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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

(Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934


Commission file number 000-25141



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METROCORP BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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


9600 Bellaire Boulevard, Suite 252
Houston, Texas 77036

(Address of principal executive offices including zip code)


(713) 776-3876

(Registrants telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x     No o.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o     No x.

As of October 31, 2003, the number of outstanding shares of Common Stock,
par value $1.00 per share, was 7,155,689.



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TABLE OF CONTENTS



|                                             |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                
|                                             | Item 1. Condensed Consolidated Financial Statements.                                         
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                          
|                                             | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION                   
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 2. Changes in Securities and Use of Proceeds                                            
|                                             | Item 3. Defaults Upon Senior Securities                                                      
|                                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                             | Item 5. Other Information                                                                    
|                                             | Item 6 (a) Exhibits                                                                          
|SIGNATURES                                  
|EXHIBIT INDEX                               
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906



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##### Table of Contents









PART I FINANCIAL INFORMATION







Item 1.Condensed Consolidated Financial Statements.

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

September 30,
    
    December 31,2003
    
    2002ASSETSCash and due from banks
    
    $
    32,135
    
    
    $
    30,195Federal funds sold and other temporary investments
    
    
    2,989
    
    
    
    7,991Total cash and cash equivalents
    
    
    35,124
    
    
    
    38,186Securities available-for-sale, at fair value
    
    
    256,218
    
    
    
    260,038Other investments
    
    
    5,178
    
    
    
    4,380Loans, held-for-investment (net of allowance for loan losses of $10,483 and $10,150, respectively)
    
    
    537,152
    
    
    
    517,609Loans, held-for-sale
    
    
    7,219
    
    
    
    Premises and equipment, net
    
    
    5,533
    
    
    
    5,841Accrued interest receivable
    
    
    3,123
    
    
    
    3,391Customers liability on acceptances
    
    
    2,985
    
    
    
    4,080Foreclosed assets, net
    
    
    4,062
    
    
    
    1,190Other assets
    
    
    7,299
    
    
    
    5,350Total assets
    
    $
    863,893
    
    
    $
    840,065LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    162,802
    
    
    $
    144,544Interest-bearing
    
    
    564,141
    
    
    
    546,817Total deposits
    
    
    726,943
    
    
    
    691,361Other borrowings
    
    
    53,897
    
    
    
    65,774Accrued interest payable
    
    
    550
    
    
    
    717Acceptances outstanding
    
    
    2,985
    
    
    
    4,080Other liabilities
    
    
    5,432
    
    
    
    3,670Total liabilities
    
    
    789,807
    
    
    
    765,602Shareholders equity:Preferred stock $1.00 par value, 2,000,000 shares authorized;
none of which are issued and outstanding
    
    
    
    
    
    
    Common stock, $1.00 par value, 20,000,000 shares authorized;
7,305,627 shares and 7,195,927 shares issued and 7,148,255 shares and
7,031,882 shares outstanding at September 30, 2003 and December 31, 2002,
respectively
    
    
    7,306
    
    
    
    7,196Additional paid-in-capital
    
    
    27,523
    
    
    
    26,344Retained earnings
    
    
    40,563
    
    
    
    39,938Accumulated other comprehensive income
    
    
    82
    
    
    
    2,354Treasury stock, at cost; 1,388,298 shares and 1,369,208 shares, respectively
    
    
    (1,388
    )
    
    
    (1,369
    )Total shareholders equity
    
    
    74,086
    
    
    
    74,463Total liabilities and shareholders equity
    
    $
    863,893
    
    
    $
    840,065


See accompanying notes to condensed consolidated financial statements

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

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Interest income:Loans
    
    $
    8,783
    
    
    $
    9,549
    
    
    $
    26,581
    
    
    $
    28,733Securities:Taxable
    
    
    1,650
    
    
    
    2,511
    
    
    
    5,242
    
    
    
    6,869Tax-exempt
    
    
    248
    
    
    
    273
    
    
    
    762
    
    
    
    887Federal funds sold and other investments
    
    
    68
    
    
    
    139
    
    
    
    221
    
    
    
    355Total interest income
    
    
    10,749
    
    
    
    12,472
    
    
    
    32,806
    
    
    
    36,844Interest expense:Time deposits
    
    
    2,219
    
    
    
    2,523
    
    
    
    6,922
    
    
    
    8,064Demand and savings deposits
    
    
    299
    
    
    
    565
    
    
    
    1,055
    
    
    
    1,746Other borrowings
    
    
    438
    
    
    
    522
    
    
    
    1,417
    
    
    
    1,287Total interest expense
    
    
    2,956
    
    
    
    3,610
    
    
    
    9,394
    
    
    
    11,097Net interest income
    
    
    7,793
    
    
    
    8,862
    
    
    
    23,412
    
    
    
    25,747Provision for loan losses
    
    
    575
    
    
    
    750
    
    
    
    5,390
    
    
    
    2,320Net interest income after provision for loan losses
    
    
    7,218
    
    
    
    8,112
    
    
    
    18,022
    
    
    
    23,427Noninterest income:Service fees
    
    
    1,646
    
    
    
    1,685
    
    
    
    4,798
    
    
    
    5,082Other loan-related fees
    
    
    632
    
    
    
    351
    
    
    
    1,462
    
    
    
    932Letters of credit commissions and fees
    
    
    134
    
    
    
    176
    
    
    
    399
    
    
    
    455Gain on sale of securities, net
    
    
    2
    
    
    
    
    
    
    
    165
    
    
    
    34Other noninterest income
    
    
    15
    
    
    
    54
    
    
    
    69
    
    
    
    205Total noninterest income
    
    
    2,429
    
    
    
    2,266
    
    
    
    6,893
    
    
    
    6,708Noninterest expense:Salaries and employee benefits
    
    
    3,736
    
    
    
    3,934
    
    
    
    11,357
    
    
    
    11,361Lower of cost or market adjustment  loans held-for-sale
    
    
    824
    
    
    
    
    
    
    
    2,149
    
    
    
    Occupancy and equipment
    
    
    1,370
    
    
    
    1,320
    
    
    
    3,969
    
    
    
    3,796Foreclosed assets, net
    
    
    155
    
    
    
    65
    
    
    
    3
    
    
    
    483Other noninterest expense
    
    
    1,713
    
    
    
    1,200
    
    
    
    4,868
    
    
    
    4,394Total noninterest expense
    
    
    7,798
    
    
    
    6,519
    
    
    
    22,346
    
    
    
    20,034Income before provision for income tax
    
    
    1,849
    
    
    
    3,859
    
    
    
    2,569
    
    
    
    10,101Provision for income taxes
    
    
    504
    
    
    
    1,329
    
    
    
    669
    
    
    
    3,290Net income
    
    $
    1,345
    
    
    $
    2,530
    
    
    $
    1,900
    
    
    $
    6,811Earnings per common share:Basic
    
    $
    0.19
    
    
    $
    0.36
    
    
    $
    0.27
    
    
    $
    0.97Diluted
    
    $
    0.19
    
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.95Weighted average shares outstanding:Basic
    
    
    7,132
    
    
    
    7,026
    
    
    
    7,067
    
    
    
    7,022Diluted
    
    
    7,215
    
    
    
    7,147
    
    
    
    7,203
    
    
    
    7,142Dividends per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18


See accompanying notes to condensed consolidated financial statements

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

For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Net income
    
    $
    1,345
    
    
    $
    2,530
    
    
    $
    1,900
    
    
    $
    6,811Other comprehensive income (loss), net of tax:Unrealized gain (loss) on investment securities, net:Unrealized holding gain (loss) arising during the period
    
    
    (1,699
    )
    
    
    532
    
    
    
    (2,165
    )
    
    
    2,391Less: reclassification adjustment for gains (losses) included
in net income
    
    
    1
    
    
    
    
    
    
    
    107
    
    
    
    22Other comprehensive income (loss)
    
    
    (1,700
    )
    
    
    532
    
    
    
    (2,272
    )
    
    
    2,369Total comprehensive income (loss)
    
    $
    (355
    )
    
    $
    3,062
    
    
    $
    (372
    )
    
    $
    9,180


METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For The Nine Months Ended September 30, 2003
(In thousands)
(Unaudited)

AccumulatedCommon Stock
    
    Additional
    
    
    
    
    
    Other
    
    TreasuryPaid-in
    
    Retained
    
    Comprehensive
    
    StockShares
    
    At Par
    
    Capital
    
    Earnings
    
    Income
    
    At Cost
    
    TotalBalance at January 1, 2003
    
    
    7,032
    
    
    $
    7,196
    
    
    $
    26,344
    
    
    $
    39,938
    
    
    $
    2,354
    
    
    $
    (1,369
    )
    
    $
    74,463Issuance of common stock
    
    
    110
    
    
    
    110
    
    
    
    1,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,178Repurchase of common stock
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (212
    )
    
    
    (212
    )Re-issuance of treasury stock
    
    
    23
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    304Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,272
    )
    
    
    
    
    
    
    (2,272
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,900Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,275
    )
    
    
    
    
    
    
    
    
    
    
    (1,275
    )Balance at September 30, 2003
    
    
    7,148
    
    
    $
    7,306
    
    
    $
    27,523
    
    
    $
    40,563
    
    
    $
    82
    
    
    $
    (1,388
    )
    
    $
    74,086


See accompanying notes to condensed consolidated financial statements

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

For The Nine MonthsEnded September 30,2003
    
    2002Cash flows from operating activities:Net income
    
    $
    1,900
    
    
    $
    6,811Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    1,024
    
    
    
    1,068Provision for loan losses
    
    
    5,390
    
    
    
    2,320Lower of cost or market adjustment  loans held-for-sale
    
    
    2,149
    
    
    
    Amortization of premium/discount on securities
    
    
    1,956
    
    
    
    Gain on sale of securities, net
    
    
    (165
    )
    
    
    (34
    )(Gain) loss on sale of foreclosed assets, net
    
    
    (194
    )
    
    
    444Net
change in loans held-for-sale
    
    
    (7,219
    )
    
    
    Amortization of deferred loan fees and discounts
    
    
    135
    
    
    
    328Changes in:Accrued interest receivable
    
    
    268
    
    
    
    208Accrued interest payable
    
    
    (167
    )
    
    
    (144
    )Other liabilities
    
    
    1,755
    
    
    
    3,313Other assets
    
    
    (813
    )
    
    
    3Net cash provided by operating activities
    
    
    6,019
    
    
    
    14,317Cash flows from investing activities:Purchases of securities available-for-sale
    
    
    (155,560
    )
    
    
    (139,620
    )Proceeds from sales, maturities and principal paydowns of securities available-for-sale
    
    
    153,383
    
    
    
    58,004Net change in loans
    
    
    (32,620
    )
    
    
    (27,130
    )Proceeds from sale of foreclosed assets
    
    
    2,725
    
    
    
    655Proceeds from sale of premises and equipment
    
    
    
    
    
    
    5Purchases of premises and equipment
    
    
    (716
    )
    
    
    (876
    )Net cash used in investing activities
    
    
    (32,788
    )
    
    
    (108,962
    )Cash flows from financing activities:Net change in:Deposits
    
    
    35,582
    
    
    
    45,015Other borrowings
    
    
    (11,877
    )
    
    
    43,386Proceeds from issuance of common stock
    
    
    1,178
    
    
    
    76Re-issuance of treasury stock
    
    
    304
    
    
    
    317Repurchase of common stock
    
    
    (212
    )
    
    
    (339
    )Dividends paid
    
    
    (1,268
    )
    
    
    (1,263
    )Net cash provided by financing activities
    
    
    23,707
    
    
    
    87,192Net decrease in cash and cash equivalents
    
    
    (3,062
    )
    
    
    (7,453
    )Cash and cash equivalents at beginning of period
    
    
    38,186
    
    
    
    58,106Cash and cash equivalents at end of period
    
    $
    35,124
    
    
    $
    50,653


See accompanying notes to condensed consolidated financial statements

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METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions for Form 10-Q. In the opinion of management, the unaudited
condensed consolidated financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of
the Companys financial position at September 30, 2003, results of operations
for the three and nine months ended September 30, 2003 and 2002, and cash flows
for the nine months ended September 30, 2003 and 2002. Interim period results
are not necessarily indicative of results for a full-year period.

Certain amounts applicable to the prior periods have been reclassified to
conform to the classifications currently used. Such reclassifications had no
effect on net income or shareholders equity.

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, 2002.

Stock Compensation

The Company grants stock options under several stock-based incentive
compensation plans. The Company utilizes the intrinsic value method for its
stock compensation plans. No compensation cost is recognized for fixed stock
options in which the exercise price is equal to or greater than the estimated
market price on the date of grant. Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation,which, if fully
adopted by the Company, would change the method the Company applies in
recognizing the cost of the plans to the fair value method. Adoption of the
cost recognition provisions of SFAS No. 123 is optional and the Company has
decided to continue to follow the intrinsic value method. However, pro forma
disclosures as if the Company adopted the fair value method are required. If
the fair value based method of accounting under SFAS No. 123 had been applied,
the Companys net income available to common shareholders and earnings per
common share would have been reduced to the pro forma amounts indicated below
(assuming that the fair value of options granted during the year are amortized
over the vesting period) (in thousands except per share amounts):

For The Three Months
    
    For The Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002Net income:As reported
    
    $
    1,345
    
    
    $
    2,530
    
    
    $
    1,900
    
    
    $
    6,811Pro forma
    
    $
    1,306
    
    
    $
    2,490
    
    
    $
    1,783
    
    
    $
    6,691Stock-based compensation cost, net of income taxes:As reported
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Pro forma
    
    $
    39
    
    
    $
    40
    
    
    $
    117
    
    
    $
    120Basic earnings per common share:As reported
    
    $
    0.19
    
    
    $
    0.36
    
    
    $
    0.27
    
    
    $
    0.97Pro forma
    
    $
    0.18
    
    
    $
    0.35
    
    
    $
    0.25
    
    
    $
    0.95Diluted earnings per common share:As reported
    
    $
    0.19
    
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.95Pro forma
    
    $
    0.18
    
    
    $
    0.35
    
    
    $
    0.25
    
    
    $
    0.94


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The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and the Company anticipates making awards in the future under its
stock-based compensation plans. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Companys employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

2. EARNINGS PER COMMON SHARE

Basic earnings per share (EPS) is computed by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted EPS is computed by dividing net
income available to common shareholders by the weighted-average number of
common shares and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares are computed using the treasury
stock method.

For The Three Months
    
    For The Nine MonthsEnded September 30,
    
    Ended September 30,2003
    
    2002
    
    2003
    
    2002(In thousands, except per share amounts)Net income available to common shareholders
    
    $
    1,345
    
    
    $
    2,530
    
    
    $
    1,900
    
    
    $
    6,811Weighted-average common shares outstanding:Basic
    
    
    7,132
    
    
    
    7,026
    
    
    
    7,067
    
    
    
    7,022Shares issuable under stock option plans
    
    
    83
    
    
    
    121
    
    
    
    136
    
    
    
    120Diluted
    
    
    7,215
    
    
    
    7,147
    
    
    
    7,203
    
    
    
    7,142Earnings per common share:Basic
    
    $
    0.19
    
    
    $
    0.36
    
    
    $
    0.27
    
    
    $
    0.97Diluted
    
    $
    0.19
    
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.95


3. LITIGATION

In September 2003 a subsidiary of the Company, Advantage Finance
Corporation (AFC), was served in connection with a law suit based on alleged
malicious prosecution and conspiracy. Also included in the law suit are
BDO Seidman LLP and The CIT Group/Commercial Services, Inc. The Case
is in its early stages and has been set for trial in August 2004. Management is unable to determine whether the outcome will have a material impact on the Company's
financial statements. The lawsuit does not seek a specified amount.

4. NEW ACCOUNTING PRONOUNCEMENTS

On
April 30, 2003, the Financial Accounting Standards Board (FASB)
approved Statement of Financial Accounting Standards (SFAS) No. 149, an
amendment to SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities.This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133. The provisions of this statement were
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material effect on the Companys financial condition or
results of operations.

On May 15, 2003, the FASB approved SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This statement changes the accounting for certain financial instruments that,
under previous guidance, could be classified as equity or mezzanine equity,
but now is requiring those instruments to be classified as liabilities (or
assets in some circumstances) in the statement of financial

6



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##### Table of Contents



condition. Further, SFAS No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. This statement is generally
effective for all such financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of non-public entities. It is not expected that this
statement will have a material effect on the Companys financial condition or
results of operations. On October 29, 2003, the FASB deferred certain
provisions of this statement.

On November 25, 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 considers standby
letters of credit, excluding commercial letters of credit and other lines of
credit, a guarantee of the Bank. The Bank enters into a standby letter of
credit to guarantee performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved is represented by the contractual
amounts of those instruments. Under the standby letters of credit, the Bank is
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary so long as all performance criteria have been met.
Most guarantees extend up to one year. The maximum potential amount of future
payments was approximately $7.1 million at September 30, 2003. The Company has
recorded a liability of approximately $4,437 at September 30, 2003, for the
fair value of the Companys potential obligations, which represents the
unamortized portion of the letter of credit fees.

On January 17, 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities,which addresses consolidation by business enterprises of
variable interest entities. FIN No. 46 clarifies the application of ARB No.
51, Consolidated Financial Statements,to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The adoption of this interpretation will not impact the Companys
financial condition or results of operations.







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

Special Cautionary Notice Regarding Forward-looking Statements

The Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements, which describe the Companys future plans, strategies and
expectations, are based on assumptions and involve a number of risks and uncertainties, many of which are beyond the
Companys control. The important factors that could cause actual results to differ materially from the results,
performance or achievements expressed or implied by the forward-looking statements include, without limitation:



| |  |  | Changes in interest rates and market prices, which could reduce the
Companys net interest margins, asset valuations and expense
expectations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in the levels of loan prepayments and the resulting effects
on the value of the Companys loan portfolio;
| | - |  | -----------------------------------------------------------------------------------------------------------------



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



| |  |  | Increased competition for deposits and loans adversely affecting
rates and terms;
| | - |  | ---------------------------------------------------------------------------------



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

7



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##### Table of Contents





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



| |  |  | Increased asset levels and changes in the composition of assets and
the resulting impact on the Companys capital levels and regulatory
capital ratios;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys ability to acquire, operate and maintain cost
effective and efficient systems without incurring unexpectedly
difficult or expensive but necessary technological changes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

The Company undertakes no obligation to publicly update or otherwise
revise any forward-looking statements, unless the securities laws require the
Company to do so. All written or oral forward-looking statements attributable
to the Company are expressly qualified in their entirety by these cautionary
statements.

Overview

For the three months ended September 30, 2003, the Company had net income
of $1.3 million, down approximately $1.2 million from net income of $2.5
million for the same quarter in 2002. The Companys diluted earnings per share
(EPS) for the three months ended September 30, 2003 was $0.19, down $0.16 per
diluted share from diluted EPS of $0.35 for the same quarter in 2002. This
decrease was primarily the result of a lower of cost or market
adjustment of $824,000 on loans that were classified as held-for-sale in June
2003, and continued pressure on the net interest margin.

Net income for the nine months ended September 30, 2003 was $1.9 million,
down approximately $4.9 million from $6.8 million for the same period in 2002.
The Companys diluted EPS for the nine months ended September 30, 2003 was
$0.26, down $0.69 from $0.95 for the same period in 2002. The decrease was
primarily the result of lower of cost or market
adjustments of $2.1 million and an increase of $3.1 million in provision for
loan losses.

At September 30, 2003, total assets were $863.9 million, up approximately
$23.8 million or 2.8% from $840.1 million at December 31, 2002. The increase
was primarily the result of deposit growth during the period that contributed
to new loan funding. Investment securities at September 30, 2003 were $256.2
million, down approximately $3.8 million or 1.5% from $260.0 million at
December 31, 2002. Net loans, both held-for-investment and held-for-sale at
September 30, 2003, were $544.4 million, up approximately $26.8 million or 5.2%
from $517.6 million at December 31, 2002. Total deposits at September 30, 2003
were $726.9 million, up approximately $35.5 million or 5.1% from $691.4 million
at December 31, 2002. Other borrowings at September 30, 2003 were $53.9
million, down approximately $11.9 million from other borrowings of $65.8
million at December 31, 2002. The Companys return on average assets (ROAA)
for the three months ended September 30, 2003 and 2002 was 0.62% and 1.24%,
respectively. The Companys ROAA for the nine months ended September 30, 2003
and 2002 was 0.30% and 1.18%, respectively.

Shareholders equity at September 30, 2003 was $74.1 million compared to
$74.5 million at December 31, 2002, a decrease of
approximately $400,000. The
decrease for the nine months ended September 30, 2003 was primarily the
combined result of $1.9 million in net income and a net increase
in common stock, additional paid-in capital, and treasury stock of approximately $1.3 million that
was partially offset by a reduction in accumulated other comprehensive income
(an unrealized loss in the market value of securities) of approximately $2.3
million and dividend payments of approximately $1.3 million. The Companys
return on average shareholders equity (ROAE) for the three months ended
September 30, 2003 and 2002 was 7.16% and 13.86%, respectively. The Companys
ROAE for the nine months ended September 30, 2003 and 2002 was 3.37% and
13.13%, respectively.

8



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Results of Operations

Net Interest Income and the Net Interest Margin.For the three months
ended September 30, 2003, net interest income, before the provision for loan
losses, was $7.8 million, down approximately $1.1 million
or 12.1% from $8.9
million for the same quarter in 2002. The decrease was primarily due to lower
interest income resulting from lower yields on higher interest-earning asset
balances that was partially offset by lower interest expense as a result of
lower rates paid on higher interest-bearing liability balances. Average
interest-earning asset balances for the three months ended September 30, 2003
were $825.6 million, up approximately $53.0 million or 6.9% from $772.6 million
for the same quarter in 2002. The weighted average yield on interest-earning
assets for the three months ended September 30, 2003 was 5.17%, down 123 basis
points from 6.40% for the same quarter in 2002. Average interest-bearing
liability balances for the three months ended September 30, 2003 were $627.6
million, up approximately $34.6 million or 5.8% from $593.0 million for the
same quarter in 2002. The weighted average rate paid on interest-bearing
liabilities for the three months ended September 30, 2003 was 1.87%, down 55
basis points from 2.42% for the same quarter in 2002.

For the nine months ended September 30, 2003, net interest income, before
the provision for loan losses, was $23.4 million, down approximately $2.3
million or 9.1% from $25.7 million for the same period in 2002. The decrease
was primarily due to lower interest income resulting from lower yields on
higher interest-earning asset balances that was partially offset by lower
interest expense as a result of lower rates paid on higher interest-bearing
liability balances. Average interest-earning asset balances for the nine
months ended September 30, 2003 were $814.8 million, up approximately $82.6
million or 11.3% from $732.2 million for the same period in 2002. The weighted
average yield on interest-earning assets for the nine months ended September
30, 2003 was 5.38%, down 135 basis points from 6.73% for the same period in
2002. Average interest-bearing liability balances for the nine months ended
September 30, 2003 were $619.9 million, up approximately $55.3 million or 9.8%
from $564.6 million for the same period in 2002. The weighted average rate
paid on interest-bearing liabilities for the nine months ended September 30,
2003 was 2.03%, down 60 basis points from 2.63% for the same period in 2002.

The net interest margin for the three months ended September 30, 2003 was
3.74%, down 81 basis points from 4.55% for the same quarter in 2002 and was
primarily the result of a decrease in the yield on interest-earning assets of
123 basis points that was partially offset by a decrease in the cost of
earning-assets of 42 basis points. The net interest margin for the nine months
ended September 30, 2003 was 3.84%, down 86 basis points from 4.70% for the
same period in 2002 and was primarily the result of a decrease in the yield on
earning-assets of 135 basis points that was partially offset by a decrease in
the cost of earning-assets of 49 basis points. The Companys net interest
margin may experience further pressure depending on the future interest rate
environment.

Total Interest Income.Total interest income for the three months ended
September 30, 2003 was $10.7 million, down approximately
$1.8 million or 13.8%
from $12.5 million for the same quarter in 2002. Total interest income for the
nine months ended September 30, 2003 was $32.8 million, down approximately $4.0
million or 11.0% from $36.8 million for the same period in 2002. The lower
interest income for both periods in 2003, compared to 2002, was primarily the
result of lower yields on interest-earning assets that was partially offset by
increases in average interest-earning assets.

Interest Income from Loans.Interest income from loans for the three
months ended September 30, 2003 was $8.8 million, down approximately $700,000
or 8.0% from $9.5 million for the same quarter in 2002 primarily due to lower
loan yields as a result of the current interest rate environment that was
partially offset by higher average total loan balances. Average total loans
for the three months ended September 30, 2003 were $555.6 million compared to
average total loans for the same quarter in 2002 of $509.8 million, an increase
of approximately $45.8 million or 9.0%. For the three months ended September
30, 2003, the average yield on total loans was 6.27% compared to 7.43% for the
same quarter in 2002, a decrease of 116 basis points.

Approximately $459.0 million or 84.5% of the loans in the loan portfolio
are variable rate loans that reprice as the prime rate moves and therefore, are
sensitive to interest rate movement. At September 30, 2003, the average yield
on the total loan portfolio was approximately 200 basis points above the prime
rate, which was supported by variable rate loans with interest rate floors that
consisted of approximately $340.0 million or 62.6% of the total loan portfolio.
These loans carried a weighted average interest rate of 5.97% at September 30,
2003 compared to 59.8% of the total loan portfolio with a weighted average
interest rate of 6.89% at September 30, 2002. Future increases in market
interest rates, especially the prime rate, will not be realized on the loan
portfolio as quickly as the declines in 2001, 2002, and 2003 because of the
interest rate floors already achieved on more than half of the loan portfolio.

9



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##### Table of Contents



Other factors that have impacted interest income from loans include
refinancing pressures on existing loans, increased nonaccrual loans, and new
loans being added to the portfolio at lower interest rates.

Interest income from loans for the nine months ended September 30, 2003
was $26.6 million, down approximately $2.1 million or 7.5% from $28.7 million
for the same period in 2002 primarily due to the lower loan yields as a result
of the interest rate environment that was partially offset by higher average
loan balances. Average total loans for the nine months ended September 30,
2003 were $549.2 million compared to average total loans for the same period in
2002 of $498.9 million, an increase of approximately $50.3 million or 10.1%.
For the nine months ended September 30, 2003, the average yield on total loans
was 6.47%, compared to 7.70% for the same period in 2002, a decrease of 123
basis points.

Interest Income from Investments.Interest income from investments (which
includes investment securities, Federal Funds sold, and other temporary
investments) for the three months ended September 30, 2003 was $2.0 million,
down approximately $900,000 or 32.7% compared to $2.9 million for the same
quarter in 2002, primarily due to lower interest rate yields as a result of
premium amortization, prepayments in mortgage-backed securities, and the
reinvestment of funds at lower market interest rates that was partially offset
by higher average investment balances. Average total investments for the three
months ended September 30, 2003, were $270.1 million compared to average total
investments for the same quarter in 2002 of $262.8 million, and increase of
approximately $7.3 million or 2.8%. For the three months ended September 30,
2003, the average yield on investments was 2.89% compared to 4.41% for the same
quarter in 2002, a decrease of 152 basis points.

Interest income from investments for the nine months ended September 30,
2003 was $6.2 million, down approximately $1.9 million or
23.1% compared to
$8.1 million for the same period in 2002, primarily due to a lower interest
rate yield as a result of premium amortization, prepayments on mortgage-backed
securities, and the reinvestment of funds at lower market interest rates that
was partially offset by higher average investment balances. Average total
investments for the nine months ended September 30, 2003, were $265.7 million
compared to average total investments for the same period in 2002 of $233.3
million, an increase of approximately $32.4 million or 13.9%. For the nine
months ended September 30, 2003, the average yield on investments was 3.13%
compared to 4.65% for the same period in 2002, a decrease of 152 basis points.

Total Interest Expense.Total interest expense for the three months ended
September 30, 2003 was $3.0 million, down approximately
$600,000 or 18.1%
compared to $3.6 million for the same quarter in 2002. Total interest expense
for the nine months ended September 30, 2003 was $9.4 million, down
approximately $1.7 million or 15.3% from $11.1 million for the same period in
2002. The lower interest expense for both periods in 2003, compared to 2002,
was primarily the result of lower interest rates paid on interest-bearing
liabilities that was partially offset by increases in average interest-bearing
liabilities.

Interest Expense on Deposits.Interest paid on interest-bearing deposits
for the three months ended September 30, 2003 was $2.5 million, down
approximately $600,000 or 18.5% compared to $3.1 million for the same period in
2002 and was primarily due to lower interest rates paid for interest-bearing
deposits as a result of the lower interest rate environment that was partially
offset by higher interest-bearing deposit balances. Average interest-bearing
deposits for the three months ended September 30, 2003 were $570.9 million
compared to average interest-bearing deposits for the same quarter in 2002 of
$527.9 million, an increase of $43 million or 8.1%. The average interest rate
paid on interest-bearing deposits for the three months ended September 30, 2003
was 1.75% compared to 2.32% for the same quarter in 2002, a decrease
of 57
basis points.

Interest paid on interest-bearing deposits for the nine months ended
September 30, 2003 was $8.0 million, down approximately $1.8 million or 18.7%
compared to $9.8 million for the same period in 2002 and was primarily due to
lower interest rates paid for interest-bearing deposits as a result of the
lower interest rate environment that was partially offset by higher
interest-bearing deposit balances. Average interest-bearing deposits for the
nine months ended September 30, 2003 were $557.7 million compared to average
interest-bearing deposits for the same period in 2002 of $516.5 million, an
increase of $41.2 million or 8.0%. The average interest rate paid on
interest-bearing deposits for the nine months ended September 30, 2003 was
1.91% compared to 2.54% for the same period in 2002, a decrease of 63 basis
points.

Interest Expense on Other Borrowed Funds.Interest paid on other
borrowed funds for the three months ended September 30, 2003 was $438,000, down
approximately $84,000 compared to $522,000 for the same period in 2002 and was
primarily due to lower borrowed funds balances and lower interest rates paid
for borrowed funds.Average borrowed funds for the three months ended
September 30, 2003 were $56.7 million compared to average

10



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borrowed funds for the same quarter in 2002 of $65.1 million, a decrease
of $8.4 million. The average interest rate paid on borrowed funds for the
three months ended September 30, 2003 was 3.06%, compared to 3.18% for the same
quarter in 2002, a decrease of 12 basis points.

Interest paid on other borrowed funds for the nine months ended September
30, 2003 was $1.4 million, up approximately $130,000 compared to $1.3 million
for the same period in 2002 and was primarily due to higher borrowed funds
balances that were partially offset by lower interest rates paid for borrowed
funds.Average borrowed funds for the nine months ended September 30, 2003
were $62.2 million compared to average borrowed funds for the same period in
2002 of $48.1 million, an increase of $14.1 million. The increase in borrowed
funds reflected advances obtained from the Federal Home Loan Bank (FHLB) to
fund loans and mortgage-related securities investments. The average interest
rate paid on borrowed funds for the nine months ended September 30, 2003 was
3.05%, compared to 3.58% for the same period in 2002, a decrease of 53 basis
points.

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

For The Three Months Ended September 30,2003
    
    2002Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    AverageOutstanding
    
    Earned/
    
    Yield/
    
    Outstanding
    
    Earned/
    
    Yield/Balance
    
    Paid
    
    Rate (1)
    
    Balance
    
    Paid
    
    Rate (1)(Dollars in thousands)AssetsInterest-earning assets:Total loans
    
    $
    555,569
    
    
    $
    8,783
    
    
    
    6.27
    %
    
    $
    509,837
    
    
    $
    9,549
    
    
    
    7.43
    %Taxable securities
    
    
    229,625
    
    
    
    1,650
    
    
    
    2.85
    
    
    
    212,923
    
    
    
    2,511
    
    
    
    4.68Tax-exempt securities
    
    
    19,954
    
    
    
    248
    
    
    
    4.93
    
    
    
    22,058
    
    
    
    273
    
    
    
    4.91Federal funds sold and other temporary investments
    
    
    20,471
    
    
    
    68
    
    
    
    1.32
    
    
    
    27,812
    
    
    
    139
    
    
    
    1.98Total interest-earning assets
    
    
    825,619
    
    
    
    10,749
    
    
    
    5.17
    %
    
    
    772,630
    
    
    
    12,472
    
    
    
    6.40
    %Less allowance for loan losses
    
    
    (10,530
    )
    
    
    
    
    
    
    
    
    
    
    (9,392
    )Total interest-earning assets, net of allowance for
loan losses
    
    
    815,089
    
    
    
    
    
    
    
    
    
    
    
    763,238Noninterest-earning assets
    
    
    47,884
    
    
    
    
    
    
    
    
    
    
    
    47,844Total assets
    
    $
    862,973
    
    
    
    
    
    
    
    
    
    
    $
    811,082Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    74,933
    
    
    
    99
    
    
    
    0.52
    %
    
    $
    72,379
    
    
    
    218
    
    
    
    1.19
    %Saving and money market accounts
    
    
    116,145
    
    
    
    200
    
    
    
    0.68
    
    
    
    110,135
    
    
    
    347
    
    
    
    1.25Time deposits
    
    
    379,859
    
    
    
    2,219
    
    
    
    2.32
    
    
    
    345,421
    
    
    
    2,523
    
    
    
    2.90Other borrowings
    
    
    56,697
    
    
    
    438
    
    
    
    3.06
    
    
    
    65,068
    
    
    
    522
    
    
    
    3.18Total interest-bearing liabilities
    
    
    627,634
    
    
    
    2,956
    
    
    
    1.87
    %
    
    
    593,003
    
    
    
    3,610
    
    
    
    2.42
    %Noninterest-bearing liabilities:Noninterest-bearing demand deposits
    
    
    153,435
    
    
    
    
    
    
    
    
    
    
    
    134,552Other liabilities
    
    
    7,414
    
    
    
    
    
    
    
    
    
    
    
    11,092Total liabilities
    
    
    788,483
    
    
    
    
    
    
    
    
    
    
    
    738,647Shareholders equity
    
    
    74,489
    
    
    
    
    
    
    
    
    
    
    
    72,435Total liabilities and shareholders equity
    
    $
    862,972
    
    
    
    
    
    
    
    
    
    
    $
    811,082Net interest income
    
    
    
    
    
    $
    7,793
    
    
    
    
    
    
    
    
    
    
    $
    8,862Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.30
    %
    
    
    
    
    
    
    
    
    
    
    3.99
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    4.55
    %




---

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

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For The Nine Months Ended September 30,2003
    
    2002Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    AverageOutstanding
    
    Earned/
    
    Yield/
    
    Outstanding
    
    Earned/
    
    Yield/Balance
    
    Paid
    
    Rate (1)
    
    Balance
    
    Paid
    
    Rate (1)(Dollars in thousands)AssetsInterest-earning assets:Total loans
    
    $
    549,166
    
    
    $
    26,581
    
    
    
    6.47
    %
    
    $
    498,943
    
    
    $
    28,733
    
    
    
    7.70
    %Taxable securities
    
    
    225,151
    
    
    
    5,242
    
    
    
    3.11
    
    
    
    185,580
    
    
    
    6,869
    
    
    
    4.95Tax-exempt securities
    
    
    20,469
    
    
    
    762
    
    
    
    4.98
    
    
    
    23,801
    
    
    
    887
    
    
    
    4.98Federal funds sold and other temporary investments
    
    
    20,050
    
    
    
    221
    
    
    
    1.47
    
    
    
    23,875
    
    
    
    355
    
    
    
    1.99Total interest-earning assets
    
    
    814,836
    
    
    
    32,806
    
    
    
    5.38
    %
    
    
    732,199
    
    
    
    36,844
    
    
    
    6.73
    %Less allowance for loan losses
    
    
    (10,581
    )
    
    
    
    
    
    
    
    
    
    
    (9,067
    )Total interest-earning assets, net of allowance for
loan losses
    
    
    804,255
    
    
    
    
    
    
    
    
    
    
    
    723,132Noninterest-earning assets
    
    
    45,526
    
    
    
    
    
    
    
    
    
    
    
    50,797Total assets
    
    $
    849,781
    
    
    
    
    
    
    
    
    
    
    $
    773,929Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    73,916
    
    
    
    362
    
    
    
    0.65
    %
    
    $
    69,843
    
    
    
    661
    
    
    
    1.27
    %Saving and money market accounts
    
    
    110,892
    
    
    
    693
    
    
    
    0.84
    
    
    
    111,024
    
    
    
    1,085
    
    
    
    1.31Time deposits
    
    
    372,887
    
    
    
    6,922
    
    
    
    2.48
    
    
    
    335,672
    
    
    
    8,064
    
    
    
    3.21Other borrowings
    
    
    62,166
    
    
    
    1,417
    
    
    
    3.05
    
    
    
    48,050
    
    
    
    1,287
    
    
    
    3.58Total interest-bearing liabilities
    
    
    619,861
    
    
    
    9,394
    
    
    
    2.03
    %
    
    
    564,589
    
    
    
    11,097
    
    
    
    2.63
    %Noninterest-bearing liabilities:Noninterest-bearing demand deposits
    
    
    147,088
    
    
    
    
    
    
    
    
    
    
    
    130,342Other liabilities
    
    
    7,469
    
    
    
    
    
    
    
    
    
    
    
    9,618Total liabilities
    
    
    774,418
    
    
    
    
    
    
    
    
    
    
    
    704,549Shareholders equity
    
    
    75,363
    
    
    
    
    
    
    
    
    
    
    
    69,380Total liabilities and shareholders equity
    
    $
    849,781
    
    
    
    
    
    
    
    
    
    
    $
    773,929Net interest income
    
    
    
    
    
    $
    23,412
    
    
    
    
    
    
    
    
    
    
    $
    25,747Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    4.10
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    4.70
    %




---

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

12



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The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between changes in
outstanding balances and changes in interest rates for the three and nine
months ended September 30, 2003 compared with the three and nine months ended
September 30, 2002. For purposes of this table, changes attributable to both
rate and volume have been allocated to each accordingly.

Three Months Ended September 30,2003 vs. 2002Increase (Decrease)Due ToVolume
    
    Rate
    
    Total(Dollars in thousands)INTEREST-EARNING ASSETS:Loans
    
    $
    857
    
    
    $
    (1,623
    )
    
    $
    (766
    )Taxable securities
    
    
    197
    
    
    
    (1,058
    )
    
    
    (861
    )Tax-exempt securities
    
    
    (26
    )
    
    
    1
    
    
    
    (25
    )Federal funds sold and other temporary investments
    
    
    (37
    )
    
    
    (34
    )
    
    
    (71
    )Total increase (decrease) in interest income
    
    
    991
    
    
    
    (2,714
    )
    
    
    (1,723
    )INTEREST-BEARING LIABILITIES:Interest-bearing demand deposits
    
    
    8
    
    
    
    (127
    )
    
    
    (119
    )Savings and money market accounts
    
    
    19
    
    
    
    (166
    )
    
    
    (147
    )Time deposits
    
    
    252
    
    
    
    (556
    )
    
    
    (304
    )Other borrowings
    
    
    (67
    )
    
    
    (17
    )
    
    
    (84
    )Total increase (decrease) in interest expense
    
    
    212
    
    
    
    (866
    )
    
    
    (654
    )Increase (decrease) in net interest income
    
    $
    779
    
    
    $
    (1,848
    )
    
    $
    (1,069
    )


Nine Months Ended September 30,2003 vs. 2002Increase (Decrease)Due ToVolume
    
    Rate
    
    Total(Dollars in thousands)INTEREST-EARNING ASSETS:Loans
    
    $
    2,892
    
    
    $
    (5,044
    )
    
    $
    (2,152
    )Taxable securities
    
    
    1,465
    
    
    
    (3,092
    )
    
    
    (1,627
    )Tax-exempt securities
    
    
    (124
    )
    
    
    (1
    )
    
    
    (125
    )Federal funds sold and other temporary investments
    
    
    (57
    )
    
    
    (77
    )
    
    
    (134
    )Total increase (decrease) in interest income
    
    
    4,176
    
    
    
    (8,214
    )
    
    
    (4,038
    )INTEREST-BEARING LIABILITIES:Interest-bearing demand deposits
    
    
    39
    
    
    
    (338
    )
    
    
    (299
    )Savings and money market accounts
    
    
    (1
    )
    
    
    (391
    )
    
    
    (392
    )Time deposits
    
    
    894
    
    
    
    (2,036
    )
    
    
    (1,142
    )Other borrowings
    
    
    378
    
    
    
    (248
    )
    
    
    130Total increase (decrease) in interest expense
    
    
    1,310
    
    
    
    (3,013
    )
    
    
    (1,703
    )Increase (decrease) in net interest income
    
    $
    2,866
    
    
    $
    (5,201
    )
    
    $
    (2,335
    )


Provision for Loan Losses.Provisions for loan losses are charged to
income to bring the Companys allowance for loan losses to a level which
management considers adequate to absorb probable losses inherent in the loan
portfolio. The provision for loan losses for the three months ended September
30, 2003 was $575,000, down approximately $175,000 compared to $750,000 for the
same quarter in 2002. The provision for loan losses for the nine months ended September 30, 2003
was $5.4 million, up $3.1 million compared to $2.3 million for the same period
in 2002 and was mainly due to net-charge-offs of $5.1 million primarily related
to a deterioration in hospitality loans.

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According to industry sources, during
2003 the overall hospitality industry in the greater Houston metropolitan area
for 2003 has experienced a decline in revenues and occupancy levels of
approximately 8.5% and 5.9%, respectively, when compared to 2002, primarily due
to the current economic environment. The allowance for loan losses as a
percent of total loans (net of unearned interest, deferred fees, and discounts)
at September 30, 2003 and December 31, 2002 was 1.89% and
1.92%, respectively. See Financial
Condition  Nonperforming Assets.

Noninterest Income.Noninterest income for the three months ended
September 30, 2003 was $2.4 million, up approximately $160,000 compared to
noninterest income for the same quarter in 2002. Service fees for the three
months ended September 30, 2003 were $1.6 million, down approximately $39,000
compared to $1.7 million for the same quarter in 2002 primarily due to less
nonsufficient funds (NSF) activity. Other loan-related fees for the three
months ended September 30, 2003 were $632,000, up approximately $281,000
compared to $351,000 for the same quarter in 2002 primarily due to prepayment
penalties of approximately $165,000 collected in September 2003.

Noninterest income for the nine months ended September 30, 2003 was $6.9
million, up approximately $200,000 compared to noninterest income for the same
period in 2002. Service fees for the nine months ended September 30, 2003 were
$4.8 million, down approximately $300,000 compared to $5.1 million for the same
period in 2002 primarily due to less NSF related activity. Other loan-related
fees for the nine months ended September 30, 2003 were $1.5 million, up
approximately $500,000 compared to $932,000 for the same period in 2002
primarily due to an increase in late charge collections and prepayment
penalties.

Noninterest Expense.Total noninterest expense for the three months ended
September 30, 2003 was $7.8 million, up approximately $1.3 million compared to
$6.5 million for the same quarter in 2002. The higher noninterest expense was
primarily due to a lower of cost or market adjustment of $824,000 on the loans
held-for-sale. Professional fees for the three months ended September 30, 2003
were $417,000 compared to $13,000 for the same quarter in 2002, up
approximately $404,000 primarily due to increased costs related to matters
concerning problem assets.

Noninterest expense for the nine months ended September 30, 2003 was $22.3
million, up $2.3 million compared to $20.0 million for the same period in 2002.
The higher noninterest expense for the nine months ended September 30, 2003,
compared to the same period in 2002, was primarily due to the $2.1 million
lower of cost or market adjustments on the loans held-for-sale and an increase
in professional fees of approximately $719,000 that related to matters
concerning problem assets.

Occupancy and equipment expense for the nine months ended September 30,
2003, was $4.0 million, up approximately $200,000 compared to $3.8 million for
the same period in 2002 primarily due to additional leased space in the
corporate office. The foreclosed asset expense for the nine months ended
September 30, 2003 was $3,000, down approximately $480,000 compared to
foreclosed asset expense of $483,000 for the same period in 2002. This was
primarily due to the gain on sale of foreclosed assets in the second quarter
2003 compared to foreclosed asset expenses incurred in 2002.

Income Taxes.The Companys effective tax rate was 27.3% and 34.4% for
the three months ended September 30, 2003 and 2002, respectively. The
Companys effective tax rate was 26.0% and 32.6% for the nine months ended
September 30, 2003 and 2002, respectively. The primary reason for the
difference between the effective rate and the statutory rate for the
three and nine
months ended September 30, 2003 is a higher proportion of non-taxable interest
income on municipal securities to pre-tax income.

Financial Condition

Loan Portfolio.Net loans at September 30, 2003 were $544.4 million, up
$27.8 million or 5.2% from $517.6 million at December 31, 2002, primarily due
to new loan growth that has exceeded prepayments and scheduled repayments.
Compared to the loan level at December 31, 2002, during the nine months ended
September 30, 2003 commercial and industrial loans increased $16.7 million and
real estate loans increased $10.5 million. At September 30, 2003 and December
31, 2002, the ratio of total loans to total deposits was 76.3%. At the same
dates, total loans represented 64.2% and 62.8% of total assets, respectively.

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##### Table of Contents



During the third quarter 2003, four hospitality-related loans with an
aggregate principal balance of $7.6 million and a restaurant loan with a
principal balance of $1.2 million that were classified as loans held-for-sale
were sold.

The following table summarizes the loan portfolio of the Company by type
of loan:

As of September 30, 2003
    
    As of December 31, 2002Amount
    
    Percent
    
    Amount
    
    Percent(Dollars in thousands)Commercial and industrial
    
    $
    342,091
    
    
    
    60.94
    %
    
    $
    325,424
    
    
    
    60.94
    %Real estate mortgage:Residential
    
    
    11,011
    
    
    
    1.96
    
    
    
    7,326
    
    
    
    1.37Commercial, including loans held-for-sale
    
    
    175,149
    
    
    
    31.20
    
    
    
    165,608
    
    
    
    31.01Real estate construction:Residential
    
    
    11,055
    
    
    
    1.97
    
    
    
    10,589
    
    
    
    1.98Commercial
    
    
    11,605
    
    
    
    2.07
    
    
    
    14,805
    
    
    
    2.77Consumer and other
    
    
    10,409
    
    
    
    1.86
    
    
    
    10,286
    
    
    
    1.93Gross loans
    
    
    561,320
    
    
    
    100.00
    %
    
    
    534,038
    
    
    
    100.00
    %Less: unearned discounts, interest and deferred fees
    
    
    (6,466
    )
    
    
    
    
    
    
    (6,279
    )Total loans
    
    
    554,854
    
    
    
    
    
    
    
    527,759Less: allowance for loan losses
    
    
    (10,483
    )
    
    
    
    
    
    
    (10,150
    )Loans, net
    
    $
    544,371
    
    
    
    
    
    
    $
    517,609


Nonperforming Assets.Net nonperforming assets at September 30, 2003 were
$17.1 million compared to $15.5 million at December 31, 2002, an increase of
$1.6 million or 10.5%, and mainly reflected additions to other real estate
primarily in the hospitality industry. Approximately $10.3 million or 60.2% of
the net nonperforming assets at September 30, 2003 were loans collateralized by
real estate. While further deterioration in the loan portfolio is possible,
management is continuing its risk assessment and resolution program. In
addition, management is focusing its attention on minimizing the Banks credit
risk through more diversified business development. As of September 30, 2003,
the Company had approximately $70.8 million or 13.0% of its loan portfolio
concentrated in the hospitality industry, compared to $86.6 million or 16.0% of
its loan portfolio at December 31, 2002.

The ratios for net nonperforming assets to total loans and other real
estate at September 30, 2003 and December 31, 2002 were 3.06% and 2.92%,
respectively. The ratios for net nonperforming assets to total assets were
1.98% and 1.84% for the same periods, respectively. These ratios take into
consideration guarantees from the United States Department of Commerces Small
Business Administration (the SBA), the Export Import Bank of the United
States (the Ex-Im Bank), an independent agency of the United States
Government, and the Overseas Chinese Community Guaranty Fund (OCCGF), an
agency sponsored by the government of Taiwan, which were $4.4 million at
September 30, 2003 compared to $3.3 million at December 31, 2002.

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

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##### Table of Contents



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

As of
    
    As ofSeptember 30, 2003
    
    December 31, 2002(Dollars in thousands)Nonaccrual loans
    
    $
    17,279
    
    
    $
    17,209Accruing loans 90 days or more past due
    
    
    189
    
    
    
    380Other real estate
    
    
    4,062
    
    
    
    1,185Other assets repossessed
    
    
    
    
    
    
    5Total nonperforming assets
    
    
    21,530
    
    
    
    18,779Less:Nonperforming loans guaranteed by the SBA, Ex-Im Bank
and OCCGF
    
    
    (4,430
    )
    
    
    (3,310
    )Total net nonperforming assets
    
    $
    17,100
    
    
    $
    15,469Total nonperforming assets to total assets
    
    
    2.49
    %
    
    
    2.24
    %Total nonperforming assets to total loans and other real estate
    
    
    3.85
    %
    
    
    3.55
    %Net nonperforming assets to total assets (1)
    
    
    1.98
    %
    
    
    1.84
    %Net nonperforming assets to total loans and other real estate (1)
    
    
    3.06
    %
    
    
    2.92
    %


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

Allowance for Loan Losses.At September 30, 2003 and 2002 the allowance
for loan losses were $10.5 million and $9.7 million, respectively, or 1.89% and
1.88% of total loans, respectively. Net charge-offs for the three months ended
September 30, 2003 were $343,000 compared with $120,000 for the same period in
2002. Net charge-offs for the nine months ended September 30, 2003 were $5.1
million compared with $1.5 million for the same period in 2002. The Company
seeks recovery of charge-offs through all available channels.

The level of non-performing assets at September 30, 2003 is improving from
its previous levels of $20.7 million and $21.6 million at June 30, 2003, and
March 31,2003 respectively. Net quarterly charge-offs were approximately
$340,000, $4.5 million and $250,000 for the three months ended September 30, 2003,
June 30, 2003 and March 31, 2003, respectively.

The allowance for loan losses is established through a provision for loan
losses based on managements evaluation of known and inherent risk in the loan
portfolio. The allowance for loan losses is increased by provisions charged
against current earnings and is reduced by net charge-offs. Loans are charged
off when they are deemed to be uncollectable. Recoveries are recorded when
cash payments are received. The Company employs a systematic methodology for
determining the allowance for loan losses that includes a review of the changes
in the quality of the loan portfolio as determined by loan quality grades
assigned to each loan. The loan quality grades are administered by ongoing
reviews by loan officers, credit administration and the loan review department.
This includes an assessment of known problem loans, potential problem loans,
and other loans that exhibit weaknesses or deterioration. Specific review
factors include, but are not limited to, 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.

16



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##### Table of Contents



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

As of and for the
    
    As of and for theNine Months Ended
    
    Nine Months EndedSeptember 30, 2003
    
    September 30, 2002(Dollars in thousands)Average year-to-date total loans outstanding
    
    $
    549,166
    
    
    $
    498,943Total loans outstanding at end of period
    
    $
    554,854
    
    
    $
    517,764Allowance for loan losses at beginning of period
    
    $
    10,150
    
    
    $
    8,903Provision for loan losses
    
    
    5,390
    
    
    
    2,320Charge-offs:Commercial and industrial
    
    
    (4,781
    )
    
    
    (1,832
    )Real estate  mortgage
    
    
    (755
    )
    
    
    (21
    )Real estate  construction
    
    
    
    
    
    
    Consumer and other
    
    
    (129
    )
    
    
    (113
    )Total charge-offs
    
    
    (5,665
    )
    
    
    (1,966
    )Recoveries:Commercial and industrial
    
    
    537
    
    
    
    404Real estate  mortgage
    
    
    44
    
    
    
    5Real estate  construction
    
    
    
    
    
    
    Consumer and other
    
    
    27
    
    
    
    44Total recoveries
    
    
    608
    
    
    
    453Net loan charge-offs
    
    
    (5,057
    )
    
    
    (1,513
    )Allowance for loan losses at end of period
    
    $
    10,483
    
    
    $
    9,710Ratio of allowance to end of period total loans
    
    
    1.89
    %
    
    
    1.88
    %Ratio of net loan charge-offs to end of period total loans
    
    
    0.91
    %
    
    
    0.29
    %Ratio of allowance to end of period total nonperforming loans
    
    
    60.01
    %
    
    
    55.49
    %Ratio of allowance to end of period net nonperforming loans
    
    
    80.40
    %
    
    
    66.24
    %


Securities.At September 30, 2003, the securities portfolio was $256.2
million, reflecting a decrease of $3.8 million or 1.5% from $260.0 million at
December 31, 2002 primarily due to prepayments on mortgage-backed securities
that exceeded portfolio reinvestments. The securities portfolio is primarily
comprised of mortgage-backed securities, collateralized mortgage obligations,
tax-free municipal bonds, and U.S. government agency securities. The
securities portfolio has historically been funded primarily by the liquidity
created from deposit growth and loan prepayments in excess of loan funding
requirements. However, as of September 30, 2003 approximately $25.5 million in
short-term borrowings from the FHLB have been utilized to fund approximately
the same amount of mortgage-backed securities to increase interest-earning
assets.

Deposits. At September 30, 2003, total deposits were $726.9 million, up
$35.5 million or 5.1% from $691.4 million at December 31, 2002.
Noninterest-bearing demand deposits at September 30, 2003 increased $18.3
million or 12.6% to $162.8 million from $144.5 million at December 31, 2002.
The Companys ratios of noninterest-bearing demand deposits to total deposits
at September 30, 2003 and December 31, 2002 was 22.4% and 20.9%, respectively.
Interest-bearing deposits at September 30, 2003 increased $17.3 million or 3.2%
to $564.1 million from $546.8 million at December 31, 2002.

Other Borrowings.Other borrowings at September 30, 2003 were $53.9
million, down approximately $11.9 million compared to other borrowings of $65.8
million at December 31, 2002. The Company has two ten-year loans totaling
$25.0 million from the FHLB to diversify its funding sources. The ten-year
loans bear interest at an average rate of 5.00% per annum until the fifth year
anniversary of the loans, September 2003, at which time the loans may be repaid
or the interest rate renegotiated at the discretion of the FHLB based upon a
call provision included in the borrowing agreement. On September 14, 2003, FHLB
elected not to exercise their call option. However, that option continues
quarterly until maturity at September 2008. The Company has several FHLB
advances totaling $28.5 million with weighted average fixed rates of 1.52%. Of
these advances, $20.5 million with fixed interest rates averaging 1.17% are
scheduled to mature in the fourth quarter of 2003. Advances in the amount of
$8.0 million with fixed rates averaging 2.39% are scheduled to mature in 2004.
These borrowings were part of a strategic plan to continue the growth of
interest-earning assets. The funds were invested primarily in mortgage-related
instruments with durations of approximately three years. Other short-term
borrowings at September 30, 2003

17



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##### Table of Contents



consisted of approximately $397,000 in U.S. Treasury tax note option
accounts.

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

For the Nine
    
    For the TwelveMonths Ended
    
    Months EndedSeptember 30, 2003
    
    December 31, 2002(Dollars in thousands)Federal funds purchased:At end of period
    
    $
    
    
    
    $
    Average during the period
    
    
    73
    
    
    
    162Maximum month-end balance during the period
    
    
    
    
    
    
    FHLB notes and advances:At end of period
    
    $
    53,500
    
    
    $
    65,200Average during the period
    
    
    61,543
    
    
    
    52,343Maximum month-end balance during the period
    
    
    69,300
    
    
    
    69,700Other short-term borrowings:At end of period
    
    $
    397
    
    
    $
    574Average during the period
    
    
    550
    
    
    
    551Maximum month-end balance during the period
    
    
    848
    
    
    
    713


Liquidity.The Companys loan to deposit ratio at September 30, 2003 was
76.33%. As of this same date, the Company had commitments to fund loans in the
amount of $76.7 million. At September 30, 2003, the Company had stand-by
letters of credit of $7.1 million, of which, the Company has recorded a
liability of $4,437 at September 30, 2003, for the fair value of the Companys
potential obligations, which represented the unamortized portion of the letter
of credit fees. Available sources to fund these commitments and other cash
demands of the Company come from loan and investment securities repayments,
deposit inflows, and unsecured lines of credit. With its current level of
collateral, the Company has the ability to borrow an additional $173.0 million
from the FHLB. Additionally, the Company had several unused, unsecured lines
of credit with correspondent banks totaling $15.0 million at September 30, 2003
and December 31, 2002, respectively.

Capital Resources.Shareholders equity at September 30, 2003 was $74.1
million compared to $74.5 million at December 31, 2002, a decrease of
approximately $377,000. This decrease for the nine months ended September 30,
2003 was primarily the combined result of $1.9 million in net income and a net
increase in paid-in capital, common stock, and treasury stock of approximately
$1.3 million that was partially offset by a reduction in accumulated other
comprehensive income (an unrealized loss in the market value of securities) of
approximately $2.3 million and dividend payments of approximately $1.3 million.

The following table provides a comparison of the Companys and the Banks
leverage and risk-weighted capital ratios as of September 30, 2003 to the
minimum and well-capitalized regulatory standards:

Minumum
    
    To Be WellRequired For
    
    Capitalized UnderCapital Adequacy
    
    Prompt Corrective
    
    Actual Ratio AtPurposes
    
    Action Provisions
    
    September 30, 2003The CompanyLeverage ratio
    
    
    4.00
    %(1)
    
    
    N/A
    %
    
    
    8.71
    %Tier 1 risk-based capital ratio
    
    
    4.00
    
    
    
    N/A
    
    
    
    12.40Risk-based capital ratio
    
    
    8.00
    
    
    
    N/A
    
    
    
    13.65The BankLeverage ratio
    
    
    4.00
    %(2)
    
    
    5.00
    %
    
    
    8.17
    %Tier 1 risk-based capital ratio
    
    
    4.00
    
    
    
    6.00
    
    
    
    11.65Risk-based capital ratio
    
    
    8.00
    
    
    
    10.00
    
    
    
    12.91




---

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

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

The Company believes the allowance for loan losses is a critical
accounting policy that requires the most significant judgments and estimates
used in the preparation of its consolidated financial statements. In
estimating the allowance for loan losses, management reviews 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.

The Company believes that loans held-for-sale and the related lower of
cost or market adjustment is also a critical accounting policy that requires
significant judgments and estimates in preparation of its consolidated
financial statements. In estimating the requirement for market adjustments,
management utilizes outside sources to determine the market value of the loans
held-for-sale through solicitation of market bids or indications of market
value. Decreases in market value will be reflected in the consolidated
statement of income under noninterest expense as Lower of Cost or Market
Adjustment.







Item 3.Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in the market risk information
previously disclosed in the Companys Form 10-K for the year ended December 31,
2002. 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.The Company carried out
an evaluation, under the supervision and with the participation of its
management, including its President and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures as of the end of the period covered by this report. Based on
this evaluation, the Companys President and Chief Financial Officer concluded
that the Companys disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)) are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported to the Companys management
within the time periods specified in the Securities and Exchange Commissions
rules and forms.

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.

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PART II OTHER INFORMATION







Item 1.Legal Proceedings

In September 2003 a subsidiary of the Company, Advantage Finance
Corporation (AFC), was served in connection with a law suit based on alleged
malicious prosecution and conspiracy. Also included in the law suit are
BDO Seidman LLP and The CIT Group/Commercial Services, Inc. The Case
is in its early stages and has been set for trial in August 2004. Management is unable to determine whether the outcome will have a material impact on the Company's
financial statements. The lawsuit does not seek a specified amount.







Item 2.Changes in Securities and Use of Proceeds

Not applicable







Item 3.Defaults Upon Senior Securities

Not applicable







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

Not applicable







Item 5.Other Information

Not applicable







Item 6 (a)Exhibits

ExhibitNumber
    
    
    
    Identification of Exhibit11
    
    -
    
    Computation of Earnings Per Common Share, included as Note (2) to the Condensed Consolidated Financial Statements on
Page 7 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.


(b)Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter ended
September 30, 2003:



|(1) |  | Current report on Form 8-K dated July 9, 2003 announcing that the
Company recorded additional charge-offs and a plan to sell loans.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Current report on Form 8-K dated July 28, 2003 announcing the
release of the Companys earnings for the second quarter of 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

METROCORP BANCSHARES, INCBy:
    
    /s/ Allen D. BrownDate: November 14, 2003
    
    
    
    Allen D. Brown
President
(principal executive officer)Date: November 14, 2003
    
    By:
    
    /s/ David D. RinehartDavid D. Rinehart
Executive Vice President and
Chief Financial Officer
(principal accounting officer and
principal financial officer)


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EXHIBIT INDEX

ExhibitNumber
    
    
    
    Identification of Exhibit11
    
    -
    
    Computation of Earnings Per Common Share, included as Note (2) to the Condensed Consolidated Financial Statements on
Page 7 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.