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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended

June 30, 2002

Commission file number 0-27652

REPUBLIC BANCSHARES, INC.
(Exact Name of Registrant As Specified In Its Charter)

At June 30, 2002, 11,378,719 shares of the registrant’s $2.00 par value common stock were outstanding.

REPUBLIC BANCSHARES, INC.

INDEX

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this Quarterly Report on Form 10-Q (other than the financial statements and statements of historical fact), including, without limitation, statements as to our expectations and beliefs presented under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements. Forward-looking statements are made based upon our expectations and beliefs concerning events, many of which, by their nature, are inherently uncertain and outside of our control. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

We caution readers that the assumptions which form the basis for forward-looking statements, with respect to or that may impact earnings for the year ending December 31, 2002, and thereafter, include many factors that are beyond our ability to control or estimate precisely. Some factors include: the adequacy of our loan loss allowance; our ability to recover any or all of the claim under our Financial Institution Bond; the market demand and acceptance of our loan and deposit products; the impact of competitive products; and changes in economic conditions, such as inflation or fluctuations in interest rates.

While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in connection with our preparation of management’s discussion and analysis contained in our quarterly report, we do not intend to review or revise any particular forward-looking statement referenced herein.

REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – June 30, 2002 and December 31, 2001
($ in thousands, except share data)

The accompanying notes are an integral part of these consolidated balance sheets

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REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data; unaudited)

The accompanying notes are an integral part of these consolidated statements.

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REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001 AND
THE SIX MONTHS ENDED JUNE 30, 2002 (unaudited)
($ in thousands, except share data)

REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited)

The accompanying notes are an integral part of these consolidated statements.

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REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands; unaudited)

The accompanying notes are an integral part of these consolidated statements.

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REPUBLIC BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING MATTERS

Basis of Presentation and Organization

In the opinion of management, the accompanying consolidated financial statements of Republic Bancshares, Inc. and its subsidiaries (referred to herein as the “Company” or “Republic” or “We”), marked “unaudited” where applicable, contain all normal recurring adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2002 and December 31, 2001, and the results of operations and cash flows for the three and six months ended June 30, 2002 and 2001. The accounting and reporting policies of the Company and its wholly-owned subsidiaries, Republic Bank (the “Bank”, including its wholly-owned subsidiaries, Republic Insurance Agency and Republic SPE, Inc.) and RBI Capital Trust I (“RBI”), are in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) and prevailing practices within the financial services industry.

The preparation of financial statements in conformity with generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified.

Our consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Our primary source of income is from the Bank and its’ wholly owned subsidiaries. The Bank’s primary source of revenue is derived from net interest income on earning assets and from fees and charges on loans and deposits.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2001. The operating results for the three and six months ended June 30, 2002, are not necessarily indicative of the operating results to be expected for the fiscal year ending December 31, 2002.

Critical Accounting Policies

Our accounting and reporting policies and those of our subsidiaries are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. Our financial position and results of operations are affected by the application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our consolidated financial position and/or consolidated results of operations. The critical accounting and reporting policies include the areas of securities, allowance for loan losses, valuations of residual interests and mortgage servicing rights from loan sales or securitizations, and income taxes.

Our accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Accordingly, our critical accounting policies are discussed in detail in Republic Bancshares’ 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The following is a summary of those accounting policies.

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Securities

Securities that we have both the positive intent and ability to hold to maturity are classified as “Held to Maturity” and are carried at historical cost, adjusted for amortization of premiums and accretion of discounts. Securities classified as “Available for Sale” are those securities that may be sold prior to maturity as part of our asset/liability management strategies or in response to other factors. These securities are carried at fair value with any unrealized gains or losses, net of applicable tax effect, reported as a separate component of stockholders’ equity. Securities identified as “Trading” include the residual interests in cash flows from the securitization of High LTV Loans in 1997 and 1998 and the excess spread interest-only strips related to securitization or sale of first lien residential loans. Trading securities are carried at fair value with any unrealized gains or losses included in the consolidated statements o f operations under the caption “Gain (loss) on loans and securities, net”.

Interest and dividends on securities include the amortization of premiums and accretion of discounts using the effective interest rate method and are together reported as part of interest income on securities. Gains and losses realized on sales of securities are generally determined on the specific identification method and are reported under “Gain (loss) on loans and securities, net”.

Allowance for loan losses

The allowance for loan losses is established and maintained at levels deemed adequate to cover losses inherent in the portfolio as of the balance sheet date. This estimate is based on management’s evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are derived by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan administration, changes in the size and composition of the loan portfolio and peer group information. Periodically, we are examined by the state and federal banking regulators and the results of those examinations are also incorporated into our estimation process. Also included in management’s estimates for loan losses are considerations with respect to the impact of economic events, the outcome of which are uncertain. These events may include, but are not limited to, a general slowdown in the economy, fluctuations in ove rall lending rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas in which we conduct business. This information is compiled and the results are used to assign risk factors to segments of our loan portfolio. In certain cases, we may assign risk factors on an individual loan basis. Otherwise, risk factors are assigned to pools of loans with homogenous characteristics. We may also carry a portion of our allowance for loan losses without allocation to individual loans or pools of loans based on information collected regarding the quality of the loan portfolio, past and future expected trends and overall economic conditions, among other things.

Valuation of residual interests from securitization of High LTV Loans and valuation of mortgage servicing rights

Residual interests from securitization of High LTV Loans are accounted for as trading assets and are evaluated at least quarterly with the valuation adjustment, if any, reflected as a trading gain or loss in the consolidated statement of operations under the caption “Gain (loss) on loans and securities, net”. Under generally accepted accounting principles, use of quoted market values is the preferred method for valuing trading assets. However, the market for the residual interests on our balance sheet is illiquid and price quotations are not readily available. In that situation, the accounting rules permit use of other methods to estimate fair value, including techniques utilizing the present value of expected cash flows. We have used that present value methodology to value our trading assets which requires and is highly dependent on the selection of a discount rate, prepayment speed and an expected loss ratio. A majority of the mortgage loans comprising the collateral pool underlying the residual interests are secured by junior liens on residential real estate where, at origination, there was little or no equity in the property. Also, most of the loans were made for the purpose of debt consolidation and many of the borrowers had previous credit weaknesses, including bankruptcy, default or an above-average rate of delinquency.

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The overall delinquency rate for pools of this type of loan is generally higher than for pools of first mortgage loans and recovery of defaulted amounts is difficult to predict. Further, the terms of the securitizations place the Company in a first loss position among all security holders in the transactions and the realization of cashflows to the Company is expected over an extended period. As a result, the valuations derived in this process are extremely sensitive to changes in the assumptions used to calculate the expected cash flows. We are currently receiving cashflow from one of the residual interests and have applied those amounts to reduce the carrying value of that asset. A second residual interest is not expected to contribute cashflow to us until well into future years.

Our mortgage servicing rights and excess servicing interest-only strips from securitization or sale of first lien mortgage loans are also valued using a present value of cashflows methodology. Mortgage servicing rights and excess servicing interest-only strips represent an estimate of the present value of the future servicing fees arising from the right to service loans for others. This requires the development of a number of estimates, including anticipated principal amortization and prepayments of principal. The valuation of these assets is significantly affected by interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. In general, during periods of declining interest rates, the value of mortgage servicing assets declines due to increasing prepayments attributable to increased mortgage refinance activity. Conversely, during periods of rising interest rates, the value of servicing assets generally increases due to reduced refinance activity. We amortize the mortgage servicing rights over the period of estimated net servicing income based on projections of the amount and timing of future cash flows. The amount and timing of servicing asset amortization is adjusted quarterly based on actual results and updated projections. The mortgage servicing rights are accounted for in the “Other Assets” category on our balance sheet while the excess servicing interest-only strips are a trading asset.

Income taxes and the related deferred tax assets and liabilities

The determination of our overall income tax provision is complex and requires careful analysis. There are significant differences in the timing of recognition of income tax expense for financial accounting and income tax purposes in the following areas; (1) loan loss provisions, (2) mortgage servicing rights amortization and income from residual interests from loan securitizations, (3) premium amortization on deposits, (4) depreciation of fixed assets and, (5) net operating loss carryforwards. As a result, our balance sheet includes a net deferred tax asset with valuation highly dependent on our ability to generate future taxable income.

Reclassifications

Certain reclassifications may have been made to the prior period consolidated financial statements to conform to the June 2002 financial statement presentation. These reclassifications only changed the reporting categories and did not affect our results of operations or financial position.

Recent Accounting Pronouncements

Statement of Financial Accounting Standard (“SFAS”) No. 141 – Business Combinations and SFAS No. 142 – Goodwill and Other Intangible Assets

On July 20, 2001, the Financial Accounting Standards Board (”FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination. SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001, establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group

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of other assets but not those acquired in a business combination. SFAS No. 142 also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that goodwill will not be amortized but rather will be evaluated, at least annually, for impairment. It also provides for the continued amortization of intangible assets that have finite useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 141 and SFAS No. 142 did not have a material effect upon our financial position or results of operations. Following are the pro forma net income and earnings per share, had all periods presented been accounted for under SFAS No. 142:

SFAS No. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and amends Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequent Occurring Events and Transactions.” SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, with early application encouraged. The adoption of SFAS No. 144 did not have a material effect upon our results of operations or financial position.

SOP 01-6 - Accounting by Certain Entities (Including Entities with Trade Receivables) that Lend to or Finance the Activities of Others

In December 2001, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 01-6, “Accounting by Certain Entities (including Entities with Trade Receivables) that Lend to or Finance the Activities of Others.” SOP 01-6 clarifies that accounting and financial reporting practices for lending and financing activities should be the same regardless of the type of entity engaging in those activities and conforms, where appropriate, differences among the accounting and financial reporting provisions previously established by certain AICPA Audit and Accounting guides. SOP 01-6 is effective for fiscal years beginning after December 15, 2001. The adoption of SOP 01-6 did not have a material effect upon our results of operations or financial position.

2. EARNINGS PER SHARE

Diluted earnings per common and common equivalent shares have been computed by dividing net income by the weighted average common and common equivalent shares outstanding during the periods.

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The weighted average common and common equivalent shares outstanding has been adjusted to include the number of shares that would have been outstanding if stock options, with an exercise price greater than the average market price for the period, had been exercised at that average market price with the proceeds being used to buy shares from the market (i.e., the treasury stock method). Also, the calculation includes the shares that would have been issued from conversion of our perpetual preferred convertible stock (in 2001) and the convertible subordinated debentures, if they had been converted to common stock (i.e., the “if converted” method.) Basic earnings per common share was computed by dividing net income less dividends paid on the perpetual preferred convertible stock (in 2001) by the weighted average number of shares of common stock outstanding during the year.

The table below reconciles the calculation of the diluted and basic earnings per share for 2002 and 2001 ($ in thousands, except share data, unaudited):