UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

Or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission File Number: 0-15734

REPUBLIC BANCORP INC.

(989) 725-7337

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     þ Yes o No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock Outstanding as of April 30, 2004:
Common Stock, $5 Par Value Per Share                                                                           64,008,012 Shares

INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements

REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

     See notes to consolidated financial statements.

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REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

     See notes to consolidated financial statements.

4

REPUBLIC BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

     See notes to consolidated financial statements.

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REPUBLIC BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements of Republic Bancorp Inc. and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Note 2 — Principles of Consolidation

The consolidated financial statements include the accounts of the parent company, Republic Bancorp Inc. and its wholly-owned banking subsidiary, Republic Bank (including its wholly-owned subsidiaries Quincy Investment Services, Inc., Republic Bank Real Estate Finance, LLC and Republic Management Company, Inc.). All significant intercompany accounts and transactions have been eliminated in consolidation.

Effective December 31, 2003, the Company adopted FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 required the Company to reclassify its trust preferred securities balance of $50 million as subordinated debt and the dividends paid on its trust preferred securities as interest expense, where in prior periods dividends on trust preferred securities were classified as a component of noninterest expense. All prior periods have been restated to reflect the adoption of FIN 46.

Note 3 — Consolidated Statements of Cash Flows

Supplemental disclosures of cash flow information for the three months ended March 31, include:

Note 4 — Comprehensive Income

The following table sets forth the computation of comprehensive income:

Note 5 — Intangible Assets

The following table summarizes the Company’s core deposit intangible asset which is subject to amortization:

Amortization expense on the core deposit intangible asset totaled $247,500 for each of the quarters ended March 31, 2004 and 2003, and $990,000 for the year ended December 31, 2003. The Company expects core deposit intangible amortization expense to be $990,000, $936,000, $823,000, $823,000 and $663,000 for each of the years ending December 31, 2004, 2005, 2006, 2007 and 2008, respectively.

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Note 6 — Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

Note 7 — Segment Information

The Company’s operations are managed as three major business segments: (1) commercial banking, (2) retail banking, and (3) mortgage banking. The commercial banking segment consists of commercial lending to small- and medium-sized companies, primarily in the form of commercial real estate and Small Business Administration (SBA) loans. The retail banking segment consists of home equity lending, other consumer lending and the deposit-gathering function. Deposits and loan products are offered through 83 retail branch offices of Republic Bank, which are staffed by personal bankers and loan originators. The mortgage banking segment is comprised of mortgage loan production. Mortgage loan production is conducted in all offices of Republic Bank. Treasury and Other is comprised of balance sheet management activities that include the securities portfolio, residential real estate mortgage portfolio loans and non-deposit funding. Treasury and Other also includes unallocated corporate expenses such as corporate overhead, including accounting, data processing, human resources and operation costs.

The following table presents the financial results of each business segment for the three months ended March 31, 2004 and 2003.

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Note 7 — Segment Information (Continued)

n/m — not meaningful

Note 8 — Stock Based Compensation

Effective January 1, 2003, the Company adopted the fair value method of recording stock options under SFAS 123. In accordance with the transitional guidance of SFAS 148, the fair value method of accounting for stock options will be applied prospectively to awards granted subsequent to January 1, 2003. During 2003 and in the first quarter of 2004, the Company generally issued restricted stock in lieu of stock option grants. As a result, the GAAP income statement impact associated with expensing stock options in the first quarter of 2004 was immaterial. The income statement impact from expensing stock options is expected to be immaterial for the remainder of 2004.

The following table presents net income and earnings per share had compensation cost for the Company’s stock-based compensation plans been determined in accordance with SFAS No. 123 for all outstanding and unvested awards for the three months ended March 31, 2004 and 2003.

Note 9 — Legal Proceedings

The Company and its Subsidiaries are subject to certain legal actions and proceedings in the ordinary course of business. Management believes that the aggregate liability, if any, resulting from such legal actions would not have a material adverse effect on the Company’s financial condition.

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ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

EARNINGS PERFORMANCE

The Company reported net income for the quarter ended March 31, 2004 of $16.3 million. This compares to net income of $15.2 million for the first quarter of 2003. Diluted earnings per share for the first quarter of 2004 were $.25, up 7% from $.24 earned in 2003. Annualized returns on average assets and average shareholders’ equity for the quarter ended March 31, 2004 were 1.20% and 17.15%, respectively.

RESULTS OF OPERATIONS

Net Interest Income

The following discussion should be read in conjunction with Table I on the following page, which identify and quantify the components impacting net interest income for the three months ended March 31, 2004 and 2003.

Net interest income, on a fully taxable equivalent (FTE) basis, was $36.9 million for the first quarter of 2004 compared to $35.0 million for the first quarter of 2003. The increase was primarily the result of an increase in the Company’s average interest earning assets of $757 million, or 17%, as the average balance of total securities increased $668 million, or 347%, and the average portfolio loan balance increased $432 million, or 12%, during the first quarter of 2004 compared to 2003. A significant portion of the increase in the securities balance was utilized to offset the lower levels of mortgage loans held for sale. The average balance of loans held for sale decreased $345 million to $93 million in the first quarter of 2004 compared to the first quarter of 2003. The increase in the average portfolio loan balance reflects a $52 million, or 4%, increase in average commercial loans, a $339 million, or 20%, increase in average residential real estate mortgage loans and a $41 million, or 7%, increase in average installment loans. Average total interest bearing liabilities increased $723 million for the first quarter of 2004 compared to 2003 primarily due to a $15 million increase in total average interest-bearing deposits, a $306 million increase in average short-term borrowings and a $404 million increase in average long-term FHLB advances and long-term reverse repurchase agreements.

The net interest margin (FTE) was 2.82% for the quarter ended March 31, 2004, a decrease of 31 basis points from 3.13% in 2003. The decrease in the margin was primarily attributable to the Company’s yield on earning assets decreasing more than the decline in the cost of funds on interest-bearing liabilities as a result of the Company’s asset sensitive position in the declining interest rate environment over the past twelve months.

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Table I — Quarterly Net Interest Income and Rate/Volume Analysis (FTE)

		(1) Non-accrual loans and overdrafts are included in average balances.
		(2) The FTE adjustment for tax-exempt securities interest income totaled $988,000 and $450,000 for the quarters ended March 31, 2004 and 2003, respectively.
		(3) Rate/volume variances are proportionately allocated to rate and volume based on the absolute value of the change in each.

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Noninterest Income

Total noninterest income decreased $4.0 million, or 27%, for the quarter ended March 31, 2004, compared to the same period in 2003. The decrease was primarily due to lower levels of mortgage banking income. Details of mortgage banking income are presented below. Exclusive of mortgage banking income, noninterest income was $5.6 million for the quarter ended March 31, 2004, an increase of $515,000, or 10%, over the first quarter of 2003. During the quarter ended March 31, 2004, gain on sale of securities was $688,000, an increase of $240,000 from the first quarter of 2003. In addition, the Company sold $3.8 million of the guaranteed portion of SBA loans during the quarter ended March 31, 2004, resulting in gains of $521,000, or a $326,000 increase over the gains on sale of SBA loans during the first quarter of 2003. During the quarter ended March 31, 2003, the Company sold $1.7 million of SBA loans for gains of $195,000. The guaranteed portion of SBA loans are regularly sold to investors and the gains from the sales are included in other noninterest income.

Mortgage Banking Income

The Company closed $425 million in single-family residential mortgage loans in the first quarter of 2004, a decrease of 57% compared to $988 million closed in the same period last year. Refinancings for the first quarter of 2004 represented 47% of total closings compared to 75% in the first quarter of 2003.

For the three months ended March 31, 2004, mortgage banking income decreased $4.6 million, or 47%, to $5.2 million from $9.7 million a year earlier. The decrease is primarily due to lower funding levels of loans sold into the secondary market. Mortgage loans held for sale fundings were $256 million during the first quarter of 2004 compared to $860 million in the prior year. The ratio of mortgage loan production income to mortgage loans held for sale fundings was 2.44% for the first quarter of 2004, compared to 1.95% for the first of quarter 2003.

Mortgage banking income includes fee revenue derived from the loan origination process (e.g., points collected), gains on the sale of mortgage loans and the related mortgage servicing rights released concurrently with the underlying loans sold (mortgage loan production income), net of commissions, incentives and deferred mortgage loan origination costs and fees for mortgage loans held for sale and residential real estate portfolio loans as accounted for under FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (SFAS 91). Mortgage loan production income totaled $6.2 million and $16.8 million for the first quarter of 2004 and 2003, respectively. Commissions and incentives paid were $3.4 million and $8.2 million for the first quarter of 2004 and 2003, respectively. The SFAS 91 credit to mortgage banking income totaled $1.5 million and $753,000 for the first quarter of 2004 and 2003, respectively.

Mortgage banking income also includes gains on sales of mortgage portfolio loans totaling $857,000 and $400,000 for the first quarters of 2004 and 2003, respectively. Mortgage loan portfolio sales totaled $51.5 million and $17.8 million for the first quarters of 2004 and 2003, respectively.

During the quarter ended March 31, 2004, the Company had mortgage loan applications of $947 million and at March 31, 2004, the Company’s mortgage loan pipeline of applications in process was $580 million, an increase of 86% over December 31, 2003. The Company estimates that mortgage applications and closings for the quarter ended June 30, 2004 will range from $650 to $750 million.

Noninterest Expense

Total noninterest expense for the quarter ended March 31, 2004 decreased $3.4 million, to $21.0 million compared to $24.4 million for the first quarter of 2003. The decrease was primarily due to decreases in salaries and employee benefits of $2.3 million related to lower levels of incentive accruals and related payroll taxes and other noninterest expenses of $1 million. The decrease in other non-interest expenses reflects a reduction in state income taxes and lower levels of other expenses, including advertising and data processing.

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BALANCE SHEET ANALYSIS

ASSETS

At March 31, 2004, the Company had $5.55 billion in total assets, an increase of $197 million, or 4%, from $5.35 billion at December 31, 2003. The increase is primarily the result of an increase in the Company’s securities available for sale and securities held to maturity.

Investment Securities

The Company’s investment securities portfolio serves as a secondary source of earnings and contributes to the management of interest rate risk and liquidity risk. The Company’s securities portfolio is comprised principally of U.S. Government agency securities, municipal securities, collateralized mortgage obligations and mortgage-backed securities. At March 31, 2004, fixed rate investment securities within the portfolio, excluding municipal securities, totaled $570.3 million compared to $404.0 million at December 31, 2003. At March 31, 2004, $471.9 million of these fixed rate investment securities were collateralized with 5/1, 7/1 and 10/1 hybrid adjustable rate mortgage loans which provide for an interest rate reset cap of 2% to 5% at the first reset date. This compares to $306.7 million at December 31, 2003.

Investment securities available for sale totaled $713.3 million at March 31, 2004, a $105.8 million increase from $607.5 million at December 31, 2003, representing 13% of total assets at March 31, 2004. The increase in the Company’s securities available for sale portfolio was primarily due to the purchase of collateralized mortgage obligations, collateralized with 5/1 and 7/1 hybrid adjustable rate mortgage loans.

Investment securities held to maturity totaled $235.6 million at March 31, 2004, a $79.0 million increase from $156.6 million at December 31, 2003. The increase in investment securities held to maturity was primarily due to the purchase of collateralized mortgage obligations, collateralized with 7/1 and 10/1 hybrid adjustable rate mortgage loans. The investment securities held to maturity portfolio constituted 4% of the Company’s total assets at March 31, 2004.

During the first quarter of 2004, $146 million of long-term reverse repurchase agreements with a weighted average cost of funds of 2.65% and an average term of 3.4 years were utilized to fund approximately 83% of the first quarter purchases of fixed rate investment securities. The reverse repurchase agreements minimize the interest rate risk associated with the fixed rate investment securities purchased.

The following table details the composition, amortized cost and fair value of the Company’s investment securities portfolio at March 31, 2004:

     At March 31, 2004, all of the unrealized losses in the securities portfolio were comprised of securities guaranteed by U.S. Government agencies, investment grade municipalities and private label securities rated “AAA” by the major rating agencies. The Company believes that the price movements in these securities are dependent upon the movement in market interest rates, particularly given the negligible inherent credit risk for these securities. Securities with unrealized losses totaling less than $100,000 have been in a continuous unrealized loss position for more than 12 months. The Company has the ability and intent to hold all securities that are in an unrealized loss position until maturity or market price recovery. The Company believes that the unrealized losses in the table above are temporary.

     Certain securities having a carrying value of $634.7 million and $418.4 million at March 31, 2004 and December 31, 2003, respectively, were pledged to secure FHLB advances, reverse repurchase agreements and public deposits as required by law.

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Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, the Company is required to own capital stock in the FHLB. The carrying value of the stock is at cost, or par. All transactions in the capital stock of the FHLB are executed at par. The balance of FHLB stock was $80.5 million at March 31, 2004 and December 31, 2003. The Company earned an average dividend of 5.25% on the FHLB stock during the first quarter of 2004.

Mortgage Loans Held for Sale

Mortgage loans held for sale were $140.8 million at March 31, 2004, an increase of $5.5 million from $135.3 million at December 31, 2003. Loans closed generally remain in loans held for sale for 30 to 60 days after closing.

Portfolio Loans

Total portfolio loans were $4.17 billion at March 31, 2004, an increase of $9.4 million from $4.16 billion at December 31, 2003. The increase was primarily due to increases in the commercial and installment portfolio loan balances. The commercial portfolio loan balance was $1.54 billion at March 31, 2004, an increase of $21.6 million from $1.52 billion at December 31, 2003. The increase was concentrated in commercial real estate loans. In addition, the Company closed $12.3 million in Small Business Administration (SBA) loans during the three months ended March 31, 2004, an increase of 52% over the first quarter of 2003.

The consumer direct installment loan portfolio increased $23.6 million during the first three months of 2004, primarily due to an increase in home equity loan closings. The consumer indirect installment loan portfolio decreased $3.0 million during the first quarter of 2004 due to the anticipated pay-off of these loans.

The residential portfolio loan balance decreased $32.8 million during the first quarter of 2004 primarily due to the sale of $52 million of fixed-rate loans and a seasonal decline in the construction loan portfolio of $24 million. During the first three months of 2004, the Company retained $173 million in mortgage portfolio loans, 77% of which were adjustable-rate mortgages. Loan pay-offs for the first quarter of 2004 were $117 million.

The following table provides further information regarding the Company’s loan portfolio:

Credit Quality

The Company attempts to minimize credit risk in its loan portfolio by focusing primarily on real estate-secured lending (i.e., commercial real estate mortgage and construction loans, residential real estate mortgage and construction loans and home equity loans). As of March 31, 2004, such loans comprised approximately 98% of total portfolio loans. The Company’s general policy is to originate conventional residential real estate mortgages with loan-to-value ratios of 80% or less; SBA-secured loans or real estate-secured commercial loans with loan-to-value ratios of 75% or less that are secured by personal guarantees; and home equity loans with combined first and second mortgages with loan-to-value ratios of 85% or less.

The majority of the Company’s commercial loans are secured by real estate and are generally made to small and medium-size businesses. These loans are made at rates based on the prevailing prime interest rate of Republic Bank, as well as fixed rates for terms generally ranging from three to five years. Management believes that the Company’s historically low net charge-offs are reflective of the emphasis on real estate-secured lending and adherence to conservative underwriting standards.

The Company originates primarily conventional mortgage loans secured by residential properties which conform to the underwriting guidelines for sale to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), or for conversion to mortgage-backed securities issued by the Government National Mortgage Association (GNMA).

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Non-Performing Assets

Non-performing assets consist of non-accrual loans, restructured loans and other real estate owned (OREO). OREO represents real estate properties acquired by the Company through foreclosure or by deed in lieu of foreclosure. Commercial loans are generally placed on non-accrual status when principal or interest is 90 days or more past due, unless the loans are well-secured and in the process of collection. Residential real estate mortgage loans and installment loans are placed in non-accrual status at the time the loan is four scheduled payments past due or 90 days or more past the maturity date of the loan. In all cases, loans may be placed on non-accrual status earlier when, in the opinion of management, reasonable doubt exists as to the full, timely collection of interest or principal. When a loan is placed on non-accrual status, interest accruals cease and any uncollected interest is charged against current income. Interest subsequently received on non-accrual loans is applied against the principal balance.

The following table summarizes the Company’s non-performing assets and 90-day past due loans:

At March 31, 2004, approximately $16.0 million, or .37% of total loans were 30-89 days delinquent, compared to $28.2 million, or .66%, at December 31, 2003. The Company also maintains a list of potential problem loans (classified as watch and substandard, but excluding non-accrual and restructured loans) identified as requiring a higher level of monitoring where known information about possible borrower credit problems raises serious doubts as to the ability of such borrowers to comply with the repayment terms. As of March 31, 2004, total potential problem loans, excluding those categorized as non-accrual loans, were $30.0 million, or 0.70% of total loans, compared to $30.8 million, or 0.72% of total loans at December 31, 2003.

Provision and Allowance for Loan Losses

The allowance for loan losses represents the Company’s estimate of probable credit losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is maintained at a level the Company believes is adequate through additions to the provision for loan losses. An appropriate level of the risk allocated allowance is determined based on the application of risk percentages to graded loans by categories. Specific reserves are established for individual loans when deemed necessary by management. In addition, management considers other factors when determining the unallocated allowance, including loan quality, changes in the size and character of the loan portfolio, consultation with regulatory authorities, amount of nonperforming loans, delinquency trends and economic conditions and industry trends.

Due to the inherent risks and uncertainties related to the operation of a financial institution, management must depend on estimates, appraisals and valuations of loans to prepare the Company’s financial statements. Changes in economic conditions and the financial prospects of borrowers may result in abrupt changes to the estimates, appraisals or evaluations used. In addition, if actual circumstances and losses differ substantially from management’s assumptions and estimates, the allowance for loan losses may not be sufficient to absorb all future losses, and net income could be adversely impacted.

During the three months ended March 31, 2004, the Company recorded provision for loan losses of $2.5 million, a decrease of $500,000 from the comparable period in 2003. The decrease in the provision was primarily due to a decrease in net charge-offs during the first quarter of 2004 of $677,000 compared to the first quarter of 2003. In addition, non-performing assets decreased $2.3 million, or 5%, since December 31, 2003.

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Provision and Allowance for Loan Losses (Continued)

The following table provides an analysis of the allowance for loan losses:

SFAS No. 114, Accounting By Creditors for Impairment of a Loan, as amended by SFAS No. 118, considers a loan impaired when it is probable that payment of principal and interest will not be collected in accordance with the contractual terms of the original loan agreement. Consistent with this definition, all non-accrual (with the exception of residential mortgage and consumer installment loans) and restructured loans are considered impaired. An impaired loan for which it is deemed necessary to record a specific allocated allowance may be written down to the fair value of the underlying collateral via a direct charge-off against the allowance for loan losses at the time it is determined the loan balance exceeds the fair value of the collateral. Consequently, those impaired loans not requiring a specific allocated allowance represent loans for which the fair value of the underlying collateral equaled or exceeded the recorded investment in the loan. All impaired loans were evaluated using the fair value of the underlying collateral as the measurement method.

Bank Owned Life Insurance

Republic Bank has purchased separate account bank owned life insurance to fund future employee benefit costs. Increases in the cash surrender value resulting from investment returns are recorded in noninterest income.

Off-Balance Sheet Instruments

In the normal course of business, the Company becomes a party to transactions involving financial instruments with off-balance sheet risk to meet the financing needs of its customers and to manage its own exposure to interest rate risk. These financial instruments include commitments to extend credit and standby letters of credit that are not reflected in the consolidated financial statements. The contractual amounts of these instruments express the extent of the Company’s involvement in these transactions as of the balance sheet date. These instruments involve, to varying degrees, elements of credit risk, market risk and liquidity risk in excess of the amount recognized in the consolidated balance sheets. However, management believes that they do not represent unusual risks for the Company and management does not anticipate any significant losses to arise from these transactions.

Commitments to extend credit are legally binding agreements to lend cash to a customer as long as there is no breach of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Standby letters of credit guarantee the performance of a customer to a third party. The Company issues these guarantees primarily to support public and private borrowing arrangements, real estate construction projects, bond financing and similar transactions.

The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved with direct lending. Therefore, these instruments are subject to the Company’s loan review and approval procedures and credit policies. Based upon management’s credit evaluation of the counterparty, the Company may require the counterparty to provide collateral as security for the agreement, including real estate, accounts receivable, inventories, and investment securities. The maximum credit risk associated with these instruments equals their contractual amounts and assumes that the counterparty defaults and the collateral proves to be worthless. The total contractual amounts of commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements, since many of these agreements may expire without being drawn upon. The Company has determined the fair value of commitments to extend credit to be zero. As a result, no liability is recorded for the commitments to extend credit at March 31, 2004 and December 31, 2003. Deferred revenue recorded for standby letters of credit was $132,000 and $189,000 at March 31, 2004 and December 31, 2003, respectively.

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Off-Balance Sheet Instruments (Continued)

The following table presents the contractual amounts of the Company’s off-balance sheet financial instruments outstanding at March 31, 2004 and December 31, 2003.

Hedging Activities

At March 31, 2004, the Company had outstanding $143 million of commitments to fund residential real estate loan applications with agreed-upon rates (“Interest Rate Lock Commitments” or “IRLCs”). Interest Rate Lock Commitments and holding residential mortgage loans for sale to the secondary market exposes the Company to interest rate risk during the period from application to when the loan is sold to the investors. To minimize this exposure to interest rate risk, the Company enters into firm commitments to sell such mortgage loans and IRLCs at specified future dates to various third parties.

At March 31, 2004, the Company had outstanding mandatory forward commitments to sell $255 million of residential mortgage loans, which includes put options on 10-year treasury futures with a notional amount of $2 million. These mandatory forward commitments covered $129 million of mortgage loans held for sale and $126 million of IRLCs. At March 31, 2004, the mortgage loans held for sale balance included $15 million of loan products for which the Company did not enter into mandatory forward commitments. The Company’s exposure to market risk was not significantly increased, however, since these loans were committed to sale to third parties prior to quarter-end.

The Company implemented SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended effective January 1, 2001. For the quarter ended March 31, 2004, the Company’s hedging policies using mandatory forward commitments and put options on 10-year treasury futures, as they relate to IRLCs and mortgage loans held for sale, were highly effective. Therefore, the impact of SFAS 133 on net income was immaterial. The fair value of IRLCs, mandatory forward commitments and put options was also immaterial at March 31, 2004.

LIABILITIES

Total liabilities were $5.16 billion at March 31, 2004, a $179 million, or 4% increase from $4.98 billion at December 31, 2003. This increase was primarily due to increases in total deposits, short-term borrowings and long-term reverse repurchase agreements.

Deposits

Total deposits increased $75 million, or 3%, to $2.89 billion at March 31, 2004 from $2.82 billion at December 31, 2003. Noninterest bearing deposits increased $17 million, or 7%; savings and money market accounts increased $9 million, or 1%; and certificates of deposit increased $51 million, or 4%, for the period.

Short-Term Borrowings

Short-term borrowings with maturities of less than one year, along with the related average balances and interest rates for the three months ended March 31, 2004 and the year ended December 31, 2003, were as follows:

At March 31, 2004 and December 31, 2003, other short-term borrowings consisted of treasury, tax and loan (TT&L) demand notes.

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Short-Term FHLB Advances

Short-term FHLB advances outstanding at March 31, 2004 and December 31, 2003, were as follows:

Republic Bank routinely borrows short-term advances from the Federal Home Loan Bank (FHLB) to fund mortgage loans held for sale and a portion of the investment securities portfolio. These advances are generally secured under a blanket security agreement by first mortgage loans and investment securities with an aggregate book value equal to at least 145% of the advances.

Long-term FHLB Advances And Reverse Repurchase Agreements

Long-term FHLB advances and reverse repurchase agreements outstanding at March 31, 2004 and December 31, 2003, were as follows:

Republic Bank routinely utilizes long-term FHLB advances and reverse repurchase agreements to provide funding to minimize the interest rate risk associated with certain fixed rate commercial and residential mortgage portfolio loans and investment securities. The long-term FHLB advances are generally secured under a blanket security agreement by first mortgage loans and investment securities with an aggregate book value equal to at least 145% of the advances.

The long-term reverse repurchase agreements are secured by certain securities with a carrying value of $376.7 million. The increase in the long-term reverse repurchase agreements of $146 million during the first quarter of 2004 was due to the Company funding approximately 83% of the first quarter purchases of fixed rate investment securities with reverse repurchase agreements to help minimize the interest rate risk associated with the securities purchased.

The long-term FHLB advances and reverse repurchase agreements have original maturities ranging from May 2004 to October 2017.

CAPITAL

Shareholders’ equity was $386.9 million at March 31, 2004, a $17.5 million, or 5%, increase from $369.4 million at December 31, 2003. This increase in shareholders’ equity during the first quarter of 2004 resulted primarily from net income of $16.3 million, an increase in accumulated other comprehensive income of $4.7 million and the issuance of shares through the exercise of stock options, warrants and restricted stock of $2.8 million, offset by $6.1 million in cash dividends to shareholders and $1.0 million in stock repurchases.

The Company is subject to risk-based capital adequacy guidelines that measure capital relative to risk-weighted assets and off-balance sheet financial instruments. Capital adequacy guidelines issued by the Federal Reserve Board require bank holding companies to have a minimum total risk-based capital ratio of 8.00%, with at least half of total capital in the form of Tier 1, or core capital. To be considered well-capitalized under the regulatory framework, minimum capital ratios of 10.00% for total risk-based capital, 6.00% for Tier 1 risk-based capital and 5.00% for Tier 1 leverage must be maintained.

As of March 31, 2004, the Company met all capital adequacy requirements to which it is subject and management does not anticipate any difficulty in meeting these requirements on an ongoing basis. The Company’s capital ratios were as follows:

⁽¹⁾   As defined by the regulations.

As of March 31, 2004, the Company’s total risk-based capital was $469 million and Tier 1 risk-based capital was $427 million, an excess of $108 million and $211 million, respectively, over the minimum guidelines prescribed by regulatory agencies for a well-capitalized institution. In addition, Republic Bank had regulatory capital ratios in excess of the minimum levels established for well-capitalized institutions.

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ACCOUNTING AND FINANCIAL REPORTING DEVELOPMENTS

The Company’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. These policies require estimates and assumptions which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Company’s future financial condition and results of operations. The most critical of these significant accounting policies is the policy for the allowance for loan losses. This policy is discussed more fully on pages 42 and 43 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may communicate or publish forward-looking statements relating to such matters as possible or assumed future results of our operations, anticipated financial performance, business prospects, new products, and similar matters. These forward-looking statements are subject to risks and uncertainties. Also, when we use any of the words “appropriate,” “believes,” “considers,” “expects,” “plans,” “anticipates,” “estimates,” “seeks,” “intends,” “outlook,” “forecast,” “target,” “project,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “trends,” and variations of such words and similar expressions we are making forward-looking statements.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. We believe that our forward-looking statements are reasonable. You should not place undue reliance on any such forward-looking statements, which speak only as of the date made. You should understand that the following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q, or in our filings with the SEC (which are accessible on the SEC’s website at www.sec.gov and on our website at www.republicbancorp.com), or in our press releases, and in our public documents to which we refer, could affect our future results and performance. This could cause those results to differ materially from those expressed in our forward-looking statements. Factors that might cause such a difference include the following:

	•		significantly increased competition from banking and non-banking institutions;
	•		inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
	•		general political, industry and economic conditions, either domestically or internationally, that are different than expected;
	•		adverse developments concerning credit quality in our business segments that may result in increases in our provisions for loan losses, nonperforming assets, net charge-offs and reserve for credit losses and could cause our earnings to decline;
	•		adverse changes in the securities markets;
	•		legislative or regulatory changes that adversely affect our business;
	•		the ability to enter new markets successfully and capitalize on growth opportunities;
	•		effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve board;
	•		timely development of and acceptance of new products and services;
	•		changes in consumer spending, borrowing and savings habits;
	•		effect of changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or other regulatory agencies;
	•		changes in our organization, compensation and benefit plans;
	•		costs and effects of new litigation or changes in existing litigation and unexpected or adverse outcomes in such litigation; and
	•		our success in managing risks involved in the foregoing.

     The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events.

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ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK MANAGEMENT

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The Company’s market risk exposure is composed entirely of interest rate risk. Interest rate risk arises in the normal course of business to the extent that there is a difference between the amount of the Company’s interest-earning assets and the amount of interest-bearing liabilities that are prepaid/withdrawn, reprice or mature in specified periods. Because the Company’s business is subject to many factors beyond its control (See Forward-Looking Statements on previous page) in managing the Company’s assets and liabilities, and overall exposure to risk, management must rely on numerous estimates, evaluations and assumptions. Consequently, actual results could differ materially from those anticipated by management or expressed in the Company’s press releases and public documents.

Asset and Liability Management

The primary objective of asset and liability management is to maintain stability in the level of net interest income by producing the optimal yield and maturity mix of assets and liabilities within the interest rate risk limits set by the Company’s Asset and Liability Management Committee (ALCO) and consistent with projected liquidity needs and capital adequacy requirements.

Interest Rate Risk Management

The Company’s ALCO, which meets weekly, is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. Senior management at Republic Bank is responsible for ensuring that the Bank’s asset and liability management procedures adhere to corporate policies and risk limits established by their respective board of directors.

The Company utilizes two complementary quantitative tools to measure and monitor interest rate risk: static gap analysis and earnings simulation modeling. While each of these interest rate risk measurements has limitations, the Company believes that evaluating these measures together provides a reasonably comprehensive view of the Company’s exposure to interest rate risk.

Static Gap Analysis: Static gap analysis is utilized at the end of each month to measure the amount of interest rate risk embedded in the balance sheet as of a point in time. The Company undertakes this analysis by comparing the differences in the repricing characteristics of interest-earning assets and interest-bearing liabilities. A gap is defined as the difference between the principal amount of interest-earning assets and interest-bearing liabilities that reprice within a specified time period. This gap provides a general indication of the sensitivity of the Company’s net interest income to interest rate changes. If more assets than liabilities reprice or mature in a given period, resulting in an asset sensitive position or positive gap, increases in market interest rates will generally benefit net interest income because earning asset rates will reflect the changes more quickly than rates paid on interest-bearing liabilities. Alternatively, where interest-bearing liabilities reprice more quickly than interest-earning assets, resulting in a liability sensitive position or negative gap, increases in market interest rates will generally have an adverse impact on net interest income. At March 31, 2004 the Company’s cumulative one-year gap was a positive 9.08% of total earning assets.

The Company’s current policy is to maintain a mix of asset and liabilities with repricing and maturity characteristics that reflect a moderate amount of short-term interest rate risk based on current interest rate projections, customer credit demands and deposit preferences. The Company generally operates in a range of zero to 15% of total earning assets for the cumulative one-year gap. Management believes that this range reduces the vulnerability of net interest income to large shifts in market interest rates while allowing the Company to take advantage of fluctuations in current short-term rates. This range also complements the Company’s strong retail mortgage banking franchise.

Earnings Simulation Modeling: On a monthly basis, management uses an earnings simulation model to quantify the effects of various hypothetical changes in interest rates on the Company’s projected net interest income over the ensuing twelve-month period. The model permits management to evaluate the effects of various parallel shifts of the U.S. Treasury yield curve, upward and downward, on net interest income expected in a stable interest rate environment (i.e., base net interest income).

As of March 31, 2004, the earnings simulation model projects the following change in net interest income from base net interest income, assuming an immediate parallel shift in market interest rates:

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Asset and Liability Management (Continued)

These projected levels are well within the Company’s policy limits. These results portray the Company’s interest rate risk position as asset sensitive for the one-year horizon. The earnings simulation model assumes that current balance sheet totals remain constant and all maturities and prepayments of interest-earning assets and interest-bearing liabilities are reinvested at current market rates.

Additional quantitative and qualitative disclosures about market risk are discussed throughout Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 9 of this report.

ITEM 4: Disclosure Controls and Procedures

Internal Controls

The Company maintains a system of internal controls that are designed to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with accounting principles generally accepted in the United States, and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of the Company’s internal controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

Disclosure Controls And Procedures

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) that are designed to provide reasonable assurance that the information required to be disclosed in the reports it files with the SEC is collected and then processed, summarized and disclosed within the time periods specified in the rules of the SEC. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these procedures are effective.

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PART II — OTHER INFORMATION