After paying bonuses to management even as the bank hemorrhaged money in 2009, a Glen Allen-based bank is cutting its chief executive and two of its highest paid executives and considering closing branches.
Community Bankers Trust Co. and its subsidiary Essex Bank disclosed Wednesday that Corporate Development Officer M. Andrew McLean and Operational Risk Management Officer Patrick J. Tewell will be cut in October along with 27 other employees.
And because of the company’s participation in the Troubled Assets Relief Program, those two execs are walking away without much of a severance package.
“It’s a tough time,” said John Oakey, CBTC’s general counsel. “All banks are having issues trying to figure out what the next move is. Obviously we’re in that group.”
McLean received $251,440 in total compensation in 2009, according to CBTC’s latest proxy. That included a $210,000 base salary and an $18,500 bonus. McLean was president of the bank until his position was changed and George Longest Jr. took the president role.
Tewell received $179,073 in total compensation in 2009, including a $150,000 base salary and a $16,500 bonus.
The company lost $29.3 million in 2009 and has lost$23 million through the first six months of this year.
The executive shuffle also removed Longest, its highest paid executive, from his position as CEO. He will stay on with the bank, but is is unclear in what capacity he will serve.
Longest’s compensation grew even as the company’s stock price plummeted and its losses ballooned, according to SEC filings.
Longest, 49, was paid $382,390 in 2009. That’s $46,000 more than he made in 2008 and $150,000 more than he was paid in 2007. His contract also called for an automobile allowance and country club dues.
The company’s stock is trading at about $1 per share. A year ago, it was about $3.45 per share, and for years before it hovered well above $7. (See a chart of the stock’s performance over the past five years.)
Oakey said having Longest step down from the CEO role was related to the company’s desire to find someone with more experience running a billion-dollar, multi-state operation. Longest’s experience is more in line with running smaller community banks, Oakey said.
“He was a strong leader at the Bank of Essex entity prior to the merger,” Oakey said. “It’s unfortunate that it didn’t work out with his being a CEO of such a larger company than what he had dealt with in the past. Sometimes the stars just don’t align.”
Oakey also said the company is looking for someone with more experience in dealing with non-performing loans, of which CBTC has more than $100 million worth. Its troubled portfolio includes loans of all types, including some it acquired from two failed banks and $8 million it lent to a local golf course that never became profitable. (Read about the Federal Club here.)
“We’re trying to find someone who can run an organization the size we are in light of what we’re going through,” he said.
Complicating matters is the company’s participation in TARP, which gave CBTC $17.7 million in capital. TARP recipients can not give lucrative payment packages to departing executives. For the purposes of TARP, the Treasury Department defines a golden parachute as a payment for an employee’s departure for any reason.
CBTC said in its filing that the employment agreements it has with Longest, McLean and Tewell call for payment in “certain change-in-employment situations, but any such payments are currently restricted under TARP rules relating to executive compensation.”
So although Oakey is okay for now because he’s staying on with the company, it looks like McLean and Tewell are getting the short end of the stick.
“Unfortunately, [McLean and Tewell] got caught up in a rule on that one,” Oakey said.
Because the company’s hands are tied by TARP, Oakey said the two will walk away mostly empty-handed, “which is too bad because in other cases we try to accommodate under our normal severance payments.”
When asked whether McLean and Tewell were miffed about the situation, Oakey said the situation played out as could be expected under the circumstances.
“Without getting into specifics, I would say the two of them were very professional,” Oakey said. “You’re always going to have a variety of reactions.”
Oakey said the company does recognize how difficult a situation this is for the outgoing executives. “We’re sensitive to their situation,” he said.
McLean and Tewell still own 21,000 and 12,000 shares of CBTC stock, respectively.
Oakey said keeping a longtime employee of the bank like Longest on the payroll is not related to TARP restrictions.
“The reason to keep George is the strength he has at working at a community bank,” he said.
Oakey said the company hasn’t finalized exactly what sort of role Longest will fill.
“We just didn’t want to lose him,” he said.
CBTC also recently announced that it was forced to defer the TARP-related dividend it was due to pay the Treasury because of its financial struggles.
Eliminating a CEO and positions related to risk management and expansion are moves frequently seen when a struggling bank or bank holding company is on the verge of entering into a written turnaround agreement with regulators.
Oakey said that is not the case with CBTC.
“These moves were made solely to do what we need to from an operational standpoint to improve profitability,” he said.
Employees aren’t the only ones being affected by CBTC’s cost-cutting measures. Oakey didn’t rule out that some Essex Bank branches could be looked at for possible closure or sale.
“You could pretty much assume that of all the strategic opportunities we’re looking at, we want to look at branches, too,” Oakey said. “Our goal is to make sure all branches are profitable.”
CBTC was founded in 2005 as a fund to acquire community banks. The TransCommunity deal brought several rural Central Virginia banks under its umbrella in 2008. In November 2008, the company purchased the assets of The Community Bank, a failed bank in Georgia, from the FDIC at a steep discount. It also acquired a failed bank in Maryland in January 2009.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]
If the bank lost $52.3 million in the past year and a half, where are they getting the money to pay anyone anything?
It is difficult to imagine that there were bonuses paid last year with those results. One day compensation committees will use some common sense.