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STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

In connection with the closing of the Merger on October 1, 2022, the 2022 Omnibus Incentive Plan (the “2022 Plan”), which was approved by the Company’s shareholders, became effective. Under the 2022 Plan, the Company is authorized to issue a maximum aggregate of 2,000,000 shares of common stock. All restricted stock and performance share awards outstanding at December 31, 2023 were issued under the 2022 Plan. At December 31, 2023, there were 1,108,690 shares reserved and available for issuance under the 2022 Plan.

The Company accounts for stock based employee compensation plans using the fair value-based method of accounting. The Company recognized total stock based compensation expense of $9.9 million, $9.0 million and $4.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Stock Options

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes model. There were no stock options granted during 2023 and 2022. Options are exercisable up to 10 years from the date of the grant and, dependent on the terms of the applicable award agreement, generally vest 3 to 4 years after the date of grant.

Stock options were issued prior to the Merger under three equity compensation plans (1) the Allegiance 2015 Stock Awards and Incentive Plan, (2) the Allegiance 2019 Amended and Restated Stock Awards and Incentive Plan and (2) the CBTX 2014 Stock Option Plan. No additional shares may be issued under these compensation plans.

Stock option activity for the years ended December 31, 2023 and 2022 was as follows:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(Shares in thousands)			(In years)	(In thousands)
Options outstanding, January 1, 2022	401	$	16.03	2.90	$	5,508
Options acquired in the Merger	166	18.48
Options granted	—	—
Options exercised	(173)	14.47
Options forfeited	(26)	15.79
Options outstanding, December 31, 2022	368	$	17.89	2.72	$	4,256
Options granted	—	—
Options exercised	(70)	14.16
Options forfeited	(40)	20.06
Options outstanding, December 31, 2023	258	$	18.56	2.09	$	2,398
Options vested and exercisable, December 31, 2023	258	$	18.56	2.09	$	2,398

Information related to the stock options exercises for the years indicated below is as follows:


	2023		2022		2021
	(In thousands)
Intrinsic value of options exercised	$	776	$	2,112	$	3,003
Cash received from option exercises	986		2,510		3,372

Restricted Stock Awards

The fair value of the Company’s restricted stock awards is estimated based on the market value of the Company’s common stock at the date of grant, which is the closing price of the Company’s common stock on the day before the grant date. The shares of restricted stock granted during 2023 generally vest over a period of two or three years from the date of grant and the Company accounts for shares of restricted stock by recording the fair value of the grant on the award date as compensation expense over the vesting period.

Shares of restricted stock are considered outstanding at the date of issuance as the grantee becomes the record owner of the restricted stock and has voting, dividend and other shareholder rights. The shares of restricted stock awards are non-transferable and subject to forfeiture until the restricted stock awards vest and any dividends with respect to the restricted stock awards are subject to the same restrictions, including the risk of forfeiture.

Nonvested shares of restricted stock activity for the years ended December 31, 2023 and 2022 was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
	(Shares in thousands)
Nonvested share awards outstanding, January 1, 2022	237	$	24.13
Nonvested share awards obtained in the Merger	93	27.86
Share awards granted	524	32.67
Share awards vested	(335)	27.28
Unvested share awards forfeited or cancelled	(18)	27.59
Nonvested share awards outstanding, December 31, 2022	501	$	32.84
Share awards granted	271	25.54
Share awards vested	(232)	31.91
Unvested share awards forfeited or cancelled	(82)	30.72
Nonvested share awards outstanding, December 31, 2023	458	$	29.38

At December 31, 2023, there was $10.4 million of unrecognized compensation expense related to the restricted stock awards, which is expected to be recognized over a weighted-average period of 1.51 years. The total fair value of restricted stock awards that fully vested during the years ended December 31, 2023, 2022 and 2021 was approximately $5.0 million, $9.1 million and $1.9 million, respectively.

Performance Share Units and Performance Share Awards

The Company’s PSUs are earned subject to certain performance goals being met after a two-year performance period and are settled in shares of Company common stock following a one-year service period. Allegiance awarded 65,591 PSUs in 2020 and 79,792 PSUs in 2021, which were vested and converted to common shares totaling 146,568 in 2022 in conjunction with the Merger. As part of the Merger, the 2,250 shares of CBTX PSUs vested and were converted to common shares of the same amount. The Company awarded 127,345 and 73,727 PSAs during the years ended December 31, 2023 and 2022, respectively, under the 2022 Plan.

The grant date fair value of the PSUs and PSAs is based on the probable outcome of the applicable performance conditions and is calculated at target based on a combination of the closing market price of our common stock on the grant date and a Monte Carlo simulated fair value in accordance with ASC 718. At December 31, 2023, there was $2.6 million of unrecognized compensation expense related to the PSAs, which is expected to be recognized over a weighted-average period of 1.89 years.

OTHER EMPLOYEE BENEFITS

401(k) benefit plan

The Company maintains a 401(k) plan that permits each participant to make before-tax contributions of a percentage of their compensation subject to dollar limits from Internal Revenue Service regulations. The Company matches a portion of employee’s contributions. Matching contribution expense as of December 31, 2023, 2022 and 2021 was $5.0 million, $2.2 million and $1.5 million, respectively.

Profit sharing plan

The financial statements for the years ended December 31, 2022 and 2021 included an accrual of $1.7 million and $6.0 million, respectively, for the contribution to the Allegiance profit sharing plan. This plan ended upon the date of the Merger.

Employee Stock Purchase Plan

Prior to the Merger, Allegiance offered its employees an opportunity to purchase shares of Allegiance’s common stock, pursuant to the terms of the Allegiance ESPP Plan. Allegiance allowed employees to purchase shares at a 15% discount to market value and incurred expense for the fair value of the discount given. The Company recognized expense of $111 thousand and $176 thousand for the years ended December 31, 2022 and 2021, respectively, for this plan. The ESPP was suspended at the effective date of the Merger.