UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

Commission File Number: 0-24649

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   ý   No   o

Indicate by check mark if the disclosure of delinquent filers  pursuant to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K.     ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes   ý   No   o

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2003 (the last business day of the registrant’s second fiscal quarter) was approximately $111,677,000 (for purposes of this calculation, the market value of the Class B Common stock was based on the market value of the Class A Common stock into which it is convertible).

The number of shares outstanding of the registrant’s Class A Common stock and Class B Common stock as of February 6, 2004 was 15,252,963 and 1,957,108, respectively.

Documents Incorporated by Reference

Portions of Registrant’s Annual Report to Shareholders for the year ended December 31, 2003 are incorporated by reference into Parts I and II.

Portions of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held April 15, 2004 are incorporated by reference into Part III.

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TABLE OF CONTENTS

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Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains and incorporates by reference statements relating to future results of Republic Bancorp, Inc. that are considered “forward-looking” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended.  The forward-looking statements are principally, but not exclusively, contained in Item 1: “Business” and Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These statements relate to, among other things, expectations concerning loan demand, growth and performance, simulated changes in interest rates and the adequacy of our allowance for loan losses.  These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within our markets, equity and fixed income market fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired businesses, technological changes, changes in law and regulations, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, success in gaining  regulatory approvals when required, as well as, other risks and uncertainties reported from time to time in our filings with the Securities and Exchange Commission (SEC).  Forward-looking statements and factors that may cause actual results to differ materially are also discussed at the beginning of Item 7:  “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Broadly speaking, forward-looking statements include:

•      projections of the Company’s revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;

•      descriptions of plans or objectives of the Company’s management for future operations, products or services;

•      forecasts of Republic’s future economic performance; and

•      descriptions of assumptions underlying or relating to any of the foregoing.

The Company may make forward-looking statements discussing management’s expectations about:

•      future credit losses and non-performing assets;

•      the future value of mortgage servicing rights;

•      the impact of new accounting standards;

•      future short-term and long-term interest rate levels and their impact on Republic’s net interest margin, net income, liquidity and capital; and

•      future capital expenditures.

Forward-looking statements discuss matters that are not historical facts.  Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions.  Do not unduly rely on forward-looking statements.  They detail management’s expectations about the future and are not guarantees.  Forward-looking statements speak only as of the date they are made, and management may not update them to reflect changes that occur after the date the statements are made.

Please Note:

As used in this report, the terms  “Republic”, the “Company”,  “we”, “our” and “us” refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries; and the term the “Bank” or “the Banks” refers to our subsidiary banks, Republic Bank & Trust Company and Republic Bank & Trust Company of Indiana.

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PART I

Item 1. Business

Republic Bancorp, Inc. (“Republic” or the “Company”) is a financial holding company, under the Bank Holding Company Act of 1956, as amended (“BHCA”), headquartered in Louisville, Kentucky.  Republic’s principal subsidiaries are Republic Bank & Trust Company, a Kentucky banking corporation, and Republic Bank & Trust Company of Indiana, an Indiana banking corporation (the “Banks”) and Republic Funding Company.  The wholly owned subsidiaries of Republic Bank & Trust Company include Republic Financial Services, LLC (d/b/a Refunds Now®) and Republic Insurance Agency, LLC.  Incorporated in Kentucky on January 2, 1974, Republic became a bank holding company when Republic Bank & Trust Company became authorized to conduct commercial banking business in Kentucky in 1981.

The principal business of Republic is directing, planning and coordinating the business activities of the Banks. The financial condition and results of operations of Republic are primarily dependent upon the operations of the Banks.  At December 31, 2003, Republic had total assets of $2.1 billion, total deposits of $1.3 billion and total stockholders’ equity of $169 million.  Based on total assets as of December 31, 2003, Republic ranked as the 2nd largest independent bank holding company headquartered in the state of Kentucky.   The executive offices of Republic are located at 601 West Market Street, Louisville, Kentucky 40202, telephone number (502) 584-3600.  The Company’s website address is www republicbank.com.

WEBSITE ACCESS TO REPORTS

We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 available free of charge on or through our internet website, www.republicbank.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

General Business Overview

As of February 6, 2004, Republic had 31 banking centers in Kentucky and two in southern Indiana.  Republic’s two primary market areas are located in North Central and Central Kentucky.  The North Central Kentucky market includes the Louisville metropolitan area.  Louisville, the largest city in Kentucky, is the location of Republic’s headquarters and the location of 19 banking centers.  Republic’s Central Kentucky market includes 12 banking centers in the following Kentucky cities: Bowling Green (1); Elizabethtown (1); Frankfort (2); Georgetown (1); Lexington, the second largest city in Kentucky (5); Owensboro  (1); and Shelbyville (1).  Republic Bank & Trust Company of Indiana has offices located in New Albany and Clarksville, Indiana.  Republic plans to open one additional banking center in the southern Indiana market during early 2004.

Republic has developed a community banking network, with most of its banking centers located either in separate communities or portions of urban areas that represent distinct communities. Each of Republic’s banking centers is managed by one or more officers with the authority to make loan decisions within Company policies and guidelines.

Republic continues to seek and evaluate additional expansion opportunities, either through the establishment of de novo banking centers and/or through acquisitions of existing institutions in the financial services industry and ancillary non banking businesses. The Company intends to continue to consider various strategic acquisitions of banks, banking assets or financial services entities related to banking in those geographical areas that management believes would complement and increase Republic’s existing business lines, or expansion in new market areas or product lines that management determines would be in the best interest of the Company and its shareholders.

Republic’s operating revenues are derived primarily from interest earned from its loan and investment securities portfolios and fee income from loan, deposit and other banking products.  The Company has historically extended credit and provided general banking services through its banking center network to individuals, professionals and businesses.  Over the past several years, the Company has begun to seek new lines of business to diversify its asset mix and further enhance its profitability. While each new line of business reflects the Company’s efforts to enrich its asset mix, each of these lines of business is an outgrowth of the basic community banking concepts in which the Company has traditionally engaged. The Company principally markets its products and services through the following delivery channels:

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Mortgage Lending – The Company utilizes its banking centers to offer a complete line of single family residential mortgage products.  The Company generally retains mortgage loans with variable rates or adjustable rates or with up to 10-year fixed rate terms.  Prior to 2003, the Company typically sold its longer term fixed rate loans into the secondary market, however, over the past 15 months Republic retained some 15 and 20 year fixed rate loans as part of a specific program.  Once closed, the secondary market loans are sold without recourse to institutional investors.  Generally, fixed rate loans in process or held for sale are covered by forward commitments to these investors, thus limiting Republic’s interest rate risk.

During 2002, Republic began a practice of selling the majority of its fixed rate loans with the servicing retained by the Company.  When administering loans with the servicing retained, the responsibility of collecting principal and interest payments, escrowing for taxes and insurance and remitting payments to the secondary market investors remains with Republic.  A fee is received by Republic for performing these standard servicing functions.

Commercial Lending – Commercial loans are primarily real estate secured and are generated at banking centers in the Company’s market areas.  The Company makes commercial loans to a variety of industries and intends to expand this business through focused calling programs, seeking to broaden relationships by providing commercial clients with loan, deposit and cash management services.

Preferred Client Services – Republic has established long standing relationships with the medical communities in its primary markets.  Special loan and deposit products have been tailored to meet the needs of physicians and their practices.

Consumer Lending – Traditional consumer loans made by the Company include automobile loans, home improvement and home equity loans, operating lines of credit and personal loans (both secured and unsecured).  With the exception of home equity loans, which are actively marketed in conjunction with 1-4 family first lien mortgage loans, traditional consumer loan products are not aggressively promoted in Republic’s markets.

Specialized Lending – Republic has pursued specialized lending opportunities to complement its traditional lending programs.  One specialized product line includes Refund Anticipation Loans (“RALs”) processed by Refunds Now®, a program specializing in tax refund anticipation services. Additionally, the Company also originates deferred deposit transactions, which are also commonly referred to as “payday loans.”   In a deferred deposit transaction, customers can receive cash advances in exchange for a check for the advanced amount plus a fixed fee.  See below sections titled “Refunds Now” and “Deferred Deposit Transactions” for additional information.

Internet Banking – Republic continues to expand its market penetration and service delivery by offering clients Internet banking services through republicbank.com. Approximately 38% of the Bank’s existing checking account clients utilize Republic’s Internet banking services as of December 31, 2003.  Republicbank.com is also available to clients outside of Kentucky and has over $134 million in deposits from 48 states and the District of Columbia as of December 31, 2003.

Other Banking Services – The Bank also provides investment management and trust services and engages in life, long term care and title insurance sales, item processing and other related financial institution lines of business.  At December 31, 2003, Republic had approximately $1 billion in trust assets under custody.

Deposits are a key component to the Company’s banking business, serving as a source of funding for lending as well as a means for increasing client account relationships.  In addition, the Company’s overdraft program has become a significant source of fee revenue.  Borrowings, principally from the Federal Home Loan Bank (“FHLB”), and repurchase agreements, provide additional liquidity. Also, the Company’s investment securities, together with cash and cash equivalents, provide an important source of liquidity.  The Company uses a majority of its investments as collateral for borrowings and to secure public fund deposits.

Republic’s operating revenues are derived primarily from interest earned from its loan and investment securities portfolios and fee income from loan, deposit and other banking products.  For information about Republic’s allowance for loan losses and the allocation of the allowance by loan type, see the discussion under the sub-heading  “Financial Condition” of Republic’s 2003 Annual Report to Shareholders, which is incorporated herein by reference.

Information about Republic’s business segments and non-banking lines of business is contained in Note 20 of the Consolidated Financial Statements included in Republic’s 2003 Annual Report to Shareholders, which is incorporated herein by reference.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

There are factors, many beyond our control, which may significantly change the results or expectations of the Company.  Some of these factors are described below; however, many are described in the sections that follow.  There are also other items, which are included in the Annual Report on Form 10-K for the year ended December 31, 2003.  Any factor described in this report or in the Company’s 2003 Annual Report on Form 10-K could, by itself or with other factors, adversely affect our business, results of operations or financial condition.  There are also other factors not described in this report or in the 2003 Annual Report on Form 10-K which could cause our expectations to differ or could produce significantly different results.

Industry Factors

General business and economic conditions can significantly impact the Company’s earnings.  General business and economic conditions in the United States of America and abroad can impact the company.  Conditions include short-term and long-term interest rates, inflation, monetary supply, and fluctuations in both debt and equity markets and the federal and state economies in which we operate.  Economic factors such as a customer’s loss of employment can limit the ability of the customer to repay principal and interest on their outstanding loan.

The Company’s earnings are significantly impacted by the fiscal and monetary polices of federal and state governments.  The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States of America.  Its polices determine, in large part, our cost of funds for lending and investing and the return we earn on those loans and investments, all of which impact our net interest margin.  Its policies can materially affect the value of our financial instruments and earnings and can also affect our borrowers and their ability to repay their loans.

Republic’s industry is highly competitive.  The Company operates in a highly competitive industry that could become even more competitive as a result of legislation, regulatory and technological changes and continued consolidation.  Many of our competitors have fewer regulatory constraints and some have lower cost structures.  Federal legislation could also provide for changes in the banking laws that could impact the financial condition or results of operations of the Company or its subsidiaries.

Republic is heavily regulated by federal and state agencies.  The holding company and its subsidiary banks are heavily regulated at the federal and state levels.  The regulation is intended to protect the depositors, federal deposit insurance funds and the banking system as a whole, not the shareholders of the Company.  Changes in policies, regulations and statutes could significantly impact the earnings or products that Republic may deliver.  Also, failure to comply with laws, regulations or policies could result in significant penalties or sanctions by regulatory agencies.

The Company relies on the accuracy and completeness of information provided by vendors, customers and other counterparties.  In deciding whether to extend credit or enter into transactions with other parties, the Company relies on information furnished by or on behalf of customers or related entities to that customer.  Our financial condition and earnings could be negatively impacted to the extent the Company relies on information that is misleading or inaccurate.

Company Factors

The holding company relies on dividends from its subsidiaries for most of its revenues.  Republic Bancorp, Inc. is a separate legal entity from its subsidiaries.  It receives substantially all of its revenue from dividends from its largest subsidiary, Republic Bank & Trust Company.  Various federal and state laws and regulations limit the amount of dividends that may be paid to the holding company.

The Company’s accounting policies and estimates are key to how we present our financial statements.  Republic’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.  Our management must exercise judgment in selecting and making various accounting policies and applying estimates.  Actual outcomes can be materially different than amounts previously estimated.  Management has identified two accounting policies as being critical to the presentation of the Company’s financial statements.  These polices are described below in the section titled “Critical Accounting Policies” and relate to the allowance for loan losses and the valuation of mortgage servicing rights.  Because of the inherent uncertainty of estimates, we cannot provide any assurance that the Company will not significantly increase its allowance for loan losses if actual

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losses are more than the current amount reserved or recognize a significant provision for impairment of its mortgage servicing rights.

The Company has lines of business or products other than banking.  In addition to traditional banking, i.e. customer loans and deposits, the Company provides RALs and Electronic Refund Checks (ERCs), mortgage banking, ‘Overdraft Honor’ and deferred deposit transactions.  Management believes this diversity helps mitigate the Company’s exposure to significant downturns in any one segment of the banking industry; however, it also means that the Company’s earnings could be subject to different risks and uncertainties.  The following details specific risk factors related to Republic’s lines of business:

•      Mortgage banking activities can be significantly impacted by interest rates.    Changes in interest rates can impact gain on sale of loans, loan origination fees and loan servicing fees, which account for a significant portion of mortgage-related revenues.  A decline in interest rates generally results in higher demand for mortgage products while an increase in rates generally results in a slow down in demand.  If demand increases, mortgage banking revenue will be positively impacted by more gains on sale, however, the valuation of mortgage servicing rights will decrease and may result in a significant impairment.  In addition to the previously mentioned risks, a decline in demand for mortgage banking products could also adversely impact other programs/products in the bank such as, home equity lending, title insurance commissions and service charges on deposit accounts. See below sections for additional discussion of mortgage banking activities.

•      Deferred deposit transactions represent a significant business risk and if the Company terminated the business it would materially impact earnings of the Company. Deferred deposits are transactions whereby customers receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan” or “payday lending”).  Various consumers groups have, from time to time, questioned the fairness of deferred deposit transactions and have accused this industry of charging excessive rates of interest via the fee and engaging in predatory lending practices.  Both federal and state regulatory agencies have also questioned whether this business should be permitted by member Banks.  There can be no assurance that the Federal Deposit Insurance Corporation or others will not impose additional limitations on or prohibit banks from engaging altogether in deferred deposit transactions.  There also can be no assurances that private litigation might not result from the program, or that the Bank’s ability to continue to engage in the business profitably or at all will not be negatively impacted by the requirements of applicable laws, regulations or guidelines. The Company exiting this business, either voluntary or involuntary would significantly reduce earnings.

•      RALs represent a significant business risk and if the Company terminated the business it would materially impact earnings of the Company.   Republic offers Bank products to facilitate the electronic filing of tax returns by individuals across the country. The Company is one of only a few financial institutions in the United States of America that provides this service to potential taxpayers.  Under this program, the taxpayer may receive a RAL or an ERC.  In return, the Company charges a fee for service.  There is credit risk associated with a RAL because the money is dispersed to the client before the Bank receives the client’s refund from the Internal Revenue Service (“IRS”).  There is minimal credit risk with an ERC because the Bank does not disperse the funds to the client until the Company has received the refund from the IRS.  Various consumers groups have, from time to time, questioned the fairness of the Refunds Now program and have accused this industry of charging excessive rates of interest via the fee and engaging in predatory lending practices.  Pressure from these consumer groups could result in the Company exiting this business at any time.  Pressure from these consumer groups to the Company’s regulators could also cause Republic to exit this line of business at any time.  Exiting this line of business, either voluntarily or involuntarily, would significantly reduce earnings.

•      The Company’s ‘Overdraft Honor’ program represents a significant business risk and if the Company terminated the program it would materially impact earnings of the Company. Republic’s “Overdraft Honor” program permits selected clients to overdraft their accounts up to $500 for the Bank’s customary fee.  Customers’ checking accounts that have been current for a certain period of time are allowed the privilege to enter into the program.  This service is not considered extending credit and is considered providing the customer of the Bank with a service of paying checks for a fee when sufficient funds are not available.  This fee, if computed as a percentage of the amount overdrawn, can sometimes result in an extremely high rate of interest and thus be considered excessive by some consumer groups.  There can be no assurance, however, that the FDIC or others

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will not impose limitations on this program or that the Bank’s ability to engage in the product will not be negatively impacted by federal or other regulatory authorities.  The Company eliminating this program, either voluntarily or involuntarily, would significantly reduce earning.

Republic’s stock price can be extremely volatile.  The Company’s stock price can fluctuate widely in response to a variety of factors.  Factors include, actual or anticipated variations in the Company’s quarterly operating results, recommendations by securities analysts, new technologies, operating and stock price performance of other companies, news reports and changes in government regulations, just to name a few.  The Company also has a low average daily trading volume, which limits a person’s ability to quickly accumulate or quickly divest themselves of Republic’s stock.  In addition, a low average daily trading volume can lead to large price swings based on a relatively few number of shares being traded.

Employees

As of December 31, 2003, the Bank had 645 full-time equivalent employees.  Altogether, Republic had 615 full-time and 60 part-time employees.  None of the Company’s employees are subject to a collective bargaining agreement, and Republic has never experienced a work stoppage.

Competition

The Company actively competes with several local and regional commercial banks, thrifts, credit unions and mortgage companies for deposits, loans and other banking related financial services. There is intense competition in the Company’s markets from other financial institutions as well as other non bank companies that engage in similar activities.  Some of the Company’s competitors are not subject to the same degree of regulatory review and restrictions that apply to the Company and the Banks. In addition, the Company must compete with much larger financial institutions that have greater financial resources than the Company and, while predominantly headquartered in other states, aggressively competes for market share in Kentucky and southern Indiana.  These competitors attempt to gain market share through their financial product mix, pricing strategies and banking center locations.  Legislative developments related to interstate branching and banking in general, by providing large banking institutions easier access to a broader marketplace, are creating more pressure on smaller financial institutions to consolidate. The Company also competes with insurance companies, consumer finance companies, investment banking firms, brokerage houses, mutual fund managers and investment advisors, as federal law has made it easier for these companies to acquire banks and thus compete directly with the Company.  Retail establishments compete for loans by offering credit cards and retail installment contracts for the purchase of goods and merchandise.  It is anticipated that competition from both bank and non bank entities will continue to remain strong in the near future.

Supervision and Regulation

Republic and the Banks are subject to the laws, regulations and policies of various regulatory authorities. In particular, bank holding companies and their subsidiaries are affected by the credit and monetary policies and operational rules of the Federal Reserve Board (FRB).  Republic and the Banks are also subject to numerous federal and state laws and regulations affecting their business and must undergo periodic examination by federal and state financial institution examiners. The operations and earnings of Republic and the Banks are affected not only by the laws and regulations applicable to the banking business, but also by the policies and interpretations of regulatory authorities.

The supervision and regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation (“FDIC”) and the banking system as a whole, and not for the protection of bank holding company shareholders or creditors. The banking agencies have broad enforcement powers over bank holding companies and banks, including the power to mandate particular actions or divestitures, impose substantial fines and other penalties for violations of laws and regulations, to issue cease and desist or removal orders, to seek injunctions, to publicly disclose such actions and to police unsafe or unsound practices. In addition, Republic’s non-banking subsidiaries are also subject to regulation by other agencies. For example, Republic’s non-bank subsidiary engaged in insurance activities is subject to regulation by the Kentucky Department of Insurance.

The following description summarizes some of the laws to which the Company and the Banks are subject.  The descriptions of applicable statutes and regulations are brief summaries of such statutes and regulations, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations.

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The Company

The Company is a bank holding company that has elected and successfully maintained the status of a financial holding company under the BHCA.  As such, it is subject to supervision, regulation and examination by the FRB.  The BHCA and other federal laws subject bank and financial holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.   Financial holding company status also compels the Company to maintain high capital ratios and management ratings with respect to its operations.

Bank Acquisitions by Bank and Financial Holding Companies - Republic is required to obtain the prior approval of the FRB under the BHCA before it may, among other things, acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly more than 5% of any class of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the FRB is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks involved, the convenience and needs of the communities to be served and various competitive factors.  Consideration of financial resources generally focuses on capital adequacy, which is discussed below.  Consideration of convenience and needs issues includes the parties’ performance under the Community Reinvestment Act of 1977 (CRA).  Under the CRA, all financial institutions have a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of their entire communities, including low-to-moderate income neighborhoods.

Under the BHCA, so long as it is at least adequately capitalized and adequately managed, Republic may purchase a bank located outside of Kentucky or Indiana.  Similarly, an adequately capitalized and adequately managed bank holding company located outside of Kentucky or Indiana may purchase a bank located inside Kentucky or Indiana.  In each case, however, state law restrictions may be placed on the acquisition of a bank that has been in existence for a limited amount of time or will result in specified concentrations of deposits.  For example, Kentucky law prohibits a bank holding company from acquiring control of banks located in Kentucky if the holding company would then hold more than 15% of the total deposits of all federally-insured depository institutions in Kentucky.

Financial Activities - The activities permissible to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act (GLBA), effective March 11, 2000. The GLBA permits bank holding companies to qualify as financial holding companies that may engage in a broad range of financial activities, including underwriting, dealing in and making a market in securities; insurance underwriting and agency activities without geographic or other limitation; and merchant banking.  Republic elected and maintained its status as a financial holding company and, as such, it may engage in financial activities (activities that are financial in nature, such as insurance and securities underwriting and dealing activities) and activities the FRB determines to be complementary to financial activities which do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

The relevant federal bank regulators have adopted regulations identifying certain activities as financial in nature or incidental to financial activities, as well as the procedures that allow a financial holding company to request the FRB’s approval to conduct an activity that is complementary to a financial activity. A financial holding company generally is not required to obtain prior FRB approval in order to engage in the financial activities identified in the GLBA or the FRB regulations. However, a financial holding company cannot commence or acquire any new financial activities if one of its depository institution subsidiaries receives a less than satisfactory CRA rating. In addition, if any of its depository institution subsidiaries ceases being well capitalized or well managed, and compliance is not achieved within 180 days, a financial holding company may be forced, in effect, to cease conducting business as a financial holding company by divesting either its non banking financial activities or its banks.  Moreover, Hart-Scott-Rodino antitrust filing requirements may apply to certain non-bank acquisitions.

Subject to certain exceptions, insured state banks are permitted to control or hold an interest in a financial subsidiary that engages in a broader range of activities (such as securities underwriting) than are permissible for national banks to engage in directly, subject to any restrictions imposed on a bank under the laws of the state under which it is organized. Conducting financial activities through a bank subsidiary can impact capital adequacy and restrictions will apply to affiliate transactions between the bank and its financial subsidiary.

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Safe and Sound Banking Practice - Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The FDIC, the Kentucky Department of Financial Institutions and the Indiana Department of Financial Institutions have similar authority with respect to Republic’s bank subsidiaries.

Source of Strength -Under FRB policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and to commit resources to their support. Such support may restrict the company’s ability to pay dividends, and may be required at times when, absent this FRB policy, a holding company may not be inclined to provide it. As noted below, a bank holding company may also be required to guarantee the capital restoration plan of an undercapitalized banking subsidiary and cross-guarantee provisions (described below) apply to the Company.

The Banks

Republic Bank & Trust Company is a Kentucky chartered commercial banking corporation, the deposits of which are insured by the FDIC.  As such, it is subject to supervision and regulation by the FDIC and the Kentucky Department of Financial Institutions.  Republic Bank & Trust Company of Indiana is an Indiana chartered commercial banking corporation, the deposits of which are insured by the FDIC.  As such, it is subject to supervision and regulation by the FDIC and the Indiana Department of Financial Institutions.  Such supervision and regulation subjects the Banks to special restrictions, requirements, potential enforcement actions and periodic examination by the FDIC and the respective Departments of Financial Institutions of Kentucky and Indiana.  Because the FRB regulates the bank holding company parent of the Banks, the FRB also has supervisory authority that directly affects the Banks.

The Kentucky and Indiana banking statutes prescribe the permissible activities in which a Kentucky or Indiana bank may engage and where those activities may be conducted. Kentucky’s statutes contain a super-parity provision that permits a well rated Kentucky banking corporation (such as Republic Bank & Trust Company) to engage in any banking activity in which a national or state bank operating in any other state or a federal savings association meeting the qualified thrift lender test and operating in any state could engage, provided it first obtains a legal opinion from counsel specifying the statutory or regulatory provisions that permit the activity.

Branching - - Kentucky law permits a Kentucky chartered bank to establish a branch office in any county in Kentucky.  A Kentucky bank may also establish a branch office outside of Kentucky. Well capitalized Kentucky banks that have been in operation at least three years and that satisfy certain criteria relating to, among other things, their composite and management ratings, may establish a branch in Kentucky without the approval of the Commissioner of the Kentucky Department of Financial Institutions upon notice to the Department and any other state bank with its main office located in the county where the new branch will be located. Branching by all other banks requires the approval of the Commissioner, who must ascertain and determine that the public convenience and advantage will be served and promoted and that there is reasonable probability of the successful operation of the branch. In any case, the transaction must also be approved by the FDIC, which considers a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate powers. An out of state bank is permitted to establish branch offices in Kentucky only by merging with a Kentucky bank. De novo branching into Kentucky by an out of state bank is not permitted.  This difficulty for out of state banks to branch into Kentucky may limit the ability of a Kentucky bank to branch into many states, as several states have reciprocity requirements for interstate branching.

Under Indiana law, an Indiana chartered bank may branch statewide and may establish and maintain a de novo branch or acquire a branch in a state other than Indiana, with the approval or consent of Indiana and the desired state’s authorities.  An out of state bank may establish and maintain a de novo branch in Indiana and may establish and maintain a branch in Indiana through the acquisition of a branch, subject to the prior approval of the bank’s primary regulator and upon notice to the Indiana Department of Financial Institutions.

Restrictions on Affiliate Transactions - Transactions between the Bank and its non-banking affiliates, including the Company, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits the amount of advances to third parties, which are collateralized by the securities, or obligations of the Company or its subsidiaries.

Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with the Banks and other nonaffiliated persons.

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The FRB promulgated Regulation W to implement Sections 23A and 23B.  That regulation contains the foregoing restrictions and also addresses derivative transactions, overdraft facilities and other transactions between a bank and its non-bank affiliates.

Restrictions on Distribution of Subsidiary Bank Dividends and Assets - Dividends paid by the Bank have provided substantially all of the Company’s operating funds, and that is expected to continue for the foreseeable future.  Capital adequacy requirements and state law serve to limit the amount of dividends that may be paid by the Bank. Under federal law, the Bank cannot pay a dividend if, after paying the dividend, the Bank will be undercapitalized. The FRB or the FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its capital requirements after the dividend. Under Kentucky banking law, the dividends the Bank can pay during any calendar year are generally limited to its profits for that year, plus its retained net profits for the two preceding years, less any required transfers to surplus or to fund the retirement of preferred stock or debt, absent approval of the Commissioner of the Kentucky Department of Financial Institutions. Indiana banking laws prohibit the payment of dividends to the Company by Republic Bank & Trust Company of Indiana for a period of three years after it commenced operations, or May 2004, without prior approval of the Indiana Department of Financial Institutions.

Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors. In the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its shareholders, including any depository institution holding company (such as the Company) or any shareholder or creditor thereof.

Deposit Insurance Assessments - Currently, the FDIC maintains two funds for the insurance of deposits of financial institutions - the Bank Insurance Fund (BIF) for deposits originated by banks (including the Bank) and the Savings Association Insurance Fund (SAIF) for deposits originated by savings associations, including savings association deposits acquired by banks. The Banks must pay assessments to the FDIC for federal deposit insurance protection based on a risk based assessment system. Under this system, FDIC insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned to higher risk classifications (that is, institutions that pose a greater risk of loss to their respective deposit insurance funds) pay assessments at higher rates than institutions that pose a lower risk. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. In addition, the FDIC can impose special assessments in certain instances. The current range of BIF and SAIF assessments is between 0% and 0.40% of deposits.

The Deposit Insurance Funds Act of 1996 requires both BIF and SAIF insured institutions to share the cost of the Financing Corporation bonds, which were issued to initially fund the SAIF, through additional assessments on insured deposits.  Financing Corporation assessments imposed on BIF insured deposits are presently estimated at 152 basis points.

Cross-Guarantee Provisions - The Federal Deposit Insurance Act contains a cross-guarantee provision which generally makes commonly controlled insured depository institutions liable to the FDIC for any losses incurred in connection with the failure of its sister depository institution.

Consumer Laws and Regulations -  In addition to the laws and regulations discussed herein, the Banks are also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, the Fair Housing Act and the Fair and Accurate Transactions Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with clients when taking deposits or making loans. These laws also limit the Banks ability to share information with affiliated and unaffiliated entities.  The Banks must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing business operations.

Various consumers groups have, from time to time, questioned the fairness of deferred deposit transactions and Refund Anticipation Loans, both products provided by the Company.  See Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion regarding these products under the headings “Deferred Deposit Transactions” and “Refunds Now.”

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Capital Adequacy Requirements

Capital Guidelines - The FRB and the FDIC have substantially similar risk-based and leverage ratio guidelines for banking organizations, which are intended to ensure that banking organizations have adequate capital related to the risk levels of assets and off-balance sheet instruments. Under the risk-based guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a risk-weighted asset base. The guidelines require a minimum total risk-based capital ratio of 8.0%, of which at least 4.0% is required to consist of Tier I capital elements (generally, common shareholders’ equity, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative perpetual preferred stock, less goodwill and certain other intangible assets). Total capital is the sum of Tier I and Tier II capital. Tier II capital generally may consist of limited amounts of subordinated debt, qualifying hybrid capital instruments, other preferred stock, loan loss reserves and unrealized gains on certain equity securities. As of December 31, 2003, the Company’s ratio of Tier I capital to total risk-weighted assets was 11.99% and its ratio of total capital to total risk-weighted assets was 12.99%. As of December 31, 2003, Republic Bank & Trust Company’s ratio of Tier I capital to total risk-weighted assets was 11.49% and its ratio of total risk based capital to total risk-weighted assets was 12.49%. Republic Bank & Trust Company of Indiana’s Tier I capital to total risk weighted assets was 19.26% and its ratio of total risk based capital to total risk weighted assets was 20.45% at December 31, 2003.

In addition to the risk-based capital guidelines, the FRB uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is a company’s Tier I capital divided by its average total consolidated assets (less goodwill and certain other intangible assets). Certain highly rated bank holding companies may maintain a minimum leverage ratio of 3.0%, but other bank holding companies may be required to maintain a leverage ratio of up to 200 basis points above the regulatory minimum. As of December 31, 2003, the Company’s leverage ratio was 8.08%. The FDIC’s leverage guidelines require state banks to maintain Tier I capital of no less than 5% of average total assets, except in the case of certain highly rated banks for which the requirement is 3% of average total assets. As of December 31, 2003, Republic Bank & Trust Company’s and Republic Bank & Trust Company of Indiana’s leverage ratios were 7.68% and 15.55% as of December 31, 2003. See Note 13 of the Notes to Consolidated Financial Statements included in Republic’s 2003 Annual Report to Shareholders.

The federal banking agencies’ risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria, assuming that they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. FRB guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. The FDIC may establish higher minimum capital adequacy requirements if, for example, a bank has previously received special attention or has a high susceptibility to interest rate risk.

Corrective Measures for Capital Deficiencies - The federal banking regulators are required to take “prompt corrective action” with respect to capital-deficient institutions. Agency regulations define, for each capital category, the levels at which institutions are well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under these regulations, a well capitalized bank has a total risk-based capital ratio of 10% or higher; a Tier I risk-based capital ratio of 6% or higher; a leverage ratio of 5% or higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An adequately capitalized bank has a total risk-based capital ratio of 8% or higher; a Tier I risk-based capital ratio of 4% or higher; a leverage ratio of 4% or higher (3% or higher if the bank was rated a CAMEL 1 in its most recent examination report and is not experiencing significant growth); and does not meet the criteria for a well capitalized bank. A bank is undercapitalized if it fails to meet any one of the ratios required to be adequately capitalized.

Undercapitalized institutions are required to submit a capital restoration plan, which must be guaranteed by any holding company of the institution. In addition, agency regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment, and expansion into new lines of business. With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment. A bank’s capital classification will also affect its ability to accept brokered deposits. Under the FDIC regulations, a bank may not lawfully accept, roll over or renew brokered deposits unless either it is well capitalized or it is adequately capitalized and receives a waiver from the FDIC.

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If a banking institution’s capital decreases below acceptable levels, the FDIC’s enforcement powers become more enhanced. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management, and other restrictions. The FDIC has only very limited discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver or conservator.

Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.

In addition, a bank holding company that elects to be treated as an FHC may face significant consequences if its banks fail to maintain the required capital and management ratings, including entering into an agreement with the FRB which imposes limitations on its operations and may even require divestitures.  Such possible ramifications may limit the ability of a bank subsidiary to significantly expand or acquire less than well-capitalized and well-managed institutions.  More specifically, the FRB’s regulations require a financial holding company to notify the FRB within 15 days of becoming aware that any depository institution controlled by the company has ceased to become well capitalized or well managed.  If the FRB determines that a financial holding company controls a depository institution that is not well capitalized or well managed, the FRB will notify the FHC that it is not in compliance with applicable requirements and require the FHC to enter into an agreement acceptable to the FRB to correct any deficiencies.  Until such deficiencies are corrected, the FRB may impose any limitations or conditions on the conduct or activities of the FHC and its affiliates that the FRB determines are appropriate, and the FHC may not commence any additional activity or acquire control of any company under Section 4(k) of the BHC Act without prior FRB approval.  Unless the period of time for compliance is extended by the FRB, if an FHC fails to correct deficiencies in maintaining its qualification for FHC status within 180 days of entering into an agreement with  the FRB, the FRB may order divestiture of any depository institution controlled by the company.  A company may comply with a divestiture order by ceasing to engage in any financial or other activity that would not be permissible for a bank holding company that has not elected to be treated as an FHC.

Legislative Initiatives

The United States Congress and state legislative bodies continually consider proposals for altering the structure, regulation, and competitive relationships of financial institutions.  It cannot be predicted whether, or in what form, any of these potential proposals or regulatory initiatives will be adopted, the impact they will have on the financial institutions industry or the extent to which the business or financial condition of the Company and its subsidiaries may be affected.

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Statistical Disclosures

The statistical information required by Item 1. may be found in the Company’s 2003 Annual Report to Shareholders (Exhibit 13 hereto) which, to the extent indicated, is hereby incorporated herein by reference, as follows:

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Item 2. Properties

The Company’s executive offices, principal support and operational functions are located at 601 West Market Street in Louisville, Kentucky.  Republic has 31 banking centers located in Kentucky and two banking centers in southern Indiana.  The location of the 33 banking centers currently in operation and the one banking center proposed to open during 2004, their respective approximate square footage and their form of occupancy is described in the following table:

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Item 3.  Legal Proceedings

In the ordinary course of operations, Republic and the Banks are defendants in various legal proceedings.  In the opinion of management, there is no proceeding pending or, to the knowledge of management, threatened in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Banks.

Item 4.  Submission of Matters to a Vote of Security Holders

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

PART II

Item 5.  Market for the Registrant’s Common Equity and Related Security Holder Matters

The information captioned “MARKET AND DIVIDEND INFORMATION” included in the Company’s Annual Report to Shareholders for the year ended December 31, 2003 is incorporated herein by reference.  In addition, information under the sub-heading “Equity Compensation Plan Information” of the Proxy Statement is incorporated herein by reference.

Republic has made available to its employees participating in its 401(k) plan the opportunity, at the employee’s sole discretion, to invest funds held in their accounts under the plan in shares of Class A Common stock of Republic.  Shares are purchased by the independent trustee, administering the plan, from time to time in the open market in broker’s transactions.  As of December 31, 2003, the trustee held 188,786 shares of Class A Common stock on behalf of the plan.

Item 6.  Selected Financial Data

The information captioned “SELECTED CONSOLIDATED FINANCIAL DATA” included in the Company’s Annual Report to Shareholders for the year ended December 31, 2003 is incorporated herein by reference.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

FINANCIAL HIGHLIGHTS

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth Republic’s selected consolidated historical financial information from 1999 through 2003. This information should be read in conjunction with the Consolidated Financial Statements and the related Notes. Factors affecting the comparability of certain indicated periods are discussed in  “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

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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 Republic Bancorp, Inc. (“Republic” or “the Company”) analyzes the major elements of Republic’s balance sheets and statements of income.  Republic, a bank holding company headquartered in Louisville, Kentucky, is the parent of Republic Bank & Trust Company, Republic Bank & Trust Company of Indiana  (collectively “Bank”) and Republic Funding Company.  This section should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying Notes and other detailed information.

This discussion includes various forward-looking statements with respect to credit quality including but not limited to delinquency trends and the adequacy of the allowance for loan losses, corporate objectives, the Company’s interest rate sensitivity model and other financial and business matters.  Broadly speaking, forward-looking statements include:

•                  projections of the Company’s revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;

•                  descriptions of plans or objectives of the Company’s management for future operations, products or services;

•                  forecasts of Republic’s future economic performance; and

•                  descriptions of assumptions underlying or relating to any of the foregoing.

The Company may make forward-looking statements discussing management’s expectations about:

•                  future credit losses and non-performing assets;

•                  the future value of mortgage servicing rights;

•                  the impact of new accounting standards;

•                  future short-term and long-term interest rate levels and their impact on Republic’s net interest margin, net income, liquidity and capital; and

•                  future capital expenditures.

Forward-looking statements discuss matters that are not historical facts.  Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions.  Do not unduly rely on forward-looking statements.  They detail management’s expectations about the future and are not guarantees.  Forward-looking statements speak only as of the date they are made and management may not update them to reflect changes that occur after the date the statements are made.

There are several factors, many beyond management’s control, that could cause results to differ significantly from management’s expectations.  These factors include, among other things, industry factors and company factors.

COMPANY OVERVIEW

As of December 31, 2003, Republic had a total of 29 banking centers in Kentucky communities and two in southern Indiana.  Republic’s two primary market areas are located in North Central and Central Kentucky.  The North Central Kentucky market includes the Louisville metropolitan area.  Louisville, the largest city in Kentucky, is the location of Republic’s headquarters and the location of 18 banking centers at December 31, 2003.  Republic’s Central Kentucky market includes 11 banking centers in the following Kentucky cities: Bowling Green (1); Elizabethtown (1); Frankfort (2); Lexington, the second largest city in Kentucky (5); Owensboro  (1); and Shelbyville (1) at December 31, 2003.  Republic Bank & Trust Company of Indiana has offices located in New Albany and Clarksville, Indiana.  Republic has also announced plans to open one additional banking center in its

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Louisville market and one in both the southern Indiana and Georgetown, Kentucky markets during early 2004.

Republic has developed a community banking network, with most of its banking centers located either in separate communities or portions of urban areas that represent distinct communities. Each of Republic’s banking centers is managed by one or more officers with the authority to make loan decisions within Company policies and guidelines.

Republic continues to seek and evaluate additional expansion opportunities, either through the establishment of de novo banking centers and/or through acquisitions of existing institutions in the financial services industry and ancillary non banking businesses. The Company intends to continue to consider various strategic acquisitions of banks, banking assets or financial services entities related to banking in those geographical areas that management believes would complement and increase Republic’s existing business lines, or expansion in new market areas or product lines that management determines would be in the best interest of the Company and its shareholders.

Republic’s operating revenues are derived primarily from interest earned from its loan and investment securities portfolios and fee income from loan, deposit and other banking products.  The Company has historically extended credit and provided general banking services through its banking center network to individuals, professionals and businesses.  Over the past several years, the Company has begun to seek new lines of business to diversify its asset mix and further enhance its profitability. While each new line of business reflects the Company’s efforts to enrich its asset mix, each of these lines of business is an outgrowth of the basic community banking concepts in which the Company has traditionally engaged. The Company principally markets its products and services through the following delivery channels:

Mortgage Lending – The Company utilizes its banking centers to offer a complete line of single family residential mortgage products.  The Company generally retains mortgage loans with variable rates or adjustable rates or with up to 10-year fixed rate terms.  Prior to 2003, the Company typically sold its longer term fixed rate loans into the secondary market, however, over the past 15 months Republic retained some 15 and 20 year fixed rate loans as part of a specific program.  Once closed, the secondary market loans are sold without recourse to institutional investors.  Generally, fixed rate loans in process or held for sale are covered by forward commitments to these investors, thus limiting Republic’s interest rate risk.

During 2002, Republic began a practice of selling the majority of its fixed rate loans with the servicing retained by the Company.  When administering loans with the servicing retained, the responsibility of collecting principal and interest payments, escrowing for taxes and insurance and remitting payments to the secondary market investors remains with Republic.  A fee is received by Republic for performing these standard servicing functions.

Commercial Lending – Commercial loans are primarily real estate secured and are generated at banking centers in the Company’s market areas.  The Company makes commercial loans to a variety of industries and intends to expand this business through focused calling programs, seeking to broaden relationships by providing commercial clients with loan, deposit and cash management services.

Preferred Client Services – Republic has established long standing relationships with the medical communities in its primary markets.  Special loan and deposit products have been tailored to meet the needs of physicians and their practices.

Consumer Lending – Traditional consumer loans made by the Company include automobile loans, home improvement and home equity loans, operating lines of credit and personal loans (both secured and unsecured).  With the exception of home equity loans, which are actively marketed in conjunction with 1-4 family first lien mortgage loans, traditional consumer loan products are not aggressively promoted in Republic’s markets.

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Specialized Lending – Republic has pursued specialized lending opportunities to complement its traditional lending programs.  One specialized product line includes Refund Anticipation Loans (“RALs”) checks processed by Refunds Now ®, a program specializing in tax refund anticipation services.   Additionally, the Company also originates deferred deposit transactions, which are also commonly referred to as “payday loans.”   In a deferred deposit transaction, customers can receive cash advances in exchange for a check for the advanced amount plus a fixed fee.  See below sections titled “Refunds Now” and “Deferred Deposit Transactions” for additional information.

Internet Banking – Republic continues to expand its market penetration and service delivery by offering clients Internet banking services through republicbank.com. Approximately 38% of the Bank’s existing checking account clients utilize Republic’s Internet banking services as of December 31, 2003.  Republicbank.com is also available to clients outside of Kentucky and has over $134 million in deposits from 48 states and the District of Columbia as of December 31, 2003.

Other Banking Services – The Bank also provides investment management and trust services and engages in life, long term care and title insurance sales, item processing and other related financial institution lines of business.  At December 31, 2003, Republic had approximately $1 billion in trust assets under custody.

FACTORS THAT MAY AFFECT FUTURE RESULTS

There are factors, many beyond our control, which may significantly change the results or expectations of the Company.  Some of these factors are described below; however, many are described in the sections that follow.  There are also other items, which are included in the Annual Report on Form 10-K for the year ended December 31, 2003.  Any factor described in this report or in the Company’s 2003 Annual Report on Form 10-K could, by itself or with other factors, adversely affect our business, results of operations or financial condition.  There are also other factors not described in this report or in the 2003 Annual Report on Form 10-K which could cause our expectations to differ or could produce significantly different results.

Industry Factors

General business and economic conditions can significantly impact the Company’s earnings.  General business and economic conditions in the United States of America and abroad can impact the company.  Conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity markets and the federal and state economies in which we operate.  Economic factors such as a customer’s loss of employment can limit the ability of the customer to repay principal and interest on their outstanding loan.

The Company’s earnings are significantly impacted by the fiscal and monetary polices of federal and state governments.  The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States of America.  Its polices determine, in large part, our cost of funds for lending and investing and the return we earn on those loans and investments, all of which impact our net interest margin.  Its policies can materially affect the value of our financial instruments and earnings and can also affect our borrowers and their ability to repay their loans.

Republic’s industry is highly competitive.  The Company operates in a highly competitive industry that could become even more competitive as a result of legislation, regulatory and technological changes and continued consolidation.  Many of our competitors have fewer regulatory constraints and some have lower cost structures.  Federal legislation could also provide for changes in the banking laws that could impact the financial condition or results of operations of the Company or its subsidiaries.

Republic is heavily regulated by federal and state agencies.  The holding company and its subsidiary banks are heavily regulated at the federal and state levels.  The regulation is intended to protect the

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depositors, federal deposit insurance funds and the banking system as a whole, not the shareholders of the Company.  Changes in policies, regulations and statutes could significantly impact the earnings or products that Republic may deliver.  Also, failure to comply with laws, regulations or policies could result in significant penalties or sanctions by regulatory agencies.

The Company relies on the accuracy and completeness of information provided by vendors, customers and other counterparties.  In deciding whether to extend credit or enter into transactions with other parties, the Company relies on information furnished by or on behalf of customers or related entities to that customer.  Our financial condition and earnings could be negatively impacted to the extent the Company relies on information that is misleading or inaccurate.

Company Factors

The holding company relies on dividends from its subsidiaries for most of its revenues.  Republic Bancorp, Inc. is a separate legal entity from its subsidiaries.  It receives substantially all of its revenue from dividends from its largest subsidiary, Republic Bank & Trust Company.  Various federal and state laws and regulations limit the amount of dividends that may be paid to the holding company.

The Company’s accounting policies and estimates are key to how we present our financial statements. Republic’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.  Our management must exercise judgment in selecting and making various accounting policies and applying estimates.  Actual outcomes can be materially different than amounts previously estimated.  Management has identified two accounting policies as being critical to the presentation of the Company’s financial statements.  These polices are described below in the section titled “Critical Accounting Policies” and relate to the allowance for loan losses and the valuation of mortgage servicing rights.  Because of the inherent uncertainty of estimates, we cannot provide any assurance that the Company will not significantly increase its allowance for loan losses if actual losses are more than the current amount reserved or recognize a significant provision for impairment of its mortgage servicing rights.

The Company has lines of business or products other than banking.  In addition to traditional banking, i.e. customer loans and deposits, the Company provides RALs and ERCs, mortgage banking, ‘Overdraft Honor’ and deferred deposit transactions.  Management believes this diversity helps mitigate the Company’s exposure to significant downturns in any one segment of the banking industry; however, it also means that the Company’s earnings could be subject to different risks and uncertainties.  The following details specific risk factors related to Republic’s lines of business:

•                  Mortgage banking activities can be significantly impacted by interest rates.    Changes in interest rates can impact gain on sale of loans, loan origination fees and loan servicing fees, which account for a significant portion of mortgage-related revenues.  A decline in interest rates generally results in higher demand for mortgage products while an increase in rates generally results in a slow down in demand.  If demand increases, mortgage banking revenue will be positively impacted by more gains on sale, however, the valuation of mortgage servicing rights will decrease and may result in a significant impairment.  In addition to the previously mentioned risks, a decline in demand for mortgage banking products could also adversely impact other programs/products in the bank such as, home equity lending, title insurance commissions and service charges on deposit accounts. See below sections for additional discussion of mortgage banking activities.

•                  Deferred deposit transactions represent a significant business risk and if the Company terminated the business it would materially impact earnings of the Company. Deferred deposits are transactions whereby customers receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan” or “payday lending”).  Various consumers groups have, from time to time,

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questioned the fairness of deferred deposit transactions and have accused this industry of charging excessive rates of interest via the fee and engaging in predatory lending practices.  Both federal and state regulatory agencies have also questioned whether this business should be permitted by member Banks.  There can be no assurance that the Federal Deposit Insurance Corporation or others will not impose additional limitations on or prohibit banks from engaging altogether in deferred deposit transactions.  There also can be no assurances that private litigation might not result from the program, or that the Bank’s ability to continue to engage in the business profitably or at all will not be negatively impacted by the requirements of applicable laws, regulations or guidelines. The Company exiting this business, either voluntary or involuntary would significantly reduce earnings.  See additional discussion about this product in a separate section titled “Deferred Deposit Transactions” below.

•                  RALs represent a significant business risk and if the Company terminated the business it would materially impact earnings of the Company.   Republic offers Bank products to facilitate the electronic filing of tax returns by individuals across the country. The Company is one of only a few financial institutions in the United States o of America that provides this service to potential taxpayers.  Under this program, the taxpayer may receive a RAL or an ERC.  In return, the Company charges a fee for service.  There is credit risk associated with a RAL because the money is dispersed to the client before the Bank receives the client’s refund from the Internal Revenue Service (“IRS”).  There is minimal credit risk with an ERC because the Bank does not disperse the funds to the client until the Company has received the refund from the IRS.  Various consumers groups have, from time to time, questioned the fairness of the Refunds Now program and have accused this industry of charging excessive rates of interest via the fee and engaging in predatory lending practices.  Pressure from these consumer groups could result in the Company exiting this business at any time.  Pressure from these consumer groups to the Company’s regulators could also cause Republic to exit this line of business at any time.  Exiting this line of business, either voluntarily or involuntarily, would significantly reduce earnings.  See additional discussion about this product in section titled “Refunds Now” below.

•                  The Company’s ‘Overdraft Honor’ program represents a significant business risk and if the Company terminated the program it would materially impact earnings of the Company. Republic’s “Overdraft Honor” program permits selected clients to overdraft their accounts up to $500 for the Bank’s customary fee.  Customers’ checking accounts that have been current for a certain period of time are allowed the privilege to enter into the program.  This service is not considered extending credit and is considered providing the customer of the Bank with a service of paying checks for a fee when sufficient funds are not available.  This fee, if computed as a percentage of the amount overdrawn, can sometimes result in an extremely high rate of interest and thus be considered excessive by some consumer groups.  There can be no assurance, however, that the FDIC or others will not impose limitations on this program or that the Bank’s ability to engage in the product will not be negatively impacted by federal or other regulatory authorities.  The Company eliminating this program, either voluntarily or involuntarily, would significantly reduce earning.

Republic’s stock price can be extremely volatile.  The Company’s stock price can fluctuate widely in response to a variety of factors.  Factors include, actual or anticipated variations in the Company’s quarterly operating results, recommendations by securities analysts, new technologies, operating and stock price performance of other companies, news reports and changes in government regulations, just to name a few.  The Company also has a low average daily trading volume, which limits a person’s ability to quickly accumulate or quickly divest themselves of Republic’s stock.  In addition, a low average daily trading volume can lead to large price swings based on a relatively few number of shares being traded.

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HIGHLIGHTS

Net income for 2003 was $28.2 million, representing an increase of $7.7 million over 2002.  Diluted earnings per Class A Common Stock increased 37% for the year to $1.64.  Republic’s rise in earnings was primarily due to increased net interest income including deferred deposit transactions, gain on sale of mortgage loans, service charges on deposit accounts and increased earnings at Refunds Now (as described below).  Following is a brief description of a few Company highlights during 2003:

1)              Republic’s total assets surpassed $2 billion during the year ending 2003 with $2.1 billion in total assets.  As of December 31, 2003, Republic was the second largest independently- owned, Kentucky-based bank holding company.

2)              Net interest income grew 28% during the year as the Company continued to benefit from a decline in short-term market interest rates combined with growth in the loan portfolio, particularly in residential real estate loans, deferred deposit transactions and RALs. The Company continued a program in 2003 of retaining fixed rate residential real estate loans and funding the loans with long-term Federal Home Loan Bank (“FHLB”) advances and brokered CDs with laddered maturities while achieving an approximate spread of 2.00%.

3)              Republic reported another strong year in its mortgage banking operations as favorable long-term market interest rates, coupled with the Company’s promotion of its “$999” maximum closing cost product, led to strong gains on the sale of 1-4 family, fixed rate residential real estate loans into the secondary market.  Altogether, the Company sold over $850 million in secondary market loans during 2003.

4)              Refunds Now reported record earnings during 2003 due to a substantial increase in transaction volume related to new sales and a shift in product mix to more RAL products.  Overall, the number of tax preparers serviced by Refunds Now during 2003 increased 79% over 2002 to 5,600 tax offices.

5)              Republic opened six new banking centers during 2003 with three additional locations under construction that are scheduled to open early in 2004.

6)              Service charges on deposit accounts increased significantly during the year as the Company’s checking accounts grew by nearly 10,000 accounts.  A large number of these new accounts were added in conjunction with the Company’s promotion of its “$999” maximum closing cost, fixed rate mortgage product, which requires a primary checking account to receive the favorable fixed closing cost.  Service charges on deposit accounts also benefited from accounts opened at Republic’s six new banking centers during 2003 and from the growth in the number of accounts eligible for the Company’s “Overdraft Honor” program.

7)              Loans increased $272 million or 21% as Republic retained approximately $180 million in fixed rate residential real estate loans, which the Company traditionally sold into the secondary market.  Republic also achieved a $56 million increase in home equity loans outstanding as the Company added over 5,000 new home equity lines of credit during 2003.  These new lines of credit primarily originated from cross-selling opportunities created in conjunction with the Company’s “$999” mortgage product.

8)              The Company grew its deferred deposit transactions outstanding to $28 million at December 31, 2003.

Republic reported net income during 2002 of $20.5 million compared to $16.8 million for 2001, an increase of 22%. Diluted earnings per Class A Common Stock shares increased 19% to $1.20 for the year ended December 31, 2002.   On a percentage basis, the increase in diluted earnings per Class A Common Stock increased less than net income primarily due to the conversion of Republic’s guaranteed preferred beneficial interests in the Company’s subordinated debentures.  The rise in earnings for 2002 was primarily attributable to increased net interest income, increased income associated with Refunds Now, gains on the sale of loans into the secondary market and service charges on deposits. Republic’s book value increased from $7.77 at December 31, 2001 to $8.96 per share at December 31, 2002.

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The following table summarizes selected financial information regarding Republic’s financial performance:

Table 1 – Summary

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Republic’s consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.

Management continually evaluates the Company’s accounting policies and estimates it uses to prepare the consolidated financial statements.  In general, management’s estimates are based on historical experience, on information from regulators and third party professionals and on various assumptions that are believed to be reasonable.  Actual results could differ from those estimates made by management.

Critical accounting policies are those that management believes are the most important to the portrayal of the Company’s financial condition and results and require management to make estimates that are difficult, subjective or complex.  Most accounting policies are not considered by management to be critical accounting policies.  Several factors are considered in determining whether or not a policy is critical in the preparation of financial statements.  These factors include, among other things, whether the estimates have a significant impact on the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including third parties or available pricing, sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under accounting principles generally accepted in the United States of America.  Management has discussed the identification and determination of critical accounting policies with the Company’s Audit Committee.

Republic believes its critical accounting policies and estimates include the valuation of the allowance for loan losses and mortgage servicing rights.

Allowance for Loan Losses – Republic maintains an allowance for probable credit losses inherent in the Company’s loan portfolio.  Management evaluates the adequacy of the allowance for loan losses on a quarterly basis and regularly presents and discusses the analysis with the Audit Committee and the board of directors.  Management estimates the allowance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower capacity, estimated collateral values, economic conditions, regulatory requirements and guidance and other factors.  While management estimates the allowance for loan losses, in part, based on historical losses within each loan category, estimates for losses within the commercial real estate portfolio are more dependent upon credit analysis and recent payment performance. Allocations of the allowance may be made for specific loans or loan categories, but the entire allowance is available for any loan that may be charged off.  Loan losses are charged against the allowance at the point when management deems a loan uncollectible.

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Management makes allocations within the allowance for specifically classified loans regardless of loan amount, collateral or loan type.  Loans that are past due 90 days or more and that are not specifically classified are uniformly assigned a risk-weighted percentage ranging from 15% to 100% of the loan balance based upon loan type.  Management evaluates the remaining loan portfolio by utilizing the historical loss rate for each respective loan type.  Both an average five-year loss rate and a loss rate based on heavier weighting of the previous two years’ loss experience are utilized in the analysis.  Specialized loan categories are evaluated by utilizing subjective factors in addition to a historical loss calculation to determine a loss allocation for each of those types.   Because this analysis or any similar analysis is an imprecise measure of loss, the allowance is subject to ongoing adjustments.  Therefore, management will also take into account other significant factors as may be necessary or prudent in order to reflect probable incurred losses in the total loan portfolio.

Based on management’s calculation, an allowance of $14 million or 0.88% of total loans was an adequate estimate of losses within the loan portfolio as of December 31, 2003.  This estimate resulted in a provision for loan losses on the income statement of $6.6 million during 2003.  If the mix and amount of future charge off percentages differ significantly from those assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could be materially affected.

Mortgage Servicing Rights – Mortgage servicing rights (“MSRs”) represent an estimate of the present value of future cash servicing income, net of estimated costs that Republic expects to receive on loans sold with servicing retained by the Company.  MSRs are capitalized as separate assets when loans are sold and servicing is retained.  This transaction is posted to net gain on sale of loans, a component of mortgage banking income.  The carrying value of MSRs is amortized in proportion to and over the period of, net servicing income.  The amortization is recorded as a reduction to mortgage banking income.  The total MSR asset, net of amortization, recorded at December 31, 2003 is $5 million.

The carrying value of the MSRs asset is periodically reviewed for impairment based on the fair value of the MSRs, using groupings of the underlying loans by interest rates and by geography and prepayment characteristics.  Any impairment of a grouping would need to be reported as a valuation allowance.  A primary factor influencing the fair value is the estimated life of the underlying loans serviced.  The estimated life of the loans serviced is significantly influenced by market interest rates.  During a period of declining interest rates, the fair value of the MSRs should decline due to expected prepayments within the portfolio.  Alternatively, during a period of rising interest rates the fair value of MSRs should increase as prepayments on the underlying loans would be expected to decline. Management utilizes an independent third party on a quarterly basis to assist with the fair value estimate of the MSRs.  Based on the estimated fair value at December 31, 2003 and 2002, management determined no impairment of these assets existed.  On an ongoing basis, management considers all relevant factors, in addition to pricing considerations from other servicers, to estimate the fair value of the MSRs to be recorded when the loans are initially sold with servicing retained by the Company.

DEFERRED DEPOSIT TRANSACTIONS

Deferred deposits are transactions whereby customers typically receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan” or “payday lending”). Republic agrees to delay presentment of the check for payment until the advance due date, typically 14 to 31 days from the cash advance date.  On or before the advance due date, the customer can redeem his or her check in cash for the amount of the advance plus the fee.  If the customer does not reclaim the check in cash by the advance due date, the check is deposited.  Based on accounting principles generally accepted in the United States of America, these transactions are recorded as loans on the Company’s financial statements and the corresponding fees are recorded as a component of interest income on loans.

The Company has been conducting a deferred deposit transaction business, in conjunction with third party marketer/servicers since August 2001.  In the fourth quarter of 2002, the Company entered into contracts with two third party marketer/servicers in order to increase its deferred deposit transaction

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business.  During 2003, the Company further expanded its relationship with one of its marketer/servicers that contributed to a substantial increase in deferred deposit transactions.  Total outstandings were $28 million at December 31, 2003 compared to $3 million at December 31, 2002.  Management anticipates deferred deposit transactions outstanding will decrease by the end of the first quarter of 2004 due to seasonality, but does not believe the decrease will exceed 25% of deferred deposit outstandings at December 31, 2003.  FDIC guidance issued in July 2003 requires that banks limit deferred deposit transaction outstandings to the lesser of 25% of Tier I capital or the amount that actual capital levels exceed the “well-capitalized” classification for Tier I and total capital.  Based on the Bank’s capital levels at year end, deferred deposit transaction outstandings were well below the Bank’s regulatory limit of $40 million.

The marketer/servicers with which the Company does business have at times experienced legal and or regulatory obstacles in some states in which they do business.  In these states, laws have been enacted or amended to prohibit or limit their ability to conduct business without a financial institution partner.  In addition, the Comptroller of the Currency has effectively prohibited national banks from conducting this business.  This has provided opportunities for certain state-chartered commercial banks to enter the business and increase earnings with acceptable capital outlays.

The legal and regulatory climate for this product also continues to change.  The FDIC’s final guidance issued in July 2003 characterizes deferred deposit transactions as presenting substantial credit risks for lenders, because among other things, the loans are unsecured and the borrower generally has limited financial resources as well as increased transaction, legal and reputation risks when a third party arrangement is used.  This guidance proposes, among other items, that banks hold significantly more capital than would be required for other sub-prime type loans, suggesting required capital of as much as 100% of deferred deposit transactions outstanding.  The guidance also requires that the allowance for loan and lease losses be adequate and take into account that many such transactions remain outstanding beyond their initial term due to renewals and rollovers, that deferred deposit transactions be classified “substandard,” and that transactions outstanding for more than 60 days generally be classified as “loss.”  The guidance also prescribes limits on the ability of a borrower to renew or rollover a deferred deposit transaction and on the number of transactions that can be entered into with an individual customer within a given period of time.  The guidance requires examiners to assess the bank’s risk management program for third party marketing and servicing relationships, including the bank’s due diligence process for selecting third party marketing and servicing providers and its monitoring of the third party’s activities and performance.  Banks are also advised to carefully evaluate compliance with consumer protection laws and applicable regulations.

The Company believes that it has adequately considered and addressed the risks associated with its deferred deposit transaction business, including the risks discussed in the FDIC guidelines and that the Company’s size, technological resources and experience in the successful management of non- traditional product lines, among other factors, will enable the Company to effectively manage and control its participation in the deferred deposit transaction business.  There can be no assurance, however, that the FDIC or others will not impose additional limitations on or prohibit banks from engaging altogether in deferred deposit transactions, that private litigation might not result from the program, or that the Bank’s ability to continue to engage in the business profitably or at all will not be negatively impacted by the requirements of applicable laws, regulations or guidelines.

REFUNDS NOW

Refunds Now is a tax refund processing service for taxpayers receiving both federal and state tax refunds through tax preparers located nationwide.  RALs are made to taxpayers filing income tax returns electronically.  The RALs are repaid by the taxpayer when the taxpayer’s refunds are electronically received by the Bank from governmental taxing authorities.  Refunds Now also provides ERCs and electronic refund deposits (“ERDs”) to taxpayers.  After receiving refunds electronically from governmental taxing authorities, a check or a direct payment to the taxpayer’s account is issued for the amount of the refund, less fees.

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For 2003, Refunds Now generated $7.4 million in RAL fees, compared to $156,000 for the same period in 2002. Refunds Now also received $4.0 million in ERC fees during 2003, compared to $3.2 million during 2002.  The total volume of tax return refunds processed during the 2002 tax season was $1.1 billion (approximately $250 million in RALs and $850 million in ERCs), a 48% increase over the volume processed for the 2001 tax season.  Internal analysis of government tax refund payments to recipients not approved for a RAL during the 2002 tax season resulted in an increase in the number of RAL applications approved during the 2003 tax season.  This resulted in a shift in product mix toward the RAL product.  In addition, the total number of tax preparers served by Refunds Now during 2003 increased 79% over 2002.  Overall, RAL volume increased 81% during 2003 compared to 2002 while ERC volume rose 102% for the same period.

RESULTS OF OPERATIONS

Net Interest Income

The principal source of Republic’s revenue is net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits and borrowings. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities as well as market interest rates.

For 2003, net interest income was $82.3 million, up $17.9 million over 2002.  The Company was able to increase its net interest income primarily through increased loan volume and a reduction in the Company’s cost of funds.  Fees from deferred deposit transactions, which increased $6.2 over the $1.4 million recognized during 2002 and fees from RALs, which increased $3.4 million over the $3.3 million recognized during 2002, were major components of the overall increase for 2003.  The Company also experienced an increase in net interest income as a result of growth in the loan portfolio resulting primarily from the retention of nearly $240 million in fixed-rate residential real estate loans since October 2002.

Overall, the Company’s net interest spread and net interest margin were higher in 2003 compared to 2002.  The increase in spread and margin resulted from a sharp decrease in cost of funds without a corresponding decrease in yield on interest-earning assets.  Republic was able to minimize the decrease in its yield on interest-earning assets primarily through increased fees from deferred deposit transactions and RALs.   While the Company believes that these fees will continue for the foreseeable future, as stated above, there is regulatory risk and other risk inherent in these sources of income which could limit their future availability.

During 2003, the Company also began to experience compression of its net interest spread and margin. This resulted primarily from the $240 million in residential real estate loans that were retained and funded by fixed rate FHLB borrowings and brokered deposits achieving a spread of approximately 2.00%.  Net interest spread and margin also experienced compression during the fourth quarter of 2003, as Republic invested excess cash on a short-term basis in order to mitigate the potential impact of future interest rate increases on net interest income.  Management anticipates that the Company’s net interest margin and net interest spread will increase significantly during the first quarter of 2004 compared to the fourth quarter of 2003 due to seasonal RAL activity at Refunds Now.  Because RAL volume occurs primarily in the first quarter, the net interest spread and net interest margin for the remainder of 2004 will decline subsequent to the first quarter and could likely be lower than the corresponding periods in 2003.

Republic’s cost of funds decreased 74 basis points for 2003 compared to 2002.  This decrease was primarily the result of lower borrowing costs from the FHLB and lower interest expense associated with certificates of deposit (“CDs”).  Interest expense on FHLB borrowings decreased for the year due to the maturity or early payoff of approximately $115 million of advances with a weighted average cost of 6.29% subsequent to the second quarter of 2002.  Interest expense on CDs decreased significantly due to the availability of lower cost funding sources that allowed the Company to generally lower pricing on

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its CD product offerings.  As a result of strategic CD pricing, the Company’s overall average CD balances declined during 2003.

For 2002, net interest income was $64.3 million, up $4.8 million over the $59.5 million attained during 2001.  Factors that effected net interest income in 2002 were different from those that affected it in 2003.  Republic was primarily able to increase its net interest income through balance sheet growth; particularly growth in mortgage backed securities (“MBSs”) and loans.

While the loan portfolio decreased slightly during the first six months of 2002, the Company experienced strong growth in the loan portfolio during the last six months of 2002, principally in residential real estate loans, commercial real estate loans and home equity lines of credit.  Cash received during 2002 from the sale of loans into the secondary market as well as sales, calls and prepayments on investment securities was reinvested by the Company into MBSs.  The increases in the balances of loans and MBSs were the significant factors in the Company’s overall increase in net interest income during 2002 compared to 2001.

Although, net interest income was higher during 2002 compared to 2001, continued downward repricing of the Bank’s adjustable rate mortgage portfolio and the prepayment of higher yielding portfolio loans limited the Company’s ability to increase net interest income through changes in rate.  To help mitigate this, management elected to retain $60 million in fixed rate, 15-year residential real estate loans in October 2002.  The Company funded these loans through FHLB borrowings with terms of two to six years achieving a spread of approximately 2.25% on this $60 million positively affected the Company’s net interest income but negatively impacted the Company’s net interest spread and net interest margin.

The Company also sold approximately $56 million in MBSs and collateralized mortgage obligations (“CMOs”) during 2002 in anticipation of rapid prepayments due to declining long-term market interest rates.  These securities had a bond equivalent yield of 5.55% at the time of sale.  As an additional response to declining long-term market interest rates and in order to reduce future borrowing costs, Republic prepaid a $25 million advance during 2002 from the FHLB with a coupon of 6.40%.

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Table 2 provides detailed information as to average balances, interest income/expense and rates by major balance sheet category for 2001 through 2003. Table 3 provides an analysis of the changes in net interest income attributable to changes in rates and changes in volume of interest-earning assets and interest-bearing liabilities.

Table 2 – Average Balance Sheets and Interest Rates for Years Ended December 31,

(1) The amount of fee income included in interest on loans was $17,280, $5,51 and $5,593 for the years ended December 31, 2003, 2002 and 2001.

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Table 3 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

Table 3 – Volume/Rate Variance Analysis

Non Interest Income

Table 4 – Analysis of Non Interest Income

* - Not Meaningful

Service charges on deposit accounts increased 28% during 2003 compared to 2002.  The increase was due primarily to growth in the Company’s checking account base supported by the Bank’s “Overdraft Honor” program, which permits selected clients to overdraft their accounts up to $500 for the Bank’s customary fee.  Total overdraft fees increased from $6.5 million in 2002 to $8.3 million in 2003 while

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the total number of accounts eligible for the “Overdraft Honor” program increased to 43,000 at December 31, 2003 from 32,000 at December 31, 2002.  Additionally, the Company’s total number of checking accounts, exclusive of commercial accounts, increased from 45,000 at December 31, 2002 to 54,000 at December 31, 2003.  The increase in the number of retail checking accounts was primarily attributable to the continued success of the Company’s “$999” maximum closing cost, secondary market loan product, which requires a primary checking account in order for the customer to receive the discounted closing fees.  A decrease in volume of the “$999” program could negatively impact the number of new Company checking accounts.  Conversely, Republic’s checking account base is expected to be positively impacted by accounts opened at the Company’s newest banking centers, direct mail solicitations and other marketing initiatives.  Republic opened six new banking centers in 2003 and plans to open three new banking centers in early 2004.

Electronic refund check (ERC) fees, the majority of which are received during the first quarter of the year, increased $783,000 in 2003.  This increase was due primarily to the increase in overall ERC volume compared to the prior year resulting from successful marketing efforts and an increase in the number of tax preparers. The Company also experienced significant growth in ERC fees during 2002 compared to 2001 due primarily to the same reasons.

Title insurance commissions increased $403,000 for the year ended December 31, 2003, compared to the same period in 2002.  Title insurance commissions are earned when title insurance policies are sold to clients in conjunction with newly originated real estate secured loans.  Since a substantial portion of these commissions are earned on policies relating to single family 1-4 family, secondary market real estate loans, the income closely correlates to secondary market loan origination volume, which was $863 million during 2003 compared to $791 million during 2002.   Management anticipates that title insurance commissions will decline in the first quarter of 2004 due to an expected reduction in secondary market loan volume.

Title insurance commissions increased $614,000 for 2002 over 2001.  The large volume of refinance activity in 1-4 family, secondary market real estate loans during this period contributed to the increase for the year ended December 31, 2002.

Mortgage banking income includes net gain on sale of loans, loan servicing income and amortization of MSRs.  Mortgage banking income increased $4.2 million during 2003 due primarily to a $5.7 million increase in net gain on sale of loans resulting from the higher volume of loans sold into the secondary market.  This higher volume of loans sold in 2003 resulted from aggressive marketing of the Company’s “$999” loan product and sustained consumer demand for fixed rate, first mortgage residential loan products due to historically low market interest rates through the first six months of the year.  This demand began to decline substantially during the third quarter of 2003 reaching more traditional lower levels during the fourth quarter of 2003.  As a percentage of loans sold, net gains increased to 1.47% in 2003 compared to 0.92% in 2002.  The increase in gains as a percentage of loans sold primarily occurred in the first six months of 2003.  During the first six months of 2003, interest rates declined sharply, reaching historic lows in mid-June.  The Company was able to increase the gain on sale margins during this declining interest rate environment by selling directly to end investors achieving higher premiums.   In 2004, the Company does not expect gains as a percentage of loans sold to reach the level attained in 2003 due to higher coverage ratios as well as more competitive pricing to help maintain market share.  Overall, the Bank originated nearly $800 million in mortgage loans held for sale during 2003 compared to $791 million during 2002.

The increase in net gain on sale of loans during 2003 was partially offset by a $2 million increase in amortization expense of MSRs.  This increase primarily resulted from two factors.  First, management elected to sell a higher percentage of loans with servicing retained in 2003 resulting in a larger MSR asset to be amortized compared to 2002.  Secondly, a declining interest rate environment during the first six months of 2003 shortened the estimated life of the expected future servicing income due to projected prepayments on the underlying loans.

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Mortgage banking income increased 7% during 2002 as declining market interest rates prompted an increase in consumer refinance activity of 1-4 family, fixed rate residential loans.   Revenue from mortgage banking activities, principally gains on sale of loans, increased as a result of higher secondary market sales volume.  As a percentage of loans sold, net gains on sale decreased to 0.92% in 2002 compared to 1.20% in 2001. The decrease in gains as a percentage of loans sold was primarily attributable to management’s decision to offer more competitive pricing on its fixed rate, residential real estate products in order to gain market share.  Overall, the Bank originated $791 million in mortgage loans held for sale during 2002 compared to $548 million during 2001.

Net gain on sale of securities available for sale was $1.6 million for 2002 compared to $1.9 million during 2001.  Management elected to sell $56 million of the Company’s MBSs during 2002 to mitigate the risk of the projected prepayment of these securities.

Non Interest Expenses

Table 5 – Analysis of Non Interest Expenses