UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
TEXAS CAPITAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2671109
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
2100 MCKINNEY AVENUE, SUITE 900, DALLAS, TEXAS, U.S.A. 75201
(Address of principal executive officers) (Zip Code)
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214-932-6600
(Registrant's telephone number, including area code)
Securities to be registered under Section 12(b) of the Exchange Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None Not applicable
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Securities to be registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Texas Capital Bancshares, Inc. 2100 McKinney Avenue, Suite 900 Dallas, Texas 75201
REGISTRATION STATEMENT
UNDER THE
UNITED STATES SECURITIES EXCHANGE ACT OF 1934
This Registration Statement has been prepared by Texas Capital Bancshares, Inc. to provide certain information regarding us and our common stock, par value $.01 per share, to current and potential investors in our common stock. This registration statement has been prepared in accordance with the United States Securities and Exchange Act of 1934 and the rules and regulations on the United States Securities and Exchange Commission with respect to such act.
NONE OF THE FOLLOWING GOVERNMENT AGENCIES HAS APPROVED OUR COMMON STOCK OR DETERMINED IF THIS REGISTRATION STATEMENT IS TRUTHFUL OR COMPLETE: (1) THE SECURITIES AND EXCHANGE COMMISSION, (2) THE OFFICE OF THE COMPTROLLER OF THE CURRENCY OF THE UNITED STATES, (3) THE UNITED STATES FEDERAL RESERVE BOARD, (4) THE FEDERAL DEPOSIT INSURANCE CORPORATION OR (5) THE TEXAS SECURITIES BOARD. ANY REPRESENTATION OTHERWISE IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Business..........................................................................................................1
Texas Capital Bank...........................................................................................1
BankDirect...................................................................................................6
Legal Proceedings...........................................................................................11
Supervision and Regulation.......................................................................................12
Selected Consolidated Financial Data.............................................................................21
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................................22
Security Ownership of Certain Beneficial Owners and Management...................................................38
Management.......................................................................................................39
Interests of Management and Others in Certain Transactions.......................................................42
Market for Capital Stock and Dividend Policy.....................................................................42
Recent Offerings of Unregistered Securities......................................................................42
Description of Capital Stock.....................................................................................42
Where You Can Find Additional Information........................................................................45
Exhibits.........................................................................................................46
Financial Statements............................................................................................F-1
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BUSINESS
Texas Capital Bancshares, Inc. was formed as a Delaware corporation in March 1998. All of our business is conducted through our subsidiary bank, Texas Capital Bank, National Association. Texas Capital Bank was formed in 1998 through the acquisition of Resource Bank, N.A. in Dallas, Texas which had been in business since 1997. We currently operate an Internet banking site under the name BankDirect, as a division of Texas Capital Bank. We recently received regulatory approval to charter BankDirect as a Texas state savings bank with the name BankDirect SSB. We anticipate that we will complete the chartering process and BankDirect SSB will commence operations as a separate financial institution in the third quarter or fourth quarter of 2000. The table below summarizes the relative results of Texas Capital Bank and BankDirect as of and for the periods indicated in the following table:
Texas
Capital Bank BankDirect
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(in thousands)
Total assets at May 31, 2000 $439,332 $210,914
Deposits at May 31, 2000 344,495 211,680
Net loss for the five months ended May 31, 2000 (2,428) (2,701)
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We believe Texas Capital Bank and BankDirect are complimentary to each other because of their differing business models and customer base. Texas Capital Bank services primarily commercial entities and high net worth individuals that require flexible financial products that can be customized to reflect their specific needs. On the other hand, BankDirect is primarily consumer-oriented and offers relatively standard consumer financial products with higher interest rates on deposits and lower rates and fees with respect to consumer credit products and deposit services. We also anticipate that BankDirect SSB will purchase loans from Texas Capital Bank to increase the asset base of BankDirect SSB, although we have not determined the amount or timing of such purchases.
Texas Capital Bank and BankDirect are development stage businesses and have not generated any earnings. We anticipate additional losses from the operations of Texas Capital Bank and BankDirect and we do not know when, if ever, Texas Capital Bank and BankDirect will generate profits. On May 31, 2000, the operations of Texas Capital Bank had resulted in year-to-date losses of approximately $2.4 million and the operations of BankDirect had resulted in year-to-date losses of approximately $2.7 million.
As a result of our common ownership and control of Texas Capital Bank and BankDirect SSB, the success of Texas Capital Bank and BankDirect SSB will be related to the success of the other. Should either Texas Capital Bank or BankDirect SSB suffer adverse results of operations, we anticipate that such adverse results would limit the success of the other.
Our corporate headquarters is located at 2100 McKinney Avenue, Suite 900, Dallas, Texas 75201.
Since all of our business is conducted through Texas Capital Bank and BankDirect, Texas Capital Bancshares has only five employees, three of whom are corporate officers. None of our employees is represented by a collective bargaining agreement and we consider our relations with our employees to be good.
TEXAS CAPITAL BANK
Texas Capital Bank was formed in 1998 through the acquisition of Resource Bank, N.A. in Dallas, Texas which had been in business since 1997. Texas Capital Bank currently has banking operations in Texas, Oklahoma and New Mexico.
ACQUISITION OF RESOURCE BANK. We chose to commence operations of Texas Capital Bank through the acquisition of Resource Bank in order to reduce the time and expense of chartering a new national bank. In addition, Resource Bank provided current operations and revenues and a group of experienced employees and bank officers that already had established ties to the Dallas Fort Worth
business community. We believe the acquisition of Resource Bank allowed Texas Capital Bank to commence operations and enter the Dallas Fort Worth market one year to 18 months sooner than would have been the case had we attempted to charter Texas Capital Bank as a new bank.
At the time of the acquisition of Resource Bank, some of the stockholders of Texas Capital Bancshares were also stockholders of Resource Bank. The following table sets forth the common stockholders between Texas Capital Bancshares and Resource Bank at the time of the acquisition and the total shares of our common stock held by such stockholders immediately following the acquisition.
Common Stock
Common Stock Ownership Common Stock Ownership Ownership of Texas
of Texas Capital of Resource Bank Prior Capital Bancshares
Bancshares Prior to to its Acquisition by Immediately After
its Acquisition of Texas Capital its Acquisition of
Resource Bank Bancshares Resource Bank
---------------------- ---------------------- -------------------
Percent Percent Percent
Shares of Total Shares of Total Shares of Total
------- -------- ------- -------- ------- --------
Joseph M. Grant 283,022 39.8 123,750 9.9 355,793 4.7
George F. Jones, Jr. 64,000 9.0 25,500 2.0 102,724 1.4
C. Keith Cargill 64,000 9.0 13,000 1.0 81,184 1.1
David L. Cargill 64,000 9.0 18,750 1.5 74,725 1.0
Larry A. Makel 64,000 9.0 25,000 2.0 76,099 1.0
Vince A Ackerson 64,000 9.0 12,500 1.0 80,988 1.1
------- ---- ------- ---- ------- ----
Total 603,022 84.8 218,500 17.4 771,513 10.3
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In addition to being stockholders of Resource Bank, George Jones, Keith Cargill, David Cargill and Vince Ackerson served as executive officers of Resource Bank.
PRIMARY CUSTOMERS AND MARKETS. Texas Capital Bank concentrates on business customers with annual revenues between $5 million and $250 million, commonly referred to as "middle market" businesses, and individual customers with net worth in excess of $1 million, which are often referred to in the banking community as "private client" customers. We believe middle market businesses have been under served in Texas and the surrounding states since the late 1980s. Within the middle market business community in those cities where Texas Capital Bank currently has banking centers, we seek to develop broad customer relationships based on service and convenience. Since the acquisition of Resource Bank, Texas Capital Bank has opened new banking centers exclusively through internal growth.
Texas Capital Bank's current primary market is the greater Dallas-Fort Worth metropolitan area. It operates three banking centers in Dallas, one banking center in Fort Worth and one banking center in Plano, a very large suburban community that borders Dallas. It also currently has banking centers in San Antonio, Texas and Austin, Texas, and lending offices in Tulsa, Oklahoma and Santa Fe, New Mexico and it plans to enter the Houston market in the last half of 2000 or in early 2001. We believe that economic conditions and trends in the metropolitan areas of Texas and the surrounding states have been similar to the economic conditions and trends in metropolitan areas of the United States generally.
The diverse nature of the business community in each of the markets Texas Capital Bank serves provides it with a varied customer base and allows it to spread its lending risk throughout a number of different industries. Texas Capital Bank's primary competition in its market areas are well-capitalized local banks or branches of large regional or national banks. We believe that, as a result of Texas Capital Bank's focus on the middle market business community and our understanding of these communities in Texas and the surrounding states, it has a competitive advantage in its market areas and excellent growth opportunities through acquisitions, new branch locations and additional business development.
BANKING OPERATIONS. Texas Capital Bank offers a variety of traditional loan and deposit products to our customers. At May 31, 2000, it maintained approximately 18,100 deposit accounts and 920 loan accounts.
Texas Capital Bank offers a full range of business-oriented banking products and services, including:
o commercial loans to businesses to finance internal growth, acquisitions and leveraged buy-outs
o equipment leasing
o real estate and construction loans
o focused lending to energy-related businesses
o cash management services
o commercial trust and escrow services
o international services, including letters of credit
In addition, we also provide complete consumer-oriented banking services, which include:
o consumer loans
o mortgages and home equity loans
o checking accounts with debit cards and overdraft protection available
o credit cards, including gold-status cards
o traditional savings accounts and certificates of deposit
o personal trust services
o 24 hour telephone banking
Texas Capital Bank has been an active business lender, with commercial loans comprising approximately 64% of its total loans as of May 31, 2000. Targeted businesses are primarily those that require aggregate loans in the $100,000 to $10 million range.
BUSINESS STRATEGIES. Texas Capital Bank's main objective is to take advantage of expansion opportunities while maintaining efficiency and individualized customer service and maximizing profitability. To achieve this objective, we have emphasized the following strategies:
Continue Middle Market Commercial and Private Client Banking Emphasis. Texas Capital Bank intends to continue operating as a regional banking organization focused on meeting the specific needs of medium-sized businesses and private clients in our market areas. We will continue to provide a high degree of responsiveness combined with a wide variety of banking products and services. Texas Capital Bank's banking centers have been built around experienced bankers with lending expertise in the specific industries found in that market area, giving them authority to make pricing and credit decisions, thereby attempting to avoid much of the bureaucratic structure of large banks.
Expand Operations through Internal Growth. Texas Capital Bank intends to continue seeking opportunities, both inside and outside its existing markets, to expand by establishing new lines of business and by expanding into Houston. Factors we use to evaluate expansion opportunities include the nature and projected profitability of the market, the opportunity to enhance Texas Capital Bank's image and market presence and, most importantly, whether the expansion will be accretive to earnings and enhance stockholder value.
Increase Loan Volume and Diversify Loan Portfolio. Texas Capital Bank emphasizes both new and existing loan products, focusing on medium-sized commercial businesses and private client relationships. Texas Capital Bank's focus in this area and sensitivity to customer needs will allow it to increase the number of loans it makes.
Enhance Cross-Selling through Incentives and Technology. Texas Capital Bank's customer base provides significant opportunities to cross-sell various products. Texas Capital Bank seeks to develop broader customer relationships by identifying those cross-selling opportunities. It uses training and incentives to encourage cross-selling efforts and increase cross-selling results. To assist with cross-selling efforts, Texas Capital Bank uses technology to help officers and associates identify cross-selling opportunities.
Improve Efficiency. Texas Capital Bank maintains stringent cost control practices and policies. It has invested significantly in the infrastructure required to centralize many of its critical operations, such as credit policy, finance, data processing and loan application processing. This infrastructure can accommodate substantial additional growth while enabling Texas Capital Bank to minimize operational costs through economies of scale.
LENDING PRACTICES. Texas Capital Bank targets its lending on middle market businesses and private clients that meet its credit standards. The credit standards are set by a standing Credit Policy Committee with the assistance of the Chief Credit Policy Officer, who is charged with insuring that credit standards are met by loans in Texas Capital Bank's portfolio. The Credit Policy Committee is comprised of the President of Texas Capital Bank, the Chief Lending Officer, the Chief Credit Policy Officer and several key lending and client relationship officers. Texas Capital Bank's credit standards reference numerous criteria with respect to the Borrower, including historical and projected financial information, strength of management and market conditions and trends in the borrower's industry. In addition, prospective loans are also analyzed based on current industry concentrations in Texas Capital Bank's loan portfolio to prevent an unacceptable concentration of loans in any particular industry. We believe the credit standards employed by Texas Capital Bank are similar to the standards generally employed by national banks in the markets we serve. We believe that Texas Capital Bank differentiates itself from its competitors by focusing on and aggressively marketing middle market commercial and high net worth individual clients and accommodating, to the extent permitted by its credit standards, their individual needs.
Texas Capital Bank generally extends variable rate loans in which the interest rate fluctuates with a predetermined indicator such as the United States prime rate or the London Inter-Bank Offered Rate. Variable rate loans protect Texas Capital Bank from risks associated with interest rate fluctuations since the rates of interest earned by Texas Capital Bank will automatically reflect such fluctuations. Over 85% of the loans in Texas Capital Bank's portfolio are variable rate loans.
Texas Capital Bank strives to diversify its loan portfolio and does not focus on any particular industry or group of related industries. We do not believe that any industry has inherently higher risks than other industries if appropriate credit standards for the particular industry are consistently applied. The table below sets forth information regarding the distribution of Texas Capital Bank loan commitments and funded loans among various industries at May 31, 2000.
Loan Commitments Funded Loans
------------------------ ------------------------
Percent Percent
Amount of Total Amount of Total
------------ -------- ------------ --------
Agriculture $ 134,401 0.0 $ 134,401 0.0
Contracting 77,329,356 13.1 35,904,471 8.8
Government 3,975,447 0.7 1,129,369 0.3
Manufacturing 75,804,777 12.9 59,328,813 14.5
Personal 56,504,911 9.6 40,075,517 9.8
Petrochemical and mining 44,119,934 7.5 38,293,526 9.3
Retail 8,346,268 1.4 7,664,285 1.9
Services 211,183,719 35.9 155,247,375 37.9
Wholesale 60,826,490 10.4 38,612,208 9.4
Other 49,892,273 8.5 33,514,069 8.1
------------ ----- ------------ -----
Total $588,117,576 100.0 $409,904,034 100.0
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Texas Capital Bank seeks to make loans that are appropriately collateralized under its credit standards. Over 90% of Texas Capital Bank's funded loans are secured by collateral. The table below sets forth information regarding the distribution of Texas Capital Bank loan commitments and funded loans among various types of collateral at May 31, 2000.
Loan Commitments Funded Loans
------------------------ ------------------------
Percent Percent
Amount of Total Amount of Total
------------ -------- ------------ --------
Business equipment $ 16,756,970 2.9 $ 11,737,708 2.9
Business accounts receivable
and inventory 179,461,447 30.5 122,826,877 30.0
Other business assets 97,144 0.0 97,144 0.0
Consumer property 6,397,750 1.1 6,135,463 1.5
Oil and natural gas assets 31,719,911 5.4 27,432,900 6.7
Real estate 194,821,713 33.1 135,419,707 33.0
Other assets 31,768,881 5.4 21,065,782 5.1
Highly liquid assets 58,735,031 10.0 51,188,040 12.5
Unsecured 68,358,729 11.6 34,000,413 8.3
------------ ----- ------------ -----
Total $588,117,576 100.0 $409,904,034 100.0
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MANAGEMENT OF TEXAS CAPITAL BANK. We believe we have assembled an excellent management team for Texas Capital Bank that understand both the business communities in Texas and the surrounding states and the needs of middle market businesses and private client customers in those communities. In addition to the executive officers of Texas Capital Bancshares set forth under Management, the key officers of Texas Capital Bank are set forth below:
Charles Hrdlicka President, San Antonio Region
Bob Kay President, Austin Region
Michael Palmer President, Fort Worth Region
John Hudgens Executive Vice President and Chief Credit Policy
Officer
Keith Cargill Executive Vice President and Chief Lending Officer
Vince Ackerson Executive Vice President, Corporate Banking
David Cargill Executive Vice President, Business Banking
Robert McDaniel Executive Vice President, Cash Management
Tim Loudermilk Executive Vice President, Real Estate
Terry McCarter Executive Vice President, Energy Group
Dan Strodel Executive Vice President, Private Client Banking
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COMPETITION. The banking business is highly competitive, and Texas Capital Bank's profitability depends principally on its ability to compete successfully in its market areas. Texas Capital Bank competes with other commercial banks, savings banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, non-bank asset-based lenders and other financial entities, including credit providers associated with retail stores which may maintain their own credit programs and certain governmental organizations which may offer more favorable financing than Texas Capital Bank. We believe Texas Capital Bank will be able to compete effectively with other financial institutions by emphasizing customer service, technology and responsive decision making and by building long term customer relationships built upon products and services designed to address the specific needs of its customers. However, we expect competition from both financial and non-financial institutions to continue and, in some areas, increase.
EMPLOYEES. As of May 31, 2000, Texas Capital Bank had 164 full-time employees, 99 of whom were officers of Texas Capital Bank. We provide medical and hospitalization insurance to its full-time employees. We consider Texas Capital Bank's relations with its employees to be excellent. Texas Capital Bank is not a party to any collective bargaining agreement.
PROPERTIES. As of May 31, 2000, Texas Capital Bank conducted business at seven full service banking center locations and two lending offices. We lease the space in which our banking centers are located. These leases expire between September 1, 2001 and October 1, 2010, not including any renewal options that may be available.
BANKDIRECT
BankDirect provides a broad range of banking and financial services to Internet users. BankDirect's Internet business model allows it to lower expenses and pass along cost savings to customers in the form of higher interest rates and lower fees on deposits. It plans to attract new accounts through increasing consumer use of the Internet and national awareness of the BankDirect brand name.
BankDirect currently operates as a division of Texas Capital Bank. Our application to have BankDirect chartered as a Texas state savings bank with the Texas Savings and Loan Department was approved, subject to certain ministerial conditions, on October 19, 1999. In addition, our application with the United States Federal Deposit Insurance Corporation to provide federal insurance for BankDirect's deposit accounts was approved on June 19, 2000. The application of Texas Capital Bancshares with the United States Federal Reserve Board to operate as a multi-bank holding company was approved on June 23, 2000. In light of these recent approvals, we anticipate we will charter BankDirect SSB as a separate financial entity in the third quarter or fourth quarter of 2000. As part of the chartering process we will capitalize BankDirect SSB with at least $10 million and Texas Capital Bancshares will initially be the sole stockholder of BankDirect SSB. BankDirect SSB will concurrently assume the deposit accounts of BankDirect opened through the BankDirect Internet site and will assume the liabilities in connection therewith. These deposits totaled approximately $212 million at May 31, 2000.
INTERNET BANKING. The Internet enables millions of people worldwide to access news and information, communicate with each other and conduct business electronically over an extended computer network. The Internet has rapidly emerged as an innovative means of providing financial services. As financial service sites continue to grow in popularity, many companies are increasingly offering or have established relationships with companies that offer a variety of financial services, including traditional banking services, over the Internet.
The growth in Internet commerce has prompted the development of Internet banking systems. Internet banking systems provide convenience for customers and allow financial institutions to lower their operating costs. Internet banking requires only a secure web browser for access to the Internet and the financial institution. Internet banking requires no particular software and does not restrict the customer's operations to the location of his or her computer. Instead, the customer accesses the financial institution through the Internet and deposits or transfers funds, pays bills or transacts other business on a near real time basis. The use of Internet banking is growing as consumers find that it is both convenient and cost effective. Internet users tend to be professionals with limited amounts of discretionary time and are attracted to the convenience of "one stop shopping" for a full range of financial services. According to Jupiter Communications, the number of online banking households in the United States, including those using Internet banking, is projected to grow from an estimated 6.6 million in 1998 to an estimated 17.1 million in 2002.
Like many other Internet-related businesses, Internet banking businesses have provided mixed profitability results. In order to operate successfully, Internet banks must effectively deal with several issues related directly to Internet banking, among which are:
o Lack of consumer confidence in the Internet as a reliable and secure means for financial transactions.
o Fewer specialized products and services than those offered by traditional banking entities.
o Issues with respect to ease of use and consumer comfort with current Internet browser technology and the design and layout of Internet sites.
BUSINESS STRATEGIES. BankDirect has a competitive cost advantage over traditional banks because it does not require a traditional branch network. BankDirect's established position in the marketplace provides it with a competitive advantage in view of the lead time required for new
competitors to obtain a charter and start an Internet bank. We believe it requires one year to 18 months to complete the chartering and regulatory approval process to commence operations as an independent Internet bank. Traditional banks may establish Internet sites with varying levels of service in a much shorter time frame, however, the services offered through Internet sites by traditional banks are often limited, require specialized proprietary software or require the consumer to pay additional fees. As of May 31, 2000, BankDirect has established over 13,000 accounts containing total deposits of approximately $212 million. It intends to continue to capitalize on this advantage by aggressively seeking new customers through both online and traditional marketing efforts, in order to further build market share.
BankDirect's customer demographics parallel those of the general Internet population and illustrate BankDirect's appeal to households with relatively high incomes. Over seventy percent (70%) of our customers report household income over $50,000 per year and more than 75% of our customers are college graduates.
We believe that BankDirect is positioned to participate in the rapid growth of the Internet and online banking based on its:
Higher Interest Rates And Lower Fees. BankDirect's operating costs are generally lower than those of similar, traditional "bricks and mortar" banks because it does not require a traditional branch network to generate deposits and conduct operations. BankDirect passes on its savings in operating costs to customers by offering higher interest rates and lower fees in order to generate deposits without sacrificing profit margins. Although interest rates fluctuate on a weekly basis, we believe the rates paid by BankDirect are among the highest of banks in the United States with respect to interest rates paid on deposits. BankDirect's Internet-based business model differentiates it from traditional banks offering Internet banking services because traditional banks frequently offset the incremental expense of their Internet banking services by offering lower interest returns on deposits, charging additional fees or imposing minimum account balances.
As a result of our strategy of focusing on higher rates on BankDirect's deposit accounts, we believe that our operations and results would suffer if we were no longer able to offer rates higher than most traditional banks. Most Internet banks pay rates higher than those offered by traditional banks and have adopted business models similar to ours in which reduced operating expenses are passed to the customer in the form of such higher rates. We believe that, because of the other advantages we offer, we do not need to exceed the rates paid by all other banks, but we must be competitive with such rates and higher than the rates offered by traditional banks.
Convenience and Ease Of Access. BankDirect believes it provides customers with a higher level of convenience than can be achieved in a traditional bank branch or through PC-based home banking. The Internet allows its customers to conduct banking activities on a 7 day-a-week, 24 hour-a-day basis from any computer, wherever located, that has access to the Internet and a secure Web browser. In addition, BankDirect's Web site is designed to be user friendly and to expedite customer transactions with BankDirect.
Broad Selection of Products and Services. BankDirect offers a broad array of products and services that customers would typically expect from a traditional bank. These products and services include no-fee, interest-bearing checking, savings, money market accounts, certificates of deposit, electronic bill payment, ATM cards, debit cards and direct deposit. During the third and fourth quarters of 2000, BankDirect will begin offering credit cards, automobile loans, home mortgages, home equity loans, and refinance and debt consolidation loans. Although credit products and loans extended over the Internet present some security risks, we do not believe these risks are materially different from those presented by Internet banking generally. BankDirect also currently offers quotes from leading insurance companies for automobile, life, health, home, rent and home warranty insurance.
The following table sets forth the approximate percentage of our customers using each of the products we currently offer as of May 2000:
Interest-bearing checking accounts 29.0% Interest-bearing savings accounts 2.0% Money market accounts 34.0% Certificates of deposit 35.0% |
Interface with Quicken(R) and Microsoft Money(R). BankDirect provides consumers with a direct interface to connect the online bank with Quicken(R) and Microsoft Money(R) personal financial management software. This interface gives BankDirect customers the ability to view account balances, pay bills, and perform financial analysis directly from Quicken(R) and Microsoft Money(R). With the direct connection, users bypass the traditional downloading and conversion of intermediate files by automatically "populating" the financial management software with records directly from BankDirect.
High Quality Service and Customer Satisfaction. BankDirect continually seeks ways to enhance customer satisfaction. In an effort to serve the needs of its customers, BankDirect offers services such as free electronic bill payment and ATM cards. It also emphasizes responsive, courteous customer service and utilizes a fully trained dedicated staff who respond to inquiries from existing and potential customers and process new accounts. Its customers can access account data and information regarding products and services 24 hours a day and can reach customer service representatives by telephone between 7:00 a.m. and 11:00 p.m., central time, seven (7) days a week or through an email messaging service 24 hours a day. By utilizing the messaging service, customers use an individual mailbox that allows direct communication with a customer service representative. BankDirect strives for customer satisfaction and believes the significant growth in its customer base illustrates its ability to meet customers' needs and retain customers brought to BankDirect by its higher deposit rates. According to a survey of our customers conducted by Bottom Line Connection of Baltimore, Maryland, over seventy-five percent (75%) of our customers reported they were "satisfied" or "very satisfied" with our services. We make every effort to ensure contacting BankDirect is as easy as possible by toll-free telephone number, online request, email or fax. Our toll-free customer service number is 877-839-2737.
Advanced Security. A significant barrier to online financial transactions has been the secure transmission of confidential information over public networks. BankDirect uses sophisticated technology developed by Electronic Data Systems, Inc. to provide what it believes to be among the most advanced security measures currently available in the Internet banking industry. All banking transactions are encrypted and all transactions are routed to and from the Internet server behind Electronic Data Systems' security system.
GROWTH STRATEGY. We intend to grow BankDirect by emphasizing traditional and Internet-oriented marketing efforts and expanding our affinity relationships with Internet business partners. The following table shows the growth BankDirect has experienced since commencing substantive operations in the third quarter of 1999:
Number of
Accounts Deposits
--------- ------------
September 30, 1999 1,800 $ 25,000,000
December 31, 1999 3,900 $ 49,000,000
March 31, 2000 9,500 $149,000,000
May 31, 2000 13,000 $212,000,000
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Our ability to sustain the growth of Bank Direct will depend in large part upon BankDirect's ability to attract new customers by offering rates on deposits comparative with other Internet banks and higher than those offered by traditional banks. In addition, BankDirect will be required to retain customers by offering high quality services and preserving customer satisfaction. However, even if we are successful in sustaining the growth of BankDirect, we believe that the growth rates demonstrated in the table above are not normal and probably cannot be sustained for an extended period of time.
We plan to continue to grow BankDirect's business by marketing and promoting the bank through online and traditional advertising and public relations. The goal of its marketing strategy is to make BankDirect a leading brand in the Internet financial services market. BankDirect's marketing strategy is designed to grow its customer base and includes targeted advertising on the Internet and other media, developing strategic partnerships that will enhance its product and service offerings, cross-marketing initiatives to existing customers, and fostering public relations. BankDirect has experienced rapid growth
by differentiating itself from its competitors and communicating those differences through its marketing strategy.
We also intend to expand our relationships with companies and other
groups who create significant customer loyalty, often referred to as "affinity"
relationships. We believe these affinity relationships provide unique value to
our affinity partners through Internet sites that are jointly maintained by
BankDirect and our affinity partners, cross-marketing opportunities, special
offers and dedicated customer service representatives to manage the accounts
opened through the affinity relationship. We believe our ability to add value to
these relationships will result in significant expansion of our customer base.
BANKING OPERATIONS.
Account Activity. Customers can access BankDirect's services through any Internet service provider by means of a secure Web browser such as recent versions of Netscape's Navigator or Microsoft's Internet Explorer.
Products and Services. In order to build its customer base, BankDirect offers a variety of deposit products at attractive interest rates. It is able to offer attractive interest rates as a result of its low operating costs. BankDirect's deposit products and services include interest-bearing checking, savings and money market accounts and certificates of deposit. In addition, customers can pay their bills online through electronic funds transfer or a written draft prepared and sent to the creditor. BankDirect does not charge a fee for this service. Each customer automatically receives a free ATM card when he or she opens an account. Customers can access their accounts at the ATM of the customer's choice. Since BankDirect is not affiliated with a network of ATMs, it reimburses customers for the administrative fees charged with respect to a certain number of withdrawals per month. In addition, BankDirect provides customers access to various loan programs, including automobile, mortgage, home equity, refinance and debt consolidation loans through its relationship with LendingTree.com. Furthermore, through the BankDirect Insurance Center, BankDirect allows the customer to compare free, no obligation insurance quotes from leading insurance companies through its relationship with InsWeb.com. Customers can receive quotes on automobile, life, health, home, rent and home warranty insurance.
AFFINITY RELATIONSHIPS. Our affinity relationships provide our affinity partners the opportunity to offer their customers or members an Internet banking site customized for the specific needs of such customers or members. BankDirect makes available its full line of products and services to our affinity partners as a tool to build customer and member loyalty, including customer service representatives that have been specifically trained with respect to the services offered on the affinity Internet site and the particular needs of the customers and members of our affinity partners.
In May 2000, BankDirect entered the American Airlines AAdvantage(R) travel benefits program and began offering AAdvantage awards to customers.
CUSTOMER SATISFACTION. BankDirect is committed to investing in customer service and continually endeavors to enhance customer satisfaction. Offering its customers a high level of customer service is a top priority and BankDirect believes that it is critical to its success. In an effort to serve the needs of its customers, BankDirect offers services such as electronic bill payment and ATM cards. It has also invested in technology and implemented new procedures in order to continually improve the quality and responsiveness of its customer service. To optimize customer service resources, BankDirect has designed a user friendly Internet site and offers account data and information regarding its products and services 24 hours a day by telephone or electronic mail. We will continue to aggressively leverage new technology to enhance the customer experience and secure competitive advantages.
SECURITY. BankDirect's ability to provide its customers with secure financial services over the Internet is of paramount importance. It continually evaluates the Internet systems, services and software used in its operations to ensure that they meet the highest standards of security. There are several levels of security within BankDirect's security framework. User Level deals with cryptography and Netscape's Secure Sockets Layer (SSL) protocol and is the first line of defense used by all customers accessing its Banking Server from the public Internet. Server Level focuses on firewalls, filtering routers, and its trusted operating system. Host Level deals specifically with BankDirect's home banking and bill payment services and the processing of secure financial transactions.
User Level. All banking transactions and Internet communications are encrypted so that sensitive information is not transmitted over the Internet in a form that can be read or easily deciphered. Encryption of Internet communications is accomplished through the use of the Netscape Secure Sockets Layer technology. SSL utilizes highly effective cryptography techniques between the customer's browser and BankDirect's server to ensure that the information being passed is authentic, cannot be deciphered and has not been altered en route. SSL also utilizes a digitally signed certificate which ensures that its customers are truly communicating with the Home Banking Server and not a third party trying to intercept the transaction.
To eliminate the possibility that a third party may download BankDirect's or a customer's password file, user identification and passwords are not stored on the Internet or the Web server. Session time-outs, a limit on the number of logon attempts and special browser caching techniques are examples of other security measures in place to ensure that inappropriate activity is prohibited at the User Level.
Server Level. All transactions sent to BankDirect's Banking Server must first pass through a filtering router system. These filtering routers automatically direct the request to the appropriate server after ensuring the access type is through a secured browser and nothing else. The routers verify the source and destination of each network packet, and manage the authorization process of letting packets through. The filtering routers also prohibit all other types of Internet access methods at this point. This process blocks all non-secured activity and defends against inappropriate access to the server.
The Banking Server is protected using the latest firewall platform. This platform defends against system intrusions and effectively isolates all but approved customer financial requests. The platform secures the hardware running the online banking applications and prevents associated attacks against all systems connected to the Banking Server. Administration of the platform cannot occur remotely and must be initiated by authorized personnel in direct physical contact with the master console.
Host Level. After passing through the Banking Server, the transaction is sent via secure dedicated communication lines to BankDirect's Transaction Server, which verifies customer identity. Once authenticated, the customer is allowed to process authorized home banking and bill payment transactions using host data. No direct database access occurs between the Banking Server and the Transaction Server. Communication time-outs ensure that the request is received, processed, and delivered within a given time frame. Further password encryption techniques are implemented at the host level, as well as additional security logging and another complete physical security layer to protect the host information itself. The preceding security measures are designed to ensure that BankDirect is set up in a secure manner. However, over the long term, its security depends upon the procedures and standards used for administration of the Internet site.
BankDirect believes the risk of fraud presented by Internet banking is not materially different from the risk of fraud inherent in any banking relationship. It believes the four principal reasons for a breach in bank security are (1) misappropriation from the user of the user's account number or password; (2) penetration of its server by an outside "hacker"; (3) fraud committed by one of its employees or an employee of one of its service providers; and (4) users that intentionally submit incorrect information to BankDirect.
Both traditional banks and Internet banks are vulnerable to these types of fraud. By establishing the security measures described above, BankDirect believes it has reduced its vulnerability to the first two types of fraud. To counteract fraud by employees, associates and consultants, BankDirect has established internal procedures and policies designed to ensure that, as in any bank, proper control and supervision is exercised over employees, associates and consultants. It also counteracts all types of fraud through daily examination of its transactional logs.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. BankDirect regards the form and substance of its name and other intellectual property it has developed as proprietary and attempts to protect them by relying on intellectual property laws. It has submitted an application for a United States service mark registration for the BankDirect name and takes measures to safeguard its name and other proprietary intellectual property. Policing unauthorized use of proprietary information is difficult, however, and litigation may be necessary to enforce its intellectual property rights.
BankDirect owns the Internet domain name "bankdirect.com." Domain names in the United States and in foreign countries are regulated by the laws and regulations governing the Internet and are continually evolving. Additionally, the relationship between regulations governing domain names and laws protecting intellectual property rights is unclear. As a result, BankDirect may not be able to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of its name and other intellectual property rights.
COMPETITION. BankDirect believes that the principal competitive factors in the Internet banking industry are market presence, customer service, convenience, product offerings and deposit and loan rates and associated account fees. While the Internet banking industry is highly competitive, BankDirect believes it competes effectively with its principal competitors, which are principally traditional banks that offer Internet services, such as Bank of America, N.A., Wells Fargo Bank, N.A., and BankOne, N.A., Internet banks such as NetBank FSB, E*TRADE Bank FSB (formerly Telebank), and WingspanBank.com, a division of First USA Bank, N.A., and other financial services providers such as E*TRADE (now under common ownership with E*TRADE Bank) and Datek Online. BankDirect believes its low cost structure, which allows it to offer higher interest rates and lower fees, gives BankDirect a competitive advantage over traditional banks, including those which offer Internet services, which must support a physical branch structure. It also believes its operating history and name recognition gives BankDirect an advantage over many other independent Internet banks, which are still in a relatively early stage of operation. Furthermore, BankDirect is able to offer a broader array of products and services than many non-bank financial services providers.
However, many of BankDirect's traditional bank competitors and its well-established Internet bank competitors such as NetBank, E*TRADE Bank and WingspanBank.com have significantly more capital and other financial resources, greater customer bases and greater name recognition than BankDirect. Most of these competitors have also been in operation longer than BankDirect and may have considerably more management and technical expertise than that available to BankDirect. As use and acceptance of the Internet continues to grow, it is extremely likely that other Internet banks will be formed and traditional banks will offer an increasing variety of services on the Internet. As a result, BankDirect may become involved in rate and fee level competition with competitors that are significantly larger and better capitalized. In such a situation, the size and capitalization level of BankDirect could place it at a competitive disadvantage with respect to such large and better capitalized competitors. Although we believe BankDirect can compete successfully if such circumstances arise, we cannot assure you of such success.
EMPLOYEES. As of May 31, 2000, BankDirect had 51 full-time employees, 12 of whom were officers of BankDirect. BankDirect provides medical and hospitalization insurance to its full-time employees. We consider BankDirect's relations with its employees to be good. BankDirect is not a party to any collective bargaining agreement.
PROPERTIES. The executive offices of BankDirect are at 2100 McKinney Avenue, Dallas, Texas 75201. BankDirect operates a customer service call center located at 4230 LBJ Freeway, Suite 100, Dallas, Texas 75244. BankDirect leases the space in which its executive offices and call center are located. This lease expires July 31, 2002, not including any renewal option that may be available.
LEGAL PROCEEDINGS.
None of Texas Capital Bancshares, Texas Capital Bank or BankDirect is a party to a pending legal proceeding or has any property subject to a pending legal proceeding. In addition, none of Texas Capital Bancshares, Texas Capital Bank or BankDirect is aware of a proceeding being contemplated by a governmental authority with it as a party.
SUPERVISION AND REGULATION
BankDirect currently operates as a division of Texas Capital Bank and has filed an application to be chartered as a Texas state savings bank. Until such application is approved, BankDirect will continue to operate as a division of Texas Capital Bank and be subject to the regulations applicable to Texas Capital Bank. To the extent we discuss BankDirect SSB as a separate banking entity or regulations applicable to Texas state savings banks, you should be aware that such references are intended to anticipate the regulations BankDirect will be subject to following its charter as a Texas state savings bank. You should also be aware that, although we anticipate that BankDirect will be chartered as a Texas state savings bank during the third or fourth quarter of 2000, we cannot guarantee that such charter will be issued or the timing of such issuance.
Current banking laws contain numerous provisions affecting various aspects of our business. As banks, Texas Capital Bank and BankDirect are subject to state and federal banking laws and regulations that impose specific requirements on and provide regulatory oversight of virtually all aspects of our operations. These laws and regulations are generally intended for the protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation, and the banking system as a whole, rather that for the protection of our stockholders. Banking regulators have broad enforcement powers over bank holding companies and banks including the power to impose large fines and other penalties for violations of laws and regulations. The following is a brief summary of laws and regulations to which we are subject.
REGULATION OF TEXAS CAPITAL BANK AND BANKDIRECT PRIOR TO BEING CHARTERED AS A STATE SAVINGS BANK
A bank that operates as a national banking association incorporated under the laws of the United States is subject to examination by the Office of the United States Comptroller of the Currency. Deposits in a national bank are insured by the Federal Deposit Insurance Corporation up to a maximum amount (generally $100,000 per depositor) in the event an insured bank is closed without adequately providing for payment of claims of depositors and preventing the continuance or development of unsound banking practices. The Comptroller of the Currency and the Federal Deposit Insurance Corporation regulate or monitor all areas of a national bank's operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The Comptroller of the Currency requires national banks to maintain capital ratios and imposes limitations on its aggregate investment in real estate, bank premises, and furniture and fixtures. National banks are currently required by the Comptroller of the Currency to prepare quarterly reports on their financial condition and to conduct an annual audit of their financial affairs in compliance with minimum standards and procedures prescribed by the Comptroller of the Currency.
REGULATION OF BANKDIRECT AFTER BEING CHARTERED AS A STATE SAVINGS BANK
A bank that operates as a state savings bank incorporated under the laws of Texas is subject to examination by the Texas Savings and Loans Department. Deposits in a state savings bank are insured by and, as a result, regulated by the Federal Deposit Insurance Corporation to the same extent as a national bank. The Texas Savings and Loans Department performs similar regulatory and monitoring functions with respect to the operations state savings banks as those of the Comptroller of the Currency with respect to national banks. In addition, a Texas state savings bank is required to invest at least 15% of its local service area deposits in (1) home improvement loans, (2) interim residential construction loans and (3) community reinvestment loans.
RESTRICTIONS ON DIVIDENDS
Texas Capital Bank is subject to the dividend restrictions set forth by the Comptroller of the Currency. Under such restrictions, national banks may not, without the prior approval of the Comptroller of the Currency, declare dividends in excess of the sum of the current year's earnings plus the retained earnings from the prior two years. Following its chartering as a state savings bank, BankDirect SSB will be subjected to similar restrictions by the Texas Savings and Loans Department. In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991, Texas Capital Bank and BankDirect SSB may not pay any dividend if payment would cause it to become undercapitalized or in the event it is undercapitalized.
It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention
is consistent with the organization's expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banking subsidiaries.
If, in the opinion of the applicable federal in Texas bank regulatory authority, a depository institution or holding company is engaged in or is about to engage in an unsound practice (which could include the payment of dividends), such authority may require, generally after notice and hearing, that such institution or holding company cease and desist such practice. The federal in Texas banking agencies have indicated that paying dividends that deplete a depository institution's or holding company's capital base to an inadequate level would be such an unsafe banking practice. Moreover, the Federal Reserve and the Federal Deposit Insurance Corporation have issued policy statements providing that bank holding companies and insured depository institutions generally should only pay dividends out of current operating earnings.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. Such support may be required at times when, absent this Federal Reserve policy, a holding company may not be inclined to provide it. As discussed below, a bank holding company in certain circumstances could be required to guarantee the capital plan of an undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required to cure immediately any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.
SUPERVISION BY THE FEDERAL RESERVE BOARD
We operate as a bank holding company registered under the Bank Holding Company Act, and, as such, we are subject to supervision, regulation and examination by the Federal Reserve Board. The Bank Holding Company Act and other Federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Because we are a legal entity separate and distinct from our subsidiaries, our right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other resolution of a Subsidiary, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its stockholders, including any depository institution holding company (such as ours) or any stockholder or creditor thereof.
Activities "Closely Related" to Financial Activities. The Bank Holding Company Act prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of any company which is not a bank or from engaging in any activities other than those substantially related to financial activities. As a bank holding company, our activities and those of our banking and nonbanking subsidiaries will be limited to the business of activities closely related or incidental to financial activities, and we may not directly or indirectly acquire the ownership or control of more than 5% of any class of voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the Federal Reserve Board.
Sound Banking Practice. Bank holding companies are not permitted to engage in unsound banking practices. For example, the Federal Reserve Board's Regulation Y requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is equal to 10% or more of the company's consolidated net worth. The Federal Reserve Board may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or
would violate any law or regulation. As another example, a holding company could not impair its subsidiary bank's soundness by causing it to make funds available to non-banking subsidiaries or their customers if the Federal Reserve Board believed it not prudent to do so.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 expanded the Federal Reserve Board's authority to prohibit activities of bank holding companies and their non-banking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations. The Financial Institutions Reform, Recovery and Enforcement Act increased the amount of civil money penalties which the Federal Reserve Board can assess for activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1,000,000 for each day the activity continues. The Financial Institutions Reform, Recovery and Enforcement Act also expanded the scope of individuals and entities against which such penalties may be assessed.
Anti-Tying Restrictions. Bank holding companies and affiliates are prohibited from tying the provision of services, such as extensions of credit, to other services offered by a holding company or its affiliates.
Annual Reporting; Examinations. Bank holding companies are required to file an annual report with the Federal Reserve Board, and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board may examine a bank holding company or any of its subsidiaries, and charge the bank holding company for the cost of such an examination.
Capital Adequacy Requirements. The Federal Reserve Board has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of bank holding companies. Under the guidelines, specific categories of assets and off-balance sheet assets such as letters of credit are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a "risk weighted" asset base. The guidelines require a minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist of Tier 1 capital elements).
In addition to the risk-based capital guidelines, the Federal Reserve Board uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is a company's Tier 1 capital divided by its average total consolidated assets. Bank holding companies must maintain a minimum leverage ratio of at least 3.0%, although most organizations are expected to maintain leverage ratios that are 100 to 200 basis points above this minimum ratio.
The federal banking agencies' risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet specified criteria, assuming that they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. In addition, the regulations of the Federal Reserve Board provide that concentration of credit risks arising from nontraditional activities, as well as an institution's ability to manage these risks, are important factors to be taken into account by regulatory agencies in assessing an organization's overall capital adequacy.
The Federal Reserve Board and the Comptroller of the Currency recently adopted amendments to their risk-based capital regulations to provide for the consideration of interest rate risk in the agencies' determination of a banking institution's capital adequacy.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
As a federally chartered bank holding company, we are subject to Section 23A of the Federal Reserve Act which places limits on the amount of loans or extensions of credit to, or investments in, or other transactions with, affiliates. In addition, limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most of these loans and other transactions must
be secured in prescribed amounts. It also limits the amount of advances to third parties which are collateralized by our securities or obligations or the securities or obligations of any of our non-banking subsidiaries.
We also are subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies. We are subject to restrictions on extensions of credit to executive officers, directors, principal stockholders, and their related interests. These restrictions contained in the Federal Reserve Act and Federal Reserve Regulation O apply to all insured institutions and their subsidiaries and holding companies. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot exceed the institution's total unimpaired capital and surplus, and the Federal Deposit Insurance Corporation may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.
CORRECTIVE MEASURES FOR CAPITAL DEFICIENCIES.
The Federal Deposit Insurance Corporation Improvement Act imposes a regulatory matrix which requires the federal banking agencies, which include the United States Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency and the Federal Reserve Board to take "prompt corrective action" with respect to capital deficient institutions. The prompt corrective action provisions require undercapitalized institutions to become subject to an increasingly stringent array of restrictions, requirements and prohibitions, as their capital levels deteriorate and supervisory problems mount. Should these corrective measures prove unsuccessful in recapitalizing the institution and correcting its problems, the Federal Deposit Insurance Corporation Improvement Act mandates that the institution be placed in receivership.
Pursuant to regulations promulgated under the Federal Deposit Insurance Corporation Improvement Act, the corrective actions that the banking agencies either must or may take are tied primarily to an institution's capital levels. In accordance with the framework adopted by the Federal Deposit Insurance Corporation Improvement Act, the banking agencies have developed a classification system, pursuant to which all banks and thrifts will be placed into one of five categories. Agency regulations define, for each capital category, the levels at which institutions are "well capitalized," "adequately capitalized," "under capitalized," "significantly under capitalized" and "critically under capitalized." A well capitalized bank has a total risk-based capital ratio (total capital to risk weighted assets) of 10.0% or higher; a Tier 1 risk-based capital ratio (Tier I capital to risk-weighted assets) of 6.0% or higher; a leverage ratio (Tier I capital to total adjusted assets) of 5.0% or higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An institution is critically undercapitalized if it has a tangible equity to total assets ratio that is equal to or less than 2%. Texas Capital Bank's risk-based capital ratio was 17.95% at March 31, 2000 and, as a result, it is currently classified as "well capitalized" for purposes of the Federal Deposit Insurance Corporation's prompt corrective action regulations.
In addition to requiring undercapitalized institutions to submit a capital restoration plan, agency regulations contain broad restrictions on activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business. With some exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.
As an institution's capital decreases, the Federal Deposit Insurance Corporation's enforcement powers become more severe. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of
management and other restrictions. The Federal Deposit Insurance Corporation has only very limited discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver or conservator if the capital deficiency is not corrected promptly.
Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.
DEPOSIT INSURANCE ASSESSMENTS
Banks must pay assessments to the Federal Deposit Insurance Corporation for federal deposit insurance protection. The Federal Deposit Insurance Corporation has adopted a risk-based assessment system as required by the Federal Deposit Insurance Corporation Improvement Act. Under this system, Federal Deposit Insurance Corporation insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned to higher risk classifications (that is, institutions that pose a risk of loss to their respective deposit insurance funds) pay assessments at higher rates than institutions that pose a lower risk. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. In addition, the Federal Deposit Insurance Corporation can impose special assessments in certain instances.
SECURITIES ACTIVITIES
The Bank Holding Company Act permits bank holding companies to engage, through non-bank subsidiaries, in certain securities-related activities under certain circumstances. In such circumstances, holding companies may be able to use such subsidiaries to underwrite and deal in corporate debt and equity securities.
CONTROL ACQUISITIONS
The Change in Bank Control Act prohibits a person or group of persons from acquiring control of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% of more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as us, would, under the circumstances set forth in the presumption, constitute acquisition of control of us.
In addition, any entity is required to obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of our outstanding common stock, or otherwise obtaining control or a "controlling influence" over us.
AUDIT REPORTS
Institutions issued by the Federal Deposit Insurance Corporation with total assets of $500 million or more must submit annual audit reports prepared by independent auditors to federal and state regulators. In some instances, the audit report of the institution's holding company can be used to satisfy this requirement. Auditors must receive examination reports, supervisory agreements and reports of enforcement actions. In addition, financial statements prepared in accordance with generally accepted accounting principles, management's certifications concerning responsibility for the financial statements, internal controls and compliance with legal requirements designated by the Federal Deposit Insurance Corporation, and an attestation by the auditor regarding the statements of management relating to the internal controls must be submitted. For institutions with total assets of more than $3 billion, independent auditors may be required to review quarterly financial statements. The Federal Deposit Insurance Corporation Improvement Act requires that independent audit committees be formed, consisting of outside directors only. The committees of such institutions must include members with experience in banking or financial management, must have access to outside counsel, and must not include representatives of large customers.
BRANCHING
National bank branches are required by the National Bank Act of 1864, as amended; to adhere to branch banking laws applicable to state banks in the states in which they are located. Under federal legislation, a bank may merge or consolidate across state lines unless, prior to May 31, 1997, either of the states involved elected to prohibit such mergers or consolidations. Prior to the effective date of this legislation, a bank may merge or consolidate across state lines only if both of the states involved elect to "opt-in" early to the provisions of the legislation. States may also authorize banks from other states to engage in branching across state lines de novo and by acquisition of branches without acquiring a whole banking institution. Texas has chosen to opt-out of the provisions of this federal law. State law in Texas permits branching anywhere in the state. State law in New Mexico and Oklahoma prohibits branching across state lines.
COMMUNITY REINVESTMENT
The Community Reinvestment Act requires that, in connection with examinations of national banks and bank holding companies, within the Office of the Comptroller of the Currency's jurisdiction, the Office of the Comptroller of the Currency evaluates the record of such financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Texas Capital Bank received a satisfactory rating from the Comptroller of the Currency after its most recent examination.
The Texas Savings and Loans Department requires that a state savings bank invest at least 15% of its local service area deposits in home improvement loans, interim residential construction loans and community reinvestment loans in its local service area.
FAIR LENDING
Congress and various federal agencies (including, in addition to the bank regulatory agencies, the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice) responsible for implementing the nation's fair lending laws have been increasingly concerned that prospective home buyers and other borrowers are experiencing discrimination in their efforts to obtain loans. In recent years, the Department of Justice has filed suit against institutions that it determined had discriminated, seeking fines and restitution for borrowers who allegedly suffered from discriminatory practices. Most, if not all, of these suits have been settled (some for substantial sums) without a full adjudication on the merits.
On March 8, 1994, these various federal agencies, in an effort to clarify what constitutes lending discrimination and to specify the factors the agencies will consider in determining if lending discrimination exists, announced a joint policy statement detailing specific discriminatory practices prohibited under the Equal Credit Opportunity Act and the Fair Housing Act. In the policy statement, three methods of proving lending discrimination were identified: (i) overt evidence of discrimination, when a lender blatantly discriminates on a prohibited basis, (ii) evidence of disparate treatment, when a lender treats applicants differently based on a prohibited factor even where there is no showing that the treatment was motivated by prejudice or a conscious intention to discriminate against a person and (iii) evidence of disparate impact, when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect, even where such practices are neutral on their face and are applied equally, unless the practice can be justified on the basis of business necessity.
FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Bank System consists of 12 regional Federal Home Loan Banks, each subject to supervision and regulation by the Federal Housing Finance Board. The Federal Home Loan Banks provide a central credit facility for member savings associations. Collateral is required. The maximum amount that the Federal Home Loan Bank of Dallas will advance fluctuates from time to time in accordance with changes in policies of the Federal Housing Finance Board and the Federal Home Loan Bank of Dallas, and the maximum amount generally is reduced by borrowings from any other source. In addition, the amount of Federal Home Loan Bank advances that a savings association may obtain will be restricted in the event the institution fails to constitute a Qualified Trust Lender. Texas Capital Bank is a member of the Federal Home Loan Bank System.
OTHER REGULATIONS
Interest and other charges collected or contracted for by Texas Capital Bank and BankDirect SSB will be subject to state usury laws and federal laws concerning interest rates. The loan operations of Texas Capital Bank and BankDirect SSB will also be subject to federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act of 1978 governing the use and provision of information to credit reporting agencies, the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies, and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of Texas Capital Bank and BankDirect SSB also will be subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.
EXAMINATIONS
Texas Capital Bank will be examined periodically by representatives of the Comptroller of the Currency. Following its charter as a state savings bank, BankDirect SSB will be examined periodically by representatives of the Texas Savings and Loans Department. Both Texas Capital Bank and BankDirect SSB will be examined by the Federal Deposit Insurance Corporation. Such examinations will review areas such as capital adequacy, reserves, loan portfolio quality and management, consumer and other compliance issues, investments and management practices. In addition to these regular examinations, Texas Capital Bank and BankDirect will be required to furnish quarterly and annual reports to their respective regulators. The Comptroller of the Currency may exercise cease and desist or other supervisory powers over a national bank if the actions of such state savings bank represent unsafe or unsound practices or violations of law. Similarly, the Texas Savings and Loan Department may exercise cease and desist or other supervisory powers over a state savings bank if the actions of such state savings bank represent unsafe or unsound practices or violations of law. Although Texas Capital Bank and BankDirect SSB will be subject to extensive regulation, supervision and examination, such activities do not eliminate and may not lessen the investment risk associated with purchase of the our common stock and may increase our costs of doing business.
The Federal Deposit Insurance Corporation periodically examines and evaluates insured banks. Based on such an evaluation, the Federal Deposit Insurance Corporation may revalue the assets of the institution and require that it establish specific reserves to compensate for the difference between the Federal Deposit Insurance Corporation determined value and the book value of such assets. The Texas Banking Department also conducts examinations of state banks but may accept the results of a federal examination in lieu of conducting an independent examination.
GOVERNMENTAL FISCAL AND MONETARY POLICIES
The commercial banking business is affected not only by general economic conditions but also by the fiscal and monetary policies of the Federal Reserve Board. Some of the instruments of fiscal and monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the "discount window," open market operations, the imposition of and changes in reserve requirements against member banks' deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates, and the placing of limits on interest rates that member banks may pay on time and savings deposits. Such policies influence to a significant extent the overall growth of bank loans, investments, and deposits and the interest rates charged on loans or paid on time and savings deposits. The nature of future fiscal and monetary policies and the effect of such policies on the future business and our earnings cannot be predicted.
ENFORCEMENT POWERS OF BANKING AGENCIES
The Federal Reserve Board, the Comptroller of the Currency, the Texas Savings and Loan Department, and the Federal Deposit Insurance Corporation have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements could subject us, Texas Capital Bank and BankDirect SSB, as well as officers, directors and other of our affiliates, to administrative sanctions and substantial civil money penalties. The appropriate federal banking agency may appoint the Federal Deposit Insurance Corporation as conservator or receiver for a banking institution (or the Federal Deposit Insurance Corporation may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized; fails to become adequately capitalized when required to do so; fails to submit a timely and acceptable capital restoration plan; or materially fails to implement an accepted capital restoration plan.
Imposition of Liability for Undercapitalized Subsidiaries. The Federal Deposit Insurance Corporation Improvement Act requires bank regulators to take "prompt corrective action" to resolve problems associated with insured depository institutions whose capital declines below required levels. In the event an institution becomes "undercapitalized," it must submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary's compliance with the capital restoration plan. Under the Federal Deposit Insurance Corporation Improvement Act, the aggregate liability of all companies controlling an undercapitalized bank is limited to the lesser of 5% of the institution's assets at the time it became undercapitalized or the amount necessary to cause the institution to be "adequately capitalized." The guarantee and limit on liability expire after the regulators notify the institution that it has remained adequately capitalized for each of four consecutive calendar quarters. The Federal Deposit Insurance Corporation Improvement Act grants greater powers to the bank regulators in situations where an institution becomes "significantly" or "critically" undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve Board approval of proposed dividends, or might be required to consent to a consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or direct or indirect ownership or control of more than 5% of any class of voting shares of any bank. Accordingly, the acquisition of Texas Capital Bank or any other bank subsidiary would be subject to the prior approval of the Federal Reserve Board. The Federal Reserve Board will allow the acquisition by a bank holding company of an interest in any bank located in another state only if the laws of the state in which the target bank is located expressly authorize such acquisition. The Texas Banking Code permits, in certain circumstances, out-of-state bank holding companies to acquire banks and bank holding companies in Texas.
Economic Growth and Regulatory Paperwork Reduction Act. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 principal provisions relate to capitalization of the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation, but it also contains numerous regulatory relief measures, including provisions to reduce regulatory burdens associated with compliance with various consumer and other laws applicable to the Bank, including, for example, provisions designed to coordinate the disclosure and other requirements under the Truth-in-Lending Act and the Real Estate Settlement Procedures Act and modify insider lending restrictions and anti-tying prohibitions.
BROKERED DEPOSIT RESTRICTIONS
Institutions that are only "adequately capitalized" (as defined for purposes of the prompt corrective action rules described above) cannot accept, renew or roll over brokered deposits except with a waiver from the Federal Deposit Insurance Corporation, and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew, or roll over brokered deposits.
CROSS-GUARANTEE PROVISIONS
The Financial Institutions Reform, Recovery and Enforcement Act contains a "cross-guarantee" provision which generally makes commonly controlled insured depository institutions liable to the Federal Deposit Insurance Corporation for any losses incurred in connection with the failure of a commonly controlled depository institution.
INSTABILITY AND REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the bank regulatory system, expand the powers of banking institutions and bank holding companies and limit the investments that a depository institution may make with insured funds, is introduced in Congress and the Texas Legislature from time to time. Such legislation may change banking statutes and the environment in which we and our banking subsidiaries operate in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would have upon our financial condition or results of operations or that of our subsidiaries.
EXPANDING ENFORCEMENT AUTHORITY
One of the major effects of Federal Deposit Insurance Corporation Improvements Act was the increased ability of banking regulators to monitor the activities of banks and their holding companies. In addition, the Federal Reserve Board and Federal Deposit Insurance Corporation have extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and their holding companies. For example, the Federal Deposit Insurance Corporation may terminate the deposit insurance of any institution which it determines has engaged in an unsafe or unsound practice. The agencies can also assess civil money penalties, issue cease and desist or removal orders, seek injunctions, and publicly disclose such actions.
SELECTED CONSOLIDATED FINANCIAL DATA
Texas Capital Bancshares formed its wholly owned subsidiary, Texas Capital Bank, through the acquisition of Resource Bank, N.A. on December 18, 1998. Texas Capital Bancshares' financial statements include the operations of Texas Capital Bank (formerly Resource Bank) from December 18, 1998. The operations of Resource Bank prior to December 18, 1998 are shown separately as predecessor financial statements. See Note 1 to the consolidated financial statements.
Texas Capital Bancshares Resource Bank
--------------------------------------- --------------------------------------------
October 3,
March 1, 1998 1997
Three Months Three Months (Inception) January 1 (Inception)
Ended Ended Year Ended through through through
March 31, March 31, December 31, December 31, December 18, December 31,
2000 1999 1999 1998 1998 1997
------------ ------------ ------------ ------------- ------------ -------------
(Unaudited) (Unaudited)
(In thousands, except per share and percentage data)
SELECTED FINANCIAL DATA
For the period:
Interest income $ 8,586 $ 1,472 $ 14,414 $ 213 $ 1,097 $ 86
Interest expense 4,907 206 6,166 32 377 10
Net interest income 3,679 1,266 8,248 181 720 76
Provision for loan losses 700 206 2,687 1 69 30
Net Loss (2,970) (1,017) (9,298) (739) (346) (222)
Period-end:
Loans, net 274,685 224,795 10,992 1,502
Assets 518,463 408,579 89,311 8,060
Deposits 444,905 287,068 16,018 3,386
Short-term borrowings -- 46,267 -- --
Other borrowings 2,089 -- -- --
Shareholders' equity 68,867 72,912 73,186 4,638
PROFITABILITY STATISTICS
Earnings per share
Basic and Diluted (.39) (.14) (1.23) (1.23)
SELECTED BALANCE SHEET STATISTICS
Period-end:
Total capital ratio 23.8% 267.0% 184.65%
Tier 1 capital ratio 23.0% 266.6% 183.47%
Tier 1 leverage ratio 21.5% 397.9% 71.41%
Reserve for loan losses to loans 1.22% .90% 1.96%
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF PERFORMANCE
Texas Capital Bancshares was formed on March 1, 1998 and conducts business through its subsidiary, Texas Capital Bank. Texas Capital Bank was formed through the acquisition of Resource Bank, N.A. on December 18, 1998. Prior to December 18, 1998, Texas Capital Bancshares had no substantive operations and focused its efforts primarily on raising capital. Since that time, Texas Capital Bancshares has focused on building an infrastructure to support the growth of the traditional banking operations of Texas Capital Bank, as well as the establishment of Internet banking through BankDirect, a division of Texas Capital Bank.
The results of Texas Capital Bancshares for the year ended December 31, 1999 include the results of Texas Capital Bank for the entire year and include the costs of establishing the infrastructure to support the traditional and Internet bank. The results of operations for the year ended December 31, 1998 include the results of operations at Texas Capital Bank (formerly Resource Bank) from the acquisition date through year-end. The results of Resource Bank prior to December 18, 1998 are presented separately as predecessor financial statements.
TEXAS CAPITAL BANCSHARES QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED
MARCH 31, 1999
Texas Capital Bancshares, Inc. (the "Company") recorded net loss of $3.0 million or $(.39) per diluted common share for the first quarter of 2000 compared to $1.0 million or $(.14) per diluted common share for the first quarter of 1999. Return on average assets was (2.60)% for the first quarter of 2000 compared to (4.18)% for the first quarter of 1999. Returns on average equity were (17.09)% and (5.49)%, for the first quarter of 2000 and 1999, respectively.
Net interest income for the first quarter of 2000 increased by $2.4 million or 190% due to the increase in earning assets. Non-interest income increased by $321,000. This is primarily related to the large increase in deposits, which resulted in higher service charge income. Also, trust fee income increased due to formation of the trust department during 1999. Non-interest expense increased $4.2 million or 200% compared to the first quarter of 1999. The increase was due primarily to continued development of infrastructure for the traditional bank and BankDirect. Full time employees increased from 64 to 181 at March 31, 2000. Additional locations added included three in Dallas Fort Worth area, loan production offices in Santa Fe, New Mexico and Tulsa, Oklahoma, and two full service branch locations outside of the DFW area, one in Austin and one in San Antonio. Advertising increased from $108,000 to $572,000, which included direct marketing and branding for the traditional bank and BankDirect.
TEXAS CAPITAL BANCSHARES 1999 COMPARED TO 1998
Texas Capital Bancshares recorded a net loss of $9.3 million for 1999
compared to $739,000 for 1998. Basic and diluted earnings per common share were
$(1.23) for both 1999 and 1998. Returns on average assets and average equity
were (4.45)% and (12.13)%, respectively, for 1999 compared to (5.83)% and
(12.52)%, respectively, for 1998.
The increase in net loss for 1999 was due to an increase of $14.3 million or 1,548% in non-operating expenses, related to infrastructure established by Texas Capital Bancshares to support Texas Capital Bank and BankDirect. Net interest income, totaled $8.3 million for 1999 compared to $181,000 for 1998. The increase in net interest income was primarily due to a significant increase in average earning assets.
Non-interest income increased by $354,000 in 1999 to $358,000 compared to $4,000 in 1998. The increase is primarily due to overall increase in deposits for 1999, which resulted in more service charges on deposit accounts. Also, Texas Capital Bank's trust department was formed during 1999, which contributed $158,000 of additional fees. Other income increased by $72,000 in 1999 primarily related to letter of credit fees, merchant fee income, and other miscellaneous fees, which are a result of the large increase in deposits in 1999.
Non-interest expense increased by $14.3 million in 1999 to $15.2 million compared to $923,000 in 1998. The increase was due primarily to the infrastructure that was established in 1999, which included an increase in total full time employees from 21 at December 31, 1998 to 139 at December 31, 1999. Texas Capital Bancshares added four additional locations in the Dallas/Fort Worth area during 1999. Also, Texas Capital Bancshares incurred advertising expenses of $2.1 million in 1999 compared to $0 in 1998. Advertising expenses included direct marketing and branding for Texas Capital Bank and BankDirect.
RESOURCE BANK (PREDECESSOR COMPANY) 1998 COMPARED TO 1997
Net loss for 1997 was $222,000 compared to $346,000 for 1998. The increase in net loss for 1998 was as a result of 1998 including almost a full year of operations. Net interest revenue, totaled $720,000 for 1998 compared to $76,000 in 1997. This increase in net interest revenue was due to growth in earning assets.
Non-interest income for 1998 increased $57,000 or 1,900% to $60,000 in 1998 compared to $3,000 in 1997. All areas contributed to this increase, as 1998 represented almost a full year of operations and deposits increased significantly over the prior year.
Non-interest expense for 1998 increased by $786,000, from $271,000 in 1997 to $1.1 million in 1998. The increase is attributed to 1998 including almost a full year of operations.
The following sections describe in more detail the key operating statistics of the our banking operations. For the purpose of these comparisons, the 1998 information includes the combined results of Texas Capital Bancshares and Resource Bank, the predecessor to Texas Capital Bank.
NET INTEREST INCOME
Net interest income totaled $8.3 million for 1999 compared to $901,000 for 1998. The increase in net interest income was primarily due to a significant increase in average earning assets. Average earning assets increased by $184 million during 1999, primarily due to growth related to Texas Capital Bank's focus on commercial middle markets and an investment of excess funds in securities. Additionally, the mix of earning assets improved during 1999. Average loans, which generally have higher yields than other types of earning assets, increased to 48.7% of earning assets in 1999 compared to 41.9% in 1998.
Average interest bearing liabilities also increased by $111 million during 1999. The average cost of interest bearing liabilities increased in 1999 to 5.18% from 4.90% in 1998. The increase is largely due to higher rates paid by BankDirect.
Net interest income was $3.7 million for the first quarter of 2000 compared to $1.3 million for the first quarter of 1999. Average earning assets increased by $341.8 million from the first quarter of 1999. Average earning assets increased by $105.6 million or 31.8% compared to the fourth quarter of 1999. The increase in average earning assets from the first quarter of 1999 included a $233.8 million increase in average loans. Average interest bearing liabilities increased $335.5 million from the first quarter of 1999 which included a $306.0 million increase in interest bearing deposits and a $29.5 million increase in borrowings.
VOLUME/RATE ANALYSIS
(In Thousands) Texas Capital Bancshares(1)
------------------------------------------------------------------------------------------------------
Three months ended
March 31, 2000/1999 1999/1998 1998/1997
-------------------------------- --------------------------------- -------------------------------
Change Due To(2) Change Due To(2) Change Due To(2)
--------------------- --------------------- --------------------
Change Volume Yield/Rate Change Volume Yield/Rate Change Volume Yield/Rate
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Interest income:
Securities $ 2,015 $ 1,643 $ 372 $ 5,385 $ 5,307 $ 78 $ 172 $ 187 $ (15)
Loans 5,064 5,920 (856) 7,516 10,586 (3,070) 764 649 115
Federal funds sold 31 (25) 56 348 157 191 133 289 (156)
Deposits in other banks 4 4 -- (145) (145) -- 155 155 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 7,114 7,542 (428) 13,104 15,905 (2,801) 1,224 1,280 (56)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Interest expense:
Transaction deposits 61 38 23 59 47 12 6 5 1
Savings deposits 2,483 1,939 544 2,613 2,034 579 100 88 12
Time deposits 1,734 1,591 143 2,489 2,531 (42) 286 299 (13)
Borrowed funds 423 361 62 596 977 (381) 7 7 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 4,701 3,929 772 5,757 5,589 168 399 399 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest income $ 2,413 $ 3,613 $ (1,200) $ 7,347 $ 10,316 $ (2,969) $ 825 $ 881 $ (56)
======== ======== ======== ======== ======== ======== ======== ======== ========
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(1) For the purpose of comparison, the table includes the operations of Texas Capital Bancshares and its predecessor, Resource Bank.
(2) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Net interest margin, the ratio of net interest income to average earning assets, decreased from 5.65% in 1998 to 4.12% in 1999. This decrease was due primarily to the effect of competitive pricing on loans in our primary markets, as well as a focus toward middle market lending, which is more aggressively priced than the small business loans that were originated prior to our acquisition of Resource Bank. In addition, the cost of interest bearing liabilities increased by .28% in 1999, primarily due to higher interest rates offered by BankDirect.
The financial service environment in Texas Capital Bank's primary markets is highly competitive due to a large number of commercial banks, thrifts, credit unions and brokerage firms. Additionally, many customers already had access to national and regional financial institutions for many products and services. Management expects that we will continue to be able to successfully compete with these financial institutions by delivering the products and services traditionally associated with a large bank with the responsiveness of a smaller, community bank.
Net interest margin, the ratio of net interest income to average earning assets, was 3.37% for the first quarter of 2000 compared to 3.63% for the fourth quarter of 1999 and 5.38% for the first quarter of 1999. The decrease in the net interest margin during the first quarter of 2000 was partially due to the continued higher interest rates offered by BankDirect. As compared to 1999, the Company has increased its focus on middle market lending, which is more aggressively priced than the small business loans that were originated prior to the acquisition of Resource Bank. At March 31, 1999, the middle market lending staff was not completely in place and as such the portfolio was largely comprised of the small business loans.
LINES OF BUSINESS
The Company operates two principal lines of business under Texas Capital Bank (the "Bank"): the traditional bank and BankDirect, an internet only bank. BankDirect has been a net provider of funds and the traditional bank has been a net user of funds. In order to present the operating results separately for BankDirect and the traditional bank, it was necessary to allocate earning assets held by the traditional bank to BankDirect. Currently earning assets are allocated to BankDirect on a monthly basis in amounts equal to total BankDirect liabilities, less any non-earning assets of BankDirect.
TRADITIONAL BANKING
Traditional banking contributed $1.5 million of consolidated net loss for the first quarter of 2000.
TRADITIONAL BANKING
(In thousands)
Year ended
December 31, Three Months Ended March 31
1999 2000 1999
------------ --------- ---------
(Unaudited) (Unaudited)
Net interest income $ 8,205 $ 3,594 $ 1,257
Provision for loan losses 2,687 700 206
Non-interest income 356 330 16
Non-interest expense 12,149 4,720 1,949
Net loss (6,275) (1,496) (882)
Average assets $ 196,825 $ 375,670 $ 98,729
Total assets 357,072 369,778 110,600
Return on average assets (3.19)% (1.60)% (3.62)%
|
Net interest income increased by $2.3MM from $1.3MM for quarter ended March 31, 1999 to $3.6MM for quarter ended March 31, 2000 due to the increase in earning assets. Provision for loan losses increased by $494,000 in the quarter ended March 31, 2000 due to the continued growth in loans. Non-interest income increased $314,000 compared to the same quarter in 1999, mainly due to the large increase in service charges generated from the growth in deposits. Trust income increased due to the formation of the trust department during 1999. Also, non-interest income included increases in investment fees, letter of credit fees and merchant fee income, which are primarily related to the increase in deposits. Non-interest expense increased due to the continued development of infrastructure which included increases in salaries and employee benefits, occupancy, advertising, legal and professional, and communications and data processing.
BANKDIRECT
BankDirect contributed $1.0 million of consolidated net loss for the first quarter of 2000. As BankDirect did not exist during the first quarter of 1999, comparative information is not available.
BANKDIRECT
(In thousands)
Year ended Three months
December 31, ended March 31,
1999 2000
------------ ---------------
(Unaudited)
Net interest income (loss) $ 27 $ 85
Non-interest income 2 7
Non-interest expense 1,878 1,141
Net loss (1,849) (1,049)
Average assets $ 12,205 $ 82,259
Total assets 51,489 148,632
Return on average assets (15.15)% (5.11)%
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Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 1999 is as follows (in thousands):
December 31, 1999
--------------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
-------- --------- -------- --------
Total reportable lines of business $ 8,232 $ 2,687 $ 358 $14,027
Unallocated items:
Holding company 16 -- -- 1,190
------- ------- ------- -------
Texas Capital Bancshares (consolidated) $ 8,248 $ 2,687 $ 358 $15,217
======= ======= ======= =======
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Reportable segments reconciliations to the Consolidated Financial Statements for the three months ended March 31, 2000 and March 31, 1999 are as follows (in thousands):
March 31, 2000
-----------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
-------- --------- -------- --------
(Unaudited)
Total reportable lines of business $3,679 $ 700 $ 337 $5,861
Unallocated items:
Holding company -- -- -- 425
------ ------ ------ ------
Texas Capital Bancshares (consolidated) $3,679 $ 700 $ 337 $6,286
====== ====== ====== ======
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March 31, 1999
----------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
------ ------ -------- --------
(Unaudited)
Total reportable lines of business $1,257 $ 206 $ 16 $1,949
Unallocated items:
Holding company 9 -- -- 144
------ ------ ------ ------
Texas Capital Bancshares (consolidated) $1,266 $ 206 $ 16 $2,093
====== ====== ====== ======
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NON-INTEREST INCOME
(In Thousands) Texas Capital Bancshares Resource Bank
------------------------------------------------------- -------------
Inception
Three months ended Year ended Year ended through
March 31 December 31, December 31, December 31,
2000 1999 1999 1998(1) 1997
----------- ----------- ------------ ------------ -------------
(Unaudited) (Unaudited)
Service charges on deposit accounts $ 79 $ 13 $ 127 $ 24 $ 1
Trust fee income 106 -- 158 -- --
Loss on sale of securities -- -- (1) -- --
Other 152 3 74 40 2
----- ----- ----- ----- -----
Total non-interest income $ 337 $ 16 $ 358 $ 64 $ 3
===== ===== ===== ===== =====
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(1) For the purpose of comparison, the table includes the operations of Texas Capital Bancshares and its predecessor, Resource Bank.
Non-interest income increased by $294,000 or 459% compared to 1998. Service charges on deposit accounts, which are included in non-interest income, increased $103,000 or 429% due to the large increase in total deposits, which resulted in a higher volume of transactions. Service charges on deposit accounts contributed 35.5% of our non-interest income for 1999 compared to 37.5% in 1998. Trust fee income contributed 44% of non-interest income for 1999. Our trust department was formed during 1999. Other income increased by $34,000, or 85% as compared to 1998 due to letter of credit fees, merchant fee income, and other miscellaneous fees, which are primarily related to the significant increase in deposits in 1999.
While management expects continued growth in other operating revenue, the future rate of increase could be affected by increased competition from national and regional financial institutions and from market saturation. In addition, competing with other Internet banks requires that BankDirect charge fewer service charges than a traditional bank. Continued growth may require us to introduce new products or to enter new markets. This growth introduces additional demands on capital and managerial resources.
Non-interest income increased $321,000 compared to the same quarter of 1999. Service charges on deposit accounts increased $66,000. This increase was due to the large increase in deposits, which resulted in a higher volume of transactions. Trust fee income increased $106,000, due to the formation of the trust department during 1999. Other non-interest income increased by $149,000 due to increases in investment fees, letter of credit fees and merchant fee income, which are primarily related in the significant increase in deposits. Also, rental income related to leased equipment contributed to the increase as a leasing division was formed during 1999.
NON-INTEREST EXPENSE
Non-interest expense totaled $15.2 million for 1999 compared to $2.0 million in 1998, an increase of 669%. Approximately $6.8 million, or 52%, of this increase was related to salary and employee benefits. Total full time employees increased from 21 at December 31, 1998 to 139 at December 31, 1999. This increase was due to the creation of infrastructure for the traditional bank and BankDirect.
Net occupancy expense for 1999 increased $1.6 million or 578%. The increase was primarily due to four additional full service branch locations in the Dallas/Fort Worth area, which included two in Dallas, one in Plano, which is a suburban area of Dallas, and one in Fort Worth. In addition, loan production offices in Santa Fe, New Mexico and Tulsa, Oklahoma were opened.
Advertising expense for 1999 totaled $2.1 million compared to $9,000 in 1998. Advertising expense includes direct marketing with print and on-line ads, and branding for the traditional bank and BankDirect. Legal and professional expense for 1999 totaled $1.1 million compared to $238,000 in 1998. The increase is partially due to costs associated with establishing employee benefit plans which are discussed in more detail in Note 9 of the financial statements. As discussed in Note 16 of the financial statements, we have received final regulatory approval for the formation of a state chartered
savings bank, and we plan to transfer the operations of BankDirect to the Texas state savings bank charter during the third or fourth quarter of 2000. Legal expenses have been incurred with this proposed transaction. Communications and data processing expenses increased to $824,000 in 1999, as compared to $87,000 in 1998. This increase is due to the strong growth in our loans and deposits, which created significantly more transactions to be processed.
Non-interest expense for the first quarter of 2000 increased $4.2 million or 200% compared to the first quarter of 1999. Salaries and employee benefits increased by $1.8 million or 123%. The increase in salaries and employee benefits was due to an increase in full time employees from 64 at March 31, 1999 to 181 at March 31, 2000. This increase was due to the continued development of infrastructure for the traditional bank and BankDirect.
Net occupancy expense increased by $676,000 or 369% due to three additional full service branch locations in the Dallas/Fort Worth area. These included an additional location in Dallas which serves as the Company's corporate headquarters, one in Plano, which is a suburban area of Dallas, and one in Fort Worth, all of which were opened in the last nine months of 1999. Also, during 1999, loan production offices in Santa Fe, New Mexico and Tulsa, Oklahoma were opened. In addition, two full service branch locations were opened outside of the Dallas Fort Worth area during the first quarter of 2000, one in Austin and one in San Antonio.
Advertising expense increased $464,000 or 430%. Advertising included direct marketing with print and on-line ads, and branding for the traditional bank and BankDirect. Legal and professional increased $336,000, or 460%, due to lease negotiations, costs associated with the Company's private placement offering, and the continued efforts to obtain regulatory approval for the formation of a state chartered savings bank. Communications and data processing increased $204,000 or 434% due to the strong growth in loans and deposits, which has created significantly more transaction volume.
NON-INTEREST EXPENSE
(In Thousands) Texas Capital Bancshares Resource Bank
--------------------------------------------------------- -----------------
Three months ended Year ended Year ended Inception through
March 31 December 31, December 31, December 31,
2000 1999 1999 1998(1) 1997
----------- ----------- ------------ ------------ -----------------
(Unaudited) (Unaudited)
Salaries and employee benefits $ 3,245 $ 1,456 $ 7,761 $ 1,012 $ 136
Net occupancy expense 859 183 1,824 269 38
Advertising 572 108 2,112 9 14
Legal and professional 409 73 1,067 238 20
Communications and data processing 251 47 824 87 11
Franchise taxes 35 12 181 11 22
Other expense 915 214 1,448 354 30
------- ------- ------- ------- -------
Total $ 6,286 $ 2,093 $15,217 $ 1,980 $ 271
======= ======= ======= ======= =======
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(1) For the purpose of comparison, the table includes the operations of Texas Capital Bancshares and its predecessor, Resource Bank.
INCOME TAXES
As Texas Capital Bancshares and Resource Bank incurred net operating losses for each period presented, there were no current or deferred provision for income taxes. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1999, we had a net deferred tax asset of $4.5 million with a reserve equal to that amount. Net operating loss carryforwards at December 31, 1999 were $9.2 million.
TEXAS CAPITAL BANCSHARES
(In Thousands except Share
Data) Selected Quarterly Financial Data
------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third
----------- ----------- ----------- ----------- ----------- -----------
1999 1998
-------------------------------------------------------------- ----------------------------
Interest income $ 6,362 $ 4,145 $ 2,435 $ 1,472 $ 213 $ --
Interest expense 3,327 1,896 737 206 31 1
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 3,035 2,249 1,698 1,266 182 (1)
Provision for loan losses 1,192 588 701 206 1 --
----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,843 1,661 997 1,060 181 (1)
Non-interest income 167 130 46 16 4 --
Securities gains (losses), net (1) -- -- -- -- --
Non-interest expense 5,651 4,197 3,276 2,093 799 124
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes (3,642) (2,406) (2,233) (1,017) (614) (125)
Income tax expense -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (3,642) $ (2,406) $ (2,233) $ (1,017) $ (614) $ (125)
=========== =========== =========== =========== =========== ===========
Earnings per share:
Basic and diluted (.48) (.32) (.29) (.14)
=========== =========== =========== ===========
Average shares:
Basic and diluted 7,635,000 7,651,000 7,661,000 7,312,000
=========== =========== =========== ===========
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RESOURCE BANK
(In Thousands) Selected Quarterly Financial Data
------------------------------------------------------
1998
------------------------------------------------------
October 1 through
December 18 Third Second First
----------------- ----- ------ ------
Interest income $ 335 $ 381 $ 225 $ 156
Interest expense 135 156 57 29
----- ----- ----- -----
Net interest income 200 225 168 127
Provision for loan losses 38 6 19 6
----- ----- ----- -----
Net interest income after provision for loan 162 219 149 121
losses
Non-interest income 13 6 35 6
Securities gains (losses), net -- -- -- --
Non-interest expense 236 262 303 256
----- ----- ----- -----
Income before taxes (61) (37) (119) (129)
Income tax expense -- -- -- --
----- ----- ----- -----
Net loss $ (61) $ (37) $(119) $(129)
===== ===== ===== =====
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ANALYSIS OF FINANCIAL CONDITION
SECURITIES PORTFOLIO
Securities are identified as either held-to-maturity or available-for-sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Available-for-sale securities are those that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available-for-sale are carried at fair value. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other
comprehensive income in Shareholders' Equity. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments.
During 1999, we increased our securities portfolio by $161 million. The portfolio is primarily comprised of government agencies, mortgage-backed securities, and corporate bonds.
Our unrealized loss on the securities portfolio value increased from $4,000, which represented .13% of the amortized cost at December 31, 1998, to $3.2 million, which represented 1.91% of the amortized cost at December 31, 1999, due to an increase in market interest rates during the year. Rising interest rates tend to both decrease the value of fixed rate securities and extend the average expected life of mortgage-backed securities.
The average expected life of the mortgage-backed securities was 3.1 years at December 31, 1999. The effect of changes in interest rates on our earnings and equity is discussed in the Market Risk section of this report.
The following presents the book values and fair values of the securities portfolio at December 31, 1999, 1998 and 1997. At December 31, 1999, we had securities from three issuers that exceeded 10% of equity. The issuers were Bear Stearns Mortgage, PNC Mortgage Securities, and Sears. Amortized costs of securities from each issuer were, $9.2 million, $13.3 million, and $9.9 million, respectively. Fair values of the securities were $9.1 million, $12.9 million, and $9.9 million, respectively. Additional information regarding the securities portfolio is presented in Note 3 to the Consolidated Financial Statements.
SECURITIES
(In Thousands) Texas Capital Bancshares Resource Bank
--------------------------------------------------------- --------------------------
December 31, 1999 December 31, 1998 December 31, 1997
------------------------- ------------------------- --------------------------
Amortized Amortized Amortized
Cost Fair Value Cost Fair Value Cost Fair Value
--------- ---------- --------- ---------- ---------- ----------
Available-for-sale:
U.S. Government Agency $ 72,846 $ 70,586 $ 3,000 $ 2,996 $ 2,000 $ 2,000
Mortgage backed securities 58,463 57,716 -- -- -- --
Other debt securities 31,823 31,632 -- -- -- --
Equity securities 4,475 4,475 175 175 165 165
-------- -------- -------- -------- -------- --------
Total $167,607 $164,409 $ 3,175 $ 3,171 $ 2,165 $ 2,165
======== ======== ======== ======== ======== ========
|
LOAN PORTFOLIO
Loans increased $217 million or 1,952% during 1999. Commercial loans increased by $151 million or 6,759% over 1998. This strong growth in commercial loans is primarily related to our focus on middle market lending. Commercial loans now comprise 67.1% of total loans compared to 20.1% at December 31, 1998. Total construction loans grew by $7.0 million or 154% during 1999. Total permanent real estate loans grew by $49 million or 1,548%. Total real estate loans comprise 27.8% of total loans at December 31, 1999 compared to 69.4% at December 31, 1998. This decrease is a result of the significant growth of the commercial loan portfolio and development of a real estate group not being completed until the last quarter of 1999. We anticipate that the real estate percentage of the portfolio will increase during 2000. Total consumer loans grew $10 million, or 884%.
LOANS
(In Thousands) Texas Capital Bancshares Resource Bank
------------------------------------------- -------------
March 31, December 31, December 31, December 31,
2000 1999 1998 1997
----------- ------------ ------------ -------------
(Unaudited)
Commercial $176,995 $152,749 $ 2,227 $ 1,119
Construction 13,213 11,565 4,554 --
Real Estate 65,813 51,779 3,142 352
Consumer 22,782 11,507 1,169 61
-------- -------- -------- --------
Total $278,803 $227,600 $ 11,092 $ 1,532
======== ======== ======== ========
|
While we continue to lend primarily in Texas, notable loan concentrations by primary borrowers industry are discussed in Note 4 to the Consolidated Financial Statements.
LOAN MATURITY AND INTEREST RATE SENSITIVITY ON DECEMBER 31, 1999
Remaining Maturities of Selected Loans
---------------------------------------------
(In Thousands) Total Within 1 Year 1-5 Years After 5 Years
-------- ------------- --------- -------------
Loan maturity:
Commercial $152,749 $ 92,015 $ 56,984 $ 3,750
Construction 11,565 9,744 120 1,701
-------- -------- -------- --------
Total $164,314 $101,759 $ 57,104 $ 5,451
======== ======== ======== ========
Interest rate sensitivity for selected loans with:
Predetermined interest rates $ 12,290 $ 5,984 $ 3,906 $ 2,400
Floating or adjustable interest rates 152,024 95,775 53,198 3,051
-------- -------- -------- --------
Total $164,314 $101,759 $ 57,104 $ 5,451
======== ======== ======== ========
|
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent with management's assessment of the loan portfolio in light of current economic conditions and market trends. We recorded a provision of $2.7 million for 1999, and $70,000 for 1998. These provisions were made to reflect management's assessment of the risk of loan losses due to the continued rapid growth in the loan portfolio and the unseasoned nature of the current portfolio.
The reserve for loan losses is comprised of specific reserves assigned to criticized loans and general reserves. We continuously evaluate our reserve for loan losses to maintain an adequate level to absorb loan losses inherent in the loan portfolio. Factors contributing to the determination of specific reserves include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. All loans rated substandard or worse and greater than $250,000 are specifically reviewed and a specific allocation is assigned based on the expected losses of the loans. The expected future cash flows of principal and interest, discounted at the contractual interest rate, are compared to the current carrying value of the asset. As of December 31, 1999, there were no loans rated substandard or worse. For purposes of determining the general reserve, the portfolio is segregated by product types consistent with regulatory reporting categories, and then further segregated by credit grades. Credit grades are assigned to all loans greater than $50,000. Each credit grade is assigned a risk factor, or reserve allocation percentage. These risk factors are multiplied by the outstanding principal balance and risk-weighted by product type and credit grade to calculate the required reserve.
The reserve allocation percentages assigned to each credit grade have been developed based on industry averages and the prior experience of executive management. The unallocated portion of the general reserve serves to compensate for the uncertainty in estimating loan losses, including the possibility of improper risk ratings and specific reserve allocations. In addition, the reserve considers the trends in peer banks, since Texas Capital Bank is relatively new with no historical loss experience. The results of reviews performed by independent third party reviewers are also considered.
The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be dynamic and responsive to changes in actual credit losses. The changes are reflected in the general reserve. As we begin to have loss experience, historical loss ratios will be tracked. Currently, the review of reserve adequacy is performed by executive management and presented to the Board of Directors for their review, consideration and ratification on a quarterly basis.
The reserve for loan losses totaled $2.8 million at December 31, 1999, compared to $100,000, at December 31, 1998. This represents 1.22% and .90% of total loans at December 31, 1999 and 1998, respectively.
The reserve for loans losses, which is available to absorb losses inherent in the loan portfolio, totaled $3.5 million at March 31, 2000, $2.8 million at December 31, 1999 and $306,000 at March 31, 1999. This represents 1.25%, 1.22% and 1.00% of total loans at March 31, 2000, December 31, 1999 and March 31, 1999, respectively.
The provision for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent with management's assessment of the loan portfolio in light of current economic conditions and market trends. The Company recorded a provision of $700,000 for the quarter ended March 2000 and $206,000 for the same quarter in 1999. These provisions were made to reflect management's assessment of the risk of loan losses due to the continued rapid growth in the loan portfolio and the unseasoned nature of the current portfolio.
The table below presents a summary of the loan loss experience for the past three years.
SUMMARY OF LOAN LOSS EXPERIENCE
(In Thousands) Texas Capital Bancshares Resource Bank
----------------------------------------------------------- -----------------------------
Three Months Three Months Year Inception January 1, 1998 Inception
Ended Ended Ended through through through
March 31, March 31, December 31, December 31, December 18, December 31,
2000 1999 1999 1998 1998 1997
------------ ----------- ------------ ------------ --------------- ------------
(Unaudited) (Unaudited)
Beginning balance $ 2,775 $ 100 $ 100 $ -- $ 30 $ --
Loans charged-off:
Consumer -- -- 12 -- -- --
--------- --------- ------ ------ --------- ---------
Total -- -- 12 -- 30 --
--------- --------- ------ ------ --------- ---------
Provision for loan losses 700 206 2,687 1 69 30
Additions due to acquisition of
Resource Bank -- -- 99 -- --
--------- --------- ------ ------ --------- ---------
Ending balance $ 3,475 $ 306 $2,775 $ 100 $ 99 $ 30
--------- --------- ------ ------ --------- ---------
Reserve for loan losses to loans
outstanding at year-end 1.25% 1.00% 1.22% .90% 1.96%
Net chargeoffs to average loans 0.00% 0.00% -- -- --
Provision for loan losses to
average loans .28% 1.30% 2.73% -- 22.72%
Recoveries to gross charge-offs -- -- -- -- --
Reserve as a multiple of net
charge-offs -- -- -- -- --
--------- --------- ------ ------ ---------
Problem loans
--------- --------- ------ ------ ---------
Loans past due (90 days) $ -- $ -- $ -- $ 15 --
Nonaccrual -- -- -- -- --
Renegotiated -- -- -- -- --
--------- --------- ------ ------ ---------
Total $ -- $ -- $ -- $ 15 $ --
========= ========= ====== ====== =========
|
LOAN LOSS RESERVE ALLOCATION
(In Thousands) Texas Capital Bancshares Resource Bank
------------------------------------------------ --------------------
December 31, 1999 December 31, 1998 December 31, 1997
--------------------- --------------------- --------------------
Reserve % of Loans Reserve % of Loans Reserve % of Loans
------- ---------- ------- ---------- ------- ----------
Loan category
Commercial $1,428 67% $ -- 20% $ -- 73%
Construction 174 5 -- 41 -- --
Real estate 499 23 -- 28 -- 23
Consumer 187 5 -- 11 -- 4
Nonspecific allowance 487 -- 100 -- 30 --
------ ------ ------ ------ ------ ------
Total $2,775 100% $ 100 100% $ 30 100%
====== ====== ====== ====== ====== ======
|
NONPERFORMING ASSETS
We had no nonperforming loans or other real estate at March 31, 2000, December 31, 1999 and 1998.
DEPOSITS
Average deposits for 1999 increased $110 million compared to 1998. Demand deposits, interest-bearing transaction accounts, savings, and time deposits increased by $11 million, $3 million, $52 million
and $45 million, respectively. The average cost of deposits increased in 1999 due to higher market interest rates. In addition, the Internet bank offered higher rates in order to compete with other Internet banks.
DEPOSIT ANALYSIS
Texas Capital Bancshares
(In Thousands) Average Balances
--------------------------
1999 1998
-------- --------
Non-interest bearing $ 12,371 $ 1,500
Interest bearing transaction 3,417 448
Savings 54,423 2,696
Time deposits 50,020 5,126
-------- --------
Total average deposits $120,231 $ 9,770
======== ========
|
Uninsured deposits decreased to 20.16% of total deposits for 1999 compared to 32.4% in 1998. Uninsured deposits included approximately $26.3 million of brokered deposits at December 31, 1999. Uninsured deposits as used in this presentation is based on a simple analysis of account balances and does not reflect combined ownership and other account styling that would determine insurance based on FDIC regulations.
MATURITY OF DOMESTIC CDS AND OTHER TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
(In Thousands) Texas Capital Bancshares
------------------------------------------
December 31, 1999 December 31, 1998
----------------- -----------------
Months to maturity:
3 or less $19,890 $ 1,141
Over 3 through 6 14,036 1,721
Over 6 through 12 16,213 2,021
Over 12 7,742 306
------- -------
Total $57,881 $ 5,189
======= =======
|
We compete for deposits by offering a broad range of products and services to our customers. While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to the customers. However, our strategy to provide service and convenience to customers does not include a large branch network. The traditional bank offers 5 full service branches, courier services, and on-line banking. BankDirect serves its customers primarily through on-line banking.
BORROWINGS AND CAPITAL
We use several borrowing sources to supplement deposits as a funding source to support loan and securities growth. These include Federal Funds purchased and advances from the Federal Home Loan Bank. Average borrowed funds increased $11.2 million over 1998. The December 31, 1999 balance of $46.3 million represented the maximum amount outstanding at any month-end in 1999.
Interest rates and maturity dates for the various sources of funds are matched with specific types of assets in the asset/liability management process. See Note 7 in the Consolidated Financial Statements for more specifics relating to our borrowings.
Our equity capital averaged $77 million for 1999. See Note 12 in the Consolidated Financial Statements for additional information regarding the capital adequacy of Texas Capital Bancshares and Texas Capital Bank. Since December 31, 1998, we have repurchased 67,721 shares, at $12.50 per share.
As stated in Note 16 to the Consolidated Financial Statements, subsequent to year-end, we issued a Private Placement Memorandum to sell 1,000,000 shares of common stock for $14.50 per share. Subsequently, this offering was increased to 1,500,000 shares of common stock. The funds
raised in this offering will primarily be used to provide us with additional capital for expansion of operations, customer acquisition, and working capital for Texas Capital Bank and BankDirect. The timing and extent of future growth will constantly be evaluated based on available capital resources. Texas Capital Bank and BankDirect are development stage businesses and have not generated any profits. We anticipate additional losses from the operations of Texas Capital Bank and BankDirect and we do not know when, if ever, Texas Capital Bank and BankDirect will generate profits.
MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, and/or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading purposes, or held for other than trading.
We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets held for purposes other than trading. The effect of other changes, such as foreign exchange rates, commodity prices, and/or equity prices do not pose significant market risk to us.
The responsibility for managing market risk rests with the Balance Sheet Management Committee (BSMC), which operates under policy guidelines established by the Board of Directors. The negative acceptable variation in net interest revenue due to a 200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits. They also establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is the ongoing responsibility of the BSMC, with exceptions reported to the full Board on a quarterly basis.
INTEREST RATE RISK MANAGEMENT
We perform a sensitivity analysis to identify interest rate risk exposure on net interest revenue. Currently, gap analysis is used to estimate the effect of changes in interest rates over the next twelve months based on three interest rate scenarios. These are a "most likely" rate scenario and two "shock test" scenarios. The first assuming a sustained parallel 200 basis point increase and the second a sustained parallel 200 basis point decrease in interest rates.
An independent source is used to determine the most likely interest rates for the next year. The Federal Reserve's Federal Funds target affects short-term borrowing; the prime lending rate and the London Interbank Offering Rate (LIBOR) are the basis for most of the variable-rate loan pricing. The 30-year mortgage rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. These are our primary interest rate exposures. We are currently not using derivatives and other financial instruments, but if they were used, they would be included in this analysis.
The model utilized incorporates assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes. The assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Changes in prepayment behavior of mortgage-backed securities, residential, and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of planned growth and new business activities is factored into the simulation model.
This modeling indicated interest rate sensitivity as follows:
(In Thousands) Texas Capital Bancshares
----------------------------------------------------------------------------
Anticipated Impact Over the Next Twelve Months
as Compared to Most Likely Scenario
----------------------------------------------------------------------------
200 bp Increase 200 bp Decrease 200 bp Increase 200 bp Decrease
March 2000 March 2000 December 31, 1999 December 31, 1999
--------------- --------------- ----------------- -----------------
Change in net interest income $ (162) $ (2) $681 $(772)
|
The estimated changes in interest rates on net interest revenue are within guidelines established by the Board of Directors for all interest rate scenarios.
The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows, and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue or precisely predict the impact of higher or lower interest rates on net interest revenue. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The effective date for SFAS 133 has been deferred until fiscal years beginning after June 15, 2000. We expect to adopt SFAS 133 effective January 1, 2001. SFAS 133 will require the recognition of all derivatives on the balance sheet at fair value. Derivatives that do not qualify for special hedge accounting treatment must be adjusted to fair value through income. If the derivative qualifies for hedge accounting, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against changes in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Adoption of SFAS 133 is not expected to have a material impact on our financial statements.
TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands except Per Share and Percentage Data)
For three months ended
---------------------------------------------------------------------------
March 31, 2000 December 31, 1999
---------------------------------- -------------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense /Rate
--------- ---------- ------ --------- ---------- ------
ASSETS
Taxable securities $ 169,074 $ 2,813 6.67% $ 145,360 $ 2,370 6.47%
Federal funds sold 21,262 306 5.77% 1,602 22 5.45%
Deposits in other banks 282 4 5.69%
Loans(1) 249,704 5,463 8.78% 186,541 3,970 8.44%
Less reserve for loan losses 3,076 -- 1,876 --
--------- -------- ---- --------- -------- ----
Loans, net of reserve 246,628 5,463 8.88% 184,665 3,970 8.53%
--------- -------- ---- --------- -------- ----
Total earning assets 437,246 8,586 7.88% 331,627 6,362 7.61%
--------- -------- ---- --------- -------- ----
Cash and other assets 20,683 15,791
--------- ---------
Total assets $ 457,929 $ 347,418
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Transaction deposits $ 10,096 $ 65 2.58% $ 6,441 $ 38 2.34%
Savings deposits 186,367 2,542 5.47% 121,117 1,561 5.11%
Time deposits 126,675 1,877 5.94% 89,582 1,266 5.61%
--------- -------- ---- --------- -------- ----
Total interest-bearing deposits 323,138 4,484 5.57% 217,140 2,865 5.23%
--------- -------- ---- --------- -------- ----
Other borrowings 29,563 423 5.74% 33,230 462 5.52%
--------- -------- ---- --------- -------- ----
Total interest-bearing
liabilities 352,701 4,907 5.58% 250,370 3,327 5.27%
--------- -------- ---- --------- -------- ----
Demand deposits 32,772 20,448
Other liabilities 2,766 1,778
Shareholders' equity 69,690 74,822
--------- ---------
Total liabilities and
shareholders' Equity $ 457,929 $ 347,418
========= =========
Net interest income $ 3,679 $ 3,035
Annualized net interest income
to assets 3.37% 3.63%
-------- ---- -------- ----
Provision for loan losses 700 1,192
Non-interest income 337 167
Non-interest expense 6,286 5,652
-------- --------
LOSS BEFORE TAXES (2,970) (3,642)
Federal and state income tax -- --
-------- --------
NET LOSS $ (2,970) $ (3,642)
======== ========
-------- --------
Annualized return on average
equity (17.09)% (19.31)%
-------- --------
Annualized return on average
assets (2.60)% (4.16)%
-------- --------
Equity to assets 15.21% 21.56%
======== ========
For three months ended
------------------------------------
March 31, 1999
------------------------------------
Average Revenue/ Yield
Balance Expense /Rate
-------- ----------- ----------
ASSETS
Taxable securities $ 55,863 $ 798 5.79%
Federal funds sold 23,737 275 4.70%
Deposits in other banks -- -- --
Loans (1) 15,942 399 10.15%
Less reserve for loan losses 108 --
-------- ------- ----------
Loans, net of reserve 15,834 399 10.22%
-------- ------- ----------
Total earning assets 95,434 1,472 6.26%
-------- ------- ----------
Cash and other assets 3,295
--------
Total assets $ 98,729
========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Transaction deposits $ 982 $ 4 1.65%
Savings deposits 5,567 59 4.30%
Time deposits 10,558 143 5.49%
-------- ------- ----------
Total interest-bearing deposits 17,107 206 4.88%
-------- ------- ----------
Other borrowings 44 --
-------- ------- ----------
Total interest-bearing
liabilities 17,151 206 4.87%
-------- ------- ----------
Demand deposits 6,288
Other liabilities 121
Shareholders' equity 75,169
--------
Total liabilities and
shareholders' equity $ 98,729
========
Net interest income $ 1,266
Annualized net interest income
to assets 5.38%
------- ----------
Provision for loan losses 206
Non-interest income 16
Non-interest expense 2,093
-------
LOSS BEFORE TAXES (1,017)
Federal and state income tax --
-------
NET LOSS $(1,017)
=======
-------
Annualized return on average
equity (5.49)%
-------
Annualized return on average
assets (4.18)
-------
Equity to assets 76.14%
=======
|
TEXAS CAPITAL BANCSHARES, INC.
ANNUAL FINANCIAL SUMMARY - UNAUDITED
CONSOLIDATED DAILY AVERAGE BALANCES, AVERAGE YIELDS AND RATES
(In Thousands except Per Share and Percentage Data)
Texas Capital Bancshares
-------------------------------------------------------------------------------------------
Year ended 1999 Year ended 1998(1)
---------- --------------------------------- ----------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
---------- ---------- ------ ---------- ---------- ----------
Assets
Taxable securities $ 91,092 $ 5,560 6.10% $ 2,908 $ 175 $ 6.02%
Federal funds sold 11,260 551 4.89% 6,358 203 3.19%
Deposits in other banks 193 10 5.18% 155
Loans 98,408 8,293 8.43% 6,729 777 11.55%
Less reserve for loan losses 874 -- -- 50 -- --
---------- ---------- ---- ---------- ---------- ----------
Loans, net 97,534 8,293 8.50% 6,679 777 11.63%
---------- ---------- ---- ---------- ---------- ----------
Total earning assets 200,079 14,414 7.20% 15,945 1,310 8.22%
---------- ---------- ---- ---------- ---------- ----------
Cash and other assets 8,951 2,660
---------- ----------
Total assets $ 209,030 $ 18,605
========== ==========
Liabilities and
Shareholders' Equity
Transaction deposits $ 3,417 $ 66 1.93% $ 448 $ 7 1.56%
Savings deposits 54,423 2,719 5.00% 2,696 106 3.93%
Time deposits 50,020 2,778 5.55% 5,126 289 5.64%
---------- ---------- ---- ---------- ---------- ----------
Total interest-bearing
deposits 107,860 5,563 5.16% 8,270 402 4.86%
---------- ---------- ---- ---------- ---------- ----------
Other borrowings 11,251 603 5.37% 80 7 8.75%
---------- ---------- ---- ---------- ---------- ----------
Total interest-bearing
liabilities 119,111 6,166 5.18% 8,350 409 4.90%
---------- ---------- ---- ---------- ---------- ----------
Demand deposits 12,371 1,500
Other liabilities 899 89
Shareholders' equity 76,649 8,666
---------- ----------
Total liabilities and
shareholders' equity $ 209,030 $ 18,605
========== ==========
Net interest income $ 8,248 $ 901
Net interest revenue
to earning assets 4.12% 5.65%
---------- ---- ---------- ----------
Net Interest Income $ 8,248 $ 901
Provision for loan losses 2,687 70
Non-interest income 358 64
Non-interest expense 15,217 1,980
Income (loss) before taxes (9,298) (1,085)
Federal and state income
tax -- --
Net loss $ (9,298) $ (1,085)
========== ==========
Return on equity (12.13%) (12.52%)
========== ==========
Return on assets (4.45%) (5.83%)
========== ==========
Equity to assets 36.67% 46.58%
========== ==========
Resource Bank
-----------------------------------------
Inception through
December 31, 1997
---------- ------------------------------
Average Revenue/ Yield/
Balance Expense Rate
---------- ---------- ------
Assets
Taxable securities $ 46 $ 3 6.52%
Federal funds sold 1,240 70 5.65%
Deposits in other banks
Loans 132 13 9.85%
Less reserve for loan losses 4 -- --
---------- ---------- ----
Loans, net 128 13 10.16%
---------- ---------- ----
Total earning assets 1,414 86 6.08%
---------- ---------- ----
Cash and other assets 145
----------
Total assets $ 1,559
==========
Liabilities and
Shareholders' Equity
Transaction deposits $ 69 $ 1 1.45%
Savings deposits 173 6 3.47%
Time deposits 51 3 5.88%
---------- ---------- ----
Total interest-bearing
deposits 293 10 3.41%
---------- ---------- ----
Other borrowings -- --
---------- ---------- ----
Total interest-bearing
liabilities 293 10 3.41%
---------- ---------- ----
Demand deposits 87
Other liabilities 7
Shareholders' equity 1,172
----------
Total liabilities and
shareholders' equity $ 1,559
==========
Net interest income $ 76
Net interest revenue
to earning assets 5.37%
---------- ----
Net Interest Income $ 76
Provision for loan losses 30
Non-interest income 3
Non-interest expense 271
----------
Income (loss) before taxes (222)
Federal and state income
tax --
----------
Net loss $ (222)
==========
Return on equity (18.94%)
==========
Return on assets (14.24%)
==========
Equity to assets 75.18%
==========
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information concerning the beneficial ownership of common stock as of March 31, 2000, by: (a) each director and director nominee and each executive officer, (b) each person we know to beneficially own more than 5% of the outstanding shares of our common stock; and (c) all of the officers and directors as a group.
Number of shares Percent of
Name and address of beneficial owner (1) beneficially owned class (2)
---------------------------------------- ------------------ ----------
Joseph M. Grant(3) 355,793 4.7%
Raleigh Hortenstine III(4) 146,667 1.9%
George F. Jones, Jr.(5) 107,724 1.4%
Gregory B. Hultgren(6) 58,355 *
Gregg L. Engles 8,066 *
John C. Goff(7) 373,033 4.9%
Frederick B. Hegi, Jr.(8) 88,759 1.2%
James R. Holland, Jr.(9) 197,587 2.6%
Walter W. McAllister III 16,000 *
R. Drayton McLane, Jr. 200,251 2.6%
Lee Roy Mitchell(10) 80,109 1.1%
Marshall B. Payne 37,466 *
John C. Snyder 80,666 1.1%
Theodore H. Strauss(11) 73,817 1.0%
All of our officers and directors as a group(12) 1,839,661 24.2%
|
* Less than 1% of the outstanding shares of the class.
(1) Unless we provide a different address, the address for each person in this table is 2100 McKinney Avenue, Suite 900, Dallas, Texas 75201.
(2) Based upon 7,610,937 shares of common stock issued and outstanding as of March 31, 2000.
(3) Includes 7,000 shares that may be acquired upon exercise of options. Also includes 56,604 and 56,604 shares that, pursuant to an agreement among our founders, we have the option to purchase if he ceases to be employed by Texas Capital Bancshares before December 10, 2000 and 2001, respectively.
(4) Includes 114,800 shares held by Hortenstine Family Investments, L.P., of which Mr. Hortenstine is the General Partner, and 21,667 shares that may be acquired upon exercise of options. Also includes 7,111 and 7,111 shares that, pursuant to an agreement among our founders, we have the option to purchase if he ceases to be employed by Texas Capital Bancshares before December 10, 2000 and 2001, respectively.
(5) Includes 101,459 shares held by G&M Partners Ltd., of which Mr. Jones is the Managing General Partner, and 5,000 shares that may be acquired upon exercise of options. Also includes 12,800 and 12,800 shares that, pursuant to an agreement among our founders, we have the option to purchase if he ceases to be employed by Texas Capital Bancshares before December 10, 2000 and 2001, respectively.
(6) Includes 49,155 shares held by Mr. Hultgren and Rose M. Hultgren, his wife, as tenants in common, 4,000 shares that may be acquired upon exercise of options and 2,000 shares that may be acquired upon exercise of options held by Ms. Hultgren. Also includes 5,831 and 5,831 shares that, pursuant to an agreement among our founders, we have the option to purchase if he ceases to be employed by Texas Capital Bancshares before December 10, 2000 and 2001, respectively.
(7) Shares held by Goff Moore Strategic Partners, L.P., of which Mr. Goff is the managing principal.
(8) Includes 68,566 shares held Valley View Capital Corp. Retirement Savings Trust for the benefit of Mr. Hegi and 12,126 shares held by the F.B. Hegi Trust of which Mr. Hegi is the beneficiary.
(9) Shares held by Hunt Capital Partners, L.P. of which Mr. Holland is the President and Chief Executive Officer.
(10) Shares held by T & LRM Family Partnership Ltd. Mr. Mitchell is the Chief Executive Officer of PBA Development, Inc., the general partner of T & LRM.
(11) Includes 40,000 shares held by the Theodore H. Strauss 1999 Irrevocable Trust Agreement, of which Mr. Strauss is the beneficiary.
(12) 14 persons.
In addition to our common stock, we have also issued a class of nonvoting common stock entitled Series A-1 Nonvoting Common Stock. As of March 31, 2000, there were 426,694 shares of Series A-1 Nonvoting Common Stock outstanding, all of which were held by Goff Moore Strategic Partners, L.P. Each share of Series A-1 Common Stock is convertible into one share of our common stock so long as such conversion does not increase the holder's total ownership to more than 4.9% of our outstanding common stock, calculated on a fully-diluted basis.
MANAGEMENT
The following table sets forth certain information with respect to our executive officers and directors and the key officers of Texas Capital Bank and BankDirect. Unless otherwise noted, each position set forth below is with Texas Capital Bancshares.
Years
Name Age Position in Office
---- --- -------- ---------
Joseph M. Grant 61 Chairman of the Board of Directors and Chief Executive 2
Officer
Raleigh Hortenstine III 53 President and Director 1
Gregory B. Hultgren 49 Executive Vice President - Chief Financial Officer 1
George F. Jones, Jr. 56 Director; President and Chief Executive Officer of Texas 1
Capital Bank
Gregg L. Engles 42 Director 1
John C. Goff 44 Director 1
Frederick B. Hegi, Jr. 56 Director 1
James R. Holland, Jr. 56 Director 1
Walter W. McAllister III 58 Director 1
R. Drayton McLane, Jr. 63 Director 1
Lee Roy Mitchell 63 Director 1
Marshall B. Payne 43 Director 1
John C. Snyder 58 Director 1
Theodore H. Strauss 75 Director 1
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Background information about each of our executive officers and directors is set forth below:
JOSEPH M. (JODY) GRANT has served as our Chairman and Chief Executive Officer since December 1998 and as Chief Executive Officer of BankDirect since January 1999. Mr. Grant retired as Executive Vice President and Chief Financial Officer of Electronic Data Systems on March 31, 1998, a position he had held since 1990. Mr. Grant currently serves on the board of directors of Metamor Worldwide, Inc. and is an advisory director of Wingate Partners, Dallas, Texas.
RALEIGH HORTENSTINE III has served as President since March 1999 and a director since June 1999. He served as Executive Vice President of NationsBank, NA in Charlotte, North Carolina from October 1996 to 1998 and as Managing Director from 1982 to October 1996.
GREGORY B. HULTGREN has served as Executive Vice President - Chief Financial Officer since March 1999. Prior to joining us, Mr. Hultgren was a Principal and the Chief Financial Officer of United
L.P. Gas Corporation and was Executive Vice President and Chief Financial Officer of Deposit Guaranty Bank and Dallas Bancshares, Inc. He is a Certified Public Accountant.
GEORGE F. JONES, JR. has served as a director since June 1999 and as President and Chief Executive Officer of Texas Capital Bank since December 1998. From October 1997 to December 1998, Mr. Jones served as the Chairman of the board of directors of Resource Bank, a commercial bank we acquired in December 1998. From March 1995 to October 1997, he served as Vice President of Mack Financial Group, Inc., a financial investment company. From 1986 to 1993, Mr. Jones served as President and Chief Executive Officer of Northpark Bank which was acquired by Comerica Bank in 1993.
GREGG L. ENGLES has been a director since June 1999. He has served as Chairman and Chief Executive Officer of Suiza Foods Corporation since March 1995. Mr. Engles currently serves on the board of directors of Evercom, Inc., Independent Packaging, L.P. and Electrolux, LLC. Mr. Engles also currently serves on the board of directors of various subsidiaries of Suiza Foods Corporation.
JOHN C. GOFF has been a director since June 1999. He has served as the managing principal of Goff Moore Strategic Partners, L.P. since February 1998. Since 1994, he has served as an executive of Crescent Real Estate Equities Company and its subsidiaries and has served as the Vice Chairman since January 1997. Mr. Goff currently serves on the board of directors of The Staubach Co., Broadband Office, Inc., Nareit, Inc., OpenConnect Systems, Inc., Gainsco, Inc. and Crescent Operating, Inc.
FREDERICK B. HEGI, JR. has been a director since June 1999. He is a founding partner of Wingate Partners, a position he has held since July 1987. Mr. Hegi currently serves as chairman of the board of directors of United Stationers, Inc., Loomis, Fargo & Co., Tahoka First Bancorp, Inc. and Cedar Creek Bancshares, Inc. He also serves as chairman of the board of directors and Chief Executive Officer of Kevco, Inc., a wholesale distributor of building products. Mr. Hegi also currently serves on the board of directors of Lone Star Technologies, Inc., Cattle Resources, Inc. and Pro Parts Xpress, Inc.
JAMES R. HOLLAND, JR. has been a director since June 1999. He has served as the President and Chief Executive Officer of Unity Hunt, Inc. since 1991 and Chief Executive Officer of Hunt Capital Group, Inc. since 1993. Mr. Holland currently serves on the board of directors of Prosofttraining.com Inc.
WALTER W. MCALLISTER, III has been a director since June 1999. He has served as chairman of the board of directors of Texas Insurance Agency, Inc., a property and casualty insurance agency, since 1992. He currently also serves as a trustee for 11 mutual funds managed by US Global Investors.
R. DRAYTON MCLANE, JR. has been a director since June 1999. He has served as Chairman of the McLane Group and the Houston Astros since 1992 and serves as an executive officer all of the McLane Group subsidiaries. He also serves as Chairman of the Board of Trustees of Scott and White Memorial Hospital, and is on the board of directors of Peapod, Inc. and IGA International.
LEE ROY MITCHELL has been a director since June 1999. Since 1985, he has served as Chairman and Chief Executive Officer of Cinemark USA, Inc. and serves as an executive officer for many of its subsidiaries.
MARSHALL B. PAYNE has been a director since June 1999. Since July 1983, he has served as the Vice President of Cardinal Investment Company, Inc. Mr. Payne also currently serves on the board of directors of LBP, Inc., ACE Cash Express, Inc., Restoration Hardware, Inc. and various private companies.
JOHN C. SNYDER has been a director since June 1999. From 1978 to 1999, he served as Chairman and Chief Executive Officer of Snyder Oil Corp., a predecessor of Santa Fe Snyder Corporation where he currently serves as chairman of the board of directors. He also currently serves as a director of SOCO International plc.
THEODORE H. STRAUSS has been a director since June 1999. He is a Senior Managing Director of Bear Stearns & Co., Inc. Mr. Strauss also serves on the board of directors of Hollywood Casino Corporation, Clear Channel Communications, Inc. and Sizeler Property Investors, Inc.
EXECUTIVE COMPENSATION
The following summary compensation table reflects the compensation paid to our current executive officers during 1998 and 1999. All amounts set forth below are in United States Dollars.
Long term compensation
-------------------------------------
Annual compensation Awards Payouts
---------------------------------------------- ------------------------ -------
Other Shares
annual Restricted subject All other
compen- stock to LTIP compen-
Name Year Salary Bonus sation(1) awards options payouts sation(2)
---- ---- -------- -------- --------- ---------- -------- ------- ----------
Joseph M. Grant 1999 $ 6,500 0 0 0 0 0 $ 5,796
Chief Executive Officer 1998 0 0 0 0 35,000 0 0
Raleigh Hortenstine 1999 $251,800 0 0 0 0 0 $ 4,377
President 1998 0 $ 62,500 0 0 75,000 0 0
Gregory Hultgren 1999 $144,200 0 $ 7,200 0 0 0 0
Executive Vice 1998 0 $ 35,000 0 0 20,000 0 0
President - Chief
Financial Officer
George Jones 1999 $229,200 0 $ 7,200 0 0 0 $ 6,105
President of Texas 1998 0 $ 37,500 0 0 25,000 0 0
Capital Bank
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(1) Represents amounts paid to reimburse automotive expenses.
(2) Represents country club dues.
We have not entered into employment agreements with any of our executive officers. We have entered into an agreement with Jody Grant which allows Mr. Grant to defer any amount of his annual compensation. Such deferred compensation is used to purchase shares of our common stock at prices determined in good faith by our board of directors, which shares are held in trust for Mr. Grant for until the first to occur of (1) he ceases to be employed by us due to his death or disability, (2) he ceases to be employed by us after his 66th birthday or (3) his 66th birthday, if he ceased to be employed by us before his 66th birthday. Until the shares are distributed to Mr. Grant, he has no ownership or voting rights with respect to such shares.
OPTIONS
No stock options were granted to any of our executive officers for their services during 1999 and no executive officer exercised any stock options during 1999. The following table sets forth the number and value of options that are held by our executive officers:
Shares subject to Value of unexercised
Name unexercised options in-the-money options (1)
---- ------------------- ------------------------
Joseph M. (Jody) Grant 35,000 (2) $70,000
Raleigh Hortenstine III 75,000 (3) $220,500
Gregory B. Hultgren 20,000 (2) $40,000
George F. Jones, Jr. 25,000 (2) $50,000
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(1) Value of options based on a fair market value per share of $14.50, based upon the most recent private sales of our common stock.
(2) Options issued on October 1, 1998 of which one-fifth are currently exercisable and one-fifth vests on each of October 1, 2000, 2001, 2002 and 2003 with an exercise price of $12.50 per share.
(3) Includes 25,000 options issued on October 1, 1998 of which 5,000 options are currently exercisable and 5,000 options vest on each of October 1, 2000, 2001, 2002 and 2003 with an exercise price of $12.50 per share; and 50,000 options issued on July 1, 1998 of which 16,666 options are currently exercisable and 16,667 options vest on each of July 1, 2000 and 2001 with an exercise price of $11.09 per share.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Larry A. Makel, our Secretary and a director of Texas Capital Bank, is a partner of Patton Boggs LLP, a law firm that provides a significant amount of services to us and our subsidiary banks. Mr. Makel currently owns 85,876 shares of our common stock.
MARKET FOR CAPITAL STOCK AND DIVIDEND POLICY
There is no established public trading market for our common stock. Our authorized capital stock consists of 20,000,000 shares of common stock and 2,500,000 shares of preferred stock. As of March 31, 2000, there were 7,610,937 shares of common stock outstanding held by approximately 540 identified holders. There are no shares of preferred stock outstanding. Additionally, there are 644,090 shares of common stock subject to outstanding options or warrants.
We have not paid cash dividends on our shares of common stock to date, and we intend during the near term to retain any earnings available for dividends for the development and growth of our business. In addition, our ability to pay dividends is restricted by Federal banking regulations. Our long-term plan, however, calls for the payment of cash dividends when circumstances permit, although no assurance can be given if or when we will adopt a policy of paying cash dividends. The declaration and payment of future cash dividends will depend on, among other things, our earnings, the general economic and regulatory climate, our liquidity and capital requirements, and other factors deemed relevant by our Board of Directors.
RECENT OFFERINGS OF UNREGISTERED SECURITIES
In connection with the organization of Texas Capital Bancshares, 888,888 shares of our common stock were sold to the founders of Texas Capital Bancshares in April 1998 for $.0135 per share in a private transaction pursuant to Rule 506 under the United States Securities Act. In September 1998, 177,778 of such shares were repurchased by us for $.0135 per share. Between December 1998 and March 1999, we sold 5,982,449 shares of our common stock and 474,870 shares of revolving Series A-1 Common Stock for $12.50 per share in a private offering pursuant to Rule 506. Concurrently with the December 1998 offering, we issued 492,978 shares of our common stock to the stockholders of Resource Bank to acquire all of the outstanding stock of Resource Bank in a private offering under Rule 506. For accounting proposed, we valued the shares of our common stock issued to the stockholders of Resource Bank of $12.50 per share.
In June 2000, we sold 1,841,024 shares of our common stock for $14.50 per share in a private offering pursuant to Rule 506. With respect to each of the private offerings pursuant to Rule 506 discussed above, we determined the exemption was available based on our compliance with the requirements at Rule 506 and the representations by each investor in such offering that such investor qualified as an "accredited investor" under Rule 506 or was represented by an appropriate purchaser representative.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock, par value $.01 per share, and 2,500,000 shares of preferred stock, par value $.01 per share. The preferred stock may be issued in series, the terms of each of which may be fixed by our board of directors, within limits set by our certificate of incorporation, as amended. As of March 31,2000 there were 7,610,937 shares of our common stock outstanding and no shares of preferred stock outstanding.
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share
held on all matters with respect to which the holders of our common stock are
entitled to vote. Our common stock has no preemptive or conversion rights and is
not subject to redemption. Holders of our common stock are not entitled to
cumulative voting in the election of directors. In the event of dissolution or
liquidation, after payment of all creditors, the holders of the our common stock
(subject to the prior rights of the holders of any outstanding preferred stock)
will be entitled to receive pro rata any assets distributable to stockholders in
respect of the number of shares held by them.
There is a separate series of our common stock entitled "Series A-1 Nonvoting Common Stock" which has no voting rights except those required by applicable law. The Series A-1 Common Stock has no preference in dividends or liquidation rights. However, each share of the Series A-1 Common Stock is convertible into one share of our common stock so long as such conversion does not increase the
holder's total ownership to more than 4.9% of our outstanding common stock, calculated on a fully-diluted basis.
The holders of shares of our common stock are entitled to such dividends as our board of directors, in its discretion, may declare out of funds legally available therefor. Under the Delaware corporation laws, we may not pay dividends if, after such dividends are paid, our total assets would be less than the sum of our total liabilities and stated capital, or if we would be unable to pay our debts as they become due in the usual course of business. We have not paid dividends on our common stock to date and we do not anticipate paying dividends in the near future, although our long-term plans call for the payment of cash dividends when circumstances permit. However, the payment of dividends on our common stock would be subject to the prior rights of the holders of any preferred stock. Payment of dividends on both the our common stock and any preferred stock, will be dependent upon, among other things, our earnings and financial condition, our cash flow requirements and the prevailing economic and regulatory climate.
We currently act as the transfer agent and registrar for our common stock. We intend to engage a third-party transfer agent and registrar for our common stock in the near future.
PREFERRED STOCK
The preferred stock is available for issuance from time to time for various purposes as determined by our board of directors, including making future acquisitions and raising additional equity capital. Shares of preferred stock may be issued on such terms and conditions, and at such times and in such situations, as our board of directors determines to be appropriate, without any further approval or action by the stockholders, unless otherwise required by the Delaware corporation laws.
Because our certificate of incorporation does not prescribe rights and preferences, our board of directors has virtually unlimited authority to set the rights and preferences of any shares of preferred stock that are issued. The effects of the issuance of preferred stock on other stockholders could include, among other things, (1) restrictions on dividends on our common stock if dividends are payable on the preferred stock, (2) dilution of the equity interest of holders of our common stock if the series of preferred stock is convertible into our common stock; and (3) restrictions on the rights of holders of our common stock to share in our assets upon liquidation.
ANTI-TAKEOVER PROVISIONS
As described above, our certificate of incorporation permits the issuance of preferred stock in series by action of our board of directors. Although we have no current plans to utilize the issuance of shares of preferred stock as a deterrent to possible takeover attempts, the power to issue shares of preferred stock in series and to determine rights and preferences with respect to each such series may have negative effect on the value of our common stock, and may have the effect of discouraging hostile attempts to acquire control of us.
Our certificate of incorporation and bylaws contain provisions, in addition to the authority to issue preferred stock, which may have the effect of delaying or preventing a change in our controlling persons. The effect of these provisions, when coupled with existing statutory restrictions on the purchase of voting securities of a registered bank holding company, may be to delay or prevent a change in our controlling persons
We are subject to Section 203 of the Delaware corporation laws which, with certain exceptions, prohibits us from engaging in any business combination with any "interested stockholder" for three years after such stockholder became an interested stockholder, unless: (1) prior to such stockholder becoming an interested stockholder, our board of directors approved either the proposed business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (2) after the stockholder became an interested stockholder, the interested stockholder owned at least 85% of our voting stock, excluding voting stock owned by our directors and officers, or (3) the proposed business combination is approved by our board of directors and the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. Under the Delaware corporation laws, an "interested stockholder" is any person that (1) owns 15% or more of our outstanding
voting stock or (2) is our affiliate and owned 15% or more of our outstanding voting stock at any time within the immediately preceding three years.
Our bylaws also impose procedural requirements on stockholders who desire to (1) nominate candidates for director or (2) make any other proposal to the stockholders. The requirements include the timely delivery of notice regarding the nomination or proposal and information regarding the stockholder making the nomination or proposal and persons acting together with the stockholder regarding the nomination or proposal. In addition, if nominating a candidate for director, the stockholder must also submit information with respect to the candidate. The failure to follow the required procedures renders the nominee or proposal ineligible to be voted upon by our stockholders.
We believe that these anti-takeover provisions are prudent and reduce our vulnerability to hostile takeover attempts and other transactions that are not negotiated with or approved by our board of directors. We believe that our board of directors will be in the best position to determine our true value and negotiate effectively in the best interests of our stockholders. As a result, it is in our best interests and in the best interests of our stockholders to encourage potential acquirers to negotiate directly with our board of directors. We believe these provisions encourage such negotiations and discourage persons from proposing transactions at prices that do not reflect our true value and are not in the best interests of our stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
On June 30, 2000, there were 9,451,961 shares of our common stock outstanding (assuming no exercise of existing employee stock options to purchase our common stock). Currently, none of such shares are freely tradable without restriction or registration under the Securities Act. All of the shares of our common stock currently outstanding may be sold only pursuant to Rule 144 or another exemption from registration under the Securities Act.
In general, under Rule 144, a person who has beneficially owned shares for at least one year, including persons who may be deemed "affiliates" of Texas Capital Bancshares, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of the average weekly trading volume during the four calendar weeks preceding such sale or 1% of the then outstanding shares of our common stock. A person who is deemed not to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned such shares for at least two years, would be entitled to sell such shares under Rule 144 without regard to the limitations described above. Sales pursuant to Rule 144 are also subject to requirements relating to the manner of sale, notice and availability of public information about us.
In addition to the our common stock, at March 31, 2000, we had options to purchase 644,090 shares of our common stock outstanding, of which options with respect to 91,646 shares were currently exercisable. Shares of our common stock issued upon exercise of these options would be "restricted securities" under Rule 144 and could be sold only pursuant to Rule 144 or another exemption from registration under the United States Securities Act.
No prediction can be made regarding the effect that sales of the securities described above will have on the market price of our common stock. There is a possibility that substantial amounts of such securities may be sold in large quantities or over a short period of time and such sales may adversely affect the prevailing market price of our common stock.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As is customary with other corporations similar to ours and subject to applicable regulatory restrictions, our Articles of Incorporation provide that we will indemnify officers and directors acting in their capacity as such on our behalf.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Until the date hereof we were not required to file reports with the Securities and Exchange Commission. With this filing, we will be subject to the information reporting requirements and will file annual reports, quarterly reports, special reports, proxy statements and other information with the Securities and Exchange Commission. We intend to file such reports and statements electronically so those filings will be available to the public on the world wide web at the Securities and Exchange Commission's web site. The address of that site is www.sec.gov. These materials are also available at the public reference facilities of the Securities and Exchange Commission at:
o 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
o 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
o 75 Park Place, Room 1400, New York, New York 10007
In addition, you can have copies made and sent to you by contacting the
Public Reference Section of the Securities and Exchange Commission by telephone
at 1-800-732-0330. If you prefer, you can also write to the Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549.
EXHIBITS
We have included or incorporated by reference the following exhibits to this registration statement.
EXHIBIT DESCRIPTION 3.1 Certificate of incorporation* 3.2 Bylaws* |
* To be filed by amendment
FINANCIAL STATEMENTS
Index to Financial Statements
Consolidated Financial Statements Page Reference
Report of Independent Auditors F-2
Consolidated Balance Sheets - Texas Capital Bancshares: March 31, 2000
(unaudited), December 31, 1999 and December 31, 1998 F-3
Consolidated Statements of Operations - Texas Capital Bancshares: Three months F-4
ended March 31, 2000 (unaudited) and March 31, 1999 (unaudited); year
ended December 31, 1999 and March 1, 1998 (inception) through December 31,
1998; Resource Bank: January 1, 1998 through December 18, 1998 and October
3, 1997 (inception) through December 31, 1997
Consolidated Statements of Changes in Shareholders' Equity - Texas Capital F-5
Bancshares: Three months ended March 31, 2000 (unaudited); year ended
December 31, 1999 and March 1, 1998 (inception) through December 31, 1998;
Resource Bank: January 1, 1998 through December 18, 1998 and October 3,
1997 (inception) through December 31, 1997
Consolidated Statements of Cash Flows - Texas Capital Bancshares: Three months F-7
ended March 31, 2000 (unaudited) and March 31, 1999 (unaudited); year
ended December 31, 1999 and March 1, 1998 (inception) through December
31,1998; Resource Bank: January 1, 1998 through December 18, 1998 and
October 3, 1997 (inception) through December 31, 1997
Notes to Consolidated Financial Statements F-9
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Ernst & Young LLP
Suite 1500
2121 San Jacinto Street
Dallas, Texas 75201
Report of Independent Auditors
The Shareholders and Board of Directors
Texas Capital Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Texas Capital Bancshares, Inc. as of December 31, 1999, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Texas Capital Bancshares, Inc. as of December 31, 1998 and from March 1, 1998 (inception) through December 31, 1998, and the statements of operations, changes in shareholders' equity and cash flows of Resource Bank, N.A. from January 1, 1998 through December 18, 1998 and from October 3, 1997 (inception) through December 31, 1997 were audited by other auditors whose reports dated March 25, 1999, April 27, 2000 and March 18, 1998, respectively, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Texas Capital Bancshares, Inc. at December 31, 1999, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
February 18, 2000
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Consolidated Balance Sheets
(In Thousands except Share Data)
Texas Capital Bancshares
-------------------------------------------
March 31 December 31
2000 1999 1998
----------- --------- ---------
(Unaudited)
ASSETS
Cash and due from banks $ 11,783 $ 8,428 $ 2,021
Federal funds sold 47,810 120 70,500
Securities available-for-sale 171,810 164,409 3,171
Loans, net 274,685 224,795 10,992
Premises and equipment, net 5,749 4,411 377
Accrued interest receivable and other assets 4,912 4,671 380
Goodwill, net 1,714 1,745 1,870
--------- --------- ---------
Total assets $ 518,463 $ 408,579 $ 89,311
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 37,520 $ 25,666 $ 2,697
Interest-bearing 407,385 261,402 13,321
--------- --------- ---------
444,905 287,068 16,018
Accrued interest payable and other liabilities 2,602 2,332 107
Short-term borrowings -- 46,267 --
Other borrowings 2,089 -- --
--------- --------- ---------
Total liabilities 449,596 335,667 16,125
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 7,262,520, 7,259,520 and 6,160,441 at
March 31, 2000, December 31, 1999 and December 31,
1998, respectively 73 73 61
Series A-1 Nonvoting Common Stock, $.01 par value:
Issued shares - 426,694 at March 31, 2000 and
December 31,1999 and 474,870 at December 31, 1998
4 4 5
Additional paid-in capital 86,954 86,917 73,863
Accumulated deficit (13,007) (10,037) (739)
Treasury stock (shares at cost: 103,084 and 92,528
at March 31, 2000 and December 31, 1999,
respectively) (1,300) (1,169) --
Deferred compensation 322 322 --
Accumulated other comprehensive income (loss) (4,179) (3,198) (4)
--------- --------- ---------
Total shareholders' equity 68,867 72,912 73,186
--------- --------- ---------
Total liabilities and shareholders' equity $ 518,463 $ 408,579 $ 89,311
========= ========= =========
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See accompanying notes.
Consolidated Statements of Operations
(In Thousands except Share Data)
Texas Capital Bancshares Resource Bank
------------------------------------------------------------- ----------------------------
March 1, 1998 January 1, October 3, 1997
Three months Three months Year (Inception) 1998 (Inception)
ended ended ended through through through
March 31, March 31, December 31, December 31, December 18, December 31,
2000 1999 1999 1998 1998 1997
------------ ------------ ------------ ------------- ------------ --------------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on
loans $ 5,463 $ 399 $ 8,293 $ 40 $ 737 $ 13
Securities 2,813 798 5,560 8 167 3
Federal funds sold 306 275 551 12 191 70
Deposits in other banks 4 -- 10 153 2 --
-------- -------- -------- -------- -------- --------
Total interest income 8,586 1,472 14,414 213 1,097 86
Interest expense:
Deposits 4,484 206 5,563 25 377 10
Short-term borrowings 423 -- 603 7 -- --
-------- -------- -------- -------- -------- --------
Total interest expense 4,907 206 6,166 32 377 10
-------- -------- -------- -------- -------- --------
Net interest income 3,679 1,266 8,248 181 720 76
Provision for loan losses 700 206 2,687 1 69 30
-------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 2,979 1,060 5,561 180 651 46
Non-interest income:
Service charges on
deposit accounts 79 13 127 2 22 1
Trust fee income 106 -- 158 -- -- --
Loss on sale of
securities -- -- (1) -- -- --
Other 152 3 74 2 38 2
-------- -------- -------- -------- -------- --------
Total non-interest income 337 16 358 4 60 3
Non-interest expense:
Salaries and employee
benefits 3,245 1,456 7,761 378 634 136
Net occupancy expense 859 183 1,824 103 166 38
Advertising 572 108 2,112 -- 9 14
Legal and professional 409 73 1,067 177 61 20
Communications and data
processing 251 47 824 14 73 11
Franchise taxes 35 12 181 4 7 22
Other 915 214 1,448 247 107 30
-------- -------- -------- -------- -------- --------
Total non-interest expense 6,286 2,093 15,217 923 1,057 271
-------- -------- -------- -------- -------- --------
Loss before income taxes (2,970) (1,017) (9,298) (739) (346) (222)
Income tax expense (benefit) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net loss $ (2,970) $ (1,017) $ (9,298) $ (739) $ (346) $ (222)
======== ======== ======== ======== ======== ========
Earnings per share:
Basic and diluted $ (.39) $ (.14) $ (1.23) $ (1.23)
======== ======== ======== ========
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See accompanying notes.
Consolidated Statements of Changes in Shareholders' Equity
(In Thousands except Share Data)
Texas Capital Bancshares
---------------------------------------------------------------------------------------
SERIES A-1
NONVOTING
COMMON STOCK COMMON STOCK ADDITIONAL ACCUMU-
------------------------- ----------------------- PAID-IN LATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- ------- ---------- ---------- ----------
Balance at March 1, 1998
(inception) -- $ -- -- $ -- $ -- $ --
Comprehensive income
(loss):
Net loss -- -- -- -- -- (739)
Change in unrealized
loss on
available-for-sale
securities -- -- -- -- -- --
Total comprehensive
income (loss)
Stock issued 5,667,463 56 474,870 5 67,706 --
Stock issued in
acquisition of
Resource Bank, N.A 492,978 5 -- -- 6,157 --
--------- ---------- ------- ---------- ---------- ----------
Balance at December 31, 1998 6,160,441 61 474,870 5 73,863 (739)
Comprehensive income
(loss):
Net loss -- -- -- -- -- (9,298)
Change in unrealized
loss on
available-for-sale
securities, net of
reclassification
amount of $1 -- -- -- -- -- --
Total comprehensive
income (loss)
Stock issued 1,050,903 11 -- -- 13,054 --
Transfers 48,176 1 (48,176) (1) -- --
Purchase of treasury stock -- -- -- -- -- --
Deferred compensation
arrangement -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------
Balance at December 31, 1999 7,259,520 73 426,694 4 86,917 (10,037)
Comprehensive income
(loss):
Net loss (unaudited) -- -- -- -- -- (2,970)
Change in unrealized
loss on
available-for-sale
securities
(unaudited) -- -- -- -- -- --
Total comprehensive
income (loss)
(unaudited)
Stock issued (unaudited) 3,000 -- -- -- 37 --
Purchase of treasury
stock (unaudited) -- -- -- -- -- --
Sale of treasury stock
(unaudited) -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------
Balance at March 31,
2000 (unaudited) 7,262,520 $ 73 426,694 $ 4 $ 86,954 $ (13,007)
========= ========== ======= ========== ========== ==========
Texas Capital Bancshares
-------------------------------------------------------------------------
ACCUMULATED
OTHER
TREASURY STOCK DEFERRED COMPRE-
------------------------ COMPEN- HENSIVE
SHARES AMOUNT SATION INCOME (LOSS) TOTAL
-------- ---------- ---------- ------------- ----------
Balance at March 1, 1998
(inception) -- $ -- $ -- $ -- $ --
Comprehensive income
(loss):
Net loss -- -- -- -- (739)
Change in unrealized
loss on
available-for-sale
securities -- -- -- (4) (4)
----------
Total comprehensive
income (loss) (743)
Stock issued -- -- -- -- 67,767
Stock issued in
acquisition of
Resource Bank, N.A -- -- -- -- 6,162
-------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 -- -- -- (4) 73,186
Comprehensive income
(loss):
Net loss -- -- -- (9,298)
Change in unrealized
loss on
available-for-sale
securities, net of
reclassification
amount of $1 -- -- -- (3,194) (3,194)
----------
Total comprehensive
income (loss) (12,492)
Stock issued -- -- -- -- 13,065
Transfers -- -- -- -- --
Purchase of treasury stock (67,721) (847) -- -- (847)
Deferred compensation
arrangement (24,807) (322) 322 -- --
-------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 92,528 (1,169) 322 (3,198) 72,912
Comprehensive income
(loss):
Net loss (unaudited) -- -- -- -- (2,970)
Change in unrealized
loss on
available-for-sale
securities
(unaudited) -- -- -- (981) (981)
----------
Total comprehensive
income (loss) (3,951)
(unaudited)
Stock issued (unaudited) -- -- -- -- 37
Purchase of treasury
stock (unaudited) (11,556) (144) -- -- (144)
Sale of treasury stock
(unaudited) 1,000 13 -- -- 13
-------- ---------- ---------- ---------- ----------
Balance at March 31,
2000 (unaudited) (103,084) $ (1,300) $ 322 $ (4,179) $ 68,867
======== ========== ========== ========== ==========
|
See accompanying notes.
Consolidated Statements of Changes in Shareholders' Equity (continued)
(In Thousands except Share Data)
Resource Bank
------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- --------- ---------- ----------- ---------
Balance at October 3, 1997 (inception) 1,250,000 $ 2,500 $ 2,500 $ (140) $ 4,860
Net loss -- -- -- (222) (222)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 1,250,000 2,500 2,500 (362) 4,638
Net loss -- -- -- (346) (346)
--------- --------- --------- --------- ---------
Balance at December 18, 1998 1,250,000 $ 2,500 $ 2,500 $ (708) $ 4,292
========= ========= ========= ========= =========
|
See accompanying notes.
Consolidated Statements of Changes in Cash Flows
(In Thousands)
Texas Capital Bancshares Resource Bank
--------------------------------------------------------- ---------------------------------
March 1, 1998 October 3, 1997
Three months Three months (Inception) January 1, 1998 (Inception)
ended ended Year ended through through through
March 31, March 31, December 31, December 31, December 18, December 31,
2000 1999 1999 1998 1998 1997
------------ ------------ ------------ ------------- --------------- ---------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss $ (2,970) $ (1,017) $ (9,298) $ (739) $ (346) $ (222)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Provision for loan losses 700 206 2,687 1 69 30
Depreciation and 354 74 715 3 91 18
amortization
Amortization and accretion
on securities (93) 10 (72) -- -- --
Loss on sale of securities -- -- 1 -- -- --
Changes in operating assets
and liabilities:
Accrued interest
receivable and other (241) (770) (4,291) (260) (70) (33)
assets
Accrued interest payable
and other liabilities 270 91 2,225 (40) 111 36
------- ------- -------- ------ ------- ------
Net cash used in operating
activities (1,980) (1,406) (8,033) (1,035) (145) (171)
INVESTING ACTIVITIES
Cash and cash equivalents from
acquisitions, net -- -- -- 5,062 -- --
Purchases of available-for-sale
securities (10,368) (74,214) (192,732) -- (1,010) (2,165)
Proceeds from sales of
available-for-sale securities -- -- 24,697 -- -- --
Principal payments received on
securities 2,079 -- 3,674 -- -- --
Net (increase) decrease in loans (50,590) (19,499) (216,490) 10 (9,570) (1,532)
Purchase of premises and
equipment, net (1,661) (393) (4,624) (135) (10) (24)
------- ------- -------- ------ ------- ------
Net cash provided by (used in)
investing activities (60,540) (94,106) (385,475) 4,937 (10,590) (3,721)
FINANCING ACTIVITIES
Net increase in checking, money
market, and savings accounts 97,155 8,433 175,994 557 2,969 2,656
Net increase in certificates of
deposit 60,682 2,232 95,056 295 8,811 730
Sale of common stock 37 12,741 13,065 67,767 -- --
Net borrowings from FHLB (44,178) 1,000 46,267 -- -- --
Purchase of treasury stock (131) -- (847) -- -- --
------- ------- -------- ------ ------- ------
Net cash provided by financing
activities 113,565 24,406 329,535 68,619 11,780 3,386
------- ------- -------- ------ ------- ------
|
Consolidated Statements of Changes in Cash Flows (continued)
(In Thousands)
Texas Capital Bancshares Resource Bank
------------------------------------------------------ -------------------------------
October 3,
March 1, 1998 1997
Three months Three months (Inception) January 1, 1998 (Inception)
ended ended Year ended through through through
March 31, March 31, December 31, December 31, December 18, December 31,
2000 1999 1999 1998 1998 1997
------------ ------------ ------------ -------------- --------------- -------------
(Unaudited) (Unaudited)
Net increase (decrease) in cash
and cash equivalents $ 51,045 $(71,106) $(63,973) $ 72,521 $ 1,045 $ (506)
Cash and cash equivalents,
beginning of period 8,548 72,521 72,521 -- 4,017 4,523
-------- -------- -------- -------- -------- --------
Cash and cash equivalents, end
of period $ 59,593 $ 1,415 $ 8,548 $ 72,521 $ 5,062 $ 4,017
======== ======== ======== ======== ======== ========
Supplemental disclosures of cash
flow information:
Cash paid during the period
for interest $ 4,753 $ 195 $ 4,956 $ 76 $ 284 $ 5
======== ======== ======== ======== ======== ========
|
See accompanying notes.
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Texas Capital Bancshares, Inc. (Texas Capital Bancshares or the Company), a Delaware bank holding company, was incorporated in March 1998. The consolidated financial statements of the Company include the accounts of Texas Capital Bancshares, Inc. and its wholly owned subsidiary, Texas Capital Bank, National Association (the Bank). The Bank was formed on December 18, 1998 through the acquisition of Resource Bank, N.A. (Resource Bank). The operations of the Bank from December 18, 1998 forward are included in the consolidated financial statements of the Company. The operations of Resource Bank prior to that date are shown separately as predecessor financial statements. The accounting policies followed in preparing predecessor financial statements for Resource Bank are the same as those followed by the Company and described below.
All business is conducted through the Bank. BankDirect, a division of the Bank, provides on-line banking services through the Internet. The Bank currently provides commercial banking services to its customers in Texas, Oklahoma, and New Mexico. The Bank concentrates on middle market commercial and private client customers, while BankDirect provides basic consumer banking services to Internet users.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include amounts due from banks and federal funds sold.
SECURITIES
Securities are classified as trading, available-for-sale or held-to-maturity. Management classifies securities at the time of purchase and re-assesses such designation at each balance sheet date; however, transfers between categories from this re-assessment are rare.
Trading Account
Securities acquired for resale in anticipation of short-term market movements are classified as trading, with realized and unrealized gains and losses recognized in income. To date, the Company has not had any activity in its trading account.
Held-to-Maturity and Available-for-Sale
Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities not classified as trading are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses reported in a separate component of accumulated other comprehensive income. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included in interest income from securities. Realized gains and losses and declines in value judged to be other-than-temporary are included in gain (loss) on sale of securities. The cost of securities sold is based on the specific identification method.
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flows of borrowers. The Company is exposed to risk of loss on loans which may arise from any number of factors including problems within the respective industry of the borrower or from local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures.
Loans are stated at the amount of unpaid principal reduced by deferred loan income (net of costs) and an allowance for loan losses. Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees, are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis. A loan is placed back on accrual status when both principal and interest are current.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. Reserves on impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses charged against income. The allowance for loan losses includes specific reserves for impaired loans and an estimate of losses inherent in the loan portfolio at the balance sheet date, but not yet identified with specific loans. Loans deemed to be uncollectible are charged against the allowance when management believes that the collectibility of the principal is unlikely and subsequent recoveries, if any, are credited to the allowance. Management's periodic evaluation of the adequacy of the allowance is based on an assessment of the current loan portfolio, including known inherent risks, adverse situations that may affect the borrowers' ability to repay, the estimated value of any underlying collateral and current economic conditions.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Gains or losses on disposals of premises and equipment are included in results of operations.
ADVERTISING AND WEBSITE DEVELOPMENT COSTS
Advertising costs are expensed as incurred. Costs incurred in connection with the initial website development for BankDirect are capitalized and amortized over a period not to exceed three years. Ongoing maintenance and enhancements of websites are expensed as incurred.
INTANGIBLE ASSETS
The excess of cost over the fair value of net identifiable assets of businesses acquired (goodwill) is amortized on a straight-line basis over a period not in excess of 20 years. All intangible assets are evaluated periodically to determine recoverability of their carrying value when economic conditions
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
indicate an impairment may exist. These conditions would include an ongoing negative performance history and a forecast of anticipated performance that is significantly below management's initial expectation for the acquired entity. Impairment would be determined based on the estimated discounted cash flows of the entity acquired over the remaining amortization period.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized gains or losses on the Company's available-for-sale securities are included in accumulated other comprehensive income.
INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax return. The Company utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation reserve is provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized.
EFFECT OF PENDING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS 133) was issued in June 1998. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. The Company will adopt the Standard as of January 1, 2001. The adoption is not expected to have a material impact on the Company's financial statements.
RECLASSIFICATION
Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation.
The consolidated interim financial statements have been prepared without audit. Certain information and footnote disclosures presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make interim financial information not misleading.
2. ACQUISITION
On December 18, 1998, the Company acquired Resource Bank by exchanging 492,978 shares of the Company's common stock (valued at $12.50 per share) for 100% of Resource Bank's common stock. The transaction has been accounted for by the purchase method of accounting. The Company's consolidated financial statements include the results of operations of Resource Bank from the date of acquisition forward.
2. ACQUISITION (CONTINUED)
The purchase price was allocated to the assets acquired and liabilities assumed based upon estimated market values, summarized as follows:
Market Value
--------------
(In Thousands)
ASSETS
Cash $ 842
Securities 3,175
Federal funds sold 4,220
Loans 11,003
Fixed assets 245
Other assets 120
-------
Total assets $19,605
LIABILITIES
Deposits $15,166
Other liabilities 147
-------
Total liabilities 15,313
Assignable market values of identified net assets 4,292
Purchase price 6,162
-------
Excess of cost over market value of identified assets (goodwill) $ 1,870
=======
|
The excess of cost over the market value of identified assets (goodwill) is being amortized over 15 years. Accumulated amortization related to intangibles totaled approximately $125,000 at December 31, 1999.
3. SECURITIES
The following is a summary of securities:
December 31, 1999
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-for-Sale Securities Cost Gains Losses Value
----------------------------- --------- ---------- ---------- ---------
(In Thousands)
U. S. Government agency securities $ 72,846 $ -- $ (2,260) $ 70,586
Mortgage-backed securities 58,463 -- (747) 57,716
Other debt securities 31,823 3 (194) 31,632
Equity securities 4,475 -- -- 4,475
--------- --------- --------- ---------
$ 167,607 $ 3 $ (3,201) $ 164,409
========= ========= ========= =========
|
December 31, 1998
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-for-Sale Securities Cost Gains Losses Value
----------------------------- --------- ---------- ---------- ---------
(In Thousands)
U. S. Government agency securities $ 3,000 $ -- $ (4) $ 2,996
Mortgage-backed securities -- -- -- --
Equity securities 175 -- -- 175
------- ------- ------- -------
$ 3,175 $ -- $ (4) $ 3,171
======= ======= ======= =======
|
3. SECURITIES (CONTINUED)
The amortized cost and estimated fair value of securities are presented below by contractual maturity:
December 31, 1999
------------------------------------------------------------
Less Than One to Five Five to
Available-for-sale One Year Years Ten Years Total
------------------ --------- ----------- ---------- --------
(In Thousands)
U.S. Government Agency:
Amortized cost -- $ 68,223 $ 4,623 $ 72,846
Estimated fair value -- 66,160 4,426 70,586
Weighted average yield 5.70% 5.86% 5.71%
Other debt securities:
Amortized cost -- 31,823 -- 31,823
Estimated fair value -- 31,632 -- 31,632
Weighted average yield 7.07% 7.07%
------ ---------- ---------- --------
Total fixed maturity securities:
Amortized cost -- 100,046 4,623 104,669
Estimated fair value -- 97,792 4,426 102,218
Weighted average yield 6.14% 5.86% 6.12%
------ ---------- ----------
Mortgage-backed securities:
Amortized cost $ 58,463
Estimated fair value 57,716
Weighted average yield 6.71%
Equity securities:
Amortized cost $ 4,475
Estimated fair value 4,475
--------
Total available for sale securities:
Amortized cost $167,607
Estimated fair value 164,409
--------
|
Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
Securities with carrying values of approximately $60,011,000 were pledged to secure certain borrowings at December 31, 1999.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized by category as follows (in thousands):
March 31, December 31
2000 1999 1998
----------- --------- ---------
(Unaudited)
Commercial $ 176,995 $ 152,749 $ 2,227
Construction 13,213 11,565 4,554
Real estate 65,813 51,779 3,142
Consumer 22,782 11,507 1,169
--------- --------- ---------
278,803 227,600 11,092
Deferred origination fees (net of direct origination costs)
(643) (30) a-
Allowance for loan losses (3,475) (2,775) (100)
--------- --------- ---------
Loans, net $ 274,685 $ 224,795 $ 10,992
========= ========= =========
|
The majority of the commercial, consumer and residential mortgage loan portfolios are loans to business and individuals in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the loan portfolio, loans to the services industry were $110.4 million or 49% of total loans. Other notable segments include manufacturing, $37.6 million and contracting, $27.4 million. The risks created by these concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses is adequate to cover estimated loses on loans at December 31, 1999.
The changes in the allowance for loan losses are summarized as follows (in thousands):
Texas Capital Bancshares Resource Bank
------------------------------------------------ ----------------------------
Inception January 1 Inception
Three months Year ended through through through
ended December 31, December 31, December 18, December 31,
March 31, 2000 1999 1998 1998 1997
-------------- ------------- ------------ ------------ ------------
(Unaudited)
Balance, beginning of year $ 2,775 $ 100 $ -- $ 30 $ --
Provision for loan losses 700 2,687 1 69 30
Acquisition of Resource Bank -- -- 99 -- --
Loans charged off -- (12) -- -- --
------- ------- ------- ------- -------
Balance at end of year $ 3,475 $ 2,775 $ 100 $ 99 $ 30
======= ======= ======= ======= =======
|
The Bank had no impaired loans as of December 31, 1999 and 1998.
During the normal course of business, the Company and subsidiaries may enter into transactions with related parties, including their officers, employees, directors, significant shareholders and their related affiliates. It is the Company's policy that all such transactions are on substantially the same terms as those prevailing at the time for comparable transactions with third parties. Loans to related parties, including officers and directors, were approximately $3,858,000 at December 31, 1999. During the year ended December 31, 1999, total advances were approximately $9,788,000 and total paydowns were $5,930,000. There were no loans to related parties as of December 31, 1998.
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 are summarized as follows:
December 31
1999 1998
------- -------
(In Thousands)
Premises $ 1,803 $ 24
Furniture and equipment 3,201 356
------- -------
5,004 380
Accumulated depreciation (593) (3)
------- -------
$ 4,411 $ 377
======= =======
|
Depreciation expense was approximately $590,000 and $3,000 at December 31, 1999 and from inception to December 31, 1998, respectively, for Texas Capital Bancshares and was approximately $91,000 and $18,000 for the period from January 1 through December 18, 1998 and from inception through December 31, 1997, respectively, for Resource Bank.
6. DEPOSITS
At December 31, 1999, the scheduled maturities of interest-bearing time deposits are as follows:
December 31, 1999
-----------------
(In Thousands)
2000 $ 83,799
2001 20,079
2002 202
2003 627
2004 --
--------
$104,707
========
|
At December 31, 1999 and 1998, the Bank had approximately $18,909,000 and $112,000, respectively, in deposits from related parties, including directors, shareholders, and their related affiliates.
At December 31, 1999 and 1998, interest-bearing time deposits of $100,000 or more were approximately $57,881,000 and $5,190,000, respectively.
7. BORROWING ARRANGEMENTS
Short-term borrowings at December 31, 1999 consist of $46.3 million in advances from the Federal Home Loan Bank (FHLB). These advances consist of overnight and term advances bearing interest from 5.28% to 5.98%, with a weighted average cost of 5.75%. All borrowings outstanding at December 31, 1999 mature within 30 days. In accordance with policies of the FHLB, the Bank has pledged $48.3 million of securities as collateral for these advances. Based on the securities portfolio at December 31, 1999, the Bank had an additional $148 million of FHLB borrowings available.
The Bank had unused federal fund lines available from commercial banks at December 31, 1999 of approximately $55 million. Generally, these federal fund borrowings are overnight, but not to exceed seven days.
8. INCOME TAXES
As a net operating loss was incurred during the three months ended March 31, 2000, the year ended December 31, 1999 and from inception to December 31, 1998 by Texas Capital Bancshares and from January 1, 1998 through December 18, 1999 and from inception through December 31, 1997 by Resource Bank, there was no current or deferred provision for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows:
December 31
1999 1998
------- -------
(In Thousands)
Deferred tax assets:
Net operating loss carryforward $ 3,135 $ 400
Allowance for loan losses 944 21
Organizational costs 183 57
Depreciation 56 5
Loan origination fees 320 --
Unrealized loss on securities 1,087 --
------- -------
5,725 483
Deferred tax liabilities:
Cash to accrual (1,210) --
------- -------
(1,210) --
Net deferred tax asset before valuation allowance 4,515 483
Valuation allowance (4,515) (483)
------- -------
Net deferred tax asset (liability) $ -- $ --
======= =======
|
The reconciliation of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense is as follows:
Texas Capital Bancshares Resource Bank
----------------------------- ---------------------------
Inception January 1 Inception
Year ended through through through
December 31, December 31, December 18, December 31,
1999 1998 1998 1997
------------ ------------ ------------ ------------
Tax at U.S. statutory rate 34% 34% 34% 34%
Non-deductible items (1%) (1%) (1%) (1%)
Changes in valuation allowance (32%) (33%) (33%) (33%)
Other, net (1%) -- -- --
--- --- --- ---
Total 0% 0% 0% 0%
=== === === ===
|
At December 31, 1999 the Company has federal net operating loss carryforwards of approximately $9,220,000 which will begin to expire in year 2014. A valuation allowance equal to the total estimated tax benefit of this net operating loss carryforward has been established at December 31, 1999. The change in the valuation allowance for the current year is $4,032,000.
9. EMPLOYEE BENEFITS
In August 1999, the Company established a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan permits the employees of the Company to defer a portion of their compensation. Matching contributions may be made in amounts and at times determined by the Company. The Company made no such contributions for the year ended December 31, 1999. Amounts contributed by the Company for a participant will vest over 6 years and will be held in trust until distributed pursuant to the terms of the 401(k) Plan. Employees of the Company are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment options.
The Board of Directors of the Company approved a stock option plan during 1999. The number of options awarded and the employees to receive the options are determined by the Board of Directors, or its designated committee. Options awarded under this plan are subject to vesting requirements. Generally, one fifth of the options awarded vest annually and expire 10 years after date of grant. Total options available under the plan at December 31, 1999, are 761,849. During 1999, 522,320 options were awarded at an exercise price of $12.50, and 50,000 options were awarded at an exercise price of $11.09.
The Company follows SFAS No. 123, Accounting for Stock Based Compensation. The statement allows the continued use of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations. Under APB 25, no compensation expense is recognized at the date of grant for the options where the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Compensation expense of $24,000 was recorded for the options that were granted at $11.09 with a three-year vesting period. The Company's election to continue the use of APB 25 requires pro forma disclosures of net income as if the fair value based method of accounting had been applied.
The fair value of these options was estimated at the date of grant using a Black-Scholes value option pricing model with the following weighted average assumptions: a risk free interest rate of 5.06%, a dividend yield of 0%, a volatility factor of .001, and an estimated life of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Had compensations costs for all grants of stock options during 1999 been determined based upon the fair value of vested options at the date of grant, reported net loss for 1999 would have been adjusted to the pro forma amount shown below. As presented below, the pro forma impact on future periods can be expected to be greater, as each successive grant is valued and amortized:
(In Thousands except Share Data) Year ended
December 31, 1999
-----------------
Net loss:
As reported $ (9,298)
Pro forma (9,641)
Basic and diluted earnings per share:
As reported $ (1.23)
Proforma (1.27)
|
9. EMPLOYEE BENEFITS (CONTINUED)
A summary of the Company's stock option activity and related information for 1999 is as follows:
Weighted Average
Exercise
Options Price
----------- ----------------
Options outstanding at January 1, 1999 -- $ --
Options granted 572,320 12.38
Options exercised -- --
Options forfeited -- --
----------- -----------
Options outstanding at December 31,1999 572,320 $ 12.38
=========== ===========
Options vested at December 31, 1999 63,518 $ 12.13
Weighted average fair value of options granted during 1999 in which
the option exercise price ($12.50) equals the market price: $ 2.71
Weighted average fair value of options granted during 1999 in which
the option exercise price ($11.09) is less than market price: $ 4.02
Weighted average remaining contractual life of options currently
outstanding in years: 9.08
|
The Company entered into a deferred compensation agreement with one of its executive officers. The agreement allows the employee to elect to defer up to 100% of his compensation on an annual basis. All deferred compensation is invested in the Company's common stock held in a rabbi trust. The stock is held in the name of the trustee, and the principal and earnings of the trust are held separate and apart from other funds of the Company, and are used exclusively for the uses and purposes of the deferred compensation agreement. The accounts of the trust have been consolidated with the accounts of the Company.
10. WARRANTS
As described in Note 16, the Company plans to transfer the operations of BankDirect into a separate majority owned subsidiary of the Company, BankDirect SSB. During 1999, Texas Capital Bank entered into a marketing and co-branding agreement with a third party to market and co-brand BankDirect. The agreement includes an obligation to issue warrants upon the third party meeting certain account volumes. Such volumes have not been met as of December 31, 1999. The third party could acquire up to 3% of BankDirect SSB's common stock after an Initial Public Offering.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters-of-credit which involve varying degrees of credit risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters-of-credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit-worthiness on a case-by-case basis.
Standby letters-of-credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers.
December 31
1999 1998
------- -------
(In Thousands)
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit $92,819 $ 5,328
Standby letters-of-credit 11,284 --
|
12. REGULATORY RESTRICTIONS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1999, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of June 30, 1999, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the tables below. As shown below, the Bank's capital ratios exceed the regulatory definition of well capitalized as of December 31, 1999 and 1998. There have been no conditions or events since the notification that management believes have changed the Bank's category.
12. REGULATORY RESTRICTIONS (CONTINUED)
(In Thousands except Percentage Data) To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 1999:
Total capital (to risk-weighted
assets):
COMPANY $77,140 23.8% $25,896 8.0% N/A N/A
Bank 76,063 23.4% 25,968 8.0% $32,461 10.0%
Tier 1 capital (to risk-weighted
assets):
COMPANY $74,365 23.0% $12,948 4.0% N/A N/A
Bank 73,288 22.6% 12,984 4.0% $19,476 6.0%
Tier 1 capital (to average assets):
COMPANY $74,365 21.5% $13,817 4.0% N/A N/A
Bank 73,288 21.2% 13,816 4.0% $17,270 5.0%
|
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
---------------------- ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ----- ------- -----
As of December 31, 1998:
Total capital (to risk-weighted
assets):
COMPANY $71,420 267.0% $ 2,140 8.0% N/A N/A
Bank 70,387 263.0% 2,139 8.0% $ 2,675 10.0%
Tier 1 capital (to risk-weighted
assets):
COMPANY $71,320 266.6% $ 1,070 4.0% N/A N/A
Bank 70,287 262.0% 1,070 4.0% $ 1,605 6.0%
Tier 1 capital (to average assets):
COMPANY $71,320 397.9% $ 717 4.0% N/A N/A
Bank 70,287 355.0% 791 4.0% $ 990 5.0%
|
12. REGULATORY RESTRICTIONS (CONTINUED)
Dividends that may be paid by subsidiary banks are routinely restricted by various regulatory authorities. The amount that can be paid in any calendar year without prior approval of the Bank's regulatory agencies cannot exceed the lesser of net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings. No dividends were declared or paid during 1999 or 1998.
The required balance at the Federal Reserve at December 31, 1999 was approximately $391,000.
13. EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands except share data):
Texas Capital Bancshares
---------------------------------------------------------------------
March 1, 1998
Three months Three months (Inception)
ended ended Year ended through
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
------------ ------------ ------------ -------------
(Unaudited) (Unaudited)
Numerator for basic and dilutive per
share-loss allocated common shareholders $ (2,970) $ (1,017) $ (9,298) $ (739)
----------- ----------- ----------- -----------
Denominator for basic and dilutive
earnings per share-weighted average
shares 7,591,746 7,312,182 7,566,248 599,907
----------- ----------- ----------- -----------
Basic and diluted earnings per share $ (.39) $ (.14) $ (1.23) $ (1.23)
=========== =========== =========== ===========
|
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. This disclosure does not and is not intended to represent the fair value of the Company.
A summary of the carrying amounts and estimated fair values of financial instruments is as follows:
December 31, 1999
-------------------------
Carrying Estimated
Amount Fair Value
-------- ---------
(In Thousands)
Cash and cash equivalents $ 8,548 $ 8,548
Securities available-for-sale 164,409 164,409
Loans, net 224,795 215,878
Deposits 287,068 282,429
|
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Financial instruments carrying value at December 31, 1998 approximated fair value.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheet for cash and short-term investments approximates their fair value.
Securities available-for-sale
The fair value of investment securities is based on prices obtained from independent pricing services which are based on quoted market prices for the same or similar securities.
Loans
For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are generally based on carrying values. The fair value for other loans is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximated its fair value.
Deposits
The carrying amounts for variable-rate money market accounts approximate their fair value. Fixed-term certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.
Off-balance sheet instruments
Fair values for the Company's off-balance sheet instruments which consist of lending commitments and standby letters-of-credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Management believes that the fair value of these off-balance sheet instruments is not significant.
15. COMMITMENTS AND CONTINGENCIES
The Company leases various premises under operating leases with various expiration dates. Rent expense incurred under operating leases amounted to approximately $861,000 and $48,000 for the year ended December 31, 1999 and for the period from inception to December 31, 1998, respectively, for Texas Capital Bancshares and approximately $58,000 and $10,000 for the period from January 1 through December 18, 1998, and the period from inception through December 31, 1997, respectively, for Resource Bank.
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum future lease payments under operating leases are as follows:
Minimum
Year ending December 31, Payments
------------------------ -------------
(In Thousands)
2000 $ 2,090
2001 2,091
2002 1,964
2003 1,665
2004 and thereafter 7,954
-------
$15,764
=======
|
16. SUBSEQUENT EVENTS (UNAUDITED)
On February 7, 2000, the Company issued a Private Placement Memorandum to sell 1,000,000 shares of its common stock for $14.50 per share. Subsequently, this offering was increased to 1,500,000 shares of common stock. Subsequent to March 31, 2000, the Company sold 1,841,024 shares at $14.50 per share. The funds raised in this offering will primarily be used to provide the Company with additional funds for customer acquisition, expansion of operations, and working capital and to provide funds for customer acquisition, expansion of operations, and working capital to the Bank and BankDirect.
During June 2000, the Company received final regulatory approval for the formation of the state chartered savings bank, which would be a consolidated subsidiary of the Company. The Company plans to transfer the operations of BankDirect into this consolidated subsidiary after its formation.
During 1999, the Board of Directors approved the creation of an Employee Stock Purchase Plan (ESPP). Employees are eligible for the plan when they have met certain requirements concerning period of credited service and minimum hours worked. Eligible employees may contribute a minimum of 1% to a maximum of 10% of eligible compensation up to the Section 423 of the Internal Revenue Code limit of $25,000. The Company has allocated 80,000 shares to the plan. As of December 31, 1999, the plan document had not been finalized. The plan document is expected to the completed and participation should begin during the second quarter of 2000.
In April 2000, BankDirect entered into an agreement with American Airlines to offer mileage opportunities to AAdvantage members through its AAdvantage Program. BankDirect is the first internet-based bank to offer customers the benefits of the AAdvantage Program.
17. PARENT COMPANY ONLY
Summarized financial information for Texas Capital Bancshares, Inc. - Parent Company Only follows:
BALANCE SHEETS December 31
1999 1998
-------- --------
(In Thousands)
ASSETS
Cash and cash equivalents $ 1,202 $ 823
Investment in subsidiaries 71,835 72,153
Other assets 18 230
-------- --------
Total assets $ 73,055 $ 73,206
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 143 $ 20
-------- --------
Total liabilities 143 20
-------- --------
Common stock 77 66
Additional paid-in capital 86,917 73,863
Accumulated deficit (10,037) (739)
Treasury stock (847)
Accumulated other comprehensive income (loss) (3,198) (4)
-------- --------
Total shareholders' equity 72,912 73,186
-------- --------
Total liabilities and shareholders' equity $ 73,055 $ 73,206
======== ========
|
STATEMENTS OF EARNINGS March 1, 1998
Year (Inception)
ended through
December 31, December 31,
1999 1998
------------ -------------
(In Thousands)
Interest income $ 16 $ 153
------- -------
Total income 16 153
------- -------
Interest expense -- 7
Salaries and employee benefits 764 356
Legal and professional 388 176
Non-interest expense 38 348
------- -------
Total expense 1,190 887
Loss before income taxes and equity in undistributed loss of
subsidiaries
(1,174) (734)
Income tax expense (benefit) -- --
------- -------
Loss before equity in undistributed income of subsidiaries (1,174) (734)
Equity in undistributed loss of subsidiaries (8,124) (5)
------- -------
Net Loss $(9,298) $ (739)
======= =======
|
17. PARENT COMPANY ONLY (CONTINUED)
STATEMENTS OF CASH FLOWS March 1, 1998
Year (Inception)
ended through
December 31, December 31,
1999 1998
------------ -------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (9,298) $ (739)
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed loss of subsidiaries 8,124 5
(Increase) decrease in other assets 212 (230)
Increase in other liabilities 123 20
-------- --------
Net cash used in operating activities (839) (944)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Resource Bank -- (6,162)
Investment in subsidiaries (11,000) (66,000)
-------- --------
Net cash used in investing activities (11,000) (72,162)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 13,065 73,929
Purchase treasury stock (847) --
-------- --------
Net cash provided by financing activities 12,218 73,929
-------- --------
Net increase in cash and cash equivalents 379 823
Cash and cash equivalents at beginning of period 823 --
-------- --------
Cash and cash equivalents at end of period $ 1,202 $ 823
======== ========
Cash paid for interest $ -- $ 7
======== ========
|
18. REPORTABLE SEGMENTS
The Company operates two principal lines of business under Texas Capital Bank (the "Bank"): the traditional bank and BankDirect, an internet only bank. BankDirect has been a net provider of funds and the traditional bank has been a net user of funds. In order to present the operating results separately for BankDirect and the traditional bank, it was necessary to allocate earning assets held by the traditional bank to BankDirect. Currently earning assets are allocated to BankDirect on a monthly basis in amounts equal to total BankDirect liabilities, less any non-earning assets of BankDirect.
18. REPORTABLE SEGMENTS (CONTINUED)
TRADITIONAL BANKING
TRADITIONAL BANKING
(In thousands)
Year ended
December 31, Three Months Ended March 31
1999 2000 1999
------------ -------- --------
(Unaudited)
Net interest income $ 8,205 $ 3,594 $ 1,257
Provision for loan losses 2,687 700 206
Non-interest income 356 330 16
Non-interest expense 12,149 4,720 1,949
Net loss (6,275) (1,496) (882)
|
BANKDIRECT
As BankDirect did not exist during the first quarter of 1999, comparative information is not available.
BANKDIRECT
(In thousands)
Year ended Three months
December 31, ended March 31,
1999 2000
------------ ---------------
(Unaudited)
Net interest income $ 27 $ 85
Non-interest income 2 7
Non-interest expense 1,878 1,141
Net loss (1,849) (1,049)
|
18. REPORTABLE SEGMENTS (CONTINUED)
Reportable segments reconciliations to the Consolidated Financial Statements for the three months ended March 31, 2000 and March 31, 1999 are as follows (in thousands):
March 31, 2000
--------------------------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
-------- --------- -------- --------
(Unaudited)
Total reportable lines of business $3,679 $ 700 $ 337 $5,861
Unallocated items:
Holding company -- -- -- 425
------ ------ ------ ------
Texas Capital Bancshares (consolidated) $3,679 $ 700 $ 337 $6,286
====== ====== ====== ======
|
March 31, 1999
--------------------------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
-------- --------- -------- --------
(Unaudited)
Total reportable lines of business $1,257 $ 206 $ 16 $1,949
Unallocated items:
Holding company 9 -- -- 144
------ ------ ------ ------
Texas Capital Bancshares (consolidated) $1,266 $ 206 $ 16 $2,093
====== ====== ====== ======
|
Reportable segments reconciliation to the Consolidated Financial Statements for the year ended December 31, 1999 is as follows (in thousands):
December 31, 1999
--------------------------------------------------------
Net Provision Non- Non-
Interest for Loan interest interest
Income Losses Income Expense
-------- --------- -------- --------
(Unaudited)
Total reportable lines of business $ 8,232 $ 2,687 $ 358 $14,027
Unallocated items:
Holding company 16 -- -- 1,190
------- ------- ------- -------
Texas Capital Bancshares (consolidated) $ 8,248 $ 2,687 $ 358 $15,217
======= ======= ======= =======
|
TEXAS CAPITAL BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
and Additional Information
December 31, 1998
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Texas Capital Bancshares, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Texas Capital Bancshares, Inc. and Subsidiary (together referred to as Company) as of December 31, 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Texas Capital Bancshares, Inc. and Subsidiary as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ FISK & ROBINSON P.C.
March 25, 1999
Dallas, Texas
|
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1998
(In Thousands)
ASSETS
Cash and due from banks $ 2,021
Federal funds sold 70,500
Securities available for sale 3,171
Loans 10,992
Premises and equipment 377
Goodwill 1,870
Other assets 380
--------
$ 89,311
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 2,697
Interest bearing 13,321
--------
Total deposits 16,018
Other liabilities 107
Commitments and contingencies --
Stockholder's equity:
Common stock 61
Series A-1 nonvoting stock 5
Paid-in capital 73,863
Accumulated deficit (739)
Accumulated other comprehensive income (4)
--------
Total stockholders' equity 73,186
--------
$ 89,311
========
|
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Operations
For the Year Ended December 31, 1998
(In Thousands)
Interest income:
Interest and fees on loans $ 40
Interest on securities 8
Interest on deposits in other banks 153
Interest on federal funds sold 12
----
Total interest income 213
----
Interest expense:
Interest on deposit accounts 25
Interest on other borrowings 7
----
Total interest expense 32
----
Net interest income 181
Provision for possible loan losses 1
----
Net interest income after provision 180
----
Noninterest income:
Service charges 2
Other 2
----
Total noninterest income 4
----
Noninterest expense:
Salaries and employee benefits 378
Occupancy expense 103
Other 442
----
Total noninterest expense 923
----
Net loss $739
====
|
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 1998
(Dollars in Thousands)
Common Stock Series A-1 Nonvoting
$.01 Par Value Common Stock
20,000,000 Shares Authorized, $.01 Par Value
6,160,441 Shares Issued 474,870 Shares Issued
and Outstanding and Outstanding
Paid-In
Shares Amount Shares Amount Capital
----------- ---------- ---------- ---------- ----------
Balance January 1, 1998 -- $ -- -- $ -- $ --
Sale of common stock 5,667,463 56 474,870 5 67,706
Acquisition of Texas Capital Bank, N.A. 492,978 5 -- -- 6,157
Other comprehensive income:
Net loss -- -- -- -- --
Net unrealized loss on available for sale
securities
Total comprehensive income -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance December 31, 1998 6,160,441 $ 61 474,870 $ 5 $ 73,863
========== ========== ========== ========== ==========
Accumulated
Other
Accumulated Comprehensive
Deficit Income Total
---------- ------------- ----------
Balance January 1, 1998 $ -- $ -- $ --
Sale of common stock -- -- 67,767
Acquisition of Texas Capital Bank, N.A. -- -- 6,162
Other comprehensive income:
Net loss (739) -- (739)
Net unrealized loss on available for sale
securities (4) (4)
Total comprehensive income -- -- (743)
---------- ---------- ----------
Balance December 31, 1998 $ (739) $ (4) $ 73,186
========== ========== ==========
|
See accompanying notes to financial statements.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1998
(In Thousands)
Cash flows from operating activities:
Net loss $ (739)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 3
Provision for possible loan losses 1
Net increase in other assets (260)
Net decrease in other liabilities (40)
--------
Net cash used by operating activities (1,035)
--------
Cash flows from investing activities:
Net principal collected on loans 10
Net additions to premises and equipment (135)
Proceeds received from acquisition of bank 5,062
--------
Net cash provided by investing activities 4,937
--------
Cash flows from financing activities:
Net increase in demand deposits, NOW and
accounts 742
Net increase in certificates of deposits 110
Sale of common stock 67,767
--------
Net cash provided by financing activities 68,619
--------
Net increase in cash and cash equivalents 72,521
Cash and cash equivalents at beginning of year --
--------
Cash and cash equivalents at end of year $ 72,521
========
|
See accompanying notes to consolidated financial statements.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The accounting and reporting policies of Texas Capital Bancshares, Inc. and Subsidiary (together referred to as Company) conform to general practices within the banking industry and to generally accepted accounting principles. The following are descriptions of the more significant of those policies.
Texas Capital Bank, National Association provides a full range of banking services to individual and corporate customers and is subject to competition from other local financial institutions. Texas Capital Bancshares, Inc. and the Bank are also subject to the regulations of certain federal agencies and undergo periodic examinations by those regulatory authorities.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Texas Capital Bancshares, Inc. (Bancshares) and its wholly-owned subsidiary, Texas Capital Bank, National Association (Bank). All significant intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management normally obtains independent appraisals for significant properties.
A significant portion of the Company's loans are secured by real estate and related assets located in local markets. Accordingly, the ultimate collectibility of this portion of the Company's loan portfolio is susceptible to changes in local market conditions.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other banks, and federal funds sold. All highly liquid investments with an initial maturity of less than ninety days are considered to be cash equivalents.
SECURITIES AVAILABLE FOR SALE
Available for sale securities consist of bonds, notes, debentures, and certain equity securities not classified as trading securities nor as held to maturity securities.
Unrealized holding gains and losses on available for sale securities are reported as a separate component of other comprehensive income in stockholders' equity until realized.
Gains and losses on the sale of available for sale securities are determined using the specific identification method.
Declines in the fair value of individual held to maturity and available for sale securities below their cost that are other than temporary would result in write-downs of the individual securities to their fair value. The related write-downs, if any, would be included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest method over the period to maturity.
LOANS
Loans receivable are reported at their outstanding principal balance, net of the allowance for possible loan losses.
Certain fees and costs associated with originating loans have been recognized in the period in which such fees or costs were incurred. The provisions of Statement of Financial Accounting Standards (SFAS) No. 91 generally provide that such net fees or net costs be deferred and recognized over the life of the loan as an adjustment of yield. For the period ended December 31, 1998, management believes that not deferring such costs and amortizing them over the life of the related loan does not materially affect the consolidated financial position or results of operations of the Company.
Impaired loans (as defined by SFAS No. 114 and as amended by SFAS No. 118) are accounted for at the net present value of expected future cash flows, discounted at the loan's effective interest rate, the observable market price of the loan or at the fair value of the collateral if the loan is collateral dependent.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due and only when recovery of the carrying value of the loan is reasonably assured. The Bank had no impaired loans at December 31, 1998.
The allowance for possible loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). The provision for possible loan losses is based on management's estimate of the amount required to maintain an allowance adequate to absorb potential losses in the portfolio. Since the provision is based on estimates, ultimate losses may vary from current estimates. Management's periodic evaluation of the adequacy of the allowance is based on the industry loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management believes the allowance for possible loan losses is adequate.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method.
OTHER REAL ESTATE OWNED
Real estate properties acquired though, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically prepared and the real estate is carried at the lower of the carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other noninterest expense. The Bank had no other real estate owned at December 31, 1998.
GOODWILL
The excess of cost over net assets acquired is recorded as goodwill in the accompanying financial statements and is being amortized on a straight line basis over an estimated life of fifteen years.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
INCOME TAXES
The Company files a consolidated income tax return with the Bank. Federal income tax expense or benefit is allocated on a separate return basis.
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period together with the change during the period in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.
FORWARD-LOOKING STATEMENTS
Certain phrases contained in these financial statements including, without limitation, statements containing the words "believes", "anticipates", "estimates", "expects" and words of similar meaning, constitute forward-looking statements, as defined in securities law. Among others, notes to the financial statements concerning financial instruments, contingencies, and Year 2000 readiness identify important risk factors that could cause actual results to differ significantly from those contained in the forward-looking statements.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under this guidance, the Company is required to recognize the financial and servicing assets it controls and the liabilities it has incurred, derecognize financial assets when control has been surrendered and derecognize liabilities when extinguished. SFAS 125 became effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. However, certain provisions of the Statement were delayed for one year. The Company did not experience a significant impact upon implementation of SFAS 125.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The term "other comprehensive income" denotes revenues, expenses, gains and losses that are included in comprehensive income but not in net income in accordance with generally accepted accounting principles. The Company adopted SFAS No. 130 effective January 1, 1998 as required by the pronouncement.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management has not yet fully evaluated the effects of this change on its operations. The Company expects to adopt SFAS No. 133 as required for its year ended December 31, 2000.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
3. ACQUISITION
On December 18, 1998, Bancshares acquired the Bank by exchanging 492,978 shares of the Company's common stock (valued at $12.50 per share) for 100% of the Bank's common stock. The transaction has been accounted for by the purchase method of accounting. The accompanying consolidated financial statements include the accounts of the Bank from the date of acquisition (December 18, 1998) through December 31, 1998.
A summary of the estimated market values of the assets acquired and liabilities assumed as of December 18, 1998, prepared in accordance with the Accounting Principles Board Opinion No. 16, is as follows (in thousands):
Amount
------
Assets
Cash $ 842
Investment securities 3,175
Federal funds sold 4,220
Loans 11,003
Fixed assets 245
Other assets 120
-------
Total assets 19,605
-------
Liabilities
Deposits 15,166
Other liabilities 147
-------
Total liabilities 15,313
-------
Net assignable market values of tangible assets 4,292
Acquisition costs 6,162
-------
Excess of cost over assignable market values of
tangible assets $ 1,870
=======
|
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
As discussed in note 1, the excess of acquisition cost over the assignable market values of tangible assets is recorded as goodwill in the accompanying consolidated balance sheet and is being amortized on a straight line basis over a period of fifteen years.
4. STATEMENT OF CASH FLOWS
The Company has chosen to report on a net basis its cash receipts and cash payments for time deposits accepted and repayments of those deposits, interest bearing deposits in other banks, loans made to customers and principal collections on those loans.
The Company uses the indirect method to present cash flows from operating activities. Other supplemental information on cash flow is presented below (in thousands):
Cash transactions:
Interest expense paid $ 76
=======
Income tax paid $ --
=======
Transactions in connection with acquisition,
as more fully discussed in note 3:
Market value of tangible assets acquired,
net of cash and cash equivalents $14,543
Cash and cash equivalents 5,062
-------
Total tangible assets 19,605
-------
Liabilities assumed 15,313
-------
Bancshares stock exchanged for Bank stock 6,162
-------
Total acquisition cost 21,475
-------
Exchange of cost over assignable market
values of tangible assets $ 1,870
=======
|
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
5. SECURITIES AVAILABLE FOR SALE
Investment securities have been classified in the consolidated balance sheet according to management's intent. The carrying amount of securities and their approximate fair values at December 31, 1998 are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -----
SECURITIES CLASSIFIED
AS AVAILABLE FOR SALE
---------------------
December 31, 1998:
U.S. Government agencies $ 3,000 $ -- $ (4) $ 2,996
Other 175 $ -- -- 175
------- ------- ------- -------
$ 3,175 $ -- $ (4) $ 3,171
======= ======= ====== =======
|
There were no securities pledged to secure public fund deposits at December 31, 1998. There were no sales of investment securities in 1998.
The amortized cost and estimated fair value of debt and equity securities at December 31, 1998, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available for Sale
-----------------------------
Amortized Fair
Cost Value
--------- -----
Due in one year or less $ -- $ --
Due from one year to five years -- --
Due from five to ten years 3,000 2,996
Due after ten years -- --
------ ------
3,000 2,996
Other 175 175
------ ------
$3,175 $3,171
====== ======
|
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
6. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans at December 31, 1998 consisted of the following (in thousands):
Amount
--------
Commercial $ 2,227
Real estate 7,696
Consumer 1,169
--------
11,092
Allowance for possible loan losses (100)
--------
$ 10,992
========
|
An analysis of the change in the allowance for possible loan losses follows (in thousands):
Amount
------
Balance at beginning of period $ --
Allowance amount acquired in connection
with acquisition 99
Provision for possible loan losses 1
Loans charged to the allowance account --
Recoveries on loans previously charged-off --
----
Balance at the end of the year $100
====
|
The Company extends commercial and consumer credit primarily to customers in Texas. At December 31, 1998, substantially all of the Company's loans were collateralized with real estate, inventory, accounts receivable, equipment, marketable securities or other assets.
There were no loans contractually delinquent over ninety days, which continued to accrue interest, at December 31, 1998.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
7. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 consisted of the following (in thousands):
Amount
------
Leasehold improvements $ 24
Furniture and equipment 356
-----
380
Less accumulated depreciation (3)
-----
$ 377
=====
|
Depreciation expense amounted to approximately $3,000 during 1998.
8. DEPOSITS
Deposits at December 31, 1998 consisted of the following (in thousands):
Amount Percent
------- -------
Noninterest bearing demand account $ 2,697 17%
Interest bearing demand account 842 5
Savings account 157 1
Money market accounts 2,671 17
Certificates of deposit, less than $100,000 4,461 28
Certificates of deposit $100,000 and greater 5,190 32
------- -----
$16,018 100.0%
======= =====
|
The weighted average interest rate on deposits at December 31, 1998 was approximately 3.2%.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 1998 include the following (in thousands).
Amount
------
Deferred tax assets:
Allowance for possible loan losses for
book in excess of tax $ 21
Net operating loss carryforward 400
Bank premises and equipment basis for tax
in excess of book 5
Organization expense 57
-----
Total deferred tax assets 483
Valuation allowance (483)
-----
Net deferred tax asset $ --
=====
|
The tax provision for financial reporting purposes differs from amounts determined by applying the statutory tax rate to the pretax accounting loss primarily because of the recording of a valuation allowance for net deferred tax assets as of December 31, 1998.
At December 31, 1998, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1,178,000 which will expire, if not utilized sooner, in 2015. Approximately $400,000 of the net operating loss is a preacquisition loss of the Bank. The amount of preacquisition net operating loss carryforward to be utilized on an annual basis is limited due to the ownership change.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying consolidated statement of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. At December 31, 1998, the approximate amounts of these financial instruments are as follows (in thousands):
Amount
------
Commitments to extend credit $5,328
Standby letters of credit --
------
$5,328
======
|
Although the maximum exposure to loss is the amount of such commitments, at December 31, 1998 management anticipates no material losses from such activities.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held varies but may include real estate, accounts receivable, inventory, equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
11. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under several leases which expire on various dates through 2003. Following is the future minimum lease payments under the terms of the lease for the year ending December 31 (in thousands):
Year Amount
---- ------
1999 $281
2000 187
2001 191
2002 162
2003 121
Thereafter --
----
$942
====
|
Rent expense was approximately $48,000 for the period ended December 31, 1998.
From time to time, the Company is involved in legal actions arising from normal business activities. Management believes such actions, if any, will not materially affect the financial position or results of operations of the Company.
The Company does not anticipate any material losses as a result of its commitments and contingent liabilities.
12. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Company's loan and business activity is with customers located within Texas. Such customers are normally also depositors of the Bank. The concentrations of credit by type of loan are set forth in Note 6. The distribution of commitments to extend credit generally approximates the distribution of loans outstanding.
At December 31, 1998, the Bank had concentrations of credit risk associated with federal funds sold of approximately $70,500,000 at two nonrelated financial institutions.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
The contractual amounts of credit related financial instruments such as commitments to extend credit and letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral becomes worthless.
13. RESTRICTIONS ON UNDIVIDED PROFITS OF BANK
Under federal banking law, there are legal restrictions limiting the amount of dividends the Bank can declare to its parent company without prior regulatory approval. At January 1, 1999, no amounts were available for dividend declaration by the Bank without prior approval.
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1998, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the Bank was "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum total risk based, Tier I risk based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that date that management believes would change the institution's category.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
The Bank's actual capital amounts and ratios are presented in the following table (in thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1998:
Total capital to risk weighted assets $70,387 263.0% $2,139 8.0% $2,675 10.0%
Tier I capital to risk weighted assets 70,287 262.0 1,070 4.0 1,605 6.0
Tier I capital to average assets 70,287 355.0 791 4.0 990 5.0
|
15. YEAR 2000 READINESS (UNAUDITED)
The Year 2000 issue relates to the ability of computer systems and certain other systems (involving imbedded microchips) to properly handle year 2000 date sensitive data and the potential risk to the Company because of relationships with third parties (e.g. software and hardware vendors, loan customers, correspondent banks, utility companies and others) who do not adequately address the year 2000 issue. Failure in any of these areas could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. The Company has established a committee to evaluate and assess the Company's exposure to this issue. The committee reports the progress of the Year 2000 project to the Company's Board of Directors on a regular basis. This committee has implemented an approach to the Year 2000 issue consistent with the recommended FFIEC policy statement.
The Awareness phase consisted of defining the Year 2000 problem, developing the resources necessary to perform compliance work, establishing a Year 2000 program committee and program coordinator and developing an overall strategy that encompasses in-house systems, service bureaus, vendors, auditors, customers, and other suppliers (including correspondents). This phase has generally been completed.
The Assessment phase consists of evaluating the size and complexity of the potential problems and detailing the magnitude of the effort necessary to address the Year 2000 issue. The objective of this phase is to identify hardware, software, network, automated teller machines, other various processing platforms, and customer and vendor interdependencies affected by Year 2000 date change. The assessment project goes beyond the Company's information systems and includes environmental systems that are dependent on embedded microchips, such as security systems, alarm and vaults. The assessment phase is substantially completed, but management considers it an ongoing process for the Company because of the need to evaluate any new vendor and customer relationships and information system hardware and software obtained through the Year 2000.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
The Renovation phase includes the remediation of systems identified in the awareness phase as not Year 2000 compliant. Management believes the Renovation phase to be substantially complete with identified problem areas being addressed.
Testing of mission critical systems was completed in December 1998. Additional testing of mission critical vendors and other significant third party vendors is expected to be completed by March 31, 1999. The Company has not identified problems thus far with any of its systems that management believes would have a material impact upon its operations.
The Company is developing contingency plans for implementation in the event that mission critical third party vendors or other significant third party vendors fail to adequately address Year 2000 issues. Such plans principally involve identifying alternate vendors or performing internal remediation. There can be no assurance that any such plans will fully mitigate potential failures or problems. Furthermore, there may be certain mission critical third parties, such as utilities or telecommunication companies, where alternative arrangements or sources are limited.
There were no external costs incurred during the period ended December 31, 1998 to address Year 2000 issues. However, the Company does not separately track internal costs and, therefore, costs such as payroll are not included in this amount. The Company estimates additional costs to be incurred will not exceed $15,000.
Management currently believes Year 2000 issues will not have a material impact on the Company's financial statements. However, because Year 2000 compliance is greatly affected by entities whose Year 2000 readiness efforts the Company does not control and generally because the result of future events is not currently determinable, Year 2000 compliance issues could have a significant effect on the future financial statements of the Company.
[FISK ROBINSON LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
The Board of Directors
Texas Capital Bancshares, Inc. and Subsidiary
Our Report on our audit of the consolidated financial statements of Texas Capital Bancshares, Inc. and Subsidiary as of December 31, 1998, for the year then ended, is included separately herein. That audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating information in Schedules 1 and 2 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies. Such information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.
/s/ FISK & ROBINSON P.C.
March 25, 1999
|
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Schedule 1
Consolidating Balance Sheet
December 31, 1998
(In Thousands)
Texas Texas Eliminations
Capital Capital --------------------------
Bancshares, Inc. Bank, N.A. Debit Credit Consolidated
---------------- ---------- ---------- ---------- ------------
ASSETS
Cash and due from banks $ 823 $ 1,198 $ -- $ -- $ 2,021
Federal funds sold -- 70,500 -- -- 70,500
Securities available for sale -- 3,171 -- -- 3,171
Investment in subsidiary 72,153 -- -- 72,153(a) --
Loans -- 10,992 -- -- 10,992
Premises and equipment -- 377 -- -- 377
Goodwill -- 1,870 -- -- 1,870
Other assets 230 150 -- -- 380
---------------- ---------- ---------- ---------- ------------
$ 73,206 $ 88,258 $ -- $ 72,153 $ 89,311
================ ========== ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ -- $ 2,697 $ -- $ -- $ 2,697
Interest bearing -- 13,321 -- -- 13,321
---------------- ---------- ---------- ---------- ------------
Total deposits -- 16,018 -- -- 16,018
Other liabilities 20 87 -- -- 107
Stockholders' equity:
Common stock 66 2,500 2,500(a) -- 66
Paid-in capital 73,863 69,662 69,662(a) -- 73,863
Accumulated deficit (739) (5) -- 5(a) (739)
Accumulated other comprehensive income (4) (4) -- 4(a) (4)
---------------- ---------- ---------- ---------- ------------
Total stockholders' equity 73,186 72,153 72,162 9 73,186
---------------- ---------- ---------- ---------- ------------
$ 73,206 $ 88,258 $ 72,162 $ 9 $ 89,311
================ ========== ========== ========== ============
|
See description of consolidating entries on page 24 and accompanying independent auditors' report on additional information.
TEXAS CAPITAL BANCSHARES, INC. AND SUBSIDIARY
Description of Consolidating Entries
December 31, 1998
Consolidating entries:
a. To eliminate the Company's investment account against the stockholders' equity of the consolidated subsidiary.
b. To eliminate equity in undistributed loss of subsidiary.
RESOURCE BANK, N.A.
FINANCIAL STATEMENTS
DECEMBER 18, 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
[FISK ROBINSON LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Resource Bank, N.A.
We have audited the accompanying balance sheet of Resource Bank, N.A. (Bank) as of December 18, 1998, and the related statements of operations, stockholders' equity and cash flows for the period ending December 18, 1998. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Resource Bank, N.A. as of December 18, 1998, the results of its operations and its cash flows for the period ending December 18, 1998, in conformity with generally accepted accounting principles.
/s/ Fisk & Robinson P.C.
April 27, 2000
Dallas, Texas
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RESOURCE BANK, N.A.
Balance Sheet
December 18, 1998
(In Thousands)
ASSETS
------
Cash and due from banks $ 842
Federal fund sold 4,220
Securities available for sale 3,175
Loans 11,003
Bank premises and equipment 245
Accrued interest 74
Other assets 46
--------
$ 19,605
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 1,885
Interest bearing 13,281
--------
Total deposits 15,166
Other liabilities 147
Commitments and contingencies -
Stockholders' equity:
Capital stock, $2 par value, 1,250,000 shares authorized,
issued and outstanding 2,500
Capital surplus 2,500
Accumulated deficit (708)
--------
Total stockholder's equity 4,292
--------
$ 19,605
========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Statement of Operations
For the Period From January 1, 1999 Through December 18, 1998
(In Thousands)
Interest income:
Interest and fees on loans $ 737
Interest on securities 169
Interest on federal funds sold 191
---------
Total interest income 1,097
Interest expense on deposit accounts 377
---------
Net interest income 720
Provision for possible loan losses 69
---------
Net interest income after provision 651
---------
Noninterest income:
Service charges 22
Other 38
---------
Total noninterest income 60
---------
Noninterest expense:
Salaries and employee benefits 634
Occupancy expense 166
Other 257
---------
Total noninterest expense 1,057
---------
Net loss before income taxes (346)
Income taxes --
---------
Net loss $ (346)
=========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Statement of Changes in Stockholders' Equity
For the Period From January 1, 1998 Through December 18, 1998
(In Thousands)
Capital Stock
--------------- Capital Accumulated
Shares Amount Surplus Deficit Total
------ ------ ------- ------- ------
Balance January 1, 1998 1,250 $2,500 $ 2,500 $ (362) $4,638
Net loss -- -- -- (346) (346)
------ ------ ------- ------ ------
Balance December 18, 1998 1,250 $2,500 $ 2,500 $ (708) $4,292
====== ====== ======= ====== ======
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Statement of Cash Flows
For the Period From January 1, 1998 Through December 18, 1998
(In Thousands)
Cash flows from operating activities:
Net loss $ (346)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 91
Provision for possible loan losses 69
Net increase in other assets (70)
Net increase in other liabilities 111
--------
Net cash used by operating activities (145)
--------
Cash flows from investing activities:
Purchases of securities available for sale (1,010)
Net loans originated (9,570)
Net capital additions (10)
--------
Net cash used in investing activities (10,590)
--------
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts 2,969
Net proceeds from sales of certificates of deposit 7,863
Net increase in IRA's 948
--------
Net cash provided by financing activities 11,780
--------
Net increase in cash and cash equivalents 1,045
Cash and cash equivalents at beginning of period 4,017
--------
Cash and cash equivalents at end of period $ 5,062
========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Notes to Financial Statements
December 18, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Resource Bank, N.A. conform to generally accepted accounting principles and to general practices within the banking industry. The following are descriptions of the more significant of those policies.
BUSINESS
The Bank provides a full range of banking services to individual and corporate customers and is subject to competition from other local financial institutions. The Bank is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities.
USE OF ESTIMATES
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. A significant portion of the Bank's loans are secured by real estate and related assets located in local markets. Accordingly, the ultimate collectibility of this portion of the Bank's loan portfolio is susceptible to changes in local market conditions.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. All highly liquid investments with an initial maturity less than ninety days are considered to be cash equivalents.
SECURITIES AVAILABLE FOR SALE
Available for sale securities consist of bonds, notes, and certain equity securities not classified as trading securities nor as held to maturity securities which require the Bank's positive intent and ability to hold the securities to maturity.
RESOURCE BANK, N.A.
Unrealized holding gains and losses on available for sale securities are reported as a separate component of stockholders' equity until realized.
Gains and losses on the sale of available for sale securities are determined using the specific identification method.
Declines in the fair value of individual available for sale securities below their cost that are other than temporary, if any, would result in write-downs of the individual securities to their fair value. The related write-downs, if any, would be included in earnings as realized losses.
Premiums and discounts are recognized in interest income using a method that approximates the interest method over the period to maturity.
LOANS
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance, adjusted for any charge-offs, the allowance for loan losses, and any unearned income on originated loans.
Certain fees and costs associated with originating loans have been recognized in the period in which such fees were received or costs were incurred. The provisions of Statement of Financial Accounting Standards (SFAS) No. 91 generally provide that such fees and related costs be deferred and recognized over the life of the loan as an adjustment of yield. Management believes that not deferring such fees and costs and amortizing them over the life of the related loan does not materially affect the financial position or results of operations of the Bank.
Impaired loans (as defined by SFAS Statement No. 114 and as amended by SFAS Statement No. 118) are accounted for at the net present value of expected future cash flows, discounted at the loan's effective interest rate, the observable market price of the loan or at the fair value of the collateral if the loan is collateral dependent.
The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due and only when recovery of the carrying value of the loan is reasonably assured.
RESOURCE BANK, N.A.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on industry loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.
BANK PREMISES AND EQUIPMENT
Furniture and equipment are carried at cost, less accumulated depreciation which is computed principally by the straight-line method over 3 to 5 years.
Leasehold improvements are carried at cost, less accumulated depreciation which is computed by the straight-line method over the life of the lease.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.
RESOURCE BANK, N.A.
2. STATEMENT OF CASH FLOWS
The Bank has chosen to report, on a net basis, its cash receipts and cash payments for time deposits accepted and repayments of those deposits, loans made to customers, and principal collection of loans.
The Bank uses the indirect method to present cash flows from operating activities. Other supplemental information on cash flows is presented below (in thousands):
Amount
------
Cash Transactions:
Interest income received $1,030
======
Interest expense paid $ 289
======
Income taxes paid $ --
======
Noncash transactions:
Net change in unrealized losses on
securities available for sale $ --
======
|
3. SECURITIES
Debt and equity securities have been classified in the balance sheet according to management's intent. The carrying amount of securities and their approximate fair values at December 18, 1998 are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
Securities Classified Available for Sale
December 18, 1998:
U.S. government agency obligations $ 3,000 $ -- $ -- $3,000
Other 175 -- -- 175
--------- ---------- ---------- ------
$ 3,175 $ -- $ -- $3,175
========= ========== ========== ======
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RESOURCE BANK, N.A.
No securities were pledged to secure public fund deposits at December 18, 1998. There were no sales of investment securities in during the period ended December 18, 1998.
The amortized cost and estimated fair value of debt securities at December 18, 1998, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available for Sale
------------------------------
Amortized Fair
Cost Value
---------- ----------
Due in one year or less $ -- $ --
Due from one year to five years 3,000 3,000
Due from five to ten years -- --
Due after ten years -- --
---------- ----------
3,000 3,000
Other 175 175
---------- ----------
Total $ 3,175 $ 3,175
========== ==========
|
4. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans at December 18, 1998 consisted of the following (in thousands):
Type Amount
---------- ----------
Commercial $ 2,464
Real estate 7,501
Consumer 1,137
----------
11,102
Allowance for possible loan losses (99)
----------
$ 11,003
==========
|
RESOURCE BANK, N.A.
An analysis of the change in the allowance for possible loan losses follows (in thousands):
Amount
------
Balance at December 31, 1997 $ 30
Provision for possible loan losses 69
Loans charged to the allowance account --
Recoveries on loans previously charged-off --
------
Balance at December 18, 1998 $ 99
======
|
The Bank extends commercial and consumer credit primarily to customers in the Dallas/Fort Worth metroplex. At December 18, 1998, substantially all of the Bank's loans were collateralized with real estate, inventory, accounts receivable, equipment, marketable securities or other assets.
At December 18, 1998, no loans were considered impaired in conformity with SFAS Statement No. 114 as amended by FASB Statement No. 118.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 18, 1998 consisted of the following (in thousands):
Type Amount
---- ------
Leasehold improvements $ 31
Furniture and equipment 302
Automobiles 24
------
357
Less accumulated depreciation (112)
------
$ 245
======
|
Depreciation expense amounted to approximately $94,000 for the period ending December 18, 1998.
RESOURCE BANK, N.A.
6. DEPOSITS
Deposits at December 18, 1998 are summarized as follows (in thousands):
Amount Percent
-------- --------
Noninterest bearing demand accounts $ 1,885 12.4%
Interest bearing demand accounts 615 4.1
Savings accounts 206 1.4
Money market accounts 2,919 19.2
Certificates of deposit, less than $100,000 3,828 25.2
Certificates of deposit, $100,000 and greater 4,765 31.4
Individual Retirement Accounts 948 6.3
-------- --------
$ 15,166 100.0%
======== ========
|
The weighted average interest rate on deposits was approximately 3.0% at December 18, 1998.
RESOURCE BANK, N.A.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Bank's deferred tax assets and liabilities at December 18, 1998 (in thousands) include the allowance for loan losses and depreciation on bank premises and equipment.
Amount
------
Deferred tax assets:
Loan loss reserve for book in excess of tax $ 21
Net operating loss carryforward 136
------
Total deferred tax assets 157
Deferred tax liability:
Bank premises and equipment basis for book
in excess of tax 5
------
Total deferred tax liabilities 5
------
Valuation allowance (152)
------
Net deferred tax asset $ --
======
|
The tax provision for financial reporting purposes differs from amounts determined by applying the statutory tax rate to pretax accounting income primarily because of the recording of a valuation allowance for net deferred tax assets as of December 18, 1998.
At December 18, 1998, the Bank had net operating loss carryforwards for federal income tax purposes of approximately $400,000 which will expire, if not utilized, in varying amounts over the next 20 years. The amount of net operating loss carryforward to be utilized on an annual basis is limited due to a change in ownership as discussed in note 13.
RESOURCE BANK, N.A.
8. FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. At December 18, 1998, the approximate amounts of commitments to extend credit was approximately $440,000.
Although the maximum exposure to loss is the amount of such commitments, at December 18, 1998, management anticipates no material losses from such activities.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, inventory, equipment and income-producing commercial properties.
9. COMMITMENTS AND CONTINGENCIES
The Bank leases its banking facility under a noncancelable operating lease which expires in 2002. Monthly payments which escalate over the term of the lease are required under the terms of the agreement. Future minimum lease payments for the next five years are as follows (in thousands):
Year Amount
---- ------
1999 $ 62
2000 67
2001 71
2002 41
------
$ 241
======
|
RESOURCE BANK, N.A.
Rent expense for the period ending December 18, 1998 was approximately $60,000.
From time to time, the Bank is involved in legal actions arising from normal business activities. Management believes such actions, if any, will not materially affect the financial position or results of operations of the Bank.
Further, management does not anticipate any material losses as a result of its commitments and contingent liabilities.
10. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's loan and business activity is with customers located within Texas. Such customers are normally also depositors of the Bank. The concentrations of credit by type of loan are set forth in note 5. The distribution of commitments to extend credit generally approximates the distribution of loans outstanding.
At December 18, 1998, the Bank had concentrations of credit risk associated with federal funds sold of approximately $4,220,000 at a nonrelated financial institution.
11. RESTRICTIONS ON UNDIVIDED PROFITS
Under federal banking law, there are legal restrictions limiting the amount of dividends the bank can declare. Approval by the regulatory authorities is required if dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels or if the amount of dividends declared exceed the amounts computed using certain specified formula, as prescribed by regulatory authorities.
At December 18, 1998, no amounts were available for distribution as dividends by the Bank.
RESOURCE BANK, N.A
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by federal banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 18, 1998, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 18, 1998, the Bank's capital ratios exceeded those levels necessary to be categorized as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum total risk based, Tier I risk based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that date management believes would change the institution's category.
The Bank's actual capital amounts and ratios are presented in the following table (in thousands).
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 18, 1998
Total capital to risk weighted assets $ 4,391 22.5% > or = to $ 2,139 8.0% > or = to $ 2,675 10.0%
Tier I capital to risk weighted assets 4,292 22.0 > or = to 1,070 4.0 > or = to 1,605 6.0
Tier I capital to average assets 2,292 29.7 > or = to 791 4.0 > or = to 990 5.0
|
13. SUBSEQUENT EVENT
As of December 18, 1999, the Bank was acquired, in a purchase transaction, by Texas Capital Bancshares, Inc. (Bancshares) by the exchange of 492,978 shares of Bancshares common stock (valued at $12.50 per share) for 100% of the Bank's capital stock.
RESOURCE BANK, N.A.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
[FISK ROBINSON LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Resource Bank, N.A.
We have audited the accompanying balance sheet OF Resource Bank, N.A. (Bank) as of December 31, 1997, and the related statements of operations, stockholders' equity and cash flows for the period from October 3, 1997 (inception) through December 31, 1997. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Resource Bank, N.A. as of December 31, 1997, the results of its operations and its cash flows for the period from October 3, 1997 (inception) through December 31, 1997, in conformity with generally accepted accounting principles.
/s/ FISK & ROBINSON P.C.
March 18, 1998
Dallas, Texas
|
RESOURCE BANK, N.A.
Balance Sheet
December 31, 1997
ASSETS
------
Cash and due from banks $ 766,768
Federal fund sold 3,250,000
Securities available for sale 2,165,000
Loans 1,502,133
Bank premises and equipment 326,209
Other assets 50,010
-----------
$ 8,060,120
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest bearing ..................................... $ 597,950
Interest bearing ........................................ 2,788,015
-----------
Total deposits ........................................ 3,385,965
Other liabilities ........................................ 35,999
Commitments and contingencies ............................ --
Stockholders' equity:
Capital stock, $2 par value, 1,250,000 shares authorized,
issued and outstanding .................................. 2,500,000
Capital surplus .......................................... 2,500,000
Accumulated deficit ...................................... (361,844)
-----------
Total stockholder's equity ............................... 4,638,156
-----------
$ 8,060,120
===========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A
Statement of Operations
For the Period From October 3, 1997 (Inception) Through December 31, 1997
Interest income:
Interest and fees on loans $ 13,165
Interest on securities 2,556
Interest on federal funds sold 70,206
--------
Total interest income 85,927
Interest expense on deposit accounts 10,231
--------
Net interest income 75,696
Provision for possible loan losses 30,000
--------
Net interest income after provision 45,696
--------
Noninterest income:
Service charges 970
Other 1,707
--------
Total noninterest income 2,677
--------
Noninterest expense:
Salaries and employee benefits 135,484
Occupancy expense 38,474
Other 96,811
--------
Total noninterest expense 270,779
--------
Net loss before income taxes (222,398)
Income taxes --
--------
Net loss $ (222,398)
========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Statement of Changes in Stockholders' Equity
For the Period From October 3, 1997 (Inception)
Through December 31, 1997
Capital Stock
------------------------- Capital Accumulated
Shares Amount Surplus Deficit Total
--------- ----------- ----------- ---------- -----------
Balance October 3, 1997 1,250,000 $ 2,500,000 $ 2,500,000 $ (139,446) $ 4,860,554
Net loss -- -- -- (222,398) (222,398)
--------- ----------- ----------- ---------- -----------
Balance December 31, 1997 1,250,000 $ 2,500,000 $ 2,500,000 $ (361,844) $ 4,638,156
========= =========== =========== =========== ===========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Statement of Cash Flows
For the Period From October 3, 1997 (Inception) Through December 31, 1997
Cash flows from operating activities:
Net loss $ (222,398)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 17,868
Provision for possible loan losses 30,000
Net increase in other assets (32,610)
Net increase in other liabilities 35,999
----------
Net cash used by operating activities (171,141)
----------
Cash flows from investing activities:
Purchases of securities available for sale (2,165,000)
Net loans originated (1,532,133)
Net capital additions (24,300)
----------
Net cash used in investing activities (3,721,433)
----------
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts 2,655,688
Net proceeds from sales of certificates of deposit 730,277
----------
Net cash provided by financing activities 3,385,965
----------
Net decrease in cash and cash equivalents (506,609)
Cash and cash equivalents at beginning of period 4,523,377
----------
Cash and cash equivalents at end of period $ 4,016,768
==========
|
See accompanying notes to financial statements.
RESOURCE BANK, N.A.
Notes to Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Resource Bank, N.A. conform to generally accepted accounting principles and to general practices within the banking industry. The following are descriptions of the more significant of those policies.
BUSINESS
The Bank provides a full range of banking services to individual and corporate customers and is subject to competition from other local financial institutions. The Bank is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities.
USE OF ESTIMATES
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. A significant portion of the Bank's loans are secured by real estate and related assets located in local markets. Accordingly, the ultimate collectibility of this portion of the Bank's loan portfolio is susceptible to changes in local market conditions.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. All highly liquid investments with an initial maturity less than ninety days are considered to be cash equivalents.
RESOURCE BANK, N.A.
SECURITIES AVAILABLE FOR SALE
Available for sale securities consist of bonds, notes, and certain equity securities not classified as trading securities nor as held to maturity securities which require the Bank's positive intent and ability to hold the securities to maturity.
Unrealized holding gains and losses on available for sale securities are reported as a separate component of stockholders' equity until realized.
Gains and losses on the sale of available for sale securities are determined using the specific identification method.
Declines in the fair value of individual available for sale securities below their cost that are other than temporary, if any, would result in write-downs of the individual securities to their fair value. The related write-downs, if any, would be included in earnings as realized losses.
Premiums and discounts are recognized in interest income using a method that approximates the interest method over the period to maturity.
LOANS
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance, adjusted for any charge-offs, the allowance for loan losses, and any unearned income on originated loans.
Certain fees and costs associated with originating loans have been recognized in the period in which such fees were received or costs were incurred. The provisions of Statement of Financial Accounting Standards (SFAS) No. 91 generally provide that such fees and related costs be deferred and recognized over the life of the loan as an adjustment of yield. For the period from October 3, 1997 (inception) through December 31, 1997, management believes that not deferring such fees and costs and amortizing them over the life of the related loan does not materially affect the financial position or results of operations of the Bank.
Impaired loans (as defined by SFAS Statement No. 114 and as amended by SFAS Statement No. 118) are accounted for at the net present value of expected future cash flows, discounted at the loan's effective interest rate, the observable market price of the loan or at the fair value of the collateral if the loan is collateral dependent.
RESOURCE BANK, N.A.
The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due and only when recovery of the carrying value of the loan is reasonably assured.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on industry loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.
BANK PREMISES AND EQUIPMENT
Furniture and equipment are carried at cost, less accumulated depreciation which is computed principally by the straight-line method over 3 to 5 years.
Leasehold improvements are carried at cost, less accumulated depreciation which is computed by the straight-line method over the life of the lease.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.
RESOURCE BANK, N.A.
2. PREOPENING TRANSACTIONS
The Bank commenced operations on October 3, 1997. The excess of expenses incurred over income earned prior to October 3, 1997 amounted to $139,446 and has been recorded as accumulated deficit in the accompanying financial statements. Such preopening expenses consist primarily of personnel, occupancy and marketing costs, net of interest income.
A summary of the transactions and account balances as of October 3, 1997 are as follows:
Description Amount
----------- ---------
Cash and due from banks ........................... $ 4,523,377
Bank premises and equipment ....................... 319,777
Other assets ...................................... 17,400
---------
$ 4,860,554
=========
Stock subscriptions received
Excess of preopening expenses over income earned $ 5,000,000
(139,446)
---------
$ 4,860,554
===========
|
RESOURCE BANK, N.A.
3. STATEMENT OF CASH FLOWS
The Bank has chosen to report, on a net basis, its cash receipts and cash payments for time deposits accepted and repayments of those deposits, loans made to customers, and principal collection of loans.
The Bank uses the indirect method to present cash flows from operating
activities. Other supplemental information on cash flows is presented below:
Amount
Amount
---------
Cash transactions:
Interest income received $ 72,636
=========
Interest expense paid $ 5,370
=========
Income taxes paid $ --
=========
Noncash transactions:
Net change in unrealized losses on securities
available for sale $ --
=========
|
4. SECURITIES
Debt and equity securities have been classified in the balance sheet according to management's intent. The carrying amount of securities and their approximate fair values at December 31, 1997 are as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- --------- --------- ---------
Securities Classified
as Available for Sale
---------------------
December 31, 1997:
U.S. government agency obligations $ 2,000,000 $ -- $ -- $ 2,000,000
Other 165,000 -- -- 165,000
--------- --------- --------- ---------
$ 2,165,000 $ -- $ -- $ --
========= ========= ========= =========
|
RESOURCE BANK, N.A.
No securities were pledged to secure public fund deposits at December 31, 1997. There were no sales of investment securities in during the period ended December 31, 1997.
The amortized cost and estimated fair value of debt securities at December 31, 1997, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available for Sale
-----------------------------
Amortized Fair
Cost Value
---------- ----------
Due in one year or less $ -- $ --
Due from one year to five years 2,000,000 2,000,000
Due from five to ten years -- --
Due after ten years -- --
---------- ----------
2,000,000 2,000,000
Other 165,000 165,000
---------- ----------
Total $2,165,000 $2,165,000
========== ==========
|
5. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans at December 31, 1997 consisted of the following:
Type Amount
---- ----------
Commercial $ 1,118,752
Real estate 351,950
Consumer 61,431
------------
1,532,133
Allowance for possible loan losses (30,000)
------------
$ 1,502,133
============
|
RESOURCE BANK, N.A.
An analysis of the change in the allowance for possible loan losses follows:
Amount
----------
Balance at October 3, 1997 (inception) $ --
Provision for possible loan losses 30,000
Loans charged to the allowance account --
Recoveries on loans previously charged-off --
----------
Balance at December 31, 1997 $ 30,000
==========
|
The Bank extends commercial and consumer credit primarily to customers in the Dallas/Fort Worth metroplex. At December 31, 1997, substantially all of the Bank's loans were collateralized with real estate, inventory, accounts receivable, equipment, marketable securities or other assets.
At December 31, 1997, no loans were considered impaired in conformity with SFAS Statement No. 114 as amended by FASB Statement No. 118.
There were no loans on which the accrual of interest has been discontinued at December 31, 1997 and there were no loans, contractually delinquent over ninety days, which continued to accrue interest at December 31, 1997.
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 consisted of the following:
Type Amount
---- ----------
Leasehold improvements $ 30,957
Furniture and equipment 288,820
Automobiles 24,300
----------
344,077
Less accumulated depreciation (17,868)
----------
$ 326,209
==========
|
RESOURCE BANK, N.A.
Depreciation expense amounted to $17,868 for the period from October 3, 1997 (inception) through December 31, 1997.
7. DEPOSITS
Deposits at December 31, 1997 are summarized as follows:
Amount Percent
-------- -------
Noninterest bearing demand accounts $ 597,950 17.66%
Interest bearing demand accounts 480,849 14.20
Savings accounts 19,346 0.57
Money market accounts 1,557,543 46.00
Certificates of deposit, less than $100,000 130,277 3.85
Certificates of deposit, $100,000 and greater 600,000 17.72
---------- -------
$3,385,965 100.00%
========== =======
|
The weighted average interest rate on deposits was approximately 3.0% at December 31, 1997.
RESOURCE BANK, N.A.
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Bank's deferred tax assets and liabilities at December 31, 1997 include the allowance for loan losses and depreciation on bank premises and equipment.
Amount
------
Deferred tax assets:
Loan loss reserve for book in excess of tax $ 10,000
Net operating loss carryforward 69,000
----------
Total deferred tax assets 79,000
Deferred tax liability:
Bank premises and equipment basis for book in excess of tax 3,000
----------
Total deferred tax liabilities 3,000
----------
Valuation allowance (76,000)
----------
Net deferred tax asset $ --
==========
|
The tax provision for financial reporting purposes differs from amounts determined by applying the statutory tax rate to pretax accounting income primarily because of the recording of a valuation allowance for net deferred tax assets as of December 31, 1997.
At December 31, 1997, the Bank had net operating loss carryforwards for federal income tax purposes of approximately $203,000 which will expire in 2012.
RESOURCE BANK, N.A.
9. STOCK OPTIONS
The Board of Directors has approved a nonqualified stock option plan covering certain of its executive officers under which the Bank can grant options to purchase up to 100,000 shares of capital stock of the Bank. Under the stock option plan, options, which will vest over a five year period, are exercisable during the lifetime of the officer, unless otherwise provided by the Board of Directors. The exercise price of the options granted is equal to the estimated fair market value of the stock, as determined by the Board of Directors, on the date of grant. There have been no options granted under the plan as of December 31, 1997.
10. FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. At December 31, 1997, the approximate amounts of commitments to extend credit was $132,000.
Although the maximum exposure to loss is the amount of such commitments, management currently anticipates no material losses from such activities.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, inventory, equipment and income-producing commercial properties.
RESOURCEBANK, N.A.
11. COMMITMENTS AND CONTINGENCIES
The Bank leases its banking facility under a noncancelable operating lease which expires in 2002. Monthly payments which escalate over the term of the lease are required under the terms of the agreement. Future minimum lease payments for the next five years are as follows:
Year Amount
---- ------
1998 $ 60,504
1999 61,764
2000 66,804
2001 70,584
2002 52,938
----------
$ 312,594
==========
|
Rent expense for the period from October 3, 1997 (inception) through December 31, 1997 was $10,084.
From time to time, the Bank is involved in legal actions arising from normal business activities. Management believes such actions, if any, will not materially affect the financial position or results of operations of the Bank.
Further, management does not anticipate any material losses as a result of its commitments and contingent liabilities.
12. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's loan and business activity is with customers located within Texas. Such customers are normally also depositors of the Bank. The concentrations of credit by type of loan are set forth in note 5. The distribution of commitments to extend credit generally approximates the distribution of loans outstanding.
At December 31, 1997, the Bank had concentrations of credit risk associated with federal funds sold of approximately $3,250,000 at a nonrelated financial institution.
RESOURCE BANK, N.A.
13. RESTRICTIONS ON UNDIVIDED PROFITS
Under federal banking law, there are legal restrictions limiting the amount of dividends the Bank can declare. Approval by the regulatory authorities is required if dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels or if the amount of dividends declared exceed the amounts computed using certain specified formula, as prescribed by regulatory authorities.
At December 31, 1997, no amounts were available for distribution as dividends by the Bank.
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by federal banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the Bank's capital ratios exceeded those levels necessary to be categorized as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum total risk based, Tier I risk based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that date management believes would change the institution's category.
RESOURCE BANK, N.A.
The Bank's actual capital amounts and ratios are presented in the following table (in thousands).
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1997:
Total capital to risk
weighted assets $4,668,000 185.65% > or = $202,240 8.0% > or = $252,800 10.0%
Tier I capital to risk
weighted assets 4,638,000 183.47 > or = 101,120 4.0 > or = 151,680 6.0
Tier I capital to
average assets 4,638,000 71.41 > or = 259,800 4.0 > or = 324,750 5.0
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15. YEAR 2000 COMPLIANCE
The Bank is in the process of implementing a Year 2000 compliant information system and has initiated an assessment project which addresses those systems that may have Year 2000 compliance issues. This assessment project is to determine the nature of the problem and to determine what actions are necessary for the Bank to be in compliance.
The Bank presently believes that with the implementation of certain systems modifications, validation, and other related actions, including distribution of information to borrowers and vendors, Year 2000 compliance will not result in significant operational issues for the Bank. However, if the implementation process is not completed on a timely basis, Year 2000 compliance may have a significant effect on the operations of the Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 24, 2000 TEXAS CAPITAL BANCSHARES, INC.
By: /s/ JOSEPH M. GRANT
-----------------------------------------
Joseph M. Grant
Chairman of the Board of Directors and
Chief Executive Officer
Date: August 24, 2000 /s/ JOSEPH M. GRANT
--------------------------------------------------
Joseph M. Grant
Chairman of the Board of Directors and Chief
Executive Officer (principal executive officer)
Date: August 24, 2000 /s/ GREGORY HULTGREN
--------------------------------------------------
Gregory Hultgren
Executive Vice President - Chief Financial Officer
(principal financial and accounting officer)
Date: August 24, 2000 /s/ GREGG L. ENGLES
--------------------------------------------------
Gregg L. Engles
Director
Date: August 24, 2000 /s/ JOHN C. GOFF
--------------------------------------------------
John C. Goff
Director
Date: August 24, 2000 /s/ FREDERICK B. HEGI, JR.
--------------------------------------------------
Frederick B. Hegi, Jr.
Director
Date: August 24, 2000 /s/ JAMES R. HOLLAND, JR.
--------------------------------------------------
James R. Holland, Jr.
Director
Date: August 24, 2000 /s/ WALTER W. MCALLISTER, III
--------------------------------------------------
Walter W. McAllister, III
Director
Date: August 24, 2000 /s/ DRAYTON R. MCLANE
--------------------------------------------------
Drayton R. McLane
Director
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SIGNATURES (CONT.)
Date: August 24, 2000 /s/ LEE ROY MITCHELL
--------------------------------------------
Lee Roy Mitchell
Director
Date: August 24, 2000 /s/ MARSHALL B. PAYNE
--------------------------------------------
Marshall B. Payne
Director
Date: August 24, 2000 /s/ JOHN C. SNYDER
--------------------------------------------
John C. Snyder
Director
Date: August 24, 2000 /s/ THEODORE H. STRAUSS
--------------------------------------------
Theodore H. Strauss
Director
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EXHIBIT INDEX
We have included or incorporated by reference the following exhibits to this registration statement.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan to Consolidate Texas Capital Bank with and into
Resource Bank, N.A. under the Charter of Resource Bank, N.A. and
under the Title of "Texas Capital Bank, N.A."
2.2 Amendment to Agreement and Plan to Consolidate
3.1 Certificate of Incorporation
3.2 Certificate of Amendment of Certificate of Incorporation
3.3 Certificate of Amendment of Certificate of Incorporation
3.4 Certificate of Amendment of Certificate of Incorporation
3.5 Amended and Restated Bylaws of Texas Capital Bancshares, Inc.
4.1 Texas Capital Bancshares, Inc. 1999 Omnibus Stock Plan
4.2 Texas Capital Bancshares, Inc. 2000 Employee Stock Purchase Plan
10.1 Shareholder Agreement Among Founding Shareholders
10.2 Deferred Compensation Agreement
10.3 Deferred Compensation Agreement Trust
21 Subsidiaries of the Registrant
27 Financial Data Schedule
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EXHIBIT 2.1
AGREEMENT AND PLAN TO CONSOLIDATE
TEXAS CAPITAL BANK
WITH AND INTO
RESOURCE BANK, N.A.
UNDER THE CHARTER OF
RESOURCE BANK, N.A.
AND UNDER THE TITLE OF
"TEXAS CAPITAL BANK, N.A."
THIS AGREEMENT AND PLAN TO CONSOLIDATE (the "Consolidation Agreement"), made this 21st day of July, 1998, between RESOURCE BANK, N.A., DALLAS, TEXAS ("Existing Bank") and TEXAS CAPITAL BANK, DALLAS, TEXAS ("Other Bank"), and joined in by TEXAS CAPITAL BANCSHARES, INC., a Delaware corporation ("Corporation") provides as follows:
WITNESSETH:
A. Existing Bank is a national banking association duly organized and existing under the laws of the United States, having its principal office in the City of Dallas, County of Dallas, State of Texas;
B. Existing Bank has, and will have as of the Effective Time (hereinafter defined), authorized capital stock of $4,000,000 divided into 2,000,000 shares of common stock, $2.00 par value per share ("Existing Bank Common Stock"), of which 1,250,000 shares are issued and outstanding;
C. Existing Bank has granted options (the "Existing Bank Options") to purchase 57,500 shares of Existing Bank Common Stock to its officers;
D. Other Bank is a uninsured state banking association duly organized and existing under the laws of the State of Texas, having its principal office in the City of Dallas, County of Dallas, State of Texas; Other Bank has been formed solely for the purpose of facilitating the transactions described herein, and prior to the consummation of the transactions described herein, it will conduct no business except incident to its organization;
E. Other Bank has, or will have as of the Effective Time, authorized capital stock of $5,000.00, divided into 2,500 shares of common stock, $2.00 par value ("Other Bank Common Stock"), all of which are, or will be as of the Effective Time, issued and outstanding and owned by the Corporation;
F. Corporation is a corporation duly organized and validly existing under the laws of the State of Delaware, having its principal office in the City of Dallas, County of Dallas, State of Texas, with authorized capital stock of $200,000.00, divided into 20,000,000 shares of common stock, $0.01 par value ("Corporation Common Stock"), of which 888,888 shares are issued and outstanding;
G. The majorities of the Boards of Directors of Existing Bank and of Other Bank, pursuant to the authority given by and in accordance with the provisions of the Act of November 7, 1918, as amended (12 U.S.C. 215), have approved this Consolidation Agreement under which Other Bank shall be consolidated with and into Existing Bank in a transaction having the effect of a merger (the "Consolidation") and have authorized the execution and performance hereof; and the Board of Directors of Corporation has approved this Consolidation Agreement, authorized Corporation to join in and be bound by this Consolidation Agreement, and authorized the undertakings herein made by Corporation; and
H. As and when required by the provisions of this Consolidation Agreement, all such action as may be necessary or appropriate shall be taken by Existing Bank, Other Bank and Corporation in order to consummate the Consolidation.
NOW, THEREFORE, in consideration of the premises, Existing Bank and Other Bank, joined by Corporation, hereby agree that Other Bank shall be consolidated with and into Existing Bank pursuant to 12 U.S.C. 215 in a transaction having the effect of a merger on the following terms and conditions:
1. Consolidation of Other Bank into Existing Bank. At the Effective Time, Other Bank shall be consolidated with and into Existing Bank pursuant to the provisions of and with the effect provided in the Act of November 7, 1918, as amended (12 U.S.C. 215). Existing Bank shall be the bank surviving the Consolidation (hereinafter referred to as the "Receiving Bank") and shall continue its existence as a national banking association. The Articles of Association and Bylaws of Existing Bank shall continue in effect as the Articles of Association and Bylaws of the Receiving Bank until the same shall be amended and changed as provided by law.
2. Receiving Bank. The name of the Receiving Bank shall be "Texas Capital Bank, N.A." The established office and facilities of Existing Bank immediately prior to the Consolidation shall continue as the established office and facilities of the Receiving Bank.
3. Rights and Property of Receiving Bank. At the Effective Time, the corporate existence of Existing Bank and Other Bank shall, as provided in the Act of November 7, 1918, as amended (12 U.S.C. 215), be consolidated into and continued in the Receiving Bank; and the Receiving Bank shall be deemed to be the same corporation as Existing Bank and Other Bank. All rights, franchises and interests of Existing Bank and Other Bank, respectively, in and to every type of property (real, personal and mixed) and choses in action shall be transferred to and vested in the Receiving Bank by virtue of the Consolidation without any deed or other transfer. The Receiving Bank at the Effective Time and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, transfer agent and registrar of stocks and bonds, guardian of estates, assignee, receiver, and in every other fiduciary capacity, and in every agency capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by Existing Bank and Other Bank, respectively, at the Effective Time.
4. Liabilities and Obligations of Receiving Bank. At the Effective Time, the Receiving Bank shall be liable for all liabilities of Existing Bank and of Other Bank, respectively; and all deposits, debts, liabilities, obligations and contracts of Existing Bank and of Other Bank, respectively, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of account or records of Existing Bank or Other Bank, as the case may be, including all liabilities of Existing Bank and Other Bank for taxes, whether existing at the Effective Time or arising as a result of or pursuant to the Consolidation, shall be those of the Receiving Bank and shall not be released or impaired by the Consolidation; and all rights of creditors and other obligees and all liens on property of either Existing Bank or Other Bank shall be preserved unimpaired.
5. Exchange and Conversion of Shares. At the Effective Time:
a. Consideration to Existing Bank Shareholders. Shareholders of the Existing Bank shall be entitled to receive, for each share of Existing Bank Common Stock they own at the Effective Time, 0.391111 shares of Corporation Common Stock.
b. Conversion of Existing Bank Common Stock. The shares of Existing Bank Common Stock issued and outstanding at the Effective Time shall, by operation of law and without any action on the part of holders thereof, be converted into the right to receive the consideration set forth in subsection (a) of this Section 5.
c. Conversion of Other Bank Common Stock. The shares of Other Bank Common Stock outstanding at the Effective Time shall, by virtue of the Consolidation and without any action on the part of the Corporation or any other party as holder thereof, be converted into and become shares of capital stock of Receiving Bank. By virtue of this Consolidation Agreement and without any action by any party, the number of shares of capital stock of the Receiving Bank to be outstanding after the Effective Time shall be 1,250,000 shares.
6. Surrender of Existing Bank Common Stock and Delivery of
Consideration. At least twenty days prior to the Closing Date, Existing Bank
shall send to each holder of Existing Bank Common Stock a letter of transmittal
with instructions for surrendering certificates evidencing the Existing Bank
Common Stock pursuant to the Consolidation. If a holder of Existing Bank Common
Stock surrenders the certificates representing shares of Existing Bank Common
Stock and a fully completed and executed Letter of Transmittal to Existing Bank
at least two days prior to the Closing Date, then on the Closing Date, the
Corporation shall issue to such shareholder a certificate evidencing the shares
of Corporation Common Stock to which the shareholder is entitled pursuant to
Section 5(a). If a holder of Existing Bank Common Stock surrenders the
certificates representing shares of Existing Bank Common Stock and a fully
completed and executed Letter of Transmittal to Existing Bank at any time after
two days prior to the Closing Date, then promptly after the Closing Date, and in
no event later than five days after receipt of such certificates and Letter of
Transmittal, the Corporation shall issue to such shareholder a certificate
evidencing the shares of Corporation Common Stock to which the shareholder is
entitled pursuant to Section 5(a). Until so surrendered, each such outstanding
certificate which, prior to the Effective Time, represented shares of Existing
Bank Common Stock shall be deemed for all purposes, subject to the provisions of
Section 9 hereof, to evidence solely the right to receive the items described in
Section 5 hereof.
In the event any certificate evidencing Existing Bank Common Stock shall have been lost, stolen or destroyed, upon the execution and delivery of an Affidavit and Indemnity Agreement acceptable in form to the Corporation by the person claiming such certificate to be lost, stolen or destroyed and, if required by the Corporation, the posting by such person of a bond in such amount as the Corporation may direct as indemnity against any claim that may be made against it with respect to such certificate, the Corporation shall issue to such shareholder a certificate evidencing the shares of Corporation Common Stock to which the shareholder is entitled pursuant to Section 5(a). Upon the holder's exchange of Existing Bank Common Stock for Corporation Common Stock, the holder shall be paid the amount (without interest thereon) of all distributions that have become payable since the Effective Time with respect to the number of shares of Corporation Common Stock represented by the certificates issued upon such exchange. The stock transfer books of Existing Bank shall be closed as of the close of business on the Closing Date (hereinafter defined), and no transfer of record of any of the shares of Existing Bank Common Stock shall take place thereafter.
7. Directors, Officers and Committees. The directors, advisory directors and officers of the Receiving Bank at the Effective Time shall be those persons who are directors, advisory directors and officers, respectively, of Existing Bank immediately before the Effective Time. The committees of the Board of Directors of the Receiving Bank at the Effective Time shall be the same as, and shall be composed of the same persons who are serving on, committees of the Board of Directors of Existing Bank as they existed immediately before the Effective Time.
8. Shareholder Approval. This Consolidation Agreement shall be submitted to the shareholders of Existing Bank and Other Bank, at meetings called to be held as promptly as practicable. Upon approval by the requisite votes of the shareholders of Existing Bank and Other Bank, this Consolidation Agreement shall be made effective as soon as practicable thereafter in the manner provided in Section 13 hereof.
9. Dissenting Stockholders. Any stockholder of Existing Bank who objects to the Consolidation and follows the procedure for dissent set for in 12 U.S.C. Section 215, as amended, shall be entitled to the rights and benefits afforded to dissenting shareholders by such statute.
10. Conditions to Consummation. The obligations of the parties to consummate the Consolidation as provided herein shall be conditioned upon the following:
(a) the parties shall have received all consents, orders, and approvals and satisfaction of all other requirements prescribed by law which are necessary for the consummation of the Consolidation, including without limitation, the approval of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Texas Banking Commissioner;
(b) the holders of at least two thirds of the outstanding shares of Existing Bank Common Stock and the Other Bank Common Stock shall have approved the Consolidation and ratified and adopted the Consolidation Agreement;
(c) there shall not be in effect any order, decree, or judgment of any court or governmental agency prohibiting or materially changing the terms of the transactions contemplated hereby; there shall be no threatened or pending action, proceeding or investigation which seeks to prohibit or materially change the terms of the transactions contemplated hereby or impose criminal or civil liability upon Existing Bank, Other Bank or the Corporation; provided, however, that no party shall decline to proceed with the Closing pending final resolution thereof without exercising reasonable efforts promptly to determine, jointly with the other parties, the merits thereof and the likelihood of an adverse determination in such proceeding;
(d) no change shall have occurred or been threatened (or any development shall have occurred or been threatened involving a prospective change) in the business, financial condition, operations or prospects of the Existing Bank that has or may reasonably be expected to have a Material Adverse Effect on the operations of Existing Bank;
(e) the Corporation shall have issued at least 6,000,000 shares of Corporation Common Stock at $12.50 per share pursuant to its private offering;
(f) the Existing Bank shall have received an opinion from The Bank Advisory Group, Inc., or another investment banking firm engaged in the business of giving such opinions, that the consideration to be received by the holders of the Existing Bank Common Stock in connection with the consolidation is fair, from a financial point of view, and such opinion shall remain outstanding as of the Closing Date; and
(g) the holders of the Existing Bank Options shall have exchanged such options for shares of Corporation Common Stock and terminated any right to acquire shares of Existing Bank Common Stock.
11. Representations and Warranties of Existing Bank. Existing Bank represents and warrants the following to Other Bank and the Corporation:
(a) Organization. Existing Bank is a national banking association, duly organized and validly existing under the laws of the United States and is in good standing under the laws of the State of Texas. The deposits are, and at Closing will be, "insured deposits" insured under the Bank Insurance Fund of the Federal Deposit Insurance Corporation pursuant to the Federal Deposit Insurance Act. The Bank does not own or control any subsidiary. The Bank has the requisite corporate power to own, lease and operate its properties and to carry on its business as now being conducted.
(b) Authority. Existing Bank has the requisite power and authority to execute and deliver this Consolidation Agreement and, subject to receipt of regulatory and shareholder approvals, to consummate the transactions contemplated hereby; all corporate action necessary to be taken by or on the part of Existing Bank (other than the requisite shareholder approval) to execute, deliver and perform this Consolidation Agreement and to consummate the transactions contemplated hereby has been duly and validly taken; and this Consolidation Agreement has been duly executed and delivered by, and constitutes the valid and binding agreement of, Existing Bank, enforceable in accordance with its terms.
(c) No Violations. Subject to the receipt of regulatory and shareholder approval, the execution, delivery and performance by Existing Bank of this Consolidation Agreement do not, and the consummation by Existing Bank of the transactions contemplated hereby will not, violate or conflict with the articles of association or bylaws of Existing Bank, or any law or regulation currently applicable to Existing Bank, or any material agreement or instrument, or currently applicable award, order, judgment or decree to which Existing Bank is a party or by which it is bound, or result in the creation of any lien, claim, pledge, security interest, change or encumbrance upon the properties or assets of Existing Bank;
(d) Consents. Except as referred to herein or in connection or in compliance with the provisions of 12 USC Section 215, as amended, the rules and regulations of the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Texas Department of Banking, and the environmental, corporation, securities or blue sky laws or regulations of the various states, no filing or registration with, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Existing Bank of the Consolidation or the other transactions contemplated by this Consolidation Agreement.
(e) Financial Statements and Reports. The financial statements of the Existing Bank as of December 31, 1997, and as of March 31, 1998 for the three month period then ending which have been delivered to the Corporation (the "Financial Statements"), fairly present the results of operation and the financial position of the Existing Bank for the fiscal periods and as of the dates thereof. Each of such statements has been prepared in accordance with generally accepted accounting principles, consistently applied during the periods involved.
(f) Absence of Certain Changes or Events. From December 31, 1997 to the date hereof, (i) the Existing Bank has not incurred any material liability, other than in the ordinary course of its business consistent with past practice, and (ii) there has not been any condition, event, change or occurrence that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on the Existing Bank. "Material Adverse Effect" means a material adverse change in the financial condition, results of operations, assets or business (including its future prospects) of an entity, including its subsidiaries.
(g) Business of Existing Bank. Since December 31, 1997, Existing Bank has conducted its business only in the ordinary course. For purposes of the foregoing, Existing Bank has not, since December 31, 1997, controlled expenses through (i) elimination of employee benefits, (ii) deferral of routine maintenance of real property or leased premises, (iii) elimination of reserves where the liability related to such reserve has remained, (iv) reduction of capital improvements from previous levels, (v) failure to depreciate capital assets in accordance with past practice or to eliminate capital assets which are no longer used in the business of Existing Bank, (vi) capitalized production expenses other than in accordance with Statement of Financial Accounting Standard No. 91, or (vii) extraordinary reduction or deferral of ordinary or necessary expenses.
(h) Taxes. All federal, state, local and foreign tax returns, as defined below, required to be filed by or on behalf of Existing Bank have been duly and timely filed or requests for extensions have been timely filed (and any such extension shall have been granted and have not expired). All taxes, as defined below, shown on such returns, and all taxes required to be shown on returns for which extensions have been granted, have been paid in full or adequate provision has been made for any such taxes on the Existing Bank's balance sheet (in accordance with GAAP). Existing Bank has not been audited by the applicable taxing authority of the State of Texas or the Internal Revenue Service. As of the date of this Consolidation Agreement, there is no audit examination, deficiency, claim or assessment, or refund litigation with respect to any taxes of Existing Bank that could reasonably be expected to result in a Material Adverse Effect on Existing Bank, and no claim or assessment that could reasonably be expected to result in a Material Adverse Effect on Existing Bank has been made by any authority in a jurisdiction where Existing Bank does not file tax returns and Existing Bank is subject to taxation. All taxes, interest, additions, and penalties due with respect to completed and settled examinations or concluded litigation relating to Existing Bank have been paid in full or adequate provision has been made for any such taxes on the Existing Bank's balance sheet (in accordance with GAAP). The Existing Bank has not executed an extension or waiver of any statute of limitations on the assessment or collection of any material tax due that is currently in effect. The Existing Bank has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party, and has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the Internal Revenue Code and similar applicable state and local information reporting requirements, except in each case for such failure to withhold, pay or comply that would not, individually or in the aggregate, result in a Material Adverse Effect on the Existing Bank.
"Taxes" shall mean all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including, but not limited to income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including
any interest, penalties or additions attributable thereto. "Tax Return" shall mean any return, report, information return or other documents (including any related or supporting information) with respect to Taxes.
(i) Absence of Claims. There are no legal, quasi-judicial or administrative proceedings of any kind or nature now pending or, to the best knowledge of the Existing Bank, threatened before any court or administrative body involving the Existing Bank or any of its properties. Existing Bank is not in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or instrumentality.
(j) Absence of Regulatory Actions. Existing Bank is not a party to any cease and desist order, written agreement or memorandum of understanding with, or a party to any commitment letter or similar written undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from a regulatory agency, which is currently in effect, nor has it been advised by any regulatory agency that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter or similar written undertaking. In connection with the most recent examination of the Existing Bank, Existing Bank has not been informed or ordered by any regulatory agency, whether by written communication or otherwise, to amend or change in any material way its reports, accounting methods, methods of operations, or business practices, or to classify any loans not previously classified or to charge-off any loans or increase Existing Bank's allowance for loan losses, or to take or discontinue any activity or action.
(k) Title to Assets. Existing Bank has insurable title (subject only to standard title insurance policy exceptions as determined by customary practices in the area in which such properties are located) to its owned real properties, except for liens, or such other defects arising by operation of law. Existing Bank, as lessee, has the right under valid and existing leases of properties used by Existing Bank in the conduct of its business to occupy and use all such properties that are leased by it as are now occupied and used by it. Liens shall mean any claim, encumbrance, or charge on property for payment of a debt, obligation or duty.
(l) Allowance for Loan Losses. In the Existing Bank's reasonable judgment, the allowance for loan losses reflected in the Existing Bank's financial statements of December 31, 1997 was, and the allowance for loan losses shown on its Reports of Condition and Income for periods ending after December 31, 1997 have been and will be, adequate, as of the dates thereof, under GAAP applicable to national banking associations and no regulatory agency has required or requested Existing Bank to increase the allowance for loan losses since December 31, 1997. Existing Bank has disclosed to the Corporation in writing prior to the date hereof the amounts of all loans, leases, advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets of the Existing Bank that have been classified as of March 31, 1998 as "Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" (in the latter two cases, to the extent available) or words of similar import. From and after the date hereof, Existing Bank promptly will provide the Corporation with a copy of each monthly classified asset report it provides to its Board of Directors. The REO included in any non-performing assets of the Existing Bank is carried net of reserves at the lower of cost or fair value.
(m) Compliance with Laws. Existing Bank has maintained in full force and effect all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, federal, state, local and foreign governmental or regulatory bodies (each, a "Government Entity") that are in each case required in order to permit it to carry on its business as it is presently conducted. To the knowledge of Existing Bank, no suspension or cancellation of any of such permits, licenses, certificates of authority, orders or approvals is threatened. To the knowledge of Existing Bank, the business of Existing Bank is not being conducted in violation of any law, ordinance, regulation, order, writ, rule, decree or approval of any Governmental Entity.
(n) Insurance. Existing Bank is presently insured for reasonable amounts with financially sound and reputable insurance companies, against such risks as companies engaged in a similar business located in the State of Texas would, in accordance with good business practice, customarily
be insured. Existing Bank has not received notice from any insurance carrier that any such insurance will be cancelled or that coverage thereunder will be reduced or eliminated, or premium costs with respect to such insurance will be increased.
(o) Books and Records. The books and records of the Existing Bank have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect in all material respects the substance of material events and transactions that should be included therein.
(p) Community Reinvestment Act and other Consumer Law Compliance. At its most recent regulatory evaluation of Existing Bank's performance under the Community Reinvestment Act (the "CRA"), Existing Bank's record of performance was deemed to be "outstanding" or "satisfactory," and no proceedings are pending or, to the knowledge of Existing Bank, threatened, that would result in a change in such evaluation. Existing Bank has not received any adverse public comments with respect to its compliance under the CRA since the date of its most recent regulatory evaluation of its performance under the CRA. Existing Bank reasonably believes that it is in substantial compliance with all fair lending laws or other laws relating to discrimination, including without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act of 1974 and the Truth in Lending Act.
(q) Knowledge as to Conditions. Existing Bank knows of no reason why the requisite regulatory approvals of the transaction contemplated by the Consolidation Agreement should not be obtained.
12. Representations and Warranties of the Corporation. The Corporation represents and warrants the following to Existing Bank:
(a) Organization. Corporation is a Delaware corporation, duly organized and validly existing and in good standing under the laws of the State of Delaware. The Corporation has the requisite corporate power to own, lease and operate its properties and to carry on its business as now being conducted.
(b) Authority. The Corporation has the requisite power and authority to execute and deliver this Consolidation Agreement and, subject to receipt of regulatory approvals, to consummate the transactions contemplated hereby; all corporate action necessary to be taken by or on the part of the Corporation to execute, deliver and perform this Consolidation Agreement and to consummate the transactions contemplated hereby has been duly and validly taken; and this Consolidation Agreement has been duly executed and delivered by, and constitutes the valid and binding agreement of, the Corporation, enforceable in accordance with its terms.
(c) No Violations. Subject to the receipt of regulatory, the execution, delivery and performance by the Corporation of this Consolidation Agreement do not, and the consummation by the Corporation of the transactions contemplated hereby will not, violate or conflict with the articles of incorporation or bylaws of the Corporation, or any law or regulation currently applicable to the Corporation, or any material agreement or instrument, or currently applicable award, order, judgment or decree to which the Corporation is a party or by which it is bound, or result in the creation of any lien, claim, pledge, security interest, change or encumbrance upon the properties or assets of the Corporation;
(d) Consents. Except as referred to herein or in connection or in compliance with the rules and regulations of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Texas Department of Banking, and the environmental, corporation, securities or blue sky laws or regulations of the various states, no filing or registration with, or authorization, consent or approval of, any public body or authority is necessary for the consummation by the Corporation of the Consolidation or the other transactions contemplated by this Consolidation Agreement.
(e) Knowledge as to Conditions. The Corporation knows of no reason why the requisite regulatory approvals of the transaction contemplated by the Consolidation Agreement should not be obtained.
(f) No Other Negotiations. The Corporation is not currently engaged in negotiations to acquire any other financial institution, or substantially all of the assets of any financial institution.
(g) Offering. The Corporation knows of no reason why it should not be successful in raising at least $75,000,000 in its private offering.
(h) Capital Stock. The authorized capital stock of the Corporation consists of 20,000,000 shares of Corporation Common Stock, $0.01 per share, of which 888,888 shares are validly issued and outstanding. The shares of Corporation Common Stock to be issued in the Consolidation are duly authorized, and when so issued, will be validly issued and outstanding, fully paid and nonassessable, not subject to preemptive rights, and issued pursuant to applicable exemptions under federal and state securities laws.
(i) Financial Statements and Reports. The financial statements of the Corporation as of December 31, 1997, and as of March 31, 1998 for the three month period then ending which have been delivered to the Existing Bank (the "Financial Statements"), fairly present the results of operation and the financial position of the Corporation for the fiscal periods and as of the dates thereof. Each of such statements has been prepared in accordance with generally accepted accounting principles, consistently applied during the periods involved.
(j) Absence of Certain Changes or Events. From December 31, 1997 to the date hereof, (i) the Corporation has not incurred any material liability, other than in the ordinary course of its business consistent with past practice, and (ii) there has not been any condition, event, change or occurrence that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on the Corporation.
(k) Taxes. All federal, state, local and foreign tax returns, as defined below, required to be filed by or on behalf of the Corporation have been duly and timely filed or requests for extensions have been timely filed (and any such extension shall have been granted and have not expired). All taxes, as defined below, shown on such returns, and all taxes required to be shown on returns for which extensions have been granted, have been paid in full or adequate provision has been made for any such taxes on the Corporation's balance sheet (in accordance with GAAP). The Corporation has not been audited by the applicable taxing authority of the State of Texas or the Internal Revenue Service. As of the date of this Consolidation Agreement, there is no audit examination, deficiency, claim or assessment, or refund litigation with respect to any taxes of the Corporation that could reasonably be expected to result in a Material Adverse Effect on the Corporation, and no claim or assessment that could reasonably be expected to result in a Material Adverse Effect on the Corporation has been made by any authority in a jurisdiction where the Corporation does not file tax returns and the Corporation is subject to taxation. All taxes, interest, additions, and penalties due with respect to completed and settled examinations or concluded litigation relating to the Corporation have been paid in full or adequate provision has been made for any such taxes on the Corporation's balance sheet (in accordance with GAAP). The Corporation has not executed an extension or waiver of any statute of limitations on the assessment or collection of any material tax due that is currently in effect. The Corporation has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party, and has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the Internal Revenue Code and similar applicable state and local information reporting requirements, except in each case for such failure to withhold, pay or comply that would not, individually or in the aggregate, result in a Material Adverse Effect on the Corporation.
"Taxes" shall mean all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including, but not limited to income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto. "Tax Return" shall mean any return, report,
information return or other documents (including any related or supporting information) with respect to Taxes.
(l) Absence of Claims. There are no legal, quasi-judicial or administrative proceedings of any kind or nature now pending or, to the best knowledge of the Corporation, threatened before any court or administrative body involving the Corporation or any of its properties. The Corporation is not in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or instrumentality.
(m) Books and Records. The books and records of the Corporation have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect in all material respects the substance of material events and transactions that should be included therein.
13. Termination.
(a) This Consolidation Agreement may be terminated by the mutual written consent of the Corporation, Other Bank and Existing Bank. If upon the written mutual consent of the Corporation, Other Bank and Existing Bank to terminate pursuant to this Section 13, this Consolidation Agreement shall terminate and be of no further force or effect, and the Corporation, the Other Bank and Existing Bank shall have no further rights or obligations under this Consolidation Agreement.
(b) Termination by the Corporation. The Corporation may elect to terminate its obligation to consummate the Consolidation pursuant to this Consolidation Agreement in the event that (i) the conditions to the consummation of the Consolidation set forth in Section 10 hereof are not satisfied in full or waived, (ii) Existing Bank is in breach of this Consolidation Agreement or otherwise fails or refuses to consummate the Consolidation pursuant to this Consolidation Agreement, or (iii) the transaction is not consummated on or before December 31, 1998 unless extended in a writing signed by all parties hereto. Upon the occurrence of any such event and the Corporation's election to terminate, the Corporation shall notify Existing Bank in writing of its election to terminate its obligation to consummate the Consolidation and the Corporation shall have no obligation to consummate the transactions contemplated hereby. The Corporation's election to terminate its obligation to consummate the Consolidation shall not limit any other relief to which the Corporation may be entitled for breach of this Consolidation Agreement by Existing Bank.
(c) Termination by Existing Bank. Existing Bank may elect to terminate its obligation to consummate the Consolidation pursuant to this Consolidation Agreement in the event that (i) the conditions to the consummation of the Consolidation set forth in Section 10 hereof are not satisfied in full or waived, (ii) the Corporation is in breach of this Consolidation Agreement or otherwise fails or refuses to consummate the Consolidation pursuant to this Consolidation Agreement, or (iii) the transaction is not consummated on or before December 31, 1998 unless extended in a writing signed by all parties hereto. Upon the occurrence of any such event and Existing Bank's election to terminate, Existing Bank shall notify the Corporation in writing of its election to terminate its obligation to consummate the Consolidation and Existing Bank shall have no obligation to consummate the transactions contemplated hereby. Existing Bank's election to terminate its obligation to consummate the Consolidation shall not limit any other relief to which Existing Bank may be entitled for breach of this Consolidation Agreement by the Corporation.
14. Waiver and Amendment. Any of the terms or conditions of this Consolidation Agreement may be waived at any time, whether before or after action thereon by the stockholders of Existing Bank or Other Bank, by the party that is entitled to the benefits thereof; and this Consolidation Agreement may be modified or amended at any time, whether before or after action thereon by the stockholders of Existing Bank or Other Bank; provided, however, that after action hereon by the stockholders of Existing Bank, no amendment or modification may be made which would reduce the consideration to be paid to stockholders of Existing Bank under Section 5 hereof. Any waiver, modification or amendment shall be in writing.
15. Closing Date and Effective Time. The closing date (the "Closing Date") shall be within 30 days of the expiration of the mandatory waiting period associated with the last required regulatory approval of the Consolidation. Subject to the terms, and upon satisfaction on or before the Closing Date of all requirements of law and the conditions specified in this Consolidation Agreement, the Consolidation shall become effective at the opening of business on the date specified in the Certificate of Authority to be issued by the Comptroller of the Currency under the seal of his office authorizing the Receiving Bank to conduct the business of banking, such time being herein called the "Effective Time." If a time other than the opening of business is specified in said Certificate, the Effective Time shall be the time so specified.
16. Confidentiality. Except as may be required by applicable law or regulation or as may be necessary to obtain regulatory approval of the transactions contemplated hereby, the Corporation will treat as confidential any information (the "Information") related to the transactions described herein obtained from Existing Bank. The Corporation will not disclose the Information to others, except its employees, advisors, directors and agents, and will use the Information expressly and exclusively for the purpose of evaluating the potential of consummating the transactions contemplated hereby. The term "Information" does not include any information that (i) at the time of disclosure or thereafter is generally available to and known by the public, (ii) was available on a nonconfidential basis from a source other than Existing Bank or (iii) was independently acquired or developed without violating any laws or obligations of this Consolidation Agreement. The Corporation shall promptly return to Existing Bank or destroy all documents containing Information following the parties' determination not to proceed with the transaction contemplated herein. The Corporation's obligations under this Section 14 shall survive termination of this Consolidation Agreement.
17. Covenants of the Corporation. The Corporation shall (a) use all reasonable efforts to consummate the transactions contemplated hereby, (b) promptly file and process any and all applications for approval of any banking regulatory agency having jurisdiction over the contemplated transactions, (c) promptly conduct a private offering of up to 10,000,000 shares of Corporation Common Stock at a subscription price of $12.50 per share and use its best efforts to successfully complete such offering, (d) vote all shares of Other Bank Common Stock in favor of the Consolidation, and (e) not amend its Articles of Incorporation without the express written consent of Existing Bank.
18. Miscellaneous.
(a) Governing Law. The Consolidation Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Texas to the extent not preempted by or required to be governed by the federal laws of the United States. VENUE FOR DISPUTES ARISING UNDER THIS CONSOLIDATION AGREEMENT SHALL BE DALLAS, DALLAS COUNTY, TEXAS.
(b) Expenses. Each party hereto will bear all expenses incurred by it in connection with the Consolidation Agreement and the transactions contemplated hereby.
(c) Notices. All notices, requests, acknowledgments and other communications hereunder to a party shall be in writing and shall be deemed to have been duly given when deliver by hand, telecopy or registered mail (upon receipt) to such party at its address set forth below or such other address as such party may specify by notice to the other party hereto.
If to Corporation, to:
Texas Capital Bancshares, Inc.
2200 Ross Avenue
Suite 900
Dallas, Texas 75207
Attention: Jody Grant
Fax: (214) 871-2688
With copies to:
Charles P. Miller
Patton Boggs, LLP
2200 Ross Avenue
Suite 900
Dallas, Texas 75201
Fax: (214) 871-2688
If to Existing Bank to:
Resource Bank, N.A.
4230 LBJ Freeway, Suite 100
Dallas, Texas 75244
Attn: George F. Jones
Fax: (972) 726-0044
With copies to:
Mark Haynie
Haynie Rake & Repass, P.C.
14651 Dallas Parkway, Suite 136
Dallas, Texas 75240
Fax: (972) 716-1850
(c) Entire Agreement; Etc. This Consolidation Agreement represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby and supersedes any and all other oral or written agreements heretofore made. All terms and provisions of the Consolidation Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Consolidation Agreement is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Consolidation Agreement.
(d) Severability. If any provisions of this Consolidation Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Consolidation Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect, unless if, after
excluding the portion deemed to be unenforceable, the remaining terms shall not provide for the consummation of the transactions contemplated hereby as subsequently modified by amendment.
(e) Assignment. This Consolidation Agreement may not be assigned by any party hereto without the prior written consent of the other parties.
(f) Multiple Counterparts. For the convenience of the parties hereto and to facilitate the filing and recording of this Consolidation Agreement, any number of counterparts thereof may be executed, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced.
(g) Captions. The captions contained in the Consolidation Agreement are solely for convenience of reference and shall not be deemed to affect the meaning or interpretation of any provision contained herein.
IN WITNESS WHEREOF, Existing Bank and Other Bank have caused this Consolidation Agreement to be executed in counterparts by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first above written, and the directors constituting a majority of the Board of Directors of each such Bank have hereunto subscribed their names.
RESOURCE BANK, N.A
[SEAL]
By: /s/ GEORGE F. JONES, JR.
--------------------------------
Chairman of the Board
ATTEST:
/s/ GARY F. LEMMONS
-------------------------------
Cashier
|
A MAJORITY OF THE DIRECTORS OF
RESOURCE BANK, N.A.
/s/ VINCE A. ACKERSON /s/ C. KEITH CARGILL
------------------------------- ---------------------------------
Vince A. Ackerson C. Keith Cargill
/s/ DAVID L. CARGILL /s/ VALERIE M. FREEMAN
------------------------------- ---------------------------------
David L. Cargill Valerie M. Freeman
/s/ GEORGE F. JONES, JR. /s/ LARRY A. MAKEL
------------------------------- ---------------------------------
George F. Jones, Jr. Larry A. Makel
-------------------------------
David S. Nafziger
TEXAS CAPITAL BANK
[SEAL]
By: /s/ GEORGE F. JONES, JR.
------------------------------
President
ATTEST:
/s/ DAVID L. CARGILL
-------------------------------
Secretary
A MAJORITY OF THE DIRECTORS OF
TEXAS CAPITAL BANK
/s/ DAVID L. CARGILL /s/ C. KEITH CARGILL
------------------------------- ---------------------------------
/s/ VINCE ACKERSON /s/ GREGORY B. HULTGREN
------------------------------- ---------------------------------
------------------------------
|
The Corporation hereby joins in the foregoing Consolidation Agreement, and undertakes that it will be bound thereby and will do and perform all acts and things therein referred to or provided to be done by it.
IN WITNESS WHEREOF, Corporation has caused this undertaking to be made in counterparts by its duly authorized officers and its corporate seal to be hereunto affixed as of the date first above written.
TEXAS CAPITAL BANCSHARES, INC.
[SEAL] By: /s/ JOSEPH M. GRANT
--------------------------------
President
ATTEST:
/s/ JOSEPH M. GRANT
------------------------------
Secretary
|
EXHIBIT 2.2
AMENDMENT TO AGREEMENT
AND PLAN TO CONSOLIDATE
THIS AMENDMENT TO AGREEMENT AND PLAN TO CONSOLIDATE (the "Amendment"), made effective this 10th day of September, 1998, between and among RESOURCE BANK, N.A., DALLAS, TEXAS ("Existing Bank") and TEXAS CAPITAL BANK, DALLAS, TEXAS ("Other Bank"), and joined in by TEXAS CAPITAL BANCSHARES, INC., a Delaware corporation ("Corporation") provides as follows:
WITNESSETH:
Existing Bank, Other Bank and Corporation have entered into that certain Agreement and Plan to Consolidate dated July 21, 1998 (the "Consolidation Agreement"), providing for the consolidation of Other Bank with and into Existing Bank. In connection with the consolidation, Corporation is offering shares of Corporation Common Stock in a private offering (the "Offering"). The Corporation has decided to change the minimum and maximum number of shares to be offered in the Offering. Existing Bank, Other Bank, and Corporation desire to amend the Consolidation Agreement to reflect the changes in the Offering and to reflect certain changes to the consummation date of the transaction.
NOW, THEREFORE, in consideration of the premises, Existing Bank and Other Bank, joined by Corporation, hereby agree to amend the Consolidation Agreement as follows:
1. Paragraph 10(e) of the Consolidation Agreement is hereby amended to read in its entirety as follows:
"(e) the Corporation shall have issued at least 4,000,000 shares of Corporation Common Stock at $12.50 per share pursuant to its private offering;"
2. The first sentence of Paragraph 15 of the Consolidation Agreement is hereby amended to read in its entirety as follows:
"The closing date (the "Closing Date") shall be within ten business days after the later to occur of (i) the expiration of mandatory waiting periods associated with the last required regulatory approval of the Consolidation, or (ii) the Corporation's sale of not less than 4,000,000 shares of Corporation Common Stock in its private offering and the Corporation's actual receipt of $50,000,000 in unrestricted cash proceeds from subscriptions to its private offering."
3. All other terms and conditions of the Consolidation Agreement shall remain in full force and effect. Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Consolidation Agreement.
IN WITNESS WHEREOF, Existing Bank and Other Bank have caused this Amendment to be executed in counterparts by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first above written, and the directors constituting a majority of the Board of Directors of each such bank have hereunto subscribed their names.
RESOURCE BANK, N.A
[SEAL]
By: /s/ GEORGE F. JONES, JR.
-------------------------
Chairman of the Board
ATTEST:
/s/ GARY FLEMMONS
-------------------------
Cashier
|
A MAJORITY OF THE DIRECTORS OF
RESOURCE BANK, N.A.
/s/ VINCE A. ACKERSON /s/ C. KEITH CARGILL --------------------------------- ------------------------------ Vince A. Ackerson C. Keith Cargill /s/ DAVID L. CARGILL /s/ VALERIE M. FREEMAN --------------------------------- ------------------------------ David L. Cargill Valerie M. Freeman /s/ GEORGE F. JONES, JR. --------------------------------- ------------------------------ George F. Jones, Jr. Larry A. Makel /s/ DAVID S. NAFZIGER --------------------------------- David S. Nafziger |
TEXAS CAPITAL BANK
[SEAL]
By: /s/ GEORGE F. JONES, JR.
------------------------------
President
ATTEST:
/s/ DAVID L. CARGILL
---------------------------------
Secretary
|
A MAJORITY OF THE DIRECTORS OF
TEXAS CAPITAL BANK
/s/ VINCE ACKERSON /s/ C. KEITH CARGILL --------------------------------- ------------------------------ Vince Ackerson C. Keith Cargill /s/ DAVID L. CARGILL --------------------------------- ------------------------------ David L. Cargill Gregory B. Hultgren /s/ GEORGE F. JONES, JR. --------------------------------- George F. Jones, Jr. |
The Corporation hereby joins in the foregoing Amendment, and undertakes that it will be bound thereby and will do and perform all acts and things therein referred to or provided to be done by it.
IN WITNESS WHEREOF, Corporation has caused this undertaking to be made in counterparts by its duly authorized officers and its corporate seal to be hereunto affixed as of the date first above written.
TEXAS CAPITAL BANCSHARES, INC.
[SEAL] By: /s/ JOSEPH M. GRANT
------------------------------
President
ATTEST:
/s/ JOSEPH M. GRANT
---------------------------------
Secretary
|
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PRIME HOLDING COMPANY
ARTICLE I
The name of the Corporation is Prime Holding Company.
ARTICLE II
The name of the Corporation's registered agent and the address of its registered office in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall have the authority to issue is one thousand (1,000) shares of Common Stock, $1.00 par value.
ARTICLE V
In furtherance and not limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to alter, amend or repeal the bylaws of the Corporation or to adopt new bylaws.
ARTICLE VI
The incorporator is Albert R. Fox, Jr., whose mailing address is 1717 Main Street, Suite 2800, Dallas, Texas 75201.
ARTICLE VII
The number of directors constituting the initial Board of Directors is one (1), and the name and address of the person who is to serve as director until the first annual meeting of the stockholders or until their respective successors are elected and qualified are:
NAME ADDRESS
---- -------
David L. Cargill 4230 LBJ Freeway
Suite 500
Dallas, Texas 75244
|
ARTICLE VIII
A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE IX
A. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue with respect to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided; however, that, except as provided in paragraph (B) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding initiated by such indemnitee only if such proceeding was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article IX shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provide, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article or otherwise.
B. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under paragraph (A) of this Article is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation (except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days), the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, the indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard
of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled under this Article or otherwise to be indemnified, or to such advancement of expenses, shall be on the Corporation.
C. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the advancement of expenses conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
D. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any indemnitee against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
E. INDEMNITY OF EMPLOYEE AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article IX or as otherwise permitted under the Delaware General Corporation Law with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
ARTICLE X
No stockholder of the Corporation shall by reason of his holding shares of any class of its capital stock have any preemptive or preferential right to purchase or subscribe for any shares of any class of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase shares of any class or any other security, now or hereafter to be authorized, whether or not the issuance of any such shares or such notes, debentures, bonds or other securities would adversely affect the dividend, voting or any other rights of such stockholder; and the Board of Directors may issue shares of any class of the Corporation, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase shares of any class, without offering any such shares of any class, either in whole or in part, to the existing holders of any class of stock of the Corporation.
ARTICLE XI
Cumulative voting for the election of Directors shall not be permitted.
IN WITNESS WHEREOF, the undersigned incorporator of the Corporation hereby certifies that the facts herein stated are true, and accordingly has signed this instrument this 20th day of November, 1996.
/s/ ALBERT R. FOX, JR. ----------------------------- Albert R. Fox, Jr. Incorporator |
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Prime Holding Company, a corporation organized and existing under and by virtue of Section 242 of the General Corporation Law of the State of Delaware (the "Corporation").
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said Corporation:
RESOLVED, that ARTICLE I of the Certificate of incorporation is hereby amended in its entirety to read as follows:
"ARTICLE I
The name of the Corporation is TEXAS ALLIED BANCSHARES, INC."
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation caused this certificate to be signed by David L. Cargill, its Secretary, this 20th day of March, 1998.
/s/ David L. Cargill ----------------------- David L. Cargill Secretary |
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Texas Allied Bancshares, Inc., a corporation organized and existing under and by virtue of Section 242 of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST : That the Board of Directors of said Corporation, adopted a resolution proposing and declaring the following amendments to the Certificate of Incorporation of said Corporation:
RESOLVED, that ARTICLE I of the Certificate of Incorporation is hereby amended in its entirety to read as follows:
"ARTICLE I
The name of the Corporation is TEXAS CAPITAL BANCSHARES, INC."
FURTHER RESOLVED, that ARTICLE IV of the Certificate of Incorporation is hereby amended in its entirety to read as follows:
"ARTICLE IV
The total number of shares of capital stock which the Corporation shall have the authority to issue is twenty million (20,000,000) shares of Common Stock, $.01 par value."
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by Joseph M. Grant, its Secretary, this 16th day of June, 1998.
/s/ JOSEPH M. GRANT --------------------------- Joseph M. Grant, Secretary |
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
Texas Capital Bancshares, Inc., a corporation organized and existing under and by virtue of Section 242 of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, adopted a resolution proposing and declaring the following amendments to the Certificate of Incorporation of said Corporation:
RESOLVED, that ARTICLE IV of the Certificate of Incorporation is hereby amended in its entirety to read as follows:
"ARTICLE IV
The total number of shares of capital stock which the Corporation shall have the authority to issue is twenty million (20,000,000) shares of Common Stock, $.01 par value and two million five hundred thousand (2,500,000) shares of Preferred Stock, $.01 par value. Unless specifically provided otherwise herein, the holders of Common Stock shall be entitled to one vote for each share held in any stockholder vote in which any of such holders is entitled to participate. The board of directors may determine the powers, designations, dividend rate, if any, preferences and relative, participating, optional or other special rights, including voting rights, and the qualifications, limitations or restrictions thereof, of each class of capital stock and of each series within any such class and may increase or decrease the number of shares within each such class or series; provided, however, that the board of directors may not decrease the number of shares within a class or series to less than the number of shares within such class or series that are then issued and may not increase the number of shares within a series above the total number of authorized shares of the applicable class for which the powers, designations, preferences and rights have not otherwise been set forth herein. Attached hereto as Exhibit "A" and incorporated herein by reference is a statement of the rights, preferences, privileges, restrictions and other terms in respect of the first series of Common Stock, designated as Series A-1 Nonvoting Common Stock."
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by Joseph M. Grant, its Secretary, this 9th day of December, 1998.
/s/ JOSEPH M. GRANT --------------------------- Joseph M. Grant, Secretary |
EXHIBIT "A"
TEXAS CAPITAL BANCSHARES, INC.
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A-1 NONVOTING COMMON STOCK
The powers, designations, preferences and rights of the Series A-1 Nonvoting Common Stock ("Series A-1 Common Stock") of Texas Capital Bancshares, Inc. (the "Corporation") are as follows:
(a) Voting Rights. The holders of Series A-1 Common Stock shall not have any voting rights, except as otherwise required by applicable law, in which case holders of Series A-1 Common Stock shall vote (at the rate of one vote per share of Series A-1 Common Stock held) as a single class on such matter unless otherwise required by law.
(b) Dividends. The Board of Directors of the Corporation may cause dividends to be paid to the holders of shares of Common Stock and Series A-1 Common Stock out of funds legally available for the payment of dividends by declaring an amount per share as a dividend. When and as dividends or other distributions (including without limitations any grant or distribution of rights to subscribe for or purchase shares of capital stock or securities or indebtedness convertible into capital stock of the Corporation) are declared, whether payable in cash, in property or in shares of stock of the Corporation (subject to the limitations set forth herein), the holders of Common Stock and Series A-1 Common Stock shall be entitled to share equally, share for share, in such dividends or other distributions as if all such shares were of a single class. No dividends or other distributions shall be declared or paid in shares of Common Stock or Series A-1 Common Stock or options, warrants or rights to acquire such stock or securities convertible into or exchangeable for shares of such stock, except dividends or other distributions payable to all of the holders of Common Stock and Series A-1 Common Stock ratably according to the number of shares of Common Stock and Series A-1 Common Stock held by them, in shares of Common Stock to holders of that class of stock and Series A-1 Common Stock to holders of that class of stock.
(c) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation holders of Common Stock and Series A-1 Common Stock shall be entitled to share equally, share for share, in all assets of the Corporation available for distribution to its stockholders as if all such shares were of a single class.
(d) Conversion.
(1) Each share of Series A-1 Common Stock shall be convertible into one share of Common Stock, solely to increase a holder's ownership to no more than 4.9% of the Corporation's fully diluted Common Stock, upon delivery to the Corporation of a certificate (and a legal opinion if requested by the Corporation), signed by or on behalf of the holder or holders seeking such conversion, to the effect that after such conversion such holder or holders will not own more than 4.9% of the Common Stock. Any conversion of shares of Series A-1 Common Stock into shares of Common Stock pursuant to this Clause (d)(1) shall be effected by the delivery to the Corporation at its principal executive office of the certificates representing shares to be converted, duly endorsed, together with written instructions that the shares are to be converted, and accompanied by the required certificate described herein.
(2) The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of effecting conversions pursuant to this Article, the full number of shares of Common Stock issuable upon the conversion of all shares of Series A-1 Common Stock then outstanding and entitled to convert, and shall take all such action and obtain all such permits or orders as may be necessary to enable the Corporation lawfully to issue such shares upon any such conversion.
EXHIBIT 3.5
AMENDED AND RESTATED BYLAWS
OF
TEXAS CAPITAL BANCSHARES, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. An annual meeting of stockholders shall be held on such day in each fiscal year of the corporation and at such time and place as may be fixed by the Board of Directors, at which meeting the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written or printed notice of the annual meeting, stating the place, day and hour thereof, shall be given to each stockholder entitled to vote thereat at such address as appears on the books of the corporation, not less than ten days nor more than sixty days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or the certificate of incorporation, may be called by the President, and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders of record owning at least one-tenth (1/10) of all shares issued and outstanding and entitled to vote at such meeting. Such request shall state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meetings. Written or printed notice of a special meeting of stockholders, stating the place, day and hour and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat at such address as appears on the books of the corporation, not less than ten days nor more than sixty days before the date of the meeting.
Section 6. Business at Special Meetings. Business transacted at all special meetings of stockholders shall be confined to the purpose or purposes stated in the notice thereof.
Section 7. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjournment meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 8. Stockholder List. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of voting shares held by each, shall be prepared by the Secretary. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for such ten day period, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the meeting.
Section 9. Notice of Shareholder Nominees. Only persons who are nominated in accordance with the procedures set forth in this paragraph shall be eligible for election as directors of the Corporation. Nominations of persons for election to the board of directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the board of directors or (b) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the procedures set forth in this paragraph. All nominations by stockholders shall be made pursuant to timely notice in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 180 days nor more than 270 days prior to the meeting; provided, however, that in the event less than 30 days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper written form, such stockholder's notice to the Secretary shall set forth in writing (a) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (b) as to such stockholder (i) his or her name and address, as they appear on the Corporation's books, and (ii) the class and number of shares of stock of the Corporation which are beneficially owned by such stockholder. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director unless nominated in accordance with the procedures set forth in the bylaws of the Corporation. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the bylaws of the Corporation, and if he shall so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
Section 10. Stockholder Proposals. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the board of directors. At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the board of directors or (b) by any stockholder who complies with the procedures set forth in this paragraph. For business properly to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 180 days nor more than 270 days prior to the meeting; provided, however, that in the event that less than 30 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. To be in proper written form, such stockholder's notice to the Secretary shall set forth in writing as to each matter such stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at
the annual meeting, (b) his or her name and address, as they appear on the Corporation's books, (c) the class and number of shares of stock of the Corporation which are beneficially owned by such stockholder and (d) any material interest of such stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this paragraph. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this paragraph, and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
Section 11. Quorum. The holders of a majority of the votes attributed to the shares of capital stock issued and outstanding and entitled to vote thereat, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, the certificate of incorporation or these bylaws. The stockholders present may adjourn the meeting despite the absence of a quorum. When a meeting is adjourned for less than thirty days in any one adjournment and a new record date is not fixed for the adjourned meeting, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. When a meeting is adjourned for thirty days or more, or when after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting.
Section 12. Majority Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the shares having voting power represented in person or by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of statute, the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question.
Section 13. Proxies. (a) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.
(b) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (a) of this Section, the following shall constitute a valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (b) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could
be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
(d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (b) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 14. Voting. Unless otherwise provided by statute or the certificate of incorporation, each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation.
Section 15. Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and such consent or consents are delivered to the corporation. Every written consent shall bear the date of signatures of each stockholder and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent, written consents signed by a sufficient number of holders to take action are delivered to the corporation. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
Section 16. Inspectors. (a) The corporation may, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Delaware Court of Chancery, upon application by a stockholder, shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Article II, Section 10(b)(ii), ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons that represent more votes than the holder of a proxy is authorized by the record owner to cast, or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to
subsection (b)(v) of this Section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspector's belief that such information is accurate and reliable.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the corporation shall be managed by a Board of Directors. The Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the certificate of incorporation or these bylaws directed or required to be exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors which shall constitute the whole Board shall be fixed from time to time by resolution of the Board of Directors, provided that such number shall not be less than one (1) nor more than fifteen (15).
Section 3. Election and Term. Except as provided in Section 4 of this Article III, directors shall be elected at the annual meeting of the stockholders, and each director shall be elected to serve until the next annual meeting and until his successor shall have been elected and shall qualify, or until his death, resignation or removal from office. Directors need not be stockholders of the corporation.
Section 4. Vacancies and Newly Created Directorships. If the office of any director or directors becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, or the number of directors constituting the whole Board shall be increased, a majority of the remaining or existing directors, though less than a quorum, may choose a successor or successors, or the director or directors to fill the new directorship or directorships, who shall hold office for the unexpired term in respect to which such vacancy occurred or, in the case of a new directorship or directorships, until the next annual meeting of the stockholders.
Section 5. Removal. The stockholders may remove a director either for or without cause at any meeting of stockholders, provided notice of the intention to act upon such matter shall have been given in the notice calling such meeting.
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. First Meeting. The first meeting of each newly elected Board of Directors shall be held at the location of and immediately following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the Board may meet at such place and time as shall be fixed by the consent in writing of all the directors. All meetings of the Board of Directors may be held at such place, either within or without the State of Delaware, as from time to time shall be determined by the Board of Directors.
Section 2. Regular Meetings. Regular meetings of the Board may be held at such time and place and on such notice, if any, as shall be determined from time to time by the Board.
Section 3. Special Meetings. Special meetings of the Board may be called by the President or the Chairman of the Board on twenty-four hours' notice to each director, delivered either personally or by mail or by telegram or telecopier. Special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of one director.
Section 4. Quorum and Voting. At all meetings of the Board, a majority of the directors at the time in office shall be necessary and sufficient to constitute a quorum for the transaction of business; and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 5. Telephone Meetings. Directors may attend any meeting of the Board or any committee thereof by conference telephone, radio, television or similar means of communication by means of which all persons participating in the meeting can hear each other, and all members so attending shall be deemed present at the meeting for all purposes including the determination of whether a quorum is present.
Section 6. Action by Written Consent. Any action required or permitted to be taken by the Board or any committee thereof, under the applicable provisions of any statute, the certificate of incorporation, or these bylaws, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the Board or committee, as the case may be.
ARTICLE V
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate one or more directors to constitute an Executive Committee, which Committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the business and affairs of the corporation except where action by the Board of Directors is expressly required by statute. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required.
Section 2. Other Committees. The Board of Directors may similarly create other committees for such terms and with such powers and duties as the Board deems appropriate.
Section 3. Committee Rules; Quorum. Each committee may adopt rules governing the method of calling and time and place of holding its meetings. No committee shall have power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law, fix any of the preferences or rights of the shares), adopting an agreement of merger or consolidation, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these bylaws; provided further, that unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Unless otherwise provided by the Board of Directors, a majority of any committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of such committee present at a meeting at which a quorum is present shall be the act of such committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The Board of Directors shall have authority to determine, from time to time, the amount of compensation, if any, which shall be paid to its members for their services as directors and as members of committees. The Board shall also have power in its discretion to provide for and to pay to directors rendering services to the corporation not ordinarily rendered by directors as such, special compensation appropriate to the value of such services as determined by the Board from time to time. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
ARTICLE VII
NOTICES
Section 1. Methods of Notice. Whenever any notice is required to be given to any stockholder, director or committee member under the provisions of any statute, the certificate of incorporation or these bylaws, such notice shall be delivered personally or shall be given in writing by mail addressed to such stockholder, director or committee member at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail with postage thereon prepaid. Notice to directors and committee members may also be given by telegram, which notice shall be deemed to be given at the time it is delivered to the telegraph office, or by telecopy, which notice shall be deemed to be given at the time it is transmitted or in person, which notice shall be deemed to be given when received.
Section 2. Waiver of Notice. Whenever any notice is required to be given to any stockholder, director or committee member under the provisions of any statute, the certificate of incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute a waiver of notice thereof except as otherwise provided by statute.
ARTICLE VIII
OFFICERS
Section 1. Executive Officers. The executive officers of the corporation shall consist of at least a President and a Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may also elect as officers of the corporation a Chairman of the Board, one or more Vice Presidents, one or more of whom may be designated Executive or Senior Vice Presidents and may also have such descriptive titles as the Board shall deem appropriate, and a Treasurer. Any two or more offices may be held by the same person.
Section 2. Election and Qualification. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect the officers of the corporation.
Section 3. Other Officers and Agents. The Board may elect or appoint Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, and such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
Section 4. Salaries. The salaries of all officers of the corporation shall be fixed by the Board of Directors except as otherwise directed by the Board.
Section 5. Term, Removal and Vacancies. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer or agent of the corporation may be removed at any time by the affirmative vote of a majority of the Board of Directors, or by the President. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors or otherwise as provided in this Article.
Section 6. Execution of Instruments. The Chairman of the Board and the President (and such other officers as are authorized thereunto by resolution of the Board of Directors) may execute in the name of the corporation bonds, notes, debentures and other evidences of indebtedness, stock certificates, deeds, mortgages, deeds of trust, indentures, contracts, leases, agreements and other instruments, requiring a seal under the seal of the corporation, and may execute such documents where not requiring a seal, except where such documents are required by law to be otherwise signed and executed, and except where the signing and execution thereof shall be exclusively delegated to some other officer or agent of the corporation.
Section 7. Duties of Officers. The duties and powers of the officers of the corporation shall be as provided in these bylaws, or as provided for pursuant to these bylaws, or (except to the extent inconsistent with these bylaws or with any provision made pursuant hereto) shall be those customarily exercised by corporate officers holding such offices.
Section 8. Chairman of the Board. The Chairman of the Board shall preside when present at all meetings of the Board of Directors. He shall advise and counsel the other officers of the corporation and shall exercise such powers and perform such duties as shall be assigned to or required of him from time to time by the Board of Directors. The Chairman of the Board may, if so designated by the Board of Directors, be the Chief Executive Officer of the corporation; in such event he shall have all of the powers granted by the bylaws to the President and from time to time may delegate all, or any, of his powers and duties to the President.
Section 9. President. The President shall preside at all meetings of the stockholders and shall be ex-officio a member of all standing committees, have general powers of oversight, supervision and management of the business and affairs of the corporation, and see that all orders and resolutions of the Board of Directors are carried into effect.
In the event another executive officer has been designated Chief Executive Officer of the corporation by the Board of Directors, then (i) such other executive officer shall have all of the powers granted by the bylaws to the President; and (ii) the President shall, subject to the powers of supervision and control thereby conferred upon the Chief Executive Officer, be the chief operating officer of the corporation and shall have all necessary powers to discharge such responsibility including general supervision of the affairs of the corporation and general and active control of all of its business.
The President shall perform all the duties and have all the powers of the Chairman of the Board in the absence of the Chairman of the Board.
Section 10. Vice Presidents. The Vice Presidents in the order determined by the Board of Directors shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform such other duties as the Board of Directors, the Chairman of the Board and the President may prescribe.
Section 11. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the committees of the Board of Directors when required. Except as may be otherwise provided in these bylaws, he shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors and the President. He shall keep in safe custody the seal of the corporation, if any, and shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by his signature. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. In the absence of the Treasurer and all Assistant Treasurers, the Secretary shall perform all the duties and have all the powers of the Treasurer.
Section 12. Assistant Secretaries. The Assistant Secretaries in the order determined by the Board of Directors shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors, the Chairman of the Board and President may prescribe. Assistant secretaries may be appointed by the president without prior approval of the board of directors.
Section 13. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Board of Directors, the Chairman of the Board and the President, whenever they may require it, an account of all of his transactions as Treasurer and of the financial condition of the corporation.
Section 14. Assistant Treasurers. The Assistant Treasurers in the order determined by the Board of Directors shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors, the Chairman of the Board and the President may prescribe.
ARTICLE IX
SHARES AND STOCKHOLDERS
Section 1. Certificates Representing Shares. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. The signature of any such officer may be facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Transfer of Shares. Subject to valid transfer restrictions and to stop-transfer orders directed in good faith by the corporation to any transfer agent to prevent possible violations of federal or state securities laws, rules or regulations, or for any other lawful purpose, upon surrender to the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Fixing Record Date.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the date on which notice is given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by this Section, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to receive any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 4. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of any share or shares to receive dividends, and to vote as such owner, and for all other purposes as such owner; and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
Section 5. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
ARTICLE X
INDEMNIFICATION
(a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article X. Such expenses incurred by other employees or agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
(g) The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article X.
(h) For purposes of this Article X, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this Article X, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article X.
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
ARTICLE XI
GENERAL
Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, or of the resolutions, if any, providing for any series of stock, may be declared by the Board of Directors at any meeting thereof, or by the Executive Committee at any meeting thereof. Dividends may be paid in cash, in property or in shares of the capital stock of the corporation, subject to the provisions of the certificate of incorporation or of the resolutions, if any, providing for any series of stock.
Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, deem proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose or purposes as the directors shall think conducive to the interests of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
Section 3. Shares of Other Corporations. The Chairman of the Board, the President and any Vice President is authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation or other entity standing in the name of the corporation. The authority herein granted to said officer may be exercised either by said officer in person or by any person authorized so to do by proxy or power of attorney duly executed by said officer. Notwithstanding the above, however, the Board of Directors, in its discretion, may designate by resolution any additional person to vote or represent said shares of other corporations and other entities.
Section 4. Checks. All checks, drafts, bills of exchange or demands for money of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 5. Corporate Records. The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders giving the names and addresses of all stockholders and the number and class and series, if any, of shares held by each. All other books and records of the corporation may be kept at such place or places within or without the State of Delaware as the Board of Directors may from time to time determine.
Section 6. Fiscal Year. The fiscal year of the corporation shall be fixed by the Board of Directors; if not so fixed, it shall be the calendar year.
Section 7. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:
(1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or a committee which authorizes the contract or transaction.
ARTICLE XII
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be adopted at any annual meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, by the affirmative vote of the holders of a majority of the shares entitled to vote at such meeting and present or represented thereat, or by the affirmative vote of a majority of the whole Board of Directors at any regular meeting of the Board or at any special meeting of the Board, provided notice of the proposed alteration, amendment or repeal or the adoption of new bylaws is set forth in the notice of such meeting.
EXHIBIT 4.1
TEXAS CAPITAL BANCSHARES, INC.
1999 OMNIBUS STOCK PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Texas Capital Bancshares, Inc. ("the Company") hereby establishes the Texas Capital Bancshares, Inc. 1999 Omnibus Stock Plan (the "Plan") upon the terms and conditions hereinafter stated.
ARTICLE II
DEFINITIONS
2.01 "Award" means any stock option, stock appreciation right, restricted stock award, or performance award granted to a Participant under the Plan.
2.02 "Board" means the Board of Directors of the Company.
2.03 "Code" means the Internal Revenue Code of 1986, as amended.
2.04 "Committee" means the Plan Committee appointed by the Board, and which shall be comprised of at least three (3) members.
2.05 "Common Stock" means shares of the common stock, $.01 par value per share, of the Company.
2.06 "Disability" means any physical or mental impairment which qualifies an Employee for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan applies, which would qualify such Employee for disability benefits under the Federal Social Security System.
2.07 "Effective Date" means the date upon which the Board approves this Plan.
2.08 "Employee" means any person who is employed by the Company and whose wages are reported on a Form W-2. The Company's classification as to who is an Employee shall be determinative for purposes of an individual's eligibility under the Plan. Solely for purposes of this Plan, the Company, in its sole discretion, and from time to time, may deem an individual who provides services to the Company pursuant to a personal service contract or agreement, but who otherwise is not employed by the Company and whose compensation would not be reported by the Company on a Form W-2, to be classified as an Employee. Any such individual shall be eligible to receive only the following Awards pursuant to this Plan: Non-Qualified Stock Options, stock appreciation rights, Restricted Stock Awards or performance awards.
2.09 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 "Fair Market Value" of a share of the Company's Common Stock for any purposes on a particular date shall be the most recent determination by an independent valuation expert retained by the Company for the purpose of determining the fair market value of each share of the Company's Common Stock; provided that, in the event the Common Stock becomes registered under Section 12 of the Exchange Act, the Fair Market Value of the Company's Common Stock shall mean the last reported sale price per share of Common Stock on such date, or in case no such sale takes place on such date, the average of the closing and asking prices, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on a national securities exchange or included for quotation on the NASDAQ market, or if the Common Stock is not listed or
admitted for trading or included for quotation, the last quote price, or if the Common Stock is not so quoted, the average of the high bid and low asked prices, in the over-the-counter market, as reported by the NASD Automatic Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock as selected in good faith by the Committee.
If the relevant date is not a trading day, the determination shall be made as of the next preceding trading day. As used herein, the term "trading day" means a day on which public trading of securities occurs and as reported in the principal consolidated reporting system referred to above, or if the Common Stock is not listed or admitted to trading on a national market securities exchange or included for quotation on the Nasdaq National Market, any business day.
2.11 "Grantee" refers to any Participant in the Plan who receives an Award.
2.12 "Incentive Stock Option" means any Option granted under this Plan
which the Committee intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code. All Incentive Stock
Options issued under this Plan are intended to comply with the requirements of
Section 422 of the Code, and the regulations thereunder, and all provisions
hereunder shall be read, interpreted and applied with that purpose in mind.
2.13 "Non-Qualified Stock Option" means any Option granted under this Plan which is not an Incentive Stock Option.
2.14 "Officer" means any Employee of the Company who is determined by the Board to be a corporate officer.
2.15 "Participant" means any Employee or Officer who is designated by the Committee or the Board pursuant to Article VI to participate in the Plan.
2.16 "Restricted Stock Award" means an award of Company Common Stock that is subject to certain terms, conditions, or restrictions as forth in the Stock Award Agreement that may affect, among other things, transferability, disposition, and/or forfeitability.
2.17 "Retirement" means a termination of employment which constitutes a "retirement" under any applicable qualified pension benefit plan maintained by the Company.
2.18 "Stock Award Agreement" means the written agreement pursuant to Article VI hereof that sets forth the terms, conditions, restrictions and privileges for an Award and that incorporates the terms of the Plan.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.01 The Plan shall be administered by a Committee comprised of not fewer than three persons as appointed by the Board. A simple majority of the members of the Committee shall constitute a quorum for the transaction of business. The Committee shall be responsible to the Board for the operation of the Plan, and may make recommendations to the Board with respect to participation in the Plan by Employees and Officers of the Company, and with respect to the extent of that participation. The interpretation and construction of any provision of the Plan by the Committee shall be final, unless otherwise determined by the Board. No member of the Board shall be liable for any action or determination made by him in good faith.
3.02 REVOCATION FOR MISCONDUCT. The Committee may by resolution immediately revoke, rescind and terminate any Award, or portion thereof, to the extent not yet vested, previously granted or
awarded under this Plan to a Participant who is discharged from the employ of the Company for cause, which, for purposes of this Plan, shall mean termination because of the Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, or willful violation of any law, rule, or regulation (other than traffic violations or similar offenses).
3.03 REPURCHASE RIGHTS. In the event the Company terminates either the employment or personal services contract or agreement of a Participant for cause, the Participant shall be required to sell all of his vested Awards under this Plan back to the Company at par value upon receipt of written demand by the Board or the Committee. Prior to the earlier to occur of (i) the Company completing an Initial Public Offering of its Common Stock pursuant to the Securities Act of 1933, as amended, or (ii) the Company's Common Stock being listed on the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market System, each Participant whose employment with the Company terminates either for any reason by action of the Company (except for cause) or at the Participant's election, and such termination is for reasons other than due to death, Retirement, or Disability, shall be required to offer for sale to the Company on his final day of employment, or on the last day that he provides services to the Company pursuant to a personal service contract or agreement, all of his vested Awards under this Plan (whether or not received pursuant to exercise of an option awarded under this Plan) at the lesser of: (i) the last annual per share fair market valuation; or (ii) the then current Fair Market Value.
3.04 LIMITATION ON LIABILITY. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent allowed by law and the Company's bylaws, the members of the Committee shall be indemnified by the Company in respect of all their activities under the Plan.
3.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of or obtaining of consents or approvals with respect to such shares under any Federal or state law or any rule or regulation of any government body, which the Company shall, in its sole discretion, determine to be necessary or advisable.
3.06 RESTRICTIONS ON TRANSFER. The Company may place a legend upon any certificate representing shares acquired pursuant to an Award granted hereunder noting that the transfer of such shares may be restricted by applicable laws and regulations.
ARTICLE IV
ELIGIBILITY
Awards may be granted to such Employees and Officers of the Company as may be designated from time to time by the Committee, pursuant to guidelines, if any, which may be adopted by the Committee or the Board from time to time.
ARTICLE V
COMMON STOCK AVAILABLE FOR THE PLAN
The aggregate number of shares of Common Stock which may be issued pursuant to this Plan, subject to adjustment as provided in Article VII, shall be ten percent (10%) of the then outstanding shares of Common Stock; provided, however, that the number of shares that may be issued hereunder shall not be reduced as a result of any redemptions, repurchases or other reduction in the number of outstanding shares of Common Stock. The Company shall reserve such number of shares for Awards under the Plan. None of such shares shall be the subject of more than one Award at any time, but if an Award as to
any shares is surrendered before exercise, or expires or terminates for any reason without having been exercised in full, or for any other reason ceases to be exercisable, the number of shares covered thereby shall again become available for grant under the Plan as if no Awards had been previously granted with respect to such shares.
ARTICLE VI
PARTICIPATION; STOCK AWARD AGREEMENT
The Board or the Committee, if so designated by the Board, shall, in its discretion, determine from time to time which Employees and Officers will participate in the Plan and receive Awards under the Plan. In making all such determinations there shall be taken into account the duties, responsibilities and performance of each respective Employee or Officer, his present and potential contributions to the growth and success of the Company, his cash compensation and such other factors as the Committee shall deem relevant to accomplishing the purposes of the Plan.
Awards may be granted individually or in tandem with other Awards. All awards are subject to the terms, conditions, restrictions and privileges of the Plan in addition to the terms, conditions, restrictions and privileges for an Award contained in the Stock Award Agreement. No Award under this Plan shall be effective unless memorialized in writing by the Committee in a Stock Award Agreement delivered to and signed by the Participant.
ARTICLE VII
AWARDS
7.01 STOCK OPTIONS. The Committee may from time to time grant to eligible participants Awards of Incentive Stock Options or Non-Qualified Stock Options, provided however that Awards of Incentive Stock Options shall be limited to Employees of Company. Options intended to qualify as Incentive Stock Options must have an exercise price at least equal to the Fair Market Value of a share of Common Stock at the time of grant, except as provided in Section 8.06. Non-Qualified Stock Options must have an exercise price at least equal to the Fair Market Value of a share of Common Stock at the time of grant.
7.02 STOCK APPRECIATION RIGHTS. The Committee may from time to time grant to eligible participants Awards of Stock Appreciation Rights ("SARs"). A SAR entitles the Grantee to receive, subject to the provisions of the Plan and the Stock Award Agreement, a payment having an aggregate value equal to the product of (i) the excess of (a) the Fair Market Value on the exercise date of one share of Common Stock over (b) the base price per share specified in Stock Award Agreement, multiplied by (ii) the number of shares specified in the Stock Award Agreement which are exercised. Payment by the Company of the amount receivable upon any exercise of a SAR may be made by the delivery of Common Stock or cash, or any combination of Common stock and cash, as determined in the sole discretion of the Committee. If upon settlement of the exercise of a SAR a Grantee is to receive a portion of such payment in shares of Common stock, the number of shares shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on the exercise date. No fractional shares shall be used for such payment and the Committee shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated.
7.03 RESTRICTED STOCK. The Committee may from time to time grant restricted Stock awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine.
7.04 PERFORMANCE AWARDS. The Committee may, in its discretion, grant performance awards which become payable on account or attainment of one or more performance goals established by the Committee. Performance awards may be paid by the delivery of Common Stock or cash, or any combination thereof, as determined in the sole discretion of the Committee.
ARTICLE VIII
OPTION AWARDS
8.01 VESTING AND EXERCISE OF OPTIONS
(a) GENERAL RULES. Incentive Stock Options and Non-Qualified Stock Options granted to Employees shall become vested and exercisable in equal increments over a three (3) to five (5) year period, with such period determined by the Board and incorporated into each individual Award. Each such Award shall become 100% vested and exercisable not more than five (5) years from the date of grant. Notwithstanding the foregoing, no vesting shall occur on or after an Employee's employment with the Company is terminated for any reason other than his Death, Disability or Retirement. In determining the number of shares of Common Stock with respect to which Options are vested and/or exercisable, fractional shares will be rounded up to the nearest whole number if the fraction is 0.5 or higher, and down if it is less.
(b) VESTING UPON DEATH, DISABILITY OR RETIREMENT. Unless the Committee
specifically states otherwise in the Stock Award Agreement, only those Options
granted to Participants under this Plan which are vested and exercisable on the
date of a Participant's death, Disability or Retirement shall be vested and
exercisable by the Participant or the Participant's representative subject to
Section 8.02.
(c) ACCELERATED VESTING FOR CHANGES IN CONTROL. Notwithstanding the general rule described in Section 8.01(a), all outstanding Options shall become immediately vested and exercisable in the event there is a change in control of the Company. A "change in control of the Company" for this purpose shall mean:
(a) any person or group, other than a Subsidiary or any employee benefit plan (or any related trust) of the Company, becomes the beneficial owner of 40% or more of the Common Stock of the Company that are entitled to vote generally in the election of directors of the Company representing 15% or more of the combined voting power of all voting stock of the Company.
(b) approval by the stockholders of the Company of either of the following:
(i) a merger, reorganization, consolidation or similar transaction ("Merger") as a result of which the Persons who were the respective beneficial owners of the outstanding Common Stock of the Company immediately before such Merger are not expected to beneficially own, immediately after such Merger, directly or indirectly, more than 60% of the Common Stock of the Company resulting from such Merger in substantially the same proportions as immediately before such Merger, or
(ii) a plan of liquidation of the Company or a plan or agreement for the sale or other disposition of all or substantially all of the assets of the Company.
8.02 DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Section 8.01(b), each Option granted to a Participant shall be exercisable at any time on or after it vests and becomes exercisable until the earlier of (i) ten (10) years after its date of grant or (ii) three (3) months after the date on which the Participant ceases to be employed by the Company.
(b) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If a Participant dies while in the employ of the Company or terminates employment with the Company as a result of Disability or Retirement without having fully exercised his Options, the Participant or his legal representative or guardian, or the executors, administrators, legatees or distributees of his estate shall have the right, during the six (6) month period following the earlier of his death, Disability or Retirement,
to exercise such Options to the extent vested on the date of such death, Disability or Retirement. In no event, however, shall any Option be exercisable more than ten (10) years from the date it was granted.
(c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. A Grantee shall immediately notify the Company in writing of any sale, transfer, assignment or other disposition (or action constituting a disqualifying disposition within the meaning of Section 421 of the Code) of any shares of Common Stock acquired through exercise of an Incentive Stock Option, within two (2) years after the grant of such Incentive Stock Option or within one (1) year after the acquisition of such shares, setting forth the date and manner of disposition, the number of shares disposed of and the price at which such shares were disposed. The Company shall be entitled to withhold from any compensation or other payments then or thereafter due to the Grantee such amounts as may be necessary to satisfy any withholding requirements of Federal or state law or regulation and, further, to collect from the Grantee any additional amounts which may be required for such purpose. The Committee may, in its discretion, require shares of Common Stock acquired by a Grantee upon exercise of an Incentive Stock Option to be held in an escrow arrangement for the purpose of enabling compliance with the provisions of this Section 8.02(c).
8.03 NONASSIGNABILITY. Options shall not be transferable by a Grantee except by will or the laws of descent or distribution, and during a Grantee's lifetime shall be exercisable only by such Grantee or the Grantee's guardian or legal representative. Notwithstanding the foregoing, or any other provision of this Plan, a Grantee who holds Non-Qualified Stock Options may transfer such Options to his or her spouse, lineal ascendants, lineal descendants, or to a duly established trust for the benefit of one or more of these individuals. Options so transferred may thereafter be transferred only to the Grantee who originally received the grant or to an individual or trust to whom the Grantee would have initially transferred the Option pursuant to this Section 8.01. Options which are transferred pursuant to this Section 8.01 shall be exercisable by the transferee according to the same terms and conditions as applied to the Grantee.
8.04 MANNER OF EXERCISE. Options may be exercised in part or in whole from time to time. The procedures for exercise shall be set forth in the written Stock Award Agreement provided for in Section 7.01 above. The Committee, may in its discretion, permit a Grantee to exercise vested and exercisable options awarded under this Plan by surrendering an amount of Company stock already owned by the Grantee equal to the options' exercise price (referred to as a "cashless exercise").
8.05 $100,000 LIMITATION. Notwithstanding any contrary provisions contained elsewhere in this Plan and as long as required by Section 422 of the Code, the aggregate Fair Market Value, determined as of the time an Incentive Stock Option is granted, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Grantee during any calendar year, under this Plan and stock options that satisfy the requirements of Section 422 of the Code under any other stock option plan or plans maintained by the Company, shall not exceed $100,000.
8.06 LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which shares of Common Stock may be purchased upon exercise of an Incentive Stock Option granted to an individual who, at the time such Incentive Stock Option is granted, owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock issued to stockholders of the Company, shall be no less than one hundred and ten percent (110%) of the Fair Market Value of a share of the Common Stock of the Company at the time of grant, and such Incentive Stock Option shall by its terms not be exercisable after the earlier of the date determined under Section 8.01 or the expiration of five (5) years from the date such Incentive Stock Option is granted.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with respect to any shares of Common Stock or options which have not been granted.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor any Award hereunder shall create any right on the part of any Employee of the Company to continue in such capacity.
ARTICLE XII
WITHHOLDING
The Company may withhold from any cash payment made under this Plan sufficient amounts to cover any applicable withholding and employment taxes, and if the amount of such cash payment is insufficient, the Company may require the Grantee to pay to the Company the amount required to be withheld as a condition to delivering the shares acquired pursuant to an Option. The Company also may withhold or collect amounts with respect to a disqualifying disposition of shares of Common Stock acquired pursuant to exercise of an Incentive Stock Option, as provided in Section 8.02(c).
The Committee is authorized to adopt rules, regulations or procedures which provide for the satisfaction of a Participant's tax withholding obligation by the retention of shares of Common Stock to which he otherwise would be entitled pursuant to an Award or by the Participant's delivery of previously-owned shares of Common Stock or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
12.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder as of or after the Effective
Date and prior to the termination of the Plan, provided that no Incentive Stock
Option issued pursuant to this Plan shall qualify as such unless this Plan is
approved by the requisite vote of the holders of the outstanding voting shares
of the Company at a meeting of stockholders of the Company held within twelve
(12) months before or after the Effective Date.
12.02 TERM OF PLAN. Unless sooner terminated, this Plan shall remain in effect for a period of ten (10) years ending on the tenth anniversary of the Effective Date. Termination of the Plan shall not affect any Awards previously granted and such Awards shall remain valid and in effect until they have been fully exercised or earned, are surrendered or by their terms expire or are forfeited.
ARTICLE XIV
GOVERNING LAW
To the extent not governed by Federal law, this Plan shall be construed under the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute this 1999 Omnibus Stock Plan, and to apply the Corporate seal hereto as of June 8, 1999.
TEXAS CAPITAL BANCSHARES, INC.
By: /s/ JOSEPH M. GRANT
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Joseph M. Grant
Chairman and Chief Executive Officer
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EXHIBIT 4.2
TEXAS CAPITAL BANCSHARES INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Texas Capital Bancshares, Inc. hereby establishes the Texas Capital Bancshares, Inc. 2000 Employee Stock Purchase Plan (the "Plan") upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of the Plan is to provide employees of Texas Capital Bancshares, Inc. and its Subsidiaries (hereinafter referred to as "Bancshares") with an opportunity to purchase Common Stock of Bancshares. It is the intention of Bancshares to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
ARTICLE III
DEFINITIONS
(a) "Account" shall mean the bookkeeping account maintained by Bancshares, or by a record keeper on behalf of Bancshares, for a Participant pursuant to Article VII(a).
(b) "Board" shall mean the Board of Directors of Bancshares.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee that may be appointed by the Board to administer this Plan pursuant to Article XII.
(e) "Common Stock" shall mean the common stock of Bancshares.
(f) "Compensation" shall mean an Eligible Employee's regular earnings, overtime pay, sick pay and vacation pay. Compensation also includes any amounts contributed as salary reduction contributions to a plan qualifying under Section 401(k) of the Code. Any other form of remuneration is excluded from Compensation, including (but not limited to) the following: commissions, incentive compensation, bonuses, prizes, awards, housing allowances, stock option exercises, stock appreciation rights, restricted stock exercises, performance awards, auto allowances, tuition reimbursement and other forms of imputed income.
(g) "Contributions" shall mean all bookkeeping amounts credited to the Account of a Participant pursuant to Article VII(a).
(h) "Eligible Employee" shall mean any common law employee of Bancshares. Notwithstanding the foregoing, "Eligible Employee" shall not include any employee who (i) has not as of the Grant Date completed at least 90 days of continuous full-time employment with Bancshares, (ii) whose customary employment is for less than 20 hours per week, or (iii) whose customary employment is for not more than five months in a calendar year.
(i) "Effective Date" shall mean July 1, 2000.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(k) "Exercise Date" shall mean, with respect to an Offering Period, the last day of that Offering Period.
(l) "Fair Market Value" shall mean the value of Bancshares' Common
Stock on a particular date as determined by the Board (or Committee) in good
faith; provided that, in the event the Common Stock becomes registered under
Section 12 of the Exchange Act, the Fair Market Value of Bancshares' Common
Stock shall mean the last reported sale price per share of Common Stock on such
date, or in case no such sale takes place on such date, the average of the
closing and asking prices, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on a national securities exchange or included for quotation
on the Nasdaq market, or if the Common Stock is not listed or admitted for
trading or included for quotation, the last quote price, or if the Common Stock
is not so quoted, the average of the high bid and low asked prices, in the
over-the-counter market, as reported by the NASD Automatic Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Committee. If the relevant date is not a trading day, the
determination shall be made as of the next preceding trading day. As used
herein, the term "trading day" means a day on which public trading of securities
occurs and as reported in the principal consolidated reporting system referred
to above, or if the Common Stock is not listed or admitted to trading on a
national market securities exchange or included for quotation on the Nasdaq
National Market, any business day.
(m) "Grant Date" shall mean the first day of each Offering Period.
(n) "Offering Period" shall mean the six-consecutive month period commencing on each January 1 and July 1.
(o) "Option" shall mean the stock option to acquire Shares granted to a Participant pursuant to Article VIII.
(p) "Option Price" shall mean the per share exercise price of an Option as determined in accordance with Article VIII(b).
(q) "Participant" shall mean an Eligible Employee who has elected to participate in this Plan and who has filed a valid and effective Subscription Agreement to make Contributions pursuant to Article VI.
(r) "Plan" shall mean this Texas Capital Bancshares Inc. 2000 Employee Stock Purchase Plan, as amended from time to time.
(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated under Section 16.
(t) "Section 16" shall mean Section 16 of the Exchange Act.
(u) "Share" shall mean a share of Common Stock.
(v) "Subscription Agreement" shall mean the written agreement filed by an Eligible Employee with Bancshares pursuant to Article VI to participate in this Plan.
(w) "Subsidiaries" shall mean any present or future corporation(s) which (i) would be a "subsidiary corporation" of Texas Capital Bancshares, Inc. as that term is defined in Section 424 of the Code and is (ii) designated as a participant in the Plan by the Board.
ARTICLE IV
ELIGIBILITY
(a) Any person who is an Eligible Employee as of the Grant Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Article VI and the limitations imposed by Section 423(b) of the Code.
(b) Notwithstanding anything else contained herein, a person who is
otherwise an Eligible Employee shall not be granted any Option or other right to
purchase Shares under this Plan to the extent it would, if exercised, cause the
person to own "stock" (as such term is defined for purposes of Section 423(b)(3)
of the Code) possessing 5% or more of the total combined voting power or value
of all classes of stock of Bancshares. In addition, no Employee shall be granted
an Option which permits his rights to purchase Shares under the Plan (and under
all employee stock purchase plans of Bancshares qualified under Section 423 of
the Code) at a rate which exceed $25,000 of the fair market value of the stock
of Bancshares (determined at the time the right to purchase such Stock is
granted) for each calendar year during which such right is outstanding. For this
purpose, a right to purchase Shares accrues when it first becomes exercisable
during the calendar year. In determining whether the stock ownership of an
Eligible Employee equals or exceeds the 5% limit set forth above, the rules of
Section 424(d) of the Code (relating to attribution of stock ownership) shall
apply.
ARTICLE V
OFFERING PERIODS
The Plan shall be implemented by a series of Offering Periods of six (6) months duration, with new Offering Periods commencing on or about January 1 and July 1 of each year (or at such other time or times as may be determined by the Board). The initial Offering Period shall commence on the Effective Date. The Plan shall continue until terminated in accordance with Article XVIII hereof.
The Board shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first offering Period to be affected.
ARTICLE VI
PARTICIPATION
An Eligible Employee may become a participant in this Plan by completing a Subscription Agreement on a form approved by and in a manner prescribed by the Board (or Committee). To become effective, Subscription Agreements must be filed with Bancshares prior to the next occurring Grant Date and must set forth the percentage or dollar amount of the Eligible Employee's Compensation (which shall not be less than 1% and not more than 10% of such Eligible Employee's Compensation) to be credited to the Participant's Account as Contributions for each pay period. Subscription Agreements shall contain the Eligible Employee's authorization and consent to Bancshares' withholding from his or her Compensation the amount of his or her Contributions. A Subscription Agreement shall automatically remain valid for subsequent Offering Periods until revoked by a Subscription Agreement filed pursuant to Article VII(d) or terminated by the Participant.
ARTICLE VII
PAYMENT OF CONTRIBUTIONS
(a) Bancshares shall maintain on its books, or cause to be maintained by a recordkeeper, an Account in the name of each Participant. The percentage of Compensation elected to be applied as Contributions by a Participant shall be deducted from such Participant's Compensation on each payday during the period for payroll deductions set forth below and such payroll deductions shall be credited to that Participant's Account as soon as administratively practicable after such date. A Participant may not make any additional payments to his or her Account. A Participant's Account shall be reduced by any amounts used to pay the Option Price of Shares acquired, or by any other amounts distributed pursuant to the terms hereof.
(b) Payroll deductions with respect to an Offering Period shall commence as of the first day of the payroll period which coincides with or immediately follows the applicable Grant Date and shall end on the last day of the payroll period which coincides with or immediately precedes the applicable Exercise Date, unless sooner terminated by the Participant as provided in this Article or until his or her participation terminates pursuant to Article XI.
(c) A Participant may terminate his or her Contributions during an Offering Period by completing and filing with Bancshares, in such form and on such terms as the Board may prescribe, a written withdrawal form which shall be signed by the Participant. Such termination shall be effective as soon as administratively practicable after its receipt by Bancshares.
(d) A Participant may change the level of his or her Contributions by completing and filing with Bancshares, in such form and on such terms as the Board may prescribe, a new Subscription Agreement which shall be signed by the Participant. The Subscription Agreement must set forth the percentage or dollar amount of the Eligible Employee's Compensation (which shall not be less than 1% and not more than 10% of such Eligible Employee's Compensation) to be credited to the Participant's Account as Contributions for each pay period. Any such changes must be filed with Bancshares prior to the next occurring Grant Date. Such change shall be effective as of the next occurring Grant Date. Any Subscription Agreement made pursuant to this Article VII(d) will revoke any then outstanding Subscription Agreement.
ARTICLE VIII
GRANT OF OPTION
(a) On each Grant Date, each Eligible Employee who is a participant during that Offering Period shall be granted an Option to purchase a number of Shares. The Option shall be exercised on the Exercise Date. The number of Shares subject to the Option shall be determined by dividing the Participant's Account balance as of the applicable Exercise Date by the Option Price.
(b) The Option Price per Share of the Shares subject to an option shall be 85% of the Fair Market Value of a Share on the applicable Grant Date of each Offering Period.
ARTICLE IX
EXERCISE OF OPTION
Unless a Participant's participation is terminated as provided in Article XI, his or her option to purchase Shares shall be exercised automatically on the Exercise Date for that Offering Period, without any further action on the Participant's part, and the maximum number of Shares subject to such option shall be purchased at the Option Price with the balance in such Participant's Account. The Board (or Committee), in its discretion and prior to the applicable offering Period, shall limit the purchase of fractional Shares under the Plan; provided that if any amount (which is not sufficient to purchase a whole Share) remains in a Participant's Account after the exercise of his or her Option on the Exercise Date: (i) such amount shall be credited to such Participant's Account for the next Offering Period, if he or she is then a Participant; or (ii) if such Participant is not a Participant in the next offering Period, or if the Board (or Committee) so elects, such amount shall be refunded to such Participant as soon as administratively practicable after such date.
ARTICLE X
DELIVERY
As soon as administratively practicable after an Exercise Date, Bancshares shall deliver to each Participant a certificate representing the Shares purchased upon exercise of his or her Option. Bancshares may make available an alternative arrangement for delivery of Shares to a recordkeeping service. The Board (or Committee), in its discretion, either may require or permit the Participant to elect that such certificates be delivered to such recordkeeping service. Bancshares may serve as the recordkeeping service. In the event Bancshares is required to
obtain from any commission or agency the authority to issue any such certificate, Bancshares will seek to obtain such authority. Inability of Bancshares to obtain from any such commission or agency the authority which counsel for Bancshares deems necessary for the lawful issuance of any such certificate shall relieve Bancshares from liability to any Participant except to return to the Participant the amount of the balance in his or her Account.
ARTICLE XI
TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
(a) Upon a Participant's termination from employment with Bancshares for any reason or in the event that a Participant is no longer an Eligible Employee or if the Participant elects to terminate Contributions pursuant to Article VII, at any time prior to the last day of an Offering Period in which he or she participates, such Participant's Account shall be paid to him or her in cash, or, in the event of such Participant's death, paid to the person or persons entitled thereto under Article XIII, and such Participant's Option for that Offering Period shall be automatically terminated.
(b) A Participant's termination of Plan participation precludes the Participant from again participating in this Plan during that Offering Period. However, such termination shall not have any effect upon his or her ability to participate in any succeeding Offering Period, provided that the applicable eligibility and participation requirements are again met. A Participant's termination from Plan participation shall be deemed to be a revocation of that Participant's Subscription Agreement and such Participant must file a new Subscription Agreement to resume Plan participation in any succeeding Offering Period.
ARTICLE XII
ADMINISTRATION
The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.
ARTICLE XIII
DESIGNATION OF BENEFICIARY
(a) A Participant may file, in a manner prescribed by the Board, a written designation of a beneficiary who is to receive any Shares or cash from such Participant's Account under this Plan in the event of such Participant's death. If a Participant's death occurs subsequent to the end of an Offering Period but prior to the delivery to him or her of any Shares deliverable under the terms of this Plan, such Shares and any remaining balance of such Participant's Account shall be paid to such beneficiary (or such other person as set forth in Article XIII(b)) as soon as administratively practicable after Bancshares receives notice of such Participant's death and any outstanding unexercised option shall terminate. If a Participant's death occurs at any other time, the balance of such Participant's Account shall be paid to such beneficiary (or such other person as set forth in Article XIII(b)) in cash as soon as administratively practicable after Bancshares receives notice of such Participant's death and such Participant's Option shall terminate. If a Participant is married and the designated beneficiary is not his or her spouse, spousal consent shall be required for such designation to be effective.
(b) Beneficiary designations may be changed by the Participant (and his or her spouse, if required) at any time on forms provided and in the manner prescribed by the Board. If a Participant dies with no validly designated beneficiary under this Plan who is living at the time of such Participant's death, Bancshares shall deliver all Shares and/or cash payable pursuant to the terms hereof to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed, Bancshares, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to Bancshares, then to such other person as Bancshares may designate.
ARTICLE XIV
TRANSFERABILITY
Neither Contributions credited to a Participant's Account nor any Options or rights with respect to the exercise of options or right to receive Shares under this Plan may be anticipated, alienated, encumbered, assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Article XIII) by the Participant. Any such attempt at anticipation, alienation, encumbrance, assignment, transfer, pledge or other disposition shall be without effect and all amounts shall be paid and all shares shall be delivered in accordance with the provisions of this Plan. Amounts payable or Shares deliverable pursuant to this Plan shall be paid or delivered only to the Participant or, in the event of the Participant's death, to the Participant's beneficiary pursuant to Article XIII.
ARTICLE XV
USE OF FUNDS; INTEREST
All Contributions received or held by Bancshares under this Plan will be included in the general assets of Bancshares and may be used for any corporate purpose. No interest will be paid to any Participant or credited to his or her Account under this Plan.
ARTICLE XVI
STATEMENTS
Statements shall be provided to Participants as soon as administratively practicable following an Exercise Date. Each Participant's statement shall set forth, as of such Exercise Date, the Participant's Account balance immediately prior to the exercise of his or her Option, the Fair Market Value of a Share, the Option Price, the number of Shares purchased and his or her remaining Account balance, if any.
ARTICLE XVII
ADJUSTMENTS OF AND CHANGES IN THE STOCK
(a) The following provisions will apply if any extraordinary dividend or other extraordinary distribution occurs in respect of the Shares (whether in the form of cash, Common Stock, other securities, or other property), or any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend), reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of Bancshares, or any similar, unusual or extraordinary corporate transaction (or event in respect of the Common Stock) or a sale of substantially all the assets of Bancshares occurs. The Board will, in such manner and to such extent (if any) as it deems appropriate and equitable:
(i) proportionately adjust any or all of: (a) the number and type of Shares (or other securities) that thereafter may be made the subject of Options; (b) the number, amount and type of Shares (or other securities or property) subject to any or all outstanding Options; (c) the Option Price of any or all outstanding options; or (d) the securities, cash or other property deliverable upon exercise of any outstanding options, or
(ii) in the case of an extraordinary dividend or other distribution, recapitalization, reclassification, merger, reorganization, consolidation, combination, sale of assets, split up, exchange, or spin off, make provision for the substitution, settlement, or exchange of any or all outstanding Options or the cash, securities or property deliverable to the holder of any or all outstanding Options based upon the distribution or consideration payable to holders of the Common Stock upon or in respect of such event.
In each case, no such adjustment will be made that would cause this Plan to violate Section 423 of the Code or any successor provisions without the written consent of a simple majority of the Participants materially adversely affected thereby. In any of such events, the Committee may take such action sufficiently prior to such event if
necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares in the same manner as is available to stockholders generally.
(b) Upon a dissolution of Bancshares, or any other event described in Article XVII(a) that Bancshares does not survive, the Plan and, if prior to the last day of an offering Period, any outstanding option granted with respect to that Offering Period shall terminate, subject to any provision that has been expressly made by the Board through a plan or reorganization approved by the Board or otherwise for the survival, substitution, assumption, exchange or other settlement of the Plan and Options. In the event a Participant's Option is terminated pursuant to this Article XVII(b), such Participant's Account shall be paid to him or her in cash.
ARTICLE XVIII
TERM OF PLAN; AMENDMENT OR TERMINATION
(a) This Plan shall become effective as of the Effective Date. No new Offering Periods shall commence on or after the tenth anniversary of the Effective Date and this Plan shall terminate on such date unless sooner terminated pursuant to this Article.
(b) The Board may amend, modify or terminate this Plan at any time without notice. Shareholder approval for any amendment or modification shall not be required, except to the extent required by Section 423 of the Code or other applicable law, or deemed necessary or advisable by the Board. No amendment, modification, or termination pursuant to this Article shall, without the written consent of the Participants, affect in any manner materially adverse to the Participants any rights or benefits of such Participants or obligations of Bancshares under any option granted under this Plan prior to the effective date of such change. Changes contemplated by Article XVII shall not be deemed to constitute changes or amendments requiring Participant consent. Notwithstanding the foregoing, the Board shall have the right to designate from time to time the Subsidiaries, if any, whose employees may be eligible to participate in this Plan and such designation shall not constitute any amendment to this Plan requiring shareholder approval.
ARTICLE XIX
NOTICES
All notices or other communications by a Participant to Bancshares contemplated by the Plan shall be deemed to have been duly given when received in the form and manner specified by the Board (or Committee) at the location, or by the person, designated by the Board (or Committee) for that purpose.
ARTICLE XX
CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such Shares complies with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, any applicable state securities laws, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed.
As a condition precedent to the exercise of any Option, if, in the opinion of counsel for Bancshares such a representation is required under applicable law, Bancshares may require any person exercising such Option to represent and warrant that the Shares subject thereto are being acquired only for investment and without any present intention to sell or distribute such Shares.
ARTICLE XXI
PLAN CONSTRUCTION
(a) It is the intent of Bancshares that transactions in and affecting Options in the case of Participants who are or may be subject to the prohibitions of Section 16 satisfy any then applicable requirements of Rule 16b-3 so that such persons (unless they otherwise agree) will be entitled to the exemptive relief of Rule 16b-3 in respect of those transactions and will not be subject to avoidable liability thereunder. Accordingly, this Plan shall be deemed to contain and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b3 to qualify for the maximum exemption from Section 16 with respect to Plan transactions.
(b) If any provision of this Plan or of any option would otherwise frustrate or conflict with the intents expressed above, that provision to the extent possible shall be interpreted so as to avoid such conflict. If the conflict remains irreconcilable, the Board may disregard the provision if it concludes that to do so furthers the interest of Bancshares and is consistent with the purposes of this Plan as to such persons in the circumstances.
ARTICLE XXII
EMPLOYEES' RIGHTS
Nothing in this Plan (or in any agreement related to this Plan) shall confer upon any Eligible Employee or Participant any right to continue in the service or employ of Bancshares or constitute any contract or agreement of service or employment, or interfere in any way with the right of Bancshares to reduce such person's compensation or other benefits or to terminate the services or employment or such Eligible Employee or Participant, with or without cause, but nothing contained in this Plan or any document related hereto shall affect any other contractual right of any Eligible Employee or Participant. No Participant shall have any rights as a shareholder until a certificate for Shares has been issued in the Participant's name following exercise of his or her Option. No adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to the issuance of such Share certificate. Nothing in this Plan shall be deemed to create any fiduciary relationship between Bancshares and any Participant.
ARTICLE XXIII
COMMON STOCK AVAILABLE FOR THE PLAN
The aggregate number of Shares of Common Stock which may be issued pursuant to this Plan shall be 80,000 Shares of Bancshares' Common Stock. If, and to the extent, that the number of issued Shares of Common Stock shall be increased or reduced by change in par value, split up, reclassification, distribution of a dividend payable in Common Stock, or the like, the number of Shares subject to grant hereunder and the Option Price thereof shall be proportionately adjusted.
ARTICLE XXIV
DISPOSITIONS OF STOCK, RIGHT OF FIRST REFUSAL AND REPURCHASE
(a) Prior to the date on which Bancshares' Common Stock is offered for sale to the public following successful registration of the stock with the Securities and Exchange Commission, the Participant may not sell, exchange, transfer, pledge or otherwise dispose of any Common Stock acquired through the exercise of an Option granted hereunder until after the expiration of a six (6) month holding period measured from the Exercise Date following the transfer of such Common Stock to the Participant.
(b) In the event that, prior to the date on which Bancshares' Common
Stock is offered for sale to the public following successful registration of the
Common Stock with the Securities and Exchange Commission, the Participant shall
incur a termination of employment for any reason, Bancshares, following the six
(6) month holding period described in Article XXIV(a), shall have the right, but
not the obligation, to repurchase at any time some or all of Participant's
Shares of Common Stock acquired through the exercise of an Option granted herein
at the Fair Market Value of such Common Stock at the date of repurchase.
(c) Prior to the date on which Bancshares' Common Stock is offered for sale to the public following successful registration of the stock with the Securities and Exchange Commission, Bancshares, following the six (6) month holding period described in Article XXIV(a), shall have the right of first refusal with respect to Participant's Shares of Common Stock at a purchase price equal to the lower of the Fair Market Value at date of repurchase or the price offered by a bona fide purchaser. The Participant shall, as a condition precedent to his or her right to sell such shares of Common Stock to purchaser, comply with the following procedure:
(i) By written notice (the "Notice"), the Participant shall inform Bancshares of the purchaser's offer, the number of Shares of Common Stock proposed to be transferred , the price per Share, the proposed closing date (which shall be no sooner than fifty (50) days from the date of the Notice), all other terms and conditions of the purchaser's offer and shall further contain an offer to sell all of the offered Shares to Bancshares or its assign pursuant to the terms and provisions of this Article XXIV and on the same terms and conditions contained in the purchaser's offer.
(ii) Bancshares, at its option, exercisable within twenty (20) days of the receipt of the Notice, may purchase all or any part of the offered Shares. In addition, Bancshares shall be entitled to assign its right to purchase the offered Shares to one or more third parties.
(iii) If Bancshares shall elect to purchase some or all of the offered Shares, it shall deliver notice of the exercise of its option to the Participant not later than the twentieth day following receipt of the Notice. In addition, if Bancshares shall assign some or all of its right to purchase the offered Shares to a third party, it shall deliver notice of such assignment, together with the number of the offered shares to be purchased by such third party, not later than the twentieth day following receipt of the Notice. Following delivery of Bancshares' (or the third party) notice of exercise of the option granted herein to purchase the offered Shares, Bancshares shall set a closing date, which shall not be later than twenty days following the delivery of Bancshares' (or the third party's) notice of intent to purchase offered Shares.
(iv) To the extent that Bancshares and its assigns shall elect to purchase less than all of the offered Shares, the Participant shall thereafter be entitled to sell those offered Shares not being so purchased upon the terms and conditions set forth in the Notice. Any modification of such terms and conditions shall require additional compliance with the provisions set forth in this Article XXIV.
(d) In the event that Bancshares exercises its rights under this Article XXIV with regard to, the Participant's Shares, it has the right to tender such purchase price in installments, with interest, over a period not to exceed twelve (12) months. For purposes of such an installment payment, interest shall be calculated and paid not less frequently than annually, and shall equal the prime rate of interest charged by Bancshares' primary bank.
ARTICLE XXV
MISCELLANEOUS
(a) This Plan and related documents shall be governed by, and construed in accordance with, the laws of the State of Delaware. If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue to be fully effective.
(b) Captions and headings are given to the articles of this Plan solely as a convenience to facilitate reference. Such captions and headings shall not be deemed in any way material or relevant to the construction of interpretation of this Plan or any provision hereof.
(c) The adoption of this Plan shall not affect any other compensation or incentive plans in effect for Bancshares. Nothing in this Plan shall be construed to limit the right of Bancshares (i) to establish any other forms of incentives or compensation for employees of Bancshares, or (ii) to grant or assume options (outside the scope of and in addition to those contemplated by this Plan) in connection with any proper corporate purpose.
IN WITNESS WHEREOF, Bancshares has caused its duly authorized officers to execute this Texas Capital Bancshares, Inc. 2000 Employee Stock Purchase Plan, and to apply the Corporate seal hereto as of May 31, 2000.
TEXAS CAPITAL BANCSHARES, INC.
By: /s/ Joseph M. Grant
------------------------------------
Joseph M. Grant
Chairman and Chief Executive Officer
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EXHIBIT 10.1
SHAREHOLDER AGREEMENT
This Shareholder Agreement (the "Agreement") is made as of June 15, 1998 by and among Joseph M. Grant; Theodore H. Strauss; The Makel Family Partnership 1995, Ltd.; G&M Partners, Ltd.; Cargill Lakes Partners, Ltd.; Cargill Capital Partners, Ltd.; JAKS Partners, Ltd.; Gregory B. Hultgren; Rose Hultgren; and Raleigh Hortenstine III (each a "Shareholder" and, collectively, the "Shareholders") and Texas Capital Bancshares, Inc., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, each Shareholder owns or controls the issued and outstanding shares of capital stock of the Company set forth on Exhibit A hereto (the "Stock"); and
WHEREAS, the Company and each Shareholder desire to enter into certain agreements regarding the ownership of the Stock.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Shareholders and the Company, intending to be legally bound, agree as follows:
ARTICLE I
CALL OPTION
1.1 Grant of Option. Each Shareholder hereby severally grants to the
Company an option to require such Shareholder to sell to the Company, and each
Shareholder is obligated to sell to the Company under this option (the "Call
Option"), the percentage of its total shares of Stock set forth in Section 1.2,
if, at any time on or before December 10, 2001, such Shareholder voluntarily
resigns as an officer, director, and/or consultant, whichever is applicable to
such Shareholder, of the Company and/or Texas Capital Bank, N.A., whichever is
applicable to such Shareholder (the "Termination Date"); provided, however, that
notwithstanding anything contained herein to the contrary, (i) it is expressly
agreed and understood that the occurrence of any of the following events shall
not constitute a voluntary resignation or the occurrence of a Termination Date:
(a) death of a Shareholder; (b) permanent disability of a Shareholder; or (c)
resignation by a Shareholder at any time following a Change of Control (as
defined below), and (ii) upon the occurrence of any of the events described in
(a)-(c) above, the Stock owned by such Shareholder, immediately prior to the
occurrence of such event, shall no longer be subject to the Call Option. As used
herein, "Change of Control" shall mean the change in beneficial ownership of an
aggregate of more than 50% of the outstanding shares of common stock of the
Company, in one or more transactions, compared to the ownership of outstanding
shares of common stock of the Company as of December 31, 1998.
The Company may exercise the Call Option with respect to a Shareholder any time after a Termination Date regarding such Shareholder and before 90 days after such Termination Date (the "Call Option Period").
1.2 Stock Covered by Call Option. The percentage of the total shares of Stock held by a Shareholder that is subject to the Call Option is set forth below:
Termination Date Percentage ---------------- ---------- June 15, 1998 - December 10, 1998 100% December 11, 1998- December 10, 1999 60% December 11, 1999 - December 10, 2000 40% December 11, 2000 - December 10, 2001 20% December 11, 2001 and thereafter 0% |
1.3 Call Price. In the event that the Company exercises the Call Option, the price to be paid in cash to each Shareholder for each share of Stock purchased by the Company will be equal to the par value of such share of Stock.
1.4 Exercise of Call Option. The Call Option may be exercised during the Call Option Period with respect to a percentage set forth in Section 1.2 of the number of shares of Stock set forth on Exhibit A in respect of the Shareholder that was subject to a Termination Date (the "Subject Shares"), by the Company giving notice to such Shareholder during the Call Option Period of the election of the Company to exercise the Call Option, and the date of the Call Option Closing (as defined below), which will be within at least sixty (60) days after the date of such notice.
1.5 Call Option Closing. The closing for the purchase and sale of all the Subject Shares will take place at the office of the Company, on the date specified in such notice of exercise (the "Call Option Closing"). At the Call Option Closing, the Shareholder will deliver the certificate or certificates representing the Subject Shares, duly endorsed in blank. In consideration therefor, the Company will deliver to each Shareholder the purchase price, which will be payable in immediately available funds.
ARTICLE II
MISCELLANEOUS
2.1 Default. It is agreed that a violation by any party of the terms of this Agreement cannot be adequately measured or compensated in money damages, and that any breach or threatened breach of this Agreement by a party to this Agreement would do irreparable injury to the nonbreaching party. It is, therefore, agreed that in the event of any breach or threatened breach by a party to this Agreement of the terms and conditions set forth in this Agreement, the nondefaulting party will be entitled, in addition to any and all other rights and remedies that it may have in law or in equity, to apply for and obtain injunctive relief requiring the defaulting party to be restrained from any such breach, or threatened breach or to refrain from a continuation of any actual breach.
2.2 Headings. The headings in this Agreement are for convenience and reference only and are not part of the substance of this Agreement.
2.3 Severability. The parties to this Agreement expressly agree that it is not their intention to violate any public policy, statutory or common law rules, regulations, or decisions of any governmental or regulatory body. If any provision of this Agreement is judicially or administratively interpreted or construed as being in violation of any such policy, rule, regulation, or decision, the provision, section, sentence, word, clause, or combination thereof causing such violation will be inoperative (and in lieu thereof there will be inserted such provision, sentence, word, clause, or combination thereof as may be valid and consistent with the intent of the parties under this Agreement) and the remainder of this Agreement, as amended, will remain binding upon the parties to this Agreement, unless the inoperative provision would cause enforcement of the remainder of this Agreement to be inequitable under the circumstances.
2.4 Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration, or other communication be given to or served upon any of the parties by another, such notice, demand, request, consent, approval, declaration, or other communication will be in writing and will be deemed to have been validly served, given, or delivered (and "the date of such notice" or words of similar effect will mean the date) five (5) days after deposit in the United States mails, certified mail, return receipt requested, with proper postage prepaid, or upon receipt thereof (whether by non-certified mail, telecopy, telegram, express delivery, or otherwise), whichever is earlier, and addressed to the party to be notified as follows:
If to the Company, at: Texas Capital Bancshares, Inc.
5910 N. Central Expressway
Suite 1000
Dallas, Texas 75206
Attn: Joseph M. Grant
Fax: (214) 890-5895
|
with courtesy copies to: Patton Boggs LLP
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attn: Charles P. Miller, Esq.
Fax: (214) 871-2688
If to a Shareholder, at: the address set forth with the name
of such Shareholder on the signature
page hereto
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or to such other address as each party may designate for itself by like notice. Failure or delay in delivering the courtesy copies of any notice, demand, request, consent, approval, declaration, or other communication to the persons designated above to receive copies of the actual notice will in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration, or other communication. No notice, demand, request, consent, approval, declaration, or other communication will be deemed to have been given or received unless and until it sets forth all items of information required to be set forth therein pursuant to the terms of this Agreement.
2.5 Successors. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.
2.6 Remedies. The failure of any party to enforce any right or remedy under this agreement, or to enforce any such right or remedy promptly, will not constitute a waiver thereof, nor give rise to any estoppel against such party, nor excuse any other party from its obligations under this Agreement. Any waiver of any such right or remedy by any party must be in writing and signed by the party against which such waiver is sought to be enforced.
2.7 Counterparts. This Agreement may be executed in any number of counterparts, which will individually and collectively constitute one agreement.
2.8 CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED, AND ACCEPTED BY THE PARTIES IN WILL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF TEXAS AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.
THE COMPANY:
TEXAS CAPITAL BANCSHARES, INC.
By: /s/ JOSEPH M. GRANT
---------------------
Joseph M. Grant
Chairman and Chief Executive Officer
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THE SHAREHOLDERS:
/s/ JOSEPH M. GRANT --------------------------------------- Joseph M. Grant |
Address for Notice:
3510 Turtle Creek #6C
Dallas, TX 75219
/s/ THEODORE H. STRAUSS --------------------------------------- Theodore H. Strauss |
Address for Notice:
/s/ LARRY A. MAKEL --------------------------------------- Larry A. Makel, General Partner The Makel Family Partnership 1995, Ltd. |
Address for Notice:
3833 Centenary Ave.
Dallas, TX 75225
/s/ GEORGE F. JONES, JR. --------------------------------------- George F. Jones, Jr., General Partner G& M Partners, Ltd. |
Address for Notice:
3525 Turtle Creek Blvd. #12D
Dallas, TX 75219
/s/ C. KEITH CARGILL -------------------------------------- C. Keith Cargill, President Cargill Lakes, Inc., General Partner Cargill Lakes Partners, Ltd. |
Address for Notice:
1204 Bowie Ct.
Southlake, TX 76092
/s/ DAVID L. CARGILL -------------------------------------- David L. Cargill, General Partner Cargill Capital Partners, Ltd. |
Address for Notice:
5943 Lindenshire Lane
Dallas, TX 75230
/s/ VINCE A. ACKERSON -------------------------------------- Vince A. Ackerson, President JAKS Company, Inc., General Partner JAKS Partners, Ltd. |
Address for Notice:
604 Bellmead Ct.
Allen, TX 75013
/s/ GREGORY B. HULTGREN -------------------------------------- Gregory B. Hultgren /s/ ROSE HULTGREN -------------------------------------- Rose Hultgren |
Address for Notice:
6512 Mercedes Ave.
Dallas, TX 75214
/s/ RALEIGH HORTENSTINE III -------------------------------------- Raleigh Hortenstine III |
Address for Notice:
6316 Douglas Avenue
Dallas, TX 75205
EXHIBIT "A"
FOUNDERS STOCK SUBJECT TO CALL OPTION
Amount
Beneficially
Name of Beneficial Owner Owned
------------------------ ------------
Joseph M. Grant 283,022
Theodore H. Strauss 43,378
Larry A. Makel (The Makel Family Partnership 1995, Ltd.) 64,000
George F. Jones, Jr. (G&M Partners, Ltd.) 64,000
C. Keith Cargill (Cargill Lakes Partners, Ltd.) 64,000
David L. Cargill (Cargill Capital Partners, Ltd.) 64,000
Gregory B. Hultgren & Rose Hultgren, tenants-in-common 29,155
Raleigh Hortenstine III 35,555
-------
711,110
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EXHIBIT 10.2
TEXAS CAPITAL BANCSHARES, INC.
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 1st day of January, 1999 by and between Texas Capital Bancshares, Inc., a Delaware corporation ("Bancshares"), and Joseph M. Grant (the "Employee").
WITNESSETH THAT in consideration of the agreements hereinafter contained the parties hereto agree as follows:
1. Bancshares shall pay the Employee beginning January 1, 1999 and continuing during the term of his employment hereunder, deferred compensation payable as provided in paragraphs 2 and 3 below.
2. (a) Bancshares shall credit on the Employee's behalf, to a book reserve (the "Deferred Compensation Account") established for this purpose, compensation validly deferred by the Employee on an annual basis on a form provided by Bancshares.
(b) All such funds so credited to the Deferred Compensation Account shall be invested in Bancshares Common Stock in accordance with the Texas Capital Bancshares Deferred Compensation Agreement Trust (the "Trust"). Investments in Bancshares Common Stock shall be made at a price per share determined by Bancshares. Prior to such time as Bancshares completes an initial equity offering representing at least 20% of Bancshares' then outstanding Common Stock, such price per share shall be set, for purposes of this subsection 2(b) as the prevailing "market price" as measured by the most recent sale of Bancshares Common Stock, adjusted upward effective as of the first business day of each calendar year quarter (January 1, April 1, July 1 and October 1), by the Prime Rate as listed for that day in the Wall Street Journal. Upon Bancshares completion of an initial equity offering representing at least 20% of its then outstanding Common Stock, such price shall be the bid price per share as of the close of the immediately preceding stock market trading day.
(c) The Employee agrees on behalf of himself and his designated beneficiary to assume all risk in connection with any decrease in value of the funds which are invested in Bancshares Common Stock in accordance with the provisions of this Agreement.
(d) Title to and beneficial ownership of Bancshares Common Stock deferred pursuant to this paragraph shall at all times remain in Bancshares and the Employee and his designated beneficiary shall not have any property interest whatsoever in any specific assets of Bancshares.
3. Deferred compensation shall be distributed in the following manner:
(a) If the Employee's employment with Bancshares is terminated on or after his 66th birthday, Bancshares shall distribute to him in sixteen (16) equal quarterly installments the number of shares of Bancshares Common Stock acquired pursuant to this Agreement and held for such purpose in the Trust and commencing on the first day of the month next following the Employee's termination of employment. If the Employee should die on or after his 66th birthday and before all of the sixteen (16) equal quarterly payments are made, the unpaid balance will continue to be paid to his designated beneficiary in equal quarterly installments for the unexpired portion of such distribution period.
(b) If the Employee's employment hereunder is terminated for any reason other than death and disability but before the Employee's 66th birthday, then the amount credited to the Deferred Compensation Account shall continue to be held in such Account and no payments shall be made until the Employee attains age 66 at which time payments shall be made in the same manner and to the same extent as set for in paragraph 3(a), above. Notwithstanding the foregoing, if before reaching age 66 the Employee dies or becomes disabled, then payments shall be made in the same manner and to the same extent as set forth in paragraph 3(c), below.
(c) If the Employee's employment is terminated because of disability or death before he has reached the age of 66, but while he is employed by Bancshares, then Bancshares shall make sixteen (16) equal quarterly installments to the Employee (in the event of his disability) or to his designated beneficiary (in the event of his death) in the same manner and to the same extent as provided in paragraph 3(a), above.
(d) If both the Employee and his designated beneficiary should die before all sixteen (16) equal quarterly payments are made by Bancshares, then the balance in the Deferred Compensation Account as of the date of the designated beneficiary's death shall be paid as soon as practicable in a single distribution to the estate of such designated beneficiary.
(e) The Employee may designate any individual or entity as his designated beneficiary and may change the designated beneficiary without the consent of any prior beneficiary by completing a form provided by Bancshares for such purpose and delivering such form to Bancshares before his death. If the Employee fails to designate a beneficiary, or if no designated beneficiary shall survive the Employee, the installment payments payable under paragraph 3(c), above shall be payable to the Employee's estate.
(f) The term "disabled" or "disability" as used in this Agreement shall have the same meaning(s) as those terms are defined in Bancshares' Long Term Disability Insurance Plan.
(g) The installment payments to be made to the Employee under paragraphs 3(a) and 3(c), above shall commence on the first day of the month next following the date of the termination of his employment, and the installment payments to be made to the Employee under paragraph 3(b), above shall commence on the first day of the month next following the Employee's 66th birthday.
4. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a fiduciary relationship between Bancshares and the Employee, his designated beneficiary or any other person. Any funds which may be invested under the provisions of this Agreement shall continue for all purposes to be a part of the general assets of Bancshares, whether or not held in trust, and no person or entity other than Bancshares shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from Bancshares under this agreement, such right shall be no greater than the right of any unsecured general creditor of Bancshares.
5. The right of the Employee or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be assigned, transferred, pledged or encumbered except by will or by the laws of descent and distribution.
6. If the Board shall find that any person to whom any payment is payable under this Agreement is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Board to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine. Any such payment shall be a complete discharge of the liabilities of Bancshares under this agreement.
7. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of Bancshares as an executive or in any other capacity.
8. Any deferred compensation payable under this Agreement shall not be deemed salary or other compensation to the Employee for the purpose of computing benefits to which he may be entitled under any pension plan or other arrangement sponsored by Bancshares for the benefit of its employees.
9. The Board shall have full power and authority to interpret, construe, and administer this Agreement and the Board's interpretations and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. No member of the Board shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Agreement unless attributable to his own willful misconduct or lack of good faith.
10. This agreement shall be binding upon and inure to the benefit of Bancshares, its successors and assigns, and the Employee and his heirs, executors, administrators, and legal representatives.
11. Except to the extent superseded by laws of the United States, the laws of the State of Texas shall be controlling in all matters relating to this Agreement.
IN WITNESS WHEREOF, Bancshares has caused this Agreement to be executed by a duly authorized officer and Employee has hereunto set his hand and seal as of the date first above written.
Texas Capital Bancshares, Inc.
By: /s/ GREGORY B. HULTGREN
-----------------------
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/s/ JOSEPH M. GRANT ---------------------------- Joseph M. Grant |
EXHIBIT 10.3
TEXAS CAPITAL BANCSHARES, INC.
DEFERRED COMPENSATION AGREEMENT TRUST
THIS TRUST AGREEMENT made this 20th day of December, 1999 by and between Texas Capital Bancshares, Inc. ("Bancshares") and Northern Trust Bank of Texas, N.A. (the "Trustee").
WHEREAS, Bancshares has adopted a nonqualified deferred compensation agreement (the "Deferred Compensation Agreement") by and between Bancshares and Joseph M. Grant (the "Employee"); and
WHEREAS, Bancshares has incurred or expects to incur liability under the terms of such Deferred Compensation Agreement with respect to the individual(s) participating in such agreement; and
WHEREAS, Bancshares wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust, assets that shall be held therein, subject to the claims of Bancshares' creditors in the event of Bancshares' Insolvency, as herein defined, until paid to Deferred Compensation Agreement participant(s) and their beneficiaries in such manner and at such times as specified in the Deferred Compensation Agreement; and
WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Deferred Compensation Agreement as an unfunded arrangement; and
WHEREAS, it is the intention of Bancshares to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Deferred Compensation Agreement.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
1.1 Bancshares hereby deposits with Trustee in trust the sum of $100 which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.
1.2 The Trust hereby established shall be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which Bancshares is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
1.4 The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Bancshares and shall be used exclusively for the uses and purposes of Deferred Compensation Agreement participant(s) and general creditors as herein set forth. Deferred Compensation Agreement participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Deferred Compensation Agreement and this Trust Agreement shall be mere unsecured contractual rights of Deferred Compensation Agreement participants and their beneficiaries against Bancshares. Any assets held by the Trust will be subject to the claims of Bancshares' general creditors under federal and state law in the event of Insolvency, as defined in Section 3 herein.
1.5 Bancshares may, in its sole discretion, at any time, or from time to time, make additional deposits with the Trustee to augment the principal to be held, administered, or disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Deferred Compensation Agreement participant or beneficiary shall have any right to compel such additional deposits.
SECTION 2. PAYMENTS TO DEFERRED COMPENSATION AGREEMENT PARTICIPANTS AND THEIR BENEFICIARIES.
2.1 Bancshares shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Deferred Compensation Agreement participant (and his or her beneficiaries), that provides directions to Trustee regarding the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Deferred Compensation Agreement), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to Deferred Compensation Agreement participant(s) and their beneficiaries in accordance with such Payment Schedule. Bancshares shall have the sole responsibility for all tax withholding filings and reports. Trustee shall withhold such amounts from distributions as Bancshares directs and shall follow the instructions of Bancshares with respect to remission of such withheld amounts to appropriate governmental authorities..
2.2 The entitlement of a Deferred Compensation Agreement participant or his or her beneficiaries to benefits under the Deferred Compensation Agreement shall be determined by Bancshares or such party as it shall designate under the Deferred Compensation Agreement, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Deferred Compensation Agreement.
2.3 Bancshares may make payment of benefits directly to Deferred Compensation Agreement participant(s) or their beneficiaries as they become due under the terms of the Deferred Compensation Agreement. Bancshares shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Deferred Compensation Agreement, Bancshares shall make the balance of each such payment as it falls due. Trustee shall notify Bancshares where principal and earnings are not sufficient to make a payment then due under the Payment Schedule.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN BANCSHARES IS INSOLVENT.
3.1 Trustee shall cease payment of benefits to the Deferred Compensation Agreement participant(s) and their beneficiaries if Bancshares is Insolvent. Bancshares shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Bancshares is unable to pay its debts as they become due, or (ii) Bancshares is subject to a pending proceeding as a debtor under the United States Bankruptcy Code; or (iii) Bancshares is determined to be Insolvent by the a state or federal regulatory banking authority exercising jurisdiction over Bancshares.
3.2 At all times during the continuance of this Trust, as provided in Section 1 hereof, the principal and income of the Trust shall be subject to claims of general creditors of Bancshares under federal and state law as set forth below.
(a.) The Board of Directors and the President of Bancshares shall have the duty to inform Trustee in writing of Bancshares' Insolvency. If a person claiming to be a creditor of Bancshares alleges in writing to Trustee that Bancshares has become Insolvent, Trustee shall determine whether Bancshares is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Deferred Compensation Agreement participant(s) or their beneficiaries.
(b.) Unless Trustee has actual knowledge of Bancshares' Insolvency, or has received notice from Bancshares or a person claiming to be a creditor alleging that Bancshares is Insolvent, Trustee shall have no duty to inquire whether Bancshares is Insolvent. Trustee may in all events rely on such evidence concerning Bancshares' solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Bancshares' solvency. In no event shall `actual knowledge' be deemed to include knowledge of Bancshares's credit status held by banking officers or banking employees of Northern Trust Bank of Texas N.A. which has not been communicated to the trust
department of Trustee. Trustee may appoint an independent accounting, consulting
or law firm to make any determination of solvency required by Trustee under this
Section 3. In such event, Trustee may conclusively rely upon the determination
by such firm and shall be responsible only for the prudent selection of such
firm.
(c.) If at any time the Board of Directors or the CEO of Bancshares notifies the Trustee or Trustee has determined that Bancshares is Insolvent, Trustee shall discontinue payments to Deferred Compensation Agreement participant(s) or their beneficiaries and shall hold the assets of the Trust for the benefit of Bancshares' general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Deferred Compensation Agreement participants or their beneficiaries to pursue their rights as general creditors of Bancshares with respect to benefits due under the Deferred Compensation Agreement(s) or otherwise.
(d.) Trustee shall resume the payment of benefits to Deferred
Compensation Agreement participant(s) or their beneficiaries in accordance with
Section 2 of this Trust Agreement only after Trustee has determined that
Bancshares is not Insolvent (or is no longer Insolvent).
3.3 Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Deferred Compensation Agreement participant(s) or their beneficiaries under the terms of the Deferred Compensation Agreement for the period of such discontinuance, less the aggregate amount of any payments made to Deferred Compensation Agreement participant(s) or their beneficiaries by Bancshares in lieu of the payments provided for hereunder during any such period of discontinuance, all in accordance with the Payment Schedule, which shall be modified by Bancshares as necessary to comply with the provisions of this subparagraph (3.3).
SECTION 4. INVESTMENT AUTHORITY.
4.1 Bancshares shall have sole investment responsibility for the assets of the Trust, and the Trustee shall act with respect to such assets only as directed by Bancshares and shall have no investment review responsibility therefor; provided that subject to written investment guidelines issued by Bancshares to the Trustee from time to time, the Trustee shall have responsibility for the short-term investment of any cash balances held in the Trust. Upon a contribution to the Trust by Bancshares pursuant to Section 1.5, Bancshares shall direct the Trustee to, as soon as practicable, purchase on behalf of the Trust, Bancshares Common Stock at a price, as solely determined by Bancshares. All rights associated with Bancshares Common Stock held by the Trustee shall be exercised by the Trustee only as directed by Bancshares and in no event shall be exercisable by Deferred Compensation Agreement Participant(s).
SECTION 5. DISPOSITION OF INCOME.
5.1 During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested in accordance with
Section 4 hereof.
SECTION 6. ACCOUNTING BY TRUSTEE.
6.1 Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Bancshares and Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of Trustee, Trustee shall deliver to Bancshares a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the trust at the end of such year or as of the date of such removal or resignation, as the case may be. In the absence of the filing in writing with
Trustee by Bancshares of exceptions or objections to any such account within 90 days, Bancshares shall be deemed to have approved such account; in such case, or upon the written approval by Bancshares of any such account, Trustee shall be released, relieved and discharged with respect to all matters and things set forth in such account as though such account had been settled by the decree of a court of competent jurisdiction. Trustee may conclusively rely on determinations of Bancshares of valuations for the assets of the Trust for which Trustee deems there to be no readily determinable fair market value.
SECTION 7. RESPONSIBILITY OF TRUSTEE.
7.1 Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given in writing by Bancshares in the event of a dispute between Bancshares and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute.
7.2 If Trustee undertakes or defends any litigation arising in connection with this Trust, Bancshares agrees to indemnify trustee against trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments if Bancshares does not pay such costs, expenses and liabilities in a reasonably timely manner, trustee may obtain payment from the trust.
7.3 Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.
7.4 Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Treasury Regulation Section 301.7701-2.
7.5 The duties of Trustee shall be governed solely by the terms of the Trust without reference to the terms of the Deferred Compensation Agreement.
7.6 Bancshares (which has authority to do so under the laws of its state of incorporation) shall indemnify Northern Trust Bank of Texas N.A., and defend it and hold it harmless from and against any and all liabilities, losses, claims, suits or expenses (including attorneys' fees) of whatsoever kind and nature which may be imposed upon, asserted against or incurred by Northern Trust Bank of Texas N.A. at any time by reason of its carrying out its responsibilities or providing services under this Trust Agreement, or its status as Trustee, or by reason of the breach by Bancshares of any representation or warranty made under this Trust Agreement, or by reason of any act or failure to act under the Trust Agreement, except to the extent that any such liability, loss, claim, suit or expense arises directly from Trustee's negligence or willful misconduct in the performance of responsibilities specifically allocated to it under the Trust Agreement. This paragraph shall survive the termination of this Trust Agreement.
7.7 Trustee shall not be liable for any delay in performance, or non-performance, or any obligation hereunder to the extent that such obligation is due to forces beyond Trustee's reasonable control, including but not limited to delays, errors or interruptions caused by third parties; any industrial, juridical, governmental, civil or military action; acts of terrorism, insurrection or revolution; nuclear fusion, fission or radiation; failure or fluctuation in electrical power, heat, light, air conditioning or telecommunications equipment; or acts of God.
SECTION 8. COMPENSATION AND EXPENSES OF TRUSTEE.
8.1 Bancshares shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the trust.
SECTION 9. RESIGNATION AND REMOVAL OF TRUSTEE.
9.1 Trustee may resign at any time by written notice to Bancshares, which shall be effective 30 days after receipt of such notice unless Bancshares and Trustee agree otherwise.
9.2 Trustee may be removed by Bancshares on 30 days notice or upon shorter notice accepted by trustee.
9.3 Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The resigning or removed Trustee is authorized, however, to reserve the amount as necessary for the payment of fees and expenses incurred prior to resignation or removal. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless Bancshares extends the time limit. Bancshares's consent to extension of such time limit shall not be unreasonably withheld.
9.4 If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10 hereof, by the effective date of resignation or removal under this Section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.
SECTION 10. APPOINTMENT OF SUCCESSOR.
10.1 If Trustee resigns or is removed in accordance with section 9 hereof, Bancshares may appoint any independent third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former trustee, including ownership rights in the trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Bancshares or the successor Trustee to evidence the transfer.
SECTION 11. AMENDMENT OR TERMINATION.
11.1 This Trust Agreement may be amended by a written instrument executed by Trustee and Bancshares. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Deferred Compensation Agreement, as certified to by Bancshares (upon which certification Trustee may conclusively rely), or shall make the Trust revocable.
11.2 The Trust shall not terminate until the date on which there are no longer any assets held in the Trust or Deferred Compensation Agreement participant(s) and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Deferred Compensation Agreement, as certified to by Bancshares (upon which certification Trustee may conclusively rely),. Upon termination of the Trust any assets remaining in the Trust shall be returned to Bancshares.
11.3 Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the deferred compensation agreement, Bancshares may terminate this Trust prior to the time all benefit payments under the deferred compensation agreement have been made. all assets in the Trust at termination shall be returned to Bancshares. Such approval shall be obtained and certified to by Bancshares (upon which certification Trustee may conclusively rely), and Trustee shall have no responsibility therefore.
SECTION 12. MISCELLANEOUS.
12.1 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
12.2 Benefits payable to Deferred Compensation Agreement participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
12.3 This Trust Agreement shall be governed by and construed in accordance with the laws of the state of Texas.
12.4 Any action required to be taken by the Bancshares shall be by resolution of its board of directors or by written direction of one or more of its president, any vice president or treasurer. The Trustee may rely upon a resolution or direction filed with the Trustee and shall have no responsibility for any action taken by the Trustee in accordance with any such resolution or direction.
12.5 Bancshares represents and warrants that the Deferred Compensation Agreement is an unfunded deferred compensation arrangement which is not a pension plan subject to the Employee Retirement Income Security Act of 1974.
12.6 In making payments to service providers pursuant to authorized directions, Bancshares acknowledges that the Trustee is acting as paying agent, and not as the payor, for tax information reporting and withholding purposes.
12.7 This Agreement shall inure to the benefit of, and be binding upon, each of the parties and their respective successors and assigns.
SECTION 13. EFFECTIVE DATE.
13.1 The effective date of this Trust Agreement shall be the 20th day of December, 1999.
In WITNESS WHEREOF, Bancshares and Trustee have caused this Trust Agreement to be executed by its duly authorized officers as of the date first above written.
Texas Capital Bancshares, Inc. The Northern Trust Company
By: /s/ GREGORY B. HULTGREN By: /s/ DONNA H. BISHOP
----------------------- -------------------
Gregory B. Hultgren Donna H. Bishop
Chief Financial Officer Vice President
|
(CORPORATE SEAL)
The undersigned, Larry A. Makel, does hereby certify that he/she is the duly elected, qualified and acting Secretary of Texas Capital Bancshares, Inc. ("Bancshares") and further certifies that the person whose signature appears above is a duly elected, qualified and acting officer of Bancshares with full power and authority to execute this Trust Agreement on behalf of Bancshares and to take such other actions and execute such other documents as may be necessary to effectuate this Agreement.
/s/ LARRY A. MAKEL ------------------------------- Secretary Texas Capital Bancshares, Inc. |
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Texas Capital Bank, a National Association, is organized under the laws of
Texas and d/b/a Texas Capital Bank, N.A. and BankDirect.
| ARTICLE 9 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 3 MOS | YEAR |
| FISCAL YEAR END | DEC 31 2000 | DEC 31 1999 |
| PERIOD START | JAN 01 2000 | JAN 01 1999 |
| PERIOD END | MAR 31 2000 | DEC 31 1999 |
| CASH | 11,783 | 8,428 |
| INT BEARING DEPOSITS | 0 | 0 |
| FED FUNDS SOLD | 47,810 | 120 |
| TRADING ASSETS | 0 | 0 |
| INVESTMENTS HELD FOR SALE | 171,810 | 164,409 |
| INVESTMENTS CARRYING | 0 | 0 |
| INVESTMENTS MARKET | 0 | 0 |
| LOANS | 278,160 | 227,570 |
| ALLOWANCE | 3,475 | 2,775 |
| TOTAL ASSETS | 518,463 | 408,579 |
| DEPOSITS | 444,905 | 287,068 |
| SHORT TERM | 0 | 46,267 |
| LIABILITIES OTHER | 2,602 | 2,332 |
| LONG TERM | 2,089 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 77 | 77 |
| OTHER SE | 68,790 | 72,835 |
| TOTAL LIABILITIES AND EQUITY | 518,463 | 408,579 |
| INTEREST LOAN | 5,463 | 8,293 |
| INTEREST INVEST | 2,813 | 5,560 |
| INTEREST OTHER | 310 | 561 |
| INTEREST TOTAL | 8,586 | 14,414 |
| INTEREST DEPOSIT | 4,484 | 5,563 |
| INTEREST EXPENSE | 4,907 | 6,166 |
| INTEREST INCOME NET | 3,679 | 8,248 |
| LOAN LOSSES | 700 | 2,687 |
| SECURITIES GAINS | 0 | (1) |
| EXPENSE OTHER | 6,286 | 15,217 |
| INCOME PRETAX | (2,970) | (9,298) |
| INCOME PRE EXTRAORDINARY | (2,970) | (9,298) |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (2,970) | (9,298) |
| EPS BASIC | (.39) | (1.23) |
| EPS DILUTED | (.39) | (1.23) |
| YIELD ACTUAL | .034 | .041 |
| LOANS NON | 0 | 0 |
| LOANS PAST | 0 | 0 |
| LOANS TROUBLED | 0 | 0 |
| LOANS PROBLEM | 0 | 0 |
| ALLOWANCE OPEN | 2,775 | 100 |
| CHARGE OFFS | 0 | 12 |
| RECOVERIES | 0 | 0 |
| ALLOWANCE CLOSE | 3,475 | 2,775 |
| ALLOWANCE DOMESTIC | 3,475 | 2,775 |
| ALLOWANCE FOREIGN | 0 | 0 |
| ALLOWANCE UNALLOCATED | 0 | 0 |