**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 endedJune
      30, 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
 
 **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 July 31, 2005:Common
      Stock, $5 Par Value Per Share
    69,065,000
      Shares
 
 
 
   
 INDEX
 
 **PART
      I.**
    FINANCIAL
      INFORMATIONItem
      1.
    Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of June 30, 2005 and December 31, 2004
    
    2Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2005 and
      2004
    
    3Consolidated
      Statements of Cash Flows for the Six Months Ended June 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
      - 23Item
      3.
    Quantitative
      and Qualitative Disclosures About Market Risk
    
    24
      - 25Item
      4.
    Controls
      and Procedures
    
    26**PART
      II.**
    OTHER
      INFORMATIONItem
      1.
    Legal
      Proceedings
    
    27Item
      2.
    Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
    
    27Item
      5.
    Other
      Information
    
    27Item
      6.
    Exhibits
    
    27**SIGNATURE**
    
    
    28
 
  1
  
 **PART
I - FINANCIAL INFORMATION**
 ITEM 1 -
Financial Statements
 
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
BALANCE SHEETS
 
 (Dollars
      in thousands)
    
    June
      30,
      2005
    
    December
      31, 2004(Unaudited)**ASSETS**Cash
      and cash equivalents
    
    $
    55,575
    
    $
    53,671Mortgage
      loans held for sale
    
    
    143,589
    
    
    105,318Securities
      available for sale, at market
    
    
    835,285
    
    
    620,794Securities
      held to maturity, at cost
    
    
    252,527
    
    
    222,757Loans,
      net of unearned income
    
    
    4,533,129
    
    
    4,463,975Less
      allowance for loan losses
    
    
    (41,871
    )
    
    (41,818
    )Net
      loans
    
    
    4,491,258
    
    
    4,422,157Federal
      Home Loan Bank stock (at cost)
    
    
    80,514
    
    
    80,511Premises
      and equipment
    
    
    25,687
    
    
    26,493Bank
      owned life insurance
    
    
    114,414
    
    
    112,978Other
      assets
    
    
    76,379
    
    
    69,298Total
      assets
    
    $
    6,075,228
    
    $
    5,713,977**LIABILITIES**Noninterest-bearing
      deposits
    
    $
    308,730
    
    $
    274,747Interest-bearing
      deposits:NOW
      accounts
    
    
    196,221
    
    
    203,553Savings
      and money market accounts
    
    
    1,000,565
    
    
    1,103,675Certificates
      of deposit under $100,000
    
    
    704,009
    
    
    662,357Certificates
      of deposit $100,000 or greater
    
    
    825,561
    
    
    801,879Total
      interest-bearing deposits
    
    
    2,726,356
    
    
    2,771,464Total
      deposits
    
    
    3,035,086
    
    
    3,046,211Federal
      funds purchased and other short-term borrowings
    
    
    719,775
    
    
    538,300Short-term
      FHLB advances
    
    
    362,500
    
    
    215,000Long-term
      FHLB advances and security repurchase agreements
    
    
    1,434,934
    
    
    1,390,878Accrued
      expenses and other liabilities
    
    
    63,826
    
    
    63,950Long-term
      debt
    
    
    50,000
    
    
    50,000Total
      liabilities
    
    
    5,666,121
    
    
    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; 69,205,000 and
      70,425,000, issued and outstanding, respectively
    
    
    346,026
    
    
    352,125Capital
      surplus
    
    
    47,556
    
    
    59,303Unearned
      compensation - restricted stock
    
    
    (6,323
    )
    
    (3,207
    )Retained
      earnings
    
    
    23,024
    
    
    3,634Accumulated
      other comprehensive loss
    
    
    (1,176
    )
    
    (2,217
    )Total
      shareholders’ equity
    
    
    409,107
    
    
    409,638Total
      liabilities and shareholders’ equity
    
    $
    6,075,228
    
    $
    5,713,977
 
 See notes
to consolidated financial statements.
 
  2
  
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
 Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,(In
      thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004**Interest
      Income:**Interest
      and fees on loans
    
    $
    67,457
    
    $
    57,298
    
    $
    131,921
    
    $
    115,294Interest
      on investment securities and FHLB stock dividends
    
    
    13,280
    
    
    10,694
    
    
    24,657
    
    
    20,517Total
      interest income
    
    
    80,737
    
    
    67,992
    
    
    156,578
    
    
    135,811**Interest
      Expense:**Deposits
    
    
    16,667
    
    
    12,667
    
    
    31,855
    
    
    25,704Short-term
      borrowings
    
    
    8,325
    
    
    2,319
    
    
    13,945
    
    
    4,337Long-term
      FHLB advances and security repurchase agreements
    
    
    15,919
    
    
    15,734
    
    
    31,549
    
    
    31,544Long-term
      debt
    
    
    1,075
    
    
    1,075
    
    
    2,150
    
    
    2,150Total
      interest expense
    
    
    41,986
    
    
    31,795
    
    
    79,499
    
    
    63,735Net
      interest income
    
    
    38,751
    
    
    36,197
    
    
    77,079
    
    
    72,076Provision
      for loan losses
    
    
    1,400
    
    
    2,000
    
    
    2,900
    
    
    4,500Net
      interest income after provision for loan losses
    
    
    37,351
    
    
    34,197
    
    
    74,179
    
    
    67,576**Noninterest
      Income:**Mortgage
      banking income
    
    
    3,232
    
    
    6,566
    
    
    9,057
    
    
    11,740Service
      charges
    
    
    3,008
    
    
    3,005
    
    
    5,689
    
    
    5,702Gain
      on sale of securities
    
    
    292
    
    
    674
    
    
    727
    
    
    1,362Gain
      on sale of SBA loans
    
    
    561
    
    
    665
    
    
    953
    
    
    1,186Income
      from bank owned life insurance
    
    
    1,080
    
    
    1,180
    
    
    2,093
    
    
    2,483Other
      noninterest income
    
    
    713
    
    
    428
    
    
    1,405
    
    
    859Total
      noninterest income
    
    
    8,886
    
    
    12,518
    
    
    19,924
    
    
    23,332**Noninterest
      Expense:**Salaries
      and employee benefits
    
    
    12,350
    
    
    13,835
    
    
    25,766
    
    
    25,924Occupancy
      expense of premises
    
    
    2,495
    
    
    2,476
    
    
    5,196
    
    
    5,095Equipment
      expense
    
    
    1,599
    
    
    1,652
    
    
    3,223
    
    
    3,326Other
      noninterest expense
    
    
    4,815
    
    
    5,416
    
    
    9,946
    
    
    10,056Total
      noninterest expense
    
    
    21,259
    
    
    23,379
    
    
    44,131
    
    
    44,401Income
      before income taxes
    
    
    24,978
    
    
    23,336
    
    
    49,972
    
    
    46,507Provision
      for income taxes
    
    
    7,503
    
    
    6,968
    
    
    15,190
    
    
    13,840**Net
      Income**
    
    $
    17,475
    
    $
    16,368
    
    $
    34,782
    
    $
    32,667Basic
      earnings per share
    
    $
    .25
    
    $
    .23
    
    $
    .50
    
    $
    .46Diluted
      earnings per share
    
    $
    .25
    
    $
    .23
    
    $
    .49
    
    $
    .46Average
      common shares outstanding - diluted
    
    
    70,526
    
    
    71,239
    
    
    70,862
    
    
    71,161Cash
      dividends declared per common share
    
    $
    .110
    
    $
    .086
    
    $
    .220
    
    $
    .173
 
 
 See notes
to consolidated financial statements.
 
  3
  **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
 
 Six
      Months Ended June 30 (In thousands)
    
    2005
    
    2004**Cash
      Flows From Operating Activities:**Net
      income
    
    $
    34,782
    
    $
    32,667Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
    
    
    5,837
    
    
    5,398Net
      gains on sale of securities available for sale
    
    
    (727
    )
    
    (1,362
    )Net
      gains on sale of commercial and residential real estate
    loans
    
    
    (3,492
    )
    
    (2,906
    )Proceeds
      from sale of mortgage loans held for sale
    
    
    296,070
    
    
    297,375Origination
      of mortgage loans held for sale
    
    
    (334,341
    )
    
    (216,851
    )Net
      increase in other assets
    
    
    (14,625
    )
    
    (13,148
    )Net
      decrease in other liabilities
    
    
    (124
    )
    
    (2,819
    )Other,
      net
    
    
    56
    
    
    2,815Total
      adjustments
    
    
    (51,346
    )
    
    68,502Net
      cash (used in) provided by operating activities
    
    
    (16,564
    )
    
    101,169**Cash
      Flows From Investing Activities:**Proceeds
      from sale of securities available for sale
    
    
    130,985
    
    
    58,280Proceeds
      from calls and principal payments of securities available for
      sale
    
    
    63,304
    
    
    92,143Proceeds
      from principal payments of securities held to maturity
    
    
    21,067
    
    
    25,790Purchases
      of securities available for sale
    
    
    (407,078
    )
    
    (313,898
    )Purchases
      of securities held to maturity
    
    
    (50,921
    )
    
    (109,663
    )Proceeds
      from sale of commercial and residential real estate loans
    
    
    196,726
    
    
    111,055Net
      increase in loans made to customers
    
    
    (262,890
    )
    
    (306,976
    )Premises
      and equipment expenditures
    
    
    (2,163
    )
    
    (3,557
    )Net
      cash used in investing activities
    
    
    (310,970
    )
    
    (446,826
    )**Cash
      Flows From Financing Activities:**Net
      (decrease) increase in total deposits
    
    
    (11,125
    )
    
    8,912Net
      increase in short-term borrowings
    
    
    181,475
    
    
    103,902Net
      increase in short-term FHLB advances
    
    
    147,500
    
    
    111,000Proceeds
      from long-term FHLB advances and security repurchase
      agreements
    
    
    83,250
    
    
    146,000Payments
      on long-term FHLB advances
    
    
    (38,703
    )
    
    (20,271
    )Net
      proceeds from issuance of common shares
    
    
    6,790
    
    
    6,129Repurchase
      of common shares
    
    
    (25,379
    )
    
    (889
    )Dividends
      paid on common shares
    
    
    (14,370
    )
    
    (12,116
    )Net
      cash provided by financing activities
    
    
    329,438
    
    
    342,667Net
      increase (decrease) in cash and cash equivalents
    
    
    1,904
    
    
    (2,990
    )Cash
      and cash equivalents at beginning of period
    
    
    53,671
    
    
    63,858Cash
      and cash equivalents at end of period
    
    $
    55,575
    
    $
    60,868
 
 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 six months ended June 30,
include:
 
 (In
      thousands)
    
    2005
    
    2004Cash
      paid during the period for:Interest
    
    $
    77,970
    
    $
    61,879Income
      taxes
    
    $
    14,762
    
    $
    13,300Non-cash
      investing activities:Loan
      charge-offs
    
    $
    3,596
    
    $
    3,754
 
 **Note
4 -** **Comprehensive
Income**
 The
following table sets forth the computation of comprehensive income:
 
 Three
      Months Ended
      June
      30,
    
    Six
      Months Ended
      June
      30,(In
      thousands)
    
    2005
    
    2004
    
    2005
    
    2004Net
      income
    
    $
    17,475
    
    $
    16,368
    
    $
    34,782
    
    $
    32,667Unrealized
      holding gains (losses) on securities, net of tax (credit) of  $4,851,
      ($8,417), $815 and ($5,636), respectively
    
    
    9,009
    
    
    (15,631
    )
    
    1,514
    
    
    (10,467
    )Reclassification
      adjustment for gains included in net income, net of tax of $102, $236,
      $254 and $477, respectively
    
    
    (190
    )
    
    (438
    )
    
    (473
    )
    
    (885
    )Net
      unrealized gains (losses) on securities, net of tax
    
    
    8,819
    
    
    (16,069
    )
    
    1,041
    
    
    (11,352
    )Comprehensive
      income
    
    $
    26,294
    
    $
    299
    
    $
    35,823
    
    $
    21,315
 
 **Note
5 -** **Intangible
Assets**
 The
following table summarizes the Company’s core deposit intangible asset which is
subject to amortization:
 
 (Dollars
      in thousands)
    
    June
      30,
      2005
    
    December
      31, 2004Core
      Deposit Intangible Asset:Gross
      carrying amount
    
    $
    10,883
    
    $
    10,883Accumulated
      amortization
    
    
    7,391
    
    
    6,894Net
      book value
    
    $
    3,492
    
    $
    3,989
 
 Amortization
expense on the core deposit intangible asset totaled $244,000 and $247,500 for
the quarters ended June 30, 2005 and 2004, and $497,000 and $495,000 for the six
months ended June 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.
  5
   
 **Note
6 -** **Earnings
Per Share**
 The
following table sets forth the computation of basic and diluted earnings per
share:
 
 Three
      Months Ended
      June
      30,
    
    Six
      Months Ended
      June
      30,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Numerator
      for basic and diluted earnings per share:Net
      income
    
    $
    17,475
    
    $
    16,368
    
    $
    34,782
    
    $
    32,667Denominator
      for basic earnings per share - weighted-average shares
    
    
    69,760,835
    
    
    70,421,019
    
    
    70,075,234
    
    
    70,299,730Effect
      of dilutive securities:Stock
      options
    
    
    714,036
    
    
    760,423
    
    
    731,704
    
    
    796,490Warrants
    
    
    50,849
    
    
    57,532
    
    
    54,791
    
    
    65,119Dilutive
      potential common shares
    
    
    764,885
    
    
    817,955
    
    
    786,495
    
    
    861,609Denominator
      for diluted earnings per share—adjusted weighted-average shares for
      assumed conversions
    
    
    70,525,720
    
    
    71,238,974
    
    
    70,861,729
    
    
    71,161,339Basic
      earnings per share
    
    $
    .25
    
    $
    .23
    
    $
    .50
    
    $
    .46Diluted
      earnings per share
    
    $
    .25
    
    $
    .23
    
    $
    .49
    
    $
    .46
 
 **Note
7 -** **Segment
Information**
 The
Company’s operations are managed as three major business segments: (1)
commercial banking, (2) retail banking and (3) mortgage banking. The commercial
banking segment consists of commercial lending to small- and medium-sized
companies, primarily in the form of commercial real estate and Small Business
Administration (SBA) loans. The retail banking segment consists of home equity
lending, other consumer lending and the deposit-gathering function. Deposits and
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 June 30, 2005 and 2004.
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended June 30, 2005**Net
      interest income from external customers
    
    $
    25,898
    
    $
    (6,642
    )
    $
    3,047
    
    $
    16,448
    
    $
    38,751Internal
      funding
    
    
    (10,770
    )
    
    32,416
    
    
    (1,225
    )
    
    (20,421
    )
    
    -Net
      interest income
    
    
    15,128
    
    
    25,774
    
    
    1,822
    
    
    (3,973
    )
    
    38,751Provision
      for loan losses
    
    
    1,156
    
    
    255
    
    
    163
    
    
    (174
    )
    
    1,400Noninterest
      income
    
    
    885
    
    
    3,069
    
    
    4,069
    
    
    863
    
    
    8,886Noninterest
      expense
    
    
    3,004
    
    
    8,068
    
    
    5,001
    
    
    5,186
    
    
    21,259Income
      before taxes
    
    
    11,853
    
    
    20,520
    
    
    727
    
    
    (8,122
    )
    
    24,978Income
      taxes
    
    
    4,149
    
    
    7,182
    
    
    254
    
    
    (4,082
    )
    
    7,503Net
      income
    
    $
    7,704
    
    $
    13,338
    
    $
    473
    
    $
    (4,040
    )
    $
    17,475Depreciation
      and amortization
    
    $
    25
    
    $
    725
    
    $
    441
    
    $
    1,403
    
    $
    2,594Capital
      expenditures
    
    $
    2
    
    $
    210
    
    $
    44
    
    $
    1,262
    
    $
    1,518Net
      identifiable assets (in millions)
    
    $
    1,624
    
    $
    2,914
    
    $
    266
    
    $
    1,271
    
    $
    6,075Return
      on equity(1)
    
    
    19.31
    %
    
    38.64
    %
    
    16.38
    %
    
    n/m
    
    
    17.00
    %Return
      on assets
    
    
    1.93
    %
    
    1.84
    %
    
    0.82
    %
    
    n/m
    
    
    1.16
    %Efficiency
      ratio
    
    
    18.76
    %
    
    27.97
    %
    
    84.89
    %
    
    n/m
    
    
    44.01
    %
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended June 30, 2004**Net
      interest income from external customers
    
    $
    21,031
    
    $
    (6,197
    )
    $
    3,856
    
    $
    17,507
    
    $
    36,197Internal
      funding
    
    
    (8,301
    )
    
    29,912
    
    
    (1,709
    )
    
    (19,902
    )
    
    -Net
      interest income
    
    
    12,730
    
    
    23,715
    
    
    2,147
    
    
    (2,395
    )
    
    36,197Provision
      for loan losses
    
    
    32
    
    
    520
    
    
    69
    
    
    1,379
    
    
    2,000Noninterest
      income
    
    
    860
    
    
    3,069
    
    
    7,755
    
    
    834
    
    
    12,518Noninterest
      expense
    
    
    2,489
    
    
    7,784
    
    
    5,717
    
    
    7,389
    
    
    23,379Income
      before taxes
    
    
    11,069
    
    
    18,480
    
    
    4,116
    
    
    (10,329
    )
    
    23,336Income
      taxes
    
    
    3,949
    
    
    6,593
    
    
    1,441
    
    
    (5,015
    )
    
    6,968Net
      income
    
    $
    7,120
    
    $
    11,887
    
    $
    2,675
    
    $
    (5,314
    )
    $
    16,368Depreciation
      and amortization
    
    $
    30
    
    $
    734
    
    $
    432
    
    $
    1,271
    
    $
    2,467Capital
      expenditures
    
    $
    4
    
    $
    119
    
    $
    73
    
    $
    177
    
    $
    373Net
      identifiable assets (in millions)
    
    $
    1,535
    
    $
    2,775
    
    $
    243
    
    $
    1,159
    
    $
    5,711Return
      on equity(1)
    
    
    18.67
    %
    
    35.33
    %
    
    73.87
    %
    
    n/m
    
    
    17.11
    %Return
      on assets
    
    
    1.87
    %
    
    1.68
    %
    
    3.69
    %
    
    n/m
    
    
    1.17
    %Efficiency
      ratio
    
    
    18.31
    %
    
    29.06
    %
    
    57.74
    %
    
    n/m
    
    
    47.64
    %
 
 (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
six months ended June 30, 2005 and 2004.
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Six Months Ended June 30, 2005**Net
      interest income from external customers
    
    $
    50,124
    
    $
    (12,842
    )
    $
    6,268
    
    $
    33,529
    
    $
    77,079Internal
      funding
    
    
    (20,561
    )
    
    64,112
    
    
    (3,092
    )
    
    (40,459
    )
    
    -Net
      interest income
    
    
    29,563
    
    
    51,270
    
    
    3,176
    
    
    (6,930
    )
    
    77,079Provision
      for loan losses
    
    
    1,908
    
    
    537
    
    
    238
    
    
    217
    
    
    2,900Noninterest
      income
    
    
    1,590
    
    
    5,856
    
    
    9,124
    
    
    3,354
    
    
    19,924Noninterest
      expense
    
    
    5,944
    
    
    16,069
    
    
    9,922
    
    
    12,196
    
    
    44,131Income
      before taxes
    
    
    23,301
    
    
    40,520
    
    
    2,140
    
    
    (15,989
    )
    
    49,972Income
      taxes
    
    
    8,155
    
    
    14,182
    
    
    749
    
    
    (7,896
    )
    
    15,190Net
      income
    
    $
    15,146
    
    $
    26,338
    
    $
    1,391
    
    $
    (8,093
    )
    $
    34,782Depreciation
      and amortization
    
    $
    54
    
    $
    1,467
    
    $
    865
    
    $
    3,451
    
    $
    5,837Capital
      expenditures
    
    $
    16
    
    $
    584
    
    $
    63
    
    $
    1,500
    
    $
    2,163Net
      identifiable assets (in millions)
    
    $
    1,624
    
    $
    2,914
    
    $
    266
    
    $
    1,271
    
    $
    6,075Return
      on equity(1)
    
    
    19.14
    %
    
    38.16
    %
    
    23.60
    %
    
    n/m
    
    
    16.88
    %Return
      on assets
    
    
    1.91
    %
    
    1.82
    %
    
    1.18
    %
    
    n/m
    
    
    1.17
    %Efficiency
      ratio
    
    
    19.08
    %
    
    28.13
    %
    
    80.67
    %
    
    n/m
    
    
    45.00
    %
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Six Months Ended June 30, 2004**Net
      interest income from external customers
    
    $
    41,995
    
    $
    (12,970
    )
    $
    7,780
    
    $
    35,271
    
    $
    72,076Internal
      funding
    
    
    (16,850
    )
    
    60,776
    
    
    (3,406
    )
    
    (40,520
    )
    
    -Net
      interest income
    
    
    25,145
    
    
    47,806
    
    
    4,374
    
    
    (5,249
    )
    
    72,076Provision
      for loan losses
    
    
    1,150
    
    
    915
    
    
    137
    
    
    2,298
    
    
    4,500Noninterest
      income
    
    
    1,617
    
    
    5,874
    
    
    12,903
    
    
    2,938
    
    
    23,332Noninterest
      expense
    
    
    4,490
    
    
    15,388
    
    
    11,049
    
    
    13,474
    
    
    44,401Income
      before taxes
    
    
    21,122
    
    
    37,377
    
    
    6,091
    
    
    (18,083
    )
    
    46,507Income
      taxes
    
    
    7,536
    
    
    13,335
    
    
    2,132
    
    
    (9,163
    )
    
    13,840Net
      income
    
    $
    13,586
    
    $
    24,042
    
    $
    3,959
    
    $
    (8,920
    )
    $
    32,667Depreciation
      and amortization
    
    $
    60
    
    $
    1,468
    
    $
    882
    
    $
    2,988
    
    $
    5,398Capital
      expenditures
    
    $
    24
    
    $
    2,482
    
    $
    281
    
    $
    770
    
    $
    3,557Net
      identifiable assets (in millions)
    
    $
    1,535
    
    $
    2,775
    
    $
    243
    
    $
    1,159
    
    $
    5,711Return
      on equity(1)
    
    
    17.91
    %
    
    36.01
    %
    
    54.21
    %
    
    n/m
    
    
    17.13
    %Return
      on assets
    
    
    1.79
    %
    
    1.71
    %
    
    2.71
    %
    
    n/m
    
    
    1.18
    %Efficiency
      ratio
    
    
    16.78
    %
    
    28.67
    %
    
    63.95
    %
    
    n/m
    
    
    46.22
    %
 
 (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. During 2003, 2004 and in the first
six months of 2005, the Company 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 six 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 six
months ended June 30, 2005 and 2004.
 
 Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004
    
    2005
    
    2004Net
      income (as reported)
    
    $
    17,475
    
    $
    16,368
    
    $
    34,782
    
    $
    32,667Add:
      Stock-based employee compensation expense included in reported net income,
      net of related tax effects
    
    
    419
    
    
    287
    
    
    1,279
    
    
    996Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
    
    
    (473
    )
    
    (402
    )
    
    (1,413
    )
    
    (1,251
    )Net
      income (pro forma)
    
    $
    17,421
    
    $
    16,253
    
    $
    34,648
    
    $
    32,412Basic
      earnings per share (as reported)
    
    $
    .25
    
    $
    .23
    
    $
    .50
    
    $
    .46Basic
      earnings per share (pro forma)
    
    
    .25
    
    
    .23
    
    
    .49
    
    
    .46Diluted
      earnings per share (as reported)
    
    $
    .25
    
    $
    .23
    
    $
    .49
    
    $
    .46Diluted
      earnings per share (pro forma)
    
    
    .25
    
    
    .23
    
    
    .49
    
    
    .46
 
 **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 $2.7 million at June 30, 2005. Deferred revenue recorded for
standby letters of credit was $144,000 and $367,000 at June 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 June 30, 2005 and December 31,
2004.
 
 (In
      thousands)
    
    June
      30,
      2005
    
    December
      31,
      2004Financial
      instruments whose contract amounts represent credit risk:Commitments
      to fund residential real estate loans
    
    $
    280,956
    
    $
    254,374Commitments
      to fund commercial real estate loans
    
    
    561,503
    
    
    390,363Other
      unused commitments to extend credit
    
    
    451,109
    
    
    422,652Standby
      letters of credit
    
    
    107,476
    
    
    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 March
2004, the FASB Emerging Issues Task Force (EITF) released Issue 03-1, *Meaning
of Other Than Temporary Impairment,* which
addressed other-than-temporary impairment for certain debt and equity
investments. The recognition and measurement requirements of Issue 03-1, and
other disclosure requirements not already implemented, were effective for
periods beginning after June 15, 2004. In September 2004, FASB staff issued FASB
Staff Position (FSP) EITF 03-1-a, which delayed the effective date for certain
measurement and recognition guidance contained in Issue 03-1. The FSP required
the application of pre-existing other-than-temporary guidance during the period
of delay until a final consensus was reached. In June 2005, the FASB issued FSP
EITF 03-1-a as final. The final FSP will supercede EITF 03-1. The final FSP
(retitled FSP FAS 115-1, *The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments)* will
replace the guidance set forth in paragraphs 10-16 of Issue 03-1 with references
to existing other-than-temporary guidance. FSP FAS 115-1 will also codify the
guidance set forth in EITF Topic D-44, *Recognition
of Other-Than-Temporary-Impairment Upon the Planned Sale of a Security Whose
Cost Exceeds Fair Value* 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 become 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 quarter ended June 30, 2005 of $17.5
million. This compares to net income of $16.4 million for the second quarter of
2004. Diluted earnings per share for the second quarter of 2005 were $.25, up 8%
from $.23 earned in the second quarter of 2004. Annualized returns on average
assets and average shareholders’ equity for the quarter ended June 30, 2005 were
1.16% and 17.00%, respectively.
 
 Net
income for the six months ended June 30, 2005 was $34.8 million, compared to net
income of $32.7 million earned for the same period in 2004. For the six month
period ended June 30, 2005, diluted earnings per shares were $.49, an increase
of 7% over the $.46 earned in 2004. Annualized returns on average assets and
average shareholders’ equity for the first six months of 2005 were 1.17% 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 six months ended June 30, 2005 and 2004.
 
 Net
interest income, on a fully taxable equivalent (FTE) basis, was $39.7 million
for the second quarter of 2005 compared to $37.2 million for the second quarter
of 2004, an increase of 7%. The increase was primarily the result of an increase
in the Company’s average
interest earning assets of $408 million, or 8%, as the average
balance of total securities increased $140 million, or 14%, and the average
portfolio loan balance increased $317 million, or 8%, during the second quarter
of 2005 compared to 2004. The increase in the average portfolio loan balance
reflects a $70 million, or 5%, increase in average commercial loans, a $157
million, or 8%, increase in average residential real estate mortgage loans and a
$90 million, or 14%, increase in average installment loans. Average total
interest bearing liabilities increased $378 million for the second quarter of
2005 compared to 2004 due to a $148 million increase in total average
interest-bearing deposits, a $222 million increase in average short-term
borrowings and a $8 million increase in average long-term FHLB advances and
security repurchase agreements.
 
 The net
interest margin (FTE) was 2.73% for the quarter ended June 30, 2005, a decrease
of 2 basis points from 2.75% during the second 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.
 
 For the
six months ended June 30, 2005, net interest income (FTE) was $78.9 million,
compared to $74.1 million for the first half of 2004. The increase was primarily
the result of an increase in the Company’s average interest earning assets of
$398 million, or 7%. The net interest margin (FTE) for the six months ended June
30, 2005, declined 3 basis points to 2.76% from 2.79% 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
      June
      30, 2005
    
    Three
      Months Ended
      June
      30, 2004(Dollars
      in thousands)
    
    Average
      Balance
    
    Interest
    
    Average
      Rate
    
    Average
      Balance
    
    Interest
    
    Average
      Rate**Average
      Assets:**Short-term
      investments
    
    $
    782
    
    $
    4
    
    
    2.04
    %
    $
    903
    
    $
    1
    
    
    0.65
    %Mortgage
      loans held for sale
    
    
    78,096
    
    
    1,158
    
    
    5.93
    
    
    127,606
    
    
    1,754
    
    
    5.50Securities
      available for sale:(1)Taxable
    
    
    634,758
    
    
    7,337
    
    
    4.62
    
    
    515,753
    
    
    5,010
    
    
    3.90Tax-exempt
    
    
    225,589
    
    
    3,078
    
    
    5.47
    
    
    224,844
    
    
    3,207
    
    
    5.72Securities
      held to maturity
    
    
    257,529
    
    
    2,970
    
    
    4.61
    
    
    236,784
    
    
    2,654
    
    
    4.48Portfolio
      loans:(2)Commercial
      loans
    
    
    1,613,861
    
    
    26,113
    
    
    6.40
    
    
    1,544,344
    
    
    21,206
    
    
    5.43Residential
      real estate mortgage loans
    
    
    2,172,126
    
    
    28,459
    
    
    5.24
    
    
    2,014,715
    
    
    25,684
    
    
    5.10Installment
      loans
    
    
    747,193
    
    
    11,727
    
    
    6.30
    
    
    656,756
    
    
    8,654
    
    
    5.28Total
      loans, net of unearned income
    
    
    4,533,180
    
    
    66,299
    
    
    5.83
    
    
    4,215,815
    
    
    55,544
    
    
    5.25Federal
      Home Loan Bank stock (at cost)
    
    
    80,709
    
    
    855
    
    
    4.25
    
    
    80,721
    
    
    852
    
    
    4.23Total
      interest-earning assets
    
    
    5,810,643
    
    
    81,701
    
    
    5.61
    
    
    5,402,426
    
    
    69,022
    
    
    5.10Allowance
      for loan losses
    
    
    (41,986
    )
    
    
    
    
    
    
    
    (42,615
    )Cash
      and due from banks
    
    
    46,963
    
    
    
    
    
    
    
    
    56,025Other
      assets
    
    
    210,222
    
    
    
    
    
    
    
    
    196,882Total
      assets
    
    $
    6,025,842
    
    
    
    
    
    
    
    $
    5,612,718**Average
      Liabilities and Shareholders’ Equity:**Interest-bearing
      demand deposits
    
    $
    199,899
    
    $
    231
    
    
    0.46
    %
    $
    191,335
    
    $
    131
    
    
    0.27
    %Savings
      and money market accounts
    
    
    997,596
    
    
    4,035
    
    
    1.62
    
    
    1,056,628
    
    
    3,189
    
    
    1.21Certificates
      of deposit under $100,000
    
    
    696,431
    
    
    5,328
    
    
    3.07
    
    
    675,236
    
    
    5,021
    
    
    2.98Certificates
      of deposit $100,000 or greater
    
    
    836,569
    
    
    7,073
    
    
    3.39
    
    
    658,912
    
    
    4,326
    
    
    2.63Total
      interest-bearing deposits
    
    
    2,730,495
    
    
    16,667
    
    
    2.45
    
    
    2,582,111
    
    
    12,667
    
    
    1.97Short-term
      borrowings
    
    
    1,076,191
    
    
    8,325
    
    
    3.06
    
    
    854,019
    
    
    2,319
    
    
    1.07Long-term
      FHLB advances and security repurchase agreements
    
    
    1,429,282
    
    
    15,919
    
    
    4.41
    
    
    1,421,560
    
    
    15,734
    
    
    4.38Long-term
      debt
    
    
    50,000
    
    
    1,075
    
    
    8.60
    
    
    50,000
    
    
    1,075
    
    
    8.60Total
      interest-bearing liabilities
    
    
    5,285,968
    
    
    41,986
    
    
    3.16
    
    
    4,907,690
    
    
    31,795
    
    
    2.58Noninterest-bearing
      deposits
    
    
    286,356
    
    
    
    
    
    
    
    
    283,691Other
      liabilities
    
    
    42,342
    
    
    
    
    
    
    
    
    38,708Total
      liabilities
    
    
    5,614,666
    
    
    
    
    
    
    
    
    5,230,089Shareholders’
      equity
    
    
    411,176
    
    
    
    
    
    
    
    
    382,629Total
      liabilities and shareholders’ equity
    
    $
    6,025,842
    
    
    
    
    
    
    
    $
    5,612,718Net
      interest income/rate spread (FTE)
    
    
    
    
    $
    39,715
    
    
    2.45
    %
    
    
    
    $
    37,227
    
    
    2.52
    %FTE
      adjustment
    
    
    
    
    $
    964
    
    
    
    
    
    
    
    $
    1,030Impact
      of noninterestbearing
      sources of funds
    
    
    
    
    
    
    
    
    .28
    %
    
    
    
    
    
    
    
    .23
    %Net
      interest margin (FTE)
    
    
    
    
    
    
    
    
    2.73
    %
    
    
    
    
    
    
    
    2.75
    %
 
 (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
    
    $
    -
    
    $
    3
    
    $
    3Mortgage
      loans held for sale
    
    
    (724
    )
    
    128
    
    
    (596
    )Securities
      available for sale:Taxable
    
    
    1,293
    
    
    1,034
    
    
    2,327Tax-exempt
    
    
    11
    
    
    (140
    )
    
    (129
    )Securities
      held to maturity
    
    
    237
    
    
    79
    
    
    316Portfolio
      loans:(2)Commercial
      loans
    
    
    988
    
    
    3,919
    
    
    4,907Residential
      real estate mortgage loans
    
    
    2,054
    
    
    721
    
    
    2,775Installment
      loans
    
    
    1,279
    
    
    1,794
    
    
    3,073Total
      loans, net of unearned income
    
    
    4,321
    
    
    6,434
    
    
    10,755Federal
      Home Loan Bank stock (at cost)
    
    
    -
    
    
    3
    
    
    3Total
      interest income
    
    
    5,138
    
    
    7,541
    
    
    12,679**Interest
      Expense:**Interest-bearing
      demand deposits
    
    
    6
    
    
    94
    
    
    100Savings
      deposits
    
    
    (187
    )
    
    1,033
    
    
    846Certificates
      of deposit under $100,000
    
    
    156
    
    
    151
    
    
    307Certificates
      of deposit $100,000 or greater
    
    
    1,326
    
    
    1,421
    
    
    2,747Total
      interest-bearing deposits
    
    
    1,301
    
    
    2,699
    
    
    4,000Short-term
      borrowings
    
    
    737
    
    
    5,269
    
    
    6,006Long-term
      FHLB advances and security repurchase agreements
    
    
    82
    
    
    103
    
    
    185Long-term
      debt
    
    
    -
    
    
    -
    
    
    -Total
      interest expense
    
    
    2,120
    
    
    8,071
    
    
    10,191Net
      interest income (FTE)
    
    $
    3,018
    
    $
    (530
    )
    $
    2,488
 
 (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 -
Six Months Ended Net Interest Income (FTE)
 
 Six
      Months Ended
      June
      30, 2005
    
    Six
      Months Ended
      June
      30, 2004(Dollars
      in thousands)
    
    Average
      Balance
    
    Interest
    
    Average
      Rate
    
    Average
      Balance
    
    Interest
    
    Average
      Rate**Average
      Assets:**Short-term
      investments
    
    $
    1,421
    
    $
    13
    
    
    1.77
    %
    $
    671
    
    $
    2
    
    
    0.68
    %Mortgage
      loans held for sale
    
    
    95,767
    
    
    2,820
    
    
    5.89
    
    
    110,225
    
    
    3,128
    
    
    5.68Securities
      available for sale:(1)Taxable
    
    
    582,619
    
    
    13,318
    
    
    4.55
    
    
    488,668
    
    
    9,513
    
    
    3.90Tax-exempt
    
    
    212,788
    
    
    5,779
    
    
    5.48
    
    
    217,422
    
    
    6,286
    
    
    5.80Securities
      held to maturity
    
    
    246,181
    
    
    5,661
    
    
    4.60
    
    
    212,724
    
    
    4,825
    
    
    4.54Portfolio
      loans:(2)Commercial
      loans
    
    
    1,600,064
    
    
    50,583
    
    
    6.29
    
    
    1,535,407
    
    
    42,323
    
    
    5.45Residential
      real estate mortgage loans
    
    
    2,146,300
    
    
    55,965
    
    
    5.21
    
    
    2,021,182
    
    
    52,770
    
    
    5.22Installment
      loans
    
    
    741,881
    
    
    22,553
    
    
    6.13
    
    
    642,868
    
    
    17,073
    
    
    5.33Total
      loans, net of unearned income
    
    
    4,488,245
    
    
    129,101
    
    
    5.75
    
    
    4,199,457
    
    
    112,166
    
    
    5.32Federal
      Home Loan Bank stock (at cost)
    
    
    80,710
    
    
    1,681
    
    
    4.20
    
    
    80,727
    
    
    1,909
    
    
    4.74Total
      interest-earning assets
    
    
    5,707,731
    
    
    158,373
    
    
    5.55
    
    
    5,309,894
    
    
    137,829
    
    
    5.18Allowance
      for loan losses
    
    
    (41,875
    )
    
    
    
    
    
    
    
    (41,769
    )Cash
      and due from banks
    
    
    49,046
    
    
    
    
    
    
    
    
    54,154Other
      assets
    
    
    208,535
    
    
    
    
    
    
    
    
    192,962Total
      assets
    
    $
    5,923,437
    
    
    
    
    
    
    
    $
    5,515,241**Average
      Liabilities and Shareholders’ Equity:**Interest-bearing
      demand deposits
    
    $
    200,189
    
    $
    452
    
    
    0.46
    %
    $
    187,539
    
    $
    255
    
    
    0.27
    %Savings
      and money market accounts
    
    
    1,040,631
    
    
    8,244
    
    
    1.60
    
    
    1,048,983
    
    
    6,656
    
    
    1.27Certificates
      of deposit under $100,000
    
    
    685,026
    
    
    10,206
    
    
    3.00
    
    
    677,421
    
    
    10,170
    
    
    3.01Certificates
      of deposit $100,000 or greater
    
    
    809,395
    
    
    12,953
    
    
    3.23
    
    
    663,572
    
    
    8,623
    
    
    2.61Total
      interest-bearing deposits
    
    
    2,735,241
    
    
    31,855
    
    
    2.35
    
    
    2,577,515
    
    
    25,704
    
    
    2.00Short-term
      borrowings
    
    
    985,279
    
    
    13,945
    
    
    2.81
    
    
    790,838
    
    
    4,337
    
    
    1.08Long-term
      FHLB advances and security repurchase agreements
    
    
    1,420,863
    
    
    31,549
    
    
    4.42
    
    
    1,408,890
    
    
    31,544
    
    
    4.43Long-term
      debt
    
    
    50,000
    
    
    2,150
    
    
    8.60
    
    
    50,000
    
    
    2,150
    
    
    8.60Total
      interest-bearing liabilities
    
    
    5,191,383
    
    
    79,499
    
    
    3.06
    
    
    4,827,243
    
    
    63,735
    
    
    2.63Noninterest-bearing
      deposits
    
    
    278,231
    
    
    
    
    
    
    
    
    269,031Other
      liabilities
    
    
    41,710
    
    
    
    
    
    
    
    
    37,609Total
      liabilities
    
    
    5,511,324
    
    
    
    
    
    
    
    
    5,133,883Shareholders’
      equity
    
    
    412,113
    
    
    
    
    
    
    
    
    381,358Total
      liabilities and shareholders’ equity
    
    $
    5,923,437
    
    
    
    
    
    
    
    $
    5,515,241Net
      interest income/rate spread (FTE)
    
    
    
    
    $
    78,874
    
    
    2.49
    %
    
    
    
    $
    74,094
    
    
    2.55
    %FTE
      adjustment
    
    
    
    
    $
    1,795
    
    
    
    
    
    
    
    $
    2,018Impact
      of noninterest-bearing
      sources of funds
    
    
    
    
    
    
    
    
    .27
    %
    
    
    
    
    
    
    
    .24
    %Net
      interest margin (FTE)
    
    
    
    
    
    
    
    
    2.76
    %
    
    
    
    
    
    
    
    2.79
    %
 
  14
  **Net
Interest Income (Continued** **)**
 
 Table 4 -
Six Months Ended Rate/Volume Analysis
 
 Increase
      (decrease) due to change in:
    
    Volume(1)
    
    Rate(1)
    
    Net
      Change**Interest
      Income:**Short-term
      investments
    
    $
    5
    
    $
    6
    
    $
    11Mortgage
      loans held for sale
    
    
    (421
    )
    
    113
    
    
    (308
    )Securities
      available for sale:Taxable
    
    
    2,038
    
    
    1,767
    
    
    3,805Tax-exempt
    
    
    (141
    )
    
    (366
    )
    
    (507
    )Securities
      held to maturity
    
    
    771
    
    
    65
    
    
    836Portfolio
      loans:(2)Commercial
      loans
    
    
    1,773
    
    
    6,487
    
    
    8,260Residential
      real estate mortgage loans
    
    
    3,295
    
    
    (100
    )
    
    3,195Installment
      loans
    
    
    2,776
    
    
    2,704
    
    
    5,480Total
      loans, net of unearned income
    
    
    7,844
    
    
    9,091
    
    
    16,935Federal
      Home Loan Bank stock (at cost)
    
    
    -
    
    
    (228
    )
    
    (228
    )Total
      interest income
    
    
    10,096
    
    
    10,448
    
    
    20,544**Interest
      Expense:**Interest-bearing
      demand deposits
    
    
    17
    
    
    180
    
    
    197Savings
      deposits
    
    
    (56
    )
    
    1,644
    
    
    1,588Certificates
      of deposit under $100,000
    
    
    80
    
    
    (44
    )
    
    36Certificates
      of deposit $100,000 or greater
    
    
    2,081
    
    
    2,249
    
    
    4,330Total
      interest-bearing deposits
    
    
    2,122
    
    
    4,029
    
    
    6,151Short-term
      borrowings
    
    
    1,278
    
    
    8,330
    
    
    9,608Long-term
      FHLB advances and security repurchase agreements
    
    
    5
    
    
    -
    
    
    5Long-term
      debt
    
    
    -
    
    
    -
    
    
    -Total
      interest expense
    
    
    3,405
    
    
    12,359
    
    
    15,764Net
      interest income (FTE)
    
    $
    6,691
    
    $
    (1,911
    )
    $
    4,780
 
 (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 decreased $3.6 million, or 29%, for the quarter ended June
30, 2005, compared to the same period in 2004. The decrease was primarily due to
lower levels of mortgage banking income. Details of mortgage banking income are
presented below. Exclusive of mortgage banking income, noninterest income was
$5.7 million for the quarter ended June 30, 2005, a decrease of $298,000, or 5%,
compared to the second quarter of 2004. The decrease was due primarily to
declines in gain on sale of securities. The Company also sold $6.7 million of
the guaranteed portion of SBA loans during the quarter ended June 30, 2005,
resulting in gains of $561,000. During the quarter ended June 30, 2004, the
Company sold $7.1 million of SBA loans for gains of $665,000.
 
 For the
six months ended June 30, 2005, total noninterest income decreased $3.4 million,
or 15%, 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 $10.9 million for the six months ended June 30, 2004, a
decrease of $725,000, or 6%, over the same period in 2004. This decrease was
primarily due to lower levels of gain on sale of securities, gain on sale of SBA
loans and income from bank owned life insurance. The Company sold $13.9 million
of the guaranteed portion of SBA loans during the six months ended June 30,
2005, resulting in gains of $953,000. During the six months ended June 30, 2004,
the Company sold $12.1 million of SBA loans for gains of $1.2 million.
 
 **Mortgage
Banking Income**
 The
Company closed $409 million in single-family residential mortgage loans in the
second quarter of 2005, a decrease of 34% compared to $619 million closed in the
same period last year. During the first half of 2005, mortgage loan closings
were $754 million, a decrease of 28% compared to $1.0 billion for the comparable
period in 2004. Refinancings for the second quarter of 2005 represented 33% of
total closings compared to 44% in the second quarter of 2004. During the first
half of 2005, refinancings represented 39% of total closings compared to 45% for
the first half of 2004.
 
 For the
three months ended June 30, 2005, mortgage banking income decreased $3.3
million, or 51%, to $3.2 million from $6.6 million a year earlier. The decrease
is primarily due to lower levels of mortgage loans sold to the secondary market
and lower gains on the sale of residential real estate portfolio loans. Mortgage
loans sold to the secondary market were $122 million during the second quarter
of 2005 compared to $297 million in the prior year. The ratio of mortgage loan
production income to mortgage loans sold was 3.01% for the second quarter of
2005, compared to 2.56% for the second of quarter 2004.
 
 For the
six months ended June 30, 2005, mortgage banking income decreased $2.7 million,
or 23%, to $9.1 million from $11.7 million a year earlier. The decrease is
primarily due to lower levels of mortgage loans sold to the secondary market.
For the six months ended June 30, 2005, mortgage loans sold to the secondary
market totaled $296 million compared to $553 million during the first six months
of 2004. The ratio of mortgage production revenue to mortgage loans sold was
2.93% for the first six months of 2005, compared to 2.50% 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 $3.7 million and $7.6 million for the
second quarters of 2005 and 2004, respectively, and $8.7 million and $13.9
million for the six months ended June 30, 2005 and 2004, respectively.
Commissions and incentives paid were $4.0 million and $5.7 million for the
second quarters of 2005 and 2004, respectively and $7.0 million and $9.1 million
for the six months ended June 30, 2005 and 2004, respectively. The SFAS 91
credit totaled $3.1 million and $3.8 million for the second quarters of 2005 and
2004, respectively. The SFAS 91 credit for the six months ended June 30, 2005
and 2004 totaled $4.8 million and $5.2 million, respectively.
 
 Mortgage
banking income also includes gains on sale of residential real estate loans
totaling $448,000 and $863,000 for the second quarters of 2005 and 2004,
respectively, and $2.5 million and $1.7 million for the six months ended June
30, 2005 and 2004, respectively. Residential real estate loan sales totaled
$52.7 million and $44.5 million for the second quarters of 2005 and 2004,
respectively, and $179.3 million and $96.1 million for the six months ended June
30, 2005 and 2004, respectively.
 
 During
the quarter ended June 30, 2005, the Company had mortgage loan applications of
$636 million and at June 30, 2005, the Company’s mortgage loan pipeline of
applications in process was $579 million, an increase of $40 million from March
31, 2005. At June 30, 2005, $152 million of the mortgage loan pipeline
represented commitments to fund loan applications with agreed-upon rates, an
increase of $8 million over March 31, 2005. The Company estimates that mortgage
applications for the quarter ended September 30, 2005 will range from $500 to
$600 million, and closings for the quarter ended September 30, 2005 will range
from $350 to $400 million.
 
  16
  **Noninterest
Expense**
 Total
noninterest expense for the quarter ended June 30, 2005, decreased $2.1 million,
or 9%, to $21.3 million compared to $23.4 million for the second quarter of
2004. The decrease was primarily a result of a decrease of $1.5 million in
salaries and employee benefits related to lower employee incentive accruals and
a decrease of $601,000 in other noninterest expense primarily reflecting lower
residential mortgage closing volume in 2005 compared to 2004. Total noninterest
expense for the six months ended June 30, 2005, decreased $270,000, or 1%, to
$44.1 million compared to $44.4 million in 2004.
 
 **BALANCE
SHEET ANALYSIS**
 
 **ASSETS**
 
 At June
30, 2005, the Company had $6.1 billion in total assets, an increase of $361
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,
mortgage loans held for sale, securities available for sale and securities held
to maturity.
 
 **Investment
Securities**
 The
Company’s investment securities portfolio serves as a secondary source of
earnings and contributes to the management of interest rate risk and liquidity
risk. The Company’s securities portfolio is comprised principally of U.S.
Government agency securities, municipal securities, collateralized mortgage
obligations and mortgage-backed securities. At June 30, 2005, fixed rate
investment securities within the portfolio, excluding municipal securities,
totaled $810.9 million compared to $546.4 million at December 31, 2004. At June
30, 2005, $536.6 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 $835.3 million at June 30, 2005, a $214.5
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 June 30, 2005, compared to 10.9% at December 31,
2004.
 
 Investment
securities held to maturity totaled $252.5 million at June 30, 2005, a $29.7
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 4.2% of the Company’s total assets at June 30,
2005, compared to 3.9% at December 31, 2004.
 
 The
following table details the composition, amortized cost and fair value of the
Company’s investment securities portfolio at June 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
    
    $
    246,402
    
    $
    84
    
    $
    412
    
    $
    246,074Collateralized
      mortgage obligations
    
    
    295,823
    
    
    1,185
    
    
    2,320
    
    
    294,688Mortgage-backed
      securities
    
    
    81,880
    
    
    56
    
    
    426
    
    
    81,510Municipal
      and other securities
    
    
    212,989
    
    
    926
    
    
    902
    
    
    213,013Total
      securities available for sale
    
    $
    837,094
    
    $
    2,251
    
    $
    4,060
    
    $
    835,285Securities
      Held To Maturity (At Cost):Collateralized
      mortgage obligations
    
    $
    216,193
    
    $
    45
    
    $
    3,237
    
    $
    213,001Mortgage-backed
      securities
    
    
    36,334
    
    
    -
    
    
    153
    
    
    36,181Total
      securities held to maturity
    
    $
    252,527
    
    $
    45
    
    $
    3,390
    
    $
    249,182
 
  17
  
 **Investment
Securities (continued)**
 The
Company believes that the unrealized losses in the previous table are temporary.
At June 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 $771.9 million and $530.8 million at June
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 June 30, 2005 and December
31, 2004. The Company earned an average dividend of 4.25% on the FHLB stock
during the second quarter of 2005.
 
 **Mortgage
Loans Held for Sale**
 Mortgage
loans held for sale were $143.6 million at June 30, 2005, an increase of $38.3
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 second quarter of 2005 were $409 million compared to
$444 million during the fourth quarter of 2004. At June 30, 2005, $55 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 third
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 $4.53 billion at June 30, 2005, an increase of $69 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
$1.64 billion at June 30, 2005, an increase of $67 million from $1.58 billion at
December 31, 2004. The increase was concentrated in real estate construction
loans.
 
 The
residential portfolio loan balance decreased $15.7 million during the first six
months of 2005. During the first six months of 2005, the Company retained $422
million of mortgage loans originated, 60% of which were adjustable-rate
mortgages. Loan pay-offs and principal repayments for the first half of 2005
were $224 million. As part of the Company’s interest rate risk management, the
Company sold $126.6 million of fixed-rate residential portfolio loans during the
first six months of 2005. To manage credit risk, $23.2 million of interest-only
adjustable rate loans were also sold. Additionally, to manage prepayment risk,
$29.5 million of adjustable-rate residential portfolio loans were sold during
the first six months of 2005.
 
 The
installment loan portfolio increased $17.6 million during the first six months
of 2005, primarily due to an increase in home equity loans.
 
 The
following table provides further information regarding the Company’s loan
portfolio:
 
 June
      30, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    PercentCommercial
      loans:Commercial
      and industrial
    
    $
    29,753
    
    
    0.7
    %
    $
    32,632
    
    
    0.7
    %Real
      estate construction
    
    
    294,424
    
    
    6.5
    
    
    224,643
    
    
    5.0Commercial
      real estate mortgage
    
    
    1,318,294
    
    
    29.0
    
    
    1,318,017
    
    
    29.5Total
      commercial loans
    
    
    1,642,471
    
    
    36.2
    
    
    1,575,292
    
    
    35.2Residential
      real estate mortgages
    
    
    2,137,046
    
    
    47.2
    
    
    2,152,720
    
    
    48.3Installment
      loans
    
    
    753,612
    
    
    16.6
    
    
    735,963
    
    
    16.5Total
      portfolio loans
    
    $
    4,533,129
    
    
    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 June
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 of Republic Bank 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 the emphasis on real
estate-secured lending and adherence to conservative underwriting standards.
 
 The
Company originates primarily conventional mortgage loans secured by residential
properties, which conform to the underwriting guidelines for sale to the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac), or for conversion to mortgage-backed securities
issued by the Government National Mortgage Association (GNMA).
 
 **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:
 
 June
      30,
    
    December
      31,(Dollars
      in thousands)
    
    2005
    
    2004Non-Performing
      Assets:Non-accrual
      loans:Commercial
    
    $
    14,550
    
    $
    17,744Residential
      real estate mortgages
    
    
    12,202
    
    
    10,705Installment
    
    
    1,100
    
    
    852Total
      non-accrual loans
    
    
    27,852
    
    
    29,301Other
      real estate owned
    
    
    8,917
    
    
    4,160Total
      non-performing assets
    
    $
    36,769
    
    $
    33,461Non-performing
      assets as a percentage of:Portfolio
      loans and OREO
    
    
    .81
    %
    
    .75
    %Total
      assets
    
    
    .61
    %
    
    .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
    
    $
    -
    
    $
    -
 
 At June
30, 2005, $24.3 million, or .54% 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 June 30, 2005, total
potential problem loans, excluding those categorized as non-accrual loans, were
$47.2 million, or 1.04% of total portfolio loans, compared to $32.5 million, or
0.73% of total portfolio loans at December 31, 2004.
 
  19
  **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 June
30, 2005, the allowance for loan losses consists of a specific allocated
component, a risk allocated component and an unallocated 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. Accordingly, the
unallocated portion of the allowance is maintained to capture these probable
losses inherent in the loan portfolio. The unallocated allowance 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 that were considered in the evaluation of the adequacy of the
Company’s unallocated allowance include the imprecision in the projected loss
ratios and the risk associated with new customer relationships, which may be
different than the risks associated with established customers. Additional
factors in the evaluation include economic conditions and industry trends. The
unallocated allowance was $9.0 million at June 30, 2005, compared to $9.8
million at March 31, 2005 and $7.2 million at December 31, 2004.
 
 During
the three months ended June 30, 2005, March 31, 2005 and June 30, 2004, the
Company recorded provision for loan losses of $1.4 million, $1.5 million and
$2.0 million, respectively. The amount charged to the provision for loan losses
during the first and second 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:
 Six
      Months Ended
      June
      30,(Dollars
      in thousands)
    
    2005
    
    2004Allowance
      for loan losses:Balance
      at January 1
    
    $
    41,818
    
    $
    40,271Loans
      charged off
    
    
    (3,596
    )
    
    (3,754
    )Recoveries
      of loans previously charged off
    
    
    749
    
    
    2,069Net
      charge-offs
    
    
    (2,847
    )
    
    (1,685
    )Provision
      charged to expense
    
    
    2,900
    
    
    4,500Balance
      at June 30
    
    $
    41,871
    
    $
    43,086Annualized
      net charge-offs as a percentage of average loans
    
    
    .13
    %
    
    .08
    %Allowance
      for loan losses as a percentage of total portfolio loans outstanding at
      period-end
    
    
    .92
    %
    
    .99
    %Allowance
      for loan losses as a percentage of non-performing loans
    
    
    150.33
    %
    
    121.59
    %
 
 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 June 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.
  20
  **Allowance
for Loan Losses and Impaired Loans (Continued** **)**
 
 Information
regarding the Company’s impaired loans follows:
 
 June
      30,
    
    December
      31,(In
      thousands)
    
    2005
    
    2004Gross
      recorded investment in impaired loans (period-end)
    
    $
    26,752
    
    $
    59,840Impaired
      loans requiring a specific allocated allowance
    
    
    17,167
    
    
    41,001Specific
      impairment allowance
    
    
    2,469
    
    
    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 $5.67 billion at June 30, 2005, a $362 million, or 7% increase
from $5.30 billion at December 31, 2004. This increase was primarily due to
increases in short-term borrowings and long-term security repurchase
agreements.
 
 **Deposits**
 Total
deposits decreased $11 million to $3.04 billion at June 30, 2005 from $3.05
billion at December 31, 2004. Total retail deposits increased $49 million, or
2%, from December 31, 2004 while wholesale deposits, which include municipal and
brokered certificates of deposit, decreased $60 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 six months ended June 30, 2005 and the year
ended December 31, 2004, were as follows:
 
 June
      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
    
    $
    395,000
    
    $
    432,776
    
    
    2.83
    %
    $
    365,000
    
    $
    348,555
    
    
    1.47
    %Security
      repurchase agreements
    
    
    324,775
    
    
    285,210
    
    
    2.65
    
    
    173,300
    
    
    213,880
    
    
    1.04Other
      short-term borrowings
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    266
    
    
    0.91Total
      short-term borrowings
    
    $
    719,775
    
    $
    717,986
    
    
    2.76
    %
    $
    538,300
    
    $
    562,701
    
    
    1.31
    %
 
 Short-term
security repurchase agreements are secured by certain securities with a carrying
value of $333.5 million at June 30, 2005.
 
 **Short-Term
FHLB Advances**
 Short-term
FHLB advances outstanding at June 30, 2005 and December 31, 2004, were as
follows:
 
 June
      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
    
    $
    362,500
    
    $
    267,293
    
    
    2.97
    %
    $
    215,000
    
    $
    289,301
    
    
    1.62
    %
 
  21
  **Short-Term
FHLB Advances (Continued)**
 
 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
$161.9 million and $282.3 million available in unused borrowings with the FHLB
at June 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 June 30, 2005
and December 31, 2004, were as follows:
 
 June
      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
    
    $
    329,729
    
    
    3.63
    %
    $
    368,774
    
    
    3.80
    %Putable
      advances
    
    
    680,000
    
    
    5.75
    
    
    680,000
    
    
    5.75Total
      long-term FHLB advances
    
    
    1,009,729
    
    
    5.06
    
    
    1,048,774
    
    
    5.07Long-term
      security repurchase agreements
    
    
    425,205
    
    
    2.83
    
    
    342,104
    
    
    2.68Total
      long-term FHLB advances and securityrepurchase
      agreements
    
    $
    1,434,934
    
    
    4.40
    %
    $
    1,390,878
    
    
    4.48
    %
 
 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 $437.2 million.
 
 The
long-term FHLB advances and security repurchase agreements have original
maturities ranging from July 2005 to October 2017.
 
 **CAPITAL**
 Shareholders’
equity was $409.1 million at June 30, 2005, compared to $409.6 million at
December 31, 2004. The decrease in shareholders’ equity during the first six
months of 2005 resulted primarily from net income of $34.8 million being more
than offset by $15.4 million in cash dividends to shareholders and $25.4 million
in stock repurchases.
 
 The
Company is subject to risk-based capital adequacy guidelines that measure
capital relative to risk-weighted assets and off-balance sheet financial
instruments. Capital adequacy guidelines issued by the Federal Reserve Board
require bank holding companies to have a minimum total risk-based capital ratio
of 8.00%, with at least half of total capital in the form of Tier 1, or core
capital. To be considered well-capitalized under the regulatory framework,
minimum capital ratios of 10.00% for total risk-based capital, 6.00% for Tier 1
risk-based capital and 5.00% for Tier 1 leverage must be maintained.
 
 As of
June 30, 2005, the Company met all capital adequacy requirements to which it is
subject. The Company’s capital ratios were as follows:
 
 June
      30,
      2005
    
    December
      31,
      2004Total
      capital to risk-weighted assets(1)
    
    
    12.50
    %
    
    12.96
    %Tier
      1 capital to risk-weighted assets(1)
    
    
    11.38
    
    
    11.87Tier
      1 capital to average assets(1)
    
    
    7.57
    
    
    7.94
 
 (1)
    As
      defined by the regulations.
 
 As of
June 30, 2005, the Company’s total risk-based capital was $500 million and Tier
1 risk-based capital was $456 million, an excess of $100 million and $215
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.
 
  22
  
 **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.
 
 **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.
 
  23
  
 **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 June 30, 2005, the cumulative one-year gap was
a positive 8.30% 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
June 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
    
    
    -200Change
      in net interest income over the next twelve months
    
    
    2.61
    %
    
    2.02
    %
    
    1.31
    %
    
    -2.45
    %
    
    -5.55
    %
    
    -13.21
    %
 
 These
projected levels, which are well within the Company’s policy limits, portray the
Company’s interest rate risk position as asset sensitive for the one-year
horizon. The earnings simulation model assumes that current balance sheet totals
remain constant and all maturities and prepayments of interest-earning assets
and interest-bearing liabilities are reinvested at current market
rates.
 
 24
 Mortgage
Banking Hedging Activities
 At June
30, 2005, the Company had outstanding $99.5 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 June
30, 2005, the Company had outstanding mandatory forward commitments to sell
$230.9 million of residential mortgage loans. These mandatory forward
commitments hedged the value of $142.5 million of mortgage loans held for sale
utilizing fair value hedge accounting for derivatives and $88.4 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 June 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 that qualify for hedge accounting
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 June 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)
    
    
    -
    
    
    -
    
    
    (519
    )
    
    (879
    )
    
    (1,398
    )Weighted
      average:Receive
      rate
    
    
    -
    %
    
    -
    %
    
    2.92
    %
    
    3.24
    %
    
    3.08
    %Pay
      rate
    
    
    -
    
    
    -
    
    
    2.81
    %
    
    3.44
    %
    
    3.13
    %
 
 (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.
 
  25
  
 **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.
  26
  
 **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 June 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)4/1/05 - 4/30/05
    
    
    225,000
    
    
    13.12
    
    
    225,000
    
    
    1,052,3525/1/05 - 5/31/05
    
    
    490,000
    
    
    13.56
    
    
    490,000
    
    
    562,3526/1/05 - 6/30/05
    
    
    483,500
    
    
    14.34
    
    
    483,500
    
    
    2,078,852Total
    
    
    1,198,500
    
    $
    13.79
    
    
    1,198,500
    
    
    2,078,852
 
 (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. There were
      78,852 shares available for repurchase at June 30, 2005 under this
      program.
      
      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 will commence at the conclusion of the 2003 Stock
      Repurchase Program. There were 2,000,000 shares available for repurchase
      at June 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
 
 
 
 
  27
  
 **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:
      August 8, 2005
    
    BY:
    /s/
      Thomas F. MenacherThomas
      F. Menacher
      Executive
      Vice President, Treasurer and Chief Financial Officer
      (Principal
      Financial and Accounting Officer)
 
 
 
 28