The following is management's discussion and analysis of the Company's financial condition, changes in financial condition, and results of operations in the accompanying consolidated financial statements. This discussion should be read in conjunction with the accompanying notes to the consolidated financial statements.

Certain statements in this report may be considered to be "forward-looking statements" as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words "may," "believes," "expect," "estimate," "project," "anticipate," "should," "intend," "probability," "risk," "target," "objective" and similar expressions or variations on such expressions. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; new service and product offerings by competitors and price pressures; and similar items. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as may be required by applicable laws or regulations. Readers should carefully review the risk factors described in other documents the Company files from time to time with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2008, Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K, as well as other filings.

Financial Condition:

June 30, 2009 Compared to December 31, 2008

Assets decreased $14.9 million to $937.1 million at June 30, 2009, compared to $952.0 million at December 31, 2008. This decrease reflected a $42.7 million decrease in loans receivable partially offset by a $22.8 million increase in cash and cash equivalents.

Loans:

The loan portfolio represents the Company's largest asset category and is its most significant source of interest income. The Company's lending strategy is focused on small and medium size businesses and professionals that seek highly personalized banking services. Gross loans decreased $35.1 million, to $748.0 million at June 30, 2009, compared to $783.1 million at December 31, 2008. Substantially all of the decrease resulted from decreases in commercial and construction loans. The loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, automobile loans, home improvement loans, home equity loans and lines of credit, overdraft lines of credit and others. Commercial loans typically range between $250,000 and $5,000,000 but customers may borrow significantly larger amounts up to our legal lending limit, which was approximately $15.0 million at June 30, 2009. Individual customers may have several loans that are secured by different collateral, which were in total subject to that lending limit.

Investment Securities:

Investment securities available-for-sale are investments which may be sold in response to changing market and interest rate conditions, and for liquidity and other purposes. The Company's investment securities available-for-sale consist primarily of U.S. Government Agency issued mortgage-backed securities, municipal securities, corporate bonds, and trust preferred securities. Available-for-sale securities totaled $73.9 million at June 30, 2009, compared to $83.0 million at year-end 2008. At June 30, 2009 and December 31, 2008, the portfolio had net unrealized losses of $2.1 million and $2.2 million, respectively.

Investment securities held-to-maturity are investments for which there is no intent to sell in the near future. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily of debt securities. At June 30, 2009 and year-end 2008, securities held to maturity totaled $159,000 and $198,000 respectively.

Restricted Stock:

Republic is a member of the Federal Home Loan Bank of Pittsburgh ("FHLB") and, as such, had been required to maintain stock in FHLB in proportion to its outstanding FHLB advances, prior to the FHLB suspension of dividend payments in 2008. Since that suspension of dividend payments, the restricted stock has been frozen, therefore, at both June 30, 2009 and December 31, 2008, FHLB stock totaled $6.7 million.

Management evaluates the restricted stock for impairment in accordance with Statement of Positions (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Management's determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the restricted stock as of June 30, 2009 and December 31, 2008.

Republic is also required to maintain stock in Atlantic Central Bankers Bank ("ACBB") as a condition of a rarely used contingency line of credit. At both June 30, 2009 and December 31, 2008, ACBB stock totaled $143,000.

Cash and Cash Equivalents:

Cash and due from banks, interest bearing deposits and federal funds sold comprise this category which consists of the Company's most liquid assets. The aggregate amount in these three categories increased by $22.8 million, to $57.3 million at June 30, 2009, from $34.4 million at December 31, 2008, primarily reflecting a $23.2 million increase in cash and due from banks.

Fixed Assets:

The balance in premises and equipment, net of accumulated depreciation, was $22.6 million at June 30 , 2009, compared to $14.2 million at December 31, 2008, reflecting primarily branch expansion.

Other Real Estate Owned:

Other real estate owned amounted to $10.0 million at June 30, 2009 compared to $8.6 million at December 31, 2008, primarily reflecting a transfer from loans of $2.8 million, partially offset by two writedowns totaling $1.3 million.

Bank Owned Life Insurance:

The balance of bank owned life insurance amounted to $12.3 million at June 30, 2009 and $12.1 million at December 31, 2008. The income earned on these policies is reflected in non-interest income.

Other Assets:

Other assets increased by $4.6 million to $18.6 million at June 30, 2009, from $14.0 million at December 31, 2008, reflecting a $4.8 million increase in current and deferred income tax assets.

Deposits:

Deposits, which include non-interest and interest-bearing demand deposits, money market, savings and time deposits including some brokered deposits, are Republic's major source of funding. Deposits are generally solicited from the Company's market area through the offering of a variety of products to attract and retain customers, with a primary focus on multi-product relationships.

Total deposits increased by $69.5 million to $808.6 million at June 30, 2009 from $739.2 million at December 31, 2008. Average transaction account balances increased 8.0% or $30.1 million more than the prior year period to $406.9 million in the second quarter of 2009. Period end time deposits decreased $24.2 million, or

6.2% to $369.4 million at June 30, 2009, compared to $393.7 million at the prior year-end.

Short-Term Borrowings and FHLB Advances:

Short-term borrowings and FHLB advances are used to supplement deposits as a source of funds. Republic had $25.0 million FHLB advances at June 30, 2009 and December 31, 2008. These FHLB advances mature June 2010. Republic had no short-term borrowings (overnight) at June 30, 2009 compared to $77.3 million at the prior year-end.

Subordinated Debt:

Subordinated debt, which is comprised of the subordinated debentures supporting the common and capital, or trust preferred, securities of the Company's unconsolidated capital trusts, amounted to $22.5 million at June 30, 2009 and December 31, 2008.

Shareholders' Equity:

Total shareholders' equity decreased $8.0 million to $71.3 million at June 30, 2009, compared to $79.3 million at December 31, 2008, primarily due to the $9.2 million net loss recorded in the first six months of 2009.

Three Months Ended June 30, 2009 and June 30, 2008 Results of Operations:

Overview

The Company reported a net loss of $5.4 million, or $(0.51) per diluted share, for the three months ended June 30, 2009, compared to a $1.2 million net income, or $0.11 per diluted share, for the comparable prior year period. There was a $2.4 million, or 18.0%, decrease in total interest income, reflecting an 84 basis point decrease in the yield on average loans outstanding while interest expense decreased $2.2 million, reflecting a 125 basis point decrease in the rate on average interest-bearing deposits outstanding. Net interest income for the three months ended June 30, 2009 decreased $212,000 compared to the comparable period of 2008. The provision for loan losses in the second quarter of 2009 increased to $8.3 million, compared to $43,000 in the second quarter of 2008, primarily reflecting an increase from a recently completed comprehensive internal, external, and regulatory review of the Company's loan portfolio. Non-interest income decreased $454,000 to $382,000 in second quarter 2009 compared to $836,000 in second quarter 2008. Non-interest expenses increased $1.2 million to $7.2 million compared to $6.1 million in the second quarter of 2008, primarily due to a $425,000 charge for an FDIC special assessment and increases in salaries and employee benefits expense of $372,000 and $351,000 in professional fees. Return on average assets and average equity from continuing operations of (2.36)% and (28.88)% respectively, in the second quarter of 2009 compared to 0.51% and 6.12% respectively for the same period in 2008.

Analysis of Net Interest Income

Historically, the Company's earnings have depended primarily upon Republic's net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is affected by changes in the mix of the volume and rates of interest-earning assets and interest-bearing liabilities. The following table provides an analysis of net interest income, setting forth for the periods
(i) average assets, liabilities, and shareholders' equity, (ii) interest income earned on interest-earning assets and interest expense on interest-bearing liabilities, (iii) annualized average yields earned on interest-earning assets and average rates on interest-bearing liabilities, and (iv) Republic's annualized net interest margin (net interest income as a percentage of average total interest-earning assets). Averages are computed based on daily balances. Non-accrual loans are included in average loans receivable. Yields are adjusted for tax equivalency in second quarter 2009 and 2008.

                                      For the three months ended                           For the three months ended
                                             June 30, 2009                                       June 30, 2008

                                               Interest                                             Interest
(Dollars in
thousands)                  Average            Income/             Yield/            Average        Income/         Yield/
Interest-earning
assets:                     Balance            Expense            Rate (1)           Balance        Expense        Rate (1)
Federal funds sold
and other interest-
earning assets            $      9,955       $         19                0.77 %    $    10,618     $       58            2.20 %
Investment securities
and
restricted stock                86,230              1,109                5.14 %         82,392          1,167            5.67 %
Loans receivable               747,725              9,863                5.29 %        797,233         12,160            6.13 %
Total
interest-earning
assets                         843,910             10,991                5.22 %        890,243         13,385            6.05 %
Other assets                    79,454                                                  55,336
Total assets              $    923,364                                             $   945,579

Interest-bearing
liabilities:
Demand - non-interest
bearing                   $     81,046                                             $    74,126
Demand -
interest-bearing                44,487       $         75                0.68 %         31,236     $       69            0.89 %
Money market &
savings                        281,368              1,374                1.96 %        211,281          1,371            2.61 %
Time deposits                  383,161              2,180                2.28 %        441,069          4,169            3.80 %
Total deposits                 790,062              3,629                1.84 %        757,712          5,609            2.98 %
Total
interest-bearing
deposits                       709,016              3,629                2.05 %        683,586          5,609            3.30 %
Other borrowings                47,690                514                4.32 %        101,186            715            2.84 %
Total
interest-bearing
liabilities               $    756,706       $      4,143                2.20 %    $   784,772     $    6,324            3.24 %
Total deposits and
other borrowings               837,752              4,143                1.98 %        858,898          6,324            2.96 %
Non interest-bearing
other liabilites                10,127                                                   8,532
Shareholders' equity            75,485                                                  78,149
Total liabilities and
shareholders' equity      $    923,364                                             $   945,579

Net interest income
(2)                                          $      6,848                                          $    7,061
Net interest spread                                                      3.02 %                                          2.81 %

Net interest margin
(2)                                                                      3.25 %                                          3.19 %

(1) Yields on investments are calculated basd on amortized cost.
(2) Net interest income and net interest margin are presented on a tax equivalent basis. Net interest income has been increased over the financial statement amount by $56 and $57 in second quarter 2009 and 2008, respectively, to adjust for tax equivalency. The tax equivalent net interest margin is calculated by dividing tax equivalent net interest income by average total interest earning assets.

Rate/Volume Analysis of Changes in Net Interest Income

Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
expense are allocated to volume and rate categories based upon the respective
changes in average balances and average rates.


                                       Three months ended June 30, 2009
                                             versus June 30, 2008
                                               Due to change in:
(Dollars in thousands)              Volume             Rate          Total
Interest earned on:
Federal funds sold and other
 interest-earning assets           $      (1 )     $        (38 )   $    (39 )
Securities                                49               (107 )        (58 )
Loans                                   (653 )           (1,644 )     (2,297 )
Total interest-earning assets           (605 )           (1,789 )     (2,394 )

Interest expense of
Deposits
Interest-bearing demand deposits         (22 )               16           (6 )
Money market and savings                (342 )              339           (3 )
Time deposits                            329              1,660        1,989
Total deposit interest expense           (35 )            2,015        1,980
Other borrowings                         577               (376 )        201
Total interest expense                   542              1,639        2,181
Net interest income                $     (63 )     $       (150 )   $   (213 )

The Company's tax equivalent net interest margin increased 6 basis points to 3.25% for the three months ended June 30, 2009, compared to 3.19% for the prior year comparable period.

While yields on interest-earning assets decreased 83 basis points to 5.22% in second quarter 2009 from 6.05% in second quarter 2008, the rate on total deposits and other borrowings decreased 98 basis points to 1.98% from 2.96% between those respective periods. The decrease in yields on assets and rates on deposits and borrowings was primarily due to repricing assets and liabilities as a result of actions taken by the Board of Governors of the Federal Reserve System and the Federal Open Market Committee (the "Federal Reserve") since September 2007.

The Company's tax equivalent net interest income decreased $213,000, or 3.0%, to $6.8 million for the three months ended June 30, 2009, from $7.1 million for the prior year comparable period. The decrease in net interest income was due primarily to a decrease in average interest earning assets. Average interest-earning assets amounted to $843.9 million for second quarter 2009 and $890.2 million for second quarter 2008. The $46.3 million decrease resulted primarily from a reduction in loans of $49.5 million.

The Company's total tax equivalent interest income decreased $2.4 million, or 17.9%, to $11.0 million for the three months ended June 30, 2009, from $13.4 million for the prior year comparable period. Interest and fees on loans decreased $2.3 million, or 18.9%, to $9.9 million for the three months ended June 30, 2009, from $12.2 million for the prior year comparable period. The decrease was due primarily to the 84 basis point decline in the yield on loans, as variable rate loans in our portfolio repriced to lower interest rates, as a result of actions taken by the Federal Reserve. Tax equivalent interest and dividends on investment securities decreased $58,000 to $1.1 million for the three months ended June 30, 2009, from $1.2 million for the prior year comparable period. This decrease reflected a 53 basis point decline in the yield of investment securities primarily resulting from the discontinuation of dividends on FHLB stock. Interest on federal funds sold and other interest-earning assets decreased $39,000, or 67.2%, reflecting decreases in short-term market interest rates.

The Company's total interest expense decreased $2.2 million, or 34.5%, to $4.1 million for the three months ended June 30, 2009, from $6.3 million for the prior year comparable period. Interest-bearing liabilities averaged $756.7 million for the three months ended June 30, 2009, compared to $784.8 million for the prior year

comparable period, or a decrease of $28.1 million. The decrease primarily reflected reduced funding requirements due to a decrease in loans. Average deposit balances increased $32.4 million while there was a $53.5 million decrease in average other borrowings. The average rate paid on interest-bearing liabilities decreased 104 basis points to 2.20% for the three months ended June 30, 2009. Interest expense on time deposit balances decreased $2.0 million to $2.2 million in second quarter 2009, from $4.2 million in the comparable prior year period, primarily reflecting lower rates. Money market and savings interest expense increased $3,000 to $1.4 million in second quarter 2009. An increase in average balances for money market and savings deposits of $70.1 million, or 33.2%, was offset by a decrease of 65 basis points to 1.96% for the three months ended June 30, 2009. Accordingly, rates on total interest-bearing deposits decreased 125 basis points in second quarter 2009 compared to second quarter 2008.

Interest expense on other borrowings decreased $201,000 to $514,000 in second quarter 2009, primarily as a result of the lower average balances. Average other borrowings, primarily overnight FHLB borrowings, decreased $53.5 million, or 52.9%, between those respective periods. With the increase in money market and savings deposits in second quarter 2009, other borrowings included primarily term borrowings and subordinated debt. With the decrease in lower cost overnight borrowings in the second quarter 2009, the rate on other borrowings increased 148 basis points to 4.32%, from 2.84% in the comparable prior year period.

Provision for Loan Losses

The provision for loan losses is charged to operations in an amount necessary to bring the total allowance for loan losses to a level that reflects the known and estimated inherent losses in the portfolio. The provision for loan losses amounted to $8.3 million in second quarter 2009 compared to $43,000 in second quarter 2008.

The $8.3 million provision for loan losses in second quarter 2009 was primarily due to a recently completed comprehensive internal, external and regulatory review of the Company's loan portfolio. As a result of these reviews, management determined that the provision for loan losses should be increased to $8.3 million for the second quarter 2009. The significant increase from the comparable prior year period was due to the continued decline of collateral values within the Company's commercial real estate portfolio and a change in its methodology for calculating potential loan losses inherent in its loan portfolio coupled with a more conservative loan classification system. At June 30, 2009, as a result of the above items loan specific reserves were increased to $9.2 million representing 57% of the allowance for loan losses and the allowance for loan losses was 101% of non-performing loans.

The second quarter 2008 provision reflected an amount required to increase the allowance for loan growth in accordance with the Company's methodology.

Non-Interest Income

Total non-interest income decreased $454,000 to $382,000 for second quarter 2009 compared to $836,000 for the three months ended June 30, 2008, primarily due to a onetime MasterCard transaction of $309,000 recorded in second quarter 2008 and $176,000 in impairment charges on bank pooled trust preferred securities recorded in second quarter 2009.

Non-Interest Expenses

Total non-interest expenses increased $1.2 million or 19.1% to $7.2 million for the three months ended June 30, 2009, from $6.1 million for the prior year comparable period. Salaries and employee benefits increased $372,000 or 13.8%, to $3.1 million for the three months ended June 30, 2009, from $2.7 million for the prior year comparable period. That increase reflected additional staffing in second quarter 2009, as well as annual merit increases for certain individuals of up to three percent of their base salary.

Occupancy expense increased $157,000, or 26.4%, to $752,000 in second quarter 2009, compared to $595,000 in second quarter 2008. The increase reflected maintenance expense and incremental rent increases at several store locations as well as the corporate headquarters.

Depreciation expense increased $34,000 or 10.0% to $373,000 for the three months ended June 30, 2009, compared to $339,000 for the prior year comparable period, primarily due to leasehold improvements at several store locations.

Legal fees increased $47,000, or 17.2%, to $321,000 in second quarter 2009, compared to $274,000 in second quarter 2008, resulting from increased fees on a number of different matters, primarily relating to loan workouts.

Other real estate expenses decreased $333,000 for the three months ended June 30, 2009 to $49,000 compared to $382,000 for the second quarter 2008 due to a decrease of $293,000 in maintenance expenses on properties

owned and $40,000 in writedowns on properties owned.

Advertising expense decreased $115,000, or 77.2%, to $34,000 in second quarter 2009, compared to $149,000 in second quarter 2008. The decrease was primarily due to lower levels of print advertising.

Data processing expense increased $20,000, or 9.9%, to $223,000 in second quarter 2009, compared to $203,000 in second quarter 2008, primarily due to system enhancements.

Insurance expense increased $6,000, or 4.1%, to $154,000 in second quarter 2009, compared to $148,000 in second quarter 2008.

Professional fees increased $351,000, or 243.8%, to $495,000 in second quarter 2009, compared to $144,000 in second quarter 2008, resulting from increased consulting fees related to the pending merger.

Regulatory assessments and costs expenses increased $418,000, or 234.8%, to $596,000 in second quarter 2009, compared to $178,000 in second quarter 2008, resulting from an FDIC special assessment of $425,000 recorded in second quarter 2009.

Taxes, other decreased $5,000, or 2.0%, to $246,000 for the three months ended June 30, 2009, compared to $251,000 for the comparable prior year period.

Other expenses increased $206,000, or 29.6% to $901,000 for the three months ended June 30, 2009, from $695,000 for the prior year comparable period, reflecting increases in travel and parking expenses related to the pending merger of $116,000 and legal settlement expense of $63,000.

Provision for Income Taxes

The provision for income taxes decreased $3.4 million, to a $2.9 million benefit for the three months ended June 30, 2009, from a $547,000 for the prior year comparable period, primarily as a result of the decrease in pre-tax income. The effective tax rates for those periods were 34% and 32% respectively.

Six Months Ended June 30, 2009 compared to June 30, 2008 Results of Operations:

Overview

The Company's net income decreased to a $9.2 million loss or $(0.86) per diluted share for the six months ended June 30, 2009, compared to $1.6 million, or $(0.16) per diluted share for the comparable prior year period. There was a $6.1 million, or 21.6%, decrease in total interest income, reflecting a 111 basis point decrease in the yield on average loans outstanding while interest expense decreased $5.5 million, reflecting a 148 basis point decrease in the rate on average interest- bearing deposits outstanding. Accordingly, net interest income decreased $576,000 between the periods. The provision for loan losses in the . . .