Exhibit 10.78

 

COMMUNITY BANK OF THE CHESAPEAKE
EXECUTIVE INCENTIVE COMPENSATION PLAN

 

(as amended and restated effective January 1, 2019)

 

 

 

COMMUNITY BANK OF THE CHESAPEAKE

EXECUTIVE INCENTIVE COMPENSATION PLAN

(Amended and Restated Effective January 1, 2019)

 

ARTICLE I

GENERAL PROVISIONS

 

1.01         Purpose. This purpose of The Community Bank of the Chesapeake
Executive Incentive Compensation Plan, as amended and restated is to align the
interests of Participants with the interests of the Bank, the Corporation and
Corporation shareholders by providing Participants with an opportunity to earn
incentive compensation upon the achievement of Corporation, Bank
(branch/department), and/or individual performance goals.

 

It is intended that the Plan be an unfunded plan maintained primarily to provide
bonuses in the form of cash and non-cash compensation for a select group of
management or highly compensated employees within the meaning of Section 201(2)
of ERISA and that benefits provided under the Plan be taxable to Participants
only when actually received. The Plan shall be administered, construed and
interpreted in a manner consistent with the purpose and intent set forth in this
Section.

 

1.02         Effective Date. The Plan was originally adopted effective
January 1, 1992 and subsequently amended and restated on January 1, 1998,
December 23, 2002, December 31, 2008, January 1, 2010 and January 1, 2015 and
January 1, 2016. The effective date of this restatement is January 1, 2019
(“Effective Date”).

 

ARTICLE II

DEFINITIONS

 

Unless the context clearly requires otherwise, the terms defined in this
Article II shall, for all purposes of this Plan, have the respective meanings
specified in this Article II.

 

2.01         “Affiliate” means any company that would be considered an affiliate
of the Bank or the Corporation pursuant to Section 424 of the Code.

 

2.02         “Bank” means Community Bank of the Chesapeake and any successor
thereto.

 

2.03         “Beneficiary” means the person or persons designated as a
Participant’s beneficiary or beneficiaries in accordance with Section 4.06
hereof.

 

2.04         “Board” means the Board of Directors of the Bank.

 

2.05         “Cause” means personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profits, intentional
failure to perform stated duties, willful violation of a material provision of
any law, rule or regulation (other than traffic violations or similar offenses),
or a material violation of a final cease-and-desist order or any other action
which results in a material financial loss to the Bank. A determination of
“Cause” shall be made by the Board within its sole discretion.

 

2.06         “Chairman” means the Chairman of the Governance Committee who shall
be responsible for coordinating all actions of the Committee.

 

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2.07         “Code” means the Internal Revenue Code of 1986, as amended from
time to time. References to a Code section shall include any comparable section
or sections of future legislation that amends, supplements or supersedes such
section.

 

2.08         “Committee” means the members of the Compensation Committee of the
Board who are appointed to serve on the Committee. In the absence at any time of
a duly appointed Committee, the Plan shall be administered by the Board.

 

2.09         “Compensation” means a Participant’s base salary for the calendar
year, as adjusted from time to time. Base salary will include only amounts paid
by the Bank (including such amounts contributable to the Bank’s 401(k) plan by
employees) and will exclude amounts paid by third party providers, such as
disability.

 

2.10         “Corporation” means The Community Financial Corporation and any
successor thereto.

 

2.11         “Employee” means any individual who performs service in the
business of the Bank, the Corporation or any Affiliate, excluding any individual
who performs such services as a self-employed person.

 

2.12         “ERISA” means the Employee Retirement Income Security Act of 1974,
as amended from time to time.

 

2.13         “Good Standing” means an Employee’s overall performance meets
expectations (as determined by the Bank) and the Employee is not under
corrective action or probation.

 

2.14         “Incentive Award” means cash or non-cash compensation paid to
Participants pursuant to Article IV hereof.

 

2.15         “Maximum Incentive Award“ means the maximum Incentive Award that
can be earned under this Plan for maximum performance, subject to Committee
discretion.

 

2.16         “Participant” means an Employee who has become a Participant in the
Plan as provided for in Article III.

 

2.17         “Performance Period” means January 1 – December 31, or such shorter
period as determined by the Committee.

 

2.18         “Plan” means the Community Bank of the Chesapeake Executive
Incentive Compensation Plan as herein set forth and as it may from time to time
be amended.

 

2.19          “Retirement Date” the date a Participant terminates employment
with the Bank or an Affiliate for reasons other than Cause, Death or disability
on or after attainment of age 65.

 

2.20         “Target Incentive Award” means the Incentive Award that may be
earned if level performance for each performance measure is satisfied (“Target
Performance”), subject to Committee discretion. Target performance is based upon
historical data and management’s best judgement as to expected performance
during an applicable performance period.

 

2.21         “Threshold Incentive Award” means the Incentive Award that may be
earned if Target Performance is not achieved, but the Committee determines a
level of incentive opportunity is present.

 

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ARTICLE III

ELIGIBILITY AND PARTICIPATION

 

The Committee shall have sole discretion to determine which Employees are
eligible to participate in the Plan. Eligibility may be subject to fulfillment
of conditions, if any, as the Committee, in its sole discretion, may impose.
Employees are only eligible to participate in the Plan if they are in “Good
Standing”.

 

ARTICLE IV

BENEFITS/INCENTIVE AWARDS

 

4.01         Incentive Awards. Each Participant shall have a pre-determined
Threshold, Target and Maximum Incentive Award opportunity dependent upon his/her
level of responsibility within the Bank, that is expressed as a percentage of
such Participant’s Compensation as of the last day of the Performance Period
(“Incentive Award Opportunity”). Incentive Award Opportunities will be
determined based on a combination of performance measures as determined by the
Committee The Incentive Award Opportunities for each Participant for the
applicable Performance Period will be approved by the Committee on an annual
basis and set forth on individual Participant scorecards. The Committee has the
authority to set and amend each Participant’s Incentive Award Opportunity and
the weighting of the performance criteria.

 

Unless otherwise specified in this Plan, Participants must be employed by the
Bank on the date an Incentive Award is to be distributed in order to earn the
Incentive Award under this Plan. In addition, all Participants must be in “Good
Standing” in order for Incentive Awards to be earned under this Plan.

 

4.02         Recoupment. Notwithstanding anything herein to the contrary, the
Committee may, to the extent permitted by applicable law and stock exchange
rules or by any policies adopted by the Bank, the Corporation or Affiliates ,
cancel or require reimbursement of an Incentive Award distributed under this
Plan.

 

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4.03         Calculation and Payment of Incentive Awards. Scorecards are
tabulated by the Chief Operating Officer of the Bank based on financial results
provided by the Chief Financial Officer of the Bank. The calculations are
reviewed by the Chief Executive Officer of the Bank and presented to the
Compensation Committee for review and approval. The Chief Executive Officer does
not tabulate or review his own scorecard. The Chief Operating Officer provides
the Committee with the Chief Executive Officer’s final scorecard for Committee
review and approval. Incentive Awards shall be determined by the Committee as
soon as is practicable using a ratable approach. For purposes of this Plan, the
ratable approach shall mean that payouts may be calculated as a proportion of
the Threshold, Target and Maximum Incentive Award opportunities. If actual
performance falls below between performance levels, the payout will also fall
between the pre-defined performance level on a pro-rate basis. The Incentive
Awards, at the Committee’s discretion, will be in the form of cash and/or
non-cash compensation. If an Incentive Award is distributed in Corporation
common stock, the Incentive Award will be valued at the fair market value of the
Corporation common stock as determined under The Community Financial Corporation
2015 Equity Compensation Plan or successor plans or such other method at the
Committee’s discretion for stock awards. Incentive Awards distributed in
Corporation common stock may also be subject to a vesting condition upon grant.
Once the cash Incentive Awards are determined by the Committee they will be paid
in the payroll immediately following the determination of the cash Incentive
Awards, but in no event later than 75 days after the end of the applicable
Performance Period. Employment on the distribution date is a condition of
earning an Incentive Award. In the event a Participant dies or becomes disabled
prior to the end of an applicable Performance Period, the Committee will
pro-rate his or her incentive Award for the Participant’s service during the
Performance Period and distribute the Incentive Award (if any) to the
Participant or the Participant’s Beneficiary, as applicable. If a Participant
dies or becomes disabled after the end of an applicable Performance Period, but
prior to distribution of an Incentive Award, the Participant or the
Participant’s Beneficiary shall receive the Incentive Award. For purposes of
this Section 4.03, a Participant shall be “disabled” if he or she is eligible to
participate in a program of long-term disability insurance maintained by the
Corporation or the Bank. The determination that a Participant is disabled shall
be made in writing to the Bank. In addition, and notwithstanding any Plan
provision to the contrary, if a Participant’s Retirement Date falls on the last
day of a Performance Period, the Participant shall be entitled to receive the
Incentive Award for that Performance Period, regardless of whether he or she was
employed by the Bank or an Affiliate at the time of distribution.

 

4.04         Source of Incentive Awards. Incentive Awards distributed in cash
shall be paid by the Bank out of its general assets and shall not be funded by
trust or otherwise. Nothing contained in this Plan shall constitute, or be
treated as, a trust or create any fiduciary relationship. The Bank shall be
under no obligation to segregate any assets to provide Incentive Awards under
the Plan and no person or entity which is entitled to payment under the terms of
the Plan shall have any claim, right, security interest, or other interest in
any fund, trust, account, insurance contract, or asset of the Employer. To the
extent that a Participant or any other person acquires a right to receive any
Incentive Award under the Plan, such right shall be limited to that of a
recipient of an unfunded, unsecured promise to pay amounts in the future and the
Participant’s (or other person’s) position with respect to such amounts shall be
that of a general unsecured creditor of the Bank. The non-cash Incentive Awards
payable under the Plan shall be granted to Participants by the Board of
Directors of the Corporation from The Community Financial Corporation 2015
Equity Compensation Plan or any other shareholder approved equity plan, to the
extent shares are available under the plan.

 

4.05         Minority disability or Incompetency. If any Incentive Award becomes
payable under this Plan to a minor, to a person under legal disability or to a
person not adjudicated incompetent but who the Committee in its discretion
determines to be incapable by reason of illness or mental or physical disability
of managing his or her financial affairs, the Committee may direct that such
Incentive Award shall be paid to the legal representative or custodian of such
person. Payments so made in good faith shall completely discharge the Committee,
the Corporation, the Bank and Affiliates of any and all obligations and
liabilities with respect to such payments.

 

4.06         Designation of Beneficiary. A Participant may file with the
Committee a written designation of a Beneficiary who is to receive his or her
Incentive Awards in the event of the Participant’s death before the Incentive
Award is distributed. Such designation of Beneficiary may be changed at any time
by written notice to the Committee. The designation last filed with the
Committee shall be controlling. In the event of the death of a Participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of the Participant’s death, the Participant’s estate shall be deemed
to be the Beneficiary for purposes of this Plan.

 

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ARTICLE V

PLAN ADMINISTRATION

 

5.01        (a) Responsibilities of the Committee. The Committee has the
responsibility to approve, amend, or terminate the Plan as necessary. The
actions of the Committee shall be final and binding on all parties. In addition,
the Committee is responsible for reviewing and approving the annual Participant
scorecards and authorizing the distribution of Incentive Awards, if any. The
Committee is also responsible for setting the Incentive Award Opportunity, on an
annual basis, for the Chief Executive Officer of the Bank.

 

(b) Responsibilities of the Chief Executive Officer (“CEO”). Notwithstanding any
provision to the contrary, the CEO serves as the management liaison to the
Committee. The CEO is responsible for recommending to the Committee which
Employees should be Participants in the Plan each year (this includes
determining if additional Employees should be added to the Plan and if any Plan
participants should be removed from participating in the Plan); provide
recommendations to the Committee for the Incentive Award Opportunities amounts
at Threshold, Target, and Maximum for Employees other than himself; review the
objectives and evaluations, adjust guideline awards for performance and
recommend final payouts to the Committee; and, provide other appropriate
recommendations that may become necessary during the life of the Plan.

 

5.02         Claims Procedure. Claims for Incentive Awards under the Plan shall
be filed in writing with the Committee. Written notice of the Committee’s
disposition of a claim generally shall be furnished to the claimant within
60 days after the application therefore is filed. However, if special
circumstances exist of which the Committee notifies the claimant within such
60 day period, the Committee may extend such period to the extent necessary, but
in no event beyond 180 days after the claim is filed. If the claim is denied,
the reasons for the denial shall be specifically set forth in writing, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. Any claimant who has
been denied an Incentive Award shall be entitled, upon request to the Committee,
to appeal the denial of his claim within 60 days following the Committee’s
determination described in the preceding sentence. Upon such appeal, the
claimant, or his representative, shall be entitled to examine pertinent
documents, submit issues and comments in writing to the Committee, and meet with
the Committee. The Committee shall review its decision and issue a final
decision to the claimant in writing, generally within 60 days following such
appeal. However, if special circumstances exist of which the Committee notifies
the claimant within such 60 day period, the Committee may extend such period to
the extent necessary, but in no event beyond 120 days following such appeal.

 

ARTICLE VI

AMENDMENT AND TERMINATION

 

6.01         Right to Amend or Terminate. The Committee has developed the Plan
on the basis of existing business, market and economic conditions, current
services and staff assignments. Therefore, the Committee reserves the right at
any time to terminate or amend the Plan in any manner and for any reason;
provided, that no amendment or termination shall, without the consent of the
Participant or, if applicable, the Beneficiary, adversely affect such
Participant’s or Beneficiary’s rights with respect to Benefits earned as of the
date of such amendment or termination.

 

ARTICLE VII

GENERAL PROVISIONS

 

7.01         No Enlargement of Employment Rights. Nothing contained in this Plan
shall give or be construed as giving any Employee the right to be retained in
the service of the Bank or shall interfere with the right of the Bank to
discharge or otherwise terminate any Employee’s employment at any time.

 

7.02         Gender. Whenever any masculine terminology is used in this Plan, it
shall be taken to include the feminine, unless the context otherwise indicates.

 

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7.03         Applicable Law. This Plan shall be construed and regulated, and its
validity and effect and the rights hereunder of all parties interested shall at
all times be determined in accordance with the laws of the State of Maryland,
except to the extent such state law is preempted by federal law.

 

7.04         Titles and Headings. The titles and headings included herein are
included for convenience only and shall not be construed as in any way affecting
or modifying the text of the Plan, which text shall control.

 

7.05         Withholding. The Bank reserves the right to withhold from payments
of Benefits/Incentive Awards such amounts of income, payroll, and other taxes as
it deems advisable, and if the amount of such cash payment is not sufficient,
the Bank may require the Participant or Beneficiary to pay the Bank the amount
required to be withheld as a condition of delivering Benefits/Incentive Awards
under the Plan.

 

7.06         Successors. All obligations of the Bank and the Company under the
Plan shall be binding upon and inure to the benefit of any successor to the Bank
and/or the Company, whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Bank and /or the Company.

 

7.07         Section 409A. It is intended, and the Plan will be so construed,
that any amounts payable under the Plan shall be exempt from Code Section 409A a
short-term deferrals pursuant to Treasury Regulation §1.409A-1(b)(4). However,
to the extent any amount payable under the Plan is not, in fact, exempt from
Code Section 409A, it is intended, and the Plan to be so construed, that such
amount shall comply with the provisions of Code Section 409A, then neither the
Bank, the Company the Boards of Directors of the Bank and/or the Company , the
Committee nor its or other designees or agents shall be liable to any
Participant or other persons for actions, decisions or determinations made in
good faith.

 

[signature page follows]

 

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WHEREFORE, the Community Bank of the Chesapeake adopts this Amended and Restated
Executive Incentive Compensation Plan effective the 1st day of January, 2019.

 

ATTEST:   COMMUNITY BANK OF THE CHESAPEAKE           By:         William J.
Pasenelli, President

 

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