10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

[     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from		to
Commission File Number:	000-50961

METRO BANCORP, INC.

 (Exact name of registrant as specified in its charter)

Pennsylvania	25-1834776
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

3801 Paxton Street, P.O. Box 4999, Harrisburg, PA	17111-0999
(Address of principal executive offices)	(Zip Code)

800-653-6104

 (Registrant's telephone number, including area code)

 (Former name, former address and former fiscal year, if changed since last report)

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

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer	Accelerated filer	X
Non-accelerated filer	Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

Indicate the number of shares outstanding of each of the issuer's classes of common stock,

as of the latest practicable date: 13,427,651 Common shares outstanding at 10/31/2009

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METRO BANCORP, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)
	September 30, 2009 and December 31, 2008	3
	Consolidated Statements of Operations (Unaudited)
	Three months and nine months ended September 30, 2009 and September 30, 2008	4
	Consolidated Statements of Stockholders' Equity  (Unaudited)
	Nine months ended September 30, 2009 and September 30, 2008	5
	Consolidated Statements of Cash Flows (Unaudited)
	Nine months ended September 30, 2009 and September 30, 2008	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition
	And Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
Item 4T.	Controls and Procedures	44
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Submission of Matters to a Vote of Securities Holders	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Signatures

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Part I – FINANCIAL INFORMATION

Item 1.                 Financial Statements

Metro Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)

	(in thousands, except share and per share amounts)	September 30, 2009			December 31, 2008
Assets	Cash and cash equivalents	$	36,762		$	49,511
	Securities, available for sale at fair value		296,953			341,656
	Securities, held to maturity at cost
	(fair value 2009: $100,307;  2008: $154,357)		96,867			152,587
	Loans, held for sale		13,289			41,148
	Loans receivable, net of allowance for loan losses
	(allowance 2009: $14,618;  2008: $16,719)		1,456,636			1,423,064
	Restricted investments in bank stocks		21,630			21,630
	Premises and equipment, net		93,567			87,059
	Other assets		70,791			23,872
	Total assets	$	2,086,495		$	2,140,527
Liabilities	Deposits:
	Noninterest-bearing	$	307,192		$	280,556
	Interest-bearing		1,429,769			1,353,429
	Total deposits		1,736,961			1,633,985
	Short-term borrowings and repurchase agreements		83,650			300,125
	Long-term debt		54,400			79,400
	Other liabilities		15,762			12,547
	Total liabilities		1,890,773			2,026,057
Stockholders’ Equity	Preferred stock – Series A noncumulative; $10.00 par   value; 1,000,000 shares authorized; 40,000 shares   issued and outstanding		400			400
	Common stock – $1.00 par value; 25,000,000 shares   authorized; issued and outstanding –   2009: 12,793,634;  2008: 6,446,421		12,794			6,446
	Surplus		140,192			73,221
	Retained earnings		50,615			51,683
	Accumulated other comprehensive loss		(8,279	)		(17,280	)
	Total stockholders’ equity		195,722			114,470
	Total liabilities and stockholders’ equity	$	2,086,495		$	2,140,527

See accompanying notes.

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Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

		Three Months Ended		Nine Months Ended
	(in thousands,	September 30,		September 30,
	except per share amounts)	2009	2008	2009	2008
Interest	Loans receivable, including fees:
Income	Taxable	$ 18,548	$ 20,179	$ 56,334	$ 58,917
	Tax-exempt	1,108	937	3,147	2,375
	Securities:
	Taxable	4,638	6,898	15,031	21,934
	Tax-exempt	16	16	49	49
	Total interest income	24,310	28,030	74,561	83,275
Interest	Deposits	4,314	5,659	13,038	17,554
Expense	Short-term borrowings	226	1,497	976	4,746
	Long-term debt	1,091	1,222	3,516	3,653
	Total interest expense	5,631	8,378	17,530	25,953
	Net interest income	18,679	19,652	57,031	57,322
	Provision for loan losses	3,725	1,700	10,625	4,075
	Net interest income after provision for loan losses	14,954	17,952	46,406	53,247
Noninterest	Service charges and other fees	5,892	6,016	17,243	17,935
Income	Other operating income	160	172	497	499
	Gains on sales of loans	238	177	294	574
	Total fees and other income	6,290	6,365	18,034	19,008
	Other-than-temporary impairment losses	(6,399)	-	(5,423)	-
	Portion recognized in other comprehensive income (before taxes)	5,447	-	3,098	-
	Net impairment loss on investment securities	(952)	-	(2,325)	-
	Gains (losses) on sales/call of securities	1,515	-	1,570	(157)
	Total noninterest income	6,853	6,365	17,279	18,851
Noninterest	Salaries and employee benefits	10,643	9,507	31,941	27,730
Expenses	Occupancy	1,928	2,010	5,959	6,080
	Furniture and equipment	1,300	1,068	3,416	3,254
	Advertising and marketing	830	655	1,875	2,318
	Data processing	2,537	1,803	6,739	5,337
	Postage and supplies	617	426	1,565	1,427
	Regulatory assessments and related fees	830	541	3,256	2,280
	Telephone	1,424	577	2,987	1,758
	Core system conversion/branding (net)	(911)	-	(523)	-
	Merger/acquisition	250	-	655	-
	Other	3,351	2,774	8,194	7,155
	Total noninterest expenses	22,799	19,361	66,064	57,339
	Income (loss) before taxes	(992)	4,956	(2,379)	14,759
	Provision (benefit) for federal income taxes	(502)	1,523	(1,371)	4,614
	Net income (loss)	$    (490)	$ 3,433	$  (1,008)	$ 10,145
	Net Income (loss) per Common Share:
	Basic	$   (0.08)	$   0.54	$ (0.16)	$    1.59
	Diluted	(0.08)	0.52	(0.16)	1.55
	Average Common and Common Equivalent Shares Outstanding:
	Basic	6,591	6,358	6,520	6,342
	Diluted	6,591	6,531	6,520	6,511

See accompanying notes.

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Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (unaudited)

( in thousands, except share amounts)	Preferred Stock		Common Stock		Surplus	Retained Earnings	Accumulated Other Comprehensive (Loss)		Total
Balance: January 1, 2008		$ 400	$ 6,314	$ 70,610		$ 38,862	$ (3,851)	$ 112,335
Comprehensive income (loss):
Net income		-	-	-		10,145	-	10,145
Change in unrealized losses on securities, net of tax		-	-	-		-	(10,434)	(10,434)
Total comprehensive loss								(289)
Dividends declared on preferred stock		-	-	-		(60)	-	(60)
Common stock of 30,512 shares issued under stock option plans, including tax benefit of $102		-	30	522		-	-	552
Common stock of 100 shares issued under employee stock purchase plan		-	-	2		-	-	2
Proceeds from issuance of 26,848 shares of common stock in connection with dividend reinvestment and stock purchase plan		-	27	663		-	-	690
Common stock share-based awards		-	-	840		-	-	840
Balance, September 30, 2008		$ 400	$ 6,371	$ 72,637		$ 48,947	$ (14,285)	$ 114,070

( in thousands,  except share amounts)	Preferred Stock	Common Stock	Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)		Total
Balance: January 1, 2009	$ 400	$   6,446	$  73,221	$ 51,683	$ (17,280)	$ 114,470
Comprehensive income (loss):
Net loss	-	-	-	(1,008)	-	(1,008)
Other comprehensive income	-	-	-	-	9,001	9,001
Total comprehensive income						7,993
Dividends declared on preferred stock	-	-	-	(60)	-	(60)
Common stock of 44,179 shares issued under stock option plans, including tax benefit of $51	-	45	605	-	-	650
Common stock of 370 shares issued under employee stock purchase plan	-	-	7	-	-	7
Proceeds from issuance of 52,664 shares of common stock in connection with dividend reinvestment and stock purchase plan	-	53	824	-	-	877
Common stock share-based awards	-	-	1,060	-	-	1,060
Proceeds from issuance of 6,250,000 shares of common stock in connection with  stock offering	-	6,250	64,475	-	-	70,725
Balance, September 30, 2009	$ 400	$ 12,794	$ 140,192	$ 50,615	$  (8,279)	$ 195,722

See accompanying notes.

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Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

		Nine Months Ending September 30,
	(in thousands)	2009	2008
Operating Activities	Net income (loss)	$       (1,008)	$    10,145
	Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
	Provision for loan losses	10,625	4,075
	Provision for depreciation and amortization	3,760	3,779
	Deferred income taxes	2,047	(1,262)
	Amortization of securities premiums and accretion of discounts, net	387	353
	Net (gains) losses on sales and calls of securities	(1,570)	157
	Other-than-temporary security impairment losses	2,325	-
	Proceeds from sales of loans originated for sale	129,633	47,845
	Loans originated for sale	(101,474)	(65,063)
	Gains on sales of loans originated for sale	(294)	(574)
	Loss on disposal of equipment	839	-
	Stock-based compensation	1,060	840
	Amortization of deferred loan origination fees and costs	1,606	1,329
	(Increase) decrease in other assets	(54,514)	1,085
	Increase  in other liabilities	3,215	2,316
	Net cash provided (used)  by operating activities	(3,363)	5,025
Investing Activities	Securities held to maturity:
	Proceeds from principal repayments, calls  and maturities	52,424	189,523
	Proceeds from sales	3,425	1,843
	Purchases	-	(129,986)
	Securities available for sale:
	Proceeds from principal repayments and maturities	80,489	38,377
	Proceeds from sales	47,010	-
	Purchases	(70,218)	(23,212)
	Proceeds from sales of loans receivable	5,639	-
	Net increase in loans receivable	(51,393)	(227,924)
	Net purchase of restricted investments in bank stock	-	(888)
	Proceeds from sale of premises and equipment	18	-
	Proceeds from sale of foreclosed real estate	652	304
	Purchases of premises and equipment	(11,125)	(1,015)
	Net cash provided (used)  by investing activities	56,921	(152,978)
Financing Activities	Net increase in demand, interest checking, money market, and savings deposits	63,693	98,124
	Net increase in time deposits	39,283	30,740
	Net (decrease) increase in short-term borrowings	(216,475)	13,353
	Repayment of long-term borrowings	(25,000)	-
	Proceeds from common stock options exercised	599	450
	Proceeds from dividend reinvestment and common stock purchase plan	877	690
	Proceeds from issuance of common stock in connection with stock offering	70,725	-
	Tax  benefit on exercise of stock options	51	102
	Cash dividends on preferred stock	(60)	(60)
	Net cash  provided (used) by financing activities	(66,307)	143,399
	Decrease in cash and cash equivalents	(12,749)	(4,554)
	Cash and cash equivalents at beginning of year	49,511	50,955
	Cash and cash equivalents at end of period	$  36,762	$   46,401

See accompanying notes.

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METRO BANCORP, INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Note 1.                 CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements were prepared in accordance with GAAP for interim financial statements and with instructions for Form 10-Q and Regulation S-X Section 210.10-01. Further information on the Company’s accounting policies are available in Note 1 (Significant Accounting Policies) of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented. Such adjustments are of a normal, recurring nature.

In June 2009, the Federal Accounting Standards Board ("FASB") announced the FASB Accounting Standards Codification (the Codification or ASC) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with GAAP. Rules and interpretative releases of the Securities and Exchange Commission under federal securities laws are also sources of authoritative GAAP for SEC registrants. The new standard became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated financial position or results of operations.

These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The Company has evaluated subsequent events through November 9, 2009 which is the date the consolidated financial statements have been issued. (See Note 10). The results for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The consolidated financial statements include the accounts of Metro Bancorp, Inc. (the “Company”) and its consolidated subsidiaries including Metro Bank (the “Bank”). All material intercompany transactions have been eliminated. Certain amounts from prior years have been reclassified to conform to the 2009 presentation. Such reclassifications had no impact on the Company’s net income.

Note 2.                 STOCK-BASED COMPENSATION

The fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the following weighted-average assumptions for September 30, 2009 and 2008, respectively: risk-free interest rates of 2.3% and 3.3%; volatility factors of the expected market price of the Company's common stock of .29 for both years; weighted average expected lives of the options of 8.6 years for 2009 and 8.3 years for 2008; and no cash dividends. The calculated weighted average fair value of options granted using these assumptions for September 30, 2009 and 2008 was $6.06 and $10.69 per option, respectively. In the first nine months of 2009, the Company granted 182,770 options to purchase shares of the Company’s stock at exercise prices ranging from $11.72 per share to $19.55 per share.

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The Company recorded stock-based compensation expense of approximately $1.1 million and $840,000 during the nine months ended September 30, 2009 and September 30, 2008, respectively for stock options.

Note 3.                 NEW ACCOUNTING STANDARDS

In December of 2007, the Financial Accounting Standards Board (“FASB”) issued guidance related to business combinations. This guidance establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The guidance also provides instruction for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination. The guidance impacts business combinations which occur after January 1, 2009.  Given that the guidance requires the expensing of direct acquisition costs, the Company expensed such costs in 2008 and in the first nine months of 2009 that were incurred in conjunction with the pending acquisition of Republic First Bancorp, Inc., as more fully described in Note 7, and will continue to expense such future costs as incurred.

In June 2009, the FASB issued guidance that prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets.  The concept of a qualifying special-purpose entity is no longer part of this guidance. The guidance also modifies the de-recognition conditions related to legal isolation and effective control and adds additional disclosure requirements for transfers of financial assets.  This guidance is effective for fiscal years beginning after November 15, 2009.  We have not determined the effect that the adoption will have on our financial position or results of operations.

In June 2009, the FASB issued guidance which requires a company to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity.  The primary beneficiary of a variable interest entity is the company that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.  The guidance also amends existing consolidation guidance that required ongoing reassessments of whether a company is the primary beneficiary of a variable interest entity.  This guidance is effective for fiscal years beginning after November 15, 2009.  We have not determined the effect the adoption will have on our financial position or results of operations.

Note 4.                 COMMITMENTS AND CONTINGENCIES

The Company is subject to certain routine legal proceedings and claims arising in the ordinary course of business. It is management’s opinion that the ultimate resolution of these claims will not have a material adverse effect on the Company’s financial position and results of operations.

In the normal course of business, there are various outstanding commitments to extend credit, such as letters of credit and unadvanced loan commitments. At September 30, 2009, the Company had $474.4 million in unused commitments. Management does not anticipate any material losses as a result of these transactions.

On November 10, 2008, Metro announced it had entered into a services agreement with Fiserv Solutions, Inc. (Fiserv). The agreement, effective November 7, 2008, is for a period of seven years, subject to automatic renewal for additional terms of two years unless either party gives the

8

other written notice of non-renewal at least 180 days prior to the expiration date of the term. The agreement allowed the Bank to transition to Fiserv many of the services that had been provided by Commerce Bank, N.A., now known as TD Bank, N.A. The initial investment with Fiserv was $3.4 million with an expected obligation for support, license fees and processing services of $24.6 million over the next seven years. The various services include: core system hosting, item processing, deposit and loan processing, electronic banking, data warehousing and other banking functions. The transition was successfully completed in June 2009.

Future Facilities

The Company owns a parcel of land at the corner of Carlisle Road and Alta Vista Road in Dover Township, York County, Pennsylvania. The Company plans to construct a full-service store on this property to be opened in the future.

The Company has entered into a land lease for the premises located at 2121 Lincoln Highway East, East Lampeter Township, Lancaster County, Pennsylvania. The Company plans to construct a full-service store on this property to be opened in the future.

The Company has purchased land at 105 N. George Street, York City, York County, Pennsylvania. The Company plans to open a store on this property in the future.

Note 5.                 OTHER COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income are components of comprehensive income. The only other comprehensive income components that the Company presently has are unrealized gains (losses) on securities available for sale and noncredit related impairment losses. The federal income taxes allocated to the unrealized gains (losses) are presented in the following table:

	Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	2009	2008	2009	2008
Unrealized holding gains (losses) arising during the period	$   6,137	$ (3,832)	$  9,458	$ (16,052)
Reclassification for net realized gains and losses on securities recorded in income	(57)	-	1,292	-
Non-credit related impairment losses on securities not expected to be sold	5,447	-	3,098	-
Subtotal	11,527	(3,832)	13,848	(16,052)
Income tax effect	(4,034)	1,341	(4,847)	5,618
Other comprehensive income (loss)	$  7,493	$ (2,491)	$  9,001	$ (10,434)

Note 6.                 GUARANTEES

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, when issued, letters of credit have expiration dates within two years. The credit risk associated with letters of credit is essentially the same as that of traditional loan facilities. The Company generally requires collateral and/or personal guarantees to support these commitments. The Company had $35.5 million of standby letters of credit at September 30, 2009. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment

9

required under the corresponding letters of credit. There was no current amount of the liability at September 30, 2009 and December 31, 2008 for guarantees under standby letters of credit issued.

Note 7.                 PENDING ACQUISITION

On November 10, 2008, the Company announced it had entered into a definitive agreement to acquire Philadelphia-based Republic First Bancorp, Inc. ("Republic First") in a tax-free all stock transaction.  The combined company will have total assets exceeding $3 billion and a network of 45 branches in Central Pennsylvania, Metro Philadelphia and Southern New Jersey. Shareholders of Republic First and the Company approved the merger on March 18, 2009 and March 19, 2009, respectively.

On July 31, 2009, the Company and Republic First entered into a First Amendment to the parties November 7, 2008 Agreement and Plan of Merger. The First Amendment extended the closing deadline of the merger to October 31, 2009, with the provision that either Company, with notice to the other, could further extend the closing deadline to December 31, 2009 in the event that the parties did not have regulatory approvals by September 30, 2009. On October 29, 2009, the Company and Republic First extended the merger closing deadline to December 31, 2009 to allow additional time to obtain necessary regulatory approval.

Note 8.                 FAIR VALUE DISCLOSURE

The Company uses its best judgment in estimating the fair value of its assets and liabilities; however, there are inherent weaknesses in any estimation technique due to assumptions that are susceptible to significant change.  Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. 

Fair value is the price that would be received to sell an asset or paid to transfer a liability. The Company uses the following fair value hierarchy in selecting inputs with the highest priority given to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements): 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

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As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company’s financial assets that were measured at fair value on a recurring basis at September 30, 2009 by level within the fair value hierarchy:

		Fair Value Measurements at Reporting Date Using
Description	September 30, 2009	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(in thousands)		(Level 1)	(Level 2)	(Level 3)
Securities available for sale	$ 296,953	$  -	$ 296,953	$  -

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 were as follows:

		Fair Value Measurements at Reporting Date Using
Description	December 31, 2008	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(in thousands)		(Level 1)	(Level 2)	(Level 3)
Securities available for sale	$ 341,656	$  -	$ 341,656	$  -

As of September 30, 2009 and December 31, 2008, the Company did not have any liabilities that were measured at fair value on a recurring basis.

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2009 are as follows:

		Fair Value Measurements at Reporting Date Using
Description	September 30, 2009	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(in thousands)		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$ 1,524	$     -	$     -	$  1,524
Foreclosed assets	6,875	-	-	6,875
Total	$ 8,399	$     -	$     -	$  8,399

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For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 were as follows:

		Fair Value Measurements at Reporting Date Using
Description	December 31, 2008	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(in thousands)		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$ 9,034	$     -	$     -	$ 9,034

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2009 and at December 31, 2008: 

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values. 

Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. 

Loans Held for Sale (Carried at Lower of Cost or Fair Value)

The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices.  If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan.  The Company did not write down any loans held for sale during the nine months ended September 30, 2009 or year ended December 31, 2008. 

Loans Receivable (Carried at Cost)

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. 

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those that the Bank has measured impairment of generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of

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input that is significant to the fair value measurements.   The fair value consists of the loan balances less any valuation allowance. The valuation allowance amount is calculated as the difference between the recorded investment in a loan and the present value of expected future cash flows. At September 30, 2009, the fair value consists of impaired loan balances and their associated loan relationships with reserve allocations of $1.5 million, which includes a valuation allowance of $918,000. 

Restricted Investment in Bank Stock (Carried at Cost)

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.  The restricted investments in bank stock consisted of Federal Home Loan Bank stock at September 30, 2009 and December 31, 2008. 

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value. 

Foreclosed Assets (Carried at Lower of Cost or Fair Value)

Fair value of real estate acquired through foreclosure was based on independent third party appraisals of the properties, recent offers, or prices on comparable properties. These values were determined based on the sales prices of similar properties in the proximate vicinity.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. 

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings and repurchase agreements approximate their fair values. 

Long-Term Debt (Carried at Cost)

The fair value of the FHLB advance was estimated using discounted cash flow analysis, based on a quoted price for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. The price obtained from this active market represents a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.  Other long-term debt was estimated using discounted cash flow analysis, based on quoted prices from a third party broker for new debt with similar characteristics, terms and remaining maturity.  The price for the other long-term debt was obtained in an inactive market where these types of instruments are not traded regularly. 

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

Fair values for the Bank’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

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The estimated fair values of the Company’s financial instruments were as follows at September 30, 2009 and December 31, 2008: 

	September 30, 2009				December 31, 2008
(in thousands)	Carrying Amount		Fair  Value		Carrying Amount			Fair  Value
Financial assets:
Cash and cash equivalents	$	36,762	$	36,762	$	49,511	$	49,511
Securities		393,820		397,260		494,243		496,013
Loans, net (including loans held for sale)		1,469,925		1,446,854		1,464,212		1,472,037
Restricted investments in bank stock		21,630		21,630		21,630		21,630
Accrued interest receivable		6,725		6,725		7,686		7,686
Financial liabilities:
Deposits	$	1,736,961	$	1,723,826	$	1,633,985	$	1,636,027
Long-term debt		54,400		33,104		79,400		71,424
Short-term borrowings		83,650		83,650		300,125		300,125
Accrued interest payable		902		902		1,164		1,164
Off-balance sheet instruments:
Standby letters of credit	$	-	$	-	$	-	$	-
Commitments to extend credit		-		-		-		-

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Note 9.                      SECURITIES

The amortized cost and fair value of securities are summarized in the following tables:

	September 30, 2009
(in thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized (Losses)	Fair Value
Available for Sale: U.S. Government Agency securities	$   30,009	$    174	$             -	$   30,183
Residential mortgage-backed securities	279,681	3,112	(16,023)	266,770
Total	$ 309,690	$ 3,286	$ (16,023)	$ 296,953
Held to Maturity:
Municipal securities	$     1,624	$      11	$             -	$     1,635
Residential mortgage-backed securities	93,247	3,423	(68)	96,602
Corporate debt securities	1,996	74	-	2,070
Total	$   96,867	$ 3,508	$       (68)	$ 100,307

	December 31, 2008
(in thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized (Losses)	Fair Value
Available for Sale:
U.S. Government Agency securities	$     5,000	$        2	$             -	$     5,002
Residential mortgage-backed securities	363,241	2,253	(28,840)	336,654
Total	$ 368,241	$ 2,255	$ (28,840)	$ 341,656
Held to Maturity:
U.S. Government Agency securities	$   36,500	$    258	$             -	$   36,758
Municipal securities	1,623	12	-	1,635
Residential mortgage-backed securities	112,472	2,049	(557)	113,964
Corporate debt securities	1,992	8	-	2,000
Total	$ 152,587	$ 2,327	$      (557)	$ 154,357

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The amortized cost and fair value of debt securities at September 30, 2009 by contractual maturity are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.

	Available for Sale		Held to Maturity
(in thousands)	Amortized Cost	Fair Value	Amortized Cost	Fair  Value
Due in one year or less	$             -	$              -	$   1,996	$     2,070
Due after one year through five years	20,009	20,089	655	660
Due after five years through ten years	10,000	10,094	-	-
Due after ten years	-	-	969	975
	30,009	30,183	3,620	3,705
Residential mortgage-backed securities	279,681	266,770	93,247	96,602
Total	$ 309,690	$ 296,953	$ 96,867	$ 100,307

During the third quarter of 2009, the Company sold 45 mortgage-backed securities with a fair market value of $48.6 million.  Of this total, 31 securities had been classified as available for sale with a carrying value of $44.3 million.  The Company realized proceeds of $45.7 million for a pretax gain of $1.5 million.  The securities sold also included 14 mortgage-backed securities with a fair market value of $2.9 million and a carrying value of $2.8 million that had been classified as held to maturity and were sold due to their small remaining size.  In every case, the current face had fallen below 15% of the original purchase amount. A pretax gain of $147,000 was recognized on the sale of securities classified as held to maturity. The Company uses the specific identification method to record security sales. During the first nine months of 2009, the Company sold a total of 65 mortgage-backed securities with a fair market value of $49.7 million.  Of this total, 42 securities had been classified as available for sale with a carrying value of $44.8 million.  The Company realized proceeds of $46.3 million for a pre-tax gain of $1.5 million.  The securities sold also included 22 mortgage-backed securities with a fair market value of $3.4 million and a carrying value of $3.2 million that had been classified as held to maturity and were sold due to their small remaining size.  In every case, the current face had fallen below 15% of the original purchase amount.  A pre-tax gain of $171,000 was recognized on the sale of securities classified as held to maturity.

The following table summarizes the Company’s gains and losses on the sales of debt securities and losses recognized for the other-than-temporary impairment of investments:

(in thousands)	Gross Realized Gains	Gross Realized (Losses)	Other-Than- Temporary Impairment (Losses)	Net Gains (Losses)
Three Months Ended:
September 2009	$ 1,527	$        (12)	$    (952)	$    563
September 2008	-	-	-	-
Nine Months Ended:
September 2009	$ 1,582	$        (12)	$ (2,325)	$ (755)
September 2008	-	(157)	-	(157)

Also during the third quarter of 2009, the Company had $10.0 million of agency debentures called, at par, by their issuing agencies.  All of the bonds were classified as held to maturity and   each of the securities were carried at par.

There were no sales of securities in the available for sale portfolio in 2008. There was one sale in the held to maturity portfolio during the second quarter of 2008. The Company sold a $2.0

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million corporate debt security due to significant deterioration in the creditworthiness of the issuer. A pretax loss of $157,000 was recognized on this sale during the second quarter of 2008.

At September 30, 2009 and December 31, 2008, securities with a carrying value of $ 386.9 million and $356.1 million respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

The following table shows the Company’s investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	September 30, 2009
	Less than 12 months		12 months or more		Total
(in thousands)	Fair Value	Unrealized (Losses)	Fair Value	Unrealized (Losses)	Fair Value	Unrealized (Losses)
Available for Sale:
Residential mortgage-backed securities	$  42,697	$ (1,583)	$ 138,009	$ (14,440)	$ 180,706	$ (16,023)
Total	$  42,697	$ (1,583)	$ 138,009	$ (14,440)	$ 180,706	$ (16,023)
Held to Maturity:
Residential mortgage-backed securities	$            -	$           -	$     4,205	$       (68)	$     4,205	$       (68)
Total	$            -	$           -	$     4,205	$       (68)	$     4,205	$       (68)
	December 31, 2008
	Less than 12 months		12 months or more		Total
(in thousands)	Fair Value	Unrealized (Losses)	Fair Value	Unrealized (Losses)	Fair Value	Unrealized (Losses)
Available for Sale:
Residential mortgage-backed securities	$ 60,927	$ (5,025)	$ 144,387	$ (23,815)	$ 205,314	$ (28,840)
Total	$ 60,927	$ (5,025)	$ 144,387	$ (23,815)	$ 205,314	$ (28,840)
Held to Maturity:
Residential mortgage-backed securities	$         -	$          -	$     4,916	$      (557)	$     4,916	$      (557)
Total	$         -	$          -	$     4,916	$      (557)	$     4,916	$      (557)

The Company’s investment securities portfolio consists primarily of U.S. Government agency securities, U.S. Government sponsored agency mortgage-backed obligations and private-label collateralized mortgage obligations (CMO’s). The securities of the U.S. Government sponsored agencies and the U.S. Government mortgage-backed securities have little credit risk because their principal and interest payments are backed by an agency of the U.S. Government. Private label CMO’s are not backed by the full faith and credit of the U.S. Government nor are their principal and interest payments guaranteed. Historically, most private label CMO’s have carried a AAA bond rating on the underlying issuer, however, the subprime mortgage problems and decline in the residential housing market in the U.S. throughout 2008 and 2009 have led to some ratings downgrades and subsequent other-than-temporary impairment (“OTTI”) of many types of CMO’s.

The unrealized losses in the Company’s investment portfolio at September 30, 2009 are associated with two different types of securities. The first type includes eight government agency sponsored CMO’s, all of which have yields that are indexed to a spread over the one month London Interbank Offered Rate (LIBOR). Management believes that the unrealized losses on the Company’s investment in these federal agency CMO’s were primarily caused by their low spread to LIBOR. The second type of security in the Company’s investment portfolio with unrealized losses at September 30, 2009 was private label CMO’s. As of September 30, 2009, the Company owned thirty-one private label CMO securities in its investment portfolio with a

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total book value of $132.1 million. Management performs quarterly assessments of these securities for other-than-temporary impairment.  As part of this assessment, the Company uses a third-party source for the monthly pricing of its portfolio. As a general rule, the Bank does not solicit firm street bids for its investment holdings unless a reasonable sale program is being considered.  Neither does it receive unsolicited street bids from any third-party sources.  Rather, the Bank uses the third party's econometric models and market-based inputs to provide reasonable valuations used in its OTTI analysis.Both the third-party and the Bank consider these indications to be based upon Level 2 inputs through matrix pricing, observed quotes for similar assets, and/or market-corroborated inputs.

Recognition and Presentation of Other-Than-Temporary Impairments

Prior to April 1, 2009, unrealized losses that were determined to be temporary were recorded, net of tax, in other comprehensive income for available-for-sale securities, whereas unrealized losses related to held to maturity securities determined to be temporary were not recognized. Regardless of whether the security was classified as available-for-sale or held to maturity, unrealized losses that were determined to be other-than-temporary were recorded to earnings in their entirety. An unrealized loss was considered other-than-temporary if (i) it was not probable that the holder would collect all amounts due according to the contractual terms of the debt security, or (ii) the fair value was below the amortized cost of the debt security for a prolonged period of time and we did not have the positive intent and ability to hold the security until recovery or maturity.

During the second quarter of 2009 the Company adopted fair value measurement guidance that clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) we have the intent to sell the security; (b) it is more likely than not that we will be required to sell the security prior to its anticipated recovery; or (c) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. Previously, this assessment required management to assert we had both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an OTTI. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an OTTI exists but we do not intend to sell the debt security and it is not more likely than not that we will be required to sell the debt security prior to its anticipated recovery, the OTTI is separated into (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (“the credit loss”) and (b) the amount related to all other factors. The amount of the OTTI related to the credit loss is recognized in earnings and the amount of the OTTI related to all other factors is recognized in other comprehensive income.

For all securities held in the available-for-sale or held to maturity portfolio for which unrealized losses have existed for a period of time, we do not have the intention to sell and believe we will not be required to sell the securities prior to their recovery or maturity for contractual, regulatory or liquidity reasons as of the reporting date.

Based on management’s assessment at September 30, 2009, with the exception of the securities described below, the Company does not believe that the decreased market prices associated with its mortgage-backed securities, constitute an other-than-temporary impairment.

Through September 30, 2009, the Company recognized unrealized losses of $5.4 million related to three private-label CMO’s classified as available for sale.  This compares to an unrealized loss of $12.3 million on June 30, 2009.  The improved position is primarily the result of increased fair market valuations stemming from strengthening economic conditions as well as improved market prices for mortgage-backed securities in general.  Management does not currently intend to sell these securities and believes it is not likely that the Company will be required to sell the securities before recovery of its amortized cost.   The Company determined that $2.3

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million of the total unrealized loss of $5.4 million was deemed attributable to credit losses and was therefore recognized in earnings through September 30, 2009.  As of June 30, 2009, the Company had recognized credit losses of $1.4 million and recognized an additional $952,000 during the third quarter of 2009.  The $3.1 million difference between the total unrealized losses of $5.4 million and the $2.3 million of losses attributable to credit has been recognized as a reduction in other comprehensive income.

The Company considers the following factors for determining whether a credit loss exists:   bond ratings, pool factor, default rates, weighted average coupon, weighted average maturity, weighted average loan age, loan to value, credit scores, geographic concentration and prepayment rates.  When consideration of the previous factors indicates that a credit loss may occur, the Company utilized cash flow models to present value any credit loss.

The valuation model captures the composition of the underlying collateral and the cash flow structure of the security.   Significant inputs to the model include delinquencies, collateral types and related contractual features, estimated rates of default, loss severity and prepayment assumptions.

The roll-forward of the amount of the credit losses which have been recognized in earnings for the 3 private label CMOs previously mentioned is as follows:

(in thousands)	January 1, 2009 Cumulative OTTI credit losses		Additions for which OTTI was not previously recognized		Additional increases for OTTI Previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis		September 30, 2009 Cumulative OTTI credit losses recognized for securities still held
Available for Sale:
Residential mortgage-backed securities	$	-	$	2,325	$	-	$	2,325
Total	$	-	$	2,325	$	-	$	2,325
(in thousands)	July 1, 2009 Cumulative OTTI credit losses		Additions for which OTTI was not previously recognized		Additional increases for OTTI Previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis		September 30, 2009 Cumulative OTTI credit losses recognized for securities still held
Available for Sale:
Residential mortgage-backed securities	$	1,373	$	-	$	952	$	2,325
Total	$	1,373	$	-	$	952	$	2,325

Prior to September 30, 2009, the Bank sold one private label CMO that had been in an unrealized loss position as of June 30, 2009 but which had subsequently recovered its cost basis.  This was not one of the three securities recognized in the table of OTTI credit losses above.  The security had been classified as available for sale and had a carrying value of $3.7 million. The Company realized proceeds of $3.7 million for a pretax gain of $2,300.

Restricted stock, which represents required investments in the common stock of correspondent banks, is carried at cost and as of September 30, 2009 and December 31, 2008 consisted of the common stock of FHLB of Pittsburgh (“FHLB”). In December 2008, the FHLB notified member banks that it was suspending dividend payments and the repurchase of capital stock.

Management evaluates the restricted stock for impairment in accordance with FASB guidance on 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 September 30, 2009.

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Note 10.                      SUBSEQUENT EVENTS

Subsequent to the Company’s capital offering of 6.25 million shares, at $12.00 per share, for net new capital proceeds of $70.7 million which occurred on September 30, 2009, the offering underwriters exercised a 10% over allotment option and Metro Bancorp issued an additional 625,000 common shares for net proceeds of $7.1 million on October 13, 2009.  The initial offering of 6.25 million shares increased the Company’s already “well-capitalized” ratios to: Tier 1 capital to risk-weighted assets of 13.07% and total capital to risk-weighted assets of 13.89%.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of
	Operations.

Management's Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Company’s balance sheets and statements of income. This section should be read in conjunction with the Company's financial statements and accompanying notes.

Forward-Looking Statements

This Form 10-Q and the documents incorporated by reference contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act and Section 21E of the Securities Exchange Act of 1934, which we refer to as the Exchange Act, with respect to the proposed merger with Republic First and the financial condition, liquidity, results of operations, future performance and business of Metro. These forward-looking statements are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond our control).   The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.

While we believe our plans, objectives, goals, expectations, anticipations, estimates and intentions as reflected in these forward-looking statements are reasonable, we can give no assurance that any of them will be achieved.  You should understand that various factors, in addition to those discussed elsewhere in this Form 10-Q, in the Company’s Form 10-K and Prospectus Supplement filed with the SEC on September 24, 2009, and incorporated by reference in this Form 10-Q, could affect our future results and could cause results to differ materially from those expressed in these forward-looking statements, including:

· whether the transactions contemplated by the merger agreement with Republic First will be approved by the applicable federal, state and local regulatory authorities and, if approved, whether the other closing conditions to the proposed merger will be satisfied;

· our ability to complete the proposed merger with Republic First and the merger of Republic First Bank with and into Metro Bank, to integrate successfully Republic First’s assets, liabilities, customers, systems and management personnel into our operations, and to realize expected cost savings and revenue enhancements within expected timeframes or at all;

· the possibility that expected Republic First merger-related charges will be materially greater than forecasted or that final purchase price allocations based on fair value of the acquired assets and liabilities at the effective date of the merger and related adjustments to yield and/or amortization of the acquired assets and liabilities will be materially different from those forecasted;

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· adverse changes in our or Republic First’s loan portfolios and the resulting credit risk-related losses and expenses;

· the effects of, and changes in, trade, monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System;

· the FDIC deposit fund is continually being used due to increased bank failures and existing financial institutions have higher  premiums assessed in replenishing the fund;

· general economic or business conditions, either nationally, regionally or in the communities in which either we do or Republic First does business, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and loan performance or a reduced demand for credit;

· continued levels of loan quality and volume origination;

· the adequacy of loan loss reserves;

· the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance);

· the willingness of customers to substitute competitors’ products and services for our products and services and vice versa, based on price, quality, relationship or otherwise;

· unanticipated regulatory or judicial proceedings and liabilities and other costs;

· interest rate, market and monetary fluctuations;

· the timely development of competitive new products and services by us and the acceptance of such products and services by customers;

· changes in consumer spending and saving habits relative to the financial services we provide;

· the loss of certain key officers;

· continued relationships with major customers;

· our ability to continue to grow our business internally and through acquisition and successful integration of new or acquired entities while controlling costs;

· compliance with laws and regulatory requirements of federal, state and local agencies;

· the ability to hedge certain risks economically;

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· effect of terrorist attacks and threats of actual war;

· deposit flows;

· changes in accounting principles, policies and guidelines;

· rapidly changing technology;

· other economic, competitive, governmental, regulatory and technological factors affecting the Company’s operations, pricing, products and services; and

· our success at managing the risks involved in the foregoing.

Because such forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements.  The foregoing list of important factors is not exclusive and you are cautioned not to place undue reliance on these factors or any of our forward-looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of us except as required by applicable law.

EXECUTIVE SUMMARY

On September 30, 2009, the Company completed a common stock offering of 6.25 million shares, at $12.00 per share, for new capital proceeds of approximately $70.7 million (net of expenses). Subsequent to the end of the quarter, the underwriters of the offering exercised a 10% over-allotment option and Metro Bancorp issued an additional 625,000 common shares for net proceeds of approximately $7.1 million.  This successful capital offering occurred just one quarter after a successful conversion of our entire information technology system from TD Bank, N.A. (“TD”) to our new service provider, Fiserv Solutions, Inc. (“Fiserv”).  The conversion included the transition of data processing, item processing and many other ancillary services. At the same time of the conversion, the Company rebranded to Metro Bancorp, Inc. and its subsidiary bank, Commerce Bank/Harrisburg, changed its name to Metro Bank.

The Company recorded a net loss of $490,000, or $(0.08) per share, for the third quarter versus net income of $3.4 million, or $0.52 per fully-diluted share, for the same period one year ago.  Impacting the third quarter results were the following:

· One-time charges associated with the transition of data processing, item processing and technology network services as well as the Company’s rebranding totaled approximately $1.8 million during the third quarter.  The Company also incurred a higher level of salary and benefits, data processing and telecommunication costs related to additional personnel and information technology infrastructure to perform certain services in-house which were previously performed by TD. These higher expenses were partially offset by the recognition of the remaining $2.75 million of the total $6.0 million fee Metro received from TD.  This fee was to partially defray the total costs of transition and rebranding.

· The Company made a total provision for loan losses of $3.7 million for the third quarter vs. $1.7 million for the third quarter of 2008.

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· Net interest margin on a fully taxable basis for the three months ended September 30, 2009 was 3.92% compared to 4.11% for the same period in 2008.  Average interest earning assets for the quarter were the same as the third quarter of 2008; however, the level of interest income earned was offset by a decrease in the yield on those earning assets as a result of a 175 basis point reduction in short-term market interest rates by the Federal Reserve Bank over the past twelve months.

Total revenues for the three months ended September 30, 2009 were $25.5 million, down $485,000, or 2%, from the same period in 2008. Total revenues for the nine months ended September 30, 2009 were $74.3 million, down $1.9 million, or 2%, from the same period in 2008. Net loss for the nine months ended September 30, 2009 was $1.0 million, or ($0.16) per share compared to net income of $10.1 million, or $1.55 per fully diluted share recorded during the first nine months of 2008.

The decrease in net income and net income per share was a direct result of the increase in noninterest expenses associated with the transition of data processing, item processing and technology network services to a new provider and the costs associated with a rebranding of the Company as well as higher provisions to the Bank’s allowance for loan losses.

For the first nine months of 2009, total net loans increased by $33.6 million, or 2%, from $1.42 billion at December 31, 2008 to $1.46 billion at September 30, 2009. Over the past twelve months, total net loans excluding loans held for sale, grew by $87.5 million, or 6%, from $1.37 billion to $1.46 billion. This growth was represented across most loan categories, reflecting a continuing commitment to the credit needs of our customers and our market footprint. Our loan to deposit ratio, which includes loans held for sale, was 85% at September 30, 2009 compared to 90% at December 31, 2008.

Total deposits increased $103.0 million, or 6%, from $1.63 billion at December 31, 2008 to $1.74 billion at September 30, 2009. During the same period, core deposits grew by $96.8 million, or 6%, as well. Over the past twelve months, our total consumer core deposits increased by $158.9 million, or 24%. Total borrowings decreased by $241.5 million from $379.5 million at December 31, 2008 to $138.1 million at September 30, 2009, primarily as a result of our common stock offering, continued deposit growth and principal paydowns on investment securities. Of the total borrowings at September 30, 2009, $83.7 million were short-term and $54.4 million were considered long-term.

Nonperforming assets and loans past due 90 days at September 30, 2009 totaled $32.0 million, or 1.53%, of total assets, as compared to $27.9 million, or 1.30% of total assets, at December 31, 2008 and $12.2 million, or 0.57%, of total assets one year ago. The Company’s third quarter provision for loan losses totaled $3.7 million, as compared to $1.7 million recorded in the third quarter of 2008.  The increase in the provision for loan losses over the prior year is a result of the Company’s gross loan growth (excluding loans held for sale) of $88.2 million over the past twelve months as well as the increase in the level of nonperforming loans from September 30, 2008 to September 30, 2009. The allowance for loan losses totaled $14.6 million as of September 30, 2009, an increase of $730,000, or 5%, over the total allowance at September 30, 2008 and compared to $16.7 million at December 31, 2008.  The allowance represented 0.99% and 1.00% of gross loans outstanding at September 30, 2009 and 2008, respectively and compared to 1.16% of gross loans at December 31, 2008.

Total net charge-offs for the third quarter were $8.4 million vs. $22,000 for the third quarter of 2008. Total net charge-offs for the first nine months of 2009 were $12.7 million compared to $929,000 for the first nine months of 2008. Approximately $6.0 million, or 71%, of total charge-offs for the third quarter of 2009 were associated with only five different relationships. And

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approximately $10.1 million, or 79%, of total loan charge-offs year-to-date 2009 were associated with a total of seven different relationships.

The financial highlights for the first nine months of 2009 compared to the same period in 2008 are summarized below:

(in millions, except per share amounts)	September 30, 2009			September 30, 2008		% Change
Total assets	$	2,086.5		$	2,125.3		(2	) %
Total loans (net)		1,456.6			1,369.1		6
Total deposits		1,737.0			1,689.8		3
Total revenues	$	74.3		$	76.2		(2	) %
Total noninterest expenses		66.1			57.3		15
Net income (loss)		(1.0	)		10.1		(110	)
Diluted net income (loss)  per share	$	(0.16	)	$	1.55		(110	)%

We expect to continue the pattern of expanding our footprint not only with the aforementioned acquisition of Republic First but also by branching into contiguous areas of our new and existing markets, and by filling gaps between existing store locations. Accordingly, we anticipate notable balance sheet and revenue growth as a result of the expansion. Additionally, we expect to incur direct acquisition expenses as we consummate the merger with Republic First including expenses to combine the operations of the two companies. We also anticipate that the recent core system conversion will result in increased levels of expense in future periods than in previous periods. Operating results for the remainder of 2009 and the years that follow could also be heavily impacted by the overall state of the local and global economy.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our accounting policies are more fully described in Note 1 of theNotes to Consolidated Financial Statementsdescribed in the Company’s annual report on Form 10-K for the year ended December 31, 2008. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. These principles require our management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from those estimates. Management makes adjustments to its assumptions and estimates when facts and circumstances dictate. We evaluate our estimates and assumptions on an ongoing basis and predicate those estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Management believes the following critical accounting policies encompass the more significant assumptions and estimates used in preparation of our consolidated financial statements.

Allowance for Loan Losses.The allowance for loan losses represents the amount available for estimated losses existing in the loan portfolio. While the allowance for loan losses is maintained at a level believed to be adequate by management for estimated losses in the loan portfolio, the determination of the allowance is inherently subjective, as it involves significant estimates by management, all of which may be susceptible to significant change.

While management uses available information to make such evaluations, future adjustments to the allowance and the provision for loan losses may be necessary if economic conditions or loan credit quality differ substantially from the estimates and assumptions used in making the

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evaluations. The use of different assumptions could materially impact the level of the allowance for loan losses and, therefore, the provision for loan losses to be charged against earnings. Such changes could impact future financial results.

We perform monthly, systematic reviews of our loan portfolios to identify potential losses and assess the overall probability of collection. These reviews include an analysis of historical default and loss experience, which results in the identification and quantification of loss factors. These loss factors are used in determining the appropriate level of allowance necessary to cover the estimated probable losses in various loan categories. Management judgment involving the estimates of loss factors can be impacted by many variables, such as the number of years of actual default and loss history included in the evaluation.

The methodology used to determine the appropriate level of the allowance for loan losses and related provisions differs for commercial and consumer loans and involves other overall evaluations. In addition, significant estimates are involved in the determination of the appropriate level of allowance related to impaired loans. The portion of the allowance related to impaired loans is based on either (1) discounted cash flows using the loan’s effective interest rate, (2) the fair value of the collateral for collateral-dependent loans, or (3) the observable market price of the impaired loan. Each of these variables involves judgment and the use of estimates. In addition to calculating and the testing of loss factors, we periodically evaluate qualitative factors which include:

· changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in estimating credit losses;

· changes in the volume and severity of past due loans, the volume of nonaccrual loans and the volume and severity of adversely classified or graded loans;

· changes in the nature and volume of the portfolio and the terms of loans;

· changes in the value of underlying collateral for collateral-dependent loans;

· changes in the quality of the institution’s loan review system;

· changes in the experience, ability and depth of lending management and other relevant staff;

· the existence and effect of any concentrations of credit and changes in the level of such concentrations;

· changes in international, national, regional and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; and

· the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

Management judgment is involved at many levels of these evaluations.

An integral aspect of our risk management process is allocating the allowance for loan losses to various components of the loan portfolio based upon an analysis of risk characteristics, demonstrated losses, industry and other segmentations and other more judgmental factors.

Stock-Based Compensation.Effective January 1, 2006, the Company adopted Share-Based Payment guidance using the modified prospective method. The guidance requires compensation costs related to share-based payment transactions to be recognized in the income statement (with limited exceptions) based on the grant-date fair value of the stock-based compensation issued.

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Compensation costs are recognized over the period that an employee provides service in exchange for the award.   The grant-date fair value and ultimately the amount of compensation expense recognized is dependent upon certain assumptions we make such as the expected term the options will remain outstanding, the volatility and dividend yield of our company stock and risk free interest rate. This critical Accounting policy is more fully described in Note 14 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Other than Temporary Impairment of Investment Securities. We perform periodic reviews of the fair value of the securities in the Company’s investment portfolio and evaluate individual securities for declines in fair value that may be other than temporary. If declines are deemed other than temporary, an impairment loss is recognized against earnings and the security is written down to its current fair value.

Effective April 1, 2009, the Company adopted the provisions to fair value measurement guidance regarding Recognition and Presentation of Other-Than-Temporary  Impairments.  This critical Accounting policy is more fully described in Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q for the period ended September 30, 2009.

Fair Value Measurements. Effective January 1, 2008, the Company adopted fair value measurements guidance, which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles and expands disclosures about fair value measurements. The Company is required to disclose the fair value of financial assets and liabilities that are measured at fair value within a fair value hierarchy. The  fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). These disclosures appear in Note 8 of the Notes to Consolidated Financial Statements described in this interim report on Form 10-Q for the period ended September 30, 2009. Judgment is involved not only with deriving the estimated fair values but also with classifying the particular assets recorded at fair value in the fair value hierarchy.  Estimating the fair value of impaired loans or the value of collateral securing foreclosed assets requires the use of significant unobservable inputs (level 3 measurements). At September 30, 2009, the fair value of assets based on level 3 measurements constituted 3% of the total assets measured at fair value. The fair value of collateral securing impaired loans or constituting foreclosed assets is generally determined based upon independent third party appraisals of the properties, recent offers, or prices on comparable properties in the proximate vicinity.  Such estimates can differ significantly from the amounts the Company would ultimately realize from the loan or disposition of underlying collateral.

The Company’s available for sale investment security portfolio constitutes 97% of the total assets measured at fair value and is primarily classified as a level 2 fair value measurement (quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability). Management utilizes third party service providers to aid in the determination of the fair value of the portfolio. If quoted market prices are not available, fair values are generally based on quoted market prices of comparable instruments. Securities that are debenture bonds and pass through mortgage backed investments that are not quoted on an exchange, but are traded in active markets, were obtained from matrix pricing on similar securities.

RESULTS OF OPERATIONS

Average Balances and Average Interest Rates

Interest-earning assets averaged $1.94 billion for the third quarter of 2009, the same as for the

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third quarter in 2008. For the quarter ended September 30, total loans receivable including loans held for sale, averaged $1.48 billion in 2009 and $1.37 billion in 2008, respectively. For the same two quarters, total securities averaged $460.5 million and $568.7 million, respectively. The decrease is a result of principal repayments, sales and calls which more than offset purchases during the same period. These cash flows were used to fund loan growth and to reduce the level of borrowed funds rather than redeploy the cash flows back into investment securities at a reduced net interest spread given the overall low interest rate environment.

The average balance of total deposits increased $135.0 million, or 8%, for the third quarter of 2009 compared to the third quarter of 2008. Total interest-bearing deposits averaged $1.41 billion, compared to $1.31 billion for the third quarter one year ago and average noninterest bearing deposits increased by $33.9 million, or 12%. Short-term borrowings, which consists of overnight advances from the Federal Home Loan Bank, securities sold under agreements to repurchase and overnight federal funds lines of credit, averaged $140.0 million for the third quarter of 2009 versus $268.2 million for the same quarter of 2008.

The fully-taxable equivalent yield on interest-earning assets for the third quarter of 2009 was 5.07%, a decrease of 75 basis points (“bps”) from the comparable period in 2008. This decrease resulted from lower yields on our loan and securities portfolios during the third quarter of 2009 as compared to the same period in 2008. Floating rate loans represent approximately 41% of our total loans receivable portfolio. The majority of these loans are tied to the New York prime lending rate which decreased 200 bps during the first quarter of 2008 and subsequently decreased another 200 bps throughout the remainder of 2008, following similar decreases in the overnight federal funds rate by the Federal Open Market Committee. Approximately $98.9 million, or 24%, of our investment securities have a floating interest rate and provide a yield that consists of a fixed spread tied to the one month London Interbank Offered Rate (“LIBOR”) interest rate. The average one month LIBOR interest rate decreased approximately 235 bps over the past twelve months from an average rate of 2.62% during the third quarter 2008 compared to a rate of 0.27% for the third quarter of 2009. The Company experienced a decline in yield in the investment portfolio primarily due to the call of seven agency debentures totaling $41.5 million with a weighted average yield of 5.46%. 

As a result of the extremely low level of current general market interest rates, including the one-month LIBOR and the New York prime lending rate, we expect the yields we receive on our interest-earning assets will continue to be lower throughout the remainder of 2009.

The average rate paid on our total interest-bearing liabilities for the third quarter of 2009 was 1.38%, compared to 2.00% for the third quarter of 2008. Our deposit cost of funds decreased 43 bps from 1.42% in the third quarter of 2008 to 0.99% for the third quarter of 2009. The average cost of short-term borrowings decreased from 2.18% to 0.63% during the same period. The aggregate average cost of all funding sources for the Company was 1.15% for the third quarter of 2009, compared to 1.71% for the same quarter of the prior year. The decrease in the Company’s deposit cost of funds is primarily related to the lower level of general market interest rates present during the third quarter as compared to the same period in 2008. At September 30, 2009, $501.9 million, or 29%, of our total deposits were those of local municipalities, school districts, not-for-profit organizations or corporate cash management customers, where the interest rates paid are indexed to either the 91-day Treasury bill, the overnight federal funds rate, or 30-day LIBOR interest rate. Late in the third quarter and early fourth quarter each year our indexed deposits experience seasonally high growth in balances and can comprise as much as 30-35% of our total deposits during those periods. The average interest rate of the 91-day Treasury bill decreased from 1.65% in the third quarter of 2008 to 0.17% in the third quarter of 2009 thereby significantly reducing the average interest rate paid on these deposits. The decrease in the Company’s borrowing cost of funds is primarily related to the decrease in the overnight federal funds interest rate which decreased by 175 bps between September 30, 2008 and September 30, 2009.

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Interest-earning assets averaged $1.98 billion for the first nine months of 2009, compared to $1.87 billion for the same period in 2008. For the same two periods, total loans receivable including loans held for sale, averaged $1.49 billion in 2009 and $1.28 billion in 2008. Total securities averaged $487.8 million and $586.9 million for the first nine months of 2009 and 2008, respectively. The decrease, as previously mentioned with respect to the third quarter, was due to utilizing cash flows from the investment portfolio to fund loan growth and reduce the level of borrowed funds rather than redeploy those dollars back into investment securities.

The overall net growth in interest-earning assets was funded primarily by an increase in the average balance of total deposits. Total average deposits, including noninterest bearing funds, increased by $125.5 million for the first nine months of 2009 over the same period of 2008 from $1.55 billion to $1.67 billion. Short-term borrowings averaged $217.6 million and $245.4 million in the first nine months of 2009 and 2008, respectively.

The fully-taxable equivalent yield on interest-earning assets for the first nine months of 2009 was 5.13%, a decrease of 86 bps versus the comparable period in 2008. This decrease resulted from lower yields on our loan and securities portfolios during the first nine months of 2009 as compared to the same period in 2008, again, as a result of the lower level of general market interest rates present during the first nine months of 2009 versus the same period in 2008.

The average rate paid on interest-bearing liabilities for the first nine months of 2009 was 1.41%, compared to 2.16% for the first nine months of 2008. Our deposit cost of funds decreased from 1.51% in the first nine months of 2008 to 1.04% for the same period in 2009. The aggregate cost of all funding sources was 1.19% for the first nine months of 2009, compared to 1.85% for the same period in 2008.

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income and interest expense. Interest income is generated from interest earned on loans, investment securities and other interest-earning assets. Interest expense is paid on deposits and borrowed funds. Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest-earning assets, related yields and associated funding costs. Net interest income is our primary source of earnings. There are several factors that affect net interest income, including:

· the volume, pricing mix and maturity of earning assets and interest-bearing liabilities;

· market interest rate fluctuations; and

· asset quality.

Net interest income, on a fully tax-equivalent basis, for the third quarter of 2009 decreased by $881,000, or 4.0%, from the same period in 2008. This decrease was a result of a decrease in the yield on earning assets partially offset by a reduction in interest rates paid on deposits and short-term borrowing sources, both as previously discussed above. Interest income, on a tax-equivalent basis, on interest-earning assets totaled $24.9 million for the third quarter of 2009, a decrease of $3.6 million, or 13%, from 2008.  Interest income on loans receivable, on a tax-equivalent basis, decreased by $1.4 million, or 6%, from the third quarter of 2008. This is primarily the result of a $2.5 million decrease due to lower interest rates associated with our floating rate loans and new fixed rate loans generated over the past twelve months partially offset by a $1.1 million increase in loan interest income due to a higher level of loans receivable outstanding. The lower rates are a direct result of the decreases in the New York prime lending rate following similar decreases in the federal funds rate. Interest income on the investment securities portfolio decreased by $2.3 million, or 33%, for the third quarter of 2009 as compared to the same period last year. This was a result of a decrease in the average balance of the investment securities portfolio of $108.2 million, or 19%, from the third quarter one year ago combined with a decrease of 82 bps on the average rate earned on those securities from third quarter 2008 to third quarter 2009. Due to the significant decrease in short-term interest rates that occurred throughout the past twelve months, the cash flows from principal repayments on the investment securities portfolio accelerated dramatically. These cash flows were used to fund the continued loan growth and were not redeployed back into the securities portfolio.

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Interest expense for the third quarter decreased $2.7 million, or 33%, from $8.4 million in 2008 to $5.6 million in 2009. Interest expense on deposits decreased by $1.3 million, or 24%, from the third quarter of 2008 while interest expense on short-term borrowings decreased by $1.3 million, or 85%, for the same period.

Net interest income, on a fully tax-equivalent basis, for the first nine months of 2009 increased by $123,000, or 0.2%, over the same period in 2008. Interest income on interest-earning assets totaled $76.3 million for the first nine months of 2009 a decrease of $8.3 million, or 10%, below the same period in 2008. Interest income on loans outstanding decreased by $1.4 million, or 2.0%, from the first nine months of 2008 and interest income on investment securities decreased by $6.9 million, or 31%, compared to the same period last year. Total interest expense for the first nine months decreased $8.4 million, or 32%, from $26.0 million in 2008 to $17.5 million in 2009. Interest expense on deposits decreased by $4.5 million, or 26%, for the first nine months of 2009 versus the first nine months of 2008. Interest expense on short-term borrowings decreased by $3.8 million, or 79%, for the first nine months of 2009 compared to the same period in 2008. Interest expense on long-term debt totaled $3.5 million for the first nine months of 2009, as compared to $3.7 million for the first nine months of 2008. The decreases in interest income and interest expense directly relate to the significantly lower level of general market interest rates present in the first nine months of 2009 compared to the first nine months of 2008.

Changes in net interest income are frequently measured by two statistics: net interest rate spread and net interest margin. Net interest rate spread is the difference between the average rate earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Our net interest rate spread on a fully taxable-equivalent basis was 3.69% during the third quarter of 2009 compared to 3.82% during the same period in the previous year. Our net interest rate spread on a fully taxable-equivalent basis was 3.72% during the first nine months of 2009 versus 3.83% during the first nine months of 2008. Net interest margin represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average interest-earning assets. The fully tax-equivalent net interest margin decreased 19 bps, from 4.11% for the third quarter of 2008 to 3.92% for the third quarter of 2009, as a result of the decreased yield on interest earning assets partially offset by the decrease in the cost of funding sources as previously discussed. For the first nine months of 2009 and 2008, the fully taxable-equivalent net interest margin was 3.94% and 4.14%, respectively.

Provision for Loan Losses

Management undertakes a rigorous and consistently applied process in order to evaluate the allowance for loan losses and to determine the level of provision for loan losses, as previously stated in the Application of Critical Accounting Policies. We recorded a provision of $3.7 million to the allowance for loan losses for the third quarter of 2009 as compared to $1.7 million for the third quarter of 2008. The loan loss provision for the first nine months was $10.6 million and $4.1 million for 2009 and 2008, respectively. The increase in the provision for loan losses for both the quarter and year to date over the prior year is a result of the Company’s gross loan growth of $88.2 million over the past twelve months, combined with the level of nonperforming loans at September 30, 2009 and the amount of net charge-offs incurred during the first nine months of 2009. Nonperforming loans totaled $25.1 million at September 30, 2009, down from $27.1 million at December 31, 2009 and compared to $11.7 million at September 30, 2008. Total nonperforming assets were $32.0 million at September 30, 2009 compared to $27.9 million as of December 31, 2008 and up from $12.2 million at September 30, 2008. Nonperforming assets as a percentage of total assets increased from 1.30% at December 31, 2008 to 1.53% at September 30, 2009. This same ratio was 0.57% at September 30, 2008. See the sections in this Management’s Discussion and Analysis on asset quality and the allowance for loan losses for further discussion regarding nonperforming loans and our methodology for determining the provision for loan losses.

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Net loan charge-offs for the third quarter of 2009 were $8.4 million, or 2.29% (annualized) of average loans outstanding, compared to net charge-offs of $22,000, or 0.01% of average loans outstanding, for the same period in 2008. During the third quarter 2009, the Company charged off five relationships totaling $6.0 million of the total $8.4 million of net charge offs for the quarter.  Of the $10.1 million, approximately $6.0 million, or 60%, were commercial real estate loans and $4.0 million, or 40%, were commercial business loans. At the time of chargeoff, the Bank had existing provisions totaling approximately $8.0 million, or 80%, of the aggregate amount charged off for the period.

Net charge-offs for the first nine months of 2009 were $12.7 million, or 1.17% (annualized) of average loans outstanding, compared to net charge-offs of $929,000, or 0.10% of average loans outstanding for the same period in 2008. Approximately $10.1 million, or 79%, of total loan charge-offs year-to-date were associated with a total of seven different relationships.  Of the $6.0 million, approximately $3.7 million, or 62%, were commercial real estate loans and $2.3 million, or 38%, were commercial business loans. At the time of chargeoff, the Bank had existing provisions totaling approximately $5 million, or 83%, of the aggregate amount charged off for the period.

The allowance for loan losses as a percentage of period-end gross loans outstanding was 0.99% at September 30, 2009, as compared to 1.16% at December 31, 2008, and 1.00% at September 30, 2008.

Noninterest Income

Noninterest income for the third quarter of 2009 increased by $488,000, or 8%, from the same period in 2008. During the third quarter of 2009, the Company recorded net gains of $1.5 million on sales of investment securities. These gains were partially offset by a $952,000 charge for other-than-temporary impairment on three private-label collateralized mortgage obligations in the Bank’s investment securities portfolio. Further detailed discussion of the impairment charge can be found in Note 9 of this Form 10-Q. Core noninterest income, comprised primarily of deposit service charges and fees, totaled $6.3 million, a decrease of $75,000, or 1%, from the third quarter of 2008.  The decrease in core noninterest income is due to a lower level of fee income associated with non sufficient funds (“NSF”) activity as well as lower fee income associated with debit cards and ATM transactions. Customer usage of these products was down slightly in 2009 which resulted in lower levels of fee income as compared to the third quarter one year ago. Noninterest income for the third quarter of 2009 included $238,000 of net gains on sales of loans compared to net gains of $177,000 on sales of loans during the third quarter of 2008. 

Noninterest income for the first nine months of 2009 decreased by $1.6 million, or 8%, compared to the same period in 2008. Deposit service charges and fees decreased 4%, from $17.9 million for the first nine months of 2008 to $17.2 million in the first nine months of 2009. The decrease in deposit service charges and fees is primarily attributable to a lower level of fee income associated with NSF activity as well as debit card and ATM transactions as described above. The 2009 net gain on the sale of loans is comprised of $921,000 of gains on the sale of residential and small business loans, partially offset by a $627,000 loss on the sale of student loans. Total gains of $574,000 for the first nine months of 2008 were associated with sales of residential loans. The loss on the sale of student loans was related to management’s decision to sell a $12.2 million portion of the Bank’s student loan portfolio due to the low level of yields on those loans combined with a higher level of servicing costs. Included in noninterest income for the first nine months of 2009 was a $2.3 million charge for other-than-temporary-impairment on private-label CMO’s in the Bank’s investment portfolio. 

Noninterest Expenses

For the third quarter of 2009, noninterest expenses increased by $3.4 million, or 18%, over the same period in 2008. Included in noninterest expenses for the third quarter of 2009 were one-time charges of approximately $1.8 million associated with the transition of data processing, item processing and technology network services to a new service provider as well as costs associated with rebranding to Metro Bank. Salary and benefits expenses, data processing costs and related expenses increased due to maintaining our own technological infrastructure which was previously supported by TD. Prior to the third quarter of 2009, we paid TD to maintain the network and technology infrastructure for our Company. A comparison of noninterest expenses for certain categories for the three months ended September 30, 2009 and September 30, 2008 is presented in the following paragraphs.

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Salary and employee benefits expenses, which represent the largest component of noninterest expenses, increased by $1.1 million, or 12%, for the third quarter of 2009 over the third quarter of 2008. This increase includes the impact of additional staffing in our operations and information technology departments to facilitate the conversion process as well as to handle functions that were previously performed by TD but are now performed in-house. The increase was also partially a result of higher overall benefit plan costs.

Occupancy expenses totaled $1.9 million for the third quarter of 2009, a decrease of $82,000, or 4%, from the third quarter of 2008, while furniture and equipment expenses increased 22%, or $232,000, from the third quarter of 2008. The increase in furniture and equipment was related to an increase in depreciation and maintenance expenses associated with 2009 fixed asset purchases that were made as a result of our conversion and rebranding initiative.

Advertising and marketing expenses totaled $830,000 for the three months ending September 30, 2009, an increase of $175,000, or 27%, from the same period in 2008. This is primarily due to a higher level of brand promotional activity as a result of the total rebranding of the Company which occurred in June 2009 and carried into the third quarter.

Data processing expenses increased by $734,000, or 41%, in the third quarter of 2009 over the three months ended September 30, 2008. The increase was due to costs associated with processing additional transactions as a result of the growth in the number of accounts serviced combined with expenses associated with conversion of systems and processing from TD to Fiserv.

Regulatory assessments and related fees totaled $830,000 for the third quarter of 2009 and were $289,000, or 53%, higher than for the third quarter of 2008. The Bank, like all financial institutions whose deposits are guaranteed by the FDIC, pays a quarterly premium for such deposit coverage. The rates charged by the FDIC have increased substantially in 2009 compared to prior years.  

Telephone expenses totaled $1.4 million for the third quarter of 2009, an increase of $847,000, or 147%, from the third quarter of 2008. This increase was related to the increase in costs associated with supporting the newly enhanced technological infrastructure built prior to our transition to Fiserv. In addition we experienced increased call center volume and utilized higher call center staffing levels throughout the third quarter to assist customers with post conversion questions.

As mentioned previously, included in noninterest expenses for the third quarter of 2009 were one-time charges of approximately $1.8 million associated with the transition of all services from TD, along with rebranding costs associated with changing the Bank’s name. Total noninterest expenses for the third quarter of 2009 were offset partially by the recognition of $2.75 million of the total $6.0 million fee paid to Metro Bank from TD. This fee was used to partially defray the costs of transition and rebranding. The impact of the one-time charges offset by this fee are reflected in the Core System Conversion/Branding expense line on the Company’s Consolidated Statement of Operations. Also included in noninterest expenses was $250,000 associated with the Company’s pending acquisition of Republic First which is expected to close upon regulatory approval. We expect to incur additional costs associated with the acquisition of Republic First during the fourth quarter of 2009.

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Other noninterest expenses increased by $577,000, or 21%, for the three-month period ended September 30, 2009, compared to the same period in 2008. The primary reason for the increase related to lending expenses and noncredit related losses.

For the first nine months of 2009, noninterest expenses increased by $8.7 million, or 15%, over the same period in 2008. A comparison of noninterest expenses for certain categories for the nine months ending September 30, 2009 and September 30, 2008 is presented in the following paragraphs.

Salary expenses and employee benefits, increased by $4.2 million, or 15%, for the first nine months of 2009 over the first nine months of 2008. This increase includes the impact of additional staffing in our operations and information technology departments to facilitate the conversion process as well as to handle functions that were previously performed by TD but are now performed in-house. The increase was also partially a result of higher overall employee benefit plan costs.

Occupancy expenses totaled $6.0 million for the first nine months of 2009, a decrease of $121,000, or 2%, from the first nine months of 2008. Furniture and equipment expenses increased 5%, or $162,000, from the first nine months of 2008. The increases as compared to first nine months of 2008 were related to higher levels of depreciation on fixed assets and maintenance expense as a result of our conversion and rebranding initiative.

Advertising and marketing expenses totaled $1.9 million for the nine months ending September 30, 2009, a decrease of $443,000, or 19%, from the same period in 2008.  This is primarily due to a large reduction in actively promoting our previous brand during the first half of 2009 prior to the rebranding efforts which occurred in June 2009 and the third quarter of this year. The impact of one-time costs associated with the rebranding are included in the conversion/branding line on the Company’s Consolidated Statements of Operations.

Data processing expenses increased by $1.4 million, or 26%, for the first nine months of 2009 over the nine months ended September 30, 2008. The increase was due to costs associated with processing additional transactions as a result of the growth in the number of accounts serviced combined with enhancements to current systems prior to our conversion of data processing and item processing from TD. Also included in data processing expenses were additional costs that resulted from building a new network infrastructure to support the daily operations of the Company post conversion.

Regulatory assessments of $3.3 million were $976,000, or 43%, higher for the first nine months of 2009 compared to the nine months ended September 30, 2008. The increase primarily relates to a one-time special assessment fee levied by the Federal Deposit Insurance Corporation against all FDIC-insured financial institutions in the second quarter of 2009 to bolster the level of the Bank Insurance Fund which is available to cover possible future bank failures. The one time special assessment amounted to $960,000 for Metro Bank. Included in total regulatory expenses for the first half of 2008 were costs incurred to address the matters identified by the Office of the Comptroller of the Currency (“OCC”) in a formal written agreement and a consent order which the Bank entered into with the OCC in 2007 and 2008, respectively. Both the formal written agreement and the consent order between the Bank and the OCC were terminated on November 7, 2008. The absence of similar expenses during the first nine months of 2009 has been offset by higher quarterly FDIC fees for deposit insurance coverage.

Telephone expenses totaled $3.0 million for the first nine months of 2009, an increase of $1.2 million, or 70%, over the first nine months of 2008. This increase was related to an increase in costs with supporting the newly enhanced technological infrastructure built prior to our transition to Fiserv in addition to the increased call center volume which we experienced post conversion. Costs associated with call center services are higher with our new provider and this impact is reflected in the increased level of telephone expenses for both the third quarter and for the first nine months of 2009 over the respective periods in 2008.

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Merger/Acquisition charges totaled $655,000 for the first nine months of 2009 versus no such expense for the same period in 2008. We expect additional merger-related expenses during the fourth quarter of 2009 as we work to close this transaction upon the receipt of regulatory approval.

Other noninterest expenses increased by $1.0 million, or 15%, for the nine-month period ending September 30, 2009, compared to the same period in 2008. The increase is primarily due to costs related to lending activities and noncredit related losses.

One key measure that management utilizes to monitor progress in controlling overhead expenses is the ratio of annualized net noninterest expenses (less nonrecurring) to average assets. For purposes of this calculation, net noninterest expenses equal noninterest expenses less noninterest income. For the third quarter of 2009 this ratio equaled 2.75% and for the third quarter of 2008 this ratio equaled 2.51%. For the nine month period ending September 30, 2009, this ratio equaled 3.01% compared to 2.57% for the nine-month period ending September 30, 2008.

Another productivity measure utilized by management is the operating efficiency ratio. This ratio expresses the relationship of noninterest expenses (less nonrecurring) to net interest income plus noninterest income (less nonrecurring). For the quarter ending September 30, 2009, the operating efficiency ratio was 88.6%, compared to 74.4% for the similar period in 2008. This ratio equaled 87.1% for the first nine months of 2009, compared to 75.3% for the first nine months of 2008. The increase in the operating efficiency ratio primarily relates to the increase in noninterest expenses in 2009 relating to supporting our change in the technological infrastructure.

Provision for Federal Income Taxes

The benefit realized for federal income taxes was $502,000 for the third quarter of 2009 as a result of a pretax loss of $992,000, compared to a provision for federal income taxes of $1.5 million for the same period in 2008. For the nine months ending September 30, the benefit realized was $1.4 million for 2009 compared to a provision of $4.6 million in 2008. The effective tax benefit rate for the first nine months of 2009 was 57.6% due to the proportion of tax free income to a total pretax loss as compared to the effective tax rate of 31.3% for the first nine months of 2008. This change in effective tax rate and the corresponding provision during 2009 was primarily due to recording a pre-tax loss for both the three months and nine months ended September 30, 2009 compared to pre-tax income for the comparable periods in 2008.  The Company’s statutory rate was 35% in both 2009 and in 2008.

Net Income (Loss) and Net Income (Loss) per Share

Net loss for the third quarter of 2009 was $490,000, a decrease of $3.9 million, or 114%, from the $3.4 million of net income recorded in the third quarter of 2008. The decrease was due to a $973,000 decrease in net interest income, a $2.0 million increase in the provision for loan losses, and a $3.4 million increase in noninterest expenses partially offset by a $488,000 increase in noninterest income and a $2.0 million decrease in the provision for income taxes.

Net loss for the first nine months of 2009 was $1.0 million, a decrease of $11.2 million, or 110%, from the $10.1 million of net income recorded in the first nine months of 2008. The decrease was due to a $291,000 decrease in net interest income, a $1.6 million decrease in noninterest income, a $6.6 million increase in the provision for loan losses and an $8.7 million increase in noninterest expenses partially offset by a $6.0 million decrease in the provision for income taxes.

Basic loss per common share was $(0.08) for the third quarter of 2009, compared to earnings per share of $0.54 for the third quarter of 2008. For the first nine months of 2009 and 2008, basic loss and earnings per share were $(0.16) and $1.59, respectively. Diluted earnings per common share decreased $0.60, to a loss of $(0.08), for the third quarter of 2009, compared to net income of $0.52 for the third quarter of 2008. For the first nine months in 2009, loss per common share was $(0.16) compared to fully diluted earnings per share of $1.55 for the same period in 2008.

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Return on Average Assets and Average Equity

Return on average assets (“ROA”) measures our net income (loss) in relation to our total average assets. Our annualized ROA for the third quarter of 2009 was (0.09)%, compared to 0.66% for the third quarter of 2008. The ROA for the first nine months in 2009 and 2008 was (0.06)% and 0.68%, respectively. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by our stockholders. ROE is calculated by dividing annualized net income or loss by average stockholders' equity. The ROE was (1.47)% for the third quarter of 2009, compared to 11.96% for the third quarter of 2008. The ROE for the first nine months of 2009 was (1.10)%, compared to 11.98% for the first nine months of 2008. Both ROA and ROE for the third quarter and year to date of 2009 were directly impacted by the net losses recorded for those two periods compared to net income recorded for the same periods in 2008.

FINANCIAL CONDITION

Securities

During the first nine months of 2009, the total investment securities portfolio decreased by $100.4 million from $494.2 million to $393.8 million. The cash flows from principal repayments, calls of securities and investment sales were used to fund loan growth and to reduce borrowed funds rather than redeploy these cash flows back into investment securities at a reduced net interest spread. The unrealized loss on available for sale securities decreased by $13.9 million from $26.6 million at December 31, 2008 to $12.7 million at September 30, 2009 as a result of improving market values in both agency and non-agency securities.

Sales of securities of $47.0 million and $3.4 million in the securities available for sale (“AFS”) and held to maturity (“HTM”) portfolios, respectively occurred during the first nine months of 2009. The sales from the HTM portfolio were primarily mortgage-backed securities with small remaining residual principal balances.

During the first nine months of 2009, AFS decreased by $44.7 million, from $341.7 million at December 31, 2008 to $297.0 million at September 30, 2009 as a result of principal repayments, investment sales, and calls partially offset by an improvement in unrealized losses associated with those securities in the AFS portfolio. The AFS portfolio is comprised of U.S. Government agency securities, mortgage-backed securities and collateralized mortgage obligations. At September 30, 2009, the after-tax unrealized loss on AFS securities included in stockholders’ equity totaled $8.3 million, compared to $17.3 million at December 31, 2008. The weighted average life of the AFS portfolio at September 30, 2009 was approximately 3.0 years compared to 4.9 years at December 31, 2008 and the duration was 2.5 years at September 30, 2009 compared to 4.0 years at December 31, 2008. The current weighted average yield was 3.79% at September 30, 2009 compared to 4.19% at December 31, 2008. In addition to the normal run-off of higher coupon mortgage-backed securities, the primary driver of this decline in yield has been the anticipated call, throughout 2009, of seven agency debentures totaling $41.5 million with a weighted average yield of 5.46%.

During the first nine months of 2009, the carrying value of securities in the HTM portfolio decreased by $55.7 million from $152.6 million to $96.9 million as a result of calls of U.S. Government agency securities totaling $36.5 million combined with principal repayments and sales as discussed above. The securities held in this portfolio include tax-exempt municipal bonds, collateralized mortgage obligations, corporate debt securities and mortgage-backed securities. The weighted average life of the HTM portfolio at September 30, 2009 was approximately 3.2 years compared to 4.1 years at December 31, 2008 and the duration was 2.8 years at September 30, 2009 compared to 3.4 years at December 31, 2008. The current weighted average yield was 4.84% at September 30, 2009 compared to 5.02% at December 31, 2008. The reduction in yield was the result of the above-mentioned calls on higher-yielding U.S. Government agency securities.

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Total investment securities aggregated $393.8 million, or 19%, of total assets at September 30, 2009 as compared to $494.2 million, or 23%, of total assets at December 31, 2008.

The average fully-taxable equivalent yield on the combined investment securities portfolio for the first nine months of 2009 was 4.13% as compared to 5.00% for the similar period of 2008.

The Bank’s investment securities portfolio consists primarily of U.S. Government agency securities, U.S. Government sponsored agency mortgage-backed obligations and private-label collateralized mortgage obligations (CMO’s). The securities of the U.S. Government sponsoredagencies and the U.S. Government mortgage-backed securities have little credit risk because their principal and interest payments are backed by an agency of the U.S. Government. Private label CMO’s are not backed by the full faith and credit of the U.S. Government nor are their principal and interest payments guaranteed. Historically, most private label CMO’s have carried a AAA bond rating on the underlying issuer, however, the subprime mortgage problems and decline in the residential housing market in the U.S. throughout 2008 and 2009 have led to ratings downgrades and subsequent other-than-temporary impairment of many types of CMO’s.

The unrealized losses in the Company’s investment portfolio at September 30, 2009 are associated with two different types of securities. The first type includes eight government agency sponsored CMO’s, all of which have yields that are indexed to a spread over the one month London Interbank Offered Rate (LIBOR). Management believes that the unrealized losses on the Company’s investment in these federal agency CMO’s were primarily caused by their low spread to LIBOR. The second type of security in the Company’s investment portfolio with unrealized losses at September 30, 2009 was private label CMO’s. As of September 30, 2009, the Company owned thirty-one private label CMO securities in its investment portfolio with a total book value of $132.1 million. Management performs periodic assessments of these securities for other-than-temporary impairment.  As part of this assessment, the Bank uses a third-party source for the monthly pricing of its portfolio.  Under fair value measurement guidance, both the third-party and the Bank consider these indications to be based upon Level 2 inputs through matrix pricing, observed quotes for similar assets, and/or market-corroborated inputs.

See the detailed discussion in Note 9 to the Consolidated Financial Statements included in this interim report on Form 10Q for details regarding our assessment and the determination of other-than-temporary impairment.

Loans Held for Sale

Loans held for sale are comprised of student loans and selected residential loans the Bank originates with the intention of selling in the future. Occasionally, loans held for sale also include selected Small Business Administration (“SBA”) loans and business and industry loans that the Bank decides to sell. These loans are carried at the lower of cost or estimated fair value, calculated in the aggregate. At the present time, the majority of the Bank’s residential loans are originated with the intent to sell to the secondary market unless the loan is nonconforming to the secondary market standards or if we agree not to sell the loan due to a customer’s request. The residential mortgage loans that are designated as held for sale are sold to other financial institutions in correspondent relationships. The sale of these loans takes place typically within 30 days of funding. At December 31, 2008 and September 30, 2009, there were no past due or impaired residential mortgage loans held for sale. SBA loans are held in the Company’s loan receivable portfolio unless or until the Company’s management determines a sale of certain loans is appropriate. At the time such a decision is made, the SBA loans are moved from the loans receivable portfolio to the loans held for sale portfolio. Total loans held for sale were $13.3 million at September 30, 2009 and $41.1 million at December 31, 2008. At September 30, 2009, loans held for sale were comprised of $7.1 million of student loans and $6.2 million of residential mortgages as compared to $34.4 million of student loans, $2.9 million of SBA loans and $3.8 million of residential loans at December 31, 2008. The change was the result of sales of $42.7 million in student loans, $5.7 million of SBA loans and $78.0 million in residential loans, offset by originations of $101.5 million in new loans held for sale.  There were $5.7 million of SBA loans moved from the loans receivable portfolio to the loans held for sale portfolio during the first nine months of 2009.  Loans held for sale, as a percent of total assets, were less than 1% at September 30, 2009 and 2% at December 31, 2008.

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Loans Receivable

During the first nine months of 2009, total gross loans receivable increased by $31.5 million, from $1.44 billion at December 31, 2008, to $1.47 billion at September 30, 2009. During this period, we moved $5.7 million of SBA loans to the loans held for sale portfolio. Gross loans receivable represented 85% of total deposits and 71% of total assets at September 30, 2009, as compared to 88% and 67%, respectively, at December 31, 2008. Total loan originations during the first nine months of 2009 were below historical norms for the Bank as compared to prior years.  This is due to a combination of lower demand and the current economic conditions combined with a much more stringent enforcement of credit standards for new loans in the current economic environment.  As the economy slowly improves, we expect loan demand to increase and therefore expect a higher level of originations during 2010 as compared to 2009.

The following table reflects the composition of the Company’s loan portfolio as of September 30, 2009 and 2008, respectively.

(dollars in thousands)	As of 9/30/2009			% of Total			As of 9/30/2008			% of Total			$ Change			% Change
Commercial	$	498,669			34	%	$	434,236			31	%	$	64,433			15	%
Owner-occupied		275,353			19			266,989			19			8,364			3
Total Commercial		774,022			53			701,225			50			72,797			10
Consumer / residential		309,156			21			325,778			24			(16,622	)		(5	)
Commercial real estate		388,076			26			356,034			26			32,042			9
Gross Loans		1,471,254			100	%		1,383,037			100	%	$	88,217			6	%
Less: Allowance for loan losses		(14,618	)					(13,888	)
Net Loans	$	1,456,636					$	1,369,149

Loan and Asset Quality

Nonperforming assets include nonperforming loans and foreclosed real estate. Nonperforming assets at September 30, 2009, were $32.0 million, or 1.53%, of total assets as compared to $27.9 million, or 1.30%, of total assets at December 31, 2008. Total nonperforming loans (nonaccrual loans, loans past due 90 days and still accruing interest and restructured loans) were $25.1 million at September 30, 2009 compared to $27.1 million at December 31, 2008. Foreclosed real estate totaled $6.9 million at September 30, 2009 and $743,000 at December 31, 2008. At September 30, 2009, forty-two loans were in the nonaccrual commercial category ranging from $5,000 to $3.0 million and twenty-nine loans were in the nonaccrual commercial real estate category ranging from $25,000 to $3.8 million. At December 31, 2008, twenty-two loans were in the nonaccrual commercial category ranging from $11,000 to $3.1 million and eighteen loans were in the nonaccrual commercial real estate category ranging from $22,000 to $6.6 million. Loans past due 90 days or more and still accruing were $5,000 at September 30, 2009 and $0 at December 31, 2008. Management’s Allowance for Loan Loss Committee has performed a detailed review of the nonperforming loans and of the collateral related to these credits and believes the allowance for loan losses remains adequate for the level of risk inherent in these loans.

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Impaired loans and other loans related to the same borrowers total $2.4 million at September 30, 2009. Those impaired loans required a specific allocation of $918,000 at September 30, 2009.  This was a decrease of $6.8 million compared to impaired loans requiring a specific allocation at December 31, 2008. During the first nine months of 2009, there were forty-seven loans added totaling $12.7 million to the loans requiring a specific allocation and sixty loans totaling $23.1 million that no longer required a specific allocation at September 30, 2009. Additional loans of $39.3 million, considered by our internal loan review department as potential problem loans at September 30, 2009, have been evaluated as to risk exposure in determining the adequacy for the allowance for loan losses. Additional loans that were evaluated as to risk exposure increased from $8.8 million at December 31, 2008 to $39.3 million at September 30, 2009.

Nonperforming loans increased from $11.7 million at September 30, 2008 to $25.1 million at September 30, 2009.  The increase in nonperforming loans experienced by the Bank from September 30, 2008 to September 30, 2009 primarily resulted from the addition of nineteen commercial relationships totaling $14.7 million at September 30, 2009.  The nineteen relationships mentioned account for $894,000 of the total specific allocation at September 30, 2009.  After the additional of the nineteen relationships, nonperforming commercial loans consisted of 35 relationships.  At September 30, 2008, total nonperforming commercial loans were $10 million and consisted of 20 relationships.

The Bank obtains third-party appraisals by a Bank pre-approved certified general appraiser on nonperforming loans secured by real estate at the time the loan is determined to be non-performing.  Appraisals are ordered by the Bank’s Real Estate Loan Administration Department which is independent of both loan workout and loan production functions.

No charged-off amount was different from what was determined to be fair value of the collateral (net of estimated costs to sell) as presented in the appraisal for any period presented.

Any provision or charge-off is accounted for upon receipt and satisfactory review of the appraisal and in no event, later than the end of the quarter in which the loan was determined to be non-performing.  No significant time lapses during this process have occurred for any period presented.

The Bank also considers the volatility of the fair value of the collateral, timing and reliability of the appraisal, timing of the third party’s inspection of the collateral, confidence in the Bank’s lien on the collateral, historical losses on similar loans, and other factors based on the type of real estate securing the loan. As deemed necessary, the Bank will perform inspections of the collateral to determine if an adjustment of the value of the collateral is necessary.
 

Partially charged off loans with an updated appraisal remain on non-performing status and are subject to the Bank’s standard recovery policies and procedures, including, but not limited to, foreclosure proceedings, a forbearance agreement, or classified as a Troubled Debt Restructure, unless collectability of the entire contractual balance of principal and interest (book and charged off amounts) is no longer in doubt, and the loan is current or will be brought current within a short period of time.

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The table below presents information regarding nonperforming loans and assets at September 30, 2009 and 2008 and at December 31, 2008.

	Nonperforming Loans and Assets
(dollars in thousands)	September 30, 2009		December 31, 2008		September 30, 2008
Nonaccrual loans:
Commercial	$  8,833		$  6,863		$  7,083
Consumer	984		492		164
Real Estate:
Construction	4,580		7,646		731
Mortgage	10,694		12,121		3,657
Total nonaccrual loans	25,091		27,122		11,635
Loans past due 90 days or more and still accruing	5		-		33
Restructured loans	-		-		-
Total nonperforming loans	25,096		27,122		11,668
Foreclosed real estate	6,875		743		535
Total nonperforming assets	$ 31,971		$ 27,865		$ 12,203
Nonperforming loans to total loans	1.71	%	1.88	%	0.84	%
Nonperforming assets to total assets	1.53	%	1.30	%	0.57	%
Nonperforming loan coverage	58	%	62	%	119	%
Nonperforming assets / capital plus allowance for loan losses	15	%	21	%	10	%

Allowance for Loan Losses

The following table sets forth information regarding the Company’s provision and allowance for loan losses.

Allowance for Loan Losses
	Three Months Ended				Year Ended		Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2009		2008		December 31, 2008		2009		2008
Balance at beginning of period	$ 19,337		$ 12,210		$ 10,742		$ 16,719		$ 10,742
Provisions charged to operating expense	3,725		1,700		7,475		10,625		4,075
	23,062		13,910		18,217		27,344		14,817
Recoveries of loans previously charged-off:
Commercial	19		1		145		139		132
Consumer	-		1		25		5		24
Real estate	35		-		-		41		-
Total recoveries	54		2		170		185		156
Loans charged-off:
Commercial	(3,878)		-		(1,426)		(6,224)		(884)
Consumer	(2)		(24)		(173)		(21)		(132)
Real estate	(4,618)		-		(69)		(6,666)		(69)
Total charged-off	(8,498)		(24)		(1,668)		(12,911)		(1,085)
Net charge-offs	(8,444)		(22)		(1,498)		(12,726)		(929)
Balance at end of period	$ 14,618		$ 13,888		$ 16,719		$ 14,618		$ 13,888
Net charge-offs (annualized) as a percentage of average loans outstanding	2.29	%	0.01	%	0.11	%	1.17	%	0.10	%
Allowance for loan losses as a percentage of period-end loans	0.99	%	1.00	%	1.16	%	0.99	%	1.00	%

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The Company recorded provisions of $10.6 million to the allowance for loan losses during the first nine months of 2009, compared to $4.1 million for the same period in 2008. Net charge-offs for the first nine months of 2009 totaled $12.7 million, or 1.17% (annualized) of average loans outstanding compared to $929,000, or 0.10%, for the same period last year.

The allowance for loan losses as a percentage of total loans receivable was 0.99% at September 30, 2009, compared to 1.16% at December 31, 2008; the decrease was primarily due to increased charge-offs throughout the first nine months of 2009 partially offset by the increased provision and loan growth.

Premises and Equipment

During the first nine months of 2009, premises and equipment increased by $6.5 million, or 7%, from $87.1 million at December 31, 2008 to $93.6 million at September 30, 2009. This increase was due to the purchase of $11.1 million of new fixed assets offset by depreciation and amortization on existing assets of $3.8 million and the loss on disposal of fixed assets of $839,000 primarily related to rebranding and conversion activities.

Other Assets

Other assets increased by $46.9 million from December 31, 2008 to September 30, 2009.  The increase related to $43.0 million receivable for investment securities sold that had not settled at the end of September 2009 and a $6.1 million increase on foreclosed real estate, partially offset by reductions of other miscellaneous assets. The proceeds of the investment sales were subsequently received in October 2009 and the receivable balance was reduced accordingly. Approximately $4.5 million, or 73%, of the increase in foreclosed assets was associated with one property purchased at a sheriff’s sale during the third quarter of 2009 as collateral for a nonperforming loan.

Deposits

Total deposits at September 30, 2009 were $1.74 billion, up $103.0 million, or 6%, from total deposits of $1.63 billion at December 31, 2008. Core deposits totaled $1.72 billion at September 30, 2009, compared to $1.63 billion at December 31, 2008, an increase of $96.8 million, or 6%,. During the first nine months of 2009, core consumer deposits increased $92.1 million, or 13%, core commercial deposits decreased $70.4 million while core government deposits increased by $75.1 million. Total noninterest bearing deposits increased by $26.6 million, or 9%, from $280.6 million at December 31, 2008 to $307.2 million at September 30, 2009.

The average balances and weighted average rates paid on deposits for the first nine months of 2009 and 2008 are presented in the table below.

	Nine Months Ending September 30,
	2009					2008
( in thousands)	Average Balance		Average Rate			Average Balance		Average Rate
Demand deposits:
Noninterest-bearing	$	303,227				$	277,212
Interest-bearing (money market and checking)		764,587		0.93	%		719,092		1.66	%
Savings		336,821		0.59			347,100		1.19
Time deposits		268,720		3.09			204,446		3.63
Total deposits	$	1,673,355				$	1,547,850

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Short-Term Borrowings

Short-term borrowings used to meet temporary funding needs consist of short-term and overnight advances from the Federal Home Loan Bank, securities sold under agreements to repurchase and overnight federal funds lines of credit. At September 30, 2009, short-term borrowings totaled $83.7 million as compared to $300.1 million at December 31, 2008. The average rate paid on the short-term borrowings was 0.59% during the first nine months of 2009, compared to an average rate paid of 2.54% during the first nine months of 2008. The decrease in borrowings is a result of applying the proceeds from the previously mentioned capital offering combined with an increase in deposits partially offset by an increase in loans outstanding. The decreased rate paid on the borrowings is a direct result of the decreases in short-term interest rates implemented by the Federal Reserve Board throughout 2008 as previously discussed in this Form 10-Q.

Long-Term Debt

Long-term debt totaled $54.4 million at September 30, 2009 compared to $79.4 million at December 31, 2008. The decrease is a result of the maturity of a $25 million Federal Home Loan Bank convertible select borrowing in the third quarter of 2009. As of September 30, 2009, our long-term debt consisted of Trust Capital Securities through Commerce Harrisburg Capital Trust I, Commerce Harrisburg Capital Trust II and Commerce Harrisburg Capital Trust III, our Delaware business trust subsidiaries as well as a longer-term borrowing through the FHLB of Pittsburgh. At September 30, 2009, all of the Capital Trust Securities qualified as Tier I capital for regulatory capital purposes for both the Bank and the Company. Proceeds of the trust capital securities were used for general corporate purposes, including additional capitalization of our wholly-owned banking subsidiary. As part of the Company’s Asset/Liability management strategy, management utilized the Federal Home Loan Bank convertible select borrowing product during 2007 with a $25.0 million borrowing with a 5 year maturity and a six month conversion term at an initial interest rate of 4.29%.

Stockholders’ Equity and Capital Adequacy

At September 30, 2009, stockholders’ equity totaled $195.7 million, up $81.3 million, or 71%, from $114.5 million at December 31, 2008. Stockholders’ equity at September 30, 2009 included $8.3 million of unrealized losses, net of income tax benefits, on securities available for sale. Excluding these unrealized losses, gross stockholders’ equity increased by $72.3 million, or 55%, from $131.8 million at December 31, 2008, to $204.0 million at September 30, 2009 as a result of the proceeds from shares issued through our common stock offering in September as well as through our stock option and stock purchase plans.

On August 6, 2009, Metro Bancorp filed a shelf registration statement on Form S-3 with the SEC which will allow the Company, from time to time, to offer and sell up to a total aggregate of $250 million of common stock, preferred stock, debt securities, trust preferred securities or warrants, either separately or together in any combination.  While Metro has always been well capitalized under federal regulatory guidelines, the shelf registration better positions the Company to take advantage of potential opportunities for growth and to address current economic conditions.

On September 30, 2009, the Company completed the common stock offering of 6.25 million shares, at $12.00 per share, for new capital proceeds (net of expenses) of $70.7 million.  Subsequent to the end of the quarter, the underwriters exercised their 10% over-allotment option and Metro issued an additional 625,000 common shares for additional net proceeds of $7.1 million.  The total net proceeds of $77.9 million have significantly strengthened Metro’s capital ratios far beyond regulatory guidelines for “well-capitalized” status and position the Company for strong future growth including our proposed acquisition of Republic First Bancorp, Inc.

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Banks are evaluated for capital adequacy based on the ratio of capital to risk-weighted assets and total assets. The risk-based capital standards require all banks to have Tier 1 capital of at least 4% and total capital (including Tier 1 capital) of at least 8% of risk-weighted assets. Tier 1 capital includes common stockholders' equity and qualifying perpetual preferred stock together with related surpluses and retained earnings. Total capital includes total Tier 1 capital, limited life preferred stock, qualifying debt instruments and the allowance for loan losses. The capital standard based on average assets, also known as the “leverage ratio,” requires all, but the most highly-rated, banks to have Tier 1 capital of at least 4% of total average assets. At September 30, 2009, the Bank met the definition of a “well-capitalized” institution.

The following tables provide a comparison of the Consolidated and the Bank-only risk-based capital ratios and leverage ratios to the minimum regulatory requirements for the periods indicated.

Consolidated	September 30, 2009			December 31, 2008			Minimum For Adequately Capitalized Requirements			Minimum For Well-Capitalized Requirements
Capital Ratios:
Risk-based Tier 1		13.07	%		9.67	%		4.00	%		6.00	%
Risk-based Total		13.89			10.68			8.00			10.00
Leverage ratio (to average assets)		11.10			7.52			3.00 - 4.00			5.00

Bank	September 30, 2009			December 31, 2008			Minimum For Adequately Capitalized Requirements			Minimum For Well-Capitalized Requirements
Capital Ratios:
Risk-based Tier 1		11.63	%		9.67	%		4.00	%		6.00	%
Risk-based Total		12.45			10.68			8.00			10.00
Leverage ratio (to average assets)		9.88			7.52			3.00 - 4.00			5.00

Interest Rate Sensitivity

Our risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is composed primarily of interest rate risk. The primary objective of our asset/liability management activities is to maximize net interest income while maintaining acceptable levels of interest rate risk. Our Asset/Liability Committee (“ALCO”) is responsible for establishing policies to limit exposure to interest rate risk and to ensure procedures are established to monitor compliance with those policies. Our Board of Directors reviews the guidelines established by ALCO.

Our management believes the simulation of net interest income in different interest rate environments provides a meaningful measure of interest rate risk. Income simulation analysis captures not only the potential of all assets and liabilities to mature or reprice, but also the probability that they will do so. Income simulation also attends to the relative interest rate sensitivities of these items and projects their behavior over an extended period of time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of proposed strategies for responding to them.

Our income simulation model analyzes interest rate sensitivity by projecting net interest income over the next twenty-four months in a flat rate scenario versus net interest income in alternative interest rate scenarios. Our management continually reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, our model projects a 200 basis point (“bp”) increase and a 100 bp decrease during the next year, with rates remaining constant in the second year.

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Our ALCO policy has established that income sensitivity will be considered acceptable if overall net interest income volatility in a plus 200 or minus 100 bp scenario is within 4% of net interest income in a flat rate scenario in the first year and 5% using a two-year planning window.

The following table compares the impact on forecasted net interest income at September 30, 2009 of a plus 200 and minus 100 basis point (bp) change in interest rates to the impact at September 30, 2008 in the same scenarios.

	September 30, 2009						September 30, 2008
	12 Months			24 Months			12 Months			24 Months
Plus 200		2.9	%		8.2	%		(1.4	)%		(0.4	)%
Minus 100		(1.7	)		(4.1	)		0.4			0.2

The forecasted net interest income variability in all interest rate scenarios indicate levels of future interest rate risk within the acceptable parameters per the policies established by ALCO. Management continues to evaluate strategies in conjunction with the Company’s ALCO to effectively manage the interest rate risk position. Such strategies could include purchasing floating rate investment securities to collateralize growth in government deposits, altering the mix of deposits by product, utilizing risk management instruments such as interest rate swaps and caps, or extending the maturity structure of the Bank’s short-term borrowing position.

We used many assumptions to calculate the impact of changes in interest rates, including the proportionate shift in rates. Our actual results may not be similar to the projections due to several factors including the timing and frequency of rate changes, market conditions and the shape of the interest rate yield curve. Actual results may also differ due to our actions, if any, in response to the changing interest rates.

Management also monitors interest rate risk by utilizing a market value of equity model. The model assesses the impact of a change in interest rates on the market value of all our assets and liabilities, as well as any off-balance sheet items.  Market value of equity is defined as the market value of assets less the market value of liabilities plus the market value of off-balance sheet items.  Market value of equity is calculated in the current rate scenario, as well as in rate scenarios that assume an immediate 200 bp increase and a 100 bp decrease from the current level of interest rates.  Our ALCO policy indicates that the level of interest rate risk is unacceptable if the immediate change in rates would result in a loss of more than 30% of the market value calculated in the current rate scenario.  This measurement of interest rate risk represents a change from the previously reported metric which focused on the change in the excess of market value over book value in each of the interest rate scenarios.  At September 30, 2009 the market value of equity calculation indicated acceptable levels of interest rate risk in all scenarios per the policies established by ALCO.

The market value of equity model reflects certain estimates and assumptions regarding the impact on the market value of our assets and liabilities given an immediate plus 200 or minus 100 bp change in interest rates. One of the key assumptions is the market value assigned to our core deposits, or the core deposit premiums. Using an independent consultant, we have completed and updated comprehensive core deposit studies in order to assign core deposit premiums to our deposit products as permitted by regulation. The studies have consistently confirmed management’s assertion that our core deposits have stable balances over long periods of time, are generally insensitive to changes in interest rates and have significantly longer average lives and durations than our loans and investment securities. Thus, these core deposit balances provide an internal hedge to market fluctuations in our fixed rate assets. Management believes the core deposit premiums produced by its market value of equity model at September 30, 2009 provide an accurate assessment of our interest rate risk. At September 30, 2009, the average life of our core deposit transaction accounts was 8.0 years.

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Liquidity

The objective of liquidity management is to ensure our ability to meet our financial obligations. These obligations include the payment of deposits on demand at their contractual maturity, the repayment of borrowings as they mature, the payment of lease obligations as they become due, the ability to fund new and existing loans and other funding commitments and the ability to take advantage of new business opportunities. Our ALCO is responsible for implementing the policies and guidelines of our board-governing liquidity.

Liquidity sources are found on both sides of the balance sheet. Liquidity is provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investments. Liquidity is also provided through the following sources: the availability and maintenance of a strong base of core customer deposits, maturing short-term assets, the ability to sell investment securities, short-term borrowings and access to capital markets.

Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. On a quarterly basis, our board of directors reviews a comprehensive liquidity analysis. The analysis provides a summary of the current liquidity measurements, projections and future liquidity positions given various levels of liquidity stress. Management also maintains a detailed liquidity contingency plan designed to respond to an overall decline in the condition of the banking industry or a problem specific to the Company.

The Company’s investment portfolio consists mainly of mortgage-backed securities and collateralized mortgage obligations that do not have stated maturities. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans slow. As rates decrease, cash flows generally increase as prepayments increase. In the current distressed market environment which has adversely impacted the pricing on certain securities in the Company’s investment portfolio, the Company would not be inclined to act on a sale of such available for sale securities for liquidity purposes. If the Company attempted to sell certain securities of its investment portfolio, current economic conditions and the lack of a liquid market could affect the Company’s ability to sell those securities, as well as the value the Company would be able to realize.

The Company and the Bank’s liquidity are managed separately. On an unconsolidated basis, the principal source of our revenue is dividends paid to the Company by the Bank. The Bank is subject to regulatory restrictions on its ability to pay dividends to the Company. The Company’s net cash outflows consist principally of interest on the trust-preferred securities, dividends on the preferred stock and unallocated corporate expenses.

We also maintain secondary sources of liquidity which can be drawn upon if needed. These secondary sources of liquidity include federal funds lines of credit, repurchase agreements and borrowing capacity at the Federal Home Loan Bank. At September 30, 2009, our total potential liquidity through these secondary sources was $413.9 million, of which $305.3 million was currently available, as compared to $277.8 million available out of our total potential liquidity of $627.7 million at December 31, 2008. The $213.8 million decrease in potential liquidity was entirely due to a decrease in the calculated borrowing capacity at the Federal Home Loan Bank (FHLB).  FHLB borrowing capacity is determined based on asset levels on a quarterly lag, with the decrease reflecting the Bank’s lower level of qualifying unpledged investment securities.  The $241.5 million reduction in utilization of this capacity resulted from the fact that deposit growth, proceeds received from the Company’s stock offering and runoff in our investment portfolio outpaced our loan growth in the third quarter of 2009.

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Item 3.                 Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk principally includes interest rate risk, which was previously discussed. The information presented in the Interest Rate Sensitivity subsection of Part I, Item 2 of this Report, Management’s Discussion and Analysis of Financial Condition and Results of Operations, is incorporated by reference into this Item 3.

Item 4.                 Controls and Procedures

Quarterly evaluation of the Company’s Disclosure Controls and Internal Controls. As of the end of the period covered by this quarterly report, the Company has evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (“Disclosure Controls”). This evaluation (“Controls Evaluation”) was done under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

Limitations on the Effectiveness of Controls. The Company’s management, including the CEO and CFO, does not expect that their Disclosure Controls or their “internal controls and procedures for financial reporting” (“Internal Controls”) will prevent all errors and all fraud. The Company’s Disclosure Controls are designed to provide reasonable assurance that the information provided in the reports we file under the Exchange Act, including this quarterly Form 10-Q report, is appropriately recorded, processed and summarized. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. The Company conducts periodic evaluations to enhance, where necessary, its procedures and controls.

Based upon the Controls Evaluation, the CEO and CFO have concluded that, subject to the limitations noted above, there have not been any changes in the Company’s controls and procedures for the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Additionally, the CEO and CFO have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that management is timely alerted to material information relating to the Company during the period when its periodic reports are being prepared.

Item 4T.                      Controls and Procedures

Not applicable.

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Part II -- OTHER INFORMATION

Item 1.                 Legal Proceedings.

On or about June 19, 2009, Members 1st Federal Credit Union (“Members 1st”) filed a complaint in the United States District Court for the Middle District of Pennsylvania against Metro Bancorp, Inc., Metro Bank, Republic First Bancorp, Inc. and Republic First Bank.  Members 1st’s claims are for federal trademark infringement, federal unfair competition, and common law trademark infringement and unfair competition.  It is Members 1st’s assertion that Metro’s use of a red letter “M” alone, or in conjunction with its trade name METRO, purportedly infringes Members 1st’s federally registered and common law trademark for the mark M1st (stylized).  Metro intends to defend the case vigorously and has strong defenses to the claims.  The complaint seeks damages in an unspecified amount and injunctive relief.  In light of the preliminary state of the proceeding, it is not possible to assess potential costs and damages if Members 1st were successful in the proceeding notwithstanding Metro’s defenses.  Management does not believe, however, that such an outcome would have a material adverse effect on Metro.

Item 1A.                 Risk Factors.

We incorporate by reference into this Quarterly Report on form 10-Q for the Quarter Ended September 30, 2009 the following portion of a document previously filed with the SEC:

The section of our Prospectus Supplement dated September 24, 2009 and filed with the SEC on September 24, 2009 pursuant to Rule 424(b) related to our Registration Statement on Form S-3 (File No. 333-161114), under the heading “Risk Factors”.  See Exhibit 99.1 Risk Factors.

Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds.

No items to report for the quarter ended September 30, 2009.

Item 3.                 Defaults Upon Senior Securities.

No items to report for the quarter ended September 30, 2009.

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

No items to report for the quarter ended September 30, 2009.

Item 5.                 Other Information.

No items to report for the quarter ended September 30, 2009.

Item 6.                 Exhibits.

2.1	First Amendment dated as of July 31,2009 to Agreement and Plan of Merger dated as of November 7, 2008 between Metro Bancorp, Inc. and Republic First Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 31, 2009)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2009)
4.2	Form of Senior Indenture (incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.3	Form of Subordinated Indenture (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.4	Certificate of Trust of Metro Capital Trust IV (incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)

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4.5	Trust Agreement of Metro Capital Trust IV (incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.6	Certificate of Trust of Metro Capital Trust V (incorporated by reference to Exhibit 4.13 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.7	Trust Agreement of Metro Capital Trust V (incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.8	Form of Amended and Restated Trust Agreement of Metro Capital Trust IV and Metro Capital Trust V (incorporated by reference to Exhibit 4.15 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.9	Form of Preferred Security Certificate for Metro Capital Trust IV and Metro Capital Trust V (incorporated by reference to Exhibit E to Exhibit 4.15 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.10	Form of Trust Preferred Securities Guarantee Agreement (incorporated by reference to Exhibit 4.17 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
10	Underwriting Agreement, dated September 24, 2009, between Metro Bancorp, Inc. and Sandler O’Neill + Partners, L.P. as representative for the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 25, 2009)
11	Computation of Net Income Per Share
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”)
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under Exchange Act
32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Risk Factors

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

METRO BANCORP, INC.
(Registrant)
11/9/09	/s/ Gary L. Nalbandian
(Date)	Gary L. Nalbandian
	President/CEO
11/9/09	/s/ Mark A. Zody
(Date)	Mark A. Zody
	Chief Financial Officer

47

EXHIBIT INDEX

2.1	First Amendment dated as of July 31,2009 to Agreement and Plan of Merger dated as of November 7, 2008 between Metro Bancorp, Inc. and Republic First Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 31, 2009)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2009)
4.2	Form of Senior Indenture (incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.3	Form of Subordinated Indenture (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.4	Certificate of Trust of Metro Capital Trust IV (incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.5	Trust Agreement of Metro Capital Trust IV (incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.6	Certificate of Trust of Metro Capital Trust V (incorporated by reference to Exhibit 4.13 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.7	Trust Agreement of Metro Capital Trust V (incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.8	Form of Amended and Restated Trust Agreement of Metro Capital Trust IV and Metro Capital Trust V (incorporated by reference to Exhibit 4.15 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.9	Form of Preferred Security Certificate for Metro Capital Trust IV and Metro Capital Trust V (incorporated by reference to Exhibit E to Exhibit 4.15 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
4.10	Form of Trust Preferred Securities Guarantee Agreement (incorporated by reference to Exhibit 4.17 to the Company’s Registration Statement on Form S-3 filed with the SEC on August 6, 2009)
10	Underwriting Agreement, dated September 24, 2009, between Metro Bancorp, Inc. and Sandler O’Neill + Partners, L.P. as representative for the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 25, 2009)
11	Computation of Net Income Per Share
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”)

48

31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under Exchange Act
32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Risk Factors

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EX-11

Exhibit 11. Metro Bancorp, Inc.

Computation of Net Income (Loss) Per Share

For the Quarter Ended September 30, 2009
	Loss			Shares		Per Share Amount
Basic Loss Per Share:
Net loss	$	(490,000	)
Preferred stock dividends		(20,000	)
Loss available to common stockholders		(510,000	)		6,591,363	$	(0.08	)
Effect of Dilutive Securities:
Stock options					-
Diluted Loss Per Share:
Loss available to common stockholders plus assumed conversions	$	(510,000	)		6,591,363	$	( 0.08	)

For the Quarter Ended September 30, 2008
	Income			Shares		Per Share Amount
Basic Earnings Per Share:
Net income	$	3,433,000
Preferred stock dividends		(20,000	)
Income available to common stockholders		3,413,000			6,358,412	$	0.54
Effect of Dilutive Securities:
Stock options					172,830
Diluted Earnings Per Share:
Income available to common stockholders plus assumed conversions	$	3,413,000			6,531,242	$	0.52

For the Nine Months Ended September 30, 2009
	Loss			Shares		Per Share Amount
Basic Loss Per Share:
Net loss	$	(1,008,000	)
Preferred stock dividends		(60,000	)
Loss available to common stockholders		(1,068,000	)		6,520,215	$	(0.16	)
Effect of Dilutive Securities:
Stock options					-
Diluted Loss Per Share:
Loss available to common stockholders plus assumed conversions	$	(1,068,000	)		6,520,215	$	(0.16	)
For the Nine Months Ended September 30, 2008
	Income			Shares		Per Share Amount
Basic Earnings Per Share:
Net income	$	10,145,000
Preferred stock dividends		(60,000	)
Income available to common stockholders		10,085,000			6,342,124	$	1.59
Effect of Dilutive Securities:
Stock options					168,381
Diluted Earnings Per Share:
Income available to common stockholders plus assumed conversions	$	10,085,000			6,510,505	$	1.55

EX-31.1

Exhibit 31.1

Certification

of Chief Executive Officer

I, Gary L. Nalbandian, certify that:

1.   I have reviewed this report on Form 10-Q of Metro Bancorp, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2009

/s/ Gary L. Nalbandian

Gary L. Nalbandian

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

of Chief Financial Officer

I, Mark A. Zody, certify that:

1.   I have reviewed this report on Form 10-Q of Metro Bancorp, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2009

/s/ Mark A. Zody

Mark A. Zody

Chief Financial Officer

EX-32

Exhibit 32

Certification of Metro Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Metro Bancorp, Inc. (the “Company”) does hereby certify with respect to the Quarterly Report of the company on Form 10-Q for the period ended September 30, 2009 (the “Report”), that:

·   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and

·   The information contained in the Report fairly represents, in all material respects, the Company’s financial condition and results of operations.

/s/ Gary L. Nalbandian

Gary L. Nalbandian,

Chief Executive Officer

/s/ Mark A. Zody

Mark A. Zody,

Chief Financial Officer

Dated:   November 9, 2009

The foregoing certification is being furnished solely pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document.

EX-99.1

Exhibit 99.1

Risk Factors

Your investment in our common stock involves risks. You should carefully consider the risks described below as well as other information contained or incorporated by reference in this prospectus supplement and the accompanying base prospectus, including our historical and pro forma consolidated financial statements and the notes thereto and the historical financial statements of Republic First and the notes thereto, before making an investment decision to purchase shares of our common stock in this offering. The risks and uncertainties described below and incorporated by reference into this prospectus supplement and the accompanying base prospectus are not the only ones facing us and Republic First. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair us and Republic First. If any of these risks actually occur, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the market price of our common stock could decline substantially and you could lose all or a large part of your investment.

Risks Related to our Company

We may be required to make further increases in our provisions for loan losses and to charge off additional loans in the future, which could materially adversely affect us.

There is no precise method of predicting loan losses.  We can give no assurance that our allowance for loan losses is or will be sufficient to absorb actual loan losses. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable incurred losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; industry concentrations and other unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses. Increases in nonperforming loans have a significant impact on our allowance for loan losses. If current trends in the real estate markets continue, we could continue to experience increased delinquencies and credit losses, particularly with respect to real estate construction and land acquisition and development loans and one-to-four family residential mortgage loans. Moreover, we expect that the current recession will negatively impact economic conditions in our market areas and that we could experience significantly higher delinquencies and credit losses.

In addition, bank regulatory agencies periodically review our allowance for loan losses and may require us to increase the provision for loan losses or to recognize further loan charge-offs, based on judgments that differ from those of management. If loan charge-offs in future periods exceed our allowance for loan losses, we will need to record additional provisions to increase our allowance for loan losses. Furthermore, growth in our loan portfolio would generally lead to an increase in the provision for loan losses. Any increases in our allowance for loan losses will result in a decrease in net income and capital, and may have a material adverse effect on our financial condition, results of operations and cash flows.

Our results of operations may be materially and adversely affected by other-than-temporary impairment charges relating to our investment portfolio.

 We may be required to record future impairment charges on our investment securities if they suffer declines in value that we determine are other-than-temporary. Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of the Bank to pay dividends to us, which could materially adversely affect us and our ability to pay dividends to shareholders. Significant impairment charges could also negatively impact our regulatory capital ratios and result in us not being classified as “well-capitalized” for regulatory purposes.

1

We plan to continue to grow rapidly and there are risks associated with rapid growth.

Over the past five years we have experienced significant growth in net income, assets, loans and deposits, all of which have been achieved through organic growth. We intend to continue to rapidly expand our business and operations.

Subject to regulatory approvals, we are targeting to open 15 to 20 new stores over the next five years. We anticipate the cost to construct and furnish a new store will be approximately $3.1 million, excluding the cost to lease or purchase the land on which the store is located. Our ability to manage growth successfully will depend on our ability to attract qualified personnel and maintain cost controls and asset quality while attracting additional loans and deposits on favorable terms, as well as on factors beyond our control, such as economic conditions and competition. If we grow too quickly and are not able to attract qualified personnel, control costs and maintain asset quality, this continued rapid growth could materially adversely affect us.

Growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We anticipate that our existing capital will satisfy our capital requirements for the foreseeable future. However, we may at some point need to raise additional capital to support continued growth.  Our ability to raise additional capital, if needed, will depend on various matters, including our financial condition, liquidity and results of operations, as well as on conditions in the capital markets at that time, which are outside of our control. The current financial crisis affecting the banking system and financial markets, which has resulted in a tightening in the credit markets, could have an adverse effect on our ability to raise additional capital.  Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on favorable terms, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth, branching and/or acquisitions could be materially impaired.

Unfavorable economic and market conditions due to the current global financial crisis may materially and adversely affect us.

Economic and market conditions in the United States and around the world have deteriorated significantly and may remain depressed for the foreseeable future.  Conditions such as slowing or negative growth and the sub-prime debt devaluation crisis have resulted in a low level of liquidity in many financial markets and extreme volatility in credit, equity and fixed income markets.  These economic developments could have various effects on us, including insolvency of major customers and a negative impact on the investment income we are able to earn on our investment portfolio.  Lending money is an essential part of the banking business.  Due to the current economic conditions, customers may be unable or unwilling to borrow money or repay funds already borrowed.  The risk of non-payment is affected by credit risks of a particular customer, changes in economic conditions, the duration of the loan and, in the case of a collateralized loan, uncertainties as to the future value of the collateral and other factors.  The potential effects of the current global financial crisis are difficult to forecast and mitigate.  As a consequence, our operating results for a particular period are difficult to predict.  Distress in the credit markets and issues relating to liquidity among financial institutions have resulted in the failure of some financial institutions around the world and others have been forced to seek acquisition partners. The United States and other governments have taken unprecedented steps in efforts to stabilize the financial system, including investing in financial institutions. There can be no assurance that these efforts will succeed.  We could be materially adversely affected by: (1) continued or accelerated disruption and volatility in financial markets; (2) continued capital and liquidity concerns regarding financial institutions; (3) limitations resulting from further governmental action in an effort to stabilize or provide additional regulation of the financial system; or (4) recessionary conditions that are deeper or longer lasting than currently anticipated.  We cannot assure you that any governmental action would benefit us.

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We must continue to attract and retain qualified personnel and maintain cost controls and asset quality.

Our ability to manage growth successfully will depend on our ability to continue to attract and retain management experienced in banking and financial services and familiar with the communities in our market area.  As we grow, we must be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about our market areas to implement our operating strategy.  The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could materially adversely affect us.  If we grow too quickly and are not able to attract qualified personnel and maintain cost controls and asset quality, this continued rapid growth could materially adversely affect us.

The cost of re-naming and re-branding the Company and the Bank may be more than anticipated.

On or about June 15, 2009, we changed our name and the name of the Bank and began using the red “M” logo.  Several companies in the United States, including companies in the banking and financial services industries, use variations of the word “Metro” and the letter “M” as part of a trademark or trade name.  As such, we face potential objections to our use of these marks.

On or about June 19, 2009, Members 1st Federal Credit Union, or “Members 1st,” filed a complaint in the United States District Court for the Middle District of Pennsylvania against Metro, Metro Bank, Republic First and Republic First Bank.  Members 1st’s claims are for federal trademark infringement, federal unfair competition, and common law trademark infringement and unfair competition.  It is Members 1st’s assertion that Metro’s use of a red letter “M” alone, or in conjunction with its trade name “Metro,” purportedly infringes Members 1st’s federally registered and common law trademark for the mark M1ST (stylized).  Metro intends to defend the case vigorously.  The complaint seeks damages in an unspecified amount and injunctive relief.  In light of the preliminary state of the proceeding, it is not possible to assess potential costs and damages if Members 1st were to be successful in the proceeding.  Any costs and damages could materially adversely affect us.

We may incur additional costs to defend our use, and may be required to further re-brand our banking business.  In addition, we cannot assure you that unanticipated problems and costs will not arise in connection with our master agreement with Fiserv Solutions, Inc. for them to provide to us certain administrative and data processing services previously provided by TD Bank.

Changes in interest rates could reduce our net income and liquidity.

Our operating income, net income and liquidity depend to a great extent on our net interest margin, i.e., the difference between the interest yields we receive on loans, securities and other interest earning assets and the interest rates we pay on interest-bearing deposits, borrowings and other liabilities. These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Board of Governors of the Federal Reserve System, or the “FRB.” If the rate of interest we pay on our interest-bearing deposits, borrowings and other liabilities increases more than the rate of interest we receive on loans, securities and other interest earning assets, our net interest income, and therefore our earnings, and liquidity could be materially adversely affected.  Our earnings and liquidity could also be materially adversely affected if the rates on our loans, securities and other investments fall more quickly than those on our deposits, borrowings and other liabilities. Our operations are subject to risks and uncertainties surrounding our exposure to change in interest rate environment.

We operate in a highly regulated environment; changes in laws and regulations and accounting principles may materially adversely affect us.

We are subject to extensive regulation, supervision, and legislation which govern almost all aspects of our operations. The laws and regulations applicable to the banking industry could change at any time and are primarily intended for the protection of customers, depositors and the deposit insurance funds. Any changes to these laws or any applicable accounting principles may materially adversely affect us. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to us.

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Competition from other banks and financial institutions in originating loans, attracting deposits and providing various financial services may adversely affect our profitability and liquidity.

We have substantial competition in originating loans, both commercial and consumer in our market area.  This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders.  Many of our competitors enjoy advantages, including greater financial resources and access to capital, stronger regulatory ratios, and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income and liquidity by decreasing the number and size of loans that the Bank originates and the interest rates we may charge on these loans.

 In attracting business and consumer deposits, the Bank faces substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of its competitors enjoy advantages, including greater financial resources and access to capital, stronger regulatory ratios, stronger asset quality and performance, more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than the Bank, which could decrease the deposits that the Bank attracts or require the Bank to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could materially adversely affect our ability to generate the funds necessary for lending operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds.

Risks Related to the Pending Merger with Republic First

The pending merger with Republic First may distract our management from their other responsibilities.

The pending acquisition of Republic First could cause our management to focus their time and energies on matters related to the merger that otherwise would be directed to our business and operations. Any such distraction on the part of management, if significant, could affect management’s ability to service existing business and develop new business and otherwise adversely affect us following the merger.

The conditions to closing of the pending merger with Republic First may result in delay or prevent completion of the merger, which may materially and adversely affect us and the market price of our common stock.

Completion of the pending merger with Republic First is subject to various closing conditions, including, among other things, (a) obtaining regulatory consents and approvals, (b) the accuracy of the other parties’ representations and warranties and their compliance with covenants, subject in each case to materiality standards, (c) completion of all payments and performance of all other material obligations under the merger agreement, (d) delivery of tax opinions and (e) absence of certain termination events as discussed below.

As a result of the Bank’s recent charter conversion, the Bank is now supervised jointly by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation, or “FDIC.”  We cannot close the Republic First merger until we receive the approval of the Board of Governors of the Federal Reserve and the Pennsylvania Department of Banking.  The Bank is currently undergoing a routine regulatory examination.  The examination results may not be satisfactory to the Board of Governors of the Federal Reserve and the Pennsylvania Department of Banking, and they may not approve the merger or may require us to satisfy certain requirements to obtain the required regulatory consents and approvals, and no assurance can be given at this time that we will be able to satisfy any such requirements.  Such conditions could materially adversely affect us and the market price of our common stock, and therefore we cannot assure you that the merger will occur in a timely manner or at all.

In addition, if certain termination events occur, Republic First may terminate the Merger Agreement.  Such termination events include, but are not limited to, (a) the failure to complete the merger by October 31, 2009, provided that either party may extend this deadline to December 31, 2009 in the event that regulatory approval of the merger is not received by September 30, 2009, (b) the receipt by Republic First of a superior proposal, as defined by and under the terms of the Merger Agreement, and (c) our stock price trading below certain levels. Under the terms of the merger agreement, the exchange ratio determining the merger consideration will be calculated on the effective date of the merger based on the average closing price of our common stock during twenty (20) consecutive trading days ending on the third calendar day immediately preceding the effective date of the merger.  If such average closing price is below $23.088 and our stock price has performed 20% below the performance of the Nasdaq Bank Index in the period between the signing of the Merger Agreement and the closing of the merger, Republic First will have the option to terminate the Merger Agreement unless Metro increases the exchange ratio in accordance to the terms of the Merger Agreement. Under these circumstances, the merger may not close or it may be more dilutive than expected.

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Failure to satisfy all of the closing conditions to the pending Republic First merger, whether related to failing to obtain the required regulatory consents and approvals, triggering certain termination events or otherwise, would prevent the consummation of the merger absent a waiver of those conditions, as to which no assurance can be given. Furthermore, even if we satisfy all of the closing conditions, we cannot assure you that the consummation of the merger will not be delayed beyond our current expectations, possibly significantly. Our inability to consummate the pending Republic First merger or a delay in the merger’s consummation could materially adversely affect us and the market price of our common stock.

If the merger with Republic First is not completed, we will have incurred substantial expenses without realizing the expected benefits.

We have incurred expenses in connection with the merger transaction and expect to incur additional expenses prior to completing the merger. The completion of the merger depends on the receipt of regulatory approvals. We cannot guarantee that we will receive those approvals. If the merger is not completed, the merger-related expenses that we will have incurred could materially adversely affect us without any of the expected benefits of the merger.

We may fail to realize the cost savings we estimate for the merger.

The success of the merger, if consummated, will depend, in part, on our ability to realize the estimated cost savings from combining the businesses of Metro and Republic First.  Our management estimated at the time the proposed merger was announced that after the merger of the companies’ banking subsidiaries it expects to achieve annual total cost savings of approximately 20% of Republic First’s 2008 non-interest expense, or approximately $5.0 million, pre-tax, through the reduction of administrative and operational redundancies. While we believe these cost savings estimates are achievable as of the date of this prospectus supplement, it is possible that the potential cost savings could turn out to be more difficult to achieve than originally anticipated. The cost savings estimates depend on the ability to combine the businesses of Metro and Republic First in a manner that permits those cost savings to be realized. If our estimates turn out to be incorrect or Metro and Republic First are not able to successfully combine their two bank subsidiaries, the anticipated cost savings may not be realized fully or at all, or may take longer to realize than expected.

Combining our two companies may be more difficult, costly or time-consuming than we expect, or could result in the loss of customers.

We and Republic First have operated, and, until the completion of the merger, will continue to operate, independently.  It is possible that the integration process could result in unanticipated adverse affects.   Factors which will affect our ability to successfully integrate our combined operations include, but are not limited to, our ability to:

·   maintain existing relationships with depositors in the banks to minimize withdrawals of deposits subsequent to the merger;

·   continue to operate the ongoing business of Metro and Republic First without disruption, including Republic First’s adoption of Fiserv Solutions’ systems;

·   control our incremental non-interest expense and maintain overall operating efficiencies;

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·   retain and attract qualified personnel at the Bank and Republic First Bank; and

·   compete effectively in the communities served by Metro and Republic First and in nearby communities.

Our business is concentrated and economic conditions in the market areas currently serviced by our companies could materially adversely affect our combined operations.

Metro operates principally in the Central Pennsylvania area and the operations of Republic First are concentrated in Philadelphia, Pennsylvania.  The operating results of Republic First and Metro as a combined company will depend largely on economic conditions in these and surrounding areas. A deterioration in economic conditions in either of these market areas could materially adversely affect our combined operations and:

·   increase loan delinquencies;

·   increase problem assets and foreclosures;

·   increase claims and lawsuits;

·   decrease the demand for our products and services; and

·   decrease the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with nonperforming loans and collateral coverage.

Risks Related to this Offering and Our Shares

Our share price may fluctuate.

The market price of our common stock could be subject to significant fluctuations in response to many factors, including, but not limited to:

·   actual or anticipated variations in our results of operations, liquidity or financial condition;

·   changes in our earnings estimates or those of analysts;

·   our failure to pay dividends on common stock;

·   publication of research reports about us or the banking industry generally;

·   changes in market valuations of similar companies;

·   whether the transactions contemplated by the merger agreement with Republic First will be approved by the applicable federal, state and local regulatory authorities and, if approved, whether the other closing conditions to the proposed merger will be satisfied;

·   our ability to complete the proposed merger with Republic First and the merger of Republic First Bank with and into Metro Bank, to integrate successfully Republic First’s assets, liabilities, customers, systems and management personnel into our operations, and to realize expected cost savings and revenue enhancements within expected timeframes or at all;

·   the possibility that expected Republic First merger-related charges will be materially greater than forecasted or that final purchase price allocations based on fair value of the acquired assets and liabilities at the effective date of the merger and related adjustments to yield and/or amortization of the acquired assets and liabilities will be materially different from those forecasted;

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·   adverse changes in our or Republic First’s loan portfolios and the resulting credit risk-related losses and expenses;

·   the effects of, and changes in, trade, monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System;

·   general economic or business conditions, either nationally, regionally or in the communities in which either we do or Republic First does business, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and loan performance or a reduced demand for credit;

·   continued levels of loan quality and volume origination;

·   the adequacy of loan loss reserves;

·   the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance);

·   the willingness of customers to substitute competitors’ products and services for our products and services and vice versa, based on price, quality, relationship or otherwise;

·   unanticipated regulatory or judicial proceedings and liabilities and other costs;

·   interest rate, market and monetary fluctuations;

·   the timely development of competitive new products and services by us and the acceptance of such products and services by customers;

·   changes in consumer spending and saving habits relative to the financial services we provide;

·   the loss of certain key officers or other employees;

·   continued relationships with major customers;

·   our ability to continue to grow our business internally and through acquisition and successful integration of new or acquired entities while controlling costs;

·   compliance with laws and regulatory requirements of federal, state and local agencies;

·   the ability to hedge certain risks economically;

·   effect of terrorist attacks and threats of actual war;

·   deposit flows;

·   changes in accounting principles, policies and guidelines;

·   rapidly changing technology;

·   other economic, competitive, governmental, regulatory and technological factors affecting the Company’s operations, pricing, products and services; and

·   our success at managing the risks involved in the foregoing.

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Stock markets, in general, have experienced over the past year, and continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations that may be unrelated to our operating performance or prospects. Increased market volatility could result in a substantial decline in the market price of our common stock.

Our common stock is not insured by any governmental entity and, therefore, an investment in our common stock involves risk.

Our common stock is not a deposit account or other obligation of any bank, and is not insured by the FDIC or any other governmental entity, and is subject to investment risk, including possible loss.

There may be future sales of our common stock, which may materially and adversely affect the market price of our common stock.

Except as described under “Underwriting,” we are not restricted from issuing additional shares of our common stock, including securities that are convertible into or exchangeable or exercisable for shares of our common stock. We anticipate that we will issue approximately 4 million shares of our common stock upon the closing of the Republic First merger.  The closing of the Republic First merger or our issuance of shares of common stock in the future, arising from the closing of the Republic First merger or otherwise, will dilute the ownership interest of our existing common stockholders.

In addition, as of September 23, 2009, there were 6,532,409 shares of our common stock outstanding. Most of these shares are available for resale in the public market without restriction, except for shares held by our affiliates. Generally, our affiliates may either sell their shares under a registration statement or in compliance with the volume limitations and other requirements imposed by Rule 144 under the Securities Act.

As of September 23, 2009, there were 1,010,511 shares of our common stock issuable upon conversion, exchange or exercise in respect of outstanding securities, warrants or options, and we had the authority to issue up to approximately 685,541 shares of our common stock under our stock option plans and 213,830 shares under our Dividend Reinvestment and Stock Purchase Plan.

Additionally, the sale of substantial amounts of our common stock or securities convertible into or exchangeable or exercisable for our common stock, whether directly by us in this offering or future offerings or by existing common stockholders in the secondary market, the perception that such sales could occur or the availability for future sale of shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock could, in turn, materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities. In addition, we may issue other equity securities that are senior to our common stock in the future for a number of reasons, including, without limitation, to support operations and growth, to maintain our capital ratios and to comply with any future changes in regulatory standards.

Our common stock is currently traded on the Nasdaq Global Select Market. During the twelve months ended December 31, 2008, the average daily trading volume for our common stock was approximately 12,400 shares.  As a result, sales of our common stock may place significant downward pressure on the market price of our common stock. Furthermore, it may be difficult for holders to resell their shares at prices they find attractive, or at all.

Our common stock is subordinate to our existing and future indebtedness and preferred stock and effectively subordinated to all indebtedness and preferred equity claims against our subsidiaries.

Shares of our common stock are common equity interests in us and, as such, will rank junior to all of our existing and future indebtedness and other liabilities. Additionally, holders of our common stock are subject to the prior dividend and liquidation rights of holders of our outstanding preferred stock. Our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of the holders of our common stock. Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors and preferred stockholders. As of June 30, 2009, we had $224.4 million of outstanding debt and the aggregate liquidation preference of all our outstanding preferred stock was $1.0 million.

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Our ability to pay dividends depends upon the results of operations of our subsidiaries.

Neither the Company nor the Bank has declared or paid cash dividends on its common stock since the Bank began operations in June 1985.  Our Board of Directors intends to follow a policy of retaining earnings for the purpose of increasing the Company’s and the Bank’s capital for the foreseeable future.  Although the Board of Directors anticipates establishing a cash dividend policy in the future, no assurance can be given that cash dividends will be paid.

Holders of our common stock are entitled to receive dividends if, as and when declared from time to time by our board of directors in its sole discretion out of funds legally available for that purpose, after debt service payments and payments of dividends required to be paid on our outstanding preferred stock, if any.  Prior to the completion of the merger with Republic First, we must obtain the consent of Republic First prior to declaring or paying any dividends on our common stock.

While we are not subject to certain restrictions on dividends applicable to a bank, our ability to pay dividends to the holders of our common stock will depend to a large extent upon the amount of dividends paid by the Bank to us.  Regulatory authorities restrict the amount of cash dividends the Bank can declare and pay without prior regulatory approval. Presently, the Bank cannot declare or pay dividends in any one year in excess of retained earnings for that year subject to risk based capital requirements.

This offering is expected to be dilutive.

 Giving effect to the issuance of common stock in this offering, we expect that this offering will have a dilutive effect on our expected earnings per common share. The actual amount of dilution cannot be determined at this time and will be based on numerous factors.

“Anti-takeover” provisions may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to our shareholders.

We are a Pennsylvania corporation. Anti-takeover provisions in Pennsylvania law and our articles of incorporation and bylaws could make it more difficult for a third party to acquire control of us. These provisions could adversely affect the market price of our common stock and could reduce the amount that shareholders might receive if we are sold. For example, our articles of incorporation provide that our Board of Directors may issue up to 960,000 shares of preferred stock without shareholder approval, subject to the rights of the outstanding shares of preferred stock. In addition, “anti-takeover” provisions in our articles of incorporation and federal and state laws, including Pennsylvania law, may restrict a third party’s ability to obtain control of the Company and may prevent shareholders from receiving a premium for their shares of our common stock.

Our executive officers, directors and other five percent or greater shareholders own a significant percentage of our company, and could influence matters requiring approval by our shareholders.

As of September 23, 2009, our executive officers and directors as a group owned and had the right to vote approximately 24.0% of our outstanding stock and other five percent or greater shareholders owned and had the right to vote approximately 18.8% of our outstanding common stock. These shareholders, acting together, would be able to influence matters requiring approval by our shareholders, including the election of directors. This concentration of ownership might also have the effect of delaying or preventing a change of control of Metro.

Risks related to Republic First

Republic First’s earnings are sensitive to fluctuations in interest rates.

Republic First’s earnings depend on the earnings of Republic First Bank. Republic First Bank is dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the operations of Republic First Bank are subject to risks and uncertainties surrounding their exposure to change in the interest rate environment.

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Republic First’s earnings and financial condition may be negatively impacted by a general economic downturn or changes in the credit risk of its borrowers.

Republic First Bank’s results of operations and financial condition are affected by the ability of its borrowers to repay their loans.  Lending money is an essential part of the banking business.  However, borrowers do not always repay their loans.  The risk of non-payment is affected by credit risks of a particular borrower, changes in economic conditions, the duration of the loan and in the case of a collateralized loan, uncertainties as to the future value of the collateral and other factors.

Republic First’s results of operations are significantly affected by the ability of its borrowers to repay their loans and if borrowers do not repay their loans, Republic First will be exposed to credit risk.

Lending money is an essential part of the banking business. However, borrowers do not always repay their loans. The risk of non-payment is affected by:

·   credit risks of a particular borrower;

·   changes in economic and industry conditions;

·   the duration of the loan; and

·   in the case of a collateralized loan, uncertainties as to the future value of the collateral.

The current economic and market conditions in the United States and around the world may heighten the risk of non-payment. Generally, commercial/industrial, construction and commercial real estate loans present a greater risk of non-payment by a borrower than other types of loans. In addition, consumer loans typically have shorter terms and lower balances with higher yields compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans.

While Republic First intends to maintain a prudent approach to extending credit by undertaking due diligence and credit scoring to determine the risk of each credit application, there can be no guarantee that these measures will be sufficient to mitigate its exposure to credit risk.  If Republic First fails to adequately manage its credit risk, it could materially and adversely affect them.

Republic First may be required to make further increases in their provisions for loan losses and to charge off additional loans in the future, which could materially and adversely affect Republic First.

There is no precise method of predicting loan losses.  Republic First can give no assurance that the allowance for their loan losses is or will be sufficient to absorb actual loan losses.  Republic First maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable incurred losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; industry concentrations and other unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires Republic First to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of Republic First’s control, may require Republic First to increase their allowance for loan losses. Increases in nonperforming loans have a significant impact on Republic First’s allowance for loan losses. If current trends in the real estate markets continue, Republic First could continue to experience increased delinquencies and credit losses, particularly with respect to real estate construction and land acquisition and development loans and one-to-four family residential mortgage loans. Moreover, Republic First expects that the current recession will negatively impact economic conditions in their market areas and that they could experience significantly higher delinquencies and credit losses.

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In addition, bank regulatory agencies periodically review Republic First’s allowance for loan losses and may require them to increase the provision for loan losses or to recognize further loan charge-offs, based on judgments that differ from those of management. Republic First has taken action to resolve certain credit and financial performance issues, including taking an $8.3 million special provision for the second quarter of 2009.  If loan charge-offs in future periods exceed their allowance for loan losses, they will need to record additional provisions to increase Republic First’s allowance for loan losses. Furthermore, growth in Republic First’s loan portfolio would generally lead to an increase in the provision for loan losses. Any increases in Republic First’s allowance for loan losses will result in a decrease in net income and capital, and may have a material adverse effect on Republic First’s financial condition, results of operations and cash flows.

In addition to the special provision, in response to the March 2009 FDIC examination, Republic First Bank is also required to enhance a variety of its policies, procedures and processes regarding asset quality, earnings and loan concentrations. Republic First Bank believes that it has already implemented a number of changes to its policies, procedures and process in the last several months that they believe address many of these issues. Similarly, following its 2008 compliance examination, Republic First Bank was notified by banking regulators that its compliance function was subject to informal supervisory oversight. Republic First Bank was required to improve its policies, procedures and processes relating to its compliance monitoring functions. Republic First Bank has already implemented a number of changes to its policies, procedures and processes that they believe address most if not all of these issues.

Republic First’s concentration of commercial real estate loans could result in increased loan losses.

Commercial real estate, or “CRE,” is cyclical and poses risks of loss to Republic First due to concentration levels and similar risks of the asset, especially since Republic First had 86.2% of its loan portfolio in CRE as of June 30, 2009. The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher levels of allowances for possible losses and capital levels as a result of CRE lending growth and exposures. Republic First’s management has already reduced the concentration of CRE in its loan portfolio, and has efforts underway to further reduce such concentration during the balance of  2009. In addition, if the merger between the Company and Republic First is consummated, CRE loans will be 46.8% of the Company’s loan portfolio on a pro forma basis.

Republic First’s results of operations may be materially and adversely affected by other-than-temporary impairment charges relating to its investment portfolio.

Republic First may be required to record future impairment charges on its investment securities if they suffer declines in value that Republic First considers other-than-temporary. Numerous factors, including the lack of liquidity for re-sales of certain investment securities, the absence of reliable pricing information for investment securities, adverse changes in the business climate, adverse regulatory actions or unanticipated changes in the competitive environment, could have a negative effect on Republic First’s investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of Republic First Bank to pay dividends to Republic First, which could have a material adverse effect on its liquidity and its ability to pay dividends to shareholders. Significant impairment charges could also negatively impact Republic First’s regulatory capital ratios and result in Republic First Bank not being classified as “well-capitalized” for regulatory purposes.

Republic First’s disclosure controls and procedures may not achieve their intended objectives.

Republic First’s system of internal controls cannot provide assurance of achieving their intended objectives because of inherent limitations.  Internal control processes that involve human diligence and compliance are subject to lapses in judgment and breakdowns resulting from human failures.  Internal controls can also be circumvented by collusion or improper management override.

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In connection with Republic First’s management’s assessment of its internal control over financial reporting at December 31, 2008, Republic First’s management identified certain material weaknesses and significant deficiencies related to, among other items, other than temporarily impaired investment securities and the financial statement reporting process.  Even though Republic First has taken remedial actions which Republic First management believe have corrected the identified material weaknesses and significant deficiencies, there is no assurance that Republic First’s management will not identify new material weaknesses or deficiencies or that additional measures to address such weaknesses or deficiencies will not be required in the future. You should see Item 9A and “Management’s Report on Internal Control Over Financial Reporting” included in Republic First’s annual report on Form 10-K as well as Item 4 of Republic First’s quarterly reports on Form 10-Q, all incorporated by reference in this prospectus supplement and the accompanying base prospectus, for additional information.  Because of such prior material weaknesses, there is an increased risk that material misstatements due to error or fraud may not be prevented or detected on a timely basis by Republic First’s internal controls.

Republic First faces increasing competition in its market from other banks and financial institutions.

Republic First Bank may not be able to compete effectively in its markets, which could adversely affect its results of operations.  The banking and financial services industry in Republic First Bank’s market area is highly competitive.  The increasingly competitive environment is a result of changes in regulation, changes in technology and product delivery systems, and the accelerated pace of consolidation among financial service providers.  Larger institutions have greater access to capital markets, with higher lending limits and a broader array of services.  Competition may require increases in deposit rates and decreases in loan rates, and adversely impact Republic First’s net interest margin.

Government regulation restricts the scope of Republic First’s operations.

Republic First and Republic First Bank operate in a highly regulated environment and are subject to supervision and regulation by several governmental regulatory agencies, including the FDIC, the Pennsylvania Department of Banking and the FRB.  Republic First and Republic First Bank are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends, and others.  Regulations that apply to Republic First and Republic First Bank are generally intended to provide protection for depositors and customers rather than for investors.  Republic First and Republic First Bank will remain subject to these regulations, and to the possibility of changes in federal and state laws, regulations, governmental policies, income tax laws and accounting principles.  Changes in the regulatory environment in which Republic First and Republic First Bank operate could adversely affect the banking industry as a whole and Republic First and Republic First Bank’s operations in particular.  For example, regulatory changes could limit Republic First’s growth and its return to investors by restricting such activities as the payment of dividends, mergers with or acquisitions by other institutions, investments, loans and interest rates, and providing securities, insurance or trust services.  Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.

Also, legislation may change present capital requirements, which could restrict Republic First and Republic First Bank’s activities and require the Republic First and Republic First Bank to maintain additional capital.  Republic First and Republic First Bank cannot predict what changes, if any, legislators and federal and state agencies will make to existing federal and state legislation and regulations or the effect that such changes may have on Republic First and Republic First Bank’s business.

Republic First anticipates increased and/or changes in regulations as a result of the current turmoil in the financial markets and the efforts of government agencies to stabilize the financial system.

Republic First’s business is concentrated in and dependent upon the continued growth and welfare of its primary market area.

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Republic First operates primarily in the Philadelphia geographic market.  Its success depends upon the business activity, population, income levels, deposits and real estate activity in this market. Although Republic First’s customers’ business and financial interests may extend well beyond this market area, adverse economic conditions that affect Republic First’s home market could reduce its growth rate, affect the ability of its customers to repay their loans to Republic First and generally affect its financial condition and results of operations. Because of Republic First’s geographic concentration, it is less able than other regional or national financial institutions to diversify its credit risks across multiple markets.

Republic First’s community banking strategy relies heavily on its management team, and the unexpected loss of key managers may materially and adversely affect Republic First’s operations.

Much of Republic First’s success to date has been influenced strongly by its ability to attract and to retain senior management experienced in banking and financial services and familiar with the communities in its market. Republic First’s ability to retain executive officers, the current management teams, branch managers and loan officers of its bank subsidiary will continue to be important to the successful implementation of its strategy. It is also critical for Republic First, as it grows, to be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about its market areas to implement its community-based operating strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could materially and adversely effect Republic First.

Republic First has a continuing need for technological change and it may not have the resources to effectively implement new technology.

The financial services industry is constantly undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Republic First future success will depend in part upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in its operations as Republic First continues to grow and expand in its market. Many of Republic First’s larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that Republic First will be able to offer, which would put Republic First at a competitive disadvantage. Accordingly, Republic First cannot provide you with assurance that it will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to its customers.

System failure or breaches of Republic First’s network security could subject it to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure Republic First uses could be vulnerable to unforeseen problems. Republic First’s operations are dependent upon its ability to protect its computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in Republic First’s operations could have a material adverse effect on its financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through Republic First’s computer systems and network infrastructure, which may result in significant liability to Republic First and may cause existing and potential customers to refrain from doing business with it. Although Republic First, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms Republic First and its third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could materially and adversely effect Republic First.

Republic First is subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

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Employee errors and misconduct could subject Republic First to financial losses or regulatory sanctions and seriously harm its reputation. Misconduct by Republic First’s employees could include hiding unauthorized activities, improper or unauthorized activities on behalf of customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions Republic First takes to prevent and detect this activity may not be effective in all cases. Employee errors could also subject Republic First to financial claims for negligence.

Republic First maintains a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. Should Republic First’s internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could materially and adversely effect Republic First.

Republic First is exposed to environmental liabilities with respect to properties to which it takes title.

A significant portion of Republic First’s loan portfolio is secured by real property. In the course of Republic First’s business, it may foreclose on and take title to real estate securing such loans and in doing so could become subject to environmental liabilities with respect to these properties. Republic First may become responsible to a governmental agency or third parties for property damage, personal injury, investigation and clean-up costs incurred by those parties in connection with environmental contamination, or may be required to investigate or clean- up hazardous or toxic substances, or chemical releases at a property. The costs associated with environmental investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, Republic First may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.  Although Republic First has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.  If Republic First were to become subject to significant environmental liabilities, it could materially and adversely effect Republic First.

Unfavorable economic and market conditions due to the current global financial crisis may adversely affect Republic First’s financial position and results of operations.

Economic and market conditions in the United States and around the world have deteriorated significantly and may remain depressed for the foreseeable future.  Conditions such as slowing or negative growth and the sub-prime debt devaluation crisis have resulted in a low level of liquidity in many financial markets, and extreme volatility in credit, equity and fixed income markets.  These economic developments could have various effects on Republic First’s business, including insolvency of major customers and a negative impact on the investment income it is able to earn on its investment portfolio.  Lending money is an essential part of the banking business.  Due to the current economic conditions, customers may be unable or unwilling to borrow money or repay funds already borrowed.  The risk of non-payment is affected by credit risks of a particular customer, changes in economic conditions, the duration of the loan and in the case of a collateralized loan, uncertainties as to the future value of the collateral and other factors.  The potential effects of the current global financial crisis are difficult to forecast and mitigate.  As a consequence, Republic First’s operating results for a particular period are difficult to predict.  Distress in the credit markets and issues relating to liquidity among financial institutions have resulted in the failure of some financial institutions around the world and others have been forced to seek acquisition partners. The United States and other governments have taken unprecedented steps in efforts to stabilize the financial system, including investing in financial institutions. There can be no assurance that these efforts will succeed.  Republic First’s business and its financial condition and results of operations could be adversely affected by (1) continued or accelerated disruption and volatility in financial markets; (2) continued capital and liquidity concerns regarding financial institutions; (3) limitations resulting from further governmental action in an effort to stabilize or provide additional regulation of the financial system; or (4) recessionary conditions that are deeper or longer lasting than currently anticipated.

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