DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF
THE SECURITIES EXCHANGE ACT OF 1934
Texas Capital Bancshares, Inc. has two classes of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, our common stock and our 5.75% Non-Cumulative Perpetual Preferred Stock, Series B.
DESCRIPTION OF CAPITAL STOCK
The following descriptions are summaries of the material terms of our Certificate of Incorporation, as amended, and Amended and Restated Bylaws and include all material information with respect to our capital stock. Reference is made to the more detailed provisions of our Certificate of Incorporation, as amended, and Amended and Restated Bylaws, which are filed as exhibits to this Annual Report on Form 10-K filed on February 9, 2022 and are incorporated by reference herein.
General
Under our certificate of incorporation, as amended, we have authority to issue up to 100.0 million shares of common stock, $0.01 par value per share, and 10.0 million shares of preferred stock, par value $0.01 per share.
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 and payment of liquidation preferences on preferred stock, the holders of 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.
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, subject to certain limitations under the Delaware General Corporation Law, or DGCL. We have not paid dividends on our common stock to date, and we do not anticipate paying dividends in the near future. However, the payment of dividends on our common stock is subject to the prior rights of the holders of any preferred stock. Payment of dividends on both 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.
Anti-Takeover Provisions.
Certain provisions of our certificate of incorporation and bylaws could make a merger, tender offer or proxy contest more difficult, even if such events were perceived by many of our stockholders as beneficial to their interests. These provisions are more fully set forth in our Registration Statement on Form 10, as amended, which was filed with the SEC on August 24, 2000, and is incorporated by reference into this prospectus. These provisions include advance notice for nominations of directors and stockholders’ proposals, and authority to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an interested stockholder, defined generally as a person owning 15% or more of a corporation’s outstanding voting stock, from engaging in a business combination with TBCI for three years following the date that person became an interested stockholder unless certain specified conditions are satisfied.
Restrictions on Ownership.
The ability of a third party to acquire us is limited under applicable U.S. banking laws and regulations. The Bank Holding Company Act, or BHC Act, requires any bank holding company (as defined therein) to obtain the approval of the Board of Governors of the Federal Reserve prior to acquiring, directly or indirectly, 5% or more of our outstanding common stock. Any “company” (as defined in the BHC Act) other than a bank holding company would be required to obtain Federal Reserve approval before acquiring “control” of us. “Control” generally means (i) the
ownership or control of 25% or more of a class of voting securities, (ii) the ability to elect a majority of the directors or (iii) the ability otherwise to exercise a controlling influence over management and policies. A holder of 25% or more of our outstanding voting common stock, other than an individual, is subject to regulation and supervision as a bank holding company under the BHC Act. In addition, under the Change in Bank Control Act of 1978, as amended, and the Federal Reserve’s regulations thereunder, any person, either individually or acting through or in concert with one or more persons, is required to provide notice to the Federal Reserve prior to acquiring, directly or indirectly, 10% or more of our outstanding voting common stock.
Listing.
Our common stock is listed on the Nasdaq Global Select Market.
Transfer Agent and Registrar.
The transfer agent and registrar for our common stock is Computershare Investor Services LLC.
Preferred Stock
Our board of directors is authorized to designate and issue shares of preferred stock in one or more series. Subject to the provisions of our certificate of incorporation and limitations prescribed by law and the rules of the Nasdaq Global Select Market, if applicable, our board of directors has the discretion to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by our stockholders.
If we offer to sell preferred stock, we will file with the SEC the certificate of designation setting forth the terms of the preferred stock and the prospectus supplement relating to that offering will include a description of the specific terms of the preferred stock, including:
•the series, the number of shares offered and the liquidation value of the preferred stock;
•the price at which the preferred stock will be issued;
•the dividend rate, the dates on which the dividends will be payable and other terms relating to the payment of dividends on the preferred stock;
•the liquidation preference of the preferred stock;
•the voting rights of the preferred stock;
•whether the preferred stock is redeemable or subject to a sinking fund, and the terms of any such redemption or sinking fund;
•whether the preferred stock is convertible or exchangeable for any other securities, and the terms of any such conversion; and
•any additional rights, preferences, qualifications, limitations and restrictions of the preferred stock.
It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of our common stock until the board of directors determines the specific terms of the preferred stock. However, these effects might include:
•restricting dividends on the common stock;
•diluting the voting power of the common stock;
•impairing the liquidation rights of the common stock; and
•delaying or preventing a change in control of our company.
In March 2021 we issued 300,000 shares of 5.75% Preferred having a liquidation preference of $300.0 million. Holders of 5.75% Preferred do not have voting rights, except with respect to the right to elect two directors upon non-payment of dividends for six or more quarterly dividend periods, authorizing or increasing the authorized amount of senior stock, certain changes in the terms of the 5.75% Preferred, and as otherwise required by applicable law. The 5.75% Preferred ranks senior to our common stock and each other class or series of our capital stock that ranks junior to the 5.75% Preferred as to the payment of dividends and distribution of assets upon our liquidation, dissolution or winding-up. In addition, we intend to treat the 5.75% Preferred as “Additional Tier 1” capital (or its equivalent) for purposes of the capital adequacy guidelines and regulations of the Federal Reserve applicable to us. There is a risk that we will not be entitled to treat the full liquidation preference amount of all shares of the 5.75%
Preferred then outstanding as Additional Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines and regulations of the Federal Reserve then in effect and applicable, for as long as any share of the 5.75% Preferred is outstanding. Subject to certain exceptions, under regulations currently applicable to us, we may not redeem any shares of the 5.75% Preferred without obtaining the prior approval of the Federal Reserve.
A dividend period for the 5.75% Preferred is the period from and including a dividend payment date to but excluding the next dividend payment date.
During any dividend period, so long as any share of 5.75% Preferred remains outstanding and except as otherwise provided below, (i) no dividend shall be paid, declared or set aside for any payment on and no distribution shall be declared, made or set aside on our common stock or any other class or series of capital stock over which the 5.75% Preferred has preference or priority in the payment of dividends (other than (A) a dividend payable solely in stock that ranks junior to the 5.75% Preferred with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding-up or (B) any dividend in connection with the implementation of a stockholders' rights plan or the redemption or repurchase of any rights under any such plan) and (ii) no monies may be paid or made available for a sinking fund for the redemption or retirement of any stock that ranks junior to the 5.75% Preferred or any stock that ranks on a parity with the 5.75% Preferred nor shall any shares of stock that ranks junior to the 5.75% Preferred be repurchased, redeemed or otherwise acquired for consideration by us, directly or indirectly, unless full dividends on all outstanding shares of the 5.75% Preferred for the most recently completed quarterly dividend period have been declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set apart for such payment) and any prior redemption requirements with respect to shares of the 5.75% Preferred have been complied with.
The limitations on dividends and other distributions described in the paragraph above do not apply to the following examples (see the certificate of designation for additional exclusions):
•redemptions, purchases or other acquisitions of shares of common stock or any other class or series of capital stock over which the 5.75% Preferred has preference or priority in the payment of dividends in connection with the administration of any employee benefit plan in the ordinary course of business;
•any dividends or distributions of rights or common stock or any other class or series of capital stock over which the 5.75% Preferred has preference or priority in the payment of dividends in connection with a shareholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan;
•the acquisition by us or any of our subsidiaries of record ownership in common stock or any other class or series of capital stock over which the 5.75% Preferred has preference or priority or is in parity with in the payment of dividends for the beneficial ownership of any other persons (other than for the beneficial ownership by us or any of our subsidiaries), including as trustees or custodians; and
•the exchange or conversion of common stock for or into other capital stock that is junior to the 5.75% Preferred and the payment of cash solely in lieu of fractional shares.
Subject to the restrictions described in the certificate of designation, and not otherwise, dividends (payable in cash, stock, or otherwise), as may be determined by our board of directors or a duly authorized committee of the board, may be declared and paid on our common stock and other stock ranking equally with or junior to the 5.75% Preferred from time to time out of any assets legally available for such payment in amounts permitted by applicable regulatory authorities, and the holders of the 5.75% Preferred will not be entitled to participate in any such dividends.
So long as any shares of 5.75% Preferred are outstanding, the vote or consent of the holders of at least 66 2/3% of the then-outstanding shares of 5.75% Preferred, voting separately as a single class, shall be necessary for effecting or validating:
•any amendment or alteration of our certificate of incorporation to authorize the amount of, or issue, any shares of a class or series of our capital stock ranking prior to the 5.75% Preferred in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of TCBI, or issue any obligation or security convertible into or evidencing the right to purchase any such shares;
•any amendment, alteration or repeal of any provision of our certificate of incorporation to materially and adversely affect the powers, preferences, privileges or rights of the 5.75% Preferred, taken as a whole (subject to certain exceptions); or
•any consummation of (x) a binding share exchange or reclassification involving the 5.75% Preferred, or (y) a merger or consolidation of TCBI with or into another entity (whether or not a corporation), unless in each case (A) the shares of 5.75% Preferred remain outstanding or, in the case of any such merger or consolidation with respect to which TCBI is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parents and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the 5.75% Preferred.
The foregoing provisions will not apply if, at or prior to the time when any such vote or consent would otherwise be required, all outstanding shares of 5.75% Preferred have been redeemed or have been called for redemption upon proper notice, and sufficient funds have been set aside for such redemption.
TEXAS CAPITAL BANCSHARES, INC.
2022 LONG-TERM INCENTIVE PLAN
The Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan (the “Plan”) was adopted by the Board of Directors of Texas Capital Bancshares, Inc., a Delaware corporation (the “Company”), on February 8, 2022 and the Company’s stockholders on April 19, 2022. The Plan shall be effective as of April 26, 2022 (the “Effective Date”).
ARTICLE I
PURPOSE
The purpose of the Plan is to attract and retain the services of key Employees, key Contractors, and Outside Directors of the Company and its Subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, Dividend Equivalent Rights, and Other Awards, whether granted singly, or in combination, or in tandem, that will:
(a) increase the interest of such persons in the Company’s welfare;
(b) furnish an incentive to such persons to continue their services for the Company or its Subsidiaries; and
(c) provide a means through which the Company may attract able persons as Employees, Contractors, and Outside Directors.
With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, such provision or action shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:
2.1 “Applicable Law” means all legal requirements relating to the administration of equity incentive plans and the issuance and distribution of shares of Common Stock, if any, under applicable corporate laws, applicable securities laws, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted, and any other applicable law, rule or restriction.
2.2 “Award” means the grant of any Incentive Stock Option, Nonqualified Stock Option, Restricted Stock, SAR, Restricted Stock Unit, Performance Award, Dividend Equivalent Right or Other Award, whether granted singly or in combination or in tandem (each individually referred to herein as an “Incentive”).
2.3 “Award Agreement” means a written agreement between a Participant and the Company which sets out the terms of the grant of an Award.
2.4 “Award Period” means the period set forth in the Award Agreement during which one or more Incentives granted under an Award may be exercised.
2.5 “Authorized Officer” is defined in Section 3.2(b) hereof.
2.6 “Board” means the board of directors of the Company.
2.7 “Cause”, with respect to a Participant’s Award, shall have the meaning set forth in the Participant’s employment agreement with the Company, or, if the employment agreement does not contain a definition of “cause” or the Participant has not entered into an employment agreement with the Company, “Cause” means any of the following acts by the Participant, as determined in good faith by the Company: (i) misappropriation of funds or property, fraud or dishonesty within the course of providing services to the Company which evidences a want of integrity or breach of trust; (ii) indictment for a misdemeanor that has caused or may be reasonably expected to cause material injury to the Company, any of its Subsidiaries, any of its affiliates or any of their interests, or indictment for a felony; (iii) any willful or negligent action, inaction, or inattention to duties of the Participant within the course of providing services to the Company that causes the Company material harm or damages (as determined in the sole and absolute discretion of the Company); (iv) misappropriation of any corporate opportunity or otherwise obtaining personal profit from any transaction which is adverse to the interests of the Company or to the benefits of which the Company is entitled; (v) inexcusable or repeated failure by the Participant to follow applicable Company policies and procedures; (vi) conduct of the Participant which is materially detrimental to the Company (as determined in the sole and absolute discretion of the Company); or (vii) any material violation of the terms of the Participant’s employment agreement (or, if Participant is a Contractor, of the Participant’s consulting or contractor agreement), if any.
2.8 “Change in Control” means any of the following, except as otherwise provided herein:
(a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 51% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or
(b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date of this Plan, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date of this Plan or whose appointment, election or nomination for election was previously so approved or recommended; or
(c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 51% or more of the combined voting power of the Company’s then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
For purposes hereof:
“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
Notwithstanding the foregoing provisions of this Section 2.8, if an Award issued under the Plan is subject to Section 409A of the Code, then an event shall not constitute a Change in Control for purposes of such Award under the Plan unless such event also constitutes a change in the Company’s ownership, its effective control or the ownership of a substantial portion of its assets within the meaning of Section 409A of the Code.
2.9 “Claim” means any claim, liability or obligation of any nature, arising out of or relating to this Plan or an alleged breach of this Plan, or an Award Agreement.
2.10 “Code” means the United States Internal Revenue Code of 1986, as amended.
2.11 “Committee” means the Compensation and Human Capital Committee of the Board, unless the Board appoints or designates a different committee to administer the Plan in accordance with Article 3 of this Plan.
2.12 “Common Stock” means the common stock, par value $0.01 per share, which the Company is currently authorized to issue or may in the future be authorized to issue, or any securities into which or for which the common stock of the Company may be converted or exchanged, as the case may be, pursuant to the terms of this Plan.
2.13 “Company” means Texas Capital Bancshares, Inc., a Delaware corporation, and any successor entity.
2.14 “Contractor” means any natural person, who is not an Employee, rendering bona fide services to the Company or a Subsidiary, with compensation, pursuant to a written independent contractor agreement between such person (or any entity employing such person) and the Company or a Subsidiary, provided that such services are not rendered in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
2.15 “Corporation” means any entity that (i) is defined as a corporation under Section 7701 of the Code and (ii) is the Company or is in an unbroken chain of corporations (other than the Company) beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain. For purposes of clause (ii) hereof, an entity shall be treated as a “corporation” if it satisfies the definition of a corporation under Section 7701 of the Code.
2.16 “Date of Grant” means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement.
2.17 “Dividend Equivalent Right” means the right of the holder thereof to receive credits based on the cash dividends that would have been paid on the shares of Common Stock specified in the Award if such shares were held by the Participant to whom the Award is made.
2.18 “Employee” means a common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company.
2.19 “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
2.20 “Executive Officer” means an officer of the Company or a Subsidiary subject to Section 16 of the Exchange Act.
2.21 “Exercise Date” is defined in Section 8.3(b) hereof.
2.22 “Fair Market Value” means, as of a particular date, (a) if the shares of Common Stock are listed on any established national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal securities exchange for the Common Stock on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported; (b) if the shares of Common Stock are not so listed, but are quoted on an automated quotation system, the closing sales price per share of Common Stock reported on the automated quotation system on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported; (c) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by the OTC Bulletin Board operated by the Financial Industry Regulation Authority, Inc. or the OTC Markets Group Inc., formerly known as Pink OTC Markets Inc.; or (d) if none of the above is applicable, such amount as may be determined by the Committee (acting on the advice of an Independent Third Party, should the Committee elect in its sole discretion to utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per share of Common Stock. The determination of Fair Market Value shall, where applicable, be in compliance with Section 409A of the Code.
2.23 “Good Reason”, with respect to a Participant’s Award, shall have the meaning set forth in the Participant’s employment agreement with the Company, or, if the employment agreement does not contain a definition of “good reason” or the Participant has not entered into an employment agreement with the Company, “Good Reason” means: (i) without his or her express written consent, the assignment of the Participant to a position constituting a material demotion, or loss of compensation or job duties by comparison to his or her position with the Company on the Date of Grant; provided, however, that changes, as opposed to a loss, in the Participant’s job duties or changes to reporting relationships, at the Board’s discretion, and without a material loss in the Participant’s compensation, will not constitute “Good Reason”; (ii) the change of the location where the Participant performs the majority of the Participant’s job duties on the Date of Grant of the Award (“Base Location”) to a location that is more than fifty (50) miles from the Base Location, without the Participant’s written consent; (iii) a reduction by the Company in the Participant’s base salary as in effect on the Date of Grant of the Award, unless the reduction is a proportionate reduction of the compensation of the Participant and all other senior officers of the Company as a part of a company-wide effort to enhance the Company’s financial condition; or (iv) after the occurrence of a Change in Control, a significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities, or duties attached to the position(s) with the Company which the Participant held immediately before the Change in Control, or a material reduction in total compensation, including incentive compensation, stock-based compensation and benefits received from the Company compared to the total compensation and benefits to which the Participant was entitled immediately before the Change in Control.
2.24 “Immediate Family Members” is defined in Section 15.8 hereof.
2.25 “Incentive” is defined in Section 2.2 hereof.
2.26 “Incentive Stock Option” means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan.
2.27 “Independent Third Party” means an individual or entity independent of the Company having experience in providing investment banking or similar appraisal or valuation services and with expertise generally in the valuation of securities or other property for purposes of this Plan. The Committee may utilize one or more Independent Third Parties.
2.28 “Nonqualified Stock Option” means a nonqualified stock option, granted pursuant to this Plan, which is not an Incentive Stock Option.
2.29 “Option Price” means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock.
2.30 “Other Award” means an Award issued pursuant to Section 6.9 hereof.
2.31 “Outside Director” means a director of the Company who is not an Employee or a Contractor.
2.32 “Participant” means an Employee or Contractor of the Company or a Subsidiary or an Outside Director to whom an Award is granted under this Plan.
2.33 “Performance Award” means an Award hereunder of cash, shares of Common Stock, units or rights based upon, payable in, or otherwise related to, Common Stock pursuant to Section 6.7 hereof.
2.34 “Performance Criteria” is defined in Section 6.10 hereof.
2.35 “Performance Goal” means any of the goals set forth in Section 6.10 hereof.
2.36 “Plan” means this Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan, as amended from time to time.
2.37 “Reporting Participant” means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act.
2.38 “Restricted Stock” means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement.
2.39 “Restricted Stock Units” means units awarded to Participants pursuant to Section 6.6 hereof, which are convertible into Common Stock at such time as such units are no longer subject to restrictions as established by the Committee.
2.40 “Restriction Period” is defined in Section 6.4(b)(i) hereof.
2.41 “SAR” or “Stock Appreciation Right” means the right to receive an amount, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock as of the date the SAR is exercised (or, as provided in the Award Agreement, converted) over the SAR Price for such shares.
2.42 “SAR Price” means the exercise price or conversion price of each share of Common Stock covered by a SAR, determined on the Date of Grant of the SAR.
2.43 “Spread” is defined in Section 12.4(b) hereof.
2.44 “Stock Option” means a Nonqualified Stock Option or an Incentive Stock Option.
2.45 “Subsidiary” means (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. “Subsidiaries” means more than one of any such corporations, limited partnerships, partnerships or limited liability companies.
2.46 “Termination of Service” occurs when a Participant who is (i) an Employee of the Company or any Subsidiary ceases to serve as an Employee of the Company and its Subsidiaries, for any reason; (ii) an Outside Director of the Company or a Subsidiary ceases to serve as a director of the Company and its Subsidiaries for any reason; or (iii) a Contractor of the Company or a Subsidiary ceases to serve as a Contractor of the Company and its Subsidiaries for any
reason. Except as may be necessary or desirable to comply with applicable federal or state law, a “Termination of Service” shall not be deemed to have occurred when a Participant who is an Employee becomes an Outside Director or Contractor or vice versa. If, however, a Participant who is an Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a Termination of Service, and if that Participant does not exercise the Incentive Stock Option within the time required under Section 422 of the Code upon ceasing to be an Employee, the Incentive Stock Option shall thereafter become a Nonqualified Stock Option. Notwithstanding the foregoing provisions of this Section 2.51, in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Termination of Service” for purposes of such Award shall be the definition of “separation from service” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.
2.47 “Total and Permanent Disability” means a Participant is qualified for long-term disability benefits under the Company’s or Subsidiary’s disability plan or insurance policy; or, if no such plan or policy is then in existence or if the Participant is not eligible to participate in such plan or policy, that the Participant, because of a physical or mental condition resulting from bodily injury, disease, or mental disorder, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee, based upon medical reports or other evidence satisfactory to the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. Notwithstanding the foregoing provisions of this Section 2.52, in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Total and Permanent Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.
2.48 “Withheld Dividends” is defined in Section 6.4(b)(ii) hereof.
ARTICLE 3
ADMINISTRATION
3.1 General Administration; Establishment of Committee. Subject to the terms of this Article 3, the Plan shall be administered by the Committee. The Committee shall consist of not fewer than two persons. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to refer to the Board.
Membership on the Committee shall be limited to those members of the Board who are “non-employee directors” as defined in Rule 16b-3 promulgated under the Exchange Act. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.
3.2 Designation of Participants and Awards.
(a) The Committee or the Board shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement, where applicable, the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan. The Committee shall determine whether an Award shall include one type of Incentive or two or more Incentives granted in combination or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive).
(b) Notwithstanding Section 3.2(a), to the extent permitted by Applicable Law, the Board may, in its discretion and by a resolution adopted by the Board, authorize one or more officers of the Company (an “Authorized Officer”) to (i) designate one or more Employees other than Reporting Persons as eligible persons to whom Awards will be granted under the Plan and (ii) determine the number of shares of Common Stock that will be subject to such Awards; provided, however, that the resolution of the Board granting such authority shall (x) specify the total number of shares of Common Stock that may be made subject to the Awards, (y) set forth
the price or prices (or a formula by which such price or prices may be determined) to be paid for the purchase of the Common Stock subject to such Awards, and (z) not authorize an officer to designate himself as a recipient of any Award.
3.3 Authority of the Committee. The Committee, in its discretion, shall (i) interpret the Plan and Award Agreements, (ii) prescribe, amend, and rescind any rules and regulations, as necessary or appropriate for the administration of the Plan, (iii) establish performance goals for an Award and certify the extent of their achievement, and (iv) make such other determinations or certifications and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. The Committee’s discretion set forth herein shall not be limited by any provision of the Plan, including any provision which by its terms is applicable notwithstanding any other provision of the Plan to the contrary.
The Committee may delegate to officers of the Company, pursuant to a written delegation, the authority to perform specified functions under the Plan. Any actions taken by any officers of the Company pursuant to such written delegation of authority shall be deemed to have been taken by the Committee.
With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the Exchange Act, Section 422 of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted, or any other Applicable Law, to the extent that any such restrictions are no longer required by Applicable Law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer), Contractor or Outside Director of the Company whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees of a Corporation shall be eligible to receive Incentive Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Contractor or Outside Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. Except as required by this Plan, Awards need not contain similar provisions. The Committee’s determinations under the Plan (including without limitation determinations of which Employees, Contractors or Outside Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Participants who receive, or are eligible to receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
5.1 Number Available for Awards. Subject to adjustment as provided in Articles 11 and 12, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is one million four hundred thousand (1,400,000) shares, less the net number of shares covering awards made pursuant the Company's 2015 Long-Term Incentive Plan between December 31, 2021 and the Effective Date (the “Shares Available”). One hundred percent (100%) of the Shares Available may be delivered pursuant to Incentive Stock Options. Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.
5.2 Reuse of Shares. To the extent that any Awards under this Plan shall be forfeited, shall expire or be canceled, in whole or in part, without the issuance of Shares, then the number of shares of Common Stock covered by the Awards so forfeited, expired, or canceled may again be awarded pursuant to the provisions of this Plan. Awards that
may be satisfied either by the issuance of shares of Common Stock or by cash or other consideration shall be counted against the maximum number of shares of Common Stock that may be issued under this Plan only during the period that the Award is outstanding or to the extent the Award is ultimately satisfied by the issuance of shares of Common Stock. Shares of Common Stock otherwise deliverable pursuant to an Award that are withheld upon exercise or vesting of an Award for purposes of paying the exercise price or tax withholdings shall be treated as delivered to the Participant and shall be counted against the maximum number of shares of Common Stock that may be issued under this Plan. Awards will not reduce the number of shares of Common Stock that may be issued pursuant to this Plan if the settlement of the Award will not require the issuance of shares of Common Stock, as, for example, a SAR that can be satisfied only by the payment of cash. Notwithstanding any provisions of the Plan to the contrary, shares forfeited back to the Company, or shares canceled on account of termination, expiration or lapse of an Award shall again be available for grant of Incentive Stock Options under the Plan, but shall not increase the maximum number of shares described in Section 5.1 above as the maximum number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options.
ARTICLE 6
GRANT OF AWARDS
6.1 In General.
(a) The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but (i) not inconsistent with the Plan, and (ii) to the extent an Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan.
(b) If the Committee establishes a purchase price for an Award, the Participant must accept such Award within a period of thirty (30) days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price.
(c) Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.
6.2 Option Price. The Option Price for any share of Common Stock which may be purchased under a Nonqualified Stock Option for any share of Common Stock must be equal to or greater than the Fair Market Value of the share on the Date of Grant. The Option Price for any share of Common Stock which may be purchased under an Incentive Stock Option must be at least equal to the Fair Market Value of the share on the Date of Grant; if an Incentive Stock Option is granted to an Employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary), the Option Price shall be at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the Date of Grant. No dividends or Dividend Equivalent Rights may be paid or granted with respect to any Stock Option granted hereunder.
6.3 Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified Stock Option. In such case, the Committee shall designate which stock will be treated as Incentive Stock Option stock by causing the issuance of a separate stock certificate and identifying such stock as Incentive Stock Option stock on the Company’s stock transfer records.
6.4 Restricted Stock. If Restricted Stock is granted to or received by a Participant under an Award (including a Stock Option), the Committee shall set forth in the related Award Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if any, to be paid by the Participant for such Restricted Stock and the method of payment of the price, (iii) the time or times within which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted Stock, which shall be consistent with this Plan, to the extent applicable. The provisions of Restricted Stock need not be the same with respect to each Participant.
(a) Legend on Shares. The Company shall electronically register the Restricted Stock awarded to a Participant in the name of such Participant, which shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 15.10 of the Plan. No stock certificate or certificates shall be issued with respect to such shares of Common Stock, unless, following the expiration of the Restriction Period (as defined in Section 6.4(b)(i)) without forfeiture in respect of such shares of Common Stock, the Participant requests delivery of the certificate or certificates by submitting a written request to the Committee (or such party designated by the Company) requesting delivery of the certificates. The Company shall deliver the certificates requested by the Participant to the Participant as soon as administratively practicable following the Company’s receipt of such request.
(b) Restrictions and Conditions. Shares of Restricted Stock shall be subject to the following restrictions and conditions:
(i) Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may be determined by the Committee commencing on the Date of Grant or the date of exercise of an Award (the “Restriction Period”), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock. Except for these limitations and the limitations set forth in Section 7.2 below, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in Applicable Laws or other changes in circumstances arising after the date of the Award, such action is appropriate.
(ii) Except as provided in sub-paragraph (i) above or in the applicable Award Agreement, the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon; provided that (A) any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account without interest (together, “Withheld Dividends”); and (B) such Withheld Dividends attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to such Participant in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such Withheld Dividends, if applicable, upon the release of restrictions on such share (i.e., upon vesting) and, if such share is forfeited, the Participant shall forfeit and have no right to such Withheld Dividends. In no event shall dividends be paid or distributed until the vesting restrictions of the underlying Restricted Stock lapse. Certificates for shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock or after any other restrictions imposed on such shares of Common Stock by the applicable Award Agreement or other agreement have expired. Certificates for the shares of Common Stock forfeited under the provisions of the Plan and the applicable Award Agreement shall be promptly returned to the Company by the forfeiting Participant. Each Award Agreement shall require that each Participant, in connection with the issuance of a certificate for Restricted Stock, shall endorse such certificate in blank or execute a stock power in form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company.
(iii) The Restriction Period of Restricted Stock shall commence on the Date of Grant or the date of exercise of an Award, as specified in the Award Agreement, and, subject to Article 12 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on such Performance Goals, as may be determined by the Committee in its sole discretion.
(iv) Except as otherwise provided in the particular Award Agreement, upon Termination of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock and any Withheld Dividends shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for such forfeited Restricted Stock, the Committee shall specify in the Award Agreement that either (i) the Company shall be obligated to, or (ii) the Company may, in its sole discretion, elect to, pay to the Participant, as soon as practicable after the event causing forfeiture, in cash, an amount equal to the lesser of the total consideration paid by the Participant for such forfeited shares or the Fair Market Value of such forfeited shares as of the date of Termination of Service, as the Committee, in its sole discretion shall select. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of the Restricted Stock and any Withheld Dividends shall cease and terminate, without any further obligation on the part of the Company.
6.5 SARs. The Committee may grant SARs to any Participant, either as a separate Award or in connection with a Stock Option. SARs shall be subject to such terms and conditions as the Committee shall impose, provided that such terms and conditions are (i) not inconsistent with the Plan and (ii) to the extent a SAR issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. The grant of the SAR may provide that the holder may be paid for the value of the SAR either in cash or in shares of Common Stock, or a combination thereof. In the event of the exercise of a SAR payable in shares of Common Stock, the holder of the SAR shall receive that number of whole shares of Common Stock having an aggregate Fair Market Value on the date of exercise equal to the value obtained by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise over the SAR Price as set forth in such SAR (or other value specified in the Award Agreement granting the SAR), by (ii) the number of shares of Common Stock as to which the SAR is exercised, with a cash settlement to be made for any fractional shares of Common Stock. The SAR Price for any share of Common Stock subject to a SAR may be equal to or greater than the Fair Market Value of the share on the Date of Grant. The Committee, in its sole discretion, may place a ceiling on the amount payable upon exercise of a SAR, but any such limitation shall be specified at the time that the SAR is granted. No dividends or Dividend Equivalent Rights may be paid or granted with respect to any Stock Appreciation Right granted hereunder.
6.6 Restricted Stock Units. Restricted Stock Units may be awarded or sold to any Participant under such terms and conditions as shall be established by the Committee, provided, however, that such terms and conditions are (i) not inconsistent with the Plan, and (ii) to the extent a Restricted Stock Unit issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. The grant of a Restricted Stock Unit may provide that the holder may be paid for the value of the Restricted Stock Unit either in cash or in shares of Common Stock, or a combination thereof. Restricted Stock Units shall be subject to such restrictions as the Committee determines, including, without limitation, (a) a prohibition against sale, assignment, transfer, pledge, hypothecation or other encumbrance for a specified period; or (b) a requirement that the holder forfeit (or in the case of shares of Common Stock or units sold to the Participant, resell to the Company at cost) such shares or units in the event of Termination of Service during the period of restriction. If the applicable Award Agreement provides that Restricted Stock Units are eligible for dividends or dividend equivalents, then in no event shall such dividend equivalents be paid or distributed until the vesting restrictions of the underlying Restricted Stock Units lapse.
6.7 Performance Awards.
(a) The Committee may grant Performance Awards to one or more Participants. The terms and conditions of Performance Awards shall be specified at the time of the grant and may include provisions establishing the performance period, the Performance Goals to be achieved during a performance period, and
the maximum or minimum settlement values, provided that such terms and conditions are (i) not inconsistent with the Plan and (ii) to the extent a Performance Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. If the Performance Award is to be in shares of Common Stock, the Performance Awards may provide for the issuance of the shares of Common Stock at the time of the grant of the Performance Award or at the time of the certification by the Committee that the Performance Goals for the performance period have been met; provided, however, if shares of Common Stock are issued at the time of the grant of the Performance Award and if, at the end of the performance period, the Performance Goals are not certified by the Committee to have been fully satisfied, then, notwithstanding any other provisions of this Plan to the contrary, the Common Stock shall be forfeited in accordance with the terms of the grant to the extent the Committee determines that the Performance Goals were not met. The forfeiture of shares of Common Stock issued at the time of the grant of the Performance Award due to failure to achieve the established Performance Goals shall be separate from and in addition to any other restrictions provided for in this Plan that may be applicable to such shares of Common Stock. Each Performance Award granted to one or more Participants shall have its own terms and conditions. If the applicable Award Agreement provides that Performance Award is eligible for dividends or dividend equivalents, then in no event shall such dividends or dividend equivalents be paid or distributed until the vesting restrictions of the underlying Performance Award lapse.
If the Committee determines, in its sole discretion, that the established performance measures or objectives are no longer suitable because of a change in the Company’s business, operations, corporate structure, or for other reasons that the Committee deemed satisfactory, the Committee may modify the performance measures or objectives and/or the performance period.
(b) Performance Awards may be valued by reference to the Fair Market Value of a share of Common Stock or according to any formula or method deemed appropriate by the Committee, in its sole discretion, including, but not limited to, achievement of Performance Goals or other specific financial, production, sales or cost performance objectives that the Committee believes to be relevant to the Company’s business and/or remaining in the employ of the Company or a Subsidiary for a specified period of time. Performance Awards may be paid in cash, shares of Common Stock, or other consideration, or any combination thereof. If payable in shares of Common Stock, the consideration for the issuance of such shares may be the achievement of the performance objective established at the time of the grant of the Performance Award. Performance Awards may be payable in a single payment or in installments and may be payable at a specified date or dates or upon attaining the performance objective. The extent to which any applicable performance objective has been achieved shall be conclusively determined by the Committee.
6.8 Dividend Equivalent Rights. The Committee may grant a Dividend Equivalent Right to any Participant, either as a component of another Award or as a separate Award; provided, however, that no Dividend Equivalent Right may be paid or granted with respect to any Stock Option or SAR. The terms and conditions of the Dividend Equivalent Right shall be specified by the grant. The Committee may provide that Dividend Equivalents (i) will be deemed to have been reinvested in additional Shares or otherwise reinvested (subject to Share availability under Section 5.1 hereof) and subject to the same vesting provisions as provided for the host Award, or (ii) will be credited by the Company to an account for the Participant and accumulated without interest until the date on which the host Award becomes vested, and, in either case, any Dividend Equivalents accrued with respect to forfeited Awards will be reconveyed to the Company without further consideration or any act or action by the Participant. In no event shall Dividend Equivalents be paid or distributed until the vesting restrictions of the underlying Award lapse.
6.9 Other Awards. The Committee may grant to any Participant other forms of Awards, based upon, payable in, or otherwise related to, in whole or in part, shares of Common Stock, if the Committee determines that such other form of Award is consistent with the purpose and restrictions of this Plan. The terms and conditions of such other form of Award shall be specified by the grant. Such Other Awards may be granted for no cash consideration, for such minimum consideration as may be required by Applicable Law, or for such other consideration as may be specified by the grant. If the applicable Award Agreement provides that such other form of Award is eligible for dividends or dividend equivalents, then in no event shall such dividends or dividend equivalents be paid or distributed until the vesting restrictions of the underlying Award lapse.
6.10 Performance Goals. Awards of Restricted Stock, Restricted Stock Units, Performance Award and Other Awards (whether relating to cash or shares of Common Stock) under the Plan may be made subject to the attainment of Performance Goals relating to one or more business criteria which, where applicable, may consist of one or more or any combination of the following criteria: tangible book value; tangible common equity; growth in interest income and expense; net interest margin; efficiency ratio; growth in non-interest income and non-interest expense and ratios to earnings assets; net revenue growth and ratio to earning assets; capital ratios; asset or liability interest rate sensitivity and gap; effective tax rate; deposit growth and composition; liquidity management; securities portfolio (value, yield, spread, maturity, or duration); earning asset growth and composition (loans, securities); non-interest income (including, fees, premiums and commissions, loans, wealth management, treasury management, insurance, funds management); overhead ratios, productivity ratios (including adjusted earnings/full-time equivalent (FTE), pre-tax income/FTE); return on assets; return on equity or stockholders’ equity; economic value of equity (EVE); internal controls; enterprise risk measures (including interest rate, loan concentrations, portfolio composition, credit quality, operational measures, compliance ratings, balance sheet, liquidity, insurance); cost; revenues; revenue ratios (per employee or per customer); ratio of debt to debt plus equity; net borrowing; debt ratings; profit before tax; cash return on capitalization; economic profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational or other basis); earnings per share growth; operating income; net income; operating earnings; capital expenditures; expenses or expense levels; economic value added; ratio of operating earnings to capital spending or any other operating ratios; return on capital compared to cost of capital; return on invested capital; cash flow; net cash flow before financing activities; cost reductions; cost ratios (per employee or per customer); free cash flow; net profit; sales; net sales; net asset value per share; the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions; sales growth; price of the Company’s Common Stock; market share; inventory levels, inventory turn or shrinkage; total return to stockholders; budget goals; customer growth; total market value; dividend payout; or dividend growth (“Performance Criteria”). Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or laws, (iv) the effect of a merger or acquisition, as identified in the Company’s quarterly and annual earnings releases, or (v) other similar occurrences. In all other respects, Performance Criteria shall be calculated in accordance with the Company’s financial statements, under generally accepted accounting principles, or under a methodology established by the Committee prior to the issuance of an Award which is consistently applied and identified in the audited financial statements, including footnotes, or the Compensation Discussion and Analysis section of the Company’s annual report.
6.11 Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a “tandem Award,” so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and a SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to one hundred (100) shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of one hundred (100) shares of Common Stock.
6.12 No Repricing of Stock Options or SARs. The Committee may not “reprice” any Stock Option or SAR without the prior approval of the Company’s shareholders. For purposes of this Section 6.12, “reprice” means any of the following or any other action that has the same effect: (i) amending a Stock Option or SAR to reduce its exercise price or base price, directly or indirectly, (ii) canceling a Stock Option or SAR at a time when its exercise price or base price exceeds the Fair Market Value of a share of Common Stock in exchange for cash or a Stock Option, SAR, award of Restricted Stock or other equity award, (iii) repurchasing a Stock Option or SAR for value (in cash or otherwise) from a Participant at a time when its exercise price or base price exceeds the Fair Market Value of a share of Common Stock, or (iii) taking any other action that is treated as a repricing under generally accepted accounting principles, provided that nothing in this Section 6.12 shall prevent the Committee from making adjustments pursuant to Article 11, from exchanging or cancelling Incentives pursuant to Article 12, or substituting Incentives in accordance with Article 14.
6.13 Recoupment for Restatements. Notwithstanding any other language in this Plan to the contrary, the Company may recoup all or any portion of any shares or cash paid to a Participant in connection with an Award, in the event of a restatement of the Company’s financial statements as set forth in the Company’s clawback policy, if any, approved by the Company’s Board from time to time.
6.14 Limit on Awards to Outside Directors. With respect to any one calendar year, the aggregate compensation that may be granted to any individual Outside Director, including all meeting fees, cash retainers and retainers granted in the form of Awards, shall not exceed $500,000; provided, however, that the Board may, in its sole discretion, make exceptions to such limit in extraordinary circumstances if it determines in its sole discretion that such exception is advisable. For purposes of such limit, the value of Awards will be determined based on the aggregate Grant Date fair value of all awards issued to the Outside Director in such year (computed in accordance with applicable financial accounting rules).
ARTICLE 7
AWARD PERIOD; VESTING
7.1 Award Period. Subject to the other provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon Termination of Service. No Incentive granted under the Plan may be exercised at any time after the end of its Award Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant.
7.2 Vesting. The Committee, in its sole discretion, shall establish the vesting terms applicable to an Incentive, provided that any such vesting terms shall not be inconsistent with the terms of the Plan, including, without limitation, this Section 7.2. Except with respect to a maximum of five percent (5%) of the Shares Available, any stock-based Incentives which vest on the basis of a Participant’s continued employment with or provision of service to the Company shall have a minimum vesting requirement of one (1) year and any stock-based Incentives which vest upon the attainment of performance goals shall provide for a Performance Period of at least one (1) year (subject to automatic acceleration of vesting only in the event of death or Total and Permanent Disability of the Participant).
ARTICLE 8
EXERCISE OR CONVERSION OF INCENTIVE
8.1 In General. A vested Incentive may be exercised or converted, during its Award Period, subject to limitations and restrictions set forth in the Award Agreement.
8.2 Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or shares of Common Stock issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under the circumstances has not been accomplished.
8.3 Exercise of Stock Option.
(a) In General. If a Stock Option is exercisable prior to the time it is vested, the Common Stock obtained on the exercise of the Stock Option shall be Restricted Stock which is subject to the applicable provisions of the Plan and the Award Agreement. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Stock Option may be exercised. No Stock Option may be exercised for a fractional share of Common Stock. The granting of a Stock Option shall impose no obligation upon the Participant to exercise that Stock Option.
(b) Notice and Payment. Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option may be exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised and the date of exercise thereof (the “Exercise Date”) which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant shall deliver
to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as provided in the Award Agreement, which may provide for payment in any one or more of the following ways: (a) cash or check, bank draft, or money order payable to the order of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so tendered.
Except as otherwise provided in Section 6.4 hereof (with respect to shares of Restricted Stock) or in the applicable Award Agreement, upon payment of all amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s name (or the person exercising the Participant’s Stock Option in the event of his or her death), but shall not issue certificates for the Common Stock unless the Participant or such other person requests delivery of the certificates for the Common Stock, in writing in accordance with the procedures established by the Committee. The Company shall deliver certificates to the Participant (or the person exercising the Participant’s Stock Option in the event of his or her death) as soon as administratively practicable following the Company’s receipt of a written request from the Participant or such other person for delivery of the certificates. Notwithstanding the forgoing, if the Participant has exercised an Incentive Stock Option, the Company may at its option retain physical possession of the certificate evidencing the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. Any obligation of the Company to deliver shares of Common Stock shall, however, be subject to the condition that, if at any time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Committee.
(c) Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, that portion of the Participant’s Stock Option and right to purchase such Common Stock may be forfeited by the Participant.
8.4 SARs. Subject to the conditions of this Section 8.4 and such administrative regulations as the Committee may from time to time adopt, a SAR may be exercised by the delivery (including by FAX) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the Exercise Date thereof, which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. Subject to the terms of the Award Agreement and only if permissible under Section 409A of the Code and the regulations or other guidance issued thereunder (or, if not so permissible, at such time as permitted by Section 409A of the Code and the regulations or other guidance issued thereunder), the Participant shall receive from the Company in exchange therefor in the discretion of the Committee, and subject to the terms of the Award Agreement:
(a) cash in an amount equal to the excess (if any) of the Fair Market Value (as of the Exercise Date, or if provided in the Award Agreement, conversion, of the SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered;
(b) that number of shares of Common Stock having an aggregate Fair Market Value (as of the Exercise Date, or if provided in the Award Agreement, conversion, of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests; or
(c) the Company may settle such obligation in part with shares of Common Stock and in part with cash.
The distribution of any cash or Common Stock pursuant to the foregoing sentence shall be made at such time as set forth in the Award Agreement.
8.5 Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code.
ARTICLE 9
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this Article 9, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment for which stockholder approval is required either (i) by any securities exchange or inter-dealer quotation system on which the Common Stock is listed or traded or (ii) in order for the Plan and Incentives awarded under the Plan to continue to comply with Sections 421 and 422 of the Code, including any successors to such Sections, or other Applicable Law, shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by this Article 9 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant.
ARTICLE 10
TERM
The Plan shall be effective from the Effective Date. Unless sooner terminated by action of the Board, the Plan will terminate on April 19, 2032, but Incentives granted before that date will continue to be effective in accordance with their terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten (10) years after the Effective Date.
ARTICLE 11
CAPITAL ADJUSTMENTS
In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the fair value of an Award, then the Committee shall adjust any or all of the following so that the fair value of the Award immediately after the transaction or event is equal to the fair value of the Award immediately prior to the transaction or event (i) the number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of Awards, (ii) the number of shares and
type of Common Stock (or other securities or property) subject to outstanding Awards, (iii) the Option Price of each outstanding Award, (iv) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance with Section 6.4, and (v) the number of or SAR Price of shares of Common Stock then subject to outstanding SARs previously granted and unexercised under the Plan, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; provided however, that the number of shares of Common Stock (or other securities or property) subject to any Award shall always be a whole number. Notwithstanding the foregoing, no such adjustment shall be made or authorized to the extent that such adjustment would cause the Plan or any Stock Option to violate Section 422 of the Code or Section 409A of the Code. Such adjustments shall be made in accordance with the rules of any securities exchange, stock market, or stock quotation system to which the Company is subject.
Upon the occurrence of any such adjustment, the Company shall provide notice to each affected Participant of its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant.
ARTICLE 12
RECAPITALIZATION, MERGER AND CONSOLIDATION
12.1 No Effect on Company’s Authority. The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure and its business, or any Change in Control, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
12.2 Conversion of Incentives Where Company Survives. Subject to any required action by the stockholders and except as otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, if the Company shall be the surviving or resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled.
12.3 Exchange or Cancellation of Incentives Where Company Does Not Survive. Except as otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, in the event of any Change in Control, merger, consolidation or share exchange pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms (a “Substituted Incentive”); provided, however, that the terms and conditions of such Substituted Incentive shall be approved by the Committee or the Board and provided further, that such Substituted Incentive shall provide that if within two years after the effective date of the transaction, a Participant’s employment is terminated without Cause or the Participant resigns for Good Reason, then (i) any time-based vesting or exercise restrictions on such Participant’s Substituted Incentives shall lapse; and (ii) the payout opportunities attainable under such Participant’s performance-based Substituted Incentives shall be deemed to have been earned as of the date of termination based upon the actual level of achievement of all relevant performance goals against target as of the date of such termination and there shall be prorata payout to such Participant within thirty (30) days following the date of termination of employment based upon the length of time within the performance period that has elapsed prior to the date of termination of employment.
12.4 Cancellation of Incentives. Notwithstanding the provisions of Sections 12.2 and 12.3 hereof, and except as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, in the event the acquiror or the surviving or resulting corporation does not agree to assume the Incentives, all Incentives granted hereunder may be canceled by the Company, in its sole discretion, as of the effective date of any
Change in Control, merger, consolidation or share exchange, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or of any proposed sale of all or substantially all of the assets of the Company, or of any dissolution or liquidation of the Company, by either:
(a) giving notice to each holder thereof or his or her personal representative of its intention to cancel those Incentives for which the issuance of shares of Common Stock involved payment by the Participant for such shares, and permitting the purchase during the thirty (30) day period next preceding such effective date of any or all of the shares of Common Stock subject to such outstanding Incentives, including in the Board’s discretion some or all of the shares as to which such Incentives would not otherwise be vested and exercisable; or
(b) in the case of Incentives that are either (i) settled only in shares of Common Stock, or (ii) at the election of the Participant, settled in shares of Common Stock, paying the holder thereof an amount equal to a reasonable estimate of the difference between the net amount per share payable in such transaction or as a result of such transaction, and the price per share of such Incentive to be paid by the Participant (hereinafter the “Spread”), multiplied by the number of shares subject to the Incentive. In cases where the shares constitute, or would after exercise, constitute Restricted Stock, the Company, in its discretion, may include some or all of those shares in the calculation of the amount payable hereunder. In estimating the Spread, appropriate adjustments to give effect to the existence of the Incentives shall be made, such as deeming the Incentives to have been exercised, with the Company receiving the exercise price payable thereunder, and treating the shares receivable upon exercise of the Incentives as being outstanding in determining the net amount per share. In cases where the proposed transaction consists of the acquisition of assets of the Company, the net amount per share shall be calculated on the basis of the net amount receivable with respect to shares of Common Stock upon a distribution and liquidation by the Company after giving effect to expenses and charges, including but not limited to taxes, payable by the Company before such liquidation could be completed.
An Award that by its terms would be fully vested or exercisable upon a Change in Control will be considered vested or exercisable for purposes of Section 12.4(a) hereof. Notwithstanding the foregoing, with respect to Performance Awards, the Committee only may approve the acceleration of vesting and/or cash-out if (i) the amount payable or vested is linked to the achievement of the Performance Goals for such Performance Award as of the date of the Change in Control and/or (ii) the amount to be paid or vested under the Performance Award on the Change in Control is pro-rated based on the time elapsed in the applicable performance period between the Performance Award’s Date of Grant and the Change in Control.
ARTICLE 13
LIQUIDATION OR DISSOLUTION
Subject to Section 12.4 hereof, in case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) and an adjustment is determined by the Committee to be appropriate to prevent the dilution of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, make such adjustment in accordance with the provisions of Article 11 hereof.
ARTICLE 14
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER ENTITIES
Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees, independent contractors or directors of a corporation, partnership, or limited liability company who become
or are about to become Employees, Contractors or Outside Directors of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company, the acquisition by the Company of equity of the employing entity, or any other similar transaction pursuant to which the Company becomes the successor employer. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the incentives in substitution for which they are granted.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Investment Intent. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.
15.2 No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary.
15.3 Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee, each officer of the Company, and each Employee of the Company acting on behalf of the Board or the Committee shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation to the fullest extent provided by law. Except to the extent required by any unwaiveable requirement under Applicable Law, no member of the Board or the Committee (and no Subsidiary of the Company) shall have any duties or liabilities, including without limitation any fiduciary duties, to any Participant (or any Person claiming by and through any Participant) as a result of this Plan, any Award Agreement or any Claim arising hereunder and, to the fullest extent permitted under Applicable Law, each Participant (as consideration for receiving and accepting an Award Agreement) irrevocably waives and releases any right or opportunity such Participant might have to assert (or participate or cooperate in) any Claim against any member of the Board or the Committee and any Subsidiary of the Company arising out of this Plan.
15.4 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein.
15.5 Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the Exchange Act); and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, 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.
15.6 Foreign Participation. To assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Committee approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country.
15.7 Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of this Section 15.7, the term “Company” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with an Award granted under this Plan. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to the Award. Such payments shall be required to be made when requested by Company and may be required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, by the actual delivery by the exercising Participant to the Company of shares of Common Stock, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) unless otherwise determined by the Committee at the time the Award is granted or thereafter, by withholding from the Award a number of shares having an aggregate Fair Market Value on the date of withholding equal to the amount required to be withheld in accordance with applicable tax requirements (up to the maximum individual statutory rate in the applicable jurisdiction as may be permitted under then-current accounting principles to qualify for equity classification), in accordance with such procedures as the Committee establishes; or (iv) by any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant. The Committee may in the Award Agreement impose any additional tax requirements or provisions that the Committee deems necessary or desirable.
15.8 Assignability. Incentive Stock Options may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant’s legally authorized representative, and each Award Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of this Section 15.8 that is not required for compliance with Section 422 of the Code.
Except as otherwise provided herein, Awards may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of a Nonqualified Stock Option or SAR to be granted to a Participant on terms which permit transfer by such Participant to (i) the spouse (or former spouse), children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership in which the only partners are (1) such Immediate Family Members and/or (2) entities which are controlled by Immediate Family Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which such Nonqualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Nonqualified Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution.
Following any transfer, any such Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15 hereof the term “Participant” shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which, with respect to any Award that is a Nonqualified Stock Option and SAR, the Award shall be exercisable or convertible by the transferee only to the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of an Award of any expiration, termination, lapse or acceleration of such Award. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under an Award that has been transferred by a Participant under this Section 15.8.
15.9 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company.
15.10 Legend. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
“Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.”
On the reverse:
“The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan, a copy of which is on file at the principal office of the Company. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan.”
The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:
“Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”
15.11 Governing Law. The Plan shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws, rule or principle of Delaware law that might refer the governance, construction, or interpretation of this Plan to the laws of another state). A Participant’s sole remedy for any Claim shall be against the Company, and no Participant shall have any claim or right of any nature against any Subsidiary of the Company or any stockholder or existing or former director, officer or Employee of the Company or any Subsidiary of the Company. Each Award Agreement shall require the Participant to release and covenant not to sue any Person other than the Company over any Claim. The individuals and entities described above in this Section 15.11 (other than the Company) shall be third-party beneficiaries of this Plan for purposes of enforcing the terms of this Section 15.11.
A copy of this Plan shall be kept on file in the principal office of the Company in Dallas, Texas.
***************
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of April 19, 2022, by its President and Chief Executive Officer pursuant to prior action taken by the Board.
TEXAS CAPITAL BANCSHARES, INC.
By: /s/ Rob C. Holmes__________________________
Rob C. Holmes
President and Chief Executive Officer
Exhibit 99.1
| | | | | | | | |
| | INVESTOR CONTACT |
| | Jocelyn Kukulka, 469.399.8544 |
| | jocelyn.kukulka@texascapitalbank.com |
| | |
| | MEDIA CONTACT |
| | Shannon Wherry, 469.399.8527 |
| | shannon.wherry@texascapitalbank.com |
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES FIRST QUARTER 2022 RESULTS
First quarter 2022 net income of $39.7 million, or $0.69 per diluted share
Declines in mortgage finance loans driven by rapid increase in interest rates
Loans held for investment, excluding mortgage finance and PPP, increased $577.7 million, or 15% annualized
DALLAS - April 20, 2022 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the first quarter of 2022.
Net income was $39.7 million, or $0.69 per diluted share, for the first quarter of 2022, compared to $65.1 million, or $1.19 per diluted share, for the fourth quarter of 2021 and $71.9 million, or $1.33 per diluted share, for the first quarter of 2021.
“A key objective of our strategic plan to transform Texas Capital Bank is to create greater balance through focused growth initiatives across the platform to reduce reliance on our leading Mortgage Finance franchise. While we continue to be committed to our mature Mortgage Finance business, the first quarter impact from the increase in long-term rates on this business is evidence as to why we have embarked on this strategy,” said Rob C. Holmes, President and CEO. “We are progressing against our plan, and just beginning to realize the benefits from focused investments in core product offerings and key talent acquisition. With short-term rates rising, we continue to take deliberate actions to position our asset-sensitive balance sheet to perform more favorably through the rate cycle.”
| | | | | | | | | | | | | | | | | |
| FINANCIAL RESULTS | | | | | |
| (dollars and shares in thousands) | | | | | |
| 1st Quarter | | 4th Quarter | | 1st Quarter |
| 2022 | | 2021 | | 2021 |
| OPERATING RESULTS | | | | | |
| Net income | $ | 39,650 | | | $ | 65,130 | | | $ | 71,938 | |
| Net income available to common stockholders | $ | 35,337 | | | $ | 60,817 | | | $ | 68,159 | |
| Diluted earnings per common share | $ | 0.69 | | | $ | 1.19 | | | $ | 1.33 | |
| Diluted common shares | 51,324 | | | 51,208 | | | 51,070 | |
| Return on average assets | 0.47 | % | | 0.69 | % | | 0.73 | % |
| Return on average common equity | 4.97 | % | | 8.36 | % | | 10.08 | % |
| | | | | |
| BALANCE SHEET | | | | | |
| Loans held for investment | $ | 15,849,434 | | | $ | 15,331,457 | | | $ | 15,399,174 | |
| Loans held for investment, mortgage finance | 5,827,965 | | | 7,475,497 | | | 9,009,081 | |
| Total loans held for investment | 21,677,399 | | | 22,806,954 | | | 24,408,255 | |
| Loans held for sale | 8,085 | | | 8,123 | | | 176,286 | |
| Total assets | 31,085,377 | | | 34,731,738 | | | 40,054,433 | |
| Non-interest bearing deposits | 13,434,723 | | | 13,390,370 | | | 15,174,642 | |
| Total deposits | 25,377,938 | | | 28,109,365 | | | 33,391,970 | |
| Stockholders’ equity | 3,090,038 | | | 3,209,616 | | | 3,159,482 | |
FIRST QUARTER 2022 COMPARED TO FOURTH QUARTER 2021
For the first quarter of 2022, net income was $39.7 million, or $0.69 per diluted share, compared to $65.1 million, or $1.19 per diluted share, for the fourth quarter of 2021.
We recorded a $2.0 million negative provision for credit losses for the first quarter of 2022, compared to a $10.0 million negative provision for credit losses for the fourth quarter of 2021, as a decrease in criticized loans was partially offset by growth in loans held for investment, excluding mortgage finance.
Net interest income was $183.5 million for the first quarter of 2022, compared to $194.0 million for the fourth quarter of 2021. The decrease in net interest income was primarily driven by a decrease in average loans held for investment (“LHI”), mortgage finance, partially offset by an increase in investment securities yields. Net interest margin for the first quarter of 2022 was 2.23%, an increase of 11 basis point from the fourth quarter of 2021. LHI, excluding mortgage finance, yields decreased 6 basis points from the fourth quarter of 2021 and LHI, mortgage finance yields increased 16 basis points from the fourth quarter of 2021. Total cost of deposits was 0.20% for the first quarter of 2022, a 1 basis point increase from the fourth quarter of 2021.
Non-interest income for the first quarter of 2022 decreased $11.2 million, or 36%, compared to the fourth quarter of 2021. The decrease was primarily related to decreases in investment banking and trading income, resulting from a decrease in loan syndication fees, and other non-interest income. The decrease in other non-interest income resulted from a non-recurring gain recognized in the fourth quarter of 2021 on the sale of a foreclosed asset.
Non-interest expense for the first quarter of 2022 increased $6.4 million, or 4%, compared to the fourth quarter of 2021. The increase was primarily due to increases in salaries and benefits expense, partially offset by decreases in legal and profession and communications and technology expenses. The increase in salaries and benefits expense was primarily due to an increase in headcount and the effect of seasonal payroll expenses that peak in the first quarter.
FIRST QUARTER 2022 COMPARED TO FIRST QUARTER 2021
Net income was $39.7 million, or $0.69 per diluted share, for the first quarter of 2022, compared to $71.9 million, or $1.33 per diluted share, for the first quarter of 2021.
The first quarter of 2022 included a $2.0 million negative provision for credit losses, compared to a $6.0 million negative provision for credit losses for the first quarter of 2021. The $2.0 million negative provision for credit losses recorded in the first quarter of 2022 resulted from a decline in criticized loans, partially offset by an increase in loans held for investment, excluding mortgage finance.
Net interest income decreased to $183.5 million for the first quarter of 2022, compared to $194.8 million for the first quarter of 2021, primarily due to a decrease in average LHI, mortgage finance, partially offset by an increase in investment securities yields. Net interest margin increased 19 basis points to 2.23% for the first quarter of 2022, as compared to the first quarter of 2021, primarily due to a shift in the composition of earning assets, primarily declines in interest-bearing cash and cash equivalents and LHI, mortgage finance. LHI, excluding mortgage finance, yields decreased 5 basis points compared to the first quarter of 2021 and LHI, mortgage finance yields decreased 15 basis points from the first quarter of 2021. Total cost of deposits decreased 4 basis points compared to the first quarter of 2021.
Non-interest income for the first quarter of 2022 decreased $24.1 million, or 54%, compared to the first quarter of 2021, as brokered loan fees, servicing fee income and net gain/(loss) on sale of loans held for sale all decreased as a result of the sale of our mortgage servicing rights portfolio and transition of the mortgage correspondent program in 2021. The decline in brokered loan fees was also impacted by lower mortgage finance volumes in the first quarter of 2022 as compared to 2021.
Non-interest expense for the first quarter of 2022 increased $2.8 million, or 2%, compared to the first quarter of 2021. The increase was primarily due to increases in salaries and benefits, primarily due to an increase in headcount, partially offset by a decrease in servicing-related expenses from the sale of our mortgage servicing rights portfolio in 2021.
CREDIT QUALITY
We recorded $512,000 in net recoveries during the first quarter of 2022, compared to net charge-offs of $1.0 million and $6.4 million during the fourth quarter of 2021 and the first quarter of 2021, respectively. Criticized loans totaled $476.1 million at March 31, 2022, compared to $582.9 million at December 31, 2021 and $945.1 million at March 31, 2021. Non-accrual loans HFI totaled $59.3 million at March 31, 2022, compared to $72.5 million at December 31, 2021 and $97.7 million at March 31, 2021. The ratio of non-accrual LHI to total LHI for the first quarter of 2022 was 0.27%, compared to 0.32% for the fourth quarter of 2021 and 0.40% for the first quarter of 2021.
CAPITAL RATIOS
All regulatory ratios continue to be in excess of “well-capitalized” requirements as of March 31, 2022. Our CET 1, tier 1 capital, total capital and leverage ratios were 11.5%, 13.0%, 15.7% and 9.9%, respectively, at March 31, 2022, compared to 11.1%, 12.6%, 15.3% and 9.0%, respectively, at December 31, 2021 and 10.2%, 12.2%, 14.0% and 8.3% at March 31, 2021. At March 31, 2022, our ratio of tangible common equity to total tangible assets was 8.9%, compared to 8.3% at December 31, 2021 and 6.7% at March 31, 2021.
About Texas Capital Bancshares, Inc.
Texas Capital Bancshares, Inc. (NASDAQ: TCBI), a member of the Russell 2000 Index and the S&P MidCap 400, is the parent company of Texas Capital Bank, a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs, and individual customers. Founded in 1998, the institution is headquartered in Dallas with offices in Austin, Houston, San Antonio, and Fort Worth, and has built a network of clients across the country. With the ability to service clients through their entire lifecycles, Texas Capital Bank has established commercial banking, consumer banking, investment banking and wealth management capabilities.
Forward Looking Statements
This communication contains “forward-looking statements” within the meaning of and pursuant to the Private Securities Litigation Reform Act of 1995 regarding, among other things, our financial condition, results of operations, business plans and future performance. These statements are not historical in nature and may often be identified by the use of words such as “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “should,” “projects,” “targeted,” “continue,” “become,” “intend” and similar expressions.
Because forward-looking statements relate to future results and occurrences, they are subject to inherent and various uncertainties, risks, and changes in circumstances that are difficult to predict, may change over time, are based on management’s expectations and assumptions at the time the statements are made and are not guarantees of future results. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, but are not limited to, credit quality and risk, the COVID-19 pandemic, industry and technological changes, cyber incidents or other failures, disruptions or security breaches, interest rates, commercial and residential real estate values, economic and market conditions in Texas, the United States or internationally, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, business strategy execution, key personnel, competition, mortgage markets, fraud, environmental liability and severe weather, natural disasters, acts of war or terrorism or other external events.
These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
| | | | | | | | | | | | | | | | | |
| TEXAS CAPITAL BANCSHARES, INC. |
| SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED) |
| (dollars in thousands except per share data) |
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter |
| 2022 | 2021 | 2021 | 2021 | 2021 |
| CONSOLIDATED STATEMENTS OF INCOME | | | | | |
| Interest income | $ | 208,530 | | $ | 219,892 | | $ | 216,589 | | $ | 216,953 | | $ | 223,151 | |
| Interest expense | 24,983 | | 25,860 | | 26,053 | | 27,496 | | 28,339 | |
| Net interest income | 183,547 | | 194,032 | | 190,536 | | 189,457 | | 194,812 | |
| Provision for credit losses | (2,000) | | (10,000) | | 5,000 | | (19,000) | | (6,000) | |
| Net interest income after provision for credit losses | 185,547 | | 204,032 | | 185,536 | | 208,457 | | 200,812 | |
| Non-interest income | 20,282 | | 31,459 | | 24,779 | | 37,639 | | 44,353 | |
| Non-interest expense | 153,092 | | 146,649 | | 152,987 | | 149,060 | | 150,316 | |
| Income before income taxes | 52,737 | | 88,842 | | 57,328 | | 97,036 | | 94,849 | |
| Income tax expense | 13,087 | | 23,712 | | 13,938 | | 23,555 | | 22,911 | |
| Net income | 39,650 | | 65,130 | | 43,390 | | 73,481 | | 71,938 | |
| Preferred stock dividends | 4,313 | | 4,313 | | 4,312 | | 6,317 | | 3,779 | |
| Net income available to common stockholders | $ | 35,337 | | $ | 60,817 | | $ | 39,078 | | $ | 67,164 | | $ | 68,159 | |
| Diluted earnings per common share | $ | 0.69 | | $ | 1.19 | | $ | 0.76 | | $ | 1.31 | | $ | 1.33 | |
| Diluted common shares | 51,324,027 | | 51,208,161 | | 51,139,555 | | 51,093,660 | | 51,069,511 | |
| | | | | |
| CONSOLIDATED BALANCE SHEET DATA | | | | | |
| Total assets | $ | 31,085,377 | | $ | 34,731,738 | | $ | 36,404,320 | | $ | 35,228,542 | | $ | 40,054,433 | |
| Loan held for investment | 15,849,434 | | 15,331,457 | | 15,221,404 | | 15,168,565 | | 15,399,174 | |
| Loans held for investment, mortgage finance | 5,827,965 | | 7,475,497 | | 8,528,313 | | 8,772,799 | | 9,009,081 | |
| Loans held for sale | 8,085 | | 8,123 | | 9,660 | | 63,747 | | 176,286 | |
| Interest-bearing cash and cash equivalents | 5,136,680 | | 7,765,996 | | 8,317,926 | | 6,768,650 | | 11,212,276 | |
| Investment securities | 3,642,015 | | 3,583,808 | | 3,663,874 | | 3,798,275 | | 3,443,058 | |
| Non-interest bearing deposits | 13,434,723 | | 13,390,370 | | 14,970,462 | | 14,228,038 | | 15,174,642 | |
| Total deposits | 25,377,938 | | 28,109,365 | | 29,813,668 | | 28,839,563 | | 33,391,970 | |
| Short-term borrowings | 1,427,033 | | 2,202,832 | | 2,203,470 | | 2,014,481 | | 2,515,587 | |
| Long-term debt | 929,414 | | 928,738 | | 928,062 | | 927,386 | | 664,968 | |
| Stockholders’ equity | 3,090,038 | | 3,209,616 | | 3,147,752 | | 3,114,957 | | 3,159,482 | |
| | | | | |
| End of period shares outstanding | 50,710,441 | | 50,618,494 | | 50,605,626 | | 50,592,201 | | 50,557,767 | |
| Book value | $ | 55.02 | | $ | 57.48 | | $ | 56.27 | | $ | 55.64 | | $ | 53.59 | |
Tangible book value(1) | $ | 54.68 | | $ | 57.14 | | $ | 55.93 | | $ | 55.29 | | $ | 53.24 | |
| | | | | |
| SELECTED FINANCIAL RATIOS | | | | | |
| Net interest margin | 2.23 | % | 2.12 | % | 2.11 | % | 2.02 | % | 2.04 | % |
| Return on average assets | 0.47 | % | 0.69 | % | 0.47 | % | 0.76 | % | 0.73 | % |
| Return on average common equity | 4.97 | % | 8.36 | % | 5.41 | % | 9.74 | % | 10.08 | % |
| Non-interest income to average earning assets | 0.25 | % | 0.34 | % | 0.27 | % | 0.40 | % | 0.46 | % |
Efficiency ratio(2) | 75.1 | % | 65.0 | % | 71.1 | % | 65.6 | % | 62.9 | % |
| Non-interest expense to average earning assets | 1.86 | % | 1.60 | % | 1.69 | % | 1.59 | % | 1.57 | % |
Tangible common equity to total tangible assets(3) | 8.9 | % | 8.3 | % | 7.8 | % | 7.9 | % | 6.7 | % |
| Common Equity Tier 1 | 11.5 | % | 11.1 | % | 10.7 | % | 10.5 | % | 10.2 | % |
| Tier 1 capital | 13.0 | % | 12.6 | % | 12.2 | % | 12.1 | % | 12.2 | % |
| Total capital | 15.7 | % | 15.3 | % | 14.9 | % | 14.8 | % | 14.0 | % |
| Leverage | 9.9 | % | 9.0 | % | 9.0 | % | 8.4 | % | 8.3 | % |
(1) Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end.
(2) Non-interest expense divided by the sum of net interest income and non-interest income.
(3) Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by total assets, less goodwill and intangibles.
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| TEXAS CAPITAL BANCSHARES, INC. |
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
| (dollars in thousands) |
| March 31, 2022 | March 31, 2021 | % Change |
| Assets | | | |
| Cash and due from banks | $ | 234,853 | | $ | 215,835 | | 9 | % |
| Interest-bearing cash and cash equivalents | 5,136,680 | | 11,212,276 | | (54) | % |
| Available-for-sale debt securities | 2,591,218 | | 3,408,658 | | (24) | % |
| Held-to-maturity debt securities | 1,009,972 | | — | | 100 | % |
| Equity securities | 40,825 | | 34,400 | | 19 | % |
| Investment securities | 3,642,015 | | 3,443,058 | | 6 | % |
| Loans held for sale | 8,085 | | 176,286 | | (95) | % |
| Loans held for investment, mortgage finance | 5,827,965 | | 9,009,081 | | (35) | % |
| Loans held for investment | 15,849,434 | | 15,399,174 | | 3 | % |
| Less: Allowance for credit losses on loans | 211,151 | | 242,484 | | (13) | % |
| Loans held for investment, net | 21,466,248 | | 24,165,771 | | (11) | % |
| Mortgage servicing rights, net | — | | 121,096 | | (100) | % |
| Premises and equipment, net | 24,181 | | 23,346 | | 4 | % |
| Accrued interest receivable and other assets | 556,154 | | 679,199 | | (18) | % |
| Goodwill and intangibles, net | 17,161 | | 17,566 | | (2) | % |
| Total assets | $ | 31,085,377 | | $ | 40,054,433 | | (22) | % |
| | | |
| Liabilities and Stockholders’ Equity | | | |
| Liabilities: | | | |
| Non-interest bearing | $ | 13,434,723 | | $ | 15,174,642 | | (11) | % |
| Interest bearing | 11,943,215 | | 18,217,328 | | (34) | % |
| Total deposits | 25,377,938 | | 33,391,970 | | (24) | % |
| Accrued interest payable | 8,560 | | 5,629 | | 52 | % |
| Other liabilities | 252,394 | | 316,797 | | (20) | % |
| Short-term borrowings | 1,427,033 | | 2,515,587 | | (43) | % |
| Long-term debt | 929,414 | | 664,968 | | 40 | % |
| Total liabilities | 27,995,339 | | 36,894,951 | | (24) | % |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, $.01 par value, $1,000 liquidation value: | | | |
| Authorized shares - 10,000,000 | | | |
Issued shares - 300,000 and 6,300,000 shares issued at March 31, 2022 and 2021, respectively | 300,000 | | 450,000 | | (33) | % |
| Common stock, $.01 par value: | | | |
| Authorized shares - 100,000,000 | | | |
Issued shares - 50,710,858 and 50,558,184 at March 31, 2022 and 2021, respectively | 507 | | 505 | | — | % |
| Additional paid-in capital | 1,011,353 | | 984,207 | | 3 | % |
| Retained earnings | 1,983,611 | | 1,781,215 | | 11 | % |
Treasury stock - 417 shares at cost at March 31, 2022 and 2021 | (8) | | (8) | | — | % |
| Accumulated other comprehensive loss, net of taxes | (205,425) | | (56,437) | | 264 | % |
| Total stockholders’ equity | 3,090,038 | | 3,159,482 | | (2) | % |
| Total liabilities and stockholders’ equity | $ | 31,085,377 | | $ | 40,054,433 | | (22) | % |
| | | | | | | | | | |
| TEXAS CAPITAL BANCSHARES, INC. | | | | |
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | | | | |
| (dollars in thousands except per share data) | | | | |
| | Three Months Ended March 31, |
| | | 2022 | 2021 |
| Interest income | | | | |
| Interest and fees on loans | | | $ | 187,657 | | $ | 210,331 | |
| Investment securities | | | 17,302 | | 9,887 | |
| Interest-bearing cash and cash equivalents | | | 3,571 | | 2,933 | |
| Total interest income | | | 208,530 | | 223,151 | |
| Interest expense | | | | |
| Deposits | | | 13,630 | | 20,004 | |
| Short-term borrowings | | | 758 | | 2,592 | |
| Long-term debt | | | 10,595 | | 5,743 | |
| Total interest expense | | | 24,983 | | 28,339 | |
| Net interest income | | | 183,547 | | 194,812 | |
| Provision for credit losses | | | (2,000) | | (6,000) | |
| Net interest income after provision for credit losses | | | 185,547 | | 200,812 | |
| Non-interest income | | | | |
| Service charges on deposit accounts | | | 6,022 | | 4,716 | |
| Wealth management and trust fee income | | | 3,912 | | 2,855 | |
| Brokered loan fees | | | 3,970 | | 9,311 | |
| Servicing income | | | 237 | | 9,009 | |
| Investment banking and trading income | | | 4,179 | | 5,787 | |
| Net gain/(loss) on sale of loans held for sale | | | — | | 5,572 | |
| Other | | | 1,962 | | 7,103 | |
| Total non-interest income | | | 20,282 | | 44,353 | |
| Non-interest expense | | | | |
| Salaries and benefits | | | 100,098 | | 87,522 | |
| Occupancy expense | | | 8,885 | | 8,274 | |
| Marketing | | | 4,977 | | 1,697 | |
| Legal and professional | | | 10,302 | | 8,277 | |
| Communications and technology | | | 14,700 | | 15,969 | |
| FDIC insurance assessment | | | 3,981 | | 6,613 | |
| Servicing-related expenses | | | — | | 12,989 | |
| | | | |
| Other | | | 10,149 | | 8,975 | |
| Total non-interest expense | | | 153,092 | | 150,316 | |
| Income before income taxes | | | 52,737 | | 94,849 | |
| Income tax expense | | | 13,087 | | 22,911 | |
| Net income | | | 39,650 | | 71,938 | |
| Preferred stock dividends | | | 4,313 | | 3,779 | |
| Net income available to common stockholders | | | $ | 35,337 | | $ | 68,159 | |
| | | | |
| Basic earnings per common share | | | $ | 0.70 | | $ | 1.35 | |
| Diluted earnings per common share | | | $ | 0.69 | | $ | 1.33 | |
| | | | | | | | | | | | | | | | | |
| TEXAS CAPITAL BANCSHARES, INC. |
| SUMMARY OF CREDIT LOSS EXPERIENCE |
| (dollars in thousands) |
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter |
| 2022 | 2021 | 2021 | 2021 | 2021 |
| Allowance for credit losses on loans: | | | | | |
| Beginning balance | $ | 211,866 | | $ | 221,957 | | $ | 221,511 | | $ | 242,484 | | $ | 254,615 | |
| Loans charged-off: | | | | | |
| Commercial | 110 | | 3,776 | | 4,348 | | 1,412 | | 2,451 | |
| Energy | — | | — | | — | | 686 | | 5,732 | |
| Real estate | 350 | | — | | — | | 1,192 | | — | |
| Total charge-offs | 460 | | 3,776 | | 4,348 | | 3,290 | | 8,183 | |
| Recoveries: | | | | | |
| Commercial | 217 | | 1,933 | | 1,104 | | 308 | | 1,050 | |
| Energy | 755 | | 601 | | 42 | | 609 | | 715 | |
| Real estate | — | | 205 | | 112 | | — | | — | |
| Total recoveries | 972 | | 2,739 | | 1,258 | | 917 | | 1,765 | |
| Net charge-offs | (512) | | 1,037 | | 3,090 | | 2,373 | | 6,418 | |
| Provision for credit losses on loans | (1,227) | | (9,054) | | 3,536 | | (18,600) | | (5,713) | |
| Ending balance | $ | 211,151 | | $ | 211,866 | | $ | 221,957 | | $ | 221,511 | | $ | 242,484 | |
| | | | | |
| Allowance for off-balance sheet credit losses: | | | | | |
| Beginning balance | $ | 17,265 | | $ | 18,211 | | $ | 16,747 | | $ | 17,147 | | $ | 17,434 | |
| Provision for off-balance sheet credit losses | (773) | | (946) | | 1,464 | | (400) | | (287) | |
| Ending balance | $ | 16,492 | | $ | 17,265 | | $ | 18,211 | | $ | 16,747 | | $ | 17,147 | |
| | | | | |
| Total allowance for credit losses | $ | 227,643 | | $ | 229,131 | | $ | 240,168 | | $ | 238,258 | | $ | 259,631 | |
| Total provision for credit losses | $ | (2,000) | | $ | (10,000) | | $ | 5,000 | | $ | (19,000) | | $ | (6,000) | |
| | | | | |
| Allowance for credit losses on loans to total loans held for investment | 0.97 | % | 0.93 | % | 0.93 | % | 0.93 | % | 0.99 | % |
| Allowance for credit losses on loans to average total loans held for investment | 0.99 | % | 0.91 | % | 0.95 | % | 0.98 | % | 1.03 | % |
Net charge-offs to average total loans held for investment(1) | (0.01) | % | 0.02 | % | 0.05 | % | 0.04 | % | 0.11 | % |
Net charge-offs to average total loans held for investment for last 12 months(1) | 0.03 | % | 0.06 | % | 0.33 | % | 0.31 | % | 0.59 | % |
Total provision for credit losses to average total loans held for investment(1) | (0.04) | % | (0.17) | % | 0.09 | % | (0.34) | % | (0.10) | % |
Total allowance for credit losses to total loans held for investment | 1.05 | % | 1.00 | % | 1.01 | % | 1.00 | % | 1.06 | % |
(1)Interim period ratios are annualized.
| | | | | | | | | | | | | | | | | |
| TEXAS CAPITAL BANCSHARES, INC. | | | | | |
| SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS | | | |
| (dollars in thousands) | | | | | |
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter |
| 2022 | 2021 | 2021 | 2021 | 2021 |
| Non-accrual loans held for investment | $ | 59,327 | | $ | 72,502 | | $ | 87,532 | | $ | 86,636 | | $ | 97,730 | |
| Non-accrual loans held for sale | — | | — | | — | | — | | — | |
| Other real estate owned (OREO) | — | | — | | — | | — | | — | |
| Total non-performing assets | $ | 59,327 | | $ | 72,502 | | $ | 87,532 | | $ | 86,636 | | $ | 97,730 | |
| | | | | |
| Non-accrual loans held for investment to total loans held for investment | 0.27 | % | 0.32 | % | 0.37 | % | 0.36 | % | 0.40 | % |
| Total non-performing assets to earning assets | 0.20 | % | 0.21 | % | 0.25 | % | 0.25 | % | 0.25 | % |
| Allowance for credit losses on loans to non-accrual loans held for investment | 3.6x | 2.9x | 2.5x | 2.6x | 2.5x |
| | | | | |
| | | | | |
Loans held for investment past due 90 days and still accruing(1) | $ | 6,031 | | $ | 3,467 | | $ | 3,405 | | $ | 7,671 | | $ | 6,187 | |
| Loans held for investment past due 90 days to total loans held for investment | 0.03 | % | 0.02 | % | 0.01 | % | 0.03 | % | 0.03 | % |
Loans held for sale past due 90 days and still accruing(2) | $ | 3,865 | | $ | 3,986 | | $ | 3,808 | | $ | 2,695 | | $ | 16,359 | |
(1)At March 31, 2022, loans past due 90 days and still accruing included premium finance loans of $3.2 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(2)Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as loans held for sale and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. The first quarter of 2021 also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not obligation, to repurchase and thus must record on our balance sheet regardless of whether the repurchase option has been exercised.
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| TEXAS CAPITAL BANCSHARES, INC. |
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
| (dollars in thousands) |
| | | | | |
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter |
| 2022 | 2021 | 2021 | 2021 | 2021 |
| Interest income | | | | | |
| Interest and fees on loans | $ | 187,657 | | $ | 204,379 | | $ | 202,748 | | $ | 203,074 | | $ | 210,331 | |
| Investment securities | 17,302 | | 11,780 | | 10,235 | | 10,918 | | 9,887 | |
| Interest-bearing deposits in other banks | 3,571 | | $ | 3,733 | | $ | 3,606 | | 2,961 | | 2,933 | |
| Total interest income | 208,530 | | 219,892 | | 216,589 | | 216,953 | | 223,151 | |
| Interest expense | | | | | |
| Deposits | 13,630 | | 14,513 | | 14,719 | | 16,271 | | 20,004 | |
| Short-term borrowings | 758 | | 771 | | 748 | | 502 | | 2,592 | |
| Long-term debt | 10,595 | | 10,576 | | 10,586 | | 10,723 | | 5,743 | |
| Total interest expense | 24,983 | | 25,860 | | 26,053 | | 27,496 | | 28,339 | |
| Net interest income | 183,547 | | 194,032 | | 190,536 | | 189,457 | | 194,812 | |
| Provision for credit losses | (2,000) | | (10,000) | | 5,000 | | (19,000) | | (6,000) | |
| Net interest income after provision for credit losses | 185,547 | | 204,032 | | 185,536 | | 208,457 | | 200,812 | |
| Non-interest income | | | | | |
| Service charges on deposit accounts | 6,022 | | 4,702 | | 4,622 | | 4,634 | | 4,716 | |
| Wealth management and trust fee income | 3,912 | | 3,793 | | 3,382 | | 3,143 | | 2,855 | |
| Brokered loan fees | 3,970 | | 5,678 | | 6,032 | | 6,933 | | 9,311 | |
| Servicing income | 237 | | 277 | | 292 | | 5,935 | | 9,009 | |
| Investment banking and trading income | 4,179 | | 6,456 | | 4,127 | | 8,071 | | 5,787 | |
| Net gain/(loss) on sale of loans held for sale | — | | — | | (1,185) | | (3,070) | | 5,572 | |
| Other | 1,962 | | 10,553 | | 7,509 | | 11,993 | | 7,103 | |
| Total non-interest income | 20,282 | | 31,459 | | 24,779 | | 37,639 | | 44,353 | |
| Non-interest expense | | | | | |
| Salaries and benefits | 100,098 | | 89,075 | | 87,503 | | 86,830 | | 87,522 | |
| Occupancy expense | 8,885 | | 8,769 | | 8,324 | | 7,865 | | 8,274 | |
| Marketing | 4,977 | | 4,286 | | 2,123 | | 1,900 | | 1,697 | |
| Legal and professional | 10,302 | | 12,673 | | 11,055 | | 9,147 | | 8,277 | |
| Communications and technology | 14,700 | | 16,490 | | 28,374 | | 14,352 | | 15,969 | |
| FDIC insurance assessment | 3,981 | | 4,688 | | 4,500 | | 5,226 | | 6,613 | |
| Servicing-related expenses | — | | 25 | | 2,396 | | 12,355 | | 12,989 | |
| Other | 10,149 | | 10,643 | | 8,712 | | 11,385 | | 8,975 | |
| Total non-interest expense | 153,092 | | 146,649 | | 152,987 | | 149,060 | | 150,316 | |
| Income before income taxes | 52,737 | | 88,842 | | 57,328 | | 97,036 | | 94,849 | |
| Income tax expense | 13,087 | | 23,712 | | 13,938 | | 23,555 | | 22,911 | |
| Net income | 39,650 | | 65,130 | | 43,390 | | 73,481 | | 71,938 | |
| Preferred stock dividends | 4,313 | | 4,313 | | 4,312 | | 6,317 | | 3,779 | |
| Net income available to common shareholders | $ | 35,337 | | $ | 60,817 | | $ | 39,078 | | $ | 67,164 | | $ | 68,159 | |
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| TEXAS CAPITAL BANCSHARES, INC. |
| TAXABLE EQUIVALENT NET INTEREST INCOME ANALYSIS (UNAUDITED) |
| (dollars in thousands) |
| 1st Quarter 2022 | | 4th Quarter 2021 | | 3rd Quarter 2021 | | 2nd Quarter 2021 | | 1st Quarter 2021 |
| Average
Balance | Income/
Expense | Yield/
Rate | | Average
Balance | Income/
Expense | Yield/
Rate | | Average
Balance | Income/
Expense | Yield/
Rate | | Average
Balance | Income/
Expense | Yield/
Rate | | Average
Balance | Income/
Expense | Yield/
Rate |
| Assets | | | | | | | | | | | | | | | | | | | |
Investment securities(1) | $ | 3,669,257 | | $ | 17,743 | | 1.96 | % | | $ | 3,608,503 | | $ | 12,225 | | 1.34 | % | | $ | 3,775,812 | | $ | 10,684 | | 1.12 | % | | $ | 3,543,270 | | $ | 11,369 | | 1.29 | % | | $ | 3,422,571 | | $ | 10,359 | | 1.23 | % |
| Interest-bearing cash and cash equivalents | 8,552,300 | | 3,571 | | 0.17 | % | | 9,760,735 | | 3,733 | | 0.15 | % | | 9,046,095 | | 3,606 | | 0.16 | % | | 11,583,759 | | 2,961 | | 0.10 | % | | 11,845,547 | | 2,933 | | 0.10 | % |
| Loans held for sale | 7,633 | | 113 | | 6.01 | % | | 8,348 | | 51 | | 2.41 | % | | 18,791 | | 54 | | 1.14 | % | | 93,164 | | 781 | | 3.36 | % | | 243,326 | | 1,595 | | 2.66 | % |
| Loans held for investment, mortgage finance | 5,732,901 | | 43,466 | | 3.07 | % | | 7,901,534 | | 57,949 | | 2.91 | % | | 7,987,521 | | 58,913 | | 2.93 | % | | 7,462,223 | | 57,401 | | 3.09 | % | | 8,177,759 | | 64,942 | | 3.22 | % |
Loans held for investment(1)(2) | 15,686,319 | | 144,134 | | 3.73 | % | | 15,348,322 | | 146,436 | | 3.79 | % | | 15,266,167 | | 143,864 | | 3.74 | % | | 15,242,975 | | 144,978 | | 3.81 | % | | 15,457,888 | | 143,935 | | 3.78 | % |
Less: Allowance for credit losses on loans | 212,612 | | — | | — | | | 223,034 | | — | | — | | | 220,984 | | — | | — | | | 241,676 | | — | | — | | | 254,697 | | — | | — | |
| Loans held for investment, net | 21,206,608 | | 187,600 | | 3.59 | % | | 23,026,822 | | 204,385 | | 3.52 | % | | 23,032,704 | | 202,777 | | 3.49 | % | | 22,463,522 | | 202,379 | | 3.61 | % | | 23,380,950 | | 208,877 | | 3.62 | % |
| Total earning assets | 33,435,798 | | 209,027 | | 2.54 | % | | 36,404,408 | | 220,394 | | 2.40 | % | | 35,873,402 | | 217,121 | | 2.40 | % | | 37,683,715 | | 217,490 | | 2.31 | % | | 38,892,394 | | 223,764 | | 2.33 | % |
| Cash and other assets | 819,486 | | | | | 835,293 | | | | | 855,555 | | | | | 996,946 | | | | | 1,064,679 | | | |
| Total assets | $ | 34,255,284 | | | | | $ | 37,239,701 | | | | | $ | 36,728,957 | | | | | $ | 38,680,661 | | | | | $ | 39,957,073 | | | |
| | | | | | | | | | | | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | |
| Transaction deposits | $ | 2,432,687 | | $ | 3,962 | | 0.66 | % | | $ | 3,007,337 | | $ | 4,664 | | 0.62 | % | | $ | 3,012,547 | | $ | 4,737 | | 0.62 | % | | $ | 3,795,152 | | $ | 5,395 | | 0.57 | % | | $ | 3,991,966 | | $ | 5,861 | | 0.60 | % |
| Savings deposits | 10,420,545 | | 8,583 | | 0.33 | % | | 10,529,645 | | 8,419 | | 0.32 | % | | 10,044,995 | | 8,262 | | 0.33 | % | | 11,296,382 | | 8,990 | | 0.32 | % | | 12,889,974 | | 10,788 | | 0.34 | % |
| Time deposits | 1,038,722 | | 1,085 | | 0.42 | % | | 1,276,800 | | 1,430 | | 0.44 | % | | 1,640,562 | | 1,720 | | 0.42 | % | | 1,755,993 | | 1,886 | | 0.43 | % | | 2,204,242 | | 3,355 | | 0.62 | % |
| Total interest bearing deposits | 13,891,954 | | 13,630 | | 0.40 | % | | 14,813,782 | | 14,513 | | 0.39 | % | | 14,698,104 | | 14,719 | | 0.40 | % | | 16,847,527 | | 16,271 | | 0.39 | % | | 19,086,182 | | 20,004 | | 0.43 | % |
| Short-term borrowings | 1,770,781 | | 758 | | 0.17 | % | | 2,267,013 | | 771 | | 0.13 | % | | 2,299,692 | | 748 | | 0.13 | % | | 2,349,718 | | 502 | | 0.09 | % | | 2,686,398 | | 2,592 | | 0.39 | % |
| Long-term debt | 929,005 | | 10,595 | | 4.63 | % | | 928,307 | | 10,576 | | 4.52 | % | | 927,626 | | 10,586 | | 4.53 | % | | 881,309 | | 10,723 | | 4.88 | % | | 464,731 | | 5,743 | | 5.01 | % |
| Total interest bearing liabilities | 16,591,740 | | 24,983 | | 0.61 | % | | 18,009,102 | | 25,860 | | 0.57 | % | | 17,925,422 | | 26,053 | | 0.58 | % | | 20,078,554 | | 27,496 | | 0.55 | % | | 22,237,311 | | 28,339 | | 0.52 | % |
| Non-interest bearing deposits | 14,235,749 | | | | | 15,804,061 | | | | | 15,363,568 | | | | | 15,139,546 | | | | | 14,421,505 | | | |
| Other liabilities | 243,141 | | | | | 238,833 | | | | | 275,317 | | | | | 274,401 | | | | | 309,644 | | | |
| Stockholders’ equity | 3,184,654 | | | | | 3,187,705 | | | | | 3,164,650 | | | | | 3,188,160 | | | | | 2,988,613 | | | |
| Total liabilities and stockholders’ equity | $ | 34,255,284 | | | | | $ | 37,239,701 | | | | | $ | 36,728,957 | | | | | $ | 38,680,661 | | | | | $ | 39,957,073 | | | |
Net interest income(1) | | $ | 184,044 | | | | | $ | 194,534 | | | | | $ | 191,068 | | | | | $ | 189,994 | | | | | $ | 195,425 | | |
| Net interest margin | | | 2.23 | % | | | | 2.12 | % | | | | 2.11 | % | | | | 2.02 | % | | | | 2.04 | % |
(1) Taxable equivalent rates used where applicable.
(2) Average balances include non-accrual loans which are stated net of unearned income.
