##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-KSB



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Mark One



|x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



or



| ̈ | 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: 000-33201



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REPUBLIC BANCSHARES OF TEXAS, INC.

(Exact name of small business issuer as specified in its charter)

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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Texas                                                          |  | 76-0691991                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6809 FM 1960 West, Houston, Texas                              |  | 77069                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



281-315-1100

(Issuers telephone number)



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Securities registered
pursuant to Section 12(b) of the Act:



|                     |  |                                           
|-------------------- |  | ------------------------------------------
|Title of each class: |  | Name of each exchange on which registered:
|NONE                 |  | NONE                                      



Securities
registered pursuant to Section 12(g) of the Act:



Title
of class:

Common Stock, $1.00 par value



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Check whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 (Act) 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.    Yes  x    No ̈



Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to Form 10-KSB.  x



Issuers revenues for the fiscal year ended December 31, 2003 were $25,444,000.



As of February 27, 2004, the aggregate market value of the common stock held by non-affiliates of the issuer was approximately $34,159,000.



The number of shares of common stock of the issuer outstanding as of February 27, 2004 was
1,951,798.



Documents incorporated by reference.Portions of the
Companys Proxy Statement for the 2004 Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2003, are incorporated by reference into Part III, Items 9-12 and 14 of this Form 10-KSB.



Transitional Small Business Disclosure
Format:    Yes ̈No  x



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CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS



This document contains certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive
positions, growth opportunities, benefits from new technology, plans and objectives of management, and other matters. Statements in this document that are not historical facts are hereby identified as forward-looking statements for the
purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements include, without limitation, those relating to the
future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this document, are necessarily estimates reflecting the best judgment of the senior management of Republic Bancshares
of Texas, Inc. (the Company) and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore,
be considered in light of various important factors, including those set forth in this document. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements
include, without limitation:



| |  | changes in interest rates and market prices, which could reduce the Companys net interest margins, asset valuations and expense expectations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | the timing, impact and other uncertainties of the Companys ability to establish a significant presence in new geographic service areas and capitalize on growth opportunities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the failure of assumptions underlying the establishment of and provisions made to the allowance for loan losses;
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | changes in statutes and government regulations or their interpretations applicable to national banks;
| | - | -----------------------------------------------------------------------------------------------------



| |  | the effects of vigorous competition in the markets in which the Company operates, including the impact on revenues and earnings of competitive changes to existing price structures
and underlying interest rates;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | requirements imposed (or latitude allowed to competitors) by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation (FDIC), or state regulatory bodies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | general economic or business conditions that may be less favorable than expected, resulting in, among other things, lower than expected revenues or greater than expected credit
problems among the Companys customer and potential customer base;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the ability of the Company to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological
changes;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensations levels; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | adverse changes in debt and capital markets.
| | - | --------------------------------------------



The words estimate, project, intend, expect, believe and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are found at various places throughout this document and the other documents incorporated herein by reference. All written and oral forward-looking statements attributable to the Company
are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise,
unless the securities laws require it to do so.



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC.



ANNUAL REPORT ON FORM 10-KSB



For the year ended December 31, 2003



Table of Contents



|          |  |                                                                                                                 |  |   
|--------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|PART I.   |  |                                                                                                                 |  |   
|          |  |                                                                                                                
|ITEM 1.   |  | DESCRIPTION OF BUSINESS                                                                                         |  | 4 
|ITEM 2.   |  | DESCRIPTION OF PROPERTY                                                                                         |  | 10
|ITEM 3.   |  | LEGAL PROCEEDINGS                                                                                               |  | 11
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 11
|          |  |                                                                                                                
|PART II.  |  |                                                                                                                 |  |   
|          |  |                                                                                                                
|ITEM 5.   |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 12
|ITEM 6.   |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                                            |  | 13
|ITEM 7.   |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           |  | 14
|ITEM 8.   |  | FINANCIAL STATEMENTS                                                                                            |  | 31
|ITEM 9.   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 31
|ITEM 9A.  |  | CONTROLS AND PROCEDURES                                                                                         |  | 31
|          |  |                                                                                                                
|PART III. |  |                                                                                                                 |  |   
|          |  |                                                                                                                
|ITEM 10.  |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 31
|ITEM 11.  |  | EXECUTIVE COMPENSATION                                                                                          |  | 32
|ITEM 12.  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     |  | 32
|ITEM 13.  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 32
|ITEM 14.  |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                |  | 32
|ITEM 15.  |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          |  | 33



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##### Table of Contents

PART I.



ITEM 1. DESCRIPTION OF BUSINESS



GENERAL



Republic Bancshares of Texas, Inc. (the Company) was incorporated
as a business corporation under the laws of the State of Texas on May 17, 2001 for the purpose of serving as a bank holding company for Republic National Bank (the Bank). On June 20, 2001, RBT Holdings, Inc. (RBT) was
incorporated under the laws of Delaware. Pursuant to the terms of an agreement and plan of reorganization dated May 30, 2001, the Bank became a wholly-owned subsidiary of RBT and RBT became a wholly-owned subsidiary of the Company. The
reorganization was consummated on September 7, 2001. The reorganization was accounted for in a manner similar to that in pooling-of-interests accounting and all financial statements reflect the consolidated operations as if the reorganization had
taken place prior to the periods covered by such consolidated financial statements. The Bank was chartered as a national banking association which began operations on November 13, 1998. At December 31, 2003, the Company had total assets of $435.2
million, total loans of $315.5 million, total deposits of $355.2 million and shareholders equity of $30.0 million.



The Company offers a diversified range of commercial and personal banking products and services to small- and medium-sized businesses and consumers located primarily in
the Houston metropolitan area. The Bank presently has six (6) full-service banking offices located in Houston. The Bank offers checking accounts, savings accounts, certificates of deposit, bank-by-mail and 24-hour depository facilities, drive-up
banking, cashiers checks, travelers checks, savings bonds, consumer loans, commercial loans, commercial payroll accounts, merchant bank card services, lock-box and other cash management services, safe deposit boxes and online banking services.
The Banks business emphasis is to provide personal, responsive and dependable banking services to individuals, professionals and owner-operated businesses. The Bank does not presently offer trust services. Through Star-NET, the Banks
online banking product, customers can view their account information, transfer funds and download information to a personal finance software program. Online bill payment services are also available for an additional fee.



EMPLOYEES AND EMPLOYMENT RELATIONS



As of December 31, 2003, the Bank and Company had 104 full-time equivalent employees, 46 of
whom were officers. The Bank provides medical insurance and other benefits to full-time employees and considers relations with employees to be excellent. The Banks employees are not represented by any collective bargaining group.



COMPETITION



The Company has substantial competition in lending funds and attracting and retaining deposits. The primary factors in competing for loans
are the range and quality of lending services offered, interest rates and loan origination fees. In competing for commercial loans (a targeted growth segment), the Company believes that the personal relationships between lending officers and
commercial borrowers is a primary factor. Competition for the origination of real estate loans normally comes from other commercial banks, savings and loans, mortgage bankers, finance and insurance companies. The primary factors in competing for
deposits are the range and quality of financial services offered, the ability to offer attractive rates and the availability of convenient locations. There is direct competition for deposits from commercial banks, credit unions and savings and
loans. Additional significant competition for savings deposits comes from other investment alternatives, such as money market funds, credit unions, and corporate and government securities.



The Company expects increased competition. For a variety of reasons, including legislative
developments relating to interstate branching and the ownership of financial institutions, the consolidation within the financial services industry will likely continue. For the Company, this trend means that the number of locally-owned financial
institutions will decrease and that the Bank will increasingly compete against larger regional and out-of-state banks. While these larger regional and national banks will likely attract the largest Texas businesses (sales over $100 million), the
Company believes that these large banks are unable to provide the relationship-oriented, customer service that the Company provides its target customer base of small and medium-sized businesses, professionals and other individuals. Although the Bank
has been able to compete effectively in its market areas to date, there is no assurance that the Bank will continue to do so in the future, especially with the rapid changes occurring within the financial services industry.



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REGULATION AND SUPERVISION



The following discussion sets forth the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries, and provides certain
specific information relevant to the Company and the Bank. This regulatory framework primarily is intended for the protection of depositors and the deposit insurance funds that insure deposits of banks, and not for the protection of the
Companys shareholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory policies
applicable to the Company or its subsidiaries may have a material effect on its business.



General. As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended, and to inspection, examination and supervision by the Board of Governors of the
Federal Reserve System (FRB). Under the Bank Holding Company Act, bank holding companies generally may not acquire ownership or control of any company, including a bank, without the prior approval of the FRB. In addition, bank holding
companies generally may engage, directly or indirectly, only in banking and those other activities as are determined by the FRB to be closely related to banking. Under legislation effective in 2000, certain bank holding companies can elect to become
financial holding companies and engage in broader financial activities. See The Gramm-Leach-Bliley Act below.



Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, as amended, limit borrowings by the Company and its non-bank subsidiaries
and also limit various other transactions between the Company and its non-bank subsidiaries, on the one hand, and the Company, on the other. Section 23A of the Federal Reserve Act also generally requires that an insured depository institutions
loans to its non-bank affiliates be secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institutions transactions with its non-bank affiliates be on arms-length terms.



The Bank is subject to extensive supervision, examination and regulation by the Office of the
Comptroller of the Currency (the OCC). The Company and its subsidiaries are also affected by the fiscal and monetary policies of the Federal government and the FRB, and by various other governmental requirements and regulations.



Liability for the Company. Under current FRB policy, a bank holding
company is expected to act as a source of financial and managerial strength to a subsidiary bank and to maintain resources adequate to support the subsidiary bank. This support may be required at times when the bank holding company may not have the
resources to provide it. In addition, Section 55 of the National Bank Act permits the OCC to order the pro rata assessment of stockholders of a national bank whose capital has become impaired. If a stockholder fails, within three months, to pay that
assessment, the board of directors has a duty to sell the stockholders stock to cover the deficiency. In the event of a bank holding companys bankruptcy, any commitment by the bank holding company to a Federal bank regulatory agency to
maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment.



Any depository institution insured by the Federal Deposit Insurance Corporation (the FDIC) can be held liable for any loss incurred, or reasonably expected to
be incurred, by the FDIC in connection with:



| |  | the default of a commonly controlled FDIC-insured depository institution; or
| | - | ----------------------------------------------------------------------------



| |  | any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.
| | - | ----------------------------------------------------------------------------------------------------------------------



Default generally is defined as the appointment of a conservator or receiver and
in danger of default generally is defined as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. Also, if a default occurred with respect to a bank, any capital loans
to the bank from its parent holding company would be subordinate in right of payment to payment of the banks depositors and certain of its other obligations.



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Capital Requirements. The Company is subject to risk-based capital requirements and guidelines imposed by the FRB,
which are substantially similar to the capital requirements and guidelines imposed by the OCC on the Bank. For this purpose, a depository institutions or holding companys assets and certain specified off-balance sheet commitments are
assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to those assets or commitments. In addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent assets. A
depository institutions or holding companys capital, in turn, is divided into three tiers:



| |  | core, or Tier 1, capital, which consists primarily of stockholders equity less certain identifiable intangible assets and certain other assets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | supplementary, or Tier 2, capital, which includes, among other items, certain other debt and equity investments that do not qualify as Tier 1 capital; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | market risk, or Tier 3, capital, which includes qualifying unsecured subordinated debt.
| | - | -----------------------------------------------------------------------------------------



Like other bank holding companies, the Company currently is required to maintain Tier 1 and Total Capital (the sum of Tier 1,
Tier 2 and Tier 3 capital) equal to at least 4% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as unused lending commitments and standby letter of credit), respectively. At December 31, 2003, the Company
met both requirements, with Tier 1 and Total Capital equal to 8.9% and 10.0%, respectively, of its total risk-weighted assets.



The FRB also requires bank holding companies to maintain a minimum Leverage Ratio, defined as Tier 1 capital to average adjusted total assets, of 3%, if the
bank holding company has the highest regulatory rating and meets certain other requirements, or of at least 4% if the bank holding company does not meet these requirements. At December 31, 2003, the Companys leverage ratio was 7.02%, which
exceeded the minimum leverage ratio to which it was subject.



The FRB may set
capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, bank holding companies experiencing or anticipating significant growth may be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated that it will consider a Tangible Tier 1 Capital Leverage Ratio, which would deduct all intangibles
and other indicia of capital strength in evaluating proposals for expansion or new activities.



The Bank is subject to similar risk-based and leverage capital requirements adopted by the OCC. Like the Company, the Bank was in compliance with the minimum capital requirements applicable to it as of December 31,
2003.



Failure to meet capital requirements could subject the Company to a
variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described immediately below.



Corrective Measures for Capital Deficiencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
among other things, identifies five capital categories for insured depository institutions  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized  and requires Federal
bank regulatory agencies to implement systems for prompt corrective action for insured depository institutions that do not meet minimum capital requirements based on these categories. FDICIA imposes progressively more restrictive
constraints on operation, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well-capitalized, it is subject to restrictions on its ability to offer brokered deposits and on
certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the banks compliance with the plan up to the lesser of 5% of a banks assets at
the time it became undercapitalized or the amount needed to comply with the plan.



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As of December 31, 2003, the Bank was well capitalized, based on the prompt corrective action ratios and guidelines
described above. It should be noted, however, that a banks capital category is determined solely for the purpose of applying the OCCs, or the FDICs, prompt corrective action regulations and that the capital category may not
constitute an accurate representation of the banks overall financial condition or prospects.



Dividend Restrictions. For the foreseeable future, the principal source of revenues to the Company is through the sale of common stock and the payment of dividends by the Bank. Federal and state statutory
provisions limit the amount of dividends that the Bank can pay to the Company without regulatory approval. Dividend payments by national banks are limited to the lesser of:



| |  | the level of undivided profits; and
| | - | -----------------------------------



| |  | absent regulatory approval, an amount not in excess of net income for the current year combined with retained net income for the preceding two years.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



In addition, Federal bank regulatory authorities have authority to prohibit the Bank from
engaging in an unsafe or unsound practice in conducting business. The payment of dividends, depending upon the Banks financial condition at the time of the proposed dividend payment, could be deemed to constitute an unsafe or unsound practice.
The Banks ability to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines.



The Company has no plans to pay dividends in the foreseeable future.



Deposit Insurance Assessments. The deposits of the Company are insured up to regulatory limits by the FDIC, and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund (the BIF), which is administered by the FDIC. The FDIC has adopted regulations establishing a permanent risk-related deposit insurance assessment system. Under this system, the FDIC places
each insured bank in one of nine risk categories based on (1) the banks capitalization and (2) supervisory evaluations provided to the FDIC by the institutions primary Federal regulator. Each insured banks insurance assessment rate
is then determined by the risk category in which it is classified by the FDIC. The annual insurance premiums on bank deposits insured by the BIF currently vary between $0.00 per $100 of deposits for banks classified in the highest capital and
supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories.



Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (Interstate Act), subject to certain
concentration limits and other requirements:



| |  | bank holding companies, such as the Company, are permitted to acquire banks and bank holding companies located in any state;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| |  | any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans and receive loan payments as an agent for
any other bank subsidiary of that bank holding company; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | banks are permitted to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states and establishing de novo branch
offices in other states. The ability of banks to acquire branch offices through purchase or opening of other branches is contingent, however, on the host state having adopted legislation opting in to those provisions of the Interstate
Act. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation opting out of that provision of the Interstate Act.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from acquiring
control of a bank holding company, unless the FRB has been notified and has not objected to the transaction. Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.



In addition, a company is required to obtain the approval of the FRB under the Bank
Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, or otherwise obtaining control or a controlling influence
over that bank holding company.



The Gramm-Leach-Bliley Act. In November
1999, the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the GLBA) was signed into law, which allows bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities
and insurance activities. Under the GLBA, a bank holding company that elects to become a financial holding company may engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is (1)
financial in nature, (2) incidental to any such financial activity, or (3) complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The
GLBA makes significant changes in U.S. banking law, principally by repealing the restrictive provisions of the 1933 Glass-Steagall Act. The GLBA specifies certain activities that are deemed to be financial in nature, including lending, exchanging,
transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in or making a market in, securities; and any activity
currently permitted for bank holding companies by the FRB under section 4(c)(8) of the Bank Holding Company Act. The GLBA does not authorize banks or their affiliates to engage in commercial activities that are not financial in nature. A bank
holding company may elect to be treated as a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment
Act.



National banks are also authorized by the GLBA to engage, through
financial subsidiaries, in any activity that is permissible for a financial holding company (as described above) and any activity that the Secretary of the Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (1) insurance underwriting, (2) real estate development or real estate investment activities (unless otherwise permitted by law), (3) insurance company portfolio investments and (4) merchant banking.
The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from the banks
capital outstanding investments in financial subsidiaries). The GLBA provides that state banks may invest in financial subsidiaries (assuming they have the requisite investment authority under applicable state law) subject to the same conditions
that apply to national bank investments in financial subsidiaries.



Instability of Regulatory Structure



Various legislation, such
as the Gramm-Leach-Bliley Act which expanded the powers of banking institutions and their holding companies, and proposals to overhaul the bank regulatory system and limit the investments that a depository institution may make with insured funds, is
from time to time introduced in Congress. Such legislation may change banking statutes and the environment in which the Company and its banking subsidiaries operate in substantial and unpredictable ways. Neither the Company nor the Bank can
determine the ultimate effect that the Gramm-Leach-Bliley Act will have, or the effect that any other potential legislation, if enacted, or implementing regulations with respect thereto, would have, upon the financial condition or results of
operations of the Company or the Bank.



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##### Table of Contents

Expanding Enforcement Authority



One of the major additional burdens imposed on the banking industry by FDICIA is the increased ability of banking regulators to monitor the
activities of banks and their holding companies. In addition, the Federal Reserve and FDIC are possessed of extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit insurance of any institution which it determines has engaged in an unsafe or unsound practice. The agencies can also assess civil money penalties, issue cease and desist or
removal orders, seek injunctions, appoint conservators and receivers and publicly disclose such actions. FDICIA and other laws have expanded the agencies authority in recent years, and the agencies have not yet fully tested the limits of their
powers.



Monetary Policy



The monetary policies of regulatory authorities, including the Federal Reserve, have a
significant effect on the operating results of banks and bank holding companies. The Federal Reserve supervises and regulates the national supply of bank credit. Among the means available to the Federal Reserve to regulate the supply of bank credit
are open market purchases and sales of U.S. government securities, changes in the discount rate on borrowings from the Federal Reserve System and changes in reserve requirements with respect to deposits. These activities are used in varying
combinations to influence overall growth and distribution of bank loans, investments and deposits on a national basis, and their use may affect interest rates charged on loans or paid for deposits.



Federal Reserve monetary policies and the fiscal policies of the federal government have
materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. We cannot predict the nature of future monetary and fiscal policies and the effect of such policies on the future business
and earnings of the Bank or the Company.



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##### Table of Contents

ITEM 2. DESCRIPTION OF PROPERTY



FACILITIES



The Bank currently operates from the following six banking office locations
in Houston, Texas, and other than the Northwest Freeway office, all of the locations are leased:



The Champions office is located at 6809 FM 1960 West, where the Bank leases approximately 8,200 square feet in a building constructed in 1999. This office
includes a five lane drive-in facility attached to the building. This office opened for business on November 13, 1998. The remaining term of the building and land lease is for five years, not including optional renewal periods which may be
available.



The Cypress Station office is located at 1055 FM
1960 West, where the Bank leases approximately 1.50 acres of land on which the Bank constructed a building in 1999. This office includes a four lane drive-in facility. This office opened for business on February 24, 1999. The remaining term of the
lease is for ten years, not including optional renewal periods which may be available.



The River Oaks office is located at 4200 Westheimer Road, where the Bank leases approximately 7,000 square feet. This office has a four lane drive-in facility. This office opened for business on July 8, 1999. The
remaining term of the lease is for five years, not including optional renewal periods which may be available.



The Memorial office is located at 10301-A Katy Freeway, where the Bank leases approximately 6,800 square feet, which includes a three lane drive-in
facility. This office opened for business on February 22, 2000. The remaining term of the lease is for one year.



The Northwest Freeway office is located at 14604 Northwest Freeway, where the building is situated on a 1.436 acre tract at the intersection of U.S. Hwy.
290 at Windfern Road in Northwest Houston. The office contains 11,400 square feet which includes a banking facility with a five lane drive-in and office space for most of the Banks operations. This office opened for business on September 10,
2001.



The Southeast office is located at 4130 Fairmont
Parkway, where the Bank leases approximately 2,100 square feet, which includes a one lane drive-in facility. The office opened for business on November 17, 2003. The remaining term of the lease is two years.



The following table sets forth specific information on the Banks offices, each of which
offers full banking operations provided by a full complement of lobby staff (including tellers, new account representatives, and lending professionals on site), safe-deposit boxes, an automated teller machine, and drive-through banking services:



|                  |  |                                 |  |                         |  |                              |        
|----------------- |  | ------------------------------- |  | ----------------------- |  | ---------------------------- | -------
|Banking Office    |  | Size in SquareFeet(Approximate) |  | Location                |  | Deposits atDecember 31, 2003
|                  |  |                                 |  |                         |  | (In thousands)              
|Champions         |  | 8,200                           |  | 6809 FM 1960 West       |  | $                            | 123,733
|Cypress Station   |  | 5,000                           |  | 1055 FM 1960 West       |  |                              | 55,239 
|River Oaks        |  | 7,000                           |  | 4200 Westheimer Road    |  |                              | 78,210 
|Memorial          |  | 6,800                           |  | 10301-A Katy Freeway    |  |                              | 54,132 
|Northwest Freeway |  | 11,400                          |  | 14604 Northwest Freeway |  |                              | 42,444 
|Southeast         |  | 2,100                           |  | 4130 Fairmont Parkway   |  |                              | 1,423  
|                  |  |                                 |  |                         |  |                              |        
|                  |  |                                 |  |                         |  | $                            | 355,181
|                  |  |                                 |  |                         |  |                              |        



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##### Table of Contents

ITEM 3. LEGAL PROCEEDINGS



The Company and the
Bank are involved in routine legal proceedings from time to time in the normal course of business. Management does not believe that there is any pending or threatened proceeding against the Company or the Bank which, if determined adversely, would
have a material effect on the business, financial position or results of operations of the Company or the Bank.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of the Companys security holders during the fourth quarter of 2003.



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##### Table of Contents

PART II.



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



There is no public trading market for the shares of common stock of the Company and it is unlikely that an active market will develop for the common stock in the foreseeable future. The Company has no present plans
for listing its common stock on a national or regional securities exchange or with the National Association of Securities Dealers Automated Quotations System. Trades in shares of the Companys stock are often privately negotiated between a
buyer and a seller, and management of the Company does not know the prices at which some or all of such transactions took place. In March 2000, the Bank sold 720,000 shares of common stock at $12.50 per share. The only other sales by the Company
have been through exercise of stock options or purchases through the Employee Stock Purchase Plan. As of February 27, 2004, there were 1,951,798 shares outstanding and 664 shareholders of record.



Dividends



The Company has not declared or paid any cash dividends since inception. One of the principal sources of cash revenue to the Company is
dividends paid by the Bank with respect to the Banks capital stock. See Description of Business-Regulation and Supervision-Dividend Restrictions for a description of regulatory restrictions that limit the Banks ability to pay
dividends on its common equity.



Securities authorized for issuance under
equity compensation plans



The Company currently has options outstanding.
The options were granted under the Companys 1998 Stock Option Plan, which was approved by the Banks shareholders and assumed by the Company in connection with its formation. The following table provides information as of December 31,
2003 regarding the Companys equity compensation plans under which the Companys equity securities are authorized for issuance:



EQUITY COMPENSATION PLAN INFORMATION



|                                                           |  |                                                                                             |  |                                                        |       |                                                                                                                                             |       
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------
|                                                           |  | (a)                                                                                         |  | (b)                                                    |       | (c)                                                                                                                                        
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options |       | Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|Equity compensation plans approved by security holders     |  | 247,950                                                                                     |  | $                                                      | 11.74 |                                                                                                                                             | 67,450
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                        |      |                                                                                                                                             |      
|                                                           |  |                                                                                             |  |                                                        |       |                                                                                                                                             |       
|Total                                                      |  | 247,950                                                                                     |  | $                                                      | 11.74 |                                                                                                                                             | 67,450
|                                                           |  |                                                                                             |  |                                                        |       |                                                                                                                                             |       



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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA



The
following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto, appearing elsewhere in this Annual Report, and the information contained in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations. The selected historical consolidated financial data as of the end of and for each of the five years in the period ended December 31, 2003 are derived
from the Companys Consolidated Financial Statements which have been audited by independent accountants.



|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|------------------------------------------------------- |  | ------------------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                        |  | Year Ended December 31,                                 |          
|                                                        |  | 2003                                                    |           |   | 2002 |   |           | 2001 |  |   | 2000      |   |  | 1999 |          
|                                                        |  | (Dollars in thousands, except share and per share data) |          
|Income Statement Data:                                  |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest income                                         |  | $                                                       | 22,800    |   |      | $ | 21,258    |      |  | $ | 19,832    |   |  | $    | 13,886    |   |  | $ | 4,220     |  
|Interest expense                                        |  |                                                         | 4,944     |   |      |   | 5,272     |      |  |   | 7,589     |   |  |      | 5,610     |   |  |   | 1,373     |  
|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income                                     |  |                                                         | 17,856    |   |      |   | 15,986    |      |  |   | 12,243    |   |  |      | 8,276     |   |  |   | 2,847     |  
|Provision for loan losses                               |  |                                                         | 1,730     |   |      |   | 2,095     |      |  |   | 1,076     |   |  |      | 1,204     |   |  |   | 637       |  
|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income after provision for loan losses     |  |                                                         | 16,126    |   |      |   | 13,891    |      |  |   | 11,167    |   |  |      | 7,072     |   |  |   | 2,210     |  
|Noninterest income                                      |  |                                                         | 2,644     |   |      |   | 1,705     |      |  |   | 1,239     |   |  |      | 755       |   |  |   | 300       |  
|Noninterest expenses                                    |  |                                                         | 12,666    |   |      |   | 11,014    |      |  |   | 8,986     |   |  |      | 6,757     |   |  |   | 3,649     |  
|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income before income taxes                              |  |                                                         | 6,104     |   |      |   | 4,582     |      |  |   | 3,420     |   |  |      | 1,070     |   |  |   | (1,139    | )
|Provision for income taxes                              |  |                                                         | 2,057     |   |      |   | 1,581     |      |  |   | 1,175     |   |  |      | 364       |   |  |   | (384      | )
|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                                              |  | $                                                       | 4,047     |   |      | $ | 3,001     |      |  | $ | 2,245     |   |  | $    | 706       |   |  | $ | (755      | )
|                                                        |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Per Share Data:                                         |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic earning per common share (1)                      |  | $                                                       | 2.09      |   |      | $ | 1.56      |      |  | $ | 1.17      |   |  | $    | 0.41      |   |  | $ | (0.63     | )
|Diluted earnings per common share (1)                   |  | $                                                       | 2.00      |   |      | $ | 1.49      |      |  | $ | 1.15      |   |  | $    | 0.40      |   |  | $ | (0.63     | )
|Book value per share                                    |  | $                                                       | 15.43     |   |      | $ | 13.44     |      |  | $ | 11.88     |   |  | $    | 10.71     |   |  | $ | 9.06      |  
|Average common shares                                   |  |                                                         | 1,938,398 |   |      |   | 1,927,619 |      |  |   | 1,922,258 |   |  |      | 1,742,000 |   |  |   | 1,200,000 |  
|Average common share equivalents                        |  |                                                         | 2,023,009 |   |      |   | 2,007,585 |      |  |   | 1,955,836 |   |  |      | 1,755,000 |   |  |   | 1,200,000 |  
|Performance Ratios:                                     |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets                                |  |                                                         | 0.94      | % |      |   | 0.86      | %    |  |   | 0.86      | % |  |      | 0.44      | % |  |   | -1.26     | %
|Return on average common equity                         |  |                                                         | 14.21     | % |      |   | 12.18     | %    |  |   | 10.27     | % |  |      | 3.97      | % |  |   | -6.72     | %
|Net interest margin                                     |  |                                                         | 4.46      | % |      |   | 4.98      | %    |  |   | 5.04      | % |  |      | 5.68      | % |  |   | 5.35      | %
|Efficiency ratio (3)                                    |  |                                                         | 63.38     | % |      |   | 62.26     | %    |  |   | 66.65     | % |  |      | 74.82     | % |  |   | 115.95    | %
|Balance Sheet Data (2):                                 |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total assets                                            |  | $                                                       | 435,218   |   |      | $ | 384,419   |      |  | $ | 312,197   |   |  | $    | 211,326   |   |  | $ | 110,568   |  
|Investment securities                                   |  |                                                         | 83,922    |   |      |   | 41,704    |      |  |   | 1,125     |   |  |      | 4,070     |   |  |   | 4,347     |  
|Loans                                                   |  |                                                         | 315,486   |   |      |   | 293,555   |      |  |   | 258,487   |   |  |      | 183,559   |   |  |   | 71,633    |  
|Allowance for loan losses                               |  |                                                         | (3,783    | ) |      |   | (3,236    | )    |  |   | (2,885    | ) |  |      | (1,836    | ) |  |   | (716      | )
|Total deposits                                          |  |                                                         | 355,181   |   |      |   | 349,083   |      |  |   | 288,141   |   |  |      | 190,097   |   |  |   | 99,491    |  
|Total shareholders equity                              |  |                                                         | 30,003    |   |      |   | 26,005    |      |  |   | 22,855    |   |  |      | 20,592    |   |  |   | 10,866    |  
|Capital Ratio:                                          |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Average equity to average assets                        |  |                                                         | 6.59      | % |      |   | 7.07      | %    |  |   | 8.27      | % |  |      | 10.97     | % |  |   | 18.69     | %
|Asset Quality Ratios (2):                               |  |                                                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Nonperforming assets (4) to loans and other real estate |  |                                                         | 0.15      | % |      |   | 0.26      | %    |  |   | 0.07      | % |  |      | 0.00      | % |  |   | 0.00      | %
|Net charge-offs to average loans                        |  |                                                         | 0.40      | % |      |   | 0.63      | %    |  |   | 0.01      | % |  |      | 0.00      | % |  |   | 0.00      | %
|Allowance for loan losses to total loans                |  |                                                         | 1.20      | % |      |   | 1.10      | %    |  |   | 1.12      | % |  |      | 1.00      | % |  |   | 1.00      | %
|Allowance for loan losses to nonperforming loans (5)    |  |                                                         | 1,059.66  | % |      |   | 419.17    | %    |  |   | 1559.46   | % |  |      | N/A       |   |  |   | N/A       |  

---

|(1) | Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per common share is computed by dividing net income available to common shareholders, adjusted for any changes in income that would result from the assumed conversion of all potential dilutive common shares, by the sum of the
weighted average number of common shares outstanding and the effect of all dilutive potential common shares outstanding for the period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | At period end, except net charge-offs to average loans.
|--- | -------------------------------------------------------

|(3) | Calculated by dividing total noninterest expenses by net interest income plus noninterest income, excluding net security gains (losses).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(4) | Nonperforming assets consist of nonperforming loans and other real estate owned.
|--- | --------------------------------------------------------------------------------

|(5) | Nonperforming loans consist of nonaccrual loans, troubled debt restructurings and loans contractually past due 90 days or more.
|--- | -------------------------------------------------------------------------------------------------------------------------------



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Managements Discussion and Analysis of Financial Condition and Results of Operations of the Company analyzes the major elements of the Companys consolidated
balance sheets and consolidated statements of income. This section should be read in conjunction with the Companys consolidated financial statements and accompanying notes and other financial information appearing elsewhere in this document.



For The Years Ended December 31, 2003 and 2002



OVERVIEW



Republic Bancshares of Texas, Inc. is a bank holding company headquartered in Houston, Texas that provides, through its wholly owned
subsidiary, Republic National Bank, a broad array of products and services throughout the greater Houston area. The Company offers commercial, consumer and treasury management services.



The primary source of the Companys revenue is net interest income from loans and deposits, and fee income. Balance sheet growth was
again strong in 2003. This growth is a direct result of providing superior customer service through the Companys experienced sales staff.



For the year ended December 31, 2003, the Company produced net income of $4.0 million, diluted earnings per share of $2.00 and a return on average equity of 14.21%
compared with net income of $3.0 million, diluted earnings per share of $1.49 and a return on average equity of 12.18% for the year ended December 31, 2002. Return on average assets for the years ended December 31, 2003 and 2002 was 0.94% and 0.86%,
respectively.



For the year ended December 31, 2003, the net interest margin
and the net interest rate spread were 4.46% and 4.00%, respectively, compared with 4.98% and 4.38%, respectively, for the year ended December 31, 2002.



At December 31, 2003, the Company had total assets of $435.2 million, total loans of $315.5 million, total deposits of $355.2 million and shareholders equity of
$30.0 million. At December 31, 2002, the Company had total assets of $384.4 million, total loans of $293.6 million, total deposits of $349.1 million and shareholders equity of $26.0 million.



RESULTS OF OPERATIONS



Net interest income



Net interest income represents the amount by which interest income on interest-earning assets, including investment securities and loans, exceeds interest expense
incurred on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Companys income. Interest rate fluctuations, as well as changes in the amount and type of earning assets
and liabilities, combine to affect net interest income.



Net interest income
was $17.9 million for the year ended December 31, 2003 as compared to $16.0 million for the year ended December 31, 2002. This represents an increase of $1.9 million or 11.9 %. An increase in the average earning asset base of $80.0 million partially
offset by a decrease in the net interest margin of 52 basis points primarily account for the difference.



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The Companys deposits grew from $349.1 million at December 31, 2002 to $355.2 million at December 31, 2003, an
increase of $6.1 million or 1.7%. Noninterest-bearing deposits increased $11.9 million or 11.2% while interest-bearing deposits declined $5.8 million or 2.4%. For the years ended December 31, 2003 and 2002, the Company posted a net interest margin
of 4.46% and 4.98%, respectively. The decrease in the net interest margin is the direct result of the Federal Reserve lowering the federal funds rate 550 basis points since the beginning of 2001. As assets mature, they are being repriced at lower
yields. In addition, during 2003 mortgage rates declined substantially leading to mortgage refinancing and ultimately the rapid premium amortization of mortgage backed securities.



The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and
the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made and all average balances are daily average balances. Nonaccruing loans have
been included in the table as loans carrying a zero yield. Interest on nonaccruing loans is included to the extent it is received. The yield on the securities portfolio is based on average historical cost balances and does not give effect to changes
in fair value that are reflected as a component of consolidated shareholders equity.



|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|------------------------------------------ |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ----------------- |  | ---- | ------------------------- |  | - | ------------------- | - | ------------------- | - | ------ |  | ---- | -
|                                           |  | For the year ended December 31, 2003 |         |   | For the year ended December 31, 2002 |  
|                                           |  | AverageOutstandingBalance            |         |   | InterestEarned/Paid                  |   | AverageYield/Rate |  |      | AverageOutstandingBalance |  |   | InterestEarned/Paid |   | Average Yield/ Rate |  
|                                           |  | (Dollars in thousands)               |        
|ASSETS                                     |  |                                      |         |  
|Interest-earning assets:                   |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Loans                                      |  | $                                    | 298,927 |   |                                      | $ | 20,079            |  | 6.72 | %                         |  | $ | 278,418             |   |                     | $ | 20,301 |  | 7.29 | %
|Securities                                 |  |                                      | 87,906  |   |                                      |   | 2,567             |  | 2.92 |                           |  |   | 10,205              |   |                     |   | 425    |  | 4.17 |  
|Federal funds sold & other                 |  |                                      | 13,958  |   |                                      |   | 154               |  | 1.10 |                           |  |   | 32,149              |   |                     |   | 532    |  | 1.65 |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total interest-earning assets              |  |                                      | 400,791 |   |                                      |   | 22,800            |  | 5.69 | %                         |  |   | 320,772             |   |                     |   | 21,258 |  | 6.63 | %
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Less allowance for loan losses             |  |                                      | (3,597  | ) |                                      |   |                   |  |      |                           |  |   | (3,178              | ) |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total earning assets, net of allowance     |  |                                      | 397,194 |   |                                      |   |                   |  |      |                           |  |   | 317,594             |   |                     |   |        |  |      |  
|Nonearning assets                          |  |                                      | 35,556  |   |                                      |   |                   |  |      |                           |  |   | 30,877              |   |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total assets                               |  | $                                    | 432,750 |   |                                      |   |                   |  |      |                           |  | $ | 348,471             |   |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Interest-bearing liabilities:              |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Money market checking accounts             |  | $                                    | 22,418  |   |                                      | $ | 87                |  | 0.39 | %                         |  | $ | 17,633              |   |                     | $ | 148    |  | 0.84 | %
|Money market and savings deposits          |  |                                      | 117,212 |   |                                      |   | 794               |  | 0.68 |                           |  |   | 112,637             |   |                     |   | 1,546  |  | 1.37 |  
|Certificates of deposit                    |  |                                      | 115,864 |   |                                      |   | 3,147             |  | 2.72 |                           |  |   | 103,986             |   |                     |   | 3,564  |  | 3.43 |  
|Other borrowings                           |  |                                      | 28,734  |   |                                      |   | 519               |  | 1.81 |                           |  |   |                    |   |                     |   |       |  |     |  
|Subordinated debentures                    |  |                                      | 8,248   |   |                                      |   | 397               |  | 4.81 |                           |  |   | 263                 |   |                     |   | 14     |  |     |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                      | 292,476 |   |                                      |   | 4,944             |  | 1.69 | %                         |  |   | 234,519             |   |                     |   | 5,272  |  | 2.24 | %
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Noninterest-bearing liabilities:           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                      | 110,450 |   |                                      |   |                   |  |      |                           |  |   | 88,121              |   |                     |   |        |  |      |  
|Other liabilities                          |  |                                      | 1,343   |   |                                      |   |                   |  |      |                           |  |   | 1,195               |   |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total liabilities                          |  |                                      | 404,269 |   |                                      |   |                   |  |      |                           |  |   | 323,835             |   |                     |   |        |  |      |  
|Shareholders equity                       |  |                                      | 28,481  |   |                                      |   |                   |  |      |                           |  |   | 24,636              |   |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                                    | 432,750 |   |                                      |   |                   |  |      |                           |  | $ | 348,471             |   |                     |   |        |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Net interest income                        |  |                                      |         |   |                                      | $ | 17,856            |  |      |                           |  |   |                     |   |                     | $ | 15,986 |  |      |  
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Net interest spread                        |  |                                      |         |   |                                      |   |                   |  | 4.00 | %                         |  |   |                     |   |                     |   |        |  | 4.39 | %
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  
|Net interest margin                        |  |                                      |         |   |                                      |   |                   |  | 4.46 | %                         |  |   |                     |   |                     |   |        |  | 4.98 | %
|                                           |  |                                      |         |   |                                      |   |                   |  |      |                           |  |   |                     |   |                     |   |        |  |      |  



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##### Table of Contents

The following table presents the dollar amount of changes in interest income and interest expense for the major
components of interest-earning assets, and interest-bearing liabilities and distinguishes between the increase (decrease) related to higher outstanding balances and the volatility of interest rates. For purposes of this table, changes attributable
to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.



|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  
|--------------------------------------------- |  | ------------------------------------ | ----- | - | ---- | - | ------ | ----- |  | - | ----- | -
|                                              |  | Year ended December 31,2003 vs. 2002 |       |   |      |  
|                                              |  | Increase (Decrease)Due to            |       |   |      |  
|                                              |  | Volume                               |       |   | Rate |   |        | Total | 
|                                              |  | (Dollars in thousands)               |      
|Interest-earning assets:                      |  |                                      |       |   |      |   |        |       |  |   |       |  
|Loans                                         |  | $                                    | 1,495 |   |      | $ | (1,717 | )     |  | $ | (222  | )
|Securities                                    |  |                                      | 3,236 |   |      |   | (1,094 | )     |  |   | 2,142 |  
|Federal funds sold & other                    |  |                                      | (301  | ) |      |   | (77    | )     |  |   | (378  | )
|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  
|Total increase (decrease) in interest income  |  |                                      | 4,430 |   |      |   | (2,888 | )     |  |   | 1,542 |  
|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  
|Interest-bearing liabilities:                 |  |                                      |       |   |      |   |        |       |  |   |       |  
|Interest-bearing demand deposits              |  |                                      | 40    |   |      |   | (101   | )     |  |   | (61   | )
|Money market and savings deposits             |  |                                      | 63    |   |      |   | (815   | )     |  |   | (752  | )
|Certificates of deposit                       |  |                                      | 407   |   |      |   | (824   | )     |  |   | (417  | )
|Other borrowings                              |  |                                      | 519   |   |      |   |       |       |  |   | 519   |  
|Subordinated debentures                       |  |                                      | 425   |   |      |   | (42    | )     |  |   | 383   |  
|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  
|Total increase (decrease) in interest expense |  |                                      | 1,454 |   |      |   | (1,782 | )     |  |   | (328  | )
|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  
|Increase (decrease) in net interest income    |  | $                                    | 2,976 |   |      | $ | (1,106 | )     |  | $ | 1,870 |  
|                                              |  |                                      |       |   |      |   |        |       |  |   |       |  



Provision for loan losses



The 2003 provision for loan losses was $1.7 million, a decrease of
$365,000 from 2002. Changes in the provision for loan losses were attributable to the changes in net charge-offs and managements evaluation of changes in current risk factors. Although no assurance can be given, management believes that the
present allowance for loan losses is adequate to provide for probable losses inherent in the loan portfolio considering loss experience, delinquency trends and current economic conditions. Management regularly reviews the Companys loan loss
allowance in accordance with its standard procedures. (See Allowance for Loan Losses.)



Noninterest income



The Companys primary source of noninterest income is service charges on deposit accounts, gains on sale of securities and other banking service-related fees. Noninterest income for the years ended December 31,
2003 and 2002 was $2.6 million and $1.7 million, respectively, an increase of $900,000 or 52.9%. The increase is primarily due to gains on sale of securities of $516,000 in 2003 compared with no gains in 2002 and growth in service charge income of
$366,000 or 31.0%. The increase in service charge income was primarily attributable to new treasury management customers and additional products sold to existing customers.



16



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##### Table of Contents

Noninterest expense



Generally, noninterest expense is composed of all costs associated with operating the Companys business facilities, obtaining and retaining banking customer
relationships and providing banking services. Major components of noninterest expense typically include: (1) employee salaries and benefits, (2) occupancy-related charges (including depreciation of furniture, fixtures, and equipment), and (3) data
processing fees and technology-related costs. During 2003, the Company has added employees in the existing offices to meet additional customer needs due to growth. In addition to growth in the existing offices, in 2003, the Company had
organizational costs and startup expenses related to the opening of the Southeast office in November 2003.



The following table presents for the periods indicated the major categories of noninterest expense:



|                                     |  |                         |        |      |   |       
|------------------------------------ |  | ----------------------- | ------ | ---- | - | ------
|                                     |  | Years endedDecember 31,
|                                     |  | 2003                    |        | 2002
|                                     |  | (In thousands)         
|Salaries and benefits                |  | $                       | 7,537  |      | $ | 6,237 
|Premises and equipment expenses, net |  |                         | 1,731  |      |   | 1,715 
|Data processing fees                 |  |                         | 271    |      |   | 281   
|Data service bureau                  |  |                         | 589    |      |   | 541   
|Other expenses                       |  |                         | 2,538  |      |   | 2,240 
|                                     |  |                         |        |      |   |       
|Total noninterest expense            |  | $                       | 12,666 |      | $ | 11,014
|                                     |  |                         |        |      |   |       



Employee compensation and benefits
expenses increased $1.3 million or 20.8% during 2003 and reflects growth in the Companys management and staff to 104 full-time-equivalent employees as of December 31, 2003. This increase is partially attributable to officers and staff hired to
accommodate growth in all aspects of the Companys operations. Management expects to continue to add personnel during 2004 due to the increased needs at the offices as both lobby and support functions grow.



Non-staff expenses were $5.1 million for the year ended December 31, 2003 compared with $4.8
million for the year ended December 31, 2002, an increase of $300,000 or 6.3%. This increase also reflects the Companys growth during 2003. The efficiency ratio is calculated by dividing total noninterest expenses by net interest income plus
noninterest income, excluding net security gains (losses). An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income while a decrease would indicate a more efficient allocation of
resources. The Companys efficiency ratios were 63.4% and 62.3% for the years ended December 31, 2003 and 2002, respectively. The increase in the efficiency ratio in 2003 is primarily a result of the decline in the net interest margin.



FINANCIAL CONDITION



Total assets increased to $435.2 million at December 31, 2003, up $50.8 million or 13.2%
from $384.4 million at December 31, 2002. Loans increased to $315.5 million at December 31, 2003 representing a growth of 7.4% over the $293.6 million in loans at December 31, 2002. Investment securities available for sale at December 31, 2003 were
$61.5 million representing a growth of $52.5 million over December 31, 2002. Investment securities held to maturity were $22.4 million at December 31, 2003, a decline of $10.3 million over December 31, 2002.



17



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##### Table of Contents

Loan portfolio



The Banks primary lending focus is on middle-market commercial loans and owner-occupied real estate loans to local businesses. Typically, the Banks customers
have financing requirements between $100,000 and $1,000,000. The Bank makes commercial loans primarily to small and medium-sized businesses and to professionals. The Bank offers a variety of consumer loan and commercial loan products including
revolving lines of credit, letters of credit, working capital loans and loans to finance accounts receivable, inventory and equipment.



Commercial



The Banks commercial loans are primarily made within its market area and are underwritten on the basis of the borrowers ability to service such debt from income. As a general practice, many of the
Banks commercial loans have floating rates, are for varying terms, generally not exceeding three years, are personally guaranteed by the business owner and are secured by accounts receivable, inventory and/or other business assets. In general,
commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk for commercial loans is due to the type of collateral securing these loans. The
increased risk also derives from the expectation that commercial loans generally will be serviced principally from the business operations, and those operations may not be successful. As a result of these additional complexities, variables and
risks, commercial loans require more thorough underwriting and servicing than other types of loans.



In addition to commercial loans secured by non-real estate business assets, the Bank makes commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed
structures. Commercial mortgage lending typically involves higher loan principal amounts and the repayment of loans is dependent on cash flow from business operations or income from the properties securing the loans to cover operating expenses and
debt service. As a general practice, the Bank requires its commercial mortgage loans to be well secured and guaranteed by responsible parties. The Banks commercial mortgage loans are generally secured by first liens on real estate and
typically amortize over a 10 to 15 year period with balloon payments due at the end of one to five years. In underwriting commercial mortgage loans, consideration is given to the borrowers financial condition and cash flow with additional
consideration given to the propertys operating history, future operating projections, current and projected occupancy, location and physical condition. The underwriting analysis also includes credit checks, appraisals and an evaluation of the
guarantors financial condition and cash flow.



Construction



The Bank makes loans to finance the construction of residential and,
commercial properties. Construction loans are secured by first liens on real estate and a minimum of 20% cash equity is typically required. The Bank conducts periodic inspections, either directly or through an agent, prior to approval of periodic
draws on these loans. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Construction
lending often involves the disbursement of substantial funds with repayment dependent, in part, on the successful completion of the construction project rather than the ability of a borrower or guarantor to repay the loan. If the Bank is forced to
foreclose on a project prior to completion, the Bank may choose to complete the construction project. However, there is no assurance that it will be able to recover all of the unpaid portion of the loan. In addition, the Bank may be required to fund
additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Underwriting guidelines similar to those described above with respect to commercial mortgage loans are also used in the Banks
construction lending activities.



18



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##### Table of Contents

1-4 Family Residential



The Bank offers a variety of residential mortgage loan products. The Banks loans collateralized by one-to-four family residential real estate generally are
originated in amounts of no more than 90% of the lower of cost or appraised value. The Bank generally requires mortgage title insurance and hazard insurance in the amount of the loan.



Consumer



The Bank provides a wide variety of consumer loans including motor vehicle, watercraft, education loans, personal loans (collateralized and uncollateralized) and deposit
account collateralized loans. The terms of these loans typically range from 12 to 72 months and vary based upon the nature of collateral and size of loan. As of December 31, 2003, the Bank had no indirect consumer loans, indicating a preference to
maintain personal banking relationships and strict underwriting standards. Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets
such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.



The Bank rarely makes loans at its legal lending limit. Lending officers are assigned various levels of loan approval authority based upon
their respective levels of experience and expertise. All relationships above $1.0 million are evaluated and acted upon by the Loan Committee, while relationships in excess of $250,000 are subject to each banking offices chief executive
officers review and approval. All new and renewed loans greater than $100,000 are reported monthly to the Board of Directors. The Banks strategy for approving or disapproving loans is to follow conservative loan policies and underwriting
practices which include: (i) granting loans on a sound and collectible basis; (ii) investing funds properly for the benefit of shareholders and the protection of depositors; (iii) serving the legitimate needs of the community and the Banks
general market area while obtaining a balance between maximum yield and minimum risk; (iv) ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan; (v) developing and maintaining adequate
diversification of the loan portfolio as a whole and of the loans within each category; and (vi) ensuring that each loan is properly documented and, if appropriate, insurance coverage is adequate. The Banks loan review and compliance personnel
interact regularly with commercial and consumer lenders to identify potential underwriting or technical exception variances. In addition, the Bank has placed increased emphasis on the early identification of problem loans to aggressively seek
resolution of the situations and thereby keep loan losses at a minimum.



The
following table summarizes the Banks loan portfolio by type of loan as of December 31, 2003 and 2002:



|                                           |  |                        |         |         |       |   |        |   |         |  |       |  
|------------------------------------------ |  | ---------------------- | ------- | ------- | ----- | - | ------ | - | ------- |  | ----- | -
|                                           |  | 2003                   |         |         | 2002  |  
|                                           |  | Amount                 |         | Percent |       |   | Amount |   | Percent | 
|                                           |  | (Dollars in thousands) |        
|Commercial                                 |  | $                      | 120,667 |         | 38.2  | % |        | $ | 123,699 |  | 42.1  | %
|Real estate:                               |  |                        |         |         |       |   |        |   |         |  |       |  
|Commercial owner occupied and multi-family |  |                        | 103,312 |         | 32.7  |   |        |   | 90,268  |  | 30.8  |  
|Construction and land development          |  |                        | 39,467  |         | 12.5  |   |        |   | 29,308  |  | 10.0  |  
|Residential 1-4 family                     |  |                        | 22,782  |         | 7.2   |   |        |   | 21,740  |  | 7.4   |  
|Consumer and other                         |  |                        | 29,258  |         | 9.4   |   |        |   | 28,540  |  | 9.7   |  
|                                           |  |                        |         |         |       |   |        |   |         |  |       |  
|Total loans                                |  | $                      | 315,486 |         | 100.0 | % |        | $ | 293,555 |  | 100.0 | %
|                                           |  |                        |         |         |       |   |        |   |         |  |       |  



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##### Table of Contents

The contractual maturity ranges of the commercial business and construction loan portfolios and the amount of such loans
with predetermined interest rates and floating interest rates in each maturity range as of December 31, 2003 are summarized in the following table:



|                                                |  |                        |        |                            |   |                 |  |       |       |  |   |        
|----------------------------------------------- |  | ---------------------- | ------ | -------------------------- | - | --------------- |  | ----- | ----- |  | - | -------
|                                                |  | One YearOr Less        |        | After OneThroughFive Years |   | AfterFive Years |  | Total
|                                                |  | (Dollars in thousands)
|Commercial and industrial                       |  | $                      | 62,623 |                            | $ | 54,448          |  | $     | 3,596 |  | $ | 120,667
|Real estate  construction and land development |  |                        | 17,735 |                            |   | 21,414          |  |       | 318   |  |   | 39,467 
|                                                |  |                        |        |                            |   |                 |  |       |       |  |   |        
|Total                                           |  | $                      | 80,358 |                            | $ | 75,862          |  | $     | 3,914 |  | $ | 160,134
|                                                |  |                        |        |                            |   |                 |  |       |       |  |   |        
|Loans with a predetermined interest rate        |  | $                      | 19,273 |                            | $ | 56,985          |  | $     | 3,587 |  | $ | 79,845 
|Loans with a floating interest rate             |  |                        | 61,085 |                            |   | 18,877          |  |       | 327   |  |   | 80,289 
|                                                |  |                        |        |                            |   |                 |  |       |       |  |   |        
|Total                                           |  | $                      | 80,358 |                            | $ | 75,862          |  | $     | 3,914 |  | $ | 160,134
|                                                |  |                        |        |                            |   |                 |  |       |       |  |   |        



Nonperforming assets



Nonperforming assets, which include nonaccrual loans, accruing loans 90
or more days past due, restructured loans, and other real estate and foreclosed property, were $477,000 at December 31, 2003, compared with $802,000 at December 31, 2002. This resulted in a ratio of nonperforming assets to loans and other real
estate of 0.15% and 0.26% at December 31, 2003 and 2002, respectively. The decline in nonperforming assets was primarily in the nonaccrual category which declined primarily through charge-offs.



The following table presents information regarding nonperforming assets as of the dates
indicated:



|                                                          |  |                        |      |   |      |   |      |  
|--------------------------------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                                                          |  | December 31,           |     
|                                                          |  | 2003                   |      |   | 2002 |  
|                                                          |  | (Dollars in thousands) |     
|Nonaccrual loans                                          |  | $                      | 39   |   |      | $ | 772  |  
|Accruing loans 90 or more days past due                   |  |                        | 318  |   |      |   |     |  
|Other real estate and foreclosed property                 |  |                        | 120  |   |      |   | 30   |  
|                                                          |  |                        |      |   |      |   |      |  
|Total nonperforming assets                                |  | $                      | 477  |   |      | $ | 802  |  
|                                                          |  |                        |      |   |      |   |      |  
|Nonperforming assets to total loans and other real estate |  |                        | 0.15 | % |      |   | 0.26 | %



Loans on which the accrual of interest
has been discontinued are designated as nonaccrual loans. Loans are designated as nonaccrual when reasonable doubt exists as to the full collection of interest and principal. When a loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of interest and principal is probable. Interest accruals
are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Gross interest
income on nonaccrual loans that would have been recorded had these loans been performing as agreed was approximately $23,000 and $25,000 for the years ended December 31, 2003 and 2002, respectively.



The Company regularly updates appraisals on loans collateralized by real estate, particularly
those categorized as nonperforming loans and potential problem loans. In instances where updated appraisals reflect reduced collateral values, an evaluation of the borrowers overall financial condition is made to determine the need, if any,
for possible writedowns or appropriate additions to the allowance for loan losses.



20



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##### Table of Contents

Allowance for loan losses  Critical Accounting Policy



The Company considers its allowance for loan losses as a policy critical to its sound
operations. The Company provides for loan losses each period by an amount resulting from both (a) an estimate by management of loan losses that occurred during the period and (b) the ongoing adjustment of prior estimates of losses occurring in prior
periods. The provision for loan losses increases the allowance for loan losses which is netted against loans on the consolidated balance sheets. As losses are confirmed, the loan is written down, reducing the allowance for loan losses. See Note 3 to
the consolidated financial statements for additional information on loans and the allowance for loan losses.



Management has established an allowance for loan losses which it believes is adequate for estimated losses in the Banks loan portfolio. The Bank follows a loan review program to evaluate the credit risk in the
loan portfolio. Through the loan review process, the Bank maintains an internally classified loan watch list which, along with a delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the
allowance for loan losses. In making its evaluation, management considers factors such as growth in the loan portfolio, the diversification by industry of the Banks commercial loan portfolio, the effect of changes in the local real estate
market on collateral values, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of charge-offs for the period, the amount of nonperforming loans and related collateral security and the
evaluation of its loan portfolio by the loan review function. Charge-offs occur when a loan is deemed to be uncollectible. Loans classified as substandard are those loans with clear and defined weaknesses such as a highly-leveraged
position, unfavorable financial ratios, uncertain repayment sources, or poor financial condition, any or all of which may jeopardize recoverability of the debt.



The following table presents an analysis of the allowance for loan losses and other data for the years ended December 31, 2003 and 2002:



|                                                               |  |                         |        |   |      |   |        |  
|-------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                               |  | Years endedDecember 31, |       
|                                                               |  | 2003                    |        |   | 2002 |  
|                                                               |  | (Dollars in thousands)  |       
|Balance, beginning of year                                     |  | $                       | 3,236  |   |      | $ | 2,885  |  
|Provision for loan losses                                      |  |                         | 1,730  |   |      |   | 2,095  |  
|Loans charged off:                                             |  |                         |        |   |      |   |        |  
|Commercial loans                                               |  |                         | (1,121 | ) |      |   | (1,732 | )
|Consumer loans                                                 |  |                         | (122   | ) |      |   | (56    | )
|Recoveries:                                                    |  |                         |        |   |      |   |        |  
|Commercial loans                                               |  |                         | 54     |   |      |   | 26     |  
|Consumer loans                                                 |  |                         | 6      |   |      |   | 18     |  
|                                                               |  |                         |        |   |      |   |        |  
|Net charge offs                                                |  |                         | (1,183 | ) |      |   | (1,744 | )
|                                                               |  |                         |        |   |      |   |        |  
|Balance, end of year                                           |  | $                       | 3,783  |   |      | $ | 3,236  |  
|                                                               |  |                         |        |   |      |   |        |  
|Ratios:                                                        |  |                         |        |   |      |   |        |  
|Allowance to end of period loans                               |  |                         | 1.20   | % |      |   | 1.10   | %
|Net charge-offs to average loans outstanding during the period |  |                         | 0.40   | % |      |   | 0.63   | %



21



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##### Table of Contents

The following table reflects the distribution of the allowance for loan losses among various categories of loans and
provides certain other information for the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from
any segment of the loan portfolio.



|                   |  |                        |       |                                |       |   |        |   |                                |  |       |  
|------------------ |  | ---------------------- | ----- | ------------------------------ | ----- | - | ------ | - | ------------------------------ |  | ----- | -
|                   |  | December 31,           |      
|                   |  | 2003                   |       |                                | 2002  |  
|                   |  | Amount                 |       | Percent of loansto total loans |       |   | Amount |   | Percent of loansto total loans | 
|                   |  | (Dollars in Thousands) |      
|Commercial         |  | $                      | 1,445 |                                | 38.2  | % |        | $ | 1,566                          |  | 42.1  | %
|Real estate        |  |                        | 1,982 |                                | 52.4  |   |        |   | 1,396                          |  | 48.2  |  
|Consumer and other |  |                        | 356   |                                | 9.4   |   |        |   | 274                            |  | 9.7   |  
|                   |  |                        |       |                                |       |   |        |   |                                |  |       |  
|Total              |  | $                      | 3,783 |                                | 100.0 | % |        | $ | 3,236                          |  | 100.0 | %
|                   |  |                        |       |                                |       |   |        |   |                                |  |       |  



Where management is able to identify
specific loans or categories of loans where specific amounts of allowance are required, allocations are assigned to those loans. Federal regulators also require that a bank maintain an allowance that is sufficient to absorb an estimated amount of
unidentified potential losses based on managements perception of economic conditions, loan portfolio growth, historical charge-off experience and concentration exposure. Management of the Bank will monitor these conditions and is committed to
maintaining an adequate allowance.



Investment securities



At the date of purchase, the Company classifies debt and equity securities into one of three
categories: held to maturity, trading or available for sale. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities classified as held to maturity are stated at cost, increased by accretion of
discounts and reduced by amortization of premiums, both computed by the interest method, only if management has the positive intent and ability to hold those securities to maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading and measured at fair value in the financial statements with unrealized gains and losses included in earnings. Securities not classified as either held to maturity or trading are classified as
available for sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, as a component of accumulated other comprehensive income (loss) until realized. Gains and losses on sales of securities
are determined using the specific-identification method. Fair value of investment securities changes daily based primarily on market rates. Losses shown in the tables below are temporary and in all cases have occurred during the past twelve months.



The amortized cost and approximate fair value of investment securities
classified as available for sale held at December 31, 2003 and 2002 is as follows:



|                             |  |                        |        |                  |   |      |  |            |     |  |   |       
|---------------------------- |  | ---------------------- | ------ | ---------------- | - | ---- |  | ---------- | --- |  | - | ------
|                             |  | December 31, 2003     
|                             |  |                        |        | Gross Unrealized |   |     
|                             |  | Amortized Cost         |        | Gain             |   | Loss |  | Fair Value
|                             |  | (Dollars in thousands)
|Mortgage-backed securities   |  | $                      | 55,363 |                  | $ | 201  |  | $          | 479 |  | $ | 55,085
|Municipal securities         |  |                        | 990    |                  |   |     |  |            | 8   |  |   | 982   
|Federal Reserve Bank stock   |  |                        | 841    |                  |   |     |  |            |    |  |   | 841   
|Federal Home Loan Bank stock |  |                        | 4,616  |                  |   |     |  |            |    |  |   | 4,616 
|                             |  |                        |        |                  |   |      |  |            |     |  |   |       
|                             |  | $                      | 61,810 |                  | $ | 201  |  | $          | 487 |  | $ | 61,524
|                             |  |                        |        |                  |   |      |  |            |     |  |   |       



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|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      
|------------------------------------- |  | ---------------------- | ----- | ---------------- | - | ---- |  | ---------- | - |  | - | -----
|                                      |  | December 31, 2002     
|                                      |  |                        |       | Gross Unrealized |   |     
|                                      |  | Amortized Cost         |       | Gain             |   | Loss |  | Fair Value
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 2,054 |                  | $ |     |  | $          |  |  | $ | 2,054
|Mortgage-backed securities            |  |                        | 6,120 |                  |   |     |  |            |   |  |   | 6,120
|Federal Reserve Bank stock            |  |                        | 631   |                  |   |     |  |            |  |  |   | 631  
|Federal Home Loan Bank stock          |  |                        | 244   |                  |   |     |  |            |  |  |   | 244  
|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      
|                                      |  | $                      | 9,049 |                  | $ |     |  | $          |  |  | $ | 9,049
|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      



The amortized cost and fair value of
investment securities classified as held to maturity at December 31, 2003 and 2002 is as follows:



|                                      |  |                        |        |                  |   |                    |  |   |    |  |   |       
|------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------------------ |  | - | -- |  | - | ------
|                                      |  | December 31, 2003     
|                                      |  |                        |        | Gross Unrealized |   | Gross Market Value
|                                      |  | Amortized Cost         |        | Gain             |   | Loss               | 
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 10,331 |                  | $ | 67                 |  | $ |   |  | $ | 10,398
|Mortgage-backed securities            |  |                        | 12,067 |                  |   | 96                 |  |   | 42 |  |   | 12,121
|                                      |  |                        |        |                  |   |                    |  |   |    |  |   |       
|                                      |  | $                      | 22,398 |                  | $ | 163                |  | $ | 42 |  | $ | 22,519
|                                      |  |                        |        |                  |   |                    |  |   |    |  |   |       



|                                      |  |                        |        |                  |   |                    |  |   |   |  |   |       
|------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ------------------ |  | - | - |  | - | ------
|                                      |  | December 31, 2002     
|                                      |  |                        |        | Gross Unrealized |   | Gross Market Value
|                                      |  | Amortized Cost         |        | Gain             |   | Loss               | 
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 10,970 |                  | $ | 85                 |  | $ |  |  | $ | 11,011
|Mortgage-backed securities            |  |                        | 21,685 |                  |   | 181                |  |   |  |  |   | 21,866
|                                      |  |                        |        |                  |   |                    |  |   |   |  |   |       
|                                      |  | $                      | 32,655 |                  | $ | 266                |  | $ |  |  | $ | 32,877
|                                      |  |                        |        |                  |   |                    |  |   |   |  |   |       



The following table summarizes the
contractual maturity of investment securities available for sale on a fair value basis and their weighted average yields as of December 31, 2003. Contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life
because borrowers have a right to prepay their obligations at any time.



|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|-------------------------- |  | ---------------------- | - | ----- | ----------------------------------- | - | ------ | ----------------------------------- | ----- |  | --------------- | ------ |  | ----- | - |  | ------ | - | ----- | - | ------ | ----- | ---- | ----- |  | - | ------ |  | ---- | -
|                           |  | December 31, 2003      |  
|                           |  | Within One Year        |   |       | After One Yearbut Within five years |   |        | After FiveYears butWithin Ten Years |       |  | After Ten Years |        |  |       |   |  |       
|                           |  | Amount                 |   | Yield |                                     |   | Amount |                                     | Yield |  |                 | Amount |  | Yield |   |  | Amount |   | Yield |   |        | Total |      | Yield | 
|                           |  | (Dollars in thousands) |  
|Mortgage-backed securities |  | $                      |  |       |                                    | % |        | $                                   |      |  |                |        |  | $     |  |  |       | % |       | $ | 55,085 |       | 3.18 | %     |  | $ | 55,085 |  | 3.18 | %
|Municipal securities       |  |                        |  |       |                                    |   |        |                                     | 982   |  | 2.92            |        |  |       |  |  |       |   |       |   |       |       |     |       |  |   | 982    |  | 2.92 |  
|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|                           |  | $                      |  |       |                                    | % |        | $                                   | 982   |  | 2.92            | %      |  | $     |  |  |       | % |       | $ | 55,085 |       | 3.18 | %     |  | $ | 56,067 |  | 3.18 | %
|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  



23



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##### Table of Contents

The following table summarizes the contractual maturity of investment securities held to maturity on an amortized cost
basis and their weighted average yields as of December 31, 2003. Contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers have a right to prepay their obligations at any time.



|                                      |  |                        |       |       |                                      |   |        |                                      |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|------------------------------------- |  | ---------------------- | ----- | ----- | ------------------------------------ | - | ------ | ------------------------------------ | ------ |  | --------------- | ------ |  | ----- | - |  | ------ | - | ----- | - | ------ | ----- | ---- | ----- |  | - | ------ |  | ---- | -
|                                      |  | December 31, 2003      |      
|                                      |  | Within One Year        |       |       | After One Year but Within five years |   |        | After Five Yearsbut Within Ten Years |        |  | After Ten Years |        |  |       |   |  |       
|                                      |  | Amount                 |       | Yield |                                      |   | Amount |                                      | Yield  |  |                 | Amount |  | Yield |   |  | Amount |   | Yield |   |        | Total |      | Yield | 
|                                      |  | (Dollars in thousands) |      
|U.S. Government and agency securities |  | $                      | 1,002 |       | 2.94                                 | % |        | $                                    | 9,329  |  | 2.78            | %      |  | $     |  |  |       | % |       | $ |       |       |     | %     |  | $ | 10,331 |  | 2.79 | %
|Mortgage-backed securities            |  |                        |      |       |                                     |   |        |                                      | 1,088  |  | 4.27            |        |  |       |  |  |       |   |       |   | 10,979 |       | 3.30 |       |  |   | 12,067 |  | 3.39 |  
|                                      |  |                        |       |       |                                      |   |        |                                      |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|                                      |  | $                      | 1,002 |       | 2.94                                 | % |        | $                                    | 10,417 |  | 2.93            | %      |  | $     |  |  |       | % |       | $ | 10,979 |       | 3.30 | %     |  | $ | 22,398 |  | 3.11 | %
|                                      |  |                        |       |       |                                      |   |        |                                      |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  



Deposits



The Banks deposits increased to $355.2 million at December 31, 2003, up from $349.1
million at December 31, 2002, an increase of $6.1 million or 1.7%. Management believes that the increase in noninterest-bearing deposits is more significant, since noninterest-bearing demand deposits are typically an indicator of the sort of
business banking relationships that constitute the Banks target market. Noninterest-bearing deposits reached $117.9 million at December 31, 2003, up from $106.0 million at December 31, 2002. For the year ended December 31, 2003,
interest-bearing deposits decreased 2.4% from $243.1 million at December 31, 2002 to $237.3 million at December 31, 2003.



The daily average balances and weighted average rates paid on deposits for the years ended December 31, 2003 and 2002 are presented below:



|                                |  |                          |         |      |      |   |        |   |         |  |      |  
|------------------------------- |  | ------------------------ | ------- | ---- | ---- | - | ------ | - | ------- |  | ---- | -
|                                |  | Years ended December 31, |        
|                                |  | 2003                     |         |      | 2002 |  
|                                |  | Amount                   |         | Rate |      |   | Amount |   | Rate    | 
|                                |  | (Dollars in thousands)   |        
|Money market checking accounts  |  | $                        | 22,418  |      | 0.39 | % |        | $ | 17,633  |  | 0.84 | %
|Money market and savings        |  |                          | 117,212 |      | 0.68 |   |        |   | 112,637 |  | 1.37 |  
|Certificates of deposit         |  |                          | 115,864 |      | 2.72 |   |        |   | 103,986 |  | 3.43 |  
|                                |  |                          |         |      |      |   |        |   |         |  |      |  
|Total interest-bearing deposits |  |                          | 255,494 |      | 1.59 |   |        |   | 234,256 |  | 2.24 |  
|Noninterest-bearing deposits    |  |                          | 110,450 |      |     |   |        |   | 88,121  |  |     |  
|                                |  |                          |         |      |      |   |        |   |         |  |      |  
|Total deposits                  |  | $                        | 365,944 |      | 1.11 | % |        | $ | 322,377 |  | 1.63 | %
|                                |  |                          |         |      |      |   |        |   |         |  |      |  



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##### Table of Contents

Time deposits are solicited from markets served by the Bank and are not sought through brokered sources. Time deposits
are a significant source of the Banks funds. The following table presents the maturities of time deposits as of December 31, 2003 and 2002:



|                                       |  |                        |         |   |      |   |         |  
|-------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                       |  | December 31,           |        
|                                       |  | 2003                   |         |   | 2002 |  
|                                       |  | (Dollars in thousands) |        
|Maturities of time deposits            |  |                        |         |   |      |   |         |  
|Three months or less                   |  | $                      | 54,204  |   |      | $ | 41,376  |  
|Over 3 through 6 months                |  |                        | 16,129  |   |      |   | 21,232  |  
|Over 6 through 12 months               |  |                        | 13,919  |   |      |   | 17,359  |  
|Over 12 months                         |  |                        | 35,226  |   |      |   | 28,056  |  
|                                       |  |                        |         |   |      |   |         |  
|Total                                  |  | $                      | 119,478 |   |      | $ | 108,024 |  
|                                       |  |                        |         |   |      |   |         |  
|Weighted average rate on time deposits |  |                        | 2.50    | % |      |   | 3.12    | %
|                                       |  |                        |         |   |      |   |         |  



Other Borrowings



Short-term borrowings ranging from one to thirty days consist of federal funds purchased and
other bank borrowings. The Companys long-term borrowings generally consist of borrowings with the Federal Home Loan Bank maturing within five years. The increase in long-term borrowings resulted from a leverage strategy whereby the Bank
borrowed funds from the Federal Home Loan Bank and used the proceeds to purchase investment securities. A positive spread was achieved from this transaction. Information relating to these borrowings for the years ended December 31, 2003 and 2002 is
summarized as follows:



|                                        |  |                          |        |   |      |   |   |  
|--------------------------------------- |  | ------------------------ | ------ | - | ---- | - | - | -
|                                        |  | Years ended December 31, |       
|                                        |  | 2003                     |        |   | 2002 |  
|                                        |  | (Dollars in thousands)   |       
|Long-term borrowings:                   |  |                          |        |   |      |   |   |  
|Average                                 |  | $                        | 23,753 |   |      | $ |  |  
|Period-end                              |  | $                        | 35,000 |   |      | $ |  |  
|Maximum month-end balance during period |  | $                        | 35,000 |   |      | $ |  |  
|Interest rate:                          |  |                          |        |   |      |   |   |  
|Weighted average for the period         |  |                          | 1.95   | % |      |   |  | %
|Weighted average at period-end          |  |                          | 1.92   | % |      |   |  | %
|Short-term borrowings:                  |  |                          |        |   |      |   |   |  
|Average                                 |  | $                        | 4,981  |   |      | $ |  |  
|Period-end                              |  | $                        | 5,000  |   |      | $ |  |  
|Maximum month-end balance during period |  | $                        | 20,000 |   |      | $ |  |  
|Interest rate:                          |  |                          |        |   |      |   |   |  
|Weighted average for the period         |  |                          | 1.14   | % |      |   |  | %
|Weighted average at period-end          |  |                          | 1.21   | % |      |   |  | %



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##### Table of Contents

Subordinated debentures



On December 19, 2002, the Company completed the private placement of 8,000 floating rate capital securities (the Capital Securities) with an aggregate
liquidation value of $8,000,000 through its newly formed Delaware statutory business trust, Republic Bancshares Capital Trust I (the Trust). The Trust invested the proceeds from the sale of the Capital Securities, together with the
proceeds from the sale by the Trust of its common securities to the Company, in an equivalent amount of the Companys Floating Rate Junior Subordinated Debt Securities due 2033 (the Debentures). The Debentures will mature on January
7, 2033, which date may be shortened to a date not earlier than January 7, 2008 if certain conditions are met, including the prior approval of the Federal Reserve and any other required regulatory approvals. The Debentures, which are the only assets
of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the Indenture dated December 19, 2002) of the Company. The Debentures accrue interest at a floating rate equal to the
three-month LIBOR plus 3.35%, payable quarterly on January 7, April 7, July 7 and October 7 of each year; provided that the rate may not exceed 12.5% through January 7, 2008. The quarterly distributions on the Capital Securities are paid at the same
rate that interest is paid on the Debentures.



The Company has fully and
unconditionally guaranteed the payment by the Trust of distributions and other amounts under the Capital Securities to the extent that the Trust has funds available for such payments. The Trust must redeem the Capital Securities when the Debentures
are paid at maturity or upon any earlier prepayment of the Debentures. The Debentures may be prepaid if certain events occur, including a change in the tax status or regulatory capital treatment of the Capital Securities or a change in existing laws
that requires the Trust to register as an investment company. Under the provisions of the Debentures, the Company has the right to defer payment of interest on the Debentures at any time, or from time to time, for up to twenty consecutive quarterly
periods. If interest payments on the Debentures are deferred, the distributions on the Capital Securities will also be deferred.



On December 31, 2003, the Company retroactively implemented FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,resulting in the deconsolidation of the Trust established in 2002, which was created for the sole purpose of issuing subordinated debentures. The implementation of this Interpretation resulted in the Companys $248,000 investment in the
common equity of the trust being included in the consolidated balance sheets as other assets, and the interest income received from and interest expense paid to the Trust, respectively, being included in the consolidated statements of income as
interest income and interest expense. The increase to both other interest income and interest expense totaled $12,000 for the year ended December 31, 2003 and $0 for the year ended December 31, 2002.



Liquidity



Liquidity management involves maintaining sufficient cash levels to fund operations and to meet the requirements of borrowers, depositors,
and creditors. Higher levels of liquidity bear higher corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets, and higher interest expense involved in extending liability maturities. Liquid assets include
cash and cash equivalents, loans and securities maturing within one year, and money market instruments. In addition, the Bank holds securities maturing after one year, which can be sold to meet liquidity needs.



The Bank relies primarily on customer deposits and shareholders equity to fund
interest-earning assets. The Federal Home Loan Bank (FHLB) is also a source of liquidity. The FHLB allows member banks to borrow against their eligible collateral to satisfy liquidity requirements.



Maintaining a relatively stable funding base, which is achieved by diversifying funding
sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Banks exposure to roll over risk on deposits and limits reliance on volatile short-term purchased funds. Short-term funding
needs arise from declines in deposits or other funding sources, funding of loan commitments and requests for new loans.



26



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##### Table of Contents

Management believes the Bank has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in
the present economic environment. In addition, the Bank has access to the FHLB for borrowing purposes. The Bank has not received any recommendations from regulatory authorities that would materially affect liquidity, capital resources or operations.



Subject to certain limitations, the Bank may borrow funds from the FHLB in the
form of advances. Credit availability from the FHLB to the Bank is based on the Banks financial and operating condition. Borrowings from the FHLB to the Bank were approximately $35 million at December 31, 2003. In addition to creditworthiness,
the Bank must own a minimum amount of FHLB capital stock. This minimum is 5.00% of outstanding FHLB advances. Unused borrowing capacity at December 31, 2003 was approximately $106.3 million. The Bank uses FHLB advances for both long-term and
short-term liquidity needs. Other than normal banking operations, the Bank has no long-term liquidity needs. The Bank has never been involved with highly leveraged transactions that may cause unusual potential long-term liquidity needs.



Republic Bancshares of Texas is a holding company and does not conduct operations; its
primary sources of liquidity are dividends upstreamed from Republic National Bank. See Regulations and Supervision-Dividend Restrictions regarding such dividends.



The liquidity position of the Company is continuously monitored and adjustments are made to the balance between sources and uses of funds as
deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Companys liquidity, capital resources or operations. In addition, management is not aware of any regulatory
recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.



Payments due by period for the Companys contractual obligations (other than deposit liabilities) at December 31, 2003 are presented below:



|                              |  |                        |        |                                |   |                                 |  |                 |       |       |   |       |  |   |       
|----------------------------- |  | ---------------------- | ------ | ------------------------------ | - | ------------------------------- |  | --------------- | ----- | ----- | - | ----- |  | - | ------
|                              |  | WithinOne Year         |        | After Onebut WithinThree Years |   | After Threebut WithinFive Years |  | After FiveYears |       | Total
|                              |  | (Dollars in thousands)
|Short-term borrowings         |  | $                      | 5,000  |                                | $ |                                |  | $               |      |       | $ |      |  | $ | 5,000 
|Long-term borrowings          |  |                        | 5,000  |                                |   | 27,500                          |  |                 | 2,500 |       |   |      |  |   | 35,000
|Operating lease obligations   |  |                        | 756    |                                |   | 1,258                           |  |                 | 1,254 |       |   | 1,179 |  |   | 4,447 
|                              |  |                        |        |                                |   |                                 |  |                 |       |       |   |       |  |   |       
|Total contractual obligations |  | $                      | 10,756 |                                | $ | 28,758                          |  | $               | 3,754 |       | $ | 1,179 |  | $ | 44,447
|                              |  |                        |        |                                |   |                                 |  |                 |       |       |   |       |  |   |       



Interest Rate Sensitivity



Asset and liability management is concerned with the timing and magnitude
of the repricing of assets as compared to liabilities. It is the objective of the Company to generate stable growth in net interest income and to attempt to control risks associated with interest rate movements. In general, managements
strategy is to reduce the impact of changes in interest rates on its net interest income by maintaining a favorable match between the maturities or repricing dates of its interest-earning assets and interest-bearing liabilities. The Company adjusts
its interest sensitivity during the year through changes in the mix of assets and liabilities. The Companys asset and liability management strategy is formulated and monitored by the Asset Liability Management Committee (the ALCO),
which is composed of senior officers of the Bank and two outside directors, in accordance with policies approved by the Banks Board of Directors. This Committee meets regularly to review, among other things, the sensitivity of the Banks
assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activity, and maturities of investments and borrowings. The Asset Liability Committee also approves
and establishes pricing and funding decisions with respect to the Banks overall asset and liability composition. The Committee reviews the Banks liquidity, cash flow flexibility, maturities of investments, deposits and borrowings, retail
and institutional deposit activity, current market conditions, and interest rates on both a local and national level.



27



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##### Table of Contents

To effectively measure and manage interest rate risk, the Company uses simulation and analysis to determine the impact on
net interest income of changes in interest rates under various interest rate scenarios, balance sheet trends, and strategies. From these simulations, interest rate risk is quantified and appropriate strategies are developed and implemented.



The following table presents an analysis of the sensitivity inherent in the
Companys net interest income and market value of portfolio equity. The data used to prepare the table is as of December 31, 2003, which may be not representative of average balances found at year end or any other time period. The analysis is a
tool used by management that changes every month based on changes in the composition of the balance sheet. Management believes that, based on available information, the Bank has been and will continue to be slightly asset sensitive. The interest
rate scenarios presented in the table include interest rates at December 31, 2003 and as adjusted by instantaneous rate changes upward and downward of up to 100 basis points. Each rate scenario reflects unique prepayment and repricing assumptions.
Since there are limitations inherent in any methodology used to estimate the exposure to changes in market interest rates, this analysis is not intended to be a forecast of the actual effect of a change in market interest rates on the Company. The
market value sensitivity analysis presented includes assumptions that (i) the composition of the Companys interest sensitive assets and liabilities existing at year end will remain constant over the twelve month measurement period; and (ii)
that changes in market rates are parallel and instantaneous across the yield curve regardless of duration or repricing characteristics of specific assets or liabilities. Further, the analysis does not contemplate any actions that the Company might
undertake in response to changes in market interest rates. Accordingly, this analysis is not intended and does not provide a precise forecast of the effect actual changes in market rates will have on the Company.



|                                         |  |                               |        |                                           |   |      |         |  |      |   
|---------------------------------------- |  | ----------------------------- | ------ | ----------------------------------------- | - | ---- | ------- |  | ---- | --
|                                         |  |                               |        | Increase (decrease) in netinterest income |  
|Changes in interest rates (basis points) |  | Estimated net interest income |        | Amount                                    |   |      | Percent | 
|                                         |  | (Dollars in thousands)        |       
|+100                                     |  | $                             | 19,164 |                                           | $ | 154  |         |  | 0.1  | % 
|0                                        |  | $                             | 19,010 |                                           |   |     |         |  |     |   
|-100                                     |  | $                             | 18,406 |                                           | $ | (604 | )       |  | (3.2 | )%



The interest rate sensitivity
(GAP) is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A GAP is considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A GAP is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of rising interest rates, a negative GAP would tend to
adversely affect net interest income, while a positive GAP would tend to result in an increase in net interest income. During a period of falling interest rates, a negative GAP would tend to result in an increase in net interest income, while a
positive GAP would tend to affect net interest income adversely. While the GAP is a useful measurement and contributes toward effective asset and liability management, it is difficult to predict the effect of changing interest rates solely on that
measure. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively
even if an institution were perfectly matched in each maturity category.



The
Companys one-year cumulative GAP position at December 31, 2003 was a negative $8.0 million or (1.83%) of assets compared to a negative $14.1 million at December 31, 2002. The change from the prior year is not considered significant. This is a
one-day position that is continually changing and is not indicative of the Companys position at any other time. While the GAP position is a useful tool in measuring interest rate risk and contributes toward effective asset and liability
management, shortcomings are inherent in GAP analysis since certain assets and liabilities may not move proportionally as interest rates change.



28



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##### Table of Contents

The following table summarizes interest rate sensitive assets and liabilities by their repricing dates at December 31,
2003:



|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|----------------------------------------- |  | ---------------------- | ------- | - | ----------- | - | ------- | --------- |  | - | --------- | - |  | ------------ | ------- | - | ----- | - | ------- | - |  | - | -------
|                                          |  | 1-6 Months             |         |   | 6-12 Months |   |         | 1-3 Years |  |   | 3-5 Years |   |  | Over 5 years |         |   | Total
|                                          |  | (Dollars in thousands)
|Interest-earning assets:                  |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Federal funds sold and other              |  | $                      | 833     |   |             | $ |        |           |  | $ |          |   |  | $            |        |   |       | $ |        |   |  | $ | 833    
|Securities                                |  |                        | 14,356  |   |             |   | 23,252  |           |  |   | 18,206    |   |  |              | 28,108  |   |       |   |        |   |  |   | 83,922 
|Loans                                     |  |                        | 147,105 |   |             |   | 27,577  |           |  |   | 79,205    |   |  |              | 56,890  |   |       |   | 4,709   |   |  |   | 315,486
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Total interest-earning assets             |  |                        | 162,294 |   |             |   | 50,829  |           |  |   | 97,411    |   |  |              | 84,998  |   |       |   | 4,709   |   |  |   | 400,241
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Interest-bearing liabilities:             |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Demand, money market and savings deposits |  |                        | 117,778 |   |             |   |        |           |  |   |          |   |  |              |        |   |       |   |        |   |  |   | 117,778
|Certificates of deposit and other time    |  |                        | 70,780  |   |             |   | 14,165  |           |  |   | 6,398     |   |  |              | 28,135  |   |       |   |        |   |  |   | 119,478
|Other borrowings                          |  |                        | 13,248  |   |             |   | 5,000   |           |  |   | 27,500    |   |  |              | 2,500   |   |       |   |        |   |  |   | 48,248 
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Total interest-bearing liabilities        |  |                        | 201,806 |   |             |   | 19,165  |           |  |   | 33,898    |   |  |              | 30,635  |   |       |   |        |   |  |   | 285,504
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Period GAP                                |  | $                      | (39,512 | ) |             | $ | 31,664  |           |  | $ | 63,513    |   |  | $            | 54,363  |   |       | $ | 4,709   |   |  | $ | 114,737
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Cumulative GAP at December 31, 2003       |  | $                      | (39,512 | ) |             | $ | (7,848  | )         |  | $ | 55,665    |   |  | $            | 110,028 |   |       | $ | 114,737 |   |  |   |        
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Cumulative GAP at December 31, 2002       |  | $                      | (25,323 | ) |             | $ | (14,140 | )         |  | $ | 64,601    |   |  | $            | 107,100 |   |       | $ | 111,891 |   |  |   |        
|                                          |  |                        |         |   |             |   |         |           |  |   |           |   |  |              |         |   |       |   |         |   |  |   |        
|Period GAP to total assets                |  |                        | -9.09   | % |             |   | 7.29    | %         |  |   | 14.61     | % |  |              | 12.51   | % |       |   | 1.08    | % |  |   |        
|Cumulative GAP to total assets            |  |                        | -9.09   | % |             |   | -1.81   | %         |  |   | 12.81     | % |  |              | 25.32   | % |       |   | 26.40   | % |  |   |        



Off-Balance Sheet Arrangements



The contractual amount of the Companys financial instruments with
off-balance sheet risk expiring by period at December 31, 2003 is presented below:



|                                                             |  |                        |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       
|------------------------------------------------------------ |  | ---------------------- | ------ | ------------------------------ | - | ------------------------------- |  | --------------- | ----- | ----- | - | --- |  | - | ------
|                                                             |  | WithinOne Year         |        | After Onebut WithinThree Years |   | After Threebut WithinFive Years |  | After FiveYears |       | Total
|                                                             |  | (Dollars in thousands)
|Unfunded loan commitments including unfunded lines of credit |  | $                      | 44,490 |                                | $ | 1,320                           |  | $               | 2,602 |       | $ | 307 |  | $ | 48,719
|Standby letters of credit                                    |  |                        | 2,410  |                                |   | 575                             |  |                 |      |       |   |    |  |   | 2,985 
|                                                             |  |                        |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       
|Total financial instruments with off-balance sheet risk      |  | $                      | 46,900 |                                | $ | 1,895                           |  | $               | 2,602 |       | $ | 307 |  | $ | 51,704
|                                                             |  |                        |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       



Due to the nature of the
Companys unfunded loan commitments, including unfunded lines of credit, the amounts presented above do not necessarily represent amounts the Company anticipates funding in the periods presented above.



29



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##### Table of Contents

Capital resources



Shareholders equity increased to $30.0 million at December 31, 2003, up $4.0 million or 15.3% from $26.0 million at December 31, 2002 primarily from an increase in
comprehensive income. The leverage ratio was 7.0% at December 31, 2003, compared with 6.9% at December 31, 2002.



Capital management consists of providing equity to support both current and future operations. The Company and the Bank are subject to capital adequacy requirements
imposed by the Federal Reserve and the OCC. Both the Federal Reserve and the OCC have adopted risk-based capital requirements. The Companys and Banks regulatory capital amounts and ratios in relation to current regulatory capital
requirements for capital adequacy purposes are as follows:



|                                         |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|---------------------------------------- |  | ----------------------- | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                         |  | As of December 31, 2003 |       
|                                         |  | Actual                  |        |       | For capitaladequacypurposes |   |        | To be wellcapitalized underprompt correctiveaction provisions |       
|                                         |  | Amount                  |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 34,166 |       | 9.99                        | % |        | $                                                             | 27,351 |  | 8.00 | %      |  | $     | 34,189 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 30,383 |       | 8.89                        | % |        |                                                               | 13,675 |  | 4.00 | %      |  |       | 20,513 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 30,383 |       | 7.02                        | % |        |                                                               | 17,310 |  | 4.00 | %      |  |       | 21,638 |  | 5.00  | %
|                                         |  |                         |        |       |                             |  
|Bank                                     |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 41,115 |       | 12.05                       | % |        | $                                                             | 27,300 |  | 8.00 | %      |  | $     | 34,125 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 37,332 |       | 10.94                       | % |        |                                                               | 13,650 |  | 4.00 | %      |  |       | 20,475 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 37,332 |       | 8.24                        | % |        |                                                               | 18,114 |  | 4.00 | %      |  |       | 22,642 |  | 5.00  | %



|                                         |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|---------------------------------------- |  | ----------------------- | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                         |  | As of December 31, 2002 |       
|                                         |  | Actual                  |        |       | For capitaladequacypurposes |   |        | To be wellcapitalized underprompt correctiveaction provisions |       
|                                         |  | Amount                  |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 29,241 |       | 9.79                        | % |        | $                                                             | 23,895 |  | 8.00 | %      |  | $     | 29,868 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 26,005 |       | 8.71                        | % |        |                                                               | 11,947 |  | 4.00 | %      |  |       | 17,921 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 26,005 |       | 6.91                        | % |        |                                                               | 15,059 |  | 4.00 | %      |  |       | 18,824 |  | 5.00  | %
|                                         |  |                         |        |       |                             |  
|Bank                                     |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 36,137 |       | 12.11                       | % |        | $                                                             | 23,877 |  | 8.00 | %      |  | $     | 29,847 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 32,901 |       | 11.02                       | % |        |                                                               | 11,939 |  | 4.00 | %      |  |       | 17,908 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 32,901 |       | 8.74                        | % |        |                                                               | 15,058 |  | 4.00 | %      |  |       | 18,823 |  | 5.00  | %



30



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##### Table of Contents

ITEM 8. FINANCIAL STATEMENTS



Reference is made to
the financial statements, the report thereon, the notes thereto commencing at page F-1 of this Form 10-KSB, which financial statements, report and notes are included herein.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



There have been no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the two-year period ended
December 31, 2003.



ITEM 9A. CONTROLS AND PROCEDURES



Evaluation of
disclosure controls and procedures.Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported to the Companys management within the time periods specified in the Securities and Exchange Commissions rules and forms.



Changes in internal controls. Subsequent to the date of their evaluation, there were
no significant changes in the Companys internal controls or in other factors that could significantly affect the Companys disclosure controls and procedures, and there were no corrective actions with regard to significant deficiencies
and material weaknesses based on such evaluation.



PART III.



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT



The information under the captions Election of Directors, Continuing Directors and Executive Officers, Section 16(a) Beneficial Ownership
Reporting Compliance and Code of Ethics in the Companys definitive Proxy Statement for its 2004 Annual Meeting of Shareholders (the 2004 Proxy Statement) to be filed with the Commission within 120 days after
December 31, 2003, is incorporated herein by reference in response to this item.



31



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##### Table of Contents

ITEM 11. EXECUTIVE COMPENSATION



The information
under the caption Executive Compensation and Other Matters in the 2004 Proxy Statement is incorporated herein by reference in response to this item.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information under the caption Beneficial Ownership of Common Stock by Management of the Company and Principal Shareholders in the 2004 Proxy Statement is
incorporated herein by reference in response to this item.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information under the caption Interests of Management and Others in Certain Transactions in the 2004 Proxy Statement is incorporated herein by reference in response to this item.



ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K



(A) EXHIBITS:



|            |  |                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                              
|2.1         |  | Agreement and Plan of Reorganization by and among Republic Bancshares of Texas, Inc., Republic National Bank and RBT Holdings, Inc. dated as of May 30, 2001 (incorporated herein by reference
to Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 27, 2001 (the Form 8-K)).
|            | 
|3.1         |  | Articles of Incorporation of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 3.1 to the Companys Form 8-K).                                                                                                                                                                                                        
|            | 
|3.2         |  | Bylaws of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 3.2 to the Companys Form 8-K).                                                                                                                                                                                                                           
|            | 
|4.1         |  | Specimen certificate for shares of Common Stock of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 4.1 to the Companys Form 8-K).                                                                                                                                                                                  
|            | 
|10.1+       |  | Republic Bancshares of Texas, Inc. 1998 Stock Option Plan (incorporated herein by reference to Exhibit 4.4 to the Companys Registration Statement on Form S-8, Registration No.
333-70458).                                                                                                                                                        
|            | 
|10.2        |  | Republic Bancshares of Texas, Inc. Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.4 to the Companys Registration Statement on Form S-8, Registration No.
333-70456).                                                                                                                                                  
|            | 
|21.1        |  | Subsidiaries of Republic Bancshares of Texas, Inc. (incorporated herein by reference to Exhibit 21.1 to the Companys Form 8-K).                                                                                                                                                                                                                    
|            | 
|23.1*       |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                



32



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##### Table of Contents

|      |  |                                                                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.1* |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                     
|      | 
|31.2* |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                     
|      | 
|32.1* |  | Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|      | 
|33.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          

---

|* | Filed herewith.
|- | ---------------

|+ | Represents Management contract or compensatory plan or arrangement.
|- | -------------------------------------------------------------------



(B) REPORTS ON FORM 8-K



No reports on Form 8-K were filed by the Company during the three months ended December 31, 2003.



ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The
information under the caption Principal Accountant Fees and Services in the 2004 Proxy Statement is incorporated herein by reference in response to this item.



33



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##### Table of Contents

SIGNATURES



In accordance with the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.



Republic Bancshares of Texas, Inc.(Registrant)By:

/s/ R. John McWhorterR. John McWhorterSecretary, Treasurer and Chief Financial OfficerDated: March 5, 2004




In accordance with the
requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. This report to be signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.



|                                             |  |                                                                                            |  |              
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------
|Signature                                    |  | Title                                                                                      |  | Date         
|/s/ C.P. BryanC. P. Bryan                    |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |  | March 5, 2004
|                                             |  |                                                                                           
|/s/ R. John McWhorterR. John McWhorter       |  | Secretary, Treasurer and Chief Financial Officer (Principal Financial Officer)             |  | March 5, 2004
|                                             |  |                                                                                           
|/s/ Gerald W. BodzyGerald W. Bodzy           |  | Director                                                                                   |  | March 5, 2004
|                                             |  |                                                                                           
|/s/ Donn C. FullenweiderDonn C. Fullenweider |  | Director                                                                                   |  | March 5, 2004
|                                             |  |                                                                                           
|/s/ James C. HassellJames C. Hassell         |  | Director                                                                                   |  | March 5, 2004
|                                             |  |                                                                                           
|/s/ Wayne C. OwenWayne C. Owen               |  | Director                                                                                   |  | March 5, 2004



34



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##### Table of Contents

Republic Bancshares of Texas, Inc. and Subsidiaries



Index to Consolidated Financial Statements



|                                                                                                         |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  | Page
|Consolidated Financial Statements                                                                        |  |     
|Independent Auditors Report                                                                             |  | F-2 
|Consolidated Balance Sheet as of December 31, 2003 and 2002                                              |  | F-3 
|Consolidated Statement of Income for the Years Ended December 31, 2003 and 2002                          |  | F-4 
|Consolidated Statement of Changes in Shareholders Equity for the Years ended December 31, 2003 and 2002 |  | F-5 
|Consolidated Statement of Cash Flows for the Years Ended December 31, 2003 and 2002                      |  | F-6 
|Notes to Consolidated Financial Statements                                                               |  | F-7 



F-1



---

##### Table of Contents

Independent Auditors Report



The Board of
Directors and Shareholders

Republic Bancshares of Texas, Inc.:



We have audited the accompanying consolidated balance sheets of Republic Bancshares of Texas, Inc. and subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Republic Bancshares of Texas, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States
of America.



/s/ KPMG LLP



Houston, Texas

February 20, 2004



F-2



---

##### Table of Contents

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                               |  | December 31,                              |        
|                                                                                                                                                                               |  | 2003                                      |         |   | 2002 |  
|                                                                                                                                                                               |  | (Dollars in thousands, except share data) |        
|Assets                                                                                                                                                                         |  |                                           |         |   |      |   |         |  
|Cash and due from banks                                                                                                                                                        |  | $                                         | 19,998  |   |      | $ | 22,707  |  
|Federal funds sold and other                                                                                                                                                   |  |                                           | 833     |   |      |   | 19,684  |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total cash and cash equivalents                                                                                                                                                |  |                                           | 20,831  |   |      |   | 42,391  |  
|                                                                                                                                                                               |  |                                          
|Investment securities available for sale (note 2)                                                                                                                              |  |                                           | 61,524  |   |      |   | 9,049   |  
|Investment securities held to maturity (note 2)                                                                                                                                |  |                                           | 22,398  |   |      |   | 32,655  |  
|                                                                                                                                                                               |  |                                          
|Loans (note 3)                                                                                                                                                                 |  |                                           | 315,486 |   |      |   | 293,555 |  
|Less: Allowance for loan losses (note 3)                                                                                                                                       |  |                                           | (3,783  | ) |      |   | (3,236  | )
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Loans, net                                                                                                                                                                     |  |                                           | 311,703 |   |      |   | 290,319 |  
|                                                                                                                                                                               |  |                                          
|Premises and equipment, net (note 4)                                                                                                                                           |  |                                           | 6,560   |   |      |   | 6,987   |  
|Accrued interest receivable                                                                                                                                                    |  |                                           | 1,516   |   |      |   | 1,434   |  
|Other assets (notes 5)                                                                                                                                                         |  |                                           | 10,686  |   |      |   | 1,584   |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total assets                                                                                                                                                                   |  | $                                         | 435,218 |   |      | $ | 384,419 |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Liabilities and shareholders equity                                                                                                                                           |  |                                           |         |   |      |   |         |  
|Liabilities:                                                                                                                                                                   |  |                                           |         |   |      |   |         |  
|Deposits: (note 6)                                                                                                                                                             |  |                                           |         |   |      |   |         |  
|Noninterest-bearing                                                                                                                                                            |  | $                                         | 117,925 |   |      | $ | 106,031 |  
|Interest-bearing                                                                                                                                                               |  |                                           | 237,256 |   |      |   | 243,052 |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total deposits                                                                                                                                                                 |  |                                           | 355,181 |   |      |   | 349,083 |  
|Subordinated debentures (note 8)                                                                                                                                               |  |                                           | 8,248   |   |      |   | 8,248   |  
|Accrued interest payable                                                                                                                                                       |  |                                           | 502     |   |      |   | 425     |  
|Other borrowings (note 7)                                                                                                                                                      |  |                                           | 40,000  |   |      |   |        |  
|Other liabilities                                                                                                                                                              |  |                                           | 1,284   |   |      |   | 658     |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total liabilities                                                                                                                                                              |  |                                           | 405,215 |   |      |   | 358,414 |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Commitments and contingencies (note 13)                                                                                                                                        |  |                                           |         |   |      |   |         |  
|Shareholders equity (notes 11 and 14)                                                                                                                                         |  |                                           |         |   |      |   |         |  
|Common stock, $1 par value; 5,000,000 shares authorized, 1,944,565 issued and outstanding as of December 31, 2003 and 1,934,311 issued and
outstanding as of December 31, 2002 |  |                                           | 1,945   |   |      |   | 1,934   |  
|Additional paid-in capital                                                                                                                                                     |  |                                           | 19,383  |   |      |   | 19,253  |  
|Accumulated other comprehensive loss, net of tax                                                                                                                               |  |                                           | (190    | ) |      |   |        |  
|Retained earnings                                                                                                                                                              |  |                                           | 8,865   |   |      |   | 4,818   |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                     |  |                                           | 30,003  |   |      |   | 26,005  |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                     |  | $                                         | 435,218 |   |      | $ | 384,419 |  
|                                                                                                                                                                               |  |                                           |         |   |      |   |         |  



See accompanying notes
to consolidated financial statements.



F-3



---

##### Table of Contents

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Income



|                                                     |  |                                                         |           |   |      |   |           |  
|---------------------------------------------------- |  | ------------------------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                     |  | Years ended December 31,                                |          
|                                                     |  | 2003                                                    |           |   | 2002 |  
|                                                     |  | (Dollars in thousands, except share and per share data) |          
|Interest income:                                     |  |                                                         |           |   |      |   |           |  
|Loans, including fees                                |  | $                                                       | 20,079    |   |      | $ | 20,301    |  
|Investment securities                                |  |                                                         | 2,567     |   |      |   | 425       |  
|Federal funds sold and other                         |  |                                                         | 154       |   |      |   | 532       |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Total interest income                                |  |                                                         | 22,800    |   |      |   | 21,258    |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Interest expense:                                    |  |                                                         |           |   |      |   |           |  
|Interest-bearing deposits                            |  |                                                         | 4,028     |   |      |   | 5,258     |  
|Other borrowings                                     |  |                                                         | 519       |   |      |   |          |  
|Subordinated debentures                              |  |                                                         | 397       |   |      |   | 14        |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Total interest expense                               |  |                                                         | 4,944     |   |      |   | 5,272     |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Net interest income                                  |  |                                                         | 17,856    |   |      |   | 15,986    |  
|Provision for loan losses                            |  |                                                         | 1,730     |   |      |   | 2,095     |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Net interest income after provision for loan losses  |  |                                                         | 16,126    |   |      |   | 13,891    |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Noninterest income:                                  |  |                                                         |           |   |      |   |           |  
|Service charges on deposit accounts                  |  |                                                         | 1,547     |   |      |   | 1,181     |  
|Other noninterest income                             |  |                                                         | 581       |   |      |   | 524       |  
|Gain on sale of securities, net                      |  |                                                         | 516       |   |      |   |          |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Total noninterest income                             |  |                                                         | 2,644     |   |      |   | 1,705     |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Noninterest expense:                                 |  |                                                         |           |   |      |   |           |  
|Salaries and employee benefits                       |  |                                                         | 7,537     |   |      |   | 6,237     |  
|Occupancy expense                                    |  |                                                         | 1,284     |   |      |   | 1,242     |  
|Premises and equipment expense                       |  |                                                         | 447       |   |      |   | 473       |  
|Service bureau fees                                  |  |                                                         | 589       |   |      |   | 541       |  
|Data processing fees                                 |  |                                                         | 271       |   |      |   | 281       |  
|Other                                                |  |                                                         | 2,538     |   |      |   | 2,240     |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Total noninterest expense                            |  |                                                         | 12,666    |   |      |   | 11,014    |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Income before federal income tax provision (benefit) |  |                                                         | 6,104     |   |      |   | 4,582     |  
|Federal income tax provision (benefit) (note 9)      |  |                                                         |           |   |      |   |           |  
|Current                                              |  |                                                         | 2,224     |   |      |   | 1,595     |  
|Deferred                                             |  |                                                         | (167      | ) |      |   | (14       | )
|                                                     |  |                                                         |           |   |      |   |           |  
|Total federal income tax provision                   |  |                                                         | 2,057     |   |      |   | 1,581     |  
|                                                     |  |                                                        
|Net income                                           |  | $                                                       | 4,047     |   |      | $ | 3,001     |  
|                                                     |  |                                                         |           |   |      |   |           |  
|Earnings per common share:                           |  |                                                         |           |   |      |   |           |  
|Basic                                                |  | $                                                       | 2.09      |   |      | $ | 1.56      |  
|Diluted                                              |  | $                                                       | 2.00      |   |      | $ | 1.49      |  
|                                                     |  |                                                        
|Shares used in computing per share data:             |  |                                                         |           |   |      |   |           |  
|Basic                                                |  |                                                         | 1,938,398 |   |      |   | 1,927,619 |  
|Diluted                                              |  |                                                         | 2,023,009 |   |      |   | 2,007,585 |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity



|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | -------------------------- | ----- |  | ------------------------------------------------ | ------ | - | ----------------- | - | -------------------------- | - |  | - | ----- |  | - | ------ | -
|                                                                                                                    |  | Common stock           |  | Additional paid-in capital |       |  | Accumulated other comprehensive loss, net of tax |        |   | Retained earnings |   | Total shareholders equity |  
|                                                                                                                    |  | Shares                 |  | Dollars                    |       |  |                                                  |       
|                                                                                                                    |  | (Dollars in thousands) | 
|Balance at December 31, 2001                                                                                        |  | 1,923                  |  | $                          | 1,923 |  | $                                                | 19,115 |   |                   | $ |                           |   |  | $ | 1,817 |  | $ | 22,855 |  
|                                                                                                                    |  |                        |  |                            |       | 
|Issuance of common stock                                                                                            |  | 7                      |  |                            | 7     |  |                                                  | 92     |   |                   |   |                           |   |  |   |      |  |   | 99     |  
|                                                                                                                    |  |                        |  |                            |       | 
|Exercise of stock options                                                                                           |  | 4                      |  |                            | 4     |  |                                                  | 46     |   |                   |   |                           |   |  |   |      |  |   | 50     |  
|                                                                                                                    |  |                        |  |                            |       | 
|Comprehensive income                                                                                                |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Net Income                                                                                                          |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   | 3,001 |  |   | 3,001  |  
|Net change in unrealized appreciation/(depreciation) on securities available for sale, net of deferred taxes of $0  |  |                       |  |                            |      |  |                                                  |       |   |                   |   |                           |   |  |   |      |  |   |       |  
|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Total comprehensive income                                                                                          |  |                       |  |                            |      |  |                                                  |       |   |                   |   |                           |   |  |   |      |  |   | 3,001  |  
|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Balance at December 31, 2002                                                                                        |  | 1,934                  |  | $                          | 1,934 |  | $                                                | 19,253 |   |                   | $ |                           |   |  | $ | 4,818 |  | $ | 26,005 |  
|                                                                                                                    |  |                        |  |                            |       | 
|Issuance of common stock                                                                                            |  | 8                      |  |                            | 8     |  |                                                  | 109    |   |                   |   |                           |   |  |   |      |  |   | 117    |  
|                                                                                                                    |  |                        |  |                            |       | 
|Exercise of stock options                                                                                           |  | 3                      |  |                            | 3     |  |                                                  | 31     |   |                   |   |                           |   |  |   |      |  |   | 34     |  
|                                                                                                                    |  |                        |  |                            |       | 
|Other                                                                                                               |  |                       |  |                            |      |  |                                                  | (10    | ) |                   |   |                           |   |  |   |      |  |   | (10    | )
|                                                                                                                    |  |                        |  |                            |       | 
|Comprehensive income:                                                                                               |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Net income                                                                                                          |  |                       |  |                            |      |  |                                                  |       |   |                   |   |                           |   |  |   | 4,047 |  |   | 4,047  |  
|Net change in unrealized appreciation/(depreciation) on securities available for sale, net of deferred taxes of $97 |  |                       |  |                            |      |  |                                                  |       |   |                   |   | 151                        |   |  |   |      |  |   | 151    |  
|Reclassification adjustment for gains included in net income, net of deferred taxes of $175                         |  |                       |  |                            |      |  |                                                  |       |   |                   |   | (341                       | ) |  |   |      |  |   | (341   | )
|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Total comprehensive income                                                                                          |  |                       |  |                            |      |  |                                                  |       |   |                   |   |                           |   |  |   |      |  |   | 3,857  |  
|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  
|Balance at December 31, 2003                                                                                        |  | 1,945                  |  | $                          | 1,945 |  | $                                                | 19,383 |   |                   | $ | (190                       | ) |  | $ | 8,865 |  | $ | 30,003 |  
|                                                                                                                    |  |                        |  |                            |       |  |                                                  |        |   |                   |   |                            |   |  |   |       |  |   |        |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

Republic Bancshares of Texas, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



|                                                                                  |  |                          |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                  |  | Years ended December 31, |         
|                                                                                  |  | 2003                     |          |   | 2002 |  
|                                                                                  |  | (Dollars in thousands)   |         
|Cash flows from operating activities:                                             |  |                          |          |   |      |   |         |  
|Net income                                                                        |  | $                        | 4,047    |   |      | $ | 3,001   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |          |   |      |   |         |  
|Depreciation                                                                      |  |                          | 643      |   |      |   | 636     |  
|Net amortization of premium on investment securities                              |  |                          | 954      |   |      |   | 44      |  
|Amortization of issuance costs on subordinated debentures                         |  |                          | 25       |   |      |   | 1       |  
|Provision for loan losses                                                         |  |                          | 1,730    |   |      |   | 2,095   |  
|Deferred income tax benefit                                                       |  |                          | (167     | ) |      |   | (14     | )
|Gain on sales of securities                                                       |  |                          | (516     | ) |      |   |        |  
|Increase in accrued interest receivable                                           |  |                          | (82      | ) |      |   | (326    | )
|Increase in other assets                                                          |  |                          | (214     | ) |      |   | (293    | )
|Decrease in accrued interest payable                                              |  |                          | 77       |   |      |   | (122    | )
|Decrease in other liabilities                                                     |  |                          | 626      |   |      |   | 4       |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                          | 7,123    |   |      |   | 5,026   |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                          |          |   |      |   |         |  
|Net increase in loans                                                             |  |                          | (23,114  | ) |      |   | (36,812 | )
|Principal paydowns and sales of investment securities available for sale          |  |                          | 68,081   |   |      |   |        |  
|Principal paydowns and calls of investment securities held to maturity            |  |                          | 12,846   |   |      |   | 913     |  
|Purchase of investment securities available for sale                              |  |                          | (120,870 | ) |      |   | (8,420  | )
|Purchase of investment securities held to maturity                                |  |                          | (3,000   | ) |      |   | (33,116 | )
|Purchase of bank-owned life insurance policies                                    |  |                          | (8,500   | ) |      |   |        |  
|Purchase of bank premises and equipment                                           |  |                          | (365     | ) |      |   | (79     | )
|                                                                                  |  |                          |          |   |      |   |         |  
|Net cash used in investing activities                                             |  |                          | (74,922  | ) |      |   | (77,514 | )
|                                                                                  |  |                          |          |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                          |          |   |      |   |         |  
|Net increase in deposits                                                          |  |                          | 6,098    |   |      |   | 60,942  |  
|Net proceeds from issuance of subordinated debentures                             |  |                          |         |   |      |   | 7,760   |  
|Proceeds from other borrowings                                                    |  |                          | 40,000   |   |      |   |        |  
|Proceeds from the sale of common stock                                            |  |                          | 117      |   |      |   | 99      |  
|Proceeds from exercise of stock options                                           |  |                          | 34       |   |      |   | 50      |  
|Other                                                                             |  |                          | (10      | ) |      |   |        |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                          | 46,239   |   |      |   | 68,851  |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Net decrease in cash and cash equivalents                                         |  |                          | (21,560  | ) |      |   | (3,637  | )
|                                                                                  |  |                         
|Cash and cash equivalents at beginning of year                                    |  |                          | 42,391   |   |      |   | 46,028  |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Cash and cash equivalents at end of year                                          |  | $                        | 20,831   |   |      | $ | 42,391  |  
|                                                                                  |  |                          |          |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                 |  |                          |          |   |      |   |         |  
|Interest paid                                                                     |  | $                        | 4,867    |   |      | $ | 5,394   |  
|Taxes paid                                                                        |  | $                        | 2,360    |   |      | $ | 1,581   |  



See accompanying notes
to consolidated financial statements.



F-6



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(1) Organization
and summary of significant accounting policies



Republic
Bancshares of Texas, Inc. (the Company) was incorporated as a business corporation under the laws of the State of Texas on May 17, 2001 for the purpose of serving as a bank holding company for Republic National Bank (the
Bank). On June 20, 2001, RBT Holdings, Inc. (RBT) was incorporated under the laws of Delaware in accordance with the terms of an agreement and plan of reorganization dated May 30, 2001. Pursuant to the terms of the agreement,
the Bank became a wholly-owned subsidiary of RBT and RBT became a wholly-owned subsidiary of the Company. The reorganization was consummated on September 7, 2001. The reorganization was accounted for in a manner similar to that in
pooling-of-interests accounting and all financial statements reflect the consolidated operations as if the reorganization had taken place prior to the periods covered by such consolidated financial statements. The Bank was chartered as a national
banking association which began operations on November 13, 1998.



The Bank offers a full range of banking services through six banking offices located in the Houston metropolitan area. The accounting and reporting policies of the Company, RBT and the Bank conform to accounting principles generally
accepted in the United States of America and to general practices within the banking industry.



Use of estimates



The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.



Principles of consolidation



The consolidated financial statements include the amounts of the Company,
Bank and RBT. All significant intercompany amounts and transactions have been eliminated in consolidation.



Cash and cash equivalents



Cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.



Cash and interest-bearing demand deposits of approximately $5.0 million and
$6.6 million at December 31, 2003 and 2002, respectively, are maintained to satisfy the Federal Reserve requirement.



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Investment securities



The Company uses the amortized cost method for investments in debt securities when management has the positive intent and
ability to hold such securities to maturity. Investments in debt securities that are not expected to be held to maturity and equity securities that have readily determinable fair values are to be classified as trading or available for sale and
measured at fair value in the consolidated balance sheets. Unrealized gains and losses on securities classified as trading securities are to be included in the consolidated statements of income. Unrealized gains and losses on securities classified
as available for sale are to be reported as a separate component of shareholders equity, net of the applicable tax effect. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. For
classification purposes, the Banks investment in the Federal Reserve Bank and the Federal Home Loan Bank are classified and available for sale.



Loans



Interest on commercial and real estate loans is calculated using the simple interest method based on daily average balances of the principal amount
outstanding and is included in earnings. Interest on installment loans is included in earnings using a method that approximates the interest method.



Management continually reviews the loan portfolio to identify loans which, with respect to principal or interest, may become collection problems. When a
loan, in managements judgement, becomes doubtful as to the collection of accrued interest income, it is placed on nonaccrual status and all previously accrued interest is reversed through a charge to earnings. Interest payments received on
nonaccrual loans are recognized as income on a cash basis.



Nonrefundable fees (including commitment fees) are recognized into income as the fees occur. The difference in recognizing fees in this manner and in accordance with Statement of Financial Accounting Standards No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, which generally requires the deferral of net direct origination fees and costs and subsequent amortization thereof by the interest
method, is not material.



A loan is considered impaired when,
based upon current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are valued using (i) the present value of expected future
cash flows discounted at the effective interest rate of the loan, (ii) the fair value of the underlying collateral, or (iii) the observable market price of the loan, whichever is more readily available.



Provision and allowance for loan losses



The allowance for loan losses is established through a provision for such
losses charged against operations. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to reflect
the risks inherent in the existing loan portfolio and is based on evaluations of the collectibility and prior loss experience of loans. In making its evaluation, management considers growth in the loan portfolio, the diversification by industry of
the Companys commercial loan portfolio, the



F-8



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



effect of changes in the local real estate market on collateral values, the results of recent
regulatory examinations, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of charge-offs for the period, the amount of nonperforming loans and related collateral and the evaluation
of its loan portfolio by the loan review function.



The
evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change. Accordingly, the Company may
ultimately incur losses which vary from managements current estimates. Adjustments to the allowance for loan losses are reported in the period such adjustments become known or are reasonably estimable.



Premises and equipment



Premises and equipment are stated at cost, less accumulated depreciation and
amortization computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the useful life of the improvements or the remaining term of the lease. Maintenance,
repairs and minor improvements are charged to noninterest expense as incurred.



Federal income taxes



Deferred income taxes are provided utilizing the asset and liability method whereby deferred income tax assets or liabilities are recognized for the tax consequences in future years of differences in the tax bases of assets and liabilities
and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.



Deferred
issuance costs



The Company capitalizes all costs related
to the issuance of subordinated debentures. The unamortized issuance costs at December 31, 2003 of approximately $220,000 are included in other assets in the consolidated balance sheet. Deferred issuance costs are amortized over ten years and
included as interest expense on subordinated debentures in the consolidated statements of income.



Earnings per share



Basic earnings per common share is computed by dividing income available for common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per common share is computed by dividing income available for common shareholders by the sum of the weighted average number of common shares outstanding and the effect of all potential dilutive common
shares outstanding for the period.



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Stock-based compensation



Financial Accounting Standards Board (FASB) Statement No. 123 (Statement 123), Accounting for Stock-Based
Compensation, requires companies to record compensation cost for stock-based employee compensation plans at fair value. Management has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Accordingly, compensation cost of stock options is measured as the excess, if any, of the fair value of the Companys common stock at the date of the
grant over the amount an employee must pay to acquire the common stock. No stock-based employee compensation cost is reflected in net income for the years ended December 31, 2003 and 2002.



In accordance with FASB Statement No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (see recent accounting pronouncements), the following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested
awards in each period.



|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                                                                             |  | Years endedDecember 31,                 |      
|                                                                                                                                             |  | 2003                                    |       |   | 2002 |  
|                                                                                                                                             |  | (In thousands,except per share amounts) |      
|Net income as reported                                                                                                                       |  | $                                       | 4,047 |   |      | $ | 3,001 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards1, net of related tax effects |  |                                         | (78   | ) |      |   | (80   | )
|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|Pro forma net income                                                                                                                         |  | $                                       | 3,969 |   |      | $ | 2,921 |  
|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|Earnings per share:                                                                                                                          |  |                                         |       |   |      |   |       |  
|Basic - as reported                                                                                                                          |  | $                                       | 2.09  |   |      | $ | 1.56  |  
|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|Basic - pro forma                                                                                                                            |  | $                                       | 2.05  |   |      | $ | 1.52  |  
|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|Diluted - as reported                                                                                                                        |  | $                                       | 2.00  |   |      | $ | 1.49  |  
|                                                                                                                                             |  |                                         |       |   |      |   |       |  
|Diluted - pro forma                                                                                                                          |  | $                                       | 1.96  |   |      | $ | 1.45  |  
|                                                                                                                                             |  |                                         |       |   |      |   |       |  

---

|1 | All awards consist of awards granted, modified, or settled in fiscal periods beginning after 1994that is, awards for which the fair value was required to be measured under
Statement 123.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Impaired loans



In accordance with FASB Statement No. 114, (Statement 114) Accounting by Creditors for Impairment of a Loan, as
amended by FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and Disclosures, a loan is considered impaired when it is probable that the creditor will be unable to collect all
principal and interest amounts due according to the contractual terms of the loan agreement. Smaller balance homogeneous loans, including single family residential and consumer loans, are excluded from the scope of Statement 114. These loans,
however, are considered when determining the adequacy of the allowance for loan losses.



Impaired loans are identified and measured in conjunction with managements review of non-performing loans, classified assets, and the allowance for loan losses. Impairment of large non-homogeneous loans is
measured one of three ways: discounting estimated future cash flows, or the loans market price, or the fair value of the collateral, if the loan is collateral dependent. If the measurement of the loan is less than the recorded amount of the
loan, excluding any allowance for credit losses and including accrued interest, then the impairment is recognized by a charge to operations or an allocation of the allowance for loan losses.



Recent accounting pronouncements



In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The disclosures required by FIN 45
improve the transparency of the financial statement information about the guarantors obligations and liquidity risks related to guarantees issued. This interpretation also incorporates, without change, the guidance in Financial Accounting
Standards Board Interpretation No. 34 (FIN 34), Disclosure of Indirect Guarantees of Indebtedness of Others, which is being superceded. FIN 45 also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur.
The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantors fiscal year-end. The disclosure requirements
are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Companys consolidated financial statements.



F-11



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



In December 2002, the FASB issued Statement No. 148 (Statement 148), Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No. 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain disclosure modifications are required for fiscal years ending after December 15, 2002 and interim periods
beginning after December 15, 2002 and are included in the notes to these consolidated financial statements. The adoption of the disclosure provision of Statement No. 148 as of December 31, 2002 had no effect on the Companys consolidated
financial position or results of operations.



In January 2003,
the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation is intended to achieve more consistent application of consolidation policies to variable
interest entities and, thus, to improve comparability between enterprises engaged in similar activities even if some of those activities are conducted through variable interest entities. Including the assets, liabilities, and results of activities
of variable interest entities in the consolidated financial statements of their primary beneficiaries will provide more complete information about the resources, obligations, risks and opportunities of the consolidated enterprise. This
Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. This Interpretation applies to public enterprises as of the beginning of the applicable interim
or annual period, and it applies to nonpublic enterprises as of the end of the applicable annual period. This Interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 was revised and reissued in December 2003.



On December 31, 2003, the Company retroactively implemented FASB
Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, resulting in the deconsolidation of the Trust established in 2002, which was created for the sole purpose of issuing subordinated
debentures. The implementation of this Interpretation resulted in the Companys $248,000 investment in the common equity of the trust being included in the consolidated balance sheets as other assets, and the interest income received from and
interest expense and paid to the trusts, respectively, being included in the consolidated statements of income as interest income and interest expense. The increase to both other interest income and interest expense totaled $12,000 for the year
ended December 31, 2003 and $0 for the year ended December 31, 2002.



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



In May 2003, the Financial Accounting Standards Board issued Statement No. 150 (Statement 150),
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement 150 requires certain financial instruments that have characteristics of both liabilities and equity to be classified as a liability on
the balance sheet. Prior to the issuance of Statement 150, the Company classified subordinated debentures as a liability on the consolidated balance sheet and its related interest cost as interest expense on the consolidated statement of income,
which is consistent with the requirements of Statement 150. Statement 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after
June 15, 2003. Statement 150 will be effected by reporting the cumulative effect of a change in accounting principle for contracts created before the issuance date and still existing at the beginning of that interim period. The adoption of Statement
150 did not have impact on the Companys consolidated financial statements.



Reclassifications



Certain amounts in the 2002 consolidated financial statements have been reclassified to conform to 2003 presentation with no effect on net income or shareholders equity as previously reported.



(2) Investment securities available for sale



The amortized cost and fair value of securities available for sale is as
follows:



|                             |  |                        |        |                  |   |      |  |            |     |  |   |       
|---------------------------- |  | ---------------------- | ------ | ---------------- | - | ---- |  | ---------- | --- |  | - | ------
|                             |  | December 31, 2003     
|                             |  |                        |        | Gross Unrealized |   |     
|                             |  | Amortized Cost         |        | Gain             |   | Loss |  | Fair Value
|                             |  | (Dollars in thousands)
|Mortgage-backed securities   |  | $                      | 55,363 |                  | $ | 201  |  | $          | 479 |  | $ | 55,085
|Municipal securities         |  |                        | 990    |                  |   |     |  |            | 8   |  |   | 982   
|Federal Reserve Bank stock   |  |                        | 841    |                  |   |     |  |            |    |  |   | 841   
|Federal Home Loan Bank stock |  |                        | 4,616  |                  |   |     |  |            |    |  |   | 4,616 
|                             |  |                        |        |                  |   |      |  |            |     |  |   |       
|                             |  | $                      | 61,810 |                  | $ | 201  |  | $          | 487 |  | $ | 61,524
|                             |  |                        |        |                  |   |      |  |            |     |  |   |       





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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      
|------------------------------------- |  | ---------------------- | ----- | ---------------- | - | ---- |  | ---------- | - |  | - | -----
|                                      |  | December 31, 2002     
|                                      |  |                        |       | Gross Unrealized |   |     
|                                      |  | Amortized Cost         |       | Gain             |   | Loss |  | Fair Value
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 2,054 |                  | $ |     |  | $          |  |  | $ | 2,054
|Mortgage-backed securities            |  |                        | 6,120 |                  |   |     |  |            |   |  |   | 6,120
|Federal Reserve Bank stock            |  |                        | 631   |                  |   |     |  |            |  |  |   | 631  
|Federal Home Loan Bank stock          |  |                        | 244   |                  |   |     |  |            |  |  |   | 244  
|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      
|                                      |  | $                      | 9,049 |                  | $ |     |  | $          |  |  | $ | 9,049
|                                      |  |                        |       |                  |   |      |  |            |   |  |   |      



Fair value of
investment securities changes daily based primarily on market rates. Losses shown in the tables below are temporary and in all cases have occurred during the past twelve months.



|                           |  |                        |        |                     |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|-------------------------- |  | ---------------------- | ------ | ------------------- | - | --------- |  | ---------------- | - | --------- | - | ---------------- |  | - | ------ |  | - | ---
|                           |  | December 31, 2003     
|                           |  | Less than 12 months    |        | 12 months or longer |   | Total    
|                           |  | FairValue              |        | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |   | FairValue |   | UnrealizedLosses
|                           |  | (Dollars in thousands)
|Mortgage-backed securities |  | $                      | 55,085 |                     | $ | 479       |  | $                |  |           | $ |                 |  | $ | 55,085 |  | $ | 479
|Municipal securities       |  |                        | 982    |                     |   | 8         |  |                  |  |           |   |                 |  |   | 982    |  |   | 8  
|                           |  |                        |        |                     |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|                           |  | $                      | 56,067 |                     | $ | 487       |  | $                |  |           | $ |                 |  | $ | 56,067 |  | $ | 487
|                           |  |                        |        |                     |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    



Investment
securities held to maturity



The amortized cost and fair
value of investment securities classified as held to maturity is as follows:



|                                      |  |                        |        |                  |   |       |  |              |    |  |   |       
|------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ----- |  | ------------ | -- |  | - | ------
|                                      |  | December 31, 2003     
|                                      |  |                        |        | Gross Unrealized |   | Gross
|                                      |  | Amortized Cost         |        | Gain             |   | Loss  |  | Market Value
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 10,331 |                  | $ | 67    |  | $            |   |  | $ | 10,398
|Mortgage-backed securities            |  |                        | 12,067 |                  |   | 96    |  |              | 42 |  |   | 12,121
|                                      |  |                        |        |                  |   |       |  |              |    |  |   |       
|                                      |  | $                      | 22,398 |                  | $ | 163   |  | $            | 42 |  | $ | 22,519
|                                      |  |                        |        |                  |   |       |  |              |    |  |   |       



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|                                      |  |                        |        |                  |   |       |  |              |   |  |   |       
|------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ----- |  | ------------ | - |  | - | ------
|                                      |  | December 31, 2002     
|                                      |  |                        |        | Gross Unrealized |   | Gross
|                                      |  | Amortized Cost         |        | Gain             |   | Loss  |  | Market Value
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 10,970 |                  | $ | 85    |  | $            |  |  | $ | 11,011
|Mortgage-backed securities            |  |                        | 21,685 |                  |   | 181   |  |              |  |  |   | 21,866
|                                      |  |                        |        |                  |   |       |  |              |   |  |   |       
|                                      |  | $                      | 32,655 |                  | $ | 266   |  | $            |  |  | $ | 32,877
|                                      |  |                        |        |                  |   |       |  |              |   |  |   |       



Fair value of
investment securities changes daily based primarily on market rates. Losses shown in the tables below are temporary and in all cases have occurred during the past twelve months.



|                                      |  |                        |        |                     |   |             |  |                  |   |             |   |                  |  |   |        |  |   |   
|------------------------------------- |  | ---------------------- | ------ | ------------------- | - | ----------- |  | ---------------- | - | ----------- | - | ---------------- |  | - | ------ |  | - | --
|                                      |  | December 31, 2003     
|                                      |  | Less than 12 months    |        | 12 months or longer |   | Total      
|                                      |  | MarketValue            |        | UnrealizedLosses    |   | MarketValue |  | UnrealizedLosses |   | MarketValue |   | UnrealizedLosses
|                                      |  | (Dollars in thousands)
|U.S. Government and agency securities |  | $                      | 10,398 |                     | $ |            |  | $                |  |             | $ |                 |  | $ | 10,398 |  | $ |  
|Mortgage-backed securities            |  |                        | 12,121 |                     |   | 42          |  |                  |  |             |   |                 |  |   | 12,121 |  |   | 42
|                                      |  |                        |        |                     |   |             |  |                  |   |             |   |                  |  |   |        |  |   |   
|                                      |  | $                      | 22,519 |                     | $ | 42          |  | $                |  |             | $ |                 |  | $ | 22,519 |  | $ | 42
|                                      |  |                        |        |                     |   |             |  |                  |   |             |   |                  |  |   |        |  |   |   



There were $3.1
million and $1.5 million at December 31, 2003 and 2002, respectively, of securities held to maturity pledged as collateral to public deposits and other purposes required or permitted by law.



Contractual maturities of investment securities



The following table summarizes the contractual maturity of investment
securities available for sale on a fair value basis and their weighted average yields as of December 31, 2003. Contractual maturity of mortgage-backed securities is not reliable indicator of their expected life because borrowers have a right to
prepay their obligations at any time.



|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|-------------------------- |  | ---------------------- | - | ----- | ----------------------------------- | - | ------ | ----------------------------------- | ----- |  | --------------- | ------ |  | ----- | - |  | ------ | - | ----- | - | ------ | ----- | ---- | ----- |  | - | ------ |  | ---- | -
|                           |  | December 31, 2003      |  
|                           |  | Within One Year        |   |       | After One Yearbut Within five years |   |        | After FiveYears butWithin Ten Years |       |  | After Ten Years |        |  |       |   |  |       
|                           |  | Amount                 |   | Yield |                                     |   | Amount |                                     | Yield |  |                 | Amount |  | Yield |   |  | Amount |   | Yield |   |        | Total |      | Yield | 
|                           |  | (Dollars in thousands) |  
|Mortgage-backed securities |  | $                      |  |       |                                    | % |        | $                                   |      |  |                |        |  | $     |  |  |       | % |       | $ | 55,085 |       | 3.18 | %     |  | $ | 55,085 |  | 3.18 | %
|Municipal securities       |  |                        |  |       |                                    |   |        |                                     | 982   |  | 2.92            |        |  |       |  |  |       |   |       |   |       |       |     |       |  |   | 982    |  | 2.92 |  
|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|                           |  | $                      |  |       |                                    | % |        | $                                   | 982   |  | 2.92            | %      |  | $     |  |  |       | % |       | $ | 55,085 |       | 3.18 | %     |  | $ | 56,067 |  | 3.18 | %
|                           |  |                        |   |       |                                     |   |        |                                     |       |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  





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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



The following table summarizes the contractual maturity of investment securities held to maturity on
an amortized cost basis and their weighted average yields as of December 31, 2003. Contractual maturity of mortgage-backed securities is not reliable indicator of their expected life because borrowers have a right to prepay their obligations at any
time.



|                                      |  |                        |       |       |                                      |   |        |                                     |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|------------------------------------- |  | ---------------------- | ----- | ----- | ------------------------------------ | - | ------ | ----------------------------------- | ------ |  | --------------- | ------ |  | ----- | - |  | ------ | - | ----- | - | ------ | ----- | ---- | ----- |  | - | ------ |  | ---- | -
|                                      |  | December 31, 2003      |      
|                                      |  | Within One Year        |       |       | After One Year but Within five years |   |        | After Five Yearsbut Within TenYears |        |  | After Ten Years |        |  |       |   |  |       
|                                      |  | Amount                 |       | Yield |                                      |   | Amount |                                     | Yield  |  |                 | Amount |  | Yield |   |  | Amount |   | Yield |   |        | Total |      | Yield | 
|                                      |  | (Dollars in thousands) |      
|U.S. Government and agency securities |  | $                      | 1,002 |       | 2.94                                 | % |        | $                                   | 9,329  |  | 2.78            | %      |  | $     |  |  |       | % |       | $ |       |       |     | %     |  | $ | 10,331 |  | 2.79 | %
|Mortgage-backed securities            |  |                        |      |       |                                     |   |        |                                     | 1,088  |  | 4.27            |        |  |       |  |  |       |   |       |   | 10,979 |       | 3.30 |       |  |   | 12,067 |  | 3.39 |  
|                                      |  |                        |       |       |                                      |   |        |                                     |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  
|                                      |  | $                      | 1,002 |       | 2.94                                 | % |        | $                                   | 10,417 |  | 2.93            | %      |  | $     |  |  |       | % |       | $ | 10,979 |       | 3.30 | %     |  | $ | 22,398 |  | 3.11 | %
|                                      |  |                        |       |       |                                      |   |        |                                     |        |  |                 |        |  |       |   |  |        |   |       |   |        |       |      |       |  |   |        |  |      |  



(3) Loans



A summary of loans at December 31, 2003 and 2002 follows:



|                                           |  |                        |         |         |       |   |        |   |         |  |       |  
|------------------------------------------ |  | ---------------------- | ------- | ------- | ----- | - | ------ | - | ------- |  | ----- | -
|                                           |  | 2003                   |         |         | 2002  |  
|                                           |  | Amount                 |         | Percent |       |   | Amount |   | Percent | 
|                                           |  | (Dollars in thousands) |        
|Commercial                                 |  | $                      | 120,667 |         | 38.2  | % |        | $ | 123,699 |  | 42.1  | %
|Real estate:                               |  |                        |         |         |       |   |        |   |         |  |       |  
|Commercial owner occupied and multi-family |  |                        | 103,312 |         | 32.7  |   |        |   | 90,268  |  | 30.8  |  
|Construction and land development          |  |                        | 39,467  |         | 12.5  |   |        |   | 29,308  |  | 10.0  |  
|Residential 1-4 family                     |  |                        | 22,782  |         | 7.2   |   |        |   | 21,740  |  | 7.4   |  
|Consumer and other                         |  |                        | 29,258  |         | 9.4   |   |        |   | 28,540  |  | 9.7   |  
|                                           |  |                        |         |         |       |   |        |   |         |  |       |  
|Total loans                                |  | $                      | 315,486 |         | 100.0 | % |        | $ | 293,555 |  | 100.0 | %
|                                           |  |                        |         |         |       |   |        |   |         |  |       |  



All loans to directors
and officers of the Company and the Bank and principal shareholders of the Company and associates of such persons are, in the opinion of management, made in the ordinary course of business on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans of like quality and risk of collectibility. The outstanding balance of such loans as of December 31, 2003 and 2002 was approximately $4.1 million and $4.9 million, respectively.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



At December 31, 2003 and 2002, the Company had no recorded investment in impaired loans. At December
31, 2003 and 2002, the Company had an allowance for loan losses of $3.8 million and $3.2 million respectively. Management believes the allowance is adequate to cover probable losses inherent in the loan portfolio. Three nonaccrual loans totaling
$39,000 existed at December 31, 2003 and five nonaccrual loans with a balance of $772,200 existed at December 31, 2002.



The following is a summary of the activity in the allowance for loan losses for the years ended December 31, 2002 and 2001:



|                                     |  |                        |        |   |      |   |        |  
|------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                     |  | 2003                   |        |   | 2002 |  
|                                     |  | (Dollars in thousands) |       
|Balance, beginning of year           |  | $                      | 3,236  |   |      | $ | 2,885  |  
|Provision for loan losses            |  |                        | 1,730  |   |      |   | 2,095  |  
|Loans charged off, net of recoveries |  |                        | (1,183 | ) |      |   | (1,744 | )
|                                     |  |                        |        |   |      |   |        |  
|Balance, end of year                 |  | $                      | 3,783  |   |      | $ | 3,236  |  
|                                     |  |                        |        |   |      |   |        |  



(4) Premises and equipment



A summary of premises and equipment, at cost, and
accumulated depreciation follows:



|                                     |  |                        |        |   |      |   |        |  
|------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                     |  | 2003                   |        |   | 2002 |  
|                                     |  | (Dollars in thousands) |       
|Land                                 |  | $                      | 729    |   |      | $ | 729    |  
|Buildings and leasehold improvements |  |                        | 4,505  |   |      |   | 4,466  |  
|Furniture and equipment              |  |                        | 3,461  |   |      |   | 3,359  |  
|                                     |  |                        |        |   |      |   |        |  
|Subtotal                             |  |                        | 8,695  |   |      |   | 8,554  |  
|Less: accumulated depreciation       |  |                        | (2,135 | ) |      |   | (1,567 | )
|                                     |  |                        |        |   |      |   |        |  
|Premises and equipment, net          |  | $                      | 6,560  |   |      | $ | 6,987  |  
|                                     |  |                        |        |   |      |   |        |  



Depreciation expense
for the years ended December 31, 2003 and 2002 was approximately $643,000 and $636,000, respectively.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(5) Other assets



Other assets consist of the following:



|                                          |  |                       |        |      |   |      
|----------------------------------------- |  | --------------------- | ------ | ---- | - | -----
|                                          |  | December 31,         
|                                          |  | 2003                  |        | 2002
|                                          |  | (Dollars inthousands)
|Other real estate and foreclosed property |  | $                     | 120    |      | $ | 30   
|Deferred income taxes                     |  |                       | 810    |      |   | 546  
|Cash value of Bank-owned life insurance   |  |                       | 8,617  |      |   |     
|Other                                     |  |                       | 1,139  |      |   | 1,008
|                                          |  |                       |        |      |   |      
|                                          |  | $                     | 10,686 |      | $ | 1,584
|                                          |  |                       |        |      |   |      



(6) Deposits



The Company offers a variety of deposit products having a wide range of
interest rates and terms. The Company relies on competitive pricing policies and customer service to attract and retain these deposits. At both December 31, 2003 and 2002 the Company had no brokered deposits and does not anticipate having any in the
foreseeable future. Deposits provide the primary source of funding for the Companys lending and investing activities, and the interest paid for deposits must be managed carefully to help maintain the Companys interest margin.



The Companys ratio of average non-interest bearing demand deposits
to average total deposits for the years ended December 31, 2003 and 2002 was 30.2% and 27.3% respectively.



Deposits, their stated rates and the related weighted average interest rates at December 31, 2003 and 2002 are summarized below (dollars in thousands):



|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|------------------------------- |  | -------------- | - |  | ------ | ------- | - | ----------- | -------------- | - | ------ | - | ------- | -
|                                |  | 2003           |   |  | 2002   |        
|                                |  | Stated rate    |   |  | Amount |         |   | Stated rate |                |   | Amount |  
|Noninterest-bearing deposits    |  | 0.00           | % |  | $      | 117,925 |   |             | 0.00           | % |        | $ | 106,031 |  
|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|Interest-bearing deposits:      |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|Interest-bearing checking       |  | 0.10-0.65      |   |  |        | 27,381  |   |             | 0.20-0.90      |   |        |   | 20,127  |  
|Savings deposits                |  | 0.25           |   |  |        | 3,542   |   |             | 0.40-0.65      |   |        |   | 2,302   |  
|Money market demand deposits    |  | 0.40-0.65      |   |  |        | 86,855  |   |             | 0.40-0.95      |   |        |   | 112,597 |  
|                                |  |                |   | 
|Certificate accounts            |  | Less than 2.00 |   |  |        | 46,160  |   |             | Less than 2.00 |   |        |   | 27,489  |  
|                                |  | 2.00-2.99      |   |  |        | 34,124  |   |             | 2.00-2.99      |   |        |   | 24,742  |  
|                                |  | 3.00-3.99      |   |  |        | 15,405  |   |             | 3.00-3.99      |   |        |   | 18,543  |  
|                                |  | 4.00-4.99      |   |  |        | 7,828   |   |             | 4.00-4.99      |   |        |   | 16,392  |  
|                                |  | 5.00-5.99      |   |  |        | 12,336  |   |             | 5.00-5.99      |   |        |   | 15,926  |  
|                                |  | 6.00-6.99      |   |  |        | 2,989   |   |             | 6.00-6.99      |   |        |   | 3,776   |  
|                                |  | 7.00-7.99      |   |  |        | 636     |   |             | 7.00-7.99      |   |        |   | 1,158   |  
|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|Total interest-bearing deposits |  |                |   |  |        | 237,256 |   |             |                |   |        |   | 243,052 |  
|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|Total deposits                  |  |                |   |  | $      | 355,181 |   |             |                |   |        | $ | 349,083 |  
|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  
|Weighted average rate           |  |                |   |  |        | 0.95    | % |             |                |   |        |   | 1.32    | %
|                                |  |                |   |  |        |         |   |             |                |   |        |   |         |  



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Interest expense on time deposits in denominations of $100,000 or more was approximately $2,467,000
and $2,642,000 during the years ended December 31, 2003 and 2002, respectively.



Time deposits are solicited from markets served by the Bank and are not sought through brokered sources. Time deposits are a significant source of funds. The following table presents the maturities of time deposits as
of December 31, 2003:



|                                       |  |                |         |  
|-------------------------------------- |  | -------------- | ------- | -
|                                       |  | (In thousands) |        
|Maturities of time deposits            |  |                |         |  
|Three months or less                   |  | $              | 54,204  |  
|Over 3 through 6 months                |  |                | 16,129  |  
|Over 6 through 12 months               |  |                | 13,919  |  
|Over 12 months                         |  |                | 35,226  |  
|                                       |  |                |         |  
|Total                                  |  | $              | 119,478 |  
|                                       |  |                |         |  
|Weighted average rate on time deposits |  |                | 2.50    | %
|                                       |  |                |         |  



(7) Other Borrowings



Short-term borrowings ranging from one to thirty days
consist of federal funds purchased and other bank borrowings. The Companys long-term borrowings generally consist of borrowings with the Federal Home Loan Bank maturing within five years. The increase in long-term borrowings resulted from a
leverage strategy whereby the bank borrowed funds from the Federal Home Loan Bank and used the proceeds to purchase investment securities. A positive spread was achieved from this transaction. Information relating to these borrowings for the years
ended December 31, 2003 and 2002 is summarized as follows:



|                                        |  |                       |        |   |      |   |   |  
|--------------------------------------- |  | --------------------- | ------ | - | ---- | - | - | -
|                                        |  | December 31,          |       
|                                        |  | 2003                  |        |   | 2002 |  
|                                        |  | (Dollars inthousands) |       
|Long-term borrowings:                   |  |                       |        |   |      |   |   |  
|Average                                 |  | $                     | 23,753 |   |      | $ |  |  
|Period-end                              |  | $                     | 35,000 |   |      | $ |  |  
|Maximum month-end balance during period |  | $                     | 35,000 |   |      | $ |  |  
|Interest rate:                          |  |                       |        |   |      |   |   |  
|Weighted average for the period         |  |                       | 1.95   | % |      |   |  | %
|Weighted average at period-end          |  |                       | 1.92   | % |      |   |  | %
|Short-term borrowings:                  |  |                       |        |   |      |   |   |  
|Average                                 |  | $                     | 4,981  |   |      | $ |  |  
|Period-end                              |  | $                     | 5,000  |   |      | $ |  |  
|Maximum month-end balance during period |  | $                     | 20,000 |   |      | $ |  |  
|Interest rate:                          |  |                       |        |   |      |   |   |  
|Weighted average for the period         |  |                       | 1.14   | % |      |   |  | %
|Weighted average at period-end          |  |                       | 1.21   | % |      |   |  | %



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(8) Subordinated debentures



On December 19, 2002, the Company completed the private placement of 8,000 floating rate capital securities (the
Capital Securities) with an aggregate liquidation value of $8,000,000 through its newly formed Delaware statutory business trust, Republic Bancshares Capital Trust I (the Trust). The Trust invested the proceeds from the sale
of the Capital Securities, together with the proceeds from the sale by the Trust of its common securities to the Company, in an equivalent amount of the Companys Floating Rate Junior Subordinated Debt Securities due 2033 (the
Debentures). The Debentures will mature on January 7, 2033, which date may be shortened to a date not earlier than January 7, 2008 if certain conditions are met, including the prior approval of the Federal Reserve and any other required
regulatory approvals. The Debentures, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the Indenture dated December 19, 2002) of the Company. The
Debentures accrue interest at a floating rate equal to the three-month LIBOR plus 3.35%, payable quarterly on January 7, April 7, July 7 and October 7 of each year; provided that the rate may not exceed 12.5% through January 7, 2008. The quarterly
distributions on the Capital Securities are paid at the same rate that interest is paid on the Debentures.



The Company has fully and unconditionally guaranteed the payment by the Trust of distributions and other amounts under the Capital Securities to the
extent that the Trust has funds available for such payments. The Trust must redeem the Capital Securities when the Debentures are paid at maturity or upon any earlier prepayment of the Debentures. The Debentures may be prepaid if certain events
occur, including a change in the tax status or regulatory capital treatment of the Capital Securities or a change in existing laws that requires the Trust to register as an investment company. Under the provisions of the Debentures, the Company has
the right to defer payment of interest on the Debentures at any time, or from time to time, for up to twenty consecutive quarterly periods. If interest payments on the Debentures are deferred, the distributions on the Capital Securities will also be
deferred.



The Company received net proceeds of $7.76 million.
The Company invested $7.0 million of the proceeds into the Bank. The remaining funds will be used for the general corporate purposes. The issuance cost of the subordinated debentures was $245,000 and is carried in other assets on the consolidated
balance sheets. At December 31, 2003, the unamortized cost was $220,000. This cost is being amortized over ten years as interest expense on subordinated debentures in the consolidated statements of income.



On December 31, 2003, the Company retroactively implemented FASB
Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, resulting in the deconsolidation of the Trust established in 2002, which was created for the sole purpose of issuing subordinated
debentures. The implementation of this Interpretation resulted in the Companys $248,000 investment in the common equity of the Trust being included in the consolidated balance sheets as other assets and subordinated debentures, and the
interest income received from and interest expense paid to the Trusts, respectively, being included in the consolidated statements of income as interest income and interest expense. The increase to other interest income and interest expense totaled
$12,000 for the year ended December 31, 2003 and $0 for the year ended December 31, 2002.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(9) Federal income taxes



A net deferred tax asset of approximately $812,000 and $546,000 is included in other assets at December 31, 2003 and 2002,
respectively. The deferred tax assets relate primarily to the allowance for loan losses at December 31, 2003 and 2002.



The income tax provision (benefit) for the years ended December 31, 2003 and 2002 is composed of the following:



|         |  |      |       |   |      |   |       |  
|-------- |  | ---- | ----- | - | ---- | - | ----- | -
|         |  | 2003 |       |   | 2002 |  
|Current  |  | $    | 2,224 |   |      | $ | 1,595 |  
|Deferred |  |      | (167  | ) |      |   | (14   | )
|         |  |      |       |   |      |   |       |  
|Total    |  | $    | 2,057 |   |      | $ | 1,581 |  
|         |  |      |       |   |      |   |       |  



A valuation allowance
for the deferred tax assets has not been recorded as management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.



The income tax expense for the years ended December 31, 2003 and 2002
differs from the amount computed applying the federal income tax rate of 34% to income before federal income tax provision due primarily to tax-exempt income.



The reconciliation between the Companys effective income tax rate and the statutory federal income tax rate is as follows:



|                                                 |  |                         |   |  |       |  
|------------------------------------------------ |  | ----------------------- | - |  | ----- | -
|                                                 |  | Years endedDecember 31, |  
|                                                 |  | 2003                    |   |  | 2002  |  
|Statutory federal income tax rate                |  | 34.00                   | % |  | 34.00 | %
|Tax-exempt income from Bank-owned life insurance |  | (0.65                   | ) |  |      |  
|Tax-exempt interest income                       |  | (0.06                   | ) |  |      |  
|Other                                            |  | 0.41                    |   |  | 0.50  |  
|                                                 |  |                         |   |  |       |  
|Effective income tax rate                        |  | 33.70                   | % |  | 34.50 | %
|                                                 |  |                         |   |  |       |  



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(10) Off-Balance Sheet Arrangements



The contractual amount of the Companys financial instruments with off-balance sheet risk expiring by period at
December 31, 2003 is presented below:



|                                                             |  |                |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       
|------------------------------------------------------------ |  | -------------- | ------ | ------------------------------ | - | ------------------------------- |  | --------------- | ----- | ----- | - | --- |  | - | ------
|                                                             |  | WithinOne Year |        | After Onebut WithinThree Years |   | After Threebut WithinFive Years |  | AfterFive Years |       | Total
|Unfunded loan commitments including unfunded lines of credit |  | $              | 44,490 |                                | $ | 1,320                           |  | $               | 2,602 |       | $ | 307 |  | $ | 48,719
|Standby letters of credit                                    |  |                | 2,410  |                                |   | 575                             |  |                 |      |       |   |    |  |   | 2,985 
|                                                             |  |                |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       
|Total financial instruments with off-balance sheet risk      |  | $              | 46,900 |                                | $ | 1,895                           |  | $               | 2,602 |       | $ | 307 |  | $ | 51,704
|                                                             |  |                |        |                                |   |                                 |  |                 |       |       |   |     |  |   |       



Due to the nature of
the Companys unfunded loan commitments, including unfunded lines of credit, the amounts presented above do not necessarily represent amounts the Company anticipates funding in the periods presented above.



(11) Compensation plans



Employee stock purchase plan



The Employee Stock Purchase Plan authorizes the offer and sale of up to 300,000 shares of Common Stock to employees of the
Company and its subsidiaries, including the Bank. The Purchase Plan is implemented through three-month purchase periods beginning every January 1, April 1, July 1 and October 1. The offering price per share is an amount equal to 85% of the fair
market value of the Common Stock on the last day of the applicable purchase period. The Purchase Plan was implemented in August 2001, and for the years ended December 31, 2003 and 2002, a total of 7,654 shares and 6,890 shares respectively, were
sold.



401(k) plan



The Board of Directors has approved a 401(k) plan for employees of the Bank.
As of December 31, 2003, the Bank matches 50% of an employees contributions to the 401(k) plan, up to a maximum of 6% of the employees annual compensation. For the years ended December 31, 2003 and 2002 the Bank contributed approximately
$130,000 and $112,000 respectively, to the plan.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Stock-based compensation



In 1998, the Company adopted an incentive stock option plan under which options to purchase shares of the Companys
common stock may be granted to key employees at a price not less than the par value of the Companys common stock. All options that have been granted have been at fair market value on the date of grant. The options must be exercised within ten
years from the date granted and vest ratably over a period of five years.



A summary of the stock option activity for the years ended December 31, 2003 and 2002 is as follows:



|                                 |  |                 |   |      |                               |       |                 |         |   |                                 |   |      
|-------------------------------- |  | --------------- | - | ---- | ----------------------------- | ----- | --------------- | ------- | - | ------------------------------- | - | -----
|                                 |  | 2003            |   | 2002
|                                 |  | Number ofshares |   |      | Weightedaverageexercise price |       | Number ofshares |         |   | Weighted average exercise price
|Outstanding at beginning of year |  | 230,200         |   |      | $                             | 11.17 |                 | 228,500 |   |                                 | $ | 11.01
|Granted                          |  | 24,750          |   |      |                               | 17.48 |                 | 7,000   |   |                                 |   | 17.00
|Exercised                        |  | (2,600          | ) |      |                               | 12.85 |                 | (4,000  | ) |                                 |   | 12.50
|Forfeited                        |  | (4,400          | ) |      |                               | 13.32 |                 | (1,300  | ) |                                 |   | 10.96
|                                 |  |                 |   |      |                               |       |                 |         |   |                                 |   |      
|Outstanding at end of year       |  | 247,950         |   |      | $                             | 11.74 |                 | 230,200 |   |                                 | $ | 11.17
|                                 |  |                 |   |      |                               |       |                 |         |   |                                 |   |      



The following table
summarizes information regarding stock options outstanding and exercisable at December 31, 2003 and 2002:



|             |  |                 |  |                                         |  |                              |       |                 |         |                                 |   |      
|------------ |  | --------------- |  | --------------------------------------- |  | ---------------------------- | ----- | --------------- | ------- | ------------------------------- | - | -----
|             |  |                 |  | Options outstanding                     |  | Options exercisable         
|December 31, |  | Numberof shares |  | Weightedaverageremainingcontractuallife |  | Weightedaverageexerciseprice |       | Numberof shares |         | Weighted average exercise price
|2003         |  | 247,950         |  | 6.37 years                              |  | $                            | 11.74 |                 | 151,700 |                                 | $ | 10.63
|2002         |  | 230,200         |  | 6.79 years                              |  | $                            | 11.17 |                 | 136,000 |                                 | $ | 10.51



The fair value of
each option grant is estimated on the date of grant using the Black Scholes option pricing model (excluding a volatility assumption) with the following weighted average assumptions as of December 31, 2003 and 2002:



|                        |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | -
|                        |  | 2003    |   |  | 2002    |  
|Assumptions:            |  |         |   |  |         |  
|Risk-free interest rate |  | 2.3     | % |  | 3.2     | %
|Dividend yield          |  | 0.0     | % |  | 0.0     | %
|Expected life           |  | 5 years |   |  | 5 years |  



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(12) Earnings per common share is computed as follows:



|                                                               |  |                                             |       |      |   |      
|-------------------------------------------------------------- |  | ------------------------------------------- | ----- | ---- | - | -----
|                                                               |  | Years endedDecember 31,                    
|                                                               |  | 2003                                        |       | 2002
|                                                               |  | (Dollars inthousands, exceptper share data)
|Net income                                                     |  | $                                           | 4,047 |      | $ | 3,001
|                                                               |  |                                             |       |      |   |      
|Divided by average common shares and common share equivalents: |  |                                             |       |      |   |      
|Average common shares                                          |  |                                             | 1,938 |      |   | 1,928
|Average common shares issuable under the stock option plans    |  |                                             | 85    |      |   | 80   
|                                                               |  |                                             |       |      |   |      
|Total average common shares and common share equivalents       |  |                                             | 2,023 |      |   | 2,008
|                                                               |  |                                             |       |      |   |      
|Basic earnings per common share                                |  | $                                           | 2.09  |      | $ | 1.56 
|                                                               |  |                                             |       |      |   |      
|Diluted earnings per common share                              |  | $                                           | 2.00  |      | $ | 1.49 
|                                                               |  |                                             |       |      |   |      



(13) Commitments and contingencies



Commitments to extend credit



In the normal course of business, the Company enters into various
transactions which, in accordance with accounting principles generally accepted in the United States of America, are not included in the consolidated balance sheets. These transactions are referred to as off-balance-sheet commitments.
The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and letters of credit which involve elements of credit risk in excess of the amounts recognized in the
consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.



The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination
clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions.
Substantially all of the Companys commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Management assesses the credit risk associated with certain commitments to extend
credit in determining the level of the allowance for loan losses.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Letters of credit are written conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. The Companys policies generally require that letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements.



Cash reserves are commitments to extend credit on a customers
transaction deposit account, whereby the Company will clear draws on the account even if existing funds are insufficient. Outstanding unfunded commitments to extend credit at December 31, 2003 and 2002 are $51,704,000 and $50,520,000, respectively.



The Company is involved in various litigation arising in the
normal course of business. In the opinion of management, the ultimate liability, if any, would not be material to the consolidated financial position or results of operations of the Company.



Lease commitments



The Company is lessee under operating leases for real estate used for
various banking offices. The approximate minimum lease payments under these leases, at December 31, 2003, for the periods shown are:



|                         |  |                |      
|------------------------ |  | -------------- | -----
|Year ending December 31, |  | Amount        
|                         |  | (In thousands)
|2004                     |  | $              | 756  
|2005                     |  |                | 635  
|2006                     |  |                | 623  
|2007                     |  |                | 625  
|2008                     |  |                | 629  
|Thereafter               |  |                | 1,179
|                         |  |                |      
|                         |  | $              | 4,447
|                         |  |                |      



It is expected that,
in the normal course of business, leases that expire will be renewed or replaced by leases on other property or equipment.



Rent expense under the noncancelable operating leases aggregated approximately $783,000 and $754,000 for the years ended December 31, 2003 and 2002,
respectively.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(14) Regulatory matters



The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory  and possibly additional discretionary  actions by regulators that, if undertaken, could have a direct material effect on the Companys
consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Companys
and the Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys and the Banks capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).



As of December 31, 2003, the most recent notification from the Office of the Comptroller of Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as adequately capitalized, the Bank must maintain minimum total risk-based ratio of 8.0%, Tier 1 risk-based ratio of 4.0% and Tier 1 leverage ratio of 4.0% as set forth in the
following table. The Company and the Bank both maintained ratios in excess of these requirements. There are no conditions or events that management believes have changed the Companys or the Banks categories.



The Companys and Banks regulatory capital amounts and ratios in
relation to their current existing regulatory capital requirements for capital adequacy purposes are as follows:



|                                         |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|---------------------------------------- |  | ----------------------- | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                         |  | As of December 31, 2003 |       
|                                         |  | Actual                  |        |       | For capitaladequacypurposes |   |        | To be wellcapitalized underprompt correctiveaction provisions |       
|                                         |  | Amount                  |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 34,166 |       | 9.99                        | % |        | $                                                             | 27,351 |  | 8.00 | %      |  | $     | 34,189 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 30,383 |       | 8.89                        | % |        |                                                               | 13,675 |  | 4.00 | %      |  |       | 20,513 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 30,383 |       | 7.02                        | % |        |                                                               | 17,310 |  | 4.00 | %      |  |       | 21,638 |  | 5.00  | %
|                                         |  |                         |        |       |                             |  
|Bank                                     |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 41,115 |       | 12.05                       | % |        | $                                                             | 27,300 |  | 8.00 | %      |  | $     | 34,125 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 37,332 |       | 10.94                       | % |        |                                                               | 13,650 |  | 4.00 | %      |  |       | 20,475 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 37,332 |       | 8.24                        | % |        |                                                               | 18,114 |  | 4.00 | %      |  |       | 22,642 |  | 5.00  | %



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|                                         |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|---------------------------------------- |  | ----------------------- | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                         |  | As of December 31, 2002 |       
|                                         |  | Actual                  |        |       | For capitaladequacypurposes |   |        | To be wellcapitalized underprompt correctiveaction provisions |       
|                                         |  | Amount                  |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                         |  | (Dollars in thousands)  |       
|Company                                  |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 29,241 |       | 9.79                        | % |        | $                                                             | 23,895 |  | 8.00 | %      |  | $     | 29,868 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 26,005 |       | 8.71                        | % |        |                                                               | 11,947 |  | 4.00 | %      |  |       | 17,921 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 26,005 |       | 6.91                        | % |        |                                                               | 15,059 |  | 4.00 | %      |  |       | 18,824 |  | 5.00  | %
|                                         |  |                         |        |       |                             |  
|Bank                                     |  |                         |        |       |                             |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total capital (to risk-weighted assets)  |  | $                       | 36,137 |       | 12.11                       | % |        | $                                                             | 23,877 |  | 8.00 | %      |  | $     | 29,847 |  | 10.00 | %
|Tier 1 capital (to risk-weighted assets) |  |                         | 32,901 |       | 11.02                       | % |        |                                                               | 11,939 |  | 4.00 | %      |  |       | 17,908 |  | 6.00  | %
|Tier 1 capital (to average assets)       |  |                         | 32,901 |       | 8.74                        | % |        |                                                               | 15,058 |  | 4.00 | %      |  |       | 18,823 |  | 5.00  | %



For the foreseeable
future, the Company does not plan to pay dividends, but instead will retain all earnings to support the growth of the Company.



(15) Disclosures about fair values of financial instruments



The following estimated fair values of financial instruments have been determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgement is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.



The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value.



Cash and cash
equivalents



For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.



Investment securities available for sale



Fair
values of investment securities available for sale are estimated based on quoted market prices. The fair value of stock in the Federal Home Loan Bank of Dallas and the Federal Reserve Bank is estimated to be equal to its carrying amount given it is
not a publicly traded equity security, it has an adjustable dividend rate, and transactions in the stock are executed at the stated par value.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Investment securities held to maturity



Fair values of investment securities held to maturity are estimated based on
quoted market prices.



Loans



The fair value of loans was estimated based on the current market interest
rates for similar loans, the remaining maturity, and credit risk. At December 31, 2003 and 2002, approximately 36.4% and 41.3%, respectively, of the Banks loans have variable rates that generally change with market rates. Consequently, the
estimated fair value of these variable rate loans approximates the carrying amount adjusted for anticipated losses as reflected by the allowance for credit losses. The fair value of fixed rate loans has been estimated by discounting estimated cash
flows using current rates at which similar loans would be made.



The fair values of the Companys lending commitments, letters of credit, commitments to sell loans and guarantees are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties credit standing.



Deposits



The fair value of demand deposits,
savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using a discounted cash flow analysis, using interest rates currently being offered on
certificates with similar remaining maturities.



Other
Borrowings



The carrying amounts of borrowings are
estimated using a discounted cash flow analysis, using interest rates currently being offered on borrowings with similar remaining maturities.



Accrued interest receivable and payable



The carrying amounts of accrued interest approximate their fair values.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



The estimated fair values of the Companys financial instruments at December 31, 2003 and 2002
are as follows:



|                                         |  |                 |         |            |   |                 |  |            |         |  |   |        
|---------------------------------------- |  | --------------- | ------- | ---------- | - | --------------- |  | ---------- | ------- |  | - | -------
|                                         |  | 2003            |         | 2002      
|                                         |  | Carrying amount |         | Fair value |   | Carrying amount |  | Fair value
|                                         |  | (In thousands) 
|Financial assets:                        |  |                 |         |            |   |                 |  |            |         |  |   |        
|Cash and cash equivalents                |  | $               | 20,831  |            | $ | 20,831          |  | $          | 42,391  |  | $ | 42,391 
|Investment securities available for sale |  |                 | 61,524  |            |   | 61,524          |  |            | 9,049   |  |   | 9,049  
|Investment securities held to maturity   |  |                 | 22,398  |            |   | 22,519          |  |            | 32,655  |  |   | 32,877 
|Loans, net                               |  |                 | 311,703 |            |   | 312,666         |  |            | 290,319 |  |   | 294,902
|Accrued interest receivable              |  |                 | 1,561   |            |   | 1,561           |  |            | 1,434   |  |   | 1,434  
|                                         |  |                 |         |           
|Financial liabilities:                   |  |                 |         |            |   |                 |  |            |         |  |   |        
|Deposits                                 |  | $               | 355,181 |            | $ | 360,460         |  | $          | 349,083 |  | $ | 353,153
|Other borrowings                         |  |                 | 40,000  |            |   | 40,466          |  |            |        |  |   |       
|Accrued interest payable                 |  |                 | 502     |            |   | 502             |  |            | 425     |  |   | 425    
|Subordinated debentures                  |  |                 | 8,248   |            |   | 8,248           |  |            | 8,248   |  |   | 8,248  



The fair value of the
Companys off-balance sheet instruments was immaterial at December 31, 2003 and 2002.



The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2003 and 2002. Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been significantly revalued for purposes of these consolidated financial statements since these dates and, therefore, current estimates of fair value may differ from the amounts presented
herein.



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REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



(16) Parent company financial information



Condensed financial information for Republic Bancshares of Texas, Inc. is as follows:



REPUBLIC BANCSHARES OF TEXAS, INC.

CONDENSED BALANCE SHEETS



|                                           |  |                        |        |      |   |       
|------------------------------------------ |  | ---------------------- | ------ | ---- | - | ------
|                                           |  | December 31,          
|                                           |  | 2003                   |        | 2002
|                                           |  | (Dollars in thousands)
|Assets:                                    |  |                        |        |      |   |       
|Cash and cash equivalents                  |  | $                      | 705    |      | $ | 839   
|Other assets                               |  |                        | 573    |      |   | 516   
|Investment in RBT Holdings, Inc.           |  |                        | 37,060 |      |   | 32,913
|                                           |  |                        |        |      |   |       
|Total assets                               |  | $                      | 38,338 |      | $ | 34,268
|                                           |  |                        |        |      |   |       
|Liabilities and shareholders equity       |  |                        |        |      |   |       
|Liabilities:                               |  |                        |        |      |   |       
|Subordinated debentures                    |  |                        | 8,248  |      |   | 8,248 
|Accrued interest payable                   |  |                        | 87     |      |   | 15    
|                                           |  |                        |        |      |   |       
|Total liabilities                          |  |                        | 8,335  |      |   | 8,263 
|                                           |  |                       
|Shareholders equity                       |  |                        | 30,003 |      |   | 26,005
|                                           |  |                        |        |      |   |       
|Total liabilities and shareholders equity |  | $                      | 38,338 |      | $ | 34,268
|                                           |  |                        |        |      |   |       



REPUBLIC BANCSHARES
OF TEXAS, INC.

CONDENSED STATEMENTS OF INCOME



|                                                 |  |                         |       |   |      |   |       |  
|------------------------------------------------ |  | ----------------------- | ----- | - | ---- | - | ----- | -
|                                                 |  | Years endedDecember 31, |      
|                                                 |  | 2003                    |       |   | 2002 |  
|                                                 |  | (Dollars inthousands)   |      
|Income:                                          |  |                         |       |   |      |   |       |  
|Equity in undistributed earnings of subsidiaries |  | $                       | 4,338 |   |      | $ | 3,057 |  
|Interest income                                  |  |                         | 12    |   |      |   |      |  
|Expense:                                         |  |                         |       |   |      |   |       |  
|Interest expense on subordinated debentures      |  |                         | 409   |   |      |   | 14    |  
|                                                 |  |                        
|Other expense                                    |  |                         | 46    |   |      |   | 72    |  
|                                                 |  |                         |       |   |      |   |       |  
|Income before income tax benefit                 |  |                         | 3,896 |   |      |   | 2,971 |  
|Income tax benefit                               |  |                         | (151  | ) |      |   | (30   | )
|                                                 |  |                         |       |   |      |   |       |  
|Net Income                                       |  | $                       | 4,047 |   |      | $ | 3,001 |  
|                                                 |  |                         |       |   |      |   |       |  



F-30



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##### Table of Contents

REPUBLIC BANCSHARES OF TEXAS, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



REPUBLIC BANCSHARES OF TEXAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS



|                                                                              |  |                         |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                                              |  | Years endedDecember 31, |       
|                                                                              |  | 2003                    |        |   | 2002 |  
|                                                                              |  | (Dollars in thousands)  |       
|Cash flows from operating activities                                          |  |                         |        |   |      |   |        |  
|Net income                                                                    |  | $                       | 4,047  |   |      | $ | 3,001  |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                         |        |   |      |   |        |  
|Equity in undistributed earnings of subsidiaries                              |  |                         | (4,338 | ) |      |   | (3,057 | )
|Increase in other assets                                                      |  |                         | (56    | ) |      |   | (28    | )
|Increase in accrued interest payable                                          |  |                         | 72     |   |      |   | 14     |  
|                                                                              |  |                         |        |   |      |   |        |  
|Net cash used in operating activities                                         |  |                         | (275   | ) |      |   | (70    | )
|                                                                              |  |                         |        |   |      |   |        |  
|Cash flows from investing activities                                          |  |                         |        |   |      |   |        |  
|Investment in RBT Holdings, Inc.                                              |  |                         |       |   |      |   | (7,006 | )
|Net proceeds from issuance of subordinated debentures                         |  |                         |       |   |      |   | 7,760  |  
|                                                                              |  |                         |        |   |      |   |        |  
|Net cash provided by investing activities                                     |  |                         |       |   |      |   | 754    |  
|                                                                              |  |                         |        |   |      |   |        |  
|Cash flows from financing activities                                          |  |                         |        |   |      |   |        |  
|Proceeds from sale of common stock                                            |  |                         | 117    |   |      |   | 99     |  
|Exercise of stock options                                                     |  |                         | 34     |   |      |   | 50     |  
|Other                                                                         |  |                         | (10    | ) |      |   |       |  
|                                                                              |  |                         |        |   |      |   |        |  
|Net cash provided by financing activities                                     |  |                         | 141    |   |      |   | 149    |  
|                                                                              |  |                         |        |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                          |  |                         | (134   | ) |      |   | 833    |  
|Cash and cash equivalents at beginning of year                                |  |                         | 839    |   |      |   | 6      |  
|                                                                              |  |                         |        |   |      |   |        |  
|Cash and cash equivalents at end of year                                      |  | $                       | 705    |   |      | $ | 839    |  
|                                                                              |  |                         |        |   |      |   |        |  



F-31