**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 endedMarch
      31, 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 April 30, 2005:Common
      Stock, $5 Par Value Per Share
    70,057,000
      Shares
 
 
 
   
 INDEX
 
 **PART
      I.**
    FINANCIAL
      INFORMATIONItem
      1.
    Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of March 31, 2005 and December 31, 2004
    
    2Consolidated
      Statements of Income for the Three Months Ended March 31, 2005 and
      2004
    
    3Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2005 and
      2004
    
    4Notes
      to Consolidated Financial Statements
    
    5 -
      9Item
      2.
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
    
    9 -
      19Item
      3.
    Quantitative
      and Qualitative Disclosures About Market Risk
    
    20
      - 21Item
      4.
    Controls
      and Procedures
    
    22**PART
      II.**
    OTHER
      INFORMATIONItem
      1.
    Legal
      Proceedings
    
    23Item
      2.
    Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
    
    23Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    
    23Item
      5.
    Other
      Information
    
    24Item
      6.
    Exhibits
    
    24**SIGNATURE**
    
    
    25Exhibits
      31 -
    Certifications
      of the Principal Executive Officer and Principal Financial
      Officer
    
    26
      - 27Exhibits
      32 -
    Certifications
      of the Chief Executive Officer and Chief Financial Officer
    
    28
      - 29
 
  1
  
 **PART
I - FINANCIAL INFORMATION**
 ITEM 1 -
Financial Statements
 
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
BALANCE SHEETS
 
 (Dollars
      in thousands)
    
    March
      31,
      2005
    
    December
      31, 2004(Unaudited)**ASSETS**Cash
      and cash equivalents
    
    $
    54,440
    
    $
    53,671Mortgage
      loans held for sale
    
    
    30,380
    
    
    105,318Securities
      available for sale, at market
    
    
    835,939
    
    
    620,794Securities
      held to maturity, at cost
    
    
    261,674
    
    
    222,757Loans,
      net of unearned income
    
    
    4,488,156
    
    
    4,463,975Less
      allowance for loan losses
    
    
    (41,855
    )
    
    (41,818
    )Net
      loans
    
    
    4,446,301
    
    
    4,422,157Federal
      Home Loan Bank stock (at cost)
    
    
    80,514
    
    
    80,511Premises
      and equipment
    
    
    25,630
    
    
    26,493Bank
      owned life insurance
    
    
    113,335
    
    
    112,978Other
      assets
    
    
    75,479
    
    
    69,298Total
      assets
    
    $
    5,923,692
    
    $
    5,713,977**LIABILITIES**Noninterest-bearing
      deposits
    
    $
    287,124
    
    $
    274,747Interest-bearing
      deposits:NOW
      accounts
    
    
    194,290
    
    
    203,553Savings
      and money market accounts
    
    
    1,070,683
    
    
    1,103,675Certificates
      of deposit under $100,000
    
    
    685,134
    
    
    662,357Certificates
      of deposit $100,000 or greater
    
    
    755,515
    
    
    801,879Total
      interest-bearing deposits
    
    
    2,705,622
    
    
    2,771,464Total
      deposits
    
    
    2,992,746
    
    
    3,046,211Federal
      funds purchased and other short-term borrowings
    
    
    810,133
    
    
    538,300Short-term
      FHLB advances
    
    
    170,000
    
    
    215,000Long-term
      FHLB advances and security repurchase agreements
    
    
    1,432,518
    
    
    1,390,878Accrued
      expenses and other liabilities
    
    
    63,347
    
    
    63,950Long-term
      debt
    
    
    50,000
    
    
    50,000Total
      liabilities
    
    
    5,518,744
    
    
    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, 75,000,000 shares authorized; 70,274,000 and
      70,425,000, issued and outstanding, respectively
    
    
    351,369
    
    
    352,125Capital
      surplus
    
    
    57,578
    
    
    59,303Unearned
      compensation - restricted stock
    
    
    (7,194
    )
    
    (3,207
    )Retained
      earnings
    
    
    13,190
    
    
    3,634Accumulated
      other comprehensive loss
    
    
    (9,995
    )
    
    (2,217
    )Total
      shareholders’ equity
    
    
    404,948
    
    
    409,638Total
      liabilities and shareholders’ equity
    
    $
    5,923,692
    
    $
    5,713,977
 
 See notes
to consolidated financial statements.
 
  2
  
 **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
 Three
      Months EndedMarch
      31,(In
      thousands, except per share data)
    
    2005
    
    2004**Interest
      Income:**Interest
      and fees on loans
    
    $
    64,464
    
    $
    57,996Interest
      on investment securities and FHLB stock dividends
    
    
    11,377
    
    
    9,823Total
      interest income
    
    
    75,841
    
    
    67,819**Interest
      Expense:**Deposits
    
    
    15,188
    
    
    13,037Short-term
      borrowings
    
    
    5,620
    
    
    2,018Long-term
      FHLB advances and security repurchase agreements
    
    
    15,630
    
    
    15,810Long-term
      debt
    
    
    1,075
    
    
    1,075Total
      interest expense
    
    
    37,513
    
    
    31,940Net
      interest income
    
    
    38,328
    
    
    35,879Provision
      for loan losses
    
    
    1,500
    
    
    2,500Net
      interest income after provision for loan losses
    
    
    36,828
    
    
    33,379**Noninterest
      Income:**Mortgage
      banking income
    
    
    5,825
    
    
    5,174Service
      charges
    
    
    2,681
    
    
    2,697Gain
      on sale of securities
    
    
    435
    
    
    688Gain
      on sale of SBA loans
    
    
    392
    
    
    521Income
      from bank owned life insurance
    
    
    1,013
    
    
    1,303Other
      noninterest income
    
    
    692
    
    
    431Total
      noninterest income
    
    
    11,038
    
    
    10,814**Noninterest
      Expense:**Salaries
      and employee benefits
    
    
    13,416
    
    
    12,089Occupancy
      expense of premises
    
    
    2,701
    
    
    2,619Equipment
      expense
    
    
    1,624
    
    
    1,674Other
      noninterest expense
    
    
    5,131
    
    
    4,640Total
      noninterest expense
    
    
    22,872
    
    
    21,022Income
      before income taxes
    
    
    24,994
    
    
    23,171Provision
      for income taxes
    
    
    7,687
    
    
    6,872**Net
      Income**
    
    $
    17,307
    
    $
    16,299Basic
      earnings per share
    
    $
    .25
    
    $
    .23Diluted
      earnings per share
    
    $
    .24
    
    $
    .23Average
      common shares outstanding - diluted
    
    
    71,201
    
    
    71,084Cash
      dividends declared per common share
    
    $
    .110
    
    $
    .086
 
 
 See notes
to consolidated financial statements.
 
  3
  **REPUBLIC
BANCORP INC. AND SUBSIDIARIES**
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
 
 Three
      Months Ended March 31 (In thousands)
    
    2005
    
    2004**Cash
      Flows From Operating Activities:**Net
      income
    
    $
    17,307
    
    $
    16,299Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
    
    
    3,243
    
    
    2,931Net
      gains on sale of securities available for sale
    
    
    (435
    )
    
    (688
    )Net
      gains on sale of commercial and residential real estate
    loans
    
    
    (2,483
    )
    
    (1,378
    )Proceeds
      from sale of mortgage loans held for sale
    
    
    174,302
    
    
    256,072Origination
      of mortgage loans held for sale
    
    
    (99,364
    )
    
    (261,560
    )Net
      increase in other assets
    
    
    (9,055
    )
    
    (9,516
    )Net
      decrease in other liabilities
    
    
    (603
    )
    
    (2,126
    )Other,
      net
    
    
    38
    
    
    1,287Total
      adjustments
    
    
    65,643
    
    
    (14,978
    )Net
      cash provided by operating activities
    
    
    82,950
    
    
    1,321**Cash
      Flows From Investing Activities:**Proceeds
      from sale of securities available for sale
    
    
    69,866
    
    
    41,499Proceeds
      from calls and principal payments of securities available for
      sale
    
    
    33,897
    
    
    61,164Proceeds
      from principal payments of securities held to maturity
    
    
    11,972
    
    
    6,455Purchases
      of securities available for sale
    
    
    (330,709
    )
    
    (200,704
    )Purchases
      of securities held to maturity
    
    
    (50,921
    )
    
    (85,443
    )Proceeds
      from sale of commercial and residential real estate loans
    
    
    136,359
    
    
    56,720Net
      increase in loans made to customers
    
    
    (158,778
    )
    
    (65,258
    )Premises
      and equipment expenditures
    
    
    (645
    )
    
    (3,184
    )Net
      cash used in investing activities
    
    
    (288,959
    )
    
    (188,751
    )**Cash
      Flows From Financing Activities:**Net
      (decrease) increase in total deposits
    
    
    (53,465
    )
    
    75,100Net
      increase in short-term borrowings
    
    
    271,833
    
    
    68,799Net
      decrease in short-term FHLB advances
    
    
    (45,000
    )
    
    (105,000
    )Proceeds
      from long-term FHLB advances and security repurchase
      agreements
    
    
    62,250
    
    
    146,000Payments
      on long-term FHLB advances
    
    
    (19,371
    )
    
    (3,482
    )Net
      proceeds from issuance of common shares
    
    
    5,994
    
    
    5,832Repurchase
      of common shares
    
    
    (8,846
    )
    
    (889
    )Dividends
      paid on common shares
    
    
    (6,617
    )
    
    (6,040
    )Net
      cash provided by financing activities
    
    
    206,778
    
    
    180,320Net
      increase (decrease) in cash and cash equivalents
    
    
    769
    
    
    (7,110
    )Cash
      and cash equivalents at beginning of period
    
    
    53,671
    
    
    63,858Cash
      and cash equivalents at end of period
    
    $
    54,440
    
    $
    56,748
 
 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 three months ended March 31,
include:
 
 (In
      thousands)
    
    2005
    
    2004Cash
      paid during the period for:Interest
    
    $
    37,383
    
    $
    31,846Income
      taxes
    
    $
    250
    
    $
    -Non-cash
      investing activities:Loan
      charge-offs
    
    $
    1,700
    
    $
    1,835
 
 **Note
4 -** **Comprehensive
Income**
 The
following table sets forth the computation of comprehensive income:
 
 Three
      Months Ended
      March
      31,(In
      thousands)
    
    2005
    
    2004Net
      income
    
    $
    17,307
    
    $
    16,299Unrealized
      holding gains (losses) on securities, net of tax (credit) of ($4,036) and
      $2,781, respectively
    
    
    (7,495
    )
    
    5,164Reclassification
      adjustment for gains included in net income, net of tax of $152 and $241,
      respectively
    
    
    (283
    )
    
    (447
    )Net
      unrealized gains (losses) on securities, net of tax
    
    
    (7,778
    )
    
    4,717Comprehensive
      income
    
    $
    9,529
    
    $
    21,016
 
 **Note
5 -** **Intangible
Assets**
 The
following table summarizes the Company’s core deposit intangible asset which is
subject to amortization:
 
 (Dollars
      in thousands)
    
    March
      31,
      2005
    
    December
      31,
      2004Core
      Deposit Intangible Asset:Gross
      carrying amount
    
    $
    10,883
    
    $
    10,883Accumulated
      amortization
    
    
    7,147
    
    
    6,894Net
      book value
    
    $
    3,736
    
    $
    3,989
 
 Amortization
expense on the core deposit intangible asset totaled $253,000 and $247,500 for
the quarters ended March 31, 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
      March
      31,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004Numerator
      for basic and diluted earnings per share:Net
      income
    
    $
    17,307
    
    $
    16,299Denominator
      for basic earnings per share - weighted-average shares
    
    
    70,393,126
    
    
    70,178,439Effect
      of dilutive securities:Stock
      options
    
    
    749,570
    
    
    832,557Warrants
    
    
    58,761
    
    
    72,706Dilutive
      potential common shares
    
    
    808,331
    
    
    905,263Denominator
      for diluted earnings per share—adjusted weighted-average shares for
      assumed conversions
    
    
    71,201,457
    
    
    71,083,702Basic
      earnings per share
    
    $
    .25
    
    $
    .23Diluted
      earnings per share
    
    $
    .24
    
    $
    .23
 
 **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 March 31, 2005 and 2004.
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended March 31, 2005**Net
      interest income from external customers
    
    $
    24,226
    
    $
    (6,200
    )
    $
    3,221
    
    $
    17,081
    
    $
    38,328Internal
      funding
    
    
    (9,791
    )
    
    31,696
    
    
    (1,867
    )
    
    (20,038
    )
    
    -Net
      interest income
    
    
    14,435
    
    
    25,496
    
    
    1,354
    
    
    (2,957
    )
    
    38,328Provision
      for loan losses
    
    
    752
    
    
    282
    
    
    75
    
    
    391
    
    
    1,500Noninterest
      income
    
    
    705
    
    
    2,787
    
    
    5,055
    
    
    2,491
    
    
    11,038Noninterest
      expense
    
    
    2,940
    
    
    8,001
    
    
    4,921
    
    
    7,010
    
    
    22,872Income
      before taxes
    
    
    11,448
    
    
    20,000
    
    
    1,413
    
    
    (7,867
    )
    
    24,994Income
      taxes
    
    
    4,007
    
    
    7,000
    
    
    495
    
    
    (3,815
    )
    
    7,687Net
      income
    
    $
    7,441
    
    $
    13,000
    
    $
    918
    
    $
    (4,052
    )
    $
    17,307Depreciation
      and amortization
    
    $
    29
    
    $
    742
    
    $
    424
    
    $
    2,048
    
    $
    3,243Capital
      expenditures
    
    $
    19
    
    $
    374
    
    $
    19
    
    $
    233
    
    $
    645Net
      identifiable assets (in millions)
    
    $
    1,580
    
    $
    2,889
    
    $
    202
    
    $
    1,253
    
    $
    5,924Return
      on equity(1)
    
    
    18.98
    %
    
    37.69
    %
    
    30.51
    %
    
    n/m
    
    
    16.76
    %Return
      on assets
    
    
    1.90
    %
    
    1.79
    %
    
    1.53
    %
    
    n/m
    
    
    1.19
    %Efficiency
      ratio
    
    
    19.42
    %
    
    28.29
    %
    
    76.78
    %
    
    n/m
    
    
    45.96
    %
 
 (In
      thousands)
    
    Commercial
    
    Retail
    
    Mortgage
    
    Treasury
      and
      Other
    
    Consolidated**For
      the Three Months Ended March 31, 2004**Net
      interest income from external customers
    
    $
    20,964
    
    $
    (6,773
    )
    $
    3,924
    
    $
    17,764
    
    $
    35,879Internal
      funding
    
    
    (8,549
    )
    
    30,864
    
    
    (1,697
    )
    
    (20,618
    )
    
    -Net
      interest income
    
    
    12,415
    
    
    24,091
    
    
    2,227
    
    
    (2,854
    )
    
    35,879Provision
      for loan losses
    
    
    1,118
    
    
    395
    
    
    68
    
    
    919
    
    
    2,500Noninterest
      income
    
    
    757
    
    
    2,805
    
    
    5,148
    
    
    2,104
    
    
    10,814Noninterest
      expense
    
    
    2,001
    
    
    7,604
    
    
    5,332
    
    
    6,085
    
    
    21,022Income
      before taxes
    
    
    10,053
    
    
    18,897
    
    
    1,975
    
    
    (7,754
    )
    
    23,171Income
      taxes
    
    
    3,587
    
    
    6,742
    
    
    691
    
    
    (4,148
    )
    
    6,872Net
      income
    
    $
    6,466
    
    $
    12,155
    
    $
    1,284
    
    $
    (3,606
    )
    $
    16,299Depreciation
      and amortization
    
    $
    30
    
    $
    734
    
    $
    450
    
    $
    1,717
    
    $
    2,931Capital
      expenditures
    
    $
    20
    
    $
    2,363
    
    $
    208
    
    $
    593
    
    $
    3,184Net
      identifiable assets (in millions)
    
    $
    1,523
    
    $
    2,850
    
    $
    287
    
    $
    890
    
    $
    5,550Return
      on equity(1)
    
    
    17.15
    %
    
    36.69
    %
    
    34.87
    %
    
    n/m
    
    
    17.15
    %Return
      on assets
    
    
    1.72
    %
    
    1.75
    %
    
    1.74
    %
    
    n/m
    
    
    1.20
    %Efficiency
      ratio
    
    
    15.19
    %
    
    28.27
    %
    
    72.30
    %
    
    n/m
    
    
    44.73
    %
 
 **(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
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
quarter 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 quarter 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 months
ended March 31, 2005 and 2004.
 
 Three
      Months EndedMarch
      31,(Dollars
      in thousands, except per share data)
    
    2005
    
    2004Net
      income (as reported)
    
    $
    17,307
    
    $
    16,299Add:
      Stock-based employee compensation expense included in reported net income,
      net of related tax effects
    
    
    860
    
    
    709Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
    
    
    (941
    )
    
    (849
    )Net
      income (pro forma)
    
    $
    17,226
    
    $
    16,159Basic
      earnings per share (as reported)
    
    $
    .25
    
    $
    .23Basic
      earnings per share (pro forma)
    
    
    .24
    
    
    .23Diluted
      earnings per share (as reported)
    
    $
    .24
    
    $
    .23Diluted
      earnings per share (pro forma)
    
    
    .24
    
    
    .23
 
 **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”. The
balance was also $2.8 million at March 31, 2005. Deferred revenue recorded for
standby letters of credit was $255,000 and $367,000 at March 31, 2005 and
December 31, 2004, respectively.
 
 
 8
 **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 March 31, 2005 and December 31,
2004.
 
 (In
      thousands)
    
    March
      31,
      2005
    
    December
      31,
      2004Financial
      instruments whose contract amounts represent credit risk:Commitments
      to fund residential real estate loans
    
    $
    286,151
    
    $
    254,374Commitments
      to fund commercial real estate loans
    
    
    434,261
    
    
    390,363Other
      unused commitments to extend credit
    
    
    428,727
    
    
    422,652Standby
      letters of credit
    
    
    107,703
    
    
    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 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. 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 Financial Accounting Standards Board (FASB) Emerging Issues Task Force
(EITF) released Issue 03-01, *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 03-01, 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 03-01. The FSP requires
the application of pre-existing other-than-temporary guidance during the period
of delay until a final consensus is reached. The FASB had not issued final
authoritative guidance on this topic at March 31, 2005. When this occurs, the
effect of this guidance on the Company’s financial condition, results of
operations and liquidity will be determined by management.
 
 **ITEM
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations**
 
 **EARNINGS
PERFORMANCE**
 
 The
Company reported net income for the quarter ended March 31, 2005 of $17.3
million. This compares to net income of $16.3 million for the first quarter of
2004. Diluted earnings per share for the first quarter of 2005 were $.24, up 6%
from $.23 earned in the first quarter of 2004. Annualized returns on average
assets and average shareholders’ equity for the quarter ended March 31, 2005
were 1.19% and 16.76%, respectively.
 
 **RESULTS
OF OPERATIONS**
 
 **Net
Interest Income**
 The
following discussion should be read in conjunction with Tables 1 and 2 on the
following two pages, which identify and quantify the components impacting net
interest income for the three months ended March 31, 2005 and 2004.
 
 Net
interest income, on a fully taxable equivalent (FTE) basis, was $39.2 million
for the first quarter of 2005 compared to $36.9 million for the first quarter of
2004, an increase of 6%. The increase was primarily the result of an increase in
the Company’s average
interest earning assets of $386 million, or 7%, as the average
balance of mortgage loans held for sale increased $21 million, or 22%, the
average balance of total securities increased $104 million, or 12%, and the
average portfolio loan balance increased $260 million, or 6%, during the first
quarter of 2005 compared to 2004. The increase in the average portfolio loan
balance reflects a $60 million, or 4%, increase in average commercial loans, a
$93 million, or 5%, increase in average residential real estate mortgage loans
and a $108
  9
  **Net
Interest Income (Continued** **)**
 
 million,
or 17%, increase in average installment loans. Average total interest bearing
liabilities increased $349 million for the first quarter of 2005 compared to
2004 due to a $167 million increase in total average interest-bearing deposits,
a $166 million increase in average short-term borrowings and a $16 million
increase in average long-term FHLB advances and security repurchase
agreements.
 
 The net
interest margin (FTE) was 2.79% for the quarter ended March 31, 2005, a decrease
of 3 basis points from 2.82% during the first 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.
 
 Table 1 -
Quarterly Net Interest Income (FTE)
 
 Three
      Months Ended
      March
      31, 2005
    
    Three
      Months Ended
      March
      31, 2004(Dollars
      in thousands)
    
    Average
      Balance
    
    Interest
    
    Average
      Rate
    
    Average
      Balance
    
    Interest
    
    Average
      Rate**Average
      Assets:**Short-term
      investments
    
    $
    2,067
    
    $
    9
    
    
    1.67
    %
    $
    439
    
    $
    1
    
    
    0.75
    %Mortgage
      loans held for sale
    
    
    113,635
    
    
    1,662
    
    
    5.85
    
    
    92,827
    
    
    1,374
    
    
    5.92Securities
      available for sale:(1)Taxable
    
    
    529,900
    
    
    5,980
    
    
    4.51
    
    
    461,584
    
    
    4,503
    
    
    3.90Tax-exempt
    
    
    199,848
    
    
    2,702
    
    
    5.48
    
    
    209,999
    
    
    3,080
    
    
    5.87Securities
      held to maturity
    
    
    234,708
    
    
    2,691
    
    
    4.59
    
    
    188,664
    
    
    2,170
    
    
    4.60Portfolio
      loans:(2)Commercial
      loans
    
    
    1,586,114
    
    
    24,470
    
    
    6.17
    
    
    1,526,471
    
    
    21,116
    
    
    5.47Residential
      real estate mortgage loans
    
    
    2,120,187
    
    
    27,506
    
    
    5.19
    
    
    2,027,648
    
    
    27,086
    
    
    5.34Installment
      loans
    
    
    736,509
    
    
    10,826
    
    
    5.96
    
    
    628,980
    
    
    8,420
    
    
    5.37Total
      loans, net of unearned income
    
    
    4,442,810
    
    
    62,802
    
    
    5.67
    
    
    4,183,099
    
    
    56,622
    
    
    5.39Federal
      Home Loan Bank stock (at cost)
    
    
    80,712
    
    
    827
    
    
    4.15
    
    
    80,734
    
    
    1,057
    
    
    5.25Total
      interest-earning assets
    
    
    5,603,680
    
    
    76,673
    
    
    5.49
    
    
    5,217,346
    
    
    68,807
    
    
    5.26Allowance
      for loan losses
    
    
    (41,762
    )
    
    
    
    
    
    
    
    (40,923
    )Other
      assets
    
    
    257,962
    
    
    
    
    
    
    
    
    241,308Total
      assets
    
    $
    5,819,880
    
    
    
    
    
    
    
    $
    5,417,731**Average
      Liabilities and Shareholders’ Equity:**Interest-bearing
      demand deposits
    
    $
    200,481
    
    $
    222
    
    
    0.45
    %
    $
    183,744
    
    $
    124
    
    
    0.27
    %Savings
      and money market accounts
    
    
    1,084,171
    
    
    4,209
    
    
    1.57
    
    
    1,041,338
    
    
    3,467
    
    
    1.34Certificates
      of deposit under $100,000
    
    
    673,495
    
    
    4,878
    
    
    2.94
    
    
    679,605
    
    
    5,148
    
    
    3.04Certificates
      of deposit $100,000 or greater
    
    
    781,919
    
    
    5,879
    
    
    3.05
    
    
    668,233
    
    
    4,298
    
    
    2.58Total
      interest-bearing deposits
    
    
    2,740,066
    
    
    15,188
    
    
    2.25
    
    
    2,572,920
    
    
    13,037
    
    
    2.03Short-term
      borrowings
    
    
    893,359
    
    
    5,620
    
    
    2.52
    
    
    727,657
    
    
    2,018
    
    
    1.10Long-term
      FHLB advances and security repurchase agreements
    
    
    1,411,945
    
    
    15,630
    
    
    4.43
    
    
    1,396,219
    
    
    15,810
    
    
    4.48Long-term
      debt
    
    
    50,000
    
    
    1,075
    
    
    8.60
    
    
    50,000
    
    
    1,075
    
    
    8.60Total
      interest-bearing liabilities
    
    
    5,095,370
    
    
    37,513
    
    
    2.96
    
    
    4,746,796
    
    
    31,940
    
    
    2.68Noninterest-bearing
      deposits
    
    
    270,015
    
    
    
    
    
    
    
    
    254,371Other
      liabilities
    
    
    41,445
    
    
    
    
    
    
    
    
    36,479Total
      liabilities
    
    
    5,406,830
    
    
    
    
    
    
    
    
    5,037,646Shareholders’
      equity
    
    
    413,050
    
    
    
    
    
    
    
    
    380,085Total
      liabilities and shareholders’ equity
    
    $
    5,819,880
    
    
    
    
    
    
    
    $
    5,417,731Net
      interest income/rate spread (FTE)
    
    
    
    
    $
    39,160
    
    
    2.53
    %
    
    
    
    $
    36,867
    
    
    2.58
    %Net
      interest margin (FTE)
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    2.82
    %
 
 (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.
 
  10
  **Net
Interest Income (Continued** **)**
 
 Table 2 -
Quarter Rate/Volume Analysis
 
 Increase
      (decrease) due to change in:
    
    Volume(1)
    
    Rate(1)
    
    Net
      Change**Interest
      Income:**Short-term
      investments
    
    $
    6
    
    $
    2
    
    $
    8Mortgage
      loans held for sale
    
    
    304
    
    
    (16
    )
    
    288Securities
      available for sale:Taxable
    
    
    718
    
    
    759
    
    
    1,477Tax-exempt
    
    
    (159
    )
    
    (219
    )
    
    (378
    )Securities
      held to maturity
    
    
    526
    
    
    (5
    )
    
    521Portfolio
      loans:(2)Commercial
      loans
    
    
    785
    
    
    2,569
    
    
    3,354Residential
      real estate mortgage loans
    
    
    1,201
    
    
    (781
    )
    
    420Installment
      loans
    
    
    1,465
    
    
    941
    
    
    2,406Total
      loans, net of unearned income
    
    
    3,451
    
    
    2,729
    
    
    6,180Federal
      Home Loan Bank stock (at cost)
    
    
    -
    
    
    (230
    )
    
    (230
    )Total
      interest income
    
    
    4,846
    
    
    3,020
    
    
    7,866**Interest
      Expense:**Interest-bearing
      demand deposits
    
    
    11
    
    
    87
    
    
    98Savings
      deposits
    
    
    143
    
    
    599
    
    
    742Certificates
      of deposit under $100,000
    
    
    (94
    )
    
    (176
    )
    
    (270
    )Certificates
      of deposit $100,000 or greater
    
    
    763
    
    
    818
    
    
    1,581Total
      interest-bearing deposits
    
    
    823
    
    
    1,328
    
    
    2,151Short-term
      borrowings
    
    
    540
    
    
    3,062
    
    
    3,602Long-term
      FHLB advances and security repurchase agreements
    
    
    85
    
    
    (265
    )
    
    (180
    )Long-term
      debt
    
    
    -
    
    
    -
    
    
    -Total
      interest expense
    
    
    1,448
    
    
    4,125
    
    
    5,573Net
      interest income (FTE)
    
    $
    3,398
    
    $
    (1,105
    )
    $
    2,293
 
 (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.
 
  11
  
 **Noninterest
Income**
 Total
noninterest income increased $224,000, or 2%, for the quarter ended March 31,
2005, compared to the same period in 2004. The increase was primarily due to
higher levels of mortgage banking income. Details of mortgage banking income are
presented below. Exclusive of mortgage banking income, noninterest income was
$5.2 million for the quarter ended March 31, 2005, a decrease of $427,000, or
8%, compared to the first quarter of 2004. The decrease was due primarily to
declines in income from bank owned life insurance, gain on sale of securities
and gain on sale of SBA loans. The Company sold $7.3 million of the guaranteed
portion of SBA loans during the quarter ended March 31, 2005, resulting in gains
of $392,000. During the quarter ended March 31, 2004, the Company sold $4.9
million of SBA loans for gains of $521,000.
 
 **Mortgage
Banking Income**
 The
Company closed $345 million in single-family residential mortgage loans in the
first quarter of 2005, a decrease of 19% compared to $425 million closed in the
same period last year. Refinancings for the first quarter of 2005 represented
46% of total closings compared to 47% in the first quarter of 2004.
 
 For the
three months ended March 31, 2005, mortgage banking income increased $651,000,
or 13%, to $5.8 million from $5.2 million a year earlier. The increase is
primarily due to a higher margin on mortgage loans held for sale fundings and
higher gains on the sale of residential real estate loans. Mortgage loans held
for sale fundings were $174 million during the first quarter of 2005 compared to
$256 million in the prior year. The ratio of mortgage loan production income to
mortgage loans held for sale fundings was 2.88% for the first quarter of 2005,
compared to 2.44% for the first of quarter 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 $5.0 million and $6.2 million for the
first quarters of 2005 and 2004, respectively. Commissions and incentives paid
were $3.0 million and $3.4 million for the first quarters of 2005 and 2004,
respectively. The SFAS 91 credit totaled $1.7 million and $1.5 million for the
first quarters of 2005 and 2004, respectively.
 
 Mortgage
banking income also includes gains on sale of residential real estate loans
totaling $2.1 million and $857,000 for the first quarters of 2005 and 2004,
respectively. Residential real estate loan sales totaled $126.6 million and
$51.5 million for the first quarters of 2005 and 2004,
respectively.
 
 During
the quarter ended March 31, 2005, the Company had mortgage loan applications of
$650 million and at March 31, 2005, the Company’s mortgage loan pipeline of
applications in process was $539 million. The Company estimates that mortgage
applications for the quarter ended June 30, 2005 will range from $500 to $600
million, and closings for the quarter ended June 30, 2005 will range from $400
to $500 million.
 
 **Noninterest
Expense**
 Total
noninterest expense for the quarter ended March 31, 2005 increased $1.9 million,
or 9%, to $22.9 million compared to $21.0 million for the first quarter of 2004.
The increase was primarily a result of an increase of $1.3 million in salaries
and employee benefits related to employee incentive accruals. The increase in
other noninterest expenses of $491,000 reflects higher levels of audit and
accounting fees and state income taxes.
  12
   **BALANCE
SHEET ANALYSIS**
 
 **ASSETS**
 
 At March
31, 2005, the Company had $5.92 billion in total assets, an increase of $210
million, or 4%, from $5.71 billion at December 31, 2004. The increase is
primarily the result of an increase in the Company’s total portfolio loans,
securities available for sale and securities held to maturity.
 
 **Investment
Securities**
 The
Company’s investment securities portfolio serves as a secondary source of
earnings and contributes to the management of interest rate risk and liquidity
risk. The Company’s securities portfolio is comprised principally of U.S.
Government agency securities, municipal securities, collateralized mortgage
obligations and mortgage-backed securities. At March 31, 2005, fixed rate
investment securities within the portfolio, excluding municipal securities,
totaled $825.3 million compared to $546.4 million at December 31, 2004. At March
31, 2005, $556.3 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 $835.9 million at March 31, 2005, a $215.1
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. The investment securities available for
sale portfolio constituted 14.1% of the Company’s total assets at March 31,
2005, compared to 10.9% at December 31, 2004.
 
 Investment
securities held to maturity totaled $261.7 million at March 31, 2005, a $38.9
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 4.4% of the Company’s total assets at March 31,
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 March 31,
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
    
    $
    241,208
    
    $
    11
    
    $
    5,175
    
    $
    236,044Collateralized
      mortgage obligations
    
    
    312,323
    
    
    13
    
    
    4,748
    
    
    307,588Mortgage-backed
      securities
    
    
    85,079
    
    
    21
    
    
    1,049
    
    
    84,051Municipal
      and other securities
    
    
    212,706
    
    
    41
    
    
    4,491
    
    
    208,256Total
      securities available for sale
    
    $
    851,316
    
    $
    86
    
    $
    15,463
    
    $
    835,939Securities
      Held To Maturity (At Cost):Collateralized
      mortgage obligations
    
    $
    224,637
    
    $
    -
    
    $
    5,708
    
    $
    218,929Mortgage-backed
      securities
    
    
    37,037
    
    
    -
    
    
    541
    
    
    36,496Total
      securities held to maturity
    
    $
    261,674
    
    $
    -
    
    $
    6,249
    
    $
    255,425
 
  13
  
 **Investment
Securities (continued)**
 The
Company believes that the unrealized losses in the previous table are temporary.
At March 31, 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. No
securities were sold during the first quarter of 2005 that were in a loss
position.
 
 Certain
securities with a carrying value of $773.1 million and $530.8 million at March
31, 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 March 31, 2005 and December
31, 2004. The Company earned an average dividend of 4.15% on the FHLB stock
during the first quarter of 2005.
 
 **Mortgage
Loans Held for Sale**
 Mortgage
loans held for sale were $30.3 million at March 31, 2005, a decrease of $74.9
million from $105.3 million at December 31, 2004. The decrease is primarily due
to a decrease in residential mortgage loan closings during the first quarter of
2005 compared to the fourth quarter of 2004. Loans closed generally remain in
loans held for sale for 30 to 60 days after closing. Residential mortgage loan
closings during the first quarter of 2005 were $345 million compared to $444
million during the fourth quarter of 2004.
 
 **Portfolio
Loans**
 Total
portfolio loans were $4.49 billion at March 31, 2005, an increase of $24.2
million from $4.46 billion at December 31, 2004. The increase was due to
increases in the commercial and installment portfolio loan balances. The
commercial portfolio loan balance was $1.60 billion at March 31, 2005, an
increase of $21 million from $1.58 billion at December 31, 2004. The increase
was concentrated in real estate construction loans.
 
 The
residential portfolio loan balance decreased $2.8 million during the first three
months of 2005. During the first three months of 2005, the Company retained $221
million of mortgage loans originated, 60% of which were adjustable-rate
mortgages. Loan pay-offs and principal repayments for the first three months of
2005 were $113 million. As part of the Company’s interest rate risk management,
the Company also sold $127 million of primarily fixed-rate residential portfolio
loans during the first quarter of 2005. These portfolio loans were transferred
to mortgage loans held for sale at the lower of cost or market.
 
 The
installment loan portfolio increased $5.8 million during the first three months
of 2005, primarily due to an increase in home equity loans.
 
 The
following table provides further information regarding the Company’s loan
portfolio:
 
 March
      31, 2005
    
    December
      31, 2004(Dollars
      in thousands)
    
    Amount
    
    Percent
    
    Amount
    
    PercentCommercial
      loans:Commercial
      and industrial
    
    $
    31,159
    
    
    0.7
    %
    $
    32,632
    
    
    0.7
    %Real
      estate construction
    
    
    261,661
    
    
    5.8
    
    
    224,643
    
    
    5.0Commercial
      real estate mortgage
    
    
    1,303,630
    
    
    29.1
    
    
    1,318,017
    
    
    29.5Total
      commercial loans
    
    
    1,596,450
    
    
    35.6
    
    
    1,575,292
    
    
    35.2Residential
      real estate mortgages
    
    
    2,149,917
    
    
    47.9
    
    
    2,152,720
    
    
    48.3Installment
      loans
    
    
    741,789
    
    
    16.5
    
    
    735,963
    
    
    16.5Total
      portfolio loans
    
    $
    4,488,156
    
    
    100.0
    %
    $
    4,463,975
    
    
    100.0
    %
 
  14
  **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 March
31, 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, 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 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:
 
 March
      31,
    
    December
      31,(Dollars
      in thousands)
    
    2005
    
    2004Non-Performing
      Assets:Non-accrual
      loans:Commercial
    
    $
    18,705
    
    $
    17,744Residential
      real estate mortgages
    
    
    12,560
    
    
    10,705Installment
    
    
    1,095
    
    
    852Total
      non-accrual loans
    
    
    32,360
    
    
    29,301Other
      real estate owned
    
    
    5,163
    
    
    4,160Total
      non-performing assets
    
    $
    37,523
    
    $
    33,461Non-performing
      assets as a percentage of:Portfolio
      loans and OREO
    
    
    .84
    %
    
    .75
    %Total
      assets
    
    
    .63
    %
    
    .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 March
31, 2005, $17.5 million, or .39% 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 March 31, 2005,
total potential problem loans, excluding those categorized as non-accrual loans,
were $34.2 million, or 0.76% of total portfolio loans, compared to $32.5
million, or 0.73% of total portfolio loans at December 31, 2004.
 
  15
  **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 March
31, 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 (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 $9.8 million at March 31, 2005, compared to $7.2
million at December 31, 2004.
 
 During
the three months ended March 31, 2005, December 31, 2004 and March 31, 2004, the
Company recorded provision for loan losses of $1.5 million, $1.75 million and
$2.5 million, respectively. The amount charged to the provision for loan losses
during the first quarter of 2005 and the fourth quarter of 2004 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:
 Three
      Months Ended
      March
      31,(Dollars
      in thousands)
    
    2005
    
    2004Allowance
      for loan losses:Balance
      at January 1
    
    $
    41,818
    
    $
    40,271Loans
      charged off
    
    
    (1,700
    )
    
    (1,835
    )Recoveries
      of loans previously charged off
    
    
    237
    
    
    620Net
      charge-offs
    
    
    (1,463
    )
    
    (1,215
    )Provision
      charged to expense
    
    
    1,500
    
    
    2,500Balance
      at March 31
    
    $
    41,855
    
    $
    41,556Annualized
      net charge-offs as a percentage of average loans
    
    
    .13
    %
    
    .12
    %Allowance
      for loan losses as a percentage of total portfolio loans outstanding at
      period-end
    
    
    .93
    %
    
    1.00
    %Allowance
      for loan losses as a percentage of non-performing loans
    
    
    129.34
    %
    
    114.11
    %
 
 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 March 31, 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.
  16
  **Allowance
for Loan Losses and Impaired Loans (Continued** **)**
 
 Information
regarding the Company’s impaired loans follows:
 
 March
      31,
    
    December
      31,(In
      thousands)
    
    2005
    
    2004Gross
      recorded investment in impaired loans (period-end)
    
    $
    31,265
    
    $
    59,840Impaired
      loans requiring a specific allocated allowance
    
    
    21,293
    
    
    41,001Specific
      impairment allowance
    
    
    2,659
    
    
    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 $5.52 billion at March 31, 2005, a $214 million, or 4% 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 $53 million, or 2%, to $2.99 billion at March 31, 2005 from
$3.05 billion at December 31, 2004. Total retail deposits increased $32 million,
or 1%, from December 31, 2004 while wholesale deposits, including municipal and
brokered certificates of deposit, decreased $85.1 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 three months ended March 31, 2005 and the
year ended December 31, 2004, were as follows:
 
 March
      31, 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
    
    $
    488,000
    
    $
    422,073
    
    
    2.59
    %
    $
    365,000
    
    $
    348,555
    
    
    1.47
    %Security
      repurchase agreements
    
    
    322,133
    
    
    215,730
    
    
    2.15
    
    
    173,300
    
    
    213,880
    
    
    1.04Other
      short-term borrowings
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    266
    
    
    0.91Total
      short-term borrowings
    
    $
    810,133
    
    $
    637,803
    
    
    2.44
    %
    $
    538,300
    
    $
    562,701
    
    
    1.31
    %
 
 Short-term
security repurchase agreements are secured by certain securities with a carrying
value of $336.5 at March 31, 2005.
 
 **Short-Term
FHLB Advances**
 Short-term
FHLB advances outstanding at March 31, 2005 and December 31, 2004, were as
follows:
 
 March
      31, 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
    
    $
    170,000
    
    $
    255,556
    
    
    2.70
    %
    $
    215,000
    
    $
    289,301
    
    
    1.62
    %
 
  17
  **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
$346.7 million and $282.3 million available in unused borrowings with the FHLB
at March 31, 2005 and December 31, 2004, respectively.
 
 **Long-term
FHLB Advances and Security Repurchase Agreements**
 Long-term
FHLB advances and security repurchase agreements outstanding at March 31, 2005
and December 31, 2004, were as follows:
 
 March
      31, 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
    
    $
    348,549
    
    
    3.73
    %
    $
    368,774
    
    
    3.80
    %Putable
      advances
    
    
    680,000
    
    
    5.75
    
    
    680,000
    
    
    5.75Total
      long-term FHLB advances
    
    
    1,028,549
    
    
    5.07
    
    
    1,048,774
    
    
    5.07Long-term
      security repurchase agreements
    
    
    403,969
    
    
    2.85
    
    
    342,104
    
    
    2.68Total
      long-term FHLB advances and securityrepurchase
      agreements
    
    $
    1,432,518
    
    
    4.44
    %
    $
    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 $422.7 million.
 
 The
long-term FHLB advances and security repurchase agreements have original
maturities ranging from April 2005 to October 2017.
 
 **CAPITAL**
 Shareholders’
equity was $404.9 million at March 31, 2005, a $4.7 million, or 1%, decrease
from $409.6 million at December 31, 2004. The decrease in shareholders’ equity
during the first three months of 2005 resulted primarily from net income of
$17.3 million being more than offset by $7.8 million in cash dividends to
shareholders, $8.8 million in stock repurchases and $7.8 million in net
unrealized losses on securities.
 
 The
Company is subject to risk-based capital adequacy guidelines that measure
capital relative to risk-weighted assets and off-balance sheet financial
instruments. Capital adequacy guidelines issued by the Federal Reserve Board
require bank holding companies to have a minimum total risk-based capital ratio
of 8.00%, with at least half of total capital in the form of Tier 1, or core
capital. To be considered well-capitalized under the regulatory framework,
minimum capital ratios of 10.00% for total risk-based capital, 6.00% for Tier 1
risk-based capital and 5.00% for Tier 1 leverage must be maintained.
 
 As of
March 31, 2005, the Company met all capital adequacy requirements to which it is
subject. The Company’s capital ratios were as follows:
 
 March
      31,
      2005
    
    December
      31,
      2004Total
      capital to risk-weighted assets(1)
    
    
    12.98
    %
    
    12.96
    %Tier
      1 capital to risk-weighted assets(1)
    
    
    11.83
    
    
    11.87Tier
      1 capital to average assets(1)
    
    
    7.91
    
    
    7.94
  (1)
    As
      defined by the regulations.
   As of
March 31, 2005, the Company’s total risk-based capital was $505 million and Tier
1 risk-based capital was $460 million, an excess of $116 million and $227
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.
 
  18
  
 **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.
 
  19
  
 **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 March 31, 2005 the cumulative one-year gap was
a positive 6.71% 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
March 31, 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
    
    
    1.88
    %
    
    1.37
    %
    
    0.80
    %
    
    -1.74
    %
    
    -3.94
    %
    
    -12.10
    %
 
 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.
 
 20
 Mortgage
Banking Hedging Activities
 At March
31, 2005, the Company had outstanding $22.0 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 March
31, 2005, the Company had outstanding mandatory forward commitments to sell
$50.7 million of residential mortgage loans. These mandatory forward commitments
hedged the value of $30.2 million of mortgage loans held for sale and $20.5
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 mortgage banking loan commitments 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 March 31, 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 March 31, 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)
    
    
    -
    
    
    -
    
    
    (850
    )
    
    (1,296
    )
    
    (2,146
    )Weighted
      average:Receive
      rate
    
    
    -
    %
    
    -
    %
    
    2.92
    %
    
    3.24
    %
    
    3.08
    %Pay
      rate
    
    
    -
    
    
    -
    
    
    2.38
    %
    
    3.01
    %
    
    2.70
    %
 
 (1)
    Variable
      interest rates - which generally are based on the one-month and
      three-month London interbank offered rates (“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 9 of this report.
 
  21
  
 **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.
  22
  
 **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 first three months of 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)1/1/05
      - 1/31/05
    
    
    182,500
    
    $
    14.42
    
    
    182,500
    
    
    1,717,8522/1/05
      - 2/28/05
    
    
    170,500
    
    
    14.50
    
    
    170,500
    
    
    1,547,3523/1/05
      - 3/31/05
    
    
    270,000
    
    
    13.86
    
    
    270,000
    
    
    1,277,352Total
    
    
    623,000
    
    $
    14.20
    
    
    623,000
    
    
    1,277,352
 
 (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
      1,277,352 shares available for repurchase at March 31, 2005.
 
 Item
4.  Submission
of Matters to a Vote of Security Holders
 Republic Bancorp Inc. held its 2005 Annual Meeting of
Shareholders on April 27, 2005.  The following directors,
who    constitute the entire board of directors of Republic
Bancorp Inc., were elected at the annual meeting to serve until the next annual meeting:
 
 Director
    
    For
    
    AbstentionsJerry
      D. Campbell
    
    
    63,325,601
    
    
    857,471Dana
      M. Cluckey
    
    
    63,556,318
    
    
    626,753George
      J. Butvilas
    
    
    63,502,811
    
    
    680,261Richard
      J. Cramer, Sr.
    
    
    63,413,362
    
    
    769,709Barry
      J. Eckhold
    
    
    63,561,667
    
    
    621,404Gary
      Hurand
    
    
    63,415,746
    
    
    767,325Dennis
      J. Ibold
    
    
    63,611,590
    
    
    571,482Stanley
      A. Jacobson
    
    
    62,095,474
    
    
    2,087,597John
      J. Lennon
    
    
    63,576,183
    
    
    606,889Kelly
      E. Miller
    
    
    63,613,038
    
    
    570,033Randolph
      P. Piper
    
    
    63,665,959
    
    
    517,113Dr.
      Isaac J. Powell
    
    
    63,372,430
    
    
    810,641William
      C. Rands III
    
    
    63,383,352
    
    
    799,720Dr.
      Jeoffrey K. Stross
    
    
    63,595,569
    
    
    587,502Steven
      E. Zack
    
    
    63,571,763
    
    
    611,308
 
 Shareholders
also approved the amendment to Republic’s articles of incorporation. The
amendment increases the total authorized common stock of Republic from
75,000,000 shares to 100,000,000 shares.
 
 The
number of votes cast for and against as well as the number of abstentions as to
the amendment of the articles of incorporation were as follows:
 
 For
    Against
    AbstainNumber
      of votes cast:
    62,433,305
    1,589,611
    160,155
  23
  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
 
 
 
 
  24
  
 **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:
      May 6, 2005
    
    BY:
    /s/
      Thomas F. MenacherThomas
      F. Menacher
      Executive
      Vice President, Treasurer and Chief Financial Officer
      (Principal
      Financial and Accounting Officer)


25