Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
)
March 23, 2016
Sincerely,
3035 LEONARDTOWN ROAD
WALDORF, MARYLAND 20601
(301) 645-5601
| TIME AND DATE | | | 10:00 a.m. on | |
| PLACE | ||||
| Board Room | | |||
| | | | Community Bank of the Chesapeake | |
3035 Leonardtown Road | |||||
Waldorf, Maryland 20601 | |||||
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| ITEMS OF BUSINESS | | (1) To elect three directors to serve for a term of three years; | | |
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| (2) To ratify the appointment of | | |||
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| (3) To vote on a non-binding resolution to approve the compensation of the named executive officers; | | |||
| | | | (4) To vote on the frequency of the advisory vote on the compensation of our named executive officers; and | |
| | | (5) To transact such other business as may properly come before the meeting or any adjournments or postponement thereof. | | |
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RECORD DATE | | | To vote, you must have been a stockholder at the close of business on March | | |
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PROXY VOTING | | | It is important that your shares be represented and voted at the meeting. You can vote your shares via the Internet, by telephone or by completing and signing | ||
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| | Christy Lombardi Corporate Secretary | |||
April 2, 2019 |
OF
THE COMMUNITY FINANCIAL CORPORATION
3035 LEONARDTOWN ROAD
WALDORF, MARYLAND 20601
(301) 645-5601
April 2, 2019.
FOR THE STOCKHOLDERS MEETING TO BE HELD ON MAY 2, 2016
15, 2019
https://www.cbtc.com/about/investor-relations/proxyandannualreport
14, 2019.
Quorum. We will have a quorum and will be able to conduct the business of the annual meeting if the holders of a majority of the outstanding shares of common stock entitled to vote are represented at the meeting. If you return valid proxy instructions or attend the meeting in person, we will count your shares to determine whether there is a quorum, even if you abstain from voting. Broker non-votes (described below) also will be counted to determine the existence of a quorum.
Board Leadership Structure.The Company currently separates the offices of President and Chief Executive Officer and Chairman of the Board. Doing so allows the President and Chief Executive Officer to better focus on his responsibilities of managing the day-to-day operations of the Company, enhancing stockholder value and expanding and strengthening the franchise while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and oversight of management. The Board also has created a Lead Director position to further enhance Board independence and oversight. Joseph V. Stone, Jr. is currently the Lead Director of the Board of Directors. Among other things, the Lead Director (1)(i) presides at meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors, and (2)(ii) may call meetings of the independent directors.
Director | Audit Committee | Enterprise Risk Management Committee | Governance Committee | Compensation Committee | ||||
Philip T. Goldstein | X | X | ||||||
M. Arshed Javaid | X | |||||||
Louis P. Jenkins, Jr. | X | X* | X* | |||||
Michael L. Middleton | X | |||||||
William J. Pasenelli | X | |||||||
Mary Todd Peterson | X* | X | ||||||
James R. Shepherd | X | |||||||
Austin J. Slater, Jr. | X | X* | X | X | ||||
Joseph V. Stone, Jr.** | X | X | X | X | ||||
Number of Meetings in 2015 | 8 | 4 | 3 | 4 |
Director | | | Audit Committee | | | Enterprise Risk Management Committee | | | Governance Committee | | | Compensation Committee | |
M. Arshed Javaid | | | | | | X | | | | | | | |
Louis P. Jenkins, Jr. | | | | | | X | | | X* | | | X* | |
Michael L. Middleton | | | | | | X | | | | | | | |
John K. Parlett, Jr. | | | X | | | X | | | | | | | |
William J. Pasenelli | | | | | | X | | | | | | | |
Mary Todd Peterson | | | X* | | | X | | | | | | X | |
E. Lawrence Sanders, III | | | X | | | | | | | | | | |
Austin J. Slater, Jr. | | | X | | | X* | | | X | | | X | |
Joseph V. Stone, Jr.** | | | X | | | X | | | X | | | X | |
Kathryn Zabriskie | | | | | | | | | X | | | X | |
Number of Meetings in 2018 | | | 8 | | | 3 | | | 5 | | | 9 | |
The Audit Committee acts under a written charter adopted by the Board of Directors, a copy of which is available free of charge in the Investor Relations portion of the “About Community Bank” section of the Company’s website (www.cbtc.com), and is available in print to any stockholder who requests a copy.
The Enterprise Risk Management Committee acts under a written charter adopted by the Board of Directors, a copy of which is available free of charge in the Investor Relations portion of the “About Community Bank” section of the Company’s website (www.cbtc.com), and is available in print to any stockholder who requests a copy.
The Governance Committee acts under a written charter adopted by the Board of Directors, a copy of which is available free of charge in the Investor Relations portion of the “About Community Bank” section of the Company’s website (www.cbtc.com), and is available in print to any stockholder who requests a copy.
The Compensation Committee acts under a written charter adopted by the Board of Directors, a copy of which is available free of charge in the Investor Relations portion of the “About Community Bank” section of the Company’s website (www.cbtc.com), and is available in print to any stockholder who requests a copy.
Consideration of Recommendations by Stockholders. The Governance Committee will consider recommendations for directors submitted by stockholders. Stockholders who wish the Governance Committee to consider their recommendations for nominees for director should submit their recommendations in writing to the Governance Committee in care of the Corporate Secretary, The Community Financial Corporation, 3035 Leonardtown Road, Waldorf, Maryland 20601. Each written recommendation must set forth (1) the name of the recommended candidate, (2) the number of shares of stock of the Company that are beneficially owned by the stockholder making the recommendation and by the recommended candidate, and (3) a detailed statement explaining why the stockholder believes the recommended candidate should be nominated for election as a director. In addition, the stockholder making such recommendation must promptly provide any other information reasonably requested by the Governance Committee. To be considered by the Governance Committee for nomination for election at an annual meeting of stockholders, the recommendation must be received by the January 1 preceding that annual meeting.
2018.
Name | Fees Earned or Paid in Cash ($) | Option Awards ($) (1) | Non-qualified Deferred Compensation Earnings ($) (2) | Total ($) | ||||||||||||
Philip T. Goldstein | 40,575 | – | – | 40,575 | ||||||||||||
M. Arshed Javaid | 38,575 | – | 1,389 | 39,964 | ||||||||||||
Louis P. Jenkins, Jr | 45,875 | – | – | 45,875 | ||||||||||||
Mary Todd Peterson | 42,075 | – | 3,447 | 45,522 | ||||||||||||
James R. Shepherd | 43,750 | – | – | 43,750 | ||||||||||||
Austin J. Slater, Jr | 45,650 | – | – | 45,650 | ||||||||||||
Joseph V. Stone, Jr | 46,275 | – | 11,580 | 57,855 |
______________________
Name | | | Fees Earned or Paid in Cash ($) | | | Non-qualified Deferred Compensation Earnings ($)(1) | | | Total ($) | | |||||||||
Kimberly C. Briscoe-Tonic(2) | | | | $ | 18,000 | | | | | $ | — | | | | | $ | 18,000 | | |
M. Arshed Javaid | | | | | 36,000 | | | | | | — | | | | | | 36,000 | | |
Louis P. Jenkins, Jr. | | | | | 49,725 | | | | | | — | | | | | | 49,725 | | |
Michael L. Middleton | | | | | 50,000 | | | | | | 2,323 | | | | | | 52,323 | | |
John K. Parlett, Jr. | | | | | 43,500 | | | | | | — | | | | | | 43,500 | | |
Mary Todd Peterson | | | | | 47,900 | | | | | | — | | | | | | 47,900 | | |
E. Lawrence Sanders, III | | | | | 42,225 | | | | | | — | | | | | | 42,225 | | |
James R. Shepherd(3) | | | | | 21,125 | | | | | | — | | | | | | 21,125 | | |
Austin J. Slater, Jr. | | | | | 50,125 | | | | | | — | | | | | | 50,125 | | |
Joseph V. Stone, Jr. | | | | | 53,125 | | | | | | 3,634 | | | | | | 56,759 | | |
Kathryn Zabriskie | | | | | 44,725 | | | | | | — | | | | | | 44,725 | | |
2019:2016.Company:Company: Annual Retainer $15,000 Fee per Board Meeting (Regular or Special) $750 ($225 per telephone meeting) Fee per Committee Meeting $500 ($225 per telephone meeting) Annual Retainer for the Chairman of the Board and Audit Committee Chair $5,000 Annual Retainer for Governance, Audit, Compensation, and Enterprise Risk Management Committee Chairs $2,500
| Annual Retainer | | | $10,000 | |
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Fee per Board Meeting (Regular or Special) | | | $650 ($225 per telephone meeting) | | |
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Fee per Committee Meeting | | | $425 ($225 per telephone meeting) | | |
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Annual Retainer for | | | $2,500 | |
Employee directors of the Bank do not receive annual retainers, board meeting fees or fees for committee meetings.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20152018 for filing with the Securities and Exchange Commission.
OF THE COMMUNITY FINANCIAL CORPORATION
James R. Shepherd
John K. Parlett, Jr.
E. Lawrence Sanders, III
Austin J. Slater, Jr.
Joseph V. Stone, Jr.
2015 | 2014 | |||||||
Audit Fees | $ | 128,883 | $ | 125,121 | ||||
Audit Related Fees (1) | 55,422 | 44,160 | ||||||
Tax Fees (2) | 18,250 | 10,510 | ||||||
All Other Fees | — | — |
December 31, 2017:
| | | 2018 | | | 2017 | | ||||||
Audit Fees(1) | | | | $ | 256,577 | | | | | $ | 186,328 | | |
Audit Related Fees(2) | | | | | 23,562 | | | | | | 22,580 | | |
Tax Fees | | | | | — | | | | | | 3,057 | | |
All Other Fees | | | | | — | | | | | | — | | |
Name of Beneficial Owners | Number of Shares Owned (Excluding Options)(1)(2) | Number of Shares That May be Acquired within 60 Days by Exercising Options | Percent of Shares of Common Stock Outstanding(3) | |||||||||
Directors | ||||||||||||
Philip T. Goldstein | 7,027 | 500 | * | |||||||||
M. Arshed Javaid | 3,511 | — | * | |||||||||
Louis P. Jenkins, Jr. | 19,363 | — | * | |||||||||
Michael L. Middleton | 256,335 | (4) | 5,830 | 5.6 | % | |||||||
William J. Pasenelli | 41,743 | 4,344 | 1.0 | |||||||||
Mary Todd Peterson | 6,529 | — | * | |||||||||
James R. Shepherd | 9,934 | — | * | |||||||||
Austin J. Slater, Jr. | 19,906 | — | * | |||||||||
Joseph V. Stone, Jr. | 28,625 | (5) | 500 | * | ||||||||
Named Executive Officers Who are Not Also Directors | ||||||||||||
Gregory C. Cockerham | 127,185 | 4,407 | 2.8 | |||||||||
Todd L. Capitani | 9,152 | — | * | |||||||||
James M. Burke | 19,197 | 1,865 | * | |||||||||
All Directors, Executive Officers and Nominees as a Group (16 persons) | 580,911 | (6) | 19,561 | 12.8 | ||||||||
5% Owners: | ||||||||||||
Basswood Capital Management, L.L.C. Matthew Lindenbaum Bennett Lindenbaum 645 Madison Avenue, 10th Floor New York, New York 10022 | 459,016 | (7) | 9.9 | |||||||||
Banc Fund VI L.P. | ||||||||||||
Banc Fund VII L.P. | ||||||||||||
Banc Fund VIII L.P. | ||||||||||||
Banc Fund IX L.P. | ||||||||||||
20 North Wacker Drive, Suite 3300 Chicago, Illinois 60606 | 265,032 | (8) | 5.7 | |||||||||
EJF Capital LLC Emanuel J. Friedman EJF Financial Services Fund, L.P. EJF Financial Services GP, LLC 2107 Wilson Boulevard, Suite 140 Arlington, Virginia 22201 | 293,395 | (9) | 6.3 | |||||||||
Manulife Financial Corporation | ||||||||||||
Manulife Asset Management (US) LLC 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 | 241,023 | (10) | 5.2 | |||||||||
Community Bank of the Chesapeake Employee Stock Ownership Plan | 233,863 | (11) | 5.0 |
Name of Beneficial Owners | | | Number of Shares Beneficially Owned(1)(2) | | | Percent of Shares of Common Stock Outstanding(3) | | ||||||
Directors: | | | | | | | | | | | | | |
M. Arshed Javaid | | | | | 3,683 | | | | | | * | | |
Louis P. Jenkins, Jr. | | | | | 19,742 | | | | | | * | | |
Michael L. Middleton | | | | | 230,053(4) | | | | | | 4.12% | | |
John K. Parlett, Jr. | | | | | 5,250 | | | | | | * | | |
William J. Pasenelli | | | | | 48,707 | | | | | | * | | |
Mary Todd Peterson | | | | | 6,529 | | | | | | * | | |
E. Lawrence Sanders, III | | | | | 24,324(5) | | | | | | * | | |
Austin J. Slater, Jr. | | | | | 21,602 | | | | | | * | | |
Joseph V. Stone, Jr. | | | | | 29,125(6) | | | | | | * | | |
Kathryn Zabriskie | | | | | 2,550 | | | | | | * | | |
Named Executive Officers Who are Not Also Directors | | | | | | | | | | | | | |
James M. Burke | | | | | 20,599 | | | | | | * | | |
Gregory C. Cockerham | | | | | 123,977 | | | | | | 2.22% | | |
All Directors, Executive Officers and Nominees as a Group (17 persons) | | | | | 580,724(7)(8) | | | | | | 10.95% | | |
____________________
*
Directors
Company.
Board Nominees with TermsTerm Ending in 2019
2022
1979 and of the Company since 1989.
Ms. Peterson has extensive management levelexecutive-level experience in a mid-size company setting within the financial services industry. As a Virginia resident, Ms. Peterson provides valuable insight regarding local marketsindustry combined with 18 years’ experience in Virginia.public accounting. Ms. Peterson’s financial and operational expertise within the insurance industry, including herproficiencies in corporate governance and risk assessment, skills, provide the Board with a skill set critical to successfully operating the Company and BankBank.
Office
Philip T. Goldsteinhas owned and operated Philip T. Goldstein Real Estate Appraisals, a full-service real estate appraisal and consulting firm, located in Prince Frederick, Maryland, since 1975. He is a director emeritus of Asbury Communities, Inc., a non-profit continuing care retirement community, headquartered in Gaithersburg, Maryland and Calvert County Nursing Center, Prince Frederick, Maryland. Age 67. Director since 2006.
Mr. Goldstein provides the Board with significant management, strategic and operational knowledge through his experience as owner of a real estate appraisal and consulting firm. Mr. Goldstein’s background in commercial and residential appraisal practice also provides a valuable perspective to the credit function of the Bank. Mr. Goldstein provides local community insight through his position as a former director of various local non-profit organizations.
James R. Shepherd is a retired businessman and former local government executive. Mr. Shepherd holds an MS degree in Management from the University of Maryland and a BA from Roanoke College in Economics and Business Administration. Mr. Shepherd serves on numerous civic and charitable organizations. Age 70. Director since 2003.
Mr. Shepherd’s background in economic development and management adds strength to the market intelligence required to direct strategic initiatives on franchise expansion. Mr. Shepherd also brings critical insight regarding the economic development of the communities in which the Bank operates.
2020:
2021:
Mr. Pasenelli’s extensive experience in the local banking industry affords the Board valuable insight regarding the business and operations of the Bank. Mr. Pasenelli’s financial acumen and knowledge of the Company’s and the Bank’s business and history position him well to serve as President and Chief Executive Officer and as a Director.
Stegman & Company,Firm
firms in the future if it determines that such consideration is in the best interests of the Company and its stockholders.
Item 3 –— Advisory Vote on Executive Compensation.
Compensation
Named Executive Officer | | | Title | |
William J. Pasenelli | | | President | |
James M. Burke | | Executive Vice President and Chief Risk Officer (CRO) | | |
Gregory C. Cockerham | | Executive Vice President and Chief Lending Officer | ||
The Company’s
2015 Performance Highlights
During 2015, the Company and its subsidiary Community Bank of the Chesapeake (the “Bank”) made a number of strategic decisions to meet our longer-term objectives of increased profitability and increased shareholder value. The Company continued to execute its plans to improve asset quality, increase transaction deposits, and slow the growth of compensation and benefits and operating expenses.
Net income available to common shareholders for 2015 was stable compared to the prior year increasing $30,000 to $6.3 million, or 0.5%, compared to 2014. The Company’s return on average assets (“ROAA”) was 0.58% in 2015, a decrease of five basis points from 2014. The Company’s return on average common stockholders' equity was 6.33% in 2015, a decrease of 36 basis points from 2014. Net income growth was slowed by lower than anticipated net loan growth, a one-time sale of branch premises and equipment and higher OREO costs compared to the prior year.
A more detailed analysis comparing the results of operations for the years ended December 31, 2015 and 2014 is provided in the Annual Report on Form 10-K for the year ended December 31, 2015.
2015 Executive Compensation Decisions
The Compensation Committee began its work on executive compensation for 2015 by assessing competitive market compensation using a number of data sources including publicly disclosed information on a selected peer group of publicly traded banking organizations similar in asset size and geographic region. Consideration was given to the Company’s 2014 financial performance and the goals and objectives set forth in the Company’s strategic plan. There were no material changes to the elements of executive compensation in 2015. In 2015, the Committee approved the addition of tiered payout levels based upon our ROAA achievement, which impacted the total percentage of the pool distributed to named executives and other key officers.
The committee approved modest increases to base salaries for 2015. Incentive award targets and objectives were aligned with the annual strategic plan approved by the board. Based on the Company’s performance and the achievement of specific strategic objectives, the committee approved cash and equity awards as described under Performance-Based Incentive Compensation and Long-Term Equity Awards sections. For 2015 the Company’s ROAA achievement resulted in an incentive pool of eight percent (8%) of net income after income taxes and before benefits.
Say On Pay Vote Results
The Company provides its shareholders with the opportunity to cast an annual advisory vote on executive compensation. At the Company’s 2015 annual meeting of shareholders, approximately 82% of the votes cast on the say-on-pay proposal were voted for the proposal, demonstrating support of the committee’s executive pay decisions.
The committee will continue to consider the results of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers.
Compensation Philosophy and Guiding Principles
Our compensation philosophy is grounded on the following guiding principles:
As such, compensation levels amongst the NEOs are closely aligned and their incentive opportunities are linked to similar performance metrics.
Internal Equity.Because the Company’s executive officers operate as a team, the committee considers internal pay equity to be an important factor in its decisions on executive compensation. As a result, the incentive portion of compensation awarded to each of the Company’s executive officers in 2015 was generally the same, when expressed as a percent of salary.
Ownership.Ownership.We believe executives should have an ownership position in our Company.UnderCompany. A portion of the annual incentive is paid in restricted stock. The Company has in place stock ownership guidelines for its executive officers (ranging between 1x – 2x base pay).
Executive | | | Title | | | 2017 Salary | | | 2018 Salary | | | % Increase | | |||||||||
William J. Pasenelli | | | President & CEO | | | | $ | 412,000 | | | | | $ | 440,000 | | | | | | 6.80% | | |
James M. Burke | | | EVP, CRO | | | | | 305,000 | | | | | | 336,000 | | | | | | 10.16% | | |
Gregory C. Cockerham | | | EVP, CLO | | | | | 294,000 | | | | | | 320,000 | | | | | | 8.84% | | |
Executive | | | Target Incentive (% of Salary) | | | Target Incentive ($) | | | Amount Awarded (% of Salary) | | | Amount Awarded ($) | | ||||||||||||
William J. Pasenelli | | | | | 35.0% | | | | | $ | 154,000 | | | | | | 18.38% | | | | | $ | 80,850 | | |
James M. Burke | | | | | 30.0% | | | | | | 100,800 | | | | | | 15.75% | | | | | | 52,920 | | |
Gregory C. Cockerham | | | | | 30.0% | | | | | | 96,000 | | | | | | 18.00% | | | | | | 57,600 | | |
Executive | | | Title | | | Total 2018 Annual Award | | | Amount Paid in Cash | | | Amount Paid in Restricted Stock | | |||||||||
William J. Pasenelli | | | President & CEO | | | | $ | 80,850 | | | | | $ | 68,730 | | | | | $ | 12,120 | | |
James M. Burke | | | EVP, CRO | | | | | 52,920 | | | | | | 45,000 | | | | | | 7,920 | | |
Gregory C. Cockerham | | | EVP, CLO | | | | | 57,600 | | | | | | 57,600 | | | | | | — | | |
Executive | | | Title | | | Number of Shares Issued | | | FMV of Restricted Stock on Grant Date | | ||||||
William J. Pasenelli | | | President & CEO | | | | | 745 | | | | | $ | 27,736 | | |
James M. Burke | | | EVP, CRO | | | | | 551 | | | | | | 20,514 | | |
Gregory C. Cockerham | | | EVP, CLO | | | | | 531 | | | | | | 19,769 | | |
Considerations:
In addition to our guiding principles, the Company engages in the following practices to ensure its executive compensation program is aligned with shareholders’ interests and protects us against risk. We believe that the design and objectives of our executive compensation program provide an appropriate balance of incentives for executives and avoid inappropriate risks. The• Variable compensation based on a variety of performance goals • Committee discretion to lower annual incentive award amounts • Balanced mix of short-term and long-term incentives • Stock ownership requirements • Claw-back provisions 21 The Committee |
The committee conducts an annual evaluation of all of the Company’s compensation programs, policies and practices to ensure that compensation policies and incentive compensation programs in place are not reasonably likely to have a material adverse impact on the Company and do not encourage our employees to excessive risks.
Role of the Compensation Committee, Management, and Compensation Consultants
Role of the Compensation Committee. The Compensation Committee is responsible for overseeing and administering the Company’s employee benefit plans and policies. The committee determines all compensation for the named executive officers. Each year, the committee conducts an evaluation of each executive officer to determine if any changes in the officer’s compensation would be appropriate based on the considerations described above.
The Compensation Committee is composed of at least three directors who are determined to be “independent directors” as defined by NASDAQ Rule 5605(d) (2) (A). The members of the committee are appointed annually by the Board of Directors. Four members of the Company’s Board of Directors serve on the Compensation Committee, each of whom is an “independent director”. The Chair of the Compensation Committee reports to the Company’s Board regarding committee actions.
Compensation Committee Interlocks and Insider Participation.No member of the Compensation Committee is a current or former officer or employee of the Company or any of its subsidiaries. There are no compensation committee interlocks with other entities with respect to any such member.
Role of Management. At the Compensation Committee’s request, Mr. Pasenelli provides input regarding the performance and appropriate compensation of the other executive officers. The Compensation Committee considers Mr. Pasenelli’s evaluation of the other executive officers because of his direct knowledge of each executive officer’s performance and contributions. In accordance with NASDAQ rules, Mr. Pasenelli is not present when his compensation is being discussed or approved.
Role of the Compensation Consultant.In 2015, the Compensation Committee retained the services of ChaseCompGroup to perform a competitive assessment of our executive and director compensation programs, as well as to provide guidance on the changing regulatory environment governing executive compensation. The Compensation Committee assessed the independence of ChaseCompGroup pursuant to SEC and NASDAQ rules and concluded that no conflict of interest exists that would prevent ChaseCompGroup from serving as an independent consultant to the Compensation Committee.
The executive and director compensation reviews included an assessment of our financial performance relative to peers, a review of equity compensation and bonuses for named executive officers, and a review of board and committee compensation. The committee sought input from ChaseCompGroup on a range of external market factors, including evolving compensation trends, appropriate peer companies, and market survey data. The compensation assessment provided the committee with a broad array of information from which to assess the effectiveness of our compensation programs and served as a foundation for 2016 compensation decisions. ChaseCompGroup assisted the committee in developing a more performance based incentive philosophy to be implemented in 2016. This information was not used for 2015 compensation decisions.
Compensation Peer Group and Benchmarking.With the assistance of ChaseCompGroup, the Compensation Committee identified a group of peer companies to use for compensation comparison purposes for 2016 compensation decisions. In determining the compensation peer group, the committee selected regional, publicly traded banks with assets from approximately half to two times our asset size. These are banks in our view that compete with the Company for talent in the community banking industry.
The Compensation Committee selected the following peer group for 2016, which ranged between $1.9 billion and $598 million in assets:
The committee reviews both compensation and performance at peer companies to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the market and the Company’s scope and performance. The committee refers to executive compensation studies prepared by its independent consultants when it reviews and approves executive compensation. The studies reflect compensation levels and practices for executives holding comparable positions at peer group companies, which help the committee set compensation at competitive levels. The committee’s primary selection criteria are industry (commercially focused banks), asset size, and geography. The committee compares each executive officer’s base salary, target total cash compensation, and target long-term incentive compensation value to amounts paid for similar positions at peer group companies.
The Compensation Committee believes that the market median is a useful reference point in helping to achieve the executive compensation program objectives. However, the committee also considers other factors when setting compensation; and target total direct compensation for each executive may vary from the market median based on the factors the committee considers relevant each year, including particular job responsibilities and scope, adjustments for individual skills and expertise, and internal pay equity.
The Compensation Committee’s executive compensation determinations are the result of the committee’s business judgment, which is informed by the experiences of the members of the committee, as well as input from shareholders and market data.
Compensation Framework and Allocation of Pay Components
The executive compensation program for named executive officers reflects our compensation philosophy and uses a full range of pay components to achieve our objectives. We believe that we can meet the objectives of our compensation philosophy by reaching a balance among base salary, short-term incentives and long-term incentives for our named executive officers.
The allocation of base salary and performance-based compensation (short-term cash incentives and equity awards) varies depending upon the role of a named executive officer in our organization and his or her individual performance and achievements in support of our strategic objectives.
Direct Compensation Elements
The Company’s executive compensation program consists of four components: base salary, annual cash incentives, equity awards, and benefits.
Base Salaries. Competitive base salaries are critical in attracting and retaining our executives. We establish base salaries and assess market competitiveness by comparing our executives’ qualifications, experience, and responsibilities as well as their individual performance and value with similar positions among our peers.
Historically our philosophy has been to pay competitive base salaries that will retain our highly experienced and cohesive executive team. Our participation in the Capital Purchase Program (“CPP”) imposed regulatory limitations on our performance-based pay. We placed more emphasis on base salaries due to these limitations, resulting in base salaries for our named executive officers that were higher than the median salary levels of our peers. We ended our participation in CPP in 2011 and began working with our Compensation Consultant toward the end of 2015 to adjust our overall compensation structure to balance fixed and variable compensation for our named executive officers. Base salaries for our named executive officers were adjusted in 2015 to reflect modest cost of living increases only and 2016 increases were minimal.
Executive | Title | 2014 Salary | 2015 Salary | % Increase | 2016 Salary | % Increase | ||||||||||||||||
William J. Pasenelli | President and Chief Executive Officer | $ | 400,000 | $ | 408,000 | 2.0 | % | $ | 408,000 | 0.0 | % | |||||||||||
Todd L. Capitani | EVP, Chief Financial Officer | 270,000 | 275,400 | 2.0 | % | 278,154 | 1.0 | % | ||||||||||||||
James M. Burke | EVP, Chief Risk Officer | 282,450 | 288,099 | 2.0 | % | 290,980 | 1.0 | % | ||||||||||||||
Gregory C. Cockerham | EVP, Chief Lending Officer | 282,450 | 288,099 | 2.0 | % | 290,980 | 1.0 | % | ||||||||||||||
Michael L. Middleton | Executive Chairman | 321,661 | 328,095 | 2.0 | % | 328,095 | 0.0 | % |
Annual Performance-Based Incentive Compensation.We maintain a short-term annual compensation plan which allows us to provide our named executive officers with the opportunity to earn compensation for achieving specific Company performance goals. In 2015, the committee approved an annual incentive pool of up to ten percent (10%) of the Company’s net income. In addition, in 2015 we added tiered payout levels based upon our ROAA achievement. Total incentive awards paid for 2015 performance ranged between 15%-16% of base salary. A portion of the incentives, once earned, is paid in restricted stock of which one third vests on the first anniversary of the grant and the other two thirds vests over the next two years.
Performance criteria used to determine the annual bonuses for the named executive officers were net income and ROAA as determined in accordance with generally accepted accounting principles. These criteria were chosen because they reflect commonly recognized measures of overall company performance and are associated with shareholder value creation. As mentioned earlier, we are refining our performance metrics and incentive plan for 2016 to include more competitive award opportunities and additional performance factors.
At the end of the year, the Compensation Committee determines the amount of the bonus to be paid to each executive officer by comparing the Company’s financial results to the performance goals. The following performance goals were used for 2015. For 2015 the Company’s ROAA achievement resulted in an incentive pool of eight percent (8%) of net income after income taxes and before benefits, which impacted the total percentage of the pool distributed to named executives and other key officers.
| ||||
The named executive officers were paid the following incentives based on actual results for 2015:
Executive | Title | 2015 Total Annual Incentive Award $ | As % of Salary | Percent Delivered in Restricted Stock | ||||||||||
William J. Pasenelli | President and Chief Executive Officer | 86,022 | 16.50 | 21.74 | ||||||||||
Todd L. Capitani | EVP, Chief Financial Officer | 52,258 | 15.18 | 20.00 | ||||||||||
James M. Burke | EVP, Chief Risk Officer | 54,668 | 15.18 | 20.00 | ||||||||||
Gregory C. Cockerham | EVP, Chief Lending Officer | 54,668 | 15.18 | 20.00 | ||||||||||
Michael L. Middleton | Executive Chairman | – | – | – |
Long-Term, Equity Based Compensation.The Compensation Committee believes that equity should represent a meaningful portion of executive compensation to align the interests of our executives and stockholders. Additionally, we believe that equity provides for a longer-term retention tool. These ownership and retention objectives are supported by paying a portion of the cash bonuses in restricted stock, as noted in the table above and in our Summary Compensation table, and through the use of time-based vesting for equity awards. The Compensation Committee makes an annual determination as to who will receive equity awards, the type of awards, vesting conditions, and level of the awards. Additional detail about equity grants made to named executive officers in 2015 is provided in the Grants of Plan-Based Awards table in the proxy statement.
Going forward, the Company desires to place a greater emphasis on long-term incentives and will be working with its consultants to design a formal long-term incentive plan that is performance-based. Shareholders approved a new equity plan in 2015, which authorized 400,000 shares.
Committee Discretion in 2015 Payouts
The Compensation Committee retains the discretion to decrease all forms of incentive payouts based on significant individual or Company performance shortfalls. The committee also retains the discretion to increase awards or consider special awards for significant performance or due to subjective factors, or exclude extraordinary non-recurring results. For purposes of 2015 incentive payout calculations, the Compensation Committee adjusted net income to exclude the impact of the loss incurred due to the sale of the branch in King George, Virginia. The primary reason for the exclusion was due to the unusual, one time nature of the outcome that did not represent core operations.
Executive Benefits and Perquisites
Our objective is to attract and retain talented executive officers who will make a positive contribution to the overall success of the Company. The committee feels that the benefits offered to named executives are effective in achieving retention objectives and help maintain stability within the management team. These types of benefits are commonly offered by peers within the industry.
The Company offers named executives the following additional executive benefits and perquisites.
Employment Agreements. The named executive officers have employment agreements with change of control provisions which are summarized after our Summary Compensation table. The committee believes that employment contracts can protect both the Company and our named executive officers in the event of certain separation events.
Supplemental Executive Retirement Plans (“SERPs”).The Company maintains salary continuation agreements with each of the named executives which provide additional compensation at retirement or upon termination of employment due to death, disability, or a change of control. The SERPs aim to provide approximately thirty-five percent (35%) of our CEO’s final projected salary during his retirement and twenty-five percent (25%) of final projected salaries for our other named executives. Additional information is provided in the Pension Benefits table in the Executive Compensation section of the proxy statement.
Executive Deferred Compensation Plan. The Company maintains a voluntary deferred compensation plan in which our named executives can defer all or a portion of their base salaries. Deferred compensation will receive an earnings credit based on the consolidated ROE of the Company. The Executive Chair and President/CEO have pre-retirement split dollar life insurance benefits of $1,000,000 and the other named executives have $500,000. Additional information is provided in the Non-Qualified Deferred Compensation table.
Other Benefits. The named executive officers are also eligible to participate in the Company’s health and welfare programs, Employee Stock Ownership Plan, 401(k) plan, and other broad-based programs on the same basis as other employees.
Business-Related Benefits and Perquisites.The Company also provides company owned cars to executive officers and a local country club membership to Mr. Cockerham for business development purposes. The values for other benefits and perquisites, if applicable, are represented under All Other Compensation in the Summary Compensation table.
Accounting and Tax Considerations
The committee considers the accounting and tax implications of compensation plans prior to making any changes. To the extent required by law, the Compensation Committee has structured the compensation program to comply with Section 162(m) and Section 409A of the Internal Revenue Code (the “Code”).
Section 162(m) of the Internal Revenue Code (the “Code”) places a $1 million limit on the amount of compensation the Company can deduct in any one year for compensation paid to the chief executive officer and the three most highly-compensated executive officers employed by the Company at the end of the year. However, the $1 million deduction limit generally does not apply to compensation that is performance-based and provided under a shareholder-approved plan. While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, it also looks at other factors in making its decisions, as noted above, and retains the flexibility to grant awards it determines to be consistent with the Company’s goal for its executive compensation program, even if the award is not deductible by the Company for tax purposes.
In general, the Company’s performance-based cash bonuses have been designed to qualify for tax deductibility because they are paid based on achievement of pre-determined performance goals established by the Compensation Committee pursuant to its incentive plans.
Prohibition on Hedging and Short Sales.The Company prohibits short sales and transactions in derivatives of Company securities, including hedging transactions, for all directors and officers of the Company.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that is required by the rules established by the Securities and Exchange Commission. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. See “Compensation Discussion and Analysis.”
Compensation Committee of the Board of Directors
Louis P. Jenkins, Jr. (Chair)
Philip T. Goldstein
Austin J. Slater, Jr.
Joseph V. Stone, Jr.
EXECUTIVE COMPENSATION
Summary Compensation Table.The following table provides information concerning total compensation earned or paid for the last two completed fiscal years to the Chief Executive Officer, Chief Financial Officerprincipal executive officer and the threetwo most highly compensated executive officers of the Company who served in such capacity as of December 31, 2015.2018. These fivethree officers are referred to as the named executive officers in this proxy statement.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Non-qualified ($)(2) | All Other Compensation ($)(3) | Total ($) | |||||||||||||||||||
William J. Pasenelli | 2015 | $ | 423,692 | $ | 67,320 | $ | 76,420 | $ | 261 | $ | 60,638 | $ | 628,332 | |||||||||||||
President and Chief | 2014 | 382,762 | 78,809 | 76,497 | – | 58,254 | 596,322 | |||||||||||||||||||
Executive Officer | 2013 | 355,131 | 56,497 | 32,652 | – | 50,431 | 494,711 | |||||||||||||||||||
Todd L. Capitani | 2015 | $ | 285,992 | $ | 41,807 | $ | 56,076 | $ | – | $ | 20,244 | $ | 404,119 | |||||||||||||
Executive Vice President | ||||||||||||||||||||||||||
and Chief Financial Officer | ||||||||||||||||||||||||||
James M. Burke | 2015 | $ | 299,180 | $ | 43,735 | $ | 57,325 | $ | – | $ | 24,870 | $ | 425,109 | |||||||||||||
Executive Vice President | ||||||||||||||||||||||||||
and Chief Risk Officer | ||||||||||||||||||||||||||
Gregory C. Cockerham | 2015 | $ | 299,180 | $ | 43,735 | $ | 57,325 | $ | 614 | $ | 27,421 | $ | 428,275 | |||||||||||||
Executive Vice President | 2014 | 282,450 | 57,638 | 55,147 | – | 22,228 | 417,463 | |||||||||||||||||||
and Chief Lending Officer | 2013 | 274,782 | 43,657 | 22,122 | – | 13,419 | 353,980 | |||||||||||||||||||
Michael L. Middleton | 2015 | $ | 330,366 | $ | – | $ | 13,041 | $ | 46,026 | $ | 58,854 | $ | 448,287 | |||||||||||||
Executive Chairman | 2014 | 397,132 | 3,228 | 44,942 | 27,349 | 65,085 | 537,736 | |||||||||||||||||||
2013 | 478,899 | – | – | 36,509 | 56,565 | 571,973 |
____________________
Name and Principal Position | | | Year | | | Salary ($) | | | Stock Awards ($)(1) | | | Non-equity Incentive Plan Compensation ($)(2) | | | Non-qualified Deferred Compensation Earnings ($)(3) | | | All Other Compensation ($)(4) | | | Total ($) | | |||||||||||||||||||||
William J. Pasenelli President and Chief Executive Officer | | | | | 2018 | | | | | $ | 440,000 | | | | | $ | 27,736 | | | | | $ | 68,730 | | | | | $ | 320,521 | | | | | $ | 53,480 | | | | | $ | 910,467 | | |
| | | 2017 | | | | | | 412,000 | | | | | | 18,905 | | | | | | 157,264 | | | | | | 167,887 | | | | | | 48,466 | | | | | | 804,522 | | | ||
James M. Burke Executive Vice President and Chief Risk Officer | | | | | 2018 | | | | | $ | 336,000 | | | | | $ | 20,514 | | | | | $ | 45,000 | | | | | $ | 59,796 | | | | | $ | 27,247 | | | | | $ | 488,557 | | |
| | | 2017 | | | | | | 305,000 | | | | | | 13,077 | | | | | | 116,558 | | | | | | 47,923 | | | | | | 25,930 | | | | | | 508,488 | | | ||
Gregory C. Cockerham Executive Vice President and Chief Lending Officer | | | | | 2018 | | | | | $ | 320,000 | | | | | $ | 19,769 | | | | | $ | 57,600 | | | | | $ | 119,462 | | | | | $ | 30,402 | | | | | $ | 547,233 | | |
| | | 2017 | | | | | | 294,000 | | | | | | 13,077 | | | | | | 112,303 | | | | | | 92,581 | | | | | | 31,536 | | | | | | 543,497 | | |
Item | Pasenelli | Capitani | Burke | Cockerham | Middleton | |||||||||||||||
Directors’ fees | $ | 34,725 | $ | – | $ | – | $ | – | $ | 34,725 | ||||||||||
Market value of allocations under the employee stock ownership plan | 3,679 | 3,679 | 3,679 | 3,679 | 2,460 | |||||||||||||||
Employer contribution to 401(k) Plan | 9,840 | 6,000 | 7,090 | 9,840 | 6,465 | |||||||||||||||
Imputed income under split-dollar life insurance arrangement | 2,400 | 411 | 385 | 2,158 | 10,555 | |||||||||||||||
Automobile | 8,013 | 8,676 | 12,186 | 5,980 | 3,778 | |||||||||||||||
Club dues | – | – | – | 4,231 | – | |||||||||||||||
Dividends paid on unvested restricted stock | 1,759 | 1,255 | 1,307 | 1,311 | 715 | |||||||||||||||
Group term life benefit | 223 | 223 | 223 | 223 | 145 |
Grants
The followingthe granting of 745, 551 and 531 shares of restricted stock awards to Messrs. Pasenelli, Burke and Cockerham respectively, computed in accordance with FASB ASC Topic 718 based on a per share price of $37.23, on the date of grant for awards under the 2017 annual incentive plan granted in 2018.
Item | | | Pasenelli | | | Burke | | | Cockerham | | |||||||||
Company Directors’ fees | | | | $ | 20,700 | | | | | $ | — | | | | | $ | — | | |
Market value of allocations under the employee stock ownership plan | | | | | 7,844 | | | | | | 7,844 | | | | | | 7,844 | | |
Employer contribution to 401(k) Plan | | | | | 11,000 | | | | | | 10,400 | | | | | | 11,000 | | |
Imputed income under split-dollar life insurance arrangement | | | | | 1,713 | | | | | | 439 | | | | | | 975 | | |
Automobile | | | | | 5,391 | | | | | | 7,420 | | | | | | 4,798 | | |
Club dues | | | | | 5,417 | | | | | | — | | | | | | 4,446 | | |
Dividends paid on unvested restricted stock | | | | | 1,193 | | | | | | 922 | | | | | | 916 | | |
Group term life benefit | | | | | 222 | | | | | | 222 | | | | | | 223 | | |
Wellness allowance | | | | | — | | | | | | — | | | | | | 200 | | |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||
Name | Grant Date | Threshold | Target | Maximum | Threshold | Target | Maximum | All Other Stock Awards: Number of Shares | ||||||||||||||||||||||||
William J. Pasenelli | 1/21/2016 | $ | 51,613 | $ | 67,320 | $ | 67,320 | $ | 12,903 | $ | 18,702 | $ | 40,208 | 2,500 | ||||||||||||||||||
Todd L. Capitani | 1/21/2016 | 31,355 | 41,807 | 45,441 | 7,839 | 10,452 | 19,882 | 2,000 | ||||||||||||||||||||||||
James M. Burke | 1/21/2016 | 32,801 | 43,735 | 47,536 | 8,200 | 10,934 | 20,799 | 2,000 | ||||||||||||||||||||||||
Gregory C. Cockerham | 1/21/2016 | 32,801 | 43,735 | 47,536 | 8,200 | 10,934 | 20,799 | 2,000 | ||||||||||||||||||||||||
Michael L. Middleton | – | – | – | – | – | – | – | – |
Employment Agreements.The Community Financial Corporationandand Community Bank of the ChesapeakemaintainChesapeake maintain employment agreements witheachwith each of theits named executive officers. Mr. Middleton’s employment agreement ends on June 30, 2016. The term of the employment agreements with Messrs. Pasenelli, Capitani, Burke and Cockerham are automatically extended by one day each day so that the term remains at three years, until either party gives notice to the other of its intent to stop the renewal of the term of the agreement.agreement or if the officer’s employment with the Bank terminates, whether by resignation, discharge or otherwise. Among other things, the employment agreements provide for an annual salary, participationeligibility to participate in an equitable manner in any stock option plan or incentive plan to the extent authorizedemployee benefit plans and programs maintained by the Company’s BoardCompany and the Bank for the benefit of Directors for its key managementtheir employees, including discretionary bonuses, incentive compensation programs, medical, dental, pension, profit sharing, retirement and for participation in pension, group life insurance, medical coveragestock-based compensation plans and in other employeecertain fringe benefits applicable to executive personnel.
See“Retirement Benefits” and“Other Potential Post-Termination Benefits” for a discussion of benefits and payments the named executive officers may receive underUnder the employment agreements upon their retirement or termination of their employment.
Outstanding Equity Awards at Fiscal Year End.The following table provides information concerning unexercised options for each of the named executive officers outstanding as of December 31, 2015.
Option Awards | Restricted Stock Awards | |||||||||||||||||||||||||
Name | Grant Date | Number of Securities Options (#) Exercisable | Number of Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market ($) (1) | |||||||||||||||||||
William J. Pasenelli | 07/17/2007 | 4,344 | — | $ | 27.70 | 07/17/2017 | — | $ | — | |||||||||||||||||
01/13/2014 | — | — | — | — | 527 | (3) | 11,046 | |||||||||||||||||||
01/13/2014 | — | — | — | — | 1,200 | (2) | 25,152 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 1,151 | (5) | 24,125 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 1,900 | (4) | 39,824 | |||||||||||||||||||
Todd L. Capitani | 01/13/2014 | — | — | — | — | 304 | (3) | $ | 6,372 | |||||||||||||||||
01/23/2015 | — | — | — | — | 900 | (2) | 18,864 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 606 | (5) | 12,702 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 1,680 | (4) | 35,213 | |||||||||||||||||||
James M. Burke | 07/17/2007 | 1,865 | — | 27.70 | 07/17/2017 | — | $ | — | ||||||||||||||||||
01/13/2014 | — | — | — | — | 354 | (3) | 7,420 | |||||||||||||||||||
01/13/2014 | — | — | — | — | 900 | (2) | 18,864 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 634 | (5) | 13,289 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 1,700 | (4) | 35,632 | |||||||||||||||||||
Gregory C. Cockerham | 07/17/2007 | 4,407 | — | 27.70 | 07/17/2017 | — | $ | — | ||||||||||||||||||
01/13/2014 | — | — | — | — | 361 | (3) | 7,567 | |||||||||||||||||||
01/13/2014 | — | — | — | — | 900 | (2) | 18,864 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 634 | (5) | 13,289 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 1,700 | (4) | 35,632 | |||||||||||||||||||
Michael L. Middleton | 07/17/2007 | 5,830 | — | 27.70 | 07/17/2017 | — | $ | — | ||||||||||||||||||
01/13/2014 | — | — | — | — | 1,263 | (2) | 26,472 | |||||||||||||||||||
01/23/2015 | — | — | — | — | 560 | (4) | 11,738 |
Option Exercises and Stock Vested.The following table provides information concerning the vesting of stock awards for each named executive officer, on an aggregate basis, during 2015.
Stock Awards | ||||||||
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | ||||||
William J. Pasenelli | 2,583 | $ | 50,410 | |||||
Gregory C. Cockerham | 1,813 | 35,382 | ||||||
Todd L. Capitani | 1,597 | 31,163 | ||||||
James M. Burke | 1,798 | 35,089 | ||||||
Michael L. Middleton | 561 | 10,951 |
___________________
Pension Benefits
The following table provides information about the participation of executive officers in our retirement programs as of December 31, 2015. See“Retirement Benefits” for a discussion of the material terms and conditions of payments under the salary continuation agreements and supplemental executive retirement plans.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of | Payments During Last Fiscal Year ($) | ||||||||||
William J. Pasenelli | Supplemental Executive Retirement Plan – 2011 | 5 | $ | 177,905 | $ | – | ||||||||
Supplemental Executive Retirement Plan – 2014 | 2 | 51,126 | – | |||||||||||
Salary Continuation Agreement – 2003 | 15 | 321,354 | – | |||||||||||
Salary Continuation Agreement - 2006 | 10 | 80,174 | – | |||||||||||
Todd L. Capitani | Supplemental Executive Retirement Plan – 2011 | 5 | 63,598 | – | ||||||||||
Supplemental Executive Retirement Plan – 2014 | 2 | 25,777 | – | |||||||||||
James M. Burke | Supplemental Executive Retirement Plan – 2011 | 5 | 52,798 | – | ||||||||||
Supplemental Executive Retirement Plan – 2014 | 2 | 3,052 | – | |||||||||||
Salary Continuation Agreement - 2006 | 10 | 190,468 | – |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of | Payments During Last Fiscal Year ($) | ||||||||||
Gregory C. Cockerham | Supplemental Executive Retirement Plan – 2011 | 5 | $ | 50,666 | $ | – | ||||||||
Supplemental Executive Retirement Plan – 2014 | 2 | 5,205 | – | |||||||||||
Salary Continuation Agreement – 2003 | 27 | 454,476 | – | |||||||||||
Salary Continuation Agreement - 2006 | 10 | 31,115 | – | |||||||||||
Michael L. Middleton | Supplemental Executive Retirement Plan – 2011 | 5 | 252,201 | 56,696 | ||||||||||
Salary Continuation Agreement – 2003 | 42 | 1,194,100 | – |
Nonqualified Deferred Compensation
The following table provides information with respect to the 2015 accrued balances for each of the named executive officers who participate in the Executive Deferred Compensation Plan and the Directors Retirement Plan. See“Retirement Benefits” and “Director Compensation – Directors Retirement Plan” for a discussion of these plans.
Name | Plan Name | Executive ($) | Registrant ($) | Aggregate ($) | Aggregate Distributions ($) | Aggregate at Last FYE ($) | ||||||||||||||||
William J. Pasenelli | Executive Deferred Compensation Plan | $ | 12,240 | $ | – | $ | 432 | $ | – | $ | 12,672 | |||||||||||
Gregory C. Cockerham | Executive Deferred Compensation Plan | 28,809 | – | 1,017 | – | 29,827 | ||||||||||||||||
Michael L. Middleton | Executive Deferred Compensation Plan | 194,207 | – | 47,402 | – | 824,055 | ||||||||||||||||
Directors Retirement Plan | 34,725 | – | 27,103 | 170,400 | 424,024 |
RETIREMENT BENEFITS
The Bank maintains salary continuation agreements with Messrs. Middleton, Pasenelli, Burke and Cockerham to provide the executives with additional compensation at retirement or upon termination of employment due to death, disability or a change in control. Messrs. Middleton, Pasenelli, Burke and Cockerham are entitled to a total annual benefit for a period of 15 years of $128,048, $92,212, $65,000 and $77,035, respectively, upon normal retirement at or after age 62 for Mr. Middleton and 65 for Messrs. Pasenelli, Burke and Cockerham. A reduced benefit is payable if the executive retires before normal retirement age. The annual benefits are payable on a monthly basis to the executives or their designated beneficiaries.
The Bank also maintains a supplemental executive retirement plan (“SERP”) with Messrs. Pasenelli, Capitani, Burke, Cockerham and Middleton to provide the executives with additional compensation at retirement or upon termination of employment due to death, disability or a change in control. Messrs. Middleton, Pasenelli, Capitani, Burke and Cockerham are entitled to a total annual benefit for a period of 15 years of $28,348, $124,974, $154,711, $77,434 and $13,087, respectively, upon normal retirement at or after age 65 for Messrs. Pasenelli and Cockerham and age 67 in the case of Mr. Middleton.A reduced benefit is payable if the executive retires before normal retirement age. The annual benefits are payable on an annual basis to the executives or their designated beneficiaries.
The Bank maintains an Executive Deferred Compensation Plan under which Messrs. Pasenelli, Capitani, Burke, Cockerham and Middleton may defer all or any portion of their base salary. Deferred amounts may be credited annually with interest at a rate equal to the Company’s return on equity for the calendar year. The executive’s account balance under the plan will be distributed to the executive following the executive’s termination of service in either a lump sum or over a period of one to ten years, as elected by the executive.
OTHER POTENTIAL POST-TERMINATION BENEFITS
Payments Made Upon Termination with Cause.Each of the named executive officer’s employment agreements contain a definition of cause for which we may terminate the executive’s employment. If we terminate the executive’s employment is terminated for cause,Cause, he will receive only his base salary or other compensation earned through the date of termination and retain the rights to any other compensation or vested benefits subject to the termsprovided under applicable Bank plans or programs. All other obligations of the plan orBank terminate on the date of termination.
The SERPs for Messrs. Pasenelli, Capitani, Burke, Cockerham and Middleton contain a definition of cause for which we may terminate the executive’s employment. If the executive’sif his employment is terminated for cause, they will not be entitled to any benefits under the terms of the SERPs.
Under the 1995 Stock Option and Incentive Plan, if we terminate an executive for just causeWithout Cause (as defined in the plan), any stock option granted under the plan and held by the terminated employee is cancelled upon the date of termination.
Pursuant to the 2005 Equity Compensation Plan and the 2015 Equity Compensation Plan, if an executive is terminated for cause, all rights to any restricted stock and long-term restricted stock units award granted under the plan and held by the terminated employee will expire as of the effective date of termination.
Payments Made Upon Termination Without Cause. If we terminate Mr. Middleton’shis employment without cause,agreement), he will receive (1) his base salary or other compensation earned through the date of termination and retain the rights to any vested benefits subject to the terms of the plan or agreement under which those benefits are provided, and (2) a lump sum payment equal to his base salary for the remaining term of the agreement, which expires on June 30, 2016. We would also continue Mr. Middleton’s medical, dental and life insurance benefits as of the date of termination until the expiration date of the agreement.
Under his employment agreement, if we terminate the employment of Mr. Pasenelli without cause, he would receive a lump sum payment equal to three times his base salary and three times his most recent annual incentive compensation payment. Mr. Pasenelli would also receive an amount equal to the monthly COBRA premium that he would be required to pay to continue the benefits in effect as of his termination date under the Bank’s medical, dental and life insurance plans, multiplied by 36. Under the employment agreementsagreement for Messrs. Capitani, Burke orand Cockerham, if we terminate theeither executive’s employment without cause, heis terminated Without Cause (as defined in the executives employment agreements), the executive would receive a lump sum payment equal to two times his base salary and two times his most recent annual incentive compensation payment. WeThe executive would also receive an amount equal to the monthly COBRA premium that he would be required to pay to continue each executives’the benefits in effect as of his termination date under the Bank’s medical, dental and life insurance benefits for 36 months.
Pursuant to the 2005 Equity Compensation Planplans, multiplied by 36.
Payments Made Upon Termination by Executive with Good Reason. If Mr. Middleton voluntarily terminates his employment under circumstances that would constitute good reason (as defined in his employment agreement), he will receive (1) hisearned base salary orand other compensation earned throughand benefits provided under the date of terminationBank’s benefit plans and retain the rights to any vested benefits subject to the terms of the plan or agreement under which those benefits are provided, and (2) a lump sum payment equal to his base salary for the remaining term of the agreement. We would also continue Mr. Middleton’s medical, dental and life insurance benefitsprograms as of the date of termination until the expiration date of the agreement.
Pursuant to the 2005 Equity Compensation Plan, iftermination.
Payments Made Upon Disability. Under Mr. Middleton’s employment agreement, if he becomesafter becoming disabled and we terminate his employment pursuant to the terms of the agreement, he will receive his base salary or other compensation earned through the date of termination and retain the rights to any vested benefits subject to the terms of the plan or agreement under which those benefits are provided.In addition, Mr. Middleton will be entitled to the base salary that would have been paid through the expiration date of his agreement, reduced by any amounts to be paid under any disability program sponsored by the Company or the Bank during the same period.
Under Messrs. Pasenelli’s, Capitani’s, Burke’s or Cockerham’s employment agreements, if we terminate an executive due to disability pursuant to the terms of the agreement, the executive will receive the compensation and benefits provided for under thehis employment agreement for (1) any period during the term of thehis agreement and before the establishment of the executive’s disability; or (2) any period of disability before the executive’s termination of employment due to disability.
The SERPs for Messrs. Pasenelli, Capitani, Burke, Cockerham and Middleton provide for a disability benefit equal to the executive’s accrued benefit, calculated as of the date of determination of disability. Payment of the disability benefit will commence on the first day of the month following the earlier of the executive’s 65th birthday or death and shall be paid in 15 equal annual installments.
Under the salary continuation agreements dated September 6, 2003, as amended, upon termination of employment as a result of disability, Messrs. Middleton, Pasenelli and Cockerham are entitled to an annual benefit for a period of 15 years of $128,048, $74,112 and $72,235, respectively, commencing with the month following the executive attaining age 65, or in Mr. Middleton’s case, age 62. Under the salary continuation agreements dated August 21, 2006, as amended, Messrs. Pasenelli and Cockerham are entitled to an annual disability benefit ranging from $12,592 to $18,100 and $3,885 to $4,800, respectively, depending on the date of termination, commencing with the month following the executive attaining age 65. Under the salary continuation agreement dated August 21, 2006, as amended, Mr. Burke is entitled to an annual disability benefit of $65,000 on the date of termination, commencing with the month following the executive attaining age 65. Mr. Burke is entitled to an annual distribution benefit ranging from $36,268 to $65,000 depending on the date of termination, commencing with the month following the executive attaining age 65.
Under the 1995 Stock Option and Incentive Plan, if we terminateUpon an executive’s employment due to a disability, outstanding stock options will vest and remain exercisable untildeath, the earlier of one year from the date of termination or the expiration date of the stock options.
Pursuant to the 2005 Equity Compensation Plan and the 2015 Equity Compensation Plan, if we terminate an executive’s employment due to a disability, outstanding restricted stock and long-term restricted stock unit awards will immediately vest as of the date of termination.
Payments Made Upon Death. Under Mr. Middleton’s employment agreement, upon Mr. Middleton’s death, Mr. Middleton’s beneficiary will receive the sum of the base salary that would have been paid for the remaining term of the agreement, plus any other compensation or benefits to be provided in accordance with the terms and provisions of the Company’s benefit plans and programs.
Under Messrs. Pasenelli’s, Capitani’s, Burke’s or Cockerham’s employment agreements upon the executive’s death,provide that the Company will pay histhe executives or her beneficiarytheir respective beneficiaries or estate any compensation due to the executive through the end of the month in which the executive’s death occurred, plus any other compensation or benefits to be provided in accordance with the terms and provisions of the Company’sBank’s benefit plans and programs.
Each of the executive’s SERPs provide for a death benefit equal to the executive’s accrued benefit, payable to the executive’s beneficiaryprograms in 15 equal annual installments beginning the second month following the death ofwhich the executive if the executive dies before reaching normal retirement age. If the executive dies after the commencement of the SERP benefit payments, the executive’s beneficiary is entitled to the unpaid balance of the executive’s 15 annual benefit payments.
Under their salary continuation agreements, if the executive dies while in active service with the Bank, Mr. Middleton’s, Mr. Pasenelli’s, Mr. Burke’s and Mr. Cockerham’s designated beneficiaries will receive an annual benefit, for a period of 15 years, of $128,048, $92,212, $65,000 and $77,035, respectively, commencing with the month following the executive’s death.If the executive dies after his employment has terminated but before payments under the agreement have commenced, their designated beneficiary will be entitled to the same payments beginning on the first day of the month after the executive’s death.
Under the 1995 Stock Option and Incentive Plan, if an executive dies, outstanding stock options will vest and remain exercisable until the earlier of two years from the date of death or the expiration date of the stock options.
Pursuant to the 2005 Equity Compensation Plan and the 2015 Equity Compensation Plan, if an executive dies, outstanding awards vest immediately.
Payments Made Upon a Change in Control. Mr. Middleton’s employment agreement provides that if during the two-year period following a change in control (as defined in the agreement), Mr. Middleton terminates employment for any reason, he will be entitled to (1) his base salary or other compensation earned through the date of termination, and retain the rights to any vested benefits subject to the terms of the plan or agreement under which those benefits are provided, and (2) a lump sum payment equal to his base salary for the remaining term of the agreement. We would also continue Mr. Middleton’s medical, dental and life insurance benefitsparticipated as of the date of termination through the remaining term of the agreement. Section 280G of the Internal Revenue Code provides that payments related toexecutive’s death.
Mr. Pasenelli’s employment agreement provides that if (1) the executive’s employment is terminated without cause or without the executive’s consent and for a reason other than cause in connection with or within 12 months after a change in control (as defined in the agreement); or (2) the executive voluntary terminates employment within 12 months following a change in control upon the occurrence of events described in the agreement, he will receive a lump sum payment equal to three times his annual base salary and three times his most recent annual incentive compensation payment, plus continued healthan amount equal to the monthly COBRA premium that he would be required to pay to continue the benefits in effect as of his termination date under the Bank’s medical, dental and welfare benefits for 36 months following termination.life insurance plans, multiplied by 36. Under Messrs. Capitani’s, Burke’s and Cockerham’s employment agreement, each will receive a lump sum payment equal to two times his annual base salary and two times his most recent annual incentive compensation payment, plus continued healthan amount equal to the monthly COBRA premium that he would be required to pay to continue the benefits in effect as of his termination date under the Bank’s medical, dental and welfare benefits for 36 months following termination. Messrs. Pasenelli’s, Capitani’s, Burke’s or Cockerham’s employment agreements provide that if the valuelife insurance plans, multiplied by 36.
Messrs. Middleton’s, Pasenelli’s, Cockerham’s, Capitani’s and Burke’s SERPs provide thatthreshold, thereby avoiding the excise tax. The second calculation determines the after-tax benefit if the executives experiencepayments are made without reduction, and the executive’s after-tax benefit reflects payment of the golden parachute excise tax by the executive. The calculation that yields the greatest after-tax benefit to the executive determines whether the executive’s benefits are subject to reduction or whether the executive will receive all change in control-related benefits.
| | | Restricted Stock Awards | | |||||||||||||||
Name | | | Grant Date | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | | |||||||||
William J. Pasenelli | | | | | 01/23/2015 | | | | | | 475(2) | | | | | $ | 13,889 | | |
| | | | | 01/21/2016 | | | | | | 1,008(3) | | | | | | 29,474 | | |
| | | | | 02/09/2017 | | | | | | 418(4) | | | | | | 12,222 | | |
| | | | | 02/15/2018 | | | | | | 745(5) | | | | | | 21,784 | | |
James M. Burke | | | | | 01/23/2015 | | | | | | 425(2) | | | | | $ | 12,427 | | |
| | | | | 01/21/2016 | | | | | | 769(3) | | | | | | 22,486 | | |
| | | | | 02/09/2017 | | | | | | 289(4) | | | | | | 8,450 | | |
| | | | | 02/15/2018 | | | | | | 551(5) | | | | | | 16,111 | | |
Gregory C. Cockerham | | | | | 01/23/2015 | | | | | | 425(2) | | | | | $ | 12,427 | | |
| | | | | 01/21/2016 | | | | | | 769(3) | | | | | | 22,486 | | |
| | | | | 02/09/2017 | | | | | | 289(4) | | | | | | 8,450 | | |
| | | | | 02/15/2018 | | | | | | 531(5) | | | | | | 15,526 | | |
Underremaining benefits that would have been paid to the salary continuation agreements dated September 6, 2003, as amended, uponexecutive if the executive had survived.
termination of service or on a specified date in either a lump sum or over a period of one to 10 years, as elected by the executive.
DIRECTORS AND EXECUTIVE OFFICERS
WITH THE BOARD OF DIRECTORS
[The Community Financial Corporation Letterhead]
Chairman of the Board
VOTE AUTHORIZATION FORM
COMMUNITY BANK OF THE CHESAPEAKE
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
THE COMMUNITY FINANCIAL CORPORATION
Annual Meeting of Stockholders – May 2, 2016
With respect to all shares of common stock of The Community Financial Corporation (the “Company”) that are allocated to the account of the undersigned pursuant to the Community Bank of the Chesapeake Employee Stock Ownership Plan and Trust (the “ESOP”), the undersigned hereby directs Philip T. Goldstein and Joseph V. Stone, Jr., as Trustees of the Trust established under the ESOP, to vote such shares at the Annual Meeting of Stockholders (the “Meeting”) to be held at the Community Bank of the Chesapeake, Waldorf, Maryland, on Monday, May 2, 2016 at 10:00 a.m., local time, and at any and all adjournments thereof as follows:
The Board of Directors recommends a vote “FOR” all of the nominees and “FOR” Proposals 2 and 3.
You are to vote my shares as follows:
x PLEASE MARK VOTES AS IN THIS EXAMPLE
Louis P. Jenkins, Jr., Michael L. Middleton, and Mary Todd Peterson
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name in the space provided below).
*Exceptions: ____________________________________________
The undersigned acknowledges receipt from the Company prior to the execution of this vote authorization form of the Notice of Annual Meeting, a Proxy Statement for the Annual Meeting and the Company’s 2015 Annual Report on Form 10-K.
Please complete this direction form, sign, date and return it to the Company, Attn: Barbara Lucas, The Community Financial Corporation, 3035 Leonardtown Road, Waldorf, Maryland 20601 by April 25, 2015.