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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File No.
001-36094
THE COMMUNITY FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1652138
(State of Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3035 Leonardtown Road
,
Waldorf
,
MD
,
20601
(Address of Principal Executive Offices) (Zip Code)
(
301
)
645-5601
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.01 per share TCFC The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company" and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-Accelerated Filer Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and
attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by
check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial
statements.
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by
any of the registrant's executive officers during the relevant recovery period
pursuant to (s) 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) Yes
No
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $
186.7
million based on the closing price $36.88 per share at which the common stock
was sold on the last business day of the Company's most recently completed
second fiscal quarter. For purposes of this calculation only, the shares held
by directors, executive officers and the Company's Employee Stock Ownership
Plan of the registrant are deemed to be shares held by affiliates.
The number of shares of Registrant's Common Stock outstanding as of April 10,
2023 was
5,666,904
.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Audit Firm ID Auditor Name Auditor Location
686 FORVIS, LLP Tysons, Virginia
-------------------------------------------------------------------------------
EXPLANATORY NOTE
On March 2, 2023, The Community Financial Corporation (the "Company") filed
our Annual Report on Form 10-K for the fiscal year ended December 31, 2022
(the "Original Form 10-K"). The Original Form 10-K omitted Part III, Items 10
(Directors, Executive Officers and Corporate Governance), 11 (Executive
Compensation), 12 (Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters), 13 (Certain Relationships and
Related Transactions, and Director Independence) and 14 (Principal Accountant
Fees and Services) in reliance on General Instruction G(3) to Form 10-K, which
provides that such information may be either incorporated by reference from
the registrant's definitive proxy statement or included in an amendment to
Form 10-K, in either case filed with the Securities and Exchange Commission
(the "SEC") not later than 120 days after the end of the fiscal year.
This Amendment No. 1 to Form 10-K (this "Amendment") is being filed solely to:
amend Part III, Items 10, 11, 12, 13 and 14 of the Original Form 10-K to
include the information required by such Items; and
include new certifications of our principal executive officer and principal
financial officer as exhibits to this Amendment under Item 15 of Part IV
hereof, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
The cover page of the Form 10-K is also amended to update the number of shares
outstanding of the registrant's common stock, which now reflects the amount
outstanding as of April 10, 2023. This Amendment does not otherwise change or
update any of the disclosures set forth in the Original Form 10-K and does not
otherwise reflect any events occurring after the filing of the Original Form
10-K. Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Original Form 10-K.
As used in this Amendment, the "Company" refers to The Community Financial
Corporation, and the terms "we," "us" or "our" refer to the Company and its
subsidiary, Community Bank of the Chesapeake, collectively. Other terms used
but not defined herein are as defined in the Form 10-K.
2
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THE COMMUNITY FINANCIAL CORPORATION AND SUBSIDIARIES
Index to Annual Report on Form 10-K
Item Number Page No
PART III
Item 10. Directors, Executive Officers and Corporate Governance 4
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 26
Item 13. Certain Relationships and Related Transactions, and Director Independence 28
Item 14. Principal Accounting Fees and Services 30
PART IV
Item 15. Exhibits, Financial Statement Schedules 31
Item 16. Form 10-K Summary 33
Signatures 34
3
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Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of 12 members of which
three are women and one self-identifies as racially or ethnically diverse. The
Board is divided into three classes, each with terms of three years, one-third
of whom are elected annually.
The information shown below in our Board Diversity Matrix is based on
voluntary self-identification of each member of our Board.
Board Diversity Matrix as of
April 10, 2023
Total Number of Directors 12
Part I: Gender Identity Female Male Non-Binary Did Not Disclose Gender
Directors 3 9 - -
Part II: Demographic Background
African American or Black - - - -
Alaskan Native or Native American - - - -
Asian - 1 - -
Hispanic or Latinx - - - -
Native Hawaiian or Pacific Islander - - - -
White 3 8 - -
Two or More Races or Ethnicities - - - -
LGBTQ+ - - - -
Did Not Disclose Demographic Background - - - -
Information regarding our directors is provided below. Unless otherwise
stated, each individual has held his or her current occupation for the last
five years. The age indicated in each biography is as of December 31, 2022.
There are no family relationships among the directors or executive officers,
except that Rebecca M. McDonald is the daughter of Michael L. Middleton, the
former Chairman of the Board of the Company who retired on June 30, 2020.
Directors with Terms Ending in 2023
James M. Burke
joined the Bank in 2005. Mr. Burke was appointed President and CEO of the
Company and Bank on September 1, 2022. Prior to his appointment to President
and CEO, he served as President of the Company and the Bank. Before his
appointment as President of the Bank in 2016, he served as Executive Vice
President and Chief Risk Officer. Before joining the Bank, Mr. Burke served as
Executive Vice President and Senior Loan Officer of Mercantile Southern
Maryland Bank. Mr. Burke has over 30 years of banking experience. Mr. Burke is
the former Chairman of the Board of Directors of University of Maryland
Charles Regional Medical Center, Chairman of the Board of Directors for St.
Mary's Ryken High School, Trustee for Historic Sotterley and is active in
other civic groups. Mr. Burke is a Maryland Bankers School graduate and holds
a Bachelor of Arts from High Point University. He is also a graduate of the
East Carolina Advanced School of Commercial Lending and attended the Harvard
Business School Program on Negotiation. Age 54. Director of the Bank since
2016 and the Company since 2021.
Mr. Burke's extensive experience in the banking industry affords the Board
valuable insight regarding the business and operations of the Bank and the
Company. Mr. Burke's strategic leadership abilities, 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.
James F. Di Misa
joined the Bank in 2005. Before Mr. Di Misa's retirement as a Bank employee on
March 31, 2019, he served as Executive Vice President and Chief Operating
Officer. Before joining the Bank, Mr. Di Misa served as Executive Vice
President of Mercantile Southern Maryland Bank. Mr. Di Misa has over 30 years
of banking experience. Mr. Di Misa served on the Board of Trustees of the
College of Southern Maryland. He is former Chairman of the Board of Trustees
for the Maryland Banking School, Past Chair of the Charles County Rotary
Scholarships Program, Past President of the Charles County Rotary Club, former
Governor Appointment to the Tri-County Work Force Investment Board, and Past
President and Founder of the La Plata Business Association. Mr. Di Misa is a
Stonier Graduate School of Banking graduate and holds a Master of Business
Administration from Mount St. Mary's College and a Bachelor of Science from
George Mason University. Age 63. Director of the Bank since 2016 and the
Company since 2021.
4
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Mr. Di Misa's extensive experience in the local banking industry affords the
Board valuable insight regarding the business and operations of the Bank. Mr.
Di Misa's experience in bank operations, knowledge of the Southern Maryland
market, financial acumen and knowledge of the Company's and the Bank's
business and history position him well to serve as a Director.
Louis P. Jenkins, Jr.
is the principal of Jenkins Law Firm, LLC, located in LaPlata, Maryland.
Before entering private practice, Mr. Jenkins served as an Assistant State's
Attorney in Charles County, Maryland from 1997 to 1999. In addition to his
private practice, Mr. Jenkins serves as Court Auditor for the Circuit Court
for Charles County, Maryland and attorney for the Charles County Board of
Elections. From 2017-2019, Mr. Jenkins served as a member of the Board of
Directors of the University of Maryland Medical System which consists of
twelve hospitals located throughout the State of Maryland with annual revenue
in excess of $3.67 billion. Mr. Jenkins has also served as a board member of
several other public service organizations including the University of
Maryland Charles Regional Medical Center, Southern Maryland Chapter of the
American Red Cross, Charles County Chamber of Commerce and the Charles County
Bar Association. Age 51. Director of the Bank and the Company since 2000.
As an attorney, Mr. Jenkins provides the Board with substantial knowledge
regarding issues facing the Company and the Bank. In addition, Mr. Jenkins
brings a critical perspective to the lending and governance function of the
Company and the Bank. Mr. Jenkins' experience in the public sector adds
valuable expertise regarding local issues and provides first-hand
understanding of the local political and business environment in which the
Bank operates.
Mary Todd Peterson
retired in May 2018 as the senior advisor to the Chairman and CEO of
ProAssurance Corporation supporting key strategic initiatives. In February
2016, she retired as the President and Chief Executive Officer of Medmarc
Insurance Group and as a Director of Medmarc Casualty Insurance Company and
its subsidiary Noetic Specialty Insurance Company, both of which are
subsidiaries of ProAssurance. Ms. Peterson had been associated with Medmarc
since 2001 where she also held the positions of Chief Financial Officer and
Chief Operating Officer. From 1993 to 2001, Ms. Peterson was a Partner with
Johnson Lambert & Co., a certified public accounting firm. Ms. Peterson also
held positions with Acacia Life Insurance Company, Oxford Development
Corporation and Ernst & Whinney (now Ernst & Young). Prior to her retirement
from Medmarc, Ms. Peterson served as a member of the Property Casualty
Insurers Association of America ("PCI") Board of Governors, Chair of PCI's
Investment Committee and a member of PCI's Executive and Finance Committees.
In September 2020, Ms. Peterson joined the Board of Directors of ProAssurance
American Mutual, A Risk Retention Group where she serves on the Executive and
Investment Committees. Ms. Peterson is a member of the American Institute of
Certified Public Accountants. Age 68. Director of the Bank and the Company
since 2010.
Ms. Peterson has extensive executive-level experience in a mid-size company
setting within the financial services industry combined with 18 years of
experience in public accounting. Ms. Peterson's financial and operational
expertise within the insurance industry, including proficiencies in corporate
governance and risk assessment, provide the Board with a skill set critical to
successfully operating the Company and Bank.
Directors with Term Ending in 2024
Gregory C. Cockerham
joined the Bank in 1988. Before Mr. Cockerham's retirement as an employee of
the Bank on December 31, 2019, he served as Executive Vice President and Chief
Lending Officer. Before joining the Bank, he was a Vice President at Maryland
National Bank. Mr. Cockerham has over 40 years of banking experience. Mr.
Cockerham serves as Emeritus and Past Chair of the Board of Directors for the
College of Southern Maryland Foundation and Finance Chair of the Potomac
Baptist Association. He is Past Chair of Maryland Title Center, former
President of the Rotary Foundation Board of Charles County, and Past Chair of
the Charles County Board of Education CRD Program. Mr. Cockerham is a Maryland
Banking School graduate and holds a Bachelor of Science from West Virginia
University. Age 68. Director of the Bank since 2016 and the Company since 2021.
Mr. Cockerham's extensive experience in the local banking industry affords the
Board valuable insight regarding the business and operations of the Bank. Mr.
Cockerham's knowledge of the Southern Maryland market, financial acumen and
knowledge of the Company's and the Bank's business and history position him
well to serve as a Director.
M. Arshed Javaid
is the President of Parraid, LLC founded in 2019 and wholly devoted to design,
engineering, sales, and support of telemetry data systems and tactically
oriented mission critical communications solutions.
Previously Mr. Javaid was the president of Smartronix, Inc., an information
technology and engineering solutions provider. Mr. Javaid founded Smartronix,
Inc. in 1995, and has extensive experience in business management and
community relations. He served on the Historic Sotterley Inc. Board of
Trustees for ten years 2008 - 2018 and was re-elected in January 2019 for a 5
year term. Age 67. Director of the Bank and the Company since 2013.
Mr. Javaid provides the Board with significant management, strategic and
operational knowledge through his experience as founder and president of an
information technology and engineering solutions provider that has evolved
from a start-up company to a company with over 700 employees. Mr. Javaid's
experience in the information technology industry, especially cyber security,
provides the Board with valuable insight into the data security and
reputational risk issues facing businesses.
5
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Rebecca Middleton McDonald, CPA
, is a partner at CohnReznick, LLP a national audit, tax and business advisory
firm. She has 28 years of experience providing accounting advisory services
and financial transformation support to both private and public companies. Ms.
McDonald specializes in a range of services, such as outsourced and project
based accounting, SEC reporting, audit and IPO readiness, internal control and
process improvement analysis, and due diligence support for mergers and
acquisitions. Prior to joining CohnReznick, Ms. McDonald held various finance
roles with a publicly traded company. Ms. McDonald is a member of the American
Society of Certified Public Accountants. She serves as the Treasurer on the
Board of Trustees of Commonwealth Academy. Ms. McDonald holds a Bachelor of
Science from Elon University. Age 49. Director of the Bank and the Company
since 2020.
Ms. McDonald has extensive audit, public accounting, and executive level
experience. Ms. McDonald's proficiencies provide the Board with a skill set
critical to successfully operating the Company and Bank.
Kathryn M. Zabriskie
is president of Business Training Works, Inc., an employee-development firm
specializing in soft-skills training, leadership development, and
customer-experience initiatives. Ms. Zabriskie started the company in 2000.
Since that time, she and her team have worked with hundreds of organizations
across industries, including several members of the Fortune 50. Ms. Zabriskie
holds an Master of Business Administration from the University of Texas at
Austin and a Bachelor of Arts from George Mason University. She has served on
several philanthropic boards and civic organizations in the Bank's market. Age
51. Director of the Bank since 2013 and Director of the Company since 2017.
Ms. Zabriskie brings a depth and breadth of knowledge to the Board related to
best practices in employee development, human resources, facilitation, and
organizational planning. Her experience working nationally, internationally,
and across industries offers a broad perspective on issues related to training
and development, corporate culture, managing and attracting talent, and
planning for the future.
Directors with Terms Ending in 2025
Michael B. Adams
is the President of JON Properties, LLC., a full service commercial real
estate company in Fredericksburg, Virginia. JON Properties has won numerous
awards, particularly for its work on Historic Renovation and tax credit
projects in the Fredericksburg, Virginia region. Prior to starting JON
Properties, Mr. Adams worked at WEB Equipment, Inc., a dealer in rough terrain
forklifts. Mr. Adams served as President of WEB Equipment, Inc. from 1995 -
2006. Mr. Adams serves, or has served, on numerous boards of community
organizations. These include the Fredericksburg Rotary Club, the Cal Ripken,
Sr. Foundation, the Fredericksburg Area Museum, the Central Virginia Housing
Coalition, Loisann's Hope House and the Germanna Community College Education
Foundation. Mr. Adams is also a member of the Fredericksburg Builders
Association, the National Association of Home Builders, the Fredericksburg
Realtors Association and the National Realtors Association. Mr. Adams attended
Prince George's Community College and the University of Maryland where he
studied business management. Mr. Adams holds a Class A General Contractors
License and is a licensed real estate broker in the state of Virginia. Age 56.
Director of the Bank and the Company since 2021.
Mr. Adams provides the Board with management and strategic knowledge through
his experience as founder and owner of a local business. His experience as a
business owner adds valuable expertise regarding local issues and provides
first-hand understanding of the needs of business owners in the environment in
which the Bank operates.
E. Larry Sanders, III
is President of Edward L. Sanders Insurance Agency, which provides multi-line
insurance services to clients in Maryland since 1903. Mr. Sanders graduated
from NC State University in 1978, obtained his Certified Insurance Counselor
designation in 1979 and became a licensed Insurance Advisor in 1981. Mr.
Sanders served on the board of directors of County First Bank for 28 years,
and served as Chairman of the board from 2013 to 2018. He is a current member
and past President of the Charles County Rotary, past director for the
Professional Insurance Agent's Association, past director and past President
for the Civista Foundation and current director for the Charles County Rotary
Foundation. Age 66. Director of the Bank and the Company since 2018.
Through his experience as owner of an insurance agency, Mr. Sanders has
extensive financial and operational knowledge. His years of experience serving
as a bank director provides the Board valuable insight regarding corporate
governance, regulatory compliance, risk assessment practices and bank
operations.
Austin J. Slater, Jr.
is Chairman of the Board of Directors of the Company and the Bank. He is a
retired executive from the electric energy industry. Mr. Slater formerly
served on the Board of Directors of the Federal Reserve Bank of Richmond,
Baltimore Branch, as Chairman of the Board of the Maryland Chamber of Commerce
and Chairman of the Board of Trustees for the College of Southern Maryland. He
currently serves on the Board of Governors for Shepherd University and as
Treasurer for the Shepherd University Foundation as well as numerous other
industry and civic organizations. Mr. Slater holds an Master of Business
Administration in finance from the George Washington University and a Bachelor
of Science in accounting from Shepherd University. Age 69. Director of the
Bank and the Company since 2003.
Mr. Slater has extensive management level experience in a large company
setting outside of the financial services industry. Mr. Slater's financial
acumen and operational experience allow him to understand the complexities of
the Company and the Bank. His
6
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experience in a regulated industry has exposed Mr. Slater to many of the
issues facing companies today, particularly regulated entities, making Mr.
Slater a valued component of a well-rounded board.
Joseph V. Stone, Jr.
owned and operated Joe Stone Insurance Agency, which provided multi-line
insurance services to clients in Maryland and Virginia, from 1981 to 2016. He
has served as a director for the Southern Maryland Electric Cooperative from
1996 to 2020. Age 68. Director of the Bank and the Company since 2006.
Mr. Stone provides the Board with significant marketing and operational
knowledge through his experience as owner of an insurance agency and various
director positions with companies outside of the financial services industry.
Mr. Stone also has considerable experience in the insurance industry,
corporate governance and risk assessment practices necessary in banking
operations.
CORPORATE GOVERNANCE
Director Independence.
The Company's Board of Directors currently consists of 12 members, all of whom
are independent under the listing requirements of The NASDAQ Stock Market,
except for James M. Burke, President and Chief Executive Officer of the
Company and Bank, Gregory C. Cockerham (retired December 31, 2019), former
Executive Vice President and Chief Lending Officer of the Company and the Bank
and James F. Di Misa (retired March 31, 2019), former Executive Vice President
and Chief Operating Officer of the Company and the Bank. In determining the
independence of its directors, the Board considered various transactions,
relationships and arrangements between the Company and its directors
,
including (i) legal services performed by the Jenkins Law Firm, LLC, of which
Louis P. Jenkins, Jr. is the principal and to which the Bank paid an annual
retainer of $118,000 in 2022, (ii) Michael B. Adams' 25% ownership interest in
GAFR Holdings, LLC, an entity from which the Bank leases space for a lending
center and to which the Bank paid $105,812 in 2022 in connection with the
lease, (iii) Mr. Adams' position as President and sole owner of JON
Properties, LLC, an entity receiving property maintenance fees from the Bank
and to which the Bank paid $12,418 in 2022, and (iv) loans or lines of credit
that the Bank has directly or indirectly made to each of the directors on the
Board.
Board Leadership Structure.
The Company currently separates the offices of Chief Executive Officer and
Chairman of the Board. Doing so allows the 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's Role in Risk Oversight.
Risk is inherent with every business and how well a business manages risk can
ultimately determine its success. We face a number of risks, including credit
risk, interest rate risk, liquidity risk, operational risk, strategic risk and
reputation risk. Management is responsible for the day-to-day management of
risks the Company faces, while the Board, as a whole and through its
committees, has responsibility for the oversight of risk management. In its
risk oversight role, the Board of Directors has the responsibility to satisfy
itself that the risk management processes designed and implemented by
management are adequate and functioning as designed. To do this, senior
management attends the Board meetings and is available to discuss strategy and
risks facing the Company and to address any questions or concerns raised by
the Board on risk management and any other matters. The Board also provides
strong oversight of the Company's management and affairs through its standing
committees and, when necessary, special meetings of independent directors.
Committees of the Board of Directors.
The following table identifies the members of the Board's Audit, Board Risk
Oversight, Governance, Compensation and Strategic Initiatives Committees as of
April 10, 2023. All members of the Audit, Governance and Compensation
Committees are independent in accordance with the listing requirements of The
NASDAQ Stock Market. Each committee operates under a written charter, which is
approved by the Board of Directors, that governs its composition,
responsibilities and operation. Each committee reviews and reassesses the
adequacy of its charter at least annually.
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Director Audit Board Risk Oversight Governance Compensation Strategic Initiatives
Committee Committee Committee Committee Committee
Michael X X X
B. Adams
James M.
Burke
James F. X X*
Di Misa
Gregory C. X X
Cockerham
M. Arshed X X
Javaid
Louis P. X* X*
Jenkins, Jr.
Rebecca M. X X
McDonald
Mary Todd X* X X
Peterson
E. Lawrence X X*
Sanders, III
Austin J.
Slater, Jr.*
Joseph V. X X
Stone, Jr.
Kathryn M. X X X
Zabriskie
Number of 8 4 4 6 5
Meetings in 2022
______________________
*
Chairperson
Audit Committee.
The Audit Committee engages the Company's independent registered public
accounting firm and meets with them in connection with their annual audit and
reviews the Company's accounting and financial and regulatory reporting
policies and practices. Other responsibilities of the Audit Committee include
engagement of compliance and internal audit providers and the review with
management of reports issued by such parties. The Board of Directors has
determined that the Audit Committee does not have a member who is an "audit
committee financial expert" as defined under the rules and regulations of the
Securities and Exchange Commission. While the Board has not designated any
individual Board member as an "audit committee financial expert," the Board
believes the level of financial knowledge and experience of the current
members of the Audit Committee, including the ability to read and understand
financial statements, is cumulatively sufficient to discharge the Audit
Committee's responsibilities. 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 (
https://www.cbtc.com/about/investor-relations/corporate-governance/
), and is available in print to any stockholder who requests a copy.
Board Risk Oversight Committee.
The Board Risk Oversight Committee assists the Board in its oversight
responsibilities by focusing specifically on the Company's enterprise risk
management activities including the significant policies, procedures and
practices employed to manage capital adequacy, market risk, earnings, credit
risk, liquidity, compliance, regulatory, legal, reputation, and strategic
operational risk and by providing recommendations to the Board and management
on strategic guidance with respect to the assumption, management and
mitigation of risk. The Board Risk Oversight 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 (
https://www.cbtc.com/about/investor-relations/corporate-governance/
), and is available in print to any stockholder who requests a copy.
Governance Committee.
The
Governance Committee is responsible for promoting sound corporate governance
policies that promote the best interests of the Company and its stockholders.
The Committee's responsibilities include: identification of director
candidates; director education; recommendations on the size and composition of
the Board and the boards of any subsidiaries, review of any stockholder
proposals; monitoring of regulatory and statutory compliance; review of
committee charters; and evaluations of Board oversight and effectiveness. The
Governance Committee also annually reviews and recommends, in conjunction with
the Compensation Committee, the appropriate level of director compensation.
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 (
https://www.cbtc.com/about/investor-relations/corporate-governance/
), and is available in print to any stockholder who requests a copy.
Compensation Committee.
The Compensation Committee approves the compensation objectives for the
Company and the Bank and establishes the compensation for the Chief Executive
Officer and other executives. Our Chief Executive Officer, President and Chief
Operating Officer make recommendations to the Compensation Committee from time
to time regarding the appropriate mix and level of compensation for other
executives. The Compensation Committee reviews compensation for the Company's
executive officers to ensure an appropriate balance between short-term pay and
long-term incentives. In addition to reviewing competitive market values, the
Compensation Committee also examines the total compensation mix, pay-for-perform
ance relationship, and how all elements, in the aggregate, comprise the
executive's total compensation package. Decisions by the Compensation
Committee with respect to the
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compensation of executive officers are approved by the full Board of
Directors. The Compensation Committee also annually reviews and recommends, in
conjunction with the Governance Committee, the appropriate level of director
compensation. 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 (
https://www.cbtc.com/about/investor-relations/corporate-governance/
), and is available in print to any stockholder who requests a copy.
Strategic Initiatives Committee.
The Strategic Initiatives Committee provides oversight and strategic guidance
to management related to the Company's planning and execution of key
organizational initiatives and strategic projects. The Strategic Initiatives
Committee reviews and makes recommendations to the Board with respect to
policies, processes and systems that management uses to manage projects, new
products, facilities and technology. The Strategic Initiatives 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 (
https://www.cbtc.com/about/investor-relations/corporate governance/
), and is available in print to any stockholder who requests a copy.
Independent Merger Committee
. The Independent Merger Committee was formed in September 2022 in connection
with the Board of Directors' evaluation of a proposed merger of equals with
Shore Bancshares, Inc. The Independent Merger Committee is comprised solely of
independent directors. The duties of the Independent Merger Committee were to
include (i) reviewing and providing guidance to senior management and the full
Board of Directors with respect to, and making a recommendation to the Board
of Directors regarding, the proposed business combination with Shore
Bancshares, Inc., including, as necessary, reviewing, negotiating and
recommending relevant terms for the proposed business combination to the Board
of Directors; (ii) overseeing the due diligence process with respect to the
proposed business combination; and (iii) providing the full Board of Directors
with reports of its meetings and activities. The Independent Merger Committee
is comprised of Directors Slater, Adams, Jenkins, Stone, McDonald, Peterson
and Sanders and met seven times during 2022.
Director Nomination Process.
The Governance Committee identifies nominees for election as directors. The
Governance Committee seeks to create a board that is strong in its collective
knowledge and has a diversity of skills and experience in accounting and
finance, management and leadership, vision and strategy, business operations,
business judgment, industry knowledge and corporate governance. To accomplish
this, the Governance Committee considers a candidate's knowledge of the
banking business and involvement in community, business and civic affairs, and
also considers whether the candidate would adequately represent the Company's
market area. Any nominee for director must be highly qualified with regard to
some or all of these attributes. In searching for qualified director
candidates to fill vacancies on the Board, the Governance Committee solicits
its current directors for the names of potential qualified candidates. The
Governance Committee may also ask its directors to pursue their business
contacts for the names of potentially qualified candidates. The Governance
Committee would then consider the potential pool of director candidates,
select the top candidates based on the candidates' qualifications and the
Company's needs, and conduct a thorough investigation of each proposed
candidate's background. If a stockholder has submitted a proposed nominee in
accordance with the procedures specified below, the Governance Committee would
consider the proposed nominee, along with any other proposed nominees
recommended by directors, in the same manner in which the Governance Committee
would evaluate nominees for director recommended by the Board of Directo
rs. The Governance Committee will also consider the extent to which a
candidate helps the Board of Directors reflect the diversity of the Company's
stockholders, employees, customers and communities, including with respect to
race, ethnicity, gender, age and other characteristics. The Company has taken
steps to increase the diversity of its Board, and the Governance Committee
will continue to seek opportunities to enhance board diversity in the future.
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. Additionally, to comply with the universal proxy rules (once
effective) for our 2023 annual meeting of stockholders, stockholders who
intend to solicit proxies in support of director nominees other than the
Company's nominees must provide notice that sets forth the information
required by Rule 14a-19 under the Exchange Act no later than March 26, 2023,
subject to certain exceptions in Rule 14a-19.
Board and Committee Meetings.
During 2022, the Board of Directors of the Company held nine meetings. No
director attended fewer than 75% of the meetings of the Board of Directors and
Board committees on which they served in 2022, except for Kimberly C.
Briscoe-Tonic whose ability to attend meetings was impacted by health issues.
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Director Attendance at Annual Meeting of Stockholders.
While the Company does not have a policy regarding Board member attendance at
annual meetings of stockholders, it encourages directors to attend the annual
meeting of stockholders. All of the Company's directors attended the Company's
2022 annual meeting of stockholders, expect for Kimberly C. Briscoe-Tonic
whose ability to attend was impacted by health issues and M. Arshed Javaid who
was out of the country.
Code of Ethics.
The Community Financial Corporation maintains a Code of Ethics that is
designed to ensure that the Company's directors and employees meet the highest
standards of ethical conduct. The Code of Ethics, which applies to all
employees and directors, addresses conflicts of interest, the treatment of
confidential information, general employee conduct and compliance with
applicable laws, rules and regulations. In addition, the Code of Ethics is
designed to deter wrongdoing and promote honest and ethical conduct, the
avoidance of conflicts of interest, full and accurate disclosure and
compliance with all applicable laws, rules and regulations. Under the terms of
the Code of Ethics, violations of the Code of Ethics reported by directors are
required to be reported to the Chief Executive Officer, Corporate Secretary or
the Audit Committee of the Board of Directors. Complaints regarding accounting
matters must be reported to the Audit Committee Chair. A copy of the Code of
Ethics is available free of charge in the Investor Relations portion of the
"About Community Bank"
section of the Company's website (
https://www.cbtc.com/about/investor-relations/corporate-governance/
), and is available in print to any stockholder who requests a copy.
MANAGEMENT - CHIEF OFFICERS
Our executive officers are elected by the Board of Directors and serve at the
Board's discretion. Below is information regarding our executive officers who
are not directors. Ages presented are as of December 31, 2022.
Todd L. Capitani
, age 56, joined the Bank in 2009. He serves as Executive Vice President and
Chief Financial Officer of the Company and the Bank. Before joining the Bank,
Mr. Capitani served as a Senior Finance Manager at Deloitte Consulting and as
Chief Financial Officer at Ruesch International, Inc. Mr. Capitani has over 30
years of experience in corporate finance, controllership and external audit.
Mr. Capitani is involved with several local charities, religious and community
organizations. Mr. Capitani is a member of the American Institute of Certified
Public Accountants and other civic groups. He serves as the Treasurer on the
Board of Directors for Annmarie Sculpture Garden & Arts Center. Mr. Capitani
is a Certified Public Accountant and holds a Bachelor of Arts from the
University of California at Santa Barbara. He also attended the Harvard
Business School Program on Negotiation and the Yale School of Management
Strategic Leadership Conference.
John Chappelle
, age 37, joined the Bank in 2007. He serves as Executive Vice President and
Chief Digital Officer of the Bank. Mr. Chappelle is responsible for the
execution of digital banking strategies and oversees Information Technology,
Digital Banking and Commercial Services. Mr. Chappelle has more than 15 years
of banking experience. He serves on the Board of Directors for Bay Community
Support Services and is Past Chairman of the Charles County Chamber of
Commerce. He is a Maryland Bankers School graduate, holds a Bachelor of
Science in Business Administration from Mount St. Mary's University and holds
a Master of Business Administration from the University of Maryland University
College.
Brian Scot Ebron
, age 54, joined the Bank in 2018. He serves as Executive Vice President and
Chief Banking Officer. Mr. Ebron oversees the Bank's business development
efforts, as well as the Bank's credit, and risk departments. Mr. Ebron has
worked in banking for over 30 years and has prior executive level experience.
He serves on the Board of Gwyneth's Gift Foundation, as Treasurer, and also on
the College of Southern Maryland's Business Advisory Council. He holds a
bachelor's degree in economics from the University of North Carolina.
Christy M Lombardi
, age 46, joined the Bank in 1998. She serves as Executive Vice President and
Chief Operating Officer of the Company and the Bank. Ms. Lombardi is
responsible for corporate governance matters for the Company, and oversees
operations, human resources, information technology and shareholder relations.
Ms. Lombardi has over 20 years of banking experience. She serves on the Board
of Trustees of the College of Southern Maryland, the Maryland Bankers
Association Board of Directors, the Advisory Board of the Maryland Banker's
Association Council of Professional Women in Banking and Finance, on the
Southern Maryland Workforce Development Board and on the Executive Board of
the Tri-County Council for Southern Maryland. Ms. Lombardi served on the Board
of Directors of the Calvert County Chamber of Commerce from 2012-2018. She
completed the ABA Stonier Graduate School of Banking program, is a Maryland
Banking School graduate and holds a Master of Science in management from
University of Maryland University College as well as a Master of Business
Administration.
Lacey Pierce,
age 37, joined the Bank in 2007. She serves as Executive Vice President and
Chief Administrative Officer. Ms. Pierce is responsible for administration
matters and oversees lending administration, marketing and facilities. She has
more than 15 years banking experience. Ms. Pierce serves on the Board of
Directors of The Arc of Southern Maryland and Farming 4 Hunger. She completed
the ABA Stonier Graduate School of Banking program, is a Maryland Banking
School graduate and holds a bachelor's degree from Towson University.
Patrick Pierce,
age 44, joined the Bank in 2003. He serves as Executive Vice President and
Chief Lending Officer for the Bank. Mr. Pierce is responsible for the business
development efforts in the Maryland & Virginia markets and oversees Community
Wealth Advisors, the Bank's wealth division. Mr. Pierce has 20 years of
experience in banking and financial services. He serves on the
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Board of Directors of the University of Maryland Charles Regional Medical
Center as the Secretary/Treasurer and is a Board Member and Treasurer for the
La Plata Business Association. Mr. Pierce is a Maryland Bankers School
graduate and holds a bachelor's degree in business management from University
of Maryland University College.
Talal Tay,
age 45, joined the Bank in 2018. He serves as Executive Vice President and
Chief Risk Officer of the Bank. Mr. Tay is responsible for enterprise risk
management, credit administration, loan review and information security. Mr.
Tay also oversees compliance and BSA. He has worked in the audit and risk
areas of financial services for more than 20 years. Mr. Tay holds a bachelor's
degree in business marketing from Florida State University and accounting
studies from the University of Texas at San Antonio. He holds a Certified
Anti-Money Laundering Specialist designation.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
The Company's management team and Board of Directors recognize the importance
of a continuous focus on environmental, social, and governance ("ESG") issues.
The Strategic Plan adopted by the Company includes the development of
ESG-related initiatives as part of the Company's long-term goals. The
Strategic Initiatives Committee is tasked with overseeing the execution of the
Company's strategic initiatives, including ESG efforts under the plan.
Furthermore, the Company's management team and the Board oversee and direct a
range of matters that implicate ESG issues, such as the Company's:
sustainability practices, investments in human capital, social and community
support efforts, and governance and risk management policies and procedures.
Sustainability
The Company is committed to operating in a sustainable manner and has
undertaken a number of initiatives designed to reduce our impact on the
environment and to promote environmentally friendly projects and practices.
With a view to increasing efficiency and reducing waste, we are continuing to
digitize manual back office and banking center functions. Over the past
several years, we migrated our technology infrastructure to a cloud
environment, which reduced our energy usage. Many of the Bank's locations have
been converted to energy efficient systems and finishes to minimize the carbon
footprint, and any new buildings or locations will be constructed in this
manner. We continue to increase the use of digitized records and e-signing
technology to minimize paper waste.
We believe that a focus on environmental sustainability, with the objective of
reducing costs and improving sustainability of our operations, will provide a
strategic benefit to the Company. Furthermore, the Company recognizes that
climate change is a growing risk for our planet, and we are committed to doing
our part to mitigate this risk by placing increased focus and emphasis on
environmental consciousness.
Human Capital
Our Mission and Culture.
The Bank's mission is to exceed the expectations of our community, today and
tomorrow. The Bank's corporate culture is defined by core values which include
integrity, accountability, professionalism, diversity, community-focused and
communicative. We value our employees by investing in competitive compensation
and benefit packages and fostering a team environment centered on professional
service and open communication. Attracting, retaining and developing
qualified, engaged employees who embody these values are crucial to the
success of the Bank and Company. We believe that relations with our employees
are good.
Employee Demographics.
As of December 31, 2022, Community Bank employed 197 full and part time
employees (194 full time equivalent employees) of which approximately 72% were
women. In addition, for those employees identifying as such, approximately 24%
of our workforce have diverse ethnic backgrounds.
Diversity and Inclusion.
We are committed to building a diverse workforce and an inclusive work
environment which are supported by our culture and values. We strive to
attract and retain employees with diverse characteristics, backgrounds and
perspectives, which inspires our team to achieve more creative and innovative
solutions for our customers. With a commitment to equality, inclusion and
workplace diversity, we focus on understanding, accepting, and valuing the
differences between people. Our commitment to equal employment opportunities
is demonstrated through an affirmative action plan which includes annual
compensation analyses, ongoing reviews of our selection and hiring practices
and an annual review of our plan to ensure we build and maintain a diverse
workforce.
Compensation and Benefits.
The Bank's compensation and benefits package is designed to attract and retain
a talented workforce. The Bank's minimum wage for entry level positions is
$20.00 per hour. In addition to salaries, benefits include a 401(k) plan with
an employer matching contribution, an employee stock ownership plan, medical
insurance benefits, paid short-term and long-term disability and life
insurance, flexible spending accounts, tuition reimbursement, wellness
benefits, paid time off, family leave and an employee assistance program.
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Professional Development.
The Bank invests in the growth of its employees by providing access to
professional development and continuing education courses and seminars that
are relevant to the banking industry and their job function within the
Company. We offer our employees the opportunity to participate in various
professional and leadership development programs. On-demand training
opportunities include a variety of industry, technical, professional, business
development, leadership and regulatory topics. Training to communicate the
Bank's culture, behavioral standards and expectations to employees is an
important part of our training program.
Employee Health and Safety.
The safety, health and wellness of our employees is a top priority. The
COVID-19 pandemic presented unique challenges to maintain employee safety
while continuing successful operations. To support our employees and customers
during this time the Bank developed a pandemic response plan which established
a phased approach for operating in the pandemic environment. The Bank greatly
expanded remote work, established employee engagement and feedback initiatives
to understand and respond to employee needs and concerns, broadened benefit
offerings and established safety protocols regarding cleaning, personal
hygiene and physical distancing to minimize the spread of illness in our work
environments. The Bank did not furlough or lay-off any employees as a result
of the pandemic.
Social Impact
We are a community bank committed to investing in the financial health and
well-being of our neighbors, and we believe that the success of our
communities is a shared responsibility. We invest in our communities by giving
our time, monetary contributions and ongoing support. In 2022, the Bank
supported over 150 community organizations, exceeding $260,000 in donations.
Our employees provide leadership on a number of community organization boards,
and give countless volunteer hours. The Community Cash Mob program supported
11 local businesses with funds totaling over $10,000 in 2022. The Company is
passionate about being a good corporate citizen in the communities where we
live and work.
Governance and Risk Management
We are committed to achieving excellence in our governance and risk management
practices to support the Company's long-term success. The Company's Code of
Ethics and Whistleblower Procedure ensures that our directors, officers, and
employees are apprised of the requirements for maintaining compliance with all
applicable rules and regulations. Our corporate governance policies and
practices also include evaluations of the Board and its committees, which are
responsible for broad oversight of Company and Bank operations.
Our internal risk management teams oversee compliance with applicable laws and
regulations and coordinate with subject matter experts throughout the business
to identify, monitor, and mitigate risk including information security risk
management and cyber defense programs. These teams maintain rigorous testing
programs and regularly provide updates to the Board and the Board Risk
Oversight Committee, which periodically evaluates, and makes recommendations
to the Board in regards to, the Company's risk policies and procedures. The
Company has a robust Information Security program that incorporates multiple
layers of physical, logical, and written controls. We leverage the latest
encryption configurations and technologies on our systems, devices, and
third-party connections and further vet third-party vendors' encryption, as
required, through the organization's vendor management process.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
General
. Pursuant to federal securities laws, the Company's officers, directors and
persons who own more than 10% of the Company's outstanding common stock are
required to file electronic reports detailing their ownership and changes of
ownership in Company common stock with the SEC through the SEC's Electronic
Data Gathering, Analysis, and Retrieval system ("EDGAR").
Delinquent Section 16(a) Reports.
Based solely on our review of the copies of the reports filed with the SEC's
EDGAR system and any written representations from such persons that no
additional reports of changes in beneficial ownership were required, the
Company believes that during 2022, all of its officers, directors and all of
its stockholders owning in excess of 10% of the outstanding common stock of
the Company, have complied with the reporting requirements.
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Item 11. Executive Compensation
DIRECTOR COMPENSATION
The following table provides the compensation received by the non-employee
directors of the Company and the Bank during 2022.
Name Fees Earned or Stock Non-qualified Deferred All Other Total ($)
Paid in Cash ($) Awards ($) Compensation Earnings ($) Compensation ($)
(1) (2) (3)
Michael $ 48,150 $ 10,009 $ - $ - $ 58,159
B. Adams
Kimberly C. 12,500 - - - 12,500
Briscoe-Tonic
(4)
Gregory C. 49,400 10,009 6,489 37 65,935
Cockerham
James F. 45,650 10,009 - 55,659
Di Misa
M. Arshed 40,375 10,009 - 128 50,512
Javaid
Louis P. 57,150 10,009 - - 67,159
Jenkins, Jr.
Rebecca M. 47,525 10,009 - - 57,534
McDonald
Mary Todd 56,150 10,009 - - 66,159
Peterson
E. Lawrence 54,175 10,009 10,577 - 74,761
Sanders, III
Austin J. 100,000 10,009 - 170 110,179
Slater, Jr.
Joseph V. 50,675 10,009 52,965 - 113,649
Stone, Jr.
Kathryn M. 43,150 10,009 - - 53,159
Zabriskie
______________________
(1)
Represents fees and retainers earned or paid in cash. Directors Cockerham,
Javaid, Sanders, and Zabriskie deferred all or a portion of fees into the
Directors' Retirement Plan.
(2)
Represents aggregate fair market value as of the grant date of restricted
stock unit awards granted in fiscal year 2022 constituting an equity-based
retainer for directors, as computed in accordance with FASB ASC Topic 718,
Stock Compensation.
(3)
Represents the portion of non-qualified deferred compensation earnings under
the Community Bank of the Chesapeake Retirement Plan for Directors that was
above the Internal Revenue Service long-term rate.
Under the plan, interest is credited at a rate equal to the Company's
annualized return on equity or based on the gains or losses on the deemed
investments.
(4)
Ms. Briscoe-Tonic passed away on July 12, 2022. Amounts shown reflect cash
compensation for her service in 2022 through the date of her passing.
Cash Retainers and Meeting Fees for Directors.
The following tables set forth the applicable cash retainers and fees that
will be paid to directors for their service on the Boards of Directors of the
Company and the Bank for 2023:
Board of Directors of the Company
:
Annual Retainer $15,000
Fee per Board Meeting (Regular or Special) $750
Fee per Committee Meeting $500
Annual Retainer for the Chairman of the Board (1)
Annual Retainer for the Audit, Governance and Compensation Committee Chairs $5,000
Annual Retainer for Board Risk Oversight and Strategic Initiatives Committee Chairs $2,500
Board of Directors of the Bank
:
Annual Retainer $10,000
Fee per Board Meeting (Regular or Special) $650
Fee per Committee Meeting $425
Annual Retainer for the Chairman of the Board (1)
Annual Retainer for Credit Risk Committee Chair $2,500
______________________
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(1) Austin J. Slater, Jr., the Chairman of the Board of Directors of the
Company and the Bank, will receive an annual retainer of $100,000 in 2023,
paid in quarterly installments, for his service as Chairman. The Chairman does
not receive meeting fees for attendance at board or committee meetings.
Employee directors of the Company receive the annual retainer and Board
meeting fees; they do not receive fees for committee meetings. Employee
directors of the Bank do not receive an annual retainer or any Board or
committee meeting fees.
Equity-Based Retainers for Directors.
Each year, non-employee directors of the Company are granted a number of
restricted stock units calculated by dividing $10,000 by the fair market value
of one share of Company common stock on the grant date (rounded up to the
nearest whole share). The restricted stock units generally will fully vest on
the one-year anniversary of the grant date, subject to the non-employee
director's continued service and the terms and conditions of the non-employee
director's director share unit agreement.
Directors' Retirement Plan.
The Bank maintains a retirement plan for non-employee members of the Board of
Directors of the Bank (the "Directors' Plan"). Under the Directors' Plan, each
eligible director of the Bank will receive an annual retirement benefit for
ten years following his or her termination of service on the Bank's Board in
an amount equal to the product of his "Benefit Percentage", "Vested
Percentage", and $3,500. A participant's "Benefit Percentage" is 0% for less
than five years of service, 33 1/3% for five to nine years of service, 66 2/3%
for 10 to 14 years of service, and 100% for 15 or more years of service. A
participant's "Vested Percentage" is 33 1/3% for less than one year of
service, 66 2/3% for one year of service, and 100% for two or more years of
service. If a participant terminates service on the Board due to disability,
the Bank will pay the participant each year for ten years an amount equal to
the product of his or her Benefit Percentage and $3,500. If a participant dies
before collecting either his or her retirement or disability benefit, the
participant's surviving spouse or estate will receive a lump sum payment
having a present value equal to five times the annual retirement benefit to
which the participant was entitled, assuming the participant separated service
on the date of death and was fully vested. If the participant dies after
beginning to receive his or her retirement or disability benefits, the
participant's surviving spouse or estate will receive a lump sum payment
having a present value equal to the remaining benefits to which the
participant was entitled from the date of death through the tenth annual
payment thereafter. A participant will become fully vested in the event of a
"change in control" (as defined in the Directors' Plan) or upon separation
from service on the Board after attaining the age 72 or incurring a disability.
The Directors' Plan also provides non-employee directors the opportunity to
defer all or any portion of the fees otherwise payable. At each participant's
election, interest is credited at a rate equal to the Company's annualized
return on equity or based on the gains or losses on the deemed investments.
Participants are 100% vested in their voluntary deferrals under the Directors'
Plan.
Deferred amounts may be credited quarterly and adjusted annually with a rate
of return equal to the consolidated return on equity of the Company for the
calendar year, as determined under accounting principles generally accepted in
the United States, and/or credited quarterly with earnings or losses based on
the deemed investments.
EXECUTIVE COMPENSATION
The following overview is intended to provide stockholders with a description
of the Company's executive compensation philosophy, components of its
executive compensation program, and the factors considered by the Compensation
Committee (or "Committee" in this section) for determining executive
compensation for our named executive officers (or "NEO" in this section) in
2022.
Because of the June 2018 amendment to the definition of a "smaller reporting
company" under rules promulgated by the Securities and Exchange Commission, we
qualify for, and have elected to comply with, the scaled disclosure
requirements applicable to smaller reporting companies. Accordingly, this
executive compensation overview is not intended to meet the "Compensation
Discussion and Analysis" disclosure required of larger reporting companies.
Our 2022 named executive officers are our two principal executive officers for
2022 and our two additional most highly-compensated executive officers who
were serving as an executive officer at the end of 2022. During 2022, our
principal executive officers were William J. Pasenelli and James M. Burke. Mr.
Pasenelli served as Chief Executive Officer until his retirement on August 31,
2022. Mr. Burke became President and Chief Executive Officer effective
September 1, 2022. Our remaining named executive officers were Todd J.
Capitani and Christy M. Lombardi. This executive compensation overview should
be read in conjunction with the compensation tables and associated narrative
that follows.
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Named Executive Officer Title
William J. Pasenelli Chief Executive Officer (CEO)
James M. Burke President and Chief Executive Officer (CEO)
Todd L. Capitani Executive Vice President and Chief Financial Officer (CFO)
Christy M. Lombardi Executive Vice President and Chief Operating Officer (COO)
Our Compensation Philosophy
Our executive compensation program is structured to motivate and retain
executive officers who are critical to our success. Our competitive salary,
incentive opportunities and benefits program reflect a balanced and
responsible pay approach while also considering the environment in which the
Company operates. Our executive compensation program is designed to reward our
named executive officers for delivering results and achieving sustainable
growth. We seek to accomplish this goal in a way that rewards performance and
is aligned with our stockholders' long-term interests. Our compensation
philosophy is grounded on the following guiding principles:
Team-Based Approach
. Each named executive officer is a member of the Company's executive team.
The Company's executive compensation program is intended to promote and
maintain stability within the executive team. As such their incentive
opportunities are linked to similar performance metrics.
Performance Expectations.
The Company has clear performance expectations of its officers that are
reinforced by its performance review and compensation programs. First, each
executive officer must demonstrate exceptional personal performance in order
to remain part of the executive team. Second, each executive officer must
contribute to the Company's overall success, rather than focus solely on
specific objectives within the officer's area of responsibility.
Ownership
.
We believe executives should have an ownership position in our Company.
In addition to the annual incentive plan, executives participate in a long
term incentive program which includes equity awards paid in the form of
restricted stock units and performance share units. The Company has in place
stock ownership guidelines for its executive officers (ranging between 1x - 2x
base pay).
Principal Elements of Pay
The executive compensation program 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 the primary elements of base salary, short-term incentives and
long-term incentives.
The target 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.
Supplemental benefits: In addition to eligibility to participate in the
Company's health and welfare programs and other broad-based programs on the
same basis as other employees, the Company offers NEOs supplemental retirement
and life insurance benefits commonly offered by peers within the industry.
Our Decision-Making Process
Role of the Compensation Committee
. The 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's compensation to determine if any
changes would be appropriate based on the considerations described above.
The 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 Committee, each of
whom is an "independent director." The Chair of the Committee reports to the
Company's Board regarding Committee actions.
Compensation Committee Interlocks and Insider Participation.
No member of the 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.
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Role of Management
. At the Committee's request our Chief Executive Officer provides input
regarding the performance and appropriate compensation of the other executive
officers. The Committee considers the Chief Executive Officer'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, the
Chief Executive Officer is not present when his compensation is being
discussed or approved.
Role of the Compensation Consultant
.
For 2022 compensation decisions, the Committee retained the services of
McLagan Aon to assist the Committee with its compensation governance
responsibilities, including areas such as competitive assessment of our
executive compensation programs, advice on incentive plan design, and
education and guidance on regulatory matters and emerging trends related to
executive compensation. The Committee assessed the independence of McLagan Aon
pursuant to SEC and NASDAQ rules and concluded that no conflict of interest
exists that would prevent McLagan Aon from serving as an independent
consultant to the Committee.
Role of Compensation Benchmarking.
The Committee reviews both compensation and performance at peer companies to
inform its decision-making process so it can set total compensation
opportunities 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. However, the Committee also considers
other factors when setting compensation, including specific job responsibilities
and scope, adjustments for individual skills and expertise, and internal pay
equity.
2022 Executive Compensation Decisions
The Committee began its work on executive compensation for 2022 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, business model, and geographic
region. Additionally, the Committee considered the results of the Company's
say-on-pay vote when making compensation decisions for the NEOs. At the
Company's 2022 annual meeting of stockholders, approximately 94.1% of the
votes cast on the say-on-pay proposal were voted for the proposal,
demonstrating a high level of support for the Committee's executive pay
decisions.
2022 Business Highlights
.
During
2022
, the Company delivered record earnings. We solidified our market share and
improved our deposit franchise in Southern Maryland, established a strong
foothold in and around Fredericksburg, Virginia, had solid portfolio loan
growth and added new technology initiatives in both markets. Net income for
the year ended December 31, 2022 was $28.3 million or $5.00 per diluted share
compared to net income of $25.9 million or $4.47 per diluted share for the
year ended December 31, 2021. The $2.4 million increase to net income in 2022
compared to 2021 included increased net interest income of $7.1 million for
the comparable periods. This addition to net income was partially offset by
increased loan loss provision of $1.9 million, decreased noninterest income of
$1.5 million, increased income tax expense of $0.9 million, and increased
noninterest expense of $0.3 million for the comparable periods.
In 2022, profitability increased from increases in interest-earning asset
yields and expense control, partially offset by increased interest expense
from higher funding costs, lower non-interest income and higher provision for
credit losses as the Bank transitioned from an incurred loss model to an
expected loss model following the adoption of the
current expected credit losses ("CECL") accounting standard
in 2022.
Although, t
he COVID-19 pandemic continued to present both economic and operational
challenges in 2022, there were no customers with COVID-19 deferrals at
December 31, 2022
.
Additional financial highlights include the following:
.
The Company's return on average assets ("ROAA") and return on average common
equity ("ROACE") were 1.22% and 14.76% for the twelve months ended December
31, 2022 compared to 1.19% and 12.65% for the twelve months ended December 31,
2021.
.
On December 14, 2022, the Company entered into a definitive agreement to
undertake a merger of equals pursuant to which the Company and Bank will merge
into Shore Bancshares, Inc. (NASDAQ: SHBI) ("Shore") in an all-stock
transaction. The combined company will have total assets of approximately $6.0
billion on a pro forma basis. Under the terms of the agreement, which was
unanimously approved by the boards of directors of both companies, and which
remains subject to shareholder approval, as well as the satisfaction of
customary closing conditions, holders of TCFC common stock will have the right
to receive 2.3287 shares of Shore Bancshares, Inc. common stock. The merger is
expected to close in on or around July 1, 2023. James M. Burke, TCFC current
President and Chief Executive Officer, will serve as President and Chief
Executive Officer for the combined company and Todd L, Capitani, TCFC current
Chief Financial Officer will serve as Chief Financial Officer for the combined
company.
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.
The Company improved credit quality by resolving multiple non-accrual loans,
reducing nonperforming assets to 0.27% of total assets at December 31, 2022
compared to 0.35% at December 31, 2021. Upon the adoption of ASC 326, the
Company recorded a $2.5 million increase to the ACL. ACL balances increased to
1.26% of portfolio loans at December 31, 2022 compared to 1.17% at December
31, 2021. At December 31, 2022, the Company's ACL increased $4.5 million or
24.3% to $22.9 million from $18.4 million at December 31, 2021. The increase
in the general allowance was primarily related to the impact of adoption of
ASC 326 (CECL) and portfolio loan growth.
.
The Company's efficiency ratio improved (decreased) from 52.67% for the year
ended December 31, 2021 to 49.34% for the year ended December 31, 2022, as a
result of expense control and increased net interest income. Management
believes it is important to continue to focus on creating operating leverage.
Controlling expense growth while increasing noninterest income helps prepare
the Company for changes in interest rates and credit cycles.
.
Total assets increased $82.7 million, or 3.6%, to $2.41 billion at December
31, 2022 compared to total assets of $2.33 billion at December 31, 2021,
primarily due to net loan growth. Cash decreased a net of $114.2 million and
was used to fund net loan growth of $211.7 million. Available for sale ("AFS")
debt securities, which are reported at fair value, decreased $35.1 million to
$462.7 million, primarily due to unrealized losses from rising interest rates
during 2022. In addition, deferred tax assets increased $15.6 million to $24.7
million primarily due to increases in unrealized losses of the Bank's AFS
investment portfolio related to changes in interest rates. Deferred tax assets
also increased due to the adoption of the CECL accounting standard on January
1, 2022.
.
During 2022, the Bank increased noninterest-bearing accounts by $184.3 million
to $630.1 million or 30.17% of deposits at December 31, 2022 from 21.68% of
deposits at December 31, 2021. Total deposits increased $32.3 million in 2022
from $2,056.2 million at December 31, 2021 to $2,088.5 million at December 31,
2022.
.
During the year ended December 31, 2022, total stockholders' equity decreased
$21.1 million. The decrease in equity was primarily due to an increase of
$41.1 million in accumulated other comprehensive loss ("AOCL") related to the
Bank's AFS securities portfolio due to changes in market interest rates. In
addition, equity decreased due to common dividends paid of $3.8 million, stock
repurchases of $3.6 million, and $2.0 million for the adoption of the CECL
accounting standard on January 1, 2022. Decreases in equity were partially
offset by net income of $28.3 million and stock-based compensation and ESOP
activity of $1.0 million.
.
The Company's common equity to assets ratio decreased to 7.76% at December 31,
2022 from 8.94% at December 31, 2021. The Company's ratio of tangible common
equity ("TCE") to tangible assets decreased to 7.32% at December 31, 2022 from
8.48% at December 31, 2021 due primarily to increases in AOCL. Regulatory
capital was not impacted by the increase in AOCL and Tier 1 capital to average
asset ratios at the Company remained strong at 9.60% at December 31, 2022
compared to 9.23% at December 31, 2021.
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.
The following table reflects each active named executive officer's increase in
base pay for 2022.
Executive Title 2021 Salary 2022 Salary % Increase
William J. Pasenelli President and CEO $ 556,400 $ 573,000 2.98 %
James M. Burke President $ 401,100 $ 414,000 3.22 %
Todd L. Capitani EVP and CFO $ 336,000 $ 343,000 2.08 %
Christy M. Lombardi EVP and COO $ 334,800 $ 342,000 2.15 %
Annual Performance-Based Incentive Compensation.
The Executive Incentive Compensation Plan ("EICP") is a short-term annual
incentive that provides our named executive officers with the opportunity to
earn cash incentive compensation for achieving specific Company performance
goals. The plan uses a balanced scorecard approach by establishing threshold,
target and maximum ("stretch") incentive opportunities tied to performance
factors aligned with the annual strategic plan approved by the Board.
The total amount of each NEO's incentive award under the short-term incentive
plan is determined by taking into account performance against a scorecard of
financial performance metrics that tie to our annual business plan, along with
the results of a holistic assessment of each executive. All of these
components are part of a scorecard that is provided to each NEO and used by
the Committee to determine annual short-term incentive awards.
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The performance factors used to determine the incentive payouts for our named
executive officers under the EICP in 2022 included PTPP ROAA, efficiency
ratio, non-performing assets as a percentage of total assets, growth in
non-interest income and noninterest bearing deposits as a percentage of total
deposits. These performance metrics reflect commonly recognized measures of
overall company performance and are associated with stockholder value
creation. The plan included threshold, target and maximum levels of
performance for each performance factor and a corresponding payout, weighted
as a percentage of salary, to each of the named executive officers based upon
actual achievement. The 2022 target incentive opportunity was 30% of base
salary for the CEO and 25% of base salary for the other NEOs. The incentive
opportunity ranged from 50% of target at threshold performance to a maximum of
150% of target for superior performance (from 15% to 45% of base salary for
the CEO and 12.5% to 37.5% for the other NEOs. Following year end, the
Committee determines the amount to be awarded to each executive officer by
comparing the Company's financial results to the established performance
goals. For 2022, PTPP ROAA, efficiency ratio and non-performing assets as a
percentage of total assets aligned at or near stretch performance level,
noninterest bearing deposits as a percentage of total deposits aligned
slightly below target and growth in non-interest income aligned below the
threshold performance level.
Following the Compensation Committee's review of the results of the components
of each executive officer's annual incentive plan scorecard in February 2022,
the Committee interpolated the results and awarded total annual incentive
payouts between target and stretch performance as noted below. The EICP
payouts were distributed in cash. Due to his pending retirement in 2022, Mr.
Pasenelli was not eligible for an annual incentive plan payout for the 2022
performance period.
Executive Target Incentive Target Amount Awarded Amount
(% of Salary) Incentive ($) (% of Salary) Awarded ($)
William J. - $ - - $ -
Pasenelli
James M. 30.0% $ 154,500 35.7% $ 184,029
Burke
Todd L. 25.0% 85,750 29.8% 102,139
Capitani
Christy M. 25.0% 85,500 29.8% 101,841
Lombardi
Long-Term, Equity Based Compensation.
The 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 incentives in equity and through the use of time-based
vesting for equity awards. The Company's Long-Term Equity Incentive Program
under the Company's 2015 Equity Compensation Plan ("LTEIP") delivers long-term
incentive opportunities in a combination of time-based vesting restricted
stock units and performance-contingent stock units. Awards under the LTEIP are
generally granted annually, with overlapping three-year restriction/performance
cycles. The performance factors used to determine equity awards for our named
executive officers under the Bank's LTEIP include ROAA and ROAE measured on a
relative basis against a defined group of peer banks over the period of
January 1, 2022 through December 31, 2024. The 2022 target LTEIP award
opportunity was 30% of base salary for the CEO, 15% of base salary for the
President and 10% of base salary for the other NEOs. The target awards are 50%
time-based restricted stock units ("RSUs") and 50% performance share units
("PSUs"). The plan includes threshold, target and stretch levels of
performance for each performance factor and each factor is weighted at 50% of
the total opportunity. Performance and the resulting payouts will be
determined as soon as practicable following the filing of the Company's Form
10-K for the fiscal year ending December 31, 2024. In the event of death or
disability, all time-based vested awards will immediately vest in full as of
the date of that event, and any performance-based awards will be deemed
satisfied at the target level and will vest pro rata upon death, disability or
termination of the participant's employment by reason of retirement to the
extent the participant is at least 65 years of age. In the event of a change
in control, all time-based awards will vest in full upon the involuntary or
good reason termination of the participant's employment, other than for cause,
during the 12 month period ending on the first anniversary date of the change
in control. Furthermore, the conditions applicable to any performance-based
award will be deemed satisfied at the target level and will become fully
vested upon involuntary or good reason termination of the participant's
employment, other than for cause, during the 12 month period ending on the
first anniversary date of the change in control. In addition, we require
certain levels of stock ownership as described in the "
Other Compensation Guidelines, Practices and Policie
s" section below.
The following LTEIP equity awards were granted in 2022 for the performance
period beginning on January 1, 2022 and ending on December 31, 2024. The
time-based vested RSUs were granted on February 10, 2022, and vest ratably
over a three-year period, beginning on the first anniversary of the grant
date. The performance-contingent PSUs were awarded at target level.
Executive Title Number of RSUs Issued Number of PSUs Awarded (Target Level)
William J. Pasenelli CEO 0 0
James M. Burke President 767 768
Todd L. Capitani EVP, CFO 423 424
Christy M. Lombardi EVP, COO 422 423
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Other Compensation Guidelines, Practices and Policies
Stock Ownership Guidelines:
Under the Company's stock ownership guidelines for executives, our CEO is
expected to own shares of Company common stock that have a value equal to 2.0
times his base salary. The President is expected to own shares with a value
equal to 1.5 times his base salary and other named executives must own 1.0
times their salary. Until these target ownership levels are reached, an
executive must retain 100% of his or her net shares from any vested awards
(after taxes and any exercise price). All named executive officers met the
minimum stock ownership requirements at the end of 2022. Because an executive
officer must retain 100% of net shares acquired from equity awards until the
specified target of ownership is met, there is no minimum time period required
to achieve the target level of ownership.
The Company also maintains stock ownership guidelines for directors. Under
these guidelines, Company directors are required to own shares of Company
common stock that have a value that is at least equal to a multiple of the
Company Board annual cash retainer for the immediate prior year. The cash
retainer for 2022 was $15,000. The multiple is based on years of service on
the Board. Directors with up to three years of service are required to own
stock with a value equal to at least five times the annual cash retainer.
Directors with between four and five years of service are required to own
stock with a value equal to at least 10 times the annual cash retainer and the
multiple for directors with more than five years of service is 15 times the
annual cash retainer. Directors of the Bank who are not also part of the
Company's Board are required to own shares of common stock of the Company
having a value equal to at least three times the Bank Board annual cash
retainer for the immediate prior year. The cash retainer for the Bank Board in
2022 was $10,000. All directors of the Company are also currently directors of
the Bank. Shares must be acquired within the earlier of three years of first
becoming a director or within three years of the initial adoption of the
guidelines. All directors were in compliance with these guidelines at the end
of 2022.
Responsible Equity Practices:
The grant date for all equity awards is established when the grants and all
key terms are approved by the Board or the Compensation Committee. Our 2015
Equity Compensation Plan includes prohibitions on the repricing of stock
options without stockholder approval.
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.
Risk Considerations:
In addition to our guiding principles, the Company engages in the following
practices to ensure its executive compensation program is aligned with
stockholders' 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 Committee considers, in establishing and reviewing the executive
compensation program, whether the program encourages unnecessary or excessive
risk taking and has concluded that it does not. In this regard, our executive
compensation program includes, among other things, the following design
features:
.
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
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.
Summary Compensation Table.
The following table provides information concerning total compensation earned
or paid for the last two completed fiscal years to the principal executive
officers of the Company in 2022 and the two most highly compensated executive
officers of the Company who served in such capacity as of December 31, 2022.
In 2022, Messrs. Pasenelli and Burke both served in the role of Chief
Executive Officer. These officers are referred to as the named executive
officers in this proxy statement.
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Name and Year Salary Stock Non-equity Non-qualified All Total
Principal ($) Awards Incentive Deferred Other ($)
Position ($) Plan Compensation Compensation Compensation
(1)(2) $ (3) Earnings ($) (4) ($) (5)
William 2022 $ 573,000 $ - $ - $ 125,365 $ 314,514 $ 1,012,879
J.
Pasenelli
2021 $ 556,400 $ 166,936 $ 240,899 $ 119,365 $ 53,070 $ 1,136,670
James 2022 $ 515,000 $ 62,137 $ 184,029 $ 78,791 $ 143,507 $ 983,464
M.
Burke
2021 $ 401,100 $ 60,172 $ 115,774 $ 72,950 $ 45,741 $ 695,737
Todd 2022 $ 343,000 $ 34,287 $ 102,139 $ 97,424 $ 99,245 $ 676,095
L.
Capitani
2021 $ 336,000 $ 33,604 $ 96,983 $ 87,574 $ 25,069 $ 579,230
Christy 2022 $ 342,000 $ 34,206 $ 101,841 $ 29,529 $ 125,264 $ 632,840
Lombardi
2021 $ 334,800 $ 33,505 $ 96,637 $ 26,717 $ 24,190 $ 515,849
____________________
(1)
Represents the aggregate grant date fair value of the granting of
767, 423 and 422
restricted stock units ("RSUs") to Messrs. Burke and Capitani and Ms. Lombardi
respectively, computed in accordance with FASB ASC Topic 718 based on a per
share price of
$40.48, on the
date of grant for awards under the 2022 long-term executive incentive program
("2022 LTEIP") covering the NEOs. Also reflects performance share units
("PSUs") of 768, 424 and 423 units awarded to Messrs. Burke and Capitani and
Ms. Lombardi respectively under the 2022 LTEIP. The performance period for the
PSUs is 2022-2024. The fair value of the PSUs has been calculated in
accordance with FASB Topic ASC 718. For the PSUs, the amounts above were
calculated based on the probable outcome of the performance conditions as of
the inception date and represent the value of the target number of units
granted to each NEO consistent with the estimate of the aggregate compensation
cost to be recognized as of the service inception date under ASC 718. Assuming
the highest level of performance, the grant date value of the PSUs awarded to
each NEO (150% of the grant date target value) is as follows: Mr. Burke
($38,416), Mr. Capitani ($21,454) and Ms. Lombardi ($20,766).
(2)
Represents the aggregate grant date fair value of the granting of 3,393,
1,223, 683 and 681 RSUs to Messrs. Pasenelli, Burke and Capitani and Ms.
Lombardi respectively, computed in accordance with FASB ASC Topic 718 based on
a per share price of $24.60, on the date of grant
for awards under the 2021 long-term executive incentive program (the "2021
LTEIP")
Also reflects PSUs of 3,393, 1,223, 683 and 681 awarded to Messrs. Pasenelli,
Burke and Capitani and Ms. Lombardi respectively under the 2021 LTEIP. The
performance period for the PSUs is 2021-2023. The fair value of the PSUs has
been calculated in accordance with FASB Topic ASC 718. For the PSUs, the
amounts above were calculated based on the probable outcome of the performance
conditions as of the inception date and represent the value of the target
number of units granted to each NEO consistent with the estimate of the
aggregate compensation cost to be recognized as of the service inception date
under ASC 718. Assuming the highest level of performance, the grant date value
of the PSUs awarded to each NEO (150% of the grant date target value) is as
follows: Mr. Pasenelli ($125,202), Mr. Burke ($45,129) and Mr. Capitani
($25,203) and Ms. Lombardi ($25,129).
(3)
Represents incentive payments earned in 2022 under the Company's Executive
Incentive Compensation Plan.
(4)
Represents the sum of above-market earnings under the Community Bank of the
Chesapeake Executive Deferred Compensation Plan and the aggregate change in
the present value of accumulated benefits under the Supplemental Executive
Retirement Plans ("SERPs") and Salary Continuation Agreements ("SCAs") from
the prior completed fiscal year to the current fiscal year. Includes an
aggregate change in the present value of accumulated benefits under the SERPs
and SCAs of $125,365, $78,791, and $96,663 for Messrs. Pasenelli, Burke and
Capitani, respectively, and $29,529 for Ms. Lombardi.
(5)
Details of the amounts reported in the "All Other Compensation" column for
2022 are provided in the table below.
Item Pasenelli Burke Capitani Lombardi
Company Directors' fees $ 15,000 $ 21,750 $ - $ -
Market value of allocations under the employee stock ownership plan 235,156 88,922 77,534 103,222
Employer contribution to 401(k) Plan 12,200 10,400 10,817 10,250
Imputed income under split-dollar life insurance arrangement 1,966 593 700 318
Automobile 43,896 11,782 9,000 10,949
Club dues 4,791 9,186 - -
Dividends paid on unvested restricted stock 332 334 222 197
Group term life benefit 1,173 540 972 328
Wellness allowance - - - -
Employment Agreements.
The Community Financial Corporation
and Community Bank of the Chesapeake maintain employment agreements with each
of Messrs. Burke and Capitani and Ms. Lombardi. Mr. Pasenelli's employment
agreement with the Company and the Bank was terminated effective December 8,
2021.
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The term of the employment agreements with Messrs. Burke and
Capitani and Ms. Lombardi
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 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,
eligibility to participate in employee benefit plans and programs maintained
by the Company and the Bank for the benefit of their employees, including
discretionary bonuses, incentive compensation programs, medical, dental,
pension, profit sharing, retirement and stock-based compensation plans and
certain fringe benefits applicable to executive personnel.
Under the employment agreements if the executive's employment is terminated
for cause, he or she will receive only his or her base salary or other
compensation earned through the date of termination and any other compensation
or vested benefits provided under applicable Bank plans or programs. All other
obligations of the Bank terminate on the date of termination.
Further, under Mr. Burke's employment agreement, if his employment is
terminated without cause (as defined in his employment agreement), he will
receive a lump sum payment equal to three times his base salary and three
times his most recent annual incentive compensation payment. Mr. Burke 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 agreements for Mr.
Capitani and Ms. Lombardi
, if his or her employment is terminated without cause (as defined in his or
her employment agreement), the executive would receive a lump sum payment
equal to two times his or her base salary and two times his or her most recent
annual incentive compensation payment. Mr. Capitani and Ms. Lombardi would
also receive an amount equal to the monthly COBRA premium that he or she would
be required to pay to continue the benefits in effect as of his or her
termination date under the Bank's medical, dental and life insurance plans,
multiplied by 36.
Upon voluntary termination of employment, Messrs. Burke and Capitani and Ms.
Lombardi would receive accrued and earned base salary and other compensation
and benefits provided under the Bank's benefit plans and programs as of the
date of termination.
The employment agreements also provide each executive with disability
benefits. If an executive terminates employment after becoming disabled
pursuant to the terms of the agreement, the executive will receive the
compensation and benefits provided for under his employment agreement for (1)
any period during the term of his 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.
Upon an executive's death, the employment agreements provide that the Company
will pay the executives or their 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 Bank's benefit
plans and programs in which the executive participated as of the date of the
executive's death.
Upon a change in control, Mr. Burke's employment agreement provides that if
(1) his employment is terminated without cause or without his 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) Mr. Burke voluntarily
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 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 Mr. Capitani's and Ms.
Lombardi's employment agreements, he or she will receive a lump sum payment
equal to two times his or her annual base salary and two times his or her most
recent annual incentive compensation payment, plus an amount equal to the
monthly COBRA premium that the executive would be required to pay to continue
the benefits in effect as of the executive's termination date under the Bank's
medical, dental and life insurance plans, multiplied by 36.
Section 280G of the Internal Revenue Code provides that severance payments
that equal or exceed three times an individual's base amount are deemed to be
"excess parachute payments" if they are contingent upon a change in control.
An individual's base amount is generally equal to an average of the
individual's taxable compensation for the five taxable years preceding the
year a change in control occurs. The employment agreements apply a "best net
benefits" approach in the event that severance benefits under the agreement or
otherwise result in "excess parachute payments" under Section 280G. Applying
the "best net benefits" methodology, the agreement provides for two separate
calculations to address the application of Section 280G to payments that are
contingent on a change in control. The first calculation establishes the
after-tax benefit to the executive if the aggregate change in control-related
payments are reduced below his Section 280G threshold, thereby avoiding the
excise tax. The second calculation determines the after-tax benefit if the
payments 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.
Retirement and Consulting Agreement.
The Company entered into a retirement and consulting agreement with Mr.
Pasenelli dated December 8, 2021. Pursuant to the agreement, Mr. Pasenelli's
employment agreement with the Company and Bank, dated April 30, 2018, was
terminated. Under the retirement and consulting agreement, Mr. Pasenelli was
employed as Chief Executive Officer of the Company and the Bank until August
31, 2022 (the "retirement date"), at which date his resignation as Chief
Executive Officer became
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effective and he resigned as a director of the Company and the Bank. Mr.
Pasenelli was not eligible for a cash bonus under the Bank's 2022 short-term
incentive plan or the Company's 2022 long term executive incentive program.
Commencing on September 1, 2022, Mr. Pasenelli was retained by the Company
solely as an independent consultant for a term expiring on August 31, 2023
(the "consulting period"), subject to earlier termination. Mr. Pasenelli
provides services of a consulting and/or advisory nature as the Company may
reasonably request. During the consulting period, Mr. Pasenelli receives
quarterly fees of $259,517, with the last fee payable on August 31, 2023. In
addition, 10,010 shares of awards granted to Mr. Pasenelli under the Company's
LTEIP and Executive Incentive Compensation Plan that were unvested as of the
date of the retirement and consulting agreement continue to vest through the
consulting period, and 5,024 shares that remain unvested as of the end of the
consulting period will be cancelled. As of December 31, 2022, 1,000 of the
10,010 shares had vested.
Upon termination of the consulting period for any reason, Mr. Pasenelli will
receive any unpaid fees for services rendered and be reimbursed for any
pre-approved business expenses. In addition, if Mr. Pasenelli's agreement is
terminated during the consulting period (1) without "cause," as such term is
defined in the agreement, or (2) as a result of Mr. Pasenelli's death or
disability or the occurrence of a change in control, Mr. Pasenelli will be
entitled to a lump sum cash payment equal to the fees otherwise payable
through the expiration of the consulting period but for its early termination.
In addition, if the agreement is terminated pursuant to death or disability or
a change in control, the 10,010 shares that would have become fully vested on
the retirement date or at the end of the consulting period and remain unvested
shall be accelerated.
2015 Equity Compensation Plan.
The Company maintains the 2015 Equity Compensation Plan, a stock-based
incentive plan to attract and retain key personnel. The 2015 Equity
Compensation Plan provides for the award of restricted stock, stock
appreciation rights, stock units and stock options to members of the Board of
Directors and key employees. See the Restricted Equity Awards table below for
information on the restricted stock awards granted to our named executive
officer
s. Under the terms of the 2015 Equity Compensation Plan, all time-based vested
awards will fully vest upon an executive's death or disability. If an ex
ecutive voluntarily terminates his employment or is terminated without cause
(as defined in the plan) all unvested shares of restricted stock are forfeited
as of such termination date. In the event of a change in control, if an
executive terminates his employment, other than for cause, during the 12-month
period following a change in control, unvested restricted stock awards will
become fully vested and transferable to the executive. Pursuant to the
Long-Term Executive Incentive Program under the 2015 Equity Compensation Plan,
performance-based awards will vest pro rata upon death, disability or
termination of the executive's employment by reason of retirement to the
extent the participant is at least 65 years of age. In the event of a change
in control, the conditions applicable to any performance-based award will be
deemed satisfied at the target level and will become fully vested upon
involuntary or good reason termination of the executive's employment, other
than for cause, during the 12 month period ending on the first anniversary
date of the change in control.
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Outstanding Equity Awards at Fiscal Year End.
The following table provides information concerning unvested restricted stock
awards for each of the named executive officers outstanding as of December 31,
2022.
Restricted Equity Awards
Name Grant Date Number of Market Equity Equity Incentive
Shares Value of Incentive Plan Plan Awards:
or Units of Shares Awards: Number Market or
Stock or Units of Unearned Payout Value of
That Have of Stock Shares, Units Unearned Shares,
Not Vested That Have or Other Rights Units or Other
(#) Not Vested that have Not Rights That Have
($) Vested (#) Not Vested ($)
(1) (1)
William 02/20/2020 353 $ 14,085 - $ -
J. (2)
Pasenelli
(9)
08/20/2020 1,182 $ 47,162 - $ -
(3)
08/20/2020 - $ - 3,544 $ 141,406
(6)
02/04/2021 1,131 $ 45,127 - $ -
(5)
James M. 02/20/2020 248 $ 9,895 - $ -
Burke (2)
08/20/2020 422 $ 16,838 - $ -
(3)
08/20/2020 - $ - 1,265 $ 50,474
(6)
12/17/2020 334 $ 13,327 - $ -
(4)
02/04/2021 816 $ 32,558 - $ -
(5)
02/04/2021 - $ - 1,223 $ 48,798
(7)
02/01/2022 94 $ 3,751 - $ -
(11)
02/10/2022 767 $ 30,603 - $ -
(9)
02/10/2022 - $ - 768 $ 30,643
(10)
05/03/2022 99 $ 3,950 - $ -
(11)
08/01/2022 101 $ 4,030 - $ -
(11)
11/01/2022 98 $ 3,910 - $ -
(11)
Todd L. 02/20/2020 236 $ 9,416 - $ -
Capitani (2)
08/20/2020 236 $ 9,416 - $ -
(3)
08/20/2020 - $ - 706 $ 28,169
(6)
12/17/2020 167 $ 6,663 - $ -
(4)
02/04/2021 456 $ 18,194 - $ -
(5)
02/04/2021 - $ - 683 $ 27,252
(7)
02/10/2022 423 $ 16,878 - $ -
(9)
02/10/2022 - $ - 424 $ 16,918
(10)
Christy 2/20/2020 211 $ 8,419 - $ -
Lombardi (2)
8/20/2020 229 $ 9,137 - $ -
(3)
8/20/2020 - $ - 684 $ 27,292
(6)
12/17/2020 250 $ 9,975 - $ -
(4)
2/4/2021 454 $ 18,115 - $ -
(5)
2/4/2021 - $ - 681 $ 27,172
(7)
2/10/2022 422 $ 16,838 - $ -
(9)
2/10/2022 - $ - 423 $ 16,878
(10)
(1) Based upon the Company's closing stock price of $39.90 per share at
December 31, 2022.
(2) Shares vest in three equal installments beginning on February 20, 2021.
(3) Units vest in three equal installments beginning on August 20, 2021.
(4) Units vest in three equal installments beginning on December 17, 2021.
(5) Units vest in three equal installments beginning on February 4, 2022.
(6) Performance Shares for the 2020 - 2022 performance period.
(7) Performance Shares for the 2021 - 2023 performance period.
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(9) Units vest in three equal installments beginning on February 10, 2023.
(10) Performance Shares for 2022 - 2024 performance period.
(11) Shares vest on the first anniversary of the grant date.
RETIREMENT AND INSURANCE BENEFITS
Our named executive officers have the opportunity to accumulate retirement
benefits through participation in our 401(k) and Employee Stock Ownership
Plans and to earn supplemental retirement benefits through Salary Continuation
Agreements ("SCAs") and Supplemental Executive Retirement Plans ("SERPs")
sponsored by the Bank. All of our named executive officers have SERPs with the
Bank and Messrs. Pasenelli and Burke have SCAs with the Bank.
Salary Continuation Agreements.
The SCAs are non-qualified deferred compensation arrangements that provide
certain named executive officers with additional compensation at retirement or
upon termination of employment due to death, disability or a change in
control. Messrs. Pasenelli and Burke maintain SCAs with the Bank which provide
the executives a total annual SCA benefit equal to $92,212, and $101,000,
respectively. These benefits are payable upon normal retirement at or after
age 65 (normal retirement age). A reduced benefit is payable if the named
executive officer retires before normal retirement age. The annual SCA
benefits are payable on a monthly basis to the executives or their designated
beneficiaries over a 15 year period. If an executive dies while in active
service with the Bank, the executive's designated beneficiaries will be
provided with an annual benefit, for a period of 15 years, of $101,000 for Mr.
Burke, 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 beneficiaries will be entitled
to the same payments beginning on the first day of the month after the
executive's death. If the executive dies after the benefit payments have
commenced, but before receiving all of the payments, the designated
beneficiaries will be entitled to the remaining benefits that would have been
paid to the executive if the executive had survived.
Under the SCAs if a named executive officer's employment is terminated for
cause, he will not be entitled to any benefits under the terms of his SCAs.
Mr. Burke's 2006 SCA provides that in the event of a change in control
followed by his termination of employment within 12 months of the change in
control (and before attainment of age 65), Mr. Burke is entitled to a change
in control annual benefit ranging from $18,100 to $101,000.
In addition, Mr. Burke's 2006 SCA provides for disability benefits. Upon
termination of employment as a result of disability, Mr. Burke is entitled to
an annual benefit for a period of 15 years ranging from $81,791 to $101,000,
commencing with the month following the executive attaining age 65.
Supplemental Executive Retirement Plans
. The Bank maintains 2011 SERPs with each of Messrs. Pasenelli, Burke and
Capitani and 2014 SERPs with each of Messrs. Pasenelli, Burke and Capitani and
Ms. Lombardi to provide the executives with additional compensation at
retirement or upon termination of employment due to death, disability or a
change in control. If an executive remains employed with the Bank until his or
her normal retirement age of 65, he or she is entitled to receive a retirement
benefit payable annually for a period of 15 years. The annual benefits for
Messrs. Pasenelli, Burke and Capitani and Ms. Lombardi (in the aggregate) are
$124,974, $77,434, $154,711. and $149,338, respectively. A reduced benefit is
payable if the executive retires before normal retirement age or terminates
service with the Bank for other reasons.
If an executive's employment is terminated for cause, the executive will not
be entitled to any benefits under the SERPs.
In the event that Messrs. Burke and Capitani or Ms. Lombardi become disabled
before termination of employment with the Bank or retirement, and prior to a
change in control, the SERPs provide the executives with a disability benefit
equal to the executive's accrued benefit under the SERPs 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 65
th
birthday or death and is paid in 15 equal annual installments.
The amended SERPs also provide that if an executive dies while actively
employed by the Bank and before reaching his normal retirement age of 65, the
SERPs provide for a death benefit equal to the executive's accrued benefit
under the SERPs, payable to the executive's beneficiary in 15 equal annual
installments. If the executive dies after the commencement of his SERP benefit
payments, the executive's beneficiary is entitled to the unpaid balance of the
payments for the balance of 15 annual installments.
In the event of a change in control prior to Messrs. Pasenelli, Burke and
Capitani and Ms. Lombardi (i) attaining age 65, (ii) his or her death, (iii)
disability, (iv) retirement, or (v) Separation from Service (as defined in the
SERP agreements), the SERP benefit will equal the accrued benefit calculated
as of any subsequent separation from service following the change in control
with 36 months of additional service for purposes of calculating the accrual.
Payments will commence at the earliest of an executive's attainment of age 65
or death. However, if an executive experiences a Separation from Service
within 24 months following a change in control, the
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executive is entitled to his or her full accrued retirement benefit, with
payments to commence no later than the second month following his or her
Separation from Service. Under the SERPs if the change in control benefit
payment made to Messrs. Pasenelli, Burke and Capitani and Ms. Lombardi would
be treated as an "excess parachute payment" under Code Section 280G ("280G
Limit"), the Bank will reduce such benefit payment to the extent necessary to
avoid treating such benefit payment as an excess parachute payment; however,
the payments or benefits shall not be reduced if the net after tax benefit to
the executive of receiving the total payments exceeds the net after tax
benefit of receiving the reduced benefits by at least $50,000.
Deferral Plan.
The Bank also maintains an Executive Deferred Compensation Plan under which
our NEOs 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
consolidated return on equity for the calendar year or credited with earnings
or losses based on the rate of return of mutual funds selected by the plan
participants. The executive's account balance under this plan will be
distributed to the executive following the executive's termination of service
or on a specified date in either a lump sum or over a period of one to ten
years, as elected by the executive.
Split Dollar Life Insurance Agreements.
The Bank is a party to individual split dollar life insurance arrangements
with Messrs. Burke and Capitani and Ms. Lombardi, and maintained split dollar
life insurance arrangements with Mr. Pasenelli before his resignation as Chief
Executive Officer in August 2022. These arrangements provide each executive's
beneficiary with pre- and post-retirement death benefits. The Bank has
purchased life insurance policies on the lives covered by these agreements in
amounts sufficient to provide payments to the beneficiaries, and the Bank pays
the premiums due on the policies as an additional employment benefit. The
economic benefit (the imputed income amount of this insurance) for the year
2022 to the NEOs is included in the amounts for each of these executive
officers set forth in the Summary Compensation Table under the column "All
Other Compensation." Under these arrangements, Mr. Pasenelli was, and Messrs.
Burke and Capitani and Ms. Lombardi are, entitled to a pre-retirement split
dollar benefit amount equal to the lesser of $1,000,000, $500,000, $500,000
and $500,000, respectively, or the net amount at risk insurance portion of the
proceeds. These arrangements provided to Mr. Pasenelli, and continue to
provide to Messrs. Burke and Capitani and Ms. Lombardi, a post-retirement
split dollar benefit equal to the lesser of $500,000, $100,000, $100,000 and
$100,000, respectively, or the net amount at risk insurance portion of the
proceeds. The net amount at risk portion is the total proceeds less the cash
value of the policy.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth, as of April 10, 2023, certain information as
to those persons known by the Company to beneficially own more than 5% of the
Company's outstanding shares of common stock and the shares of Company common
stock beneficially owned by each director, each executive officer named in the
summary compensation table and by all executive officers and directors of the
Company as a group. All beneficial owners listed in the table have the same
address as the Company, unless otherwise provided. Unless otherwise indicated,
each of the named individuals has sole voting power and sole investment power
with respect to the shares shown.
Name of Beneficial Owners Number of Shares Percent of Shares of
Beneficially Owned Common Stock Outstanding
(1)(2) (3)
Directors:
Michael B. Adams 5,422 *
James M. Burke 26,378 *
Gregory C. Cockerham 124,985 2.21%
(4)
James F. Di Misa 10,349 *
M. Arshed Javaid 10,650 *
(5)
Louis P. Jenkins, Jr. 21,521 *
Rebecca M. McDonald 36,661 *
(6)
Mary Todd Peterson 8,951 *
(7)
E. Lawrence Sanders, III 29,427 *
(8)
Austin J. Slater, Jr. 26,430 *
Joseph V. Stone, Jr. 34,883 *
(9)
Kathryn M. Zabriskie 4,979 *
Named Executive Officers
Who are Not Also Directors
Todd L. Capitani 12,917 *
(10)
Christy M. Lombardi 13,980 *
William J. Pasenelli 61,561 1.09%
All Directors, Executive Officers and 480,338 8.48%
Nominees as a Group (20 persons) (11)
5% Owner(s):
Fourthstone LLC 561,587 9.91%
Fourthstone Master (12)
Opportunity Fund Ltd
Fourthstone GP LLC
Fourthstone QP
Opportunity Fund LP
13476 Clayton Road
St Louis, MO 63131
____________________
*Less than 1% of the shares outstanding
(1)
Includes shares allocated to the account of the individuals under the
Community Bank of the Chesapeake Employee Stock Ownership Plan, with respect
to which the individual has voting but not investment power as follows; Mr.
Burke - 2,262 shares; Mr. Capitani - 1,972 shares; Mr. Pasenelli - 5,982
shares; and Ms. Lombardi - 2,625 shares.
(2)
Includes shares of unvested restricted stock, with respect to which the
individual has voting but no investment power as follows: Mr. Burke - 390
shares; Mr. Javaid - 489 shares; Mr. Slater - 652 shares, Mr. Cockerham - 109
shares.
(3)
Based upon 5,666,904 shares of Company common stock outstanding as of April
10, 2023.
(4)
Includes 97,752 shares held in a trust account.
(5)
Includes 5,000 shares held in a trust account.
(6)
Includes 1,125 shares held in a custodian account for which Ms. McDonald
serves as custodian and includes 13,000 shares held in two trusts which Ms.
McDonald serves as trustee.
(7)
Includes 8,204 shares held in a trust account.
(8)
Includes 2,291 shares beneficially owned by the individual retirement account
of Mr. Sanders's wife.
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(9)
Includes 14,500 shares held in a trust account and 2,000 shares beneficially
owned by the individual retirement account of Mr. Stone's wife.
(10)
Includes 1,411 shares beneficially owned by the 401(k) plan account of Mr.
Capitani's wife.
(11)
Includes shares beneficially owned as follows: John Chappelle - 2,926; B. Scot
Ebron - 20,929; and Talal Tay - 2,286.
Messrs. Chappelle, Ebron and Tay are executive officers of the Bank. Includes
shares beneficially owned by Patrick Pierce and Lacey Pierce of 12,839 and
12,244, respectively, of which 9,109 shares are owned jointly by Mr. and Mrs.
Pierce.
Mr. and Mrs. Pierce are executive officers of the Bank.
(12)
Based on information contained in a Schedule 13G/A filed with the U.S.
Securities and Exchange Commission on February 14, 2023.
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Item 13. Certain Relationships and Related Transactions, and Director
Independence
OTHER INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS
Policies and Procedures for Approval of Related Persons Transactions.
We maintain a written policy and set of procedures for the review and approval
or ratification of transactions involving related persons. Under the policy,
related persons consist of directors, director nominees, executive officers,
persons or entities known to us to be the beneficial owner of more than five
percent of any outstanding class of the voting securities of the Company, or
immediate family members or certain affiliated entities of any of the
foregoing persons.
Transactions covered by the policy consist of any financial transaction,
arrangement or relationship or series of similar transactions, arrangements or
relationships, in which:
.
the aggregate amount involved will or may be expected to exceed $50,000 in any
calendar year;
.
the Company is, will or may be expected to be a participant; and
.
any related person has or will have a direct or indirect material interest.
The policy excludes certain transactions, including:
.
any compensation paid to an executive officer of the Company if the Governance
Committee of the Board approved (or recommended that the Board approve) such
compensation;
.
any compensation paid to a director of the Company if the Board or an
authorized committee of the Board approved such compensation; and
.
any transaction with a related person involving consumer and investor
financial products and services provided in the ordinary course of the
Company's business and on substantially the same terms as those prevailing at
the time for comparable services provided to unrelated third parties or to the
Company's employees on a broad basis (and, in the case of loans, in compliance
with the Sarbanes-Oxley Act of 2002).
Related person transactions will be approved or ratified by the Audit
Committee. In determining whether to approve or ratify a related person
transaction, the Audit Committee will consider all relevant factors, including:
.
whether the terms of the proposed transaction are at least as favorable to the
Company as those that might be achieved with an unaffiliated third party;
.
the size of the transaction and the amount of consideration payable to the
related person;
.
the nature of the interest of the related person;
.
whether the transaction may involve a conflict of interest; and
.
whether the transaction involves the provision of goods and services to the
Company that are available from unaffiliated third parties.
A member of the Audit Committee who has an interest in the transaction will
abstain from voting on approval of the transaction, but may, if so requested
by the chair of the Audit Committee, participate in some or all of the
discussion.
Relationships and Transactions with the Company and the Bank.
Loans to Executive Officers and Directors.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its
executive officers and directors. However, the Sarbanes-Oxley Act contains a
specific exemption from such prohibition for loans by the Bank to its
executive officers and directors in compliance with federal banking
regulations. Federal regulations require that all loans or extensions of
credit to executive officers and directors of insured financial institutions
must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons not related to the Bank and must not involve more than the
normal risk of repayment or present other unfavorable features. The Bank is
therefore prohibited from making any new loans or extensions of credit to
executive officers and directors at different rates or terms than those
offered to the general public. Notwithstanding this rule, federal regulations
permit the Bank to make loans to executive officers and directors at reduced
interest rates if the loan is made under a benefit program generally available
to all other employees and does not give preference to any executive officer
or director over any other employee. The Bank does not currently have such a
program in place. From time to time, the Bank makes loans and extensions of
credit to its executive officers and directors, and members of their immediate
families. The outstanding loans made to our directors and executive officers,
and members of their immediate families, were made in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans with
persons not related to the Bank, and did not involve more than the normal risk
of collectibility or present other unfavorable features. As of December 31,
2022
,
these loans were performing according to their original terms.
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In accordance with banking regulations, the Board of Directors reviews all
loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to such person and his or her
related interests, exceed the greater of $25,000 or 5% of the Company's
capital and surplus (up to a maximum of $500,000), and such loan must be
approved in advance by a majority of the disinterested members of the Board of
Directors.
As noted in the
"Corporate Governance"
section of this Form 10-K/A, Mr. Adams is a 25% owner and the managing member
of GAFR Holdings. The Bank paid GAFR Holdings $105,812 in 2022 (in which Mr.
Adams had a 25% interest of approximately $26,453) in connection with the
lending center lease.
In addition, from the beginning of 2023 through the date of this report, the
Bank paid GAFR Holdings $25,452 (in which Mr. Adams had a 25% interest of
approximately $6,363) in connection with the lease. Mr. Adams is also the 100%
owner and President of JON Properties, LLC ("JON Properties"). The Bank pays
monthly fees to JON Properties in connection with common area maintenance for
the Virginia lending center.
The Bank paid JON Properties $12,418 in 2022 in common area maintenance fees.
Since the beginning of 2023 through the date of this report, the Bank has paid
the entity $2,892 in 2023 in common area maintenance fees. Additionally, the
Company and the Bank received legal services from Jenkins Law Firm, LLC, of
which Louis Jenkins is the principal and attorney.
An annual retainer of $118,000 was paid to the law firm in 2022 and 2023.
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Item 14. Principal Accounting Fees and Services
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMMUNITY FINANCIAL CORPORATION
Mary Todd Peterson (Chair)
Michael B. Adams
Rebecca M. McDonald
E. Lawrence Sanders, III
Audit Fees.
The following table sets forth fees billed to the Company by FORVIS, LLP
(Formerly known as Dixon Hughes Goodman, LLP) for the fiscal years ended
December 31, 2022 and December 31, 2021:
2022 2021
Audit Fees $ 303,960 $ 283,425
(1)
Audit Related Fees $ 28,500 $ 27,000
(2)
Tax Fees $ - $ -
All Other Fees $ - $ -
___________________________________
(1)
Represents fees for performance of the audit and review of financial
statements and fees relating to the review of public filings.
(2)
Represents fees for the audit of the 401(k) and ESOP plans.
Pre-Approval of Services by the Independent Registered Public Accounting Firm.
The Audit Committee's charter provides that the Audit Committee will approve
in advance any non-audit services permitted by the Securities Exchange Act,
including tax services that its independent registered public accounting firm
renders to the Company, unless such prior approval may be waived because of
permitted exceptions under the Securities Exchange Act, including but not
limited to a 5%
de minimis
exception. The Audit Committee may delegate to one or more members of the
Audit Committee the authority to grant pre-approvals for auditing and
allowable non-auditing services, which decision shall be presented to the full
Audit Committee at its next scheduled meeting for ratification. During the
fiscal year ended December 31, 2022, the Audit Committee approved 100% of all
audit-related, tax and other fees.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(1)
The financial statements required in response to this item are incorporated
herein by reference from Item 8 of this Annual Report on Form 10-K, initially
filed on March 2, 2023.
(2)
All financial statement schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
(3)
Exhibits
Exhibit No Description Incorporated by
Reference to
2.1* Agreement and Plan of Merger, dated Exhibit 2.1 to
as of December 14, 2022, by and the Form 8-K
between Shore Bancshares, Inc. and as filed on
The Community Financial Corporation December 14, 2022
3.1 Articles of Incorporation Exhibit 3.1 to
as Amended and the Form S-4
Restated of The Community (Registration
Financial Corporation No. 333-220455)
3.3 Amended and Restated Exhibit 3.1 to
Bylaws of The the Form 8-K as
Community Financial filed on September
Corporation 28, 2022
4.5 Description of securities Exhibit 4.5 to the Form
registered pursuant to 10-K for the year ended
Section 12 of the Securities December 31, 2019 as
and Exchange Act of 1934 filed on March 4, 2020
4.6 Indenture, dated as of October 14, Exhibit 4.1 to
2020, by and between The Community the Form 8-K
Financial Corporation and UMB Bank as filed on
National Association, as Trustee October 14, 2020
4.7 Form of 4.75% Fixed-to-Floating Exhibit A-1 to
Rate Subordinated Exhibit 4.1 to the
Note due 2030 of The Community Form 8-K as filed
Financial Corporation on October 14, 2020
10.5** Community Bank of the Exhibit 10.5 to the Form
Chesapeake Retirement 10-K for the year ended
Plan for Directors, as December 31, 2015 as
amended and restated filed on March 10, 2016
10.7** Split Dollar Agreement Exhibit 10.10 to the Form
with William 10-K for the year ended
J. Pasenelli dated December 31, 2001 as
April 12, 2001 filed on April 1, 2002.
10.12** Community Bank of the Exhibit 10.12 to the Form
Chesapeake Executive Deferred 10-K for the year ended
Compensation Plan, as December 31, 2015 as
amended and restated filed on March 10, 2016
10.32** The Community Appendix A to the
Financial Corporation Definitive Proxy
2015 Equity Statement as filed
Compensation Plan on March 25, 2015
10.37** Split Dollar Exhibit 10.37 to the Form
Agreement with Todd 10-K for the year ended
L. Capitani dated December 31, 2015 as
March 3, 2011 filed on March 10, 2016
10.38** Split Dollar Exhibit 10.38 to the Form
Agreement with James 10-K for the year ended
Burke dated March 15, 2011 December 31, 2015 as
filed on March 10, 2016
10.44** Supplemental Life Insurance Exhibit 10.44 to the Form
Agreement between Community Bank 10-K for the year ended
of Tri-County and William J. December 31, 2015 as
Pasenelli dated January 12, 2004 filed on March 10, 2016
10.45** Split Dollar Agreement Exhibit 10.45 to the Form
with William 10-K for the year ended
J. Pasenelli dated December 31, 2015 as
March 15, 2011 filed on March 10, 2016
10.55** Employment Agreement by and among Exhibit 10.1 to the Form
Community Bank of the Chesapeake, William 10-Q for the quarter
J. Pasenelli and The Community ended March 31, 2018 as
Financial Corporation, as guarantor filed on May 10, 2018
10.56** Employment Agreement by and among Exhibit 10.2 to the Form
Community Bank of the Chesapeake, 10-Q for the quarter
Todd L. Capitani and The Community ended March 31, 2018 as
Financial Corporation, as guarantor filed on May 10, 2018
10.57** Employment Agreement by and among Exhibit 10.3 to the Form
Community Bank of the Chesapeake, 10-Q for the quarter
James M. Burke and The Community ended March 31, 2018 as
Financial Corporation, as guarantor filed on May 10, 2018
10.61** Salary Continuation Agreement between William J. Exhibit 10.7 to the Form
Pasenelli and Community Bank of the Chesapeake, dated 10-Q for the quarter
September 6, 2003, as amended on December 22, 2008 and ended March 31, 2018 as
amended and restated in its entirety on April 30, 2018 filed on May 10, 2018
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Exhibit No Description Incorporated by
Reference to
10.63** Salary Continuation Agreement between William J. Pasenelli Exhibit 10.9 to the Form
and Community Bank of the Chesapeake, dated August 21, 10-Q for the quarter
2006, as amended on April 13, 2007, December 30, 2007 and ended March 31, 2018 as
amended and restated in its entirety on April 30, 2018 filed on May 10, 2018
10.64** Salary Continuation Agreement between James M. Exhibit 10.10 to the Form
Burke and Community Bank of the Chesapeake, 10-Q for the quarter
dated August 21, 2006 and amended and ended March 31, 2018 as
restated in its entirety on April 30, 2018 filed on May 10, 2018
10.67** Amended and Restated Supplemental Executive Retirement Plan Exhibit 10.13 to the Form
Agreement, dated January 1, 2011, First Amendment to the Supplemental 10-Q for the quarter
Executive Retirement Plan dated January 1, 2011 and amended and ended March 31, 2018 as
restated in its entirety on April 30, 2018 with William J. Pasenelli filed on May 10, 2018
10.68** Amended and Restated Supplemental Executive Retirement Plan Exhibit 10.14 to the Form
Agreement, dated January 1, 2011, First Amendment to the Supplemental 10-Q for the quarter
executive Retirement Plan dated January 1, 2011 and amended and ended March 31, 2018 as
restated in its entirety on April 30, 2018 with Todd L. Capitani filed on May 10, 2018
10.69** Amended and Restated Supplemental Executive Retirement Plan Exhibit 10.15 to the Form
Agreement, dated January 1, 2011, First Amendment to the 10-Q for the quarter
Supplemental Executive Retirement Plan dated January 1, 2011 ended March 31, 2018 as
and amended and restated on April 30, 2018 with James M. Burke filed on May 10, 2018
10.72** Amended and Restated Supplemental Executive Exhibit 10.18 to the Form
Retirement Plan agreement, dated November 10-Q for the quarter
1, 2014 as amended and restated on April ended March 31, 2018 as
30, 2018, with William J. Pasenelli filed on May 10, 2018
10.73** Amended and Restated Supplemental Executive Exhibit 10.19 to the Form
Retirement Plan agreement, dated 10-Q for the quarter
November 1, 2014 as amended and restated ended March 31, 2018 as
on April 30, 2018, with Todd L. Capitani filed on May 10, 2018
10.74** Amended and Restated Supplemental Executive Exhibit 10.20 to the Form
Retirement Plan agreement, dated 10-Q for the quarter
November 1, 2014 as amended and restated ended March 31, 2018 as
on April 30, 2018, with James M. Burke filed on May 10, 2018
10.77** Amended and Restated Supplemental Executive Exhibit 10.23 to the Form
Retirement Plan agreement, dated 10-Q for the quarter
November 1, 2014 as amended and restated ended March 31, 2018 as
on April 30, 2018, with Christy Lombardi filed on May 10, 2018
10.78** Community Bank of the Chesapeake Exhibit 10.78 to the Form
Executive Incentive Compensation 10-K for the year ended
Plan, as amended and restated December 31, 2018 as
effective January 1, 2019 filed on March 7, 2019
10.81** Amended and Restated Employment Agreement Exhibit 10.1 to
by and among Community Bank of the the Form 8-K
Chesapeake, Christy Lombardi and The Community as filed on April 5, 2019
Financial Corporation, as guarantor
10.82** Change in Control Agreement by and among Exhibit 10.82 to the Form
Community Bank of the Chesapeake, 10-K for the year ended
John Chappelle and The Community December 31, 2019 as
Financial Corporation, as guarantor filed on March 4, 2020
10.83** Change in Control Agreement by and among Exhibit 10.83 to the Form
Community Bank of the Chesapeake, 10-K for the year ended
B. Scot Ebron and The Community December 31, 2019 as
Financial Corporation, as guarantor filed on March 4, 2020
10.84** Change in Control Agreement by and among Exhibit 10.84 to the Form
Community Bank of the Chesapeake, 10-K for the year ended
Lacey Pierce and The Community December 31, 2019 as
Financial Corporation, as guarantor filed on March 4, 2020
10.85** Change in Control Agreement by and among Exhibit 10.85 to the Form
Community Bank of the Chesapeake, 10-K for the year ended
Patrick Pierce and The Community December 31, 2019 as
Financial Corporation, as guarantor filed on March 4, 2020
10.86** Change in Control Agreement by and among Exhibit 10.86 to the Form
Community Bank of the Chesapeake, 10-K for the year ended
Talal Tay and The Community December 31, 2019 as
Financial Corporation, as guarantor filed on March 4, 2020
32
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Table of Contents
Exhibit No Description Incorporated by
Reference to
10.88 Form of Subordinated Exhibit 10.1 to
Note Purchase Agreement, the Form 8-K
dated as of October 14, as filed on
2020, by and between October 14, 2020
The Community Financial
Corporation and
the several Purchasers
identified therein
10.89 Form of Registration Exhibit 10.2 to
Rights Agreement, dated the Form 8-K
as of October 14, as filed on
2020, by and between October 14, 2020
The Community Financial
Corporation and
the several Purchasers
identified therein
10.92 Retirement and Exhibit 10.1 to
Consulting Agreement, the Form 8-K
dated December as filed on
8, 2021 by and December 8, 2021
between The
Community Financial
Corporation and
William J. Pasenelli
14.0 Code of Ethics Exhibit 14.0 to the Form
10-K for the year ended
December 31, 2016 as
filed on March 13, 2017
16.1 Letter of FORVIS, Exhibit 16.1 to the Form
LLP dated 8-K filed on June 6, 2022
June 6, 2022 to the SEC
21.0 List of Subsidiaries Incorporated herein
by reference to
Exhibit 21.0 to
this Annual Report
on Form 10-K (File
No. 001-36094),
initially filed
on March 2, 2023
23.1 Consent of FORVIS, LLP Incorporated herein
by reference to
Exhibit 23.1 to
this Annual Report
on Form 10-K (File
No. 001-36094),
initially filed
on March 2, 2023
31.1 Rule 13a-14(a)/15d-14(a) Incorporated herein
Certification by reference to
of Chief Executive Officer Exhibit 31.1 to
this Annual Report
on Form 10-K (File
No. 001-36094),
initially filed
on March 2, 2023
31.2 Rule 13a-14(a)/15d-14(a) Incorporated herein
Certification by reference to
of Chief Financial Officer Exhibit 31.2 to
this Annual Report
on Form 10-K (File
No. 001-36094),
initially filed
on March 2, 2023
31.3 Rule 13a-14(a)/15d-14(a) Filed herewith
Certification
of Chief Executive Officer
31.4 Rule 13a-14(a)/15d-14(a) Filed herewith
Certification
of Chief Financial Officer
32 Section 1350 Certification Incorporated herein
of Chief Executive by reference to
Officer, Exhibit 32 to this
Chief Financial Annual Report
Officer and on Form 10-K (File
Chief Accounting Officer No. 001-36094),
initially filed
on March 2, 2023
101 The following materials from the Company's Annual Report on Previously filed in
Form 10-K for the year ended December 31, 2022, formatted in this Annual Report
iXBRL (Inline Extensible Business Reporting Language): (i) the on Form 10-K (File
Consolidated Balance Sheets, (ii) the Consolidated Statements No. 001-36094),
of Income, (iii) Consolidated Statements of Comprehensive Income, for the Year Ended
(iv) the Consolidated Statements of Changes in Stockholders' December 31, 2022,
Equity, (v) the Consolidated Statements of Cash Flows and initially filed
(vi) the Notes in the Consolidated Financial Statements. on March 2, 2023
104 Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101)
________________________________________
(*) Schedules and certain exhibits omitted pursuant to Item 601(b)(2) of
Regulation S-K. The registrant agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the SEC upon request.
(**) Management contract or compensating arrangement.
Item 16. Form 10-K Summary
None
33
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE COMMUNITY FINANCIAL CORPORATION
Date: April 14, 2023 By: /s/ James M. Burke
James M. Burke
President and Chief Executive Officer
(Duly Authorized Representative)
34
EXHIBIT 31.3
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, James M. Burke, certify that:
1.
I have reviewed this Amendment No. 1 on Form 10-K/A of The Community Financial
Corporation.
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report.
Date: April 14, 2023 /s/ James M. Burke
James M. Burke
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.4
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Todd L. Capitani, certify that:
1.
I have reviewed this Amendment No. 1 on Form 10-K/A of The Community Financial
Corporation.
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report.
Date: April 14, 2023 /s/ Todd L. Capitani
Todd L. Capitani
Chief Financial Officer and Executive Vice President
(Principal Financial and Accounting Officer)
{graphic omitted}
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