UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Southwest Bancorporation of Texas, Inc.
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(Name of Registrant as Specified In Its Charter)
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SOUTHWEST BANCORPORATION OF TEXAS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 2003
To the Shareholders of
Southwest Bancorporation of Texas, Inc.
The Annual Meeting of Shareholders (the "Annual Meeting") of Southwest
Bancorporation of Texas, Inc. (the "Company") will be held at the Company's
Boardroom, 4400 Post Oak Parkway, Houston, Texas, on Thursday, April 23, 2003,
at 3:00 p.m., Central Time, for the following purposes:
1. To elect five directors of Class I of the Board of Directors to
hold office until the 2006 Annual Meeting of Shareholders and until their
respective successors have been elected and qualified, or until their
earlier resignation or removal.
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for the year ending December 31, 2003.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment hereof.
The close of business on Wednesday, March 19, 2003, has been fixed as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting, and only shareholders of record at such time will be
entitled to notice and to vote. In compliance with Article 2.27 of the Texas
Business Corporation Act, a list of shareholders entitled to vote at the Annual
Meeting will be available for inspection by any shareholder at the offices of
the Company during usual business hours for a period of ten days prior to the
Annual Meeting. The list of shareholders will also be available for inspection
at the Annual Meeting from 3:00 p.m., Central Time, until adjournment of the
Annual Meeting.
By Order of the Board of Directors
/s/ Paul B. Murphy
PAUL B. MURPHY, JR.
Chief Executive Officer
and President
Dated: March 20, 2003
Houston, Texas
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN. THE
COMPANY'S MANAGEMENT SINCERELY DESIRES YOUR PRESENCE AT THE ANNUAL MEETING.
HOWEVER, SO THAT WE MAY BE SURE THAT YOUR VOTE WILL BE INCLUDED, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. IF YOU WISH TO VOTE USING THE INTERNET,
PLEASE FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY. YOUR PROXY MAY BE REVOKED
AT ANY TIME BEFORE IT IS VOTED.
ANNUAL REPORT ON
FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2002, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO R. JOHN
MCWHORTER, SENIOR VICE PRESIDENT AND CONTROLLER, SOUTHWEST BANCORPORATION OF
TEXAS, INC., 4400 POST OAK PARKWAY, HOUSTON, TEXAS 77027. ANY SHAREHOLDER MAKING
SUCH A REQUEST MUST REPRESENT THAT HE OR SHE WAS A SHAREHOLDER OF RECORD AS OF
THE RECORD DATE OF THE ANNUAL MEETING.
SOUTHWEST BANCORPORATION OF TEXAS, INC.
4400 POST OAK PARKWAY
HOUSTON, TEXAS 77027
(713) 235-8800
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PROXY STATEMENT
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This proxy statement is furnished to the shareholders of Southwest
Bancorporation of Texas, Inc., a Texas corporation (the "Company"), for
solicitation of proxies on behalf of the Board of Directors of the Company for
use at the 2003 Annual Meeting of Shareholders (the "Annual Meeting") to be held
April 23, 2003, and at any and all adjournments thereof. The purpose of the
meeting and the matters to be acted upon are set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders.
Shares represented at the Annual Meeting by an executed and unrevoked proxy
in the form enclosed (or transmitted electronically using the Internet), will be
voted in accordance with the instructions contained therein. If no instructions
are given on an executed and returned form of proxy, the proxies intend to vote
the shares represented thereby in favor of each of the proposals to be presented
to and voted upon by the shareholders as set forth herein, and in accordance
with their best judgment on any other matter that may properly come before the
Annual Meeting.
The cost of this solicitation of proxies is being borne by the Company.
Solicitations will be made only by the use of the mail, except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, telegraph or personal calls, without being paid additional
compensation for such services. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting material to the
beneficial owners of the common stock, par value $1.00 per share, of the Company
(the "Common Stock") held of record by such persons, and the Company will
reimburse them for their reasonable expenses incurred in doing so.
The Company's Annual Report to Shareholders, including financial
statements, for the year ended December 31, 2002, accompanies but does not
constitute part of this proxy statement.
The mailing to shareholders of this proxy statement and the enclosed proxy
commenced on or about March 24, 2003.
VOTING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock at the close of business on March
19, 2003, are entitled to vote at the Annual Meeting and any adjournments or
postponements thereof. At February 24, 2003, there were outstanding 33,882,725
shares of Common Stock, which is the only outstanding class of voting securities
of the Company. A majority of the outstanding shares of Common Stock must be
represented at the Annual Meeting in person or by proxy in order to constitute a
quorum for the transaction of business. Each holder of Common Stock shall have
one vote for each share of Common Stock registered, on the record date, in such
holder's name on the books of the Company.
Any proxy given by a shareholder may be revoked by such shareholder at any
time before it is exercised by submitting to the Secretary of the Company a duly
completed proxy (in written or electronic form) bearing a later date, delivering
to the Secretary of the Company a written notice of revocation, or attending the
Annual Meeting and voting in person.
A plurality of the votes cast in person or by proxy by the holders of
Common Stock is required to elect a director. The five Class I nominees
receiving the highest number of votes cast by the holders of Common Stock will
be elected as directors. There will be no cumulative voting in the election of
directors.
Abstentions and broker non-votes will have no effect on the outcome of the
election of directors, assuming a quorum is present or represented by proxy at
the Annual Meeting. With respect to all other matters, abstentions will have the
same legal effect as a vote against such matters, and broker non-votes will have
no effect on such matters. A broker non-vote occurs if a broker or other nominee
of shares does not have discretionary authority and has not received voting
instructions with respect to a particular matter.
ITEM 1.
ELECTION OF DIRECTORS
Five directors are to be elected at the Annual Meeting. John B. Brock III,
J. David Heaney, Barry M. Lewis, Andres Palandjoglou and Stanley D. Stearns have
been nominated for re-election to the five expiring Class I positions on the
Board of Directors. If elected, the Class I directors will hold office until the
2006 Annual Meeting of Shareholders or until their respective successors have
been duly elected and qualified or until their earlier resignation or removal.
Although the Board of Directors knows of no reason that any of these
nominees might be unable or refuse to accept nomination or election, if such
situation arises, the persons named in the proxy have the right to use their
discretion to vote for a substitute nominee or nominees designated by the Board
of Directors. All of the nominees have consented to being named herein and to
serve if elected.
The names and ages of the Company's continuing directors and executive
officers, including the five nominees for election to the Class I positions on
the Board of Directors, the principal occupation or employment of each of them
during the past five years and at present, the name and principal business of
the corporation or other organization, if any, in which such occupation or
employment is or was carried on, directorships of other public companies or
investment companies held by them, and the period during which the directors
have served in that capacity with the Company are set forth below. All of the
directors of the Company, except for Mr. Palandjoglou, are also directors of the
Company's subsidiary bank, Southwest Bank of Texas National Association (the
"Bank"), and all the directors live in the metropolitan area of Houston, Texas.
Because the Bank was founded prior to the Company, the biographical information
following the summary table below includes the date that each director first
joined the Board of the Bank.
DIRECTOR
NAME POSITION AGE SINCE
---- -------- --- --------
Carin M. Barth.................... Director 40 2003
John B. Brock III*................ Director 70 1996
Ernest H. Cockrell................ Director 57 1996
J. David Heaney*.................. Director 54 1997
Paul W. Hobby..................... Director 42 2002
John W. Johnson................... Director 58 1996
Walter E. Johnson................. Director, Chairman of the Boards of the 67 1996
Company and the Bank
Barry M. Lewis*................... Director 66 2003
Fred R. Lummis.................... Director 49 2001
Paul B. Murphy, Jr................ Director, President and Chief Executive 43 1996
Officer of the Company and the Bank
Andres Palandjoglou*.............. Director 55 1996
Adolph A. Pfeffer, Jr............. Director 72 1997
Wilhelmina E. Robertson........... Director 56 1996
Thomas F. Soriero, Sr............. Director 61 2003
Stanley D. Stearns, Jr.* ......... Director 60 1997
Joseph H. Argue III............... Executive Vice President of the Company 54 --
and the Bank
2
DIRECTOR
NAME POSITION AGE SINCE
---- -------- --- --------
J. Nolan Bedford.................. Executive Vice President of the Company 64 --
and Vice Chairman of the Bank
John H. Echols.................... Chief Executive Officer of the Baytown 45 --
Region of the Bank
David C. Farries.................. Executive Vice President of the Company 56 --
and the Bank
Scott J. McLean................... Executive Vice President of the Company 46 --
and the Bank
Randall E. Meyer.................. Executive Vice President and Chief 57 --
Financial Officer of the Company and the
Bank
R. John McWhorter................. Senior Vice President and Controller of 38 --
the Company and the Bank
P. Allan Port..................... Executive Vice President, General Counsel 60 --
and Secretary of the Company and the Bank
Steve D. Stephens................. Executive Vice President of the Company 43 --
and the Bank
W. Lane Ward...................... Vice Chairman of the Bank and Chairman of 54 --
Mitchell Mortgage Company, L.L.C.
---------------
* Nominee for election at Annual Meeting.
3
[CM BARTH PHOTO]
Carin M. Barth. Ms. Barth joined the Bank as a director in
2001. She is president of LB Capital, Inc., a private
equity investment firm she co-founded in 1987. Ms. Barth
holds a BS from the University of Alabama and an MBA from
the Owen Graduate School of Management at Vanderbilt
University. She is chairman of the board of UniPure
Corporation and a member of the Investment Committee of the
City of Houston. She is also on the board of directors for
The Ronald McDonald House of Houston, the Texas Tech
University Board of Regents, the board of directors of The
Ronald McDonald House, the board of trustees of the
Oncology Services Endowment Foundation, and the board of
governors of the Houston Forum Club.
[JOHN BROCK III PHOTO]
John B. Brock III. Mr. Brock became a director of the Bank
in 1991. He is the past chairman of Ocean Energy, Inc.,
("OEI"), a NYSE oil and gas company. He stepped down from
active management of Ocean Energy, Inc. in March 1999 when
OEI merged with Seagull Energy. He had been chairman of the
board of Ocean Energy, Inc. since March 27, 1998, when OEI
merged with United Meridian Corporation ("UMC"), prior to
which he had been Chief Executive Officer of UMC since
February 1992, chairman of the board since May 1995 and a
director since November 1989. Mr. Brock served as the
President and Chief Operating Officer of UMC from November
1989 to February 1992. Mr. Brock is a member of the
All-American Wildcatters' Association, past president and
director of the Houston Producers' Forum, and a director of
St. Luke's Episcopal Hospital and of St. Luke's Episcopal
Health Systems.
[ERNEST H. COCKRELL PHOTO]
Ernest H. Cockrell. Mr. Cockrell became a director of the
Bank in 1982. Mr. Cockrell holds BS in Engineering and MBA
degrees from the University of Texas in Austin and is
involved in ranching, farming and investments. He is
chairman of Cockrell Interests, a private investment
company. He is a member of the All-American Wildcatters'
Association and is past Chairman of the Houston chapter of
the Young Presidents' Organization. Mr. Cockrell is also
President of The Cockrell Foundation, a private charitable
corporation which supports many Texas charities. He serves
on the board of directors and executive committee of The
Methodist Hospital System, Houston, and the board of
visitors of the University of Texas M.D. Anderson Hospital,
Houston. He is a member and the former chairman of the
board of trustees of the Houston Museum of Natural Science,
of the Sam Houston Area Council of the Boy Scouts of
America, and of The University of Texas College of
Engineering Foundation Advisory Council.
[J. DAVID HEANEY PHOTO]
J. David Heaney. Mr. Heaney became a director of the Bank
in 1990. He is a co-founder of Heaney Rosenthal Inc., a
private investment company, and serves as its Chairman. In
1986, Mr. Heaney was one of the founders of Sterling
Chemicals, Inc., which later became a public company traded
on the New York Stock Exchange. During his eight years with
Sterling, Mr. Heaney served as Sterling's Administrative
Vice President, and later as Chief Financial Officer. Prior
to joining Sterling in 1986, Mr. Heaney was a partner in
the Houston law firm Bracewell & Patterson, specializing in
business transactions. Mr. Heaney holds JD and BBA degrees
from the University of Texas.
4
[PAUL W. HOBBY PHOTO]
Paul W. Hobby. Mr. Hobby was elected a director of the
Bank in 2002. For more than five years, he has been
chairman and Chief Executive Officer of Hobby Media
Services, Inc., a private investment vehicle for
traditional and new media investments, including television
and radio broadcast media ownership and venture funding. He
is a former chairman of Columbine JDS Systems, Inc. and
former Chief of Staff for Lieutenant Governor Bob Bullock
and former Assistant United States Attorney for the
Southern District of Texas. He is a member of the
University of Texas Development Board and a member of the
board of trustees, College of Arts & Sciences, University
of Virginia. He also serves on the boards of directors of
various civic, charitable and professional associations. He
holds a BA from the University of Virginia and a Doctor of
Jurisprudence from the University of Texas School of Law.
[JOHN W. JOHNSON PHOTO]
John W. Johnson. Mr. Johnson became a director and
chairman of the Board of the Bank in 1982 and served in
that capacity until 1996, when he was named chairman of the
Bank's Executive Committee. For more than five years, he
has been chairman of Permian Mud Service, Inc., an oil
field service company with several active subsidiaries,
including Champion Technologies, Inc., Densimix, Inc., and
Johnson & Lindley, Inc. He is a former chairman of the
board of trustees of St. John's School and the Houston
Museum of Natural Science and was named in 2000 by Governor
George W. Bush to serve as chairman of the Texas
Transportation Commission. Mr. Johnson received a Bachelor
of Engineering degree from Vanderbilt University in 1968.
Mr. Johnson is not related to Walter E. Johnson.
[WALTER E. JOHNSON PHOTO]
Walter E. Johnson. Mr. Johnson is chairman of the Boards
of the Bank and the Company. He joined the Bank and managed
its reorganization in 1990. Prior to joining the Bank, he
was CEO/President of Allied Bank of Texas for 18 years
before it was sold to First Interstate. He is actively
involved in numerous Houston charities and is currently
Chairman of the Sam Houston Area Council of the Boy Scouts
of America.
[B.M. LEWIS PHOTO]
Barry M. Lewis. Mr. Lewis became a director of the Bank in
1995. Mr. Lewis has made real estate and venture capital
investments since 1985 and in 1989 founded Goldeneye, Inc.
in which to further those activities. He is a director and
past board president of The Emery/Weiner School and past
president of the Jewish Federation of Greater Houston. Mr.
Lewis is on the Development Board of the University of
Texas-Health Science Center-Houston and serves as a
director of Communities in School-Houston. Mr. Lewis holds
a BBA degree from Tulane University.
5
[FRED R. LUMMIS PHOTO]
Fred R. Lummis. Mr. Lummis has been President of The
CapStreet Group, LLC, a private equity business, since
1990. He was chairman and Chief Executive Officer of
Advantage Outdoor Company (outdoor advertising) from 1998
to 2000 and Chairman and Chief Executive Officer of
American Tower Corporation (wireless communications) from
1994 to 1998. He holds a BA degree in economics from
Vanderbilt University and a MBA degree from the University
of Texas at Austin. He is also a director of American Tower
Corporation and Baylor College of Medicine.
[PAUL B. MURPHY, JR. PHOTO]
Paul B. Murphy, Jr. Mr. Murphy joined the Bank in January
1990 as an Executive Vice President, was elected a director
in 1994, became President in 1996 and acquired the
additional title of Chief Executive Officer in January
2000. He began his banking career with Allied Bank of Texas
in 1981. Mr. Murphy received his BS degree from Mississippi
State University and his MBA from the University of Texas
at Austin. He is involved in numerous civic and community
organizations including the Governor's Business Council,
past president of the board and trustees of Children's
Museum of Houston and director of St. Luke's Episcopal
Health Care System, St. Luke's Episcopal Health Charities,
the Greater Houston Community Foundation, and Young
Presidents Organization, and an advisory director for
Mississippi State University.
[ANDRES PALANDJOGLOU PHOTO]
Andres Palandjoglou. Mr. Palandjoglou has been an advisory
director of the Bank since 1990. For more than five years,
he has been President of Rio Largo, Inc., a company
involved in real estate investments and, as a partner in
Memorial Builders, in the development of residential
subdivisions and the construction of custom homes. Also,
Mr. Palandjoglou is involved in textile manufacturing and
ranching in Argentina. He is a member of the Greater
Houston Builders Association.
[ADOLPH A. PFEFFER, JR PHOTO]
Adolph A. Pfeffer, Jr. Mr. Pfeffer became a director of
the Bank in 1997. He was an organizing director of Pinemont
Bank in 1960, and served on its board of directors, the
last 20 years as chairman of the Board, until its merger
with the Bank in 1997. Mr. Pfeffer has been involved in
farming, ranching, real estate and investment activities
for more than five years. He is a director of the Gillson-
Longenbaugh Foundation.
[WILHELMINA E. ROBERTSON PHOTO]
Wilhelmina E. Robertson. Ms. Robertson has been a director
of the Bank since 1982. Since 1980, she has been president
of Westview Development, Inc. (real estate development) and
Cockspur, Inc. and a partner in various investment
ventures. She serves on the board of the Greater Houston
Partnership, Houston's chamber organization. She is chair
of the board of the Cullen Trust for Health Care, past
chair of the board of the University of Houston System, and
board member of The Cullen Foundation, the Greater Houston
Community Foundation, U.T. Health Science Center
Development Board, The Museum of Fine Arts, Houston, Bat
Conservation International and Neuhaus Education Center.
6
[THOMAS F. SORIERO, SR. PHOTO]
Thomas F. Soriero, Sr. Mr. Soriero became a director of
the Bank in 1982. Mr. Soriero was the founder and president
of Soriero & Company, an insurance brokerage firm
specializing in the insurances for the oil industry. In
1986, Soriero & Company merged with AON Risk Services,
where he was Executive Vice President until his retirement
in 2000. Mr. Soriero was an underwriting member at Lloyd's
of London during his insurance career. He is a past
director of the Houston Museum of Natural Science and of
the Coronado Club in Houston. Since his retirement, Mr.
Soriero has been a private investor and owner of Bar None
Ranch. Mr. Soriero received a BBA degree from The
University of Texas.
[STANLEY D. STEARNS, JR PHOTO]
Stanley D. Stearns, Jr. Mr. Stearns became a director of
the Bank in 1997, prior to which time he had served as a
director of Pinemont Bank since 1993. Since June 1968, he
has been President of Valco Instruments Co., Inc., a
manufacturer of sampling and flow switching valves for gas
and liquid chromatography and gas analysis instrumentation.
Mr. Stearns holds a B.S. from Florida State University,
with graduate studies in chemistry, and is the holder of
numerous patents and author of numerous articles in the
analytical instrumentation field. He is former director and
chairman of the Spring Branch Association.
EXECUTIVE OFFICERS:
Joseph H. Argue III. Mr. Argue joined the Company and the Bank in April
1997 as Executive Vice President of the Company and Executive Vice President of
the Bank's lending division. He has 31 years of banking and lending experience,
including Wells Fargo Bank (Texas), N.A., First Interstate Bank of Texas, N.A.
and Allied Bank of Texas. He is Chief Lending Officer and oversees the lending
areas of Commercial, Real Estate, Energy, International, and Private Banking, as
well as Treasury Management. He has both bachelor's and master's degrees in
business administration from Stephen F. Austin State University.
J. Nolan Bedford. Mr. Bedford was elected Vice Chairman of the Board of
Directors of the Bank in 1997, prior to which time he had served as President
and Chief Executive Officer of Pinemont Bank since 1993. Previously, Mr. Bedford
served as Senior Executive Vice President, Chief Lending Officer and director of
Lockwood National Bank in Houston from 1985 to 1993. He graduated from the
University of Houston with a BS degree in Economics in 1969.
John H. Echols. Mr. Echols joined the Bank in January 2001 as Chief
Executive Officer, Baytown Region of the Company and the Bank. Mr. Echols had
been the chairman of the board and President of Citizens Bankers, Inc. prior to
its merger with the Company on December 29, 2000, and the chairman of the board
and Chief Executive Officer of Citizens Bank and Trust Company of Baytown, Texas
("Citizens Bank") since 1998. Prior to that time, Mr. Echols was a Vice
President of Citizens Bank for more than three years. Mr. Echols had been with
Citizens Bank since 1982. Mr. Echols received a BA degree from Southern
Methodist University.
David C. Farries. Mr. Farries joined the Bank in 1993 as Senior Vice
President and Treasurer and is currently Executive Vice President in charge of
trust and investments. He has 19 years of banking and investment experience with
First City National Bank of Houston and three years of public accounting
experience with Price Waterhouse & Co. He became Executive Vice President of the
Company in 1996. Mr. Farries has both bachelor's and master's degrees in
business administration from the University of Texas at Austin. He is a
certified public accountant and holds various securities licenses. He currently
serves on the board of The Woodlands Christian Academy.
Scott J. McLean. Mr. McLean joined the Bank in July 2002 as Executive Vice
President. After beginning his banking career with Texas Commerce Bank
(TCB)/JPMorgan Chase in Houston in 1979, he served as CEO of TCB Greenway Plaza,
President of TCB Dallas, CEO of TCB El Paso, EVP/Co-Head of Texas Private Bank,
Co-Head of Texas Commercial Banking and finally as President of the Houston
Region.
7
Mr. McLean received his BBA at Southern Methodist University and his MBA from
the J.L. Kellogg Graduate School of Management at Northwestern University. He is
involved with many community and civic organizations, and has served as chairman
of United Way of the Texas Gulf Coast, as director of Memorial Hermann Hospital
System, Houston Ballet Foundation, and, Sam Houston Area Council of the Boy
Scouts of America, and as a member of Young Presidents Organization. While in
Dallas and El Paso, Mr. McLean served as chairman of the Dallas United Way
Campaign, President of the SMU Alumni Association, chairman of the SMU Annual
Giving Campaign, chairman of the Texas Business Hall of Fame, chairman of El
Paso Chamber of Commerce and a director of Presbyterian Healthcare System
(Dallas) and Children's Medical Hospital (Dallas).
R. John McWhorter. Mr. McWhorter joined the Bank as Assistant Vice
President and Controller in 1990. He was promoted to Senior Vice President in
1998. Prior to joining the Bank, he was employed by Coopers & Lybrand L.L.P. He
graduated from the University of Texas at Austin with a BBA in accounting in
1987 and is a certified public accountant. He recently served on the Finance
Council at Saint Cecilia Catholic Church and has served in other civic
organizations.
Randall E. Meyer. Mr. Meyer has 34 years of banking experience. Prior to
joining the Bank as an Executive Vice President in December 1998, he was
President of Bank of America-Texas. He became Executive Vice President and Chief
Financial Officer of the Bank and the Company in January 2002. Mr. Meyer
currently serves on the Economic Development Committee of the Greater Houston
Partnership and the board of directors of The Forum Club, and previously served
on the boards of directors or trustees of American Red Cross (Houston Chapter),
Association for Community Television (KUHT-TV), Chinquapin School, the American
Bankers Association (Communications Council), Greater Houston Partnership and
Governor's Business Council. He graduated from Yale University with a degree in
economics and from Columbia University with a MBA, and is a Certified Public
Accountant.
P. Allan Port. Mr. Port became Executive Vice President and General
Counsel of the Bank in September 2002 and was subsequently elected Secretary of
the Company and the Bank. He has diversified experience in the private practice
of law, most recently with the Texas firm now known as Gardere Wynne Sewell,
where he was Managing Partner in Houston. From early 2000 until he joined the
Bank, Mr. Port was Executive Vice President-Corporate Development of Orillion
Corporation, an international supplier of software systems to the
telecommunications industry. He has served as director of many professional and
community service organizations and is currently a director of Communities in
Schools-Houston and Advisory Director of Child Advocates, Inc. Mr. Port
graduated from Yale University and the University of Texas School of Law,
following which he served for one year as law clerk to the United States Court
of Appeals for the Fifth Circuit.
Steve D. Stephens. Mr. Stephens has 20 years of commercial lending
experience, and is currently in charge of the Bank's regional commercial lending
offices. Prior to joining the Bank as an Executive Vice President in 1990, he
was Executive Vice President and Manager of Commercial Lending at Texas Commerce
Bank Reagan. Mr. Stephens is active in a variety of community organizations,
including serving as a director of the Houston Small Business Development Corp.,
Make A Wish Foundation, Boys and Girls Country and the Texas Association of
Business. He graduated from the University of Houston with a BBA in accounting
in 1980.
W. Lane Ward. Mr. Ward was elected Vice Chairman of the Board of Directors
of the Company in 1999. Prior to that time he had served as President and Chief
Executive Officer and vice chairman of the board of directors of Fort Bend
Holding Corp, parent company of Fort Bend Federal Savings & Loan Association
(the "Association") since 1996. Mr. Ward joined the Association in 1978 as
Financial Vice President before being promoted to Executive Vice President in
1981 and to President and Chief Operating Officer in 1987. Mr. Ward is also
Chairman of Mitchell Mortgage Company, L.L.C. He graduated from the University
of Texas at Austin with a BBA in accounting in 1971, and is a certified public
accountant. He is active in a variety of community organizations including,
serving as a trustee for the George Foundation, Polly Ryon Hospital Authority
and the Polly Ryon Foundation and Saint John's United Methodist Church.
8
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The committees of the Board of Directors are the Audit, Compensation, and
Governance and Nominating Committees. The Governance and Nominating Committee
was established in 2002 and consisted of Thomas F. Soriero, Carin M. Barth, J.
David Heaney, Barry M. Lewis, Paul W. Hobby and John B. Brock III, none of whom
is an employee of the Company. During 2002, the Governance and Nominating
Committee undertook a study of director compensation and made recommendations to
the Board of Directors, which were implemented at its meeting in January 2003,
relative to director compensation, the charters and composition of the Board
committees, the independence of directors, new directors to be elected,
standards of participation for directors in the activities of the Board of
Directors and committees, the mandatory retirement age for directors, revision
of the Code of Conduct and Ethics of the Company, adoption of new Corporate
Governance Guidelines, and other matters.
The Governance and Nominating Committee charter, which was adopted at the
January 2003 meeting of the Board of Directors, charges that committee with
performing the duties contemplated for such committees by the Sarbanes-Oxley Act
of 2002 ("the S-O Act"), the rules promulgated and proposed pursuant to the S-O
Act by the Securities and Exchange Commission ("the SEC"), and the proposed
NASDAQ listing standards pertaining to corporate governance ("the Rules"). In
general, the responsibilities of the Governance and Nominating Committee are to
enhance the effectiveness of the Board of Directors, to review and revise the
Company's Corporate Governance Guidelines and Code of Conduct and Ethics, to
recruit and recommend for election nominees for the Board of Directors, to
conduct performance evaluations for the Board and the directors, and to
recommend director compensation plans. The Governance and Nominating Committee
held two meetings during 2002. The Governance and Nominating Committee currently
consists of Ms. Barth and Messrs Brock, Hobby and Soriero.
In 2002, the Audit Committee consisted of John B. Brock III, J. David
Heaney, Wilhelmina E. Robertson, Andres Palandjoglou and Stanley D. Stearns,
Jr., none of whom is an employee of the Company. The Audit Committee reviewed
the general scope of the audit conducted by the Company's independent auditors,
the fees charged therefor and matters relating to the Company's internal control
systems. In performing its functions, the Audit Committee meets separately with
representatives of the Company's independent auditors and with representatives
of senior management. The Audit Committee held five meetings during 2002. At its
meeting in January 2003, the Board of Directors of the Company adopted a revised
charter of the Audit Committee that charges the committee with the
responsibilities required to be undertaken by audit committees generally under
the S-O Act and the Rules. The Audit Committee currently consists of Ms. Barth
and Ms. Robertson and Messrs. Heaney, Palandjoglou and Stearns.
In 2002, the Compensation Committee consisted of John B. Brock III, John W.
Johnson, J. David Heaney and Adolph A. Pfeffer, Jr., none of whom is an employee
of the Company. The Compensation Committee administers the Company's stock
option plans and makes recommendations to the Board of Directors as to option
grants to Company employees under such plans. In addition, the Compensation
Committee is responsible for making recommendations to the Board of Directors
with respect to the compensation of the Company's executive officers and is
responsible for the establishment of policies dealing with various compensation
and employee benefit matters for the Company. The Compensation Committee held
two meeting during 2002. At its meeting in January 2003, the Board of Directors
of the Company adopted a revised charter of the Compensation Committee that
charges the committee with the responsibilities required of compensation
committees generally by the S-O Act and the Rules. The Compensation Committee
currently consists of Ernest H. Cockrell, John B. Brock III, J. David Heaney and
John W. Johnson.
During the year ended December 31, 2002, the Board of Directors held six
meetings. In 2002, each incumbent director attended at least 75% of the
aggregate of the total number of meetings of the Board of Directors and the
total number of meetings held by all committees on which he or she served.
DIRECTOR COMPENSATION
During 2002, directors were awarded stock options under the Company's 1996
Stock Option Plan. Directors were awarded options for attendance and
participation at monthly directors' meetings and,
9
additionally, for introducing legitimate business prospects to the Company.
Options to purchase 33,150 shares were granted in 2003 for the 2002 calendar
year with an exercise price of $29.08 per share and options for 43,950 shares
were granted in 2002 for the 2001 calendar year with an exercise price of $30.46
per share.
During 2002, John W. Johnson received compensation in the amount of $25,000
for serving as Chairman of the Executive Committee of the Bank Board. At the
Board of Directors meeting in January 2003, additional compensation was awarded
for 2002 service to the chairs of the three committees of the Company and the
Bank. J. David Heaney was awarded $25,000 for serving as chair of the Audit
Committee, John B. Brock III was awarded $20,000 for serving as chair of the
Compensation Committee, and Barry M. Lewis was awarded $25,000 for serving as
chair of the Board Loan Committee of the Bank. During 2002, (i) directors of the
Bank and directors of the Company received a fee of $1,000 for each Bank Board
meeting and Company Board meeting attended, (ii) Board committee chairmen
received $2,500 per year plus $200 per Board committee meeting attended and
(iii) Board committee members received $200 per Board committee meeting
attended. Directors of the Bank who are also employees of the Bank did not
receive fees for attending Board committee meetings.
On November 28, 2001, the directors of the Company approved and adopted a
Non-Employee Directors Deferred Fee Plan, pursuant to which each director of the
Company and each director of the Bank may elect to defer receipt of all or
one-half of his compensation for serving as a director, committee member or
committee chairman for a period of time selected by the director that terminates
no later than the date he ceases to be a director. The deferred amounts credited
to his account during each calendar quarter are deemed to be invested in a
number of shares of Common Stock determined by dividing the amount of the
director's compensation deferred for that quarter by the closing sale price of
the Common Stock reported by NASDAQ on the last trading day of the quarter and
multiplying that result by 1.25 (rounding up to the nearest whole share). A
total of 25,000 shares of Common Stock have been reserved for issuance under the
Non-Employee Directors Deferred Fee Plan.
At its meeting in January 2003, the Board of Directors, at the
recommendation of the Governance and Nominating Committee, altered the plan for
director compensation, in light of the amounts being paid by comparable
enterprises and the increased responsibility of and time demands on directors
occasioned by the S-O Act and the Rules. Going forward until changed, each
director will receive an annual retainer in the amount of $10,000, plus $3,000
for each regular Board meeting attended. Four meetings of the Board of Directors
of the Company are expected to occur during 2003. The committee chairpersons
will receive annual stipends for their service in the following amounts, which
were fixed according to the relative workloads to be borne by each committee:
Audit Committee............................................. $25,000
Compensation Committee...................................... $20,000
Governance and Nominating Committee......................... $20,000
The directors who serve as chairpersons of committees of the Bank Board
also receive special stipends for such service. The members of each committee of
the Bank Board and the Company Board will receive $1,000 for each regularly
scheduled committee meeting attended, except that the members of the Audit
Committee will be paid $1,500 for each meeting attended. No meeting fees will be
paid for specially called meetings. Members of the Audit Committee will be
compensated for up to eight regular meetings in 2003 and the members of the
remaining committees will be compensated for up to four meetings. Committee
members will not be compensated for additional meetings, even though they may be
held.
Each director may elect to defer all or one-half of such compensation for
deemed investment in phantom common stock, pursuant to the terms of the
Non-Employee Directors Fee Deferred Plan, described above.
CORPORATE GOVERNANCE AND ADDITIONAL DISCLOSURES
The S-O Act and Rules passed, promulgated, and proposed to date imposed and
suggested new corporate governance initiatives with respect to public companies
("the Initiatives"), most of which are expected to be completed and complied
with by not later than the Company's next proxy statement in 2004. However, the
10
Company believes that the changes made in its corporate governance policies and
procedures as of the meeting of its Board of Directors in January 2003 place it
in substantial compliance with the Initiatives.
At its meeting in January 2003, the Board of Directors adopted new charters
of the Audit Committee, Compensation Committee, and Governance and Nominating
Committee, which impose on those committees the duties contemplated by the
Initiatives. In addition, the Board of Directors adopted a new and revised Code
of Conduct and Ethics, which includes a code of ethics for its principal
executive officers and its principal financial officers, and new Corporate
Governance Guidelines, and will make those documents available on its website.
In addition, the revised charters will be available on the website. It is
expected that such availability will be completed by not later than April 1,
2003, and that those documents may be accessed at swbanktx.com.
The Initiatives also require certain disclosures. Among these are whether
the Audit Committee includes at least one member who is an "audit committee
financial expert." The Board of Directors has determined that J. David Heaney,
Chairman of the Audit Committee, is an audit committee financial expert as
defined by rules promulgated by the SEC.
The Initiatives also require a determination by the Board of Directors as
to the independence of its members. As of the meeting of the Board of Directors
in January 2003, the directors who are employees of the Bank, other than Walter
E. Johnson and Paul M. Murphy, Jr., resigned from the Boards of Directors of the
Company and the Bank. In addition, the Board of Directors adopted the Corporate
Governance Guidelines, which specify the following standards for the
independence of directors.
The Board of Directors shall determine, with respect to each member,
whether he or she qualifies as independent, which shall mean that the director
has no material relationship with the Company or the Bank, either directly or as
a partner, shareholder, or officer of an organization that has a relationship
with the Company or the Bank. The Board of Directors has adopted the categorical
standard that a director will not fail to be deemed independent solely as a
result of lending relationships, deposit relationships, or other banking
relationships (including trust department, investment, and insurance
relationships) between the Bank, on the one hand, and the director or an entity
with which the director is affiliated, on the other, provided that
(1) such relationships are in the ordinary course of business of the
Bank and are on substantially the same terms as those prevailing at the
time for comparable transactions with non-affiliated persons; and
(2) with respect to extensions of credit by the Bank or its
subsidiaries to the director or such entity, such extensions of credit are
made in compliance with applicable law, including Regulation O of the Board
of Governors of the Federal Reserve and Section 13(k) of the Securities
Exchange Act of 1934, no event of default has occurred with respect to such
credit, and such credit is otherwise in good standing as determined from
time to time by the Board of Directors in its sole discretion.
A director who is indebted to the Bank shall terminate his directorship in the
event that such indebtedness is not maintained in good standing as determined by
the Board of Directors.
In addition, as a categorical standard, a director will not fail to be
deemed independent solely as a result of his or her affiliation with a vendor of
goods or services to the Bank if (1) the economic benefit derived by such
director from the consideration paid to such vendor is not material to the
director and (2) the purchase is approved by the Board of Directors. A
director's ownership of even a significant amount of stock of the Bank shall
not, by itself, impair such director's independence.
Pursuant to these standards, the Company believes that all of the directors
other than Mr. Murphy and Mr. Johnson, who are employees of the Bank, are
"independent directors" within the meaning of the Initiatives.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE FIVE NOMINEES FOR DIRECTOR NAMED HEREIN.
11
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 2002, by (i) each
director and nominee for director, (ii) each of the Named Executives (as defined
under "Executive Compensation"), (iii) all directors and executive officers as a
group and (iv) the persons known by the Company to own beneficially 5% or more
of the Company's Common Stock. Unless otherwise indicated, each person has sole
voting and dispositive power over the shares indicated as owned by such person.
PERCENTAGE
DIRECTORS AND NAMED EXECUTIVES NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------ ---------------- ------------------
Carin M. Barth............................................ 1,000(1) *
John B. Brock III......................................... 84,274(2) *
Ernest H. Cockrell........................................ 886,898(3) 2.62%
J. David Heaney........................................... 105,057(4) *
Paul W. Hobby, Jr......................................... 500 *
John W. Johnson........................................... 316,156(5) *
Walter E. Johnson......................................... 150,178(6) *
Barry M. Lewis............................................ 34,321(7) *
Fred R. Lummis............................................ 2,050(8) *
Paul B. Murphy, Jr........................................ 264,497(9) *
Andres Palandjoglou....................................... 46,800(10) *
Adolph A. Pfeffer, Jr..................................... 576,556(11) 1.70%
Wilhelmina E. Robertson................................... 470,820(12) 1.39%
Thomas F. Soriero, Sr..................................... 30,672(13) *
Stanley D. Stearns, Jr.................................... 354,984(14) 1.05%
Joseph H. Argue III....................................... 94,702(15) *
Randall E. Meyer.......................................... 16,416(16)
Steve D. Stephens......................................... 44,406(17) *
Directors and executive officers as a group............... 3,943,902(18) 11.65%
OVER 5% BENEFICIAL OWNERS
Robert C. McNair.......................................... 2,374,646(19) 7.01%
2 Reliant Park
Houston, Texas 77054
T. Rowe Price Associates, Inc. ........................... 1,712,604(20) 5.06%
100 E. Pratt Street
Baltimore, Maryland 21202
---------------
* Does not exceed 1.0%.
(1) Includes 750 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(2) Includes 17,500 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(3) Includes 874,848 shares held by a family partnership. Mr. Cockrell's
interest in these family partnerships is approximately 50%. Accordingly he
disclaims beneficial interest in approximately 50% of the shares held by
family partnerships. In addition, this includes 12,050 shares which may be
acquired within 60 days pursuant to outstanding stock options.
(4) Includes 47,957 shares owned by Mr. Heaney's wife, 12,000 held in trust for
the benefit of his two children and 16,700 shares which may be acquired
within 60 days pursuant to outstanding stock options.
12
(5) Includes 45,000 shares held in trust for the benefit of his children, 9,456
shares by a family partnership, and 111,700 shares which may be acquired
within 60 days pursuant to outstanding stock options.
(6) Includes 19,156 shares held by the Company's 401(k) plan, 5,250 shares held
by Walter E. Johnson's wife and 51,810 shares which may be acquired within
60 days pursuant to outstanding stock options.
(7) Includes 2,401 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(8) Includes 1,050 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(9) Includes 6,614 shares held by the Company's 401(k) plan and 167,650 shares
which may be acquired within 60 days pursuant to outstanding stock options.
(10) Includes 29,050 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(11) Includes 529,948 shares held in family partnerships, 7,268 shares held by
trustee, 20,840 owned by Mr. Pfeffer's wife and 18,500 shares which may be
acquired within 60 days pursuant to outstanding stock options.
(12) Includes 325,270 shares held in trust and 25,150 shares which may be
acquired within 60 days pursuant to outstanding stock options.
(13) Includes 10,400 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(14) Includes 9,350 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(15) Includes 10,552 shares held by the Company's 401(k) plan, 1,500 held in
trust for child and 72,500 shares that may be acquired within 60 days
pursuant to outstanding stock options.
(16) Includes 6,492 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(17) Includes 857 shares held by the Company's 401(k) plan and 36,000 shares
which may be acquired within 60 days pursuant to outstanding stock options.
(18) Includes 719,136 shares which may be acquired within 60 days pursuant to
outstanding stock options.
(19) Mr. McNair shares voting and dispositive power with respect to 2,037,346 of
such shares and disclaims any beneficial interest in 337,300 of those
shares, which are held by an educational foundation of which he is Chairman
of the Board of Trustees.
(20) These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. (Price Associates) serves as
investment adviser with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
13
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer, each of the four other most highly compensated
executive officers of the Company (the "Named Executives") for the fiscal years
ended December 31, 2002, 2001 and 2000. Unless otherwise noted, all positions
are held with the Company and the Bank.
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------- ------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARD(S)($) OPTIONS(#) COMPENSATION(2)
------------------ ---- -------- -------- --------------- ----------- ------------ ---------------
Walter E. Johnson............ 2002 $400,000 $285,000 $ 9,821 $ -- 21,800 $22,000
Chairman 2001 400,000 300,000 15,634 -- 21,350 20,000
2000 400,000 300,000 11,315 -- 24,000 64,800
Paul B. Murphy, Jr. ......... 2002 350,000 285,000 11,933 1,670,980(3) 71,800 22,000
Chief Executive 2001 350,000 300,000 11,659 250,303(4) 21,350 20,500
Officer & President 2000 300,000 225,000 11,829 -- 24,000 14,800
Joseph H. Argue III.......... 2002 200,000 135,000 16,605 86,430(3) 10,000 10,000
Executive 2001 200,000 125,000 17,639 95,351(4) 10,000 8,500
Vice President 2000 175,000 100,000 15,245 -- 10,000 8,500
Steve D. Stephens............ 2002 190,000 100,000 8,575 72,025(3) 7,000 10,000
Executive Vice 2001 190,000 86,450 7,400 90,598(4) 10,000 8,500
President 2000 167,000 100,000 7,837 -- 10,000 8,350
Randall E. Meyer............. 2002 175,000 100,000 13,015 86,430(3) 10,000 7,250
Executive Vice President 2001 155,000 100,000 12,146 73,889(4) 4,000 7,750
& Chief Financial Officer 2000 145,000 49,800 10,723 -- 5,605 8,750
---------------
(1) Perquisites and other personal benefits paid to each of the Named Executives
in each instance aggregated less than $50,000.
(2) These amounts include contributions by the Company to the Company's 401(k)
Plan. The amounts for each of Messrs. Johnson and Murphy also include
directors fees of $6,300, $12,000 and $12,000 for the years ended 2000, 2001
and 2002, respectively.
(3) Represents the number of shares of restricted stock awarded multiplied by
$28.81, the closing price of the Company's Common Stock on December 31,
2002. The stock awarded to Messrs. Argue, Stephens and Meyer and 8,000 of
the 58,000 shares awarded to Mr. Murphy are subject to forfeiture
restrictions that lapse as to 40% of the shares on December 31, 2003, and as
to 20% of the shares on each of December 31, 2004, December 31, 2005, and
December 31, 2006. The remaining 50,000 shares are subject to forfeiture
restrictions that lapse as to 20% of the shares on June 4, 2003, and as to
20% of the shares each year thereafter until June 4, 2007.
(4) Represents the number of shares of restricted stock awarded multiplied by
$30.27, the closing price of the Common Stock on December 31, 2001. The
awards are subject to forfeiture restrictions that lapse as to 60% of the
shares on December 31, 2003, and 20% of the shares on December 31, 2004 and
December 31, 2005.
14
OPTION GRANTS DURING 2002
The following table contains information concerning the grant of stock
options to the Named Executives during fiscal year 2002.
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM(1)
OPTIONS FISCAL YEAR PRICE EXPIRATION ---------------------
NAME GRANTED (#) 2002 ($/SH) DATE 5%($) 10%($)
---- ----------- ------------ -------- ---------- --------- ---------
Walter E. Johnson.................... 20,000 3.13% $27.17 2/6/2012 341,741 866,040
1,800 0.28% $30.46 1/2/2012 34,481 87,382
Paul B. Murphy, Jr. ................. 50,000 7.84% $32.07 6/4/2012 1,008,433 2,555,566
20,000 3.13% $27.17 2/6/2012 341,741 866,040
1,800 0.28% $30.46 1/2/2012 34,481 87,382
Joseph H. Argue III.................. 10,000 1.57% $27.17 2/6/2012 170,871 433,020
Steve D. Stephens.................... 7,000 1.10% $27.17 2/6/2012 119,609 303,114
Randall E. Meyer..................... 10,000 1.57% $27.17 2/6/2012 170,871 433,020
---------------
(1) The amounts shown under these columns are the result of calculations at the
5% and 10% rates required by the Securities and Exchange Commission and are
not intended to forecast future appreciation of the Company's common stock.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information concerning option
exercises during the year ended December 31, 2002 by the Named Executives and
the value of unexercised options held by each of the Named Executives at
December 31, 2002.
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 2002 AT DECEMBER 31, 2002(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Walter E. Johnson......... 337,700 $9,306,787(1) 51,810 53,500 $ 877,150 $205,808
Paul B. Murphy, Jr. ...... 27,800 $ 920,848(1) 161,650 109,500 2,982,521 287,888
Joseph H. Argue III....... 9,000 $ 224,714(1) 69,000 32,000 1,240,525 204,008
Steve D. Stephens......... n/a n/a 33,000 27,000 572,445 150,665
Randall E. Meyer.......... 3,750 $ 0(2) 6,492 19,363 69,118 81,216
---------------
(1) The "value realized" represents the difference between the exercise price of
the option shares and the market price of the option shares on the date of
exercise without considering any taxes that may have been owed.
(2) The exercise of 3,750 Incentive Stock Options was for cash. Stock was not
sold.
(3) The value is based on $29.055 per share, which was the average of the high
and low price reported on The NASDAQ Stock Market on December 31, 2002.
EMPLOYMENT AGREEMENTS
Paul B. Murphy, Jr., Joseph H. Argue III, Steve D. Stephens and Randall E.
Meyer have entered into change in control agreements with the Company. Each
agreement is for a term of three years and automatically renews each year absent
notice to the contrary from the Company. Each agreement provides that upon the
occurrence of a change in control, (i) the agreement is converted into a
three-year employment agreement, which provides for a minimum annual
compensation equal to the employee's current base salary plus the highest annual
cash bonus paid to the employee during the three preceding years, (ii) all stock
options held by the employee become fully exercisable (regardless of whether
then vested) and (iii) all
15
restrictions on any restricted stock granted to the employee shall lapse. Such
change in control agreements also provide that if the employee is thereafter
terminated without cause or the employee terminates his or her employment as a
result of the employer's breach of the agreement, the employee shall be entitled
to receive from the Company a lump-sum severance payment equal to the discounted
present value of the amount of compensation payable under such agreement for the
remainder of the three-year term thereof.
On October 28, 1999, the Company entered into an employment agreement with
Walter E. Johnson, which provided for an annual salary of $400,000 commencing
January 1, 2000 through his 65th birthday, on February 17, 2001. The contract
has been amended to extend his annual salary of $400,000 through February 17,
2003. Thereafter, he receives an annual salary of $300,000 until his 70th
birthday, on February 17, 2006, at which time the contract terminates, unless
terminated earlier pursuant to death, disability, cause or voluntary termination
by Mr. Johnson. Each year of the contract term he is entitled to receive a cash
bonus of up to 60% of his annual salary, determined on a discretionary basis by
the Compensation Committee of the Board of Directors using the same criteria as
that used for other senior executives of the Company. The Company has also
agreed to maintain a $3,031,481 "second to die" life insurance policy on Mr.
Johnson and his spouse and a $4,000,000 "ten-year" term life insurance policy on
Mr. Johnson until termination of the contract. As a condition to the Company's
entering into this employment agreement, Mr. Johnson agreed to terminate his
change in control agreement with the Company, which had the same terms as the
change in control agreements described in the preceding paragraph.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of the directors and executive officers of the Company and their
associates, which include corpora-tions, partnerships and other organizations in
which they are officers or partners or in which they and their immediate
families have at least a 5% interest, are customers of the Bank. During 2002 the
Bank made loans in the ordinary course of business to certain directors and
certain executive officers of the Company and their associates, all of which the
Company believes were on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
persons unaffiliated with the Company and did not involve more than the normal
risk of collectibility or present other unfavorable features. Loans to
directors, executive officers and principal shareholders of the Company (i.e.,
those who own 10% or more of the outstanding shares of Common Stock) are subject
to limitations contained in the Federal Reserve Act, the principal effect of
which is to require that extensions of credit by the Bank to executive officers,
directors and principal shareholders to satisfy the foregoing standards. On
December 31, 2002, all of such term loans aggregated approximately $46.6 million
and the total revolving lines of credit aggregated $73.4 million. The Company
expects to have such transactions or transactions on a similar basis with its
directors, executive officers and principal shareholders and their associates in
the future.
On November 22, 1999, the Bank executed a commitment to invest a total of
$2,000,000 in CapStreet II, L.P. (formerly Summit Capital II, L.P.), a
$250,000,000 private equity fund sponsored and controlled by The CapStreet
Group, LLP (formerly Summit Capital Inc.), a private investment company founded
by Fred R. Lummis. Mr. Lummis is the President of and owns a 50% equity interest
in Summit Capital, Inc. Since inception, the Bank satisfied capital calls
aggregating $1,175,978.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers (as defined in Rule 16a-1(f)), directors, and persons who own more than
10% of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) reports they file. Based solely on its review
of the copies of such reports received by it and representations from certain
reporting persons that they have complied with the relevant filing requirements,
the Company believes that all filing requirements applicable to its officers,
directors and 10% stockholders were complied with during the year ended December
31, 2002, except that Nolan Bedford, David C. Farries, R. John McWhorter,
Randall E. Meyer, Paul B. Murphy, Jr., Steve D. Stephens, and Lane Ward each
made one late filing related to the grant of a restricted stock award.
16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2002, the Compensation Committee of the Board of Directors consisted
of the four directors whose names appear below. This report describes the
elements of the Company's executive officer compensation programs and the basis
on which 2002 compensation determinations were made by the Compensation
Committee with respect to the executive officers of the Company, including the
Named Executives.
COMPENSATION PHILOSOPHY AND OVERALL OBJECTIVES
The goal of the Company's executive compensation policy is to ensure that
executive compensation is linked directly to continuous improvements in
corporate performance and increases in shareholder value, while concurrently
ensuring that key employees are motivated and retained. The following objectives
have been established by the Compensation Committee as guidelines for
compensation decisions:
- The Company must provide a competitive total compensation package that
enables the Company to attract and retain key executives.
- All of the Company's compensation programs must be integrated with its
annual and long-term business objectives so that executives remain
focused on the fulfillment of these objectives.
- The Company's compensation package must include a variable component that
directly links compensation with the overall performance of the Company,
thereby expressly aligning executive compensation with the interest of
shareholders.
The Compensation Committee regularly reviews the Company's compensation
programs to ensure that remuneration levels and incentive opportunities are
competitive and reflect performance. The various components of the compensation
programs for executive officers are discussed below.
BASE SALARY
Base salary levels are largely determined through comparison with banking
organizations of a size similar to the Company. Both local and regional surveys
are utilized to establish base salaries that are within the range of those
persons holding positions of comparable responsibility at other banking
organizations of a size and complexity similar to the Company. Actual base
salaries also are intended to reflect individual performance contributions as
determined through job evaluations. In addition to individual job performance
and the above-referenced market comparisons, other factors may be taken into
consideration, such as cost of living increases as well as an individual's
perceived potential with the Company. All executive officer base salary levels
are considered by the Compensation Committee to be competitive within a
necessary and reasonable range.
It has become the established practice of the Compensation Committee to
review and, if deemed appropriate, adjust the base salaries of the Company's
executive officers on a yearly basis. Due to margin pressures and a weakening
economy, Mr. Murphy recommended to the Compensation Committee that he and other
executive officers receive no salary increase in 2002. The Compensation
Committee accepted his recommendation.
EMPLOYEE STOCK OPTION PLAN
The Company's officers are eligible to participate in the 1996 Stock Option
Plan referred to in this proxy statement. The objective of this Plan (and the
Company's predecessor stock option plans) is to create competitive levels of
compensation tied directly to the attainment of financial objectives which the
Compensation Committee believes are the primary determinants over time of share
price. More specifically, this Plan is designed to foster a systematic
management focus on the corporate goal of consistent and steady earnings growth.
Potential awards for executive officers are intended by the Compensation
Committee to be consistent with incentive bonuses paid by banking companies of a
size similar to that of the Company, provided that actual bonuses remain subject
to increase or decrease on the basis of the Company's actual audited performance
and at the discretion of the Compensation Committee.
17
RESTRICTED STOCK PLAN
In September 2000, the Company engaged an executive compensation consulting
firm to review the Company's total direct compensation program for executive
officers. A primary finding of the consultant's study was that the Company's
long-term incentive awards were less competitive relative to those of other bank
holding companies of similar size. As a remedy for this deficiency, the
Compensation Committee recommended adoption of the Restricted Stock Plan that
links award vesting to both continued employment and the achievement of
multi-year earnings goals of the Company. Restricted Stock awards under the Plan
are intended to produce a fully competitive long-term incentive award program
for executive officers, when combined with the Company's ongoing stock option
grants. If multi-year earnings goals are achieved, the Restricted Stock awards
will vest on an accelerated basis. If the earnings goals are not achieved, the
Restricted Stock awards will fully vest at the end of five years (or such other
period of time specified in the Restricted Stock award) from the date of the
award.
Under the Restricted Stock Plan, implemented in 2001, the Company is
authorized to issue up to 300,000 shares of Common Stock pursuant to "Awards"
granted thereunder. The shares of Common Stock are issued to the participant at
the time the Award is made or at some later date, and the shares are subject to
certain restrictions against disposition and certain obligations to forfeit such
shares to the Company under certain circumstances.
During 2002, the Company granted Awards covering 118,000 shares of Common
Stock. The shares covered by these Awards generally vest over a five year period
commencing on the date of grant, provided, however, that 100% of the shares may
vest earlier if certain performance standards have been met by the Company.
In accordance with APB 25, compensation expense is recognized for the
performance-based Awards granted under the Restricted Stock Plan. The Company
recognized $833,963 of compensation expense in connection with the above Awards
in 2002.
2002 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
In reviewing the 2002 compensation of Paul B. Murphy, Jr., the Company's
Chief Executive Officer and President, the Compensation Committee undertook the
same evaluation set forth above with respect to executive officers. Mr. Murphy's
base salary is reviewed on a yearly basis and most recently was reviewed in
February 2003. His base salary is considered to be reasonable and competitive
based on published compensation surveys and other publicly available
compensation information. His bonus for 2002 performance was determined in
February 2003 based on overall Company performance through December 2002. The
Compensation Committee members were provided data concerning individual
compensation history, executive compensation survey data, and comparative
information concerning performance.
OTHER
The Compensation Committee does not currently intend to award compensation
that would result in a limitation on the deductibility of a portion of such
compensation pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended, other than awards that may be made under the Restricted Stock Plan;
however, the Compensation Committee may in the future decide to authorize other
compensation in excess of the limits of Section 162(m) if it determines that
such compensation is in the best interest of the Company.
Compensation Committee
John B. Brock III, Chairman
J. David Heaney
John W. Johnson
Adolph A. Pfeffer, Jr.
18
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The Stock Performance Graph compares the cumulative shareholder return on
the Common Stock against the cumulative total return of the S&P 500 Stock Index
("S&P Index") and the Keefe Bruyette & Woods 50 Total Return Index (the "KBW
Index") for the period from January 27, 1997 through December 31, 2002. The
graph assumes that $100 was invested on January 27, 1997 in the Common Stock and
the indices, at the initial public offering of the Company's Common Stock of
$8.25 per share and the closing price for the stocks comprising the S&P Index
and the KBW Index, respectively, on such date. The Company's Common Stock began
trading on The NASDAQ Stock Market on January 27, 1997.
The KBW Index is a market-capitalization-weighted index measuring
bank-stock price performance.
TOTAL RETURN PERFORMANCE
[GRAPH]
JANUARY 27, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999 2000 2001 2002
----------- ------------ ------------ ------------ ------------ ------------ ------------
Southwest Bancorporation
of Texas, Inc. ......... $100.00 $188.61 $216.67 $240.15 $520.46 $366.91 $349.21
S&P 500................... $100.00 $126.85 $160.65 $192.03 $172.59 $150.08 $115.01
KBW 50 Total Return
Index................... $100.00 $146.19 $158.29 $152.80 $177.89 $110.02 $ 99.60
19
AUDIT COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate this proxy statement or future
filings with the Securities and Exchange Commission, in whole or in part, the
following report shall not be deemed to be incorporated by reference into any
such filing.
During 2002, the Audit Committee of the Board of Directors consisted of the
five directors whose names appear below. Each member of the Audit Committee is
"independent" as defined in Rule 4200(a)(14) of the National Association of
Securities Dealers' listing standards and as further defined by recent statutory
and rule changes. See the discussion entitled "Corporate Governance and
Additional Disclosures" under Item 1.
The Audit Committee's general role as an audit committee is to assist the
Board of Directors in overseeing the Company's financial reporting process and
related matters. During 2002, the Audit Committee operated under a written
charter, a copy of which was included in the Company's Proxy Statement dated
March 16, 2001 for its Annual Meeting of Shareholders held on April 25, 2001. A
new Audit Committee charter was adopted by the Board of Directors in January
2003. The new charter, a copy of which is attached as Exhibit A to this proxy
statement, imposes on the Audit Committee the duties and responsibilities
imposed upon audit committees generally by recent statutory and rule changes.
During much of 2002, the Audit Committee undertook the performance of many of
those duties.
The Audit Committee has reviewed and discussed with the Company's
management and PricewaterhouseCoopers LLP, the Company's independent auditors,
the audited financial statements of the Company contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
The Audit Committee has also discussed with the Company's independent
auditors the matters required to be discussed pursuant to SAS 61 (Codification
of Statements on Auditing Standards, Communication with Audit Committees). The
Audit Committee has received and reviewed the written disclosures and the letter
from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (titled, "Independence Discussions with Audit Committees"), and
has discussed with PricewaterhouseCoopers LLP such independent auditors'
independence. The Audit Committee has also considered whether the provision of
non-audit services to the Company by PricewaterhouseCoopers LLP is compatible
with maintaining their independence.
Based on the review and discussion referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
This report is submitted on behalf of the Audit Committee.
J. David Heaney, Chairman
John B. Brock III
Andres Palandjoglou
Wilhelmina E. Robertson
Stanley D. Stearns, Jr.
ITEM 2.
APPOINTMENT OF AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors appointed PricewaterhouseCoopers LLP, independent public accountants,
to audit the consolidated financial statements of the Company for the year
ending December 31, 2003. PricewaterhouseCoopers LLP has audited the Bank's
financial statements since 1983 and the Company's consolidated financial
statements since its inception in 1996. The Company is advised that no member of
PricewaterhouseCoopers LLP has any direct or material indirect financial
interest in the Company, or, during the past three years, has had any connection
with the Company in the capacity of promoter, underwriter, voting trustee,
officer or employee.
20
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THIS APPOINTMENT.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will
be offered the opportunity to make a statement if such representative desires to
do so and will be available to respond to appropriate questions.
AUDIT FEES
PricewaterhouseCoopers LLP has billed the Company $240,700 for professional
services rendered by them for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2002.
ALL OTHER FEES
The aggregate fees for non-audit services rendered by
PricewaterhouseCoopers LLP to the Company for the fiscal year ended December 31,
2002, was $79,570. Those fees were for work related to regulatory compliance,
reviews of the interim quarterly financial statements filed on Form 10-Q,
accounting consultations and reporting assistance provided in connection with
filings made under the Securities Exchange Act of 1933. The Audit Committee of
the Company's Board of Directors has considered whether the rendering of such
non-audit services by PricewaterhouseCoopers LLP is compatible with maintaining
the principal accountant's independence and concluded that no conflicts exist.
ITEM 3.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the person voting the proxy.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2004 Annual
Meeting must be received by the Company at its principal executive office by
November 17, 2003, in order for such proposals to be included in the Company's
proxy statement and form of proxy for such meeting. Shareholders submitting such
proposals are requested to address them to the Secretary, Southwest
Bancorporation of Texas, Inc., 4400 Post Oak Parkway, Houston, TX 77027.
In addition, the Company's Bylaws provide that only such business that is
properly brought before the Annual Meeting will be conducted. For business to be
properly brought before the meeting or nominations of persons for election to
the Board of Directors to be properly made at the Annual Meeting by a
shareholder, notice must be received by the Secretary at the Company's offices
not later than the close of business on the 120th day prior to the anniversary
date of the immediately preceding Annual Meeting; provided, however, that in the
event that the date of the Annual Meeting is more than 30 days before such
anniversary date, such notice must be so delivered not later than the close of
business on the 10th day following the day on which public disclosure of the
date of such meeting is first made by the Company. Such notice to the Company
must also provide certain information set forth in the Bylaws. A copy of the
Bylaws may be obtained upon written request to the Secretary.
21
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Paul B. Murphy
Paul B. Murphy Jr.
Chief Executive Officer and
President
Houston, Texas
March 20, 2003
22
SOUTHWEST BANCORPORATION OF TEXAS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors ("the Board") of
Southwest Bancorporation of Texas, Inc. ("the Company") to assist the Board in
fulfilling its oversight responsibilities. The Audit Committee also functions as
the Audit Committee of the Board of Directors of the Company's subsidiary,
Southwest Bank of Texas, N.A. (the "Bank"). References to the Company in this
Charter also include the Bank and all other direct and indirect subsidiaries of
the Company. The Audit Committee's primary duties and responsibilities are to:
- Assist the Board in fulfilling its oversight responsibility relating to
the integrity of the Company's financial statements, financial reporting
process, disclosure controls and procedures, and internal controls
regarding finance, accounting, information technology, regulatory, and
legal and ethical compliance.
- Monitor the qualifications, independence, and performance of the
Company's independent auditors, Internal Audit Department, and Compliance
Department.
- Provide an avenue of communication among the independent auditors,
management, Internal Audit Department, Compliance Department, and the
Board.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors, to all persons in the organization, and to all books,
records, and facilities. The Audit Committee has the ability to retain, at the
Company's expense, such special legal, accounting, and other consultants and
experts as it deems necessary in the performance of its duties.
AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Audit Committee shall be composed of three or more directors as
determined by the Board, none of whom shall be executive officers or employees
of the Company, and all of whom shall satisfy the independence, experience, and
financial expertise requirements of the Securities Exchange Act of 1934, the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, and any NASDAQ
listing standards pertaining to corporate governance. No member of the Audit
Committee may receive, directly or indirectly, any compensation from the Company
other than compensation for service as a director and member of the Audit
Committee and other Board committees. At least one member of the Audit Committee
must be an "audit committee financial expert," as defined by rules promulgated
by the SEC or NASDAQ. No member of the Audit Committee shall simultaneously
serve on the audit committees of more than two other public companies.
Audit Committee members and the Chair of the Audit Committee shall be
appointed by the Board, considering the recommendation of the Governance and
Nominating Committee. If an Audit Committee Chair is not designated or present,
the members of the Audit Committee may designate a Chair by majority vote of the
Audit Committee membership. The members shall serve until their resignation,
retirement, or removal by the Board. No member of the Audit Committee shall be
removed except by majority vote of the independent directors of the Board, after
considering the recommendation of the Governance and Nominating Committee.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall prepare
and/or approve an agenda in advance of each meeting. The Audit Committee should
meet privately in separate executive sessions at least annually with management,
the Internal Auditor, the Compliance Manager, the independent auditors, and as a
committee to discuss any matters that the Audit Committee or any of these groups
believe should be discussed.
SOUTHWEST BANCORPORATION OF TEXAS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS --(CONTINUED)
AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least annually.
Submit this Charter to the Board for approval annually and cause the Charter to
be publicly disclosed in accordance with SEC regulations.
2. Review and discuss with management and the independent auditors the
Company's annual audited financial results prior to the filing of the Company's
annual financial statements with Form 10-K, including disclosures made in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Discuss any significant changes to the Company's accounting
practices and any items requires to be communicated by the independent auditors
in accordance with AICPA SAS 61 or under the Securities Exchange Act of 1934.
3. Review and discuss with management and the independent auditors the
Company's quarterly financial results prior to the filing of the Company's
quarterly financial statements with Form 10-Q, including disclosures made in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Discuss any significant changes to the company's accounting
practices and any items required to be communicated by the independent auditors
in accordance with AICPA SAS 61.
4. Review and discuss with management earnings press releases and financial
information and earnings guidance provided to analysts and rating agencies. This
review and discussion may concern only general and procedural matters, such as
the types of information to be disclosed and the types of presentations to be
made. The Audit Committee need not discuss in advance each earnings release or
each instance in which the Bank provided earnings guidance. The Chair of the
Audit Committee may represent the entire Audit Committee for purposes of the
review of press release and similar matters.
5. In consultation with management, the independent auditors, and the
internal auditors, review management's periodic evaluations of the Company's
financial reporting processes and controls, including disclosure controls and
procedures and internal controls, and all reports or attestations of the
independent auditors on the Company's internal controls. Review significant risk
exposures identified in such reports and the steps management has taken to
monitor, control, and report such exposures. Review significant findings
prepared by the independent auditors and the Internal Audit Department together
with management's responses.
6. Review with the Chief Executive Officer/President, the Chief Financial
Officer, financial and other relevant management, and the independent auditors
the Company's annual and quarterly certifications as required by applicable
regulations. Discuss (1) any significant deficiencies identified to the Audit
Committee in the design or operation of financial accounting, reporting,
disclosure controls and procedures, and internal controls, (2) the process used
by the officers to certify the annual and quarterly reports, (3) any material
issues or risk exposures identified during the certification process, and (4)
the steps management has taken to monitor, control, and report such exposures
and control deficiencies.
7. Review the Company's disclosures, if and to the extent they are required
by law or applicable rules promulgated by the SEC or NASDAQ, as to the inclusion
of at least one financial expert as a member of the Audit Committee and as to
disclosure controls and procedures and internal controls.
INDEPENDENT AUDITORS
8. The independent auditors are accountable to the Audit Committee. The
Audit Committee shall review and evaluate the independence and performance of
the auditors and annually engage independent auditors and discharge the auditors
when circumstances warrant. The independent auditors shall report directly to
the Audit Committee.
SOUTHWEST BANCORPORATION OF TEXAS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS --(CONTINUED)
9. In conjunction with the review and evaluation of the independent
auditors, review and evaluate the lead partner of the independent auditors. In
making its evaluation, the Audit Committee may take into account the opinions of
management and the Company's Internal Auditor. The Audit Committee shall present
to the Board at least annually its evaluation of the independent auditors and
the lead partner.
10. Approve all fees and other compensation (subject to de minimis
exceptions as defined by law for non-audit services) to be paid to the
independent auditors.
11. Pre-approve all audit and non-audit services (subject to de minimis
exceptions as defined by law for non-audit services) provided by the independent
auditors in accordance with applicable regulations. The Audit Committee may
delegate its authority to pre-approve non-audit services to one or more
designated Audit Committee members. The decisions of the designated member(s)
shall be presented to, and ratified by, the full Audit Committee at the next
subsequent meeting.
12. At least annually, review and discuss with the independent auditors all
relationships they have with the Company, including the provisions of non-audit
services, and the necessity for rotation of independent auditor personnel.
13. On an annual basis,, in conjunction with commencement of the annual
audit, review the independent auditor's audit plan and consider its scope,
staffing, reliance upon management and internal audit functions, general audit
approach, and the methods, practices,and policies governing the audit work.
14. Prior to releasing the annual audit report, discuss the results of the
audit with the independent auditors. Discuss all matters required to be
communicated to audit committees by the independent auditors in accordance with
AICPA SAS 61. Review with the independent auditors any audit problems,
differences, or difficulties encountered in the course of the audit and
management's response.
15. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
16. Receive quarterly reports, and other reports if requested by the Audit
Committee from time to time, from the independent auditors concerning, and
review with them (i) the critical accounting policies and practices of the
Company and (ii) all alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management and the ramifications and preferred treatment of such information.
Direct the independent auditors to provide to the Audit Committee, at the time
they are sent to management, all material written communications between the
independent auditors and management.
17. At least annually, obtain, and review a report by the independent
auditors describing (1) the independent auditors' internal quality-control
procedures, (2) any material issues raised by the most recent internal
quality-control review or peer review of the independent auditors or by any
inquiry or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by
the independent auditors, and any steps taken to deal with any such issues, and,
(3) to assess the auditors' independence, all relationships between the
independent auditors and the Company.
18. Establish policies concerning the employment of employees and former
employees of the independent auditors, including policies addressing legal
requirements.
INTERNAL AUDIT DEPARTMENT, COMPLIANCE DEPARTMENT, AND LEGAL COMPLIANCE
19. Review the budget, audit plans, changes in audit plans, activities,
organizational structure, and qualifications of the Internal Audit Department
and Compliance Department, as needed.
20. Review and approve management recommendations concerning the
appointment, performance, compensation, and replacement of the Internal Auditor
and the Compliance Manager.
SOUTHWEST BANCORPORATION OF TEXAS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS --(CONTINUED)
21. Review significant findings and reports prepared by the Internal Audit
Department and Compliance Department together with management's response and
follow-up to these findings and reports.
22. Confirm that periodic reviews of the Company's Enterprise Risk
Management System, its results, and its procedures are conducted by the Internal
Audit Department, independent auditors, or others as appropriate, and that the
results of these reviews are discussed with the Board or an appropriate Board
committee.
23. At least annually, review with the Company's Compliance Manager,
General Counsel, and outside counsel as appropriate, any legal matters brought
to the Audit Committee's attention that could have a significant impact on the
Company's financial statements, the Company's compliance with applicable laws
and regulations, breaches of fiduciary duty or similar violations by Company
employees, and any material inquiries received from regulators or governmental
agencies relating to matters that could have a significant impact on the
Company's financial statements.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
24. Serve as the Fiduciary Audit Committee of the Bank and perform the
duties required of fiduciary audit committees by Section 9.9 of Part 9, Code of
Federal Regulations, any other applicable laws, rules, or regulations.
25. Establish procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls, or auditing matters. Establish procedures for the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
26. Annually prepare a report to the shareholders as required by the
Securities and Exchange Commission to be included in the Company's annual proxy
statement.
27. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Audit Committee or the Board deems
necessary or appropriate.
28. Maintain minutes of meetings and regularly report to the Board on
significant aspects of its activities.
29. Annually review and evaluate the performance of the Audit Committee and
confirm that all members are financially literate and that at least one member
is an "audit committee financial expert," as required by law and applicable
stock exchange rules.
30. Periodically require each member to certify that he or she meets the
independence requirements prescribed by law and applicable stock exchange rules,
including the fact that he or she has received no compensation from the Company
other than director and Board committee fees.
LIMITATIONS ON AUDIT COMMITTEE ROLES AND RESPONSIBILITY
Although the Audit Committee has the oversight responsibilities and powers
set forth in this Charter, it does not have a duty to prepare financial
statements, plan or conduct audits, or determine that the Company's financial
statements and disclosures are complete and accurate and in accordance with
generally accepted accounting principles or laws and regulations. Those are the
duties and responsibilities of management and the independent auditors.
PROXY SOUTHWEST BANCORPORATION OF TEXAS, INC. PROXY
PROXY FOR 2003 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOUTHWEST BANCORPORATION OF TEXAS, INC.
The undersigned hereby appoints Walter E. Johnson, John W. Johnson and Paul B.
Murphy, Jr., and each of them, with or without the others, with full power of
substitution, to vote all shares of stock that the undersigned is entitled to
vote at the 2003 Annual Meeting of Shareholders of Southwest Bancorporation of
Texas, Inc. (the "Company"), to be held at the Company's Boardroom, 4400 Post
Oak Parkway, Houston, Texas, on April 23, 2003, at 3:00 p.m. (Houston time) and
all adjournments and postponements thereof as follows:
Item 1 [ ] For All Nominees
Election of Directors
01 John B. Brock III [ ] Withhold Authority For All Nominees
02 J. David Heaney To withhold authority to vote for any
03 Andres Palandjoglou nominee print the names of such
04 Stanley D. Stearns, Jr. nominees on the space provided below.
05 Barry M. Lewis
_____________________________________
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 2
Proposal to ratify the selection of
PricewaterhouseCoopers LLP as the [ ] FOR [ ] AGAINST [ ] ABSTAIN
Company's independent accountants for
the year ending December 31, 2003.
Item 3
In their discretion, upon any other
business as may properly come before
said meeting.
This Proxy will be voted as you specify above. If no specification is made, the
Proxy will be voted with respect to item (1) FOR the nominees listed, with
respect to item, (2) FOR ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants for the year ending
December 31, 2003. The undersigned hereby acknowledges receipt of the Notice of
the 2003 Annual Meeting and related Proxy Statement and the Company's 2002
Annual Report to Shareholders.
Date: ________________________________________, 2003
____________________________________________________
Signature
____________________________________________________
Signature if held jointly
Note: Joint owners must each sign. Please sign
your name exactly as it appears on your stock
certificate. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title. If held by a corporation, please sign
in the full corporate name by the president or
other authorized officer.
______________________________FOLD AND DETACH HERE______________________________
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VOTE TELEPHONE OR INTERNET
--
--------------------------
Your Telephone or Internet vote authorizes
the named proxies to vote your shares in the same manner as if you have
marked, signed and returned your proxy card.
--------------------------------------------------------------------------------
TO VOTE BY TELEPHONE: Call the toll free number listed below. You will be asked
to enter a CONTROL NUMBER located at the bottom of this
form.
--------------------------------------------------------------------------------
OPTION A: To vote as the Board of Directors recommends on ALL proposals:
Press 1
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OPTION B: If you choose to vote on each item separately, Press 0. You will hear
these instructions:
Item 1: To vote FOR ALL nominees, press 1; To WITHHOLD FOR ALL nominees,
press 9; To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen
to the instructions.
Item 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0. The
instructions are the same for all remaining items to be voted.
WHEN ASKED, YOU MUST CONFIRM YOUR VOTE BY PRESSING 1.
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TO VOTE BY INTERNET: Connect to the Website listed below: You will be asked to
enter a control number which is located at the bottom of this form. Then follow
the instructions. THE WEBSITE for voting is www.proxyvoting.com/swbanktx
--------------------------------------------------------------------------------
IF YOU VOTE BY TELEPHONE OR INTERNET DO NOT MAIL IN THE PROXY CARD.
THANK YOU FOR VOTING!
-----------------------------
CALL **TOLL FREE** 1-800-676-5925 ON A CONTROL NUMBER
TOUCH-TONE TELEPHONE - ANYTIME. THERE IS For Telephone/Internet voting
NO CHARGE TO YOU FOR THIS CALL -----------------------------