10-Q/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

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

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. Yesþ Noo.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filero       Accelerated filer o       Non-Accelerated filer þ

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

Explanatory Note

     The purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of MetroCorp Bancshares, Inc. (the “Company”) for the quarter ended September 30, 2005 (the “Original Form 10-Q”) is to restate the Company’s interim consolidated financial statements as of and for the nine months ended September 30, 2005 and 2004 to correct the amounts on the Company’s consolidated statements of cash flows related to cash receipts from sales and repayments of loans held-for-sale as more fully discussed in Note 9 to the accompanying interim consolidated financial statements. Specifically, the amounts presented in the Company’s consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 in this Amendment No. 1 reflect a correction in the presentation of the Company’s cash receipts from sales and repayments of loans held-for-sale that were acquired for investment which were previously reported as operating cash flows in the consolidated statements of cash flows. Because these loans were acquired by the Company for investment, cash receipts from sales and repayments of these loans should have been classified as investing cash flows in the consolidated statements of cash flows. This correction resulted in a reclassification of cash receipts from loans held-for-sale from operating cash flows to investing cash flows in the consolidated statements of cash flows. There was no change in the total increase or decrease in cash and cash equivalents. Further, these changes had no effect on the Company’s consolidated statements of income, consolidated balance sheets or consolidated statements of changes in shareholders’ equity.

     In addition, the Company has amended Item 4, Controls and Procedures, to update the disclosure regarding disclosure controls and procedures and internal control over financial reporting.

     As a result of the restatement, the Company has determined it to be necessary to amend the Original Form 10-Q. This Amendment No. 1 amends and restates in its entirety Part I, Items 1 and 4 and Part II, Item 6 of the Original Form 10-Q. This Amendment No. 1 continues to reflect circumstances as of the date of the filing of the Original Form 10-Q and does not reflect events occurring after the filing of the Original Form 10-Q, or modify or update those disclosures in any way, except as required to reflect the effect of the restatement as described in Note 9 to the accompanying interim consolidated financial statements.

2

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 short-term 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

3

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 short-term 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

4

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

5

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

	For the Nine Months Ended
	September 30,
	2005			2004
	Restated-see			Restated-see
	Note 9			Note 9
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:
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		11,745			8,512
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		(19,266	)		(8,572	)
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		6,380			(34,978	)
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

6

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

7

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.

8

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

9

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 Value		Unrealized			Fair Value		Unrealized			Fair Value		Unrealized
			Loss					Loss					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

10

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 antidilutive 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.

11

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

9. RESTATEMENT OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the issuance of the Company’s interim consolidated financial statements as of and for the nine months ended September 30, 2005, the Company restated its historical consolidated financial statements for the nine months ended September 30, 2005 and 2004 to correct the classification of cash receipts from sales and repayments of loans held-for-sale on the consolidated statements of cash flows. The Company previously reported the cash receipts from sales and repayments of loans held-for-sale that were acquired for investment as operating cash flows in the consolidated statements of cash flows. Because these loans were acquired by the Company for investment, cash receipts from sales and repayments of these loans should be classified as investing cash flows in the consolidated statements of cash flows.

     The restatement does not impact the total increase or decrease in cash and cash equivalents. Further, the restatement has no impact on the Company’s consolidated statements of income, consolidated balance sheets or consolidated statements of changes in shareholders’ equity. The effect of the restatement on the Company’s previously reported consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 is as follows:

	Nine months ended		Nine months ended
	September 30, 2005		September 30, 2004
	(Dollars in thousands)
Net cash provided by operating activities
As previously reported	$	13,644	$	12,024
As restated		11,745		8,512
Net cash provided by (used in) investing activities
As previously reported	$	4,481	$	(38,490	)
As restated		6,380		(34,978	)

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Item 4. Controls and Procedures

     Evaluation of Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2005. As defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure. Based upon that evaluation and the subsequent restatement of the Company’s interim consolidated financial statements that management determined resulted from the material weakness described below, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2005 the Company’s disclosure controls and procedures were not effective.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management identified the following material weakness in its assessment as of December 31, 2005. The Company did not maintain effective controls over the classification and presentation of cash receipts from sales and repayments of loans held-for-sale in the consolidated statement of cash flows. Specifically, the Company recorded the cash receipts from sales and repayments of loans held-for-sale that were acquired for investment as operating activities instead of investing activities as required by generally accepted accounting principles. This control deficiency resulted in the restatement of the Company’s consolidated financial statements for the years ended December 31, 2004 and 2003 and the interim consolidated financial statements for the three months ended March 31, 2005, the six months ended June 30, 2005, and the nine months ended September 30, 2005, as well as an audit adjustment to the Company’s consolidated financial statements for the year ended December 31, 2005. Because this control deficiency could result in a misstatement of operating and investing cash flows that would result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected, management determined that this control deficiency constitutes a material weakness.

     Remediation of Material Weakness. In order to address the above material weakness in the Company’s internal control over financial reporting, during the first quarter of 2006 management implemented controls to aid in correctly classifying amounts related to cash receipts from sales and repayments of loans held-for-sale reflected in the consolidated statements of cash flows, including a more detailed cash flow statement preparation checklist. The Company will continue to monitor, evaluate and test the operating effectiveness of these controls.

     Changes in Internal Control Over Financial Reporting. There have been no changes in the Company’s internal control over financial reporting during the third quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

13

PART II

OTHER INFORMATION

Item 6. Exhibits

Exhibit
Number	Identification of Exhibit
11	- Computation of Earnings Per Common Share, included as Note (3) to the unaudited Condensed Consolidated Financial Statements on Page 8 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.

*	Filed herewith.
**	Furnished herewith.

14

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: March 14, 2006		George M. Lee
		Chief Executive Officer (principal executive officer)
Date: March 14, 2006	By:	/s/ David C. Choi
		David C. Choi
		Chief Financial Officer (principal financial officer/ principal accounting officer)

15

EXHIBIT INDEX

Exhibit
Number	Identification of Exhibit
11	- Computation of Earnings Per Common Share, included as Note (3) to the unaudited Condensed Consolidated Financial Statements on Page 8 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.

*	Filed herewith.
**	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 Amendment No. 1 to the quarterly report on Form 10-Q/A 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: March 14, 2006

/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 Amendment No. 1 to the quarterly report on Form 10-Q/A 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: March 14, 2006

/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 this Amendment No. 1 to the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q/A 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

March 14, 2006

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 this Amendment No. 1 to the quarterly report of MetroCorp Bancshares, Inc. (the “Company”) on Form 10-Q/A 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

March 14, 2006