treasury Regulation § 1.409A-3(j)(4)(ix)(B).

 

17.            Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive and Employer, its successors and assigns on the Effective Date, subject to the approval by the Board of Directors of Employer. Employer will require any successor to all or substantially all of the business, stock or assets of Employer to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. This Agreement shall be freely assignable by Employer.

 

18.            No Construction Against Any Party. This Agreement is the product of informed negotiations between Executive and Employer. If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. Executive and Employer agree that neither party was in a superior bargaining position regarding the substantive terms of this Agreement.

 

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19.            Code Section 409A Compliance.

 

(a)            The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption from the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A.

 

(b)            Neither Executive nor Employer shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

 

(c)            A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the form or timing of payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of any such provision of this Agreement under which (and to the extent) deferred compensation subject to Code Section 409A is paid, references to a “termination” or “termination of employment” or like references shall mean separation from service. A “separation from service” shall not occur under Code Section 409A unless such Executive has completely severed Executive’s relationship with Employer or Executive has permanently decreased Executive’s services to twenty percent (20%) or less of the average level of bona fide services over the immediately preceding thirty-six (36) month period (or the full period if Executive has been providing services for less than thirty-six (36) months). A leave of absence shall only trigger a termination of employment that constitutes a separation from service at the time required under Code Section 409A. If Executive is deemed on the date of separation from service with Employer to be a “specified employee”, within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Employer from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed for six (6) months in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall be paid with interest on the earlier of (i) the first day of the seventh (7^th) month measured from the date of Executive’s separation from service or (ii) the date of Executive’s death. The amount of interest to be paid shall be based on the prime rate of interest in effect on the first day of the month following Executive’s separation from service as reported in the Wall Street Journal. In the case of benefits required to be delayed under Code Section 409A, however, Executive may pay the cost of benefit coverage, and thereby obtain benefits, during such six (6) month delay period and then be reimbursed by Employer thereafter on the first day of the seventh (7^th) month following the date of Executive’s separation from service or, if earlier, on the date of Executive’s death.

 

(d)            If under this Agreement, an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment.

 

(e)            When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Employer. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Regulation § 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

 

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(f)            Notwithstanding any other provision of this Agreement, Executive shall be solely liable, and Employer shall not be liable in any way to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Code Section 409A otherwise fails to comply with, or be exempt from, the requirements of Code Section 409A.

 

20.            Regulatory Limitation. Notwithstanding any other provision of this Agreement, neither Employer nor any subsidiary or affiliate shall be obligated to make, and Executive shall have no right to receive, any payment, benefit or amount under this Agreement that would violate any law, regulation or regulatory order applicable to Employer or the subsidiary or affiliate at the time such payment or benefit is due, including without limitation, any regulation or order of the Federal Deposit Insurance Corporation or the Board of Governors of the Federal Reserve System. Executive agrees that compliance by Employer with such regulatory restrictions, even to the extent that compensation or other benefits paid or otherwise due to Executive are limited, shall not be a breach of this Agreement by Employer.

 

21.            Waiver of Breach. The failure at any time to enforce or exercise any right under any of the provisions of this Agreement or to require at any time performance by the other parties of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement, or the right of any party hereafter to enforce or exercise its rights under each and every provision in accordance with the terms of this Agreement.

 

22.            No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 22 shall preclude the assumption of such rights by executors, administrators or other legal representatives of Executive or Executive’s estate and their assigning any rights under this Agreement to the person or persons entitled hereto.

 

23.            Full Capacity. The persons signing this Agreement represent that they have full authority and representative capacity to execute this Agreement in the capacities indicated below and to perform all obligations under this Agreement.

 

24.            Representation and Warranty of Executive. Executive represents and warrants to Employer that Executive is not under any obligation, contractual or otherwise, to any other firm or corporation, which would prevent Executive from entering into the employ of Employer under this Agreement or prevent Executive from performing the terms of this Agreement.

 

25.            Entire Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement of the parties with respect to the matters addressed herein and, upon the Effective Date, it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement including but not limited to the Change in Control Severance Agreement between the Employer and Executive with an effective date of April 30, 2018 and signed May 25, 2018.

 

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26.            Survivability. The provisions of Section 7(c) and 8(c) shall survive the termination or expiration of this Agreement.

 

27.            Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

28.            Case and Gender. Wherever required by the context of this Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

 

29.            Title. The titles and sub-headings of each Section and Sub-Section in this Agreement are for convenience only and should not be considered part of this Agreement to aid in interpretation or construction.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

Date: January 22, 2020		/s/ Kent D. Carstater
		Kent D. Carstater
Date: January 22, 2020		John Marshall Bancorp, Inc. and
		John Marshall Bank
		By:	/s/ Christopher W. Bergstrom
			Christopher W. Bergstrom
			President & Chief Executive Officer

 

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EXHIBIT A

 

RELEASE

 

In consideration of the benefits promised in the Employment Agreement to which this Release is attached as Exhibit A (and further defined below), Kent D. Carstater (“Executive”), hereby irrevocably and unconditionally releases, acquits, and forever discharges John Marshall Bancorp, Inc. and John Marshall Bank (collectively, the “Bank”), and each of its agents, directors, members, shareholders, affiliated entities, officers, employees, former employees, attorneys, and all persons acting by, though, under or in concert with any of them (collectively “Releasees”) from any and all charges, complaints, claims, liabilities, grievances, obligations, promises, agreements, controversies, damages, policies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, any rights arising out of alleged violations or breaches of any contracts, express or implied, or any tort, or any legal restrictions on Releasees’ right to terminate employees, or any federal, state or other governmental statute, regulation, law or ordinance, including without limitation (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991; (2) the Americans with Disabilities Act; (3) 42 U.S.C. § 1981; (4) the federal Age Discrimination in Employment Act (age discrimination); (5) the Older Workers Benefit Protection Act; (6) the Equal Pay Act; (7) the Family and Medical Leave Act; and (8) the Employee Retirement Income Security Act (“Claim” or “Claims”), which Executive now has, owns or holds, or claims to have, own or hold, or which Executive at any time heretofore had owned or held, or claimed to have owned or held, against each or any of the Releasees at any time up to and including the date of the execution of this Release; provided, however, that nothing herein shall preclude Executive from filing or participating in a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”), but Executive waives any right to monetary relief arising therefrom.

 

Executive hereby acknowledges and agrees that the execution of this Release and the cessation of Executive’s employment and all actions taken in connection therewith are in compliance with the federal Age Discrimination in Employment Act and the Older Workers Benefit Protection Act and that the releases set forth above shall be applicable, without limitation, to any claims brought under these Acts. Executive further acknowledges and agrees that:

 

a.            This Release given by Executive is given solely in exchange for the benefits set forth in the Employment Agreement dated as of January 22, 2020 between the Bank and Executive (the “Employment Agreement”) to which this Release was initially attached and such consideration is in addition to anything of value which Executive was entitled to receive prior to entering into this Release;

 

b.            By entering into this Release, Executive does not waive rights or claims that may arise after the date this Release is executed;

 

c.            Executive has been advised to consult an attorney prior to entering into this Release, and this provision of this Release satisfies the requirements of the Older Workers Benefit Protection Act that Executive be so advised in writing;

 

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d.            Executive has been offered twenty-one (21) days [or forty-five (45) days if applicable] from receipt of this Release within which to consider whether to sign this Release; and

 

e.            For a period of seven (7) days following Executive’s execution of this Release, Executive may revoke this Release by delivering the revocation to the Chief Executive Officer of John Marshall Bank, and it shall not become effective or enforceable until such seven (7) day period has expired.

 

This Release shall be binding upon the heirs and personal representatives of Executive and shall inure to the benefit of the successors and assigns of the Bank.

 

Date		Kent D. Carstater

 

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EX-21.1

Exhibit 21.1

Subsidiaries of John Marshall Bancorp, Inc.

Name of Subsidiary	State of Incorporation
John Marshall Bank	Virginia