Employee Benefit Plans

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Employee Benefit Plans

EMPLOYEE BENEFIT PLANS

The Company has an Employee Stock Ownership Plan (“ESOP”) that covers substantially all employees. Employees qualify to participate after one year of service and vest in allocated shares after three years of service. The ESOP acquires stock of the Company by purchasing shares. Dividends on ESOP shares are recorded as a reduction of retained earnings. Contributions are made at the discretion of the Board of Directors. ESOP contributions recognized for the years ended December 31, 2022, and 2021 totaled $0.2 million and $0.1 million, respectively. As of December 31, 2022 and 2021, the ESOP held 119,094 and 122,831 allocated shares and 4,845 and 8,995 unallocated shares. The approximate market values of the unallocated shares were $0.2 million and $0.4 million, respectively as of December 31, 2022 and 2021. The estimated value was determined using the Company’s closing stock price of $39.90 and $39.31 per share as of December 31, 2022 and 2021, respectively. In addition, salary and employee benefit expense for the years ended December 31, 2022 and December 31, 2021 included increases of $15,000 and $2,000, respectively, for the net change of fair market value of leveraged ESOP shares allocated.

The ESOP has promissory notes with the Company for the purchase of TCFC common stock for the benefit of the participants in the Plan of $0.2 million and $0.3 million at December 31, 2022 and 2021, respectively. The Bank is a guarantor of the ESOP debt with the Company. Loan terms are at prime rate plus one-percentage point and amortize over 7 years. As principal is repaid, common shares are allocated to participants based on the participant account allocation rules described in the Plan. During the year ended December 31, 2022, $0.1 million or 4,150 ESOP shares were allocated with the payment of promissory notes. There were no purchases by the ESOP of the Company’s common shares with promissory notes or cash during 2022. During the year ended December 31, 2021, $0.1 million or 4,150 ESOP shares were allocated with the payment of promissory notes.

The Company also has a 401(k) plan. The Company matches a portion of the employee contributions. This ratio is determined annually by the Board of Directors. In 2022 and 2021, the Company matched one-half of the first 8% of the employee’s contribution. Employees who have completed six months of service are covered under this defined contribution plan. Employee’s vest in the Company’s matching contributions after three years of service. For the years ended December 31, 2022 and 2021, the expense recorded for this plan totaled $0.5 million and $0.5 million, respectively.

The Company maintains a non-qualified deferred compensation plan for the Board of Directors and certain key employees under which each participant may elect to defer all or any portion of board fees or salary otherwise payable. Deferred amounts under this plan will be distributed to participants following termination of service or on a specified date in either lump sum or over a period of one to ten years, as elected by the participant. As of December 31, 2022 and 2021, the liability related to this plan was $1.5 million and $2.4 million, respectively. During 2020, the Company amended the non-qualified compensation plan for certain key employees to include discretionary contributions from the Company. Contributions made by the Company become vested on December 31st of the third year following the year the contribution is made. As of December 31, 2022, the Company contributed approximately $136,000 to the plan.

The Company has a separate non-qualified retirement plan for non-employee directors. Directors are eligible for a maximum benefit of $3,500 a year for ten years following retirement from the Board of Community Bank of the Chesapeake. The maximum benefit is earned at 15 years of service as a non-employee director. Full vesting occurs after two years of service. Expense recorded for this plan was $15,000 and $0 for the years ended December 31, 2022 and 2021, respectively.

In addition, the Company has established individual supplemental retirement plans and life insurance benefits for certain key executives and officers of the Bank. The retirement plans provide retirement income payments for 15 years from the date of the employee’s expected retirement at age 65. The retirement benefit amount for each agreement is set at the discretion of the Board of Directors and vests from the date of the agreement. Expense recorded for the plans totaled $0.6 million and $0.6 million for 2022 and 2021, respectively.