Metro Bancorp (METR) 10-Q 2013 Q2 Quarterly report

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 June 30, 2013

[     ] 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,  Harrisburg, PA	17111
(Address of principal executive offices)	(Zip Code)

888-937-0004

(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 X 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: 14,144,555 Common shares outstanding at July 31, 2013

1

METRO BANCORP, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)
	June 30, 2013 and December 31, 2012	3
	Consolidated Statements of Operations (Unaudited)
	Three months and six months ended June 30, 2013 and June 30, 2012	4
	Consolidated Statements of Comprehensive Income (Unaudited)
	Three months and six months ended June 30, 2013 and June 30, 2012	5
	Consolidated Statements of Stockholders' Equity  (Unaudited)
	Six months ended June 30, 2013 and June 30, 2012	6
	Consolidated Statements of Cash Flows (Unaudited)
	Six months ended June 30, 2013 and June 30, 2012	7
	Notes to the Interim Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	50
	Signatures

2

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Metro Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2013			December 31, 2012
(in thousands, except share and per share amounts)	(Unaudited)
Assets
Cash and cash equivalents	$	48,011		$	56,582
Securities, available for sale at fair value	644,668			675,109
Securities, held to maturity at cost (fair value 2013: $210,755; 2012: $273,671)	218,794			269,783
Loans, held for sale	7,160			15,183
Loans receivable, net of allowance for loan losses (allowance 2013: $28,038; 2012: $25,282)	1,605,828			1,503,515
Restricted investments in bank stock	23,819			15,450
Premises and equipment, net	77,788			78,788
Other assets	32,337			20,465
Total assets	$	2,658,405		$	2,634,875
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	463,805		$	455,000
Interest-bearing	1,704,954			1,776,291
Total deposits	2,168,759			2,231,291
Short-term borrowings	230,025			113,225
Long-term debt	15,800			40,800
Other liabilities	15,353			14,172
Total liabilities	2,429,937			2,399,488
Stockholders' Equity:
Preferred stock - Series A noncumulative; $10.00 par value; $1,000,000 liquidation preference;
(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 shares 2013: 14,138,800;  2012: 14,131,263)	14,139			14,131
Surplus	157,918			157,305
Retained earnings	63,964			56,311
Accumulated other comprehensive income (loss)	(7,953		)	7,240
Total stockholders' equity	228,468			235,387
Total liabilities and stockholders' equity	$	2,658,405		$	2,634,875

See accompanying notes.

3

Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands, except per share amounts)	2013			2012		2013		2012
Interest Income
Loans receivable, including fees:
Taxable	$	18,516		$	18,075	$	36,487	$	35,835
Tax-exempt	905			897		1,836		1,764
Securities:
Taxable	5,007			5,567		10,366		11,238
Tax-exempt	184			86		368		119
Federal funds sold	—			—		—		1
Total interest income	24,612			24,625		49,057		48,957
Interest Expense
Deposits	1,525			2,000		3,144		4,082
Short-term borrowings	181			74		312		127
Long-term debt	307			581		667		1,162
Total interest expense	2,013			2,655		4,123		5,371
Net interest income	22,599			21,970		44,934		43,586
Provision for loan losses	1,800			2,950		4,100		5,450
Net interest income after provision for loan losses	20,799			19,020		40,834		38,136
Noninterest Income
Service charges, fees and other operating income	7,093			7,076		14,025		13,953
Gains on sales of loans	250			372		663		601
Total fees and other income	7,343			7,448		14,688		14,554
Other-than-temporary impairment (OTTI) losses	—			—		—		(649		)
Portion recognized in other comprehensive income (before taxes)	—			—		—		—
Net impairment loss on investment securities	—			—		—		(649		)
Net gains (losses) on sales/calls of securities	(9		)	12		21		996
Total noninterest income	7,334			7,460		14,709		14,901
Noninterest Expenses
Salaries and employee benefits	10,391			10,166		21,216		20,704
Occupancy	2,150			2,050		4,273		4,133
Furniture and equipment	1,185			1,238		2,272		2,504
Advertising and marketing	448			381		817		801
Data processing	3,276			3,281		6,482		6,663
Regulatory assessments and related costs	551			849		1,085		1,675
Telephone	875			833		1,828		1,707
Loan expense	1,044			321		1,369		691
Foreclosed real estate	71			781		215		1,144
Pennsylvania shares tax	573			515		1,138		1,019
Other	1,796			2,259		3,994		4,564
Total noninterest expenses	22,360			22,674		44,689		45,605
Income before taxes	5,773			3,806		10,854		7,432
Provision for federal income taxes	1,725			1,044		3,161		1,986
Net income	$	4,048		$	2,762	$	7,693	$	5,446
Net Income per Common Share
Basic	$	0.28		$	0.19	$	0.54	$	0.38
Diluted	0.28			0.19		0.54		0.38
Average Common and Common Equivalent Shares Outstanding
Basic	14,137			14,128		14,134		14,127
Diluted	14,243			14,128		14,201		14,127

See accompanying notes.

4

Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2013			2012			2013			2012
Net income	$	4,048		$	2,762		$	7,693		$	5,446
Other comprehensive (loss) income, net of tax:
Net unrealized holding gains (losses) arising during the period (net of taxes for the three months 2013: ($6,759); 2012: ($631), net of taxes for the six months 2013: ($8,137); 2012: $1,147)	(12,554		)	(1,226		)	(15,426		)	2,227
Reclassification adjustment for net realized (gains) losses on securities recorded in income (1) (net of taxes for the three months 2013: $2; 2012: $105, net of taxes for the six months 2013: $124; 2012: ($226)	7			204			233			(438		)
Reclassification for OTTI credit losses recorded in income (net of taxes for the six months 2012: $221)	—			—			—			428
Other comprehensive (loss) income	(12,547		)	(1,022		)	(15,193		)	2,217
Total comprehensive (loss) income	$	(8,499	)	$	1,740		$	(7,500	)	$	7,663

⁽¹⁾Amounts are included in net gains on sales/calls of securities on the Consolidated Statements of Income in total noninterest income.

See accompanying notes.

5

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 Income		Total
January 1, 2012	$	400	$	14,125	$	156,184	$	45,497		$	3,814	$	220,020
Net income	—		—		—		5,446			—		5,446
Other comprehensive income	—		—		—		—			2,217		2,217
Dividends declared on preferred stock	—		—		—		(40		)	—		(40		)
Common stock of 20 shares issued under employee stock purchase plan	—		—		—		—			—		—
Proceeds from issuance of 3,100 shares of common stock in connection with dividend reinvestment and stock purchase plan	—		3		32		—			—		35
Common stock share-based awards	—		—		423		—			—		423
June 30, 2012	$	400	$	14,128	$	156,639	$	50,903		$	6,031	$	228,101

(in thousands, except share amounts)	Preferred Stock		Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total
January 1, 2013	$	400	$	14,131	$	157,305	$	56,311		$	7,240		$	235,387
Net income	—		—		—		7,693			—			7,693
Other comprehensive loss	—		—		—		—			(15,193		)	(15,193		)
Dividends declared on preferred stock	—		—		—		(40		)	—			(40		)
Common stock of 6,255 shares issued under stock option plans, including tax benefit of $7	—		6		73		—			—			79
Common stock of 10 shares issued under employee stock purchase plan	—		—		—		—			—			—
Proceeds from issuance of 1,272 shares of common stock in connection with dividend reinvestment and stock purchase plan	—		2		41		—			—			43
Common stock share-based awards	—		—		499		—			—			499
June 30, 2013	$	400	$	14,139	$	157,918	$	63,964		$	(7,953	)	$	228,468

See accompanying notes.

6

Metro Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
		June 30,
(in thousands)		2013			2012
Operating Activities
Net income		$	7,693		$	5,446
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,100			5,450
Provision for depreciation and amortization		2,646			3,045
Deferred income tax benefit		(564		)	(106		)
Amortization of securities premiums and accretion of discounts (net)		602			826
Losses (gains) on sales of available for sales securities (net)		357			(664		)
Gains on sales/calls of held to maturity securities		(379		)	(332		)
Other-than-temporary impairment losses on investment securities		—			649
Proceeds from sales of other loans originated for sale		30,196			31,130
Loans originated for sale		(21,510		)	(35,349		)
Gains on sales of loans originated for sale		(663		)	(601		)
Loss on write-down on foreclosed real estate		15			187
Losses on sales of foreclosed real estate (net)		57			741
(Gains) losses on disposal of premises and equipment (net)		116			(14		)
Stock-based compensation		499			423
Amortization of deferred loan origination fees and costs (net)		1,349			1,359
(Increase) decrease in other assets		(1,216		)	1,285
Increase (decrease) in other liabilities		1,181			(1,090		)
Net cash provided by operating activities		24,479			12,385
Investing Activities
Securities available for sale:
Proceeds from principal repayments, calls and maturities		87,792			69,601
Proceeds from sales		76,262			249,323
Purchases		(157,777		)	(307,800		)
Securities held to maturity:
Proceeds from principal repayments, calls and maturities		57,767			121,734
Proceeds from sales		13,600			4,822
Purchases		(20,000		)	(120,974		)
Proceeds from sales of foreclosed real estate		542			3,354
Increase in loans receivable (net)		(110,455		)	(59,779		)
(Purchase) redemption of restricted investment in bank stock (net)		(8,369		)	1,632
Proceeds from sale of premises and equipment		66			14
Purchases of premises and equipment		(1,828		)	(2,725		)
Net cash used by investing activities		(62,400		)	(40,798		)
Financing Activities
(Decrease) increase in demand, interest checking, money market, and savings deposits (net)		(57,505		)	23,947
Decrease in time and other noncore deposits (net)		(5,027		)	(9,606		)
Increase in short-term borrowings (net)		116,800			7,250
Repayment of long-term borrowings		(25,000		)	—
Proceeds from common stock options exercised		72			—
Proceeds from dividend reinvestment and common stock purchase plan		43			35
Tax benefit on exercise of stock options		7			—
Cash dividends on preferred stock		(40		)	(40		)
Net cash provided by financing activities		29,350			21,586
Decrease in cash and cash equivalents		(8,571		)	(6,827		)
Cash and cash equivalents at beginning of year		56,582			55,073
Cash and cash equivalents at end of period		$	48,011		$	48,246
Supplemental disclosure of cash flow information:
Cash paid for interest on deposits and borrowings		$	3,924		$	5,505
Cash paid for income taxes		3,925			2,450
Supplemental schedule of noncash activities:
Transfer of loans to foreclosed assets		2,693			1,421

See accompanying notes.

7

METRO BANCORP, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

NOTE 1. Summary of Significant Accounting Policies

Consolidated Financial Statements

The consolidated balance sheet at December 31, 2012 has been derived from audited consolidated financial statements and the consolidated interim 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 accounting principles generally accepted in the United States of America (GAAP) 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 Metro Bancorp, Inc.'s (Metro or the Company) 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, 2012. 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.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Events occurring subsequent to the balance sheet through the date of issuance have been evaluated for potential recognition or disclosure in the consolidated financial statements. The results for the six months endedJune 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries including Metro Bank (the Bank). All material intercompany transactions have been eliminated.

Use of Estimates

The consolidated financial statements are prepared in conformity with GAAP. Accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and require disclosure of contingent assets and liabilities. In the opinion of management, all adjustments considered necessary for fair presentation have been included and are of a normal, recurring nature. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses (allowance or ALL), impaired loans, the valuation of foreclosed assets, the valuation of securities available for sale, the valuation of deferred tax assets, the determination of other-than-temporary impairment (OTTI) on the Company's investment securities portfolio and fair value measurements.

NOTE 2. Stock-based Compensation

The fair value of each stock 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 options granted during the six months endedJune 30, 2013 and 2012, respectively: risk-free interest rates of 1.4% and 1.7%; volatility factors of the expected market price of the Company's common stock of 41% and 48%; assumed forfeiture rates of 11.16% and 8.97%; weighted-average expected lives of the options of 7.5 years for both June 30, 2013 and June 30, 2012; and no cash dividends. Using these assumptions, the weighted-average fair value of options granted for the six months endedJune 30, 2013 and 2012 was $7.54 and $5.99 per option, respectively. In the first six months of 2013, the Company granted 126,271 options to purchase shares of the Company's stock at exercise prices ranging from $16.53 to $17.10 per share.

The Company recorded stock-based compensation expense of approximately $499,000 and $423,000 during the first six months ended June 30, 2013 and June 30, 2012, respectively. In accordance with Financial Accounting Standards Board (FASB) guidance on stock-based payments, during the first quarters of 2013 and 2012 the Company reversed $135,000 and $230,000, respectively, of expense that had been recorded in prior periods as a result of the reconcilement of projected option forfeitures to actual option forfeitures for all stock options granted during the first quarters of 2009 and 2008, respectively.

8

NOTE 3.    Securities

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

	June 30, 2013
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities	$	33,994	$	—	$	(2,991	)	$	31,003
Residential mortgage-backed securities	68,949		—		(1,844		)	67,105
Agency collateralized mortgage obligations	527,064		3,114		(9,349		)	520,829
Municipal securities	26,895		—		(1,164		)	25,731
Total	$	656,902	$	3,114	$	(15,348	)	$	644,668
Held to Maturity:
U.S. Government agency securities	$	149,089	$	—	$	(9,518	)	$	139,571
Residential mortgage-backed securities	18,024		1,089		—			19,113
Agency collateralized mortgage obligations	43,703		476		—			44,179
Corporate debt securities	5,000		55		—			5,055
Municipal securities	2,978		3		(144		)	2,837
Total	$	218,794	$	1,623	$	(9,662	)	$	210,755

	December 31, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities	$	33,994	$	19	$	(252	)	$	33,761
Residential mortgage-backed securities	55,614		1,596		—			57,210
Agency collateralized mortgage obligations	547,641		9,971		(745		)	556,867
Municipal securities	26,890		381		—			27,271
Total	$	664,139	$	11,967	$	(997	)	$	675,109
Held to Maturity:
U.S. Government agency securities	$	178,926	$	700	$	(363	)	$	179,263
Residential mortgage-backed securities	23,827		1,889		—			25,716
Agency collateralized mortgage obligations	49,051		1,587		—			50,638
Corporate debt securities	15,000		13		—			15,013
Municipal securities	2,979		62		—			3,041
Total	$	269,783	$	4,251	$	(363	)	$	273,671

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2013 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.

9

	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	—		—		5,000		5,055
Due after five years through ten years	47,480		44,074		70,000		65,105
Due after ten years	13,409		12,660		82,067		77,303
	60,889		56,734		157,067		147,463
Residential mortgage-backed securities	68,949		67,105		18,024		19,113
Agency collateralized mortgage obligations	527,064		520,829		43,703		44,179
Total	$	656,902	$	644,668	$	218,794	$	210,755

During the second quarter of 2013, the Company sold 10 securities with a total fair market value of $29.0 million. The Company had no agency debentures that were called by their respective issuers. In total, the Company realized net securities losses of $9,000. Of the investments sold, none were from the held to maturity (HTM) portfolio.

During the second quarter of 2012, the Company sold four mortgage-backed securities (MBSs), six agency collateralized mortgage obligations (CMOs) and three private-label CMOs all with a total fair market value of $44.5 million and realized a net pretax gain of $12,000. Four of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its originally purchased par value and, therefore, were sold without tainting the remaining HTM portfolio. The Company also had $20.0 million of agency debentures that were called by their issuing agency during the second quarter of 2012.

During the first six months of 2013, the Company sold 21 securities with a total fair market value of $89.9 million. The Company also had $50.0 million of agency debentures that were called by their respective issuers. In total, the Company realized net security gains of $21,000. Of the investments sold, five were from the HTM portfolio, four of which were amortizing securities that had already returned at least 85% of their respective principal, and one of which was a corporate bond within three months of its maturity date. In all cases, these could be sold without tainting the remaining HTM portfolio.

During the first six months of 2012, the Company sold four MBSs, 27 agency CMOs and five private-label CMOs with a total fair market value of $254.1 million and realized a net pretax gain of $996,000. Five of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its original purchased par value and, therefore, were sold without tainting the remaining HTM portfolio. Additionally, the Company had $130.3 million in a total of nine agency debentures that were called by their issuing agency.

The Company does not maintain a trading portfolio and there were no transfers of securities between the available for sale (AFS) and HTM portfolios. The Company uses the specific identification method to record security sales.

At June 30, 2013, securities with a carrying value of $692.3 million were pledged to secure public deposits and for other purposes as required or permitted by law.

The following table summarizes the Company's gains and losses on the sales or calls of debt securities and credit losses recognized for the OTTI of investments:

(in thousands)	Gross Realized Gains		Gross Realized Losses			OTTI Credit Losses			Net Gains
Three Months Ended:
June 30, 2013	$	363	$	(372	)	$	—		$	(9	)
June 30, 2012	626		(614		)	—			12
Six Months Ended:
June 30, 2013	$	1,183	$	(1,162	)	$	—		$	21
June 30, 2012	2,495		(1,499		)	(649		)	347

In determining fair market values for its portfolio holdings, the Company receives information from a third party provider which management evaluates and corroborates using amounts from one of its securities brokers. Under the current guidance, these values

10

are considered Level 2 inputs, based upon mathematically derived matrix pricing and observed data from similar assets. They are not Level 1 direct quotes, nor do they reflect Level 3 inputs that would be derived from internal analysis or judgment. As the Company does not manage a trading portfolio and typically only sells from its AFS portfolio in order to manage interest rate risk or credit exposure, direct quotes, or street bids, are warranted on an as-needed basis only.

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

	June 30, 2013
	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:
U.S. Government agency securities	$	31,003	$	(2,991	)	$	—	$	—	$	31,003	$	(2,991	)
Residential mortgage-backed securities	67,105		(1,844		)	—		—		67,105		(1,844		)
Agency CMOs	298,454		(9,349		)	—		—		298,454		(9,349		)
Municipal securities	25,731		(1,164		)	—		—		25,731		(1,164		)
Total	$	422,293	$	(15,348	)	$	—	$	—	$	422,293	$	(15,348	)
Held to Maturity:
U.S. Government agency securities	$	139,571	$	(9,518	)	$	—	$	—	$	139,571	$	(9,518	)
Municipal securities	1,731		(144		)	—		—		1,731		(144		)
Total	$	141,302	$	(9,662	)	$	—	$	—	$	141,302	$	(9,662	)

	December 31, 2012
	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:
U.S. Government agency securities	$	24,748	$	(252	)	$	—	$	—	$	24,748	$	(252	)
Agency CMOs	53,274		(745		)	—		—		53,274		(745		)
Total	$	78,022	$	(997	)	$	—	$	—	$	78,022	$	(997	)
Held to Maturity:
U.S. Government agency securities	$	57,572	$	(363	)	$	—	$	—	$	57,572	$	(363	)
Total	$	57,572	$	(363	)	$	—	$	—	$	57,572	$	(363	)

The Company's investment securities portfolio consists of U.S. Government agency debentures, U.S. Government sponsored agency MBSs, agency CMOs, corporate bonds and municipal bonds. The Company considers securities of the U.S. Government sponsored agencies and the U.S. Government MBS/CMOs to have little credit risk because their principal and interest payments are backed by an agency of the U.S. Government.

The unrealized losses in the Company's investment portfolio at June 30, 2013 were associated with two distinct types of securities. The first type, those backed by the U.S. Government or one of its agencies, included 11 debentures, 27 CMOs and ten MBSs. Management believes that the unrealized losses on these investments were primarily caused by the movement of interest rates from the date of purchase and notes the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. The Company also owns 26 municipal bonds that were in an unrealized loss position as of June 30, 2013. In all cases, the bonds are general obligations of either a Pennsylvania municipality or school district and are backed by the ad valorem taxing power of the entity. In all cases, the bonds carry an investment grade rating of no lower than single-A by either Moody's or Standard and Poors. The Company, however, conducts its own periodic, independent review and believes the unrealized losses in its municipal bond portfolio are the result of movements in long-term interest rates and are not reflective of any credit deterioration. The Company does not intend to sell these debt securities prior to recovery and it is more likely than not that the Company will not have to sell these debt securities prior to recovery.

11

The table that follows rolls forward the cumulative life-to-date credit losses which have been recognized in earnings for the private-label CMOs for the three months and six months ended June 30, 2013 and June 30, 2012. The Company did not incur any credit losses for the private-label CMOs in 2013 and does not currently hold private-label CMOs as of June 30, 2013.

	Private-label CMOs
	Available for Sale
(in thousands)	2013		2012
Cumulative OTTI credit losses at April 1,	$	—	$	2,293
Additional increases for OTTI previously recognized when   there is no intent to sell and no requirement to sell before   recovery of amortized cost basis	—		—
Reduction due to credit impaired securities sold	—		(2,041		)
Cumulative OTTI credit losses recognized for securities still   held at June 30,	$	—	$	252

	Private-label CMOs
	Available for Sale
(in thousands)	2013		2012
Cumulative OTTI credit losses at January 1,	$	—	$	2,949
Additional increases for OTTI previously recognized when   there is no intent to sell and no requirement to sell before   recovery of amortized cost basis	—		649
Reduction due to credit impaired securities sold	—		(3,346		)
Cumulative OTTI credit losses recognized for securities still   held at June 30,	$	—	$	252

NOTE 4. Loans Receivable and Allowance for Loan Losses

Loans receivable that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are stated at their outstanding unpaid principal balances, net of an allowance for loan losses (allowance or ALL) and any deferred fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan or to the first review date if the loan is on demand. Certain qualifying loans of the Bank totaling $512.8 million at June 30, 2013, collateralize a letter of credit and a line of credit commitment the Bank has with the Federal Home Loan Bank (FHLB).

A summary of the Bank's loans receivable at June 30, 2013 and December 31, 2012 is as follows:

(in thousands)	June 30, 2013		December 31, 2012
Commercial and industrial	$	415,740	$	376,988
Commercial tax-exempt	82,455		92,202
Owner occupied real estate	288,702		268,372
Commercial construction and land development	105,596		100,399
Commercial real estate	433,628		394,404
Residential	90,590		83,899
Consumer	217,155		212,533
	1,633,866		1,528,797
Less: allowance for loan losses	28,038		25,282
Net loans receivable	$	1,605,828	$	1,503,515

12

The following table summarizes nonaccrual loans by loan type at June 30, 2013 and December 31, 2012:

(in thousands)	June 30, 2013		December 31, 2012
Nonaccrual loans:
Commercial and industrial	$	12,053	$	11,289
Commercial tax-exempt	—		—
Owner occupied real estate	4,999		3,119
Commercial construction and land development	12,027		6,300
Commercial real estate	3,893		5,659
Residential	7,133		3,203
Consumer	3,422		2,846
Total nonaccrual loans	$	43,527	$	32,416

Generally, the Bank's policy is to move a loan to nonaccrual status when it becomes 90 days past due or when the Company does not believe it will collect all of its principal and interest payments. In addition, when a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the ALL. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. If a loan is substandard and accruing, accrued interest is recognized as income. Once a loan is on nonaccrual status, it is not returned to accrual status unless the loan has been current for at least six consecutive months and the borrower and/or any guarantors demonstrate the ability to repay the loan. Under certain circumstances such as bankruptcy, if a loan is under collateralized, or if the borrower and/or guarantors do not show evidence of the ability to pay, the loan may be placed on nonaccrual status even though it is not past due by 90 days or more. The total nonaccrual loan balance of $43.5 million exceeds the balance of total loans that are 90 days past due of $24.4 million at June 30, 2013 as presented in the aging analysis tables that follow.

Typically, commitments are canceled and no additional advances are made when a loan is placed on nonaccrual. At June 30, 2013 there were no unused commitments on nonaccrual loans.

The following tables are an age analysis of past due loan receivables as of June 30, 2013 and December 31, 2012:

			Past Due Loans										Recorded Investment in Loans 90 Days and Greater and Still Accruing
(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Total Loan Receivables
June 30, 2013
Commercial and industrial	$	402,836	$	5,307	$	3,067	$	4,530	$	12,904	$	415,740	$	—
Commercial tax-exempt	82,455		—		—		—		—		82,455		—
Owner occupied real estate	283,912		998		626		3,166		4,790		288,702		—
Commercial construction and land development	97,258		—		—		8,338		8,338		105,596		—
Commercial real estate	427,131		822		4,889		786		6,497		433,628		—
Residential	82,560		—		2,258		5,772		8,030		90,590		—
Consumer	211,777		1,795		1,791		1,792		5,378		217,155		—
Total	$	1,587,929	$	8,922	$	12,631	$	24,384	$	45,937	$	1,633,866	$	—

13

			Past Due Loans										Recorded Investment in Loans 90 Days and Greater and Still Accruing
(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Total Loan Receivables
December 31, 2012
Commercial and industrial	$	368,769	$	1,096	$	3,256	$	3,867	$	8,219	$	376,988	$	30
Commercial tax-exempt	92,202		—		—		—		—		92,202		—
Owner occupied real estate	265,817		610		353		1,592		2,555		268,372		—
Commercial construction and land development	89,250		4,251		4,318		2,580		11,149		100,399		188
Commercial real estate	386,821		3,846		78		3,659		7,583		394,404		—
Residential	76,587		4,303		1,252		1,757		7,312		83,899		—
Consumer	208,335		2,277		410		1,511		4,198		212,533		2
Total	$	1,487,781	$	16,383	$	9,667	$	14,966	$	41,016	$	1,528,797	$	220

The past due portfolio is constantly moving through collection efforts which include: restructures when appropriate, foreclosures or ultimately charge offs. During the first six months of 2013, $13.0 million of past due loans at December 31, 2012 improved to current status at June 30, 2013. Another $4.1 million of past due loan balances paid off during the first six months of 2013. Additionally, $999,000 and $2.6 million of those loans past due at December 31, 2012, were charged off or moved to foreclosed real estate, respectively. Another $25.8 million in current loans at December 31, 2012, became delinquent and were reported as past due at June 30, 2013. Out of the $25.8 million of loans that became past due after December 31, 2012, $3.5 million were 90 days past due or greater, $14.1 million were 60-89 days past due while the remainder, or $8.2 million, were 30-59 days past due at June 30, 2013.

The commercial and industrial loan category had the most significant dollar increase in past due status since December 31, 2012. The majority of the increase was in the 30-59 days past due as the result of two large loans. In addition, owner occupied real estate past dues increased $2.2 million while the commercial construction and land development category decreased by $2.8 million.

A summary of the ALL and balance of loans receivable by loan class and by impairment method as of June 30, 2013 and December 31, 2012 is detailed in the tables that follow:

(in thousands)	Comm. and industrial		Comm. tax-exempt		Owner occupied real estate		Comm. construction and land development		Comm. real estate		Residential		Con sumer		Unallocated		Total
June 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	2,695	$	—	$	1,415	$	3,470	$	1,755	$	508	$	492	$	—	$	10,335
Collectively evaluated for impairment	7,854		74		792		4,340		3,304		355		766		218		17,703
Total ALL	$	10,549	$	74	$	2,207	$	7,810	$	5,059	$	863	$	1,258	$	218	$	28,038
Loans receivable:
Loans evaluated   individually	$	15,406	$	—	$	5,260	$	15,526	$	15,330	$	8,283	$	3,863	$	—	$	63,668
Loans evaluated   collectively	400,334		82,455		283,442		90,070		418,298		82,307		213,292		—		1,570,198
Total loans receivable	$	415,740	$	82,455	$	288,702	$	105,596	$	433,628	$	90,590	$	217,155	$	—	$	1,633,866

14

(in thousands)	Comm. and industrial		Comm. tax-exempt		Owner occupied real estate		Comm. construction and land development		Comm. real estate		Residential		Con sumer		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	2,399	$	—	$	1,451	$	2,470	$	800	$	—	$	—	$	—	$	7,120
Collectively evaluated for impairment	7,560		83		678		4,752		3,183		324		793		789		18,162
Total ALL	$	9,959	$	83	$	2,129	$	7,222	$	3,983	$	324	$	793	$	789	$	25,282
Loans receivable:
Loans evaluated   individually	$	13,082	$	—	$	3,380	$	15,549	$	17,136	$	4,163	$	3,331	$	—	$	56,641
Loans evaluated   collectively	363,906		92,202		264,992		84,850		377,268		79,736		209,202		—		1,472,156
Total loans receivable	$	376,988	$	92,202	$	268,372	$	100,399	$	394,404	$	83,899	$	212,533	$	—	$	1,528,797

The Bank may create a specific allowance for all of or a part of a particular loan in lieu of a charge-off or charge-down as a result of management's evaluation of impaired loans. In these instances, the Bank has determined that a loss is not imminent based upon available information surrounding the credit at the time of the analysis including, but not limited to, unresolved legal matters; however, management believes an allowance is appropriate to acknowledge the probable risk of loss.

Typically commercial construction and land development and commercial real estate loans present a greater risk of nonpayment by a borrower than other types of loans. The market value and cash flow of real estate, particularly real estate held for investment, can fluctuate significantly in a relatively short period of time. Commercial and industrial, tax exempt and owner occupied real estate loans generally carry a lower risk factor comparatively within the commercial portfolio because the repayment of these loans relies primarily on the cash flow from a business which is more stable and predictable.

Consumer loan collections are dependent on the borrower's continued financial stability and thus are more likely to be affected by adverse personal circumstances. Consumer and residential loans are also impacted by the market value of real estate. 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. The risk of nonpayment is affected by changes in economic conditions, the credit risks of a particular borrower, the term of the loan and, in the case of a collateralized loan, uncertainties as to the value of the collateral and other factors.

Management bases its quantitative analysis of probable future loan losses (when determining the ALL) on those loans collectively reviewed for impairment on a two-year period of actual historical losses. Management may increase or decrease the historical loss period at some point in the future based on the state of the local, regional and national economies and other circumstances.

The qualitative factors such as changes in levels and trends of charge-offs and delinquencies; material changes in the mix, volume or duration of the loan portfolio; changes in lending policies and procedures including underwriting standards; changes in the experience, ability and depth of lending management and other relevant staff; the existence and effect of any concentrations of credit; changes in the overall values of collateral; changes in the quality of the loan review program and changes in national and local economic trends and conditions among other things, are factors which have not been identified by the quantitative processes. The determination of qualitative factors inherently involves a higher degree of subjectivity and considers risk factors that may not have yet manifested themselves in historical loss experience.

15

The following tables summarize the transactions in the ALL for the three and six months ended June 30, 2013 and 2012: 

(in thousands)	Comm. and industrial			Comm. tax-exempt			Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated			Total
2013
Balance at April 1	$	10,408		$	75		$	2,208		$	7,967		$	5,038		$	338		$	787		$	651		$	27,472
Provision charged to operating expenses	1,175			(1		)	51			(161		)	162			539			468			(433		)	1,800
Recoveries of loans previously charged-off	194			—			—			12			—			—			22			—			228
Loans charged-off	(1,228		)	—			(52		)	(8		)	(141		)	(14		)	(19		)	—			(1,462		)
Balance at June 30	$	10,549		$	74		$	2,207		$	7,810		$	5,059		$	863		$	1,258		$	218		$	28,038

(in thousands)	Comm. and industrial			Comm. tax-exempt			Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated			Total
2013
Balance at January 1	$	9,959		$	83		$	2,129		$	7,222		$	3,983		$	324		$	793		$	789		$	25,282
Provision charged to operating expenses	1,522			(9		)	311			115			1,299			666			767			(571		)	4,100
Recoveries of loans previously charged-off	332			—			3			498			—			3			58			—			894
Loans charged-off	(1,264		)	—			(236		)	(25		)	(223		)	(130		)	(360		)	—			(2,238		)
Balance at June 30	$	10,549		$	74		$	2,207		$	7,810		$	5,059		$	863		$	1,258		$	218		$	28,038

(in thousands)	Comm. and industrial			Comm. tax-exempt		Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated			Total
2012
Balance at April 1	$	8,251		$	72	$	1,794		$	8,940		$	3,347		$	426		$	783		$	146		$	23,759
Provision charged to operating expenses	2,481			2		368			172			(129		)	22			79			(45		)	2,950
Recoveries of loans previously charged-off	180			—		4			15			27			—			21			—			247
Loans charged-off	(337		)	—		(49		)	(210		)	(106		)	(10		)	(86		)	—			(798		)
Balance at June 30	$	10,575		$	74	$	2,117		$	8,917		$	3,139		$	438		$	797		$	101		$	26,158

16

(in thousands)	Comm. and industrial			Comm. tax-exempt			Owner occupied real estate			Comm. construction and land development			Comm. real estate			Residential			Consumer			Unallocated		Total
2012
Balance at January 1	$	8,400		$	79		$	729		$	7,840		$	3,241		$	435		$	831		$	65	$	21,620
Provision charged to operating expenses	2,434			(5		)	1,473			1,225			140			67			80			36		5,450
Recoveries of loans previously charged-off	201			—			7			450			30			1			45			—		734
Loans charged-off	(460		)	—			(92		)	(598		)	(272		)	(65		)	(159		)	—		(1,646		)
Balance at June 30	$	10,575		$	74		$	2,117		$	8,917		$	3,139		$	438		$	797		$	101	$	26,158

The following table presents information regarding the Company's impaired loans as of June 30, 2013 and December 31, 2012:

	June 30, 2013						December 31, 2012
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance:
Commercial and industrial	$	10,101	$	15,253	$	—	$	7,426	$	11,746	$	—
Commercial tax-exempt	—		—		—		—		—		—
Owner occupied real estate	3,845		4,448		—		1,929		2,301		—
Commercial construction and land      development	7,717		7,863		—		7,716		8,500		—
Commercial real estate	11,173		11,329		—		12,965		14,619		—
Residential	5,130		5,482		—		4,163		4,423		—
Consumer	3,371		3,625		—		3,331		3,547		—
Total impaired loans with no related   allowance	41,337		48,000		—		37,530		45,136		—
Loans with an allowance recorded:
Commercial and industrial	5,305		5,305		2,695		5,656		6,526		2,399
Owner occupied real estate	1,415		1,415		1,415		1,451		1,451		1,451
Commercial construction and land      development	7,809		7,809		3,470		7,833		7,833		2,470
Commercial real estate	4,157		4,157		1,755		4,171		4,172		800
Residential	3,153		3,153		508		—		—		—
Consumer	492		492		492		—		—		—
Total impaired loans with an   allowance recorded	22,331		22,331		10,335		19,111		19,982		7,120
Total impaired loans:
Commercial and industrial	15,406		20,558		2,695		13,082		18,272		2,399
Commercial tax-exempt	—		—		—		—		—		—
Owner occupied real estate	5,260		5,863		1,415		3,380		3,752		1,451
Commercial construction and land      development	15,526		15,672		3,470		15,549		16,333		2,470
Commercial real estate	15,330		15,486		1,755		17,136		18,791		800
Residential	8,283		8,635		508		4,163		4,423		—
Consumer	3,863		4,117		492		3,331		3,547		—
Total impaired loans	$	63,668	$	70,331	$	10,335	$	56,641	$	65,118	$	7,120

Compared to December 31, 2012, $32.8 million of impaired loans without a specific reserve remained impaired without a specific reserve at June 30, 2013. In addition $16.6 million of impaired loans with specific reserves at December 31, 2012 remained

17

impaired with a specific reserve at June 30, 2013. A total of $15.2 million of loans were downgraded and deemed to be impaired subsequent to December 31, 2012, $5.9 million of these loans had a specific reserve related to them. A total of $2.9 million of loans impaired at December 31, 2012 were paid in full during the first six months of 2013, $851,000 were charged-off and $2.6 million were transfered to foreclosed real estate.

The following table presents additional information regarding the Company's impaired loans for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended								Six Months Ended
	June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
(in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance:
Commercial and industrial	$	9,952	$	43	$	11,321	$	31	$	9,230	$	74	$	12,103	$	92
Commercial tax-exempt	—		—		—		—		—		—		—		—
Owner occupied real estate	2,764		—		4,306		43		2,358		—		5,508		123
Commercial construction and      land development	7,806		45		10,680		130		7,915		90		11,161		251
Commercial real estate	11,557		111		10,842		39		12,210		256		11,429		96
Residential	4,901		19		3,963		7		4,736		36		3,785		18
Consumer	3,305		8		2,268		2		3,184		14		2,136		2
Total impaired loans with no   related allowance	40,285		226		43,380		252		39,633		470		46,122		582
Loans with an allowance recorded:
Commercial and industrial	5,312		—		4,219		—		5,251		—		3,010		—
Owner occupied real estate	1,418		—		1,456		—		1,427		—		1,136		—
Commercial construction and      land development	7,816		—		13,312		—		7,829		—		13,066		—
Commercial real estate	4,159		—		—		—		4,165		—		—		—
Residential	1,051		—		—		—		526		—		—		—
Consumer	164		—		—		—		82		—		—		—
Total impaired loans with an   allowance recorded	19,920		—		18,987		—		19,280		—		17,212		—
Total impaired loans:
Commercial and industrial	15,264		43		15,540		31		14,481		74		15,113		92
Commercial tax-exempt	—		—		—		—		—		—		—		—
Owner occupied real estate	4,182		—		5,762		43		3,785		—		6,644		123
Commercial construction and      land development	15,622		45		23,992		130		15,744		90		24,227		251
Commercial real estate	15,716		111		10,842		39		16,375		256		11,429		96
Residential	5,952		19		3,963		7		5,262		36		3,785		18
Consumer	3,469		8		2,268		2		3,266		14		2,136		2
Total impaired loans	$	60,205	$	226	$	62,367	$	252	$	58,913	$	470	$	63,334	$	582

Impaired loans averaged approximately $58.9 million and $63.3 million for the six months endedJune 30, 2013 and 2012, respectively. All nonaccrual loans are considered impaired and interest income is handled as discussed earlier in the nonaccrual section of this Note. Interest income continued to accrue on impaired loans that were still accruing and totaled $470,000 and $582,000 for the six months endedJune 30, 2013 and 2012, respectively.

The Bank assigns loan risk ratings as credit quality indicators of its loan portfolio: pass, special mention, substandard accrual, substandard nonaccrual and doubtful. Monthly, we track commercial loans that are no longer pass rated. We review the cash flow, operating results and financial condition of the borrower and any guarantors, as well as the collateral position against established policy guidelines as a means of providing a targeted list of loans and loan relationships that require additional attention within the loan portfolio. Special mention loans are those loans that are currently adequately protected, but potentially weak. The potential

18

weaknesses may, if not corrected, weaken the loan's credit quality or inadvertently jeopardize our credit position in the future.  Substandard accrual and substandard nonaccrual assets are characterized by well-defined weaknesses that jeopardize the liquidation of the debt and by the possibility that the Bank will sustain some loss if the weaknesses are not corrected. Substandard accrual loans would move from accrual to nonaccrual when the Bank does not believe it will collect all of its contractual principal and interest payments.  Some identifiers used to determine the collectibility are as follows: when the loan is 90 days past due in principal or interest, there are triggering events in the borrower's or any guarantor's financial statements that show continuing deterioration, the borrower's or any guarantor's source of repayment is depleting, or if bankruptcy or other legal matters are present, regardless if the loan is 90 days past due or not. Doubtful loans have all of the weaknesses inherent in those classified as substandard accrual and substandard nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Pass rated loans are reviewed throughout the year through the recurring review process of an independent loan review function and through the application of other credit metrics.

Credit quality indicators for commercial loans broken out by loan type are presented in the following tables for the periods ended June 30, 2013 and December 31, 2012. There were no loans classified as doubtful for the periods ended June 30, 2013 or December 31, 2012.

	June 30, 2013
(in thousands)	Pass		Special Mention		Substandard Accrual		Substandard Nonaccrual		Total
Commercial credit exposure:
Commercial and industrial	$	367,438	$	11,646	$	24,603	$	12,053	$	415,740
Commercial tax-exempt	82,455		—		—		—		82,455
Owner occupied real estate	272,441		3,842		7,420		4,999		288,702
Commercial construction and land development	89,173		1,851		2,545		12,027		105,596
Commercial real estate	420,386		567		8,782		3,893		433,628
Total	$	1,231,893	$	17,906	$	43,350	$	32,972	$	1,326,121

	December 31, 2012
(in thousands)	Pass		Special Mention		Substandard Accrual		Substandard Nonaccrual		Total
Commercial credit exposure:
Commercial and industrial	$	335,463	$	6,120	$	24,116	$	11,289	$	376,988
Commercial tax-exempt	92,202		—		—		—		92,202
Owner occupied real estate	253,338		4,160		7,755		3,119		268,372
Commercial construction and land development	81,219		5,046		7,834		6,300		100,399
Commercial real estate	379,313		574		8,858		5,659		394,404
Total	$	1,141,535	$	15,900	$	48,563	$	26,367	$	1,232,365

Consumer loan credit exposures are rated either performing or nonperforming as detailed below at June 30, 2013 and December 31, 2012:

	June 30, 2013
(in thousands)	Performing		Nonperforming		Total
Consumer credit exposure:
Residential	$	83,457	$	7,133	$	90,590
Consumer	213,733		3,422		217,155
Total	$	297,190	$	10,555	$	307,745

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	December 31, 2012
(in thousands)	Performing		Nonperforming		Total
Consumer credit exposure:
Residential	$	80,696	$	3,203	$	83,899
Consumer	209,687		2,846		212,533
Total	$	290,383	$	6,049	$	296,432

A troubled debt restructuring (TDR) is a loan of which the contractual terms have been modified, resulting in the Bank granting a concession to a borrower who is experiencing financial difficulties, in order for the Bank to have a greater chance of collecting the indebtedness from the borrower. An additional benefit to the Bank in granting a concession is to possibly avoid foreclosure or repossession of loan collateral at a time when collateral values are low.

The following table presents the recorded investment at the time of restructure of new TDRs and their concession, modified during the three and six month periods ended June 30, 2013 and 2012. The recorded investment at the time of restructure was the same pre-modification and post-modification, therefore there was no financial effect of the modification on the recorded investment. The loans included are considered TDRs as a result of the Bank implementing one or more of the following concessions: granting a material extension of time, entering into a forbearance agreement, adjusting the interest rate, accepting interest only payments for an extended period of time, a change in the amortization period or a combination of any of these concessions.

New TDRs with Concession Type:	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
(dollars in thousands)	Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure		Number of Contracts	Recorded Investment at Time of Restructure
Commercial and industrial:
Material extension of time	—	$	—	1	$	1,262	—	$	—	1	$	1,262
Change in amortization period	8	1,204		—	—		8	1,204		—	—
Owner occupied real estate:
Forbearance agreement	—	—		—	—		1	193		—	—
Commercial construction and land development:
Material extension of time	1	1,851		1	351		4	2,902		5	3,396
Commercial real estate:
Material extension of time	—	—		—	—		—	—		1	68
Change in amortization period	3	2,942		—	—		3	2,942		—	—
Residential:
Material extension of time	—	—		1	280		1	260		1	280
Combination of concessions	—	—		—	—		—	—		1	195
Consumer:
Material extension of time	—	—		1	178		—	—		2	195
Total	12	$	5,997	4	$	2,071	17	$	7,501	11	$	5,396

The following table represents loans receivable modified as TDR within the 12 months previous to June 30, 2013 and 2012, respectively, and that subsequently defaulted during the three and six month periods ended June 30, 2013 and 2012, respectively. The Bank's policy is to consider a loan past due or delinquent if payment is not received on or before the due date.

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TDRs That Subsequently Payment Defaulted:	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
(dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial and industrial	9	$	6,151	1	$	2	10	$	6,390	2	$	180
Commercial tax-exempt	—	—		—	—		—	—		—	—
Owner occupied real estate	2	1,610		—	—		2	1,610		1	82
Commercial construction      and land development	2	2,628		1	211		3	6,119		5	3,239
Commercial real estate	3	2,942		—	—		4	6,217		4	3,366
Residential	—	—		1	194		1	259		3	624
Consumer	—	—		1	177		2	177		1	177
Total	16	$	13,331	4	$	584	22	$	20,772	16	$	7,668

Of the 22 contracts that subsequently payment defaulted during the six month period ended June 30, 2013, 20 were still in payment default at June 30, 2013. Sixteen of the 20 contracts totaling $17.5 million were less than 30 days past due.

All TDRs are considered impaired and, therefore, are individually evaluated for impairment in the calculation of the ALL. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the ALL. 

NOTE 5. Loan Commitments and Standby Letters of Credit

Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate the customers' normal course of business transactions. Standby performance letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Historically, almost all of the Company's standby letters of credit expire unfunded.

The credit risk associated with letters of credit is essentially the same as that of traditional loan facilities and are subject to the Company's normal credit policies. Since the majority of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future funding requirements. Commitments generally have fixed expiration dates or other termination clauses. Management believes that the proceeds obtained through a liquidation of collateral, the enforcement of guarantees and normal collection activities against the borrower would be sufficient to cover the potential amount of future payment required under the corresponding letters of credit.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit. The amount of the liability for guarantees under standby letters of credit issued was $48,000 for the periods ended June 30, 2013 and December 31, 2012. The Company had $38.8 million and $34.1 million of standby letters of credit at June 30, 2013 and December 31, 2012, respectively.

In addition to standby letters of credit, in the normal course of business there are unadvanced loan commitments. At June 30, 2013, the Company had $528.9 million in total unused commitments, including the standby letters of credit. Management does not anticipate any material losses as a result of these transactions.

NOTE 6. 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.

Future Facilities

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.

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

NOTE 7. Fair Value Measurements

The Company uses its best judgment in estimating the fair value of its financial instruments and certain nonfinancial assets; however, there are inherent weaknesses in any estimation technique due to assumptions that are susceptible to significant change. Therefore, for substantially all financial instruments and certain nonfinancial assets, 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 reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments and certain nonfinancial assets 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 in an orderly transaction between market participants at the measurement date. 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).

As required, financial and certain nonfinancial 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 June 30, 2013 and December 31, 2012, respectively, by level within the fair value hierarchy:

			Fair Value Measurements at Reporting Date Using
Description			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2013
U.S. Government agency securities	$	31,003	$	—	$	31,003	$	—
Residential MBSs	67,105		—		67,105		—
Agency CMOs	520,829		—		520,829		—
Municipal securities	25,731		—		25,731		—
Securities available for sale	$	644,668	$	—	$	644,668	$	—

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			Fair Value Measurements at Reporting Date Using
Description			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2012
U.S. Government agency securities	$	33,761	$	—	$	33,761	$	—
Residential MBSs	57,210		—		57,210		—
Agency CMOs	556,867		—		556,867		—
Municipal securities	27,271		—		27,271		—
Securities available for sale	$	675,109	$	—	$	675,109	$	—

As of June 30, 2013 and December 31, 2012, the Company did not have any liabilities that were measured at fair value on a recurring basis.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those that the Company has measured impairment of based on the fair value of the loan's collateral. Fair value is generally determined based upon independent third party appraisals or valuations of the collateral properties. The discount rates used on collateral dependent loans vary based on the type of collateral. The range of discount rates used for real estate collateral ranges from 15% to 35%; inventory and equipment is generally discounted at 50% and accounts receivable are generally discounted by 20%. These assets are included as Level 3 fair values, based upon the lowest level of unobservable input that is significant to the fair value measurements. The fair value consists of the loan balance 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 or it is calculated based on discounted collateral values if the loan is collateral dependent.

At June 30, 2013, the cumulative fair value of ten impaired loans with individual allowance allocations totaled $12.0 million, net of valuation allowances of $10.3 million and the fair value of impaired loans that were partially charged off during the first six months of 2013 totaled $2.1 million, net of charge-offs of $1.3 million. At December 31, 2012, the cumulative fair value of seven impaired loans with individual allowance allocations totaled $12.0 million, net of valuation allowances of $7.1 million and impaired loans that were partially charged off during 2012 totaled $4.2 million, net of charge-offs of $2.6 million. The Company's impaired loans are more fully discussed in Note 4.

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

The fair value of real estate acquired through foreclosure is based on independent third party appraisals of the properties, less estimated selling costs. A standard discount rate of 15%, to cover estimated costs to sell the property, is generally used on the most recent appraisal to determine the fair value of the real estate. These assets are included as Level 3 fair values, based upon the lowest level of unobservable input that is significant to the fair value measurements. There were no foreclosed assets with valuation allowances recorded subsequent to initial foreclosure at June 30, 2013 and December 31, 2012, respectively.

The determination of the fair value of assets measured on a nonrecurring basis is sensitive to changes in economic conditions and can fluctuate in a relatively short period of time. For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used were as follows:

			Fair Value Measurements at Reporting Date Using
Description			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2013
Impaired loans with specific allocation	$	11,996	$	—	$	—	$	11,996
Impaired loans net of partial charge-offs	2,142		—		—		2,142
Total	$	14,138	$	—	$	—	$	14,138

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			Fair Value Measurements at Reporting Date Using
Description			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
December 31, 2012
Impaired loans with specific allocation	$	11,991	$	—	$	—	$	11,991
Impaired loans net of partial charge-offs	4,227		—		—		4,227
Total	$	16,218	$	—	$	—	$	16,218

The Company's policy is to recognize transfers between levels as of the beginning of the period. There were no transfers between levels 1 and 2 or between levels 2 and 3 for the six months ended June 30, 2013.

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 valuation techniques were used to estimate the fair values of the Company's financial instruments at June 30, 2013 and December 31, 2012:

Cash and Cash Equivalents (Carried at Cost)

Cash and cash equivalents include cash, balances due from banks and federal funds sold, all of which have original maturities of 90 days or less. 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 prices. In determining fair market values for its portfolio holdings, the Company receives information from a third party provider which management evaluates and corroborates. Under the current guidance, these values are considered Level 2 inputs, based upon mathematically derived matrix pricing and observed data from similar assets. They are not Level 1 direct quotes, nor do they reflect Level 3 inputs that would be derived from internal analysis or judgment. As the Company does not manage a trading portfolio and typically only sells from its AFS portfolio in order to manage interest rate risk or credit exposure, direct quotes, or street bids, are warranted on an as-needed basis only.

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 six months endedJune 30, 2013 or the year ended December 31, 2012.

Loans Receivable (Carried at Cost)

The fair value of loans receivable, excluding all nonaccrual loans and accruing loans deemed impaired loans with specific loan allowances, are estimated using a discounted cash flow analysis, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the respective 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.

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Restricted Investments in Bank Stock (Carried at Cost)

The carrying amount of restricted investments in bank stock approximates fair value and considers the limited marketability of such securities. The restricted investments in bank stock consisted of FHLB and Atlantic Central Bankers Bank (ACBB) stock at June 30, 2013 and December 31, 2012.

Accrued Interest Receivable and Payable (Carried at Cost)

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

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest-bearing checking, 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 deposits (CDs) 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 approximate their fair values.

Long-Term Debt (Carried at Cost)

Long-term debt was estimated using a 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 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 Company'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 June 30, 2013 and December 31, 2012:

Fair Value Measurements at June 30, 2013
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Carrying Amount		Fair  Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	48,011	$	48,011	$	48,011	$	—	$	—
Securities	863,462		855,423		—		855,423		—
Loans, held for sale	7,160		7,199		—		—		7,199
Loans receivable, net	1,605,828		1,614,277		—		—		1,614,277
Restricted investments in bank stock	23,819		23,819		—		—		23,819
Accrued interest receivable	7,290		7,290		7,290		—		—
Financial liabilities:
Deposits	$	2,168,759	$	2,169,781	$	—	$	—	$	2,169,781
Short-term borrowings	230,025		230,025		230,025		—		—
Long-term debt	15,800		10,617		—		—		10,617
Accrued interest payable	505		505		505		—		—
Off-balance sheet instruments:
Standby letters of credit	$	—	$	—	$	—	$	—	$	—
Commitments to extend credit	—		—		—		—		—

Fair Value Measurements at December 31, 2012
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Carrying Amount		Fair  Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	56,582	$	56,582	$	56,582	$	—	$	—
Securities	944,892		948,780		—		948,780		—
Loans, held for sale	15,183		15,415		—		—		15,415
Loans receivable, net	1,503,515		1,516,839		—		—		1,516,839
Restricted investments in bank stock	15,450		15,450		—		—		15,450
Accrued interest receivable	7,206		7,206		7,206		—		—
Financial liabilities:
Deposits	$	2,231,291	$	2,232,789	$	—	$	—	$	2,232,789
Short-term borrowings	113,225		113,225		113,225		—		—
Long-term debt	40,800		35,629		—		—		35,629
Accrued interest payable	308		308		308		—		—
Off-balance sheet instruments:
Standby letters of credit	$	—	$	—	$	—	$	—	$	—
Commitments to extend credit	—		—		—		—		—

NOTE 8. Income Taxes

The tax provision for federal income taxes was $1.7 million for the second quarter of 2013, compared to $1.0 million for the same period in 2012. The effective tax rate was 30% and 27% for the quarters ended June 30, 2013 and June 30, 2012, respectively. The reason for the increase in the effective tax rate for the second quarter of 2013 over the same quarter last year was the result

26

of a higher statutory rate, higher overall pretax income partially offset by the proportion of tax free income to the Company's earnings before taxes which was higher during the second quarter of 2012.

The tax provision for federal income taxes was $3.2 million for the first six months of 2013, compared to $2.0 million for the same period in 2012. The effective tax rates were 29% and 27% for the first six months months ended June 30, 2013 and June 30, 2012, respectively. The variance in effective tax rates was primarily the result of a higher statutory rate, higher overall pretax income during the first six months of 2013 partially offset by the proportion of tax free income to the Company's earnings before taxes which was higher during the first six months of 2012. The Company's statutory tax rate was 35% for the six months months ended June 30, 2013 compared to 34% in the first six months of 2012.

At June 30, 2013, the Company had a net deferred tax asset of $11.6 million. An analysis was conducted to determine if a valuation allowance against its deferred tax assets was required. The Company used current forecasts of future expected income, possible tax planning strategies, current and future economic and business conditions (such as the possibility of a decrease in real estate value for properties the Bank holds as collateral on loans), the probability that taxable income will continue to be generated in future periods and the cumulative losses recorded in previous years to make the assessment. Management concluded that a valuation allowance was not necessary at June 30, 2013.

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

The following is Management's Discussion and Analysis of Financial Condition and Results of Operations which analyzes the major elements of Metro Bancorp Inc.'s (Metro or the Company) balance sheet as of June 30, 2013 compared to December 31, 2012 and in some instances June 30, 2012 and statements of income for the three months and six months endedJune 30, 2013 compared to the same periods in 2012. This section should be read in conjunction with the Company's consolidated 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 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 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:

• 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, including the duration of such policies;

• general economic or business conditions, either nationally, regionally or in the communities in which we do 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;

• the effects of ongoing short- and long-term federal budget and tax negotiations and their effects on economic and business conditions in general and our customers in particular;

• the effects of the failure of the federal government to reach a deal to raise the debt ceiling and the potential negative results on economic and business conditions;

• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and other changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance);

• possible impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements;

• continued effects of the aftermath of recessionary conditions and the impacts on the economy in general and our customers in particular, including adverse impacts on loan utilization rates as well as delinquencies, defaults and customers' ability to meet credit obligations;

• our ability to manage current levels of impaired assets;

• continued levels of loan volume origination;

• the adequacy of the allowance for loan losses (allowance or ALL);

• the impact of changes in Regulation Z and other consumer credit protection laws and regulations;

• changes resulting from legislative and regulatory actions with respect to the current economic and financial industry environment;

• changes in the Federal Deposit Insurance Corporation (FDIC) deposit fund and the associated premiums that banks pay to the fund;

• interest rate, market and monetary fluctuations;

• the results of the regulatory examination and supervision process;

28

• unanticipated regulatory or legal proceedings and liabilities and other costs;

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

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

• deposit flows;

• 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;

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

• the ability to hedge certain risks economically;

• the loss of certain key officers;

• changes in accounting principles, policies and guidelines;

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

• rapidly changing technology;

• continued relationships with major customers;

• effect of terrorist attacks and threats of actual war;

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

• interruption or breach in security of our information systems resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit systems; 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

The Company recorded net income of $4.0 million, or $0.28 per common share, for the second quarter of 2013 compared to net income of $2.8 million, or $0.19 per common share, for the same period one year ago. Net income for the first six months of 2013 totaled $7.7 million, or $0.54 per common share, up $2.2 million, or 41%, over $5.4 million, or $0.38 per common share recorded for the first half of 2012. Net loans grew $139.2 million, or 9%, and total deposits increased $82.9 million, or 4%, over the past twelve months.

Income Statement Highlights:

• The net income of $4.0 million for the second quarter of 2013 represents an all-time high in quarterly net income for Metro.

• Total revenues for the second quarter of 2013 were $29.9 million, up $503,000, or 2%, over total revenues of $29.4 million for the same quarter one year ago. This also represents an all-time high for the Company in quarterly revenue. Total revenues for the first half of 2013 increased $1.2 million, or 2%, over the first half of 2012.

• The Company's net interest margin on a fully-taxable basis for the second quarter of 2013 was 3.62%, compared to 3.86% for the second quarter of 2012. The Company's deposit cost of funds for the second quarter was 0.29%, down from 0.39% for the same period one year ago.

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• Noninterest expenses were down $314,000, or 1%, from the same quarter one year ago. Total noninterest expenses for the first six months of 2013 were down $916,000, or 2%, compared to the first half of 2012.

Balance Sheet Highlights:

• Net loans grew $139.2 million, or 9%, to $1.61 billion compared to $1.47 billion at June 30, 2012.

• The ALL totaled $28.0 million, or 1.72%, of total loans at June 30, 2013 compared to $26.2 million, or 1.75%, of total loans at June 30, 2012.

• Total deposits for the second quarter of 2013 increased to $2.17 billion, up $82.9 million, or 4%, over the second quarter one year ago.

• Core deposits (all deposits excluding public fund time and brokered deposits) grew $76.3 million, or 4%, over the past twelve months.

• Nonperforming assets were 1.81% of total assets at June 30, 2013 compared to 1.62% of total assets one year ago.

• Metro's capital levels remain strong with a total risk-based capital ratio of 14.89%, a Tier 1 Leverage ratio of 9.37% and a tangible common equity to tangible assets ratio of 8.55%.

• Stockholders' equity totaled $228.5 million, or 8.59% of total assets, at June 30, 2013 and the Company's book value per share was $16.09.

Summarized below are financial highlights for the six months ended June 30, 2013 compared to the same period in 2012:

TABLE 1

	At or for the Three Months Ended						For the Six Months Ended
(in thousands, except per share data)	June 30, 2013		June 30, 2012		% Change		June 30, 2013		June 30, 2012		% Change
Total assets	$	2,658,405	$	2,449,801	9	%
Total loans (net)	1,605,828		1,466,597		9
Total deposits	2,168,759		2,085,915		4
Total stockholders' equity	228,468		228,101		—
Total revenues	$	29,933	$	29,430	2	%	$	59,643	$	58,487	2	%
Provision for loan losses	1,800		2,950		(39	)	4,100		5,450		(25	)
Total noninterest expenses	22,360		22,674		(1	)	44,689		45,605		(2	)
Net income	4,048		2,762		47		7,693		5,446		41
Diluted net income per common share	0.28		0.19		47		0.54		0.38		42

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 the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). 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 represents the amount available for estimated probable losses embedded in our loan portfolio. While the allowance is maintained at a level believed to be adequate by management for estimated probable losses in

30

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 to the provision for loan losses may be necessary if economic conditions or loan credit quality differ materially from the estimates and assumptions used in making the evaluations. The use of different assumptions could materially impact the level of the allowance and, therefore, the provision for loan losses to be charged against earnings. Such changes could impact future financial results.

Monthly, systematic reviews of our loan portfolios are performed to identify probable losses and assess the overall probability of collection. These reviews include an analysis of historical loss experience, which results in the identification and quantification of loss factors. These loss factors are used in determining the appropriate level of allowance to cover estimated probable losses in specific loan types. The estimates of loss factors can be impacted by many variables, such as the number of years of actual loss history included in the evaluation.

As part of the quantitative analysis of the adequacy of the ALL, management bases its calculation of probable future loan losses on those loans collectively reviewed for impairment on a two-year period of actual historical losses. Metro Bank (the Bank) may adjust the number of years used in the historical loss calculation depending on the state of the local, regional and national economies and the period of time which management believes will most accurately forecast future losses.

Significant estimates are involved in the determination of any loss related to impaired loans. The evaluation of an impaired loan 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 estimates involves management's judgment.

In addition to calculating the loss factors, we may periodically adjust the factors for changes in levels and trends of charge-offs, delinquencies and nonaccrual loans; material changes in the mix, volume, or duration of the loan portfolio; changes in lending policies and procedures including underwriting standards; 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; and changes in national and local economic trends and conditions, among other things. Management judgment is exercised at many levels in making these evaluations.

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

Other-than-Temporary Impairment (OTTI) of Investment Securities. We perform no less than quarterly 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 for the portion of the impairment deemed to be related to credit. The remaining portion of the impairment that is not related to credit is written down to its current fair value through other comprehensive income.

Stock-Based Compensation. The Company recognizes compensation costs related to share-based payment transactions in the income statement based on the grant-date fair value of the stock-based compensation issued. 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 are dependent upon certain assumptions we make such as the expected term the options will remain outstanding, the dividend yield and the volatility of our Company stock price and a risk free interest rate.

Fair Value Measurements. The Company is required to disclose the fair value of its financial instruments 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). 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). 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 (AFS) investment security portfolio constitutes 98% of the total assets measured at fair value and all securities are 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

31

service providers to aid in the determination of the fair value of the portfolio. Most securities are not quoted on an exchange, but are traded in active markets and fair values were obtained from matrix pricing on similar securities.

Deferred Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be used.  

The Company assesses whether or not the deferred tax assets would be realized in the future if the Company would not have future taxable income to use as an offset. If future taxable income is not expected to be available to use, a valuation allowance is required to be recognized. A valuation allowance would result in additional income tax expense in the period. The Company assesses if it is more likely than not that a deferred tax asset will not be realized. The determination of a valuation allowance is subjective and dependent upon judgment concerning both positive and negative evidence to support that the net deferred tax assets will be utilized. In order to evaluate whether or not a valuation allowance is necessary, the Company uses current forecasts of future income, reviews possible tax planning strategies and assesses current and future economic and business conditions. Negative evidence utilized would include any cumulative losses in previous years and general business and economic trends. At June 30, 2013, the Company conducted such an analysis to determine if a valuation allowance was required and concluded that a valuation allowance was not necessary. A valuation allowance, if required, could have a significant impact on the Company's future earnings.

RESULTS OF OPERATIONS

Average Balances and Average Interest Rates

Table 2 sets forth balance sheet items on a daily average basis for the three and six months endedJune 30, 2013 and 2012, respectively, and presents the daily average interest rates earned on assets and the daily average interest rates paid on liabilities for such periods.

Second Quarter 2013 compared to Second Quarter 2012

Interest-earning assets averaged $2.55 billion for the second quarter of 2013, compared to $2.31 billion for the second quarter in 2012. For the quarter ended June 30, 2013, total loans receivable including loans held for sale, averaged $1.63 billion compared to $1.49 billion for the second quarter in 2012, a 9% increase. For the same two quarters, total securities, including restricted investments in bank stock, averaged $919.4 million and $822.9 million, respectively, a 12% increase.

The fully tax-equivalent yield on interest-earning assets for the second quarter of 2013 was 3.93%, a decrease of 39 basis points (bps) from the comparable period in 2012. The composition of earning assets was consistent during the second quarter of 2013 compared to the same period in 2012 and therefore, the decrease resulted from lower yields on both the Company's securities and loans receivable portfolios. These decreases in yields were a result of the continued low level of general market interest rates as legacy investment securities and loans outstanding with higher yields continue to paydown contractually and are replaced with new securities and loans at lower current market yields. Floating rate loans represented approximately 58% of our total loans receivable portfolio for the quarters ended June 30, 2013 and June 30, 2012.

As a result of the current low level of interest rates, coupled with the Federal Reserve's stated intention to maintain the current low-level of short-term interest rates through at least mid-2015, we expect the yields we receive on our interest-earning assets will continue at their current low levels, or decline further, throughout the remainder of 2013 and in 2014 as well.

The average balance of total deposits increased $45.9 million, or 2%, for the second quarter of 2013 over the second quarter of 2012 from $2.05 billion to $2.09 billion. Short-term borrowings, which consist of overnight advances from the Federal Home Loan Bank (FHLB), averaged $325.0 million for the second quarter of 2013 versus $116.6 million for the same quarter of 2012. These new deposits and additional borrowings were used to fund loan originations and to purchase investment securities.

The average rate paid on our total interest-bearing liabilities for the second quarter of 2013 was 0.40%, compared to 0.59% for the second quarter of 2012. Our deposit cost of funds decreased 10 bps from 0.39% in the second quarter of 2012 to 0.29% for the second quarter of 2013. The average rate paid on deposits decreased across all categories during the second quarter of 2013 compared to second quarter of 2012. The decrease in the Company's deposit cost of funds is primarily related to the combination of time deposits that matured and renewed at lower rates as well as lower rates paid on interest checking, savings and money market deposit accounts. These decreases were a result of the continued low level of general market interest rates. At June 30, 2013, $590.2 million, or 27%, 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 a published rate such as London

32

Interbank Offered Rate (LIBOR), the United States 90-Day Treasury bill or to an internally managed index rate. Time deposits, or certificates of deposit (CDs), have a significant impact on the Company's cost of funds. As certificates that were originated in past years at higher interest rates have matured over the past twelve months, these funds have been either renewed into new CDs with lower interest rates or shifted by our customers to their checking and/or savings accounts. As a result, our weighted-average rate paid on all time deposits, including both retail and public, decreased by 24 bps from 1.21% for the second quarter of 2012 to 0.97% for the second quarter of 2013.

The average cost of short-term borrowings was 0.22% for the second quarter of 2013 as compared to 0.25% for the second quarter of 2012. The average cost of long-term debt was 7.77% for the second quarter of 2013 compared to 4.72% during the second quarter of 2012. This change was the net result of a $25 million FHLB borrowing with an interest rate of 1.01% which matured in March 2013 as well as the retirement of an $8.0 million trust capital debt security with an interest rate of 10.00% during the fourth quarter of 2012. The aggregate average cost of all funding sources for the Company was 0.33% for the second quarter of 2013, compared to 0.48% for the same quarter of the prior year.

Six Months EndedJune 30, 2013 compared to Six Months EndedJune 30, 2012

Interest-earning assets averaged $2.52 billion for the first six months of 2013, compared to $2.28 billion for the same period in 2012. For the same two periods, total loans receivable including loans held for sale, averaged $1.59 billion in 2013 and $1.47 billion in 2012. Total securities, including restricted investments in bank stock, averaged $933.1 million and $807.8 million for the first six months of 2013 and 2012, respectively.

The fully tax-equivalent yield on interest-earning assets for the first six months of 2013 was 3.97%, a decrease of 38 bps versus the comparable period in 2012. This decrease primarily resulted from the continued overall lower level of interest rates as yields declined for both investment securities and loans. The average fully-taxable equivalent yield on the investment portfolio fell 49 bps from 2.83% during the first six months of 2012 to 2.34% during the first six months of 2013 as the yields on new securities purchased in 2013 are lower than the yields on securities purchased in 2012. The average fully-taxable equivalent yield on the loan portfolio declined 28 bps from 5.21% during the first six months of 2012 to 4.93% during the first six months of 2013.

The Company funded the growth in earning assets over the past twelve months with growth in both deposits and an increase in the use of short-term borrowings. Total average deposits, including noninterest-bearing funds, increased by $80.9 million, or 4%, for the first six months of 2013 over the same period of 2012 from $2.03 billion to $2.11 billion. Short-term borrowings averaged $277.2 million and $108.2 million in the first six months of 2013 and 2012, respectively.

The average rate paid on interest-bearing liabilities for the first six months of 2013 was 0.42%, compared to 0.61% for the first six months of 2012. Our deposit cost of funds decreased from 0.41% in the first six months of 2012 to 0.30% for the same period in 2013. The aggregate cost of all funding sources was 0.34% for the first six months of 2013, compared to 0.49% for the same period in 2012.

In the following table, nonaccrual loans have been included in the average loans receivable balances. Securities include securities available for sale, securities held to maturity and restricted investments in bank stock. Securities available for sale are carried at amortized cost for purposes of calculating the average rate received on taxable securities. Yields on tax-exempt securities and loans are computed on a tax-equivalent basis, assuming a 35% tax rate for 2013 and a 34% tax rate for 2012.

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TABLE 2

	Three months ended,												Six months ended,
	June 30, 2013						June 30, 2012						June 30, 2013						June 30, 2012
	Average				Avg.		Average				Avg.		Average				Avg.		Average				Avg.
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
Earning Assets
Investment securities:
Taxable	$	889,510	$	5,007	2.25	%	$	809,219	$	5,567	2.75	%	$	903,261	$	10,366	2.30	%	$	798,741	$	11,238	2.81	%
Tax-exempt	29,871		284		3.80		13,696		131		3.80		29,870		567		3.80		9,085		180		3.96
Total securities	919,381		5,291		2.30		822,915		5,698		2.77		933,131		10,933		2.34		807,826		11,418		2.83
Federal funds sold	—		—		—		—		—		—		—		—		—		5,421		1		0.05
Total loans receivable	1,628,073		19,908		4.85		1,492,052		19,436		5.17		1,591,199		39,311		4.93		1,466,762		38,508		5.21
Total earning assets	$	2,547,454	$	25,199	3.93	%	$	2,314,967	$	25,134	4.32	%	$	2,524,330	$	50,244	3.97	%	$	2,280,009	$	49,927	4.35	%
Sources of Funds
Interest-bearing deposits:
Regular savings	$	424,474	$	335	0.32	%	$	398,407	$	371	0.37	%	$	419,414	$	661	0.32	%	$	388,317	$	722	0.37	%
Interest checking and   money market	1,039,872		733		0.28		1,015,165		984		0.39		1,058,702		1,535		0.29		1,013,717		2,015		0.40
Time deposits	130,015		397		1.22		162,437		588		1.46		134,298		844		1.27		166,004		1,229		1.49
Public time and other   noncore deposits	59,894		60		0.40		52,089		57		0.44		57,423		104		0.37		50,489		116		0.46
Total interest-bearing deposits	1,654,255		1,525		0.37		1,628,098		2,000		0.49		1,669,837		3,144		0.38		1,618,527		4,082		0.51
Short-term borrowings	325,044		181		0.22		116,620		74		0.25		277,243		312		0.22		108,183		127		0.23
Long-term debt	15,800		307		7.77		49,200		581		4.72		26,297		667		5.07		49,200		1,162		4.72
Total interest-bearing   liabilities	1,995,099		2,013		0.40		1,793,918		2,655		0.59		1,973,377		4,123		0.42		1,775,910		5,371		0.61
Demand deposits  (noninterest-bearing)	440,573						420,807						436,850						407,283
Sources to fund earning assets	2,435,672		2,013		0.33		2,214,725		2,655		0.48		2,410,227		4,123		0.34		2,183,193		5,371		0.49
Noninterest-bearing funds (net)	111,782						100,242						114,103						96,816
Total sources to fund   earning assets	$	2,547,454	$	2,013	0.32	%	$	2,314,967	$	2,655	0.46	%	$	2,524,330	$	4,123	0.33	%	$	2,280,009	$	5,371	0.47	%
Net interest income and   margin on a tax-equivalent   basis			$	23,186	3.62	%			$	22,479	3.86	%			$	46,121	3.64	%			$	44,556	3.88	%
Tax-exempt adjustment			587						509						1,187						970
Net interest income and   margin			$	22,599	3.52	%			$	21,970	3.77	%			$	44,934	3.55	%			$	43,586	3.80	%
Other Balances:
Cash and due from banks	$	50,801					$	42,507					$	46,831					$	42,696
Other assets	90,398						98,686						91,178						100,641
Total assets	2,688,653						2,456,160						2,662,339						2,423,346
Other liabilities	17,725						13,754						16,763						14,522
Stockholders' equity	235,256						227,681						235,349						225,631

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income earned on loans, investment securities and other interest-earning assets and the interest expense paid on deposits, borrowed funds and long-term debt. Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest-earning assets and their related yields; and the volume and composition of interest-bearing liabilities and their 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 interest-earning assets and interest-bearing liabilities;

• market interest rate fluctuations; and

• the level of nonperforming loans.

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Net interest income, on a fully tax-equivalent basis, for the second quarter of 2013 increased by $707,000, or 3%, over the same period in 2012. Interest income, on a fully tax-equivalent basis, on interest-earning assets totaled $25.2 million and $25.1 million for the second quarters of 2013 and 2012, respectively. Interest income on loans receivable including loans held for sale, increased by $472,000 over the second quarter of 2012 from $19.4 million to $19.9 million. This was the result of an 9% increase in the volume of average loans outstanding partially offset by a decrease of 32 bps in the yield on the total loan portfolio compared to the second quarter one year ago. Interest income on the investment securities portfolio decreased by $407,000, or 7%, for the second quarter of 2013 as compared to the same period last year. The average balance of the investment portfolio increased $96.5 million, or 12%, for the second quarter of 2013 over the second quarter of 2012, which helped to somewhat offset the impact of a 47 bps decrease in the average yield earned in the quarter versus the same period last year. The decrease in average yield resulted from the overall low level of interest rates on new securities purchased, as previously mentioned.

Total interest expense for the second quarter decreased $642,000, or 24%, from $2.7 million in 2012 to $2.0 million in 2013. Interest expense on deposits for the quarter decreased by $475,000, or 24%, from the second quarter of 2012. Interest expense on short-term borrowings increased by $107,000 primarily as a result of an increase in balances partially offset by a slight decrease in rate. Interest expense on long-term debt decreased by $274,000, or 47%, primarily due to the retirement of the $8.0 million trust capital debt security with an interest rate of 10.00%, which occurred in the fourth quarter 2012. Also impacting the decrease was the maturity of the previously mentioned FHLB debt in March 2013.

Net interest income, on a fully tax-equivalent basis, for the first six months of 2013 increased by $1.6 million, or 4%, over the same period in 2012. Interest income on interest-earning assets totaled $50.2 million for the first six months of 2013, an increase of $317,000, compared to the same period in 2012. The increase in interest income earned was the result of an increase in the average balance of investment securities and loans receivable that helped to offset a 38 bp decrease in the yield on earning assets due to the continued low interest rate environment that has existed over the past several years. Total interest expense for the first six months decreased $1.3 million, or 23%, from $5.4 million in 2012 to $4.1 million in 2013. Interest expense on deposits decreased by $938,000, or 23%, for the first six months of 2013 versus the same period of 2012. Interest expense on short-term borrowings increased by $185,000 for the first six months of 2013 compared to the same period in 2012 and interest expense on long-term debt totaled $667,000 for the first six months of 2013, as compared to $1.2 million for the first six months of 2012. The decrease in interest expense on long-term debt was primarily the result of the previously mentioned retirement of a $8.0 million trust capital debt security with an interest rate of 10.00%, combined with the previously mentioned FHLB debt in March 2013. Overall, the decreases in the average rate earned on interest-earning assets and interest expense directly relate to the lower level of general market interest rates present in the first six months of 2013 compared to the first six months of 2012.

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 tax-equivalent basis was 3.53% during the second quarter of 2013 compared to 3.73% during the same period in the previous year and was 3.55% during the first six months of 2013 versus 3.74% during the first six months of 2012. 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 24 bps, from 3.86% for the second quarter of 2012 to 3.62% for the second quarter of 2013, as a result of the previously discussed decreased yield on interest-earning assets, partially offset by a decrease in the cost of funding sources. For the first six months of 2013 and 2012, the fully tax-equivalent net interest margin was 3.64% and 3.88%, respectively.

The following table demonstrates the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in the average loan balances and tax-exempt loans and securities are reported on a fully-taxable equivalent basis.

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TABLE 3

	Three Months Ended									Six Months Ended
	Increase (Decrease)									Increase (Decrease)
2013 versus 2012	Due to Changes in (1)									Due to Changes in (1) (2)
(in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest on securities:
Taxable	$	414		$	(974	)	$	(560	)	$	1,200		$	(2,072	)	$	(872	)
Tax-exempt	154			(1		)	153			394			(7		)	387
Federal funds sold	—			—			—			(1		)	—			(1		)
Interest on loans receivable	1,246			(774		)	472			2,329			(1,526		)	803
Total interest income	1,814			(1,749		)	65			3,922			(3,605		)	317
Interest on deposits:
Regular savings	—			(36		)	(36		)	6			(67		)	(61		)
Interest checking and money market	(25		)	(226		)	(251		)	(19		)	(461		)	(480		)
Time deposits	(63		)	(128		)	(191		)	(120		)	(265		)	(385		)
Public funds time	(2		)	5			3			1			(13		)	(12		)
Short-term borrowings	116			(9		)	107			190			(5		)	185
Long-term debt	(209		)	(65		)	(274		)	(428		)	(67		)	(495		)
Total interest expense	(183		)	(459		)	(642		)	(370		)	(878		)	(1,248		)
Net increase (decrease)	$	1,997		$	(1,290	)	$	707		$	4,292		$	(2,727	)	$	1,565

⁽¹⁾  Changes due to both volume and rate have been allocated on a pro rata basis to either rate or volume. ⁽²⁾ Changes due to the difference in the number of days (2012 was a leap year) are divided between rate and volume columns based on each categories percent of the total difference.

Provision for Loan Losses

Management undertakes a rigorous and consistently applied process in order to evaluate the ALL 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 $1.8 million to the ALL for the second quarter of 2013 as compared to $3.0 million for the second quarter of 2012. For the six months endedJune 30, 2013 a provision of $4.1 million was recorded versus $5.5 million for the six months endedJune 30, 2012. Nonperforming assets at June 30, 2013 totaled $48.1 million, or 1.81%, of total assets, up $13.0 million, or 37%, from $35.1 million, or 1.33%, of total assets at December 31, 2012 and up $8.5 million, or 21%, from $39.6 million, or 1.62%, of total assets at June 30, 2012. See the Loan and Asset Quality and the Allowance for Loan Losses sections presented later in this document for further discussion regarding nonperforming loans and our methodology for determining the provision for loan losses.

Noninterest Income

Total noninterest income for the second quarter of 2013 decreased by $126,000, or 2%, from the same period in 2012. Service charges, fees and other operating income, comprised primarily of deposit and loan service charges, totaled $7.1 million for the second quarter of 2013, an increase of $17,000 over the second quarter of 2012. Gains on sales of loans, solely comprised of residential loans sold on the secondary market, totaled $250,000 for the second quarter of 2013 versus $372,000 for the same period in 2012. The decrease in gains primarily relates to an decrease in the number of loans sold. A net gain of $9,000 was recognized on the sales and calls of investment securities during the second quarter of 2013 compared to a $12,000 gain on sales of investment securities which was recognized in the same period of 2012. There were no OTTI losses in the second quarter of 2013 or 2012.

Total noninterest income for the first six months of 2013 decreased by $192,000, or 1%, from the same period in 2012. Service charges, fees and other operating income totaled $14.0 million, increasing $72,000, from the first six months of 2012. Gains on the sale of loans were $663,000 during the first six months of 2013 compared to $601,000 in the same period of 2012. There were no OTTI charges during the first six months of 2013; however, noninterest income for the first six months of 2012 was partially offset by $649,000 in OTTI charges on private-label collateralized mortgage obligations (CMOs) in the Bank's investment portfolio . The Company recognized net gains of $21,000 on sales of securities during the first six months of 2013 compared to net gains of $996,000 on sales and calls of securities in the first six months of 2012.

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Noninterest Expenses

Second Quarter 2013 compared to Second Quarter 2012

Noninterest expenses decreased by $314,000, or 1%, for the second quarter of 2013 compared to the same period in 2012 as a result of a disciplined approach to expense management. A detailed comparison of noninterest expenses for certain categories for the three months ended June 30, 2013 and June 30, 2012 is presented in the following paragraphs.

Salary and employee benefits expenses, which represent the largest component of noninterest expenses, increased by $225,000, or 2%, for the second quarter of 2013 compared to the second quarter of 2012.

Advertising and marketing expenses increased by $67,000, or 18%, for the second quarter of 2013 compared to the second quarter of 2012 due to an increase in the level of advertising related to product promotions.

Regulatory assessments and related costs for the second quarter 2013 totaled $551,000 and were $298,000, or 35% lower than the same period of 2012. The decrease was directly associated with a lower level of FDIC premiums beginning in the third quarter of 2012 as a result of the termination of the regulatory consent order that had been in place from April 2010 through April 2012.

Loan expenses increased by $723,000, or 225%, for the second quarter of 2013 compared to the second quarter of 2012 due in large part to real estate taxes paid to secure collateral on problem loans, one of which was moved into foreclosed real estate during the second quarter at a fair market value of $2.0 million.

Foreclosed real estate expenses totaled $71,000 during the second quarter of 2013, a decrease of $710,000, or 91%, from the same quarter in 2012. Metro recorded a $640,000 loss during the second quarter 2012 on the sale of a large foreclosed asset property. It did not have any corresponding losses on sales of foreclosed real estate during the second quarter 2013.

Bank shares tax increased $58,000, or 11%, for the second quarter of 2013 over the same period in 2012 as a result of the growth of the Bank's equity capital balance which is used in the bank shares tax formula.

Other expense totaled $1.8 million during the second quarter of 2013, a decrease of $463,000, or 20%, from the same quarter in 2012. Metro had a decrease in third party consulting expenses and a reduction in stationary, printing and postage costs for the quarter versus the same period last year.

Six Months EndedJune 30, 2013 compared to Six Months EndedJune 30, 2012

For the first six months of 2013, noninterest expenses decreased by $916,000, or 2%, compared to the first six months of 2012. A detail of noninterest expenses for certain categories is presented in the following paragraphs.

Salary expenses and employee benefits for the first six months of 2013 were $21.2 million, an increase of $512,000, or 2%, compared to the first six months of 2012.

Regulatory assessments and related fees of $1.1 million during the first six months of 2013 were $590,000, or 35%, lower compared to the same period in 2012.  This was the result of lower FDIC insurance premiums in 2013 compared to 2012 for reasons previously discuss above.

Loan expense totaled $1.4 million for the first six months of 2013, an increase of $678,000, or 98%, compared to the same period in 2012 due in large part to real estate taxes paid to secure collateral on problem loans, one of which was moved into foreclosed real estate during the second quarter at a fair market value of $2.0 million.

Foreclosed real estate expenses of $215,000 decreased by $929,000, or 81%, during the first six months of 2013 compared to the same period in 2012. Metro incurred a $640,000 pretax loss on the sale of one foreclosed property during the first six months of 2012.

Bank shares tax increased $119,000, or 12%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 as a result of the growth of the Bank's equity capital, which is used in the bank shares tax formula.

Other expense totaled $4.0 million for the first six months of 2013, a decrease of $570,000, or 12%, compared to the same period in 2012. Contributing to this change in 2013 was a decrease in third party consulting expenses, a reduction in printing costs and a refund on state use tax paid in prior periods.

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One key measure that management utilizes to monitor progress in controlling overhead expenses is the ratio of annualized net noninterest expenses to average assets. For purposes of this calculation, net noninterest expenses equal noninterest expenses less noninterest income and nonrecurring expense. For the second quarters of 2013 and 2012 this ratio equaled 2.24% and 2.49%, respectively, reflecting more stringent expense control in the second quarter of 2013 despite a 9% increase in average assets. For the six-month period ended June 30, 2013, the ratio equaled 2.27% compared to 2.55% for the six-month period ended June 30, 2012.

Another productivity measure utilized by management is the operating efficiency ratio. This ratio expresses the relationship of noninterest expenses to net interest income plus noninterest income. For the quarter ended June 30, 2013, the operating efficiency ratio was 74.7%, compared to 76.9% for the same period in 2012. The decrease in the operating efficiency ratio relates to a 1% decrease in total noninterest expense combined with a 2% increase in total revenues. The efficiency ratio equaled 74.9% for the first six months of 2013, compared to 77.9% for the first six months of 2012. The decrease for the six months ended June 30, 2013 versus June 30, 2012 was due to a 2% increase in total revenues combined with a 2% decrease in noninterest expenses (excluding nonrecurring).

Provision for Federal Income Taxes

The provision for federal income taxes was $1.7 million for the second quarter of 2013 compared to $1.0 million for the same period in 2012. For the six months ended June 30, the tax expense was $3.2 million for 2013 compared to $2.0 million in 2012. The Company's statutory tax rate was 35% in 2013 compared to 34% in 2012. The effective tax rates were 30% and 27% for the respective quarters ended June 30, 2013 and June 30, 2012, and 29% and 27% for the six months ended June 30, 2013 and June 30, 2012, respectively. The reason for the increase in the effective tax rate for the second quarter of 2013 over the same quarter last year and for the first six months of both 2013 and 2012 was the result of a higher statutory rate and higher overall pretax income, partially offset by the higher proportion of tax free income to the Company's earnings before taxes during the comparable prior year periods.

Net Income and Net Income per Common Share

Net income for the second quarter of 2013 was $4.0 million compared to $2.8 million recorded in the second quarter of 2012. The 47% increase was primarily due to a $629,000 increase in net interest income combined with a $1.2 million decrease in the provision for loan losses and a $314,000 decrease in noninterest expenses, all of which were partially offset by a $681,000 increase in the provision for income taxes and a $126,000 decrease in noninterest income.

Net income for the first six months of 2013 was $7.7 million, an increase of $2.2 million, compared to $5.4 million recorded in the first six months of 2012. The higher net income in 2013 was due to a $1.3 million increase in net interest income, a $1.4 million decrease in the provision for loan losses and a $916,000 decrease in noninterest expenses, partially offset by a $1.2 million increase in the provision for income taxes and a $192,000 decrease in noninterest income.

Basic and fully-diluted net income per common share was $0.28 for the second quarter of 2013 compared to $0.19 for the second quarter of 2012. The increase was directly related to the 47% increase in net income as stated above. For the first six months of 2013, basic and fully-diluted net income per common share was $0.54 compared to basic and fully-diluted net income per common share of $0.38 for the six months ended June 30, 2012.

Return on Average Assets and Average Equity

Return on average assets (ROA) measures our net income in relation to our total average assets. Our annualized ROA for the second quarter of 2013 was 0.60%, compared to 0.45% for the second quarter of 2012. The ROA for the first six months in 2013 and 2012 was 0.58% and 0.45%, 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 by average stockholders' equity. The ROE was 6.90% for the second quarter of 2013, compared to 4.88% for the second quarter of 2012. The ROE for the first six months of 2013 was 6.59%, compared to 4.85% for the first six months of 2012.

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FINANCIAL CONDITION

Securities

During the first six months of 2013, the total investment securities portfolio decreased by $81.4 million from $944.9 million to $863.5 million. Net of tax, the unrealized gain (loss) position on AFS securities included in stockholders' equity as accumulated other comprehensive income (loss) decreased by $15.2 million from an unrealized gain of $7.2 million at December 31, 2012 to an unrealized loss of $8.0 million at June 30, 2013 due to a steep decline in the level of market prices associated with fixed rate investments during the second quarter of 2013.

Securities with a market value of $89.9 million were sold and another $50.0 million of securities were called during the first six months of 2013 with the Bank realizing total net pretax gains of $21,000. The securities sold included one agency CMO and three mortgage-backed securities (MBSs) with a combined fair market value of $3.6 million and a carrying value of $3.4 million that had been classified as held to maturity but were sold as their current face had fallen below 15% of the original purchase amount. The Company also sold one corporate bond with a fair market value of $10.0 million that had been classified as held to maturity but was sold within three months of its contractual maturity date.

During the second quarter of 2013, interest rates at the longer end of the yield curve rose sharply, largely in response to investor fears the Federal Reserve would either end or taper its bond buying program in the near future. The potential for lower demand helped push Treasury prices down and interest rates up with the yield on the five-year Treasury note rising 63 bps from 0.77% on March 31, 2013 to 1.40% on June 2013. This rise in interest rates adversely affected the fair market value of the Company's existing securities.

During the first six months of 2013, the fair value of the Bank's AFS securities portfolio decreased by $30.4 million, from $675.1 million at December 31, 2012 to $644.7 million at June 30, 2013. The change was a result of $76.3 million of securities sold, principal pay downs of $87.8 million, premium amortization and the above-mentioned $15.2 million decrease in net unrealized gains, offset by purchases of new securities totaling $157.8 million.

The AFS portfolio is comprised of U.S. Government agency securities, agency residential MBSs, agency CMOs and municipal securities. At June 30, 2013, the weighted-average life, duration and taxable equivalent yield of our AFS portfolio was approximately 5.4 years, 4.8 years and 2.25%, respectively, as compared to 3.6 years, 3.4 years and 2.31%, respectively, at December 31, 2012. The lengthening of both average life and duration was primarily the result of increased interest rates slowing the prepayments of amortizing securities and by the impact of callable municipal bonds. As the general level of interest rates rises, the average life and duration lengthen as the bonds extend to maturity rather than the call date.

During the first six months of 2013, the carrying value of securities in the held to maturity (HTM) portfolio decreased by $51.0 million from $269.8 million to $218.8 million. The decrease was the result of $13.6 million of securities sold, principal pay downs of $7.8 million, premium amortization and $50.0 million of called bonds that were partially offset by new purchases totaling $20.0 million.

The securities held in the HTM portfolio include U.S. government agency securities, agency residential MBSs, agency CMOs, corporate debt securities and municipal securities. At June 30, 2013, the weighted-average life, duration and taxable equivalent yield of our HTM portfolio was approximately 8.8 years, 7.4 years and 2.65%, respectively, as compared to 5.3 years, 4.5 years and 2.78%, respectively, at December 31, 2012. Both the average life and duration of the portfolio are significantly impacted by the callable agency debentures. As the general level of interest rates falls, the bonds are assumed more likely to be called, resulting in a shorter average life and duration. As the general level of interest rates rises, the average life and duration lengthen as the bonds extend to maturity.

The unrealized losses in the Company's investment portfolio at June 30, 2013 were comprised of 11 agency debentures, 27 government agency CMOs, 10 MBSs and 26 investment-grade municipal bonds.

See the detailed discussion in Note 3 to the Consolidated Financial Statements included in this interim report on Form 10-Q for details regarding our assessment and the determination of OTTI.

Loans Held for Sale

Loans held for sale are comprised of student loans and selected residential mortgage loans the Company originates with the intention of selling in the future. Occasionally, loans held for sale also include business and industry loans that the Company decides to sell. Held for sale loans are carried at the lower of cost or estimated fair value, calculated in the aggregate. At the present

39

time, the majority of the Company's residential loans are originated with the intent to sell to the secondary market unless a 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.

Total loans held for sale were $7.2 million at June 30, 2013 and $15.2 million at December 31, 2012. At June 30, 2013, loans held for sale were comprised of $3.4 million of student loans and $3.8 million of residential mortgages as compared to $3.8 million of student loans and $11.4 million of residential mortgages at December 31, 2012. The decrease in residential mortgages held for sale was the result of principal sales of mortgage loans of $29.5 million partially offset by $21.5 million in mortgage loan originations during the first six months of 2013. At June 30, 2013 there was $315,000 of student loans held for sale that were past due and no past due or impaired residential mortgage loans held for sale.

Loans Receivable

Commercial loans outstanding are comprised of commercial and industrial, tax-exempt, owner occupied real estate, commercial construction and land development and commercial real estate loans. Consumer type loans consist of residential real estate mortgages, home equity loans, consumer lines of credit and other consumer-related loans. We manage risk associated with our loan portfolio in part through diversification, with what we believe are sound policies and underwriting procedures that are reviewed, updated and approved at least annually, as well as through our ongoing loan monitoring efforts. Additionally, we monitor concentrations of loans or loan relationships by purpose, collateral or industry.

During the first six months of 2013, total gross loans receivable increased by $105.1 million, or 7% (nonannualized), from $1.53 billion at December 31, 2012 to $1.63 billion at June 30, 2013. Gross loans receivable represented 75% of total deposits and 61% of total assets at June 30, 2013, as compared to 69% and 58%, respectively, at December 31, 2012.

The following table reflects the composition of the Company's loan portfolio as of June 30, 2013 and 2012, respectively:

TABLE 4

(dollars in thousands)	June 30, 2013		% of Total		December 31, 2012		% of Total		$ Change			% Change
Commercial and industrial	$	415,740	25	%	$	376,988	25	%	$	38,752		10	%
Commercial tax-exempt	82,455		5		92,202		6		(9,747		)	(11	)
Owner occupied real estate	288,702		18		268,372		17		20,330			8
Commercial construction and land development	105,596		6		100,399		7		5,197			5
Commercial real estate	433,628		27		394,404		26		39,224			10
Residential	90,590		6		83,899		5		6,691			8
Consumer	217,155		13		212,533		14		4,622			2
Gross loans	1,633,866		100	%	1,528,797		100	%	$	105,069		7	%
Less: ALL	28,038				25,282				2,756			11
Net loans receivable	$	1,605,828			$	1,503,515			$	102,313		7	%

Loan and Asset Quality

Nonperforming Assets

Nonperforming assets include nonperforming loans, loans past due 90 days or more and still accruing interest and foreclosed assets. Nonaccruing troubled debt restructurings (TDRs) are included in nonperforming loans. A TDR is a loan in which the contractual terms have been modified resulting in the Bank granting a concession to a borrower who is experiencing financial difficulties in order for the Bank to have a greater opportunity of collecting the indebtedness from the borrower. 

The table that follows presents information regarding nonperforming assets at June 30, 2013 and at the end of the previous four quarters. Nonaccruing as well as accruing TDRs are broken out at the bottom portion of the table. Additionally, relevant asset quality ratios are presented.

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TABLE 5

(dollars in thousands)	June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012			June 30, 2012
Nonperforming Assets
Nonaccrual loans:
Commercial and industrial	$	12,053		$	12,451		$	11,289		$	17,133		$	16,631
Commercial tax-exempt	—			—			—			—			—
Owner occupied real estate	4,999			3,428			3,119			3,230			3,275
Commercial construction and land development	12,027			12,024			6,300			6,826			4,002
Commercial real estate	3,893			5,575			5,659			4,571			6,174
Residential	7,133			3,295			3,203			3,149			3,233
Consumer	3,422			2,517			2,846			2,304			2,123
Total nonaccrual loans	43,527			39,290			32,416			37,213			35,438
Loans past due 90 days or more and still   accruing	—			1,726			220			704			154
Total nonperforming loans	43,527			41,016			32,636			37,917			35,592
Foreclosed assets	4,611			2,675			2,467			4,391			4,032
Total nonperforming assets	$	48,138		$	43,691		$	35,103		$	42,308		$	39,624
Troubled Debt Restructurings
Nonaccruing TDRs	$	18,817		$	18,927		$	13,247		$	14,283		$	7,924
Accruing TDRs	14,888			14,308			19,559			20,424			17,818
Total TDRs	$	33,705		$	33,235		$	32,806		$	34,707		$	25,742
Nonperforming loans to total loans	2.66		%	2.61		%	2.13		%	2.52		%	2.38		%
Nonperforming assets to total assets	1.81		%	1.67		%	1.33		%	1.67		%	1.62		%
Nonperforming loan coverage	64		%	67		%	77		%	68		%	73		%
Nonperforming assets / capital plus ALL	19		%	17		%	13		%	16		%	16		%

Nonperforming assets at June 30, 2013, were $48.1 million, or 1.81%, of total assets, as compared to $35.1 million, or 1.33%, of total assets at December 31, 2012 and compared to $39.6 million, or 1.62%, of total assets at June 30, 2012. Nonperforming assets increased by $13.0 million since December 31, 2012 as nonperforming loan balances increased by $10.9 million and total foreclosed asset balances increased by $2.1 million. The Company continues to manage nonperforming assets to either exit the relationship, work with the borrower to return the relationship to a performing status, or sell the collateral in the case of foreclosed real estate. In the paragraphs that follow is a discussion of the components of the Company's nonperforming assets and the reasons for changes in the balances of those components between December 31, 2012 and June 30, 2013.

Nonaccrual Loans

The Bank generally places a loan on nonaccrual status and ceases accruing interest when the loan is past due 90 days or more, unless the loan is both well-secured and in the process of collection.

Loans which have been partially charged off and have updated appraisal values remain on nonaccrual status and are subject to the Bank's standard recovery policies and procedures, including, but not limited to, foreclosure proceedings, a forbearance agreement, or restructuring that results in classification as a TDR, unless collectibility of the entire balance of principal and interest is no longer in doubt and the loan is current or will be brought current within a short period of time.

Nonaccrual loan balances increased by $11.1 million in the first six months of 2013 to $43.5 million from $32.4 million at December 31, 2012. This increase occurred primarily in the commercial construction and land development category and was the result of a large relationship that was reclassified from accruing trouble debt restructuring status at December 31, 2012 to nonaccrual status with a specific reserve during the first quarter of 2013. The residential category increased significantly as well primarily as a result of a large residential mortgage which was placed on nonaccrual with a specific reserve at the end of the second quarter of 2013 and is expected to be restructured during the third quarter of 2013.

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The following table details the change in the total of nonaccrual loan balances for the three months and six months ended June 30, 2013:

TABLE 6

	Three Months Ended			Six Months Ended
(in thousands)	June 30, 2013
Nonaccrual loans beginning balance	$	39,290		$	32,416
Additions	8,714			18,088
Principal charge-offs	(1,448		)	(2,210		)
Pay downs	(948		)	(1,982		)
Upgrades to accruing status	—			(92		)
Transfers to foreclosed assets	(2,081		)	(2,693		)
Nonaccrual loans ending balance	$	43,527		$	43,527

During the second quarter of 2013, the additions to nonaccrual consisted of 10 commercial loans ranging from $8,000 to approximately $1.6 million and 15 consumer loans totaling $4.8 million. The consumer loans included two related loans totaling $3.7 million with a specific reserve of $1.0 million.  Excluding this relationship the remaining 13 consumer loans averaged $89,000 each.  The majority of the increase in nonaccrual commercial loans in the second quarter of 2013 was associated with one relationship totaling $2.9 million.  

The table and discussion that follow provide additional details of the components of our nonaccrual commercial and industrial loans and commercial construction and land development loans, our two largest nonaccrual categories.

TABLE 7

	Nonaccrual Loans
(dollars in thousands)	June 30, 2013		March 31, 2013		December 31, 2012		September 30, 2012		June 30, 2012
Commercial and Industrial:
Number of loans	49		54		50		49		42
Number of loans greater than $1 million	4		5		4		5		5
Average outstanding balance of those loans:
Greater than $1 million	$	1,872	$	1,703	$	2,024	$	2,445	$	2,474
Less than $1 million	$	102	$	81	$	70	$	112	$	116
Commercial Construction and Land     Development:
Number of loans	10		10		10		9		10
Number of loans greater than $1 million	4		4		2		2		2
Average outstanding balance of those loans:
Greater than $1 million	$	2,714	$	2,719	$	2,484	$	2,500	$	1,352
Less than $1 million	$	197	$	193	$	168	$	262	$	163

At June 30, 2013, 49 loans were in the nonaccrual commercial and industrial category with recorded investments ranging from less than $1,000 to $2.9 million. Of the 49 loans, four loans were in excess of $1.0 million and aggregated $7.5 million, or 62%, of total nonaccrual commercial and industrial loans. The average recorded investment of these loans was $1.9 million per loan. The remaining 45 loans account for the difference at an average recorded investment of $102,000 per loan.

There were 10 loans in the nonaccrual commercial construction and land development category with recorded investments ranging from $83,000 to $4.3 million. Of the 10 loans, four loans were in excess of $1.0 million each and aggregated $10.9 million, or 90%, of total nonaccrual commercial construction and land development loans, with an average recorded investment of $2.7 million per loan. The remaining 6 loans account for the difference at an average recorded investment of $197,000 per loan.

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Foreclosed Assets

Foreclosed assets totaled $4.6 million at June 30, 2013 compared to $2.5 million at December 31, 2012. The total was comprised of 10 properties at June 30, 2013 with the largest property carried at $2.0 million compared to 14 properties at December 31, 2012 with the largest property valued at $1.4 million. The change in foreclosed real estate during the first six months of 2013 is the result of the transfer of six properties into this category totaling approximately $2.7 million partially offset by the sale of nine properties for a total of $505,000 and the donation of one property to a local non-profit entity.

The Company obtains third party appraisals by one of several Board pre-approved certified general appraisers on nonperforming loans secured by real estate at the time a loan is determined to be nonperforming to support the fair market value of the collateral. Appraisals are ordered by the Company's Real Estate Loan Administration Department which is independent of both the loan workout and loan production functions. The Company charges down loans based on the fair value of the collateral as determined by the current appraisal less any unpaid real estate taxes and any costs to sell before the properties are transferred to foreclosed real estate. Subsequent to transferring the property to foreclosed real estate, the Company may incur additional write-down expense based on updated appraisals, recent offers or prices on comparable properties in the proximate vicinity.

Troubled Debt Restructurings

As mentioned previously, a TDR is a loan in which the contractual terms have been modified, resulting in the Bank granting a concession to a borrower who is experiencing financial difficulties, in order for the Bank to have a greater opportunity of collecting the indebtedness from the borrower. Concessions could include, but are not limited to, interest rate reductions below current market interest rates, atypical maturity extensions and principal forgiveness. An additional benefit to the Company in granting a concession is to avoid foreclosure or repossession of collateral in an attempt to minimize losses. All TDRs are considered to be impaired loans, however, a loan may still be accruing even though it has been restructured. Management evaluates these loans using the same guidelines it uses for all loans to determine that there is reasonable assurance of repayment.

Nonaccrual TDRs may be reclassified as accruing TDRs when the borrower has consistently made full payments of principal and interest for at least six consecutive months and the Bank expects full repayment of the modified loan's principal and interest. The loan will no longer be considered a TDR when the interest rate is equal to or greater than the rate that the Bank was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is no longer impaired based on the terms specified by the restructuring agreement.

As of June 30, 2013, TDRs totaled $33.7 million, of which $18.8 million were included in total nonaccruing loans. The remaining $14.9 million of TDRs were accruing at June 30, 2013. TDR loans totaled $32.8 million at December 31, 2012, of which $13.2 million were included in total nonaccruing loans and the remaining $19.6 million were accruing. The net increase in total TDRs was the result of the addition of 17 loans totaling $7.5 million partially offset by charge-downs totaling $148,000, transfers to foreclosed real estate of $201,000, pay-offs of $759,000 and pay-downs of approximately $5.5 million. The increase for the first six months of 2013 in nonaccruing TDRs and decrease in accruing TDRs was primarily a result of one large relationship that subsequently defaulted on its modified terms and was reclassified from accruing status to nonaccruing status during the first quarter of 2013 as previously mentioned.

Impaired and Other Problem Loans

Impaired loans include nonaccrual loans in addition to loans which the Company, based on current information, does not expect to receive both the principal and interest amounts due from a borrower according to the contractual terms of the original loan agreement. These loans totaled $63.7 million at June 30, 2013 with an aggregate specific allowance of $10.3 million compared to impaired loans totaling $56.6 million at December 31, 2012 with a $7.1 million aggregate specific allocation. The specific allocations at June 30, 2013 related to seven relationships compared to six relationships at December 31, 2012.

Impaired loans have been evaluated as to risk exposure in determining the adequacy of the ALL. See Note 4 of Notes to Consolidated Financial Statements for the period ended June 30, 2013, included herein, for an age analysis of loans receivable and for further detail regarding impaired loans.

The Bank generally obtains third party appraisals ordered by the Real Estate Loan Administration Department on nonperforming loans secured by real estate at the time the loan is determined to be impaired. The Bank properly charges down loans based on the appropriate discounted fair value of the collateral as determined by the current appraisal or other collateral valuations less any unpaid real estate taxes and any costs to sell. The charge-down of any impaired loan is done upon receipt and satisfactory review of the appraisal or other collateral valuation and, in no event, later than the end of the quarter in which the appraisal or valuation was accepted by the Bank. No significant time lapses during this process have occurred for any period presented.

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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.

The Bank may create a specific reserve for all or a part of a particular loan in lieu of a charge-off as a result of management's evaluation of the impaired loan. In these instances, the Bank has determined that a loss is probable but not imminent based upon available information surrounding the credit at the time of the analysis, however, management believes a reserve is appropriate to acknowledge the potential risk of loss.

Management's ALL Committee has performed a detailed review of the impaired loans and of the collateral related to these credits and believes, to the best of its knowledge, that the ALL remains adequate for the level of risk inherent in these loans at June 30, 2013.

Any criticized or classified loan not considered impaired is reviewed to determine if it is a potential problem loan. Such loan classifications totaled $47.9 million at June 30, 2013 compared to $46.9 million at December 31, 2012 and were comprised of $14.8 million of special mention rated loans and $33.0 million of substandard accruing loans which were not deemed impaired. These problem loans were included in the general pool of loans to determine the adequacy of the ALL at June 30, 2013.

While it is difficult to forecast impaired loans due to numerous variables, the Bank, through its credit risk management tools and other credit metrics, believes it has currently identified the material problem loans in the portfolio.

As a result of continued economic uncertainty affecting unemployment, consumer spending, home sales and collateral values, it is possible that the Company may experience increased levels of nonperforming assets and additional losses in the foreseeable future.

Allowance for Loan Losses

The Company recorded provisions of $1.8 million to the allowance during the second quarter of 2013, compared to $3.0 million for the second quarter of 2012. Net charge-offs for the three months ended June 30, 2013 were $1.2 million, or 0.31% (annualized), of average loans outstanding compared to $551,000, or 0.15% (annualized), of average loans outstanding in the same period of 2012.

During the first six months of 2013 the Company recorded provisions of $4.1 million to the ALL compared to $5.5 million for the first six months of 2012. Net charge-offs for the six months ended June 30, 2013 were $1.3 million, or 0.17% (annualized), of average loans outstanding compared to $912,000, or 0.13% (annualized), of average loans outstanding for the same period of 2012. Of the $1.3 million of net loan charge-offs for 2013, approximately $932,000, or 69%, was associated with commercial and industrial loans. In addition, net charge-offs during the first six months of 2013 included a recovery of $477,000 on one commercial construction and land development loan that had been partially charged off in 2010 and 2011.

The ALL as a percentage of total loans receivable was 1.72% at June 30, 2013, compared to 1.65% at December 31, 2012. The increase in the allowance balance from December 31, 2012 to June 30, 2013 was primarily the result of a necessary increase in specific allocations on certain impaired loans. The Company had total specific reserves of $10.3 million covering ten impaired loans at June 30, 2013.  At December 31, 2012, the Company had total of $7.1 million of specific reserves covering seven impaired loans. The nonperforming loan coverage, defined as the ALL as a percentage of total nonperforming loans, was 64% as of June 30, 2013 compared to 77% at December 31, 2012. See the Application of Critical Accounting Policies earlier in this Management's Discussion and Analysis for a detailed discussion of the calculation of the ALL.

Deposits

Total deposits at June 30, 2013 were $2.17 billion, down $62.5 million, or 3% (nonannualized), from total deposits of $2.23 billion at December 31, 2012 but up $82.8 million, or 4%, over June 30, 2012. Total noninterest-bearing deposits increased by $8.8 million, or 2% (nonannualized), from $455.0 million at December 31, 2012 to $463.8 million at June 30, 2013 and total interest-bearing deposits decreased by $71.3 million, or 4% (nonannualized), for the same period. Specifically, demand interest-bearing deposits decreased $124.4 million and time and other noncore deposits decreased by $5.0 million for the first six months of 2013 while savings deposits increased by $58.1 million in the same period. Core deposits totaled $2.10 billion at June 30, 2013, down $73.9 million, or 3% (nonannualized), from December 31, 2012 but up $76.3 million, or 4%, over the previous twelve months. The cost of total core deposits for the second quarter of 2013 was 0.29%, down 10 bps from the same period in 2012.

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The average balances and weighted-average rates paid on deposits for the first six months of 2013 and 2012 are presented in the table that follows:

TABLE 8

	Six Months Ended June 30,
	2013				2012
( in thousands)	Average Balance		Average Rate		Average Balance		Average Rate
Demand deposits:
Noninterest-bearing	$	436,850			$	407,283
Interest-bearing (money market and checking)	1,058,702		0.29	%	1,013,717		0.40	%
Savings	419,414		0.32		388,317		0.37
Time and other noncore deposits	191,721		1.00		216,493		1.25
Total deposits	$	2,106,687			$	2,025,810

Short-Term Borrowings

Short-term borrowings consist of short-term and overnight advances from the FHLB. At June 30, 2013, short-term borrowings totaled $230.0 million as compared to $113.2 million at December 31, 2012. Average short-term borrowings for the first six months of 2013 were $277.2 million as compared to $108.2 million for the first six months of 2012. The year over year increase was the result of utilizing such borrowings to supplement deposit growth in order to fund the year over year increase in average earning assets. The average rate paid on the short-term borrowings was 0.22% for the first six months of 2013 compared to 0.23% for the first six months of 2012.

Long-Term Debt

Long-term debt totaled $15.8 million at June 30, 2013 compared to $40.8 million at December 31, 2012. The decrease was the result of a $25.0 million FHLB borrowing which matured during the first quarter of 2013.  The advance had an original term of two years and a fixed rate of 1.01%.

Stockholders' Equity

At June 30, 2013, stockholders' equity totaled $228.5 million, down $6.9 million, from $235.4 million at December 31, 2012. The decrease in stockholders' equity was primarily the result of a decline of $15.2 million in other comprehensive income as the company's AFS securities portfolio experienced a change from an unrealized gain position, net of income tax impacts, of $7.2 million at December 31, 2012 to an unrealized loss position, net of income tax impacts, of $8.0 million at June 30, 2013. The decrease was partially offset by net income of $7.7 million and common stock share-based awards of $499,000for the six months ended June 30, 2013. Total stockholders' equity to total assets was 8.59% at June 30, 2013 compared to 8.93% at December 31, 2012. Tangible common equity to tangible assets was 8.55% at June 30, 2013 compared to 8.90% at December 31, 2012.

Supplemental Reporting of Non-GAAP Based Financial Measures

Tangible common equity to tangible assets is a non-GAAP based financial measure calculated using non-GAAP based amounts. Total stockholders' equity to total assets is the most directly comparable measure, which is calculated using GAAP-based amounts. The Company calculates the tangible common equity to tangible assets by excluding the balance of preferred stock and any intangible assets; however, the Company did not have any intangible assets at either June 30, 2013 or December 31, 2012. Management believes that tangible common equity to tangible assets has been a focus for some investors and assists in analyzing Metro's capital position without regard to the effect of preferred stock. Although this non-GAAP financial measure is frequently used by investors to evaluate a company, non-GAAP financial measurements have inherent limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. A reconciliation of tangible common equity to tangible assets is set forth in the table that follows:

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TABLE 9

	June 30, 2013		December 31, 2012
Total stockholders' equity to assets (GAAP)	8.59	%	8.93	%
Less: Effect of excluding preferred stock	0.04	%	0.03	%
Tangible common equity to tangible assets	8.55	%	8.90	%

Capital Adequacy

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 ALL. 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 June 30, 2013, the Bank met the definition of a "well-capitalized" institution.

The following tables provide a comparison of the Company's and the Bank's risk-based capital ratios and leverage ratios to the minimum regulatory requirements for the periods indicated:

TABLE 10

	Company				Bank				Minimum Regulatory Requirements		Regulatory Guidelines for “Well Capitalized”
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Total Capital	14.89	%	15.22	%	14.33	%	14.59	%	8.00	%	10.00	%
Tier 1 Capital	13.63		13.97		13.08		13.34		4.00		6.00
Leverage ratio (to total  average assets)	9.37		9.61		8.99		9.18		4.00		5.00

Interest Rate Sensitivity

The management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to provide consistent net interest income through periods of changing interest rates.

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 24 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 up to a plus 500 bp increase and a 100 bp decrease during the next year, with rates remaining constant in the second year. The minus 100 bp scenario is not considered very likely, given the low absolute level of short-term interest rates.

Our ALCO policy has established that income sensitivity will be considered acceptable in the 100 bp and 200 bp scenarios if overall net interest income volatility is within 4% of forecasted net interest income in the first year and within 5% using a two-

46

year time frame. In the 300 bp and 400 bp scenarios income sensitivity will be considered acceptable if net interest income volatility is within 5% of forecasted net interest income in the first year and within 6% using a two-year time frame. In the 500 bp scenario income sensitivity will be considered acceptable if net interest income volatility is within 6% of forecasted net interest income in the first year and within 7% using a two-year time frame.

The following table compares the impact on forecasted net interest income at June 30, 2013 and 2012 of a plus 300, plus 200 and plus 100 bp change in interest rates.

TABLE 11

	June 30, 2013				June 30, 2012
	12 Months		24 Months		12 Months		24 Months
Plus 300	(0.23	)%	3.51	%	1.68	%	6.57	%
Plus 200	(0.39	)	2.06		1.03		4.39
Plus 100	(0.47	)	0.58		0.36		1.99

This quarter's net interest income changes indicate negative first year impacts and less favorable two year impacts to net interest income than shown in previous quarters. The recent steepening of the interest rate yield curve has led to a slowdown in projected fixed rate loan and investment cash flows, and resulted in fewer assets expected to reprice to higher rates in rising interest rate scenarios. In addition, the Company has grown its fixed rate investment portfolio, and funded a portion of this growth with overnight borrowings, resulting in possible shrinking net interest margins as interest rates increase. As a result of both of these factors, net interest income is projected to be less favorable in rising interest rate scenarios than in previous projections.

Management continues to evaluate strategies in conjunction with the Company's ALCO to effectively manage the interest rate risk position. Such strategies could include the sale of a portion of our AFS investment portfolio, purchasing floating rate securities, altering the mix of our deposits by type and therefore rate paid, the use of risk management tools such as interest rate swaps and caps, adjusting the investment leverage position funded by short-term borrowings, extending the maturity structure of the Bank's short-term borrowing position or fixing the cost of our short-term borrowings.

Management uses many assumptions to calculate the impact of changes in interest rates. Actual results may not be similar to our projections due to several factors including the timing and frequency of rate changes, market conditions and the shape of the yield curve. In general, a flattening of the interest rate yield curve would result in reduced net interest income compared to a normal-shaped interest rate curve scenario and proportionate rate shift assumptions. Actual results may also differ due to management's actions, if any, in response to the changing 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. The model calculates the market value of equity in the current rate scenario and then compares the market value of equity given immediate increases and decreases in rates. Our ALCO policy indicates that the level of interest rate risk is unacceptable in the 100 bp immediate interest rate change scenarios if there is a resulting loss of more than 15% of the market value calculated in the current rate scenario. In the 200 bp immediate interest rate change scenario a loss of more than 25% loss of market value is deemed unacceptable. A loss of more than 35% is defined as unacceptable in the 300 bp immediate interest rate change scenario, while a loss of more than 40% is unacceptable in immediate interest rate change scenarios of 400 bps or more. At June 30, 2013 the market value of equity calculation indicated acceptable levels of interest rate risk in all scenarios per the policies established by our 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 immediate changes in 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 our own core deposit premiums 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 June 30, 2013 provide an accurate assessment of our interest rate risk. The most recent study calculates an average life of our core deposit transaction accounts of 9.2 years.

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Liquidity

The objective of liquidity risk 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. There are two fundamental risks in our liquidity risk management. The first is if we are unable to meet our funding requirements at a reasonable and profitable cost. The second is the potential inability to operate our business because adequate contingency liquidity is not available in a stressed environment or under adverse conditions.

We manage liquidity risk at both the Bank and the holding company of Metro Bank (the Parent) levels to help ensure that we can obtain cost-effective funding to meet current and future obligations and to help ensure that we maintain an appropriate level of contingent liquidity. The board of directors is responsible for approving our Liquidity Policy to be managed by the ALCO and management.

Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. On a quarterly basis, a comprehensive liquidity analysis is reviewed by our board of directors. 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 financial condition of the banking industry or a problem specific to the Company.

Bank Level Liquidity - Uses

At the bank level, primary liquidity obligations include funding loan commitments, satisfying deposit withdrawal requests and maturities and debt service related to bank borrowings. We also maintain adequate bank liquidity to meet future potential loan demand, purchase investment securities and provide for other business needs as necessary.

Bank Level Liquidity - Sources

Liquidity sources are found on both sides of the balance sheet. Our single largest source of bank liquidity is the deposit base that comes from our retail, commercial business and government deposit customers. Liquidity is also provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investments, maturing short-term assets, the ability to sell marketable securities and from borrowings.

Our investment portfolio consists primarily of U.S. Government agency CMOs and MBSs. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and may be 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. The current market environment has negatively impacted the fair market value of certain securities in the Company's investment portfolio and therefore the Company is not inclined to act on a sale of such securities for liquidity purposes at this time. With short-term interest rates at or near record-lows, the Company would more likely be inclined to borrow from one of the sources discussed in the following paragraph.

We also maintain secondary sources of liquidity which can be drawn upon if needed. These secondary sources of liquidity as of June 30, 2013 included a $15.0 million line of credit through a correspondent bank, a $20.0 million line of credit through another correspondent bank and $562.5 million of borrowing capacity at the FHLB. The Bank is a member of the FHLB-Pittsburgh and, as such, has access to advances secured generally by residential mortgage and other mortgage-related loans. In addition we have the ability to borrow at the Federal Reserve Bank of Philadelphia's (FRB) Discount Window to meet short-term liquidity requirements. The FRB, however, is not viewed as the primary source of our borrowings, but rather as a potential source of liquidity under certain circumstances, in a stressed environment or during a market disruption. This potential source is secured by agency residential MBSs and CMOs, as well as agency debentures. At June 30, 2013, our total potential liquidity through FHLB and other secondary sources was $597.5 million, of which $282.2 million was available, as compared to $407.5 million available out of our total potential liquidity of $580.8 million at December 31, 2012. The decline in FHLB borrowing capacity was primarily driven by an expected cyclical decline in deposits, coupled with higher loan and investment balances. The $16.7 million increase in potential liquidity was due to an increase in the Bank's borrowing capacity primarily as a result of a higher level of qualifying collateral. FHLB borrowing capacity is determined based on asset levels on a quarterly lag basis.

The Dodd-Frank Act provided temporary unlimited coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions. The separate coverage for these accounts became effective on December 31, 2010 and terminated on December 31, 2012. Prior to the program's December 31, 2012 expiration, the Bank entered into a deposit placement agreement with a national firm. The agreement allows customers the ability to place certain deposits with other member institutions on a

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reciprocal basis, thereby achieving additional FDIC insurance coverage. The Bank had $1.9 million in reciprocal deposits at June 30, 2013 with a year-to-date average balance of $6.8 million at June 30, 2013. This is shown with public time and other noncore deposits in Table 2. The Bank believes this will help mitigate any potential adverse impact on its liquidity position; however it has not experienced and does not anticipate a material level of customer demand for this program.

The Parent Company Liquidity - Uses

The Parent and the Bank's liquidity are managed separately. At the parent level, primary liquidity obligations include debt service related to parent company long-term debt or borrowings, unallocated corporate expenses, funding its subsidiaries, and could also include paying dividends to Metro shareholders, common stock or preferred stock share repurchases or acquisitions if Metro chose to do so.

The Parent Company Liquidity - Sources

The principal source of the Parent's liquidity is dividends it receives from the subsidiary Bank, which may be impacted by: Bank-level capital needs, laws and regulations, corporate policies, or other factors. Although the Bank did not issue dividends to the Parent during the first six months of 2013, the Parent has sufficient cash on hand to support its normal operating needs for the foreseeable future. The Bank is subject to regulatory restrictions on its ability to pay dividends to the Parent.

In addition to dividends from Metro Bank, other sources of liquidity for the parent company include proceeds from common stock options exercised as well as proceeds from the issuance of common stock under Metro's stock purchase plan. We can also generate liquidity for Metro and its subsidiaries through the issuance of debt and equity securities. Metro has an effective shelf registration statement, whereby we can issue additional debt and equity securities.

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 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 June 30, 2013 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.

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Part II  OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is subject to certain 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.

Item 1A.  Risk Factors.

There have been no material changes in the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, previously filed with the SEC.

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

No items to report for the quarter ended June 30, 2013.

Item 3. Defaults Upon Senior Securities.

No items to report for the quarter ended June 30, 2013.

Item 4. Mine Safety Disclosures

No items to report for the quarter ended June 30, 2013.

Item 5. Other Information.

No items to report for the quarter ended June 30, 2013.

Item 6. Exhibits.

See Exhibit Index for a list of the exhibits required by Item 601 of Regulation S-K and filed as part of this report.

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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)
8/9/2013	/s/ Gary L. Nalbandian
(Date)	Gary L. Nalbandian
	President/CEO
8/9/2013	/s/ Mark A. Zody
(Date)	Mark A. Zody
	Chief Financial Officer

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EXHIBIT INDEX

11	Computation of Net Income Per Common 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
101	Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2013 and December 31, 2012; (ii) the Consolidated Statements of Operations for the three months and six months ended June 30, 2013 and 2012; (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012; (iv) the Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2013 and 2012; (v) the Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012; and, (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed "filed" or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.