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 consolidated balance sheets and statements of income. Republic, a bank holding company headquartered in Louisville, Kentucky, is the Parent Company of Republic Bank & Trust Company, ("RB&T"), Republic Bank (collectively referred together with RB&T as the "Bank"), Republic Funding Company and Republic Invest Co. Republic Invest Co. includes its subsidiary, Republic Capital LLC. The consolidated financial statements also include the wholly-owned subsidiaries of RB&T: Republic Financial Services, LLC, TRS RAL Funding, LLC and Republic Insurance Agency, LLC. Republic Bancorp Capital Trust is a Delaware statutory business trust that is a 100%-owned unconsolidated finance subsidiary of Republic Bancorp, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part II Item 8 "Financial Statements and Supplementary Data," as well as other detailed information included in this Annual Report on Form 10-K.

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, business operating segments, corporate objectives, the Company's interest rate sensitivity model and other financial and business matters. Broadly speaking, forward-looking statements may include:

† projections of revenue, expenses, income, losses, earnings per share, capital expenditures, dividends, capital structure or other financial items;

† descriptions of plans or objectives for future operations, products or services;

†          forecasts of 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 various matters, including:

† delinquencies, future credit losses, non-performing loans and non-performing assets;

†          the adequacy of the allowance for loans losses;

†          anticipated future funding sources for Tax Refund Solutions ("TRS");

†          potential impairment on securities;

†          the future value of mortgage servicing rights;

†          the impact of new accounting pronouncements;

†          future short-term and long-term interest rates and the respective
impact on net interest margin, net interest spread, net income, liquidity and
capital;

†          legal and regulatory matters including results and consequences of

† future capital expenditures.

Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the 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 rely on forward-looking statements. Forward-looking statements detail management's expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management may not update them to reflect changes that occur subsequent to the date the statements are made. See additional discussion under the sections titled Part I Item 1 "Business" and Part I Item 1A "Risk Factors."

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" refers to the Company's subsidiary banks: Republic Bank & Trust Company and Republic Bank.

RECENT DEVELOPMENTS

Regulatory Matters

Effective January 10, 2009 RB&T made public its Community Reinvestment Act Performance Evaluation (the "CRA Evaluation"). The CRA Evaluation assesses RB&T's initiatives and performance that are designed to help meet the credit needs of the areas it serves, including low and moderate-income individuals, neighborhoods and businesses. The CRA Evaluation also includes a review of the RB&T's community development services and investments in the RB&T's assessment areas.

RB&T received "High Satisfactory" ratings on the Investment Test component and the Service Test component evaluated as part of the CRA Evaluation. Based on issues identified within RB&T's Refund Anticipation Loan ("RAL") program, RB&T received a "Needs to Improve" rating on the Lending Test component, and as a result, on its overall rating.

Effective February 25, 2009, RB&T entered into a Stipulation and Consent Agreement with the Federal Deposit Insurance Corporation (the "FDIC") agreeing to the issuance of a Cease and Desist Order (the "Order") predominately related to required improvements and increased oversight of RB&T's compliance management system. The Company has filed the final Order as an exhibit to this Annual Report on Form 10-K.

As stated in the CRA Evaluation, the FDIC concluded that RB&T violated Regulation B ("Reg B"), which implements the Equal Credit Opportunity Act ("ECOA"), specifically related to RB&T's tax refund business and its RAL program. The Reg B issues involved RB&T's requirement that both spouses who file a joint tax return sign a RAL proceeds check, even if one spouse opted out of the RAL transaction. The RAL is ultimately repaid to RB&T by the Internal Revenue Service ("IRS") with funds made payable to both spouses. The Reg B issues also involved a claim that one electronic return originator ("ERO") did not allow spouses to opt out of a RAL transaction. In 2008, RB&T offered its tax related products through over 8,000 EROs nationwide.

While RB&T's board of directors and management do not concur with the FDIC's conclusion in the CRA Evaluation that RB&T violated Reg B with respect to its RAL program, RB&T changed certain procedures and processes to address the Reg B issues raised by the FDIC. By statute, a financial holding company, such as the Company, that controls a Bank with a "Needs to Improve" CRA rating has limitations on certain future business activities, including the ability to branch and to make acquisitions, until its CRA rating improves. As also required by statute, the FDIC referred their conclusions regarding the alleged Reg B violations to the Department of Justice ("DOJ"). As of the time of this filing, the Company has not received a communication from, nor has any corrective action been imposed by, the DOJ.

The Order cites insufficient oversight of RB&T's consumer compliance programs, most notably in RB&T's RAL program. The Order requires increased compliance oversight of the RAL program by RB&T's management and board of directors, which is subject to review and approval by the FDIC. Under the Order, RB&T must increase its training and audits of its ERO partners, who make RB&T's tax products available to taxpayers across the nation. In addition, various components of the Order require RB&T to meet certain implementation, completion and reporting timelines, including the establishment of a compliance management system to appropriately assess, measure, monitor and control third party risk and ensure compliance with consumer laws.

In addition to the compliance issues cited in regard to the RAL program, the Order also requires RB&T to correct Home Mortgage Disclosure Act ("HMDA") reporting errors. As part of the Order, RB&T must make corrections to its 2006 and 2007 HMDA reporting, which was completed in December of 2008. As a result of the errors in its 2006 and 2007 HMDA reporting, RB&T has been advised that it will be charged a $22,000 civil money penalty.

The Order also reflected other alleged consumer compliance violations. RB&T has addressed these other alleged violations and management believes it has implemented all necessary and required corrective actions regarding these items in accordance with the expectations of its regulator.

First Quarter 2009 Tax Season RAL Delinquency

There is credit risk associated with a RAL because the funds are disbursed to the customer prior to the Company receiving the customer's refund from the IRS. The Company collects substantially all of its payments related to RALs from the IRS. Losses generally occur on RALs when the Company does not receive payment from the IRS due to a number of reasons, including errors in the tax return, tax return fraud and tax debts not disclosed to the Company during its underwriting process.

Historically at TRS, net credit losses related to RALs within a given calendar year have ranged from a low of 0.04% to a high of 1.17% of total RALs originated (including retained and securitized RALs). During 2008, the Company incurred $14.4 million in net credit losses associated with RALs both retained on balance sheet by the Company and securitized by the Company. Losses as a percent of total RALs originated (including retained and securitized RALs) during 2008 were 0.81%.

Profitability in the Company's TRS business operating segment is primarily driven by the volume of RAL transactions processed and the loss rate incurred on RALs, and is particularly sensitive to both measures. Through February 27, 2009, the Company has processed 30% more RAL transactions than through the same date in 2008. Also, through February 27, 2009, the percent of refunds submitted to IRS for repayment of RALs which have not been paid is 2.38%, compared to 1.61% through the same period in 2008. The Company expects the actual loss rate realized will be less than the current delinquency rate as the Company will continue to receive payments from the IRS throughout the year and make other collection efforts to obtain repayment on the loans. Based on the Company's 2009 RAL volume, each 0.10% increase in the loss rate for RALs represents approximately $2.4 million in additional provision for loan loss expense. Management believes that compared to 2008, the 2009 tax season will reflect both greater volume and a higher ultimate loss rate. The ultimate impact of these offsetting factors cannot yet be determined.

For additional discussion regarding TRS and the securitization, see the following sections:

†          Part I Item 1A "Risk Factors"

†          Part II Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations:"

†   "Overview"

†   "Critical Accounting Policies and Estimates"

†   "Results of Operations"

†   "Financial Condition" - "Allowance for Loan Losses and Provision for Loan
Losses"

†          Part II Item 8 "Financial Statements and Supplementary Data:"

†   Footnote 1 "Summary of Significant Accounting Policies"

†   Footnote 4 "Loans and Allowance for Loan Losses"

†   Footnote 5 "Securitization"

†   Footnote 23 "Segment Information"

FDIC Insurance Assessment

On February 27, 2009, the FDIC approved an interim rule to institute a one-time special emergency assessment of 20 cents per $100 in domestic deposits on June 30, 2009, to be collected by September 30, 2009, to restore the Deposit Insurance Fund ("DIF") reserves depleted by recent bank failures. The interim rule also permits the FDIC to impose an additional special emergency assessment after June 30, 2009 of up-to-10 basis points, if necessary. The FDIC also adopted amendments to its restoration plan for the DIF to implement changes to the risk-based assessment system and set assessment rates to provide that most banks will now pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009. Changes to the assessment system include higher rates for institutions that rely significantly on secured liabilities, which may increase the FDIC's loss in the event of failure without providing additional assessment revenue. Assessments will also be higher for institutions that rely significantly on brokered deposits but, for well-managed and well-capitalized institutions, only when accompanied by rapid asset growth. Based on budgeted deposit levels, the final approval of the 20 basis point increase component of the interim rule would increase the Company's FDIC insurance assessment expense by approximately $3.5 million. This projection will vary to the extent actual deposit levels fluctuate compared to budget.

OVERVIEW



Table 1 - Summary



Year Ended December 31, (dollars in thousands, except per share data)        2008           2007           2006

Net income from continuing operations                                     $    33,652    $    24,913    $    28,116
Diluted earnings per Class A Common Share from continuing operations             1.62           1.20           1.35
Diluted earnings per Class A Common Share from discontinued operations           0.00           0.00           0.00
Diluted earnings per Class A Common Share                                        1.62           1.20           1.35
Return on average assets (ROA) from continuing operations                        1.04 %         0.81 %         0.98 %
Return on average assets (ROA)                                                   1.04           0.81           0.99
Return on average equity (ROE) from continuing operations                       12.58          10.25          12.46
Return on average equity (ROE)                                                  12.58          10.25          12.56

Net income from continuing operations for the year ended December 31, 2008 was $33.7 million, representing an increase of $8.7 million, or 35%, compared to the same period in 2007. Diluted earnings per Class A Common Share from continuing operations increased 35% from $1.20 for the year ended December 31, 2007 to $1.62 for the same period in 2008.

General highlights for the year ended December 31, 2008 consisted of the following:

† Republic ended the year with total assets of $3.9 billion, an increase of $774 million, or 24%, over the prior year. The substantial majority of the increase in total assets resulted from excess cash obtained from $918 million in brokered deposits that the Company obtained during the fourth quarter of 2008 to be used as funding for expected Refund Anticipation Loan ("RAL") volume during the first quarter 2009 tax season. At December 31, 2007, Republic held considerably less brokered deposits, as the Company's prior year RAL funding strategy consisted of the utilization of a securitization structure, which was not economically feasible for the first quarter 2009 tax season due to excessive costs brought about by the turmoil in the financial markets. Absent the brokered deposits, total assets would have declined slightly during the year, as disciplined pricing measures combined with large maturities and soft demand during the year for the Company's adjustable rate loan products caused a decline in real estate loan balances. As of December 31, 2008, Republic was the largest Kentucky-based bank holding company.

† The weighted average cost of the brokered deposits obtained during the fourth quarter of 2008 for the first quarter 2009 tax season was 2.71% with a final maturity of three months. During their time outstanding before the RAL season began, the Company utilized the cash from these brokered deposits to pay off lower interest rate overnight advances from the Federal Home Loan Bank ("FHLB") with the excess invested in cash like instruments to guarantee its availability for the first quarter 2009 tax season. As a result, the Company earned a negative spread of over 2% on these funds for a substantial part of the fourth quarter of 2008.

† Traditional Banking business operating segment net income decreased $2.5 million, or 12%, for the year ended December 31, 2008 compared to the same period in 2007. The fluctuation in traditional banking segment net income was primarily attributable to a substantial increase in net interest income resulting from the decline in short-term interest rates which was more than offset by increases in the provision for loan losses, mortgage servicing rights impairment charges and Other-Than-Temporary-Impairment ("OTTI") charges recorded for a portion of the Company's investment portfolio.

† Tax Refund Solutions ("TRS") business operating segment net income increased $10.4 million for the year ended December 31, 2008 compared to the same period in 2007. The substantial growth at TRS primarily resulted from successful sales efforts to independent tax preparers and the previously disclosed Jackson Hewitt contracts signed in the latter half of 2007. These new contract opportunities became available to Republic when a large competitor announced its exit of the business in early 2007.

† The Company recorded a provision for loan losses of $16.2 million for the year ended December 31, 2008, as compared to $6.8 million for the same period in 2007.

† The traditional Banking segment provision for loan losses was $8.2 million for the year ended December 31, 2008 as compared to $3.9 million for the same period in 2007. The increase in the traditional banking segment provision expense was attributable to the increase in classified, delinquent and non-performing loans, as well as a $968,000 adjustment recorded in the second quarter of 2008 related to several qualitative factors within the allowance calculation associated with the generally deteriorating real estate market conditions. Approximately $2.8 million of the increase was related to one land development loan in Florida

placed on non accrual status during the first quarter of 2008. This relationship is currently in real estate owned.

† For the years ended December 31, 2008 and 2007, the TRS segment provision for loan losses was $8.1 million and $2.9 million. The increase in estimated losses associated with RALs retained on balance sheet was primarily due the increased RAL volume detailed above.

† Total non interest expenses increased $20.2 million, or 23%, during 2008 compared to 2007. Approximately $13.6 million of the increase was related to TRS and was driven by the significant anticipated year-over-year growth in the program as discussed throughout.

† Republic opened six banking centers in 2008.

Net income from continuing operations for the year ended December 31, 2007 was $24.9 million, representing a decline of $3.2 million, or 11%, compared to the same period in 2006. Diluted earnings per Class A Common Share from continuing operations declined 11% from $1.35 for the year ended December 31, 2006 to $1.20 for the same period in 2007.

Overall net income for the year ended December 31, 2007 was $24.9 million, representing a decline of $3.4 million, or 12%, compared to the same period in 2006. Diluted earnings per Class A Common Share declined 11% to $1.20 for the year ended December 31, 2007 compared to $1.35 for the same period in 2006.

General highlights for the year ended December 31, 2007 consisted of the following:

† Republic ended 2007 with total assets of $3.2 billion, an increase of $119 million, or 4%, over 2006.

† Total loans grew by $98 million, or 4%, from just under $2.3 billion at December 31, 2006 to nearly $2.4 billion at December 31, 2007. During 2007, growth in loans primarily occurred across three major categories: real estate construction, commercial, and home equity, as the Company continued to focus its efforts on the origination of immediately repricing loans.

† During the fourth quarter of 2007, the Company acquired $272 million in brokered deposits to be utilized in the first quarter 2008 tax season to fund RALs. These deposits had a weighted average cost of 4.68% with a final maturity of three months. During their time outstanding before the RAL season began, the Company utilized the cash from these brokered deposits to pay off lower interest rate overnight advances from the FHLB resulting in a negative spread of approximately 75 basis points.

† Net income from the Company's traditional Banking business operating segment decreased $1.7 million, or 8%, for the year ended December 31, 2007 compared to the same period in 2006. The decrease was due primarily to continued compression of the Company's net interest margin combined with a significant increase in non interest expenses.

† Net income from the Company's TRS business operating segment decreased $1.8 million, or 39%, for the year ended December 31, 2007 compared to the same period in 2006, as an increase in revenue resulting from higher RAL volume was more than offset by an increase in losses associated with RALs.

† The Company recorded a provision for loan losses of $6.8 million for the year ended December 31, 2007, compared to $2.3 million for the same period in 2006.

† Included in the provision for loan losses for 2007 and 2006 was $2.9 million and $34,000 for losses associated with RALs retained on balance sheet. The increase in anticipated losses associated with RALs retained on balance sheet was primarily due to higher confirmed fraud and from an increase in the amount of refunds held by the IRS for reasons such as audits and liens from prior debts. The Banking segment provision for loan losses was $3.9 million for the year ended December 31, 2007 compared to $2.3 million for the same period in 2006.

† The increase in the Banking segment provision expense was due to growth in loans, as well as an increase in classified loans and delinquencies. In addition, as general market conditions declined throughout 2007 the Company modified several qualitative factors within its allowance for loan loss calculation, contributing approximately $1.1 million to the overall increase in the provision.

† Service charges on deposit accounts increased $2.1 million, or 13%, during 2007 compared to 2006. The increase in service charges on deposit accounts was due to growth in the number of checking accounts and an increase during the second half of 2006 in the per item overdraft fees charged to customers.

† Non interest income for 2007 included a $1.9 million non-recurring gain related to the final settlement of insurance proceeds in connection with the Company's corporate center fire which occurred in late 2006. The gain represented the difference between the total cash received from the Company's insurance provider and the net book value of the fixed assets destroyed as a result of the fire.

† Total non interest expenses increased $12.4 million, or 17%, during 2007 compared to 2006. This increase was primarily attributable to increases in salaries and employee benefits resulting from an increase in FTEs, as well as increased infrastructure costs. The Company added staffing in both sales and support functions as a result of new banking center locations and expectations for future growth. In addition, the Company added approximately 20 FTE's in Florida as a result of the GulfStream Community Bank ("GulfStream) acquisition which occurred in October 2006.

† Non interest expenses for both 2007 and 2006 benefited from a reversal of incentive compensation accruals, as the Company fell short of its gross operating profit goals for the periods. For the third and fourth quarters of 2007, the Company recorded total credits to incentive compensation accruals of $3.5 million compared to credits of $2.0 million for the same periods in 2006.

† Republic opened three banking centers in 2007.

Tax Refund Solutions ("TRS")

TRS Funding - First Quarter 2008 Tax Season

Historically, from mid January to the end of February of each year, RALs which, upon origination, met certain underwriting criteria related to refund amount and Earned Income Tax Credit amount, were classified as loans held for sale and sold into the securitization. All other RALs originated were retained by the Company. There were no RALs held for sale as of any quarter end. The Company retained a related residual value in the securitization, which was classified on the balance sheet as a trading security. The initial residual interest had a weighted average life of approximately one month, and as such, substantially all of its cash flows were received by the end of the first quarter. The disposition of the remaining anticipated cash flows occurred within the remainder of the calendar year. At its initial valuation, and on a quarterly basis thereafter, the Company adjusted the carrying amount of the residual value to its fair value, which was determined based on expected future cash flows and was significantly influenced by the anticipated credit losses of the underlying RALs. The Company does not plan to utilize a securitization structure in 2009.

During the first quarters of 2008, 2007 and 2006, respectively, the securitization consisted of a total of $1.1 billion, $350 million and $213 million of RALs originated and sold. The Company's continuing involvement in RALs sold into the securitization was limited to only servicing of the RALs. Compensation for servicing of the securitized RALs was not contingent upon performance of the securitized RALs.

The Company concluded that the transaction was a sale as defined in Statement of Financial Accounting Standard ("SFAS") 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125."This conclusion was based on, among other things, legal isolation of assets, the ability of the purchaser to pledge or sell the assets, and the absence of a right or obligation of the Company to repurchase the financial assets.

During 2008, in addition to the securitization structure, the Company also utilized brokered deposits to fund RALs retained on balance sheet. During the fourth quarter of 2007, the Company obtained $272 million in brokered deposits to be utilized to fund the RAL program. These brokered deposits had a weighted average life of three months with a weighted average interest rate of 5.09%. Also, during January of 2008, the Company obtained an additional $375 million in brokered deposits to fund additional RAL demand. These brokered deposits had a weighted average life of three months and a weighted average interest rate of 4.95%.

TRS Funding - First Quarter 2009 Tax Season

Due to the excessive costs of securitization structures, which resulted from a significant lack of liquidity in the credit markets during the latter half of . . .