Share-Based Compensation Plans

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION PLANS

Summary

During 2019, the shareholders of Customers Bancorp approved the 2019 Plan, during 2010, the shareholders of Customers Bancorp approved the 2010 Plan, and during 2012, the shareholders of Customers Bancorp approved the 2004 Plan. The purpose of these plans is to promote the success and enhance the value of Customers Bancorp by linking the personal interests of the members of the Board of Directors, team members, officers and executives of Customers to those of the shareholders of Customers and by providing such individuals with an incentive for outstanding performance in order to generate superior returns to shareholders of Customers. The 2019 Plan, 2010 Plan and 2004 Plan are intended to provide flexibility to Customers in its ability to motivate, attract and retain the services of members of the Board of Directors, team members, officers and executives of Customers. Stock options and restricted stock units normally vest on the third or fifth anniversary of the grant date provided the grantee remains employed by Customers or continues to serve on the Board. With respect to certain stock options granted under the 2010 Plan, vested options shall be exercisable only when Customers' fully diluted tangible book value will have increased by 50% from the date of grant. Share-based awards generally provide for accelerated vesting if there is a change in control (as defined in the respective plan agreements). No stock options may be exercisable for more than 10 years from the date of grant.

The 2019, 2010 and 2004 Plans are administered by the Compensation Committee of the Board of Directors. The 2019 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to team members, stock appreciation rights, restricted stock, restricted stock units and unrestricted stock to team members, officers, executives, members of the Board of Directors, consultants, and advisors. During the year ended December 31, 2022, the shareholders of Customers Bancorp approved an amendment to the 2019 Plan increasing the number of shares of common stock to be issued by additional 330,000 shares. The maximum number of shares of common stock which may be issued under the 2019 Plan, as amended, is 1,830,000 shares. The 2010 Plan provides exclusively for the grant of stock options, some or all of which may be structured to qualify as Incentive Stock Options, to team members, officers and executives. The maximum number of shares of common stock which may be issued under the 2010 Plan is 3,666,667 shares. The 2004 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to team members, stock appreciation rights, restricted stock, restricted stock units and unrestricted stock to team members, officers, executives and members of the Board of Directors. The maximum number of shares of common stock which may be issued under the 2004 Plan is 2,750,000 shares. During the year ended December 31, 2020, Customers granted an initial inducement award of 300,000 restricted stock units in connection with an executive appointment, outside of the 2019 and 2004 Plans and approved by the independent members of Customers Board of Directors including all of the members of its Compensation Committee. The 2010 and 2004 Plans have been terminated by December 31, 2021 in accordance with the respective plan agreements. At December 31, 2022, the aggregate number of shares of common stock available for grant under the 2019 Plan was 540,524 shares.

On January 1, 2011, Customers initiated a bonus recognition and retention program ("BRRP"). This was a restricted stock unit plan. Team members eligible to participate in the BRRP included the CEO and other senior management and highly compensated team members as determined by the Compensation Committee at its sole discretion. Under the BRRP, a participant elected to defer not less than 25%, nor more than 50%, of his or her bonus payable with respect to each year of participation. Shares of common stock having a value equal to the portion of the bonus deferred by a participant were allocated to an annual deferral account, and a matching amount equal to an identical number of shares of common stock was also allocated to the annual deferral account. A participant becomes 100% vested in the annual deferral account on the fifth anniversary date of the initial funding of the account, provided he or she remains continuously employed by Customers from the date of funding to the anniversary date. Customers discontinued the BRRP in 2019, upon receipt of shareholder approval of the 2019 Plan.

Vesting is accelerated in the event of involuntary termination other than for cause, retirement at or after age 65, death, termination on account of disability or a change in control of Customers. Participants were first eligible to make elections under the BRRP with respect to their bonuses for 2011, which were payable in first quarter 2012. The BRRP did not provide for a specific number of shares to be reserved; by its terms, the award of restricted stock units under this plan is limited by the amount of cash bonuses paid to the participants in the plan. At December 31, 2022, non-vested restricted stock units outstanding under this plan totaled 5,188.

Share-based compensation expense relating to stock options and restricted stock units is recognized on a straight-line basis over the vesting periods of the awards and is a component of salaries and employee benefits expense. Total share-based compensation expense for the years ended December 31, 2022, 2021 and 2020 was $11.0 million, $12.6 million and $11.6 million, respectively. At December 31, 2022, there was $15.9 million of unrecognized compensation cost related to all non-vested share-based compensation awards. This cost is expected to be recognized through 2026.

As described in NOTE 3 – DISCONTINUED OPERATIONS, Customers recognized share-based compensation expense of $0.8 million for restricted stock units granted to certain team members of BMT that vested upon divestiture of BMT, included within loss from discontinued operations for the year ended December 31, 2021.

Employee Stock Purchase Plan

In 2014, the shareholders of Customers Bancorp approved the ESPP. The ESPP is intended to encourage team member participation in the ownership and economic progress of Customers. This plan is intended to qualify as an ESPP within the meaning of the Internal Revenue Code and is administered by the Compensation Committee of Customers Board of Directors.

Under the ESPP, team members may elect to purchase shares of Customers' common stock through payroll deductions. Because the purchase price under the plan is 85% of the fair market value of a share of common stock on the first day of each quarterly subscription period (a 15% discount to the market price), Customers' ESPP is considered to be a compensatory plan under current accounting guidance. Therefore, the entire amount of the discount is recognizable compensation expense. ESPP expense for the years ended December 31, 2022, 2021 and 2020 was $192 thousand, $115 thousand, and $140 thousand, respectively.

Stock Options

Customers estimated the fair value of each option on the date of grant generally using the Black-Scholes option pricing model. The risk-free interest rate was based upon the zero-coupon Treasury rates in effect on the grant date of the options based on the expected life of the option. Expected volatility was based on historical information. Expected life was management’s estimate which took into consideration the vesting requirement, generally three or five years.

The exercise price for the options granted was equal to the closing price of Customers Bancorp's common stock on the date of grant. The options issued are subject to a three or five-year waterfall or cliff vesting and expire after ten years. No options were granted to officers and team members to purchase shares of Customers Bancorp common stock during the year ended December 31, 2022. During the year ended December 31, 2021, options to purchase an aggregate of 720,000 shares of Customers Bancorp voting common stock were granted to certain officers and team members. The exercise price for the options granted was equal to the closing price of Customers Bancorp's voting common stock on the date of grant. The options issued are subject to a five-year cliff vesting and expire after ten years. No options were granted to officers and team members to purchase shares of Customers Bancorp common stock during the year ended December 31, 2020.

The following table presents the weighted-average assumptions used and the resulting weighted-average fair value of each option granted for the years ended December 31, 2022, 2021 and 2020.


	For the Years Ended December 31,
	2022			2021			2020
Weighted-average risk-free interest rate	—		%	1.09		%	—		%
Expected dividend yield	—		%	0.00		%	—		%
Weighted-average expected volatility	—		%	41.78		%	—		%
Weighted-average expected life (in years)	0			7.0			0
Weighted-average fair value of each option granted	$	—		$	13.24		$	—

The following table summarizes stock option activity for the year ended December 31, 2022:


(dollars in thousands, except weighted-average exercise price)	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding, December 31, 2021	1,523,481	$	26.37
Granted	—	—
Exercised	(29,468)	18.22			$	800
Expired	—	—
Forfeited	(5,431)	19.28
Outstanding, December 31, 2022	1,488,582	$	26.56	6.0	$	3,777
Exercisable at December 31, 2022	865,156	$	24.39	4.5	$	3,429

Cash received from the exercise of the stock options during the year ended December 31, 2022 was $0.5 million. The tax benefit resulting from option exercises was $0.1 million in 2022.

A summary of the status of Customers' non-vested options at December 31, 2022, and changes during the year ended December 31, 2022 was as follows:


	Number of Options	Weighted- Average exercise price
Non-vested at December 31, 2021	1,329,125	$	27.69
Granted	—	—
Vested	(705,699)	26.02
Expired	—	—
Forfeited	—	—
Non-vested at December 31, 2022	623,426	29.58

Restricted Stock Units

The fair value of restricted stock units granted under the 2019 and 2004 Plans is determined based on the closing market price of Customers' common stock on the date of grant, except for the performance based restricted stock units with market conditions under a long-term incentive compensation plan discussed below. The fair value of the performance based restricted stock units with market conditions is determined using the Monte-Carlo simulation model as of the date of grant. The fair value of restricted stock units granted under the BRRP was measured as of the date on which such portion of the bonus would have been paid had the deferral not been elected.

Beginning in 2018, the Compensation Committee recommended and the Board of Directors approved a new long-term incentive compensation plan which incorporates performance metrics into the restricted stock awards for certain of Customers' key officers. Specifically, 40% of the restricted stock units granted as long term incentive compensation will vest ratably over three years. The number of restricted stock units that will vest for the remaining 60% is dependent upon Customers meeting certain performance metrics, including total shareholder return, return on average common equity, and average non-performing assets ("NPAs") to total assets over a three-year period relative to the performance of its peer group. The performance conditions are considered probable.

There were 175,299 restricted stock units granted during the year ended December 31, 2022. The 175,299 units were granted under the 2019 Plan and are subject to either a three-year waterfall vesting (with one third of the amount vesting annually) or a three-year cliff vesting, with 25,215 of those units also subject to the performance metrics described above.

The table below presents the status of the restricted stock units at December 31, 2022, and changes during the year ended December 31, 2022:


	Restricted Stock Units	Weighted- Average Grant- Date Fair Value
Outstanding and unvested at December 31, 2021	926,244	$	22.16
Granted	175,299	50.07
Vested	(288,325)	23.11
Forfeited	(35,065)	32.11
Outstanding and unvested at December 31, 2022	778,153	27.39

Customers has a policy that permits its directors to elect to receive shares of common stock in lieu of their cash retainers. During the year ended December 31, 2022, Customers issued 39,173 shares of common stock with a fair value of $1.6 million to the directors as compensation for their services. The fair values were generally determined based on the closing price of the common stock the day before the shares were issued.