SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Check the appropriate box:
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
First Republic Bancorp Inc.
............................................................................
(Name of Registrant as Specified in its Charter)
First Republic Bancorp Inc.
............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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[ ] $500 per each party to the controversy pursuant to Exchange Act
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
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Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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<PAGE>
388 Market Street
San Francisco, California 94111
(415) 392-1400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 4, 1995
----------------------
TO THE STOCKHOLDERS OF FIRST REPUBLIC BANCORP INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of First
Republic Bancorp Inc., a Delaware corporation ("First Republic"), will be held
on Thursday, May 4, 1995, at 1:00 PM Eastern Time, at the New York Yacht Club,
37 West 44th Street, New York, NY 10036 for the following purposes:
1. To elect three directors to First Republic's Board of Directors, each
to hold office for a three year term; and
2. To approve the grant of Performance-Based Contingent Stock Options for
an aggregate of 350,000 shares of First Republic's Common Stock; and
3. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors of First Republic and its subsidiaries for the year ending
December 31, 1995; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record on March 22, 1995, shall be entitled to notice of and
to vote at the Annual Meeting.
By Order of the Board of Directors
James H. Herbert, II, President
San Francisco, California
March 29, 1995
EACH STOCKHOLDER IS CORDIALLY INVITED TO ATTEND AND TO VOTE AT THE ANNUAL
MEETING IN PERSON. HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POSTPAID ENVELOPE. THE EXECUTION OF YOUR PROXY WILL
NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
FIRST REPUBLIC BANCORP INC.
388 Market Street
San Francisco, California 94111
(415) 392-1400
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 1995
----------------------
This Proxy Statement refers to proxies solicited by the Board of Directors of
First Republic Bancorp Inc., a Delaware corporation ("First Republic" or the
"Company"), for use at the Annual Meeting of Stockholders to be held on
Thursday, May 4, 1995, 1:00 PM Eastern Time, at the New York Yacht Club,
37 West 44th Street, New York, NY 10036, and at any adjournments or
postponements thereof (the "Meeting"), for the purpose of considering and
acting upon the matters specified in the accompanying Notice of Annual Meeting
of Stockholders. This Proxy Statement, the Notice of Annual Meeting of
Stockholders and the accompanying Form of Proxy is being sent to stockholders
on or about March 30, 1995.
The close of business on March 22, 1995, has been designated as the record date
for the determination of stockholders entitled to notice of and to vote at the
Meeting. On March 10, 1995, 7,399,938 shares of First Republic's Common Stock,
par value $.01 per share (the "Common Stock"), were outstanding and entitled to
vote.
Stockholders will be entitled to one vote for each share of Common Stock held
by them of record at the close of business on the record date on any matter
that may be presented for consideration and action by the stockholders at the
Meeting.
All shares represented by properly executed, unrevoked proxies received in time
for the Meeting will be voted in accordance with instructions specified
therein. In the absence of appropriate instructions to the contrary, shares
represented by executed proxies will be voted in favor of the election of
Management's nominees to the Board of Directors, in favor of the grant of
Performance-Based Contingent Stock Options for an aggregate of 350,000 shares
of First Republic's Common Stock, in favor of ratification of the selection of
KPMG Peat Marwick LLP as the independent auditors of First Republic for the
fiscal year ending December 31, 1995 and in accordance with the best judgment
of the proxy holders with respect to any other matters which may properly come
before the 1995 Annual Meeting. Any proxy may be revoked at any time prior to
being voted by filing a written notice of revocation with the Secretary of
First Republic, by presentation of a proxy of later date or by voting at the
Meeting in person. Abstentions and broker non-votes are counted for the purpose
of
1
<PAGE>
determining the presence or absence of a quorum for the transaction of
business, but will not be treated as having voted for purposes of determining
the outcome of a vote.
The cost of soliciting proxies will be paid by First Republic. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to forward proxy materials to the beneficial owners of First
Republic's Common Stock, and such persons will be reimbursed for their
reasonable expenses. Proxies may be solicited by directors, officers and
regular employees of First Republic in person, by telephone or by telegraph for
which such persons will receive no special compensation.
Principal Stockholders
The following table sets forth the beneficial ownership of the Common Stock
of First Republic as of March 10, 1995 by (i) each person known to First
Republic to own more than five percent of such securities, (ii) all members of
the Board of Directors of First Republic, and (iii) all directors and officers
of First Republic as a group. The number of outstanding shares of Common Stock
of First Republic, as of March 10, 1995, was 7,399,938.
<TABLE>
<CAPTION>
Amount & Nature of
Beneficial Ownership(1)(2) Percent of Class
-------------------------- ----------------
<S> <C> <C>
Tiger Management Corporation and
Affiliates (3) 760,280 10.3%
101 Park Avenue
New York, NY 10178
James H. Herbert, II (4) 671,105 8.5%
Dimensional Fund Advisors and Affiliates (3) 583,996 7.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Harbor Capital Management Company, Inc. (3) 562,989 7.6%
125 High Street, 26th Floor
Boston, MA 02110
Katherine August-deWilde (4) 269,382 3.5%
Barrant V. Merrill (4) 129,603 1.8%
Kenneth W. Dougherty (4) 70,636 0.9%
First Republic Bancorp Inc. 67,154 0.9%
Employee Stock Ownership Plan (5)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amount & Nature of
Beneficial Ownership(1)(2) Percent of Class
-------------------------- ----------------
<S> <C> <C>
James F. Joy (4) 62,530 0.8%
Frank J. Fahrenkopf, Jr. 58,005 0.8%
L. Martin Gibbs 52,040 0.7%
Richard Cox-Johnson (4) 45,414 0.6%
Roger O. Walther (4) 45,193 0.6%
John F. Mangan 31,821 0.4%
All Directors and Officers as a
Group (Currently 14 persons) 1,425,272 16.7%
- -----------
</TABLE>
(1) The information as to beneficial ownership of Common Stock by officers and
directors has been furnished by the respective officers and directors of
First Republic and, except as otherwise indicated, percentage ownership is
determined by assuming that any presently exercisable options owned by such
person have been exercised by such person and not by any other person.
Included, where applicable, are shares issuable upon exercise of currently
vested options as follows: Mr. Herbert-491,474 shares; Ms. August-deWilde-
208,911 shares; Mr. John F. Mangan-31,821 shares; all other directors-
36,821 shares each; all directors and officers as a group-1,136,382 shares.
In addition, 4,388 shares have been included as owned by Ms. August-deWilde
to reflect shares issuable upon conversion of an aggregate of $60,000 in
principal amount of First Republic's 7-1/4% Convertible Subordinated
Debentures, due 2002, directly and indirectly beneficially owned by Ms.
August-deWilde and 4,024 shares have been included as owned by Mr. Herbert
to reflect shares issuable upon conversion of an aggregate of $55,000 in
principal amount of First Republic s 7-1/4% Convertible Subordinated
Debentures, due 2002.
(2) Based solely on its review of the copies of reports of ownership and
changes in ownership provided to First Republic by certain reporting
persons pursuant to Section 16(a) of the Securities Exchange Act of 1934,
or written representations from certain reporting persons, First Republic
believes that during the 1994 fiscal year all Section 16(a) filing
requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
(3) Information with respect to Tiger Management Corporation has been obtained
from Amendment No. 3 to its Schedule 13G, filed with the SEC on
February 10, 1995 which indicates that the number of shares of First
Republic beneficially owned by Tiger Management Corporation, together with
shares beneficially owned by an affiliate, totalled 760,280; information
with respect to Dimensional Fund Advisors, Inc. ("Dimensional") has been
obtained from Amendment No. 1 to its Schedule 13G, filed with the SEC on
January 30, 1995 on behalf of Dimensional Fund
3
<PAGE>
Advisors, Inc. and certain affiliated entities; and information with
respect to Harbor Capital Management Company, Inc. has been obtained from
Amendment No. 2 to its Schedule 13G filed with the SEC on March 8, 1995.
Of the shareholders for which Schedules 13G were filed, Tiger Management
Corporation and Harbor Capital Management Company Inc. each indicated
shared voting rights and shared power to dispose with respect to shares
owned by them. Dimensional, a registered investment advisor, is deemed to
have beneficial ownership of the shares, all of which shares are held in
portfolios of (i) DFA Investment Dimensions Group Inc., a registered
open-end investment company, or (ii) in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans (all of which Dimensional serves as investment manager);
Dimensional disclaims beneficial ownership of all such shares.
(4) Includes shares attributed to: Mr. Herbert from his children (8,554
shares); Ms. August-deWilde from (i) her spouse (5,713 shares) and
(ii) her children (400 shares); Mr. Merrill from (i) his wife (43,761
shares), (ii) his children (3,713 shares), and (iii) a trust for his wife
(8,487 shares); Mr. Dougherty from his wife and children (9,282 shares);
Mr. Joy from his wife and children (25,709 shares); Mr. Cox-Johnson from
a family trust (3,289 shares); and Mr. Walther from his wife (3,312
shares).
(5) Shares attributed to the First Republic Bancorp Employee Stock Ownership
Plan (the "ESOP") represent shares not yet allocated to individual
participants in the ESOP. ESOP shares that have been allocated are voted
by the individual and are included in the beneficial ownership calculations
for officers and directors who are employees of the Company.
1. ELECTION OF DIRECTORS
First Republic's Board of Directors consists of ten Directors. The Directors
of First Republic serve three-year terms which are staggered to provide for the
election of approximately one-third of the Board members each year. At the
Meeting, three Directors will stand for reelection.
Information Concerning Nominees
The three persons named below are the Company's nominees for election to the
Board of Directors: Ms. August-deWilde, Mr. Gibbs, and Mr. Mangan are nominated
to be Class I directors with terms expiring in 1998.
<TABLE>
<CAPTION>
Director
Name and Age Since Principal Business Experience
- ------------- -------- -----------------------------
<S> <C> <C>
Katherine August-deWilde 1988 Executive Vice President and Director.
47 Ms.August-deWilde served as Chief
Financial Officer of First Republic from
July 1985 until August 1988. Previously,
Ms. August-deWilde served as Senior Vice
President and Chief
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Director
Name and Age Since Principal Business Experience
- ------------ -------- -----------------------------
<S> <C> <C>
Financial Officer at PMI Mortgage
Insurance Co., a subsidiary of
Sears/Allstate. A.B., 1969,
Goucher College; M.B.A., 1975 Stanford
University.
L. Martin Gibbs, Esq. 1985 Director. Mr. Gibbs is a partner with
57 the law firm of Rogers & Wells, counsel
to the Company. B.A., 1959, Brown
University; J.D., 1962, Columbia
University.
John F. Mangan 1985 Director. Mr. Mangan is an investor and
58 was previously President of Prudential-
Bache Capital Partners, Inc., and a
Managing Director of Prudential-Bache
Securities, Inc. Prior to that, he was
the Managing General Partner of Rose
Investment Company, a venture capital
partnership. B.A., 1959, University of
Pennsylvania.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MS. AUGUST-
DEWILDE, MR. GIBBS AND MR. MANGAN AS CLASS I DIRECTORS.
Information Concerning Other Directors
The following table sets forth the name of each of the remaining Directors of
First Republic (other than those identified under "Election of Directors,"
above) and certain pertinent information about them.
</TABLE>
<TABLE>
<CAPTION>
Director
Name and Age Since Principal Business Experience
- ------------ -------- -----------------------------
<S> <C> <C>
Roger O. Walther 1985 Chairman of the Board of Directors. Mr.
59 Walther is Chairman and Chief Executive
Officer of ELS Educational Services,
Inc., the largest teacher of English as
a second language in the United States.
Formerly, he served as Chairman of San
Francisco Bancorp. He is a director of
Charles Schwab & Co., Inc. B.S., 1958,
United States Coast Guard Academy;
M.B.A., 1961, Wharton School, University
of Pennsylvania; and member of the
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director
Name and Age Since Principal Business Experience
- ------------ -------- -----------------------------
<S> <C> <C>
Graduate Executive Board of the Wharton
School.
James H. Herbert, II 1985 President, Chief Executive Officer and
50 Director. From 1980 to July 1985, Mr.
Herbert was President, Chief Executive
Officer and a director of San Francisco
Bancorp. He is a past President, and
currently a Director of the California
Association of Thrift & Loan Companies,
and is on the California Commissioner of
Corporations' Industrial Loan Law
Advisory Committee. B.S., 1966, Babson
College; M.B.A., 1969, New York
University; and a member of The Babson
Corporation.
Richard M. Cox-Johnson 1986 Director. Mr. Cox-Johnson is a director
60 of Premier Consolidated Oilfields PLC
and a director of Marine and General
Mutual Life Assurance Society. Graduate
of Oxford University, 1955.
Kenneth W. Dougherty 1985 Director. Mr. Dougherty is an investor
68 and was previously President of Gill &
Duffus International Inc. and Farr Man &
Co. Inc., international commodity
trading companies. B.A., 1948,
University of Pennsylvania.
Frank J. Fahrenkopf, Jr. 1985 Director. Mr. Fahrenkopf is a partner in
55 the law firm of Hogan & Hartson. From
January 1983 until January 1989, he was
Chairman of the Republican National
Committee. B.A., 1962, University of
Nevada-Reno; L.L.B., 1965, University of
California-Berkeley.
James F. Joy 1985 Director. Mr. Joy is Director-European
57 Business Development for CVC Capital
Partners Europe Limited and a non-
executive director of Sylvania Lighting
International. B.S., 1959 and B.S.E.E.,
1960, Trinity College; M.B.A., 1964, New
York University.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Director
Name and Age Since Principal Business Experience
- ------------ ------- -----------------------------
<S> <C> <C>
Barrant V. Merrill 1985 Director. Mr. Merrill is an investor. He
64 is the Managing Partner of Sun Valley
Partners. Previously, he was General
Partner of Dakota Partners and of Galena
Partners, and Chairman of Pershing &
Co., Inc., a division of Donaldson,
Lufkin & Jenrette. B.A., 1953, Cornell
University.
</TABLE>
Meetings and Organization
During the fiscal year ended December 31, 1994, the Board of Directors held
four regularly scheduled meetings, acted by telephonic board meeting one time
and no actions were taken by unanimous written consent. All Directors of First
Republic attended at least 75% of the meetings of the Board of Directors and
committees on which they served.
Committees of the Board of Directors
Executive Committee. The primary responsibilities of the Executive Committee
are to advise the Company's management on matters when the full Board of
Directors is unavailable or to conduct business as specifically designated by
the full Board. The members of the Executive Committee are Ms. August-deWilde
and Messrs. Herbert, Merrill and Walther.
Compensation Committee. The primary responsibilities of the Compensation
Committee are to establish and review the compensation, both direct and
indirect, to be paid to First Republic's executive officers and other members
of management; to review and submit to the Board of Directors its
recommendations with respect to executive compensation plans; to establish and
review periodically First Republic's policies relating to executive
perquisites; and to oversee First Republic's employee benefit plans. The
members of the Compensation Committee are Messrs. Gibbs, Joy, Merrill and
Walther.
Audit Committee. The primary responsibilities of the Audit Committee are to
recommend to the Board of Directors a firm of independent certified public
accountants to conduct the annual audit of First Republic's books and records;
to review with such accounting firm the scope and results of the annual audit;
to review the performance by such independent accountants of professional
services in addition to those which are audit related; and to consult with the
internal and independent auditors with regard to the adequacy of First
Republic's systems of internal controls. The members of the Company's Audit
Committee are Messrs. Merrill and Walther.
During the last fiscal year, there were no meetings of the Executive Committee;
two meetings of the Compensation Committee and three actions taken by unanimous
written consent; and there were four meetings of the Audit Committee.
7
<PAGE>
2. PROPOSAL TO APPROVE THE GRANT OF PERFORMANCE-BASED CONTINGENT STOCK OPTIONS
FOR AN AGGREGATE OF 350,000 SHARES OF FIRST REPUBLIC'S COMMON STOCK TO FIRST
REPUBLIC'S MANAGEMENT.
On October 26, 1994, the non-management Directors of First Republic, upon
recommendation by the Board's Compensation Committee, unanimously approved the
grant of Performance-Based Contingent Stock Options for an aggregate of 350,000
shares of First Republic's Common Stock to the Company's management, subject to
approval by the Company's stockholders (the "1995 Performance-Based Contingent
Stock Options").
The 1995 Performance-Based Contingent Stock Options are designed to continue
the long-term, performance-based incentive to the Company's senior executives
and other key members of management which was initiated with the 1992
Performance-Based Contingent Stock Options (See "Executive Compensation--
Performance-Based Contingent Stock Options ). The primary feature of the
Company's Performance-Based Contingent Stock Options is the incentive vesting
provision, which operates so that such options may be exercised only to the
extent that they become vested, with vesting based upon an increase in tangible
book value per share results achieved above a minimum. The 1995 Performance-
Based Contingent Stock Options will vest as to 20% of the underlying shares
upon grant, but will only vest as to the remaining 80% of the underlying shares
upon the achievement of significant, targeted annual increases in the Company's
net tangible book value per share on or before December 31, 1998, or upon the
occurrence of certain extraordinary events.
The 1995 Performance-Based Contingent Stock Options will be granted on December
31, 1995 unless the 1992 Performance-Based Contingent Stock Options become
fully vested at an earlier date (currently considered unlikely). The Company
expects the grant date to be December 31, 1995. Vesting of 80% of the options
granted under the 1995 Plan would be contingent upon the future achievement of
a minimum 11% per annum, after tax growth in tangible book value per share for
each of the years ending December 31, 1996, 1997 and 1998. Vesting of such
shares would occur each year only if the minimum target amount for tangible
book value per share is achieved. In any year in which the target amount is
not achieved, no additional option shares will vest with respect to that year.
If the target amount is achieved or surpassed, contingent option shares vest at
a pro-rata amount based upon the percentage increase achieved toward the final
target amount.
In order for the Company's management to achieve complete vesting under the
1995 Performance-Based Contingent Stock Options, the Company's tangible book
value per share must increase at least 36.7% over the next three years. Any
1995 Performance-Based Contingent Stock Option shares that have not vested in a
prior year may vest in a subsequent year if the cumulative targeted amount for
that subsequent year, through year-end 1998, is achieved or surpassed. If the
final target amount is not achieved by December 31, 1998, then any shares that
have not vested in 1996 or
8
<PAGE>
1997 will be canceled. There can be no assurance that the minimum target
objective can be met or exceeded for any period covered by the Performance-
Based Contingent Stock Options. The Company's Performance-Based Contingent
Stock Option Program is designed to create an incentive for the senior
executives to produce substantial growth in the Company's tangible book value
per share. The Board of Directors believes that because tangible book value
per share is a key determinant of stockholder value in financial institution
valuations, this contingent stock option program creates an extremely strong
correlation between results for stockholders and executive compensation because
the executives' reward depends directly upon both growth in book value per
share and ultimately growth in share price.
The targeted annual growth rates of 11% for tangible book value per share
compare favorably with recent results for public companies, including banks
generally and California thrift institutions in particular. For the most
recent three year period for which information is available, the Company has
calculated that well run large and medium sized California thrift institutions,
conducting business comparable to the Company's, have produced average
increases in tangible book value per share of approximately 7.6%. The targeted
annual growth rate in the Company's tangible book value per share of 11% is
approximately 150% higher than the level reported by peer group institutions.
Additionally, over the past five years, the pre-tax average annual total
returns for broad based composite stock market indices were 10.3% for the
largest capitalized corporations, 9.6% for medium-sized corporations and 9.5%
for smaller capitalized corporations. Adjusted for the effect of taxes, these
indicated results are only approximately 50% of the level of the Company's
targeted rate of increase for tangible book value per share under the 1995
Performance-Based Contingent Stock Options.
At December 31, 1994 and continuing to date in 1995, the Company has
outstanding $34,500,000 of convertible subordinated debentures which pay
interest at 7-1/4% and are convertible after December 1995 at a conversion
price of approximately $13.67 into 2,524,210 shares of common stock. The
conversion of these debentures will dilute, or reduce the Company's tangible
book value per share. If these debentures are converted prior to December 31,
1998, then the annual minimum objective amounts for tangible book value per
share under the 1995 Performance-Based Contingent Stock Options would be
adjusted to eliminate the effect of such conversion. At December 31, 1994,
the dilutive effect of the Company's convertible subordinated debentures on
tangible book value per share would have been approximately $0.38, or 2.6%.
If the 1995 Performance-Based Contingent Stock Options are granted on December
31, 1995, then the exercise price for such options would be set at the average
closing price of the Company's common stock for all days during which the stock
trades during the month of December 1995. In the event that the final target
for the 1992 Performance-Based Contingent Stock Option Plan is achieved sooner,
an event which is currently considered unlikely, the exercise price would be
set at the average closing price of the stock for all days during which the
stock trades during the last month of the quarter in which the 1992 Plan is
completed.
9
<PAGE>
In the event the Company is acquired or merged with another corporation after
approval of the new plan by the stockholders and before December 31, 1998, all
shares under the plan would immediately become fully vested. In the event that
such acquisition or merger occurred prior to January 1, 1996, then the exercise
price for such options shall be set at a price equal to the average of the
closing price on all days on which the stock traded during the second full
month preceding the earliest public announcement concerning such transaction.
The following table shows how the 1995 Performance-Based Contingent Stock
Options would be granted:
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
-----------------
Name and Position Dollar value (1) Number of Shares
----------------- ---------------- ----------------
<S> <C> <C>
James H. Herbert, II N/A 170,000
President and Chief Executive Officer
Katherine August-deWilde N/A 75,000
Executive Vice President
Willis H. Newton, Jr. N/A 45,000
Senior Vice President and
Chief Financial Officer
Linda G. Moulds N/A 25,000
Vice President, Controller -------
and Secretary
All current executive officers N/A 315,000
as a group =======
All employees as a group(2) N/A 350,000
=======
</TABLE>
(1) If the 1995 Performance-Based Contingent Stock Options are granted on
December 31, 1995, then the exercise price for such options would be
set at the average closing price of the Company's common stock for all
days during which the stock trades during the month of December 1995.
In the event that the final target for the 1992 Performance-Based
Contingent Stock Option Plan is achieved sooner, the exercise price
would be set at the average closing price of the stock for all days
during which the stock trades during the last month of the quarter in
which the 1992 Plan is completed.
(2) Other key members of management would receive 5,000 shares under
option and the remaining 20,000 shares are reserved for future
allocation to individuals other than those shown above.
10
<PAGE>
The Options are "Non-Qualified Stock Options" within the meaning of the
Internal Revenue Code of 1986 (the "Code"). The Options provide that, upon
exercise, the optionee is entitled to receive a payment equal to the tax
benefit available to the Company, if any, as a result of the tax deduction
allowed to the Company in the year the options are exercised.
The exercise price of the options is payable in cash or by certified or
official bank check in full at the time of exercise, except that the options
granted to Mr. Herbert permit exercising by payment in cash of the par value
per share and the delivery of a promissory note for the balance of the purchase
price. The options are non-transferrable, other than by will or the laws of
descent and distribution.
The Options terminate on the earlier of (i) ten years from the date of grant,
(ii) twelve months following the death of the optionee, (iii) twelve months
following the termination of the optionee's service as an employee to the
Company by reason of disability, (iv) twenty days following the termination of
the optionee as an employee for cause, or (v) six months following the
resignation of the optionee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE GRANT
OF PERFORMANCE-BASED CONTINGENT STOCK OPTIONS FOR AN AGGREGATE OF 350,000
SHARES OF FIRST REPUBLIC'S COMMON STOCK.
3. APPROVAL OF SELECTION OF AUDITORS
A resolution will be presented at the Meeting to ratify the Board of Directors'
appointment of KPMG Peat Marwick LLP as independent auditors to audit the
Company's financial statements for the year ending December 31, 1995. KPMG
Peat Marwick LLP has audited the Company's financial statements for each year
since 1989.
During 1994, First Republic made no changes in, and had no disagreements with,
its independent auditors on accounting and financial disclosure. A
representative of First Republic's independent auditors is expected to be
present at the meeting, and will have the opportunity to make a statement if he
desires to do so. It is expected that such representative will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE SELECTION OF
AUDITORS.
EXECUTIVE COMPENSATION
Compensation of Directors
Each non-employee director of the Company receives a fee for each regularly
scheduled meeting of the Board of Directors that he attends, except that First
Republic pays Mr. Walther, who does
11
<PAGE>
not receive a fee per board meeting attended, a consulting fee for his services
in marketing First Republic's banking services, including its deposit gathering
and loan programs, and for his consulting services with respect to the
management, administration, operations and financing of First Republic.
Non-employee directors received $1,000 per meeting attended prior to
February 2, 1994 and $1,500 per meeting attended thereafter. For 1994, Mr.
Walther received a consulting fee of $5,417 per month. The members of the
Board of Directors are also reimbursed for their out-of-pocket expenses
incurred in connection with attendance at Board and committee meetings in
accordance with Company policy. In the fiscal year ended December 31, 1994, the
Board of Directors held four regularly scheduled meetings and the total cash
compensation paid to non-employee directors was $101,000, including $65,000 of
consulting fees paid to Mr. Walther.
In lieu of paying higher cash directors' fees to its non-employee directors,
to more closely match their long term interests with those of other
stockholders, and to properly compensate for the responsibilities and risk,
both business and regulatory, of being on the board of a holding company of a
federally insured institution, First Republic has from time to time granted
stock options to each non-employee director of the Company. Options granted
to the non-employee directors do not qualify as "Incentive Stock Options"
under the Code. The term of options granted to Directors is ten years. As of
March 10, 1995, one non-employee director of the Company had exercised 5,000
of his directors' options.
During 1994, the Company adopted a program under which the directors of First
Republic and its subsidiaries are reimbursed for 80% of the cost for attending
a two-week in-residence medical and physical evaluation program. The
directors are responsible for 20% of the program cost and for any
transportation expenses. During 1994, one director of First Republic attended
this program, for which reimbursement of $4,972 was made.
Compensation of Executive Officers
The following table shows for the fiscal years ending December 31, 1994, 1993,
and 1992, certain compensation paid by the Company, including salary, bonuses,
stock options, and certain other compensation, to its Chief Executive Officer
and its three other most highly compensated executive officers for the fiscal
year ended December 31, 1994:
12
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Compensation
Annual Compensation Awards(4)(5)
----------------------------------- ------------
Other Options by
Performance Annual Number of All Other
Name & Principal Position Year Salary(1) Bonus(2) Compensation(3) Shares(6) Compensation(7)
- ------------------------- ---- -------- -------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James H. Herbert, II 1994 $379,500 $290,686 --- --- $25,294
President and 1993 $345,000 $410,220 --- --- $32,494
Chief Executive Officer 1992 $345,000 $448,507 $44,000 249,311 $27,690
Katherine August-deWilde 1994 $192,500 $147,448 --- --- $25,294
Executive Vice President 1993 $175,000 $208,080 --- --- $32,494
1992 $175,000 $227,501 --- 106,090 $27,690
Willis H. Newton, Jr. 1994 $159,500 $122,129 --- --- $25,294
Senior Vice President and 1993 $145,000 $172,850 --- --- $32,494
Chief Financial Officer 1992 $145,000 $188,436 --- 42,436 $27,690
Linda G. Moulds 1994 $101,200 $77,487 --- --- $25,294
Vice President, Controller 1993 $92,000 $109,350 --- --- $31,094
and Secretary 1992 $92,000 $119,556 --- 26,522 $26,905
</TABLE>
________________________
(1) Includes amounts earned but deferred into the Company's 401(k) plan at
the election of the executive.
(2) Under the Company's Executive Performance Bonus Pool Program, senior
executives share, in proportion to their relative base salary levels, in
the performance bonus pool which is equal to 5% of the Company's
earnings before taxes and bonuses. Amounts earned as performance
bonuses in 1994 were reduced approximately 30% from the level earned in
1993 because the Company's earnings were lower, primarily as a result of
the adverse effects of January 1994 Northridge earthquake. No bonus is
paid unless the Company's pre-tax, pre-bonus earnings exceed a specified
minimum threshold. See "Compensation Committee Report to Stockholders--
The Executive Performance Bonus Pool Program" for further discussion of
the program.
(3) Other annual compensation for Mr. Herbert includes $32,000 paid in 1992
pursuant to the 1985 Stock Option Plan, an amount equal to the estimated
benefit to the Company of the deductions on Incentive Stock Options
exercised by Mr. Herbert in 1992. Perquisites are not included for any
of the persons named in the table above for 1994 and 1993 or any of the
other persons named for 1992 since the aggregate amount for each such
person is less than the lesser of $50,000 or 10% of that person's salary
and bonus, in accordance with the rules promulgated by the Securities
and Exchange Commission ("SEC").
13
<PAGE>
(4) The Company has not granted any stock appreciation rights ("SARs").
(5) There were no payments under any Long Term Incentive Plan (as defined in
the rules promulgated by the SEC) in 1994, 1993 or 1992.
(6) Options by Number of Shares for 1992 represents the maximum total number
of shares as to which the named optionees were granted Performance-Based
Contingent Stock Options during 1992, including all shares that vest only
if the Company achieves the performance levels specified in those options,
some of which have not vested as of March 10, 1995. See "Performance-
Based Contingent Stock Options" below.
(7) Consists of the Company's matching payments under its 401(k) plan and
the dollar value at year end of shares earned under the Company's
Employee Stock Ownership Plan ("ESOP"). The amounts under these two
plans in 1994 were $7,500 and $17,794, respectively for each of Mr.
Herbert, Ms. August-deWilde, Mr. Newton, and Ms. Moulds. The amounts
under these two plans in 1993 were $8,994 and $21,680, respectively for
each of Mr. Herbert, Ms. August-deWilde, and Mr. Newton; and $8,994 and
$19,400, for Ms. Moulds. The amounts under these two plans in 1992 were
$8,728 and $18,962, respectively, for each of Mr. Herbert, Ms. August-
deWilde, and Mr. Newton; and $8,728 and $18,177 for Ms. Moulds.
Performance-Based Contingent Stock Options
On May 7, 1992, First Republic's Board of Directors approved the grant of
Performance-Based Contingent Stock Options (the "1992 Performance-Based
Contingent Stock Options") covering an aggregate of 249,311 shares of First
Republic's common stock to Mr. Herbert, an aggregate of 106,090 shares to Ms.
August-deWilde, an aggregate of 42,436 shares to Mr. Newton, and an aggregate
of 26,522 shares to Ms. Moulds. The options are exercisable for a period of
ten years from the date of grant at an exercise price of $14.85 per share, the
closing price of First Republic's common stock on May 7, 1992, as adjusted for
the two 3% stock dividends paid on March 18, 1993 and on March 15, 1994.
However, the options may be exercised only to the extent that they have
vested. The options vested as to 20% of the underlying shares of common stock
immediately upon grant. Under the terms of the 1992 Performance-Based
Contingent Stock Options, the remaining underlying shares of common stock vest
only upon the achievement of minimum targeted annual increases in First
Republic's tangible book value per share over a period of years ending on
December 31, 1995, or upon the happening of certain extraordinary events. As a
result of the Company achieving an actual tangible book value per share of
$11.94 at December 31, 1992, the options vested as to an additional 27.8% on
February 15, 1993. As a result of the Company achieving an actual tangible
book value per share of $13.58 at December 31, 1993, the options vested
as to an additional 19.4% of the underlying shares on February 15, 1994.
At December 31, 1994, the Company's actual tangible book value per
share was $14.40, which exceeded the $14.22 target for that date and on
February 15, 1995, in accordance with the terms of the options, the options
vested as to an additional 9.2% of the underlying shares, bringing total
cumulative vesting to 76.9%. The adverse effects of the
14
<PAGE>
Northridge earthquake reduced the Company's 1994 earnings and therefore
tangible book value per share at December 31, 1994 did not increase by
approximately $0.70 per share; as a result, the amount of 1992 Contingent
Performance-Based Stock Options which vested for 1994 were reduced by
approximately 8.3% of all contingent shares previously granted, or
approximately 35,000 shares in total for the four senior executives.
Under the terms of the 1992 Performance-Based Contingent Stock Options, the
options vest each year as to the remaining unvested underlying common shares
contingent upon the achievement of specific target amounts for tangible book
value per share at each year's end. The minimum target amounts, as adjusted
for the Company's two 3% stock dividends, are $10.94 per share at December 31,
1992, $12.48 per share at December 31, 1993, $14.22 per share at December 31,
1994, and $16.35 per share at December 31, 1995. In any year in which the
minimum target amount is not achieved, no additional option shares will vest
with respect to that year. If the target amount is achieved or surpassed,
additional option shares vest at a pro rata amount based upon the actual
tangible book value per share achieved as compared to the final $16.35 target
amount, versus a starting point of $9.59 at December 31, 1991. If the final
target is not achieved by December 31, 1995, the 97,943 option shares that
have not vested as of this date will be canceled. At the present time it
appears unlikely that the final target will be achieved at December 31, 1995,
in large part due to the adverse effects of the Northridge earthquake on 1994
results; therefore, it is likely that the 97,943 currently unvested option
shares will not be earned by management.
In addition, all of the option shares immediately vest at any time within ten
years, regardless of whether the target amounts have been met, upon the
happening of certain events relating to extraordinary transactions, including
a merger or consolidation of the company, a sale, lease, exchange or other
disposition of all or substantially all of the assets of the company, a
liquidation or dissolution of the company, or the acquisition of, or offer
for, 25% or more of the company's issued and outstanding common stock by any
person or group.
The 1992 Performance-Based Contingent Stock Options are "Non-Qualified Stock
Options" within the meaning of the Code. The 1992 Performance-Based
Contingent Stock Options provide that, upon exercise, the optionee is entitled
to receive a payment equal to the tax benefit available to the Company as a
result of the tax deduction allowed to the Company in the year the options are
exercised.
The options granted to Ms. August-deWilde, Mr. Newton and Ms. Moulds require
that the purchase price be paid in cash or by check at the time of exercise.
Under the terms of the options granted to Mr. Herbert, Mr. Herbert may pay the
purchase price of any shares as to which the option is exercised by delivery
of cash or a check for the aggregate par value of the shares purchased and
delivery of a promissory note for the balance of the purchase price.
Principal and interest on the promissory note would be payable ten years from
the date it is made. The note could be prepaid at any time. The rate of
interest would be the rate established by the Internal
15
<PAGE>
Revenue Service to provide that there is "adequate stated interest" in
accordance with the Internal Revenue Code for similar maturity notes.
The Table of Option Grants for Fiscal Year 1994 has been omitted as there were
no new options granted during 1994 to the named executives.
None of the previously identified executive officers exercised any stock
options during the fiscal year ended December 31, 1994. The following table
presents information concerning options held at December 31, 1994 by the named
executives.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
- ---------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at Fiscal
Fiscal Year-End Year-End($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable(2)
- ---- --------------- ------------ ------------- --------------------
<S> <C> <C> <C> <C>
James H. Herbert, II -- -- 467,240/81,775 $1,113,281/$--
Katherine August-deWilde -- -- 198,598/33,799 $411,734/$--
Willis H. Newton, Jr. -- -- 70,950/13,920 $101,014/$--
Linda G. Moulds -- -- 56,013/8,701 $110,132/$--
</TABLE>
__________________
(1) Based upon fair market value of the Company's Common Stock at December
31, 1994.
(2) The only unexercisable options outstanding at December 31, 1994 were the
1992 Performance-Based Contingent Stock Options discussed above. At
December 31, 1994 the exercise price of those options exceeded the
closing price of the Company's Common Stock on that date and thus had no
current value.
Corporate Performance
The following performance graph below depicts the value of investment (change
in the stock price plus reinvested dividends) for each monthly period from
January 1, 1990 to December 31, 1994 for the Company, the S&P 500 and an
Industry Group Composite of peer firms. The stock performance graph assumes
$100 invested on January 1, 1990 in First Republic Bancorp, Inc. common
stock, the S&P 500 and the Industry Group Composite. There has been no change
in either index used in this graph from those presented in the Company's proxy
statements for 1994 and 1993.
The graph compares the performance of the Company with that of the S&P 500 and
a group of peer institutions whose investment has been weighted based on
market capitalization (price times shares outstanding). Companies in the peer
group are as follows: Bay View Capital Corp.,
16
<PAGE>
California Financial Holding Corp., Citadel Holding Corp., Coast Savings
Financial, Inc., Downey Savings & Loan Association, FirstFed Financial Corp.,
SFFed Corp., and Westcorp, Inc. These companies are publicly traded holding
companies of California-based savings and loan institutions and have been
selected by senior management, with assistance from an independent third party,
based on similarities in geographic location, asset size and type of business
activity.
The historical stock prices shown in the graph are not necessarily indicative
of future price performance.
GRAPH
FIRST REPUBLIC BANCORP INC.
STOCK PRICE PERFORMANCE WITH DIVIDEND REINVESTED
DECEMBER 31, 1989 = $100
<TABLE>
<CAPTION>
FIRST REPUBLIC S & P 500 INDUSTRY GROUP
<S> <C> <C> <C>
12/31/89 100.00 100.00 100.00
1/90 88.89 93.29 86.00
2/90 90.73 94.49 93.30
3/90 88.89 96.99 88.76
4/90 77.78 94.57 86.83
5/90 74.07 103.79 95.60
6/90 88.89 103.09 91.88
7/90 103.69 102.76 83.87
8/90 74.07 93.47 73.47
9/90 74.07 88.92 61.02
10/90 68.52 88.54 53.00
11/90 68.52 94.27 59.46
12/90 66.67 96.89 59.12
1/91 103.69 101.11 63.98
2/91 122.21 108.35 78.14
3/91 129.62 110.97 81.03
4/91 159.25 111.23 85.40
5/91 170.36 116.03 92.30
6/91 188.87 110.72 83.80
7/91 194.44 115.88 94.31
8/91 201.84 118.62 100.12
9/91 198.13 116.64 99.72
10/91 201.84 118.21 91.26
11/91 188.87 113.44 72.71
12/91 266.65 126.42 91.14
1/92 233.32 124.06 94.37
2/92 240.72 125.67 105.48
3/92 251.83 123.22 103.34
4/92 225.92 126.84 99.28
5/92 216.64 127.46 104.02
6/92 212.95 125.57 98.98
7/92 227.75 130.70 95.13
8/92 199.98 128.02 82.88
9/92 185.16 129.53 73.80
10/92 162.96 129.97 76.59
11/92 174.07 134.40 82.84
12/92 168.50 136.05 91.73
1/93 188.87 137.18 110.51
2/93 205.98 139.05 115.76
3/93 198.35 141.99 115.50
4/93 181.19 138.56 98.34
5/93 190.73 142.26 99.30
6/93 198.35 142.68 101.92
7/93 196.44 142.11 106.74
8/93 207.89 147.50 115.65
9/93 249.85 146.37 123.46
10/93 234.58 149.39 121.55
11/93 221.24 147.97 107.31
12/93 217.42 149.76 107.54
1/94 238.40 154.85 103.27
2/94 249.48 150.65 101.47
3/94 229.84 144.08 96.33
4/94 206.26 145.93 100.08
5/94 218.05 148.32 109.42
6/94 227.87 144.69 114.75
7/94 216.09 149.44 112.62
8/94 229.84 155.57 115.98
9/94 210.20 151.76 113.09
10/94 196.44 155.17 101.85
11/94 165.01 149.52 88.93
12/94 176.80 151.74 89.21
</TABLE>
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee of the Board of Directors (the "Compensation
Committee") consists of Mr. Roger O. Walther, Chairman of the Compensation
Committee, L. Martin Gibbs, Esq., Mr. Barrant V. Merrill, and Mr. James F.
Joy, none of whom are currently officers or employees of the Company. The
Compensation Committee is responsible for setting and administering the
Company's policies governing senior executive compensation, subject to
approval by the Board of the Directors of the Company. Additionally, Messrs.
Walther, Merrill and Joy represent a majority of the trustees for the
Company's Employee Benefit Plans, including its Employee Stock Ownership Plan
("ESOP"), its 1985 Employee Stock Option Plan, and its 1992 Employee Stock
Purchase Plan. The Compensation Committee evaluates the performance of the
senior executives and determines compensation policies, programs, and levels
for the senior executive officers. The full Board of Directors reviews the
Compensation Committee's recommendations regarding the compensation of
executive officers.
Compensation Philosophy
The Compensation Committee's compensation philosophy is based upon the belief
that executive compensation should strongly reflect the achievement of results
as measured by key indicators of Company performance, including both short
term and longer term. The Compensation Committee has developed executive
compensation programs designed to incentivize and reward executives for their
contribution to Company performance that creates value for stockholders. The
Company has adopted an Executive Bonus Pool Program that ties annual cash
bonus awards to the Company's annual earnings.
Since May 1992, the Company's executives also have participated in a long-term
incentive program under which Performance-Based Contingent Stock Options are
directly linked to significant, targeted increases in the Company's tangible
book value per share.
17
<PAGE>
The Compensation Committee believes that earnings growth and increases in
tangible book value per share are the primary determinants in creating value
for stockholders over time.
The Company's executive compensation is based upon the following goals and
policies:
. A significant portion of executive compensation should be incentive
compensation that is directly linked to the Company's annual performance.
. Incentive compensation should be based on measures of Company
performance that are most meaningfully related to the creation of
value for stockholders, specifically the level of earnings and
tangible book value per share, over time.
. Compensation programs should support the long term strategic goals
and objectives of the Company.
. Compensation programs should incentivize and reward individuals for
outstanding contributions to the Company's success.
. Short-term and long-term compensation play a critical role in
attracting, retaining and motivating well qualified, performance-
orientated executives who function as a team.
In addition, the Compensation Committee believes that executive compensation
is intended to reward the Company's senior executives for continuing efforts
to build a high-quality, customer driven, stable banking institution. Since
the founding of the Company in 1985, First Republic Thrift & Loan has become
the largest thrift and loan institution in the State of California. Over the
past five years, and during recent difficult and recessionary economic
conditions, the Company has grown substantially while maintaining asset-
quality and capital strength levels that exceed industry standards.
The results for 1994 represent the first year that the Company's earnings have
not exceeded the prior year's. The Company's earnings for 1994 were adversely
affected by the Northridge earthquake which struck the Los Angeles, California
area in January 1994. The earthquake had a substantial adverse effect on the
Company's 1994 earnings, resulting in direct costs which reduced pretax
earnings by nearly $8 million. Without the effects of this earthquake,
executive bonus compensation earned under the Company's Executive Bonus Pool
Program for 1994 would have been approximately $450,000 higher than the amount
actually earned of $637,750 and the number of contingent stock options earned
by the Company's four senior executives in 1994 would have increased by
approximately 35,000 shares. It also presently appears likely that the
effects of the earthquake will make it impossible for the Company's senior
executives to vest in the remaining 97,943 shares granted under the 1992
Performance-Based Contingent Stock Options Plan.
In 1994, the Company achieved the following results:
18
<PAGE>
. Total assets increased to over $1.7 billion at year-end. Net income
was $7.3 million for the year, or an after tax return on equity of
6.8%.
. Tangible book value per share increased by 6% during the year to
$14.40 at December 31, 1994. This level represents a 103% increase
achieved over the past five years or a compounded annual growth rate
of 15.2% after taxes.
. The Company expanded its customer deposits by 26%, successfully
expanding its deposit products and branch locations.
. Nonaccruing loans and REO at December 31, 1994 had declined 15% from mid-
year levels and nearly 70% of the remaining such assets were adversely
affected by the earthquake. Year end nonperforming assets were 2.41% of
total assets.
. The start-up of the full service subsidiary in Nevada, First Republic
Savings Bank, was successful and profitable.
Assets per full-time employee at year end 1994 were $11.9 million, a 24%
improvement over year end 1993.
. General and administrative expenses, as a percentage of assets, declined
nearly 4% in 1994 to 1.28%.
The Compensation Committee believes that since inception, the Company has
relied heavily on a team of highly-motivated senior executives to produce
results. The Compensation Committee further believes that the Company's
emphasis on high quality customer service, cost-efficient operations, combined
with capital strength and prudent risk management will continue to require
above-average efforts by its senior executives, and that those efforts are a
major contributing factor to the Company's success. The results produced by
the senior executives have been achieved during a period of significant
uncertainty and risk in the savings and loan and banking industries and recent
difficult and recessionary economic conditions and natural disasters in the
Company's California markets. The Company's compensation policies are
intended to encourage superior efforts by its executives.
The Company's executive compensation consists primarily of three components,
which taken together are intended to implement the Compensation Committee's
overall compensation philosophy.
Base Salary
Base salaries for executives are reviewed by the Compensation Committee on an
annual basis. There has been no increase in base salary for any of the four
senior executives, including the President and Chief Executive Officer (the
"President and CEO") for 1995. The Compensation
19
<PAGE>
Committee approved an increase in base salary of 10% for 1994 for the four
senior executives representing a cost of living adjustment for the effects of
inflation since the last prior increase effective for 1991.
The determination that no increase in base salary would be made in 1995 over
the base salary levels established for 1994 reflects the Compensation
Committee's belief that incentive compensation directly tied to Company
performance should continue to constitute a significant portion of each
executive's total compensation (approximately 43% during 1994 and 54% during
1993).
Base salaries for the Company's four senior executives, including the
President and CEO, have been established at levels that are competitive with
salaries for executives performing similar duties for banking and thrift
institutions of comparable size. For the purpose of establishing these
levels, the Compensation Committee has compared the Company to a self-selected
group of companies with generally similar characteristics. The comparison
group is subject to change as the Company or its competitors change their
focus, merge or are acquired, or as new competitors emerge.
The Executive Bonus Pool Program-Tied To Earnings
The Executive Bonus Pool Program was designed in 1990 to reflect the
Compensation Committee's belief that maximizing earnings contributes
significantly to stockholder value. Accordingly, the plan is funded from a
pre-set portion of the Company's earnings before taxes and bonuses adjusted
for loan loss experience. The bonus payments are based upon earnings and all
actual loan losses directly reduce the amount of the bonuses, thereby creating
a very direct incentive for senior executives to work to maintain asset
quality. The pool has been set at 5% of pre-tax, pre-bonus earnings after all
loan losses and reserves. Also under this plan, no bonus is paid unless pre-
tax, pre-bonus earnings exceed a specified minimum threshold. Such threshold
has been increased annually. Individual bonus payments for senior executives
are based upon relative base salary levels.
The threshold earnings level is established at the beginning of each fiscal
year. In 1993, the threshold earnings level was increased to $7,500,000; in
addition, the total amount of the bonus pool was limited to the amount of
$900,000 for 1993, which was less than the aggregate bonus amount paid for
1992 and was less than the amount that would have been paid under the formula.
For 1994, the threshold earnings level was increased 20% to $9,000,000 and the
1993 bonus limit was removed. For 1995, the threshold earnings level was
further increased 11% to $10,000,000.
The Compensation Committee believes that the Executive Bonus Plan provides an
excellent and direct link between the value created for stockholders and the
incentive compensation to be paid to executives.
20
<PAGE>
Long-Term Incentives
Long-term incentive compensation is provided through grants of stock options
to the four senior executives and others. This component of compensation is
intended to retain and motivate executives to improve long-term results and
ultimately tangible book value and stock performance. Stock options have been
granted at or above the market price of the Company's common stock on the date
of grant and will only have value if the Company's stock price increases.
The four senior executives are eligible to receive stock options under the
Company's 1985 Stock Option Plan. Since inception of that plan, an aggregate
of 777,117 options have been granted to employees, including 278,486 to the
President and CEO and 154,891 to the remaining three senior executives. The
Company has not awarded any options to the four senior executives under the
1985 Stock Option Plan since May 1991.
In 1991, the Company granted non-qualified, ten-year stock options covering
53,045 shares of the Company's common stock to the President and CEO and
covering an aggregate of an additional 53,045 shares to the other three senior
executives. These options were not awarded under the Company's qualified 1985
Stock Option Plan.
In May 1992, the Compensation Committee approved the creation of non-
qualified, ten-year, Performance-Based Contingent Stock Options (the "1992
Performance-Based Contingent Stock Options") covering an aggregate of 477,405
shares of the Company's common stock. Options covering a total of 424,360
shares of the Company's common stock were granted on May 7, 1992 to the
Company's four senior executives at an exercise price of $14.84 per share, the
closing price of the Company's common stock on the date of grant, including
options on 249,311 shares granted to the President and CEO.
One of the features of the 1992 Performance-Based Contingent Stock Options is
the incentive vesting provision, which operates so that the options may be
exercised only to the extent that they have vested. The options vested as to
20% of the underlying shares immediately upon grant, but only vest as to the
remaining 80% of the underlying shares upon the achievement of significant,
targeted annual increases in the Company's net tangible book value per share
on or before December 31, 1995, or upon the occurrence of certain
extraordinary events.
The starting base for the minimum annual tangible book value per share target
increases is the Company's $9.59 tangible book value per share at December 31,
1991. The minimum target amounts increase each year thereafter to $16.35 at
December 31, 1995. In any year in which the target amount is not achieved, no
additional option shares will vest with respect to that year. If the target
amount is achieved or surpassed, contingent option shares vest at a pro-rata
amount based upon the percentage increase toward the final target amount,
versus the starting point. As a result of the Company achieving an actual
tangible book value per share of $11.94 at December 31, 1992 and $13.58 at
December 31, 1993, and in accordance with the terms of the 1992
21
<PAGE>
Performance-Based Contingent Stock Options, the options vested as to an
additional 27.8% on February 15, 1993 and an additional 19.4% on February 15,
1994. At December 31, 1994, the Company's actual tangible book value per
share was $14.40, which exceeded the $14.22 target for that date; thus the
options subsequently vested on February 15, 1995 as to an additional 9.2% of
the underlying shares.
Any 1992 Performance-Based Contingent Stock Option shares that have not vested
in a prior year may vest in subsequent years if the target amount for that
subsequent year, through year-end 1995, is achieved or surpassed. If the
final target amount is not achieved by December 31, 1995, then the 97,943
shares of 1992 Performance-Based Contingent Stock Option shares that have not
previously vested will be canceled.
In October 1994, the Compensation Committee recommended and the non-management
Directors unanimously approved the 1995 Performance-Based Contingent Stock
Options Plan covering 350,000 shares for senior executives and management of
the Company for the years 1996 through 1998, subject to stockholder approval.
The 1995 Performance-Based Contingent Stock Options will vest as to 20% of the
underlying shares upon grant, but will only vest as to the remaining 80% of
the underlying shares upon the achievement of significant, targeted annual
increases in the Company's net tangible book value per share on or before
December 31, 1998, or upon the occurrence of certain extraordinary events.
The 1995 Performance-Based Contingent Stock Options will be granted on
December 31, 1995 unless the 1992 Performance-Based Contingent Stock Options
become fully vested at an earlier date (currently considered unlikely). The
Compensation Committee expects the grant date to be December 31, 1995.
Vesting of 80% of the options granted under the 1995 Plan would be contingent
upon the future achievement of a minimum 11% per annum, after tax growth in
tangible book value per share for each of the years ending December 31, 1996,
1997 and 1998. Vesting of such shares would occur each year only if the
minimum target amount for tangible book value per share is achieved. In any
year in which the target amount is not achieved, no additional option shares
will vest with respect to that year. If the target amount is achieved or
surpassed, contingent option shares vest at a pro-rata amount based upon the
percentage increase achieved toward the final target amount.
In order for the Company's management to achieve complete vesting under the
1995 Performance-Based Contingent Stock Options, the Company's tangible book
value per share must increase at least 36.7% over the next three years. Any
1995 Performance-Based Contingent Stock Option shares that have not vested in a
prior year may vest in a subsequent year if the cumulative targeted amount for
that subsequent year, through year-end 1998, is achieved or surpassed. If the
final target amount is not achieved by December 31, 1998, then any shares that
have not vested in 1996 or 1997 will be canceled.
At December 31, 1994 and continuing to date in 1995, the Company has
outstanding $34,500,000 of convertible subordinated debentures which pay
interest at 7-1/4% and are convertible after
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December 1995 at a conversion price of approximately $13.67 into 2,524,210
shares of common stock. The conversion of these debentures will dilute, or
reduce the Company's tangible book value per share. If these debentures are
converted prior to December 31, 1998, then the annual minimum objective
amounts for tangible book value per share under the 1995 Performance-Based
Contingent Stock Options would be adjusted to eliminate the effect of such
conversion. At December 31, 1994, the dilutive effect of the Company's
convertible subordinated debentures on tangible book value per share would
have been approximately $0.38, or 2.6%.
If the 1995 Performance-Based Contingent Stock Options are granted on December
31, 1995, then the exercise price for such options would be set at the average
closing price of the Company's common stock for all days during which the
stock trades during the month of December 1995. In the event that the final
target for the 1992 Performance-Based Contingent Stock Option Plan is achieved
sooner, the exercise price would be set at the average closing price of the
stock for all days during which the stock trades during the last month of the
quarter in which the 1992 Plan is completed.
In the event the Company is acquired or merged with another corporation after
approval of the new plan by the stockholders and before December 31, 1998, all
shares under the plan would immediately become fully vested. In the event
that such acquisition or merger occurred prior to January 1, 1996, then the
exercise price for such options shall be set at a price equal to the average
of the closing price on all days on which the stock traded during the second
full month preceding the earliest public announcement concerning such
transaction.
The Compensation Committee has allocated the 350,000 options to be granted as
follows: James H. Herbert, II-170,000 shares; Katherine August-deWilde-75,000
shares; Willis H. Newton, Jr.-45,000 shares; Linda G. Moulds-25,000 shares;
other key members of management-15,000 shares; and 20,000 shares reserved for
future allocation.
The Company's current and proposed Performance-Based Contingent Stock Option
Programs are designed to create an incentive for the senior executives to
produce substantial growth in the Company's tangible book value per share.
The Compensation Committee believes that because tangible book value per share
is a key determinant of stockholder value in financial institution valuations,
this contingent stock option program creates an extremely strong correlation
between results for stockholders and executive compensation because the
executives' reward depends directly upon both growth in book value per share
and growth in share price. The targeted growth rates of tangible book value
per share compare very favorably with recent results for banks generally and
with California thrift institutions in particular. In addition, by providing
for more rapid vesting if results can be achieved sooner than the targeted
goals, both executives and stockholders could receive value on an accelerated
basis.
All employees of the Company who have been employed by the Company for more
than six months, including each of the four senior executives, participate in
the Company's Employee Stock Ownership Plan (the "ESOP") and are eligible to
participate in the Company's 401(k) Plan.
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Under the ESOP, employees are allocated shares of the Company's Common Stock
each year, in a pro-rata amount based upon the ratio of the employees' salary
to the aggregate amount of salaries paid by the Company to all employees in
that year. The number of shares that were allocated in 1994 to the four senior
executives were computed in accordance with Federal regulations that govern
the ESOP and the 401(k) Plan. Such regulations establish an annual limit of
$30,000 on the sum of the cost of ESOP shares allocated, the amount of any
voluntary employee deferred compensation contributed to the 401(k) Plan and
the amount of the Company match under the 401(k) Plan. Shares earned under
the ESOP vest over a five-year period. The Compensation Committee believes
that participation by the four senior executives in the ESOP provides
additional long-term incentive for the creation of stockholder value.
Total Compensation
For each of the four senior executives, including the President and CEO, 43%
of their total cash compensation for 1994 and 52% on average for the past
three years was paid under the Executive Bonus Plan and is therefore directly
tied to the Company's performance. The Compensation Committee believes that,
together with the potential future value of all of their stock options, a very
significant portion of each of the four senior executives' compensation,
including the President and CEO's compensation, is from incentive based
compensation plans which the Compensation Committee believes are linked
directly to stockholder value creation.
March 20, 1995
COMPENSATION COMMITTEE
Roger O. Walther Barrant V. Merrill
L. Martin Gibbs James F. Joy
Compensation Committee Interlocks and Insider Participation
As noted above, the Company's Compensation Committee consists of Mr. Walther,
Mr. Gibbs, Mr. Joy, and Mr. Merrill. Since inception of the Company in 1985,
Mr. Walther has served as Chairman of the Board of Directors of the Company
(for purposes of this disclosure, Mr. Walther has not been an executive
officer of the Company). Additionally, Mr. Walther serves on the Compensation
Committee of Charles Schwab Corp. and Mr. Joy serves on the Compensation
Committee of Sylvania Lighting International. Mr. Gibbs is a partner in the
law firm of Rogers & Wells, counsel to the Company.
First Republic holds two mortgage loans, consisting of a first trust deed
secured loan to ELS, Inc., a corporation headquartered in California, of
$350,000 and a loan to ELS Educational Services, Inc. in the amount of
$906,000 secured by a second trust deed lien. At the time of origination in
1988, the loans were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time
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for comparable transactions with other borrowers, and did not involve more than
the normal risk of collectibility or involve any unfavorable features. Since
origination, both loans have been entirely current as to all payments. ELS,
Inc. is a wholly owned subsidiary of ELS Educational Services, Inc. In 1993,
Mr. Walther, the Chairman of the Board of Directors of First Republic,
completed a transaction in which he became the sole stockholder of ELS
Educational Services, Inc. In connection with that transaction, First Republic
agreed to release the guarantee of a prior parent company in exchange for (1)
obtaining the full personal guarantee of Mr. Walther and his wife on both loans
with such guarantee secured by certain personal real estate collateral owned by
Mr. Walther and his wife; (2) cross-defaulting the two loans; and (3)
adjusting the terms of the loans to provide for more rapid amortization of
principal, a shorter due date, an increased interest rate, and an adjustment
of the loans as to collateral allocation.
FINANCIAL INFORMATION
Financial information about First Republic consisting of the Consolidated
Financial Statements, Management's Discussion and Analysis of Financial
Condition and Results of Operations and Supplementary Financial Information
are incorporated herein by reference to pages 20 through 35, pages 36 through
45, and page 48, respectively, in First Republic's Annual Report to
Stockholders for the year ended December 31, 1994.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual Meeting
of Stockholders must be received by First Republic not later than December 5,
1995. Any such proposal should be communicated in writing to the Secretary of
First Republic at the address set forth on the first page of this Proxy
Statement.
OTHER MATTERS
The Board of Directors is not aware of any matter that may properly be
presented for action at the Meeting other than the matters set forth in the
accompanying Notice of Annual Meeting. Should any business not specified in
the accompanying Notice of Annual Meeting of Stockholders properly come before
the Meeting, the persons voting the proxies solicited by Management will vote
thereon in accordance with their best judgment.
A COPY OF THE COMPANY'S FORM 10-K (FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION) IS AVAILABLE WITHOUT CHARGE TO ANY STOCKHOLDER. REQUESTS SHOULD
BE DIRECTED TO THE CHIEF FINANCIAL OFFICER, WILLIS H. NEWTON, JR., AT FIRST
REPUBLIC BANCORP INC., 388 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94111,
TELEPHONE NO. (415) 392-1400.
By Order of the Board of Directors
James H. Herbert, II, President
San Francisco, California
March 29, 1995
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FIRST REPUBLIC BANCORP INC.
PROXY
PROXY SOLICITED ON BEHALF OF
BOARD OF DIRECTORS
FOR 1995 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of First Republic Bancorp Inc. (the "Company")
hereby constitutes and appoints Roger O. Walther, James H. Herbert, II and
Katherine August-deWilde, and each of them, with full power of substitution,
attorneys and proxies of the undersigned to attend and act for the undersigned
at the 1995 Annual Meeting of Stockholders of the Company to be held on May 4,
1995, at 1:00 PM Eastern Time, at the New York Yacht Club, 37 West 44th
Street, New York, NY 10036, and at any adjournments or postponements thereof,
and to represent and vote as designated below all of the shares of Common
stock of the Company that the undersigned would be entitled to vote with
respect to the matters described in the accompanying Notice of Annual Meeting
of Stockholders and Proxy Statement, receipt of which is hereby acknowledged.
1. Election of Directors to term expiring in 1998.
____ FOR all nominees listed below ____ WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all
below) nominees listed below
Katherine August-deWilde L. Martin Gibbs John F. Mangan
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
DRAW A LINE THROUGH THAT NOMINEE'S NAME ABOVE.)
2. Proposal to approve the grant of Performance-Based Contingent Stock
Options for an aggregate of 350,000 shares of First Republic's Common
Stock to the Company's management.
____ FOR ____ AGAINST ____ ABSTAIN
3. Proposal to ratify selection of KPMG Peat Marwick LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1995.
____ FOR ____ AGAINST ____ ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST REPUBLIC BANCORP INC.
When this proxy is properly executed and returned, the shares it represents
will be voted as directed. If no specification is made, this proxy will be
voted for election of the nominees named, for approval of the grant of
Performance-Based Contingent Stock Options for an aggregate of 350,000 shares
of First Republic's Common Stock, for ratification of the selection of KPMG
Peat Marwick LLP as the Company's independent auditors, and in accordance with
the best judgment of the proxy holders with respect to any other matters which
may properly come before the 1995 Annual Meeting.
PLEASE SIGN AND DATE BELOW:
DATED: ______________, 1995
X
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Please sign exactly as name(s) appear hereon. If shares are held jointly,
each holder should sign. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give full title. If a
partnership, please sign in partnership name by authorized person.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE SO THAT IT MAY BE COUNTED AT THE ANNUAL MEETING
