Clover Partners LP Sends Letter to the Board of Directors of Metro Bancorp

  Clover Partners LP Sends Letter to the Board of Directors of Metro Bancorp

Business Wire

DALLAS -- June 13, 2014

On June 13, 2014, Clover Partners LP sent the following letter to the board of
directors of Metro Bancorp (METR):

June 13, 2014

Gary L. Nalbandian
Douglas S. Gelder
James R. Adair
John J. Cardello
Alan R. Hassman
J. Rodney "Rod" Messick
Howell C. Mette
Michael A. Serluco
Samir J. Srouji
(the “Board of Directors”)

Metro Bancorp, Inc.
3801 Paxton Street
Harrisburg, PA 17111

Dear Board of Directors:

Initially we would like to commend management for guiding the company through
a tumultuous banking environment and resolving the previous regulatory orders
issued to the bank.

Furthermore, we appreciate the company publicly announcing long term growth
goals in terms of loans, deposits and assets. Based on the May 22, 2014
presentation, the company looks to attain 2015 total assets, net loans, and
deposits of $3.3 billion, $2.1 billion, and $2.5 billion, respectively.

While we believe these goals are attainable, we have grave concerns about the
future profitability of the institution as the company works to achieve these
growth metrics. As the company continues to increase its branch network we
believe non-interest expenses will rise. In our opinion, additional branches
coupled with a fiercely competitive lending environment and additional
regulatory scrutiny will continue to suppress profitability.

We examined Metro’s potential profitability metrics for 2015 using the
company’s stated goals. Based on our analysis, we believe the company’s 2015
ROAA, ROTCE, and Efficiency ratio will equal approximately 0.70%, 8.2%, and
74%, respectively. These profitability metrics are well below similarly sized
peers in the Northeast and Mid-Atlantic regions. As displayed in the exhibit
below, median ROAA, ROTCE, and Efficiency Ratio metrics for peers equal 1.07%,
12.0%, and 60%.

                              Cls.     Total                                   Implied                                            
                                                    Mkt.                          Est.             Eff.                     Core
                                 Price     Assets   Cap     Cal. P/E Ratio (x)   2015   2015      Ratio           TCE/TA   Dep./   Div.    ROAA    ROATE
                                                                                                   %
Company        Ticker  State  6/12/14  ($Mil)  ($Mil)  2013  2014  2015  ROAA  ROTCE %  MRQ    P/TBV  MRQ     Total  Yield  LTM    LTM
                                                                                  %                                         Dep.
Bryn Mawr
Bank            BMTC     PA      $28.99    2,060    396      16.1   15.7   14.1   1.24   11.8      60      215%    9.2%     90%     2.5%    1.28%   16.6%
Corporation
Center          CNBC     NJ      $18.63    1,676    305      15.5   18.8   12.5   1.25   10.7      48      209%    8.8%     88%     1.6%    1.17%   12.9%
Bancorp, Inc.
CNB Financial   CCNE     PA      $16.45    2,134    238      12.7   11.8   11.0   0.95   14.1      59      169%    6.7%     88%     4.0%    0.89%   13.3%
Corporation
Eagle           EGBN     MD      $32.33    3,804    840      18.5   16.1   13.8   1.35   16.7      52      240%    9.2%     87%     0.0%    1.36%   12.6%
Bancorp, Inc.
Financial
Institutions,   FISI     NY      $23.10    3,016    320      13.3   12.0   10.8   0.91   13.9      57      164%    6.6%     74%     3.3%    0.93%   13.2%
Inc.
Lakeland        LBAI     NJ      $10.67    3,387    405      14.8   13.3   12.1   0.93   12.1      61      164%    7.6%     89%     2.7%    0.84%   11.9%
Bancorp, Inc.
OceanFirst
Financial       OCFC     NJ      $16.02    2,282    278      15.7   13.2   11.8   0.94   10.1      65      129%    9.5%     87%     3.0%    0.72%   7.7%
Corp.
S&T Bancorp,    STBA     PA      $24.33    4,707    723      14.3   13.6   12.8   1.14   12.7      59      179%    8.9%     71%     2.8%    1.15%   14.1%
Inc.
TriState
Capital         TSC      PA      $13.72    2,542    394      32.2   18.9   13.4   0.98   10.9      65      161%    9.6%     58%     -       0.65%   5.3%
Holdings,
Inc.
Univest
Corporation     UVSP     PA      $19.79    2,201    322      16.8   14.1   12.4   1.10   11.5      66      151%    9.9%     85%     4.0%    0.97%   10.2%
of
Pennsylvania
Washington
Trust           WASH     RI      $35.26    3,194    587      15.9   15.0   14.1   1.31   14.1      60      215%    8.7%     68%     3.3%    1.22%   15.1%
Bancorp, Inc.
WSFS
Financial      WSFS    DE     $70.08   4,546   624     14.5  12.3  12.4  1.04  11.4     65     169%   8.2%    78%    0.7%   1.23%  -
Corporation
Mean                                                453      16.7   14.6   12.6   1.09   12.5      60      180%    8.6%     80%     2.5%    1.04%   12.1%
Median                                              395      15.6   13.8   12.5   1.07   12.0      60      169%    8.9%     86%     2.8%    1.06%   12.9%
                                                                                                                                                    
Metro           METR     PA      $22.52    2,850    319      19.3   17.1   15.4   0.67   8.2       74      133%    8.4%     92%     -       0.68%   7.9%
Bancorp, Inc.
                                                                                                                                                    
                                                                                                                                                    
Source: SNL Financial and Clover Partners Estimates
                                                                                                                                                    

Furthermore, based on Metro’s most recent 10Q disclosure, the company’s net
interest income will not increase in a rising rate environment. As of March
31, 2014, over a twelve month period, if interest rates increased 100bp,
200bp, and 300bp, Metro’s net interest income would decline 1.32%, 2.11%, and
2.75%, respectively.

In light of the aforementioned profitability metrics and a decline of net
interest income in a rising rate environment, we believe Metro should seek a
strategic partner. In our opinion, Metro’s core deposit franchise and
geography would garner a substantial premium to its current share price. We
believe there are multiple larger banks with strong currencies which would vie
for the opportunity to enhance their franchise through an acquisition of
Metro. Based on recent terminal multiples in similar geographies (transactions
in excess of $75 million deal value), we believe Metro is worth $29-$30 per
share in a sale (171%-179% P/TBV).

We are aware that two other large shareholders have recently filed Schedule
13-Ds. We agree with these stockholders’ concerns and urge the board of
directors to retain an investment bank to explore strategic alternatives to
maximize shareholder value.

Sincerely,

Johnny Guerry

Partner, Clover Partners LP

Contact:

Clover Partners LP
Kerri Webb, 214-273-5212
 
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