**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **FORM
10-Q**
 
 (Mark
      One)þ
    QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period endedSeptember30, 2005Oro
    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.**
 (Exact
name of registrant as specified in its charter)
 
 Michigan
    
    38-2604669(State
      or other jurisdiction of incorporation or organization)
    
    (I.R.S.
      Employer Identification No.)1070
      East Main Street, Owosso, Michigan
    
    48867(Address
      of principal executive offices)
    
    (Zip
      Code)(989)
      725-7337(Registrant's
      telephone number, including area code)(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 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
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 o Yes  þ 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 October 31, 2005:Common
      Stock, $5 Par Value Per Share
    68,318,000
      Shares
 
 
   
 
 INDEX
 
 **PART
      I.**
    FINANCIAL
      INFORMATIONItem
      1.
    Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of September 30, 2005 and December 31, 2004
    
    2Consolidated
      Statements of Income for the Three and Nine Months Ended September 30,
      2005 and 2004
    
    3Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2005 and
      2004
    
    4Notes
      to Consolidated Financial Statements
    
    5 -
      10Item
      2.
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
    
    11
      - 24Item
      3.
    Quantitative
      and Qualitative Disclosures About Market Risk
    
    25
      - 26Item
      4.
    Controls
      and Procedures
    
    27**PART
      II.**
    OTHER
      INFORMATIONItem
      1.
    Legal
      Proceedings
    
    28Item
      2.
    Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
    
    28Item
      6.
    Exhibits
    
    28**SIGNATURE**
    
    
    29Exhibits
      31(a)-(b) -
    Certifications
      of the Principal Executive Officer and Principal Financial
      Officer
    
    30
      - 31Exhibits
      32(a)-(b) -
    Certifications
      of the Chief Executive Officer and Chief Financial Officer
    
    32
      - 33
 
  1
  
 **PART
I - FINANCIAL INFORMATION**
 ITEM 1 -
Financial Statements
 
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
BALANCE SHEETS
 
 (Dollars
      in thousands)
    
    September
      30,
      2005
    
    December
      31, 2004(Unaudited)**ASSETS**Cash
      and cash equivalents
    
    $
    68,395
    
    $
    53,671Mortgage
      loans held for sale
    
    
    91,844
    
    
    105,318Securities
      available for sale, at market
    
    
    831,820
    
    
    620,794Securities
      held to maturity, at cost
    
    
    237,059
    
    
    222,757Loans,
      net of unearned income
    
    
    4,585,988
    
    
    4,463,975Less
      allowance for loan losses
    
    
    (41,946
    )
    
    (41,818
    )Net
      loans
    
    
    4,544,042
    
    
    4,422,157Federal
      Home Loan Bank stock (at cost)
    
    
    80,521
    
    
    80,511Premises
      and equipment
    
    
    26,690
    
    
    26,493Bank
      owned life insurance
    
    
    115,498
    
    
    112,978Other
      assets
    
    
    85,613
    
    
    69,298Total
      assets
    
    $
    6,081,482
    
    $
    5,713,977**LIABILITIES**Noninterest-bearing
      deposits
    
    $
    295,124
    
    $
    274,747Interest-bearing
      deposits:NOW
      accounts
    
    
    184,476
    
    
    203,553Savings
      and money market accounts
    
    
    977,221
    
    
    1,100,333Retail
      certificates of deposit
    
    
    1,049,334
    
    
    879,361Wholesale
      deposits
    
    
    708,452
    
    
    588,217Total
      interest-bearing deposits
    
    
    2,919,483
    
    
    2,771,464Total
      deposits
    
    
    3,214,607
    
    
    3,046,211Federal
      funds purchased and other short-term borrowings
    
    
    718,775
    
    
    538,300Short-term
      FHLB advances
    
    
    190,000
    
    
    215,000Long-term
      FHLB advances and security repurchase agreements
    
    
    1,438,302
    
    
    1,390,878Accrued
      expenses and other liabilities
    
    
    64,570
    
    
    63,950Long-term
      debt
    
    
    50,000
    
    
    50,000Total
      liabilities
    
    
    5,676,254
    
    
    5,304,339**SHAREHOLDERS’
      EQUITY**Preferred
      stock, $25 stated value: $2.25 cumulative and convertible; 5,000,000
      shares authorized, none issued and outstanding
    
    
    -
    
    
    -Common
      stock, $5 par value, 100,000,000 shares authorized; 68,463,000 and
      70,425,000, issued and outstanding, respectively
    
    
    342,315
    
    
    352,125Capital
      surplus
    
    
    40,030
    
    
    59,303Unearned
      compensation - restricted stock
    
    
    (5,623
    )
    
    (3,207
    )Retained
      earnings
    
    
    32,692
    
    
    3,634Accumulated
      other comprehensive loss
    
    
    (4,186
    )
    
    (2,217
    )Total
      shareholders’ equity
    
    
    405,228
    
    
    409,638Total
      liabilities and shareholders’ equity
    
    $
    6,081,482
    
    $
    5,713,977
 
 See notes
to consolidated financial statements.
 
  2
  
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
 Three
      Months Ended
    
    Nine
      Months EndedSeptember
      30,
    
    September
      30,(In
      thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004**Interest
      Income:**Interest
      and fees on loans
    
    $
    70,556
    
    $
    61,342
    
    $
    202,477
    
    $
    176,636Interest
      on investment securities and FHLB stock dividends
    
    
    12,795
    
    
    10,949
    
    
    37,452
    
    
    31,466Total
      interest income
    
    
    83,351
    
    
    72,291
    
    
    239,929
    
    
    208,102**Interest
      Expense:**Deposits
    
    
    19,118
    
    
    13,024
    
    
    50,973
    
    
    38,728Short-term
      borrowings
    
    
    9,147
    
    
    3,946
    
    
    23,092
    
    
    8,283Long-term
      FHLB advances and security repurchase agreements
    
    
    15,931
    
    
    15,546
    
    
    47,480
    
    
    47,090Long-term
      debt
    
    
    1,075
    
    
    1,075
    
    
    3,225
    
    
    3,225Total
      interest expense
    
    
    45,271
    
    
    33,591
    
    
    124,770
    
    
    97,326Net interest income
    
    
    38,080
    
    
    38,700
    
    
    115,159
    
    
    110,776Provision
      for loan losses
    
    
    1,400
    
    
    2,250
    
    
    4,300
    
    
    6,750Net interest income after provision for loan losses
    
    
    36,680
    
    
    36,450
    
    
    110,859
    
    
    104,026**Noninterest
      Income:**Mortgage
      banking income
    
    
    4,760
    
    
    4,558
    
    
    13,817
    
    
    16,298Service
      charges
    
    
    3,318
    
    
    2,971
    
    
    9,007
    
    
    8,673Gain
      on sale of securities
    
    
    447
    
    
    602
    
    
    1,174
    
    
    1,964Gain
      on sale of SBA loans
    
    
    628
    
    
    1,400
    
    
    1,581
    
    
    2,586Income
      from bank owned life insurance
    
    
    1,083
    
    
    1,070
    
    
    3,176
    
    
    3,553Other
      noninterest income
    
    
    775
    
    
    248
    
    
    2,180
    
    
    1,107Total
      noninterest income
    
    
    11,011
    
    
    10,849
    
    
    30,935
    
    
    34,181**Noninterest
      Expense:**Salaries
      and employee benefits
    
    
    15,337
    
    
    14,033
    
    
    41,103
    
    
    39,957Occupancy
      expense of premises
    
    
    2,603
    
    
    2,564
    
    
    7,799
    
    
    7,659Equipment
      expense
    
    
    1,565
    
    
    1,672
    
    
    4,788
    
    
    4,998Other
      noninterest expense
    
    
    4,393
    
    
    5,079
    
    
    14,339
    
    
    15,135Total
      noninterest expense
    
    
    23,898
    
    
    23,348
    
    
    68,029
    
    
    67,749Income
      before income taxes
    
    
    23,793
    
    
    23,951
    
    
    73,765
    
    
    70,458Provision
      for income taxes
    
    
    6,571
    
    
    6,738
    
    
    21,761
    
    
    20,578**Net
      Income**
    
    $
    17,222
    
    $
    17,213
    
    $
    52,004
    
    $
    49,880Basic
      earnings per share
    
    $
    .25
    
    $
    .24
    
    $
    .75
    
    $
    .71Diluted
      earnings per share
    
    $
    .25
    
    $
    .24
    
    $
    .74
    
    $
    .70Average
      common shares outstanding - diluted
    
    
    69,616
    
    
    71,343
    
    
    70,442
    
    
    71,222Cash
      dividends declared per common share
    
    $
    .110
    
    $
    .100
    
    $
    .330
    
    $
    .273
 
 
 See notes
to consolidated financial statements.
 
  3
  **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
 
 Nine
      Months Ended September 30 (In thousands)
    
    2005
    
    2004**Cash
      Flows From Operating Activities:**Net
      income
    
    $
    52,004
    
    $
    49,880Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
    
    
    8,462
    
    
    7,770Net
      gains on sale of securities available for sale
    
    
    (1,174
    )
    
    (1,964
    )Net
      gains on sale of commercial and residential real estate
    loans
    
    
    (4,725
    )
    
    (4,688
    )Proceeds
      from sale of mortgage loans held for sale
    
    
    542,411
    
    
    736,793Origination
      of mortgage loans held for sale
    
    
    (528,937
    )
    
    (755,308
    )Net
      increase in other assets
    
    
    (22,722
    )
    
    (18,106
    )Net
      increase (decrease) in other liabilities
    
    
    620
    
    
    (5,879
    )Other,
      net
    
    
    129
    
    
    3,897Total
      adjustments
    
    
    (5,936
    )
    
    (37,485
    )Net
      cash provided by operating activities
    
    
    46,068
    
    
    12,395**Cash
      Flows From Investing Activities:**Proceeds
      from sale of securities available for sale
    
    
    198,159
    
    
    131,708Proceeds
      from calls and principal payments of securities available for
      sale
    
    
    89,843
    
    
    140,715Proceeds
      from principal payments of securities held to maturity
    
    
    36,459
    
    
    34,832Purchases
      of securities available for sale
    
    
    (473,354
    )
    
    (346,276
    )Purchases
      of securities held to maturity
    
    
    (50,921
    )
    
    (109,663
    )Proceeds
      from sale of commercial and residential real estate loans
    
    
    259,952
    
    
    152,751Net
      increase in loans made to customers
    
    
    (406,415
    )
    
    (421,933
    )Premises
      and equipment expenditures
    
    
    (4,556
    )
    
    (4,596
    )Net
      cash used in investing activities
    
    
    (350,833
    )
    
    (422,462
    )**Cash
      Flows From Financing Activities:**Net
      increase in total deposits
    
    
    168,396
    
    
    154,806Net
      increase in short-term borrowings
    
    
    180,475
    
    
    42,596Net
      (decrease) increase in short-term FHLB advances
    
    
    (25,000
    )
    
    123,000Proceeds
      from long-term FHLB advances and security repurchase
      agreements
    
    
    113,250
    
    
    146,000Payments
      on long-term FHLB advances
    
    
    (64,612
    )
    
    (44,674
    )Net
      proceeds from issuance of common shares
    
    
    7,282
    
    
    7,416Repurchase
      of common shares
    
    
    (37,235
    )
    
    (3,667
    )Dividends
      paid on common shares
    
    
    (23,067
    )
    
    (18,198
    )Net
      cash provided by financing activities
    
    
    319,489
    
    
    407,279Net
      increase (decrease) in cash and cash equivalents
    
    
    14,724
    
    
    (2,788
    )Cash
      and cash equivalents at beginning of period
    
    
    53,671
    
    
    63,858Cash
      and cash equivalents at end of period
    
    $
    68,395
    
    $
    61,070
 
 See notes
to consolidated financial statements.
 
  4
  
 **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 U.
S. generally accepted accounting principles 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 U. S. generally accepted accounting
principles 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, 2004.
 
 **Note
2 -** **Principles
of Consolidation**
 The
consolidated financial statements include the accounts of the parent company,
Republic Bancorp Inc. and its wholly owned bank 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.
 
 **Note
3 -** **Consolidated
Statements of Cash Flows**
 Supplemental
disclosures of cash flow information for the nine months ended September 30,
include:
 
 (In
      thousands)
    
    2005
    
    2004Cash
      paid during the period for:Interest
    
    $
    123,874
    
    $
    96,355Income
      taxes
    
    $
    22,229
    
    $
    20,576Non-cash
      investing activities:Loan
      charge-offs
    
    $
    5,442
    
    $
    5,587
 
 During
the third quarter of 2005, the Company converted $21.7 million of residential
mortgage portfolio loans guaranteed by the Federal Home Loan Mortgage
Corporation (Freddie Mac) and $6.8 million of residential mortgage portfolio
loans guaranteed by the Federal National Mortgage Association (Fannie Mae) to
mortgage-backed securities via the loan sale and securitization programs offered
by those government-sponsored entities. The Company retained the resulting
securities and mortgage servicing rights and transferred the securities to the
securities available for sale portfolio.
 
 **Note
4 -** **Comprehensive
Income**
 The
following table sets forth the computation of comprehensive income:
 
 Three
      Months Ended
      September
      30,
    
    Nine
      Months Ended
      September
      30,(In
      thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net
      income
    
    $
    17,222
    
    $
    17,213
    
    $
    52,004
    
    $
    49,880Unrealized
      holding gains (losses) on securities, net of tax (credit) of ($1,464),
      $6,428, ($649) and $613, respectively
    
    
    (2,719
    )
    
    11,603
    
    
    (1,206
    )
    
    1,138Reclassification
      adjustment for gains included in net income, net of tax of $156, $211,
      $411 and $686, respectively
    
    
    (291
    )
    
    (391
    )
    
    (763
    )
    
    (1,278
    )Net
      unrealized gains (losses) on securities, net of tax
    
    
    (3,010
    )
    
    11,212
    
    
    (1,969
    )
    
    (140
    )Comprehensive
      income
    
    $
    14,212
    
    $
    28,425
    
    $
    50,035
    
    $
    49,740
 
  5
  **Note
5 -** **Intangible
Assets**
 The
following table summarizes the Company’s core deposit intangible asset which is
subject to amortization:
 
 (Dollars
      in thousands)
    
    September
      30, 2005
    
    December
      31, 2004Core
      Deposit Intangible Asset:Gross
      carrying amount
    
    $
    10,883
    
    $
    10,883Accumulated
      amortization
    
    
    7,635
    
    
    6,894Net
      book value
    
    $
    3,248
    
    $
    3,989
 
 Amortization
expense on the core deposit intangible asset totaled $244,000 and $247,500 for
the quarters ended September 30, 2005 and 2004, and $741,000 and $742,500 for
the nine months ended September 30, 2005 and 2004, respectively. The Company
expects core deposit intangible amortization expense to be $977,000, $864,000,
$864,000, $704,000 and $156,000 for each of the years ending December 31, 2005,
2006, 2007, 2008 and 2009, respectively.
 
 **Note
6 -** **Earnings
Per Share**
 The
following table sets forth the computation of basic and diluted earnings per
share:
 
 Three
      Months Ended
      September
      30,
    
    Nine
      Months Ended
      September
      30,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Numerator
      for basic and diluted earnings per share:Net
      income
    
    $
    17,222
    
    $
    17,213
    
    $
    52,004
    
    $
    49,880Denominator
      for basic earnings per share - weighted-average shares
    
    
    68,854,541
    
    
    70,448,286
    
    
    69,663,865
    
    
    70,349,609Effect
      of dilutive securities:Stock
      options
    
    
    706,993
    
    
    830,597
    
    
    723,376
    
    
    807,941Warrants
    
    
    54,332
    
    
    63,956
    
    
    54,637
    
    
    64,730Dilutive
      potential common shares
    
    
    761,325
    
    
    894,553
    
    
    778,013
    
    
    872,671Denominator
      for diluted earnings per share—adjusted weighted-average shares for
      assumed conversions
    
    
    69,615,866
    
    
    71,342,839
    
    
    70,441,878
    
    
    71,222,280Basic
      earnings per share
    
    $
    .25
    
    $
    .24
    
    $
    .75
    
    $
    .71Diluted
      earnings per share
    
    $
    .25
    
    $
    .24
    
    $
    .74
    
    $
    .70
 
 **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 functions. Deposits
and consumer loan products are offered through 82 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,
operation costs and any corporate debt.
 
  6
  **Note
7 -** **Segment
Information (Continued** **)**
 
 The
following table presents the financial results of each business segment for the
three months ended September 30, 2005 and 2004.
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended September 30, 2005**Net
      interest income from external customers
    
    $
    28,041
    
    $
    (7,920
    )
    $
    3,881
    
    $
    14,078
    
    $
    38,080Internal
      funding
    
    
    (11,950
    )
    
    34,512
    
    
    (1,993
    )
    
    (20,569
    )
    
    -Net
      interest income
    
    
    16,091
    
    
    26,592
    
    
    1,888
    
    
    (6,491
    )
    
    38,080Provision
      for loan losses
    
    
    1,155
    
    
    195
    
    
    162
    
    
    (112
    )
    
    1,400Noninterest
      income
    
    
    1,020
    
    
    3,385
    
    
    5,563
    
    
    1,043
    
    
    11,011Noninterest
      expense
    
    
    3,055
    
    
    8,293
    
    
    4,972
    
    
    7,578
    
    
    23,898Income
      before taxes
    
    
    12,901
    
    
    21,489
    
    
    2,317
    
    
    (12,914
    )
    
    23,793Income
      taxes
    
    
    4,516
    
    
    7,521
    
    
    811
    
    
    (6,277
    )
    
    6,571Net
      income
    
    $
    8,385
    
    $
    13,968
    
    $
    1,506
    
    $
    (6,637
    )
    $
    17,222Depreciation
      and amortization
    
    $
    25
    
    $
    714
    
    $
    488
    
    $
    1,398
    
    $
    2,625Capital
      expenditures
    
    $
    4
    
    $
    2,152
    
    $
    19
    
    $
    218
    
    $
    2,393Net
      identifiable assets (in millions)
    
    $
    1,659
    
    $
    2,940
    
    $
    240
    
    $
    1,242
    
    $
    6,081Return
      on equity(1)
    
    
    20.38
    %
    
    40.08
    %
    
    44.23
    %
    
    n/m
    
    
    16.87
    %Return
      on assets
    
    
    2.04
    %
    
    1.91
    %
    
    2.21
    %
    
    n/m
    
    
    1.14
    %Efficiency
      ratio
    
    
    17.85
    %
    
    27.66
    %
    
    66.73
    %
    
    n/m
    
    
    48.26
    %
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended September 30, 2004**Net
      interest income from external customers
    
    $
    21,910
    
    $
    (5,794
    )
    $
    3,545
    
    $
    19,039
    
    $
    38,700Internal
      funding
    
    
    (8,562
    )
    
    30,792
    
    
    (1,692
    )
    
    (20,538
    )
    
    -Net
      interest income
    
    
    13,348
    
    
    24,998
    
    
    1,853
    
    
    (1,499
    )
    
    38,700Provision
      for loan losses
    
    
    1,062
    
    
    190
    
    
    68
    
    
    930
    
    
    2,250Noninterest
      income
    
    
    1,649
    
    
    3,052
    
    
    5,427
    
    
    721
    
    
    10,849Noninterest
      expense
    
    
    2,867
    
    
    8,489
    
    
    5,271
    
    
    6,721
    
    
    23,348Income
      before taxes
    
    
    11,068
    
    
    19,371
    
    
    1,941
    
    
    (8,429
    )
    
    23,951Income
      taxes
    
    
    3,732
    
    
    6,527
    
    
    679
    
    
    (4,200
    )
    
    6,738Net
      income
    
    $
    7,336
    
    $
    12,844
    
    $
    1,262
    
    $
    (4,229
    )
    $
    17,213Depreciation
      and amortization
    
    $
    29
    
    $
    724
    
    $
    454
    
    $
    1,165
    
    $
    2,372Capital
      expenditures
    
    $
    9
    
    $
    137
    
    $
    35
    
    $
    858
    
    $
    1,039Net
      identifiable assets (in millions)
    
    $
    1,534
    
    $
    2,840
    
    $
    260
    
    $
    1,169
    
    $
    5,803Return
      on equity(1)
    
    
    19.25
    %
    
    38.05
    %
    
    37.71
    %
    
    n/m
    
    
    17.45
    %Return
      on assets
    
    
    1.93
    %
    
    1.81
    %
    
    1.89
    %
    
    n/m
    
    
    1.20
    %Efficiency
      ratio
    
    
    19.12
    %
    
    30.26
    %
    
    72.40
    %
    
    n/m
    
    
    46.71
    %
 
 (1)
    Capital
      is allocated as a percentage of assets of 10% and 5% for the commercial
      and mortgage banking segments, respectively and is allocated as a
      percentage of deposits of 5% for the retail segment.n/m
    -
      not meaningful
 
  7
  **Note
7 -** **Segment
Information (Continued** **)**
 
 The
following table presents the financial results of each business segment for the
nine months ended September 30, 2005 and 2004.
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Nine Months Ended September 30, 2005**Net
      interest income from external customers
    
    $
    78,165
    
    $
    (20,762
    )
    $
    10,149
    
    $
    47,607
    
    $
    115,159Internal
      funding
    
    
    (32,511
    )
    
    98,624
    
    
    (5,085
    )
    
    (61,028
    )
    
    -Net
      interest income
    
    
    45,654
    
    
    77,862
    
    
    5,064
    
    
    (13,421
    )
    
    115,159Provision
      for loan losses
    
    
    3,063
    
    
    732
    
    
    400
    
    
    105
    
    
    4,300Noninterest
      income
    
    
    2,610
    
    
    9,241
    
    
    14,687
    
    
    4,397
    
    
    30,935Noninterest
      expense
    
    
    8,999
    
    
    24,362
    
    
    14,894
    
    
    19,774
    
    
    68,029Income
      before taxes
    
    
    36,202
    
    
    62,009
    
    
    4,457
    
    
    (28,903
    )
    
    73,765Income
      taxes
    
    
    12,671
    
    
    21,703
    
    
    1,560
    
    
    (14,173
    )
    
    21,761Net
      income
    
    $
    23,531
    
    $
    40,306
    
    $
    2,897
    
    $
    (14,730
    )
    $
    52,004Depreciation
      and amortization
    
    $
    79
    
    $
    2,181
    
    $
    1,353
    
    $
    4,849
    
    $
    8,462Capital
      expenditures
    
    $
    20
    
    $
    2,736
    
    $
    82
    
    $
    1,718
    
    $
    4,556Net
      identifiable assets (in millions)
    
    $
    1,659
    
    $
    2,940
    
    $
    240
    
    $
    1,242
    
    $
    6,081Return
      on equity(1)
    
    
    19.57
    %
    
    38.81
    %
    
    31.15
    %
    
    n/m
    
    
    16.88
    %Return
      on assets
    
    
    1.96
    %
    
    1.85
    %
    
    1.56
    %
    
    n/m
    
    
    1.16
    %Efficiency
      ratio
    
    
    18.65
    %
    
    27.97
    %
    
    75.41
    %
    
    n/m
    
    
    46.09
    %
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Nine Months Ended September 30, 2004**Net
      interest income from external customers
    
    $
    63,905
    
    $
    (18,764
    )
    $
    11,325
    
    $
    54,310
    
    $
    110,776Internal
      funding
    
    
    (25,412
    )
    
    91,568
    
    
    (5,098
    )
    
    (61,058
    )
    
    -Net
      interest income
    
    
    38,493
    
    
    72,804
    
    
    6,227
    
    
    (6,748
    )
    
    110,776Provision
      for loan losses
    
    
    2,212
    
    
    1,105
    
    
    205
    
    
    3,228
    
    
    6,750Noninterest
      income
    
    
    3,266
    
    
    8,926
    
    
    18,330
    
    
    3,659
    
    
    34,181Noninterest
      expense
    
    
    7,357
    
    
    23,877
    
    
    16,320
    
    
    20,195
    
    
    67,749Income
      before taxes
    
    
    32,190
    
    
    56,748
    
    
    8,032
    
    
    (26,512
    )
    
    70,458Income
      taxes
    
    
    11,268
    
    
    19,862
    
    
    2,811
    
    
    (13,363
    )
    
    20,578Net
      income
    
    $
    20,922
    
    $
    36,886
    
    $
    5,221
    
    $
    (13,149
    )
    $
    49,880Depreciation
      and amortization
    
    $
    89
    
    $
    2,192
    
    $
    1,336
    
    $
    4,153
    
    $
    7,770Capital
      expenditures
    
    $
    33
    
    $
    2,619
    
    $
    316
    
    $
    1,628
    
    $
    4,596Net
      identifiable assets (in millions)
    
    $
    1,534
    
    $
    2,840
    
    $
    260
    
    $
    1,169
    
    $
    5,803Return
      on equity(1)
    
    
    18.36
    %
    
    36.69
    %
    
    49.02
    %
    
    n/m
    
    
    17.24
    %Return
      on assets
    
    
    1.84
    %
    
    1.75
    %
    
    2.45
    %
    
    n/m
    
    
    1.19
    %Efficiency
      ratio
    
    
    17.62
    %
    
    29.21
    %
    
    66.46
    %
    
    n/m
    
    
    46.39
    %
 
 (1)
    Capital
      is allocated as a percentage of assets of 10% and 5% for the commercial
      and mortgage banking segments, respectively and is allocated as a
      percentage of deposits of 5% for the retail segment.n/m
    -
      not meaningful
  8
  
 **Note
8 -** **Stock
Based Compensation**
 Effective
January 1, 2003, the Company adopted the fair value method of recording stock
options under SFAS 123, *Accounting
for Stock-Based Compensation* . In
accordance with the transitional guidance of SFAS 148, *Accounting
for Stock-Based Compensation - Transition and Disclosure,* the fair
value method of accounting for stock options will be applied prospectively to
awards granted subsequent to January 1, 2003. Since 2003, the Company has
generally awarded restricted stock in lieu of stock option grants. As a result,
the GAAP income statement impact associated with expensing stock options in the
first nine months of 2005 and 2004 was immaterial. The income statement impact
from expensing stock options is expected to be immaterial for the remainder of
2005. The Company continues to recognize compensation expense for restricted
stock over the vesting period in accordance with APB Opinion 25. Such expense is
included in salaries and employee benefits on the consolidated statements of
income.
 
 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 and nine
months ended September 30, 2005 and 2004.
 
 Three
      Months Ended
    
    Nine
      Months EndedSeptember
      30,
    
    September
      30,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Net
      income (as reported)
    
    $
    17,222
    
    $
    17,213
    
    $
    52,004
    
    $
    49,880Add:
      Stock-based employee compensation expense included in reported net income,
      net of related tax effects
    
    
    452
    
    
    269
    
    
    1,731
    
    
    1,265Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
    
    
    (505
    )
    
    (378
    )
    
    (1,919
    )
    
    (1,629
    )Net
      income (pro forma)
    
    $
    17,169
    
    $
    17,104
    
    $
    51,816
    
    $
    49,516Basic
      earnings per share (as reported)
    
    $
    .25
    
    $
    .24
    
    $
    .75
    
    $
    .71Basic
      earnings per share (pro forma)
    
    
    .25
    
    
    .24
    
    
    .74
    
    
    .70Diluted
      earnings per share (as reported)
    
    $
    .25
    
    $
    .24
    
    $
    .74
    
    $
    .70Diluted
      earnings per share (pro forma)
    
    
    .25
    
    
    .24
    
    
    .74
    
    
    .70
 
 **Note
9 - 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.
 
 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. During 2004, the Company
reclassified $2.8 million of its allowance for loan losses to a separate
allowance for probable credit losses inherent in unfunded loan commitments. The
separate allowance is included in “accrued expenses and other liabilities” and
the balance was $2.3 million at September 30, 2005. Deferred revenue recorded
for standby letters of credit was $279,000 and $367,000 at September 30, 2005
and December 31, 2004, respectively.
 
 9
 
 **Note
9 -** **Off-Balance
Sheet Instruments (Continued)**
 The
following table presents the contractual amounts of the Company’s off-balance
sheet financial instruments outstanding at September 30, 2005 and December 31,
2004.
 
 (In
      thousands)
    
    September
      30,
      2005
    
    December
      31,
      2004Financial
      instruments whose contract amounts represent credit risk:Commitments
      to fund residential real estate loans
    
    $
    252,573
    
    $
    254,374Commitments
      to fund commercial real estate loans
    
    
    586,246
    
    
    390,363Other
      unused commitments to extend credit
    
    
    447,026
    
    
    422,652Standby
      letters of credit
    
    
    123,051
    
    
    110,291
 
 **Note
10 -** **Legal
Proceedings**
 The
Company and its subsidiary are parties to litigation and claims arising in the
normal course of their activities. Although the amount of ultimate liability, if
any, with respect to such matters cannot be determined with reasonable
certainty, management, after consultation with legal counsel, believes that the
aggregate liability, if any, resulting from such matters would not have a
material adverse effect on the Company’s consolidated financial
condition.
 
 **Note
11 -** **Pending
Accounting Pronouncements**
 In
December 2004, the Financial Accounting Standards Board (FASB) revised SFAS 123, *Accounting
for Stock-Based Compensation* . SFAS
123R establishes accounting requirements for share-based compensation to
employees and carries forward prior guidance on accounting for awards to
non-employees. This statement requires all stock-based compensation awards
granted to employees be recognized in the financial statements at fair value.
The provisions of this statement will become effective January 1, 2006 for all
equity awards granted after the effective date. On January 1, 2003, the Company
adopted the provisions of SFAS 123 and began recognizing compensation expense
ratably in the income statement, based on the estimated fair value of all awards
granted to employees after January 1, 2003. SFAS 123R requires an entity to
recognize compensation expense based on an estimate of the number of awards
expected to actually vest, exclusive of awards expected to be forfeited.
Currently, the Company recognizes forfeitures as they occur. The adoption of
this standard is not expected to have a material effect on the Company’s
financial condition, results of operations or liquidity.
 
 In June
2005, the FASB directed its staff to draft FSP FAS 115-1, “ *The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments”.* FSP 115-1
will codify the guidance set forth in EITF Topic D-44 and clarify that an
investor should recognize an impairment loss no later than when the impairment
is deemed other than temporary, even if a decision to sell has not been made.
FSP FAS 115-1 will be effective for other-than-temporary impairment analysis
conducted in periods beginning after September 15, 2005. The adoption of this
standard is not expected to have a material effect on the Company’s financial
condition, results of operations or liquidity.
 
 On July
14, 2005, the FASB issued an Exposure Draft of a proposed Interpretation, *Accounting
for Uncertain Tax Positions* - *an
Interpretation of FASB Statement No. 109* . The
FASB has proposed an asset recognition approach, applying a dual threshold, to
account for uncertain tax positions. The proposed Interpretation would apply to
all open tax positions accounted for in accordance with FAS 109, including those
acquired in business combinations. Under the proposed Interpretation, the
recognition of a tax benefit would occur when it is “probable” that the position
would be sustained upon audit. The proposed Interpretation refers to the SFAS 5, *Accounting
for Contingencies,* definition of probable (i.e., that which is likely to occur), which represents a
level of assurance that is substantially higher than “more likely than not.” The
proposed Interpretation would be effective as of the end of the first fiscal
year ending after December 15, 2005. The adoption of this standard is not
expected to have a material effect on the Company’s financial condition, results
of operation or liquidity.
 
  10
  **ITEM
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations**
 
 **EARNINGS
PERFORMANCE**
 
 The
Company reported net income for the quarters ended September 30, 2005 and
September 30, 2004 of $17.2 million. Diluted earnings per share for the third
quarter of 2005 were $.25, up 3% from $.24 earned in the third quarter of 2004.
Annualized returns on average assets and average shareholders’ equity for the
quarter ended September 30, 2005 were 1.14% and 16.87%,
respectively.
 
 Net
income for the nine months ended September 30, 2005 was $52.0 million, compared
to net income of $49.9 million earned for the same period in 2004. For the nine
month period ended September 30, 2005, diluted earnings per share were $.74, an
increase of 5% over the $.70 earned in 2004. Annualized returns on average
assets and average shareholders’ equity for the first nine months of 2005 were
1.16% and 16.88%, respectively.
 
 **RESULTS
OF OPERATIONS**
 
 **Net
Interest Income**
 The
following discussion should be read in conjunction with Tables 1 through 4 on
pages 12-15, which identify and quantify the components impacting net interest
income for the three and nine months ended September 30, 2005 and
2004.
 
 Net
interest income, on a fully taxable equivalent (FTE) basis, was $39.0 million
for the third quarter of 2005 compared to $39.7 million for the third quarter of
2004, a decrease of 2%. The decrease was primarily the result of a decline in
the Company’s net
interest margin offset by an increase in the average balances. The net
interest margin (FTE) was 2.67% for the quarter ended September 30, 2005, a
decrease of 18 basis points from 2.85% during the third quarter of 2004. The
decrease in the margin was primarily attributable to the Company’s yield on
earning assets increasing less than the increase in the cost of funds on
interest-bearing liabilities.
 
 Interest
earning assets increased $266 million, or 5%, as the average
balance of mortgage loans held for sale increased $11 million, or 10%, average
total securities increased $89 million, or 9%, and the average portfolio loan
balance increased $165 million, or 4%, during the third quarter of 2005 compared
to 2004. The increase in the average portfolio loan balance reflects a $118
million, or 8%, increase in average commercial loans, a $13 million, or 1%,
decrease in average residential real estate mortgage loans and a $60 million, or
9%, increase in average installment loans. Average total interest bearing
liabilities increased $257 million for the third quarter of 2005 compared to
2004 due to a $206 million increase in total average interest-bearing deposits,
a $17 million increase in average short-term borrowings and a $34 million
increase in average long-term FHLB advances and security repurchase
agreements.
 
 For the
nine months ended September 30, 2005, net interest income (FTE) was $117.8
million, compared to $113.8 million for the first nine months of 2004. The
increase was primarily the result of an increase in the Company’s average
interest earning assets of $352 million, or 7%. The net interest margin (FTE)
for the nine months ended September 30, 2005, declined 8 basis points to 2.73%
from 2.81% for the comparable period in 2004. The decrease in the margin was due
to the Company’s yield on earning assets increasing less than the increase in
the cost of funds on interest-bearing liabilities.
 
  11
  **Net
Interest Income (Continued** **)**
 
 Table 1 -
Quarterly Net Interest Income (FTE)
 
 Three
      Months Ended
      September
      30, 2005
    
    Three
      Months Ended
      September
      30, 2004(Dollars
      in thousands)
    
    Average
      Balance
    
    Interest
    
    Average
      Rate
    
    Average
      Balance
    
    Interest
    
    Average
      Rate**Average
      Assets:**Short-term
      investments
    
    $
    1,125
    
    $
    9
    
    
    3.26
    %
    $
    311
    
    $
    1
    
    
    1.54
    %Mortgage
      loans held for sale
    
    
    123,039
    
    
    1,811
    
    
    5.89
    
    
    111,891
    
    
    1,644
    
    
    5.88Securities
      available for sale:(1)Taxable
    
    
    620,465
    
    
    7,142
    
    
    4.60
    
    
    524,579
    
    
    5,252
    
    
    4.00Tax-exempt
    
    
    203,673
    
    
    2,762
    
    
    5.38
    
    
    221,247
    
    
    3,181
    
    
    5.70Securities
      held to maturity
    
    
    246,915
    
    
    2,795
    
    
    4.53
    
    
    235,899
    
    
    2,645
    
    
    4.48Portfolio
      loans:(2)Commercial
      loans
    
    
    1,662,161
    
    
    28,295
    
    
    6.66
    
    
    1,544,194
    
    
    22,075
    
    
    5.59Residential
      real estate mortgage loans
    
    
    2,138,468
    
    
    28,017
    
    
    5.24
    
    
    2,151,496
    
    
    28,253
    
    
    5.25Installment
      loans
    
    
    752,278
    
    
    12,433
    
    
    6.56
    
    
    692,354
    
    
    9,370
    
    
    5.37Total
      loans, net of unearned income
    
    
    4,552,907
    
    
    68,745
    
    
    5.98
    
    
    4,388,044
    
    
    59,698
    
    
    5.39Federal
      Home Loan Bank stock (at cost)
    
    
    80,518
    
    
    965
    
    
    4.75
    
    
    80,701
    
    
    913
    
    
    4.49Total
      interest-earning assets
    
    
    5,828,642
    
    
    84,229
    
    
    5.73
    
    
    5,562,672
    
    
    73,334
    
    
    5.23Allowance
      for loan losses
    
    
    (42,098
    )
    
    
    
    
    
    
    
    (43,760
    )Cash
      and due from banks
    
    
    51,647
    
    
    
    
    
    
    
    
    53,699Other
      assets
    
    
    212,929
    
    
    
    
    
    
    
    
    181,698Total
      assets
    
    $
    6,051,120
    
    
    
    
    
    
    
    $
    5,754,309**Average
      Liabilities and Shareholders’ Equity:**Interest-bearing
      demand deposits
    
    $
    193,258
    
    $
    266
    
    
    0.55
    %
    $
    194,630
    
    $
    151
    
    
    0.31
    %Savings
      and money market accounts
    
    
    998,537
    
    
    4,738
    
    
    1.88
    
    
    1,033,022
    
    
    3,237
    
    
    1.24Retail
      certificates of deposit
    
    
    1,031,360
    
    
    8,693
    
    
    3.34
    
    
    876,527
    
    
    6,875
    
    
    3.11Wholesale
      deposits
    
    
    584,836
    
    
    5,421
    
    
    3.68
    
    
    497,973
    
    
    2,761
    
    
    2.20Total
      interest-bearing deposits
    
    
    2,807,991
    
    
    19,118
    
    
    2.70
    
    
    2,602,152
    
    
    13,024
    
    
    1.99Short-term
      borrowings
    
    
    1,022,939
    
    
    9,147
    
    
    3.50
    
    
    1,006,053
    
    
    3,946
    
    
    1.54Long-term
      FHLB advances and security repurchase agreements
    
    
    1,425,914
    
    
    15,931
    
    
    4.37
    
    
    1,391,268
    
    
    15,546
    
    
    4.37Long-term
      debt
    
    
    50,000
    
    
    1,075
    
    
    8.60
    
    
    50,000
    
    
    1,075
    
    
    8.60Total
      interest-bearing liabilities
    
    
    5,306,844
    
    
    45,271
    
    
    3.36
    
    
    5,049,473
    
    
    33,591
    
    
    2.62Noninterest-bearing
      deposits
    
    
    292,012
    
    
    
    
    
    
    
    
    282,032Other
      liabilities
    
    
    43,931
    
    
    
    
    
    
    
    
    28,135Total
      liabilities
    
    
    5,642,787
    
    
    
    
    
    
    
    
    5,359,640Shareholders’
      equity
    
    
    408,333
    
    
    
    
    
    
    
    
    394,669Total
      liabilities and shareholders’ equity
    
    $
    6,051,120
    
    
    
    
    
    
    
    $
    5,754,309Net
      interest income/rate spread (FTE)
    
    
    
    
    $
    38,958
    
    
    2.37
    %
    
    
    
    $
    39,743
    
    
    2.61
    %FTE
      adjustment
    
    
    
    
    $
    878
    
    
    
    
    
    
    
    $
    1,043Impact
      of noninterest-bearing
      sources of funds
    
    
    
    
    
    
    
    
    .30
    %
    
    
    
    
    
    
    
    .24
    %Net
      interest margin (FTE)
    
    
    
    
    
    
    
    
    2.67
    %
    
    
    
    
    
    
    
    2.85
    %
 
 (1)
    To
      compare the tax-exempt asset yields to taxable yields, amounts are
      adjusted to pretax equivalents based on the marginal corporate Federal tax
      rate of 35%.(2)
    Non-accrual
      loans and overdrafts are included in average
balances.
 
 
  12
  **Net
Interest Income (Continued** **)**
 
 Table 2 -
Quarter Rate/Volume Analysis
 
 Increase
      (decrease) due to change in:
    
    Volume(1)
    
    Rate(1)
    
    Net
      Change**Interest
      Income:**Short-term
      investments
    
    $
    6
    
    $
    2
    
    $
    8Mortgage
      loans held for sale
    
    
    164
    
    
    3
    
    
    167Securities
      available for sale:Taxable
    
    
    1,038
    
    
    852
    
    
    1,890Tax-exempt
    
    
    (245
    )
    
    (174
    )
    
    (419
    )Securities
      held to maturity
    
    
    121
    
    
    29
    
    
    150Portfolio
      loans:(2)Commercial
      loans
    
    
    1,775
    
    
    4,445
    
    
    6,220Residential
      real estate mortgage loans
    
    
    (179
    )
    
    (57
    )
    
    (236
    )Installment
      loans
    
    
    860
    
    
    2,203
    
    
    3,063Total
      loans, net of unearned income
    
    
    2,456
    
    
    6,591
    
    
    9,047Federal
      Home Loan Bank stock (at cost)
    
    
    (2
    )
    
    54
    
    
    52Total
      interest income
    
    
    3,538
    
    
    7,357
    
    
    10,895**Interest
      Expense:**Interest-bearing
      demand deposits
    
    
    (1
    )
    
    116
    
    
    115Savings
      deposits
    
    
    (110
    )
    
    1,611
    
    
    1,501Retail
      certificates of deposit
    
    
    1,282
    
    
    536
    
    
    1,818Wholesale
      deposits
    
    
    548
    
    
    2,112
    
    
    2,660Total
      interest-bearing deposits
    
    
    1,719
    
    
    4,375
    
    
    6,094Short-term
      borrowings
    
    
    68
    
    
    5,133
    
    
    5,201Long-term
      FHLB advances and security repurchase agreements
    
    
    385
    
    
    -
    
    
    385Long-term
      debt
    
    
    -
    
    
    -
    
    
    -Total
      interest expense
    
    
    2,172
    
    
    9,508
    
    
    11,680Net
      interest income (FTE)
    
    $
    1,366
    
    $
    (2,151
    )
    $
    (785
    )
 
 (1)
    Variances
      attributable jointly to volume and rate changes are allocated to volume
      and rate in proportion to the relationship of the absolute dollar amount
      of the change in each.(2)
    Non-accrual
      loans and overdrafts are included in average
balances.
 
  13
  **Net
Interest Income (Continued** **)**
 
 Table 3 -
Nine Months Ended Net Interest Income (FTE)
 
 Nine
      Months Ended
      September
      30, 2005
    
    Nine
      Months Ended
      September
      30, 2004(Dollars
      in thousands)
    
    Average
      Balance
    
    Interest
    
    Average
      Rate
    
    Average
      Balance
    
    Interest
    
    Average
      Rate**Average
      Assets:**Short-term
      investments
    
    $
    1,321
    
    $
    22
    
    
    2.20
    %
    $
    550
    
    $
    4
    
    
    0.89
    %Mortgage
      loans held for sale
    
    
    104,960
    
    
    4,630
    
    
    5.88
    
    
    110,790
    
    
    4,771
    
    
    5.74Securities
      available for sale:(1)Taxable
    
    
    595,373
    
    
    20,458
    
    
    4.53
    
    
    502,871
    
    
    14,765
    
    
    3.91Tax-exempt
    
    
    209,717
    
    
    8,543
    
    
    5.45
    
    
    218,706
    
    
    9,469
    
    
    5.79Securities
      held to maturity
    
    
    246,429
    
    
    8,457
    
    
    4.58
    
    
    220,505
    
    
    7,469
    
    
    4.52Portfolio
      loans:(2)Commercial
      loans
    
    
    1,620,991
    
    
    78,879
    
    
    6.42
    
    
    1,538,357
    
    
    64,399
    
    
    5.50Residential
      real estate mortgage loans
    
    
    2,143,661
    
    
    83,982
    
    
    5.22
    
    
    2,064,937
    
    
    81,023
    
    
    5.23Installment
      loans
    
    
    745,385
    
    
    34,986
    
    
    6.28
    
    
    659,483
    
    
    26,443
    
    
    5.34Total
      loans, net of unearned income
    
    
    4,510,037
    
    
    197,847
    
    
    5.83
    
    
    4,262,777
    
    
    171,865
    
    
    5.35Federal
      Home Loan Bank stock (at cost)
    
    
    80,645
    
    
    2,646
    
    
    4.39
    
    
    80,718
    
    
    2,822
    
    
    4.66Total
      interest-earning assets
    
    
    5,748,482
    
    
    242,603
    
    
    5.60
    
    
    5,396,917
    
    
    211,165
    
    
    5.19Allowance
      for loan losses
    
    
    (41,950
    )
    
    
    
    
    
    
    
    (42,434
    )Cash
      and due from banks
    
    
    49,922
    
    
    
    
    
    
    
    
    54,001Other
      assets
    
    
    210,018
    
    
    
    
    
    
    
    
    187,038Total
      assets
    
    $
    5,966,472
    
    
    
    
    
    
    
    $
    5,595,522**Average
      Liabilities and Shareholders’ Equity:**Interest-bearing
      demand deposits
    
    $
    197,853
    
    $
    718
    
    
    0.49
    %
    $
    189,920
    
    $
    406
    
    
    0.28
    %Savings
      and money market accounts
    
    
    1,019,600
    
    
    12,837
    
    
    1.68
    
    
    1,029,134
    
    
    9,752
    
    
    1.26Retail
      certificates of deposit
    
    
    977,798
    
    
    23,600
    
    
    3.23
    
    
    884,287
    
    
    20,971
    
    
    3.16Wholesale
      deposits
    
    
    564,508
    
    
    13,818
    
    
    3.27
    
    
    482,454
    
    
    7,599
    
    
    2.10Total
      interest-bearing deposits
    
    
    2,759,759
    
    
    50,973
    
    
    2.47
    
    
    2,585,795
    
    
    38,728
    
    
    2.00Short-term
      borrowings
    
    
    997,970
    
    
    23,092
    
    
    3.05
    
    
    863,100
    
    
    8,283
    
    
    1.26Long-term
      FHLB advances and security repurchase agreements
    
    
    1,422,232
    
    
    47,480
    
    
    4.40
    
    
    1,402,809
    
    
    47,090
    
    
    4.41Long-term
      debt
    
    
    50,000
    
    
    3,225
    
    
    8.60
    
    
    50,000
    
    
    3,225
    
    
    8.60Total
      interest-bearing liabilities
    
    
    5,229,961
    
    
    124,770
    
    
    3.16
    
    
    4,901,704
    
    
    97,326
    
    
    2.62Noninterest-bearing
      deposits
    
    
    282,875
    
    
    
    
    
    
    
    
    273,396Other
      liabilities
    
    
    42,783
    
    
    
    
    
    
    
    
    34,627Total
      liabilities
    
    
    5,555,619
    
    
    
    
    
    
    
    
    5,209,727Shareholders’
      equity
    
    
    410,853
    
    
    
    
    
    
    
    
    385,795Total
      liabilities and shareholders’ equity
    
    $
    5,966,472
    
    
    
    
    
    
    
    $
    5,595,522Net
      interest income/rate spread (FTE)
    
    
    
    
    $
    117,833
    
    
    2.44
    %
    
    
    
    $
    113,839
    
    
    2.57
    %FTE
      adjustment
    
    
    
    
    $
    2,674
    
    
    
    
    
    
    
    $
    3,063Impact
      of noninterest-bearing
      sources of funds
    
    
    
    
    
    
    
    
    .29
    %
    
    
    
    
    
    
    
    .24
    %Net
      interest margin (FTE)
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    2.81
    %
 
  14
  **Net
Interest Income (Continued** **)**
 
 Table 4 -
Nine Months Ended Rate/Volume Analysis
 
 Increase
      (decrease) due to change in:
    
    Volume(1)
    
    Rate(1)
    
    Net
      Change**Interest
      Income:**Short-term
      investments
    
    $
    9
    
    $
    9
    
    $
    18Mortgage
      loans held for sale
    
    
    (255
    )
    
    114
    
    
    (141
    )Securities
      available for sale:Taxable
    
    
    3,058
    
    
    2,635
    
    
    5,693Tax-exempt
    
    
    (381
    )
    
    (545
    )
    
    (926
    )Securities
      held to maturity
    
    
    888
    
    
    100
    
    
    988Portfolio
      loans:(2)Commercial
      loans
    
    
    3,520
    
    
    10,960
    
    
    14,480Residential
      real estate mortgage loans
    
    
    3,113
    
    
    (154
    )
    
    2,959Installment
      loans
    
    
    3,633
    
    
    4,910
    
    
    8,543Total
      loans, net of unearned income
    
    
    10,266
    
    
    15,716
    
    
    25,982Federal
      Home Loan Bank stock (at cost)
    
    
    (3
    )
    
    (173
    )
    
    (176
    )Total
      interest income
    
    
    13,582
    
    
    17,856
    
    
    31,438**Interest
      Expense:**Interest-bearing
      demand deposits
    
    
    17
    
    
    295
    
    
    312Savings
      deposits
    
    
    (92
    )
    
    3,177
    
    
    3,085Retail
      certificates of deposit
    
    
    2,174
    
    
    455
    
    
    2,629Wholesale
      deposits
    
    
    1,454
    
    
    4,765
    
    
    6,219Total
      interest-bearing deposits
    
    
    3,553
    
    
    8,692
    
    
    12,245Short-term
      borrowings
    
    
    1,468
    
    
    13,341
    
    
    14,809Long-term
      FHLB advances and security repurchase agreements
    
    
    516
    
    
    (126
    )
    
    390Long-term
      debt
    
    
    -
    
    
    -
    
    
    -Total
      interest expense
    
    
    5,537
    
    
    21,907
    
    
    27,444Net
      interest income (FTE)
    
    $
    8,045
    
    $
    (4,051
    )
    $
    3,994
 
 (1)
    Variances
      attributable jointly to volume and rate changes are allocated to volume
      and rate in proportion to the relationship of the absolute dollar amount
      of the change in each.(2)
    Non-accrual
      loans and overdrafts are included in average
balances.
  15
  
 **Noninterest
Income**
 Total
noninterest income increased $162,000, or 1%, for the quarter ended September
30, 2005, compared to the same period in 2004. The increase was primarily due to
higher levels of mortgage banking income and service charges. Details of
mortgage banking income are presented below. Exclusive of mortgage banking
income, noninterest income was $6.3 million for the quarter ended September 30,
2005, a decrease of $40,000, or 1%, compared to the third quarter of 2004. The
decrease was due primarily to declines in gain on sale of securities and gain on
sale of SBA loans partially offset by an increase in service charges. The
Company sold $8.6 million of the guaranteed portion of SBA loans during the
quarter ended September 30, 2005, resulting in gains of $628,000. During the
quarter ended September 30, 2004, the Company sold $18.3 million of SBA loans
for gains of $1.4 million.
 
 For the
nine months ended September 30, 2005, total noninterest income decreased $3.2
million, or 9%, compared to the same period in 2004. This decrease was primarily
due to lower levels of mortgage banking income. Exclusive of mortgage banking
income, noninterest income was $17.1 million for the nine months ended September
30, 2004, a decrease of $765,000, or 4%, over the same period in 2004. This
decrease was primarily due to lower levels of gain on sale of securities and
gain on sale of SBA loans. The Company sold $22.5 million of the guaranteed
portion of SBA loans during the nine months ended September 30, 2005, resulting
in gains of $1.6 million. During the nine months ended September 30, 2004, the
Company sold $30.4 million of SBA loans for gains of $2.6 million.
 
 **Mortgage
Banking Income**
 The
Company closed $435 million in single-family residential mortgage loans in the
third quarter of 2005, a decrease of 7% compared to $469 million closed in the
same period last year. During the first nine months of 2005, mortgage loan
closings were $1.2 billion, a decrease of 21% compared to $1.5 billion for the
comparable period in 2004. Refinancings for the third quarter of 2005
represented 37% of total closings compared to 28% in the third quarter of 2004.
During the first nine months of 2005, refinancings represented 38% of total
closings compared to 40% for the first nine months of 2004.
 
 For the
three months ended September 30, 2005, mortgage banking income increased
$202,000, or 4%, to $4.8 million from $4.6 million a year earlier. The increase
is primarily due to higher levels of mortgage loans sold to the secondary market
and higher gains on the sale of residential real estate portfolio loans.
Mortgage loans sold to the secondary market were $246 million during the third
quarter of 2005 compared to $183 million in the prior year. The ratio of
mortgage loan production income to mortgage loans sold was 2.52% for the third
quarter of 2005, compared to 3.17% for the third of quarter 2004.
 
 For the
nine months ended September 30, 2005, mortgage banking income decreased $2.5
million, or 15%, to $13.8 million from $16.3 million a year earlier. The
decrease is primarily due to lower levels of mortgage loans sold to the
secondary market. For the nine months ended September 30, 2005, mortgage loans
sold to the secondary market totaled $542 million compared to $737 million
during the first nine months of 2004. The ratio of mortgage production revenue
to mortgage loans sold was 2.74% for the first nine months of 2005, compared to
2.67% for the comparable period in 2004.
 
 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 revenue), 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 revenue totaled $6.2 million and $5.8 million for the
third quarters of 2005 and 2004, respectively, and $14.9 million and $19.7
million for the nine months ended September 30, 2005 and 2004, respectively.
Commissions and incentives paid were $3.9 million and $4.7 million for the third
quarters of 2005 and 2004, respectively and $10.9 million and $13.8 million for
the nine months ended September 30, 2005 and 2004, respectively. The SFAS 91
credit totaled $1.8 million and $3.1 million for the third quarters of 2005 and
2004, respectively. The SFAS 91 credit for the nine months ended September 30,
2005 and 2004 totaled $6.7 million and $8.3 million, respectively.
 
 Mortgage
banking income also includes gains on sale of residential real estate loans
totaling $604,000 and $382,000 for the third quarters of 2005 and 2004,
respectively, and $3.1 million and $2.1 million for the nine months ended
September 30, 2005 and 2004, respectively. Residential real estate loan sales
totaled $53.4 million and $21.4 million for the third quarters of 2005 and 2004,
respectively, and $232.7 million and $117.5 million for the nine months ended
September 30, 2005 and 2004, respectively.
 
 During
the quarter ended September 30, 2005, the Company had mortgage loan applications
of $575 million and at September 30, 2005, the Company’s mortgage loan pipeline
of applications in process was $528 million, a decrease of $51 million from June
30, 2005. At September 30, 2005, $116 million of the mortgage loan pipeline
represented commitments to fund loan applications with agreed-upon rates, a
decrease of $36 million over June 30, 2005. The Company estimates that mortgage
applications for the quarter ended December 31, 2005 will range from $400 to
$450 million, and closings for the quarter ended December 31, 2005 will range
from $300 to $325 million.
 
  16
  **Noninterest
Expense**
 Total
noninterest expense for the quarter ended September 30, 2005, increased
$550,000, or 2%, to $23.9 million compared to $23.3 million for the third
quarter of 2004. The increase was primarily a result of an increase of $1.3
million in salaries and employee benefits related to higher employee incentive
accruals partially offset by a decrease of $686,000 in other noninterest expense
primarily reflecting lower state taxes and other miscellaneous expenses. Total
noninterest expense for the nine months ended September 30, 2005, increased
$280,000 to $68.0 million compared to $67.7 million in 2004.
 
 **BALANCE
SHEET ANALYSIS**
 
 **ASSETS**
 
 At
September 30, 2005, the Company had $6.1 billion in total assets, an increase of
$368 million, or 6%, from $5.7 billion at December 31, 2004. The increase is
primarily the result of an increase in the Company’s total portfolio loans and
securities available for sale.
 
 **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 September 30, 2005, fixed rate
investment securities within the portfolio, excluding municipal securities,
totaled $826.2 million compared to $546.4 million at December 31, 2004. At
September 30, 2005, $545.0 million of these fixed rate mortgage-backed
securities and collateralized mortgage obligations 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 $397.3
million at December 31, 2004.
 
 Investment
securities available for sale totaled $831.8 million at September 30, 2005, a
$211.0 million increase from $620.8 million at December 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 during the first quarter of 2005. The
investment securities available for sale portfolio constituted 13.7% of the
Company’s total assets at September 30, 2005, compared to 10.9% at December 31,
2004.
 
 Investment
securities held to maturity totaled $237.1 million at September 30, 2005, a
$14.3 million increase from $222.8 million at December 31, 2004. The investment
securities held to maturity portfolio consists of collateralized mortgage
obligations and mortgage-backed securities collateralized with 7/1 and 10/1
hybrid adjustable rate mortgage loans. The investment securities held to
maturity portfolio constituted 3.9% of the Company’s total assets at September
30, 2005 and December 31, 2004.
 
 The
following table details the composition, amortized cost and fair value of the
Company’s investment securities portfolio at September 30, 2005:
 
 Investment
      Securities(In
      thousands)
    
    Gross
      Amortized Cost
    
    Gross
      Unrealized Gains
    
    Gross
      Unrealized Losses
    
    Fair
      ValueSecurities
      Available For Sale (Estimated Fair Value):U.S.
      Government agency securities
    
    $
    244,408
    
    $
    14
    
    $
    1,532
    
    $
    242,890Collateralized
      mortgage obligations
    
    
    305,524
    
    
    102
    
    
    3,046
    
    
    302,580Mortgage-backed
      securities
    
    
    105,370
    
    
    9
    
    
    913
    
    
    104,466Municipal
      and other securities
    
    
    182,957
    
    
    203
    
    
    1,276
    
    
    181,884Total
      securities available for sale
    
    $
    838,259
    
    $
    328
    
    $
    6,767
    
    $
    831,820Securities
      Held To Maturity (At Cost):Collateralized
      mortgage obligations
    
    $
    202,458
    
    $
    -
    
    $
    4,183
    
    $
    198,275Mortgage-backed
      securities
    
    
    34,601
    
    
    -
    
    
    416
    
    
    34,185Total
      securities held to maturity
    
    $
    237,059
    
    $
    -
    
    $
    4,599
    
    $
    232,460
 
  17
  
 **Investment
Securities (continued)**
 The
Company believes that the unrealized losses in the previous table are temporary.
At September 30, 2005, all of the unrealized losses in the securities portfolio
were comprised of investment grade municipal securities, private label
securities rated “AAA” by the major rating agencies and securities issued by
U.S. Government 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 associated for these
securities. The Company has the ability and intent to hold all securities that
are in an unrealized loss position until maturity or market price recovery.
 
 Certain
securities with a carrying value of $784.9 million and $530.8 million at
September 30, 2005 and December 31, 2004, respectively, were pledged to secure
FHLB advances, security repurchase agreements and public deposits as required by
law.
 
 **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 September 30, 2005 and
December 31, 2004.
 
 **Mortgage
Loans Held for Sale**
 Mortgage
loans held for sale were $91.8 million at September 30, 2005, a decrease of
$13.5 million from $105.3 million at December 31, 2004. Loans closed generally
remain in loans held for sale for 30 to 60 days after closing. Residential
mortgage loan closings during the third quarter of 2005 were $435 million
compared to $444 million during the fourth quarter of 2004. At September 30,
2005, $25 million of fixed-rate residential portfolio loans were reclassified to
mortgage loans held for sale, as these loans had been committed for sale for
settlement in the fourth quarter of 2005. These portfolio loans were transferred
to mortgage loans held for sale at the lower of cost or market.
 
 **Portfolio
Loans**
 Total
portfolio loans were $4.59 billion at September 30, 2005, an increase of $122
million from $4.46 billion at December 31, 2004, due to increases in the
commercial and installment portfolio loan balances. The commercial portfolio
loan balance was $1.68 billion at September 30, 2005, an increase of $103
million from $1.58 billion at December 31, 2004. The increase was concentrated
in real estate construction loans.
 
 The
residential portfolio loan balance decreased $6 million during the first nine
months of 2005. During the first nine months of 2005, the Company retained $613
million of mortgage loans originated, 58% of which were adjustable-rate
mortgages. Loan pay-offs and principal repayments for the first nine months of
2005 were $351 million. As part of the Company’s interest rate risk management,
the Company sold $170 million of fixed-rate residential portfolio loans during
the first nine months of 2005. To manage credit risk, $23 million of
interest-only adjustable rate loans were also sold. Additionally, to manage
prepayment risk, $39 million of adjustable-rate residential portfolio loans were
sold during the first nine months of 2005.
 
 During
the third quarter of 2005, to manage credit risk the Company converted $21.7
million of interest-only adjustable residential portfolio loans guaranteed by
Freddie Mac and $6.8 million of Fannie Mae My Community loans guaranteed by
Fannie Mae to mortgage-backed securities via the loan sale and securitization
programs offered by those government-sponsored entities. The Company pays
guarantee fees to these agencies to compensate them for their assumption of
credit risk on the securitized loans. The Company retained the resulting
securities and servicing rights and transferred the securities to the securities
available for sale portfolio at lower of cost or market. Mortgage servicing
rights recorded on the transaction totaled $168,000. No gain or loss was
recorded on the transaction.
 
 The
installment loan portfolio increased $26 million during the first nine months of
2005, primarily due to an increase in home equity loans.
 
 The
following table provides further information regarding the Company’s loan
portfolio:
 
 September
      30, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    PercentCommercial
      loans:Commercial
      and industrial
    
    $
    30,390
    
    
    0.7
    %
    $
    32,632
    
    
    0.7
    %Real
      estate construction
    
    
    311,910
    
    
    6.8
    
    
    224,643
    
    
    5.0Commercial
      real estate mortgage
    
    
    1,335,550
    
    
    29.1
    
    
    1,318,017
    
    
    29.5Total
      commercial loans
    
    
    1,677,850
    
    
    36.6
    
    
    1,575,292
    
    
    35.2Residential
      real estate mortgages
    
    
    2,146,613
    
    
    46.8
    
    
    2,152,720
    
    
    48.3Installment
      loans
    
    
    761,525
    
    
    16.6
    
    
    735,963
    
    
    16.5Total
      portfolio loans
    
    $
    4,585,988
    
    
    100.0
    %
    $
    4,463,975
    
    
    100.0
    %
  18
  **Credit
Quality**
 The
Company attempts to reduce the 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,
home equity loans and other consumer loans secured by real estate). As of
September 30, 2005, such loans comprised approximately 99% 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 as published in the Wall
Street Journal or London Interbank Offered Rates (“LIBOR”), 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 its
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 Fannie Mae
and Freddie Mac, or for conversion to mortgage-backed securities issued by the
Government National Mortgage Association (GNMA).
 
 **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 at the time the loan is 90 days or more
past due, unless the loan is 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. All interest accrued but not collected for loans that are placed on
non-accrual status is reversed and charged against current income. Any interest
payments subsequently received on non-accrual loans are generally applied
against the principal balance. Loans are considered restructured when the
Company makes certain concessions to a financially troubled debtor that would
not normally be considered.
 
 The
following table summarizes the Company’s non-performing assets and 90-day past
due loans:
 
 September
      30,
    
    December
      31,(Dollars
      in thousands)
    
    2005
    
    2004Non-Performing
      Assets:Non-accrual
      loans:Commercial
    
    $
    24,913
    
    $
    17,744Residential
      real estate mortgages
    
    
    13,636
    
    
    10,705Installment
    
    
    1,361
    
    
    852Total
      non-accrual loans
    
    
    39,910
    
    
    29,301Other
      real estate owned:Commercial
    
    
    9,089
    
    
    650Residential
      real estate mortgages
    
    
    3,331
    
    
    2,720Installment
    
    
    687
    
    
    790Total
      other real estate owned
    
    
    13,107
    
    
    4,160Total
      non-performing assets
    
    $
    53,017
    
    $
    33,461Non-performing
      assets as a percentage of:Portfolio
      loans and OREO
    
    
    1.15
    %
    
    .75
    %Total
      assets
    
    
    .87
    %
    
    .59
    %Loans
      past due 90 days or more and still accruing interest:Commercial
    
    $
    -
    
    $
    -Residential
      real estate mortgages
    
    
    -
    
    
    -Installment
    
    
    -
    
    
    -Total
      loans past due 90 days or more
    
    $
    -
    
    $
    -
 
 During
the quarter ended September 30, 2005, four commercial real estate loan
relationships totaling $15.3 million were classified as non-accrual. During the
third quarter, the Company also transferred three commercial lending
relationships totaling $6.4 million from non-accrual to other real estate
owned.
 
  19
  At
September 30, 2005, $24.5 million, or .53% of total portfolio loans were 30-89
days delinquent, compared to $17.8 million, or .40%, at December 31, 2004. 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 attention by management 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 September 30, 2005,
total potential problem loans, excluding those categorized as non-accrual loans,
were $53.7 million, or 1.17% of total portfolio loans, compared to $32.5
million, or 0.73% of total portfolio loans at December 31, 2004.
 
 **Allowance
for Loan Losses and Impaired Loans**
 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 the provision for loan
losses.
 
 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.
 
 At
September 30, 2005, the allowance for loan losses consists of a specific
allocated component, a risk allocated component and an imprecision component.
The components of the allowance for loan losses represent an estimation
completed pursuant to either SFAS 5, *Accounting
for Contingencies* , or SFAS
114, *Accounting
By Creditors for Impairment of a Loan* , as
amended by SFAS 118. The specific and risk allocated components of the allowance
for loan losses reflect expected losses resulting from analyses developed
through specific credit allocation for individual loans deemed impaired under
SFAS 114 and historical loss experience for each loan category in the aggregate,
but excluding loans individually determined to be impaired. The specific
allowance allocations are based on regular analyses of all commercial and
residential real estate loans where the internal graded loan category is at or
below a predetermined classification (any delinquent commercial loan greater
than $500,000 in addition to commercial and residential real estate loans
classified as substandard, doubtful and loss). The projected loss ratios
utilized in the risk allocated component incorporate factors such as historical
charge-off experience and current economic trends and conditions.
 
 Actual
loss ratios experienced in the future may vary from the projected loss ratios
utilized in the risk allocated component. The uncertainty occurs because factors
affecting the determination of probable losses inherent in the loan portfolio
may exist which are not necessarily captured by the application of projected
loss ratios or economic trends and other conditions. Therefore, an imprecision
component of the allowance is additionally maintained to capture these probable
losses inherent in the loan portfolio. The imprecision component reflects
management’s view that the allowance should recognize the margin for error
inherent in the process of estimating expected loan losses inherent in the loan
portfolio. Factors considered in evaluating the adequacy of the Company’s
imprecision component include imprecision in projected loss ratios and the risk
associated with growth in the loan portfolio. Additional factors in the
evaluation include, among other factors, economic conditions. The imprecision
component of the allowance was $7.0 million at September 30, 2005 and $7.2
million at December 31, 2004.
 
 During
the three months ended September 30, 2005, June 30, 2005 and September 30, 2004,
the Company recorded provision for loan losses of $1.4 million, $1.4 million and
$2.25 million, respectively. The amount charged to the provision for loan losses
during the second and third quarters of 2005 remained consistent primarily as a
result of the projected loss ratios and overall loan balances remaining fairly
consistent.
 
 The
following table provides an analysis of the allowance for loan
losses:
 Nine
      Months Ended
      September
      30,(Dollars
      in thousands)
    
    2005
    
    2004Allowance
      for loan losses:Balance
      at January 1
    
    $
    41,818
    
    $
    40,271Loans
      charged off
    
    
    (5,442
    )
    
    (5,587
    )Recoveries
      of loans previously charged off
    
    
    1,270
    
    
    2,733Net
      charge-offs
    
    
    (4,172
    )
    
    (2,854
    )Provision
      charged to expense
    
    
    4,300
    
    
    6,750Balance
      at September 30
    
    $
    41,946
    
    $
    44,167Annualized
      net charge-offs as a percentage of average loans
    
    
    .12
    %
    
    .09
    %Allowance
      for loan losses as a percentage of total portfolio loans outstanding at
      period-end
    
    
    .91
    %
    
    1.00
    %Allowance
      for loan losses as a percentage of non-performing loans
    
    
    105.10
    %
    
    126.71
    %
 
 
 20
 **Allowance
for Loan Losses and Impaired Loans (Continued** **)**
 
 SFAS 114
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
loan agreement. At September 30, 2005, all non-accrual and restructured loans
(with the exception of installment loans) were reviewed for impairment. At
December 31, 2004, all potential problem loans, classified as watch and
substandard (with the exception of installment loans) and all non-accrual and
restructured loans (with the exception of installment loans) were reviewed for
impairment.
 
 Information
regarding the Company’s impaired loans follows:
 
 September
      30,
    
    December
      31,(In
      thousands)
    
    2005
    
    2004Gross
      recorded investment in impaired loans (period-end)
    
    $
    38,549
    
    $
    59,840Impaired
      loans requiring a specific allocated allowance
    
    
    29,452
    
    
    41,001Specific
      impairment allowance
    
    
    5,381
    
    
    5,672
 
 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. An
impaired loan not requiring a specific allocated allowance represents a loan for
which the fair value of the underlying collateral equals or exceeds 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.
 
 **LIABILITIES**
 
 Total
liabilities were $5.68 billion at September 30, 2005, a $372 million, or 7%
increase from $5.30 billion at December 31, 2004. This increase was primarily
due to increases in deposits and short-term borrowings.
 
 **Deposits**
 Total
deposits increased $168 million to $3.21 billion at September 30, 2005 from
$3.05 billion at December 31, 2004. Total retail deposits increased $48 million,
or 2%, from December 31, 2004 while wholesale deposits, which include municipal
and brokered certificates of deposit, increased $120 million from December 31,
2004.
 
 **Short-Term
Borrowings**
 Short-term
borrowings with maturities of one year or less, along with the related average
balances and interest rates for the nine months ended September 30, 2005 and the
year ended December 31, 2004, were as follows:
 
 September
      30, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Ending
      Balance
    
    Average
      Balance
    
    Average
      Rate
      During
      Period
    
    Ending
      Balance
    
    Average
      Balance
    
    Average
      Rate
      During
      PeriodFederal
      funds purchased
    
    $
    424,000
    
    $
    443,088
    
    
    3.09
    %
    $
    365,000
    
    $
    348,555
    
    
    1.47
    %Security
      repurchase agreements
    
    
    294,775
    
    
    294,148
    
    
    2.89
    
    
    173,300
    
    
    213,880
    
    
    1.04Other
      short-term borrowings
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    266
    
    
    0.91Total
      short-term borrowings
    
    $
    718,775
    
    $
    737,236
    
    
    3.01
    %
    $
    538,300
    
    $
    562,701
    
    
    1.31
    %
 
 Short-term
security repurchase agreements are secured by certain securities with a carrying
value of $307.9 million at September 30, 2005.
 
  21
  **Short-Term
FHLB Advances**
 Short-term
FHLB advances outstanding at September 30, 2005 and December 31, 2004, were as
follows:
 
 September
      30, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Ending
      Balance
    
    Average
      Balance
    
    Average
      Rate
      During
      Period
    
    Ending
      Balance
    
    Average
      Balance
    
    Average
      Rate
      During
      PeriodShort-term
      FHLB advances
    
    $
    190,000
    
    $
    260,734
    
    
    3.17
    %
    $
    215,000
    
    $
    289,301
    
    
    1.62
    %
 
 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. Republic Bank had
$360.4 million and $282.3 million available in unused borrowings with the FHLB
at September 30, 2005 and December 31, 2004, respectively.
 
 **Long-term
FHLB Advances and Security Repurchase Agreements**
 Long-term
FHLB advances and security repurchase agreements outstanding at September 30,
2005 and December 31, 2004, were as follows:
 
 September
      30, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Ending
      Balance
    
    Average
      Rate
      At
      Period-End
    
    Ending
      Balance
    
    Average
      Rate
      At
      Period-EndLong-term
      FHLB advances:Bullet
      advances
    
    $
    233,313
    
    
    3.79
    %
    $
    368,774
    
    
    3.80
    %Putable
      advances
    
    
    750,000
    
    
    4.85
    
    
    680,000
    
    
    5.75Total
      long-term FHLB advances
    
    
    983,313
    
    
    4.59
    
    
    1,048,774
    
    
    5.07Long-term
      security repurchase agreements
    
    
    454,989
    
    
    2.86
    
    
    342,104
    
    
    2.68Total
      long-term FHLB advances and securityrepurchase
      agreements
    
    $
    1,438,302
    
    
    4.05
    %
    $
    1,390,878
    
    
    4.48
    %
 
 During
the quarter ended September 30, 2005, the Company refinanced $640 million of
long-term putable FHLB advances which had the effect of modifying the terms and
interest rates of these advances. The weighted average interest rate paid was
reduced by 77 basis points, the average maturity was extended five years and the
put option average is 3.7 years. The change in terms of the refinancings were
deemed not to be substantially different and no fees were paid by the Company
for the modifications.
 
 Republic
Bank routinely utilizes long-term FHLB advances and security 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 security repurchase agreements are secured by certain securities with
a carrying value of $476.0 million.
 
 The
long-term FHLB advances and security repurchase agreements have original
maturities ranging from October 2005 to October 2017.
 
 **CAPITAL**
 Shareholders’
equity was $405.2 million at September 30, 2005, compared to $409.6 million at
December 31, 2004. The decrease in shareholders’ equity during the first nine
months of 2005 resulted primarily from net income of $52.0 million being more
than offset by $22.9 million in cash dividends to shareholders and $37.2 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.
 
  22
  **CAPITAL
(Continued)**
 As of
September 30, 2005, the Company met all capital adequacy requirements to which
it is subject. The Company’s capital ratios were as follows:
 
 September
      30,
      2005
    
    December
      31,
      2004Total
      capital to risk-weighted assets(1)
    
    
    12.27
    %
    
    12.96
    %Tier
      1 capital to risk-weighted assets(1)
    
    
    11.18
    
    
    11.87Tier
      1 capital to average assets(1)
    
    
    7.52
    
    
    7.94
 
 (1)
    As
      defined by the regulations.
 
 
 As of
September 30, 2005, the Company’s total risk-based capital was $499 million and
Tier 1 risk-based capital was $455 million, an excess of $92 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.
 
 **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, 2004. 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 44 and 45 of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2004.
 
  23
  **FORWARD-LOOKING
STATEMENTS**
 
 From time
to time, we 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 other 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. While 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
      earnings to decline;
 ·
    instruments,
      systems and strategies that are used to hedge or otherwise manage exposure
      to various types of market, credit, operational and enterprise-wide risk
      could be less effective than anticipated, and we may not be able to
      effectively mitigate risk exposures in particular market environments or
      against particular types of risk;
 ·
    customer
      borrowing, repayment, investment and deposit practices generally may be
      less favorable than anticipated;
 ·
    the
      mix of interest rates and maturities of our interest earning assets and
      interest-bearing liabilities (primarily loans and deposits) may be less
      favorable than expected;
 ·
    interest
      rate margin compression may be greater than
expected;
 ·
    adverse
      changes in the securities markets;
 ·
    legislative
      or regulatory changes or actions 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 the foregoing factors and the risks associated with or
      inherent 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.
  24
  **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. Given the Company’s current operations, 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, 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 its board
of directors.
 
 The
Company utilizes two complementary quantitative tools to measure and monitor
interest rate risk: static gap analysis and earnings simulation modeling. Each
of these interest rate risk measurements has limitations, but the Company
believes that when evaluated together, they provide 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, if interest-bearing liabilities reprice more quickly than
interest-earning assets, resulting in a liability sensitive position or negative
gap, then increases in market interest rates will generally have an adverse
impact on net interest income. At September 30, 2005, the cumulative one-year
gap was a positive 2.98% 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 management’s evaluation of current
interest rate projections, customer credit demands and deposit preferences. The
Company generally operates in a range of zero to positive 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:* On a
monthly basis, the earnings simulation model is used 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 expected net interest income in a
stable interest rate environment (i.e., base net interest income).
 
 As of
September 30, 2005, 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:
 
 Change
      in market interest rates in basis points
    
    
    +200
    
    
    +100
    
    
    +50
    
    
    -50
    
    
    -100
    
    
    -200Projected
      change in net interest income over next twelve months
    
    
    0.62
    %
    
    0.78
    %
    
    0.51
    %
    
    -1.07
    %
    
    -2.68
    %
    
    -10.40
    %
 
 These
projected levels, which are well within the Company’s policy limits, portray the
Company’s interest rate risk position as asset sensitive for a one-year horizon.
The earnings simulation model assumes, among other things, 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.
 
 25
 Mortgage
Banking Hedging Activities
 At
September 30, 2005, the Company had outstanding $53.5 million of commitments to
fund residential real estate loan applications with agreed-upon rates (“Interest
Rate Lock Commitments” or “IRLCs”). IRLCs subject the Company to market risk due
to fluctuations in interest rates.
 
 At
September 30, 2005, the Company had outstanding mandatory forward commitments to
sell $141.0 million of residential mortgage loans. These mandatory forward
commitments hedged the value of $90.9 million of mortgage loans held for sale
utilizing fair value hedge accounting for derivatives and $50.1 million of
IRLCs.
 
 The
Company implemented SFAS No. 133, *Accounting
for Derivative Instruments and Hedging Activities,* as
amended, effective January 1, 2001. IRLCs are defined as derivatives under SFAS
133. Price risk associated with IRLCs is managed primarily through the use of
other derivative instruments, such as mandatory forward commitments. Because
IRLCs are defined as derivative instruments under SFAS 133, the associated
derivative instruments used for risk management activities do not qualify for
hedge accounting under SFAS 133. Gains and losses on mortgage-banking related
derivative instruments are included in mortgage banking revenue on the income
statement. The fair value of IRLCs and mandatory forward commitments was
immaterial at September 30, 2005. The Company does not enter into derivative
transactions for purely speculative purposes.
 
 Interest
Rate Swap Transactions
 During
the second quarter of 2004, the Company entered into interest rate swap
transactions with a total notional amount of $73.3 million as part of its
asset/liability management activities and associated management of interest rate
risk. Using interest rate swaps, the Company’s interest rate sensitivity is
adjusted to maintain a desired interest rate risk profile. Interest rate swaps
involve the exchange of fixed-rate and variable-rate payments without the
exchange of the underlying notional amount on which the interest payments are
calculated. Maximizing hedge effectiveness is the primary consideration in
choosing the specific liability to be hedged. The Company’s interest rate swap
transactions are used to adjust the interest rate sensitivity of certain
long-term fixed-rate FHLB advances and security repurchase agreements
(interest-bearing liabilities) and will not need to be replaced at maturity,
since the corresponding liability will mature along with the interest rate
swap.
 
 The
interest rate swaps are designated as fair value type hedges. As required by
SFAS No. 133, all interest rate derivatives are recorded at fair value as other
assets or liabilities on the balance sheet. The hedging relationship involving
the interest-bearing liabilities and the interest rate swaps meet the conditions
of SFAS No. 133 to assume no ineffectiveness in the hedging relationship. As a
result, changes in the fair value of the interest rate swaps and the
interest-bearing instruments off-set with no impact on income.
 
 Interest
expense on interest rate swaps used to manage interest rate exposure is recorded
on an accrual basis as an adjustment to the yield of the designated hedged
exposures over the periods covered by the contracts. This matches the income
recognition treatment of that exposure, liabilities carried at historical cost,
with interest recorded on an accrual basis.
 
 The
notional amounts, fair value, maturity and weighted-average pay and receive
rates for the swap position at September 30, 2005 are summarized as
follows:
 
 Year
      of Maturity(Dollars
      in thousands)
    
    2005
    
    2006
    
    2007
    
    2008
    
    TotalReceive
      fixed/pay floating swaps:(1)Notional
      amount
    
    $
    -
    
    $
    -
    
    $
    36,300
    
    $
    37,000
    
    $
    73,300Fair
      value gain/(loss)
    
    
    -
    
    
    -
    
    
    (871
    )
    
    (1,249
    )
    
    (2,120
    )Weighted
      average:Receive
      rate
    
    
    -
    %
    
    -
    %
    
    2.92
    %
    
    3.24
    %
    
    3.08
    %Pay
      rate
    
    
    -
    
    
    -
    
    
    3.34
    %
    
    3.97
    %
    
    3.66
    %
 
 (1)
    Variable
      interest rates - which generally are based on the one-month and
      three-month LIBOR in effect on the date of
repricing.
 
 
 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 11 of this report.
 
  26
  
 **ITEM
      4:**
    **Controls
      and Procedures**
 
 **Internal
Controls**
 The
Company maintains a system of internal controls over financial reporting 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 U.S. generally accepted accounting principles 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.
 
 There
have been no changes in the Company’s internal control over financial reporting
during the Company’s last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 **Disclosure
Controls And Procedures**
 The
Company maintains disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15e and 15d-15e) 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.
  27
  
 **PART
      II -**
    **OTHER
      INFORMATION**
 
 Item
      1.
    Legal
      Proceedings
 The
Company and its subsidiary are parties to litigation and claims arising in the
normal course of their activities. Although the amount of ultimate liability, if
any, with respect to such matters cannot be determined with reasonable
certainty, management, after consultation with legal counsel, believes that the
aggregate liability, if any, resulting from such matters would not have a
material adverse effect on the Company’s consolidated financial
condition.
 
 Item
      2.
    Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers
 Republic
Bancorp Inc. shares repurchased during the quarter ended September 30, 2005 were
as follows:
 
 Period
    
    Total
      Shares
      Purchased
    
    Average
      Price
      Paid
      Per Share
    
    Shares
      Purchased as Part of Publicly AnnouncedPlans(1)
    
    Maximum
      Shares Available to be Purchased Under thePlans(1)7/1/05 - 7/31/05
    
    
    190,000
    
    
    14.78
    
    
    190,000
    
    
    1,888,8528/1/05 - 8/31/05
    
    
    407,000
    
    
    14.72
    
    
    407,000
    
    
    1,481,8529/1/05 - 9/30/05
    
    
    210,000
    
    
    14.54
    
    
    210,000
    
    
    1,271,852Total
    
    
    807,000
    
    $
    14.69
    
    
    807,000
    
    
    1,271,852
 
 (1)
    On
      July 17, 2003, the Board of Directors approved the 2003 Stock Repurchase
      Program authorizing the repurchase of up to 2,420,000 shares. As of
      September 30, 2005, the 2003 Stock Repurchase Program has been
      completed.
      
      On
      June 16, 2005, the Board of Directors approved the 2005 Stock Repurchase
      Program authorizing the repurchase of up to 2,000,000 shares. The 2005
      Stock Repurchase Program commenced at the conclusion of the 2003 Stock
      Repurchase Program. There were 1,271,852 shares available for repurchase
      at September 30, 2005 under this program.
 
 Item
      5.
    Other
      Information
 
 None
 
 Item
      6.
    Exhibits
 
 (12)
    Computations
      of ratios of earnings to fixed charges.*
 (31)(a)
    Certification
      of Principal Executive Officer of Republic Bancorp Inc. Pursuant to 15
      U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of
      2002)*
 (31)(b)
    Certification
      of Principal Financial Officer of Republic Bancorp Inc. Pursuant to 15
      U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of
      2002)*
 (32)(a)
    Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section
      906 of the Sarbanes-Oxley Act of 2002).*
 (32)(b)
    Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section
      906 of the Sarbanes-Oxley Act 0f 2002)*
 *Filed
herewith
 
 
 
 
  28
  
 **SIGNATURE**
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
 
 
 REPUBLIC
      BANCORP INC.(Registrant)Date:
      November 8, 2005
    
    BY:
    /s/
      Thomas F. MenacherThomas
      F. Menacher
      Executive
      Vice President, Treasurer and Chief Financial Officer
      (Principal
      Financial and Accounting Officer)
 
 
 
   29