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 I Item 1 "Financial Statements."

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 regulatory examinations; and

· 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 Part I Item 1A "Risk Factors" of the Company's 2008 Annual Report on Form 10-K.

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.

OVERVIEW

Net income for the first quarter of 2009 was $25.8 million, representing an increase of $3.6 million, or 16%, compared to the same period in 2008. Diluted earnings per Class A Common Share increased 16% to $1.24 for the first quarter of 2009 compared to $1.07 for the same period in 2008.

General highlights for the first quarter of 2009 by business segment consist of the following:

Traditional Banking

· Traditional Banking business operating segment net income decreased $2.7 million, or 56%, for the quarter ended March 31, 2009 compared to the same period in 2008. The fluctuation in the traditional Banking segment net income resulted primarily from an Other-than-temporary impairment ("OTTI") charge recorded for a portion of the Company's investment portfolio, which was partially offset by an increase in net interest income resulting from the year over year decline in short-term interest rates. In addition, the Company recorded significant write-downs during the first quarter of 2009 for two of its Other Real Estate Owned ("OREO") properties.

· Net interest income within the traditional Banking segment increased $2.8 million, or 11%, for the quarter to $28.0 million. During the first quarter of 2009, net interest income within the traditional Banking segment continued to benefit from declining short-term interest rates in combination with a "steepening" of the yield curve. Overall, the Banking segment's net interest margin increased to 3.85% for first quarter of 2009.

· The Banking segment provision for loan losses was $3.7 million for the quarter ended March 31, 2009 compared to $3.0 million for the same period in 2008. The increase in the traditional Banking segment provision expense related to the increase in classified, delinquent and non-performing loans. Approximately $1.9 million of the first quarter 2008 provision for loan loss related to one land development loan in Florida.

· Non interest income decreased $3.3 million, or 53%, for the first quarter of 2009 compared to the same period in 2008. The Company recognized a net loss on sales, calls and impairment on securities of $3.1 million during the first quarter of 2009 compared to $219,000 during the first quarter of 2008. During the first quarter of 2009, the Company recorded additional non cash OTTI charges related to its available for sale private label mortgage backed securities and other private label mortgage-related securities. See Footnote 2 "Investment Securities" of Part I Item I "Financial Statements" for additional discussion.

· Total non interest expense within the traditional Banking segment increased $3.4 million, or 16%, during the first quarter of 2009 compared to the first quarter of 2008. The Company recorded $1.7 million in write-downs during the first quarter of 2009 for two of its OREO properties. Excluding the OREO write downs, the increase in non interest expense was modest despite a growth in banking centers from the prior year. The remaining increase was predominantly in the occupancy and equipment and FDIC insurance categories. See additional discussion below under "Non interest Expenses."

· Total non-performing loans to total loans increased to 1.06% at March 31, 2009, from 0.58% at December 31, 2008, as the total balance of non-performing loans increased by $11 million for the same period. The increase in non performing loans was primarily within the real estate construction, commercial real estate and residential real estate categories and is attributable to general declines in the housing market over the past few years, falling home prices and increasing foreclosures. In addition, unemployment and under-employment have negatively impacted the credit performance of real estate related loans, in general. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of general business activity. If current levels of market disruption and volatility continue or worsen, there can be no assurance that the Company will not experience an adverse effect, which may be material, on the Company's ability to access capital and on its business, financial condition and results of operations. Ten relationships classified as non performing for the first time during the first quarter of 2009 represented $8.0 million, or 72%, of the increase from December 31, 2009. As a result of these additions, the Company recorded additional provision for loan loss expense of approximately $1.4 million during the first quarter of 2009. The Company does not anticipate a substantial increase in losses resulting from the current rise in the level of these non-performing loans at this time. See additional discussion at Part I Item 1A "Risk Factors" of the Company's 2008 Annual Report on Form 10-K.

Tax Refund Solutions ("TRS")

· Republic ended the quarter with total assets of $3.3 billion, representing an increase of $214 million, or 7%, compared to March 31, 2008 and a decline of $602 million, or 15%, compared to December 31, 2008. The majority of the decrease in total assets from December 31, 2008 resulted from a decline in excess cash which the Company used to pay down maturing brokered certificates of deposit. During the fourth quarter of 2008, the Company obtained $918 million in brokered certificates of deposits to be used as funding for expected Refund Anticipation Loan ("RAL") volume during the first quarter 2009 tax season. Substantially all of these brokered certificates of deposits matured during the first quarter of 2009. Federal Home Loan Bank Advances ("FHLB") were used to replace the maturing brokered certificates of deposits when excess cash was not available to pay off the maturity.

· 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 2008, the Company elected not to obtain funding from a securitization structure for the first quarter 2009 tax season. Instead, the Company utilized its traditional borrowing sources, including brokered certificates of deposit, as its primary RAL funding source for the first quarter 2009 tax season. Accounting for this change in funding strategy caused, and will continue to cause throughout the year, differences among some income and expense items when comparing results of operations for 2009 to 2008. The securitization had the effect during 2008 of reclassifying for securitized RALs the fee income earned, interest expense paid and provision expense into "Net RAL securitization income," which is a component of non interest income. During 2009, these items were, and will continue to be, classified in interest income on loans, interest expense on deposits and provision for loan losses, respectively.

· TRS business operating segment net income increased $4.3 million, or 26%, for the first quarter of 2009 compared to the same period in 2008 primarily due to the overall growth in volume offset by higher estimated RAL losses as a percent of total originations. The total dollar volume of tax return refunds processed during the first quarter 2009 tax season increased $2.2 billion, or 45%, over the same period in 2008. Total RAL dollar volume increased from $1.8 billion during the first three months of 2008 to $2.5 billion during the first three months of 2009. The increase in overall volume discussed above was offset by higher estimated losses and the increase in non interest expenses. See additional discussion below under "RAL Provision for Loan Losses" and "Non interest expenses."

· In addition to the increased RAL volume, Electronic Refund Checks ("ERC") and Electronic Refund Deposits ("ERD") dollar volume also increased approximately 47% over the first quarter of 2008. The growth during 2009 related to additional business obtained through the Company's Jackson Hewitt relationship and through the Company's independent tax-preparer customer base.

· Net interest income within the TRS segment increased $33.2 million or 171% for the quarter to $52.6 million. The increase in net interest income within the TRS segment was due to a 39% growth in the volume of RALs originated combined with the change in funding strategy for TRS from the prior year. During the first quarter 2009 tax season, all $56.8 million in RAL fee income was included in interest income on loans. During the first quarter of 2008, $18.4 million in RAL fees were included in interest income on loans with approximately $21.7 million included as a component of Net RAL securitization income.

· Non interest income within the TRS segment decreased $3.2 million, or 12%, during the first quarter of 2009. The decrease in non interest income within the TRS segment was due primarily to the change in the Company's funding strategy for the tax business. The Company recognized net RAL securitization income of $12.6 million during the first quarter of 2008. All fee and expense components that would have made up this amount in 2009 are included within interest income on loans, interest expense on deposits and provision for loan losses due to the change in funding strategy. In addition to the change in Net RAL securitization income, Electronic Refund Check ("ERC") fees increased $8.9 million, or 64% during the first quarter of 2009 consistent with the overall growth in the business.

· 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 March 31, 2009, the Company processed 39% more in dollars of RALs originated compared to the same period in 2008. As of March 31, 2009, $34.9 million of total RALs originated were outstanding past their expected funding date from the IRS compared to $19.2 million at March 31, 2008, representing 1.43% and 1.11% of total gross RALs originated during the respective tax years by the Company. The March 31, 2008 uncollected RAL amount includes $9.4 million for RALs that were securitized by the Company. The higher year-over-year uncollected RAL rate was primarily related to an increase in the amount of refunds held by the IRS for reasons such as audits and liens from prior debts. In addition, the overall dollar increase in uncollected RALs was also driven by the year-over-year growth in volume.

· 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 RALs. As a result of the higher current overall RAL delinquency rate, however, the TRS segment's provision for loan losses increased from $7.5 million during the first quarter of 2008 to $22.0 million during the first quarter of 2009. Included as a credit to the first quarter 2009 TRS provision for loan losses, and as a recovery in the analysis of the allowance for loan losses, was $2.8 million, which represents a limited preparer-provided guarantee on RAL product performance. The Company's loss reserves for RALs equate to 1.10% and 0.87% of total RALs originated during the first quarter of each year. The higher estimated year over year loss rate was primarily related to an increase in the amount of refunds held by the IRS for reasons such as audits and liens from prior debts. In addition, the overall dollar increase in estimated losses was also driven by the year-over-year growth in RAL volume. Based on the Company's 2009 RAL volume, each 0.10% increase in the loss rate for RALs represents approximately $2.5 million in additional provision for loan loss expense.

· Total non interest expenses within the TRS segment increased $6.3 million, or 50%, during the first quarter of 2009 compared to 2008. This overall increase was related primarily to the overall growth in the program.

For additional discussion regarding TRS, see the following sections:
· Part I Item 1 "Financial Statements:"

o Footnote 1 "Summary of Significant Accounting Policies"

o Footnote 3 "Loans and Allowance for Loan Losses"

o Footnote 10 "Segment Information"

o Footnote 11 "Securitization"

· Part I Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations:"

o "Business Segment Composition"

o "Results of Operations"

o "Comparison of Financial Condition"

· Part I Item 1A "Risk Factors" of the Company's 2008 Annual Report on Form 10-K

Mortgage Banking

· Within the Mortgage Banking segment, mortgage banking income increased $2.6 million during the first quarter of 2009 compared to the same period in 2008. The majority of this increase was in the "gain on sale of loan" category, as a meaningful decline in short-term interest rates caused an increase in demand for 15 and 30 year fixed rate loans, which the Company sells into the secondary market. The Company sold $187 million in fixed rate loans into the secondary market during the first quarter of 2009 compared to $73 million during the first quarter of 2008. As of March 31, 2009, the Company had $12 million in loans held for sale with $129 million in fixed rate loan commitments to its customers and $112 million in mandatory forward sales contracts primarily to the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"). At March 31, 2008, the Company had $11 million in loans held for sale with $27 million in fixed rate loan commitments to its customers and $32 million in mandatory forward sales contracts primarily to Freddie Mac. In accordance with Staff Accounting Bulletin ("SAB") 109, "Written Loan Commitments Recorded at Fair Value Through Earnings" and Statement of Financial Accounting Standard ("SFAS") 159, "The Fair Value Option for Financial Assets and Financial Liabilities," the Company carries its loans held for sale, fixed rate loan commitments to its customers and mandatory forward commitments to Freddie Mac at fair value. As previously discussed, mortgage banking income during the first quarter of 2009 was also positively impacted by the reversal of $1.1 million of the valuation allowance related to the MSR portfolio.

BUSINESS SEGMENT COMPOSITION

As of March 31, 2009, the Company was divided into three distinct business
operating segments: Banking, Tax Refund Solutions and Mortgage Banking.

Net income, total assets and net interest margin by business operating segment
for the three months ended March 31, 2009 and 2008 are presented below:

                                    Three Months Ended March 31, 2009
                                       Tax Refund      Mortgage
(in thousands)          Banking        Solutions        Banking       Total Company

Net income            $     2,131     $     20,885     $   2,743     $        25,759
Segment assets          3,187,188          137,555        12,902           3,337,645
Net interest margin          3.85 %             NM            NM                8.12 %



                                    Three Months Ended March 31, 2008
                                       Tax Refund      Mortgage
(in thousands)          Banking        Solutions        Banking       Total Company

Net income            $     4,829     $     16,550     $     744     $        22,123
Segment assets          2,852,709          260,379        10,943           3,124,031
Net interest margin          3.84 %             NM            NM                5.57 %

(I) Banking

As of March 31, 2009, Republic had 45 full-service banking centers with 36 located in Kentucky, five located in metropolitan Tampa, Florida, three located in southern Indiana and one located in metropolitan Cincinnati, Ohio. RB&T's primary market areas are located in metropolitan Louisville, Kentucky, central Kentucky, northern Kentucky and southern Indiana. Louisville, the largest city in Kentucky, is the location of Republic's headquarters, as well as 20 banking centers. RB&T's central Kentucky market includes 12 banking centers in the following Kentucky cities: Bowling Green (1); Elizabethtown (1); Frankfort (1); Georgetown (1); Lexington, the second largest city in Kentucky (5); Owensboro
(2); and Shelbyville (1). RB&T's northern Kentucky market includes banking centers in Covington, Florence, Fort Wright and Independence. Based on RB&T's most recent banking center evaluation, one of its four northern Kentucky locations will be closed in the third quarter of 2009. RB&T also has banking centers located in Floyds Knobs, Jeffersonville and New Albany, Indiana. Republic Bank has locations in Hudson, New Port Richey, Palm Harbor, Port Richey and Temple Terrace, Florida, as well as metropolitan Cincinnati, Ohio.

(II) Tax Refund Solutions ("TRS")

Republic, through its TRS business operating segment, is one of a limited number of financial institutions which facilitates the payment of federal and state tax refunds through third party tax-preparers located throughout the U.S., as well as tax preparation software providers. The Company facilitates the payment of these tax refunds through three primary products: Electronic Refund Checks ("ERCs"), Electronic Refund Deposits ("ERDs") and Refund Anticipation Loans ("RALs"). Substantially all of the business generated by TRS occurs in the first quarter of the year.

ERCs/ERDs are products whereby a tax refund is issued to the taxpayer after the Company has received the refund from the federal or state government. There is no credit risk or borrowing cost for the Company for these products because ERCs/ERDs are only delivered to the taxpayer upon receipt of the refund directly from the Internal Revenue Service ("IRS"). Fees earned on ERCs/ERDs are reported as non interest income under the line item "Electronic refund check fees."

RALs are short-term consumer loans offered to taxpayers that are secured by the customer's anticipated tax refund, which represents the source of repayment. The Company underwrites the RAL application through an automated credit review process utilizing information contained in the taxpayer's tax return and the tax-preparer's history. If the application is approved, the Company advances the amount of the refund due on the taxpayer's return up to specified amounts less the loan fee due to the Company and, if requested by the taxpayer, the fees due for preparation of the return to the tax-preparer. As part of the RAL application process, each taxpayer signs an agreement directing the IRS to send the taxpayer's refund directly to the Company. The refund received from the IRS is used by the Company to pay off the RAL. Any amount due the taxpayer above the amount of the RAL is remitted to the taxpayer once the refund is received by the Company. The funds advanced by the Company are generally repaid by the IRS within two weeks. The fees earned on RALs are reported as interest income under the line item "Loans, including fees."

Rebate Accruals

The Company makes rebate payments to third party technology and service providers within its TRS business operating segment. These rebates are reflected in the financial statements as a reduction to RAL fees and ERC fees. All rebate payments to an individual technology and service provider are based on the product volume funded by the IRS with various rebate tiers at different volume levels. In addition, rebate payments made to the service providers are significantly influenced by RAL losses. While the rebates paid to the Company's technology providers are typically paid throughout the year, the rebate payments paid to the third party service providers are typically paid subsequent to the first quarter.

Accounting for the Company's rebates payable requires management's judgment since the substantial majority of these liabilities are established in the first quarter of each year and accounted for based on cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future IRS payments, including assumptions regarding credit losses and final product volume tiers.

The Company accrued $30.0 million in total rebates during the first quarter of 2009 compared to $26.3 million during the same period in 2008. While total TRS gross product revenue increased 38% during the first quarter of 2009 compared to the same period in 2008, rebate accruals increased 18% for the same period. The overall increase in rebates was less than the increase in total gross revenue during the first quarter of 2009 due to larger payments made through a fixed fee component, in lieu of rebates. This fixed fee component is classified in non interest expense on the income statement. In addition, the Company was able to obtain more favorable contract terms during the first quarter 2009 tax season which effectively lowered the Company's anticipated payments to its service providers.

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 2008, the Company elected not to obtain funding from a securitization structure for the first quarter 2009 tax season. Instead, the Company utilized brokered certificates of deposits and its traditional borrowing lines of credit as its primary RAL funding source for the first quarter 2009 tax season. Accounting for this change in funding strategy has caused differences among some income and expense items when comparing income statement results for 2009 to results in 2008. The securitization had the effect during 2008 of reclassifying for securitized RALs the fee income earned, interest expense paid and provision expense into "Net RAL securitization income," which is a component of non interest income. During 2009, these items were, and will continue to be, classified in interest income on loans, interest expense on deposits and provision for loan losses, respectively.

During the fourth quarter of 2008, the Company obtained $918 million in brokered certificates of deposits to be utilized to fund the RAL program. These brokered certificates of deposits had a weighted average life of three months with a weighted average rate of 2.71%. Also, during January of 2009, the Company obtained an additional $375 million in brokered certificates of deposits. These brokered certificates of deposits had a weighted average life of 45 days and a weighted average interest rate of 1.27%.

TRS Funding - First Quarter 2008 Tax Season

The Company recognized net RAL securitization income of $12.6 million and sold $1.1 billion RALs into the securitization during the first quarter of 2008. During 2008, in addition to the securitization structure, the Company also utilized brokered certificates of deposits to fund RALs retained on balance sheet. These brokered certificates of 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 $200 million in brokered certificates of deposits to fund additional RAL demand. These brokered certificates of deposits had a weighted average life of three months and a weighted average interest rate of 4.95%.

. . .