UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-K/A





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


For
      the fiscal year ended December 31,
      2008.




or




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




For
      the transition period from __________
  to__________.





Commission
file number   000-50961





PENNSYLVANIA COMMERCE
BANCORP, INC.


(Exact
name of registrant as specified in its charter)





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





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





Registrant’s
telephone number, including area code: (800)
653-6104





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            Name
      of each exchange on which registeredCommon Stock, $1.00
      par value
            NASDAQ Stock Market
      LLC





Securities
registered pursuant to Section 12(g) of the Act:  None


(Title
of Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  [ ] Yes   [X] No






Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act.[ ] Yes   [X] No






Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 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.  [X]
Yes   [ ] No











Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.    [ ]






Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.




Large
      accelerated filer   [  ]
            Accelerated
      filer   [X]Non-accelerated
      filer (Do not check if a smaller reporting company.)  [ 
      ]
            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   [X] No






The
aggregate market value of voting stock held by non-affiliates of the registrant
as of the last business day of the Company’s most recently completed second
fiscal quarter, June 30, 2008, was $107,250,855.




The
number of shares of the registrant’s common stock, par value $1.00 per share,
outstanding as of February 27, 2009 was 6,488,241.





DOCUMENTS
INCORPORATED BY REFERENCE:





Part II
incorporates certain information by reference to the registrant’s Annual Report
to Shareholders for the fiscal year ended December 31, 2008 (the “Annual
Report”).




EXPLANATORY
NOTE
 
 This
Amendment No.1 on Form 10-K/A amends our Form 10-K for the year ended December
31, 2008, initially filed with the Securities and Exchange Commission on March
16, 2009 (the “original 2008 Form 10-K”).  This Form 10-K/A includes
information required by Part III of Form 10-K (Items 10, 11, 12, 13, and
14).   Our original 2008 Form 10-K stated that information
required by these Items would be incorporated by reference to the Company’s
definitive proxy statement for the 2009 Annual Meeting of Shareholders, which
was to be filed with the Securities and Exchange Commission on or before April
30, 2009.
 
 This Form
10-K/A only amends and restates Items 10, 11, 12, 13, and 14 of Part III of the
original 2008 Form 10-K.  No other items in the original 2008 Form
10-K are amended hereby.  This amendment does not change any
previously reported financial results, modify or update disclosures in the
original filing, or reflect events occurring after the date of the original
filing.  Pursuant to Rule 12b-15 under the Securities Exchange Act of
1934, new certifications of our principal executive officer and principal
financial officer are being filed as exhibits to this Amendment No. 1 on Form
10-K/A.











PENNSYLVANIA
COMMERCE BANCORP, INC.


FORM
10-K CROSS-REFERENCE INDEX





PagePart
      I.Item
      1.
              Business
              1Item
      1A.
              Risk
      Factors
              9Item
      1B.
              Unresolved
      Staff Comments
              12Item
      2.
              Properties
              12Item
      3.
              Legal
      Proceedings
              12Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              13Part
      II.Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters
      andIssuer
      Purchases of Equity Securities
              13Item
      6.
              Selected
      Financial Data
              15Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
              16(The
      information required by this item is incorporated by reference from
      theCompany’s
      2008 Annual Report.)Item
      7A.
              Quantitative
      and Qualitative Disclosures about Market Risk
              16(The
      information required by this item is incorporated by reference from
      theCompany’s
      2008 Annual Report.)Item
      8.
              Financial
      Statements and Supplementary Data
              16(The
      information required by this item is incorporated by reference from
      theCompany’s
      2008 Annual Report.)Item
      9.
              Changes
      In and Disagreements with Accountants on Accounting andFinancial
      Disclosure (This item is omitted since it is not
    applicable)
              16Item
      9A.
              Controls
      and Procedures
              16Item
      9B.
              Other
      Information
              19Part
      III.Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              19Item
      11.
              Executive
      Compensation
              22Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management andRelated
      Stockholder Matters
              37Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              40Item
      14.
              Principal
      Accounting Fees and Services
              44Part
      IV.Item
      15.
              Exhibits,
      Financial Statement Schedules
              45Signatures











Part I.




Item1.                   Business




Forward-Looking
Statements




The
Company may, from time to time, make written or oral “forward-looking
statements”, including statements contained in the Company’s filings with the
Securities and Exchange Commission (including the annual report on Form 10-K and
the exhibits thereto), in its reports to stockholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995.




These
forward-looking statements include statements with respect to the Company’s
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 the
Company’s control).  The words “may”, “could”, “should”, “would”,
“believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and similar
expressions are intended to identify forward-looking statements.  The
following factors, among others, including those discussed in Item 1A “Risk
Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and elsewhere in this annual report on Form 10-K,
could cause the Company’s financial performance to differ materially from that
expressed in such forward-looking statements:




·
              the
      Company’s ability to successfully transition all services currently
      provided to it, by TD Bank, N.A. and Commerce Bancorp LLC (formerly
      Commerce Bancorp, Inc.) to the Company’s new service provider, Fiserv
      Solutions, Inc.;
  ·
              the
      receipt of a $6 million fee from TD Bank if the transition of all services
      is completed by the required dates as called for in the Transition
      Agreement between the two parties;
  ·
              whether
      the transactions contemplated by the merger agreement with Republic First
      will be approved by the applicable federal, state and local regulatory
      authorities;
  ·
              the
      Company’s ability to complete the proposed merger with Republic First
      Bancorp, Inc., to integrate successfully Republic First’s assets,
      liabilities, customers, systems and management personnel into the
      Company’s operations, and to realize expected cost savings and revenue
      enhancements within expected
timeframes;
  ·
              the
      possibility that expected Republic First merger-related charges are
      materially greater than forecasted or that final purchase price
      allocations based on fair value of the acquired assets and liabilities at
      the effective date of the merger and related adjustments to yield and/or
      amortization of the acquired assets and liabilities are materially
      different from those forecasted;
  ·
              adverse
      changes in the Company’s or Republic First’s loan portfolios and the
      resulting credit risk-related losses and
  expenses;
  ·
              the
      effects of, and changes in, trade, monetary and fiscal policies, including
      interest rate policies of the Board of Governors of the Federal Reserve
      System;
  ·
              general
      economic or business conditions, either nationally, regionally or in the
      communities in which either the Company or Republic First does business,
      may be less favorable than expected, resulting in, among other things, a
      deterioration in credit quality or a reduced demand for
      credit;
   1
  ·
              continued
      levels of loan quality and volume
origination;
  ·
              the
      adequacy of loss reserves;
  ·
              the
      impact of changes in financial services’ laws and regulations (including
      laws concerning taxes, banking, securities and
  insurance);
  ·
              the
      willingness of customers to substitute competitors’ products and services
      for the Company’s products and services and vice
  versa;
  ·
              unanticipated
      regulatory or judicial proceedings;
  ·
              interest
      rate, market and monetary
fluctuations;
  ·
              the
      timely development of competitive new products and services by the Company
      and the acceptance of such products and services by
    customers;
  ·
              changes
      in consumer spending and saving habits relative to the financial services
      we provide;
  ·
              effect
      of terrorists attacks and threats of actual
war;
  ·
              and
      the success of the Company 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 forward-looking statements, which
speak only as of the date of this document.  The Company does 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 the
Company.  For information, concerning events or circumstances after
the date of this report, refer to the Company’s filings with the Securities and
Exchange Commission (“SEC”).




General




Pennsylvania
Commerce Bancorp, Inc. (the “Company”) is a Pennsylvania business corporation,
which is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the “Holding Company Act”).  The Company was
incorporated on April 23, 1999 and became an active bank holding company on July
1, 1999 through the acquisition of 100% of the outstanding shares of Commerce
Bank/Harrisburg (the “Bank”) the Company’s wholly owned banking subsidiary. On
June 15, 2000, the Company issued $5 million of 11.00% Trust Capital Securities
through Commerce Harrisburg Capital Trust I, a newly formed Delaware business
trust subsidiary of the Company.  Proceeds of this offering were
invested in the Bank and all $5 million of the Trust Capital Securities
qualifies as Tier 1 capital for regulatory capital purposes. On September 28,
2001, the Company issued $8 million of 10.00% Trust Capital Securities through
Commerce Harrisburg Capital Trust II (“Trust II”), a newly formed Delaware
business trust subsidiary of the Company.  Proceeds of this offering
were invested in the Bank and  all $8 million of the Trust Capital
Securities qualifies as Tier 1 capital for regulatory capital
purposes.  On September 29, 2006, the Company issued $15 million of
7.75% Trust Capital Securities through Commerce Harrisburg Capital Trust III
(“Trust III”), a newly formed Delaware business trust subsidiary of the
Company.  Proceeds of this offering were invested in the Bank and all
$15 million of the Trust Capital securities qualifies as Tier 1 Capital for
regulatory capital purposes.






2




Pursuant
to a Transition Agreement with TD Bank, N.A. and Commerce Bancorp LLC (formerly
Commerce Bancorp, Inc.), which terminated the Network Agreement and Master
Services Agreement with Commerce Bank N.A. (now known as TD Bank, N.A.), the
Company has a non exclusive royalty free license until September 30, 2009 to
continue using the name “Commerce Bank” and, subject to certain limitations, the
red “C” logo,within
its primary service area. Under the Transition Agreement, certain services
provided under the Master Services Agreement were continued until July 15, 2009
or at the Bank’s option, until August 15, 2009, and certain tail services until
August 15, 2009.  The Bank has entered into a master agreement with
Fiserv Solutions, Inc. to provide many of the administrative and data processing
services that have been provided by TD Bank. For additional information
concerning TD Bank and the transition to Fiserv as a service provider, refer to
the discussion in Item 1A “Risk Factors” included in this annual report on Form
10-K.




On
November 10, 2008, we announced that we entered into a plan of merger,to
acquire Republic First Bancorp, Inc. (“Republic First”) headquartered inPhiladelphia,
PA.  Republic First, with total assets of approximately$952.0
million as of December 31, 2008, will be merged with and intoPennsylvania
Commerce and the combined company will be renamed MetroBancorp,
Inc.  This transaction is expected to close in the second quarter2009,
subject to regulatory approval for both companies.


As of
December 31, 2008, the Company had approximately $2.1 billion in assets, $1.6
billion in deposits, $1.5 billion in total net loans (including loans held for
sale), and $114 million in stockholders’ equity. The Bank has applied to be a
member of the Federal Reserve System.  Substantially all of the Bank’s
deposits are insured up to applicable limits by the Deposit Insurance Fund of
the Federal Deposit Insurance Corporation (FDIC) to the fullest extent permitted
by law.  The Company’s total revenues (net interest income plus
noninterest income) were $104.1 million and the Company recorded $12.9 million
in net income for the year ended December 31, 2008.




The
Company’s principal executive offices are located at 3801 Paxton Street,
Harrisburg, Pennsylvania 17111, and its telephone number is (800)
653-6104.




As of
December 31, 2008, the Company had 1,077 employees, of which 789 were full-time
employees. Management believes the Company’s relationship with its employees is
good.




Commerce
Bank/Harrisburg




The
Company has one reportable segment, consisting of Commerce Bank/Harrisburg (the
Bank), as described in Note 1 of the Notes to Consolidated Financial Statements
for the year ended December 31, 2008 included at Item 8 of this
Report.




On July
13, 1984, the Bank filed an application to establish a state-chartered banking
institution with the Pennsylvania Department of Banking. On September 7, 1984,
the Bank was granted preliminary approval of its application, and on September
11, 1984, was incorporated as a Pennsylvania state-chartered banking institution
under the laws of the Commonwealth of Pennsylvania. The Bank opened for business
on June 1, 1985.




On
October 7, 1994, the Bank was converted from a Pennsylvania state-chartered
banking institution to a national banking association under the laws of the
United States of America and changed its name to “Commerce Bank/Harrisburg,
National Association.” The Bank’s conversion was consummated pursuant to
preliminary and conditional approval of the conversion granted by the Office of
the Comptroller of the Currency (OCC) on July 5, 1994 in response to a letter of
intent to convert to a national bank filed by the Bank with the OCC on April 6,
1994.




On June
3, 2008, Commerce Bank/Harrisburg, N.A. filed an application to convert from a
national charter to a state-chartered banking institution with the Pennsylvania
Department of Banking. On November 7, 2008, the Pennsylvania Department of
Banking approved the application of Commerce Bank/Harrisburg, N.A. to convert
from a national bank charter to a state bank charter. As a result of the
conversion to a state chartered bank, Commerce Bank/Harrisburg will now be
supervised jointly by the Pennsylvania Department of Banking and the FDIC. The
Company will continue to be supervised by the Federal Reserve Bank, which
supervises all bank holding companies.






3




The Bank
provides a full range of retail and commercial banking services for consumers
and small and mid-sized companies. The Bank’s lending and investment activities
are funded principally by retail deposits gathered through its retail store
office network.




Service
Area




The Bank
offers its lending and depository services from its main office in Lemoyne,
Pennsylvania, and its thirty-two other full-service stores located in
Cumberland, Dauphin, York, Berks, Lancaster and Lebanon Counties,
Pennsylvania.




Retail
and Commercial Banking Activities




The Bank
provides a broad range of retail banking services and products including free
personal checking accounts and business checking accounts (subject to a minimum
balance), regular savings accounts, money market accounts, interest checking
accounts, fixed rate certificates of deposit, individual retirement accounts,
club accounts, debit card services, and safe deposit facilities. Its services
also include a full range of lending activities including commercial
construction and real estate loans, land development and business loans,
commercial lines of credit, consumer loan programs (including installment loans
for home improvement and the purchase of consumer goods and automobiles), home
equity and Visa Gold card revolving lines of credit, overdraft checking
protection, student loans and automated teller facilities. The Bank also offers
construction loans and permanent mortgages for homes. The Bank is a participant
in the Small Business Administration Loan Program and is an approved lender for
qualified applicants.




The Bank
directs its commercial lending principally toward businesses that require funds
within the Bank’s legal lending limit, as determined from time to time, and that
otherwise do business and/or are depositors with the Bank. The Bank also
participates in inter-bank credit arrangements in order to take part in loans
for amounts that are in excess of its lending limit or to limit the
concentration of lending to any individual. The Company is not dependent on any
one or more major customers, and its business is not seasonal.




The
Company has focused its strategy for growth primarily on the further development
of its community-based retail-banking network. The objective of this corporate
strategy is to build earnings growth potential for the future as the retail
store network matures. The Company’s store concept uses a prototype or
standardized store office building, convenient locations and active marketing,
all designed to attract retail deposits. While the Company has not yet announced
plans to open any new stores in 2009 it does intend to continue to open multiple
stores over the next several years. It has been the Company’s experience that
most newly opened store offices incur operating losses during the first 18 to 24
months of operations and become profitable thereafter. The Company’s retail
approach to banking emphasizes a combination of long-term customer
relationships, quick responses to customer needs, active marketing, convenient
locations, free checking for customers maintaining certain minimum balances and
extended hours of operation.




Competitive
Business Conditions / Competitive Position




The
Company’s current primary service area, the south central Pennsylvania area,
including portions of Cumberland, Dauphin, York, Berks, Lancaster and Lebanon
Counties, is characterized by intense competition for banking business. The Bank
competes with local commercial banks as well as numerous regionally based
commercial banks, most of which have assets, capital, and lending limits larger
than that of the Bank. The Bank competes with respect to its lending activities
as well as in attracting demand, savings, and time deposits with other
commercial banks, savings banks, insurance companies, regulated small loan
companies, credit unions, and with issuers of commercial paper and other
securities such as shares in money market funds. Among those institutions, the
Bank has a share of approximately 5% of the bank deposits in its market
area.






4




Other
institutions may have the ability to finance wide-ranging advertising campaigns,
and to allocate investment assets to regions of highest yield and demand. Many
institutions offer services, such as trust services and international banking,
which the Bank does not directly offer (but which the Bank may offer indirectly
through other institutions). Many institutions, by virtue of their greater total
capital, can have substantially higher lending limits than the
Bank.




In
commercial transactions, the Bank’s legal lending limit to a single borrower
(approximately $26.4 million as of December 31, 2008) enables it to compete
effectively for the business of smaller companies. However, this legal lending
limit is lower than that of some of the Bank’s competing institutions and thus
may act as a constraint on the Bank’s effectiveness in competing for financing
in excess of these limits.




In
consumer transactions, the Bank believes it is able to compete on a
substantially equal basis with larger financial institutions because it offers
longer hours of operation, personalized service and competitive interest rates
on savings and time accounts with low minimum deposit requirements.




In order
to compete with other financial institutions both within and beyond its primary
service area, the Bank uses, to the fullest extent possible, the flexibility
which independent status permits. This includes an emphasis on specialized
services for the small businessperson and professional contacts by the Bank’s
officers, directors and employees, and the greatest possible efforts to
understand fully the financial situation of relatively small borrowers. The size
of such borrowers, in management’s opinion, often inhibits close attention to
their needs by larger institutions. The Bank may seek to arrange for loans in
excess of its lending limit on a participation basis with other financial
institutions.  As of the end of 2008, all participations totaled
approximately $32.1 million.  Participations are used to more fully
service customers whose loan demands exceed the Bank’s lending
limit.




The Bank
endeavors to be competitive with all competing financial institutions in its
primary service area with respect to interest rates paid on time and savings
deposits, its overdraft charges on deposit accounts, and interest rates charged
on loans.




Supervision
and Regulation




The
following discussion sets forth certain of the material elements of the
regulatory framework applicable to bank holding companies and their subsidiaries
and provides certain specific information relevant to the Company. The
regulatory framework is intended primarily for the protection of depositors,
other customers and the Federal Deposit Insurance Funds and not for the
protection of security holders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on the business of the Company.






5




The
Company




The
Company is subject to the jurisdiction of the Securities and Exchange Commission
(“SEC”) and of state securities commissions for matters relating to the offering
and sale of its securities and is subject to the SEC’s rules and regulations
relating to periodic reporting, reporting to shareholders, proxy solicitation
and insider trading.




The
Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance,
accounting and reporting measures for companies that have securities registered
under the Securities Exchange Act of 1934, such as the Company. Specifically,
the Sarbanes-Oxley Act and the various regulations promulgated thereunder,
established, among other things: (i) new requirements for audit committees,
including independence, expertise, and responsibilities; (ii) additional
responsibilities regarding financial statements for the Chief Executive Officer
and Chief Financial Officer of the reporting company; (iii) new standards
for auditors and the regulation of audits, including independence provisions
that restrict non-audit services that accountants may provide to their audit
clients; (iv) increased disclosure and reporting obligations for the
reporting company and their directors and executive officers, including
accelerated reporting of stock transactions and a prohibition on trading during
pension blackout periods; (v) a prohibition on personal loans to directors
and officers, except certain loans made by insured financial institutions on
non-preferential terms and in compliance with other bank regulatory
requirements; and (vi) a range of new and increased civil and criminal
penalties for fraud and other violations of the securities laws. The Company has
addressed the requirements imposed by regulations relating to the Sarbanes-Oxley
Act, including forming a Nominating and Corporate Governance Committee (and
establishing its charter), adopting a Code of Ethics applicable to the Company’s
Chief Executive Officer, Chief Financial Officer and principal accounting
officer (in addition to the Code of Conduct already in place for all employees
and Board Members of the Company), and meeting NASDAQ’s and the SEC’s procedural
and disclosure requirements.




In 1999,
the Gramm-Leach-Bliley Act (better known as the Financial Services Modernization
Act of 1999) became law. The law permits bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature.
A bank holding company may become a financial holding company if each of its
subsidiary banks is well capitalized, is well managed and has at least a
satisfactory rating under the Community Reinvestment Act, by filing a
declaration that the bank holding company wishes to become a financial holding
company. Also, no regulatory approval is required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board. The Financial
Services Modernization Act defines "financial in nature" to include: securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Federal Reserve Board has determined to be closely related
to banking. A national bank also may engage, subject to limitations on
investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development
and real estate investment, through a financial subsidiary of the bank, if the
bank is well capitalized, well managed and has at least a satisfactory Community
Reinvestment Act rating. Banks chartered under the Pennsylvania Banking Code are
generally permitted to engage in the same types of activities that are
permissible for national banks. Except for the increase in competitive pressures
faced by all banking organizations that is a likely consequence of the Act, the
Company believes that the legislation and implementing regulations are likely to
have a more immediate impact on large regional and national institutions than on
community-based institutions engaged principally in traditional banking
activities. Because the legislation permits bank holding companies to engage in
activities previously prohibited altogether or severely restricted because of
the risks they posed to the banking system, implementing regulations impose
strict and detailed prudential safeguards on affiliations among banking and
non-banking companies in a holding company organization.






6




The
Company is subject to the provisions of the Bank Holding Company Act of 1956, as
amended and to supervision and examination by the Federal Reserve Bank (“FRB”).
Under the Bank Holding Company Act, the Company must secure the prior approval
of the FRB before it may own or control, directly or indirectly, more than 5% of
the voting shares or substantially all of the assets of any institution,
including another bank (unless it already owns a majority of the voting stock of
the bank).




Satisfactory
financial condition, particularly with regard to capital adequacy, and
satisfactory Community Reinvestment Act ratings are generally prerequisites to
obtaining federal regulatory approval to make acquisitions. The Bank is
currently rated “satisfactory” under the Community Reinvestment Act. The Company
and the Bank are both subject to various regulatory capital requirements
administered by Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Management believes, as
of December 31, 2008, that the Company and the Bank meet all capital adequacy
requirements to which they are subject. Also, at December 31, 2008, the
consolidated capital levels of the Company and of the Bank met the definition of
a “well-capitalized” financial institution. For further discussion regarding
capital adequacy, please refer to Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” as well as Note 15 of Notes to
Consolidated Financial Statements for the year ended December 31, 2008 included
in Item 8 in this annual report on Form 10-K.




The
Company is required to file an annual report with the Federal Reserve Board and
any additional information that the Federal Reserve Board may require pursuant
to the Bank Holding Company Act. The Federal Reserve Board may also make
examinations of the Company and any or all of its subsidiaries. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with the extension of credit or provision for
any property or service. Thus, an affiliate of the Company, such as the Bank,
may not condition the extension of credit, the lease or sale of property or
furnishing of any services on (i) the customer’s obtaining or providing some
additional credit, property or services from or to the Bank or other
subsidiaries of the Company, or (ii) the customer’s refraining from doing
business with a competitor of the Bank, the Company or of its
subsidiaries.  The Company or the Bank may impose conditions to the
extent necessary to reasonably assure the soundness of credit
extended.




Subsidiary
banks of a bank holding company are subject to certain restrictions imposed by
the Federal Reserve Act on (i) any extension of credit to the bank holding
company or any of its subsidiaries, (ii) investments in the stock or other
securities of the bank holding company, and (iii) taking the stock or securities
of the bank holding company as collateral for loans to any
borrower.




The
Bank




The Bank
became a state-chartered bank on November 7, 2008, following approval by the
Pennsylvania Department of Banking of the Bank’s application to convert from a
national bank charter to a state bank charter. As a nationally chartered bank,
the Bank had been subject to regulation, supervision and examination by the
Office of the Comptroller of the Currency. The Bank is now supervised jointly by
the Pennsylvania Department of Banking and the FDIC. The Bank has applied to be
a member of the Federal Reserve System. The Bank’s deposits are insured by the
FDIC up to applicable legal limits. Some of the aspects of the lending and
deposit business of the Bank that are regulated by these agencies include
personal lending, mortgage lending and reserve requirements. The Bank is also
subject to numerous federal, state and local laws and regulations which set
forth specific restrictions and procedural requirements with respect to the
payment of dividends to the Company, extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit
transactions.  The approval of these agencies is required for the
establishment of additional store offices.






7




Under the
Federal Deposit Insurance Act, subject to certain exceptions, no person may
acquire control of the Bank without giving at least sixty days’ prior written
notice to the FDIC. Under this Act and its regulations, control of the Bank is
generally presumed to be the power to vote ten percent (10%) or more of the
Common Stock. The FDIC is empowered to disapprove any such acquisition of
control.




The
amount of funds that the Bank may lend to a single borrower is limited generally
under the Pennsylvania Banking Code of 1965 to 15% of the aggregate of its
capital, surplus and undivided profits and capital securities (all as defined by
statute and regulation).




The FDIC
has authority under the Financial Institutions Supervisory Act to prohibit state
banks from engaging in any activity, which, in the FDIC’s opinion, constitutes
an unsafe or unsound practice in conducting their businesses.  The
Federal Reserve Board has similar authority with respect to the
Company.




As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Company’s business is particularly susceptible to being
affected by federal and state legislation and regulations, which may affect the
cost of doing business.




The
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) imposes
additional obligations on U.S. financial institutions, including banks, to
implement policies, procedures and controls, which are reasonably designed to
detect and report instances of money laundering and the financing of terrorism.
In addition, provisions of the USA Patriot Act require the federal financial
institution regulatory agencies to consider the effectiveness of a financial
institution's anti-money laundering activities when reviewing bank
applications.




National
Monetary Policy




In
addition to being affected by general economic conditions, the earnings and
growth of the Company are affected by the policies of regulatory authorities,
including the Pennsylvania Department of Banking, the FRB and the FDIC. An
important function of the FRB is to regulate the money supply and credit
conditions. Among the instruments used to implement these objectives are open
market operations in U.S. Government securities, setting the discount rate, and
changes in reserve requirements against bank deposits. These instruments are
used in varying combinations to influence overall growth and distribution of
credit, bank loans, investments and deposits, and their use may also affect
interest rates charged on loans or paid on deposits.




The
monetary policies and regulations of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effects of such policies upon the future
business, earnings, and growth of the Company cannot be predicted.






8




Environmental
Laws




The costs
and effects of compliance with environmental laws, federal, state and local, on
the Company are minimal.




Available
Information




The
Company makes available free of charge under the Investor Relations link on the
Company’s website, www.commercepc.com,
its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after the Company electronically files such material with, or furnishes to, the
SEC.  Additionally, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC at the web address, www.sec.gov.




Item1A.Risk
Factors




The
Company’s financial results are subject to a number of risks. The factors
discussed below highlight risks that management believes are most relevant to
the Company’s current operations. This list does not capture all risks
associated with the Company’s business. Additional risks, including those that
generally affect the banking and financial services industries and those that
management currently believes are immaterial may also negatively impact the
Company’s liquidity, financial position, or results of operations.




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




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




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




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




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






9




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




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




The
cost of renaming and rebranding the Company and the Bank and transitioning
certain services from TD Bank to Fiserv may be more costly than
anticipated.




Prior to
December 30, 2008, the Company and the Bank were parties to a Network Agreement
and Master Services Agreement with Commerce Bank N.A. (now known as TD Bank,
N.A.).  The Network Agreement granted the Company and the Bank the
right to use the name “Commerce Bank” together with trademarks and service marks
which have been registered by Commerce Bank N.A. and previously utilized in
connection with its banking business including, but not limited to, the red “C”
logo.  Under the Master Services Agreement, TD Bank performed a broad
range of administrative and data processing services for the Bank for which the
Bank paid various services fees.  The Network Agreement and the Master
Services Agreement and Addenda were terminated as of December 30, 2008 when the
parties executed a Transition Agreement.  Under the Transition
Agreement, certain services provided under the Master Services Agreement were
continued until July 15, 2009 or at the Bank’s option, until August 15, 2009,
and certain tail services until August 15, 2009.  The Bank has entered
into a Master Agreement with Fiserv Solutions, Inc. to provide many of the
administrative and data processing services presently provided by TD
Bank.  If all services provided by TD Bank under the Transition
Agreement (except tail services) are terminated on or before July 15, 2009, and
if all tail services terminate by or on August 15, 2009, TD Bank will pay the
Bank an incentive fee in the amount of $6,000,000.  However, if all
services other than tail services terminate on or after July 16, 2009 but on or
before August 15, 2009 and if all tail services terminate on or before August
15, 2009, the incentive fee will be reduced to $3,250,000.  If these
deadlines are not met by the Bank, TD Bank will pay no incentive
fee.  The Transition Agreement also grants the Company and the Bank a
non exclusive royalty free license until September 30, 2009 to continue using
the name “Commerce Bank” and, subject to certain limitations, the red “C” logo,
each in the same form and manner consistent with past
practice.   By September 30, 2009, the Company intends to change
its name to Metro Bancorp, Inc. and both the Bank and Republic First Bancorp,
Inc. (Republic First) will rebrand their banking business as Metro Bank and
use as their new primary trademark a red “M” logo.  Several companies
in the United States, including companies in the banking and financial services
industries, use variations of the word “Metro” and the letter “M” as part of a
trademark or trade name.  As such, we face potential objections to our
use of these marks.  If there are any objections, we may incur
additional costs to defend our use, and may be required to further rebrand our
banking business.  If the transition and conversion process does not
proceed as planned, we may receive no incentive fee from TD Bank and incur
additional costs.






10




Changes
in interest rates could reduce our income and cash flows.




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




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




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




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




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






11




Our
common stock is not insured by any governmental agency and, therefore,
investment in it involves risk.




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




Our
common stock is currently traded on the NASDAQ Global Select Market. During the
twelve months ended December 31, 2008, the average daily trading volume for our
common stock was approximately 12,400 shares.




The sale
of a large number of these shares could adversely affect our stock price and
could impair our ability to raise capital through the sale of equity securities.
Sales of our common stock could adversely affect the market price of our common
stock and could impair our future ability to raise capital through the sale of
equity securities. As of December 31, 2008, there were 6,446,421 shares of our
common stock outstanding. Most of these shares are available for resale in the
public market without restriction, except for shares held by our affiliates.
Generally, our affiliates may either sell their shares under a registration
statement or in compliance with the volume limitations and other requirements
imposed by Rule 144 adopted by the SEC.




In
addition, as of December 31, 2008, we had the authority to issue up to
approximately 781,786 shares of our common stock under our stock option plans
and 254,801 shares under our Dividend Reinvestment and Stock Purchase
Plan.




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




As of
December 31, 2008, our executive officers and directors as a group owned and had
the right to vote approximately 24.4% of our outstanding stock and other five
percent or greater shareholders owned and had the right to vote approximately
20.1% of our outstanding common stock. These shareholders, acting together,
would be able to influence matters requiring approval by our shareholders,
including the election of directors. This concentration of ownership might also
have the effect of delaying or preventing a change of control of Pennsylvania
Commerce.




Item1B.Unresolved Staff
Comments




None.




Item2.Properties




As of
December 31, 2008, the Company owned 18 properties and leased 24 other
properties. The properties owned are not subject to any material liens,
encumbrances, or collateral assignments. The principal executive office of the
Company is owned and is located at 3801 Paxton Street, Harrisburg, Pennsylvania,
17111. The Bank presently has 33 stores located in the following Pennsylvania
counties: Cumberland, Berks, Dauphin, Lebanon, Lancaster, and York.




Item3.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. The Company is not
required to make any disclosures pursuant to Section 6707A(e) of the Internal
Revenue Code.






12




Item4.Submissionof Matters to a Vote of Security Holders




There
were no matters submitted to a vote of security holders in the fourth quarter of
2008.




Part
II.




Item5.Market ForRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities




Pennsylvania
Commerce Bancorp, Inc. common stock currently trades on the NASDAQ Global Select
Market under the symbol COBH.  The table below sets forth the prices
on the NASDAQ Global Select Market known to us for the period beginning January
1, 2007 through December 31, 2008.  As of December 31, 2008, there
were approximately 2,200 holders of record of the Company’s common
stock.




Sales
      PriceQuarter
      Ended:
              
              High
              
              
              LowDecember
      31, 2008
              
              $
              31.00
              
              
              $
              22.23September
      30, 2008
              
              
              33.82
              
              
              
              20.81June
      30, 2008
              
              
              29.39
              
              
              
              24.01March
      31, 2008
              
              
              27.92
              
              
              
              23.79December
      31, 2007
              
              $
              33.11
              
              
              $
              27.46September
      30, 2007
              
              
              31.65
              
              
              
              22.35June
      30, 2007
              
              
              29.28
              
              
              
              25.20March
      31, 2007
              
              
              29.26
              
              
              
              26.09





Dividends
and Dividend History




The
Company distributed to stockholders 5% stock dividends in December 1992, and
annually from February 1994 through February 2004.  The Company also
distributed to stockholders a two-for-one stock split (payable in the form of a
100% stock dividend) on August 7, 1995, and on February 25,
2005.  Neither the Company nor the Bank has declared or paid cash
dividends on its common stock since the Bank began operations in June
1985.  The Board of Directors intends to follow a policy of retaining
earnings for the purpose of increasing the Company’s and the Bank’s capital for
the foreseeable future.  Although the Board of Directors anticipates
establishing a cash dividend policy in the future, no assurance can be given
that cash dividends will be paid.




The
holders of Common Stock of the Company are entitled to receive dividends as may
be declared by the Board of Directors with respect to the Common Stock out of
funds of the Company. While the Company is not subject to certain restrictions
on dividends and stock redemptions applicable to a bank, the ability of the
Company to pay dividends to the holders of its Common Stock will depend to a
large extent upon the amount of dividends paid by the Bank to the
Company.  Regulatory authorities restrict the amount of cash dividends
the Bank can declare without prior regulatory approval. Presently, the Bank
cannot declare dividends in one year in excess of retained earnings subject to
risk-based capital requirements.






13




The
ability of the Company to pay dividends on its Common Stock in the future will
depend on the earnings and the financial condition of the Bank and the Company.
The Company’s ability to pay dividends will be subject to the prior payment by
the Company of principal and interest on any debt obligations it may incur in
the future as well as other factors that may exist at the time.




Information
concerning securities authorized for issuance under equity compensation plans is
set forth in Footnote 14 to the Consolidated Financial Statements included in
the Company’s 2008 Annual Report attached to this Form 10-K as Exhibit 13 and is
incorporated herein by reference. Additional information concerning equity
compensation plans is included in Part III of this Form 10-K. The Company has
prepared a graph comparing the cumulative shareholder return on the Company’s
Common Stock as compared to the NASDAQ Bank Index and the NASDAQ Composite
Market Index for the years ended December 31, 2004 to December 31, 2008. This
graph is included in the Company’s 2008 Annual Report to Shareholders after
Table 12 in Management’s Discussion and Analysis of Financial Condition and
Results of Operations.







14






Item
      6.  Selected Financial DataPennsylvania
      Commerce Bancorp, Inc.Selected
      Consolidated Financial DataAt
      or For the Year Ended December 31,(dollars
      in thousands, except per share data)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004Balance
      Sheet Data:Total
      assets
                    
                    
                    $
                    2,140,527
                    
                    
                    $
                    1,979,011
                    
                    
                    $
                    1,866,483
                    
                    
                    $
                    1,641,121
                    
                    
                    $
                    1,277,367Loans
      held for sale
                    
                    
                    
                    41,148
                    
                    
                    
                    14,143
                    
                    
                    
                    15,346
                    
                    
                    
                    10,585
                    
                    
                    
                    14,287Loans
      receivable (net)
                    
                    
                    
                    1,423,064
                    
                    
                    
                    1,146,629
                    
                    
                    
                    973,033
                    
                    
                    
                    815,439
                    
                    
                    
                    638,496Securities
      available for sale
                    
                    
                    341,656
                    
                    
                    
                    387,166
                    
                    
                    
                    392,058
                    
                    
                    
                    380,836
                    
                    
                    
                    314,065Securities
      held to maturity
                    
                    
                    152,587
                    
                    
                    
                    257,467
                    
                    
                    
                    319,628
                    
                    
                    
                    306,266
                    
                    
                    
                    209,917Federal
      funds sold
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    12,000Deposits
                    
                    
                    
                    1,633,985
                    
                    
                    
                    1,560,896
                    
                    
                    
                    1,616,777
                    
                    
                    
                    1,371,062
                    
                    
                    
                    1,160,547Short-term
      borrowings and long-term debt
                    
                    
                    379,525
                    
                    
                    
                    296,735
                    
                    
                    
                    142,200
                    
                    
                    
                    171,500
                    
                    
                    
                    13,600Stockholders'
      equity
                    
                    
                    
                    114,470
                    
                    
                    
                    112,335
                    
                    
                    
                    101,108
                    
                    
                    
                    91,643
                    
                    
                    
                    85,039Income
      Statement Data:Net
      interest income
                    
                    
                    $
                    78,705
                    
                    
                    $
                    59,492
                    
                    
                    $
                    52,791
                    
                    
                    $
                    50,905
                    
                    
                    $
                    46,585Provision
      for loan losses
                    
                    
                    
                    7,475
                    
                    
                    
                    1,762
                    
                    
                    
                    1,634
                    
                    
                    
                    1,560
                    
                    
                    
                    2,646Noninterest
      income
                    
                    
                    
                    25,433
                    
                    
                    
                    22,823
                    
                    
                    
                    18,752
                    
                    
                    
                    14,156
                    
                    
                    
                    11,296Noninterest
      operating expenses
                    
                    
                    77,909
                    
                    
                    
                    70,807
                    
                    
                    
                    59,294
                    
                    
                    
                    50,403
                    
                    
                    
                    42,466Income
      before income taxes
                    
                    
                    18,754
                    
                    
                    
                    9,746
                    
                    
                    
                    10,615
                    
                    
                    
                    13,098
                    
                    
                    
                    12,769Net
      income
                    
                    
                    
                    12,901
                    
                    
                    
                    7,001
                    
                    
                    
                    7,254
                    
                    
                    
                    8,817
                    
                    
                    
                    8,591Common
      Share Data:Net
      income per share:
                    Basic
                    
                    $
                    2.02
                    
                    
                    $
                    1.11
                    
                    
                    $
                    1.18
                    
                    
                    $
                    1.47
                    
                    
                    $
                    1.75Diluted
                    
                    
                    1.97
                    
                    
                    
                    1.07
                    
                    
                    
                    1.12
                    
                    
                    
                    1.38
                    
                    
                    
                    1.63Book
      value per share
                    
                    
                    
                    17.60
                    
                    
                    
                    17.63
                    
                    
                    
                    16.27
                    
                    
                    
                    15.07
                    
                    
                    
                    14.31Selected
      Ratios:Performance:Return
      on average assets
                    
                    
                    0.64
                    %
                    
                    
                    0.36
                    %
                    
                    
                    0.41
                    %
                    
                    
                    0.61
                    %
                    
                    
                    0.73
                    %Return
      on average stockholders' equity
                    
                    
                    11.42
                    
                    
                    
                    6.59
                    
                    
                    
                    7.58
                    
                    
                    
                    9.91
                    
                    
                    
                    14.78Net
      interest margin
                    
                    
                    
                    4.09
                    
                    
                    
                    3.30
                    
                    
                    
                    3.18
                    
                    
                    
                    3.77
                    
                    
                    
                    4.28Liquidity
      and Capital:Average
      loans to average deposits
                    
                    
                    85.07
                    %
                    
                    
                    69.90
                    %
                    
                    
                    62.52
                    %
                    
                    
                    58.87
                    %
                    
                    
                    57.20
                    %Average
      stockholders' equity to average total assets
                    
                    
                    5.57
                    
                    
                    
                    5.52
                    
                    
                    
                    5.40
                    
                    
                    
                    6.12
                    
                    
                    
                    4.96Risk-based
      capital:
                    Tier
      1
                    
                    
                    9.67
                    
                    
                    
                    10.03
                    
                    
                    
                    10.00
                    
                    
                    
                    9.79
                    
                    
                    
                    11.57Total
                    
                    
                    10.68
                    
                    
                    
                    10.78
                    
                    
                    
                    10.72
                    
                    
                    
                    10.61
                    
                    
                    
                    12.49Leverage
      ratio
                    
                    
                    
                    7.52
                    
                    
                    
                    7.26
                    
                    
                    
                    7.31
                    
                    
                    
                    6.69
                    
                    
                    
                    7.79Asset
      Quality:Net
      charge-offs to average loans outstanding
                    
                    
                    0.11
                    %
                    
                    
                    0.07
                    %
                    
                    
                    0.13
                    %
                    
                    
                    0.02
                    %
                    
                    
                    0.14
                    %Non-performing
      loans to total year-end loans
                    
                    
                    1.88
                    
                    
                    
                    0.25
                    
                    
                    
                    0.34
                    
                    
                    
                    0.31
                    
                    
                    
                    0.13Non-performing
      assets to total year-end assets
                    
                    
                    1.30
                    
                    
                    
                    0.17
                    
                    
                    
                    0.19
                    
                    
                    
                    0.16
                    
                    
                    
                    0.11Allowance
      for loan losses to total year-end loans
                    
                    
                    1.16
                    
                    
                    
                    0.93
                    
                    
                    
                    0.99
                    
                    
                    
                    1.12
                    
                    
                    
                    1.21Allowance
      for loan losses to non-performing loans
                    
                    
                    62
                    
                    
                    
                    366
                    
                    
                    
                    287
                    
                    
                    
                    364
                    
                    
                    
                    916







15


Item  7.Management’sDiscussion and Analysis of Financial Condition and Results of
Operation




The
information required by this item is incorporated by reference from the
Company’s 2008 Annual Report, which was previously filed on Form 10-K


with the
SEC on March 16, 2009.




Item  7A.Quantitative and Qualitative
Disclosures about Market Risk




The
information required by this item is incorporated by reference from the
Company’s 2008 Annual Report, which was previously filed on Form 10-K with
the SEC on March 16, 2009.




Item  8.Financial Statements and
Supplementary Data




The
information required by this item is incorporated by reference from the
Company’s 2008 Annual Report, which was previously filed on Form 10-K with the
SEC on March 16, 2009.




Item  9.Changes and Disagreements
with Accountants on Accounting and Financial
Disclosure




None.




Item  9A. Controls and
Procedures




The
Company, under supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934 (Exchange Act). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company’s disclosure controls and procedures are adequate and
effective as of December 31, 2008 to ensure that material information relating
to the Company and its consolidated subsidiaries is made known to them by others
within those entities, particularly during the period in which this report was
prepared.




During
the most recent fiscal quarter, there have been no changes in the Company’s
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting. The Report on Management’s Assessment of Internal Control
Over Financial Reporting is provided in the next section.




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. Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. The Company conducts
periodic evaluations to enhance, where necessary, its procedures and
controls.




16




Management’s
Report on Internal Control over Financial Reporting




Pennsylvania
Commerce Bancorp, Inc. is responsible for the preparation, integrity, and fair
presentation of the consolidated financial statements included in this annual
report.  The consolidated financial statements and notes included in
this annual report have been prepared in conformity with United States generally
accepted accounting principles and necessarily include some amounts that are
based on management’s best estimates and judgments.





We, as
management of Pennsylvania Commerce Bancorp, Inc., are responsible for
establishing and maintaining effective internal control over financial reporting
that is designed to produce reliable financial statements in conformity with
United States generally accepted accounting principles.  Internal
control over financial reporting includes those policies and procedures that
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and disposition of the assets of the Company;
provide reasonable assurance that the transactions are recorded as necessary to
permit preparation of financial statement in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
only being made in accordance with authorizations of management and directors of
the Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements.  The system of internal control over financial reporting
as it relates to the financial statements is evaluated for effectiveness by
management and tested for liability through a program of internal
audits.  Actions are taken to correct potential deficiencies as they
are identified.





Any
system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be
detected.  Also, because of changes in conditions, internal control
effectiveness may vary over time.  Accordingly, even an effective
system of internal control will provide only reasonable assurance with respect
to financial statement preparation.





Management
assessed the Company’s system of internal control over financial reporting as of
December 31, 2008, in relation to criteria for effective internal control over
financial reporting as described in Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on this assessment, management concludes
that, as of December 31, 2008, its system of internal control over financial
reporting is effective and meets the criteria of Internal Control – Integrated
Framework.











17

























/s/
Gary L.
Nalbandian


Gary L.
Nalbandian


Chairman,
President and Chief Executive Officer


(Principal
Executive Officer)





/s/
Mark A.
Zody


Mark A.
Zody


Executive
Vice President and Chief Financial Officer


(Principal
Financial and Accounting Officer)


March 12,
2009










18




Item  9B.  Other
Information




None.




Part 
III.




Item
10.Directors, Executive
Officers and Corporate Governance




The
Company’s Bylaws provide that the Board of Directors will consist of not less
than five nor more than twenty-five directors and that all directors will be
elected at each annual meeting of shareholders and will serve for a one-year
term or until their successors have been duly qualified and
elected.
 
 The
following table shows the name, age, positions with the Company and the Bank and
length of board service for each director.


Name
      & Age
                  
                  Position
      with the Company and the Bank
                  
                  Director
      SinceGary
      L. Nalbandian, 66
                  
                  Chairman,
      President and CEO of the Company and the Bank
                  
                  1985James
      R. Adair, 61
                  
                  Director
      of the Company and the Bank
                  
                  2001John
      J. Cardello, CPA, 48
                  
                  Director
      of the Company and the Bank
                  
                  2004Jay
      W. Cleveland, Jr., 42
                  
                  Director
      of the Company and the Bank
                  
                  2007Douglas
      S. Gelder, 59
                  
                  Director
      of the Company and the Bank
                  
                  1988Alan
      R. Hassman, 69
                  
                  Director
      of the Company and the Bank
                  
                  1985Howell
      C. Mette, Esquire, 81
                  
                  Director
      of the Company and the Bank
                  
                  1985Michael
      A. Serluco, 68
                  
                  Director
      of the Company and the Bank
                  
                  1985Samir
      J. Srouji, M.D., 72
                  
                  Director
      of the Company and the Bank
                  
                  1985
  Except as
otherwise stated below, the principal occupation indicated has been the person’s
principal occupation for at least the last five years, based upon information
furnished by the nominees.
 
 Gary L.
Nalbandian.Mr. Nalbandian, a director of the Bank since 1985
and of the Company since 1999, has been Chairman of the Bank since 1985 and the
Company since 1999.  Mr. Nalbandian has been President/CEO of the Bank
and the Company since February 15, 2002.  Mr. Nalbandian has also been
the Vice President/Treasurer/Secretary of NAI/Commercial-Industrial Realty Co.
(NAI/CIR), Wormleysburg, PA since 2002.
 
 James R.
Adair.Mr. Adair, a director of the Bank and of the Company
since 2001, is the Owner of Adair Construction Services.
 
 John J. Cardello,
CPA.Mr. Cardello, a director of the Bank and of the Company
since 2004, is a Partner at Seligman, Friedman and Company, P.C., in York, PA,
which engages in the accounting and consulting business.
 
 Jay W. Cleveland,
Jr.Mr. Cleveland, a director of the Bank and of the Company
since 2007, is the President and CEO of Cleveland Brothers Equipment Company (a
Caterpillar dealer) in Murraysville, PA.
 
 Douglas S.
Gelder.Mr. Gelder, a director of the Bank since 1988 and of
the Company since 1999, is the President and Owner of DSG Development (a land
development company) in Hershey, PA.
 
 Alan R.
Hassman.Mr. Hassman, a director of the Bank since 1985 and of
the Company since 1999, is the President of ARH, Inc. and Keystone Lodging
Enterprises, in Camp Hill, PA, which engages in the restaurant and hotel
business.
 
 Howel1 C. Mette,
Esquire.Mr. Mette, a director of the Bank since 1985 and of
the Company since 1999, is a shareholder in the law firm, Mette, Evans &
Woodside in Harrisburg, PA.
 
 Michael A. Serluco.Mr.
Serluco, a director of the Bank since 1985 and of the Company since 1999 is the
owner of Consolidated Properties in Wormleysburg, PA, which engages in the
business of real estate investment.
 
 19
 Samir J. Srouji,
M.D.Dr. Srouji, a director of the Bank since 1985 and of the
Company since 1999 is a physician-surgeon at Plastic Surgery, P.C., in Camp
Hill, PA.
  EXECUTIVE
OFFICERS
 
 The
following table shows the name, age, position, and business experience for the
past five years of each of the Company’s executive officers as of December 31,
2008 determined in accordance with the rules and regulations of the
SEC.
 Positions
      with the Company and/or its SubsidiariesName
                
                Age
                
                Principal
      OccupationGary
      L. Nalbandian
                
                66
                
                Chairman,
      President and CEO of the Company and the Bank.Mark
      A. Zody, CPA
                
                45
                
                Executive
      Vice President and Chief Financial Officerof
      the Company and the Bank.Rory
      G. Ritrievi
                
                45
                
                Executive
      Vice President and Market President of the Companyand
      the Bank since June 2007; Executive Vice President andChief
      Lending Officer of the Company and the Bank sinceNovember
      1999.1Mark
      A. Ritter
                
                48
                
                Exective
      Vice President and Chief Operating Officer of the Companyand
      the Bank since October 2007.  Prior to joining the Company in
      October2007,
      Mr. Ritter was the President and CEO of Sterling Financial
      TrustCompany
      from 2001 to October 2007.James
      R. Ridd
                
                47
                
                Senior
      Vice President and Chief Credit Officer of the Company andthe
      Bank since October 2004; Senior Vice President and SeniorCredit
      Officer of the Company and the Bank since January 2002.D.
      Scott Huggins
                
                59
                
                Senior
      Vice President and Chief Risk Officer of the Company andthe
      Bank since December 2004.  Prior to joining the Company in
      December2004,
      Mr. Huggins was Senior Vice President/Chief Auditor of
    FultonFinanical
      Corporation from August 1999 to December 2004.
 
 1
              Mr.
      Ritrievi terminated his employment with the Company and the Bank as of
      February 23, 2009.
 
 SECTION
16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
 Our directors, executive officers and
persons who own more than 10% of our common stock must file reports with the SEC
indicating the number of shares of the Company’s common stock they beneficially
own and changes in the beneficial ownership.  All such persons are
required by the SEC to furnish the Company with copies of all Section 16(a)
reports they file.
 
 Based solely on review of the copies of
such reports furnished to us and written representations that no other reports
were required during the fiscal year ended December 31, 2008, we believe all
Section 16(a) filing requirements applicable to these persons were timely
complied with, except that (a) Douglas S. Gelder inadvertently filed a Form 4
late in connection with the purchase of shares of common stock and, (b) due to
an error in communicating to the individual assigned to assist insiders in
filing such reports, all of the Forms 4 that were required to be filed by each
director and executive officer in connection with the yearly award of options by
the Compensation Committee at its February 22, 2008 meeting were filed one day
late.
 20
 
 CORPORATE
GOVERNANCE
 
 The corporate governance policies of
the Company are set forth in the Corporate Governance Guidelines approved by the
Board of Directors. The Corporate Governance Guidelines include information
regarding the functions, responsibilities, qualifications and composition of the
Board of Directors and other matters.  A copy of the Corporate
Governance Guidelines, as approved by the Board of Directors can be found on the
Company’s website at www.commercepc.com, under the
“Investor Relations” section in “Corporate Governance Highlights” and is
available in print to any shareholder requesting a copy by writing to the
Corporate Secretary at the following address: 3801 Paxton Street, Harrisburg, PA
17111.
 
 The Board of Directors of the Company
has established an Audit Committee in accordance with section 3(a)(58)(A) of the
Exchange Act.  The members of the Audit Committee are John J. Cardello
(Chairman), Douglas S. Gelder, James R. Adair, Jay W. Cleveland, Jr. and Samir
J. Srouji.The Board has
determined that Mr. Cardello, a CPA, is an Audit Committee financial expert, as
defined by the SEC.
 
 Our
Codes of Business Conduct and Ethics
 
 Our Board of Directors has adopted a
Code of Business Conduct and Ethics (“the Code”) for our directors, officers and
employees.  The Code complies with the requirements of the
Sarbanes-Oxley Act of 2002 and NASDAQ listing standards. The Company provides a
copy of the Code to each director, officer and employee.
 
 The Company has also adopted a Code of
Ethics for Senior Financial Officers that is applicable to its Chief Executive
Officer, Chief Financial Officer, Principal Accounting Officer, Controller and
any other person performing similar duties.
 
 Each of the above mentioned codes
require that any exception or waiver to any provision for directors or
applicable officers be submitted for approval to the Board of Directors and such
exceptions will be publicly disclosed as required by law or the NASDAQ
rules.  A copy of each code can be found under the “Corporate
Governance Highlights” in the “Investor Relations” section of the Company’s
website at www.commercepc.com and is
available in print to any shareholder who requests a copy by writing to the
Corporate Secretary at the address shown above.
 
 21
 Item11.Executive
Compensation




COMPENSATION
DISCUSSION AND ANALYSIS
 Overview
 
 Our Compensation Discussion and
Analysis discusses the compensation awarded to our Chief Executive Officer
(CEO), Chief Financial Officer (CFO) and our other three most highly compensated
executive officers.  These executives are referred to as the “named
executive officers” in this compensation discussion and analysis.  We
use the term “executive officers” to refer to all persons designated as
“executive officers” under the Exchange Act and its rules and
regulations.  Specifically, we address the following topics in our
discussion and analysis of the compensation of the named executive
officers:
 
 ·
                our
      compensation philosophy and
objectives;
 ·
                what
      our compensation program is designed to
reward;
 ·
                the
      components of and why we pay each component of our executive compensation
      program;
 ·
                how
      each component fits into our overall compensation objectives;
      and
 ·
                how
      we have determined the amount for each component of executive
      compensation, including the roles of our Compensation Committee, our
      management and the compensation
consultant.
 
 Compensation
Philosophy
 
 The intent of our executive
compensation program is to create an environment in which the Company’s
compensation objectives as listed below will be achieved.  The program
is designed to support the Company’s core values and strategic
objectives.  We believe in maintaining a competitive compensation
package to attract executive talent and ensure continuity of the management
team, all with the goal of increasing shareholder value over the
long-term.  In furtherance of the Company’s objective of aligning the
interests of executive officers with the long-terms interests of our
shareholders, our compensation program focuses on long-term compensation in the
form of stock options.  As the grant of stock options allows our
executives to share in the growth they create for shareholders, we believe this
focus will improve the long-term growth for shareholders.
 
 Compensation
Objectives
 
 The objectives of our executive
compensation program are as follows:
 
 ·
                attract,
      retain, reward and motivate executive officers to achieve the Company’s
      business objectives;
 ·
                align
      the interest of executive officers with the long-terms interests of our
      shareholders;
 ·
                provide
      compensation packages competitive with those of other similar bank holding
      companies and banks;
 ·
                encourage
      stock ownership by our executive
officers.
 
 What
Our Program is Designed to Reward
 
 Our compensation program is designed to
reward hard work; deposit and loan growth; improvement from year to year in
total revenues, net income, net income per share and shareholder value;
promotion of the Company’s brand and customer loyalty; excellent customer
service and long-term service to the Company.
 
 Compensation
Components and Why We Pay Each Component
 
 We structure executive compensation to
create a relationship between compensation awarded and the individual’s
experience, responsibilities and performance, as well as the long-term interests
of our shareholders. During 2008, our named executive officers did not have
employment, severance or change in control agreements. At the recommendation of
the Company’s Compensation Committee, the Board of Directors approved employment
agreements for Messrs. Nalbandian, Zody and Ridd, effective February 23,
2009.  The Board believed it to be in the best interests of the
Company and its shareholders to enter into the employment agreements in an
effort to retain the named executive officers and to provide continuity of the
executive management team as the Company progresses through the following major
events:
 22
 ·
                Termination
      of the Network Agreement and Master Services Agreement between the Company
      and TD Bank;
 ·
                Conversion
      of core system hosting, item processing, deposit and loan processing,
      electronic banking, data warehousing and various other banking services
      from TD Bank to Fiserv Solutions, Inc.;
and
 ·
                The
      planned merger with Republic First Bancorp,
Inc.
 
 The
Company had previously entered into an employment agreement with Mr. Ritter,
effective October 15,
 2007, his
first day of employment with the Company.  Also, the Company did not
enter an employment agreement with Mr. Ritrievi due to his resignation from the
Company on February 23, 2009.
 
 Compensation
for our named executive officers consists of the following
components:
 
 ·
                base
      salary;
 ·
                annual
      bonus;
 ·
                stock
      option awards; and
 ·
                other
      benefits.
 
 Base Salary
  Base
salaries for our executive officers are intended to be competitive in order to
attract and retain executive talent and are dependent upon the executive’s
responsibilities, experience and performance. In determining salaries, the
Compensation Committee considers the individual’s position, performance and
experience as well as the competitive salary data provided by our compensation
consultant.
  Bonus
  Bonuses
are intended to provide a direct, discretionary cash incentive to our named
executive officers. The Compensation Committee, with input from our chief
executive officer with respect to the other named executive officers, in
conjunction with information and analysis provided by our compensation
consultant concerning bonuses awarded at other companies, uses its judgment in
determining the current year bonus for each named executive
officer.  Periodically, the Compensation Committee determines the
amount of any bonuses to be awarded to the named executive
officers.  In determining bonuses, the Committee reviews and evaluates
each executive officer’s performance within the context of the Company’s
performance during the previous fiscal year and considers information provided
in the compensation consultant’s review.
  Option
Awards
  The focus
of the Company’s compensation program is the granting of stock options in order
to align executive compensation with the Company’s long-term performance and
shareholder return.  The stock option program is also designed to
recognize the executive’s responsibilities, experience and
performance.  In determining stock option awards, our Compensation
Committee considers the performance of the executive and of the Company during
the previous year, information and analysis provided by our compensation
consultant and the expected performance of the executive during the current
year. Stock options granted in 2008 were reflective of each named executive
officer’s 2007 performance as well as the expected contribution of each
executive officer to the Company’s future success.
  In
February 2009, upon ratification by the Board, our Compensation Committee, using
the same evaluation criteria discussed above, awarded stock options to our
executive officers based on each executive officer’s 2008 performance as well as
the expected contribution of each executive officer to the Company’s future
success. The exercise price for all stock option grants is the closing price of
the Company stock on the NASDAQ Global Select Market on the date of grant.
Options granted in February 2009 were valued at $6.10 per share using a
Black-Scholes option pricing model in accordance with FAS
123(R).
 23
  Beginning in 2006, the Company began
expensing stock option grants in accordance with FAS 123(R). When determining
the amount of stock options to grant, the Compensation Committee considered the
cost of the grant with its potential benefits as a compensation component. We
believe that granting stock options effectively balances the objective of
aligning executive compensation with the Company’s long-term performance and
shareholder return.
  Other
Benefits
  The
Company provides the named executive officers with other benefits, reflected in
the Summary Compensation Table under the heading, “All Other Compensation.” We
believe these benefits are reasonable, competitive and consistent with our
overall compensation structure. The cost of these benefits is not material to
each named executive officer’s total compensation. Benefits include: life
insurance premiums; long-term disability insurance premiums; long-term care
insurance premiums; 401(k) matching contributions; personal use of a company car
or automobile allowance; and country club dues. We believe that such benefits
are comparable to benefits offered to executive officers by other employers and
a necessary component of compensation to attract and retain executive
officers.
  At a
level equal to all employees, the Company offers a comprehensive benefits
package for health, dental and vision insurance coverage to all full-time
employees, including the named executive officers, their spouses and dependent
children. The Company pays a portion of the premiums for the coverage selected
and the amount paid varies with each health, dental and vision
plan.  All of the named executive officers have elected one of the
standard coverage plans available.  The Company does not provide post
retirement health, dental or vision benefits to its named executive officers or
to any other employee.
 
 The Company offers an employee stock
purchase plan to all of our employees in an effort to advance the interests of
the Company and our shareholders by encouraging our employees to acquire a stake
in the future of the Company through the purchase of shares of our common stock,
thereby aligning the interests of the employees with those of our
shareholders.  Our named executive officers are eligible to
participate in this plan on the same terms as all other employees.
 
 Stock
Ownership Guidelines
  The
Compensation Committee believes that it is in the best interests of our
shareholders for our executive officers and directors to own the Company’s
common stock. “Stock ownership” includes stock owned directly, stock owned
indirectly through 401(k) plans and stock option grants. While the Compensation
Committee has not established stock ownership guidelines or requirements, we
encourage all executive officers and directors to own stock through one of these
means.
 
 How
Each Compensation Component Fits into Our Compensation Objectives
 
 Each
component of our compensation program is designed to provide a competitive
compensation package that will attract, retain, reward and motivate our
executive officers to achieve the Company’s business objectives.  In
addition, the stock option program effectively aligns the interests of our
executive officers with the long-term interests of our shareholders because the
value of the stock options is dependent upon increases in the Company’s stock
price after the date that the options are granted.  The stock option
program also encourages stock ownership by our executive officers.  As
discounted stock options, reload stock options or re-pricing of stock options
would be counter to our objective of aligning the interests of executive
officers with the long-terms interests of our shareholders, our stock option
plan does not permit such grants.  In furtherance of our philosophy of
ensuring continuity of management and to encourage a long-term perspective,
stock options are not exercisable until one year after the date of grant and
then are exercisable ratably over four years.  Stock options expire no
later than ten years from the date of grant.
 
 24
 How
We Have Determined the Amount of Compensation
 
 Role of the Compensation
Committee
  A central
role of the Compensation Committee is to assist our Board in carrying out the
Board’s responsibilities relating to the compensation of the Company’s executive
officers and directors.  Subject to ratification by the full Board of
Directors, the Compensation Committee has overall responsibility for oversight,
evaluation, assessment and approval of (i) executive officer compensation plans
and programs, (ii) all compensation programs involving the issuance of stock
options and (iii) director compensation plans and programs. The Compensation
Committee typically reviews and determines executive compensation in February of
each year.  However, in October 2008, the Compensation Committee
recommended, and the Company’s Board of Directors approved, increases in base
salary and cash bonuses for the named executive officers based upon the
significantly increased level of responsibility for each named executive officer
associated with each of the following:
 
 ·
                Termination
      of the Network Agreement and Master Services Agreement between the Company
      and TD Bank;
 ·
                Conversion
      of core system hosting, item processing, deposit and loan processing,
      electronic banking, data warehousing and various other banking services
      from TD Bank to Fiserv Solutions, Inc.;
and
 ·
                The
      planned merger with Republic First Bancorp,
Inc.
 
 At its February meeting when it sets
the named executive officer’s compensation for the year, the Compensation
Committee reviews the performance of the Company and each of the named executive
officers during the previous year.  Factors included in compensation
decisions for executive officers include, but are not limited to:
  ·
                financial
      measurements of the Company’s performance such as asset, deposit and loan
      growth, total revenues, net income, net income per share, asset quality
      and shareholder returns;
 ·
                evaluation
      of the performance of each executive in the following
    areas:
 o
                promotion
      of the Company brand;
 o
                execution
      of the Company model;
 o
                enforcement
      of the Company culture; and
 o
                achievement
      of operational and/or industry excellence by improving the customer
      experience;
 ·
                competitive
      data from compensation consultants;
and
 ·
                the
      report of the compensation
consultant.
 
 The Committee does not establish
individual target performance levels for the Company’s named executive
officers.  The Committee’s broader and more general approach to
setting compensation involves an assessment of the previous year, with a
consideration of the economic and regulatory environment during the year and the
executives’ response to such environment.  The Committee also
considers the expected work load and challenges facing the executives in the
current year.  In setting compensation for 2008, the Committee placed
significance on the fact that during 2008, without any additional staff, the
Company would implement plans and procedures in order to comply with an
agreement that it had entered into with the Office of the Comptroller of the
Currency (“OCC”).  The Committee also considered the measures that the
executives had taken during 2007 to minimize the impact on the Company’s
earnings of an extended inverted yield curve.   In awarding
bonuses for fiscal year 2007, the Committee placed considerable weight on the
named executives’ response to additional inquiries from the OCC while continuing
to run the business in addition to the executives’ implementation of plans and
procedures in order to comply with the agreement with the OCC.
 
 Our Compensation Committee generally
does not follow compensation formulas or react to short-term changes in the
Company’s performance in determining the amount and mix of compensation
components. We do not believe that it is appropriate to establish compensation
levels primarily based on benchmarking.  We believe that information
regarding pay practices at other banks and bank holding companies is useful, in
that we recognize that our compensation practices must be competitive in the
marketplace.  However, this marketplace information is only one of the
factors that we consider in assessing the level and compensation of executive
officer compensation.  See the discussion below regarding the role of
the compensation consultant in determining executive compensation.
 
 25
 Role of
Management in Determining or Recommending Compensation
  Committee
Chairman Hassman works with Chief Executive Officer (“CEO”) Nalbandian in
establishing meeting agendas.  The Committee typically meets with the
CEO and other executive officers in its general discussions of our compensation
policies and programs.  However, the Committee meets in executive
session without any members of management present to determine specific
compensation packages for the named executive officers.  The CEO
provides the Committee with performance evaluations and makes recommendations
concerning the amount and composition of compensation to be awarded to our named
executive officers, excluding himself. In addition, the Committee has
opportunities throughout the year to observe the performance of the named
executive officers during monthly Board of Directors meetings when the
executives present to the Board the financial performance and associated risks
in each executive’s area of responsibility. The Compensation Committee reviews
and considers the CEO’s recommendations and makes a final determination, subject
to ratification by the full Board.
  Role of
Compensation Consultant in Determining Executive
Compensation
  The
Compensation Committee periodically retains the services of the Pierson Group,
an independent compensation consultant, to evaluate the Company’s executive
compensation.  The Compensation Committee directed the consultant to
review and compare salary, bonus and stock option awards for the Company’s named
executive officers (those named in The Company’s 2007 Proxy Statement) to
several groups of banks and bank holding companies similar in size to the
Company, as well as those banks with which the Company directly
competes.  Because neither the Chief Operating Officer nor the Chief
Credit Officer were named executive officers in 2006, they were not included in
the review. The review did provide market data for the Chief Operating Officer
position at comparable banks and bank holding companies even though the position
was vacant for the Company at that time.
 
 In its
review and comparison, The Pierson Group used published salary surveys and Proxy
Statement compensation data of the following banks and bank holding
companies:
 
 OrganizationACNB
      Corp. (PA)
                  Alliance
      Financial Corp. (NY)
                  AmeriServ
      Financial Inc. (PA)
                  Arrow
      Financial (NY)
                  Berkshire
      Bancorp (NY)
                  Bryn
      Mawr Bank Corp. (PA)
                  Center
      Bankcorp (NJ)
                  Citizens
      & Northern (PA)
                  CNB
      Financial Corp. (PA)
                  Community
      Banks, Inc. (PA)
                  First
      Chester (PA)
                  First
      Mariner Bancorp (MD)
                  First
      United Corp. (MD)
                  First
      National Community Bancorp (PA)
                  First
      of Long Island (NY)
                Fulton
      Financial (PA)
                  Greater
      Community Bancorp (NJ)
                  IBT
      Bancorp Inc. (PA)
                  Intervest
      Bancshares (NY)
                  Leesport
      Financial Corp (PA)
                  National
      Penn Bancshares, Inc. (PA)
                  Peapack
      Gladstone (NJ)
                  Republic
      First Bancorp (PA)
                  Royal
      Bancshares of PA (PA)
                  Shore
      Bancshares Inc. (MD)
                  State
      Bancorp Inc. (NY)
                  Sterling
      Financial Corp. (PA)
                  Suffolk
      Bancorp (NY)
                  Susquehanna
      Bancshares (PA)
 
 The
Pierson Group reported to the Committee that the 2006 base salaries of the
Company’s CEO, CFO and Chief Risk Officer were below the median or 50th
percentile, of the competitive market. The base salary of the Chief Lending
Officer was above the median, but well less than the 75th
percentile.  With respect to bonuses, the Pierson Group reported that
bonus levels as a percent of base salary were considerably less than the market
levels. Stock option grants, however, were found by the consultant to exceed
those offered by competitive banks (although not sufficiently high to make up
for the competitive gap in total direct compensation).  The
Compensation Committee reviewed the information provided by the consultant and
determined that the Company’s executive compensation program is consistent with
the Company’s practice of focusing on stock option grants while maintaining
competitive, short-term cash compensation. The Compensation Committee determined
that the salary, bonus and stock option awards (considered to be total direct
compensation by the compensation consultant) for each named executive officer in
2008 fell within a reasonable range of compensation paid to executive officers
of comparable companies and was consistent with the Compensation Committees’
desire to target compensation for the Company’s named executive officers to the
top 25th
percentile.
  26
 Chief Executive Officer
Compensation
 
 In determining salary and bonus for Mr.
Nalbandian, the Compensation Committee evaluated his individual performance,
within the context of the Company’s performance, as well as his individual
contributions to the Company’s performance.  His bonus was awarded
based upon that evaluation.  The additional base salary awarded to Mr.
Nalbandian by the Board of Directors in November 2008 was due to his
significantly increased responsibilities as previously mentioned with respect to
the termination of the agreements with TD Bank, the conversion of the Banks’
systems to a new service provider and his negotiation and due diligence
regarding the pending merger with Republic First Bancorp.
 
 Mr. Nalbandian was awarded stock
options in 2008 based upon his 2007 individual performance as well as his
expected contribution to the Company’s future success.  He was awarded
stock options in February 2009 based upon his 2008 performance as well as his
expected contribution to the Company’s future success.
 
 The Compensation Committee believes
that the 2008 compensation for Mr. Nalbandian is consistent with the Company’s
compensation philosophy and objectives.
 
 Other
Executive Officer Compensation
 
 The Compensation Committee believes
salaries are dependent upon the responsibilities, experience and performance of
each executive officer.
 
 In determining bonuses for Messrs.
Zody, Ritrievi, Ritter, and Ridd, we evaluated the individual performance of
each executive, within the context of the Company’s performance, and the
individual contribution of each executive to the Company’s
performance.  Bonuses were awarded based on that
evaluation.
 
 Each executive officer was awarded
stock options in 2008 reflective of the individual performance of each executive
in 2007 as well as the expected contribution of each executive to the Company’s
future success.  The named executive officers were awarded stock
options in February 2009 based upon the individual performance of each executive
in 2008 as well as the expected contribution of each executive to the Company’s
future success.
 
 The Compensation Committee believes
that the 2008 compensation for these executives is consistent with our overall
compensation philosophy and objectives.
 
 Summary
Compensation Table for Fiscal Year 2008
 
 The
following table is a summary of certain information concerning the 2006, 2007and
2008 compensation awarded or paid to, or earned by the Company’s Chief Executive
Officer, Chief Financial Officer and each of the Company’s other three most
highly compensated executive officers during 2008, collectively referred to as
the “named executive officers”.
 27
 Option
                                                      
                                                      
                                                      All
      OtherName
      and
                                                      
                                                      
                                                      
                                                      Salary
                                                      
                                                      
                                                      Bonus
                                                      
                                                      
                                                      Awards
                                                      
                                                      
                                                      Compensation
                                                      
                                                      
                                                      TotalPrincipal
      Position
                                                      
                                                      Year
                                                      
                                                      ($)
                                                      
                                                      
                                                      ($)
                                                      
                                                      
                                                      ($)1
                                                      
                                                      
                                                      ($)2
                                                      
                                                      
                                                      ($)Gary
      L. Nalbandian
                                                      
                                                      2008
                                                      
                                                      $
                                                      397,600
                                                      
                                                      
                                                      $
                                                      50,000
                                                      
                                                      
                                                      $
                                                      229,453
                                                      
                                                      
                                                      $
                                                      37,824
                                                      
                                                      
                                                      $
                                                      714,877Chairman,
      President and
                                                      
                                                      2007
                                                      
                                                      
                                                      345,000
                                                      
                                                      
                                                      
                                                      50,000
                                                      
                                                      
                                                      
                                                      145,651
                                                      
                                                      
                                                      
                                                      32,114
                                                      
                                                      
                                                      
                                                      572,765Chief
      Executive Officer
                                                      
                                                      2006
                                                      
                                                      
                                                      325,000
                                                      
                                                      
                                                      
                                                      30,000
                                                      
                                                      
                                                      
                                                      67,760
                                                      
                                                      
                                                      
                                                      29,581
                                                      
                                                      
                                                      
                                                      452,341of
      the Company and the BankMark
      A. Zody
                                                      
                                                      2008
                                                      
                                                      $
                                                      205,500
                                                      
                                                      
                                                      $
                                                      32,000
                                                      
                                                      
                                                      $
                                                      79,481
                                                      
                                                      
                                                      $
                                                      18,291
                                                      
                                                      
                                                      $
                                                      335,272Executive
      Vice President and
                                                      
                                                      2007
                                                      
                                                      
                                                      175,000
                                                      
                                                      
                                                      
                                                      20,000
                                                      
                                                      
                                                      
                                                      50,746
                                                      
                                                      
                                                      
                                                      16,644
                                                      
                                                      
                                                      
                                                      262,390Chief
      Financial Officer
                                                      
                                                      2006
                                                      
                                                      
                                                      162,500
                                                      
                                                      
                                                      
                                                      15,000
                                                      
                                                      
                                                      
                                                      24,200
                                                      
                                                      
                                                      
                                                      16,115
                                                      
                                                      
                                                      
                                                      217,815of
      the Company and the BankRory
      G. Ritrievi
                                                      
                                                      2008
                                                      
                                                      $
                                                      234,700
                                                      
                                                      
                                                      $
                                                      32,000
                                                      
                                                      
                                                      $
                                                      86,958
                                                      
                                                      
                                                      $
                                                      13,262
                                                      
                                                      
                                                      $
                                                      366,920Executive
      Vice President
                                                      
                                                      2007
                                                      
                                                      
                                                      205,000
                                                      
                                                      
                                                      
                                                      20,000
                                                      
                                                      
                                                      
                                                      55,611
                                                      
                                                      
                                                      
                                                      11,139
                                                      
                                                      
                                                      
                                                      291,750and
      Chief Lending Officer
                                                      
                                                      2006
                                                      
                                                      
                                                      192,500
                                                      
                                                      
                                                      
                                                      15,000
                                                      
                                                      
                                                      
                                                      26,620
                                                      
                                                      
                                                      
                                                      9,724
                                                      
                                                      
                                                      
                                                      243,844of
      the Company and the Bank3Mark
      A. Ritter
                                                      
                                                      2008
                                                      
                                                      $
                                                      205,300
                                                      
                                                      
                                                      $
                                                      8,000
                                                      
                                                      
                                                      $
                                                      19,739
                                                      
                                                      
                                                      $
                                                      17,430
                                                      
                                                      
                                                      $
                                                      250,469Chief
      Operating Officerof
      the Company and the Bank4James
      R. Ridd
                                                      
                                                      2008
                                                      
                                                      $
                                                      167,300
                                                      
                                                      
                                                      $
                                                      16,000
                                                      
                                                      
                                                      $
                                                      26,171
                                                      
                                                      
                                                      $
                                                      6,637
                                                      
                                                      
                                                      $
                                                      216,108Chief
      Credit Officer
                                                      
                                                      2007
                                                      
                                                      
                                                      154,000
                                                      
                                                      
                                                      
                                                      10,000
                                                      
                                                      
                                                      
                                                      17,028
                                                      
                                                      
                                                      
                                                      5,780
                                                      
                                                      
                                                      
                                                      186,808of
      the Company and the Bank
                                                      
                                                      2006
                                                      
                                                      
                                                      150,000
                                                      
                                                      
                                                      
                                                      5,000
                                                      
                                                      
                                                      
                                                      8,079
                                                      
                                                      
                                                      
                                                      5,609
                                                      
                                                      
                                                      
                                                      168,688
  1
                                                      This
      column shows the dollar amount recognized for financial statement
      reporting purposes for the years listed for the fair value of stock
      options granted to each of the named executive officers in accordance with
      FAS 123(R).  This amount includes options granted in 2006, 2007
      and 2008, as vesting for options granted prior to July 1, 2005 was
      accelerated in December 2005.  Options granted in 2008 were
      valued at $10.53 using a Black-Scholes option pricing model in accordance
      with FAS 123(R).  For a discussion of the valuation assumptions
      used, see Note 14 to the Company’s Notes to Consolidated Financial
      Statements included in the Company’s annual report on Form 10-K for the
      year ended December 31, 2008.
  2
                                                      Includes
      for fiscal year 2008 (a) annual retainer and monthly director meeting fees
      for Mr. Nalbandian of $25,900; (b) contributions by the Bank to the
      executive officer’s 401(k) Retirement Savings Account in the amounts of
      $5,576 for Mr. Nalbandian, $5,662 for Mr. Zody, $5,659 for Mr. Ritrievi,
      $5,501 for Mr. Ritter, and $4,512 for Mr. Ridd, and (c) Long Term Care
      insurance premiums in the amounts of $1,951 for Mr. Nalbandian, $842 for
      Mr. Zody, $842 for Mr. Ritrievi, $979 for Mr. Ritter, and $864 for Mr.
      Ridd.  Amounts in this column also include the personal use of a
      Bank provided automobile for Messrs. Nalbandian, Zody, Ritrievi and Ridd;
      car allowance paid to Mr. Ritter; amounts paid for country club dues for
      Mr. Ritrievi and Mr. Ritter; and amounts paid for life insurance premiums
      and long-term disability premiums for Mr.
Zody.
  3
                                                      Mr.
      Ritrievi terminated his employment with the Company on February 23,
      2009.
  4
                                                      Mr.
      Ritter commenced his employment with the Company in October 2007 and,
      therefore, was not a named executive officer in 2007 or
    2006.
  
 Employee
Stock Option Plan
 
 In 1996, the Company’s shareholders
approved the 1996 Employee Stock Option Plan (the “1996 Plan”) which provided
for 1,254,738 shares of common stock (adjusted for all stock dividends and stock
splits) for issuance under the 1996 Plan to officers and key employees of the
Company and the Bank. Pursuant to the 1996 Plan, stock options were granted
which qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the “Code”), as incentive stock options as well as stock options that do not
qualify as incentive stock options.  The 1996 Plan expired on December
31, 2005 and no further options may be granted under the 1996
Plan.  As of December 31, 2008, options to purchase 393,958 shares of
the Company’s common stock (as adjusted for all stock dividends and stock
splits) were outstanding under the 1996 Plan.
 
 28
 In 2005, the Board of Directors adopted
and the Company’s shareholders approved the adoption of the 2006 Employee Stock
Option Plan (the “2006 Plan”) for the officers and employees of the Company and
the Bank.  The 2006 Plan commenced January 1, 2006 and replaced the
1996 Plan. We reserved 1,000,000 shares of common stock for issuance under the
2006 Plan. The 2006 Plan will expire December 31, 2015.  The purpose
of the 2006 Plan is to provide additional incentive to officers and employees of
the Company and the Bank by encouraging them to invest in the Company’s common
stock and thereby acquire a proprietary interest in the Company and an increased
personal interest in the Company’s continued success and progress. As of
December 31, 2008, options to purchase 349,223 shares of the Company’s common
stock were outstanding under the 2006 Plan.
 
 The 1996 Plan and the 2006 Plan are
collectively referred to as the “Employee Plans”.
 
 The Employee Plans are administered by
the Compensation Committee, which is appointed by the Board of Directors and
consists only of independent directors who are not eligible to receive options
under the Employee Plans. The Compensation Committee determines, among other
things, which officers and employees receive an option or options, the type of
option (incentive stock options or non-qualified stock options, or both) to be
granted, the number of shares subject to each option, the rate of option
exercisability and, subject to certain other provisions to be discussed below,
the option price and duration of the option. Incentive stock options first
exercisable by an employee in any one year under the Employee Plans may not
exceed $100,000 in value (determined at the time of grant). The Compensation
Committee may, in its discretion, modify or amend any of the option terms herein
described, provided that if an incentive stock option is granted, the option as
modified or amended continues to be an incentive stock option.
 
 In the event of any change in the
capitalization of the Company, such as by stock dividend, stock split or what
the Board of Directors deems in its sole discretion to be similar circumstances,
the aggregate number and kind of shares which may be issued under the Employee
Plans will be appropriately adjusted in a manner determined in the sole
discretion of the Board of Directors. The option price for options issued must
be at least equal to 100% of the fair market value of the Company’s common stock
as of the date the option is granted.
 
 Options granted after July1, 2005
pursuant to the Employee Plans are not exercisable until one year after the date
of grant and then are exercisable evenly over four years from the date of grant.
The Compensation Committee has the authority to provide for a different
rate of option exercisability for any optionee.
 
 Except as otherwise authorized by the
Compensation Committee with respect to non-qualified stock options only, options
are not transferable, except by will or the laws of descent and distribution in
the event of death.
 
 Under the Employee Plans, unless
terminated earlier by the option's terms, both incentive stock options and
non-qualified stock options expire ten years after the date they are granted.
Options terminate three months after the date on which employment is terminated,
other than by reason of retirement, death or disability. The option terminates
three years from the date of termination due to retirement or death and one year
from the date of termination due to disability (but not later than the scheduled
termination date). During an optionee's lifetime, the option is exercisable only
by the optionee including, for this purpose, the optionee's legal guardian or
custodian in the event of disability.
 
 During 2008 the Company granted stock
options to purchase an aggregate of 138,525 shares of the Company’s common stock
at an average price of $27.00 per share under the 2006 Commerce Employee Stock
Option Plan.  During 2008 a total of 108,095 options were exercised
under the Employee Plans.
 
 On December 16, 2005 the Company’s
Board of Directors approved the accelerated vesting of all outstanding unvested
stock options awarded prior to July 1, 2005 to employees and
directors.  This acceleration was effective as of December 18,
2005.  The decision to accelerate the vesting of the options was to
enable the Company to reduce the amount of non-cash compensation expense that
would have been recorded in the Company’s income statement in future periods
upon the adoption of Financial Accounting Standards Board (FASB) Statement No.
123(R), “Share-Based Payment” in January 2006.  The Company has placed
a restriction on the members of senior management and the Board of Directors
that prevents the sale, or any other transfer, of any stock obtained through
exercise of an accelerated option prior to the earlier of the original vesting
date or the individual’s termination of employment.
 
 29
 Executive
Stock Option Grants in Fiscal Year 2008
 
 The following table shows the stock
options granted to the named executive officers in
2008.
 
 GRANTS
OF PLAN-BASED AWARDS IN FISCAL YEAR 2008
 
 Exercise
      or
                            
                            
                            Grant
      Date FairGrant
                            
                            Number
      ofSecurities
                            
                            
                            BasePrice
                            
                            
                            Value
      ofStockName
                            
                            Date
                            
                            Underlying
      Options1
                            
                            
                            of
      Option Awards2
                            
                            
                            and
      Option Awards3Gary
      L. Nalbandian
                            
                            2/22/2008
                            
                            
                            32,000
                            
                            
                            $
                            27.00
                            
                            
                            $
                            336,879Mark
      A. Zody
                            
                            2/22/2008
                            
                            
                            11,000
                            
                            
                            
                            27.00
                            
                            
                            
                            115,802Rory
      G. Ritrievi
                            
                            2/22/2008
                            
                            
                            12,000
                            
                            
                            
                            27.00
                            
                            
                            
                            126,329Mark
      A. Ritter
                            
                            2/22/2008
                            
                            
                            9,000
                            
                            
                            
                            27.00
                            
                            
                            
                            94,747James
      R. Ridd
                            
                            2/22/2008
                            
                            
                            3,500
                            
                            
                            
                            27.00
                            
                            
                            
                            36,846
  1
                            This
      column shows the number of stock options granted in 2008 to each named
      executive officer.  These options are not exercisable until one
      year after the date of grant and then vest evenly over a four-year period
      beginning February 22, 2009.  Continuation of employment is the
      only vesting condition.
 
 2
                            This
      column shows the exercise price for the options granted in 2008 to each
      named executive officer. This was the closing market price on the date of
      grant of these options.
 
 3
                            This
      column shows the full grant date fair value, under FAS 123(R), of stock
      options granted to each named executive officer in 2008.  The
      full grant date fair value is the total amount the Company will recognize
      for financial statement reporting purposes over the option awards vesting
      schedule.  Options granted in 2008 were valued at $10.53 using a
      Black-Scholes option pricing model in accordance with FAS
      123(R).  For a discussion of the valuation assumptions used, see
      Note 14 to the Company’s Notes to Consolidated Financial Statements
      included in the Company’s Annual Report on Form 10-K for the fiscal year
      ended December 31, 2008.
 
 
 OUTSTANDING
EQUITY AWARDS AT 2008 FISCAL YEAR-END
 
 The table
on the following page sets forth certain information as of December 31, 2008
regarding the number of vested and unvested stock option awards for each named
executive officer, as adjusted for all stock splits and stock dividends through
December 31, 2008.  Each grant is shown separately for each named
executive officer.
 
 30
 
 Number
      of Securities
                  Number
      of SecuritiesUnderlying
                  
                  Underlying
                  
                  Option
                  
                  OptionOption
                  
                  Unexercised
      Options-
                  Unexercised
      Options-
                  Exercise
                  
                  ExpirationName
                  
                  Grant
      Date
                  
                  Exercisable
                  
                  Unexercisable1
                  
                  Price2
                  
                  DateGary
      L. Nalbandian
                  11/17/2000
                  
                  24,309
                  
                  
                  
                  $  12.13
                  
                  11/17/201011/16/2001
                  
                  34,728
                  
                  
                  
                  15.55
                  
                  11/16/20112/21/2003
                  
                  31,499
                  
                  
                  
                  17.98
                  
                  2/21/20132/20/2004
                  
                  30,000
                  
                  
                  
                  25.38
                  
                  2/20/20142/18/2005
                  
                  22,500
                  
                  
                  
                  33.50
                  
                  2/18/20152/17/2006
                  
                  14,000
                  
                  14,000
                  
                  31.25
                  
                  2/17/20162/16/2007
                  
                  8,125
                  
                  24,375
                  
                  28.51
                  
                  2/16/20172/22/2008
                  
                  
                  
                  32,000
                  
                  27.00
                  
                  2/22/2018Mark
      A. Zody
                  
                  11/17/2000
                  
                  6,077
                  
                  
                  
                  $  12.13
                  
                  11/17/201011/16/2001
                  
                  8,102
                  
                  
                  
                  15.55
                  
                  11/16/20112/21/2003
                  
                  8,399
                  
                  
                  
                  17.98
                  
                  2/21/20132/20/2004
                  
                  8,500
                  
                  
                  
                  25.38
                  
                  2/20/20142/18/2005
                  
                  5,250
                  
                  
                  
                  33.50
                  
                  2/18/20152/17/2006
                  
                  5,000
                  
                  5,000
                  
                  31.25
                  
                  2/17/20162/16/2007
                  
                  2,750
                  
                  8,250
                  
                  28.51
                  
                  2/16/20172/22/2008
                  
                  
                  
                  11,000
                  
                  27.00
                  
                  2/22/2018Rory
      G. Ritrievi
                  
                  11/17/2000
                  
                  9,938
                  
                  
                  
                  $  12.13
                  
                  11/17/201011/16/2001
                  
                  11,576
                  
                  
                  
                  15.55
                  
                  11/16/20112/21/2003
                  
                  10,500
                  
                  
                  
                  17.98
                  
                  2/21/20132/20/2004
                  
                  10,000
                  
                  
                  
                  25.38
                  
                  2/20/20142/18/2005
                  
                  6,250
                  
                  
                  
                  33.50
                  
                  2/18/20152/17/2006
                  
                  5,500
                  
                  5,500
                  
                  31.25
                  
                  2/17/20162/16/2007
                  
                  3,000
                  
                  9,000
                  
                  28.51
                  
                  2/16/20172/22/2008
                  
                  
                  
                  12,000
                  
                  27.00
                  
                  2/22/2018Mark
      A. Ritter
                  
                  2/22/2008
                  
                  
                  
                  9,000
                  
                  $  27.00
                  
                  2/22/2018James
      R. Ridd
                  
                  11/17/2000
                  
                  6,077
                  
                  
                  
                  $  12.13
                  
                  11/17/201011/16/2001
                  
                  5,788
                  
                  
                  
                  15.55
                  
                  11/16/20112/21/2003
                  
                  5,250
                  
                  
                  
                  17.98
                  
                  2/21/20132/20/2004
                  
                  5,000
                  
                  
                  
                  25.38
                  
                  2/20/20142/18/2005
                  
                  3,000
                  
                  
                  
                  33.50
                  
                  2/18/20152/17/2006
                  
                  1,750
                  
                  1,750
                  
                  31.25
                  
                  2/17/20162/16/2007
                  
                  875
                  
                  2,625
                  
                  28.51
                  
                  2/16/20172/22/2008
                  
                  
                  
                  3,500
                  
                  27.00
                  
                  2/22/2018
  1
                  These
      options vest at a rate of 25% of the total grant per year, beginning one
      year after the grant date.  Accordingly, options granted in
      2006, 2007 and 2008 will be fully vested in February 2010, 2011, and 2012
      respectively.
 31
 
 2
                  This
      was the closing market price (adjusted for stock dividends and stock
      splits) of the Company’s common stock on the date of grant of these
      options.
 
 OPTION
EXERCISES AND STOCK VESTED IN FISCAL YEAR 2008
 
 Number
      of SharesAcquired
                  
                  Value
      RealizedName
                  
                  on
      Exercise
                  
                  On
      ExerciseGary
      L. Nalbandian
                  
                  52,3261
                  
                  $866,532Mark
      A. Zody
                  
                  18,3122
                  
                  302,314Rory
      G. Ritrievi
                  
                  -
                  
                  -Mark
      A. Ritter
                  
                  -
                  
                  -James
      R. Ridd
                  
                  13,0813
                  
                  213,657
  1
                    On
      November 13, 2008, Mr. Nalbandian exercised 26,801options with an exercise
      price of $10.73 per share. Upon exercise, Mr. Nalbandian surrendered
      11,279 shares of Company stock with a market price of $25.50 per share to
      cover the exercise cost. As a result, he received 15,522 net
      shares.  On December 10, 2008, Mr. Nalbandian also exercised
      25,525 options with an exercise price of $9.11 per share.  Upon
      exercise, Mr. Nalbandian surrendered 8,442 shares of Company stock with a
      market price of $27.55 per share to cover the exercise cost. As a result,
      he received 17,083 net shares.
 
 2
                    On
      November 20, 2008, Mr. Zody exercised 9,379 options with an exercise price
      of $10.73 per share. Upon exercise, Mr. Zody surrendered 3,963 shares of
      Company stock with a market price of $25.40 per share to cover the
      exercise cost. As a result, he received 5,416 net shares.  On
      December 10, 2008, Mr. Zody also exercised 8,933 options with an exercise
      price of $9.11 per share.  Upon exercise, Mr. Zody surrendered
      2,954 shares of Company stock with a market price of $27.55 per share to
      cover the exercise cost. As a result, he received 5,979 net
      shares.
 
 3
                    On
      November 13, 2008, Mr. Ridd exercised 6,700 options with an exercise price
      of $10.73 per share. Upon exercise, Mr. Ridd surrendered 2,831 shares of
      Company stock with a market price of $25.50 per share to cover the
      exercise cost. He received 3,869 net shares.  On December 16,
      2008, Mr. Ridd also exercised 6,381 options with an exercise price of
      $9.11 per share.  Upon exercise, Mr. Ridd surrendered 2,138
      shares of Company stock with a market price of $27.19 per share to cover
      the exercise cost. He received 4,243 net
shares.
 
 Potential
Payments Upon Termination or Change in Control
 
 Upon
termination of employment for any reason, each named executive officer would be
entitled to receive payment of salary for time worked through the date of
termination of employment.  In addition, except in the event of
termination due to misconduct, each executive would be entitled to exercise all
vested unexercised stock options as shown in the Outstanding Equity Awards
table. In the event of termination due to misconduct, as determined in the
reasonable judgment of management of Commerce, all stock options granted shall
be forfeited and rendered unexercisable.
 
 The
Employee Stock Option Plan does not provide for accelerated vesting of options
in the event of a change in control of the Company.  Consequently, if
a change in control of the Company had occurred on December 31, 2008 (the last
business day of the year), each of the named executive officers would have been
entitled to exercise all of the vested unexercised stock options listed in the
column “Number of Securities Underlying Unexercised Options-Exercisable” in the
Outstanding Equity Awards table.  The closing price of Commerce's common
stock on December 31, 2008 was $26.66.
  As of
December 31, 2008, except for Mr. Ritter, the named executive officers did not
have employment agreements or any other benefit arrangement that would be
triggered by a termination of employment.  Mr. Ritter’s employment
agreement provides that he will receive the following if his employment is
terminated other than for cause or if he should resign for good reason (as
defined in his employment agreement):
 
 ·
                      Full
      base salary through the date of termination in accordance with the regular
      payroll practices of the Company and any other compensation due for
      services rendered.
 
 ·
                      A
      lump sum severance payment equal to two (2) times his average annual
      base salary in effect during the twenty-four (24) months immediately
      preceding his termination.   As of December 31, 2008, this
      amount would have been $410,600.
 
 ·
                      Participation
      in medical, disability, hospitalization and life insurance benefits for a
      period of one (1) year, except that should he accept subsequent employment
      during the one (1) year period following the date of termination,
      continuation of any medical, disability, hospitalization or life insurance
      will cease to the extent any such benefit is provided though his
      subsequent employer.
 
 32
 DIRECTOR
COMPENSATION FOR FISCAL YEAR 2008
 
 The following table lists the total
compensation paid to the Company’s non-employee directors in
2008.
 
 Name
                              
                              Fees
      Earned
                                or
                                Paid
      in Cash
                              
                              
                              Option
                                Awards
                                ($)1
                              
                              
                              All
      Other
                                Compensation
                                ($)
                              
                              
                              Total
                                ($)James
      R. Adair
                              
                              $
                              40,400
                              
                              
                              $
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              $
                              72,227John
      J. Cardello, CPA
                              
                              
                              46,600
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              78,427Jay
      W. Cleveland, Jr.
                              
                              
                              21,200
                              
                              
                              
                              9,933
                              
                              
                              
                              n/a
                              
                              
                              
                              31,133Douglas
      S. Gelder
                              
                              
                              36,200
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              68,027Alan
      R. Hassman
                              
                              
                              27,900
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              59,727Howell
      C. Mette
                              
                              
                              32,000
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              63,827Michael
      A. Serluco
                              
                              
                              34,900
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              66,727Samir
      J. Srouji, M.D.
                              
                              
                              33,500
                              
                              
                              
                              31,827
                              
                              
                              
                              n/a
                              
                              
                              
                              65,327
  1
                                This column shows the dollar
      amount recognized for financial statement purposes during 2008 for the
      fair value of stock options granted to the Company’s non-employee
      directors during 2008, in accordance with Financial Accounting Standards
      Board Statement No. 123(R), “Share Based Payment” (“FAS 123(R)”). This
      amount includes options granted in 2006, 2007 and 2008, as vesting for
      options granted prior to July 1, 2005 was accelerated in December 2005.
      Except in the event of a change in control of the Company, options granted
      after July 1, 2005 vest at a rate of 25% per year, beginning one year
      after the date of grant. The full grant date fair value, under FAS 123(R),
      of options granted to each non-employee director in 2008 was $47,679. This
      is the amount the Company will recognize for financial statement reporting
      purposes over the award’s vesting schedule.  Options granted in
      2008 were valued at $10.65 using a Black-Scholes option pricing model in
      accordance with FAS 123(R). For a discussion on the valuation assumptions
      used, see Note 14 to the Company’s Notes to Consolidated Financial
      Statements included in the Company’s annual report on Form 10-K for the
      year ended December 31, 2008.  As of December 31, 2008, the
      aggregate number of unexercised options held by each non-employee director
      was as follows:
   33
 Number
      of OptionsName
                  
                  Vested
                  
                  UnvestedJames
      R. Adair
                  
                  16,835
                  
                  9,663John
      J. Cardello, CPA
                  
                  9,653
                  
                  9,663Jay
      W. Cleveland, Jr.
                  -
                  
                  4,475Douglas
      S. Gelder
                  
                  24,017
                  
                  33,680Alan
      R. Hassman
                  
                  24,017
                  
                  33,680Howell
      C. Mette
                  
                  24,017
                  
                  33,680Michael
      A. Serluco
                  
                  6,062
                  
                  15,725Samir
      J. Srouji, M.D.
                  24,017
                  
                  33,680
 
  Director’s
Fees
 
 Each of the Company’s directors,
including Mr. Nalbandian, received an annual retainer fee of $2,000 plus a fee
of $1,600 for each regular monthly meeting of the Board of Directors attended in
2008.  Each director who was an active member of the Audit Committee,
the Nominating and Corporate Governance Committee, the Compensation Committee,
the Compliance Committee, and the Real Estate Committee received $500 for each
committee meeting attended. Each Director who was an active member of the
Executive Committee received a fee of $1,000 for each meeting attended and each
director who was an active member of the Oversight Committee received $300 for
each Committee meeting attended. The Chairman of the Audit Committee received an
additional fee of $4,500 per quarter. The Chairman of the Nominating and
Corporate Governance Committee, the Chairman of the Compensation Committee, the
Chairman of the Compliance Committee and the Chairman of the Real Estate
Committee received $1,000 for each meeting they attended.  The
Chairman of the Oversight Committee received $600 for each meeting
attended.
 
 For 2009, the annual retainer fee
will be increased to $35,000; however, Board members will no longer receive a
fee for each regular meeting of the Board of Directors attended in 2009. For
2009, each director who is an active member of the Audit Committee, Executive
Committee, the Nominating and Corporate Governance Committee, the Compensation
Committee, the Compliance Committee, the Oversight Committee and the Real Estate
Committee will receive $1,000 for each committee meeting attended. The members
of the Audit Committee will receive an annual fee of $3,000 for their membership
on this committee. The Chairman of the Audit Committee will receive an annual
fee of $15,000 for his leadership of this committee and the Chairmen of each of
the other Board committees listed above will receive an annual fee of $3,000 for
leadership of their respective committees. Also, for 2009, no employee director
will receive any fees for his/her service as a member of the Board of Directors
or for attendance at any committee meetings.
 
 1990
and 2001 Stock Option Plan for Non-Employee Directors
 
 Effective
January 1, 1990, the Company adopted the 1990 Directors Stock Option Plan for
non-employee directors (the "1990 Plan") which provides for the purchase of a
total of not more than 359,171 shares of the Company’s common stock (as adjusted
for all stock splits and dividends through the record date) by members of the
Board of Directors of the Company. Options granted pursuant to the 1990 Plan may
be exercised beginning on the earlier to occur of (i) one year after the date of
their grant or (ii) a "change in control" of the Company, as such term is
defined in the 1990 Plan. No further options may be granted under the 1990 Plan.
As of December 31, 2008, options to purchase 14,364 shares of the Company’s
common stock (as adjusted for all stock splits and stock dividends through the
record date) were outstanding under the 1990 Plan.
  34
 Effective
January 1, 2001, the Company adopted the 2001 Directors Stock Option Plan for
non-employee directors (the "2001 Plan") which provides for the purchase of a
total of not more than 343,100 shares of the Company’s common stock (as adjusted
for all stock splits and dividends) by members of the Board of Directors of the
Company and other persons who provide services to the Company but are not
employees. Options may be granted under the 2001 Plan through December 31, 2010.
Under the 2001 Plan, members of the Board of Directors of the Company and others
who are not also employees of the Company are entitled to receive options to
purchase the Company’s common stock. Options granted prior to January 1, 2005
pursuant to the 2001 Plan may be exercised in whole, or from time to time in
part, beginning on the earlier to occur of (i) one year after the date of their
grant or (ii) a "change in control" of the Company, as such term is defined in
the 2001 Plan. Options granted pursuant to the 2001 Plan after January 1, 2005,
may be exercised in whole, or from time to time in part, beginning on the
earlier to occur of (i) one year after the date of their grant ratably over four
years or (ii) a "change in control" of the Company. On December 16, 2005 our
Board of Directors approved the accelerated vesting of all outstanding unvested
stock options awarded prior to July 1, 2005 to employees and
directors.  This acceleration was effective as of December 18,
2005.  The decision to accelerate the vesting of the options was to
enable the Company to reduce the amount of non-cash compensation expense that
would have been recorded in the Company’s income statement in future periods
upon the adoption of Financial Accounting Standards Board (FASB) Statement No.
123(R), “Share-Based Payment” in January 2006. Along with the accelerated
vesting, we placed a restriction on the members of the Board to prevent the
sale, or any other transfer, of any stock obtained through exercise of an
accelerated option prior to the earlier of the original vesting date or the
individual’s termination as a director. As of December 31, 2008, options to
purchase 186,370 shares of the Company’s common stock (as adjusted for all stock
splits and stock dividends through the record date) were
outstanding under the 2001 Plan and 131,574 shares of the Company’s common
stock (as adjusted for all stock splits and stock dividends) were available for
issuance under the 2001 Plan.
  Both the
1990 Plan and 2001 Plan are administered by our Board, including non-employee
directors. Options granted under the non-employee director plans are not
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). Option exercise prices equal 100% of the fair
market value of the Company's common stock on the date of option grant. The
Board has the discretion to grant options under the 2001 Plan to non-employee
directors or to other persons who are not employees of the Company and determine
the number of shares subject to each option, the rate of option exercisability,
and the duration of the options. Unless terminated earlier by the option's
terms, options granted under the 1990 Plan and/or 2001 Plan expire ten years
after the date they are granted.  Options are not transferable other
than by will or laws of descent and distribution.  A director can
exercise options only while a director of the Company or that period of time
after he/she ceases to serve as determined by the Board of
Directors.  If a director dies within the option period, the
director’s estate may exercise the option within three months of his or her
death. The number of shares subject to option and the option price will be
appropriately adjusted if the number of issued shares is decreased or increased
by changes in par value, a combination, stock dividend or the like.
 
 Equity
Compensation Plan Information
 
 The following table contains
information about the Company’s equity compensation plans as of December 31,
2008:
  Number
      of securitiesremaining
      available forNumber
      of securities to
                  
                  Weighted
      average
                  
                  future
      issuance under equitybe
      issued upon exercise of
                  
                  exercise
      price of
                  
                  compensation
      plansoutstanding
      options, warrants
                  
                  oustanding
      options,
                  
                  (excluding
      securities reflectedand
      rights
                  
                  warrants
      and rights
                  
                  in
      column (a))Plan
      Category
                  
                  (a)
                  
                  (b)
                  
                  (c)1Equity
      compensationplans
      approved bysecurity
      holders
                  
                  943,915
                  
                  $24.42
                  
                  781,786Equity
      compensationplans
      not approvedby
      security holders
                  
                  N/A
                  
                  N/A
                  
                  N/ATOTAL
                  
                  943,915
                  
                  $24.42
                  
                  781,786
 1
                  Includes
      total shares available for employees through the 2006 Employee Stock
      Option Plan and also shares available for directors through the 2001
      Directors Stock Option Plan.
  35
 
 COMPENSATION
COMMITTEE REPORT
 
 The
Compensation Committee has reviewed and discussed with management the section of
this Annual Report on Form 10-K/A captioned “Compensation Discussion and
Analysis.” Based on this review and discussion, the Committee recommended to the
Board of Directors that this section be included in this Annual Report on Form
10-K/A for the year ended December 31, 2008.
 
 COMPENSATION
COMMITTEE
 By:  Alan
R. Hassman, Chairman
 Douglas
S. Gelder
 Michael
A. Serluco
 
 COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
 The Compensation Committee members are
Alan R. Hassman (Chairman), Douglas S. Gelder and Michael A.
Serluco.  No person who served as a member of the Compensation
Committee during 2008 was a current or former employee of the Company or any of
our subsidiaries or, except as previously disclosed, engaged in certain
transactions with the Company required to be disclosed by regulations of the
SEC. Additionally, there was no Compensation Committee “interlocks” during 2008,
which generally means that no executive officer of the Company served as a
director or member of the Compensation Committee of another entity, one of whose
executive officers served as a director or member of the Compensation Committee
of the Company.
   36
  Item12.Security Ownership of Directors, Executive
Officers and Certain Beneficial Shareholders
  The following table sets forth certain
information, as of December 31, 2008, concerning the number and percentage of
shares of our common stock beneficially owned by our directors, our executive
officers, and by our directors and executive officers as a group.  In
addition, the table includes information with respect to other persons known to
us who own or may be deemed to own more than five percent of our common stock as
of December 31, 2008.
 
 The address for each director and
executive officer is c/o Pennsylvania Commerce Bancorp, Inc., 3801 Paxton
Street, Harrisburg, PA  17111.


Percent
      of OutstandingName
      of Beneficial
                          
                          Number
      of Shares
                          
                          Common
      StockOwner
      or Identity of Group
                          
                          Beneficially
      Owned
                          1
                          Beneficially
      Owned
                          1DirectorsJames
      R. Adair
                          
                          29,753
                          2
                          *John
      J. Cardello, CPA
                          
                          12,113
                          3
                          *Jay
      W. Cleveland, Jr.
                          
                          3,006
                          
                          *Douglas
      S. Gelder
                          
                          146,347
                          4
                          2.26%Alan
      R. Hassman
                          
                          224,120
                          5
                          3.46%Howell
      C. Mette
                          
                          140,454
                          6
                          2.17%Gary
      L. Nalbandian
                          
                          475,746
                          7
                          7.20%Michael
      A. Serluco
                          
                          182,389
                          8
                          2.83%Samir
      J. Srouji, M.D.
                          
                          159,900
                          9
                          2.47%Executive
      Officers Who are not DirectorsMark
      A. Zody
                          
                          94,081
                          10
                          1.45%Rory
      G. Ritrievi
                          
                          63,834
                          11
                          *Mark
      A. Ritter
                          
                          461James
      R. Ridd
                          
                          57,932
                          12
                          *D.
      Scott Huggins
                          
                          4,599
                          13
                          *All
      Directors and Executive Officersof
      Commerce, as a group (14 Persons)
                          
                          1,594,735
                          14
                          23.21%Other
      Five Percent Beneficial ShareholdersCommerce
      Bancorp, LLC.1701
      Route 70 EastCherry
      Hill, NJ  08034
                          
                          666,800
                          15
                          10.34%Wellington
      Management Company, LLP75
      State StreetBoston,
      MA  02109
                          
                          627,751
                          16
                          9.74%*  less
      than 1%
  1
                        The
      securities “beneficially owned” by an individual are determined in
      accordance with the definition of “beneficial ownership” set forth in the
      regulations of the Securities and Exchange Commission. Accordingly, they
      may include securities owned by or for, among others, the wife and/or
      minor children of the individual and any other relative who has the same
      home as such individual, as well as securities as to which the individual
      has or shares voting or investment power or has the right to acquire under
      outstanding stock options within 60 days after December 31,
      2008.  Shares subject to outstanding stock options, which an
      individual has the right to acquire within 60 days after December 31,
      2008, are deemed to be outstanding for the purpose of computing the
      percentage of outstanding securities of the class of stock owned by such
      individual or any group including such individual
      only.  Beneficial ownership may be disclaimed as to certain of
      the securities.
   37
 2
                  Includes
      164 shares owned by Mr. Adair’s wife and 16,835 shares of the Company’s
      common stock issuable upon the exercise of stock options granted under the
      Company’s 2001 Directors Stock Option
Plan.
 
 3
                  Includes
      9,653 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 2001 Directors Stock Option
      Plan.
 
 4
                  Includes
      24,017 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 1990 and 2001 Directors Stock
      Option Plans.  As of the record date, Mr. Gelder has pledged
      115,323 shares of the Company’s common stock in connection with real
      estate and business loans with the
Bank.
 
 5
                  Includes
      55,358 shares owned by Mr. Hassman’s wife and 24,017 shares of the
      Company’s common stock issuable upon the exercise of stock options granted
      under the Company’s 1990 and 2001 Directors Stock Option
      Plans.  As of the record date, Mr. Hassman has pledged 121,113
      shares of the Company’s common stock in connection with business loans
      with the Bank.
 
 6
                  Includes
      24,017 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 1990 and 2001 Directors Stock
      Option Plans.
 
 7
                  Includes
      112,128 shares held by Mr. Nalbandian’s individually directed participant
      account in the NAI/CIR Profit Sharing Trust with respect to which Mr.
      Nalbandian has sole voting power and 27,182 shares held in trust by Mr.
      Nalbandian or Dorothy Nalbandian for the benefit of Mr. Nalbandian’s
      children. Also includes 165,161 shares of the Company’s common stock
      issuable upon the exercise of stock options granted under the Company’s
      1996 and 2006 Employee Stock Option Plans.  Mr. Nalbandian has
      pledged 73,496 shares of the Company’s common stock in connection with a
      line of credit with another financial
  institution.
 
 8
                  Includes
      6,062 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 2001 Directors Stock Option
      Plan.
 
 9
                  Includes
      58,701 shares owned by Dr. Srouji’s wife, 1,162 shares owned jointly by
      Dr. Srouji and his wife and 24,784 shares held by Dr. Srouji’s
      self-directed participant account in the Plastic Surgery P.C. Profit
      Sharing Plan.  Also includes 24,017 shares of the Company’s
      common stock issuable upon the exercise of stock options granted under the
      Company’s 1990 and 2001 Directors Stock Option
  Plans.
 
 10
                  Includes
      48,627 shares owned jointly by Mr. Zody and his wife.  Also
      includes 44,077 shares of the Company’s common stock issuable upon the
      exercise of stock options granted under the Company’s 1996 and 2006
      Employee Stock Option Plans.
 
 11
                  Includes
      494 shares owned jointly by Mr. Ritrievi and his wife.  Also
      includes 56,763 shares of the Company’s common stock issuable upon the
      exercise of stock options granted under the Company’s 1996 and 2006
      Employee Stock Option Plans.
 
 12
                  Includes
      27,983 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 1996 and 2006 Employee Stock
      Option Plans.
 
 13
                  Includes
      2,075 shares of the Company’s common stock issuable upon the exercise of
      stock options granted under the Company’s 1996 and 2006 Employee Stock
      Option Plans.
 
 14
                  Includes
      an aggregate of 424,677 shares of the Company’s common stock issuable to
      directors and named executive officers of the Company under the Company’s
      Directors Stock Option Plans and the Company’s 1996 and 2006 Employee
      Stock Option Plans.
 
 15
                  Based
      on Schedule 13G filed by the shareholder with the SEC on February 22, 2008
      reporting ownership as of December 31, 2007. According to the Schedule
      13G, the shareholder has sole voting and sole investment power with
      respect to all shares.
 38
 
  16
                  Based
      on Schedule 13G filed by the shareholder with the SEC on February 17, 2009
      reporting ownership as of December 31, 2008.  According to the
      Schedule 13G, the shareholder holds these shares in its capacity as
      investment advisor; all such shares are held of record by clients of the
      shareholder.  The shareholder shares voting power with respect
      to 497,251 shares and shares investment power with respect to all
      shares.
 39




Item13.Certain Relationships and
Related Transactions, and Director Independence




Related
Party Transaction Policy and Procedures
 
 The Board
is responsible for reviewing and approving all related party transactions. The
Board adopted a written related party transactions policy on November 21,
2008.  Previously, the Board had reviewed and approved any related
party transaction pursuant to an unwritten policy and procedures. Related
parties of the Company include our directors, executive officers, any greater
than 5% beneficial owner of the Company’s common stock and the immediate family
members of any of these groups.
 
 Transactions
covered by the policy include any single or series of related transactions
between the Company and any related party or to which the Company is a party and
from which a related party will derive financial benefit. The following
transactions are not covered by the policy:
  ·
                Transactions
      available to all employees;·
                Compensation
      or benefits paid or awarded in the ordinary course of business to an
      executive officer in connection with such officer’s employment, provided
      the Company complies with SEC reporting requirements regarding such
      compensation;
 ·
                Board-approved
      compensation paid or awarded to a director if the compensation is required
      to be reported in the proxy
statement;
 ·
                A
      transaction arising solely from the ownership of a class of the Company’s
      equity securities and all holders of that class receive the same benefit;
      or
 ·
                A
      transaction involving the rendering of services as a common or contract
      carrier, or public utility, at rates or charges fixed in conformity with
      law or governmental authority.
 
 To
identify related party transactions, each year we submit and require our
directors and executive officers to complete Director and Officer Questionnaires
listing any transactions with us in which the director, executive officer, or
their immediate family members have an interest.  We review related
party transactions for potential conflicts of interest.  A conflict of
interest could occur if an individual’s private interest interferes with the
interests of the Company or the Bank. To prevent actual and apparent conflicts
of interest between related parties and the Company, the Board has mandated
periodic training sessions regarding the related party transactions policy and
the other governance policies.  Our Code of Business Conduct and
Ethics requires all directors, executive officers and employees who may have a
potential or apparent conflict of interest to notify the Company’s Chief Risk
Officer, as well as the Company’s President. Directors and executive officers
are to provide reasonable notice to the Chief Risk Officer and to the President
of all changes or new business activities, related party relationships and board
directorships as they arise.
 
 In
addition, the Company and the Bank are subject to Federal Reserve Regulation O,
which deals with loans by federally regulated banks to certain insiders, which
includes an executive officer, director or 10% controlling shareholder of the
applicable bank or bank holding company, or an entity controlled by such
executive officer, director or controlling shareholder (“Insiders”). The Company
follows a Regulation O policy that prohibits the subsidiary bank from making
loans to an Insider unless the loan (i) is made on substantially the same terms
(including interest rates and collateral) as, and following credit underwriting
procedures that are not less stringent than, those prevailing at the time for
comparable transactions by the Bank with other persons who are not subject to
Regulation O and who are not employed by the Bank; and (ii) does not involve
more than the normal risk of repayment or present other unfavorable features.
The Company and the Bank are examined periodically by bank regulators for
compliance with Regulation O. Internal controls exist within the Company and the
Bank to ensure that compliance with Regulation O is maintained on an ongoing
basis.
 
 We
believe that these policies provide appropriate levels of control and monitoring
of the types of related party transactions that are likely to arise in the
nature of our business and the associated risks.
 
 40
 
 
 Related-Party
Transactions
 
 Applicable
SEC regulations require the Company to disclose transactions with certain
related parties where the amount involved exceeds $120,000 and in which the
related party has a direct or indirect material interest.  However, a
person who has a position or relationship with a firm, corporation, or other
entity that engages in a transaction with the Company is not deemed to have a
material interest in the transaction where the interest arises only from such
person’s position as a director of another entity and/or arises only from the
ownership by such person (and such person’s immediate family members) in the
other entity if that ownership is under 10%, excluding
partnerships.  Transactions in which a related person does not have a
direct or indirect material interest are not required to be
disclosed.
 
 Customer
Relationships.  During 2008, the Bank had, and expects to have
in the future, loan and deposit account banking transactions in the ordinary
course of business with directors, officers, and principal shareholders (and
their associates) of the Company.  All loans and commitments to lend
made to such persons and to the companies with which they are associated were
made in the ordinary course of business, on substantially the same terms,
(including interest rates, collateral on loans, and repayment terms), as those
prevailing at the same time for comparable transactions with
others.  Management believes that these loans present no more than the
normal risk of collectibility or other unfavorable features. Also, these loans
and extensions of credit are governed by Regulation O. We discuss our process
for managing transactions governed by Regulation O above. The loans to these
persons and related companies amounted to 1% of total loans outstanding as of
December 31, 2008.
 
 Business
Relationships.  In the ordinary course of business, we may
enter into transactions with, or receive services from, entities affiliated with
our directors or their immediate family members including the
following:
 
 Howell C.
Mette, a director and 2.17% beneficial shareholder of the Company, is a
shareholder (owning less than a 5% equity interest) in the law firm of Mette,
Evans & Woodside, which the Company retained during 2008, and has retained
for 2009.
 
 Gary L.
Nalbandian, Chairman, President and CEO of the Company and the Bank, and a 7.20%
beneficial shareholder of the Company, is the Vice President/Treasurer/Secretary
of NAI/Commercial-Industrial Realty Co. (“NAI/CIR”).  The Bank has
utilized NAI/CIR to identify sites for its store expansions.  In
connection with these transactions, NAI/CIR received commissions from
independent third parties related to real estate transactions conducted on
behalf of the Bank.  Mr. Nalbandian received no direct financial
benefit from such commissions.
 
 Shareholder
Relationships.  As of December 31, 2008, Commerce Bancorp LLC,
formerly known as Commerce Bancorp, Inc. (“Bancorp”), owned 10.34% of the
Company’s common stock, 40,000 of the Company’s Series A preferred stock and
100% of the Company’s Trust Capital Securities.  Prior to December 31,
2008, pursuant to a Master Services Agreement, Bancorp, through its affiliate,
TD Bank, N.A., formerly, Commerce Bank, N.A., a national bank located in Cherry
Hill, New Jersey, provided various services to the Bank including:
 
 ·
                maintaining
      the computer wide area network;
 ·
                proof
      and encoding;
 ·
                deposit
      and loan account statement
rendering;
 ·
                ATM/VISA
      Card processing;
 ·
                data
      processing;
 ·
                advertising
      support; and
 ·
                call
      center support.
  These
services were provided for a monthly fee.  The Bank paid approximately
$4.7 million for services provided by Bancorp during 2008.  Insurance
premiums and commissions, which were paid to a subsidiary of Bancorp, are
included in this total. On and effective as of December 30, 2008, the
Company and the Bank entered into a Transition Agreement with TD Bank N.A. and
Commerce Bancorp, LLC (formerly Commerce Bancorp, Inc. and together with TD
Bank, N.A., “TD”).  The Transition Agreement terminated the Network
Agreement dated January 1, 1997, as thereafter amended in April 2002 and
September 29, 2004 (the “Network Agreement”) and the Master Services Agreement
dated July 21, 2006 and its addenda (the “Master Services Agreement”) by and
between the Company, the Bank and/or TD (and/or their predecessors). With timely
advance notice by TD under the Network and Master Services agreements, the
agreements would have otherwise terminated on December 31, 2009.  The
agreements are being terminated prior to such date in connection with the March
2008 merger of Commerce Bancorp, Inc. into a subsidiary of TD Bank
N.A.
 
 41
 Pursuant
to the Transition Agreement, TD will provide to the Bank certain transaction
services, representing a continuation of the services provided to the Bank under
the terms of the Master Services Agreement until July 15, 2009 or at the Bank’s
option, until August 15, 2009, and certain tail services until August 15, 2009,
at which time TD will discontinue the provision of all such services, which will
thereafter be provided to the Bank by other service providers.  If all
services provided by TD under the Transition Agreement (except tail services)
are terminated by or on July 15, 2009, and if all tail services terminate by or
on August 15, 2009, TD will pay to the Bank a fee in the amount of $6.0 million
(“Incentive Fee”).  The Incentive Fee will be reduced to $3.25 million
if all services other than tail services terminate on or after July 16, 2009 but
by or on August 15, 2009 and if all tail services terminate by or on August 15,
2009.  No Incentive Fee will be paid by TD if the above deadlines are
not met, unless such failure is due to delays caused by TD.
 
 Occasionally,
the Bank had sold loan participations to Commerce Bank, N.A.  At
December 31, 2008, the balance of such participations outstanding was
$0.
 
 A federal
funds line of credit was established in 2007 with Commerce Bank, N.A. in the
amount of $50 million, which could be drawn upon if needed. In 2008, the amount
of the line was reduced to $25 million when The Toronto-Dominion Bank acquired
Commerce Bancorp, Inc., the parent of the former Commerce Bank, N.A. The balance
was $0 at December 31, 2008 and $25.5 million at December 31,
2007.
 
 Independence
of Directors
 
 As
permitted by the NASDAQ rules, to assist the Board in evaluating the
independence of each of its directors, the Board has adopted categorical
standards of independence.  Applying these standards, the Board of
Directors has determined that all directors, with the exception of Gary L.
Nalbandian, are independent as defined in the applicable NASDAQ rules. The
categorical standards adopted and applied by the Board consist of the following
business or charitable relationships which the Board has determined are not
material relationships that would impair a director’s independence:
 
 ·
                Lending
      relationships, deposit relationships or other financial service
      relationships (such as depository, transfer, registrar, indenture trustee,
      trusts and estates, insurance and related products, private banking,
      investment management, custodial, securities brokerage, cash management
      and similar services) between the Company or the Bank, on the one hand,
      and (i) the director; and/or (ii) any immediate family member of the
      director who resides in the same home as the director; and/or (iii) any
      profit or non-profit entity with which the director is affiliated by
      reason of being a director, officer, employee, trustee, partner and/or an
      owner thereof, on the other, provided that (A) such relationships are in
      the ordinary course of business of the Company or the Bank and are on
      substantially the same terms as those prevailing at the time for
      comparable transactions with non-affiliated persons; and in addition, (B)
      with respect to any extension of credit by the Bank to any borrower
      described in clauses (i) – (iii) above, such extension of credit has been
      made in compliance with applicable law, including Regulation O of the
      Board of Governors of the Federal Reserve System and Section 13(k) of the
      Exchange Act and no extension of credit is on a non-accrual
      basis.
 
 ·
                The
      fact that (i) the director is a director, officer, employee, trustee,
      partner and/or an owner thereof in any profit or non-profit entity, (ii)
      the director is of counsel to a law firm, or (iii) an immediate family
      member is a director, officer, employee, trustee, partner and/or an owner
      of any entity, that makes payments to, or receives payments from, the
      Company or the Bank for property or services in an amount which, in the
      current or any of the past three fiscal years, is less than the greater of
      $200,000 or five percent of the recipient’s consolidated gross revenues,
      and such property or services were provided or received in the ordinary
      course of business of each of the
parties.
 
 ·
                Any
      contract or other arrangement for personal services provided by the
      director to the Companyor the Bank
      (excluding services as a director of the Company or the Bank) if the
      compensation to the director does not exceed $120,000 during any 12
      consecutive months within the previous three
  years.
 
 42
 ·
                The
      employment by the Company or the Bank of an immediate family member of the
      director provided that such immediate family member was or is not an
      executive officer of the Company and the compensation of any such family
      member was established by the Company or the Bank in accordance with its
      employment and compensation practices applicable to employees holding
      comparable positions.
 
 For
purposes of the foregoing standards of director independence, an "immediate
family member" means any of the director's spouse, parents, children, brothers,
sisters, mother- and father-in-law, sons- and daughters-in-law, brothers- and
sisters-in-law, and anyone (other than domestic employees) who shares the
director's home.
 
 For
purposes of service on the Audit Committee, the Board also applies the
independence standards of Exchange Act Rule 10A-3. Accordingly, the direct or
indirect receipt by a director of any consulting, advisory or other compensatory
fee from the Company or the Bank (excluding services as a director of the
Company or the Bank) would preclude a director’s service on the Audit
Committee.
 
 Directors
are requested to inform the Chairman of the Nominating and Governance Committee
and the President of the Company of any change of circumstances or before
serving as a director, officer, employee, partner, trustee and/or owner of an
outside profit or non-profit entity so that such change in circumstances or
opportunity can be reviewed for any independence issues.
 
 The Company’s independent directors
have met and will continue to meet in regularly scheduled Executive Sessions
without management present.




43


Item  14. Principal Accounting Fees and
Services




INDEPENDENT
PUBLIC ACCOUNTANTS
 
 Our principal accountant during 2008
was Beard Miller Company LLP (“BMC”), 320 West Market Street, Harrisburg,
PA 17101.  The Audit Committee has selected BMC to be our
principal accountant for 2009.
 
 The Sarbanes Oxley Act of 2002 and the
auditor independence rules of the SEC require all public accounting firms who
audit public companies to obtain authority from their respective audit
committees in order to provide professional services without impairing
independence.  Before BMC performs any services for the Company, the
Audit Committee is informed that such services are necessary and is advised of
the estimated costs of such services.  The Audit Committee then
decides whether to approve BMC’s performance of the services.  In
2008, all services performed by BMC were approved in advance pursuant to these
procedures.  The Audit Committee has determined that the performance
by BMC of tax services is compatible with maintaining that firm’s
independence.
 
 Fees
Billed by Independent Public Accountants
 
 Fees for
professional services provided by Beard Miller Company LLP were as follows for
the last two fiscal years:
 
 2008
                      
                      
                      2007Audit
      Fees1
                      
                      $
                      281,392
                      
                      
                      $
                      196,975Audit-Related
      Fees2
                      
                      
                      14,135
                      
                      
                      
                      13,399Tax
      Fees3
                      
                      
                      15,125
                      
                      
                      
                      9,234$
                      310,652
                      
                      
                      $
                      219,608
 1
              Includes
      professional services rendered for the audit of the Company’s annual
      financial statements and review of financial statements included in Forms
      10-Q, or services normally provided in connection with statutory and
      regulatory filings (i.e., attest services required by FDICIA or Section
      404 of the Sarbanes-Oxley Act, the student loan audit and procedures
      relating to SEC filings), including out-of-pockets
    expenses.
  2
              Assurance
      and related services reasonably related to the performance of the audit or
      review of financial statements include the employee benefit plan audit and
      other attest services not required by statue or
    regulations.
  3
              Tax
      fees include the preparation of state and federal tax returns and related
      tax questions and research.
  The 2008
fees were approved in accordance with the Audit Committee’s
policy.  The de minimus exception (as defined in Rule 202 of the
Sarbanes-Oxley Act) was not applied to any of the 2008 or 2007 total
fees.


44


Part
IV.




Item  15. Exhibits, Financial Statement
Schedules.




(a)(1)
                The
      following financial statements are incorporated by reference in Part II,
      Item 8 hereof:Consolidated
      Balance Sheets as of December 31, 2008 and 2007Consolidated
      Statements of Income for the years ended December 31, 2008, 2007 and
      2006Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2008,
      2007 and 2006
  Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006Notes
      to Consolidated Financial StatementsReport
      of Independent Registered Public Accounting Firm(a)(2)
                              Financial
      Statement Schedules (This item is omitted since information required is
      either not applicable or is included in the footnotes to the Annual
      Financial Statements.)(a)(3)
                              List
      of Exhibits:2.1
                              Agreement
      and Plan of Merger dated as of November 7, 2008 between Pennsylvania
      Commerce Bancorp, Inc. and Republic First Bancorp, Inc. (incorporated by
      reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K,
      filed with the SEC on November 13, 2008)3.1.
                              Amended
      and Restated Articles of Incorporation of Pennsylvania Commerce Bancorp,
      Inc. (incorporated by reference to Exhibit 3(i) to the Company’s Current
      Report on Form 8-K, filed with the SEC on December 20,
    2007)3.2.
                              Amended
      and Restated Bylaws of Pennsylvania Commerce Bancorp, Inc. (incorporated
      by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K,
      filed with the SEC on December 20, 2007)10.1
                              Master
      Agreement dated as of November 7, 2008 between Fiserv Solutions, Inc. and
      Commerce Bank/Harrisburg, N.A. (incorporated by reference to Exhibit 10.1
      to the Company’s Current Report on Form 8-K, filed with the SEC on
      November 13, 2008)10.2.
      +
                              Transition
      Agreement by and between TD Bank, N.A. and Commerce Bancorp LLC on the one
      hand and Commerce Bank/Harrisburg and Pennsylvania Commerce Bancorp, Inc.,
      on the other hand, effective as of December 30, 200810.3.
      +
                              The
      Company’s 1990 Directors Stock Option Plan, as amended November 21, 2008
      *10.4.
      +
                              The
      Company’s 1996 Employee Stock Option Plan, as amended November 21, 2008
      *
   45
  10.5.
              The
      Company’s 2001 Directors Stock Option Plan, (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form S-8 filed with the
      SEC on December 4, 2008)*10.6.
              Description
      of base salaries and discretionary cash bonuses awarded to the Company’s
      named executive officers, effective November 3, 2008, is incorporated by
      reference to Item 5.02 of the Company’s Current Report on Form 8-K, filed
      with the SEC on November 6, 2008*10.7.
              Description
      of base salaries for 2009 and bonuses and discretionary option awards to
      the Company’s named executive officers for the year ended December 31,
      2008 is incorporated by reference to Item 5.02 of the Company’s Current
      Report on Form 8-K, filed with the SEC on February 26,
    2009*10.9.
              The
      Company’s 2006 Employee Stock Option, (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form S-8 filed with the
      SEC on December 4, 2008)*
  10.10
              Employment
      Agreement dated February 23, 2009 with Gary L. Nalbandian (incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the SEC on February 27, 2009)*10.11
              Employment
      Agreement dated February 23, 2009 with Mark A. Zody (incorporated by
      reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
      filed with the SEC on February 27, 2009)*10.12
              Form
      of Employment Agreement February 23, 2009 with Messrs. Mark A. Ritter, D.
      Scott Huggins and James R. Ridd (incorporated by reference to Exhibit 10.3
      to the Company’s Current Report on Form 8-K filed with the SEC on February
      27, 2009)*11.
              Calculation
      of EPS(The
      information required by this item appears in Note 13 of the Consolidated
      Financial Statements of the Company’s 2008 Annual Report to Shareholders
      that was previously filed on Form 10-K with the SEC on March 16,
      2009.)13.
      +
              Pennsylvania
      Commerce Bancorp, Inc. 2008 Annual Report to
  Shareholders21.
      +
              Subsidiaries
      of the Company23.
              Consent of Beard Miller Company
LLP.31.1.
              Certification of CEO, required by SEC Rule
      13a-14(a)/15d-14(a)31.2.
              Certification of CFO, required by SEC Rule
      13a-14(a)/15d-14(a)32.
              Section 1350 Certification by CEO and
    CFO99.
      +
              Agreement
      to Furnish Debt Instruments(b)
              Exhibits
      – The exhibits required to be filed as part of this report are submitted
      as a separate section of this report.(c)
              Financial
      Statement Schedules – None
required.




*
Denotes a compensatory plan or arrangement


+ Previously
filed with the Company's Form 10-K filed with the SEC on March 16,
2009.







46


Signatures





Pursuant
to the requirements of Section 13 or 15(d) 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.




Pennsylvania
      Commerce Bancorp, Inc. (Registrant)Date:  April
      30, 2009
            By   /s/ Gary L.
      NalbandianGary
      L. NalbandianChairman
      and PresidentDate:  April
      30, 2009
            By   /s/ Mark A.
      ZodyMark
      A. ZodyChief
      Financial Officer(Principal
      Accounting Officer)





Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.





Signature
            Title
            Date/s/
      Gary L. Nalbandian
            Chairman
      of the Board, President and Director (Principal Executive
      Officer)
            April
      30, 2009Gary
      L. Nalbandian/s/
      Mark A. Zody
            Chief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)
            April
      30, 2009Mark
      A. Zody/s/
      James R. Adair
            Director
            April
      30, 2009James
      R. Adair/s/
      John J. Cardello
            Director
            April
      30, 2009John
      J. Cardello/s/
      Jay W. Cleveland, Jr.
            Director
            April
      30, 2009Jay
      W. Cleveland, Jr./s/
      Douglas S. Gelder
            Director
            April
      30, 2009Douglas
      S. Gelder/s/
      Alan R. Hassman
            Director
            April
      30, 2009Alan
      R. Hassman/s/
      Howell C. Mette
            Director
            April
      30, 2009Howell
      C. Mette/s/
      Michael A. Serluco
            Director
            April
      30, 2009Michael
      A. Serluco/s/
      Samir J. Srouji, M.D.
            Director
            April
      30, 2009Samir
      J. Srouji, M.D.








47