UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 þ
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
      QUARTERLY PERIOD ENDED MARCH 31,
2009
 
 o
              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
                  (State
      or other jurisdiction of incorporation or organization)
                76-0579161
                  (I.R.S.
      Employer Identification No.)
 
 9600
Bellaire Boulevard, Suite 252
 Houston,
Texas 77036
 (Address
of principal executive offices including zip code)
 
 (713)
776-3876
 (Registrant’s
telephone number, including area code)
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes R     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 (Sec.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 RNon-accelerated
      Filer £  (Do
      not check if a smaller reporting company)
                Smaller
      Reporting Company £
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £    No
R
 
 As of May
1, 2009, the number of outstanding shares of Common Stock was
10,927,315.
  
 
  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,
                      
                      
                      December
      31,2009
                      
                      
                      2008ASSETSCash
      and due from banks
                      
                      $
                      22,563
                      
                      
                      $
                      26,383Federal
      funds sold and other short-term investments
                      
                      
                      70,773
                      
                      
                      
                      11,718Total
      cash and cash equivalents
                      
                      
                      93,336
                      
                      
                      
                      38,101Securities
      available-for-sale, at fair value
                      
                      
                      97,178
                      
                      
                      
                      102,104Securities
      held-to-maturity (fair value $1,057 at March 31, 2009)
                      
                      
                      1,057
                      
                      
                      
                      –Other
      investments
                      
                      
                      23,485
                      
                      
                      
                      29,220Loans,
      net of allowance for loan losses of $24,158 and $24,235,
      respectively
                      
                      
                      1,311,698
                      
                      
                      
                      1,321,813Accrued
      interest receivable
                      
                      
                      5,546
                      
                      
                      
                      5,946Premises
      and equipment, net
                      
                      
                      6,912
                      
                      
                      
                      7,368Goodwill
                      
                      
                      21,827
                      
                      
                      
                      21,827Core
      deposit intangibles
                      
                      
                      461
                      
                      
                      
                      506Customers'
      liability on acceptances
                      
                      
                      11,092
                      
                      
                      
                      8,012Foreclosed
      assets, net
                      
                      
                      8,562
                      
                      
                      
                      4,825Other
      assets
                      
                      
                      40,853
                      
                      
                      
                      40,516Total
      assets
                      
                      $
                      1,622,007
                      
                      
                      $
                      1,580,238LIABILITIES
      AND SHAREHOLDERS' EQUITYDeposits:Noninterest-bearing
                      
                      $
                      212,567
                      
                      
                      $
                      204,107Interest-bearing
                      
                      
                      1,163,395
                      
                      
                      
                      1,065,046Total
      deposits
                      
                      
                      1,375,962
                      
                      
                      
                      1,269,153Junior
      subordinated debentures
                      
                      
                      36,083
                      
                      
                      
                      36,083Other
      borrowings
                      
                      
                      29,447
                      
                      
                      
                      139,046Accrued
      interest payable
                      
                      
                      1,443
                      
                      
                      
                      1,279Acceptances
      outstanding
                      
                      
                      11,092
                      
                      
                      
                      8,012Other
      liabilities
                      
                      
                      5,390
                      
                      
                      
                      7,506Total
      liabilities
                      
                      
                      1,459,417
                      
                      
                      
                      1,461,079Commitments
      and contingencies
                      
                      
                      –
                      
                      
                      
                      –Shareholders'
      equity:Preferred
      stock, $1.00 par value, 2,000,000 shares authorized; 45,000 shares issued
      and outstanding at March 31, 2009 and none at December 31,
      2008
                      
                      
                      44,612
                      
                      
                      
                      –Common
      stock, $1.00 par value, 50,000,000 shares authorized; 10,994,965 shares
      issued and 10,898,211 and 10,885,081 shares outstanding at March 31, 2009
      and December 31, 2008, respectively
                      
                      
                      10,995
                      
                      
                      
                      10,995Additional
      paid-in-capital
                      
                      
                      29,011
                      
                      
                      
                      28,222Retained
      earnings
                      
                      
                      79,337
                      
                      
                      
                      82,311Accumulated
      other comprehensive loss
                      
                      
                      (70
                      )
                      
                      
                      (910
                      )Treasury
      stock, at cost, 96,754 and 109,884 shares at March 31, 2009 and December
      31, 2008, respectively
                      
                      
                      (1,295
                      )
                      
                      
                      (1,459
                      )Total
      shareholders' equity
                      
                      
                      162,590
                      
                      
                      
                      119,159Total
      liabilities and shareholders' equity
                      
                      $
                      1,622,007
                      
                      
                      $
                      1,580,238
   See
accompanying notes to condensed consolidated financial
statements
  1
  METROCORP BANCSHARES,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 (In
thousands, except per share amounts)
 (Unaudited)
  For
      the Three MonthsEnded March 31,2009
                    
                    
                    2008Interest
      income:Loans
                    
                    $
                    20,390
                    
                    
                    $
                    23,400Securities:Taxable
                    
                    
                    1,084
                    
                    
                    
                    1,372Tax-exempt
                    
                    
                    48
                    
                    
                    
                    73Other
      investments
                    
                    
                    143
                    
                    
                    
                    87Federal
      funds sold and other short-term investments
                    
                    
                    44
                    
                    
                    
                    137Total
      interest income
                    
                    
                    21,709
                    
                    
                    
                    25,069Interest
      expense:Time
      deposits
                    
                    
                    5,865
                    
                    
                    
                    7,601Demand
      and savings deposits
                    
                    
                    2,234
                    
                    
                    
                    2,065Junior
      subordinated debentures
                    
                    
                    520
                    
                    
                    
                    520Other
      borrowings
                    
                    
                    292
                    
                    
                    
                    888Total
      interest expense
                    
                    
                    8,911
                    
                    
                    
                    11,074Net
      interest income
                    
                    
                    12,798
                    
                    
                    
                    13,995Provision
      for loan losses
                    
                    
                    7,287
                    
                    
                    
                    1,584Net
      interest income after provision for loan losses
                    
                    
                    5,511
                    
                    
                    
                    12,411Noninterest
      income:Service
      fees
                    
                    
                    1,089
                    
                    
                    
                    1,243Loan-related
      fees
                    
                    
                    132
                    
                    
                    
                    181Letters
      of credit commissions and fees
                    
                    
                    255
                    
                    
                    
                    267Gain
      on securities transactions, net
                    
                    
                    –
                    
                    
                    
                    24Gain
      on sale of loans
                    
                    
                    –
                    
                    
                    
                    51Other
      noninterest income
                    
                    
                    454
                    
                    
                    
                    363Total
      noninterest income
                    
                    
                    1,930
                    
                    
                    
                    2,129Noninterest
      expenses:Salaries
      and employee benefits
                    
                    
                    5,388
                    
                    
                    
                    6,486Occupancy
      and equipment
                    
                    
                    1,992
                    
                    
                    
                    1,959Foreclosed
      assets, net
                    
                    
                    423
                    
                    
                    
                    57Impairment
      on securities
                    
                    
                    240
                    
                    
                    
                    –Other
      noninterest expense
                    
                    
                    2,528
                    
                    
                    
                    2,461Total
      noninterest expenses
                    
                    
                    10,571
                    
                    
                    
                    10,963Income
      (loss) before provision for income taxes
                    
                    
                    (3,130
                    )
                    
                    
                    3,577Provision
      (benefit) for income taxes
                    
                    
                    (1,096
                    )
                    
                    
                    1,342Net
      income (loss)
                    
                    $
                    (2,034
                    )
                    
                    $
                    2,235Dividends
      – preferred stock
                    
                    
                    (469
                    )
                    
                    
                    –Net
      income (loss) available to common shareholders
                    
                    $
                    (2,503
                    )
                    
                    $
                    2,235Earnings
      (loss) per common share:Basic
                    
                    $
                    (0.23
                    )
                    
                    $
                    0.21Diluted
                    
                    $
                    (0.23
                    )
                    
                    $
                    0.21Weighted
      average common shares outstanding:Basic
                    
                    
                    10,875
                    
                    
                    
                    10,811Diluted
                    
                    
                    10,885
                    
                    
                    
                    10,897Dividends
      per common share
                    
                    $
                    0.04
                    
                    
                    $
                    0.04
   See
accompanying notes to condensed consolidated financial
statements
  2
  METROCORP BANCSHARES,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (In
thousands)
 (Unaudited)
 
 For
      the Three MonthsEnded
      March 31,2009
                    
                    
                    2008Net
      income (loss)
                    
                    $
                    (2,034
                    )
                    
                    $
                    2,235Other
      comprehensive income (loss), net of tax:Unrealized
      gain on investment securities, net:Unrealized
      holding gain arising during the period
                    
                    
                    840
                    
                    
                    
                    560Less:
      reclassification adjustment for gain included in net
income
                    
                    
                    –
                    
                    
                    
                    15Other
      comprehensive income
                    
                    
                    840
                    
                    
                    
                    545Total
      comprehensive income (loss)
                    
                    $
                    (1,194
                    )
                    
                    $
                    2,780
 
 
 METROCORP
BANCSHARES, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 For
the Three Months Ended March 31, 2009
 (In
thousands)
 (Unaudited)
 
 
 Preferred
      Stock
                    
                    
                    Common
      Stock
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    Accumulated
      otherShares
                    
                    
                    At
      par
                    
                    
                    Shares
                    
                    
                    At
      par
                    
                    
                    paid-in
                      capital
                    
                    
                    Retained
                      earnings
                    
                    
                    comprehensive
                      income
      (loss)
                    
                    
                    Treasury
                        stock,at cost
                    
                    
                    TotalBalance
      at December 31, 2008
                    
                    
                    –
                    
                    
                    $
                    –
                    
                    
                    
                    10,885
                    
                    
                    $
                    10,995
                    
                    
                    $
                    28,222
                    
                    
                    $
                    82,311
                    
                    
                    $
                    (910
                    )
                    
                    $
                    (1,459
                    )
                    
                    $
                    119,159Issuance
      of preferred stock and warrant, at fair value
                    
                    
                    45
                    
                    
                    
                    44,289
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    711
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    45,000Re-issuance
      of treasury stock
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    13
                    
                    
                    
                    –
                    
                    
                    
                    (79
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    164
                    
                    
                    
                    85Stock-based
      compensation expense related to stock options recognized in
      earnings..
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    189
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    189Net
      loss
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (2,034
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (2,034
                    )Amortization  of
      preferred stock discount
                    
                    
                    –
                    
                    
                    
                    36
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (36
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Shortfall
      from restricted shares
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (32
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (32
                    )Other
      comprehensive income
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    840
                    
                    
                    
                    –
                    
                    
                    
                    840Dividends
      – preferred stock
                    
                    
                    –
                    
                    
                    
                    287
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (469
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (182
                    )Dividends
      – common stock ($0.04 per share).
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (435
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (435
                    )Balance
      at March 31, 2009
                    
                    
                    45
                    
                    
                    $
                    44,612
                    
                    
                    
                    10,898
                    
                    
                    $
                    10,995
                    
                    
                    $
                    29,011
                    
                    
                    $
                    79,337
                    
                    
                    $
                    (70
                    )
                    
                    $
                    (1,295
                    )
                    
                    $
                    162,590
 
 See
accompanying notes to condensed consolidated financial
statements
  3
  METROCORP BANCSHARES,
INC
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
  For the Three Months Ended March
      31,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      income (loss
                    
                    $
                    (2,034
                    )
                    
                    $
                    2,235Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
                    
                    
                    510
                    
                    
                    
                    532Provision
      for loan losses
                    
                    
                    7,287
                    
                    
                    
                    1,584Impairment
      on securities
                    
                    
                    240
                    
                    
                    
                    –Gain
      on securities transactions, net
                    
                    
                    –
                    
                    
                    
                    (24
                    )Gain
      on sale of foreclosed assets
                    
                    
                    (175
                    )
                    
                    
                    (1
                    )Loss
      on sale of premises and equipment
                    
                    
                    –
                    
                    
                    
                    9Gain
      on sale of loans, net
                    
                    
                    –
                    
                    
                    
                    (51
                    )Amortization
      of premiums and discounts on securities
                    
                    
                    (37
                    )
                    
                    
                    17Amortization
      of deferred loan fees and discounts
                    
                    
                    (540
                    )
                    
                    
                    (578
                    )Amortization
      of core deposit intangibles
                    
                    
                    45
                    
                    
                    
                    63Stock-based
      compensation
                    
                    
                    189
                    
                    
                    
                    228Changes
      in:Accrued
      interest receivable
                    
                    
                    400
                    
                    
                    
                    577Other
      assets
                    
                    
                    (842
                    )
                    
                    
                    (988
                    )Accrued
      interest payable
                    
                    
                    164
                    
                    
                    
                    (387
                    )Other
      liabilities
                    
                    
                    (2,117
                    )
                    
                    
                    1,943Net
      cash provided by operating activities
                    
                    
                    3,090
                    
                    
                    
                    5,159Cash
      flows from investing activities:Purchases
      of securities available-for-sale
                    
                    
                    (49
                    )
                    
                    
                    (14,945
                    )Purchases
      of securities held-to-maturity
                    
                    
                    (1,057
                    )
                    
                    
                    –Purchases
      of other investments
                    
                    
                    (1,066
                    )
                    
                    
                    (1,911
                    )Proceeds
      from maturities, calls, and principal paydowns of securities
      available-for-sale
                    
                    
                    6,086
                    
                    
                    
                    25,044Proceeds
      from  sales and maturities of other investments
                    
                    
                    6,800
                    
                    
                    
                    653Net
      change in loans
                    
                    
                    (2,000
                    )
                    
                    
                    (39,845
                    )Proceeds
      from sale of foreclosed assets
                    
                    
                    1,806
                    
                    
                    
                    211Proceeds
      from sale of premises and equipment
                    
                    
                    –
                    
                    
                    
                    7Purchases
      of premises and equipment
                    
                    
                    (54
                    )
                    
                    
                    (106
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    10,466
                    
                    
                    
                    (30,892
                    )Cash
      flows from financing activities:Net
      change in:Deposits
                    
                    
                    106,809
                    
                    
                    
                    5,905Other
      borrowings
                    
                    
                    (109,599
                    )
                    
                    
                    32,571Proceeds
      from issuance of preferred stock with common stock warrant
                    
                    
                    45,000
                    
                    
                    
                    –Re-issuance
      of treasury stock
                    
                    
                    85
                    
                    
                    
                    257Cash
      dividends paid on preferred stock
                    
                    
                    (182
                    )
                    
                    
                    –Cash
      dividends paid on common stock
                    
                    
                    (434
                    )
                    
                    
                    (432
                    )Net
      cash provided by financing activities
                    
                    
                    41,679
                    
                    
                    
                    38,301Net
      increase in cash and cash equivalents
                    
                    
                    55,235
                    
                    
                    
                    12,568Cash
      and cash equivalents at beginning of period
                    
                    
                    38,101
                    
                    
                    
                    46,270Cash
      and cash equivalents at end of period
                    
                    $
                    93,336
                    
                    
                    $
                    58,838
  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.
 
 The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity under accounting principles generally accepted in the United
States.  Voting interest entities are entities in which the total
equity investment at risk is sufficient to enable the entity to finance itself
independently and provides the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make decisions
about the entity’s activities.  The Company consolidates voting
interest entities in which it has all, or at least a majority of, the voting
interest.  As defined in applicable accounting standards, variable
interest entities, (“VIEs”) are entities that lack one or more of the
characteristics of a voting interest entity.  A controlling financial
interest is present when an enterprise has a variable interest, or a combination
of variable interests, that will absorb a majority of the entity’s expected
losses, receive a majority of the entity’s expected residual returns, or
both.  The enterprise with a controlling financial interest, known as
the primary beneficiary, consolidates the VIE.  The Company’s wholly
owned subsidiary, MCBI Statutory Trust I, is a VIE for which the Company is not
the primary beneficiary.  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, 2009, results of operations for the three months ended
March 31, 2009 and 2008, and cash flows for the three months ended March 31,
2009 and 2008. 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.
 
 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,
2008.
  5
  2.
              SECURITIES
 
 The
amortized cost and approximate fair value of securities is as
follows:
 
 As
      of March 31, 2009
                                  
                                  
                                  As
      of December 31, 2008Amortized
      Cost
                                  
                                  
                                  Gross
      Unrealized Gains
                                  
                                  
                                  Gross
      Unrealized Losses
                                  
                                  
                                  Fair
                                    Value
                                  
                                  
                                  Amortized
      Cost
                                  
                                  
                                  Gross
      Unrealized Gains
                                  
                                  
                                  Gross
      Unrealized Losses
                                  
                                  
                                  Fair
                                    Value(Dollars
      in thousands)Securities
      available for saleU.S. Government agencies
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  9
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  9U.S. Government sponsored
    enterprises
                                  
                                  
                                  14,901
                                  
                                  
                                  
                                  187
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  15,088
                                  
                                  
                                  
                                  14,899
                                  
                                  
                                  
                                  179
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  15,078Obligations of state and political
      subdivisions
                                  
                                  
                                  3,793
                                  
                                  
                                  
                                  24
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  3,817
                                  
                                  
                                  
                                  3,853
                                  
                                  
                                  
                                  24
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  3,877Mortgage-backed securities and collateralized
      mortgage obligations
                                  
                                  
                                  72,228
                                  
                                  
                                  
                                  1,518
                                  
                                  
                                  
                                  (1,965
                                  )
                                  
                                  
                                  71,781
                                  
                                  
                                  
                                  78,426
                                  
                                  
                                  
                                  574
                                  
                                  
                                  
                                  (2,255
                                  )
                                  
                                  
                                  76,745Asset backed securities
                                  
                                  
                                  527
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  527
                                  
                                  
                                  
                                  550
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  550Investment in CRA funds
                                  
                                  
                                  5,858
                                  
                                  
                                  
                                  107
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  5,965
                                  
                                  
                                  
                                  5,809
                                  
                                  
                                  
                                  36
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  5,845Total available for sale
securities
                                  
                                  $
                                  97,307
                                  
                                  
                                  $
                                  1,836
                                  
                                  
                                  $
                                  (1,965
                                  )
                                  
                                  $
                                  97,178
                                  
                                  
                                  $
                                  103,546
                                  
                                  
                                  $
                                  813
                                  
                                  
                                  $
                                  (2,255
                                  )
                                  
                                  $
                                  102,104Securities held to maturityObligations of state and political
      subdivisions
                                  
                                  $
                                  1,057
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  1,057
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─Total held to maturity securities
                                  
                                  $
                                  1,057
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  1,057
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─Other
      investmentsInvestment in CDARS
                                  
                                  $
                                  15,261
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  15,261
                                  
                                  
                                  $
                                  20,240
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  20,240FHLB/Federal Reserve Bank stock.
                                  
                                  
                                  7,141
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  7,141
                                  
                                  
                                  
                                  7,897
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  7,897Investment in subsidiary trust
                                  
                                  
                                  1,083
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  1,083
                                  
                                  
                                  
                                  1,083
                                  
                                  
                                  ─
                                  
                                  
                                  ─
                                  
                                  
                                  
                                  1,083Total other investments
                                  
                                  $
                                  23,485
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  23,485
                                  
                                  
                                  $
                                  29,220
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  ─
                                  
                                  
                                  $
                                  29,220
 
 The
following table displays the gross unrealized losses and fair value of
securities available for sale as of March 31, 2009 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, 2009.
 
 Less
      Than 12 Months
                    
                    
                    Greater
      Than 12 Months
                    
                    
                    TotalFair
      Value
                    
                    
                    Gross
      Unrealized Losses
                    
                    
                    Fair
      Value
                    
                    
                    Gross
      Unrealized Losses
                    
                    
                    Fair
      Value
                    
                    
                    Gross
      Unrealized Losses(Dollars
      in thousands)Securities
      available for saleMortgage-backed
      securities and collateralized mortgage obligations
                    
                    $
                    7,984
                    
                    
                    $
                    (1,809
                    )
                    
                    $
                    9,387
                    
                    
                    $
                    (156
                    )
                    
                    $
                    17,371
                    
                    
                    $
                    (1,965
                    )Total
      securities
                    
                    $
                    7,984
                    
                    
                    $
                    (1,809
                    )
                    
                    $
                    9,387
                    
                    
                    $
                    (156
                    )
                    
                    $
                    17,371
                    
                    
                    $
                    (1,965
                    )
 
 Declines
in the fair value of individual securities below their cost that are other than
temporary result in write-downs, as a realized loss, of the individual
securities to their fair value. In the first quarter of 2009, as part of its
quarterly impairment review, the Company determined that certain securities had
declines in fair value below their cost that were considered
other-than-temporary due to downgrades by one or more of the three major rating
agencies.  As a result, the Company recorded an impairment charge of
$240,000 to reduce the individual securities to their fair value.  For
the remaining securities, management believes that based upon the credit quality
of the debt securities and the Company’s intent and ability to hold the
securities until their recovery, none of the unrealized losses on securities
should be considered other than temporary.
  6
  3.
              ALLOWANCE FOR LOAN
      LOSSES
 
 Changes
in the allowance for loan losses are as follows:
 
 As
      of and for the three months ended
                              March
      31, 2009
                            
                            
                            As
      of and for the three months ended
                              March
      31, 2008(Dollars in
      thousands)Allowance for loan losses at
      beginning of period
                            
                            $
                            24,235
                            
                            
                            $
                            13,125Provision for loan
      losses
                            
                            
                            7,287
                            
                            
                            
                            1,584Charge-offs
                            
                            
                            (7,440
                            )
                            
                            
                            (136
                            )Recoveries
                            
                            
                            76
                            
                            
                            
                            15Allowance for loan losses at end
      of period
                            
                            
                            24,158
                            
                            
                            
                            14,588Reserve
      for unfunded lending commitments at beginning of period
                            
                            
                            1,092
                            
                            
                            
                            816Provision
      for unfunded lending commitments
                            
                            
                            112
                            
                            
                            
                            91Reserve
      for unfunded lending commitments at end of period
                            
                            
                            1,204
                            
                            
                            
                            907Allowance
      for credit losses
                            
                            $
                            25,362
                            
                            
                            $
                            15,495
 
 4.
              GOODWILL
 
 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 2008 impairment testing based on information that was as
of August 31, 2008. 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,
2008 exceeded its respective carrying value; therefore, the Company determined
there was no impairment of goodwill as of that date.
 
 As a
result of the decline in the market price of the Company's stock to a level
below book value during the fourth quarter of 2008 and further decline in the
first quarter of 2009, continued deterioration in the economy during these
quarters, and a net loss recorded by Metro United for these same quarters, and
other economic factors, the Company performed additional valuations of goodwill
as of December 31, 2008 and March 31, 2009. Due to a lack of guideline bank
acquisitions since the last annual test date, 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 transaction
multiples such as price-to-book, price-to-tangible book, price-to-deposits in a
normalized market. For the period ending March 31, 2009, the Company used an
average growth rate of 5% for the five-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%.
In the sensitivity analysis, an 8% discount rate indicated a fair value that was
$15.6 million greater than carrying value, a 12.6% discount rate indicated that
the fair value and carrying value were approximately equal, and a 15% discount
rate indicated a fair value that was $6.7 million less than carrying value. 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 reporting units, MetroBank and
Metro United. 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
involved calculating the implied fair value of Metro United’s
goodwill.
 
 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. Based on this analysis,
the Company determined that the implied fair value of the goodwill for Metro
United was in excess of the carrying value of the goodwill; therefore, no
goodwill impairment was recorded as of March 31, 2009.  However, 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.
  7
  5.
              SHAREHOLDERS’
      EQUITY
 
 In
connection with the Company's participation in the Capital Purchase Program
(“CPP”), on January 16, 2009, the Company issued and sold to the U.S. Treasury
(i) 45,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series
A, par value $1.00 per share, with a liquidation value of $1,000 per share (the
“Series A Preferred Stock”), and (ii) a warrant (“Warrant”) to purchase 771,429
shares of the Company's common stock, at an exercise price of $8.75 per share,
subject to certain anti-dilution and other adjustments, for an aggregate
purchase price of $45.0 million in cash. Approximately $44.3 million was
allocated to the initial carrying value of the preferred stock and $711,000 to
the warrant based on their relative estimated fair values on the issue date. The
fair value of the warrant was determined using a valuation model which
incorporates assumptions including the Company’s common stock price, dividend
yield, stock price volatility and the risk-free interest rate.  The
fair value of the preferred stock was determined based on assumptions regarding
the discount rate for the Company which was estimated to be approximately 8% at
the date of issuance.   The difference between the initial
carrying value of the preferred stock and the $45 million full redemption value
will be accreted over five years using a straight-line method over the expected
life of the preferred stock. The total capital raised through this issue
qualifies as Tier 1 regulatory capital and can be used in calculating all
regulatory capital ratios.
 
 The
Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for
the first five years and thereafter at a rate of 9% per
year.  Pursuant to Section 111 of the Emergency Economic
Stabilization Act of 2008, as amended, the Company may, at its option, subject
to the necessary bank regulatory approval, redeem the Series A Preferred Stock
at par value plus accrued and unpaid dividends.
 
 The
Company may not declare or pay dividends on its common stock or, with certain
exceptions, repurchase common stock without first having paid all accrued
cumulative preferred dividends that are due. For three years from the issue
date, the Company also may not increase its common stock dividend rate above a
quarterly rate of $0.04 per share or repurchase its common shares without
Treasury’s consent, unless Treasury has transferred all the preferred shares to
third parties or the preferred stock has been redeemed.   In
April 2009, the Company suspended regular cash dividends on its common stock for
an indefinite period of time.
  8
  6.
              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, 2009 and 2008, there were
1,902,213 and 257,460 antidilutive stock options, respectively.  The
number of potentially dilutive common shares is determined using the treasury
stock method.
 
 For
      the Three MonthsEnded
      March 31,2009
                    
                    
                    2008(In
      thousands, except per share amounts)Net
      income (loss) available to common shareholdes
                    
                    $
                    (2,503
                    )
                    
                    $
                    2,235Weighted
      average common shares in basic EPS
                    
                    
                    10,875
                    
                    
                    
                    10,811Effect
      of dilutive securities
                    
                    
                    10
                    
                    
                    
                    86Weighted
      average common and potentially dilutive common shares used in diluted
      EPS
                    
                    
                    10,885
                    
                    
                    
                    10,897Earnings
      (loss) per common share:Basic
                    
                    $
                    (0.23
                    )
                    
                    $
                    0.21Diluted
                    
                    $
                    (0.23
                    )
                    
                    $
                    0.21
 
 7.
              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.
 
 8.
              OFF-BALANCE SHEET
      ACTIVITIES
 
 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.
  9
  The
contractual amount of the Company’s financial instruments with off-balance sheet
risk at March 31, 2009 and December 31, 2008 is presented below:
 
 As
      of
                    March
      31, 2009
                  
                  
                  As
      of
                    December
      31, 2008(Dollars
      in thousands)Unfunded
      loan commitments including unfunded lines of credit
                  
                  $
                  216,227
                  
                  
                  $
                  247,731Standby
      letters of credit
                  
                  
                  13,075
                  
                  
                  
                  9,981Commercial
      letters of credit
                  
                  
                  16,304
                  
                  
                  
                  12,244Operating
      leases
                  
                  
                  7,727
                  
                  
                  
                  8,065Total
      financial instruments with off-balance sheet risk
                  
                  $
                  253,333
                  
                  
                  $
                  278,021
 
 9.
              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, 2009 and 2008:
 
 For
      the three months ended March 31, 2009
                        
                        
                        For
      the three months ended March 31, 2008MetroBank
                        
                        
                        Metro
      United
                        
                        
                        Other
                        
                        
                        Consolidated
      Company
                        
                        
                        MetroBank
                        
                        
                        Metro
      United
                        
                        
                        Other
                        
                        
                        Consolidated
      Company(Dollars
      in thousands)Total
      interest income
                        
                        $
                        16,144
                        
                        
                        $
                        5,549
                        
                        
                        $
                        16
                        
                        
                        $
                        21,709
                        
                        
                        $
                        18,556
                        
                        
                        $
                        6,496
                        
                        
                        $
                        17
                        
                        
                        $
                        25,069Total
      interest expense
                        
                        
                        5,991
                        
                        
                        
                        2,390
                        
                        
                        
                        530
                        
                        
                        
                        8,911
                        
                        
                        
                        7,241
                        
                        
                        
                        3,313
                        
                        
                        
                        520
                        
                        
                        
                        11,074Net
      interest income
                        
                        
                        10,153
                        
                        
                        
                        3,159
                        
                        
                        
                        (514
                        )
                        
                        
                        12,798
                        
                        
                        
                        11,315
                        
                        
                        
                        3,183
                        
                        
                        
                        (503
                        )
                        
                        
                        13,995Provision
      for loan losses
                        
                        
                        5,188
                        
                        
                        
                        2,099
                        
                        
                        ─
                        
                        
                        
                        7,287
                        
                        
                        
                        690
                        
                        
                        
                        894
                        
                        
                        ─
                        
                        
                        
                        1,584Net
      interest income after provision for loan losses
                        
                        
                        4,965
                        
                        
                        
                        1,060
                        
                        
                        
                        (514
                        )
                        
                        
                        5,511
                        
                        
                        
                        10,625
                        
                        
                        
                        2,289
                        
                        
                        
                        (503
                        )
                        
                        
                        12,411Noninterest
      income
                        
                        
                        2,174
                        
                        
                        
                        103
                        
                        
                        
                        (347
                        )
                        
                        
                        1,930
                        
                        
                        
                        2,361
                        
                        
                        
                        106
                        
                        
                        
                        (338
                        )
                        
                        
                        2,129Noninterest
      expenses
                        
                        
                        8,129
                        
                        
                        
                        2,322
                        
                        
                        
                        120
                        
                        
                        
                        10,571
                        
                        
                        
                        7,998
                        
                        
                        
                        2,727
                        
                        
                        
                        238
                        
                        
                        
                        10,963Income
      (loss) before income tax provision
                        
                        
                        (990
                        )
                        
                        
                        (1,159
                        )
                        
                        
                        (981
                        )
                        
                        
                        (3,130
                        )
                        
                        
                        4,988
                        
                        
                        
                        (332
                        )
                        
                        
                        (1,079
                        )
                        
                        
                        3,577Provision
      (benefit) for income taxes
                        
                        
                        (363
                        )
                        
                        
                        (456
                        )
                        
                        
                        (277
                        )
                        
                        
                        (1,096
                        )
                        
                        
                        1,700
                        
                        
                        
                        (61
                        )
                        
                        
                        (297
                        )
                        
                        
                        1,342Net
      income (loss)
                        
                        $
                        (627
                        )
                        
                        $
                        (703
                        )
                        
                        $
                        (704
                        )
                        
                        $
                        (2,034
                        )
                        
                        $
                        3,288
                        
                        
                        $
                        (271
                        )
                        
                        $
                        (782
                        )
                        
                        $
                        2,235As
      of March 31, 2009
                        
                        
                        March
      31, 2008MetroBank
                        
                        
                        Metro
      United
                        
                        
                        Other
                        
                        
                        Consolidated
      Company
                        
                        
                        MetroBank
                        
                        
                        Metro
      United
                        
                        
                        Other
                        
                        
                        Consolidated
      Company(Dollars
      in thousands)Net
      loans
                        
                        $
                        947,155
                        
                        
                        $
                        364,543
                        
                        
                        $
                        -
                        
                        
                        $
                        1,311,698
                        
                        
                        $
                        885,305
                        
                        
                        $
                        342,371
                        
                        
                        $
                        –
                        
                        
                        $
                        1,227,676Total
      assets
                        
                        
                        1,195,462
                        
                        
                        
                        429,281
                        
                        
                        
                        (2,736
                        )
                        
                        
                        1,622,007
                        
                        
                        
                        1,110,318
                        
                        
                        
                        399,651
                        
                        
                        
                        (185
                        )
                        
                        
                        1,509,784Deposits
                        
                        
                        1,030,239
                        
                        
                        
                        357,417
                        
                        
                        
                        (11,694
                        )
                        
                        
                        1,375,962
                        
                        
                        
                        908,800
                        
                        
                        
                        291,468
                        
                        
                        
                        (3,320
                        )
                        
                        
                        1,196,948
  10
  10.
              FAIR
    VALUE
 
 SFAS No.
157, “Fair Value Measurements” (“SFAS No. 157”) defines fair value as 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.  SFAS No. 157 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value.  FASB Staff Position (FSP) No. 157-2, “Effective Date of FASB
Statement No. 157,” which applies SFAS 157 for non-financial assets and
non-financial liabilities was adopted January 1, 2009.  SFAS No. 157
describes three levels of inputs that may be used to measure fair
value:
 
 ·
              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.
 
 The following table presents the
financial instruments carried at fair value on a recurring basis by caption on
the consolidated balance sheets and by SFAS No. 157 valuation hierarchy (as
described above) at March 31, 2009 and December 31, 2008:
 
 Fair
      Value Measurements, using(Dollars
      in thousands)Quoted
      Prices in Active Markets for Identical Assets (Level 1)
                  
                  
                  Significant
      Other Observable Inputs (Level 2)
                  
                  
                  Significant
      Unobservable Inputs (Level 3)
                  
                  
                  Fair
      Value MeasurementsSecurities
      available-for-sale at March 31, 2009
                  
                  $
                  5,965
                  
                  
                  $
                  91,213
                  
                  
                  $
                  –
                  
                  
                  $
                  97,178Securities
      available-for-sale at December 31, 2008
                  
                  $
                  5,845
                  
                  
                  $
                  96,259
                  
                  
                  $
                  –
                  
                  
                  $
                  102,104
 
 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).   Financial assets measured at
fair value on a non-recurring basis include the following:
 
 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.
  11
  Impaired Loans. Certain
impaired loans with a valuation reserve subject to SFAS Statement No. 114,
“Accounting by Creditors for
Impairment of a Loan”(“SFAS No. 114”) are measured for impairment using
the practical expedient in SFAS No. 114, whereby fair value of the loan is based
on the fair value of the loan’s collateral, provided the loan is collateral
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.  During the three months ended March 31, 2009, 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 $7.2
million were reduced by specific valuation allowance allocations of $2.1 million
to a fair value of $5.1 million based on collateral valuations utilizing Level 2
valuation inputs.   Impaired loans with a carrying value of
$107,000 were reduced by specific valuation allowance allocations of $17,000 to
a fair value of $90,000 based on collateral valuations utilizing Level 3
valuation inputs.
 
 11.
              NEW ACCOUNTING
      PRONOUNCEMENTS
 
 Financial
Accounting Standards Board Staff Positions and Interpretations
 
 FASB
Staff Position (FSP) No.EITF03-6-1,“Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.”FSPEITF03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP EITF03-6-1 became effective on
January1, 2009 and did not have a significant
impact on the Company’s financial
statements.
  FSP SFAS157-4,“Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly.”FSPSFAS157-4 affirms that the objective of fair
value when the market for an asset is not active is the price that would be
received to sell the asset in an orderly transaction, and clarifies and includes
additional factors for determining whether there has been a significant decrease
in market activity for an asset when the market for that asset is not active.
FSPSFAS157-4 requires an entity to base its
conclusion about whether a transaction was not orderly on the weight of the
evidence. FSPSFAS157-4 also amended SFAS157,“Fair Value Measurements,”to expand certain disclosure
requirements. FSP157-4 will become effective for interim
and annual periods ending after June 15, 2009. The Company is in the process of
determining the impact of adoption of FSPSFAS157-4 on its financial
statements.
 
 FSP SFAS115-2 and SFAS124-2,“Recognition and Presentation of
Other-Than-Temporary Impairments.”FSP SFAS115-2 and SFAS124-2 (i)changes existing guidance for
determining whether an impairment is other than temporary to debt securities and
(ii)replaces the existing requirement that
the entity’s management assert it has both the
intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a)it does not have the intent to sell the
security; and (b)it is more likely than not it will not
have to sell the security before recovery of its cost basis. Under
FSPSFAS115-2 and SFAS124-2, declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses
to the extent the impairment is related to credit losses. The amount of the
impairment related to other factors is recognized in other comprehensive income.
FSP SFAS115-2 and SFAS124-2 will become effective for interim
and annual periods ending after June 15, 2009.  The Company is in the
process of determining the impact of adoption of FSP SFAS115-2 and SFAS124-2 on its financial
statements.
 
 FSPSFAS 107-1 and APB 28-1,“Interim Disclosures about Fair Value of
Financial Instruments.”FSPSFAS 107-1 and APB 28-1 amends
SFAS107,“Disclosures about Fair Value of
Financial Instruments,”to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information and amends Accounting Principles Board (APB)OpinionNo.28,“Interim Financial Reporting,”to require those disclosures in
summarized financial information at interim reporting periods. Under
FSPSFAS107-1 and APB28-1, a publicly traded company shall
include disclosures about the fair value of its financial instruments whenever
it issues summarized financial information for interim reporting periods. In
addition, entities must disclose, in the body or in the accompanying notes of
its summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods, the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as
required by SFAS107. FSPSFAS107-1 and APB 28-1 The new interim
disclosures required by FSPSFAS107-1 and APB 28-1 will become effective
for interim and annual periods ending after June 15, 2009.  Adoption
of FSPSFAS107-1 and APB 28-1 is not expected to
significantly impact the Company’s financial
statements.
  12
  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
      Company’s ability to identify suitable acquisition
    candidates;
 
 •
              the
      timing, impact and other uncertainties of the Company’s ability to enter
      new markets successfully and capitalize on growth
      opportunities;
 
 •
              increased
      credit risk in the Company’s assets and increased operating risk caused by
      a material change in commercial, consumer and/or real estate loans as a
      percentage of the total loan
portfolio;
 
 •
              the
      failure of assumptions underlying the establishment of and provisions made
      to the allowance for loan losses;
 
 •
              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;
 
 •
              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.
  13
  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.
  14
  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 $2.0 million for the three months ended March 31,
2009, a decrease of approximately $4.2 million compared with net income of $2.2
million for the same quarter in 2008. The Company’s diluted loss per common
share for the three months ended March 31, 2009 was $0.23, a decrease of $0.44
per diluted share compared with diluted earnings per share of $0.21 for the same
quarter in 2008. Diluted earnings 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 $1.62 billion at March 31, 2009, an increase of approximately $41.8
million or 2.6% from $1.58 billion at December 31, 2008. Available for sale
investment securities at March 31, 2009 were $97.2 million, a decrease of
approximately $4.9 million or 4.8% from $102.1 million at December 31, 2008. Net
loans at March 31, 2009 were $1.31 billion, a decrease of approximately $10.1
million or 0.8% from $1.32 billion at December 31, 2008. Total deposits at March
31, 2009 were $1.38 billion, an increase of approximately $106.8 million or 8.4%
from $1.27 billion at December 31, 2008. Other borrowings at March 31, 2009 were
$29.4 million, a decrease of approximately $109.6 million or 78.8% from $139.0
million at December 31, 2008. The Company’s return on average assets (“ROAA”)
for the three months ended March 31, 2009 and 2008 was (0.51%) and 0.61%,
respectively. The Company’s return on average equity (“ROAE”) for the three
months ended March 31, 2009 and 2008 was (5.18%) and 7.51%,
respectively.  Shareholders’ equity at March 31, 2009 was $162.6
million compared to $119.2 million at December 31, 2008, an increase of
approximately $43.4 million or 36.4%.  Details of the changes in the
various components of net income are further discussed below.
 
 Capital
Purchase Program
  In
connection with the Company's participation in the Capital Purchase Program
(“CPP”), on January 16, 2009, the Company issued and sold to the U.S. Treasury
(i) 45,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series
A, par value $1.00 per share, with a liquidation value of $1,000 per share (the
“Series A Preferred Stock”), and (ii) a warrant (“Warrant”) to purchase 771,429
shares of the Company’s common stock, at an exercise price of $8.75 per share,
subject to certain anti-dilution and other adjustments, for an aggregate
purchase price of $45.0 million in cash. The Series A Preferred Stock and the
Warrant were issued in a private placement exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended. The Securities Purchase
Agreement, dated January 16, 2009, pursuant to which the securities issued to
the U.S. Treasury under the CPP were sold, prevents the Company for so long as
the Series A Preferred Stock remains outstanding, from declaring or paying any
dividend (other than regular quarterly cash dividends of not more than $0.04 per
share) without the consent of the U.S. Treasury until the third anniversary of
the U.S. Treasury’s investment or until the U.S. Treasury has transferred all of
the Series A Preferred Stock to third parties, limits the Company’s ability to
repurchase shares of its Common Stock (with certain exceptions), grants the
holders of the Series A Preferred Stock, the Warrant and the Company’s common
stock to be issued upon exercise of the Warrant certain registration rights and
subjects the Company to certain executive compensation limitations included in
the Emergency Economic Stabilization Act of 2008, as amended.
 
 In April
2009, the Company suspended regular cash dividends on its common stock for an
indefinite period of time.
 
 Results
of Operations
 
 Net Interest Income and Net Interest
Margin. For the three months ended March 31, 2009, net interest income,
before the provision for loan losses, was $12.8 million, a decrease of
approximately $1.2 million or 8.6% compared with $14.0 million for the same
period in 2008. Average interest-earning assets for the three months ended March
31, 2009 were $1.51 billion, an increase of approximately $135.1 million or 9.8%
compared with $1.38 billion for the same period in 2008. The increase was
primarily due to loan growth.  The weighted average yield on
interest-earning assets for the first quarter of 2009 was 5.83%, a decrease of
150 basis points compared with 7.33% for the same quarter in 2008. Average
interest-bearing liabilities for the three months ended March 31, 2009 were
$1.22 billion, an increase of approximately $90.9 million or 8.0% compared with
$1.13 billion for the same period in 2008, primarily due to an increase in money
market accounts and time deposits, partially offset by a decrease in other
borrowings. The weighted average interest rate paid on interest-bearing
liabilities for the first quarter 2009 was 2.96%, a decrease of 98 basis points
compared with 3.94% for the same quarter in 2008.  Interest rate cuts
by the Federal Reserve resulted in a decrease in yields and costs for the three
months ended March 31, 2009, compared with the same period in
2008.
  15
  The net
interest margin for the three months ended March 31, 2009 was 3.44%, a decrease
of 65 basis points compared with 4.09% for the same period in 2008. The decrease
was primarily the result of a decline in the yield on earning assets of 150
basis points, partially offset by a decrease in the cost of earning assets of 85
basis points.  The decrease in yield on earning assets and the cost of
earning assets was due primarily to interest rate cuts and the effect of
nonperforming assets.
 
 Total Interest Income. Total
interest income for the three months ended March 31, 2009 was $21.7 million, a
decrease of approximately $3.4 million or 13.4% compared with $25.1 million for
the same period in 2008. The decrease was primarily due to lower loan yields, an
increase in nonperforming assets, and the reversal of loan interest income for
nonaccrual loans during the first quarter of 2009.
 
 Interest Income from Loans.
Interest income from loans for the three months ended March 31, 2009 was $20.4
million, a decrease of approximately $3.0 million or 12.9% compared with $23.4
million for the same quarter in 2008. The decrease was the result of lower loan
yields, an increase in nonperforming assets, and the reversal of loan interest
income for nonaccrual loans during the first quarter of
2009.   Average total loans for the three months ended March 31,
2009 were $1.34 billion compared to $1.22 billion for the same period in 2008,
an increase of approximately $126.4 million or 10.4%. For the first quarter of
2009, the average yield on loans was 6.16% compared to 7.74% for the same
quarter in 2008, a decrease of 158 basis points. The decline in yield for the
three months ended March 31, 2009 was the result of interest rate cuts and other
items mentioned above.
 
 Approximately
$918.7 million or 68.6% of the total loan portfolio are variable rate loans that
periodically reprice and are sensitive to changes in market interest
rates.  At March 31, 2009, the average yield on total loans was
approximately 291 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, 2009, approximately $726.1 million in loans or
54.2% of the total loan portfolio were variable rate loans with interest rate
floors that carried a weighted average interest rate of 6.48%.  At
March 31, 2008, variable rate loans with interest rate floors carried a weighted
average interest rate of 7.34% and comprised 45.6% 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, 2009 was $1.3 million, a decrease of approximately $350,000 or
21.0% compared to $1.7 million for the same period in 2008.  The
decrease in interest income from investments was primarily the result of
declining interest rates, in addition to the effect of paydowns, sales, calls
and maturities of securities. Average total investments for the three months
ended March 31, 2009 were $168.7 million compared to average total investments
for the same period in 2008 of $160.0 million, an increase of approximately $8.7
million or 5.4%.  The increase was primarily the result of an increase
in other investments and federal funds sold, partially offset by a decrease in
taxable securities and tax-exempt securities.  For the first quarter
2009, the average yield on total investments was 3.17% compared to 4.19% for the
same quarter in 2008, a decrease of 102 basis points.
 
 Total Interest Expense. Total
interest expense for the three months ended March 31, 2009 was $8.9 million, a
decrease of approximately $2.2 million or 19.5% compared to $11.1 million for
the same period in 2008. The decrease primarily reflected interest rate
cuts  coupled with the effect of a decrease in other
borrowings.
 
 Interest Expense on Deposits.
Interest expense on interest-bearing deposits for the three months ended March
31, 2009 was $8.1 million, a decrease of approximately $1.6 million or 16.2%
compared to $9.7 million for the same period in 2008. Average interest-bearing
deposits for the three months ended March 31, 2009 were $1.12 billion compared
to average interest-bearing deposits for the same period in 2008 of $980.9
million, an increase of $140.7 million or 14.3%. The average interest rate paid
on interest-bearing deposits for the first quarter of 2009 was 2.93% compared to
3.96% for the same quarter in 2008, a decrease of 103 basis points. The decline
in interest expense and the average interest rate paid on interest bearing
deposits  was primarily due to interest rate cuts.
 
 Interest Expense on Other
Borrowings. Interest expense on other borrowings for the three months
ended March 31, 2009 was $292,000, a decrease of $596,000 compared to $888,000
for the same period in 2008. Average borrowed funds for the three months ended
March 31, 2009 and 2008 were $63.8 million and $113.6 million, respectively. The
average interest rate paid on borrowed funds for the first quarter of 2009 was
1.86% compared to 3.14% for the same quarter in 2008.
  16
  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 31,2009
                                    
                                    
                                    2008Average
                                    
                                    
                                    Interest
                                    
                                    
                                    Average
                                    
                                    
                                    Average
                                    
                                    
                                    Interest
                                    
                                    
                                    AverageOutstanding
                                    
                                    
                                    Earned/
                                    
                                    
                                    Yield/
                                    
                                    
                                    Outstanding
                                    
                                    
                                    Earned/
                                    
                                    
                                    Yield/Balance
                                    
                                    
                                    Paid
                                    
                                    
                                    Rate(1)
                                    
                                    
                                    Balance
                                    
                                    
                                    Paid
                                    
                                    
                                    Rate(1)(Dollars
      in thousands)AssetsInterest-earning
      assets:Loans
                                    
                                    $
                                    1,342,104
                                    
                                    
                                    $
                                    20,390
                                    
                                    
                                    
                                    6.16
                                    %
                                    
                                    $
                                    1,215,736
                                    
                                    
                                    $
                                    23,400
                                    
                                    
                                    
                                    7.74
                                    %Taxable
      securities
                                    
                                    
                                    97,468
                                    
                                    
                                    
                                    1,084
                                    
                                    
                                    
                                    4.51
                                    
                                    
                                    
                                    128,524
                                    
                                    
                                    
                                    1,372
                                    
                                    
                                    
                                    4.29Tax-exempt
      securities
                                    
                                    
                                    3,977
                                    
                                    
                                    
                                    48
                                    
                                    
                                    
                                    4.89
                                    
                                    
                                    
                                    5,936
                                    
                                    
                                    
                                    73
                                    
                                    
                                    
                                    4.95Other
      investments (2)
                                    
                                    
                                    24,443
                                    
                                    
                                    
                                    143
                                    
                                    
                                    
                                    2.37
                                    
                                    
                                    
                                    7,561
                                    
                                    
                                    
                                    87
                                    
                                    
                                    
                                    4.63Federal
      funds sold and other short-term investments
                                    
                                    
                                    42,846
                                    
                                    
                                    
                                    44
                                    
                                    
                                    
                                    0.42
                                    
                                    
                                    
                                    18,025
                                    
                                    
                                    
                                    137
                                    
                                    
                                    
                                    3.06Total
      interest-earning assets
                                    
                                    
                                    1,510,838
                                    
                                    
                                    
                                    21,709
                                    
                                    
                                    
                                    5.83
                                    
                                    
                                    
                                    1,375,782
                                    
                                    
                                    
                                    25,069
                                    
                                    
                                    
                                    7.33Allowance
      for loan losses
                                    
                                    
                                    (23,691
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (13,933
                                    )Total
      interest-earning assets, net of allowance for loan losses
                                    
                                    
                                    1,487,147
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,361,849Noninterest-earning
      assets
                                    
                                    
                                    117,842
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    108,614Total
      assets
                                    
                                    $
                                    1,604,989
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1,470,463Liabilities
      and shareholders' equityInterest-bearing
      liabilities:Interest-bearing
      demand deposits
                                    
                                    $
                                    55,291
                                    
                                    
                                    $
                                    71
                                    
                                    
                                    
                                    0.52
                                    %
                                    
                                    $
                                    58,994
                                    
                                    
                                    $
                                    143
                                    
                                    
                                    
                                    0.97
                                    %Savings
      and money market accounts
                                    
                                    
                                    363,912
                                    
                                    
                                    
                                    2,163
                                    
                                    
                                    
                                    2.41
                                    
                                    
                                    
                                    272,486
                                    
                                    
                                    
                                    1,922
                                    
                                    
                                    
                                    2.84Time
      deposits
                                    
                                    
                                    702,400
                                    
                                    
                                    
                                    5,865
                                    
                                    
                                    
                                    3.39
                                    
                                    
                                    
                                    649,452
                                    
                                    
                                    
                                    7,601
                                    
                                    
                                    
                                    4.71Junior
      subordinated debentures
                                    
                                    
                                    36,083
                                    
                                    
                                    
                                    520
                                    
                                    
                                    
                                    5.76
                                    
                                    
                                    
                                    36,083
                                    
                                    
                                    
                                    520
                                    
                                    
                                    
                                    5.76Other
      borrowings
                                    
                                    
                                    63,822
                                    
                                    
                                    
                                    292
                                    
                                    
                                    
                                    1.86
                                    
                                    
                                    
                                    113,597
                                    
                                    
                                    
                                    888
                                    
                                    
                                    
                                    3.14Total
      interest-bearing liabilities
                                    
                                    
                                    1,221,508
                                    
                                    
                                    
                                    8,911
                                    
                                    
                                    
                                    2.96
                                    
                                    
                                    
                                    1,130,612
                                    
                                    
                                    
                                    11,074
                                    
                                    
                                    
                                    3.94Noninterest-bearing
      liabilities:Noninterest-bearing
      demand deposits
                                    
                                    
                                    206,622
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    199,816Other
      liabilities
                                    
                                    
                                    17,544
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    20,375Total
      liabilities
                                    
                                    
                                    1,445,674
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,350,803Shareholders'
      equity
                                    
                                    
                                    159,315
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    119,660Total
      liabilities and shareholders' equity
                                    
                                    $
                                    1,604,989
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1,470,463Net
      interest income
                                    
                                    
                                    
                                    
                                    
                                    $
                                    12,798
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    13,995Net
      interest spread
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2.87
                                    %
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    3.39
                                    %Net
      interest margin
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    3.44
                                    %
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    4.09
                                    %
  
 (1)
              Annualized.
 (2)
              Other
      investments include CDARS, Federal Reserve Bank stock, Federal Home Loan
      Bank stock and investment in subsidiary
trust.
  17
  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 March31, 2009 compared with the three months
ended March31, 2008. For purposes of this table,
changes attributable to both rate and volume have been allocated to each
accordingly.
 
 Three
      Months Ended March 31,2009
      vs 2008Increase
      (Decrease)Due
      toVolume
                    
                    
                    Rate
                    
                    
                    Total(Dollars
      in thousands)Interest-earning
      assets:Loans
                    
                    
                    2,218
                    
                    
                    $
                    (5,228
                    )
                    
                    $
                    (3,010
                    )Taxable
      securities
                    
                    
                    (340
                    )
                    
                    
                    52
                    
                    
                    
                    (288
                    )Tax-exempt
      securities
                    
                    
                    (24
                    )
                    
                    
                    (1
                    )
                    
                    
                    (25
                    )Other
      investments
                    
                    
                    192
                    
                    
                    
                    (136
                    )
                    
                    
                    56Federal
      funds sold and other short-term investments
                    
                    
                    186
                    
                    
                    
                    (279
                    )
                    
                    
                    (93
                    )Total
      increase (decrease) in interest income
                    
                    
                    2,232
                    
                    
                    
                    (5,592
                    )
                    
                    
                    (3,360
                    )Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                    
                    
                    (10
                    )
                    
                    
                    (62
                    )
                    
                    
                    (72
                    )Savings
      and money market accounts
                    
                    
                    624
                    
                    
                    
                    (383
                    )
                    
                    
                    241Time
      deposits
                    
                    
                    552
                    
                    
                    
                    (2,288
                    )
                    
                    
                    (1,736
                    )Junior
      subordinated debentures
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Other
      borrowings
                    
                    
                    (393
                    )
                    
                    
                    (203
                    )
                    
                    
                    (596
                    )Total
      increase (decrease) in interest expense
                    
                    
                    773
                    
                    
                    
                    (2,936
                    )
                    
                    
                    (2,163
                    )Increase
      (decrease) in net interest income
                    
                    $
                    1,459
                    
                    
                    $
                    (2,656
                    )
                    
                    $
                    (1,197
                    )
 
 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, 2009 was $7.3 million, an increase
of approximately $5.7 million, compared to $1.6 million for the same period in
2008. The increase was primarily due to higher net charge-offs for the first
quarter of 2009.   The allowance for loan losses as a percent of
total loans was 1.81% at March 31, 2009 and 1.80% at December 31, 2008, and
increased compared with 1.17% at March 31, 2008.
 
 Noninterest
Income.  Noninterest income for the three months ended March
31, 2009 was $1.9 million, down $199,000 or 9.3% compared with the same period
in 2008.  The decrease for the three months ended March 31, 2009 was
primarily due to a decline in service fees, partially offset by an increase in
other noninterest income that was the result of rental income received on other
real estate property and an increase in the cash value of bank owned life
insurance.
 
 Noninterest Expense.
Noninterest expense for the three months ended March 31, 2009 was $10.6 million,
a decrease of $392,000 or 3.6% compared with the same period in 2008. Decreases
in salaries and employee benefit expenses further described below, were
partially offset by increases in expenses related to foreclosed assets and an
other-than-temporary impairment charge of $240,000 realized on various private
label securities.
 
 Salaries
and employee benefits expense for the three months ended March 31, 2009 was $5.4
million, a decrease of $1.1 million compared with $6.5 million for the same
period in 2008, primarily due to a reduction in the number of employees and
decreases in amount of bonus accrual, employee health care benefits, stock-based
compensation expense and severance expenses. The number of full-time equivalent
employees at March 31, 2009 was 309, a decrease of 27 or 8.0% compared with 336
at March 31, 2008.
 
 Occupancy and equipment expense of $2.0
million and other noninterest expense of $2.5 million for the three months ended
March 31, 2009 were approximately the same compared with the first quarter of
2008.
  18
  Other noninterest expense for the three
months ended March 31, 2009 and 2008 was unchanged at $2.5
million.  Included in this are FDIC insurance premiums which increased
by $186,000 due to higher FDIC assessment rates, the utilization of available
credits to offset assessments during the first quarter of 2008, and
participation in the FDIC’s Temporary Liquidity Guarantee
Program.
 
 In addition, the FDIC has proposed an
emergencyspecial assessment of 20 basis points on
deposits as of June 30, 2009.However, legislation has been proposed in Congress
that could lower the
special assessment to 10 basis points if the FDIC’s borrowing authority is increased.
Further, the special assessment could drop below 10 basis points if the recently
proposed surcharge on longer-term guaranteed debt issued under the
FDIC's Temporary Liquidity
Guarantee Program is approved.The special assessmentwill be payable on September 30,
2009.
 
 The Company’s efficiency ratio is calculated by
dividing total noninterest expense, excluding loan loss provisions and
impairment on securities, by net interest income plus noninterest
income.  The efficiency ratio for the three months ended March 31,
2009 was 70.15%, an increase from 67.99% for the same quarter in 2008, and was
primarily the result of decreased net interest income.
 
 Income
Taxes.Income tax benefit
for the three months ended March 31, 2009 was $1.1million, compared with income tax
expense of $1.3million for the same period in 2008. The
Company’s effective tax rate was 35.0% and 37.5%
for the three months ended March 31, 2009 and 2008, respectively. The decrease
in the effective tax rate was due primarily to a reduction in the California
state tax benefit related to the current period loss.
 
 Financial Condition
 
 Loan Portfolio. Total loans
at March 31, 2009 were $1.34 billion, a decrease of $10.2 million or 0.8%
compared with $1.35 billion at December 31, 2008. Compared to the loan level at
December 31, 2008, real estate loans increased $11.6 million or 1.3% during the
three months ended March 31, 2009. At March 31, 2009 and December 31, 2008, the
ratio of total loans to total deposits was 97.09%, and 106.06%, respectively.
Total loans represented 82.4% and 85.2% of total assets at March 31, 2009 and
December 31, 2008, respectively.
 
 The
following table summarizes the loan portfolio by type of loan at the dates
indicated:
 
 As of March 31,
      2009
                            
                            
                            As of December 31,
      2008Amount
                            
                            
                            Percent
                            
                            
                            Amount
                            
                            
                            Percent(Dollars in
      thousands)Commercial and
      industrial
                            
                            $
                            445,063
                            
                            
                            
                            33.24
                            %
                            
                            $
                            467,546
                            
                            
                            
                            34.65
                            %Real estate
      mortgageResidential
                            
                            
                            12,826
                            
                            
                            
                            0.96
                            
                            
                            
                            12,399
                            
                            
                            
                            0.92Commercial
                            
                            
                            732,477
                            
                            
                            
                            54.71
                            
                            
                            
                            720,052
                            
                            
                            
                            53.37745,303
                            
                            
                            
                            55.67
                            
                            
                            
                            732,451
                            
                            
                            
                            54.29Real estate
      constructionResidential
                            
                            
                            40,716
                            
                            
                            
                            3.04
                            
                            
                            
                            43,242
                            
                            
                            
                            3.20Commercial
                            
                            
                            102,403
                            
                            
                            
                            7.65
                            
                            
                            
                            101,125
                            
                            
                            
                            7.50143,119
                            
                            
                            
                            10.69
                            
                            
                            
                            144,367
                            
                            
                            
                            10.70Consumer and other
                            
                            
                            5,311
                            
                            
                            
                            0.40
                            
                            
                            
                            4,864
                            
                            
                            
                            0.36Gross loans
                            
                            
                            1,338,796
                            
                            
                            
                            100.00
                            %
                            
                            
                            1,349,228
                            
                            
                            
                            100.00
                            %Unearned discounts, interest and
      deferred fees
                            
                            
                            (2,940
                            )
                            
                            
                            
                            
                            
                            
                            (3,180
                            )Total loans
                            
                            
                            1,335,856
                            
                            
                            
                            
                            
                            
                            
                            1,346,048Allowance for loan
      losses
                            
                            
                            (24,158
                            )
                            
                            
                            
                            
                            
                            
                            (24,235
                            )Loans, net
                            
                            $
                            1,311,698
                            
                            
                            
                            
                            
                            
                            $
                            1,321,813
 
 Nonperforming Assets. Total
nonperforming assets increased $4.7 million to $62.4 million at March 31, 2009
from $57.6 million at December 31, 2008. At March 31, 2009, total nonperforming
assets consisted of $52.8 million in nonaccrual loans, $1.1 million of troubled
debt restructurings, and $8.6 million in other real estate
(“ORE”).  The increase consists primarily of $5.9 million in
nonperforming assets from Texas partially offset by a $1.2 million decrease in
nonperforming assets from California.  The majority of the increase in
Texas is composed of a $3.9 million commercial land tract loan, a $7.4 million
multi-loan commercial and residential relationship, and other loans totaling
$3.1 million.  These increases in Texas were offset by charge-offs,
sales of ORE and payments received on nonperforming loans totaling $8.5
million.  The $1.2 million decrease in nonperforming assets in
California is comprised of $2.9 million in payments received on nonperforming
loans and in charge-offs, which were partially offset by the addition of a $1.2
million hotel property, and other loans totaling $545,000.
  19
  On a
linked-quarter basis, ORE increased by approximately $3.7 million compared with
December 31, 2008. The increase was comprised of four loans in Texas, related to
a single-family property, a restaurant, and two commercial land properties.
Additionally, one $1.0 million property was transferred to ORE and sold during
the quarter at a gain.
 
 Net
nonperforming assets at March 31, 2009 were $59.5 million compared to $55.8
million at December 31, 2008, an increase of $3.7 million or 6.6%. The ratios
for net nonperforming assets to total loans and ORE at March 31, 2009 and
December 31, 2008 were 4.43% and 4.13%, respectively. The ratios for net
nonperforming assets to total assets were 3.67% and 3.53% for the same periods,
respectively. These ratios take into consideration guarantees from the United
States Department of Commerce’s Small Business Administration (the “SBA”), the
Export Import Bank of the United States (the “Ex-Im Bank”), an independent
agency of the United States Government, and the Overseas Chinese Community
Guaranty Fund (“OCCGF”), an agency sponsored by the government of Taiwan, which
totaled $2.9 million at March 31, 2009 compared to $1.8 million at December 31,
2008.
 
 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
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.
 
 
 The following table presents information
regarding nonperforming assets as of the dates indicated:
 
 As of
                        
                        
                        As ofMarch 31,
    2009
                        
                        
                        December 31,
      2008(Dollars in
      thousands)Nonaccrual
      loans
                        
                        $
                        52,753
                        
                        
                        $
                        48,239Accruing loans 90 days or more
      past due
                        
                        
                        –
                        
                        
                        
                        103Troubled debt
      restructurings
                        
                        
                        1,062
                        
                        
                        
                        4,474Other real estate (“ORE”)
                        
                        
                        8,561
                        
                        
                        
                        4,825Total nonperforming
      assets
                        
                        
                        62,376
                        
                        
                        
                        57,641Nonperforming loans guaranteed by
      the SBA, Ex-Im Bank and OCCGF
                        
                        
                        (2,883
                        )
                        
                        
                        (1,843
                        )Total net nonperforming
      assets
                        
                        $
                        59,493
                        
                        
                        $
                        55,798Total nonperforming assets to
      total assets
                        
                        
                        3.85
                        %
                        
                        
                        3.65
                        %Total nonperforming assets to
      total loans and ORE
                        
                        
                        4.64
                        %
                        
                        
                        4.27
                        %Net nonperforming assets to total
      assets (1)
                        
                        
                        3.67
                        %
                        
                        
                        3.53
                        %Net nonperforming assets to total
      loans and ORE (1)
                        
                        
                        4.43
                        %
                        
                        
                        4.13
                        %
 
 (1)
              Net
      nonperforming assets are net of the loan portions guaranteed by the SBA,
      Ex-Im Bank and OCCGF.
 
 A loan is
considered impaired, based on current information and events, if management
believes that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. All amounts due according to the
contractual terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as scheduled in the
loan agreement. An insignificant delay or insignificant shortfall in the amount
of payment does not require a loan to be considered impaired. If the measure of
the impaired loan is less than the recorded investment in the loan, a specific
reserve is established for the shortfall as a component of the Company’s
allowance for loan loss methodology. The Company considers all nonaccrual loans
to be impaired.
  20
  The
following is a summary of loans considered to be impaired as of the dates
indicated:
 
 As of
                      March 31,
    2009
                    
                    
                    As of
                      December 31,
      2008(Dollars in
      thousands)Impaired loans with no SFAS
      No.114 valuation
      reserve
                    
                    $
                    46,496
                    
                    
                    $
                    35,640Impaired loans with a SFAS
      No.114 valuation
      reserve
                    
                    
                    7,319
                    
                    
                    
                    17,073Total recorded investment in
      impaired loans
                    
                    $
                    53,815
                    
                    
                    $
                    52,713Valuation allowance related to
      impaired loans
                    
                    $
                    2,149
                    
                    
                    $
                    3,280
 
 The
average recorded investment in impaired loans during the three months ended
March 31, 2009 and the year ended December 31, 2008 was $54.8million and $17.5 million,
respectively.  Interest income on impaired loans recognized for cash
payments received during the three months ended March 31, 2009 and 2008 was
$8,000 and $0, respectively.
 
 Allowance for Loan Losses and
Reserve for Unfunded Lending Commitments. At March 31, 2009 and 2008, the
allowance for loan losses was $24.2 million and $14.6 million, respectively, or
1.81% and 1.17% of total loans, respectively.  At December 31, 2008,
the allowance for loan losses was $24.2 million, or 1.80% of total loans. Net
charge-offs for the three months ended March 31, 2009 and 2008 were $7.4 million
and $121,000, respectively.  The first quarter 2009 charge-offs
primarily consisted of $5.8 million in loans from Texas and $1.7 million in
loans from California, partially offset by recoveries of $76,000.  The
largest charge-off was a partial charge-off of approximately $6.0 million
related to a medical real estate loan originated in Texas in which both banks
have an interest.
 
 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 below.
 
 The
allowance for loan losses provides for the risk of losses inherent in the
lending process. 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 credit
losses.
 
 The
allowance for credit 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 credit losses that consists of four components: (1) a component
for individual loan impairment recognized and measured pursuant to FASB
Statement No. 114, (2) one or more components of collective loan impairment
recognized pursuant to FASB Statement No. 5 – Accounting for Contingencies, (3)
a component that assesses the impact of current conditions and determines how
estimated future credit losses might be expected to deviate from historical
trends, and (4) a reserve for unfunded lending commitments. Policies and
procedures have been developed to assess the adequacy of the allowance for loan
losses and the reserve for unfunded lending commitments that include the
monitoring of qualitative and quantitative trends including changes in past due
levels, criticized and nonperforming loans, and charge-offs.
 
 In
setting the general reserve portion of the allowance for loan losses, the
factors the Company may consider include, but are not limited to, changes in the
quality of the loan portfolio as determined by loan quality grades assigned to
each loan, an assessment of known problem loans, potential problem loans, and
other loans that exhibit weaknesses or deterioration, the general economic
environment in the Company’s markets as well as the national economy,
particularly the real estate markets, value of the collateral securing loans,
payment history, cash flow analysis of borrowers and other historical
information. After the aforementioned assessment of the loan portfolio, the
general economic environment and other relevant factors, changes are implemented
in the allowance for loan losses.  While this methodology is
consistently followed, future changes in circumstances, economic conditions or
other factors could cause management to reevaluate the level of the allowance
for loan losses.
  21
  The following table presents an analysis
of the allowance for credit losses and other related data for the periods
indicated:
 
 As of and for
      the
                          Three Months Ended March
      31,2009
                        
                        
                        2008(Dollars in
      thousands)Average total loans outstanding
      for the period
                        
                        $
                        1,342,104
                        
                        
                        $
                        1,215,736Total loans outstanding at end of
      period
                        
                        $
                        1,335,856
                        
                        
                        $
                        1,242,264Allowance for loan losses at
      beginning of period
                        
                        $
                        24,235
                        
                        
                        $
                        13,125Provision for loan
      losses
                        
                        
                        7,287
                        
                        
                        
                        1,584Charge-offs:Commercial and
      industrial
                        
                        
                        (6,630
                        )
                        
                        
                        –Real estate
      mortgage
                        
                        
                        (433
                        )
                        
                        
                        (136
                        )Real estate
      construction
                        
                        
                        (339
                        )
                        
                        
                        –Consumer and
      other
                        
                        
                        (38
                        )
                        
                        
                        –Total
      charge-offs
                        
                        
                        (7,440
                        )
                        
                        
                        (136
                        )Recoveries:Commercial and
      industrial
                        
                        
                        74
                        
                        
                        
                        5Real estate
      mortgage
                        
                        
                        1
                        
                        
                        
                        8Real estate
      construction
                        
                        
                        –
                        
                        
                        
                        –Consumer and
      other
                        
                        
                        1
                        
                        
                        
                        2Total
      recoveries
                        
                        
                        76
                        
                        
                        
                        15Net (charge-offs)
      recoveries
                        
                        
                        (7,364
                        )
                        
                        
                        (121
                        )Allowance for loan losses at end
      of period
                        
                        
                        24,158
                        
                        
                        
                        14,588Reserve for unfunded lending
      commitments at beginning of period
                        
                        
                        1,092
                        
                        
                        
                        816Provision for unfunded lending
      commitments
                        
                        
                        112
                        
                        
                        
                        91Reserve for unfunded lending
      commitments at end of period
                        
                        
                        1,204
                        
                        
                        
                        907Allowance for credit
      losses
                        
                        $
                        25,362
                        
                        
                        $
                        15,495Ratio of allowance for loan losses
      to end of period total loans
                        
                        
                        1.81
                        %
                        
                        
                        1.17
                        %Ratio of net (charge-offs)
      recoveries to average total loans
                        
                        
                        (0.55
                        )
      %
                        
                        
                        (0.01
                        )
      %Ratio of allowance for loan losses
      to end of period total nonperforming loans (1)
                        
                        
                        44.89
                        %
                        
                        
                        155.27
                        %Ratio of allowance for loan losses
      to end of period net nonperforming loans (2)
                        
                        
                        47.43
                        %
                        
                        
                        210.57
                        %
 
 
 (1)
              Total
      nonperforming loans are nonaccrual loans plus loans over 90 days past
      due.
 (2)
              Net
      nonperforming loans are comprised of nonaccrual loans, loans over 90 days
      past due and troubled debt restructurings, net of the loan portions
      guaranteed by the SBA, Ex-Im Bank and
OCCGF.
 
 Securities. At March 31,
2009, the available for sale securities portfolio was $97.2 million, a decrease
of $4.9 million or 4.8% compared with $102.1 million at December 31, 2008. The
decrease was primarily due to principal payments on mortgage-backed securities
and collateralized mortgage obligations, and the maturity of a municipal
security. At March 31, 2009, the held to maturity portfolio was $1.1
million.  There were no held to maturity securities at December 31,
2008.  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 FHLB stock, and the investment in subsidiary trust,
were $23.5 million at March 31, 2009, a decrease of $5.7 million or 19.6%
compared with $29.2 million at December 31, 2008. The decrease is primarily the
result of maturities of CDARS.
  22
  Deposits. At March 31, 2009,
total deposits were $1.38 billion, up $106.8 million or 8.4% compared with $1.27
billion at December 31, 2008, primarily due to growth in money market accounts
and certificates of deposit. The Company’s ratio of noninterest-bearing demand
deposits to total deposits at March 31, 2009 and December 31, 2008 was 15.4% and
16.1%, respectively. Interest-bearing deposits at March 31, 2009 were $1.2
billion, an increase of $98.3 million or 9.2% compared with $1.07 billion at
December 31, 2008.
 
 Junior Subordinated
Debentures.Junior subordinated debentures at March 31, 2009
and December 31, 2008 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.
 
 Other Borrowings. Other
borrowings at March 31, 2009 were $29.4 million, a decrease of approximately
$109.6 million or 78.8% compared to other borrowings of $139.0 million at
December 31, 2008. Other borrowings decreased primarily due to liquidity
provided by deposit growth.  Other borrowings at March 31, 2009
primarily include a $4.0 million advance from the FHLB of San Francisco and
$25.0 million in security repurchase agreements.  The advance from the
FHLB of San Francisco has an overnight maturity, and bears a rate of
0.21%.  Since March 31, 2009, the advance from the FHLB has been
renewed with similar terms.   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 January 2009, all outstanding amounts of the $4.0
million subordinated debentures, including accrued interest were
repaid.
 
 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 the
                                  
                                  
                                  As
      of and for theThree Months Ended
                                  
                                  
                                  Year
      EndedMarch
      31, 2009
                                  
                                  
                                  December
      31, 2008(Dollars
      in thousands)Federal
      Funds Purchased:at
      end of period
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  –average
      during the period
                                  
                                  
                                  –
                                  
                                  
                                  
                                  84maximum
      month-end balance during the period
                                  
                                  
                                  –
                                  
                                  
                                  
                                  4,500FHLB
      Notes and Advances:at
      end of period
                                  
                                  $
                                  4,000
                                  
                                  
                                  $
                                  109,000average
      during the period
                                  
                                  
                                  37,428
                                  
                                  
                                  
                                  112,118maximum
      month-end balance during the period
                                  
                                  
                                  55,000
                                  
                                  
                                  
                                  133,000Interest
      rate at end of period
                                  
                                  
                                  0.21
                                  %
                                  
                                  
                                  0.48
                                  %Interest
      rate during the period
                                  
                                  
                                  0.54
                                  
                                  
                                  
                                  2.21Security
      Repurchase Agreements:at
      end of period
                                  
                                  $
                                  25,000
                                  
                                  
                                  $
                                  25,000average
      during the period
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  25,000maximum
      month-end balance during the period
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  25,000Interest
      rate at end of period
                                  
                                  
                                  3.71
                                  %
                                  
                                  
                                  3.71
                                  %Interest
      rate during the period
                                  
                                  
                                  3.76
                                  
                                  
                                  
                                  2.91Subordinated
      debentures:at
      end of period
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  4,000average
      during the period
                                  
                                  
                                  622
                                  
                                  
                                  
                                  2,060maximum
      month-end balance during the period
                                  
                                  
                                  –
                                  
                                  
                                  
                                  4,000Interest
      rate at end of period
                                  
                                  
                                  –
                                  %
                                  
                                  
                                  6.50
                                  %Interest
      rate during the period
                                  
                                  
                                  7.17
                                  
                                  
                                  
                                  5.05Federal
      Reserve TT&L:at
      end of period
                                  
                                  $
                                  447
                                  
                                  
                                  $
                                  1,046average
      during the period
                                  
                                  
                                  772
                                  
                                  
                                  
                                  731maximum
      month-end balance during the period
                                  
                                  
                                  1,020
                                  
                                  
                                  
                                  1,283
  23
  Liquidity. The Company’s loan
to deposit ratio at March 31, 2009 and 2008 was 97.09% and  103.79%,
respectively. As of March 31, 2009, the Company had commitments to fund loans in
the amount of $216.2 million. At this same date, the Company had stand-by
letters of credit of $13.1 million.  Available sources to fund these
commitments and other cash demands of the 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 $435.5
million from the FHLBs, $33.6 million from the FRB discount window, and $20.0
million from other correspondent banks.
 
 Capital Resources.
Shareholders’ equity at March 31, 2009 was $162.6 million compared to $119.2
million at December 31, 2008, an increase of approximately $43.3 million. The
increase was primarily the result of the $45.0 million preferred stock issuance,
partially offset by the $2.0 million net loss for the quarter and the payment of
dividends on the common stock and 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 March31, 2009 to the minimum and
well-capitalized regulatory standards:
 
 MinimumRequired
      ForCapital
      AdequacyPurposes
                        
                        To
      Be Categorized asWell
      Capitalized UnderPrompt
      CorrectiveAction
      Provisions
                        
                        Actual
      Ratio AtMarch
      31, 2009The
      CompanyLeverage
      ratio
                        
                        
                        4.00
                        %(1)
                        
                        
                        N/A
                        %
                        
                        
                        11.07
                        %Tier
      1 risk-based capital ratio
                        
                        
                        4.00
                        
                        
                        
                        N/A
                        
                        
                        
                        11.83Risk-based
      capital ratio
                        
                        
                        8.00
                        
                        
                        
                        N/A
                        
                        
                        
                        13.09MetroBankLeverage
      ratio
                        
                        
                        4.00
                        %(2)
                        
                        
                        5.00
                        %
                        
                        
                        10.45
                        %Tier
      1 risk-based capital ratio
                        
                        
                        4.00
                        
                        
                        
                        6.00
                        
                        
                        
                        11.22Risk-based
      capital ratio
                        
                        
                        8.00
                        
                        
                        
                        10.00
                        
                        
                        
                        12.48Metro
      UnitedLeverage
      ratio
                        
                        
                        4.00
                        %(3)
                        
                        
                        5.00
                        %
                        
                        
                        10.95
                        %Tier
      1 risk-based capital ratio
                        
                        
                        4.00
                        
                        
                        
                        6.00
                        
                        
                        
                        11.61Risk-based
      capital ratio
                        
                        
                        8.00
                        
                        
                        
                        10.00
                        
                        
                        
                        12.86
  
 (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.
  24
  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. The
Company’s allowance for possible loan loss
methodology is based on guidance provided in SEC Staff Accounting
BulletinNo.102,“Selected Loan Loss Allowance Methodology
and Documentation Issues”and includes allowance allocations
calculated in accordance with Statement of Financial Accounting Standards (SFAS)
No.114,“Accounting by Creditors for Impairment
of a Loan,”as amended by SFAS118, and allowance allocations
determined in accordance with SFASNo.5,“Accounting for
Contingencies.”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”.
  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.
  Additional
Evaluation
  As a
result of the Company’s stock continuing to trade below book value during the
first quarter of 2009, continued deterioration in the economy during the first
quarter of 2009, and a net loss recorded by Metro United for the three months
ended March 31, 2009, the Company performed an additional valuation of goodwill
as of March 31, 2009. Due to a lack of guideline bank acquisitions in the first
quarter of 2009, 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 period ending March 31, 2009, the Company used an
average growth rate of 5% 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, Metro Bank 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.
  25
  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.
  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 March 31, 2009, the
implied fair value of goodwill exceeded its carrying value. However, 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. Subsequent to the first quarter of
2009, the Company’s stock has continuted to trade below book value which may
require reassessment of goodwill in subsequent quarters of 2009.
 
 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 for stock-based compensation in
accordance with the fair value recognition provisions of SFAS No. 123R. 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 inthe 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 estimates of fair value is a critical
accounting estimate that requires significant judgment and estimates 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. The extent to which fair value is used on a recurring basis was
significantly expanded upon the adoption of SFAS No. 159 and SFAS No. 157
effective on January 1, 2008. 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
in accordance with SFAS No. 107. 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. These valuation techniques and assumptions are in accordance with SFAS
No. 157.  FASB Staff Position (FSP) No. 157-2, “Effective Date of FASB
Statement No. 157,” which applies SFAS 157 for non-financial assets and
non-financial liabilities was adopted January 1, 2009.
 
 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 SFAS No. 157 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
established by SFAS No. 157 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. As required under SFAS No. 157, any use of significant,
unobservable inputs would be described in Note 11, “Fair Value,” to the
Consolidated Financial Statements.
  26
  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.
  27
  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, 2008. 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
effective as of the end of the period covered by this report.
 
 Changes in Internal Control over
Financial Reporting. There were no changes in the Company’s internal
control over financial reporting that occurred during the Company’s most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
  28
  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.
 
 There
have been no material changes in the Company’s risk factors from those disclosed
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
 
 Item 2.
              Unregistered
      Sales of Equity Securities and Use of
  Proceeds.
 
 On January 16, 2009, in connection with the Company's
participation in the CPP the Company issued and sold to the U.S. Treasury (i)
45,000 shares of its Series A Preferred Stock, with a liquidation value of
$1,000 per share, and (ii) a Warrant to purchase up to 771,429 shares of the
Company's common stock, at an exercise price of $8.75 per share, for an
aggregate purchase price of $45.0 million in cash.  The Series A
Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
  The
Warrant is exercisable immediately at anytime until January 16,
2019.  The number of shares of the Company's common stock underlying
the Warrant and the exercise price are subject to adjustment for certain
dilutive events.  Additionally, if, on or prior to December 31, 2009,
the Company receives aggregate gross cash proceeds of at least $45.0 million
from one or more sales of Tier 1 qualifying perpetual preferred stock or common
stock, the number of the shares of common stock underlying the Warrant then held
by the U.S. Treasury will be reduced by 50% to 385,714
shares.  Pursuant to the Securities Purchase Agreement, the U.S.
Treasury has agreed not to exercise voting power with respect to any shares of
the Company's common stock issued upon exercise of the Warrant.
  Item 3.
              Defaults
      Upon Senior Securities.
 
 Not
applicable
 
 Item 4.
              Submission
      of Matters to a Vote of Security
Holders.
 
 Not applicable
 
 Item 5.
              Other
      Information.
 
 Not applicable
  29
  Item 6.
              Exhibits.
 
 ExhibitNumber
                              
                              Identification
      of Exhibit3.1
                              
                              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).10.1
                              
                              Letter
      Agreement, dated January 16, 2009, including the Securities Purchase
      Agreement—Standard Terms incorporated by reference therein, by and between
      the Company and the United States Department of the Treasury (incorporated
      herein by reference to Exhibit 10.1 to the Company's Current Report on
      Form 8-K filed on January 21, 2009).10.2
                              
                              Form
      of Waiver, executed by each of Messrs. George M. Lee, David C. Choi,
      Mitchell W. Kitayama, David Tai and Terrance J. Tangen (incorporated
      herein by reference to Exhibit 10.2 to the Company's Current Report on
      Form 8-K filed on January 21, 2009).10.3
                              
                              Form
      of Executive Compensation Letter Agreement, executed by each of Messrs.
      George M. Lee, David C. Choi, Mitchell W. Kitayama, David Tai and Terrance
      J. Tangen (incorporated herein by reference to Exhibit 10.3 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.
  30
  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. LeeDate:
      May 8, 2009
                        
                        George
      M. Lee
                          Executive
      Vice Chairman, President andChief
      Executive Officer (principal executive officer)Date:
      May 8, 2009
                        By:
                        /s/
      David C. ChoiDavid
      C. ChoiChief
      Financial Officer (principal financial officer/ principal accounting
      officer)
  31
  EXHIBIT
INDEX
 ExhibitNumber
                      
                      Identification
      of Exhibit3.1
                      
                      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).10.1
                      
                      Letter
      Agreement, dated January 16, 2009, including the Securities Purchase
      Agreement—Standard Terms incorporated by reference therein, by and between
      the Company and the United States Department of the Treasury (incorporated
      herein by reference to Exhibit 10.1 to the Company's Current Report on
      Form 8-K filed on January 21, 2009).10.2
                      
                      Form
      of Waiver, executed by each of Messrs. George M. Lee, David C. Choi,
      Mitchell W. Kitayama, David Tai and Terrance J. Tangen (incorporated
      herein by reference to Exhibit 10.2 to the Company's Current Report on
      Form 8-K filed on January 21, 2009).10.3
                      
                      Form
      of Executive Compensation Letter Agreement, executed by each of Messrs.
      George M. Lee, David C. Choi, Mitchell W. Kitayama, David Tai and Terrance
      J. Tangen (incorporated herein by reference to Exhibit 10.3 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.