COMMUNITY
FINANCIAL CORPORATION
38
North Central Avenue
Staunton,
Virginia 24401
(540)
886-0796
___________________________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
be held on July 29, 2009
___________________________________________________
NOTICE IS
HEREBY GIVEN that the annual meeting of stockholders of Community Financial
Corporation will be held at our executive offices located at 38 North Central
Avenue, Staunton, Virginia 24401, on July 29, 2009, at 6:30 p.m.,
local time.
At the
annual meeting, stockholders of Community Financial will be asked to consider
and vote upon: (1) the election of four directors, three of whom shall be
elected for a term of three years and one who shall be elected for a term of one
year; and (2) an advisory (nonbinding) resolution to approve our executive
compensation as disclosed in the attached proxy statement.
Your Board of Directors recommends
that you vote “FOR” each of the director nominees and “FOR the advisory
resolutions identified in the attached proxy statement.
Stockholders
also will transact any other business that may properly come before the annual
meeting and any adjournments thereof. As of the date of this proxy
statement, we are not aware of any other business to come before the annual
meeting.
The Board
of Directors has fixed the close of business on May 29, 2009, as the record date
for the annual meeting. This means that stockholders of record at the
close of business on that date are entitled to receive notice of and to vote at
the annual meeting and any adjournments thereof.
The
annual report to stockholders, which is not a part of the proxy soliciting
materials, accompanies this notice of annual meeting of stockholders, proxy
statement and form of proxy, which is first being mailed to stockholders on or
about June 29, 2009.
To ensure
that your shares are represented at the meeting, please take the time to vote by
signing, dating and mailing the enclosed proxy card which is solicited on behalf
of the Board of Directors. The proxy will not be used if you attend
and vote at the annual meeting in person.
Regardless of the number of shares
you own, your vote is very important. Please act
today.
Important Notice Regarding the
Availability of Proxy Materials for the Stockholder Meeting to be held on July
29, 2009:
This Notice of Annual Meeting of Stockholders, the attached
proxy statement and the Company’s 2009 Annual Report to Stockholders are
available at
www.cbnk.com
.
Thank you
for your continued interest and support.
By Order
of the Board of Directors
Ramona W.
Savidge
Corporate
Secretary
Community
Financial Corporation
38
North Central Avenue
Staunton,
Virginia 24401
(540)
886-0796
____________________
____________________
ANNUAL
MEETING OF STOCKHOLDERS
To
be held on July 29, 2009
____________________
INTRODUCTION
The
Community Financial Corporation Board of Directors is using this proxy statement
to solicit proxies from the holders of common stock of Community Financial
Corporation for use at Community Financial Corporation’s annual meeting of
stockholders and any adjournments thereof. The notice of annual
meeting of stockholders, this proxy statement and the enclosed form of proxy are
first being mailed to our stockholders on or about June 29,
2009. References to Community Financial, the Company, we, us and our
refer to Community Financial Corporation, and as the context requires, Community
Bank. Community Bank is the wholly-owned subsidiary of Community
Financial.
INFORMATION
ABOUT THE ANNUAL MEETING
What
is the Date, Time and Place of the Annual Meeting?
Our
annual meeting will be held as follows:
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Date:
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July
29, 2009
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Time:
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6:30
p.m., local time
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Place:
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Executive
Offices of Community Financial
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38
North Central Avenue
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Staunton,
Virginia 24401
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What
Matters Will Be Considered at the Annual Meeting?
At the
annual meeting, stockholders of Community Financial are being asked to consider
and vote upon: (i) the election of four directors, three of whom shall be
elected for a term of three years and one who shall be elected for a term of one
year and (ii) an advisory (nonbinding) resolution to approve our executive
compensation as disclosed in this proxy statement. The stockholders
also will transact any other business that may properly come before the annual
meeting and any adjournments thereof. As of the date of this proxy
statement, we are not aware of any other business to be presented for
consideration at the annual meeting other than the matters described in this
proxy statement.
Who
is Entitled to Vote?
The Board
of Directors has fixed the close of business on May 29, 2009, as the record date
for the annual meeting. Only stockholders of record of Community
Financial common stock on that date are entitled to receive notice of and to
vote at the annual meeting and any adjournments thereof. Each
stockholder of record on May 29, 2009, will be entitled to one vote for each
share of Community Financial common stock held. On May 29, 2009,
there were 4,361,658 shares of Community Financial common stock issued and
outstanding and entitled to vote at the annual meeting.
What
If My Shares Are Held in “Street Name” by a Broker, Bank or other
Nominee?
If you
are the beneficial owner of shares held in “street name” by a broker, bank, or
other nominee, your nominee, as the record holder of the shares, is required to
vote the shares in accordance with your instructions. If you do not
give instructions to your nominee, your nominee may nevertheless vote the shares
with respect to “discretionary” items, but will not be permitted to vote your
shares with respect to “non-discretionary” items, pursuant to current industry
practice.
How
Will My Shares of Common Stock Held in Community Financial’s Employee Stock
Ownership and 401(k) Profit Sharing Plan Be Voted?
We
maintain an Employee Stock Ownership and 401(k) Profit Sharing Plan (“KSOP”)
which owns approximately 5.9% of Community Financial’s common
stock. Each plan participant instructs the trustee of the plan how to
vote the shares of Community Financial common stock allocated to his or her
account under the plan. If a plan participant properly executes the
voting instruction card distributed by the plan trustee, the plan trustee will
vote such participant’s shares in accordance with his or her instructions. Where
properly executed voting instruction cards are returned to the plan trustee with
no specific instructions as how to vote at the annual meeting or if the plan
participant fails to give timely voting instructions to the trustee with respect
to the voting of the common stock allocated to his or her KSOP account, then in
each case the plan trustee will vote those shares “FOR” each of management’s
director nominees and “FOR” approval of the advisory (nonbinding) resolution
regarding executive compensation.
How
Many Shares Must Be Present to Hold the Meeting?
A quorum
must be present at the meeting for any business to be conducted. The
presence at the meeting, in person or by proxy, of the holders of a majority of
the shares of Community Financial common stock outstanding on the record date
will constitute a quorum. Abstentions and broker “non-votes” will be
included in determining the presence of a quorum at the annual
meeting.
What
If a Quorum Is Not Present at the Meeting?
If a
quorum is not present at the scheduled time of the meeting, a majority of the
stockholders present or represented by proxy may adjourn the meeting until a
quorum is present. The time and place of the adjourned meeting will
be announced at the time the adjournment is taken, and no other notice will be
given. An adjournment will have no effect on the business that may be
conducted at the meeting.
What
Vote Is Required for the Election of Directors?
Directors
are elected by a plurality of the votes cast, in person or by proxy, at the
annual meeting by holders of Community Financial common stock. This
means that the four director nominees with the most affirmative votes will be
elected to fill the available seats. With respect to the election of
directors, stockholders may vote either “FOR” or “WITHHELD.” Checking
the box “WITHHELD” on the proxy card is the equivalent of abstaining from voting
on the election of directors and will have no effect on the vote. If
a director nominee is unable to stand for election, the Board of Directors may
either reduce the number of directors to be elected or select a substitute
nominee. If a substitute nominee is selected, the proxy holders will
vote your shares for the substitute nominee, unless you have withheld authority
to vote for the election of directors on your proxy card.
Your Board of
Directors unanimously recommends that you vote “FOR” election of each of
management’s director nominees.
What
Vote Is Required to Approve the Advisory (Nonbinding) Resolution Regarding
Executive Compensation?
Approval of the advisory (nonbinding)
resolution on executive compensation as disclosed in this proxy statement
requires the affirmative vote of a majority of the votes cast in person or by
proxy, at the annual meeting. As to the advisory resolution,
stockholder may vote “FOR” the item, “AGAINST” the item, or may “ABSTAIN” from
voting on the item. Broker non-votes and proxies marked “ABSTAIN” as
to the matter will have no effect on the vote. Since the stockholder
vote is advisory, it will not be binding upon the Board of
Directors. The Compensation Committee of the Board, however, may take
into account the outcome of the vote when considering future executive
compensation arrangements.
Your Board of
Directors unanimously recommends that you vote “FOR” approval of the advisory
(nonbinding) resolution regarding executive compensation.
How
Do I Vote at the Annual Meeting?
You may
vote in person at the annual meeting or by proxy. To ensure your
representation at the annual meeting, we recommend you vote by proxy even if you
plan to attend the annual meeting. You can always change your vote at
the meeting. See “How to Revoke Your Proxy” below.
Voting
instructions are included on your proxy card. If you properly give your proxy
and submit it to us in time to vote, the persons named as your proxy will vote
your shares as you have directed. If you submit your proxy but do not
make a specific choice as to how to vote, your proxy will be voted in accordance
with the Community Financial Board’s recommendation “FOR” the election of each
director nominee and “FOR” approval of the advisory (nonbinding) resolution
regarding executive compensation.
The
persons named in the proxy will have the discretion to vote on any other
business properly presented for consideration at the annual meeting in
accordance with their best judgment.
As of the date of this
proxy statement, we are not aware of any other matters to be presented at the
annual meeting other than those described in this proxy statement and the notice
of annual meeting of stockholders accompanying the proxy statement.
You may
receive more than one proxy card depending on how your shares are
held. For example, you may hold some of your shares individually,
some jointly with your spouse and some in trust for your children -- in which
case you will receive three separate proxy cards to vote. Please sign
and return each proxy card you receive.
May
I Revoke My Proxy?
If you
are the stockholder of record, you may revoke your proxy before it is voted
by:
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submitting
a new proxy with a later date;
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notifying
the Corporate Secretary of Community Financial in writing before the
annual meeting that you have revoked your proxy,
or
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·
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voting
in person at the annual meeting.
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If you
have instructed a broker, bank or other nominee to vote your shares, you must
follow directions received from your nominee to change those
instructions.
If you
plan to attend the annual meeting and wish to vote in person, we will give you a
ballot at the annual meeting. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring a proxy from the
nominee and a letter indicating that you were the beneficial owner of Community
Financial common stock on May 29, 2009, the record date for voting at the annual
meeting.
Proxy
Solicitation Costs
Community
Financial will pay the costs of soliciting proxies. Community
Financial will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Community Financial common stock. In
addition to solicitation by mail, directors, officers and employees of Community
Financial may solicit proxies personally or by facsimile, telegraph or
telephone, without additional compensation.
STOCK
OWNERSHIP OF COMMUNITY FINANCIAL
CORPORATION
COMMON STOCK
Stock
Ownership of Directors and Executive Officers
The
following table presents information regarding the beneficial ownership of
Community Financial common stock as of March 31, 2009, by:
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·
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those
persons or entities (or group of affiliated persons or entities) known by
management to beneficially own more than five percent of the outstanding
common stock of Community
Financial;
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·
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each
director and director nominee of Community
Financial;
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·
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each
named executive officer of Community Financial set forth in the “Summary
Compensation Table” herein; and
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·
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all
of the executive officers and directors of Community Financial as a
group.
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The
persons named in this table have sole voting power for all shares of common
stock shown as beneficially owned by them, subject to community property laws
where applicable and except as indicated in the footnotes to this
table. The address of each beneficial owner named in the table,
except where otherwise indicated, is the same address as Community
Financial. An asterisk (*) in the table indicates that an individual
beneficially owns less than one percent of the outstanding common stock of
Community Financial.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the “SEC”). In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to outstanding options held by that person that
are currently exercisable or exercisable within 60 days after March 31, 2009 are
deemed outstanding. These shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other
person. As of March 31, 2009, there were 4,361,658 shares of
Community Financial common stock outstanding.
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Amount
and Nature of
Common
Stock
Beneficially
Owned
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Name
of Beneficial Owner
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Number
of
Shares
Beneficially
Owned
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Percent
of
Class
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Beneficial
Owners of More Than 5%
(Other
Than Directors, Director Nominees and Executive Officers)
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Community
Financial Employee Stock Ownership and 401(k)
Profit
Sharing Plan
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255,789
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5.9
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%
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Sagus
Financial Fund, LP, Sagus Partners, LLC, Bankers Capital Group,
LLC
and
David C Brown(1)
3399
Peachtree Road, Suite 2040
Atlanta,
Georgia 30326
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251,570
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5.8
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%
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Directors,
Director Nominees and Executive Officers
(2)(3)(4)
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P.
Douglas Richard
Director/Director
Nominee
President
and Chief Executive Officer of Community Financial
Chief
Executive Officer of Community Bank
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111,735
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2.5
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%
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James
R. Cooke, Jr., D.D.S.
Chairman
of the Board/ Director Nominee
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74,722
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1.7
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%
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Jane
C. Hickok(5)
Former
Vice Chairman of the Board
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154,140
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3.5
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%
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Charles
F. Andersen, M.D.
Director
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92,680
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2.1
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%
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Charles
W. Fairchilds(6)
Director
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26,820
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*
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Dale
C. Smith(7)
Director
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107,400
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2.5
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%
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Morgan
N. Trimyer, Jr.
Director/Director
Nominee
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24,900
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*
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Norman
C. Smiley, III(8)
Director/Director
Nominee
President
of Community Bank
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60,348
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1.4
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%
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Chris
P. Kyriakides(9)
Senior
Vice President/Regional President of Community Bank
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65,862
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1.5
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%
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All
directors, director nominees and executive officers of
Community
Financial as a group (13 persons)
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881,327
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19.0
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%
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______________________
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(1)
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As
reported by Sagus Financial Fund, LP, a Delaware limited partnership
(“SFF”), Sagus Partners, LLC, a Georgia limited liability company and
managing partner of SFF (“SP”), Bankers Capital Group, LLC, a Georgia
limited liability company and 50% owner of SP (“BCG”), and David C. Brown,
a resident of Georgia who is the 50% owner and manager of SP (Mr. Brown,
with SFF, SP and BCG, the “Reporting Persons”) in a Schedule 13D dated
March 17, 2009. The Reporting Persons reported sole voting and
investment power over all of its reported
shares.
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(2)
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Includes
shares of Community Financial common stock held directly, as well as
shares held jointly with family members, shares held in retirement
accounts, held in a fiduciary capacity, held by certain of the group
members’ families, or held by trusts of which the group member is a
trustee or substantial beneficiary, with respect to which shares of common
stock the group member may be deemed to have sole or shared voting and/or
investment
powers.
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(3)
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Includes
shares of Community Financial common stock as to which the named
individual has the right to acquire beneficial ownership, currently or
within 60 days after March 31, 2009, pursuant to the exercise of stock
options, as follows: Mr. Richard, 69,000 shares; Dr. Cooke, 4,000 shares;
Mrs. Hickok, 8,000 shares; Dr. Andersen, 8,000 shares; Mr. Fairchilds,
8,000 shares; Mr. Smith, 8,000 shares; Mr. Trimyer, 18,000 shares; Mr.
Smiley, 40,000 shares; and Mr. Kyriakides, 36,000 shares; and all
directors and executive officers as a group, 290,000
shares.
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(4)
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Includes
shares of common stock held by the KSOP that have been allocated to
accounts of the following individuals: Mr. Richard, 11,004 shares; Mr.
Smiley, 7,948 shares; and Mr. Kyriakides, 1,662 shares; and all directors
and executive officers as a group, 40,124 shares. Pursuant to
the terms of the KSOP, each individual has the right to direct the voting
of the shares of common stock allocated to his account.
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(5)
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Includes
120,610 shares of common stock held in a trust over which shares Mrs.
Hickok has shared voting and dispositive power with her
spouse. Mrs. Hickock retired from the Board of Directors of
Community Financial and Community Bank in October 2008.
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(6)
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Includes
17,400 shares of common stock held in a trust over which shares Mr.
Fairchilds has shared voting and dispositive power with his
spouse.
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(7)
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Includes
87,148 shares of common stock held in a trust over which shares Mr. Smith
has shared voting and dispositive power with his spouse and 5,754 shares
pledged for an obligation.
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(8)
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Mr.
Smiley was appointed to the Board of Directors of Community Financial and
Community Bank in October 2008 to fill the vacancy created by the
retirement of Mrs. Hickok.
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(9)
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Includes
18,000 shares pledged to secure an obligation. Effective April 20, 2009,
Mr. Kyriakides was no longer employed with
us.
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PROPOSAL
1 - ELECTION OF DIRECTORS
Our Board
of Directors consists of seven members. Approximately one-third of
the directors are elected annually to serve for a three-year period or until
their respective successors are elected and qualified.
The table
below sets forth information regarding our Board of Directors, including their
age, position with Community Financial and term of office. The “Director Since”
column includes service on the Board of Directors of Community Bank as well as
service on Community Financial’s Board of Directors.
The Board
of Directors selects nominees for election as directors, based on the
recommendation of the Nominating Committee. James R. Cook, Jr., P.
Douglas Richard and Morgan N. Trimyer, Jr. have been nominated for re-election
to the Board of Directors for a three year term. Norman C. Smiley,
III, who was appointed by the Board of Directors to fill the vacancy created by
the retirement of Jane C. Hickok in October 2008, has been nominated for
election to the Board for a one year term. Jane Hickok retired from
the Boards of Directors of Community Financial and Community Bank in October
2008. Mrs. Hickok served our organization exceptionally well since
beginning her service with us in 1959. The Board of Directors
appreciates her years of guidance and dedicated service to the
Company.
Each
nominee has consented to being named in this proxy statement and has agreed to
serve if elected. If a nominee is unable to stand for election, the
Board of Directors may either reduce the number of directors to be elected or
select a substitute nominee. If a substitute nominee is selected, the
proxy holders will vote your shares for the substitute nominee, unless you have
withheld authority. At this time, we are not aware of any reason why
a nominee might be unable to serve if elected. Except as disclosed in
this proxy statement, there are no arrangements or understandings between any
nominee and any other person pursuant to which such nominee was
selected.
The Board
of Directors recommends you vote “FOR” each of management’s director
nominees
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Name
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Age
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Position(s)
Held
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Director
Since
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Term
Expires
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Director Nominees
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James
R. Cooke, Jr., D.D.S.
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71
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Chairman
of the Board
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1984
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2012
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P.
Douglas Richard
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65
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Chief
Executive Officer
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2000
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2012
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Norman
C. Smiley, III
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47
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President
of Community Bank
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2008
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2010
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Morgan
N. Trimyer, Jr.
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66
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Director
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2000
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2012
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Continuing Directors
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Charles
F. Andersen, MD
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67
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Director
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1990
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2011
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Charles
W. Fairchilds
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61
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Director
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1996
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2011
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Dale
C. Smith
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70
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Director
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1980
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2010
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Set forth
below is the principal occupation of each director and director nominee of
Community Financial. All directors and nominees have held their
present positions for at least five years, unless otherwise
indicated.
James R. Cooke, Jr.,
D.D.S.
Dr. Cooke has been a practicing dentist in Staunton,
Virginia since 1965.
P. Douglas
Richard.
Mr. Richard was appointed the Acting President and
Chief Executive Officer of Community Financial and Community Bank on January 12,
2000, and became the President and Chief Executive Officer of Community
Financial and Community Bank on April 26, 2000. He was appointed to
the Board of Directors of Community Financial on April 26, 2000. From
January 1, 1997, to January 12, 2000, Mr. Richard was a Senior Vice President of
Community Bank. From December 1993 to January 1996, he was President
and Chief Executive Officer of Seaboard Bancorp.
Norman C. Smiley, III,
Mr.
Smiley was appointed President of Community Bank in March, 2008 and was
appointed to the Board of Directors of Community Financial and Community Bank in
October 2008. Prior to his appointment as President of Community Bank, Mr.
Smiley was the Chief Lending Officer and Senior Vice President. Mr.
Smiley joined Community Bank in April 1996 and before that he was a Branch
Manager for First Virginia where he was employed for 14 years.
Morgan N. Trimyer,
Jr.
In January 2001, Mr. Trimyer joined Bankers Insurance,
LLC., an insurance company located in Richmond, Virginia, as a Vice President
and the Director of Marketing. Mr. Trimyer served as Vice President
and Partner of Welton, Duke & Hawks, Inc., an insurance company
headquartered in Portsmouth, Virginia from 1984 until January
2001. He was also Vice President of Valley Insurance Agency, Inc.
located in Lexington, Virginia.
Charles F. Andersen,
M.D.
Dr. Andersen was an orthopedic surgeon in private
practice in Waynesboro, Virginia for thirty years prior to retiring in August
2004.
Charles W.
Fairchilds.
Mr. Fairchilds was the President of Allied Ready
Mix Co., a concrete company located in Waynesboro, Virginia since 1987 until his
retirement in 2009.
Dale C. Smith.
Mr.
Smith was the General Manager and Chief Executive Officer of Augusta Cooperative
Farm Bureau, a farm supply and retail store, for thirty-nine years until his
retirement September 1, 2002.
CORPORATE
GOVERNANCE
Director
Independence
The Board
of Directors of Community Financial has determined that all of its directors,
with the exception of P. Douglas Richard, the Company’s President and Chief
Executive Officer, and Norman C. Smiley, President of Community Bank, are
“independent directors,” as that term is defined by applicable listing standards
of the NASDAQ Marketplace Rules and by the Securities and Exchange
Commission. These independent directors are James R. Cooke, Jr.,
Charles F. Andersen, Charles W. Fairchilds, Dale C. Smith and Morgan N. Trimyer,
Jr.
The
NASDAQ independence definition includes a series of objective tests, such as
that the director is not an employee of the company and has not engaged in
various types of business dealings with the company. As required by
the NASDAQ Marketplace Rules, the Board has made a subjective determination as
to each independent director that no relationships exist which, in the opinion
of the Board, would interfere with the exercise of his or her independent
judgment in carrying out the responsibilities of a director. In
making these determinations, the directors reviewed and discussed information
provided by the directors and the Company with regard to each director’s
business and personal activities as they may relate to the Company and its
management.
Board
Meetings and Committees
The Board
of Directors of Community Financial and Community Bank, its wholly-owned
operating subsidiary, generally meet monthly. During fiscal 2009,
each Board held 12 meetings. During fiscal 2009, no director during the period
that he or she served attended less than 75% of the Community Financial Board
meetings, Community Bank Board meetings and any committees thereof on which he
or she served.
The
Community Financial Board of Directors’ principal standing committees during
fiscal 2009 were the Audit, Compensation/Benefits and Nominating
Committees. Information regarding the functions of the Board’s
committees, their present membership and the number of meetings held by each
committee during fiscal 2009 is set forth below.
Audit
Committee.
The Audit Committee operates under a formal written
charter adopted by the Board of Directors. The Audit Committee is
appointed by the Board of Directors to provide assistance to the Board in
fulfilling its oversight responsibility relating to the integrity of our
consolidated financial statements and the financial reporting processes, the
systems of internal accounting and financial controls, compliance with legal and
regulatory requirements, the annual independent audit of our consolidated
financial statements, the independent auditors’ qualifications and independence,
the performance of our internal audit function and independent auditors and any
other areas of potential financial risk to Community Financial specified by its
Board of Directors. The Audit Committee also is responsible for the
appointment, retention and oversight of our independent auditors, including
pre-approval of all audit and non-audit services to be performed by the
independent auditors, and for the review and approval, on an ongoing basis, of
all related party transactions for potential conflict of interest
situations. The Audit Committee Report appears on page 18 of this
proxy statement.
During
fiscal 2009, the members of the Audit Committee were James Cooke, Dale Smith,
Charles Fairchilds (Chair) and, until her retirement from the Board of Directors
in October 2008, Jane Hickok. All members of the Audit Committee (i)
are independent as defined under Rule 4200 (a)(15) of the NASDAQ Marketplace
Rules; (ii) meet the criteria for independence set forth in SEC Rule
10A-3(b)(1); (iii) have not participated in the preparation of the financial
statements of Community Financial or any of its current subsidiaries at any time
during the past three years; and (iv) are able to read and understand
fundamental financial statements, including our balance sheet, income statement,
and cash flow statement. Additionally, Jane Hickok and Charles Fairchilds each
have past employment experience in finance or accounting and/or requisite
professional certification in accounting that results in their
financial
sophistication.
Jane Hickok, until her retirement in October 2008, was determined by the Board
of Directors to meet the requirements adopted by the SEC for qualification as an
“audit committee financial expert.” Following Mrs. Hickok’s
retirement, the Board of Directors determined that no audit committee member
meets the requirements adopted by the SEC for qualification as an “audit
committee financial expert.” The Board of Directors, however, has determined, as
previously stated, that all of the members of the Audit Committee are able to
read and understand fundamental financial statements within the meaning of the
NASDAQ Audit Committee requirements and that at least one of its members has the
financial sophistication required by NASDAQ. The Board of Directors
believes that by satisfying the requirements of the NASDAQ listing standards
with a member of the Audit Committee that has the requisite “financial
sophistication” qualifications, coupled with the industry experience each
committee member has as a result of his substantial tenure on the Board of
Directors, the Audit Committee has the financial expertise necessary to fulfill
the duties and the obligations of the Audit Committee. During 2009,
the Audit Committee held four meetings.
Compensation/Benefits
Committee.
The Compensation/Benefits Committee operates under
a formal written charter adopted by the Board of Directors. The
Company’s Compensation/Benefits Committee and the Bank’s Compensation Committee,
which have identical membership, are collectively responsible for determining
compensation to be paid to the Bank’s officers and employees, which are based on
the recommendation of supervisors, including the President and Chief Executive
Officer. President Richard is not present during voting or
deliberations concerning his compensation. The Company’s CompensationBenefits
Committee is responsible for administering our stock option and incentive plan
and our recognition and retention plan, and reviews overall compensation
policies for the Company and the Bank. This committee is also
responsible for reviewing with the senior risk officer(s) the senior executive
officer incentive compensation arrangements and to make reasonable efforts to
ensure that such arrangements do not encourage senior executive officers to take
unnecessary and excessive risks that threatens the value of Community Financial,
a requirement imposed in connection with the Company
=
s
participation in the Treasury’s Capital Purchase Program.
Community
Financial currently does not pay any salaries to its officers or employees since
its principal activity is its ownership of Community Bank.
During
fiscal 2009, the members of the Compensation/Benefits Committee were Charles
Andersen, James Cooke, Charles Fairchilds, Dale Smith, Morgan Trimyer and, until
her retirement from the Board of Directors in October 2008, Jane Hickok (Chair).
All members of the Compensation/Benefits Committee are independent as defined
under the NASDAQ Marketplace Rules. During 2009, the Compensation
Committee held three meetings.
Nominating
Committee.
The Nominating Committee operates under a formal
written charter adopted by the Board of Directors. The Nominating
Committee is responsible for identifying individuals qualified to serve as board
members and recommending to the Board of Directors the director nominees for
election or appointment to the Board of Directors. Final approval of
director nominees is determined by the full Board, based on the recommendation
of the Nominating Committee.
The
Nominating Committee recommends candidates (including incumbents) for election
and appointment to the Board of Directors, subject to the provisions set forth
in the Company’s articles of incorporation, bylaws and charter, based on the
following criteria: business experience, education, integrity and reputation,
independence, conflicts of interest, diversity, age, number of other
directorships and commitments (including charitable obligations), tenure on the
Board, attendance at Board and committee meetings, stock ownership, specialized
knowledge (such as an understanding of banking, accounting, marketing, finance,
regulation and public policy) and a commitment to the Company’s communities and
shared values, as well as overall experience in the context of the needs of the
Board as a whole. Nominations from stockholders will be considered
and evaluated using the same criteria as all other nominations.
Nominations,
other than those made by the Board of Directors after its review of the
recommendations of the Nominating Committee, must be made pursuant to timely
notice in writing to the Corporate Secretary
as set
forth in Article I, Section 1.6 of the Company’s bylaws. In general,
to be timely, a stockholder’s notice must be received by the Company not less
than 60 days nor more than 90 days prior to the date of the scheduled annual
meeting; however, if less than 70 days’ notice of the date of the scheduled
annual meeting is given by the Company, the stockholder has until the close of
business on the tenth day following the day on which notice of the date of the
scheduled annual meeting was made. The stockholder’s notice must include the
information set forth in Article I, Section 1.6.C of the Company’s bylaws, which
includes the following:
|
|
(i)
|
as
to each person whom a stockholder proposes to nominate for election as a
director:
|
|
|
·
|
all
information relating to the proposed nominee that is required to be
disclosed in the solicitation of proxies for election as a director or is
otherwise required pursuant to Regulation 14A under the Securities
Exchange Act of 1934.
|
|
|
(ii)
|
as
to the stockholder giving the
notice:
|
|
|
·
|
name
and address of the stockholder as they appear on the Company’s
books;
|
|
|
·
|
number
of shares of the Company’s common stock beneficially owned by the
stockholder.
|
The
foregoing description is a summary of the Company’s nominating
process. Any stockholder wishing to propose a director candidate to
the Company should review and must comply in full with the procedures set forth
in the Company’s articles of incorporation and bylaws, and Virginia
law.
During
fiscal 2009, the members of the Nominating Committee were Charles Andersen,
James Cooke (Chair), Charles Fairchilds, Dale Smith, Morgan Trimyer and, until
her retirement from the Board of Directors in October 2008, Jane
Hickok. All members of the Nominating Committee are independent
as defined in the NASDAQ Marketplace Rules. The Nominating Committee
met one time during fiscal 2009.
Committee
Charters.
The full
responsibilities of the Audit, Compensation/Benefits and Nominating Committees
are set forth in their charters, which are posted in the Investor Information
section of our website at
www.cbnk.com
.
Code
of Business Conduct and Ethics
The Board
of Directors has adopted a Code of Business Conduct and Ethics which applies to
all of our directors, officers and employees, including directors, officers and
employees of our subsidiaries and affiliates. Our Code of Business
Conduct and Ethics is posted in the Investor Information section of our website
at
www.cbnk.com
.
Stockholder
Communications with Directors
Stockholders
may communicate directly with the Board of Directors, or any individual Board
member, by sending written communications to the Company, addressed to the
Chairman of the Board or such individual Board member.
Board
Member Attendance at Annual Stockholder Meetings
Although
the Company does not have a formal policy regarding director attendance at
annual stockholder meetings, directors are expected to attend these meetings
absent extenuating circumstances. All of our directors attended last
year’s annual meeting of stockholders.
COMPENSATION
OF EXECUTIVE OFFICERS
Summary
Compensation Table
The
following table sets forth information concerning the annual compensation for
services provided to us by our Chief Executive Officer and our two other most
highly compensated executive officers during the fiscal years ended March 31,
2009 and 2008. We refer to the officers listed in the table below as
the named executive officers. No stock awards or option awards were
granted, and no non-equity incentive plan compensation or above-market or
preferential earnings on deferred compensation was earned or paid during the
periods reported.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
All
Other
Compensation
($)(1)
|
Total
($)
|
|
P.
Douglas Richard
President and CEO of the
Company;
CEO of the
Bank
|
2009
2008
|
$295,000
270,000
|
$ ---
17,000
|
$
11,024
10,000
|
$306,024
297,000
|
|
Norman
C. Smiley, III
President of the
Bank; SVP of the
Company
|
2009
2008
|
$
180,000
150,000
|
$ ---
10,000
|
$
7,202
5,520
|
$187,202
165,520
|
|
Chris
P. Kyriakides
SVP of the Company and the
Bank;
Regional
President of the Bank
|
2009
2008
|
$164,000
152,000
|
$ ---
10,000
|
$6,568
5,681
|
$170,568
167,681
|
|
|
(1) Reflects
the Bank’s matching contribution under the 401(k) portion of the
KSOP.
|
Employment
Agreements
. At March 31, 2009, Community Bank had an
employment agreement with Mr. Richard, for his services as Chief Executive
Officer of Community Bank, Mr. Smiley, for his services as President of
Community Bank, and Mr. Kyriakides, for his services as Senior Vice President of
Community Bank and President of the Hampton Roads Region of Community
Bank. Each executive’s employment agreement provides for an annual
base salary of not less than his annual base salary for the prior
year. The agreements provide for annual extensions of one year in
addition to the then-remaining term, subject to a formal performance evaluation
of the executive and approval of the one year extension by the Bank’s board of
directors. Messrs. Richard, Smiley and Kyriakides are also entitled
to participate (i) in performance-based and discretionary bonuses, if any, as
are authorized and declared by the Board of Directors and (ii) employee benefit
and welfare programs applicable to executive officers. The agreements
provide for termination of the executive upon his death, an illness which causes
the executive to be unable to perform his duties under the agreement on a
full-time basis for six consecutive months, for cause and in certain events
specified by Office of Thrift Supervision regulations.
In the
event Mr. Richard is terminated without cause or resigns for good reason, he
will receive, as liquidated damages, the greater of (i) 1.5 times the total cash
compensation paid or payable to him during the 12 full consecutive months
immediately preceding the effective date of his termination of employment or
(ii) the salary due to him for the remaining term of his
agreement. Messrs. Smiley and Kyriakides, if they are terminated
without cause or resign for good reason, are each entitled to receive for 12
months following the date of their termination, an amount equal to their annual
base salary under their respective agreement. In addition, Community
Bank also shall maintain in full force and effect for the continued benefit of
each executive for 12 months following the effective date of his termination or
resignation, as the case may be, at no cost to him, substantially the same
health and other benefits available to him in effect immediately prior to such
termination. The foregoing payments would be reduced by any cash compensation or
health and other benefits actually paid to, or receivable by, Messrs. Richard,
Smiley and Kyriakides from another employer during the period they are receiving
post-termination compensation benefits from Community Bank.
In the
event Messrs. Richard’s, Smiley’s, or Kyriakides’ employment is terminated in
connection with or following a “change in control” (as defined in their change
of control agreements with the Corporation), then the executive will be entitled
to receive, in lieu of the amounts described in the preceding paragraph, a cash
payment in an amount not to exceed 2.99 times his “base amount” as determined
under Section 280G of the Internal Revenue Code of 1986, as
amended. The terms of the change of control agreements are set forth
under “- Change of Control Agreements” below.
Change of Control
Agreements
.
As of March 31,
2009, the Corporation has a change of control agreement with each of Messrs.
Richard, Smiley and Kyriakides, as well as with four other executive
officers. These agreements remain in effect until canceled by
either party, upon at least 24 months prior written notice to the other
party. Under these agreements, the executive generally is entitled to
a change of control payment from the Company if he is terminated (or for Messrs.
Richard, Smiley and Kyriakides, if he resigns for good reason) within six months
preceding or 24 months after a change in control (as defined in the
agreements). In such an event, Messrs. Richard, Smiley and Kyriakides
would each be entitled to receive (i) a cash payment in an amount not to exceed
2.99 times his "base amount" as determined under Section 280G of the Internal
Revenue Code of 1986, as amended and (ii) for one year from the date of
termination, substantially the same health and other benefits available to him
in effect immediately prior to such termination at no additional cost to the
executive. The foregoing payments would be in lieu of any amounts owed to
Messrs. Richard, Smiley and Kyriakides under their employment agreements
discussed above and would also be reduced by any cash compensation or health and
other benefits actually paid to, or receivable by, them from another employer
during the period they are receiving post-termination compensation
benefits. Mr. Smiley and two other executive officers, under their
agreements, would each be entitled to receive a cash payment in an amount equal
to 24 months of their then current salary.
All of
the above payments that would be made in connection with a change in control are
subject to cut-back to the extent the payments would result in either the loss
of a tax deduction to the Corporation or the imposition of a penalty tax on the
executive.
|
|
Outstanding
Equity Awards at Fiscal Year-End
|
The
following table sets forth certain information concerning option awards held by
the named executive officers that were outstanding as of March 31,
2009. There were no other equity awards held by the named executive
officers at March 31, 2009. All of the option awards set forth in the
table below were immediately exercisable by the recipient upon
grant.
|
Name
|
Number
of Securities
Underlying Unexercised
Options
(#)
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
P.
Douglas Richard
|
10,000
|
---
|
4.875
|
02/21/2010
|
|
|
10,000
|
---
|
4.815
|
05/01/2010
|
|
|
12,000
|
---
|
4.815
|
03/27/2011
|
|
|
8,000
|
---
|
5.565
|
03/27/2012
|
|
|
4,000
|
---
|
7.430
|
03/16/2013
|
|
|
15,000
|
---
|
9.400
|
12/16/2013
|
|
|
6,000
|
---
|
11.220
|
03/23/2015
|
|
|
4,000
|
---
|
10.900
|
03/22/2016
|
|
Norman
C. Smiley
|
4,000
|
---
|
4.875
|
03/21/2010
|
|
|
4,000
|
---
|
5.565
|
03/27/2012
|
|
|
2,000
|
---
|
7.430
|
03/16/2013
|
|
|
10,000
|
---
|
9.400
|
12/16/2013
|
|
|
10,000
|
---
|
4.815
|
03/28/2011
|
|
|
6,000
|
---
|
11.220
|
03/23/2015
|
|
|
4,000
|
---
|
10.900
|
03/22/2016
|
|
Chris
P. Kyriakides
|
4,000
|
---
|
4.875
|
03/21/2010
|
|
|
6,000
|
---
|
4.815
|
03/27/2011
|
|
|
4,000
|
---
|
5.565
|
03/27/2012
|
|
|
2,000
|
---
|
7.430
|
03/16/2013
|
|
|
10,000
|
---
|
9.400
|
12/16/2013
|
|
|
6,000
|
---
|
11.220
|
03/23/2015
|
|
|
4,000
|
---
|
10.900
|
03/22/2016
|
Retirement
Benefits
The table
below sets forth information on the pension benefits for the named executive
officers under each of the following pension plans:
Tax-Qualified
Pension Plan
. The Company’s subsidiary, Community Bank, has a
noncontributory defined benefit pension plan (“Pension Plan”) covering
substantially all of the employees of the Company and the Bank who have met
minimum service requirements, excluding hourly
employees. Compensation covered by the Pension Plan includes base
earnings plus amounts deferred at the election of the employee under the
Company’s KSOP, but excludes commissions, bonuses, overtime and amounts paid
with respect to non-qualified deferred compensation plans, if
any. The benefits under this Pension Plan are not subject to Social
Security or other offsets.
Salary
Continuation Agreements
.
The Bank has entered into
Salary Continuation Agreements with each of the named executive officers.
Benefits will commence upon the later of the executive reaching normal
retirement age (age 62 for Mr. Richard and age 65 for the other named executive
officers) or the executive’s termination of service, at a benefit level equal to
between 20% to 30% of his final annual cash compensation, as defined, and will
be paid for a period of 15 years, except in the case of an executive’s voluntary
termination of employment prior to reaching normal retirement age or termination
for cause. In the event of an executive’s voluntary termination of
employment prior to reaching normal retirement age, the Company will pay the
executive the accrued balance in the executive’s account over 15 years.
In the event of an
executive’s termination of employment for cause (as defined in the agreement),
no benefit shall be payable under the Salary Continuation Agreement.
Benefits payable under
these agreements are unfunded, unsecured obligations of the Bank. The
cost of benefits payable under the retirement agreements are expected to be
offset by the earnings on life insurance purchased by the Bank.
The
assumptions used in determining the present value of accumulated service in the
table below are referenced in Note 13 to our audited financial statements
contained in the Annual Report to Stockholders accompanying this proxy
statement.
|
Name
|
Plan
Name
|
Number
of Years
Credited
Service
(#)
|
Present
Value of
Accumulated
Service
($)
|
Payments
During
Last
Fiscal
Year
($)
|
|
P.
Douglas Richard
|
Pension
Plan
|
12
|
$342,921
|
---
|
|
|
Salary
Continuation Agreement
|
5
|
806,705
|
---
|
|
Norman
C. Smiley, III
|
Pension
Plan
|
13
|
65,567
|
---
|
|
|
Salary
Continuation Agreement
|
5
|
34,215
|
---
|
|
Chris
P. Kyriakides
|
Pension
Plan
|
12
|
61,062
|
---
|
|
|
Salary
Continuation Agreement
|
5
|
46,875
|
---
|
Post-termination
Payments and Benefits
The
following tables summarize the value of termination payments and benefits that
our named executive officers would receive if they had terminated employment
with the Company on March 31, 2009 under the circumstances shown. The
tables exclude (i) amounts accrued through March 31, 2009 that would be paid in
the normal course of continued employment, such as accrued but unpaid salary
and, if any, earned annual bonus for fiscal 2009, and (ii) contracts,
agreements, plans and arrangements that do not discriminate in scope, terms or
operation in favor of our executive officers, and that are available generally
to all of our salaried employees, such as vested account balances under our
Pension Plan, KSOP and health and welfare benefits.
P.
Douglas Richard
|
Benefit
|
Termination
of
Service
for
Cause
($)
|
Retirement,
Death
or
Disability
($)
|
Resignation
by Executive
for
“Good Reason” or
Termination
by
Company
without Cause
NOT
in Connection with
a
Change of Control
($)
|
Resignation
by Executive for “Good Reason” or
Termination
by
Company
Without Cause
6
Months Prior or 12
Months
Following a
Change
of Control
($)
|
|
Employment
Agreement
|
---
|
---
|
$442,500
(1)
|
---
|
|
Salary
Continuation Agreement
(2)
|
---
|
$93,600
|
$93,600
|
$93,600
|
|
Change
in Control Agreement
|
---
|
---
|
---
|
$743,224
(3)
|
|
(1)
|
Reflects
the lump sum cash amount that would be payable to Mr. Richard under this
scenario. In addition to this amount, Mr. Richard would also be
entitled for twelve months following the effective date of his termination
or resignation (“liquidated damages period”), as the case may be, at no
cost to him, to (i) participate in all employee health and welfare benefit
plans and programs or arrangements generally available to our employees,
(ii) a monthly car allowance of not less than $500 and (iii) payment of
all membership dues and assessments associated with his membership in the
Country Club of Staunton, which is approximately $3,600 annually. These
amounts are subject to offset for income earned from providing services to
another company during the liquidated damages
period.
|
|
(2)
|
Reflects
the annual benefit that would be payable to Mr. Richard or his
beneficiary, as the case may be. The annual benefit is equal to
30% of Mr. Richard’s annual cash compensation, as calculated under his
salary continuation agreement. The annual benefit would be paid
in monthly installments for a 15 year period, commencing the month
following Mr. Richard’s termination of service with the
Bank.
|
|
(3)
|
Reflects
the lump sum cash amount that would be payable to Mr. Richard under this
scenario. In addition to this amount, Mr. Richard would be
entitled for a period ending at the earlier of one year after the
effective date of his termination or the date of his full time employment
by another employer, at no cost to Mr. Richard, to (i) participate in all
employee health and welfare benefit plans and programs or arrangements
generally available to our employees, (ii) a monthly car allowance of not
less than $500 and (iii) payment of all membership dues and assessments
associated with his membership in the Country Club of Staunton, which is
approximately $3,600 annually. These benefits are subject to a maximum
limitation not to exceed 2.99 times “base amount” as defined in the
Internal Revenue Code of 1986, as
amended.
|
|
Benefit
|
Termination
of
Service
for
Cause
($)
|
Retirement
|
Death
or
Disability
($)
|
Resignation
by
Executive
for
“Good Reason” or
Termination
by
Company
Without
Cause
NOT
in
Connection
with a
Change
of Control
($)
|
Resignation
by
Executive
for
“Good
Reason” or
Termination
by
Company
without
Cause
6 Months Prior
or
12 Months
Following
a Change of Control
($)
|
|
Employment
Agreement
|
---
|
---
|
---
|
$180,000
(1)
|
---
|
|
Salary
Continuation Agreement
|
---
|
$2,300
(2)
|
$38,000
(3)
|
$38,000
(3)
|
$38,000
(3)
|
|
Change
in Control Agreement
|
---
|
---
|
---
|
---
|
$408,230
(4)
|
|
(1)
|
Reflects the
lump sum cash amount that would be payable to Mr. Smiley under this
scenario. In addition to this amount, Mr. Smiley would also be
entitled for twelve months following the effective date of his termination
or resignation (“liquidated damages period”), as the case may be, at no
cost to him, to (i) participate in all employee health and welfare benefit
plans and programs or arrangements generally available to our employee and
(ii) payment of all membership dues and assessments associated with his
membership in the Country Club of Staunton, which is approximately $3,600
annually. These amounts are subject to offset for income earned
from providing services to another company during the liquidated damages
period
.
|
|
(2)
|
Reflects
the annual benefit that would be payable to Mr. Smiley assuming he retired
as of March 31, 2009. The annual benefit is based on the
accrued balance in the executive’s account as of that date. The annual
benefit would be paid in monthly installments for a 15 year period,
commencing on the first day of the month following Mr. Smiley’s 65th
birthday.
|
|
(3)
|
Reflects
the annual benefit payable to Mr. Smiley or his beneficiary, as the case
may be. The annual benefit is equal to 20% of Mr. Smiley’s
annual cash compensation, as calculated under his salary continuation
agreement. The annual benefit would be paid in monthly
installments for a 15 year period, commencing, in the event of disability,
the first day of the month following Mr. Smiley’s 65th birthday and, in
the event of death, the first day of the month following his
death.
|
|
(4)
|
Reflects
the lump sum cash amount payable to Mr. Smiley under this
scenario. In addition to this amount, Mr. Smiley would be
entitled for a period ending at the earlier of one year after the
effective date of his termination or the date of his full time employment
by another employer, at no cost to Mr. Smiley, to participate in all
employee health and welfare benefit plans and programs or arrangements
generally available to our employees. These benefits are
subject to a maximum limitation not to exceed 2.99 times “base amount” as
defined in the Internal Revenue Code of 1986, as
amended.
|
Chris
P. Kyriakides(1)
|
Benefit
|
Termination
of
Service
for
Cause
($)
|
Retirement
|
Death
or Disability
($)
|
Resignation
by Executive
for
“Good Reason” or
Termination
by
Company
Without Cause
NOT
in Connection with a Change of Control
($)
|
Resignation
by Executive for
“Good
Reason” or
Termination
by
Company
without Cause 6 Months Prior or 12 Months Following a Change of
Control
($)
|
|
Employment
Agreement
|
---
|
---
|
---
|
$164,000
(2)
|
---
|
|
Salary
Continuation Agreement
|
---
|
$3,100
(3)
|
$36,160
(4)
|
$36,160
(4)
|
$36,160
(4)
|
|
Change
in Control Agreement
|
---
|
---
|
---
|
---
|
$415,985
(5)
|
|
(1)
|
On
April 20, 2009, Mr. Kyriakides and Community Bank severed their employment
relationship. In connection therewith, the parties agreed to
terminate Mr. Kyriakides’ existing employment agreement with Community
Bank and change of control agreement with Community Financial, and entered
into a settlement agreement and release. The terms of the
settlement agreement and release were reported by Community Financial in a
Form 8-K filed with the SEC on May 26, 2009. The amounts paid
to Mr. Kyriakides pursuant to the settlement agreement were materially
consistent with what he was entitled to receive under his existing
agreements with the Company and the
Bank.
|
|
(2)
|
Reflects
the lump sum cash amount that would be payable to Mr. Kyriakides under
this scenario. In addition to this amount, Mr. Kyriakides would
also be entitled for twelve months following the effective date of his
termination or resignation (“liquidated damages period”), as the case may
be, at no cost to him, to participate in all employee health and welfare
benefit plans and programs or arrangements generally available to our
employee. These amounts are subject to offset for income earned
from providing services to another company during the liquidated damages
period.
|
|
(3)
|
Reflects
the annual benefit that would be payable to Mr. Kyriakides assuming he
retired as of March 31, 2009. The annual benefit is based on
the accrued balance in the executive’s account as of that date. The annual
benefit would be paid in monthly installments for a 15 year period,
commencing on the first day of the month following Mr. Kyriakides’ 65th
birthday.
|
|
(4)
|
Reflects
the annual benefit payable to Mr. Kyriakides or his beneficiary, as the
case may be. The annual benefit is equal to 20% of Mr.
Kyriakides’ annual cash compensation, as calculated under his salary
continuation agreement. The annual benefit would be paid in
monthly installments for a 15 year period, commencing, in the event of
disability, the first day of the month following Mr. Kyriakides’ 65th
birthday and, in the event of death, the first day of the month following
his death.
|
|
(5)
|
Reflects
the lump sum cash amount payable to Mr. Kyriakides under this
scenario. In addition to this amount, Mr. Kyriakides would be
entitled for a period ending at the earlier of one year after the
effective date of his termination or the
date
of his full time employment by another employer, at no cost to Mr.
Kyriakides, to participate in all employee health and welfare benefit
plans and programs or arrangements generally available to our
employees. These benefits are subject to a maximum limitation
not to exceed 2.99 times “base amount” as defined in the Internal Revenue
Code of 1986, as amended.
|
Executive
Compensation Restrictions and Limitations Resulting from Participation in
Treasury’s Capital Purchase Program
In
December 2008, we participated in the Capital Purchase Program (referred to in
this section as the “CPP”) through which the U.S. Treasury Department invested
approximately $12.6 million in exchange for our preferred stock and warrants for
our common stock. The TARP Program mandates that we implement certain
restrictions and limitations on executive compensation. In
particular, it requires a review to ensure our incentive compensation programs
do not encourage our senior executive officers to take excessive risks and
limits our tax
deductions for
senior executive pay.
On
February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009 (the “ARRA”). The ARRA amends, among other
things, the CPP legislation by directing the U.S. Treasury Department to issue
regulations implementing strict limitations on compensation paid or accrued by
financial institutions, like us, participating in the CPP.
Except as expressly
mentioned otherwise, the foregoing discussion under “Executive Compensation of
Executive Officers” does not address the effect, if any, compliance with the
ARRA may have on our executive compensation programs. Due to the
relatively small amount of our CPP investment, the Board of Directors does not
believe that the CPP requirements, as amended by ARRA, will have a material
effect our executive compensation programs.
COMPENSATION
OF DIRECTORS
Non-Employee
Director Compensation
The
following table sets forth a summary of the compensation we paid to our
non-employee directors during fiscal 2009:
|
Name
|
Fees
Earned
or
Paid
in
Cash
($)(1)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)(2)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
|
Charles
F. Andersen
|
$12,800
|
---
|
---
|
---
|
---
|
---
|
$12,800
|
|
James
R. Cooke, Jr.
|
24,000
|
---
|
---
|
---
|
---
|
---
|
24,000
|
|
Jane
C. Hickok
|
6,400
|
---
|
---
|
---
|
---
|
---
|
6,400
|
|
Charles
W. Fairchilds
|
14,800
|
---
|
---
|
---
|
---
|
---
|
14,800
|
|
Dale
C. Smith
|
14,000
|
---
|
---
|
---
|
---
|
---
|
14,000
|
|
Morgan
N. Trimyer, Jr.
|
14,100
|
---
|
---
|
---
|
---
|
---
|
14,100
|
|
(1)
|
Includes
director fees that have been deferred by the director under our director
deferred compensation plan.
|
|
(2)
|
All
amounts in this column reflect the amount of above-market earnings on
deferred compensation. Our director retirement and deferred
compensation plans are described
below.
|
Directors
are not paid for services on the Board of Directors of Community
Financial. We may if we believe it is necessary to attract or retain
qualified directors or if it is otherwise beneficial to Community Financial,
adopt a policy of paying directors for service on the Community Financial
Board.
During
fiscal 2009, non-employee directors of Community Bank, other than the Chairman
of the Board and the Chairman of the Audit Committee, received a director’s
retainer fee of $1,000 per month and a meeting fee of $200 for each committee
meeting attended. The Chairman of the Board received a chairman’s
retainer fee of $2,000 per month. The Chairman of the Board received
no additional compensation for attending committee meetings. The
Chairman of the Audit Committee received a director’s retainer fee of $1,000 per
month and a meeting fee of $400 for each committee meeting
attended. Directors who are Community Bank employees receive no extra
pay for services as directors.
Directors
may defer receipt of up to 100% of their retainer and meeting fees pursuant to a
deferred compensation plan established by Community Bank. Directors
who elect to defer some or all of their fees are credited at the end of each
plan year with interest on their deferred account balance at an
annual rate equal to 75% of the Company’s return on equity for that year,
compounded monthly, until reaching age 70. Upon reaching age 70, the
Company will pay the director his or her deferred account balance in 60 equal
monthly installments, including interest at 8%.
The Bank
has entered into retirement agreements with each non-employee
director. Under the terms of these agreements each non-employee
director was granted an initial annual benefit of $10,800, which amount
increases at 3% per year for each full year of service after January 1, 2004.
The benefit accrues to the director annually until reaching age
70. In the event the director ceases to be a member of the Company’s
Board of Directors prior to reaching age 70, other than for death, disability,
in connection with a change in control or for cause, then the director shall
only be entitled to the accrued balance in the director’s account as of the date
of early termination. The annual benefit will generally commence upon
the later of the director reaching age 70 or the director’s retirement from the
Board of Directors, and will be payable monthly for a period of 5
years. In the case of the director’s death or disability prior to
retirement, the annual benefit will commence in the month following the
director’s death or disability. No benefits are payable to the
director under these agreements if he or she is terminated as a director for
cause by stockholders. The cost of benefits payable under the
retirement agreements are expected to be offset by the earnings on life
insurance purchased by the Bank.
RELATIONSHIP
WITH INDEPENDENT AUDITORS
General
The Audit
Committee has renewed its arrangement with Yount, Hyde & Barbour, P.C. to be
its independent auditors for the fiscal year ending March 31,
2010. In making its determination to renew its arrangement with
Yount, Hyde & Barbour, P.C. as the Company’s independent auditors for the
2009 fiscal year, the Audit Committee considered the non-audit services that the
independent auditors provided during the 2009 fiscal year and determined that
the provision of these services is compatible with and does not impair the
auditors’ independence. The Audit Committee pre-approves all audit
and non-audit services performed by the independent auditors. A
representative of Yount, Hyde & Barbour, P.C. is expected to attend the
meeting to respond to appropriate questions and will have an opportunity to make
a statement if he or she so desires.
Independent
Auditing Firm Fees
Yount,
Hyde & Barbour, P.C. was the Company’s principal auditor for fiscal 2009 and
2008. The aggregate fees billed to the Company by Yount, Hyde &
Barbour, P.C. and its affiliates for the fiscal years ended March 31, 2009 and
2008 were as follows:
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Audit
Fees
|
$72,250
|
|
$62,800
|
|
|
Audit
Related Fees(1)
|
20,744
|
|
18,735
|
|
|
Tax
Fees(2)
|
5,250
|
|
5,000
|
|
|
All
Other Fees(3)
|
---
|
|
6,000
|
|
|
|
(1)
Audit-related fees consist of consultation concerning financial
accounting and reporting standards. In addition, fiscal years
2009 and 2008 included $14,750 and $14,000, respectively, of fees related
to employee benefit plan
audits.
|
|
|
(2) Tax
fees consist of preparation of federal and state income tax returns and
consultation regarding tax compliance
issues.
|
|
|
(3) Includes
fees related to a vulnerability assessment of information
systems.
|
Pre-Approval
of Audit and Non-Audit Services
Pursuant
to the terms of its charter, the Audit Committee is responsible for the
appointment, compensation, retention and oversight of the work of the
independent auditors. The Audit Committee must pre-approve the
engagement letters and the fees to be paid to the independent auditors for all
audit and permissible non-audit services to be provided by the independent
auditors and consider the possible effect that any non-audit services could have
on the independence of the auditors. The Audit Committee may
establish pre-approval policies and procedures, as permitted by applicable law
and SEC regulations and consistent with its charter for the engagement of the
independent auditors to render permissible non-audit services to the
Corporation, provided that any pre-approvals delegated to one or more members of
the committee are reported to the committee at its next scheduled
meeting. At this time, the Audit Committee has not adopted any
pre-approval policies.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit
Committee of Community Financial operates under a written charter adopted by the
full Board of Directors. In fulfilling its oversight responsibility of reviewing
the services performed by Community Financial’s independent auditors, the Audit
Committee carefully reviews the policies and procedures for the engagement of
the independent auditors. The Audit Committee also discussed with
Community Financial’s independent auditors the overall scope and plans for the
audit. The Audit Committee met with the independent auditors to
discuss the results of its audit, the evaluation of Community Financial’s
internal controls, and the overall quality of Community Financial’s financial
reporting. The Audit Committee also reviewed and discussed with the
independent auditors the fees paid to the independent auditors; these fees are
described under the caption “Relationship with Independent Auditors”
above.
Community
Financial’s Chief Executive Officer and Chief Financial Officer also reviewed
with the Audit Committee the certifications that each such officer will file
with the SEC pursuant to the requirements of Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. Management also reviewed with the Audit
Committee the policies and procedures it has adopted to ensure the accuracy of
such certifications.
The Audit
Committee has issued the following report with respect to the audited financial
statements of Community Financial for the fiscal year ended March 31,
2009.
|
(i)
|
The
Audit Committee has reviewed and discussed with Community Financial’s
management Community Financial’s audited financial statements for the
fiscal year ended March 31,
2009;
|
|
(ii)
|
The
Audit Committee has discussed with Yount, Hyde & Barbour, PC, the
independent auditors for Community Financial, those matters required to be
communicated to audit committees
in
|
|
|
accordance
with Statement on Auditing Standards No. 61, as amended, and the
Sarbanes-Oxley Act of 2002;
and
|
|
(iii)
|
The
Audit Committee has received the written disclosures and the letter from
Yount, Hyde & Barbour, PC, required by
applicable requirements of the
Public Company Accounting Oversight Board regarding the independent
accountant’s communications with the audit committee concerning
independence,
disclosing the matters that, in the auditors'
judgment, may reasonably be thought to bear on the auditors' independence
from Community Financial, and has discussed with the auditors their
independence from Community
Financial.
|
Based on
the review and discussions referred to above, the Audit Committee recommended to
the Board of Directors that the fiscal year 2009 audited financial statements be
included in Community Financial’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2009.
Submitted
by the Audit Committee of Community Financial's Board of Directors:
|
Charles W. Fairchilds
(Chair)
|
James R. Cooke,
Jr.
|
|
Dale C.
Smith
|
|
LOANS
AND RELATED TRANSACTIONS
WITH
EXECUTIVE OFFICERS AND DIRECTORS
Community
Bank has followed a policy of granting loans to officers and
directors. These loans are made in the ordinary course of business
and on the same terms and conditions as those of comparable transactions with
the general public prevailing at the time, in accordance with our underwriting
guidelines, and do not involve more than the normal risk of collectibility or
present other unfavorable features. All loans that Community Bank
makes to directors and executive officers are subject to Office of Thrift
Supervision regulations restricting loans and other transactions with affiliated
persons of Community Bank. All loans to directors and executive
officers were performing in accordance with their terms at March 31,
2009.
The Audit
Committee of the Board of Directors is responsible for the review and approval
of all related party transactions for potential conflict of interest
situations. A related party transaction is a transaction required to
be disclosed pursuant to SEC Regulation S-K, Item 404. While there
are no written policies or procedures regarding the Audit Committee’s review of
related party transactions, the committee must review the material facts of any
related party transaction and approve the transaction. If advance
approval is not practicable, then the committee must ratify the related party
transaction at its next scheduled meeting or the transaction must be
rescinded. In making its determination to approve or ratify the
transaction, the committee will consider such factors as (i) the extent of the
related party’s interest in the related party transaction; (ii) if applicable,
the availability of other sources of comparable products or services; (iii)
whether the terms of the related party transaction are no less favorable than
terms generally available in unaffiliated transactions under like circumstances;
(iv) the benefit to the Company; and (v) the aggregate value of the related
party transaction. During fiscal 2009, there were no related party transactions
between Community Financial (or its subsidiary) and any of its directors,
executive officers and/or their related interests.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires Community Financial’s
directors and executive officers, and persons who own more than 10% of Community
Financial’s common stock to report their initial ownership of Community
Financial’s common stock and any subsequent changes in that ownership to the
SEC. Specific due dates for these reports have been established by
the SEC and Community Financial is required to disclose in this proxy statement
any late filings or failures to file.
Community
Financial believes, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were required
during the fiscal year ended March 31, 2009, that all Section 16(a) filing
requirements applicable to our executive officers, directors and greater than
10% beneficial owners were complied with.
PROPOSAL
II
ADVISORY
(NON-BINDING) VOTE ON EXECUTIVE COMPENSTION
As a participant in the TARP Capital
Purchase Program, we are required under the ARRA to include in this proxy
statement and present at the annual meeting a non-binding stockholder vote to
approve the compensation of our executives, as disclosed in this proxy statement
pursuant to the compensation rules of the SEC. This proposal,
commonly known as a “say on pay” proposal, gives stockholders the opportunity to
endorse or not endorse the compensation of the Company’s executives as disclosed
in this proxy statement. The proposal will be presented at the annual
meeting in the form of the following resolution:
RESOLVED,
that the stockholders of the Company approve the compensation of the executives
named in the Summary Compensation Table of the Company’s proxy statement for the
2009 Annual Meeting of Stockholders, including the tabular disclosures regarding
the named executive officers compensation (together with accompanying narrative
disclosures, as stated in the Company’s Proxy Statement for the 2009 Annual
Meeting of Stockholders.”
As provided under the ARRA, this vote
will not be binding on the Company’s Board of Directors and may not be construed
as overruling a decision by the Board or create or imply any additional
fiduciary duty on the Board. Nor will it affect any compensation paid
or awarded to any executive. The Compensation Committee may, however,
take into account the outcome of the vote when considering future executive
compensation arrangements.
In addition, the Compensation/Benefits
Committee, as required in connection with our participation in the Treasury’s
Capital Purchase Program, has certified to the Office of Thrift Supervision, its
primary federal regulator, that its has conducted a review of our senior
executive incentive programs from a risk perspective and concluded they do not
encourage unnecessary or excessive risk.
The purpose of our
compensation policies and procedures is to attract and retain experienced,
highly qualified executives critical to our long-term success and enhancement of
stockholder value. Our Board of Directors believes that our
compensation policies and procedures achieve this objective, and therefore
recommends that stockholders vote
FOR
this
proposal.
STOCKHOLDER
PROPOSALS
In order
to be eligible for inclusion in next year’s proxy materials for the annual
meeting of stockholders, any stockholder proposal to take action at such meeting
must be received at our main office located at 38 North Central Avenue,
Staunton, Virginia 24401, before March 1, 2010. To be considered for
presentation at next year’s annual meeting, although not included in the proxy
materials, any stockholder proposal must be received at our main office on or
before June 29, 2010; provided, however, that in the event that the date of next
year’s annual meeting is held before July 9, 2010 or after September 27, 2010,
the stockholder proposal must be received on or before the close of business on
the later of the 60th day prior to such annual meeting or the tenth day
following the day on which notice of the date of the annual meeting was mailed
or public announcement of the date of such meeting was first made.
All
stockholder proposals for inclusion in Community Financial’s proxy materials
shall be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934 and, as with any stockholder proposal,
regardless of whether it is included in our proxy materials, Community
Financial’s certificate of incorporation and bylaws and Virginia
law.
ANNUAL
REPORTS
Stockholders
of record on May 29, 2009 should have received a copy of our Fiscal 2009 Annual
Report to Stockholders on Form 10-K with this proxy material. If,
upon receipt of this proxy material, you have not received the Fiscal 2009
Annual Report to Stockholders on Form 10-K, please write to the Corporate
Secretary at the address below and a copy will be sent to you. The
annual report does not constitute a part of the proxy solicitation material and
is not incorporated herein by reference.
A copy of
Community Financial’s Annual Report on Form 10-K for the fiscal year ended March
31, 2009, is available to each record and beneficial owner of Community
Financial’s common stock without charge upon written request to the Corporate
Secretary, Community Financial Corporation, 38 North Central Avenue, Staunton,
Virginia 24401.
OTHER
MATTERS
We are
not aware of any business to come before the annual meeting other than the
matters described above in this proxy statement. However, if any
other matters should properly come before the meeting, it is intended that
holders of the proxies will act in accordance with their best
judgment.