10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-25141

METROCORP BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas	76-0579161
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

9600 Bellaire Boulevard, Suite 252
Houston, Texas 77036
(Address of principal executive offices including zip code)

(713) 776-3876
(Registrant’s telephone number, including area code)

     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. Yes þ No o.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No þ.

     As of November 7, 2005, the number of outstanding shares of Common Stock, par value $1.00 per share, was 7,215,344.

TABLE OF CONTENTS

PART I
	Item 1. Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
Certification of CEO pursuant to Rule 13a-14a
Certification of CFO pursuant to Rule 13a-14a
Certification of CEO pursuant to Section 906
Certification of CFO pursuant to Section 906

PART I

FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

	September 30,			December 31,
	2005			2004
ASSETS
Cash and due from banks	$	23,044		$	26,285
Federal funds sold and other temporary investments		42,919			5,788
Total cash and cash equivalents		65,963			32,073
Securities available-for-sale, at fair value		246,142			273,720
Loans, net of allowance for loan losses of $10,806 and $10,501, respectively		602,098			582,136
Loans, held-for-sale		—			1,899
Accrued interest receivable		3,502			3,308
Premises and equipment, net		6,261			6,512
Customers’ liability on acceptances		2,367			6,669
Foreclosed assets, net		—			1,566
Other assets		8,187			6,429
Total assets	$	934,520		$	914,312
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	171,789		$	163,191
Interest-bearing		616,758			591,862
Total deposits		788,547			755,053
Other borrowings		44,034			60,849
Accrued interest payable		680			649
Acceptances outstanding		2,367			6,669
Other liabilities		8,405			5,369
Total liabilities		844,033			828,589
Commitments and contingencies		—			—
Shareholders’ equity:
Common stock, $1.00 par value, 20,000,000 shares authorized; 7,323,127 and 7,312,627 shares issued and 7,210,735 and 7,187,446 shares outstanding at September 30, 2005 and December 31, 2004, respectively		7,323			7,313
Additional paid-in capital		28,130			27,859
Retained earnings		57,546			50,976
Accumulated other comprehensive (loss) income		(1,478	)		710
Treasury stock, at cost		(1,034	)		(1,135	)
Total shareholders’ equity		90,487			85,723
Total liabilities and shareholders’ equity	$	934,520		$	914,312

See accompanying notes to condensed consolidated financial statements

2

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2005			2004		2005		2004
Interest income:
Loans	$	11,552		$	8,649	$	32,279	$	25,108
Securities:
Taxable		2,382			2,648		7,163		7,018
Tax-exempt		211			227		641		693
Federal funds sold and other temporary investments		207			25		343		56
Total interest income		14,352			11,549		40,426		32,875
Interest expense:
Time deposits		3,214			2,087		8,274		5,838
Demand and savings deposits		636			345		1,449		935
Other borrowings		365			498		1,420		1,374
Total interest expense		4,215			2,930		11,143		8,147
Net interest income		10,137			8,619		29,283		24,728
Provision for loan losses		468			261		1,396		816
Net interest income after provision for loan losses		9,669			8,358		27,887		23,912
Noninterest income:
Service fees		1,711			1,656		4,972		4,942
Letters of credit commissions and other loan-related fees		313			139		905		755
Other noninterest income		63			44		274		635
Total noninterest income		2,087			1,839		6,151		6,332
Noninterest expenses:
Salaries and employee benefits		4,225			4,800		12,229		12,313
Occupancy and equipment		1,424			1,412		4,160		4,242
Foreclosed assets, net		(67	)		70		357		(844	)
Other noninterest expense		2,066			1,549		5,851		5,371
Total noninterest expenses		7,648			7,831		22,597		21,082
Income before provision for income taxes		4,108			2,366		11,441		9,162
Provision for income taxes		1,272			762		3,575		2,888
Net income	$	2,836		$	1,604	$	7,866	$	6,274
Earnings per common share:
Basic	$	0.39		$	0.22	$	1.09	$	0.87
Diluted	$	0.39		$	0.22	$	1.08	$	0.87
Weighted average shares outstanding:
Basic		7,209			7,180		7,203		7,171
Diluted		7,312			7,235		7,292		7,250
Dividends per common share	$	0.06		$	0.06	$	0.18	$	0.18

See accompanying notes to condensed consolidated financial statements

3

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2005			2004		2005			2004
Net income	$	2,836		$	1,604	$	7,866		$	6,274
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities, net:
Unrealized holding gain (loss) arising during the period		(891	)		3,440		(2,188	)		17
Less: reclassification adjustment for gain included in net income		—			5		—			5
Other comprehensive income (loss)		(891	)		3,435		(2,188	)		12
Total comprehensive income	$	1,945		$	5,039	$	5,678		$	6,286

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2005
(In thousands)
(Unaudited)

					Additional					Accumulated Other			Treasury
	Common Stock				Paid-In		Retained			Comprehensive			Stock
	Shares		At Par		Capital		Earnings			Income (Loss)			At Cost			Total
Balance at December 31, 2004		7,188	$	7,313	$	27,859	$	50,976		$	710		$	(1,135	)	$	85,723
Issuance of common stock		10		10		99		—			—			—			109
Re-issuance of treasury stock		13		—		172		—			—			101			273
Net income		—		—		—		7,866			—			—			7,866
Other comprehensive loss		—		—		—		—			(2,188	)		—			(2,188	)
Cash dividends ($0.18 per share)		—		—		—		(1,296	)		—			—			(1,296	)
Balance at September 30, 2005		7,211	$	7,323	$	28,130	$	57,546		$	(1,478	)	$	(1,034	)	$	90,487

See accompanying notes to condensed consolidated financial statements

4

METROCORP BANCSHARES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	For the Nine Months Ended
	September 30,
	2005			2004
Cash flows from operating activities:
Net income	$	7,866		$	6,274
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,031			1,002
Provision for loan losses		1,396			816
Gain on sale of securities		—			(7	)
Loss (gain) on foreclosed assets		316			(1,115	)
Loss on sale and disposal of premises and equipment		100			—
Gain on sale of loans		(42	)		(587	)
Amortization of premiums and discounts on securities		189			1,874
Amortization of net deferred loan fees		(1,351	)		(955	)
Changes in:
Loans held-for-sale		1,899			3,512
Accrued interest receivable		(194	)		376
Other assets		(633	)		(487	)
Accrued interest payable		31			1
Other liabilities		3,036			1,320
Net cash provided by operating activities		13,644			12,024
Cash flows from investing activities:
Purchases of securities available-for-sale		(26,953	)		(100,564	)
Proceeds from sales, maturities and principal paydowns of securities available-for-sale		51,029			72,644
Net change in loans		(21,165	)		(12,084	)
Proceeds from sale of foreclosed assets		2,450			3,273
Proceeds from sale of premises and equipment		4			—
Purchases of premises and equipment		(884	)		(1,759	)
Net cash provided by (used in) investing activities		4,481			(38,490	)
Cash flows from financing activities:
Net change in:
Deposits		33,494			16,930
Other borrowings		(16,815	)		6,702
Proceeds from issuance of common stock		109			50
Re-issuance of treasury stock		273			276
Dividends paid		(1,296	)		(1,289	)
Net cash provided by financing activities		15,765			22,669
Net increase (decrease) in cash and cash equivalents		33,890			(3,797	)
Cash and cash equivalents at beginning of period		32,073			36,927
Cash and cash equivalents at end of period	$	65,963		$	33,130

See accompanying notes to condensed consolidated financial statements

5

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The unaudited condensed consolidated financial statements include the accounts of MetroCorp Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary MetroBank, National Association (the “Bank”). The Bank was formed in 1987 and is engaged in commercial banking activities through its thirteen branches in Houston and Dallas, Texas. The Company considers itself one reporting segment. All material intercompany accounts and transactions have been eliminated in consolidation.

     The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the Company’s financial position at September 30, 2005, results of operations for the three and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004. Interim period results are not necessarily indicative of results for a full-year period.

     Certain amounts applicable to the prior periods have been reclassified to conform to the current presentation. Such reclassifications had no effect on net income, shareholders’ equity, or cash flow.

     These financial statements and the notes thereto should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2004.

2. SIGNIFICANT ACCOUNTING POLICIES

Stock-Based Compensation

     The Company grants stock options under several stock-based incentive compensation plans. The Company utilizes the intrinsic value method for its stock compensation plans. No compensation cost is recognized for fixed stock options in which the exercise price is equal to or greater than the estimated market price on the date of grant. In 1995, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 Accounting for Stock-Based Compensation, which if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the plans. Adoption of the expense recognition provisions of SFAS No. 123 is optional and the Company has decided not to elect these provisions of SFAS No. 123. However, pro forma disclosures as if the Company adopted the expense recognition provisions of SFAS No. 123 are required.

     If the fair value based method of accounting under SFAS No. 123 had been applied, the Company’s net income available for common shareholders and earnings per common share would have been reduced to the pro forma amounts indicated below (assuming that the fair value of options granted during the year are amortized over the vesting period):

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004
	(In thousands, except per share amounts)
Net income:
As reported	$	2,836	$	1,604	$	7,866	$	6,274
Pro forma		2,742		1,561		7,585		6,145
Stock-based compensation cost, net of income taxes:
As reported		—		—		—		—
Pro forma		94		43		281		129
Basic earnings per common share:
As reported		0.39		0.22		1.09		0.87
Pro forma		0.38		0.22		1.05		0.86
Diluted earnings per common share:
As reported		0.39		0.22		1.08		0.87
Pro forma		0.38		0.22		1.04		0.85

6

Stock-Based Compensation (Continued)

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

     In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance, is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and amends SFAS No. 95, Statement of Cash Flows. This revision of SFAS No. 123 eliminates the ability for public companies to measure share-based compensation transactions at the intrinsic value as allowed by APB Opinion No. 25, and requires that such transactions be accounted for based on the grant date fair value of the award. This Statement also amends SFAS No. 95, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. Under the intrinsic value method allowed under APB Opinion No. 25, the difference between the quoted market price as of the date of the grant and the contractual purchase price of the share is charged to operations over the vesting period, and no compensation expense is recognized for fixed stock options with exercise prices equal to the market price of the stock on the dates of grant. Under the fair value based method as prescribed by SFAS No. 123R, the Company is required to charge the value of all stock-based compensation to expense over the vesting period based on the computed fair value on the grant date of the award. The Statement does not specify a valuation technique to be used to estimate the fair value but states that the use of option-pricing models such as a lattice model (i.e. a binomial model) or a closed-end model (i.e. the Black-Scholes model) would be acceptable.

     The Company will adopt this Standard effective January 1, 2006, using the modified prospective method, recording compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Currently, the Company does not recognize compensation expense for stock-based compensation. Had the Company adopted SFAS No. 123R in prior periods, the impact on net income and earnings per share would have been similar to the pro forma net income and earnings per share in accordance with SFAS No. 123 as disclosed above.

New Accounting Pronouncements

     In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 provides guidance on the accounting for differences between contractual and expected cash flows from the purchaser’s initial investment in loans or debt securities acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3: (1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss accrual, or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be recognized prospectively through an adjustment of yield; and (3) requires the subsequent decreases in expected cash flows be recognized as an impairment. In addition, SOP 03-3 prohibits the creation or carrying over of a valuation allowance in the initial accounting of all loans within its scope that are acquired in a transfer. SOP 03-3 became effective for loans or debt securities beginning January 1, 2005. Upon adoption on January 1, 2005, there was no impact on the Company’s financial position, results of operations, or cash flows. The Company does not expect SOP 03-3 to have a material impact on its future financial condition, results of operations, or cash flows.

     In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, that addresses accounting for changes in accounting principle, changes in accounting estimates and changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions and error correction. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle and error correction unless impracticable to do so. SFAS No. 154 states an exception to retrospective application when a change in accounting principle, or the method of applying it, may be inseparable from the effect of a change in accounting estimate. When a change in principle is inseparable from a change in estimate, such as depreciation, amortization or depletion, the change to the financial statements is to be presented in a prospective manner. SFAS No. 154 and the required disclosures are effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.

7

New Accounting Pronouncements (Continued)

     In June 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, and directed the staff to issue proposed FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, as final. The final FSP will supersede EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and EITF Topic No. D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The final FSP (retitled FSP FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments) will replace the guidance set forth in paragraphs 10-18 of EITF Issue 03-1 with references to existing other-than-temporary impairment guidance, such as SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin No. 59, Accounting for Noncurrent Marketable Equity Securities, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. FSP FAS 115-1 codifies the guidance set forth in EITF Topic D-44 and clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made. FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periods beginning after December 15, 2005. The Company does not expect FSP FAS 115-1 to have a material impact on its future financial condition, results of operations, or cash flows.

     In July 2005, the FASB issued an exposure draft of a proposed Interpretation, Accounting for Uncertain Tax Positions — an Interpretation of FASB Statement No. 109. The proposed interpretation would require companies to recognize the best estimate of an uncertain tax positions only if it is probable of being sustained on audit by the taxation authorities. Subsequently, the tax benefit would be derecognized (by either recording a tax liability or decreasing a tax asset) when the probable threshold is no longer met and it is more likely than not that the tax position will not be sustained. It would require companies to assess all uncertain tax positions and only those meeting the probable threshold at the transition date would continue to be recognized. The difference between the amount previously recognized and the amount recognized after applying the proposed Interpretation would be recorded as the cumulative-effect adjustment (restatement is not permitted). The FASB expects to issue a final Interpretation, which would include amendments to Statement 109, in the first quarter of 2006.

3. SECURITIES AVAILABLE-FOR-SALE

     The amortized cost and approximate fair value of securities classified as available-for-sale is as follows:

	As of September 30, 2005									As of December 31, 2004
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value		Cost		Gain		Loss			Value
	(Dollars in thousands)
U.S. Government agencies	$	32	$	1	$	—		$	33	$	35	$	—	$	—		$	35
U.S. Government sponsored entities		31,361		—		(156	)		31,205		4,970		—		(18	)		4,952
Obligations of state and political subdivisions		17,161		727		—			17,888		18,105		1,030		—			19,135
Mortgage-backed securities and collateralized mortgage obligations		175,145		178		(2,655	)		172,668		222,977		1,344		(1,179	)		223,142
Other debt securities		1,318		2		—			1,320		1,979		14		—			1,993
Investment in ARM and CRA funds		19,241		41		(376	)		18,906		18,772		89		(205	)		18,656
FHLB/Federal Reserve Bank Stock		4,122		—		—			4,122		5,807		—		—			5,807
Total securities	$	248,380	$	949	$	(3,187	)	$	246,142	$	272,645	$	2,477	$	(1,402	)	$	273,720

8

The following table displays the gross unrealized losses and fair value of investments as of September 30, 2005 that were in a continuous unrealized loss position for the periods indicated:

	Less Than 12 Months					Greater Than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
						(Dollars in thousands)
U.S. Government sponsored entities	$	31,205	$	(156	)	$	—	$	—		$	31,205	$	(156	)
Mortgage-backed securities and collateralized mortgage obligations		109,978		(1,205	)		51,176		(1,450	)		161,154		(2,655	)
Investment in ARM and CRA funds		—		—			14,618		(376	)		14,618		(376	)
Total securities	$	141,183	$	(1,361	)	$	65,794	$	(1,826	)	$	206,977	$	(3,187	)

     Declines in the fair value of individual securities below their cost that are other than temporary would result in realized losses as the individual securities are written down to their fair value. Management believes that based upon the credit quality of the debt securities and the Company’s intent and ability to hold the securities until their recovery, none of the unrealized losses on securities should be considered other than temporary.

4. ALLOWANCE FOR LOAN LOSSES

     In the third quarter of 2005, the reserve for unfunded lending commitments was reclassified from the allowance for loan losses to other liabilities. Previously reported amounts were reclassified to conform to the current presentation. The effect of the reclassification was immaterial and had no effect on net income, shareholders’ equity or cash flow. The following table presents an analysis of the allowance for loan losses for the periods indicated:

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004
	(In thousands, except per share amounts)
Allowance for loan losses at beginning of period	$	10,372		$	10,598		$	10,501		$	10,308
Provision for loan losses		468			261			1,396			816
Charge-offs		(72	)		(624	)		(1,266	)		(1,799	)
Recoveries		38			221			175			1,131
Allowance for loan losses at end of period	$	10,806		$	10,456		$	10,806		$	10,456

9

5. EARNINGS PER COMMON SHARE

     Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Stock options can be dilutive common shares and are therefore considered in the earnings per share calculation, if dilutive. Stock options that are antidulutive are excluded from the earnings per share calculation. Stock options are antidilutive when the exercise price is higher than the current market price of the Company’s common stock. As of September 30, 2005, there were 78,500 antidilutive shares of stock options which were excluded from the diluted shares calculation. The number of potentially dilutive common shares is determined using the treasury stock method.

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004
	(In thousands, except per share amounts)
Net income available to common shareholders	$	2,836	$	1,604	$	7,866	$	6,274
Weighted average common shares outstanding:
Basic		7,209		7,180		7,203		7,171
Shares issuable under stock option plans		103		55		89		79
Diluted		7,312		7,235		7,292		7,250
Earnings per common share:
Basic	$	0.39	$	0.22	$	1.09	$	0.87
Diluted	$	0.39	$	0.22	$	1.08	$	0.87

6. ACQUISITION OF FIRST UNITED BANK AND ISSUANCE OF JUNIOR SUBORDINATED DEBENTURES

     On June 7, 2005, the Company entered into an Agreement and Plan of Reorganization to acquire First United Bank (“First United”), a commercial bank headquartered in San Diego, California. First United is a state chartered commercial bank with two branches located in San Diego and Los Angeles, California that focuses on small and medium-sized commercial and retail customers in the Asian community. The acquisition was consummated on October 5, 2005 for a cash consideration of $37.4 million. Following completion of the transaction, First United is being operated as a separate subsidiary of the Company. At September 30, 2005, First United had total assets of $178.3 million, total loans of $137.3 million and total deposits of $161.7 million.

     In September 2005, the Company formed MetroCorp Statutory Trust I (“Trust I”) and on October 3, 2005, Trust I issued 35,000 Floating Rate Capital Securities (the “Capital Securities”) with an aggregate liquidation value of $35,000,000 to a third party in a private placement. Concurrent with the issuance of the Capital Securities, Trust I issued trust common securities to the Company in the aggregate liquidation value of $1,083,000. The proceeds of the issuance of the Trust I Capital Securities and trust common securities were invested in $36,083,000 of the Company’s Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”). The net proceeds to the Company from the sale of the Debentures to the Trust were used to fund the Company’s acquisition of First United Bank.

     The Debentures accrue interest at a fixed rate of 5.7625% until December 15, 2010, at which time the Debentures will accrue interest at a floating rate equal to the 3-month LIBOR plus 1.55%. The quarterly distributions on Capital Securities will be paid at the same rate that interest is paid on the Debentures.

     The Debentures are subordinated to any other indebtedness of the Company that, by its terms, is not similarly subordinated. The Debentures mature on December 15, 2035, but are redeemable at the Company’s option at par plus accrued and unpaid interest on or after December 15, 2010. If the Company redeems any amount of the Debentures, the Trust must redeem a like amount of the Trust Preferred Securities. The Company has guaranteed the payment of distributions and payments on liquidation or redemption of the Trust Preferred Securities, but only in each case if and to the extent of funds held by the Trust.

7. LITIGATION

     Neither the Company nor the Bank is involved in any material legal proceedings at September 30, 2005. The Bank, from time to time, is a party to litigation which arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. After taking into consideration information furnished by counsel to the Company and the Bank, management believes that that the resolution of such issues will not have a material adverse impact on the financial condition, or result of operations of the Company or the Bank.

10

8. OFF-BALANCE SHEET ACTIVITIES

     The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include various guarantees, commitments to extend credit and standby letters of credit. Additionally, these instruments may involve, to varying degrees, credit risk in excess of the amount recognized in the statement of financial condition. The Bank’s maximum exposure to credit loss under such arrangements is represented by the contractual amount of those instruments. The Bank applies the same credit policies and collateralization guidelines in making commitments and conditional obligations as it does for on-balance sheet instruments. Off-balance sheet financial instruments include commitments to extend credit and guarantees under standby and other letters of credit. Unfunded loan commitments including unfunded lines of credit at September 30, 2005 and December 31, 2004 were $121.5 million and $106.0 million, respectively. Commitments under standby and commercial letters of credit at September 30, 2005 and December 31, 2004 were $11.7 million and $15.6 million, respectively.

     The contractual amount of the Company’s financial instruments with off-balance sheet risk at September 30, 2005 and December 31, 2004 is presented below (in thousands):

	As of		As of
	September 30, 2005		December 31, 2004
Unfunded loan commitments including unfunded lines of credit	$	121,531	$	105,975
Standby letters of credit		4,354		3,852
Commercial letters of credit		7,298		11,756
Operating leases		3,391		4,060
Total financial instruments with off-balance sheet risk	$	136,574	$	125,643

11

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

          Special Cautionary Notice Regarding Forward-looking Statements

     The statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not historical facts and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor provisions. These forward-looking statements include information about possible or assumed future results of the Company’s operations or performance. When the Company uses any of the words “believe”, “expect”, “anticipate”, “estimate”, “continue”, “intend”, “may”, “will”, “should”, or similar expressions, identifies these forward-looking statements. Many possible factors or events could affect the future financial results and performance of the Company and could cause those financial results or performance to differ materially from those expressed in the forward-looking statement. These possible events or factors include, without limitation:

• changes in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations;

• changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio;

• changes in local economic and business conditions which adversely affect the ability of the Company’s customers to transact profitable business with the Company, including the ability of borrowers to repay their loans according to their terms or a change in the value of the related collateral;

• increased competition for deposits and loans adversely affecting rates and terms;

• the Company’s ability to identify suitable acquisition candidates;

• the timing, impact and other uncertainties of the Company’s ability to enter new markets successfully and capitalize on growth opportunities;

• increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio;

• the failure of assumptions underlying the establishment of and provisions made to the allowance for loan losses;

• changes in the availability of funds resulting in increased costs or reduced liquidity;

• increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;

• the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes;

• the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; and

• changes in statutes and government regulations or their interpretations applicable to bank holding companies and our present and future banking and other subsidiaries, including changes in tax requirements and tax rates.

     All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless the securities laws require it to do so.

12

     Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company analyzes the major elements of the Company’s balance sheets and statements of income. This section should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and accompanying notes and other detailed information appearing elsewhere in this document.

Overview

     The Company recorded net income of $2.8 million for the three months ended September 30, 2005, up approximately $1.2 million compared with net income of $1.6 million for the same quarter in 2004. The Company’s diluted earnings per share (“EPS”) for the three months ended September 30, 2005 was $0.39 up $0.17 per diluted share compared with diluted EPS of $0.22 for the same quarter in 2004. Net income for the nine months ended September 30, 2005 was $7.9 million, up approximately $1.6 million compared with $6.3 million for the same period in 2004. The Company’s diluted EPS for the nine months ended September 30, 2005 was $1.08, up $0.21 from $0.87 for the same period in 2004. The improved performance was mainly a result of growth in both loans and deposits and an overall increase in the net interest margin. In addition, income in the third quarter of 2004 was reduced by a severance payment to a senior executive.

     Total assets were $934.5 million at September 30, 2005, up approximately $20.2 million or 2.2% from $914.3 million at December 31, 2004. Investment securities at September 30, 2005 were $246.1 million, down approximately $27.6 million or 10.1% from $273.7 million at December 31, 2004. Total loans, both held-for-investment and held-for-sale, at September 30, 2005 were $612.9 million, up approximately $18.4 million or 3.1% from $594.5 million at December 31, 2004. Total deposits at September 30, 2005 were $788.5 million, up approximately $33.4 million or 4.4% from $755.1 million at December 31, 2004. Other borrowings at September 30, 2005 were $44.0 million, down approximately $16.8 million or 27.6% from $60.8 million at December 31, 2004. The Company’s return on average assets (“ROAA”) for the three months ended September 30, 2005 and 2004 was 1.22% and 0.71%, respectively. The Company’s ROAA for the nine months ended September 30, 2005 and 2004 was 1.16% and 0.96%, respectively.

     Shareholders’ equity at September 30, 2005 was $90.5 million compared with $85.7 million at December 31, 2004, an increase of approximately $4.8 million or 5.6%. The Company’s return on average equity (“ROAE”) for the three months ended September 30, 2005 and 2004 was 12.48% and 7.83%, respectively. The Company’s ROAE for the nine months ended September 30, 2005 and 2004 was 11.90% and 10.55%, respectively.

Results of Operations

     Net Interest Income and Net Interest Margin. For the three months ended September 30, 2005, net interest income, before the provision for loan losses, was $10.1 million, up approximately $1.5 million or 17.6% from $8.6 million for the same quarter in 2004. The increase was primarily due to a $2.8 million increase in interest income that was partially offset by a $1.3 million increase in interest expense. Average interest-earning assets for the three months ended September 30, 2005 were $880.2 million, up approximately $21.1 million or 2.5% from $859.1 million for the same quarter in 2004. The weighted average yield on interest-earning assets for the three months ended September 30, 2005 was 6.47%, up 112 basis points from 5.35% for the same quarter in 2004. Average interest-bearing liabilities for the three months ended September 30, 2005 were $645.3 million, up approximately $8.6 million or 1.4% from $636.8 million for the same quarter in 2004. The weighted average rate paid on interest-bearing liabilities for the three months ended September 30, 2005 was 2.59%, up 76 basis points from 1.83% for the same quarter in 2004.

     For the nine months ended September 30, 2005, net interest income, before the provision for loan losses, was $29.3 million, up approximately $4.6 million or 18.4% from $24.7 million for the same period in 2004. The increase was primarily due to a $7.6 million increase in interest income that was partially offset by a $3.0 million increase in interest expense. Average interest-earning assets for the nine months ended September 30, 2005 were $871.7 million, up approximately $37.6 million or 4.5% from $834.1 million for the same period in 2004. The weighted average yield on interest-earning assets for the nine months ended September 30, 2005 was 6.20%, up 94 basis points from 5.26% for the same period in 2004. Average interest-bearing liabilities for the nine months ended September 30, 2005 were $639.2 million, up approximately $23.9 million or 3.9% from $615.3 million for the same period in 2004. The weighted average rate paid on interest-bearing liabilities for the nine months ended September 30, 2005 was 2.33%, up 56 basis points from 1.77% for the same period in 2004.

     The net interest margin for the three months ended September 30, 2005 was 4.57%, up 58 basis points from 3.99% for the same quarter in 2004. The increase was primarily the result of a 112 basis points increase in the yield on earning assets that resulted from higher loan yields. The yield on loans for the third quarter of 2005 was 7.60% compared with 6.15% for the third quarter of 2004, an increase of 145 basis points. The increase in net interest margin was partially offset by an increase in the cost of earning assets of 54 basis points. However, the effect of higher interest rates on the cost of interest-bearing liabilities was limited by lower other borrowings and an increase in noninterest-bearing deposits.

13

     The net interest margin for the nine months ended September 30, 2005 was 4.49%, up 53 basis points from 3.96% for the same period in 2004. The increase resulted primarily from an increase in the yield on earning assets of 94 basis points that was partially offset by a 41 basis points increase in the cost of earning assets.

     Total Interest Income. Total interest income for the three months ended September 30, 2005 was $14.3 million, up approximately $2.8 million or 24.3% from $11.5 million for the same period in 2004. Total interest income for the nine months ended September 30, 2005 was $40.4 million, up approximately $7.6 million or 23.0% from $32.9 million for the same period in 2004. The higher interest income in the third quarter of 2005, compared with the same quarter in 2004, was primarily the result of an increase in both average earning assets and average yield. The increase in average earning assets came primarily from loan growth. The yield on average earning assets for the third quarter of 2005 was 6.47% compared with 5.35% for the third quarter of 2004, an increase of 112 basis points. The Federal Reserve’s eleven interest rate increases between June 2004 and September 2005 contributed positively to the loan yield. Approximately $553.0 million or 89.9% of the loans in the loan portfolio are variable rate loans that reprice as the prime rate moves that benefit the Company during periods of increases in the prime rate.

     Interest Income from Loans. Interest income from loans for the three months ended September 30, 2005 was $11.6 million, up approximately $2.9 million or 33.6% from $8.6 million for the same quarter in 2004 primarily due to loan growth and increase in loan yield. Average total loans for the three months ended September 30, 2005 were $603.2 million compared with average total loans for the same quarter in 2004 of $559.7 million, an increase of approximately $43.5 million or 7.8%. For the three months ended September 30, 2005, the average yield on total loans was 7.60%, compared with 6.15% for the same quarter in 2004, an increase of 145 basis points.

     The average yield on total loans for the three months ended September 30, 2005 was approximately 118 basis points above the prime rate, which was supported by variable rate loans with interest rate floors that consisted of approximately $429.2 million or 69.7% of the total loan portfolio. At September 30, 2005, these loans carried a weighted average interest rate of 7.88%. At September 30, 2004, these loans represented 69.7% of the total loan portfolio and carried a weighted average interest rate of 6.11%.

     Interest income from loans for the nine months ended September 30, 2005 was $32.3 million, up approximately $7.2 million or 28.6% from $25.1 million for the same period in 2004, primarily due to the higher loan yields resulting from the rising interest rate environment and the higher average loan balances. Average total loans for the nine months ended September 30, 2005 were $598.6 million compared with average total loans for the same period in 2004 of $559.4 million, an increase of approximately $39.1 million or 7.0%. For the nine months ended September 30, 2005, the average yield on total loans was 7.21%, compared with 6.00% for the same period in 2004, an increase of 121 basis points.

     Interest Income from Investments. Interest income from investments (which includes investment securities, Federal Funds sold, and other investments) for the three months ended September 30, 2005 was $2.8 million, down approximately $100,000 or 3.5% compared with $2.9 million for the same quarter in 2004, primarily due to lower average investment balance. Average total investments for the three months ended September 30, 2005, were $277.0 million compared with average total investments for the same quarter in 2004 of $299.4 million, down approximately $22.4 million or 7.5%. For the three months ended September 30, 2005, the average yield on investments was 4.01% compared with 3.85% for the same quarter in 2004, an increase of 16 basis points.

     Interest income from investments for the nine months ended September 30, 2005 was $8.1 million, up approximately $380,000 or 4.9% compared with $7.8 million for the same period in 2004, primarily due to a higher yield in total investments. Average total investments for the nine months ended September 30, 2005 were $273.1 million compared with average total investments for the same period in 2004 of $274.7 million, down approximately $1.6 million or 0.6%. For the nine months ended September 30, 2005, the average yield on investments was 3.99% compared with 3.79% for the same period in 2004, an increase of 20 basis points.

     Total Interest Expense. Total interest expense for the three months ended September 30, 2005 was $4.2 million, up approximately $1.3 million or 43.9% compared with $2.9 million for the same quarter in 2004. Total interest expense for the nine months ended September 30, 2005 was $11.1 million, up approximately $3.0 million or 36.8% from $8.1 million for the same period in 2004. The higher interest expense for both periods in 2005, compared with 2004, primarily reflected an increase in interest-bearing deposits and higher interest rates.

     Interest Expense on Deposits. Interest paid on interest-bearing deposits for the three months ended September 30, 2005 was $3.9 million, up approximately $1.4 million or 58.3% compared with $2.4 million for the same period in 2004, The increase was primarily due to higher interest rates paid for interest-bearing deposits and higher interest-bearing deposit balances. Average interest-bearing deposits for the three months ended September 30, 2005 were $614.3 million compared with average interest-bearing deposits for the same quarter in 2004 of $567.0 million, an increase of $47.3 million or 8.3%. The average interest rate paid on interest-bearing deposits for the three months ended September 30, 2005 was 2.49% compared with 1.71% for the same quarter in 2004, an increase of 78 basis points. The increase in rates primarily reflected the impact of the Federal Reserve’s interest rate increases.

14

     Interest paid on interest-bearing deposits for the nine months ended September 30, 2005 was $9.7 million, up approximately $3.0 million or 43.6% compared with $6.8 million for the same period in 2004 and was primarily due to higher interest rates paid for interest-bearing deposits and higher interest-bearing deposit balances. Average interest-bearing deposits for the nine months ended September 30, 2005 were $591.0 million compared with average interest-bearing deposits for the same period in 2004 of $550.6 million, an increase of $40.4 million or 7.3%. The average interest rate paid on interest-bearing deposits for the nine months ended September 30, 2005 was 2.20% compared with 1.65% for the same period in 2004, an increase of 55 basis points.

     Interest Expense on Other Borrowed Funds. Interest paid on other borrowed funds for the three months ended September 30, 2005 was $365,000, down approximately $133,000 compared with $498,000 for the same period in 2004 and was primarily due to lower average borrowed funds balances that were partially offset by higher interest rates paid for borrowed funds. Average borrowed funds for the three months ended September 30, 2005 were $31.0 million compared with average borrowed funds for the same quarter in 2004 of $69.8 million, a decrease of $38.7 million. The decrease in borrowed funds reflected higher deposits obtained to repay advances from the Federal Home Loan Bank (“FHLB”). The average interest rate paid on borrowed funds for the three months ended September 30, 2005 was 4.67%, compared with 2.84% for the same quarter in 2004, an increase of 183 basis points.

     Interest paid on other borrowed funds for the nine months ended September 30, 2005 was $1.4 million, up approximately $46,000 from the same period in 2004 and was primarily due to higher interest rate paid on borrowed funds offset by lower average borrowings. Average borrowed funds for the nine months ended September 30, 2005 were $48.2 million compared with average borrowed funds for the same period in 2004 of $64.7 million, a decrease of $16.5 million. The average interest rate paid on other borrowings for the nine months ended September 30, 2005 was 3.94%, compared with 2.84% for the same period in 2004, an increase of 110 basis points.

15

     The following tables present the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates for the periods indicated. No tax-equivalent adjustments were made and all average balances are daily average balances. Nonaccruing loans have been included in the tables as loans having a zero yield with income, if any, recognized at the end of the loan term.

	For The Three Months Ended September 30,
	2005								2004
	Average			Interest		Average			Average			Interest		Average
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
	Balance			Paid		Rate(1)			Balance			Paid		Rate(1)
	(Dollars in thousands)
Assets
Interest-earning assets:
Total loans	$	603,225		$	11,552		7.60	%	$	559,703		$	8,649		6.15	%
Taxable securities		235,171			2,382		4.02			267,539			2,648		3.94
Tax-exempt securities		17,162			211		4.88			18,351			227		4.92
Federal funds sold and other temporary investments		24,659			207		3.33			13,509			25		0.74
Total interest-earning assets		880,217			14,352		6.47			859,102			11,549		5.35
Less allowance for loan losses		(10,631	)							(11,183	)
Total interest-earning assets, net of allowance for loan losses		869,586								847,919
Noninterest-earning assets		50,030								47,635
Total assets	$	919,616							$	895,554
Liabilities and shareholders’ equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	80,472			160		0.79	%	$	81,122			146		0.72	%
Savings and money market accounts		124,052			476		1.52			110,926			199		0.71
Time deposits		409,782			3,214		3.11			374,959			2,087		2.21
Other borrowings		31,026			365		4.67			69,750			498		2.84
Total interest-bearing liabilities		645,332			4,215		2.59			636,757			2,930		1.83
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		173,953								169,070
Other liabilities		10,178								8,267
Total liabilities		829,463								814,094
Shareholders’ equity		90,153								81,460
Total liabilities and shareholders’ equity	$	919,616							$	895,554
Net interest income				$	10,137							$	8,619
Net interest spread							3.88	%							3.52	%
Net interest margin							4.57	%							3.99	%

(1) Annualized.

16

	For The Nine Months Ended September 30,
	2005								2004
	Average			Interest		Average			Average			Interest		Average
	Outstanding			Earned/		Yield/			Outstanding			Earned/		Yield/
	Balance			Paid		Rate(1)			Balance			Paid		Rate(1)
	(Dollars in thousands)
Assets
Interest-earning assets:
Total loans	$	598,577		$	32,279		7.21	%	$	559,430		$	25,108		6.00	%
Taxable securities		240,467			7,163		3.98			243,224			7,018		3.85
Tax-exempt securities		17,327			641		4.95			18,642			693		4.97
Federal funds sold and other temporary investments		15,340			343		2.99			12,828			56		0.58
Total interest-earning assets		871,711			40,426		6.20			834,124			32,875		5.26
Less allowance for loan losses		(10,977	)							(10,904	)
Total interest-earning assets, net of allowance for loan losses		860,734								823,220
Noninterest-earning assets		47,557								47,859
Total assets	$	908,291							$	871,079
Liabilities and shareholders’ equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	85,111			507		0.80	%	$	76,410			364		0.64	%
Savings and money market accounts		113,572			942		1.11			111,780			571		0.68
Time deposits		392,305			8,274		2.82			362,379			5,838		2.15
Other borrowings		48,213			1,420		3.94			64,703			1,374		2.84
Total interest-bearing liabilities		639,201			11,143		2.33			615,272			8,147		1.77
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		172,651								169,137
Other liabilities		8,049								7,242
Total liabilities		819,901								791,651
Shareholders’ equity		88,390								79,428
Total liabilities and shareholders’ equity	$	908,291							$	871,079
Net interest income				$	29,283							$	24,728
Net interest spread							3.87	%							3.49	%
Net interest margin							4.49	%							3.96	%

(1) Annualized.

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     The following table presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities and distinguishes between changes in outstanding balances and changes in interest rates for the three and nine months ended September 30, 2005 compared with the three and nine months ended September 30, 2004. For purposes of this table, changes attributable to both rate and volume have been allocated to each accordingly.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2005 vs 2004									2005 vs 2004
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
	Volume			Rate			Total			Volume			Rate			Total
							(Dollars in thousands)
Interest-earning assets:
Loans (including loans held-for-sale)	$	698		$	2,205		$	2,903		$	1,732		$	5,439		$	7,171
Taxable securities		(314	)		48			(266	)		(86	)		231			145
Tax-exempt securities		(14	)		(2	)		(16	)		(49	)		(3	)		(52	)
Federal funds sold and other temporary investments		21			161			182			11			276			287
Total increase in interest income		391			2,412			2,803			1,608			5,943			7,551
Interest-bearing liabilities:
Interest-bearing demand deposits		14			—			14			41			102			143
Savings and money market accounts		24			253			277			9			362			371
Time deposits		200			927			1,127			476			1,960			2,436
Other borrowings		(276	)		143			(133	)		(351	)		397			46
Total increase (decrease) in interest expense		(38	)		1,323			1,285			175			2,821			2,996
Increase in net interest income	$	429		$	1,089		$	1,518		$	1,433		$	3,122		$	4,555

     Provision for Loan Losses. Provisions for loan losses are charged to income to bring the Company’s allowance for loan losses to a level which management considers adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses for the three months ended September 30, 2005 was $468,000, a $207,000 increase compared with $261,000 for the same period in 2004 primarily due to growth of the loan portfolio as well as an increase in nonaccrual loans. The provision for loan losses for the nine months ended September 30, 2005 was $1.4 million, up approximately $580,000 compared with the provision in the same period of 2004. Management regularly reviews the Company’s loan loss allowance in accordance with its standard procedures. See “Financial Condition — Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.”

     Noninterest Income. Noninterest income for the three months ended September 30, 2005 was $2.1 million, up approximately $248,000 or 13.5% compared with $1.8 million for the same three months in 2004. The increase was primarily the result of an increase in service and loan-related fees in the third quarter of 2005.

     Noninterest income for the nine months ended September 30, 2005 was $6.2 million, down approximately $181,000 or 2.9% compared with $6.3 million for the same period in 2004. The decrease was primarily the result of lower gain on sale of loans, partially offset by higher loan-related fees.

     Noninterest Expense. Noninterest expense for the three months ended September 30, 2005 was $7.6 million, down approximately $183,000 or 2.3% compared with $7.8 million for the same period in 2004. The decrease was a result of lower salaries and benefits, partially offset by an increase in other noninterest expense. Salaries and benefits expense for the three months ended September 30, 2005 was $4.2 million, down $575,000 compared with $4.8 million for the same period in 2004, primarily due to a severance payment of approximately $800,000 made to a senior executive in the third quarter of 2004. Other noninterest expense for the three months ended September 30, 2005 was $2.1 million, up $471,000 compared with $1.6 million for the same period in 2004 and primarily related to Sarbanes-Oxley compliance costs in the third quarter of 2005 and a franchise tax refund in the same period of 2004.

     Noninterest expense for the nine months ended September 30, 2005 was $22.6 million, up $1.5 million or 7.2% compared with $21.1 million for the same period in 2004, primarily due to a write-down on foreclosed assets of approximately $391,000 in the first quarter of 2005 and a $67,000 net gain on the sale of foreclosed assets in the third quarter of 2005, compared with a $844,000 net gain on the sale of foreclosed assets for the nine months ended September 30, 2004. Other noninterest expense for the nine months ended September 30, 2005 was up approximately $480,000 compared with the same period in 2004, primarily due to expenses associated with the First United Bank acquisition, a branch consolidation in Dallas, and Sarbanes-Oxley compliance costs.

18

     The Company’s efficiency ratio for the three months ended September 30, 2005 was 62.57%, compared with 74.88% for the same quarter in 2004, primarily due to lower noninterest expense in the third quarter of 2005. The Company’s efficiency ratio for the nine months ended September 30, 2005 was 63.77%, a decrease from 67.88% for the same period in 2004 and was primarily due to improved net interest income.

     Income Taxes. Income tax expense for the nine months ended September 30, 2005 was $3.6 million, compared with $2.9 million for the same period in 2004. The Company’s effective tax rate was 31.25% and 31.52% for the nine months ended September 30, 2005 and 2004, respectively. The effective tax rate is affected by the amount of tax-exempt income in relation to taxable income.

Financial Condition

     Loan Portfolio. Total loans at September 30, 2005 were $612.9 million, up $18.4 million or 3.1% from $594.5 million at December 31, 2004. Compared with the loan level at December 31, 2004, commercial and industrial loans decreased $19.6 million and real estate loans increased $38.8 million during the nine months ended September 30, 2005. At September 30, 2005, the Company had approximately $50.3 million or 8.2% of its loan portfolio concentrated in the hospitality industry, compared with $56.0 million or 9.4 % of its loan portfolio at December 31, 2004, and $56.5 million or 9.9% at September 30, 2004. At September 30, 2005 and December 31, 2004, the ratio of total loans to total deposits was 77.7% and 78.7% respectively. At the same dates, total loans represented 65.6% and 65.0% of total assets, respectively.

     The following table summarizes the net loan portfolio (including loans held-for-sale) of the Company by type of loan:

	As of September 30, 2005						As of December 31, 2004
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Commercial and industrial	$	325,974			52.97	%	$	345,570			57.88	%
Real estate mortgage
Residential		7,924			1.29			11,199			1.87
Commercial		229,978			37.37			188,121			31.51
		237,902			38.66			199,320			33.38
Real estate construction
Residential		9,587			1.56			9,761			1.64
Commercial		33,278			5.41			32,868			5.50
		42,865			6.97			42,629			7.14
Consumer and other		8,604			1.40			9,556			1.60
Gross loans		615,345			100.00	%		597,075			100.00	%
Less: unearned discounts, interest and deferred fees		(2,441	)					(2,539	)
Total loans		612,904						594,536
Less: allowance for loan losses		(10,806	)					(10,501	)
Loans, net	$	602,098					$	584,035

     Nonperforming Assets. Total nonperforming assets at September 30, 2005 were $19.6 million, an increase of $1.4 million compared with $18.3 million at December 31, 2004. The increase was primarily due to one loan relationship being placed on nonaccrual status in the first quarter of 2005 and the result of a customer impacted by Hurricane Rita. A $2.8 million distressed loan to a shrimp processor was placed on nonaccrual status after the business suffered severe damage during the recent hurricane. The customer’s business is not in operation at this time and it is not known when the inventory will be able to be shipped and sold, nor when shrimp processing, which generates cash flow, will be able to resume. As a result, the Bank placed the loan on nonaccrual status until the ability of the business to generate sufficient cash flow to service debt has been resolved. Management does not currently expect the loss to exceed what was previously accrued, but future changes in circumstances or other factors could cause management to reevaluate its position.

     At September 30, 2005, nonperforming assets consisted of $19.5 million in nonaccrual loans, and $95,000 in accruing loans that were 90 days or more past due. Net nonperforming assets at September 30, 2005 were $17.5 million compared with $15.2 million at December 31, 2004, an increase of $2.3 million or 15.3%. Approximately $12.6 million of such nonaccrual loans are collateralized by real estate, which represented 64.5% of total nonaccrual loans at September 30, 2005, compared with $11.1 million or 67.4% at December 31, 2004.

19

     The ratios for net nonperforming assets to total loans and other real estate at September 30, 2005 and December 31, 2004 were 2.86% and 2.55%, respectively. The ratios for net nonperforming assets to total assets were 1.88% and 1.66% for the same periods, respectively. These ratios take into consideration guarantees from the United States Department of Commerce’s Small Business Administration (the “SBA”), the Export Import Bank of the United States (the “Ex-Im Bank”), an independent agency of the United States Government, and the Overseas Chinese Community Guaranty Fund (“OCCGF”), an agency sponsored by the government of Taiwan, which were $2.1 million at September 30, 2005 and $3.0 million at December 31, 2004.

     The Company is involved in the origination and sale of certain federally guaranteed loans into the secondary market with servicing retained. Under the terms of the SBA program, the Company may repurchase any loan that may become nonperforming. The Company’s nonperforming loans may increase during the period of time in which any loan repurchased is either restored to an accrual status or the Company files a claim with the SBA for the guaranteed portion of the loan.

     The following table presents information regarding nonperforming assets at the periods indicated:

	As of			As of
	September 30, 2005			December 31, 2004
	(Dollars in thousands)
Nonaccrual loans	$	19,546		$	16,504
Accruing loans 90 days or more past due		95			181
Other real estate (“ORE”) and other assets repossessed (“OAR”)		—			1,566
Total nonperforming assets		19,641			18,251
Less: Nonperforming loans guaranteed by the SBA, Ex-Im Bank and OCCGF		(2,101	)		(3,032	)
Total net nonperforming assets	$	17,540		$	15,219
Total nonperforming assets to total assets		2.10	%		2.00	%
Total nonperforming assets to total loans and ORE		3.20	%		3.06	%
Net nonperforming assets to total assets (1)		1.88	%		1.66	%
Net nonperforming assets to total loans and ORE (1)		2.86	%		2.55	%

(1) Net nonperforming assets are net of the loan portions guaranteed by the SBA, Ex-Im Bank and OCCGF.

     A loan is considered impaired, based on current information and events, if management believes that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement. An insignificant delay or insignificant shortfall in the amount of payment does not require a loan to be considered impaired. If the measure of the impaired loan is less than the recorded investment in the loan, a specific reserve is established for the shortfall as a component of the Company’s allowance for loan loss methodology. The Company considers all nonaccrual loans to be impaired.

     The following is a summary of impaired loans as of the dates indicated:

	As of		As of
	September 30, 2005		December 31, 2004
	(Dollars in thousands)
Impaired loans with no SFAS No. 114 valuation reserve	$	18,239	$	15,339
Impaired loans with a SFAS No. 114 valuation reserve		4,052		3,967
Total recorded investment in impaired loans	$	22,291	$	19,306
Valuation allowance related to impaired loans	$	1,714	$	1,751

20

     The average recorded investment in impaired loans during the nine months ended September 30, 2005 and the year ended December 31, 2004 was $20.4 million and $20.8 million, respectively. Interest income on impaired loans of $158,341 was recognized for cash payments received during the nine months ended September 30, 2005.

     Allowance for Loan Losses and Reserve for Unfunded Lending Commitments. At September 30, 2005 and 2004, the allowance for loan losses was $10.8 million and $10.5 million, respectively, or 1.76% and 1.85% of total loans, respectively. At December 31, 2004, the allowance for loan losses was $10.5 million, or 1.77% of total loans. Net charge-offs for the three months ended September 30, 2005 were $34,000 compared with $403,000 for the same period in 2004. Net charge-offs for the nine months ended September 30, 2005 were $1.1 million compared with $668,000 for the same period in 2004. The increase in net charge-offs for the nine months ended September 30, 2005 primarily consisted of an $800,000 charge-off on one nonperforming credit, taken against the specific reserve for that credit in the second quarter of 2005.

     The Company maintains a reserve for unfunded commitments to provide for the risk of loss inherent in its unfunded lending related commitments. In the third quarter of 2005, the reserve for unfunded lending commitments was reclassified from the allowance for loan losses to other liabilities. Previously reported amounts were reclassified to conform to the current presentation. The effect of the reclassification was immaterial and had no effect on net income, shareholders’ equity or cash flow. The process used in determining the reserve is consistent with the process used for the allowance for loan losses discussed below.

     The allowance for loan losses and reserve for unfunded commitments are maintained at levels that the Bank believes are adequate to absorb probable losses inherent in the loan portfolio and unfunded lending commitments as of the date of the financial statements. Policies and procedures have been developed to assess the adequacy of the allowance for loan losses and the reserve for unfunded lending commitments that include the monitoring of qualitative and quantitative trends including changes in past due levels, criticized and non-performing loans, and charge-offs. The allowance for loan losses is increased by provisions charged against current earnings and is reduced by net charge-offs. Loans are charged off when they are deemed to be uncollectible in whole or in part. Recoveries are recorded when cash payments are received. In developing the assessment, we rely on estimates and exercise judgment regarding matters where the ultimate outcome is uncertain. Circumstances may change and future assessments of credit risk may yield materially different results, resulting in an increase or decrease in the allowance for credit losses. The Company employs a systematic methodology for determining the allowance for credit losses that consists of four components: (1) a formula-based general reserve based on historical average losses by loan grade, (2) specific reserves on larger individual credits that are based on the difference between the current loan balance and the loan’s estimated fair value, (3) an unallocated component that reflects the inherent uncertainty of estimates and unforeseen events that allow the Bank to fully capture probable losses in the loan portfolio, and (4) a reserve for unfunded commitments.

     Other factors we may consider in setting the general reserve include, but are not limited to, changes in the quality of the loan portfolio as determined by loan quality grades assigned to each loan, an assessment of known problem loans, potential problem loans, and other loans that exhibit weaknesses or deterioration, the general economic environment in the Company’s markets as well as the national economy, particularly the real estate markets, value of the collateral securing loans, payment history, cash flow analysis of borrowers and other historical information. After the aforementioned assessment of the loan portfolio, the general economic environment and other relevant factors, changes are implemented in the allowance for loan losses. While this methodology is consistently followed, future changes in circumstances, economic conditions or other factors could cause management to reevaluate the level of the allowance for loan losses.

     The Director’s Loan Committee reviews and approves the allowance for credit losses monthly and performs a comprehensive analysis quarterly. The allowance for credit losses is also subject to federal banking regulations. The Company’s primary regulators conduct periodic examinations of the allowance for credit losses and make assessments regarding its adequacy and the methodology used in its determination.

21

     The following table presents an analysis of the allowance for loan losses and reserve for unfunded lending commitments for the periods indicated:

	As of and for the
	Three Months Ended September 30,
	2005			2004
	(Dollars in thousands)
Average total loans outstanding for the period	$	603,225		$	559,703
Total loans outstanding at end of period	$	612,904		$	566,119
Allowance for loan losses at beginning of period	$	10,372		$	10,598
Provision for loan losses		468			261
Charge-offs:
Commercial and industrial		(19	)		(606	)
Real estate mortgage		—			—
Real estate construction		—			—
Consumer and other		(53	)		(18	)
Total charge-offs		(72	)		(624	)
Recoveries:
Commercial and industrial		34			170
Real estate mortgage		—			1
Real estate construction		—			—
Consumer and other		4			50
Total recoveries		38			221
Net charge-offs		(34	)		(403	)
Allowance for loan losses at end of period		10,806			10,456
Reserve for unfunded lending commitments at beginning of period		334			435
Provision for unfunded lending commitments		82			(46	)
Reserve for unfunded lending commitments at end of period		416			389
Allowance for credit losses	$	11,222		$	10,845
Ratio of allowance for loan losses to end of period total loans		1.76	%		1.85	%
Ratio of net charge-offs to average total loans		0.01	%		0.07	%
Ratio of allowance for loan losses to end of period total nonperforming loans (1)		55.02	%		52.64	%
Ratio of allowance for loan losses to end of period net nonperforming loans (2)		61.61	%		62.70	%

(1)	Total nonperforming loans are nonaccrual loans plus loans over 90 days past due.
(2)	Net nonperforming loans are nonaccrual loans plus loans over 90 days past due, and less loan portion guaranteed by the SBA, Ex-Im Bank and OCCGF.

22

	As of and for the
	Nine Months Ended September 30,
	2005			2004
	(Dollars in thousands)
Average total loans outstanding for the period	$	598,577		$	559,430
Total loans outstanding at end of period	$	612,904		$	566,119
Allowance for loan losses at beginning of period	$	10,501		$	10,308
Provision for loan losses		1,396			816
Charge-offs:
Commercial and industrial		(1,033	)		(1,732	)
Real estate mortgage		—			—
Real estate construction		(5	)		—
Consumer and other		(228	)		(67	)
Total charge-offs		(1,266	)		(1,799	)
Recoveries:
Commercial and industrial		139			966
Real estate mortgage		1			103
Real estate construction		—			—
Consumer and other		35			62
Total recoveries		175			1,131
Net charge-offs		(1,091	)		(668	)
Allowance for loan losses at end of period		10,806			10,456
Reserve for unfunded lending commitments at beginning of period		362			140
Provision for unfunded lending commitments		54			249
Reserve for unfunded lending commitments at end of period		416			389
Allowance for credit losses	$	11,222		$	10,845
Ratio of allowance for loan losses to end of period total loans		1.76	%		1.85	%
Ratio of net charge-offs to average total loans		0.18	%		0.12	%
Ratio of allowance for loan losses to end of period total nonperforming loans (1)		55.02	%		52.64	%
Ratio of allowance for loan losses to end of period net nonperforming loans (2)		61.61	%		62.70	%

(1)	Total nonperforming loans are nonaccrual loans plus loans over 90 days past due.
(2)	Net nonperforming loans are nonaccrual loans plus loans over 90 days past due, and less loan portion guaranteed by the SBA, Ex-Im Bank and OCCGF.

23

     Securities. At September 30, 2005, the securities portfolio was $246.1 million, a decrease of $27.6 million or 10.1% from $273.7 million at December 31, 2004. The decrease was primarily due to prepayments in mortgage-backed securities and collateralized mortgage obligations that exceeded portfolio reinvestment. The securities portfolio is primarily comprised of mortgage-backed securities, collateralized mortgage obligations, tax-free municipal bonds, U.S. government agency securities, and U.S. government sponsored entity securities. The securities portfolio has historically been funded primarily by the liquidity created from deposit growth and loan prepayments in excess of loan funding requirements. In the past, short-term borrowings from the FHLB have been utilized to fund securities purchased, but as of September 30, 2005, no such borrowings were used to fund the securities portfolio.

     Deposits. At September 30, 2005, total deposits were $788.5 million, up $33.5 million or 4.4% from $755.1 million at December 31, 2004. Noninterest-bearing demand deposits at September 30, 2005 increased $8.6 million or 5.3% to $171.8 million from $163.2 million at December 31, 2004. Interest-bearing deposits at September 30, 2005 increased $24.9 million or 4.2% to $616.8 million from $591.9 million at December 31, 2004. The Company’s ratios of noninterest-bearing demand deposits to total deposits at September 30, 2005 and December 31, 2004 were 21.8% and 21.6%, respectively.

     Other Borrowings. Other borrowings at September 30, 2005 were $44.0 million, down approximately $16.8 million, or 27.6% compared with other borrowings of $60.8 million at December 31, 2004. The Company used growth in deposits to repay FHLB borrowings. The Company has two ten-year loans totaling $25.0 million from the FHLB of Dallas, maturing in September 2008, to diversify its funding sources. The ten-year loans bear interest at an average rate of 4.99% per annum and are callable quarterly at the discretion of the FHLB. The Company also has short-term FHLB advances of $18.0 million with a fixed rate of 3.83% and scheduled to mature in October 2005. These short-term borrowings provided additional liquidity reserves in anticipation of Hurricane Rita. Other short-term borrowings at September 30, 2005 consisted of approximately $1.0 million in U.S. Treasury tax and loan accounts.

     The following table provides an analysis of the Company’s other borrowings:

	As of and for the			As of and for the
	Nine Months Ended			Year Ended
	September, 2005			December 31, 2004
	(Dollars in thousands)
Federal funds purchased:
at end of period	$	—		$	—
average during the period		15			—
maximum month-end balance during the period		—			—
FHLB notes:
at end of period	$	43,000		$	59,900
average during the period		47,494			63,288
maximum month-end balance during the period		72,500			74,300
Interest rate at end of period		4.51	%		3.46	%
Interest rate during the period		4.00			2.93
Other short-term borrowings:
at end of period	$	1,034		$	949
average during the period		704			734
maximum month-end balance during the period		1,034			1,057

     Liquidity. The Company’s loan to deposit ratio at September 30, 2005 was 77.7%. As of this same date, the Company had commitments to fund loans in the amount of $121.5 million. At September 30, 2005, the Company had stand-by letters of credit of $4.4 million, for which the Company has recorded a liability of $23,141 at September 30, 2005, for the fair value of the Company’s probable obligations. Available sources to fund these commitments and other cash demands of the Company come from loan and investment securities repayments, deposit inflows, and unsecured lines of credit. With its current level of collateral, the Company has the ability to borrow an additional $369.5 million from the FHLB. Additionally, the Company had an unused, unsecured line of credit with a correspondent bank of $5.0 million at September 30, 2005.

24

     Capital Resources. Shareholders’ equity at September 30, 2005 was $90.5 million compared with $85.7 million at December 31, 2004, an increase of approximately $4.8 million. This increase was primarily the result of $7.9 million of net income, offset by a decrease in accumulated other comprehensive income of $2.2 million, and dividend payments of approximately $1.3 million.

     The following table provides a comparison of the Company’s and the Bank’s leverage and risk-weighted capital ratios as of September 30, 2005 to the minimum and well-capitalized regulatory standards:

	Minimum			To Be Categorized as
	Required For			Well Capitalized Under
	Capital Adequacy			Prompt Corrective			Actual Ratio At
	Purposes			Action Provisions			September 30, 2005
The Company
Leverage ratio		4.00	%(1)		N/A	%		10.08	%
Tier 1 risk-based capital ratio		4.00			N/A			13.30
Risk-based capital ratio		8.00			N/A			14.56
The Bank
Leverage ratio		4.00	%(2)		5.00	%		9.82	%
Tier 1 risk-based capital ratio		4.00			6.00			12.95
Risk-based capital ratio		8.00			10.00			14.21

(1)	The Federal Reserve Board may require the Company to maintain a leverage ratio above the required minimum.
(2)	The OCC may require the Bank to maintain a leverage ratio above the required minimum.

     Critical Accounting Policies. The Company has established various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of the Company’s financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

     The Company believes the allowance for loan losses and reserve for unfunded lending commitments is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. In estimating the allowance for loan losses and reserve for unfunded lending commitments, management reviews the effect of changes in the local real estate market on collateral values, the effect of current economic indicators on the loan portfolio and their probable impact on borrowers and increases or decreases in nonperforming and impaired loans. Changes in these factors may cause management’s estimate of the allowance and reserve to increase or decrease and result in adjustments to the Company’s provision for loan losses and provision for unfunded lending commitments. See —“Financial Condition — Allowance for Loan Losses and Reserve for Unfunded Lending Commitments”.

25

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     There have been no material changes in the market risk information previously disclosed in the Company’s Form 10-K for the year ended December 31, 2004. See Form 10-K, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Interest Rate Sensitivity and Liquidity.”

Item 4. Controls and Procedures

     Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective.

     Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

26

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

     The Company’s wholly owned subsidiary, MetroBank, N.A., is a party to litigation incidental to various aspects of its operations, in the ordinary course of business. Management is not currently aware of any litigation that will have a material adverse impact on the Company’s consolidated financial condition, results of operations, or cash flows.

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

          Not applicable

Item 3. Defaults Upon Senior Securities

          Not applicable

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

          Not applicable

Item 5. Other Information

          Not applicable

27

Item 6. Exhibits

Exhibit
Number	Identification of Exhibit
11	- Computation of Earnings Per Common Share, included as Note (5) to the unaudited Condensed Consolidated Financial Statements on Page 10 of this Form 10-Q.
31.1*	- Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	- Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*	- Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	- Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Furnished herewith.

28

SIGNATURES

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

	METROCORP BANCSHARES, INC.
	By:	/s/ George M. Lee
Date: November 10, 2005		George M. Lee
		Chief Executive Officer (principal executive officer)
Date: November 10, 2005	By:	/s/ David C. Choi
		David C. Choi
		Chief Financial Officer (principal financial officer/
		principal accounting officer)

29

EXHIBIT INDEX

Exhibit
Number	Identification of Exhibit
11	- Computation of Earnings Per Common Share, included as Note (5) to the unaudited Condensed Consolidated Financial Statements on Page 10 of this Form 10-Q.
31.1*	- Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	- Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*	- Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	- Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Furnished herewith.

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

     I, George M. Lee, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2005

/s/ George M. Lee

George M. Lee

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

     I, David C. Choi, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2005

/s/ David C. Choi

David C. Choi

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George M. Lee, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and operating results of the Company.

/s/ George M. Lee

George M. Lee

Chief Executive Officer

November 10, 2005

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David C. Choi, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and operating results of the Company.

/s/ David C. Choi

David C. Choi

Chief Financial Officer

November 10, 2005