Document:

EXHIBIT 10.5

 EXHIBIT 10-5 
 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 
  

 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  
 THE HARBOR BANK OF MARYLAND 
 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 
  
 THIS
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the “Agreement”) is adopted this 29th day of July, 2004, by and between THE HARBOR BANK OF MARYLAND, a state-chartered commercial bank located in Baltimore, Maryland (the “Company”), and
TEODORO J. HERNANDEZ (the “Executive”). 
  
 The purpose
of this Agreement is to provide specified benefits to the Executive, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Company.
This Agreement shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended from time to time. The Company will pay the benefits from its general assets.

  
 The Company and the Executive agree as provided herein.

  
 Article 1 
 Definitions 
  
 Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 
  

	1.1	“Accrual Balance” means the liability that should be accrued by the Company, under Generally Accepted Accounting Principles (“GAAP”), for the
Company’s obligation to the Executive under this Agreement, by applying Accounting Principles Board Opinion Number 12 (“APB 12”) as amended by Statement of Financial Accounting Standards Number 106 (“FAS 106”) and the
Discount Rate. Any one of a variety of amortization methods may be used to determine the Accrual Balance. However, once chosen, the method must be consistently applied. The Accrual Balance shall be reported by the Company to the Executive on
Schedule A. 

  

	1.2	“Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive determined
pursuant to Article 4. 

  

	1.3	“Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs, and returns to the Plan
Administrator to designate one or more Beneficiaries. 

  

	1.4	 “Change of Control” means (a) the transfer of shares of the Company’s voting common stock such that one entity or one person acquires (or is
deemed to acquire when applying Section 318 of the Code) more than fifty percent (50%) of the Company’s outstanding 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	 
voting common stock followed within twelve months by the Executive’s Termination of Employment for reasons other than death or retirement; or (b) such
definition of Change of Control hereafter promulgated by the Secretary of the Treasury or other authorized regulatory body, in which case such definition shall supersede any other definition of Change of Control in this Agreement and shall control
the terms of this Agreement. 

  

	1.5	“Code” means the Internal Revenue Code of 1986, as amended. 

  

	1.6	“Discount Rate” means the rate used by the Plan Administrator for determining the Accrual Balance. The initial Discount Rate is six percent (6.0%). However, the
Plan Administrator, in its sole discretion, may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP. 

  

	1.7	“Early Termination” means the Termination of Employment before Normal Retirement Age for reasons other than death, Termination for Cause, or following a Change of
Control. 

  

	1.8	“Early Termination Date” means the month, day and year in which Early Termination occurs. 

  

	1.9	“Effective Date” means May 1, 2004. 

  

	1.10	“Normal Retirement Age” means the Executive’s 65th birthday. 

  

	1.11	“Normal Retirement Date” means the later of the Normal Retirement Age or Termination of Employment. 

  

	1.12	“Plan Administrator” means the plan administrator described in Article 8. 

  

	1.13	“Plan Year” means each twelve-month period commencing on January 1 and ending on December 31 of each year. The initial Plan Year shall commence on the Effective
Date of this Agreement. 

  

	1.14	“Termination for Cause” has that meaning set forth in Article 5. 

  

	1.15	“Termination of Employment” means that the Executive ceases to be employed by the Company for any reason, voluntary or involuntary, other than by reason of a leave
of absence approved by the Company. 

  
 Article 2

 Benefits During Lifetime 
  

	2.1	 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the
Executive 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	 
the benefit described in this Section 2.1 in lieu of any other benefit under this Article. 

  

	 	2.1.1 	Amount of Benefit. The annual benefit under this Section 2.1 is Forty Thousand Dollars ($40,000). 

  

	 	2.1.2 	Payment of Benefit. The Company shall pay the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following the
Executive’s Normal Retirement Date. The annual benefit shall be paid to the Executive for fifteen (15) years. 

  

	2.2	Early Termination Benefit. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this
Article. 

  

	 	2.2.1 	Amount of Benefit. The annual benefit under this Section 2.2 is the Early Termination Benefit set forth on Schedule A for the Plan Year during which the Early Termination
Date occurs. This benefit is determined by vesting the Executive in one hundred percent (100%) of the Accrual Balance. 

  

	 	2.2.2 	Payment of Benefit. The Company shall pay the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following
Normal Retirement Age. The annual benefit shall be paid to the Executive for fifteen (15) years. 

  

	2.3	Change of Control Benefit. Upon a Change of Control, followed within twelve (12) months by the Executive’s Termination of Employment, the Company shall pay to the
Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Article. 

  

	 	2.3.1 	Amount of Benefit. The annual benefit under this Section 2.3 is the Normal Retirement Benefit amount described in Section 2.1.1. 

  

	 	2.3.2 	Payment of Benefit. The Company shall pay the annual benefit to the Executive in twelve (12) equal monthly installments commencing on the first day of the month following
Normal Retirement Age. The annual benefit shall be paid to the Executive for fifteen (15) years. 

  

	 	2.3.3 	Parachute Payments. Notwithstanding any provision of this Agreement to the contrary, to the extent the amount or timing of any payment(s), if made, under this Section 2.3
would be treated as an “excess parachute payment” under Section 280G of the Code, the Company shall reduce or delay the payment(s) under this Section 2.3 to the extent it would not be an excess parachute payment. 

 

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

 Article 3 
 Death Benefits 
  

	3.1	Death During Active Service. If the Executive dies while in the active service of the Company, the Company shall pay to the Beneficiary the benefit described in this Section
3.1. This benefit shall be paid in lieu of the benefits under Article 2. 

  

	 	3.1.1 	Amount of Benefit. The benefit under this Section 3.1 is Pre-Retirement Death Benefit set forth on Schedule A for the Plan Year during which the Executive’s death
occurs. This benefit is determined by vesting the Executive in one hundred percent (100%) of the Accrual Balance. 

  

	 	3.1.2 	Payment of Benefit. The Company shall pay the benefit to the Beneficiary in a lump sum within ninety (90) days following the Executive’s death .

  

	3.2	Death During Payment of a Benefit. If the Executive dies after any benefit payments have commenced under Article 2 of this Agreement but before receiving all such payments,
the Company shall pay the remaining benefits to the Beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived. 

  

	3.3	Death After Termination of Employment But Before Payment of a Benefit Commences. If the Executive is entitled to any benefit payments under Article 2 of this Agreement, but
dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the
month following the date of the Executive’s death. 

  
 Article 4 
 Beneficiaries 
  

	4.1	Beneficiary Designation. The Executive shall have the right, at any time, to designate a Beneficiary(ies) to receive any benefits payable under this Agreement upon the death
of the Executive. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designation under any other benefit plan of the Company in which the Executive participates. 

  

	4.2	 Beneficiary Designation: Change. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and delivering it to
the Plan Administrator or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is
subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect
from time to time. Upon the 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	 
acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan
Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executive’s death. 

  

	4.3	Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator or
its designated agent. 

  

	4.4	No Beneficiary Designation. If the Executive dies without a valid beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the
Executive’s spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be made to the personal representative of the Executive’s estate. 

  

	4.5	Facility of Payment. If the Plan Administrator determines in its discretion that a benefit is to be paid to a minor, to a person declared incompetent, or to a person
incapable of handling the disposition of that person’s property, the Plan Administrator may direct payment of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable
person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Executive and the
Executive’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such payment amount. 

  

Article 5 
 General Limitations

  

	5.1	Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company’s Board
of Directors terminates the Executive’s employment for: 

  

	 	(a)	Gross negligence or gross neglect of duties to the Company; 

  

	 	(b)	Commission of a felony or of a gross misdemeanor involving moral turpitude; 

  

	 	(c)	Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive’s employment and resulting in a material
adverse effect on the Company; or 

  

	 	(d)	Issuance of an order for removal of the Executive by the Company’s banking regulators. 

  

	5.2	 Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within two years after the Effective
Date. In addition, 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	 
the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on any application for life insurance
owned by the Company on the Executive’s life. 

  
 Article 6 
 Claims And Review Procedures 
  

	6.1	Claims Procedure. An Executive or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a
claim for such benefits as follows: 

  

	 	6.1.1	Initiation – Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. 

  

	 	6.1.2	Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within 90 days after receiving the claim. If the Plan Administrator determines
that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an
additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision. 

  

	 	6.1.3	Notice of Decision. If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial. The Plan
Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: 

  
 (a) The specific reasons for the denial; 
  
 (b) A reference to the specific provisions of the Agreement on which the denial is based; 
  
 (c) A description of any additional information or material necessary for the claimant to perfect the claim and an
explanation of why it is needed; 
  
 (d) An explanation of the
Agreement’s review procedures and the time limits applicable to such procedures; and 
  
 (e) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review. 
  

	6.2	Review Procedure. If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of
the denial, as follows: 

  

	 	6.2.1	Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Plan Administrator’s notice of denial, must file with the
Plan Administrator a written request for review. 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	6.2.2	 Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information
relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations)
to the claimant’s claim for benefits. 

  

	 	6.2.3 	Considerations on Review. In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim,
without regard to whether such information was submitted or considered in the initial benefit determination. 

  

	 	6.2.4 	Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within 60 days after receiving the request for review. If the Plan
Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the
initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision. 

  

	 	6.2.5 	Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth: 

  
 (a) The specific reasons for the denial; 
  
 (b) A reference to the specific provisions of the Agreement on which the denial is based; 
  
 (c) 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 (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and 
  
 (d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a). 
  
 Article 7 
 Amendments and Termination 
  
 This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive. Provided, however, if the Company’s Board of Directors determines that the Executive is no longer a
member of a select group of management or highly compensated employees, as that phrase applies to ERISA, for reasons other than death 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

 
or retirement, the Company may amend or terminate this Agreement. Upon such amendment or termination the Company shall pay benefits to the Executive as if
Early Termination occurred on the date of such amendment or termination, regardless of whether Early Termination actually occurs. Additionally, the Company may also amend this Agreement to conform with written directives to the Company from its
banking regulators. 
  
 Article 8 
 Administration of Agreement 
  

	8.1	Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator which shall consist of the Board, or such committee or person(s) as the Board shall
appoint. The Executive may be a member of the Plan Administrator. The Plan Administrator shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this
Agreement and (ii) decide or resolve any and all questions including interpretations of this Agreement, as may arise in connection with the Agreement. 

  

	8.2	Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit, (including acting
through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Company. 

  

	8.3	Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration,
interpretation and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions, including but not limited to the Discount Rate. 

  

	8.4	Indemnity of Plan Administrator. The Company shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members. 

  

	8.5	Company Information. To enable the Plan Administrator to perform its functions, the Company shall supply full and timely information to the Plan Administrator on all matters
relating to the date and circumstances of the retirement, death, or Termination of Employment of the Executive, and such other pertinent information as the Plan Administrator may reasonably require. 

  

	8.6	Annual Statement. The Plan Administrator shall provide to the Executive, within 120 days after the end of each Plan Year, a statement setting forth the benefits payable under
this Agreement. 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

 Article 9 
 Miscellaneous 
  

	9.1	Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees.

  

	9.2	No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it
interfere with the Company’s right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive’s right to terminate employment at any time. 

  

	9.3	Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner. 

  

	9.4	Tax Withholding. The Company shall withhold any taxes that, in its reasonable judgment, are required to be withheld from the benefits provided under this Agreement. The
Executive acknowledges that the Company’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authority(ies). 

  

	9.5	Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Maryland, except to the extent preempted by the laws of the United States
of America. 

  

	9.6	Unfunded Arrangement. The Executive and Beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent
the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the
Executive’s life is a general asset of the Company to which the Executive and Beneficiary have no preferred or secured claim. 

  

	9.7	Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or
person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term “Company” as used in this Agreement shall
be deemed to refer to the successor or survivor company. 

  

	9.8	Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the
Executive by virtue of this Agreement other than those specifically set forth herein. 

  

	9.9	 Interpretation. Wherever the fulfillment of the intent and purpose of this Agreement 

  

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 THE HARBOR BANK OF MARYLAND 
 Supplemental Executive Retirement Plan 
  

	 	 
requires, and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

  

	9.10	Alternative Action. In the event it shall become impossible for the Company or the Plan Administrator to perform any act required by this Agreement, the Company or Plan
Administrator may in its discretion perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Company. 

  

	9.11	Headings. Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any of its provisions.

  

	9.12	Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but
this Agreement shall be construed and enforced as if such illegal and invalid provision has never been inserted herein. 

  

	9.13	Notice. Any notice or filing required or permitted to be given to the Company or Plan Administrator under this Agreement shall be sufficient if in writing and hand-delivered,
or sent by registered or certified mail, to the address below: 

  
 ____________________________ 
 ____________________________ 
 ____________________________ 
  
 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for
registration or certification. 
  
 Any notice or filing required
or permitted to be given to the Executive under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Executive. 
  
 IN WITNESS WHEREOF, the Executive and a duly authorized representative of the Company have signed this Agreement.

  

 10Incentive Plan

 Exhibit 10.19 
  
 The East Carolina Bank 
 Incentive Plan

  
 1. Purpose. 
  
 The purpose of The East Carolina Bank’s Incentive Plan (the
“Plan”) is to motivate the employees of The East Carolina Bank (the “Bank”) to improve the Bank’s financial performance within the constraints of safe and sound bank practices and to improve the Bank’s service levels.
The Bank seeks to reward improved performance via variable awards and to de-emphasize base salaries, the fixed cost component of compensation. The implementation of an incentive plan is designed to enhance the potential compensation of the
Bank’s employees thereby assisting in the attraction, motivation and retention of qualified employees. 
  
 2. Effective Date and Plan Year. 
  
 The Effective Date of the Plan shall be January 1, 2004. The Plan Year shall be the calendar year. 
  
 3. Eligibility. 
  
 An individual shall be eligible to become a Participant in the Plan who
satisfies the following requirements: 
  

	a)	 	The individual is a “regular full-time employee” of the Bank or its subsidiaries who performs duties for a minimum of thirty (30) hours per week. 

	b)	 	The individual is an employee of the Bank and in an active pay status for a minimum of six consecutive, full calendar months of the Plan Year. 

	c)	 	The individual is approved by the Chief Executive Officer as a Participant in the Plan 

  
 4. Participation. 
  
 Prior to the beginning of each Plan Year, the Chief Executive Officer shall approve a list of eligible employees to become
Participants in the Plan (a “Participant”) with respect to such Plan Year. In the event of the hiring of a new employee during the Plan Year, the Chief Executive Officer may approve the entry of a Participant into the Plan. In such case,
the Incentive Award determined under Section 5 with respect to such Participant shall be multiplied by a fraction, the numerator of which is the number of full calendar months during the Plan Year in which he/she is a Participant and the denominator
of which is twelve. Participation in the Plan requires the Participant to be subject to the provisions of the Plan and such other terms and conditions as the Board shall provide. 
  
 Participation is categorized by seven tiers. Tier 1 is the Chief Executive Officer, Tier 2 is Senior Management, Tier 3 is
Regional Management, Tier 4 is Branch Managers and Specialized Lenders, Tier 5 is Corporate/Specialized officers; Tier 6 is home office personnel exclusive of Tiers 1, 2, and 5 and Tier 7 is branch personnel exclusive of Tier 4. 
  
 5. Incentive Award. 
  
 5.1 Subject to Section 5.2, each Participant for a Plan Year shall have the
potential to receive an Incentive Award. The incentive award shall be determined by the Bank’s and participants’ performance against four Performance Criteria: Return on Average Equity, Return on Average Assets, Operating Expenses as a
Percentage of Average Assets and Branch Performance Criteria. Each Tier’s performance factor(s) is weighted as to its importance to the set of performance factors for that Tier. 
  

 The Performance Criteria are defined as : 
  
 Return on Average Equity 
  
 Net Income / Average Equity 
 (Net Income after estimated Incentive Plan
payouts, after all Operating Expenses and after all Cost of Funds) / (Paid in Capital, Retained Earnings and Undivided Profits at the end of the prior year plus net earnings at the end of each plan year month / 13) 
  
 * For the purpose of measuring Return on Average Equity no accounting adjustments as a result
of items dating to a period prior to the inception of the Incentive Plan will impact the measure. Estimated incentive plan payouts will equal 100% of incentive threshold potential. 
  
 Return on Average Assets 
  
 Net Income / Average Assets = 
 (Net Income after estimated Incentive Plan
payouts, after all Operating Expenses and after all Cost of Funds) / (Assets at the end of the prior year plus assets at the end of each plan year month / 13) 
  

* For the purpose of measuring Return on Average Assets no accounting adjustments as a result of items dating to a period prior to the inception of the Incentive Plan
will impact the measure. Estimated incentive plan payouts will equal 100% of incentive threshold potential. 
  
 Operating Expenses as a percentage of Average Assets: 
 (Total Operating Expenses) / (Assets at the end of the prior
year plus assets at the end of each plan year month / 13) 
  
 Branch
Performance Criteria: 
 Measures include: Loan growth, deposit growth, past due percentage, non-interest income and non-interest expense. 
  
 Specialized Lender Criteria: 
 Measures include: Loan growth, past due percentage; loan documentation exceptions, fee income generation, mortgage loan goals. 
  
 The relative achievement of each Performance Criteria will be measured by the accomplishment
of Performance Levels. The Performance Levels are: Threshold, Target and Maximum. An award percentage is set for each Performance Level. The Performance Levels for each factor and their corresponding award percentages are set by the Board of
Directors. 
  
 The Performance Levels are defined as: 
  
 Threshold: 
 A level of performance against a Performance Factor that is greater than or equal to the statistic set for the Threshold but less than the Target set for the Performance Factor. The lowest performance level at which
an Incentive Award will be paid. 
  
 Target: 
 A level of performance against a Performance Factor that is greater than or equal to the statistic set for the Target but less than the Maximum set for the Performance
Factor. 
  
 Maximum: 
 A level of performance against a Performance Factor that is greater than or equal to the statistic set for the Maximum set for the Performance Factor. 
  

 2 

 Each Performance Level is assigned an award percentage for achieving the level. 
  
 The participant’s Incentive Award is calculated by: 
  

	1.	 	Determining what Performance Level the Tier participants accomplished on each Performance Criteria. 

	2.	 	Multiplying the Performance Level award percentage by the Performance Criteria weight. 

	3.	 	Summing the weighted award percentages. 

	4.	 	Multiplying the total weighted award percentage times the participant’s base salary on the final day of the Plan Year. 

  
 Each participation Tier has an Award Trigger(s). The Award Triggers are set
levels of Bank performance. No incentive award is granted unless the Tier’s Award Trigger(s) is accomplished. The Award Triggers are: Return on Average Assets, Operating Expenses as a percentage of Average Assets and the Bank’s FDIC CAMEL
rating for the plan year. The Board of Directors will determine the Award Trigger(s) for each Tier and the level of performance for each Award Trigger. 
  
 5.2 Notwithstanding any other provision of this Plan, the Chief Executive Officer shall recommend the payment of the Incentive Award as determined under
Section 5.1 and the Board shall approve such awards. The Board in its discretion may adjust the amount of the payment as it deems necessary to meet the purpose of this Plan. Where interpretations of achievement or performance on the Incentive Award
calculation factors is inconsistent, the judgment of the Board will prevail. 
  
 5.3 To receive an Incentive Award from the Plan, the Participant must be an active employee of the Bank on the last day of the Plan year. 
  
 6. Change of Job during Plan Year. 
  
 In the event that a Participant changes jobs within the Bank during the Plan Year, the Participant’s potential award
will be calculated on a prorated basis. The participant’s job tenure in each Tier will be the basis for proration. Proration will be calculated by rounding tenure to the nearest full month. If a part-time employee moves into a full-time
position, the employee must have worked in the full-time status for 6 months and will be paid on a prorated basis for those six months. If a full-time employee moves to a part-time position, that employee forfeits participation in the plan.

  
 7. Payment of Incentive Awards. 
  
 Unless otherwise determined by the Board, the Incentive Award for a Plan Year
shall be paid by the Bank in cash to the Participant or his Beneficiary no later than two and one-half months after the end of the Plan Year. 
  
 8. Withholding. 
  
 There shall be deducted from the payment of the Incentive Award the amount of any tax or other amount required by any governmental authority to be
withheld and paid over by the Bank to such authority for the account of the person entitled to such payment. 
  
 9. Nonassignability of Incentive Awards. 
  
 The right to receive payment of the Incentive Award shall not be assignable or transferable (including by pledge or hypothecation) other than by will or
the laws of intestate succession. 
  
 10. No Trust Fund:
Unsecured Interest. 
  

 3 

 A Participant shall have no interest in any fund or specified asset of the Bank. No trust fund shall be
created in connection with the Plan or any Incentive Award, and there shall be no required funding of amounts which may become payable under this Plan. Any amounts which are or may be set aside under the provisions of this Plan shall continue for
all purposes to be a part of the general assets of the Bank, and no person other than the Bank shall, by virtue of the provisions of this Plan, have any interest in such assets. No right to receive payment from the Bank pursuant to the Plan shall be
greater than the right of any unsecured creditor of the Bank. 
  
 11. No Right or Obligation of Continued Employment. 
  
 Nothing contained in the Plan shall require the Bank to continue to employ the Participant, nor shall the Participant be required to remain in the employment of the Bank. 
  
 12. Retirement Plans. 
  
 Any amounts accrued, payable or paid out under this Plan shall be treated as
compensation for the purpose of determining the amount of contributions or benefits to which a Participant shall be entitled under any retirement plan to which the Bank may be a party. 
  
 13. Dilution or Other Adjustments. 
  
 If there is any change in the Bank because of a merger, consolidation or reorganization involving the Bank, the Board shall
make such adjustments to any provisions of this Plan as the Board deems desirable to prevent the dilution or enlargement of rights granted hereunder. 
  
 14. Administration of the Plan. 
  
 The Plan shall be administered by the Chief Executive Officer with the consent and approval of the Board or its designated committee. Subject to the
provisions of the Plan, the Board shall have plenary authority in its discretion, among other things, to determine the levels for Performance Factors and Award Triggers, to approve the Incentive Awards to Plan Participants, to interpret the Plan and
to prescribe, amend and rescind rules and regulations relating to the Plan, provided that no member of the Board shall take part in any action with respect to the decisions to pay an Incentive Award to such member, or with respect to the terms or
conditions of any Incentive Award awarded to such member. 
  
 15. Amendment, Termination and Continuation of the Plan. 
  
 The Plan may be amended or terminated at any time by the Board. The Plan must be affirmed by the Board at the beginning of each Plan year. 
  
 16. Binding on Successors. 
  
 The obligations of the Bank under the Plan shall be binding upon any organization which shall succeed to all or
substantially all of the assets of the Bank, and the term “Bank,” whenever used in the Plan, shall mean and include any such organization after the succession. 
  
 17. Applicable Law. 
  
 The Plan shall be governed by and construed in accordance with the laws of the State of North Carolina. 
  

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