UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010



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

Commission file number: 0-25141





MetroCorp
Bancshares, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Texas                                                          |  | 76-0579161                          
|(State or other jurisdiction of
incorporation or organization) |  | (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.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).    Yes   ̈    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈                                                |  | Accelerated Filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated Filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller Reporting Company |  | x

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

As of April 30, 2010, the number of outstanding shares of Common Stock was 12,271,315









---

PART I

FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------

METROCORP BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                             |  | March 31,2010 |           |   | December 31,2009 |  
|ASSETS                                                                                                                                                                                       |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                             |  |              
|Cash and due from banks                                                                                                                                                                      |  | $             | 25,256    |   |                  | $ | 26,087    |  
|Federal funds sold and other short-term investments                                                                                                                                          |  |               | 107,059   |   |                  |   | 82,006    |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total cash and cash equivalents                                                                                                                                                              |  |               | 132,315   |   |                  |   | 108,093   |  
|Securities available-for-sale, at fair value                                                                                                                                                 |  |               | 93,312    |   |                  |   | 98,368    |  
|Securities held-to-maturity (fair value $4,348 and $4,352 at March 31, 2010 and December 31, 2009,
respectively)                                                                             |  |               | 4,044     |   |                  |   | 4,044     |  
|Other investments                                                                                                                                                                            |  |               | 17,329    |   |                  |   | 21,577    |  
|Loans, net of allowance for loan losses of $34,732 and $29,403, respectively                                                                                                                 |  |               | 1,217,510 |   |                  |   | 1,244,594 |  
|Loans held-for-sale                                                                                                                                                                          |  |               | 8,600     |   |                  |   |          |  
|Accrued interest receivable                                                                                                                                                                  |  |               | 5,117     |   |                  |   | 5,161     |  
|Premises and equipment, net                                                                                                                                                                  |  |               | 6,173     |   |                  |   | 6,042     |  
|Goodwill                                                                                                                                                                                     |  |               | 17,327    |   |                  |   | 19,327    |  
|Core deposit intangibles                                                                                                                                                                     |  |               | 297       |   |                  |   | 329       |  
|Customers liability on acceptances                                                                                                                                                          |  |               | 8,480     |   |                  |   | 3,011     |  
|Foreclosed assets, net                                                                                                                                                                       |  |               | 26,986    |   |                  |   | 22,291    |  
|Cash value of bank owned life insurance                                                                                                                                                      |  |               | 28,887    |   |                  |   | 28,526    |  
|Prepaid FDIC assessment                                                                                                                                                                      |  |               | 9,873     |   |                  |   | 10,637    |  
|Other assets                                                                                                                                                                                 |  |               | 20,680    |   |                  |   | 17,548    |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                 |  | $             | 1,596,930 |   |                  | $ | 1,589,548 |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                         |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                             |  |              
|Deposits:                                                                                                                                                                                    |  |               |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                                                          |  | $             | 194,814   |   |                  | $ | 203,427   |  
|Interest-bearing                                                                                                                                                                             |  |               | 1,171,698 |   |                  |   | 1,160,740 |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total deposits                                                                                                                                                                               |  |               | 1,366,512 |   |                  |   | 1,364,167 |  
|Junior subordinated debentures                                                                                                                                                               |  |               | 36,083    |   |                  |   | 36,083    |  
|Other borrowings                                                                                                                                                                             |  |               | 26,217    |   |                  |   | 25,513    |  
|Accrued interest payable                                                                                                                                                                     |  |               | 626       |   |                  |   | 625       |  
|Acceptances outstanding                                                                                                                                                                      |  |               | 8,480     |   |                  |   | 3,011     |  
|Other liabilities                                                                                                                                                                            |  |               | 6,801     |   |                  |   | 4,843     |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                            |  |               | 1,444,719 |   |                  |   | 1,434,242 |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Commitments and contingencies                                                                                                                                                                |  |               |          |   |                  |   |          |  
|                                                                                                                                                                                             |  |              
|Shareholders equity:                                                                                                                                                                        |  |               |           |   |                  |   |           |  
|Preferred stock, $1.00 par value, 2,000,000 shares authorized; 45,000 shares issued and outstanding at March 31, 2010 and
December 31, 2009                                                  |  |               | 44,754    |   |                  |   | 44,718    |  
|Common stock, $1.00 par value, 50,000,000 shares authorized; 11,021,315 shares issued and 11,021,315 and 10,926,315 shares
outstanding at March 31, 2010 and December 31, 2009, respectively |  |               | 11,021    |   |                  |   | 10,995    |  
|Additional paid-in-capital                                                                                                                                                                   |  |               | 28,545    |   |                  |   | 29,114    |  
|Retained earnings                                                                                                                                                                            |  |               | 68,528    |   |                  |   | 72,505    |  
|Accumulated other comprehensive loss                                                                                                                                                         |  |               | (637      | ) |                  |   | (1,106    | )
|Treasury stock, at cost, no shares at March 31, 2010 and 68,650 shares at December 31, 2009, respectively                                                                                    |  |               |          |   |                  |   | (920      | )
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                                   |  |               | 152,211   |   |                  |   | 155,306   |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                   |  | $             | 1,596,930 |   |                  | $ | 1,589,548 |  
|                                                                                                                                                                                             |  |               |           |   |                  |   |           |  

See accompanying notes to condensed consolidated financial statements



1



---

METROCORP BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                             |  |                                      |        |   |      |   |        |  
|------------------------------------------------------------ |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                             |  | For the Three 
MonthsEnded March 31, |       
|                                                             |  | 2010                                 |        |   | 2009 |  
|Interest income:                                             |  |                                      |        |   |      |   |        |  
|Loans                                                        |  | $                                    | 19,186 |   |      | $ | 20,390 |  
|Securities:                                                  |  |                                      |        |   |      |   |        |  
|Taxable                                                      |  |                                      | 790    |   |      |   | 1,084  |  
|Tax-exempt                                                   |  |                                      | 121    |   |      |   | 48     |  
|Other investments                                            |  |                                      | 75     |   |      |   | 143    |  
|Federal funds sold and other short-term investments          |  |                                      | 56     |   |      |   | 44     |  
|                                                             |  |                                      |        |   |      |   |        |  
|Total interest income                                        |  |                                      | 20,228 |   |      |   | 21,709 |  
|                                                             |  |                                      |        |   |      |   |        |  
|Interest expense:                                            |  |                                      |        |   |      |   |        |  
|Time deposits                                                |  |                                      | 3,346  |   |      |   | 5,865  |  
|Demand and savings deposits                                  |  |                                      | 1,621  |   |      |   | 2,234  |  
|Junior subordinated debentures                               |  |                                      | 520    |   |      |   | 520    |  
|Other borrowings                                             |  |                                      | 239    |   |      |   | 292    |  
|                                                             |  |                                      |        |   |      |   |        |  
|Total interest expense                                       |  |                                      | 5,726  |   |      |   | 8,911  |  
|                                                             |  |                                      |        |   |      |   |        |  
|Net interest income                                          |  |                                      | 14,502 |   |      |   | 12,798 |  
|Provision for loan losses                                    |  |                                      | 7,898  |   |      |   | 7,287  |  
|                                                             |  |                                      |        |   |      |   |        |  
|Net interest income after provision for loan losses          |  |                                      | 6,604  |   |      |   | 5,511  |  
|                                                             |  |                                      |        |   |      |   |        |  
|Noninterest income:                                          |  |                                      |        |   |      |   |        |  
|Service fees                                                 |  |                                      | 1,039  |   |      |   | 1,089  |  
|Loan-related fees                                            |  |                                      | 95     |   |      |   | 132    |  
|Letters of credit commissions and fees                       |  |                                      | 199    |   |      |   | 255    |  
|Loss on securities transactions, net                         |  |                                      | (138   | ) |      |   |       |  
|Total other-than-temporary-impairment (OTTI) on securities |  |                                      | 41     |   |      |   | (240   | )
|Less: Noncredit portion of OTTI                            |  |                                      | (18    | ) |      |   |       |  
|                                                             |  |                                      |        |   |      |   |        |  
|Net impairments on securities                                |  |                                      | 23     |   |      |   | (240   | )
|Other noninterest income                                     |  |                                      | 386    |   |      |   | 454    |  
|                                                             |  |                                      |        |   |      |   |        |  
|Total noninterest income                                     |  |                                      | 1,604  |   |      |   | 1,690  |  
|                                                             |  |                                      |        |   |      |   |        |  
|Noninterest expenses:                                        |  |                                      |        |   |      |   |        |  
|Salaries and employee benefits                               |  |                                      | 5,450  |   |      |   | 5,388  |  
|Occupancy and equipment                                      |  |                                      | 1,961  |   |      |   | 1,992  |  
|Foreclosed assets, net                                       |  |                                      | 837    |   |      |   | 423    |  
|FDIC assessment                                              |  |                                      | 811    |   |      |   | 271    |  
|Goodwill impairment                                          |  |                                      | 2,000  |   |      |   |       |  
|Other noninterest expense                                    |  |                                      | 1,971  |   |      |   | 2,257  |  
|                                                             |  |                                      |        |   |      |   |        |  
|Total noninterest expenses                                   |  |                                      | 13,030 |   |      |   | 10,331 |  
|                                                             |  |                                      |        |   |      |   |        |  
|Loss before benefit for income taxes                         |  |                                      | (4,822 | ) |      |   | (3,130 | )
|Benefit for income taxes                                     |  |                                      | (1,444 | ) |      |   | (1,096 | )
|                                                             |  |                                      |        |   |      |   |        |  
|Net loss                                                     |  | $                                    | (3,378 | ) |      | $ | (2,034 | )
|                                                             |  |                                      |        |   |      |   |        |  
|Dividendspreferred stock                                    |  |                                      | (563   | ) |      |   | (469   | )
|                                                             |  |                                      |        |   |      |   |        |  
|Net loss available to common shareholders                    |  | $                                    | (3,941 | ) |      | $ | (2,503 | )
|                                                             |  |                                      |        |   |      |   |        |  
|Loss per common share:                                       |  |                                      |        |   |      |   |        |  
|Basic                                                        |  | $                                    | (0.36  | ) |      | $ | (0.23  | )
|Diluted                                                      |  | $                                    | (0.36  | ) |      | $ | (0.23  | )
|Weighted average common shares outstanding:                  |  |                                      |        |   |      |   |        |  
|Basic                                                        |  |                                      | 10,918 |   |      |   | 10,875 |  
|Diluted                                                      |  |                                      | 10,918 |   |      |   | 10,875 |  
|Dividends per common share                                   |  | $                                    |       |   |      | $ | 0.04   |  

See accompanying notes
to condensed consolidated financial statements



2



---

METROCORP BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



|                                                                    |  |                                     |        |   |      |   |        |  
|------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                    |  | For the Three MonthsEnded March 31, |       
|                                                                    |  | 2010                                |        |   | 2009 |  
|Net loss                                                            |  | $                                   | (3,378 | ) |      | $ | (2,034 | )
|Other comprehensive income (loss), net of tax:                      |  |                                     |        |   |      |   |        |  
|                                                                    |  |                                    
|Change in accumulated loss on effective cash flow derivatives       |  |                                     | (245   | ) |      |   |       |  
|                                                                    |  |                                    
|Unrealized gains (losses) on investment securities, net of tax:     |  |                                     |        |   |      |   |        |  
|Securities with OTTI charges during the period                      |  |                                     | 26     |   |      |   |       |  
|Less: OTTI charges recognized in net income                         |  |                                     | 15     |   |      |   |       |  
|                                                                    |  |                                     |        |   |      |   |        |  
|Net unrealized gains (losses) on investment securities with OTTI    |  |                                     | 11     |   |      |   |       |  
|                                                                    |  |                                    
|Unrealized holding gains arising during the period                  |  |                                     | 615    |   |      |   | 840    |  
|Less: reclassification adjustment for losses included in net income |  |                                     | (88    | ) |      |   |       |  
|                                                                    |  |                                     |        |   |      |   |        |  
|Net unrealized gains on investment securities                       |  |                                     | 703    |   |      |   | 840    |  
|                                                                    |  |                                    
|Other comprehensive income                                          |  |                                     | 469    |   |      |   | 840    |  
|                                                                    |  |                                     |        |   |      |   |        |  
|Total comprehensive loss                                            |  | $                                   | (2,909 | ) |      | $ | (1,194 | )
|                                                                    |  |                                     |        |   |      |   |        |  

METROCORP BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the Three Months Ended March 31, 2010

(In thousands)

(Unaudited)



|                                                                                 |        |                 |        |              |        |                    |        |  |          |        |  |                                |        |   |                    |   |        |      |  |   |        |   |  |   |      |   |  |   |         |  
|-------------------------------------------------------------------------------- | ------ | --------------- | ------ | ------------ | ------ | ------------------ | ------ |  | -------- | ------ |  | ------------------------------ | ------ | - | ------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ---- | - |  | - | ------- | -
|                                                                                 |        | Preferred Stock |        | Common Stock |        | Additional
paid-in |        |  | Retained |        |  | Accumulatedother
comprehensive |        |   | Treasury
stock, at |   |        |      | 
|                                                                                 | Shares |                 | At par |              | Shares |                    | At par |  | capital  |        |  | earnings                       |        |   | income (loss)      |   |        | cost |  |   | Total  |  
|Balance at December 31, 2009                                                     |        | 45              |        | $            | 44,718 |                    | 10,927 |  | $        | 10,995 |  | $                              | 29,114 |   |                    | $ | 72,505 |      |  | $ | (1,106 | ) |  | $ | (920 | ) |  | $ | 155,306 |  
|Re-issuance of treasury stock                                                    |        |                |        |              |       |                    | 68     |  |          |       |  |                                | (700   | ) |                    |   |       |      |  |   |       |   |  |   | 920  |   |  |   | 220     |  
|Issuance of common stock                                                         |        |                |        |              |       |                    | 26     |  |          | 26     |  |                                | 58     |   |                    |   |       |      |  |   |       |   |  |   |     |   |  |   | 84      |  
|Stock-based compensation expense related to stock options recognized in earnings |        |                |        |              |       |                    |       |  |          |       |  |                                | 73     |   |                    |   |       |      |  |   |       |   |  |   |     |   |  |   | 73      |  
|Net loss                                                                         |        |                |        |              |       |                    |       |  |          |       |  |                                |       |   |                    |   | (3,378 | )    |  |   |       |   |  |   |     |   |  |   | (3,378  | )
|Amortization of preferred stock discount                                         |        |                |        |              | 36     |                    |       |  |          |       |  |                                |       |   |                    |   | (36    | )    |  |   |       |   |  |   |     |   |  |   |        |  
|Other comprehensive income                                                       |        |                |        |              |       |                    |       |  |          |       |  |                                |       |   |                    |   |       |      |  |   | 469    |   |  |   |     |   |  |   | 469     |  
|Dividendspreferred stock                                                        |        |                |        |              |       |                    |       |  |          |       |  |                                |       |   |                    |   | (563   | )    |  |   |       |   |  |   |     |   |  |   | (563    | )
|                                                                                 |        |                 |        |              |        |                    |        |  |          |        |  |                                |        |   |                    |   |        |      |  |   |        |   |  |   |      |   |  |   |         |  
|Balance at March 31, 2010                                                        |        | 45              |        | $            | 44,754 |                    | 11,021 |  | $        | 11,021 |  | $                              | 28,545 |   |                    | $ | 68,528 |      |  | $ | (637   | ) |  | $ |     |   |  | $ | 152,211 |  
|                                                                                 |        |                 |        |              |        |                    |        |  |          |        |  |                                |        |   |                    |   |        |      |  |   |        |   |  |   |      |   |  |   |         |  

See accompanying notes to condensed consolidated financial statements



3



---

METROCORP BANCSHARES, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                        |  |                                      |         |   |      |   |          |  
|--------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                        |  | For the Three 
MonthsEnded March 31, |        
|                                                                                        |  | 2010                                 |         |   | 2009 |  
|Cash flows from operating activities:                                                   |  |                                      |         |   |      |   |          |  
|Net loss                                                                                |  | $                                    | (3,378  | ) |      | $ | (2,034   | )
|Adjustments to reconcile net loss to net cash provided by operating activities:         |  |                                      |         |   |      |   |          |  
|Depreciation                                                                            |  |                                      | 429     |   |      |   | 510      |  
|Provision for loan losses                                                               |  |                                      | 7,898   |   |      |   | 7,287    |  
|Impairment on securities and loss on securities                                         |  |                                      | 115     |   |      |   | 240      |  
|Goodwill impairment                                                                     |  |                                      | 2,000   |   |      |   |         |  
|Loss (gain) on sale of foreclosed assets                                                |  |                                      | 392     |   |      |   | (175     | )
|Gain on sale of premises and equipment                                                  |  |                                      | (5      | ) |      |   |         |  
|Amortization of premiums and discounts on securities                                    |  |                                      | (2      | ) |      |   | (37      | )
|Amortization of deferred loan fees and discounts                                        |  |                                      | (311    | ) |      |   | (540     | )
|Amortization of core deposit intangibles                                                |  |                                      | 32      |   |      |   | 45       |  
|Stock-based compensation                                                                |  |                                      | 73      |   |      |   | 189      |  
|Changes in:                                                                             |  |                                      |         |   |      |   |          |  
|Accrued interest receivable                                                             |  |                                      | 44      |   |      |   | 400      |  
|Other assets                                                                            |  |                                      | (2,827  | ) |      |   | (842     | )
|Accrued interest payable                                                                |  |                                      | 1       |   |      |   | 164      |  
|Other liabilities                                                                       |  |                                      | 1,713   |   |      |   | (2,117   | )
|                                                                                        |  |                                      |         |   |      |   |          |  
|Net cash provided by operating activities                                               |  |                                      | 6,174   |   |      |   | 3,090    |  
|                                                                                        |  |                                      |         |   |      |   |          |  
|Cash flows from investing activities:                                                   |  |                                      |         |   |      |   |          |  
|Purchases of securities available-for-sale                                              |  |                                      | (723    | ) |      |   | (49      | )
|Purchases of securities held-to-maturity                                                |  |                                      |        |   |      |   | (1,057   | )
|Purchases of other investments                                                          |  |                                      | (23     | ) |      |   | (1,066   | )
|Proceeds from maturities, calls and principal paydowns of securities available-for-sale |  |                                      | 6,782   |   |      |   | 6,086    |  
|Proceeds from sales and maturities of other investments                                 |  |                                      | 4,271   |   |      |   | 6,800    |  
|Net change in loans                                                                     |  |                                      | 4,860   |   |      |   | (2,000   | )
|Proceeds from sale of foreclosed assets                                                 |  |                                      | 950     |   |      |   | 1,806    |  
|Proceeds from sale of premises and equipment                                            |  |                                      | 5       |   |      |   |         |  
|Purchases of premises and equipment                                                     |  |                                      | (560    | ) |      |   | (54      | )
|                                                                                        |  |                                      |         |   |      |   |          |  
|Net cash provided by investing activities                                               |  |                                      | 15,562  |   |      |   | 10,466   |  
|                                                                                        |  |                                      |         |   |      |   |          |  
|Cash flows from financing activities:                                                   |  |                                      |         |   |      |   |          |  
|Net change in:                                                                          |  |                                      |         |   |      |   |          |  
|Deposits                                                                                |  |                                      | 2,345   |   |      |   | 106,809  |  
|Other borrowings                                                                        |  |                                      | 704     |   |      |   | (109,599 | )
|Proceeds from issuance of preferred stock with common stock warrant                     |  |                                      |        |   |      |   | 45,000   |  
|Re-issuance of treasury stock                                                           |  |                                      |        |   |      |   | 85       |  
|Cash dividends paid on preferred stock                                                  |  |                                      | (563    | ) |      |   | (182     | )
|Cash dividends paid on common stock                                                     |  |                                      |        |   |      |   | (434     | )
|                                                                                        |  |                                      |         |   |      |   |          |  
|Net cash provided by financing activities                                               |  |                                      | 2,486   |   |      |   | 41,679   |  
|                                                                                        |  |                                      |         |   |      |   |          |  
|Net increase in cash and cash equivalents                                               |  |                                      | 24,222  |   |      |   | 55,235   |  
|Cash and cash equivalents at beginning of period                                        |  |                                      | 108,093 |   |      |   | 38,101   |  
|                                                                                        |  |                                      |         |   |      |   |          |  
|Cash and cash equivalents at end of period                                              |  | $                                    | 132,315 |   |      | $ | 93,336   |  
|                                                                                        |  |                                      |         |   |      |   |          |  
|Supplemental information:                                                               |  |                                      |         |   |      |   |          |  
|                                                                                        |  |                                     
|Interest paid                                                                           |  | $                                    | 5,725   |   |      | $ | 8,748    |  
|Income taxes paid                                                                       |  |                                      |        |   |      |   | 100      |  
|Noncash investing and financing activities:                                             |  |                                      |         |   |      |   |          |  
|Issuance of common stock                                                                |  |                                      | 304     |   |      |   |         |  
|Dividends accrued not paid on preferred stock                                           |  |                                      | 287     |   |      |   | 287      |  
|Dividends declared not paid on common stock                                             |  |                                      |        |   |      |   | 435      |  
|Foreclosed assets acquired                                                              |  |                                      | 6,037   |   |      |   | 5,368    |  
|Loans originated to finance foreclosed assets                                           |  |                                      | 450     |   |      |   | 1,080    |  

See accompanying notes
to condensed consolidated financial statements



4



---

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 wholly-owned subsidiaries, MetroBank, National Association (MetroBank) and Metro United Bank (Metro United), in Texas and California, respectively (collectively, the Banks).
MetroBank is engaged in commercial banking activities through its thirteen branches in the greater Houston and Dallas, Texas metropolitan areas, and Metro United is engaged in commercial banking activities through its six branches in the San Diego,
Los Angeles and San Francisco, California metropolitan areas. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain principles which significantly affect the determination of financial position,
results of operations and cash flows are summarized below.

A legal entity is referred to as
a Variable Interest Entity (VIE) if any of the following conditions exist: (1) the total equity at risk is insufficient to permit the legal entity to finance its activities without additional subordinated financial support from
other parties, or (2) the entity has equity investors that cannot make significant decisions about the entitys operations or that do not absorb their proportionate share of the expected losses or receive the expected returns of the
entity. In addition, as specified in VIE accounting guidance, a VIE must be consolidated by the Company if it is deemed to be the primary beneficiary of the VIE, which is the party involved with the VIE that will absorb a majority of the expected
losses, receive a majority of the expected residual returns, or both. All facts and circumstances are taken into consideration when determining whether the Company has variable interest that would deem it the primary beneficiary and, therefore,
require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Companys financial statements. In the case of the Companys sole VIE, MCBI Statutory Trust I, it
is qualitatively clear based on the extent of the Companys involvement that the Company is not the primary beneficiary of the VIE. Accordingly, the accounts of this entity are not consolidated in the Companys financial statements.

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 March 31, 2010, results of operations for the three months ended March 31,
2010 and 2009, and cash flows for the three months ended March 31, 2010 and 2009. Interim period results are not necessarily indicative of results for a full-year period. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Certain items in prior financial statements have been reclassified to conform to the 2010 presentation,
with no impact on the balance sheet, net income (loss), shareholders equity, or cash flows.

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, 2009.



5



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2. SECURITIES

The amortized cost and approximate fair value of securities is as follows:



|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|------------------------------------------------------------------ |  | -------------------- | ------ | ---------- | - | ------ | ---- | - | ---- | - |  | ----- | ------ | - |  | - | ------
|                                                                   |  | As of March 31, 2010
|                                                                   |  | Amortized            |        | Unrealized |   |        | Fair
|                                                                   |  | Cost                 |        | Gains      |   | Losses |      |   | OTTI |   |  | Value
|Securities available-for-sale                                      |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Debt Securities                                                    |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                    | 53,895 |            | $ | 119    |      | $ | (21  | ) |  | $     |       |   |  | $ | 53,993
|Obligations of state and political subdivisions                    |  |                      | 6,444  |            |   | 130    |      |   | (18  | ) |  |       |       |   |  |   | 6,556 
|Mortgage-backed securities and collateralized mortgage obligations |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Government issued or guaranteed                                    |  |                      | 29,384 |            |   | 468    |      |   | (11  | ) |  |       |       |   |  |   | 29,841
|Privately issued residential                                       |  |                      | 3,703  |            |   | 293    |      |   | (154 | ) |  |       | (1,099 | ) |  |   | 2,743 
|Asset backed securities                                            |  |                      | 438    |            |   | 12     |      |   |     |   |  |       | (271   | ) |  |   | 179   
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Total available-for-sale securities                                |  | $                    | 93,864 |            | $ | 1,022  |      | $ | (204 | ) |  | $     | (1,370 | ) |  | $ | 93,312
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Securities held-to-maturity                                        |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Obligations of state and political subdivisions                    |  | $                    | 4,044  |            | $ | 304    |      | $ |     |   |  | $     |       |   |  | $ | 4,348 
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Total held-to-maturity securities                                  |  | $                    | 4,044  |            | $ | 304    |      | $ |     |   |  | $     |       |   |  | $ | 4,348 
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Other investments                                                  |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Investment in CDARS                                                |  | $                    | 10,064 |            | $ |       |      | $ |     |   |  | $     |       |   |  | $ | 10,064
|FHLB/Federal Reserve Bank stock.                                   |  |                      | 6,182  |            |   |       |      |   |     |   |  |       |       |   |  |   | 6,182 
|Investment in subsidiary trust                                     |  |                      | 1,083  |            |   |       |      |   |     |   |  |       |       |   |  |   | 1,083 
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       
|Total other investments                                            |  | $                    | 17,329 |            | $ |       |      | $ |     |   |  | $     |       |   |  | $ | 17,329
|                                                                   |  |                      |        |            |   |        |      |   |      |   |  |       |        |   |  |   |       



|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|------------------------------------------------------------------ |  | ----------------------- | ------- | ---------- | - | ------ | ---- | - | ------ | - |  | ----- | ------ | - |  | - | ------
|                                                                   |  | As of December 31, 2009
|                                                                   |  | Amortized               |         | Unrealized |   |        | Fair
|                                                                   |  | Cost                    |         | Gains      |   | Losses |      |   | OTTI   |   |  | Value
|Securities available-for-sale                                      |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Debt Securities                                                    |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                       | 57,882  |            | $ |       |      | $ | (654   | ) |  | $     |       |   |  | $ | 57,228
|Obligations of state and political subdivisions                    |  |                         | 5,724   |            |   | 118    |      |   | (29    | ) |  |       |       |   |  |   | 5,813 
|Mortgage-backed securities and collateralized mortgage obligations |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Government issued or guaranteed                                    |  |                         | 32,014  |            |   | 397    |      |   | (103   | ) |  |       |       |   |  |   | 32,308
|Privately issued residential                                       |  |                         | 3,947   |            |   | 233    |      |   | (241   | ) |  |       | (1,104 | ) |  |   | 2,835 
|Asset backed securities                                            |  |                         | 467     |            |   |       |      |   |       |   |  |       | (283   | ) |  |   | 184   
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Total available-for-sale securities                                |  | $                       | 100,034 |            | $ | 748    |      | $ | (1,027 | ) |  | $     | (1,387 | ) |  | $ | 98,368
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Securities held-to-maturity                                        |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Obligations of state and political subdivisions                    |  | $                       | 4,044   |            | $ | 308    |      | $ |       |   |  | $     |       |   |  | $ | 4,352 
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Total held-to-maturity securities                                  |  | $                       | 4,044   |            | $ | 308    |      | $ |       |   |  | $     |       |   |  | $ | 4,352 
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Other investments                                                  |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Investment in CDARS                                                |  | $                       | 14,042  |            | $ |       |      | $ |       |   |  | $     |       |   |  | $ | 14,042
|FHLB/Federal Reserve Bank stock.                                   |  |                         | 6,452   |            |   |       |      |   |       |   |  |       |       |   |  |   | 6,452 
|Investment in subsidiary trust                                     |  |                         | 1,083   |            |   |       |      |   |       |   |  |       |       |   |  |   | 1,083 
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       
|Total other investments                                            |  | $                       | 21,577  |            | $ |       |      | $ |       |   |  | $     |       |   |  | $ | 21,577
|                                                                   |  |                         |         |            |   |        |      |   |        |   |  |       |        |   |  |   |       



6



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table displays the gross unrealized losses and fair value
of securities available for sale as of March 31, 2010 for which OTTI has not been recognized, that were in a continuous unrealized loss position for the periods indicated. There were no securities held to maturity in a continuous unrealized
loss position as of March 31, 2010 and December 31, 2009.



|                                                                   |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|------------------------------------------------------------------ |  | ---------------------- | ------ | --------------------- | ---------------------- | ---- | --------- | ----- | --------------------- | --- |  | --------- | ---- | --------------------- |  | - | ------ |  | - | ------ | -
|                                                                   |  | March 31, 2010         |       
|                                                                   |  | Less Than 12 Months    |        |                       | Greater Than 12 Months |      |           | Total |                      
|                                                                   |  | FairValue              |        | GrossUnrealizedLosses |                        |      | FairValue |       | GrossUnrealizedLosses |     |  | FairValue |      | GrossUnrealizedLosses | 
|                                                                   |  | (Dollars in thousands) |       
|Securities available for sale                                      |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                      | 9,969  |                       | $                      | (21  | )         |       | $                     |    |  | $         |     |                       |  | $ | 9,969  |  | $ | (21    | )
|Obligations of state and political subdivisions                    |  |                        | 1,528  |                       |                        | (18  | )         |       |                       |    |  |           |     |                       |  |   | 1,528  |  |   | (18    | )
|Mortgage-backed securities and collateralized mortgage obligations |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|Government issued or guaranteed                                    |  |                        | 1,329  |                       |                        | (10  | )         |       |                       | 20  |  |           | (1   | )                     |  |   | 1,349  |  |   | (11    | )
|Privately issued residential                                       |  |                        | 87     |                       |                        | (22  | )         |       |                       | 452 |  |           | (132 | )                     |  |   | 539    |  |   | (154   | )
|                                                                   |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|Total securities                                                   |  | $                      | 12,913 |                       | $                      | (71  | )         |       | $                     | 472 |  | $         | (133 | )                     |  | $ | 13,385 |  | $ | (204   | )
|                                                                   |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|                                                                   | 
|                                                                   |  | December 31, 2009      |       
|                                                                   |  | Less Than 12 Months    |        |                       | Greater Than 12 Months |      |           | Total |                      
|                                                                   |  | FairValue              |        | GrossUnrealizedLosses |                        |      | FairValue |       | GrossUnrealizedLosses |     |  | FairValue |      | GrossUnrealizedLosses | 
|                                                                   |  | (Dollars in thousands) |       
|Securities available for sale                                      |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                      | 52,228 |                       | $                      | (654 | )         |       | $                     |    |  | $         |     |                       |  | $ | 52,228 |  | $ | (654   | )
|Obligations of state and political subdivisions                    |  |                        | 1,516  |                       |                        | (29  | )         |       |                       |    |  |           |     |                       |  |   | 1,516  |  |   | (29    | )
|Mortgage-backed securities and collateralized mortgage obligations |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|Government issued or guaranteed                                    |  |                        | 10,937 |                       |                        | (103 | )         |       |                       |    |  |           |     |                       |  |   | 10,937 |  |   | (103   | )
|Privately issued residential                                       |  |                        | 86     |                       |                        | (33  | )         |       |                       |    |  |           |     |                       |  |   | 86     |  |   | (33    | )
|Asset backed securities                                            |  |                        |       |                       |                        |     |           |       |                       | 488 |  |           | (208 | )                     |  |   | 488    |  |   | (208   | )
|                                                                   |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  
|Total securities                                                   |  | $                      | 64,767 |                       | $                      | (819 | )         |       | $                     | 488 |  | $         | (208 | )                     |  | $ | 65,255 |  | $ | (1,027 | )
|                                                                   |  |                        |        |                       |                        |      |           |       |                       |     |  |           |      |                       |  |   |        |  |   |        |  

As of March 31, 2010, management does not have the intent to sell any of the securities
classified as available for sale in the table above and believes it is more likely than not that the Company will not have to sell any such securities before a recovery of the cost. The unrealized losses are largely due to increases in the market
interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such securities decline.
Management does not believe any of the unrealized losses above are due to credit quality. Accordingly, the $204,000 of unrealized losses is temporary and the remaining $1.4 million represents an unrealized loss for which an other-than-temporary
impairment has been recognized in other comprehensive loss.



7



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Other-Than-Temporary Impairments (OTTI)

The following table represents the impairment activity related to debt securities.



|                                                                                                                                                    |  |                                   |       |   |                                   |   |       |                 |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | --------------------------------- | - | ----- | --------------- |  | - | ----- | -
|                                                                                                                                                    |  | Three months ended March 31, 2010 |      
|                                                                                                                                                    |  | Impairmentrelated tocredit losses |       |   | Impairmentrelated toother factors |   |       | Totalimpairment | 
|                                                                                                                                                    |  | (In thousands)                    |      
|Beginning balance, January 1, 2010                                                                                                                  |  | $                                 | 1,203 |   |                                   | $ | 1,387 |                 |  | $ | 2,590 |  
|Addition of OTTI that was not previously recognized                                                                                                 |  |                                   |      |   |                                   |   | 54    |                 |  |   | 54    |  
|Additions to OTTI that was previously recognized when there is no intent to sell and no requirement to sell before recovery of
amortized cost basis |  |                                   |      |   |                                   |   | 30    |                 |  |   | 30    |  
|Transfers from AOCI to OTTI related to credit losses                                                                                                |  |                                   | 101   |   |                                   |   | (101  | )               |  |   |      |  
|Reclassifications from OTTI to realized losses (1)                                                                                                  |  |                                   | (124  | ) |                                   |   |      |                 |  |   | (124  | )
|                                                                                                                                                    |  |                                   |       |   |                                   |   |       |                 |  |   |       |  
|Ending balance, March 31, 2010                                                                                                                      |  | $                                 | 1,180 |   |                                   | $ | 1,370 |                 |  | $ | 2,550 |  
|                                                                                                                                                    |  |                                   |       |   |                                   |   |       |                 |  |   |       |  



|(1) | Represents actual pass-through losses on certain private-label mortgage securities.
|--- | -----------------------------------------------------------------------------------

For the three months ended March 31, 2010, credit-related losses of $88,000 on 40 non-agency residential
mortgage-backed securities and $13,000 on four asset-backed securities were recognized. The noncredit portion of these impairments of $5,000 on non-agency residential mortgage-backed securities and $13,000 on asset-backed securities was included in
accumulated other comprehensive loss for the three months ended March 31, 2010. To measure credit losses, external credit ratings and other relevant collateral details and performance statistics on a security-by-security basis were considered.
Securities exhibiting significant deterioration are subjected to further analysis. Assumptions were developed for prepayment speed, default rate, and loss severity for each security using third party sources and based on the collateral history. The
resulting projections of future cash flows of the underlying collateral were then discounted by the underlying yield before any write-downs were considered to determine the net present value of the cash flows (NPV). The difference
between the cost basis and the NPV was taken as a credit loss in the current period to the extent that these losses have not been previously recognized. The difference between the NPV and the quoted market price is considered a noncredit related
loss and was included in other comprehensive loss.

Other Securities Information

There were no sales of available-for-sale securities or held-to-maturity securities for the three months ended
March 31, 2010 and 2009.

At March 31, 2010, future contractual maturities of debt securities were
as follows (in thousands):



|                                                                   |  |                              |        |                            |   |               |  |           |       |  |   |      
|------------------------------------------------------------------ |  | ---------------------------- | ------ | -------------------------- | - | ------------- |  | --------- | ----- |  | - | -----
|                                                                   |  | SecuritiesAvailable-for-sale |        | SecuritiesHeld-to-maturity
|                                                                   |  | AmortizedCost                |        | FairValue                  |   | AmortizedCost |  | FairValue
|Within one year                                                    |  | $                            |       |                            | $ |              |  | $         |      |  | $ |     
|Within two to five years                                           |  |                              | 24,612 |                            |   | 24,703        |  |           |      |  |   |     
|Within six to ten years                                            |  |                              | 27,207 |                            |   | 27,253        |  |           |      |  |   |     
|After ten years                                                    |  |                              | 8,958  |                            |   | 8,772         |  |           | 4,044 |  |   | 4,348
|Mortgage-backed securities and collateralized mortgage obligations |  |                              | 33,087 |                            |   | 32,584        |  |           |      |  |   |     
|                                                                   |  |                              |        |                            |   |               |  |           |       |  |   |      
|Total debt securities                                              |  | $                            | 93,864 |                            | $ | 93,312        |  | $         | 4,044 |  | $ | 4,348
|                                                                   |  |                              |        |                            |   |               |  |           |       |  |   |      

The Company holds mortgage-backed
securities which may mature at an earlier date than the contractual maturity due to prepayments. The Company also holds certain securities which may be called by the issuer at an earlier date than the contractual maturity date.



8



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3. LOANS

The loan portfolio is classified by major type as follows:



|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|---------------------------------------------- |  | ---------------------- | --------- | - | ----------------------- | ------ | - | ------ | - | --------- | ------- |  | ------ | -
|                                               |  | As of March 31, 2010   |           |   | As of December 31, 2009 |       
|                                               |  | Amount                 |           |   | Percent                 |        |   | Amount |   |           | Percent | 
|                                               |  | (Dollars in thousands) |          
|Commercial and industrial                      |  | $                      | 387,856   |   |                         | 30.70  | % |        | $ | 399,235   |         |  | 31.27  | %
|Real estate mortgage                           |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Residential                                    |  |                        | 32,735    |   |                         | 2.59   |   |        |   | 32,730    |         |  | 2.56   |  
|Commercial                                     |  |                        | 746,717   |   |                         | 59.11  |   |        |   | 742,974   |         |  | 58.20  |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|                                               |  |                        | 779,452   |   |                         | 61.70  |   |        |   | 775,704   |         |  | 60.76  |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Real estate construction                       |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Residential                                    |  |                        | 35,140    |   |                         | 2.78   |   |        |   | 32,257    |         |  | 2.52   |  
|Commercial                                     |  |                        | 57,054    |   |                         | 4.52   |   |        |   | 65,532    |         |  | 5.14   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|                                               |  |                        | 92,194    |   |                         | 7.30   |   |        |   | 97,789    |         |  | 7.66   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Consumer and other                             |  |                        | 3,853     |   |                         | 0.30   |   |        |   | 3,888     |         |  | 0.31   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Gross loans                                    |  |                        | 1,263,355 |   |                         | 100.00 | % |        |   | 1,276,616 |         |  | 100.00 | %
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Unearned discounts, interest and deferred fees |  |                        | (2,513    | ) |                         |        |   |        |   | (2,619    | )       |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Total loans                                    |  |                        | 1,260,842 |   |                         |        |   |        |   | 1,273,997 |         |  |        |  
|Allowance for loan losses                      |  |                        | (34,732   | ) |                         |        |   |        |   | (29,403   | )       |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Loans, net                                     |  | $                      | 1,226,110 |   |                         |        |   |        | $ | 1,244,594 |         |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  



9



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Changes in the allowance for loan losses are as follows:



|                                                                |  |                                                    |        |   |                                                    |   |        |  
|--------------------------------------------------------------- |  | -------------------------------------------------- | ------ | - | -------------------------------------------------- | - | ------ | -
|                                                                |  | As of and for the 
threemonths endedMarch 31, 2010 |        |   | As of and for the 
threemonths endedMarch 31, 2009 |  
|                                                                |  | (Dollars in thousands)                             |       
|Allowance for loan losses at beginning of period                |  | $                                                  | 29,403 |   |                                                    | $ | 24,235 |  
|Provision for loan losses                                       |  |                                                    | 7,898  |   |                                                    |   | 7,287  |  
|Charge-offs                                                     |  |                                                    | (2,793 | ) |                                                    |   | (7,440 | )
|Recoveries                                                      |  |                                                    | 224    |   |                                                    |   | 76     |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  
|Allowance for loan losses at end of period                      |  |                                                    | 34,732 |   |                                                    |   | 24,158 |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  
|Reserve for unfunded lending commitments at beginning of period |  |                                                    | 1,043  |   |                                                    |   | 1,092  |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  
|Provision for unfunded lending commitments                      |  |                                                    | (55    | ) |                                                    |   | 112    |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  
|Reserve for unfunded lending commitments at end of period       |  |                                                    | 988    |   |                                                    |   | 1,204  |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  
|Allowance for credit losses                                     |  | $                                                  | 35,720 |   |                                                    | $ | 25,362 |  
|                                                                |  |                                                    |        |   |                                                    |   |        |  

The following table presents information regarding nonperforming assets as of the dates
indicated:



|                                                  |  |                        |        |   |                        |   |         |  
|------------------------------------------------- |  | ---------------------- | ------ | - | ---------------------- | - | ------- | -
|                                                  |  | As ofMarch 31, 2010    |        |   | As ofDecember 31, 2009 |  
|                                                  |  | (Dollars in thousands) |       
|Nonaccrual loans (1)                              |  | $                      | 64,821 |   |                        | $ | 75,229  |  
|Accruing loans 90 days or more past due           |  |                        | 1,106  |   |                        |   | 420     |  
|Troubled debt restructurings                      |  |                        | 5,649  |   |                        |   | 4,927   |  
|Other real estate (ORE)                         |  |                        | 26,986 |   |                        |   | 22,291  |  
|                                                  |  |                        |        |   |                        |   |         |  
|Total nonperforming assets                        |  |                        | 98,562 |   |                        |   | 102,867 |  
|                                                  |  |                        |        |   |                        |   |         |  
|Total nonperforming assets to total assets        |  |                        | 6.17   | % |                        |   | 6.47    | %
|Total nonperforming assets to total loans and ORE |  |                        | 7.65   | % |                        |   | 7.94    | %



|(1) | Includes loans held-for-sale of $8.6 million at March 31, 2010
|--- | --------------------------------------------------------------



10



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



4. GOODWILL

Changes in the carrying amount of the Companys goodwill for the periods indicated below were as follows (in
thousands):



|                              |  |                                              |        |   |                                                   |   |        |  
|----------------------------- |  | -------------------------------------------- | ------ | - | ------------------------------------------------- | - | ------ | -
|                              |  | As of and for theyear endedDecember 31, 2009 |        |   | As of and for thethree months endedMarch 31, 2010 |  
|Balance as of January 1       |  |                                              |        |   |                                                   |   |        |  
|Goodwill                      |  | $                                            | 21,827 |   |                                                   | $ | 21,827 |  
|Accumulated impairment losses |  |                                              |       |   |                                                   |   | (2,500 | )
|                              |  |                                              |        |   |                                                   |   |        |  
|                              |  |                                              | 21,827 |   |                                                   |   | 19,327 |  
|Impairment losses             |  |                                              | (2,500 | ) |                                                   |   | (2,000 | )
|                              |  |                                              |        |   |                                                   |   |        |  
|Balance as of end of period   |  | $                                            | 19,327 |   |                                                   | $ | 17,327 |  
|                              |  |                                              |        |   |                                                   |   |        |  
|Accumulated impairment losses |  | $                                            | (2,500 | ) |                                                   | $ | (4,500 | )
|                              |  |                                              |        |   |                                                   |   |        |  

Goodwill is recorded on the acquisition date of each entity, and evaluated annually for
possible impairment. Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The
Companys only reporting unit with assigned goodwill is Metro United.

The Company completed its 2009
annual impairment testing based on information that was as of August 31, 2009. The review utilized guideline company and guideline transaction information where available, discounted cash flow analysis, and quoted stock prices for the Company
and guideline banks to estimate the fair value of Metro United. The estimated fair value of Metro United as of August 31, 2009 exceeded its respective carrying value; therefore, the Company determined there was no impairment of goodwill as of
that date. During the fourth quarter of 2009, the Companys stock continued to decline further and to trade below book value, therefore the Company performed an additional evaluation of goodwill as of December 31, 2009 and impaired
goodwill by $2.5 million.

During the first quarter of 2010, the Companys stock declined further from
prior year end. The Company performed an evaluation of goodwill for the quarter ended March 31, 2010 and impaired goodwill by $2.0 million. Due to the staleness of the bank transactions multiples and fluctuations in market capitalization of
peer banks used in the market methods, management reduced the weight of the market approach and relied primarily on the income approach for the step one evaluation. The Company also performed a reconciliation of the estimated fair value to the stock
price of the Company. Because the step one impairment test failed, the Company performed step two analysis to derive the implied fair value of goodwill. As a result of the evaluation, the implied fair value of goodwill was less than the carrying
value of goodwill by $2.0 million, and an impairment was recorded in the first quarter of 2010. The charge is a noncash adjustment to the Companys financial statements recorded as a component of noninterest expense. As goodwill and other
intangible assets are not included in the calculation of regulatory capital, the Companys well capitalized regulatory ratios are not affected. Subsequent reversal of goodwill impairment is prohibited.

The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination. The fair value of Metro Uniteds assets and liabilities, including unrecognized intangible assets, is individually evaluated. The excess of the fair value of Metro United over the fair value of its net assets is the implied fair
value of goodwill. The Company estimated the fair value of Metro Uniteds assets and liabilities, including previously unrecognized intangible assets, through a variety of valuation techniques that incorporated interest rates, credit or
nonperformance risk, as well as market risk adjustments that are indicative of the current economic environment. The estimated values are based on an exit price and reflect managements expectations regarding how a market participant would
value the assets and liabilities. This evaluation and resulting conclusion were significantly affected by the estimated fair value of the loans of Metro United that were evaluated, particularly the market risk adjustment that is a consequence of the
current distressed market conditions. It is possible that future changes in the fair value of Metro Uniteds net assets could result in future goodwill impairment. For example, to the extent that market liquidity returns and the fair value of
the individual assets of Metro United increases at a faster rate than the fair value of Metro United as a whole, that may cause the implied goodwill to be lower than the carrying value of goodwill, resulting in additional goodwill impairment.
Ultimately, future potential changes in valuation assumptions may impact the estimated fair value of Metro United and cause its fair value to be below its carrying value, therefore resulting in an impairment of the goodwill.



11



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



5. EARNINGS PER COMMON SHARE

Basic earnings per common share (EPS) is computed by dividing net income (after deducting dividends on
preferred stock) 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, restricted common shares and warrants can be dilutive common shares and are therefore considered in the earnings per share calculation, if dilutive. Stock options, restricted common shares
and warrants that are antidilutive are excluded from earnings per share calculation. Stock options, restricted common shares and warrants are antidilutive when the exercise price is higher than the current market price of the Companys common
stock. As of March 31, 2010 and 2009, there were 1,806,929 and 1,902,213 antidilutive stock options, respectively. The number of potentially dilutive common shares is determined using the treasury stock method.



|                                                                                   |  |                                          |        |   |      |   |        |  
|---------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                   |  | For the Three MonthsEnded
March 31,      |       
|                                                                                   |  | 2010                                     |        |   | 2009 |  
|                                                                                   |  | (In thousands, except per share amounts) |       
|Net loss available to common shareholders                                          |  | $                                        | (3,941 | ) |      | $ | (2,503 | )
|                                                                                   |  |                                          |        |   |      |   |        |  
|Weighted average common shares in basic EPS                                        |  |                                          | 10,918 |   |      |   | 10,875 |  
|Effect of dilutive securities                                                      |  |                                          |       |   |      |   |       |  
|                                                                                   |  |                                          |        |   |      |   |        |  
|Weighted average common and potentially dilutive common shares used in diluted EPS |  |                                          | 10,918 |   |      |   | 10,875 |  
|                                                                                   |  |                                          |        |   |      |   |        |  
|Loss per common share:                                                             |  |                                          |        |   |      |   |        |  
|Basic                                                                              |  | $                                        | (0.36  | ) |      | $ | (0.23  | )
|Diluted                                                                            |  | $                                        | (0.36  | ) |      | $ | (0.23  | )

6. COMMITMENTS AND
CONTINGENCIES

The Company 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 Companys maximum exposure to credit loss under such arrangements is represented by the contractual amount of those instruments. The Company applies the
same credit policies and collateralization guidelines in making commitments and conditional obligations as they do for on-balance sheet instruments. Off-balance sheet financial instruments include commitments to extend credit and guarantees under
standby and other letters of credit.

The contractual amount of the Companys financial instruments with
off-balance sheet risk at March 31, 2010 and December 31, 2009 is presented below:



|                                                             |  |                        |         |                        |   |        
|------------------------------------------------------------ |  | ---------------------- | ------- | ---------------------- | - | -------
|                                                             |  | As ofMarch 31, 2010    |         | As
ofDecember 31, 2009
|                                                             |  | (Dollars in thousands)
|Unfunded loan commitments including unfunded lines of credit |  | $                      | 105,591 |                        | $ | 121,166
|Standby letters of credit                                    |  |                        | 7,653   |                        |   | 12,556 
|Commercial letters of credit                                 |  |                        | 7,684   |                        |   | 10,415 
|Operating leases                                             |  |                        | 6,135   |                        |   | 6,133  
|                                                             |  |                        |         |                        |   |        
|Total financial instruments with off-balance sheet risk      |  | $                      | 127,063 |                        | $ | 150,270
|                                                             |  |                        |         |                        |   |        



12



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Litigation. The Company is involved in various litigation that
arises from time to time in the normal course of business. In the opinion of management, after consultations with its legal counsel, such litigation is not expected to have a material adverse effect of the Companys consolidated financial
position, result of operations or cash flows.

7. REGULATORY MATTERS

The Banks are subject to regulations and, among others things, may be limited in their ability to pay dividends or
otherwise transfer funds to the Company. Under applicable restrictions as of December 31, 2009, no dividends could be paid by MetroBank and Metro United to the Company without regulatory approval. In addition, dividends paid by the Banks to the
Company would be prohibited if the effect thereof would cause the Banks capital to be reduced below applicable minimum capital requirements.

On August 10, 2009, MetroBank entered into a written agreement (the Agreement) with the OCC. The
Agreement is based on the findings of the OCC during the annual on-site examination of MetroBank performed in the first quarter of 2009 and is primarily focused on matters related to MetroBanks asset quality. Pursuant to the Agreement, the
Board of Directors of MetroBank has appointed a compliance committee to monitor and coordinate MetroBanks performance under the Agreement. The Agreement provides for, among other things, the development and implementation of written programs
to reduce MetroBanks credit risks, monitor and reduce the level of criticized assets and manage commercial real estate loan concentrations in light of current adverse commercial real estate market conditions generally and in its market areas.
During and since the completion of the examination, management of MetroBank has proactively made adjustments in policies and procedures in an effort to alleviate the effects of the credit challenge caused by the economic deterioration and market
conditions generally and in its market areas. Additionally, management and the Boards of Directors of the Company and MetroBank have aggressively taken steps to address the findings of the exam and are aggressively working to comply with the
requirements of the Agreement. Failure by MetroBank to meet the requirements and conditions imposed by the Agreement could result in more severe regulatory enforcement actions such as capital directives to raise additional capital, civil money
penalties, cease and desist or removal orders, injunctions, and public disclosure of such actions against MetroBank. Any such failure and resulting regulatory action could have a material adverse effect on the financial condition and results of
operations of the Company and MetroBank.

The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material
effect on the Companys financial statements. The regulations require the Company to meet specific capital adequacy guidelines that involve quantitative measures of the Companys assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Banks capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain
minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of March 31, 2010, that the Company and the Banks met all capital adequacy requirements to which
they were subject.

As of March 31, 2010, the most recent notifications from the OCC with respect to
MetroBank and the FDIC with respect to Metro United categorized MetroBank and Metro United both as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notifications
that management believes have changed MetroBanks level of capital adequacy.



13



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Companys and the Banks actual capital amounts and ratios
at the dates indicated are presented in the following table (dollars in thousands):



|                                |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|------------------------------- |  | ------ | ------- | ----- | ------------------------------------------- | - | ------ | ---------------------------------------------------------------------------- | ------- |  | ---- | ------ |  | ------ |  | ----- | -
|                                |  | Actual |         |       | MinimumRequired ForCapital AdequacyPurposes |   |        | To be 
Categorizedas Well Capitalizedunder
PromptCorrective ActionProvisions |        
|                                |  | Amount |         | Ratio |                                             |   | Amount |                                                                              | Ratio   |  |      | Amount |  | Ratio  | 
|As of March 31, 2010            |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|Total risk-based capital ratio  |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  | $      | 182,441 |       | 13.56                                       | % |        | $                                                                            | 107,616 |  | 8.00 | %      |  | N/A    |  | N/A   | %
|MetroBank, N.A.                 |  |        | 137,764 |       | 14.12                                       |   |        |                                                                              | 78,060  |  | 8.00 |        |  | 97,575 |  | 10.00 |  
|Metro United Bank               |  |        | 43,373  |       | 11.76                                       |   |        |                                                                              | 29,499  |  | 8.00 |        |  | 36,874 |  | 10.00 |  
|Tier 1 risk-based capital ratio |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  |        | 165,392 |       | 12.29                                       |   |        |                                                                              | 53,808  |  | 4.00 |        |  | N/A    |  | N/A   |  
|MetroBank, N.A.                 |  |        | 125,411 |       | 12.85                                       |   |        |                                                                              | 39,030  |  | 4.00 |        |  | 58,545 |  | 6.00  |  
|Metro United Bank               |  |        | 38,687  |       | 10.49                                       |   |        |                                                                              | 14,750  |  | 4.00 |        |  | 22,124 |  | 6.00  |  
|Leverage ratio                  |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  |        | 165,392 |       | 10.52                                       |   |        |                                                                              | 62,885  |  | 4.00 |        |  | N/A    |  | N/A   |  
|MetroBank, N.A.                 |  |        | 125,411 |       | 11.20                                       |   |        |                                                                              | 44,808  |  | 4.00 |        |  | 56,010 |  | 5.00  |  
|Metro United Bank               |  |        | 38,687  |       | 8.49                                        |   |        |                                                                              | 18,224  |  | 4.00 |        |  | 22,780 |  | 5.00  |  
|                                |  |        |         |       |                                             |  
|As of December 31, 2009         |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|Total risk-based capital ratio  |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  | $      | 189,043 |       | 13.80                                       | % |        | $                                                                            | 109,586 |  | 8.00 | %      |  | N/A    |  | N/A   | %
|MetroBank, N.A.                 |  |        | 138,342 |       | 14.01                                       |   |        |                                                                              | 79,012  |  | 8.00 |        |  | 98,766 |  | 10.00 |  
|Metro United Bank               |  |        | 48,625  |       | 12.74                                       |   |        |                                                                              | 30,537  |  | 8.00 |        |  | 38,171 |  | 10.00 |  
|Tier 1 risk-based capital ratio |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  |        | 171,756 |       | 12.54                                       |   |        |                                                                              | 54,793  |  | 4.00 |        |  | N/A    |  | N/A   |  
|MetroBank, N.A.                 |  |        | 125,853 |       | 12.74                                       |   |        |                                                                              | 39,506  |  | 4.00 |        |  | 59,259 |  | 6.00  |  
|Metro United Bank               |  |        | 43,832  |       | 11.48                                       |   |        |                                                                              | 15,268  |  | 4.00 |        |  | 22,903 |  | 6.00  |  
|Leverage ratio                  |  |        |         |       |                                             |   |        |                                                                              |         |  |      |        |  |        |  |       |  
|MetroCorp Bancshares, Inc.      |  |        | 171,756 |       | 10.76                                       |   |        |                                                                              | 63,845  |  | 4.00 |        |  | N/A    |  | N/A   |  
|MetroBank, N.A.                 |  |        | 125,853 |       | 10.69                                       |   |        |                                                                              | 47,113  |  | 4.00 |        |  | 58,891 |  | 5.00  |  
|Metro United Bank               |  |        | 43,832  |       | 10.47                                       |   |        |                                                                              | 16,750  |  | 4.00 |        |  | 20,937 |  | 5.00  |  

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The balance of and changes in each component of accumulated other comprehensive income as of and for the three months
ended March 31, 2010 are as follows (net of taxes):



|                          |  |                                                  |      |   |                                            |   |      |                                      |  |   |                                                   |   |  |   |        |  
|------------------------- |  | ------------------------------------------------ | ---- | - | ------------------------------------------ | - | ---- | ------------------------------------ |  | - | ------------------------------------------------- | - |  | - | ------ | -
|                          |  | Gains (Loss)on 
EffectiveCash HedgingDerivatives |      |   | NetUnrealizedLosses onInvestmentswith OTTI |   |      | NetUnrealizedInvestmentGains(Losses) |  |   | TotalAccumulatedOtherComprehensiveIncome (Losses) |  
|Balance December 31, 2009 |  | $                                                | (39  | ) |                                            | $ | (888 | )                                    |  | $ | (179                                              | ) |  | $ | (1,106 | )
|Current period change     |  |                                                  | (245 | ) |                                            |   | 11   |                                      |  |   | 703                                               |   |  |   | 469    |  
|                          |  |                                                  |      |   |                                            |   |      |                                      |  |   |                                                   |   |  |   |        |  
|Balance March 31, 2010    |  | $                                                | (284 | ) |                                            | $ | (877 | )                                    |  | $ | 524                                               |   |  | $ | (637   | )
|                          |  |                                                  |      |   |                                            |   |      |                                      |  |   |                                                   |   |  |   |        |  



14



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



9. DERIVATIVE FINANCIAL INSTRUMENTS

The fair value of derivative positions outstanding is included in other liabilities in the accompanying condensed
consolidated balance sheets and in the net change in this financial statement line item in the accompanying condensed consolidated statements of cash flows.

Interest Rate Derivatives.During the third quarter of 2009, the Company entered into a forward-starting interest
rate swap contract on its junior subordinated debentures with a notional amount of $17.5 million. The interest rate swap contract was designated as a hedging instrument in a cash flow hedge with the objective of protecting the quarterly
interest payments on a portion of the Companys $36.1 million of junior subordinated debentures issued to the Companys unconsolidated subsidiary trust MCBI Statutory Trust I throughout the five-year period beginning in December 2010
and ending in December 2015 from the risk of variability of those payments resulting from changes in the three-month LIBOR interest rate. Under the swap contract, beginning December 2010, the Company will pay a fixed interest rate of 5.38% and
receive a variable interest rate of three-month LIBOR plus a margin of 1.55% on a total notional amount of $17.5 million, with quarterly settlements beginning March 2011.

The notional amount of the interest rate derivative contract outstanding at March 31, 2010 and December 31,
2009 was $17.5 million, and the estimated fair value at March 31, 2010 and December 31, 2009 was ($445,000) and ($61,000), respectively. The Company obtains dealer quotations to value its interest rate derivative contract designated as
hedges of cash flows.

The Company applies hedge accounting to interest rate derivatives. To qualify for hedge
accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge
documentation must identify the derivative hedging instrument, the asset or liability and type of risk to be hedged, and how the effectiveness of the derivative will be assessed prospectively and retrospectively. To assess effectiveness, the Company
compares the dollar-value of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting
changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. Any hedge ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative instrument does not exactly offset the
gain or loss on the hedged item attributable to the hedged risk) must be reported in current-period earnings. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

Gains, Losses and Derivative Cash Flows. For cash flow hedges, the effective portion of the gain or
loss due to changes in the fair value of the derivative hedging instrument is included in other comprehensive income, while the ineffective portion (indicated by the excess of the cumulative change in the fair value of the derivative over that which
is necessary to offset the cumulative change in expected future cash flows on the hedge transaction) is included in other non-interest income or other non-interest expense. Net cash flows from the interest rate swap on junior subordinated debentures
designated as a hedging instrument in an effective hedge of cash flows are included in interest expense on junior subordinated debentures.

Amounts included in the condensed consolidated statements of income and in other comprehensive income for the period
related to interest rate derivatives designated as hedges of cash flows were as follows. There were no interest rate derivatives designated as hedges of cash flows at March 31, 2009.



|                                  |  |                                                                                        |   |                                                |   |                             |  |                                              |   |  |                              |      |   |  |   |      |  
|--------------------------------- |  | -------------------------------------------------------------------------------------- | - | ---------------------------------------------- | - | --------------------------- |  | -------------------------------------------- | - |  | ---------------------------- | ---- | - |  | - | ---- | -
|                                  |  | Gains/(losses) recorded in income and other comprehensive income (loss) (in thousands) |  
|Three months ended March 31, 2010 |  | Derivativeseffective portionreclassified fromAOCI into 
income                        |   | Hedgeineffectivenessrecorded directlyin income |   | Total incomestatementimpact |  | Derivativeseffective portionrecorded in OCI |   |  | Total changein OCIfor
period |     
|Contract type                     |  |                                                                                        |   |                                                |   |                             |  |                                              |   |  |                              |      |   |  |   |      |  
|Interest rate                     |  | $                                                                                      |  |                                                | $ |                            |  | $                                            |  |  | $                            | (384 | ) |  | $ | (384 | )

Counterparty Credit Risk. Derivative contracts involve the risk of dealing with institutional derivative
counterparties and their ability to meet contractual terms. Derivative contracts are executed with a Credit Support Annex, or CSA, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold
levels. These agreements protect the interests of the Company and its counterparties, should either party suffer a credit rating deterioration. Institutional counterparties must have an investment grade credit rating. The Companys credit
exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. There are no credit-risk-related
contingent features associated with any of the Companys derivative



15



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



contracts. The Company had no credit exposure relating to the interest rate swap at March 31, 2010. The amount of cash collateral posted by the Company related to derivative contracts
totaled $875,000 at March 31, 2010.

10. OPERATING SEGMENT INFORMATION

The Company operates two community banks in distinct geographical areas, and manages its operations and prepares
management reports and other information with a primary focus on these geographical areas. Performance assessment and resource allocation are based upon this geographical structure. The operating segment identified as Other includes the
parent company and eliminations of transactions between segments. The accounting policies of the individual operating segments are the same as those of the Company as described in Note 1. Transactions between operating segments are primarily
conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Operating segments pay for centrally provided services based upon estimated or actual usage of those services.

The following is a summary of selected operating segment information as of and for the three months ended March 31,
2010 and 2009:



|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|--------------------------------------------------- |  | ----------------------------------------- | --------- | ----------- | ----------------------------------------- | ------- | ----- |  | - | ------------------- | - |  | --------- | --------- | - | ----------- | - | --------- | ----- |  | - | ------------------- | - |  | - | ------- | - |  | - | --------- | -
|                                                    |  | For the three months ended March 31, 2010 |           |             | For the three months ended March 31, 2009 |        
|                                                    |  | MetroBank                                 |           | MetroUnited |                                           |         | Other |  |   | ConsolidatedCompany |   |  | MetroBank |           |   | MetroUnited |   |           | Other |  |   | ConsolidatedCompany |  
|                                                    |  | (Dollars in thousands)                    |          
|Total interest income                               |  | $                                         | 14,834    |             | $                                         | 5,378   |       |  | $ | 16                  |   |  | $         | 20,228    |   |             | $ | 16,144    |       |  | $ | 5,549               |   |  | $ | 16      |   |  | $ | 21,709    |  
|Total interest expense                              |  |                                           | 3,617     |             |                                           | 1,582   |       |  |   | 527                 |   |  |           | 5,726     |   |             |   | 5,991     |       |  |   | 2,390               |   |  |   | 530     |   |  |   | 8,911     |  
|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|Net interest income                                 |  |                                           | 11,217    |             |                                           | 3,796   |       |  |   | (511                | ) |  |           | 14,502    |   |             |   | 10,153    |       |  |   | 3,159               |   |  |   | (514    | ) |  |   | 12,798    |  
|Provision for loan losses                           |  |                                           | 3,600     |             |                                           | 4,298   |       |  |   |                    |   |  |           | 7,898     |   |             |   | 5,188     |       |  |   | 2,099               |   |  |   |        |   |  |   | 7,287     |  
|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|Net interest income after provision for loan losses |  |                                           | 7,617     |             |                                           | (502    | )     |  |   | (511                | ) |  |           | 6,604     |   |             |   | 4,965     |       |  |   | 1,060               |   |  |   | (514    | ) |  |   | 5,511     |  
|Noninterest income                                  |  |                                           | 1,821     |             |                                           | 99      |       |  |   | (316                | ) |  |           | 1,604     |   |             |   | 2,174     |       |  |   | 103                 |   |  |   | (347    | ) |  |   | 1,930     |  
|Noninterest expenses                                |  |                                           | 7,759     |             |                                           | 5,255   |       |  |   | 16                  |   |  |           | 13,030    |   |             |   | 8,129     |       |  |   | 2,322               |   |  |   | 120     |   |  |   | 10,571    |  
|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|Income (loss) before income tax provision           |  |                                           | 1,679     |             |                                           | (5,658  | )     |  |   | (843                | ) |  |           | (4,822    | ) |             |   | (990      | )     |  |   | (1,159              | ) |  |   | (981    | ) |  |   | (3,130    | )
|Provision (benefit) for income taxes                |  |                                           | 339       |             |                                           | (1,533  | )     |  |   | (250                | ) |  |           | (1,444    | ) |             |   | (363      | )     |  |   | (456                | ) |  |   | (277    | ) |  |   | (1,096    | )
|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|Net income (loss)                                   |  | $                                         | 1,340     |             | $                                         | (4,125  | )     |  | $ | (593                | ) |  | $         | (3,378    | ) |             | $ | (627      | )     |  | $ | (703                | ) |  | $ | (704    | ) |  | $ | (2,034    | )
|                                                    |  |                                           |           |             |                                           |         |       |  |   |                     |   |  |           |           |   |             |   |           |       |  |   |                     |   |  |   |         |   |  |   |           |  
|                                                    |  |                                          
|                                                    |  | As of March 31, 2010                      |           |             | March 31, 2009                            |        
|                                                    |  | MetroBank                                 |           | MetroUnited |                                           |         | Other |  |   | ConsolidatedCompany |   |  | MetroBank |           |   | MetroUnited |   |           | Other |  |   | ConsolidatedCompany |  
|                                                    |  | (Dollars in thousands)                    |          
|Net loans                                           |  | $                                         | 879,862   |             | $                                         | 346,248 |       |  | $ |                    |   |  | $         | 1,226,110 |   |             | $ | 947,155   |       |  | $ | 364,543             |   |  | $ |        |   |  | $ | 1,311,698 |  
|Total assets                                        |  |                                           | 1,137,463 |             |                                           | 463,210 |       |  |   | (3,743              | ) |  |           | 1,596,930 |   |             |   | 1,195,462 |       |  |   | 429,281             |   |  |   | (2,736  | ) |  |   | 1,622,007 |  
|                                                    |  |                                           |           |             |                                           |         |       | 
|Deposits                                            |  |                                           | 970,334   |             |                                           | 403,445 |       |  |   | (7,267              | ) |  |           | 1,366,512 |   |             |   | 1,030,239 |       |  |   | 357,417             |   |  |   | (11,694 | ) |  |   | 1,375,962 |  



16



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



11. FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is reported based on a hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are:



| |  |  | Level 1Quoted prices in active markets for identical assets or liabilities.
| | - |  | ----------------------------------------------------------------------------



| |  |  | Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant management judgment or estimation.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Financial assets measured at fair
value on a recurring basis are as follows:

Securities. Where quoted prices are available in an active
market, securities are reported at fair value utilizing Level 1 inputs. Level 1 securities are comprised of bond funds. If quoted market prices are not available, the Company obtains fair values from an independent pricing service. The fair value
measurements consider data that may include proprietary pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities are comprised of highly liquid government bonds, and collateralized
mortgage and debt obligations. Market values provided by the pricing service are compared to prices from other sources for reasonableness. The Company has not adjusted the values from the pricing service.

Interest Rate Derivatives. The Companys derivative position is classified within Level 2 in the fair value
hierarchy and is valued using models generally accepted in the financial services industry that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of
the derivative is determined using discounted cash flow models. These models key assumptions include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, yield curves,
non-performance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect
the interests of the Company and its counterparties, should either party suffer a credit rating deterioration.



17



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table presents the financial instruments carried at fair
value on a recurring basis by caption on the consolidated balance sheets and by valuation hierarchy (as described above) at March 31, 2010 and December 31, 2009:



|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------------------------------------ | ----- | ------------------------------------------- | - | ------ | --------------------------------------- |  | ---------------------- | - |  | - | ------- | -
|                                                                   |  | Fair Value Measurements, using                               |       |                                             |  
|                                                                   |  | (In thousands)                                               |       |                                             |  
|                                                                   |  | Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) |       | Significant OtherObservableInputs (Level 2) |   |        | SignificantUnobservableInputs (Level 3) |  | Fair ValueMeasurements |  
|March 31, 2010                                                     |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Securities available-for-sale                                      |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                                                            |      |                                             | $ | 53,993 |                                         |  | $                      |  |  | $ | 53,993  |  
|Obligations of state and political subdivisions                    |  |                                                              |      |                                             |   | 6,556  |                                         |  |                        |  |  |   | 6,556   |  
|Mortgage-backed securities and collateralized mortgage obligations |  |                                                              |       |                                             |   |        |                                         |  |                        |  |  |   |         |  
|Government issued or guaranteed                                    |  |                                                              |      |                                             |   | 29,841 |                                         |  |                        |  |  |   | 29,841  |  
|Privately issued residential                                       |  |                                                              |      |                                             |   | 2,743  |                                         |  |                        |  |  |   | 2,743   |  
|Asset backed securities                                            |  |                                                              |      |                                             |   | 179    |                                         |  |                        |  |  |   | 179     |  
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Total available-for-sale securities                                |  |                                                              |      |                                             |   | 93,312 |                                         |  |                        |  |  |   | 93,312  |  
|Loans held-for-sale (1)                                            |  |                                                              | 8,600 |                                             |   |        |                                         |  |                        |   |  |   | 8,600   |  
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Total assets measured at fair value on a recurring basis           |  | $                                                            | 8,600 |                                             | $ | 93,312 |                                         |  | $                      |  |  | $ | 101,912 |  
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Derivative liabilities                                             |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Interest rate swap                                                 |  | $                                                            |      |                                             | $ | (445   | )                                       |  | $                      |  |  | $ | (445    | )
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|December 31, 2009                                                  |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Securities available-for-sale                                      |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|U.S. Treasury and other U.S. government corporations and agencies  |  | $                                                            |      |                                             | $ | 57,228 |                                         |  | $                      |  |  | $ | 57,228  |  
|Obligations of state and political subdivisions                    |  |                                                              |      |                                             |   | 5,813  |                                         |  |                        |  |  |   | 5,813   |  
|Mortgage-backed securities and collateralized mortgage obligations |  |                                                              |       |                                             |   |        |                                         |  |                        |  |  |   |         |  
|Government issued or guaranteed                                    |  |                                                              |      |                                             |   | 32,308 |                                         |  |                        |  |  |   | 32,308  |  
|Privately issued residential                                       |  |                                                              |      |                                             |   | 2,835  |                                         |  |                        |  |  |   | 2,835   |  
|Asset backed securities                                            |  |                                                              |      |                                             |   | 184    |                                         |  |                        |  |  |   | 184     |  
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Total available-for-sale securities                                |  | $                                                            |      |                                             | $ | 98,368 |                                         |  | $                      |  |  | $ | 98,368  |  
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Derivative liabilities                                             |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  
|Interest rate swap                                                 |  | $                                                            |      |                                             | $ | (61    | )                                       |  | $                      |  |  | $ | (61     | )
|                                                                   |  |                                                              |       |                                             |   |        |                                         |  |                        |   |  |   |         |  



|(1) | Loans held-for-sale represents a single loan with fair value based on contract sales price that was sold in April 2010.
|--- | -----------------------------------------------------------------------------------------------------------------------

Certain non-financial assets measured at fair value on a recurring basis include reporting
units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the
second step of a goodwill impairment test, as well as intangible assets measured at fair value for impairment assessment.

Certain financial assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured
at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Goodwill.Goodwill is measured at fair value on a non-recurring basis using Level 3 inputs. In the first step of a
goodwill impairment test, the Company primarily uses a review of the valuation of recent guideline bank acquisitions, if available, as well as discounted cash flow analysis. If the second step of a goodwill impairment test is required, the implied
fair value of goodwill is determined in the same manner as goodwill is recognized in a business combination. See Note 4 Goodwillfor additional information.

Impaired Loans.Certain impaired loans with a valuation reserve are measured for impairment using the practical
expedient, whereby fair value of the loan is based on the fair value of the loans collateral, provided the loan is collateral



18



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



dependent. The fair value measurements of loan collateral can include real estate appraisals, comparable real estate sales information, cash flow projections, realization estimates, etc., all of
which can include observable and unobservable inputs. As a result, the categorization of impaired loans can be either Level 2 or Level 3 of the fair value hierarchy, depending on the nature of the inputs used for measuring the related
collaterals fair value. As of March 31, 2010, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying
collateral. Impaired loans with a carrying value of $17.8 million were reduced by specific valuation allowance allocations of $2.7 million to a fair value of $15.1 million based on collateral valuations utilizing Level 2 valuation inputs. Impaired
loans with a carrying value of $5.6 million were reduced by specific valuation allowance allocations of $267,000 to a fair value of $5.3 million based on collateral valuations utilizing Level 3 valuation inputs. At December 31, 2009, impaired
loans with a carrying value of $14.6 million were reduced by specific valuation allowance allocations of $2.0 million to a fair value of $12.6 million based on collateral valuations utilizing Level 2 valuation inputs. Impaired loans with a carrying
value of $9.2 million were reduced by specific valuation allowance allocations of $726,000 to a fair value of $8.4 million based on collateral valuations utilizing Level 3 valuation inputs.

Fair Value of Financial Instruments

The following table summarizes the carrying value and estimated fair values of financial instruments as of March 31,
2010 and December 31, 2009:



|                                                              |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|------------------------------------------------------------- |  | ------------------------- | --------- | ----------------------- | - | ------------------------- |  | ------------------- | --------- |  | - | ---------
|                                                              |  | As of March 31, 2010      |           | As of December 31, 2009
|                                                              |  | Carrying orContractAmount |           | EstimatedFair Value     |   | Carrying orContractAmount |  | EstimatedFair Value
|                                                              |  | (In thousands)           
|Financial Assets                                              |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Cash and cash equivalents                                     |  | $                         | 132,315   |                         | $ | 132,315                   |  | $                   | 108,093   |  | $ | 108,093  
|Investment securities available-for-sale                      |  |                           | 93,312    |                         |   | 93,312                    |  |                     | 98,368    |  |   | 98,368   
|Investment securities held-to-maturity                        |  |                           | 4,044     |                         |   | 4,348                     |  |                     | 4,044     |  |   | 4,352    
|Other investments                                             |  |                           | 17,329    |                         |   | 17,329                    |  |                     | 21,577    |  |   | 21,577   
|Loans held-for-investment, net                                |  |                           | 1,217,510 |                         |   | 1,107,989                 |  |                     | 1,244,594 |  |   | 1,133,959
|Loans held-for-sale                                           |  |                           | 8,600     |                         |   | 8,600                     |  |                     |          |  |   |         
|Cash value of bank owned life insurance                       |  |                           | 28,887    |                         |   | 28,887                    |  |                     | 28,526    |  |   | 28,526   
|Accrued interest receivable                                   |  |                           | 5,117     |                         |   | 5,117                     |  |                     | 5,161     |  |   | 5,161    
|                                                              |  |                           |           |                        
|Financial Liabilities                                         |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Deposits                                                      |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Transaction accounts                                          |  |                           | 723,373   |                         |   | 723,373                   |  |                     | 705,987   |  |   | 705,987  
|Time deposits                                                 |  |                           | 643,139   |                         |   | 642,862                   |  |                     | 658,180   |  |   | 659,296  
|                                                              |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Total deposits                                                |  |                           | 1,366,512 |                         |   | 1,366,235                 |  |                     | 1,364,167 |  |   | 1,365,283
|                                                              |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Other borrowings                                              |  |                           | 26,217    |                         |   | 28,127                    |  |                     | 25,513    |  |   | 27,429   
|Junior subordinated debentures                                |  |                           | 36,083    |                         |   | 37,070                    |  |                     | 36,083    |  |   | 37,883   
|Interest rate derivative                                      |  |                           | 445       |                         |   | 445                       |  |                     | 61        |  |   | 61       
|Accrued interest payable                                      |  |                           | 626       |                         |   | 626                       |  |                     | 625       |  |   | 625      
|                                                              |  |                           |           |                        
|Off-balance sheet financial instruments                       |  |                           |           |                         |   |                           |  |                     |           |  |   |          
|Unfunded loan commitments, including unfunded lines of credit |  |                           |          |                         |   | 258                       |  |                     |          |  |   | 224      
|Standby letters of credit                                     |  |                           |          |                         |   | 7                         |  |                     |          |  |   | 16       
|Commercial letters of credit                                  |  |                           |          |                         |   |                          |  |                     |          |  |   |         

The following methodologies and assumptions were used to estimate the fair value of the Companys financial
instruments as disclosed in the table:

Assets for Which Fair Value Approximates Carrying Value. The
fair values of certain financial assets and liabilities carried at cost, including cash and due from banks, deposits with banks, federal funds sold, cash value of bank owned life insurance, due from customers on acceptances and accrued interest
receivable, are considered to approximate their respective carrying values due to their short-term nature and negligible credit risks.

Investment Securities.Fair values are based primarily upon quoted market prices obtained from an independent
pricing service.

Loans.The fair value of loans originated by the Banks is estimated by discounting
the expected future cash flows using the current interest rates at which similar loans with similar terms would be made. The presence of floors on a large portion of the variable rate loans has supported the yields above current market levels and is
the key factor causing the fair value of the variable rate loans with floors to exceed the book value. The fair value of the remainder of the variable rate loans approximates the carrying value while fixed rate loans are generally above the carrying
values. Using these results, valuation adjustments are made for specific credit risks as well as general portfolio credit and market risks to arrive at the fair value.



19



---

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Liabilities for Which Fair Value Approximates Carrying Value.The
estimated fair value for transactional deposit liabilities with no stated maturity (i.e., demand, savings, and money market deposits) approximates the carrying value. The estimated fair value of deposits does not take into account the value of the
Companys long-term relationships with depositors, commonly known as core deposit intangibles, which are separate intangible assets, and not considered financial instruments. Nonetheless, the company would likely realize a core deposit premium
if its deposit portfolio were sold in the principal market for such deposits.

The fair value of acceptances
outstanding, accounts payable and accrued liabilities are considered to approximate their respective carrying values due to their short-term nature.

Time Deposits.Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits.

Other Borrowings.The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and
other borrowings maturing within fourteen days approximate their fair values. Fair values of other borrowings are estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of
borrowing arrangements.

Junior Subordinated Debentures.The fair value of the junior subordinated
debentures was estimated by discounting the cash flows through maturity based on the prevailing market rate.

Interest Rate Derivatives. The fair value was estimated using discounted cash flow models that use actively quoted
or observable market input values from external market data providers and/or non-binding broker-dealer quotations.

Commitments to Extend Credit and Letters of Credit.The fair value of such instruments is estimated using the
unamortized portion of fees collected for execution of such credit facility.

12. RELATED PARTY TRANSACTIONS

In February 2010, the Company issued a promissory note to each of the Companys Chairman of the Board and an
affiliate of one of the Companys 5% or more shareholders. Each note was issued for a principal amount of $500,000. The notes mature February 10, 2011 and bear interest on the principal amount at a fixed rate per annum equal to 5.0% due
quarterly beginning March 31, 2010. The proceeds from issuance of the promissory notes were used for general corporate purposes.

On April 23, 2010, the Company sold 300,000 shares of its common stock at $3.23 per share to an affiliate of one of
the Companys 5% or more shareholders in a private placement. See Note 13 Subsequent Events for additional information.

13. SUBSEQUENT EVENTS

On April 23, 2010, the Company sold 1,250,000 shares of its common stock at $3.23 per share to accredited investors
in a private placement. The purchase price of $3.23 per share was approved by the Board of Directors of the Company on March 26, 2010 and was based upon an amount equal to 110% of the average closing price per share of the Companys common
stock on The Nasdaq Global Market for the 10 trading days ending on and including March 31, 2010. The approximate $4.0 million in net proceeds will be used by the Company for general corporate purposes.

14. NEW AUTHORITATIVE ACCOUNTING GUIDANCE

FASB ASC Topic 810, Consolidation. New authoritative accounting guidance under ASC Topic 810 amends
prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an
entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The new authoritative accounting
guidance requires additional disclosures about the reporting entitys involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entitys financial
statements. The new authoritative accounting guidance under ASC Topic 810 was effective January 1, 2010 and did not have a significant impact on the Companys financial condition, results of operations, or cash flows.

FASB ASC Topic 860, Transfers and Servicing.ASC Topic 860 amends prior accounting guidance to enhance



20



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METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



reporting about transfers of financial assets, including securitization, and where companies have continuing exposure to the risks related to the transferred financial assets. The new
authoritative accounting guidance eliminates the concept of a qualifying special-purpose entity and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional
disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 was effective
January 1, 2010 and did not have a significant impact on the Companys financial condition, results of operations, or cash flows.

Accounting Standards Update (ASU) 2010-06 provides amendments to Topic 820 that provides more robust
disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels
1, 2, and 3. The new disclosures and clarifications of existing disclosures were effective January 1, 2010, except for the disclosures abut purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.



21



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

Special Cautionary Notice Regarding Forward-looking Statements

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not historical
facts 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 is 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. Words such as 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 the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations
resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on the Companys loan portfolio and allowance for loan losses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 concentration of the Companys loan portfolio in loans collateralized by real estate;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the Companys ability to raise additional capital;
| | - |  | --------------------------------------------------



| |  |  | the effect of compliance, or failure to comply within stated deadlines, of the provisions of the formal agreement with the OCC;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



22



---

| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | increases in the level of nonperforming assets;
| | - |  | -----------------------------------------------



| |  |  | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of
operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the availability of funds resulting in increased costs or reduced liquidity;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Companys securities portfolio;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in FDIC deposit insurance assessments;
| | - |  | ------------------------------------------------



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



| |  |  | government intervention in the U.S. financial system; 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.



23



---

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 a net loss of $3.4 million for the three months ended March 31, 2010, compared with a net
loss of $2.0 million for the same quarter in 2009. The Companys diluted loss per common share for the three months ended March 31, 2010 was $0.36, compared with a loss per diluted share of $0.23 for the same quarter in 2009. Diluted
earnings (loss) per share is computed by dividing net income (after deducting dividends on preferred stock) by the weighted-average number of common shares and potentially dilutive common shares outstanding during the period.

Total assets were $1.60 billion at March 31, 2010, an increase of $7.4 million or 0.5% from $1.59 billion
at December 31, 2009. Available-for-sale investment securities at March 31, 2010 were $93.3 million, a decrease of $5.1 million or 5.1% from $98.4 million at December 31, 2009. Net loans at March 31, 2010 were
$1.23 billion, a decrease of $18.5 million or 1.5% from $1.24 billion at December 31, 2009. Total deposits at March 31, 2010 were $1.37 billion, an increase of $2.3 million or 0.2% from $1.36 billion at
December 31, 2009. Other borrowings at March 31, 2010 were $26.2 million, a decrease of $704,000 or 2.8% from $25.5 million at December 31, 2009. The Companys return on average assets (ROAA) for the three months
ended March 31, 2010 and 2009 was (0.86%) and (0.51%), respectively. The Companys return on average equity (ROAE) for the three months ended March 31, 2010 and 2009 was (8.68%) and (5.18%), respectively.
Shareholders equity at March 31, 2010 was $152.2 million compared to $155.3 million at December 31, 2009, a decrease of approximately $3.1 million or 2.0%. Details of the changes in the various components of net income are
further discussed below.

Recent Developments

On April 23, 2010, the Company sold 1,250,000 shares of its common stock at $3.23 per share to accredited investors
in a private placement. The purchase price of $3.23 per share was approved by the Board of Directors of the Company on March 26, 2010 and was based upon an amount equal to 110% of the average closing price per share of the Companys common
stock on The Nasdaq Global Market for the 10 trading days ending on and including March 31, 2010. The approximate $4.0 million in net proceeds will be used by the Company for general corporate purposes.

In April 2010, nonperforming assets were reduced by $17.9 million. Several ORE properties were sold resulting in a $9.3
million reduction in ORE. Of the total, $5.4 million was from Texas, and $3.9 million was from California. There were no significant losses recorded in April 2010 on these sales. Additionally, $1.3 million was charged off on a $9.9 million
nonperforming loan in the first quarter of 2010, and was reported as held-for-sale at March 31, 2010. In April 2010, the loan was sold at no gain or loss.

On May 6, 2010, with the approval of the Board of Directors, the Company elected to further preserve its capital
resources and decided to defer the May 2010 dividend payment on its Fixed Rate Cumulative Perpetual Preferred Stock, (the Series A Preferred Stock) issued to the U.S. Treasury in connection with the Companys participation in the
Capital Purchase Program (CPP) as permitted under the Statement of Designation. Any future determination relating to dividend payments on the Series A Preferred Stock will be made at the discretion of the Companys Board of
Directors and will depend on a number of factors, including the Companys future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that the Board of Directors may deem relevant.

In the event that the Company defers paying dividends on the Series A Preferred Stock for an aggregate of six
quarterly dividend periods or more (whether or not consecutive), the Company must increase the authorized number of directors then constituting its Board of Directors by two. Holders of the Series A Preferred Stock, together with the holders of
any outstanding parity stock with the same voting rights, will be entitled to elect the two additional members of the Board of Directors at the next annual meeting (or at a special meeting called for this purpose) and at each subsequent annual
meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full.

Results of Operations

Net Interest Income and Net Interest Margin. For the three months ended March 31, 2010, net
interest income, before the provision for loan losses, was $14.5 million, an increase of $1.7 million or 13.3% compared with $12.8 million for the same period in 2009. The increase was primarily due to lower deposit costs. Average
interest-earning assets for the three months ended March 31, 2010 were $1.48 billion, a decrease of $27.7 million or 1.8% compared with $1.51 billion for the same period in 2009. The weighted average yield on interest-earning
assets for the first quarter of 2010 was 5.53%, a decrease of 30 basis points compared



24



---

with 5.83% for the same quarter in 2009. Average interest-bearing liabilities for the three months ended March 31, 2010 were $1.22 billion, an increase of $3.0 million or 0.2%
compared with $1.22 billion for the same period in 2009. The weighted average interest rate paid on interest-bearing liabilities for the first quarter 2010 was 1.90%, a decrease of 106 basis points compared with 2.96% for the same quarter in
2009. The average interest rate decreased as rates on transaction accounts were reduced and higher cost time deposits matured and were replaced with lower cost deposits.

The net interest margin for the three months ended March 31, 2010 was 3.97%, an increase of 53 basis points compared
with 3.44% for the same period in 2009. The increase was primarily the result of lower deposit costs.

Total Interest Income. Total interest income for the three months ended March 31, 2010 was
$20.2 million, a decrease of $1.5 million or 6.8% compared with $21.7 million for the same period in 2009. The decrease was primarily due to lower loan volume and an increase in nonperforming assets.

Interest Income from Loans. Interest income from loans for the three months ended March 31, 2010 was
$19.2 million, a decrease of $1.2 million or 5.9% compared with $20.4 million for the same quarter in 2009. The decrease was the result of lower loan volume and an increase in nonperforming assets during the first quarter of 2010, compared
with the same quarter in 2009. Average total loans for the three months ended March 31, 2010 were $1.27 billion compared to $1.34 billion for the same period in 2009, a decrease of approximately $68.4 million or 5.1%. For the first
quarter of 2010, the average yield on loans was 6.11% compared to 6.16% for the same quarter in 2009, a decrease of 5 basis points.

Approximately $863.8 million or 68.4% of the total loan portfolio are variable rate loans that periodically reprice and
are sensitive to changes in market interest rates. For the three months ended March 31, 2010, the average yield on total loans was approximately 286 basis points above the prime rate. To lessen interest rate sensitivity in the event of a
falling interest rate environment, the Company originates variable rate loans with interest rate floors. At March 31, 2010, approximately $717.4 million in loans or 56.8% of the total loan portfolio were variable rate loans with interest rate
floors that carried a weighted average interest rate of 6.29%. At March 31, 2009, variable rate loans with interest rate floors carried a weighted average interest rate of 6.48% and comprised 54.2% of the total loan portfolio.

Interest Income from Investments. Interest income from investments (which includes investment securities, federal
funds sold, and other investments) for the three months ended March 31, 2010 was $1.0 million, a decrease of approximately $277,000 or 21.0% compared to $1.3 million for the same period in 2009. The decrease in interest income from
investments was primarily the result of declining interest rates and the effect of paydowns and calls of securities. Average total investments for the three months ended March 31, 2010 were $209.4 million compared to average total
investments for the same period in 2009 of $168.7 million, an increase of approximately $40.7 million or 24.1%. The increase was primarily the result of an increase in federal funds sold and other short-term investments, partially offset by a
decrease in other investments. For the first quarter 2010, the average yield on total investments was 2.02% compared to 3.17% for the same quarter in 2009, a decrease of 115 basis points.

Total Interest Expense. Total interest expense for the three months ended March 31, 2010 was
$5.7 million, a decrease of approximately $3.2 million or 35.7% compared to $8.9 million for the same period in 2009. The decrease primarily reflected lower deposit cost.

Interest Expense on Deposits. Interest expense on interest-bearing deposits for the three months ended
March 31, 2010 was $5.0 million, a decrease of approximately $3.1 million or 38.7% compared to $8.1 million for the same period in 2009. Average interest-bearing deposits for the three months ended March 31, 2010 were
$1.16 billion compared to average interest-bearing deposits for the same period in 2009 of $1.12 billion, an increase of $40.7 million or 3.6%. The average interest rate paid on interest-bearing deposits for the first quarter of 2010
was 1.73% compared to 2.93% for the same quarter in 2009, a decrease of 120 basis points. The decline in interest expense and the average interest rate paid on interest-bearing deposits was primarily due to decreased rates on transaction accounts
and the replacement of higher cost time deposits with lower cost deposits as they matured.

Interest
Expense on Other Borrowings. Interest expense on other borrowings for the three months ended March 31, 2010 was $239,000, a decrease of $53,000 compared to $292,000 for the same period in 2009. Average borrowed funds for the three months
ended March 31, 2010 and 2009 were $26.1 million and $63.8 million, respectively. The average interest rate paid on borrowed funds for the first quarter of 2010 was 3.71% compared to 1.86% for the same quarter in 2009. The cost increased
as lower cost short-term FHLB borrowings were repaid and higher cost long-term borrowings remained outstanding.



25



---

The following table presents, for each major category of interest-earning
assets and interest-bearing liabilities, 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 table as loans having a zero yield, with income, if any, recognized at the end
of the loan term.



|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|--------------------------------------------------------------- |  | ------------------------------------ | --------- | - | ------------------- | - | -------------------- |  | ---- | ------------------------- |  | - | ------------------- | - | -------------------- | - | ------ |  | ---- | -
|                                                                |  | For The Three Months Ended March 31, |          
|                                                                |  | 2010                                 |           |   | 2009                |  
|                                                                |  | AverageOutstandingBalance            |           |   | InterestEarned/Paid |   | AverageYield/Rate(1) |  |      | AverageOutstandingBalance |  |   | InterestEarned/Paid |   | AverageYield/Rate(1) |  
|                                                                |  | (Dollars in thousands)               |          
|Assets                                                          |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Interest-earning assets:                                        |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Loans                                                           |  | $                                    | 1,273,656 |   |                     | $ | 19,186               |  | 6.11 | %                         |  | $ | 1,342,104           |   |                      | $ | 20,390 |  | 6.16 | %
|Taxable securities                                              |  |                                      | 90,668    |   |                     |   | 790                  |  | 3.53 |                           |  |   | 97,468              |   |                      |   | 1,084  |  | 4.51 |  
|Tax-exempt securities                                           |  |                                      | 10,242    |   |                     |   | 121                  |  | 4.79 |                           |  |   | 3,977               |   |                      |   | 48     |  | 4.89 |  
|Other investments (2)                                           |  |                                      | 17,665    |   |                     |   | 75                   |  | 1.72 |                           |  |   | 24,443              |   |                      |   | 143    |  | 2.37 |  
|Federal funds sold and other short-term investments             |  |                                      | 90,858    |   |                     |   | 56                   |  | 0.25 |                           |  |   | 42,846              |   |                      |   | 44     |  | 0.42 |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total interest-earning assets                                   |  |                                      | 1,483,089 |   |                     |   | 20,228               |  | 5.53 |                           |  |   | 1,510,838           |   |                      |   | 21,709 |  | 5.83 |  
|Allowance for loan losses                                       |  |                                      | (31,381   | ) |                     |   |                      |  |      |                           |  |   | (23,691             | ) |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total interest-earning assets, net of allowance for loan losses |  |                                      | 1,451,708 |   |                     |   |                      |  |      |                           |  |   | 1,487,147           |   |                      |   |        |  |      |  
|Noninterest-earning assets                                      |  |                                      | 141,772   |   |                     |   |                      |  |      |                           |  |   | 117,842             |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total assets                                                    |  | $                                    | 1,593,480 |   |                     |   |                      |  |      |                           |  | $ | 1,604,989           |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Liabilities and shareholders equity                            |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Interest-bearing liabilities:                                   |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Interest-bearing demand deposits                                |  | $                                    | 54,305    |   |                     | $ | 69                   |  | 0.52 | %                         |  | $ | 55,291              |   |                      | $ | 71     |  | 0.52 | %
|Savings and money market accounts                               |  |                                      | 469,391   |   |                     |   | 1,552                |  | 1.34 |                           |  |   | 363,912             |   |                      |   | 2,163  |  | 2.41 |  
|Time deposits                                                   |  |                                      | 638,573   |   |                     |   | 3,346                |  | 2.13 |                           |  |   | 702,400             |   |                      |   | 5,865  |  | 3.39 |  
|Junior subordinated debentures                                  |  |                                      | 36,083    |   |                     |   | 520                  |  | 5.76 |                           |  |   | 36,083              |   |                      |   | 520    |  | 5.76 |  
|Other borrowings                                                |  |                                      | 26,140    |   |                     |   | 239                  |  | 3.71 |                           |  |   | 63,822              |   |                      |   | 292    |  | 1.86 |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total interest-bearing liabilities                              |  |                                      | 1,224,492 |   |                     |   | 5,726                |  | 1.90 |                           |  |   | 1,221,508           |   |                      |   | 8,911  |  | 2.96 |  
|Noninterest-bearing liabilities:                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Noninterest-bearing demand deposits                             |  |                                      | 199,290   |   |                     |   |                      |  |      |                           |  |   | 206,622             |   |                      |   |        |  |      |  
|Other liabilities                                               |  |                                      | 11,891    |   |                     |   |                      |  |      |                           |  |   | 17,544              |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total liabilities                                               |  |                                      | 1,435,673 |   |                     |   |                      |  |      |                           |  |   | 1,445,674           |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |  
|Shareholders equity                                            |  |                                      | 157,807   |   |                     |   |                      |  |      |                           |  |   | 159,315             |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Total liabilities and shareholders equity                      |  | $                                    | 1,593,480 |   |                     |   |                      |  |      |                           |  | $ | 1,604,989           |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Net interest income                                             |  |                                      |           |   |                     | $ | 14,502               |  |      |                           |  |   |                     |   |                      | $ | 12,798 |  |      |  
|                                                                |  |                                      |           |   |                     |   |                      |  |      |                           |  |   |                     |   |                      |   |        |  |      |  
|Net interest spread                                             |  |                                      |           |   |                     |   |                      |  | 3.63 | %                         |  |   |                     |   |                      |   |        |  | 2.87 | %
|Net interest margin                                             |  |                                      |           |   |                     |   |                      |  | 3.97 | %                         |  |   |                     |   |                      |   |        |  | 3.44 | %



|(1) | Annualized.
|--- | -----------

|(2) | Other investments include CDARS, Federal Reserve Bank stock, Federal Home Loan Bank stock and investment in subsidiary trust.
|--- | -----------------------------------------------------------------------------------------------------------------------------



26



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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 months ended March 31, 2010 compared
with the three months ended March 31, 2009. For purposes of this table, changes attributable to both rate and volume have been allocated to each accordingly.



|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  
|--------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | ----- |  | - | ------ | -
|                                                    |  | Three Months Ended March 31, |       
|                                                    |  | 2010 vs 2009                 |       
|                                                    |  | Increase (Decrease)Due
to    |        |   |      |  
|                                                    |  | Volume                       |        |   | Rate |   |        | Total | 
|                                                    |  | (Dollars in thousands)       |       
|Interest-earning assets:                            |  |                              |        |   |      |   |        |       |  |   |        |  
|Loans                                               |  | $                            | (1,040 | ) |      | $ | (164   | )     |  | $ | (1,204 | )
|Taxable securities                                  |  |                              | (76    | ) |      |   | (218   | )     |  |   | (294   | )
|Tax-exempt securities                               |  |                              | 76     |   |      |   | (3     | )     |  |   | 73     |  
|Other investments                                   |  |                              | (40    | ) |      |   | (28    | )     |  |   | (68    | )
|Federal funds sold and other short-term investments |  |                              | 49     |   |      |   | (37    | )     |  |   | 12     |  
|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  
|Total increase (decrease) in interest income        |  |                              | (1,031 | ) |      |   | (450   | )     |  |   | (1,481 | )
|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  
|Interest-bearing liabilities:                       |  |                              |        |   |      |   |        |       |  |   |        |  
|Interest-bearing demand deposits                    |  |                              | (2     | ) |      |   |       |       |  |   | (2     | )
|                                                    |  |                              |       
|Savings and money market accounts                   |  |                              | 627    |   |      |   | (1,238 | )     |  |   | (611   | )
|Time deposits                                       |  |                              | (533   | ) |      |   | (1,986 | )     |  |   | (2,519 | )
|Junior subordinated debentures                      |  |                              |       |   |      |   |       |       |  |   |       |  
|Other borrowings                                    |  |                              | (172   | ) |      |   | 119    |       |  |   | (53    | )
|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  
|Total increase (decrease) in interest expense       |  |                              | (80    | ) |      |   | (3,105 | )     |  |   | (3,185 | )
|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  
|Increase (decrease) in net interest income          |  | $                            | (951   | ) |      | $ | 2,655  |       |  | $ | 1,704  |  
|                                                    |  |                              |        |   |      |   |        |       |  |   |        |  

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 March 31, 2010 was $7.9 million, an
increase of approximately $611,000, compared to $7.3 million for the same period in 2009. The increase was primarily due to higher nonperforming assets for the first quarter of 2010. The allowance for loan losses as a percent of total loans was
2.75% at March 31, 2010 and 2.31% at December 31, 2009, and increased compared with 1.81% at March 31, 2009.

Noninterest Income. Noninterest income for the three months ended March 31, 2010 was $1.6 million, down
$86,000 or 5.1% compared with the same period in 2009. The decrease for the three months ended March 31, 2010 was primarily related to OTTI charges and realized losses on securities.

Noninterest Expense. Noninterest expense for the three months ended March 31, 2010 was $13.0 million, an
increase of $2.7 million or 26.1% compared with the same period in 2009, mainly attributable to a $2.0 million goodwill impairment charge, and higher expenses related to foreclosed assets and FDIC assessments.

Salaries and employee benefits expense for the three months ended March 31, 2010 was $5.5 million, an increase of
$62,000 compared with $5.4 million for the same period in 2009, primarily due to an increase in employee health care benefits.

Occupancy and equipment expense of $2.0 million for the three months ended March 31, 2010 were approximately the
same compared with the first quarter of 2009.

The FDIC assessment for the three months ended March 31,
2010 was $811,000, an increase of $540,000 compared to $271,000 for the same period in 2009 due primarily to higher assessments.



27



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Other noninterest expense for the three months ended March 31, 2010 was
$2.0 million, a decrease of $286,000 compared to $2.3 million for the same period in 2009, due primarily to a decline in legal fees.

The Companys efficiency ratio is calculated by dividing total noninterest expense, excluding loan loss provisions
and goodwill impairment, by net interest income plus noninterest income, excluding impairment on securities. The efficiency ratio for the three months ended March 31, 2010 was 68.58%, a decrease from 70.15% for the same quarter in 2009, and was
primarily the result of the increase in net interest income through lower deposit costs.

Income Taxes.
Income tax benefit for the three months ended March 31, 2010 was $1.4 million, an increase of $348,000 compared with $1.1 million for the same period in 2009. The Companys effective tax rate was 29.9% and 35.0% for the three
months ended March 31, 2010 and 2009, respectively. The decrease in the effective tax rate was due primarily to the non-deductible goodwill impairment.

Financial Condition

Loan Portfolio. Total loans at March 31, 2010 were $1.26 billion, a decrease of $13.2 million or 1.0% compared
with $1.27 billion at December 31, 2009. Compared to the loan level at December 31, 2009, real estate loans decreased $1.8 million or 0.2% during the three months ended March 31, 2010. At March 31, 2010 and December 31,
2009, the ratio of total loans to total deposits was 92.27%, and 93.39%, respectively. Total loans represented 78.95% and 80.15% of total assets at March 31, 2010 and December 31, 2009, respectively.

The following table summarizes the loan portfolio by type of loan at the dates indicated:



|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|---------------------------------------------- |  | ---------------------- | --------- | - | ----------------------- | ------ | - | ------ | - | --------- | ------- |  | ------ | -
|                                               |  | As of March 31, 2010   |           |   | As of December 31, 2009 |       
|                                               |  | Amount                 |           |   | Percent                 |        |   | Amount |   |           | Percent | 
|                                               |  | (Dollars in thousands) |          
|Commercial and industrial                      |  | $                      | 387,856   |   |                         | 30.70  | % |        | $ | 399,235   |         |  | 31.27  | %
|Real estate mortgage                           |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Residential                                    |  |                        | 32,735    |   |                         | 2.59   |   |        |   | 32,730    |         |  | 2.56   |  
|Commercial                                     |  |                        | 746,717   |   |                         | 59.11  |   |        |   | 742,974   |         |  | 58.20  |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|                                               |  |                        | 779,452   |   |                         | 61.70  |   |        |   | 775,704   |         |  | 60.76  |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Real estate construction                       |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Residential                                    |  |                        | 35,140    |   |                         | 2.78   |   |        |   | 32,257    |         |  | 2.52   |  
|Commercial                                     |  |                        | 57,054    |   |                         | 4.52   |   |        |   | 65,532    |         |  | 5.14   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|                                               |  |                        | 92,194    |   |                         | 7.30   |   |        |   | 97,789    |         |  | 7.66   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Consumer and other                             |  |                        | 3,853     |   |                         | 0.30   |   |        |   | 3,888     |         |  | 0.31   |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Gross loans                                    |  |                        | 1,263,355 |   |                         | 100.00 | % |        |   | 1,276,616 |         |  | 100.00 | %
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Unearned discounts, interest and deferred fees |  |                        | (2,513    | ) |                         |        |   |        |   | (2,619    | )       |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Total loans                                    |  |                        | 1,260,842 |   |                         |        |   |        |   | 1,273,997 |         |  |        |  
|Allowance for loan losses                      |  |                        | (34,732   | ) |                         |        |   |        |   | (29,403   | )       |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  
|Loans, net                                     |  | $                      | 1,226,110 |   |                         |        |   |        | $ | 1,244,594 |         |  |        |  
|                                               |  |                        |           |   |                         |        |   |        |   |           |         |  |        |  

Nonperforming Assets. At March 31, 2010, total nonperforming assets
consisted of $64.8 million in nonaccrual loans, $1.1 million of accruing loans 90 days or more past due, $5.6 million of troubled debt restructurings, and $27.0 million in other real estate (ORE). Total nonperforming assets decreased
$4.3 million to $98.6 million at March 31, 2010 from $102.9 million at December 31, 2009, which consisted of an $8.2 million decrease in Texas, partially offset by a $3.9 million increase in California. The decrease in nonperforming assets
in Texas consists of a $10.0 million decline in nonaccrual loans and a $3.9 million decline in troubled debt restructurings (TDR), which were partially offset by increases of $5.0 million in ORE and $686,000 in loans over 90 days past
due. In Texas, eight loans comprise the majority of the net decrease in nonaccrual loans, which included $3.0 million in paydowns, one $917,000 loan rating upgrade, $4.8 million transferred to ORE and $2.6 million in write-downs, partially offset by
two loans totaling $1.6 million which moved to nonaccrual status. Of the $2.6 million in write-downs, $1.3 million was related to an impaired loan of $9.9 million that was transferred to loans held-for-sale. The decrease in TDRs relates to two loans
that have performed according to restructured terms since the second quarter of 2009. In California, two hospitality loan relationships totaling $4.6 million were added to TDR status, which were partially offset by declines of $404,000 in nonaccrual
loans and $311,000 in ORE.



28



---

On a linked-quarter basis, ORE increased by approximately $4.7 million
compared with December 31, 2009, which included the addition of five commercial land parcels totaling $4.4 million, residential lots totaling $520,000 and two commercial buildings totaling $407,000 in Texas, and a $208,000 commercial building
in California, partially offset by write-downs of approximately $520,000 in California.

The Company is
occasionally involved in the sale of certain federally guaranteed loans into the secondary market with servicing retained. Under the terms of the Small Business Administration (SBA) program, the Company at its option may repurchase any
loan that may become classified as nonperforming. Any repurchased loans may increase the Companys nonperforming loans until the time at which the 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. There were no sales of SBA loans for the three months ended March 31, 2010 or 2009.

The following table presents information regarding nonperforming assets as of the dates indicated:



|                                                  |  |                        |        |   |                        |   |         |  
|------------------------------------------------- |  | ---------------------- | ------ | - | ---------------------- | - | ------- | -
|                                                  |  | As ofMarch 31, 2010    |        |   | As ofDecember 31, 2009 |  
|                                                  |  | (Dollars in thousands) |       
|Nonaccrual loans (1)                              |  | $                      | 64,821 |   |                        | $ | 75,229  |  
|Accruing loans 90 days or more past due           |  |                        | 1,106  |   |                        |   | 420     |  
|Troubled debt restructurings                      |  |                        | 5,649  |   |                        |   | 4,927   |  
|Other real estate (ORE)                         |  |                        | 26,986 |   |                        |   | 22,291  |  
|                                                  |  |                        |        |   |                        |   |         |  
|Total nonperforming assets                        |  |                        | 98,562 |   |                        |   | 102,867 |  
|                                                  |  |                        |        |   |                        |   |         |  
|Total nonperforming assets to total assets        |  |                        | 6.17   | % |                        |   | 6.47    | %
|Total nonperforming assets to total loans and ORE |  |                        | 7.65   | % |                        |   | 7.94    | %



|(1) | Includes loans held-for-sale of $8.6 million at March 31, 2010
|--- | --------------------------------------------------------------

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 loans considered to be impaired as of the dates indicated:



|                                              |  |                        |        |                        |   |       
|--------------------------------------------- |  | ---------------------- | ------ | ---------------------- | - | ------
|                                              |  | As ofMarch 31, 2010    |        | As ofDecember 31, 2009
|                                              |  | (Dollars in thousands)
|Impaired loans with no valuation reserve      |  | $                      | 47,079 |                        | $ | 56,413
|Impaired loans with a valuation reserve       |  |                        | 23,391 |                        |   | 23,743
|                                              |  |                        |        |                        |   |       
|Total recorded investment in impaired loans   |  | $                      | 70,470 |                        | $ | 80,156
|                                              |  |                        |        |                        |   |       
|Valuation allowance related to impaired loans |  | $                      | 2,954  |                        | $ | 2,731 

The
average recorded investment in impaired loans during the three months ended March 31, 2010 and the year ended December 31, 2009 was $75.5 million and $49.8 million, respectively. Interest income of $77,000 and $8,000 was recognized on
impaired loans for the three months ended March 31, 2010 and 2009, respectively.

Allowance for Loan
Losses and Reserve for Unfunded Lending Commitments. At March 31, 2010 and 2009, the allowance for loan losses was $34.7 million and $24.2 million, respectively, or 2.75% and 1.81% of total loans, respectively. At
December 31, 2009, the allowance for loan losses was $29.4 million, or 2.31% of total loans. Net charge-offs for the three months



29



---

ended March 31, 2010 and 2009 were $2.6 million and $7.4 million, respectively. The first quarter 2010 charge-offs primarily consisted of $2.7 million in loans from Texas and $115,000 in
loans from California, partially offset by recoveries of $218,000 from both Texas and California.

The
allowance for loan losses provides for the risk of losses inherent in the lending process and the Company allocates the allowance for loan losses according to managements assessments of risk inherent in the loan portfolio. 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, the Company relies on estimates and exercises 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 loan losses.

The allowance for loan losses consists
of the allowance for loan losses and the reserve for unfunded lending commitments and is maintained at levels that the Company believes are adequate to absorb probable losses inherent in the loan portfolio and unfunded lending commitments as of the
date of the financial statements. The Company employs a systematic methodology for determining the allowance for loan losses that consists of four components: (1) a formula-based general reserve based on historical average losses by loan grade
and grade migration, (2) specific reserves on larger individual credits that are based on the difference between the current loan balance and the loans collateral value, observable market price, or discounted present value, (3) a
qualitative component that reflects current market conditions and other factors precedent to losses different from historical averages, and (4) a reserve for unfunded lending commitments.

In setting the qualitative reserve portion of the allowance for loan losses, the factors the Company may consider
include, but are not limited to, concentrations of credit, common characteristics 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, changes in value of the collateral securing loans, results of portfolio stress tests, and changes in lending processes, procedures and personnel. After the aforementioned
assessment of the loan portfolio, the general economic environment and other relevant factors, management determines the appropriate allowance for loan loss level and makes the provision necessary to achieve that level. This methodology is
consistently followed so that the level of the allowance for loan losses is reevaluated in response to changes in circumstances, economic conditions or other factors on an ongoing basis.

The Company maintains a reserve for unfunded commitments to provide for the risk of loss inherent in its unfunded lending
related commitments. The process used in determining the reserve is consistent with the process used for the allowance for loan losses discussed above.



30



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The following table presents an analysis of the allowance for credit losses
and other related data for the periods indicated:



|                                                                                  |  |                                               |           |    |      |   |           |   
|--------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | -- | ---- | - | --------- | --
|                                                                                  |  | As of and for
theThree Months Ended March 31, |          
|                                                                                  |  | 2010                                          |           |    | 2009 |  
|                                                                                  |  | (Dollars in thousands)                        |          
|Average total loans outstanding for the period                                    |  | $                                             | 1,273,656 |    |      | $ | 1,342,104 |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Total loans outstanding at end of period                                          |  | $                                             | 1,260,842 |    |      | $ | 1,335,856 |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Allowance for loan losses at beginning of period                                  |  | $                                             | 29,403    |    |      | $ | 24,235    |   
|Provision for loan losses                                                         |  |                                               | 7,898     |    |      |   | 7,287     |   
|Charge-offs:                                                                      |  |                                               |           |    |      |   |           |   
|Commercial and industrial                                                         |  |                                               | (172      | )  |      |   | (6,630    | ) 
|Real estate mortgage                                                              |  |                                               | (1,589    | )  |      |   | (433      | ) 
|Real estate construction                                                          |  |                                               | (967      | )  |      |   | (339      | ) 
|Consumer and other                                                                |  |                                               | (65       | )  |      |   | (38       | ) 
|                                                                                  |  |                                               |           |    |      |   |           |   
|Total charge-offs                                                                 |  |                                               | (2,793    | )  |      |   | (7,440    | ) 
|                                                                                  |  |                                               |           |    |      |   |           |   
|Recoveries:                                                                       |  |                                               |           |    |      |   |           |   
|Commercial and industrial                                                         |  |                                               | 210       |    |      |   | 74        |   
|Real estate mortgage                                                              |  |                                               |          |    |      |   | 1         |   
|Real estate construction                                                          |  |                                               |          |    |      |   |          |   
|Consumer and other                                                                |  |                                               | 14        |    |      |   | 1         |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Total recoveries                                                                  |  |                                               | 224       |    |      |   | 76        |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Net (charge-offs) recoveries                                                      |  |                                               | (2,569    | )  |      |   | (7,364    | ) 
|                                                                                  |  |                                               |           |    |      |   |           |   
|Allowance for loan losses at end of period                                        |  |                                               | 34,732    |    |      |   | 24,158    |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Reserve for unfunded lending commitments at beginning of period                   |  |                                               | 1,043     |    |      |   | 1,092     |   
|Provision for unfunded lending commitments                                        |  |                                               | (55       | )  |      |   | 112       |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Reserve for unfunded lending commitments at end of period                         |  |                                               | 988       |    |      |   | 1,204     |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Allowance for credit losses                                                       |  | $                                             | 35,720    |    |      | $ | 25,362    |   
|                                                                                  |  |                                               |           |    |      |   |           |   
|Ratio of allowance for loan losses to end of period total loans                   |  |                                               | 2.75      | %  |      |   | 1.81      | % 
|Ratio of net (charge-offs) recoveries to average total loans                      |  |                                               | (0.20     | )% |      |   | (0.55     | )%
|Ratio of allowance for loan losses to end of period total nonperforming loans (1) |  |                                               | 48.52     | %  |      |   | 44.89     | % 



|(1) | Total nonperforming loans are nonaccrual loans plus loans over 90 days past due.
|--- | --------------------------------------------------------------------------------



31



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Securities. At March 31, 2010, the available-for-sale securities
portfolio was $93.3 million, a decrease of $5.1 million or 5.1% compared with $98.4 million at December 31, 2009. The decrease was primarily due to calls on U.S. government agency securities and principal payments on mortgage-backed
securities and collateralized mortgage obligations. At March 31, 2010 and December 31, 2009, the held-to-maturity portfolio was $4.0 million. The securities portfolio is primarily comprised of mortgage-backed securities, collateralized
mortgage obligations, municipal securities and obligations of U.S. government sponsored enterprises. The securities portfolio has been funded primarily by the liquidity created from deposit growth and loan repayments in excess of loan funding
requirements. Other investments, which include CDARS One-Way Sell investments (CDARS), Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) stock, and the investment in subsidiary trust, were $17.3 million
at March 31, 2010, a decrease of $4.2 million or 19.7% compared with $21.6 million at December 31, 2009. The decrease is primarily the result of maturities of CDARS.

Deposits. At March 31, 2010, total deposits were $1.37 billion, an increase of $2.3 million or 0.2%
compared with $1.36 billion at December 31, 2009, primarily due to growth in certificates of deposit. The Companys ratio of noninterest-bearing demand deposits to total deposits at March 31, 2010 and December 31, 2009 was
14.3% and 14.9%, respectively. Interest-bearing deposits at March 31, 2010 were $1.17 billion, an increase of $11.0 million or 0.9% compared with $1.16 billion at December 31, 2009.

Junior Subordinated Debentures.Junior subordinated debentures at March 31, 2010 and December 31, 2009
were $36.1 million. The junior subordinated 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
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. The debentures issued to the Companys unconsolidated subsidiary trust MCBI
Statutory Trust I, were used to fund the Companys acquisition of Metro United. Related to these debentures, the Company entered into a forward-starting interest rate swap contract. Under the swap, beginning December 2010, the Company will pay
a fixed interest rate of 5.38% and receive a variable interest rate of three-month LIBOR plus a margin of 1.55% on a total notional amount of $17.5 million, with quarterly settlements beginning March 2011. See Note 9, Derivative
Financial Instruments, to the Condensed Consolidated Financial Statements for additional information related to this interest rate swap.

Other Borrowings. Other borrowings at March 31, 2010 were $26.2 million, a decrease of approximately
$704,000 or 2.8% compared to other borrowings of $25.5 million at December 31, 2009. Other borrowings at March 31, 2010 primarily include $25.0 million in security repurchase agreements, $1.0 million in debentures, and Federal Reserve
TT&L. The security repurchase agreements bear an average rate of 3.71% and mature on December 31, 2014. The securities collateralizing the repurchase agreements are transferred to the applicable counterparty. The counterparty, in certain
instances, is contractually entitled to sell or repledge securities accepted as collateral.

In February 2010,
the Company issued a promissory note to each of the Companys Chairman of the Board and an affiliate of one of the Companys 5% or more shareholders. Each note was issued for a principal amount of $500,000. The notes mature
February 10, 2011 and bear interest on the principal amount at a fixed rate per annum equal to 5.0% due quarterly beginning March 31, 2010. The proceeds from issuance of the promissory notes were used for general corporate purposes.



32



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The following table provides an analysis of the Companys other
borrowings as of the dates and for the periods indicated:



|                                            |  |                                                   |        |   |                                              |   |        |  
|------------------------------------------- |  | ------------------------------------------------- | ------ | - | -------------------------------------------- | - | ------ | -
|                                            |  | As of and for theThree Months EndedMarch 31, 2010 |        |   | As of and for theYear EndedDecember 31, 2009 |  
|                                            |  | (Dollars in thousands)                            |       
|Federal Funds Purchased:                    |  |                                                   |        |   |                                              |   |        |  
|at end of period                            |  | $                                                 |       |   |                                              | $ |       |  
|average during the period                   |  |                                                   |       |   |                                              |   | 22     |  
|maximum month-end balance during the period |  |                                                   |       |   |                                              |   |       |  
|Interest rate at end of period              |  |                                                   |       |   |                                              |   |       | %
|Interest rate during the period             |  |                                                   |       | % |                                              |   | 0.50   |  
|                                            |  |                                                  
|FHLB Notes and Advances:                    |  |                                                   |        |   |                                              |   |        |  
|at end of period                            |  | $                                                 |       |   |                                              | $ |       |  
|average during the period                   |  |                                                   | 1      |   |                                              |   | 10,695 |  
|maximum month-end balance during the period |  |                                                   |       |   |                                              |   | 55,000 |  
|Interest rate at end of period              |  |                                                   |       | % |                                              |   |       | %
|Interest rate during the period             |  |                                                   | 0.21   |   |                                              |   | 0.50   |  
|                                            |  |                                                  
|Security Repurchase Agreements:             |  |                                                   |        |   |                                              |   |        |  
|at end of period                            |  | $                                                 | 25,000 |   |                                              | $ | 25,000 |  
|average during the period                   |  |                                                   | 25,000 |   |                                              |   | 25,000 |  
|maximum month-end balance during the period |  |                                                   | 25,000 |   |                                              |   | 25,000 |  
|Interest rate at end of period              |  |                                                   | 3.71   | % |                                              |   | 3.71   | %
|Interest rate during the period             |  |                                                   | 3.71   |   |                                              |   | 3.71   |  
|                                            |  |                                                  
|Debentures:                                 |  |                                                   |        |   |                                              |   |        |  
|at end of period                            |  | $                                                 | 1,000  |   |                                              | $ |       |  
|average during the period                   |  |                                                   | 550    |   |                                              |   | 153    |  
|maximum month-end balance during the period |  |                                                   | 1,000  |   |                                              |   |       |  
|Interest rate at end of period              |  |                                                   | 5.00   | % |                                              |   |       | %
|Interest rate during the period             |  |                                                   | 5.00   |   |                                              |   | 7.19   |  
|                                            |  |                                                  
|Federal Reserve TT&L:                       |  |                                                   |        |   |                                              |   |        |  
|at end of period                            |  | $                                                 | 217    |   |                                              | $ | 513    |  
|average during the period                   |  |                                                   | 589    |   |                                              |   | 687    |  
|maximum month-end balance during the period |  |                                                   | 389    |   |                                              |   | 1,020  |  

Liquidity. The Companys loan to deposit ratio at March 31, 2010 and 2009 was 92.27% and 97.09%,
respectively. As of March 31, 2010, the Company had commitments to fund loans in the amount of $105.6 million. At this same date, the Company had stand-by letters of credit of $7.7 million. Available sources to fund these commitments and other
cash demands of the



33



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Company come from loan and investment securities repayments, deposit inflows, and lines of credit from the FHLBs of Dallas and San Francisco as well as the FRB discount window. With its current
level of collateral, the Company has the ability to borrow an additional $363.4 million from the FHLBs, $19.9 million from the FRB discount window, and $12.5 million from other correspondent banks.

Capital Resources. Shareholders equity at March 31, 2010 was $152.2 million compared to
$155.3 million at December 31, 2009, a decrease of $3.1 million. The decrease was primarily the result of the net loss for the three months ending March 31, 2010 and the payment of dividends on preferred stock.

The following table provides a comparison of the Companys and each of the Banks leverage and risk-weighted
capital ratios as of March 31, 2010 to the minimum and well-capitalized regulatory standards:



|                                |  |                                             |      |  |                                                                              |   |  |                               |  
|------------------------------- |  | ------------------------------------------- | ---- |  | ---------------------------------------------------------------------------- | - |  | ----------------------------- | -
|                                |  | MinimumRequired ForCapital AdequacyPurposes |      |  | To Be Categorized asWell Capitalized UnderPrompt CorrectiveAction Provisions |   |  | Actual Ratio AtMarch 31, 2010 |  
|The Company                     |  |                                             |      |  |                                                                              |   |  |                               |  
|Leverage ratio                  |  | 4.00                                        | %(1) |  | N/A                                                                          | % |  | 10.52                         | %
|Tier 1 risk-based capital ratio |  | 4.00                                        |      |  | N/A                                                                          |   |  | 12.29                         |  
|Risk-based capital ratio        |  | 8.00                                        |      |  | N/A                                                                          |   |  | 13.56                         |  
|MetroBank                       |  |                                             |      |  |                                                                              |   |  |                               |  
|Leverage ratio                  |  | 4.00                                        | %(2) |  | 5.00                                                                         | % |  | 11.20                         | %
|Tier 1 risk-based capital ratio |  | 4.00                                        |      |  | 6.00                                                                         |   |  | 12.85                         |  
|Risk-based capital ratio        |  | 8.00                                        |      |  | 10.00                                                                        |   |  | 14.12                         |  
|Metro United                    |  |                                             |      |  |                                                                              |   |  |                               |  
|Leverage ratio                  |  | 4.00                                        | %(3) |  | 5.00                                                                         | % |  | 8.49                          | %
|Tier 1 risk-based capital ratio |  | 4.00                                        |      |  | 6.00                                                                         |   |  | 10.49                         |  
|Risk-based capital ratio        |  | 8.00                                        |      |  | 10.00                                                                        |   |  | 11.76                         |  



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

|(2) | The OCC may require MetroBank to maintain a leverage ratio above the required minimum.
|--- | --------------------------------------------------------------------------------------

|(3) | The FDIC may require Metro United to maintain a leverage ratio above the required minimum.
|--- | ------------------------------------------------------------------------------------------

Critical Accounting Estimates

The Company has established various accounting estimates which govern the application of accounting principles generally
accepted in the United States in the preparation of the Companys consolidated financial statements. Certain accounting estimates 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 estimates to be critical accounting estimates. 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.

Allowance for loan losses. The
Company believes the allowance for loan losses is a critical accounting estimate that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. In estimating the allowance for loan
losses, 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 to increase or decrease and result in adjustments to the Companys provision for loan losses. See Financial ConditionAllowance
for Loan Losses and the Reserve for Unfunded Lending Commitments.



34



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Goodwill.The Company believes goodwill is a critical
accounting estimate that requires significant judgment and estimates to be used in the preparation of its consolidated financial statements. The Company reviews goodwill for impairment on an annual basis, or more often, if events or circumstances
indicate that it is more likely than not that the fair value of Metro United, the Companys only reporting unit with assigned goodwill, is below the carrying value of its equity. The Companys annual evaluation is performed as of
August 31 of each year.

Annual Evaluation

In determining the fair value of Metro United, the Company primarily uses a review of the valuation of recent guideline
bank acquisitions as well as discounted cash flow analysis. The guideline bank transactions were selected from a similar geographic footprint as Metro United or having a similar market focus, based on publicly available information. Valuation
multiples such as price-to-book, price-to-tangible book, price-to-deposits, and price-to-earnings from the guideline transactions are compared with Metro Uniteds operating results to derive its implied goodwill as of the valuation date. The
Company also uses the discounted cash flow method to estimate the value of Metro United. The discounted cash flow method estimates the value of interest rate sensitive instruments by discounting the expected future cash flows using the current
interest rates at which similar instruments with similar terms would be made. In addition, as a third method of determining fair value, quoted stock prices as of the valuation date for the Company and its peer guideline banks were used as a current
comparative proxy. The values separately derived from each valuation technique (i.e., guideline transactions, discounted cash flows, and quoted market prices) are evaluated to assess whether goodwill was impaired. The results of these valuation
techniques are equally weighted to derive the fair value of goodwill.

The Company utilized a discounted cash
flow analysis to determine the fair value of Metro United. Multi-year financial forecasts were developed by projecting net income for the next five years and discounting the average terminal values based on the valuation multiples listed in the
previous paragraph in a normalized market. The financial forecasts considered several key business drivers such as anticipated loan and deposit growth, forward interest rates, historical performance, and industry and economic trends, among other
considerations. For the test as of August 31, 2009, the Company used an average growth rate of 6% for the 5-year period and discounted Metro Uniteds terminal value using a 10% rate of return. The Company also performed a sensitivity
analysis utilizing additional discount rates ranging from 8% to 15%.

The Company also considered the fair
value of Metro United in relationship to the Companys stock price and performed a reconciliation to market price. This reconciliation was performed by first using the Companys market price on a minority basis with an estimated control
premium of 30%. The Company then allocated the total fair value to both of its segments, MetroBank and Metro United. The allocation was based upon an average of the following internal ratios:



| |  |  | Metro Uniteds assets as a percentage of total assets
| | - |  | -----------------------------------------------------



| |  |  | Metro Uniteds loans as a percentage of total loans
| | - |  | ---------------------------------------------------



| |  |  | Metro Uniteds deposits as a percentage of total deposits
| | - |  | ---------------------------------------------------------



| |  |  | Metro Uniteds stockholders equity as a percentage of total stockholders equity
| | - |  | ---------------------------------------------------------------------------------

The derived fair value of Metro United was then compared to the carrying value of its equity. As the carrying value of
its equity exceeded the fair value, an additional goodwill impairment evaluation was performed which involves calculating the implied fair value of the Metro Uniteds goodwill.

The implied fair value of goodwill is determined in the same manner as goodwill is recognized in a business combination.
The fair value of goodwill is determined by applying a weight of 50% to the implied fair value of Metro United and the remaining 50% is equally distributed among the valuation techniques mention above. The fair value of Metro Uniteds assets
and liabilities, including previously unrecognized intangible assets, is individually determined. Significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of Metro United. The value of the implied
goodwill is highly sensitive to the estimated fair value of Metro Uniteds net assets. The excess fair value of Metro United over the fair value of its net assets is the implied goodwill. The fair value of Metro Uniteds net assets is
estimated using recent data observed in the market, including similar assets and liabilities.

Observable
market information is utilized to the extent available and relevant. The estimated fair values reflect managements assumptions regarding how a market participant would value the net assets and includes appropriate credit, liquidity, and market
risk adjustments that are indicative of the current environment. The estimated liquidity and market risk adjustments on certain loan categories ranged from 20% to 50% due to the distressed nature of the market in California. The size of the implied
goodwill was significantly affected by the estimated fair value of the loans pertaining to Metro United. The significant market risk adjustment that is a consequence of the current distressed market conditions was a significant contributor to the
valuation discounts associated with these loans.



35



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If the implied fair value of the goodwill for Metro United exceeds its
carrying value of the goodwill, no goodwill impairment is recorded. Changes in the estimated fair value of the individual assets and liabilities may result in a different amount of implied goodwill, and ultimately the amount of goodwill impairment,
if any. Sensitivity analysis is performed to assess the potential ranges of implied goodwill.

Based on the
fair value of Metro Uniteds assets and liabilities at August 31, 2009, the implied fair value of goodwill exceeded its carrying value. During the fourth quarter of 2009, the Companys stock continued to decline further and to trade
below book value, therefore the Company performed an additional evaluation of goodwill as of December 31, 2009 and impaired goodwill by $2.5 million.

Current Evaluation

During the first quarter of 2010, the Companys stock declined further from prior year end. The Company performed an
evaluation of goodwill for the quarter ended March 31, 2010 and impaired goodwill by $2.0 million. Due to the staleness of the bank transactions multiples and fluctuations in market capitalization of peer banks used in the market methods,
management reduced the weight of the market approach and relied primarily on the income approach for the step one evaluation. The Company also performed a reconciliation of the estimated fair value to the stock price of the Company. Because the step
one impairment test failed, the Company performed step two analysis to derive the implied fair value of goodwill. As a result of the evaluation, the implied fair value of goodwill was less than the carrying value of goodwill by $2.0 million, and an
impairment was recorded in the first quarter of 2010. The charge is a noncash adjustment to the Companys financial statements recorded as a component of noninterest expense. As goodwill and other intangible assets are not included in the
calculation of regulatory capital, the Companys well capitalized regulatory ratios are not affected. Subsequent reversal of goodwill impairment is prohibited.

The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination. The fair value of Metro Uniteds assets and liabilities, including unrecognized intangible assets, is individually evaluated. The excess of the fair value of Metro United over the fair value of its net assets is the implied fair
value of goodwill. The Company estimated the fair value of Metro Uniteds assets and liabilities, including previously unrecognized intangible assets, through a variety of valuation techniques that incorporated interest rates, credit or
nonperformance risk, as well as market risk adjustments that are indicative of the current economic environment. The estimated values are based on an exit price and reflect managements expectations regarding how a market participant would
value the assets and liabilities. This evaluation and resulting conclusion were significantly affected by the estimated fair value of the loans of Metro United that were evaluated, particularly the market risk adjustment that is a consequence of the
current distressed market conditions. It is possible that future changes in the fair value of Metro Uniteds net assets could result in future goodwill impairment. For example, to the extent that market liquidity returns and the fair value of
the individual assets of Metro United increases at a faster rate than the fair value of Metro United as a whole, that may cause the implied goodwill to be lower than the carrying value of goodwill, resulting in goodwill impairment. Ultimately,
future potential changes in valuation assumptions may impact the estimated fair value of Metro United and cause its fair value to be below its carrying value, therefore resulting in an impairment of the goodwill.

Impairment of investment securities. Investments classified as available-for-sale are carried at fair value
and the impact of changes in fair value are recorded on the consolidated balance sheet as an unrealized gain or loss in accumulated other comprehensive income (loss), a separate component of shareholders equity. Securities classified as
available-for-sale or held-to-maturity are subject to review to identify when a decline in value is other-than-temporary. Factors considered in determining whether a decline in value is other-than-temporary include: the extent and the
duration of the decline; the reasons for the decline in value (credit event, and interest-rate related including general credit spread widening); the financial condition of and near-term prospects of the issuer, and the Companys intent to sell
and whether or not it is more likely than not that the Company would be required to sell the security before the anticipated recovery of its amortized cost basis. When it is determined that an other-than-temporary impairment exists and the
Company does not intend to sell the security or if it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the impairment is separated into the amount that is credit-related
and the amount due to all other factors. The credit-related impairment is recognized in earnings.

For debt
securities, determining credit-related impairment is driven principally by assumptions regarding the amount and timing of projected cash flows. For mortgage-backed and asset-backed securities, cash flow estimates are determined based on prepayment
assumptions, default rates and loss severity rates derived from widely accepted third-party data sources. The Company has developed these estimates using information based on historical experience as well as using market observable data, such as
industry analyst reports and forecasts, sector credit ratings and other data relevant to the collectability of a security. See Note 2 Securities to the Condensed Consolidated Financial Statements for additional discussion on
other-than-temporary impairment.

Stock-based compensation.The
Company believes stock-based compensation is a critical accounting estimate that requires significant judgment and estimates used in the preparation of its consolidated financial statements. The Company accounts



36



---

for stock-based compensation in accordance with the fair value recognition provisions of FASB accounting guidance. The Company uses the Black-Scholes option-pricing model which requires the input
of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of the Companys common
stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures). Changes in the subjective assumptions can materially affect the estimate of fair value of
stock-based compensation and, consequently, the related amount recognized on the consolidated statements of income.

Fair Value. The Company believes that the determination of fair value is a critical accounting estimate
that requires significant judgment used in the preparation of its consolidated financial statements. Certain portions of the Companys assets are reported on a fair value basis. Fair value is used on a recurring basis for certain assets in
which fair value is the primary basis of accounting. An example of this recurring use of fair value includes available-for-sale securities. Additionally, fair value is used on a non-recurring basis to evaluate assets for impairment or for disclosure
purposes. Examples of these non-recurring uses of fair value include goodwill and intangible assets. Depending on the nature of the asset various valuation techniques and assumptions are used when estimating fair value.

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Fair value determination in accordance with ASC Topic 820-10 requires that a number of significant judgments are made. First, where prices for identical assets and liabilities are not available, application of the
three-level hierarchy would require that similar assets are identified. If observable market prices are unavailable or impracticable to obtain, then fair value is estimated using modeling techniques such as discounted cash flow analyses. These
modeling techniques incorporate the Companys assessments regarding assumptions that market participants would use in pricing the asset or the liability, including assumptions about the risks inherent in a particular valuation technique, the
effect of a restriction on the sale or use of an asset, and the risk of nonperformance. Assessments with respect to assumptions that market participants would make are inherently difficult to determine and use of different assumptions could result
in material changes to these fair value measurements. The use of significant, unobservable inputs would be described in Note 11, Fair Value,to the Condensed Consolidated Financial Statements.

In estimating the fair values for investment securities the Company believes that independent, third-party market prices
are the best evidence of exit price and where available, estimates are based on such prices. If such third-party market prices are not available on the exact securities owned, fair values are based on the market prices of similar instruments,
independent pricing service estimates or are estimated using industry-standard or proprietary models whose inputs may be unobservable. When market observable data is not available, the valuation of financial instruments becomes more subjective and
involves substantial judgment. The need to use unobservable inputs generally results from the lack of market liquidity for certain types of loans and securities, which results in diminished observability of both actual trades and assumptions that
would otherwise be available to value these instruments.



|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 Annual
Report on Form 10-K for the year ended December 31, 2009. 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)) were not effective as of the end of the period covered by this report, due to a material weakness in internal control over financial reporting related to internal controls over staffing
and monitoring of nonperforming loans that was identified and reported as a material weakness in the Companys Annual Report on Form 10-K for the year ended December 31, 2009. As of March 31, 2010, this material weakness in internal
control over financial reporting has not been fully remediated.

Changes in Internal Control over Financial
Reporting. In order to remediate the material weakness identified in its assessment of the Companys internal controls over financial reporting as of December 31, 2010, management assigned dedicated and experienced resources at the
Company with the responsibility of monitoring loans and related risk grade changes. The



37



---

Company intends to continue to monitor, evaluate and test the operating effectiveness of these controls.Other than the identification of the material weakness described above, there have
been no other changes in the Companys internal control over financial reporting that occurred during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.

The Company anticipates the actions described above and resulting
improvements in controls will strengthen the internal control over financial reporting and will address the related material weakness identified as of December 31, 2009 that has remained as a material weakness as of March 31, 2010.
However, because the internal control process requires repeatable process execution and approval, the successful execution of controls, for at least several quarters, may be required prior to management being able to definitively conclude that the
material weakness has been fully remediated.



38



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PART II

OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

The Company is involved in various litigation that arises from time to time in the normal course of business. In the
opinion of management, after consultations with its legal counsel, such litigation is not expected to have a material adverse effect of the Companys consolidated financial position, results of operations or cash flows.



|Item 1A. | Risk Factors.
|-------- | -------------

Except for the addition of the risk factor described below, there have been no material changes in the risk factors
previously described under Item 1A. Risk Factors in the Companys Annual Report of Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 18, 2010.

The Company has elected to defer the dividend payment on its Series A Preferred Stock; as a result, the Company is precluded from
making any dividend payments on its Common Stock or any Common Stock repurchases, and such deferral may trigger the Series A Preferred Stock holders right to appoint two directors to the Companys Board of Directors.

On May 6, 2010, with the approval by the Board of Directors, the Company elected to defer the dividend payment on
its Series A Preferred Stock. Having deferred the dividend payment, the Company is prohibited, pursuant to the terms of the Companys participation in the CPP, from paying any future dividends on its Common Stock until all dividends payable to
the U.S. Treasury under the CPP have been paid in full. Additionally, as long as the Series A Preferred Stock is outstanding repurchases or redemption relating to certain equity securities, including the Common Stock, are prohibited until all
accrued and unpaid dividends are paid on the Series A Preferred Stock, subject to certain limited exceptions. Further, the Company is prohibited from increasing any future dividends on its Common Stock above the $0.04 per share quarterly dividend
paid for the quarter ended September 30, 2008. This restriction on Companys ability to increase its Common Stock dividends will continue until either the Company redeems all of the Series A Preferred Stock, or January 16, 2012,
whichever is earliest. In April, 2009, the Company suspended the payment of dividends on its Common Stock indefinitely.

In the event that the Company defers paying dividends on the Series A Preferred Stock for an aggregate of six quarterly
dividend periods or more (whether or not consecutive), the Company must increase the authorized number of directors then constituting its Board of Directors by two. Holders of the Series A Preferred Stock, together with the holders of any
outstanding parity stock with the same voting rights, will be entitled to elect the two additional members of the Board of Directors at the next annual meeting (or at a special meeting called for this purpose) and at each subsequent annual meeting
until all accrued and unpaid dividends for all past dividend periods have been paid in full.



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

None



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

Not applicable



|Item 4. | [Reserved]
|------- | ----------



|Item 5. | Other Information.
|------- | ------------------

Not applicable



39



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|Item 6. | Exhibits.
|------- | ---------



|              |  |                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Identification of Exhibit                                                                                                                                                                                                                          
|              | 
|3.1           |  | Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on
Form S-1 (Registration No. 333-62667) (the Registration Statement)).                   
|              | 
|3.2           |  | Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).                      
|              | 
|3.3           |  | Statement of Designations establishing the terms of the Series A Preferred Stock of the Company (incorporated herein by reference to Exhibit 3.1 to the
Companys Current Report on Form 8-K filed on January 21, 2009).                           
|              | 
|3.4           |  | Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on November
19, 2007).                                                                               
|              | 
|4.1           |  | Specimen form of certificate evidencing the Common Stock (incorporated herein by reference to Exhibit 4 to the Registration Statement).                                                                                                            
|              | 
|4.2           |  | Warrant, dated January 16, 2009, to purchase 771,429 shares of the Companys Common Stock (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on January 21, 2009).                                 
|              | 
|4.3           |  | Form of Certificate for the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (incorporated herein by reference
to Exhibit 4.2 to the Companys Current Report on Form 8-K filed on January 21, 2009).
|              | 
|11            |  | Computation of Earnings Per Common Share, included as Note 5 to the unaudited Condensed Consolidated Financial Statements 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.
|-- | -------------------



40



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SIGNATURES

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



|                  |  |  |  |                            |  |                                                                                    
|----------------- |  |  |  | -------------------------- |  | -----------------------------------------------------------------------------------
|                  |  |  |  | METROCORP BANCSHARES, INC.
|                  |  |  | 
|                  |  |  |  | By:                        |  | /S/    GEORGE M.
LEE                                                               
|Date: May 7, 2010 |  |  |  |                            |  | George M. Lee
Executive Vice Chairman, President and                               
|                  |  |  |  |                            |  | Chief Executive Officer (principal executive officer)                              
|                  |  |  | 
|Date: May 7, 2010 |  |  |  | By:                        |  | /S/    DAVID C.
CHOI                                                               
|                  |  |  |  |                            |  | David C. Choi                                                                      
|                  |  |  |  |                            |  | Chief Financial Officer (principal financial officer/
principal accounting officer)



41



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Identification of Exhibit                                                                                                                                                                                                                          
|              | 
|3.1           |  | Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on
Form S-1 (Registration No. 333-62667) (the Registration Statement)).                   
|              | 
|3.2           |  | Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).                      
|              | 
|3.3           |  | Statement of Designations establishing the terms of the Series A Preferred Stock of the Company (incorporated herein by reference to Exhibit 3.1 to the
Companys Current Report on Form 8-K filed on January 21, 2009).                           
|              | 
|3.4           |  | Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on November
19, 2007).                                                                               
|              | 
|4.1           |  | Specimen form of certificate evidencing the Common Stock (incorporated herein by reference to Exhibit 4 to the Registration Statement).                                                                                                            
|              | 
|4.2           |  | Warrant, dated January 16, 2009, to purchase 771,429 shares of the Companys Common Stock (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on January 21, 2009).                                 
|              | 
|4.3           |  | Form of Certificate for the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (incorporated herein by reference
to Exhibit 4.2 to the Companys Current Report on Form 8-K filed on January 21, 2009).
|              | 
|11            |  | Computation of Earnings Per Common Share, included as Note 5 to the unaudited Condensed Consolidated Financial Statements 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.
|-- | -------------------