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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q

|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
|           |  |                                                                                                                                          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934                                                 

Commission file number 000-25141



METROCORP BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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

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

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



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Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)



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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, 2002, the number of outstanding shares of Common Stock,
par value $1.00 per share, was 7,032,382.



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TABLE OF CONTENTS



|                                         |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION            
|                                         | Item 1. Condensed 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 6A. Exhibits                                                                            
|SIGNATURES                              
|CERTIFICATIONS                          
|EXHIBIT INDEX                           
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer







PART I

FINANCIAL INFORMATION

Item 1.Condensed Financial Statements.

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

|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |              |         |  |  | 
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------ | ------- | ------- | ------------- | ------- | ------------ | ------- |  |  | 
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         | September 30, |         | December 31,
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         | 2002          |         | 2001        
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           |                                                                                                                                                                                                                           |              |                                      | ASSETS  |         |               |         |              |         |  |  | 
|Cash and due from banks                                                    |                                                                                                                                                                                                                           | $            | 30,866                               |         |         | $             | 34,428  |             
|Federal funds sold and other temporary investments                         |                                                                                                                                                                                                                           |              | 19,787                               |         |         |               | 23,678  |             
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Total cash and cash equivalents                                                                                                                                                                                           |              |                                      | 50,653  |         |               |         | 58,106       |        
|Securities available-for-sale, at fair value                               |                                                                                                                                                                                                                           |              | 257,069                              |         |         |               | 173,087 |             
|Other investments                                                          |                                                                                                                                                                                                                           |              | 4,356                                |         |         |               | 3,143   |             
|Loans,
net of allowance for loan losses of $9,709 and $8,903, respectively |                                                                                                                                                                                                                           |              | 508,054                              |         |         |               | 484,242 |             
|Premises and equipment, net                                                |                                                                                                                                                                                                                           |              | 5,431                                |         |         |               | 5,623   |             
|Accrued interest receivable                                                |                                                                                                                                                                                                                           |              | 3,394                                |         |         |               | 3,602   |             
|Customers liability on acceptances                                        |                                                                                                                                                                                                                           |              | 3,809                                |         |         |               | 4,605   |             
|Foreclosed assets, net                                                     |                                                                                                                                                                                                                           |              | 596                                  |         |         |               | 1,025   |             
|Other assets                                                               |                                                                                                                                                                                                                           |              | 7,557                                |         |         |               | 8,741   |             
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           |                                                                                                                                                                                                                           | Total assets |                                      | $       | 840,919 |               |         | $            | 742,174 | 
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           |                                                                                                                                                                                                                           |              | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |               |         |              |         |  | 
|Deposits:                                                                  |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Noninterest-bearing                                                                                                                                                                                                       |              | $                                    | 140,905 |         |               | $       | 127,299      |        
|                                                                           | Interest-bearing                                                                                                                                                                                                          |              |                                      | 546,861 |         |               |         | 515,452      |        
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Total deposits                                                                                                                                                                                                            |              |                                      |         | 687,766 |               |         |              | 642,751 | 
|Other borrowings                                                           |                                                                                                                                                                                                                           |              | 68,581                               |         |         |               | 25,195  |             
|Accrued interest payable                                                   |                                                                                                                                                                                                                           |              | 719                                  |         |         |               | 863     |             
|Acceptances outstanding                                                    |                                                                                                                                                                                                                           |              | 3,809                                |         |         |               | 4,605   |             
|Other liabilities                                                          |                                                                                                                                                                                                                           |              |                                      |         | 6,845   |               |         |              | 3,531   | 
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Total liabilities                                                                                                                                                                                                         |              |                                      |         | 767,720 |               |         |              | 676,945 | 
|Shareholders 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;
7,195,927 shares and 7,187,423 shares issued and 7,023,417
shares and 7,017,823 shares outstanding at September 30, 2002
and December 31, 2001, respectively |              |                                      | 7,196   |         |               |         | 7,187        |        
|Additional paid-in-capital                                                 |                                                                                                                                                                                                                           |              | 26,311                               |         |         |               | 26,144  |             
|Retained earnings                                                          |                                                                                                                                                                                                                           |              | 38,381                               |         |         |               | 32,834  |             
|Accumulated other comprehensive income                                     |                                                                                                                                                                                                                           |              | 2,745                                |         |         |               | 376     |             
|Treasury stock, at cost                                                    |                                                                                                                                                                                                                           |              | (1,434                               | )       |         |               | (1,312  | )           
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Total shareholders equity                                                                                                                                                                                                |              |                                      | 73,199  |         |               |         | 65,229       |        
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             
|                                                                           | Total liabilities and shareholders equity                                                                                                                                                                                |              | $                                    | 840,919 |         |               | $       | 742,174      |        
|                                                                           |                                                                                                                                                                                                                           |              |                                      |         |         |               |         |             

See accompanying notes to condensed consolidated financial statements

1



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

|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |        |       |        | 
|--------------------------------------------------- | ---------------------------------------- | ---------- | ------------------------- | ----- | -------------------- | ------ | ------------------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                                    |                                          |            |                           |       | For the Three Months |        | For the Nine Months
|                                                    |                                          |            |                           |       | Ended September 30,  |        | Ended September 30,
|                                                    |                                          |            |                           |       |                      |        |                    
|                                                    |                                          |            |                           |       | 2002                 |        | 2001                |        | 2002  |        | 2001  
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |       
|Interest income:                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Loans                                    |            | $                         | 9,375 |                      |        | $                   | 10,573 |       |        | $      | 28,228 |       |        | $      | 33,799 |      
|                                                    | Securities:                              |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |        |      
|                                                    |                                          | Taxable    |                           |       | 2,511                |        |                     |        | 2,008 |        |        |        | 6,869 |        |        |        | 6,236 |       
|                                                    |                                          | Tax-exempt |                           |       | 273                  |        |                     |        | 305   |        |        |        | 887   |        |        |        | 865   |       
|                                                    | Federal funds sold and other investments |            |                           | 139   |                      |        |                     | 539    |       |        |        | 355    |       |        |        | 1,784  |      
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    |                                          |            | Total interest income     |       |                      | 12,298 |                     |        |       | 13,425 |        |        |       | 36,339 |        |        |       | 42,684 | 
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Interest expense:                                   |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Time deposits                            |            |                           | 2,523 |                      |        |                     | 4,408  |       |        |        | 8,064  |       |        |        | 15,219 |      
|                                                    | Demand and savings deposits              |            |                           | 565   |                      |        |                     | 822    |       |        |        | 1,746  |       |        |        | 2,951  |      
|                                                    | Other borrowings                         |            |                           | 522   |                      |        |                     | 319    |       |        |        | 1,287  |       |        |        | 946    |      
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    |                                          |            | Total interest expense    |       |                      | 3,610  |                     |        |       | 5,549  |        |        |       | 11,097 |        |        |       | 19,116 | 
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Net interest income                                 |                                          |            | 8,688                     |       |                      |        | 7,876               |        |       |        | 25,242 |        |       |        | 23,568 |       
|Provision for loan losses                           |                                          |            | 750                       |       |                      |        | 407                 |        |       |        | 2,320  |        |       |        | 1,190  |       
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Net interest income after provision for loan losses |                                          |            | 7,938                     |       |                      |        | 7,469               |        |       |        | 22,922 |        |       |        | 22,378 |       
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Noninterest income:                                 |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Service fees                             |            |                           | 1,685 |                      |        |                     | 1,595  |       |        |        | 5,082  |       |        |        | 4,737  |      
|                                                    | Other loan-related fees                  |            |                           | 257   |                      |        |                     | 236    |       |        |        | 775    |       |        |        | 735    |      
|                                                    | Letters of credit commissions and fees   |            |                           | 176   |                      |        |                     | 149    |       |        |        | 455    |       |        |        | 498    |      
|                                                    | Gain on sale of securities, net          |            |                           |      |                      |        |                     | 13     |       |        |        | 34     |       |        |        | 189    |      
|                                                    | Gain on sale of loans                    |            |                           | 126   |                      |        |                     |       |       |        |        | 209    |       |        |        |       |      
|                                                    | Other noninterest income                 |            |                           | 196   |                      |        |                     | 119    |       |        |        | 658    |       |        |        | 395    |      
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    |                                          |            | Total noninterest income  |       |                      | 2,440  |                     |        |       | 2,112  |        |        |       | 7,213  |        |        |       | 6,554  | 
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Noninterest expense:                                |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Salaries and employee benefits           |            |                           | 3,934 |                      |        |                     | 3,240  |       |        |        | 11,361 |       |        |        | 10,063 |      
|                                                    | Occupancy and equipment                  |            |                           | 1,320 |                      |        |                     | 1,265  |       |        |        | 3,796  |       |        |        | 3,952  |      
|                                                    | Foreclosed assets, net                   |            |                           | 65    |                      |        |                     | 88     |       |        |        | 483    |       |        |        | 85     |      
|                                                    | Data processing                          |            |                           | 20    |                      |        |                     | 15     |       |        |        | 69     |       |        |        | 53     |      
|                                                    | Other noninterest expense                |            |                           | 1,180 |                      |        |                     | 1,562  |       |        |        | 4,325  |       |        |        | 5,076  |      
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    |                                          |            | Total noninterest expense |       |                      | 6,519  |                     |        |       | 6,170  |        |        |       | 20,034 |        |        |       | 19,229 | 
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Income before provision for income taxes            |                                          |            | 3,859                     |       |                      |        | 3,411               |        |       |        | 10,101 |        |       |        | 9,703  |       
|Provision for income taxes                          |                                          |            | 1,329                     |       |                      |        | 1,103               |        |       |        | 3,290  |        |       |        | 3,191  |       
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Net income                                          |                                          | $          | 2,530                     |       |                      | $      | 2,308               |        |       | $      | 6,811  |        |       | $      | 6,512  |       
|                                                    |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|Earnings per common share:                          |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Basic                                    |            | $                         | 0.36  |                      |        | $                   | 0.33   |       |        | $      | 0.97   |       |        | $      | 0.93   |      
|                                                    | Diluted                                  |            | $                         | 0.35  |                      |        | $                   | 0.33   |       |        | $      | 0.95   |       |        | $      | 0.93   |      
|Weighted average shares outstanding:                |                                          |            |                           |       |                      |        |                     |        |       |        |        |        |       |        |        |       
|                                                    | Basic                                    |            |                           | 7,026 |                      |        |                     | 7,003  |       |        |        | 7,022  |       |        |        | 6,992  |      
|                                                    | Diluted                                  |            |                           | 7,147 |                      |        |                     | 7,081  |       |        |        | 7,142  |       |        |        | 7,037  |      
|Dividends 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 STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |       |       | 
|--------------------------------------- | ----------------------------------------------- | ------------------------------------------------------------------ | ----- | -------------------- | --- | ------------------- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                        |                                                 |                                                                    |       | For the Three Months |     | For the Nine Months
|                                        |                                                 |                                                                    |       | Ended September 30,  |     | Ended September 30,
|                                        |                                                 |                                                                    |       |                      |     |                    
|                                        |                                                 |                                                                    |       | 2002                 |     | 2001                |       | 2002  |       | 2001
|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |     
|Net income                              |                                                 | $                                                                  | 2,530 |                      |     | $                   | 2,308 |       |       | $    | 6,811 |       |       | $ | 6,512 |      
|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |      
|Other comprehensive income, net of tax: |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |      
|                                        | Unrealized gains on investment securities, net: |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |       |      
|                                        |                                                 | Unrealized
holding gains arising during the period                 |       |                      | 532 |                     |       |       | 1,509 |      |       |       | 2,391 |   |       |       | 2,110 | 
|                                        |                                                 | Less:
reclassification adjustment for gains included in net income |       |                      |    |                     |       |       | 8     |      |       |       | 22    |   |       |       | 123   | 
|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |      
|                                        | Other
comprehensive income                      |                                                                    |       | 532                  |     |                     |       | 1,501 |       |      |       | 2,369 |       |   |       | 1,987 |      
|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |      
|Total comprehensive income              |                                                 | $                                                                  | 3,062 |                      |     | $                   | 3,809 |       |       | $    | 9,180 |       |       | $ | 8,499 |      
|                                        |                                                 |                                                                    |       |                      |     |                     |       |       |       |      |       |       |       |   |       |      

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For The Nine Months Ended September 30, 2002
(In thousands)
(Unaudited)

|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  |             |       |  |  |   |        |   |  |   |        |  
|----------------------------- |  | ------------ | ----- | ---------- |  | -------- | ----- | ------------- |  | ------ | ------ | -------- |  | ----- | ------ | - |  | ----------- | ----- |  |  | - | ------ | - |  | - | ------ | -
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  | Accumulated |       |  |  |   |        |   |  |  
|                              |  | Common Stock |       | Additional |  |          |       |               |  | Other  |        | Treasury |  |       |        |  
|                              |  |              |       | Paid-in    |  | Retained |       | Comprehensive |  | Stock  |        |          |  |      
|                              |  | Shares       |       | At Par     |  | Capital  |       | Earnings      |  | Income |        | At Cost  |  | Total
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |      
|Balance at January 1, 2002    |  |              | 7,017 |            |  | $        | 7,187 |               |  | $      | 26,144 |          |  | $     | 32,834 |   |  | $           | 376   |  |  | $ | (1,312 | ) |  | $ | 65,229 |  
|Issuance of common stock      |  |              | 9     |            |  |          | 9     |               |  |        | 67     |          |  |       |       |   |  |             |      |  |  |   |       |   |  |   | 76     |  
|Repurchase of common stock    |  |              | (30   | )          |  |          |      |               |  |        |       |          |  |       |       |   |  |             |      |  |  |   | (339   | ) |  |   | (339   | )
|Re-issuance of treasury stock |  |              | 27    |            |  |          |      |               |  |        | 100    |          |  |       |       |   |  |             |      |  |  |   | 217    |   |  |   | 317    |  
|Other comprehensive income    |  |              |      |            |  |          |      |               |  |        |       |          |  |       |       |   |  |             | 2,369 |  |  |   |       |   |  |   | 2,369  |  
|Net income                    |  |              |      |            |  |          |      |               |  |        |       |          |  |       | 6,811  |   |  |             |      |  |  |   |       |   |  |   | 6,811  |  
|Dividends                     |  |              |      |            |  |          |      |               |  |        |       |          |  |       | (1,264 | ) |  |             |      |  |  |   |       |   |  |   | (1,264 | )
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  |             |       |  |  |   |        |   |  |   |        |  
|Balance at September 30, 2002 |  |              | 7,023 |            |  | $        | 7,196 |               |  | $      | 26,311 |          |  | $     | 38,381 |   |  | $           | 2,745 |  |  | $ | (1,434 | ) |  | $ | 73,199 |  
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  |             |       |  |  |   |        |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements

3



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

|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |         |       |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------- | --------------------------------------------------- | ------ | ------------------- | -------- | ------- | ----- | ------- | ------- | -
|                                                 |                                                                                             |                                                  |                             |                                                     |        | For The Nine Months
|                                                 |                                                                                             |                                                  |                             |                                                     |        | Ended September 30,
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                    
|                                                 |                                                                                             |                                                  |                             |                                                     |        | 2002                |          | 2001   
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|Cash flows from operating activities:            |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 | Net income                                                                                  |                                                  | $                           | 6,811                                               |        |                     | $        | 6,512   |      
|                                                 | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                  |                             |                                                     |        |                     |          |         |      
|                                                 |                                                                                             | Depreciation                                     |                             |                                                     | 1,068  |                     |          |         | 1,265 |        
|                                                 |                                                                                             | Provision for loan losses                        |                             |                                                     | 2,320  |                     |          |         | 1,190 |        
|                                                 |                                                                                             | Gain on securities sales                         |                             |                                                     | (34    | )                   |          |         | (189  | )      
|                                                 |                                                                                             | Loss on sale of foreclosed assets                |                             |                                                     | 444    |                     |          |         | 34    |        
|                                                 |                                                                                             | Gain on sale of premises and equipment           |                             |                                                     | (5     | )                   |          |         |      |        
|                                                 |                                                                                             | Amortization
of deferred loan fees and discounts |                             |                                                     | 328    |                     |          |         | 382   |        
|                                                 |                                                                                             | Changes in:                                      |                             |                                                     |        |                     |          |         |       |        
|                                                 |                                                                                             |                                                  | Accrued interest receivable |                                                     |        | 208                 |          |         |       | 811     |        
|                                                 |                                                                                             |                                                  | Accrued interest payable    |                                                     |        | (144                | )        |         |       | (840    | )      
|                                                 |                                                                                             |                                                  | Income taxes payable        |                                                     |        | 78                  |          |         |       | 717     |        
|                                                 |                                                                                             |                                                  | Other liabilities           |                                                     |        | 3,235               |          |         |       | (14,813 | )      
|                                                 |                                                                                             |                                                  | Other assets                |                                                     |        | 8                   |          |         |       | (195    | )      
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 |                                                                                             |                                                  |                             | Net cash provided by (used in) operating activities |        |                     | 14,317   |         |       |         | (5,126  | )
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|Cash flows from investing activities:            |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 | Purchases of securities available-for-sale                                                  |                                                  |                             | (139,620                                            | )      |                     |          | (71,499 | )    
|                                                 | Proceeds from sales, maturities and principal paydowns of securities available for sale     |                                                  |                             | 58,004                                              |        |                     |          | 53,800  |      
|                                                 | Net change in loans                                                                         |                                                  |                             | (27,130                                             | )      |                     |          | 4,326   |      
|                                                 | Proceeds from sale of foreclosed assets                                                     |                                                  |                             | 655                                                 |        |                     |          | 587     |      
|                                                 | Proceeds from sale of premises and equipment                                                |                                                  |                             | 5                                                   |        |                     |          |        |      
|                                                 | Purchases of premises and equipment                                                         |                                                  |                             | (876                                                | )      |                     |          | (439    | )    
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 |                                                                                             |                                                  |                             | Net cash used in investing activities               |        |                     | (108,962 | )       |       |         | (13,225 | )
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|Cash flows from financing activities:            |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 | Net change in:                                                                              |                                                  |                             |                                                     |        |                     |          |         |      
|                                                 |                                                                                             | Deposits                                         |                             |                                                     | 45,015 |                     |          |         | 594   |        
|                                                 |                                                                                             | Other borrowings                                 |                             |                                                     | 43,386 |                     |          |         | 538   |        
|                                                 | Proceeds from issuance of common stock                                                      |                                                  |                             | 76                                                  |        |                     |          | 59      |      
|                                                 | Treasury stock (purchased) sold, net                                                        |                                                  |                             | (22                                                 | )      |                     |          | 211     |      
|                                                 | Dividends paid                                                                              |                                                  |                             | (1,263                                              | )      |                     |          | (1,258  | )    
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|                                                 |                                                                                             |                                                  |                             | Net cash provided by financing activities           |        |                     | 87,192   |         |       |         | 144     |  
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|Net decrease in cash and cash equivalents        |                                                                                             |                                                  | (7,453                      | )                                                   |        |                     | (18,207  | )      
|Cash and cash equivalents at beginning of period |                                                                                             |                                                  | 58,106                      |                                                     |        |                     | 92,226   |        
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        
|Cash and cash equivalents at end of period       |                                                                                             | $                                                | 50,653                      |                                                     |        | $                   | 74,019   |        
|                                                 |                                                                                             |                                                  |                             |                                                     |        |                     |          |        

See accompanying notes to condensed consolidated financial statements

4



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##### 



METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

The unaudited condensed consolidated financial statements include the
accounts of MetroCorp Bancshares, Inc. (the Company) and its wholly-owned
subsidiary MetroBank, National Association (the Bank). The Company considers itself one reporting segment under Statement of Financial Accounting Standards (SFAS) 131. All material intercompany accounts and transactions have been eliminated
in consolidation.

The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions for Form 10-Q. In the opinion of management, the unaudited
condensed consolidated financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair statement of the
Companys consolidated financial position at September 30, 2002, consolidated
results of operations for the three and nine months ended September 30, 2002
and 2001, consolidated cash flows for the nine months ended September 30, 2002
and 2001, consolidated comprehensive income for the three and nine months ended
September 30, 2002 and 2001, and consolidated changes in shareholders equity
for the nine months ended September 30, 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 followed. 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, 2001.



|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 Months
|                                            |                                          |   | Ended September 30,                      |       | Ended September 30,
|                                            |                                          |   |                                          |       |                    
|                                            |                                          |   | 2002                                     |       | 2001                |   | 2002  |       | 2001
|                                            |                                          |   |                                          |       |                     |   |       |       |     
|                                            |                                          |   | (In thousands, except per share amounts)
|Net income available to common shareholders |                                          | $ | 2,530                                    |       |                     | $ | 2,308 |       |      | $ | 6,811 |       |  | $ | 6,512 |      
|                                            |                                          |   |                                          |       |                     |   |       |       |      |   |       |       |  |   |       |      
|Weighted-average common shares outstanding: |                                          |   |                                          |       |                     |   |       |       |      |   |       |       |  |   |       |      
|                                            | Basic                                    |   |                                          | 7,026 |                     |   |       | 7,003 |      |   |       | 7,022 |  |   |       | 6,992 | 
|                                            | Shares issuable under stock option plans |   |                                          | 121   |                     |   |       | 78    |      |   |       | 120   |  |   |       | 45    | 
|                                            |                                          |   |                                          |       |                     |   |       |       |      |   |       |       |  |   |       |      
|                                            | Diluted                                  |   |                                          | 7,147 |                     |   |       | 7,081 |      |   |       | 7,142 |  |   |       | 7,037 | 
|                                            |                                          |   |                                          |       |                     |   |       |       |      |   |       |       |  |   |       |      
|Earnings per common share:                  |                                          |   |                                          |       |                     |   |       |       |      |   |       |       |  |   |       |      
|                                            | Basic                                    |   | $                                        | 0.36  |                     |   | $     | 0.33  |      |   | $     | 0.97  |  |   | $     | 0.93  | 
|                                            | Diluted                                  |   | $                                        | 0.35  |                     |   | $     | 0.33  |      |   | $     | 0.95  |  |   | $     | 0.93  | 



|3. |  | OTHER BORROWINGS
|-- |  | ----------------

The Company's borrowings increased from $25.2 million at December 31, 2001 to $68.6
 million at September 30, 2002. The increase was primarily the result of $25.2 million in short-term borrowings from the FHLB with fixed rates averaging 1.80% maturing within 90 days. In addition, the Company borrowed $9.8 million of FHLB notes maturing in 2003 and $8.0 million of FHLB notes maturing in 2004 with fixed rates averaging
2.60% and 2.44%, respectively.

5



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##### 





|4. |  | SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
|-- |  | -------------------------------------

In July 2001, the
Financial Accounting Standards Board (FASB) issued SFAS 142, Goodwill and Other Intangible Assets.
The statement requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The amortization of goodwill ceases upon
adoption of the statement. The adoption of this statement on January 1, 2002
did not have any impact on the Companys financial position or results of
operations as the Company does not have any recorded goodwill.

In July 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. The statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after September 15, 2002, with earlier
application encouraged. Management believes adopting this statement will not
have a material impact on the Companys financial position or results of
operations.

In August 2001, the FASB issued SFAS 144, Accounting for Impairment or
Disposal of Long-lived Assets.SFAS 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of. It supersedes, with exceptions, SFAS 121, Accounting for the
Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of,and is
effective for fiscal years beginning after December 15, 2001. The adoption of
this statement on January 1, 2002 did not have any impact on the Companys
financial position or results of operations.

In October 2002, the
FASB issued SFAS 147, Acquisitions of Certain
Financial Institutions.SFAS 147 amends previously issued guidance regarding
the accounting and reporting for the acquisition of all or part of a financial
institution. The statement also provides guidance on the accounting for the
impairment or disposal of core deposits and is effective for acquisitions after
October 1, 2002.




|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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 and documents
incorporated herein by reference that 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;

6



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##### 





| |  | Increased competition for deposits and loans adversely affecting rates and terms;                                                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The Companys ability to identify suitable acquisition candidates;                                                                                                                                                          
| 
| |  | The timing, impact and other uncertainties of the Companys ability
to enter new markets successfully and capitalize on growth
opportunities;                                                                               
| 
| |  | Increased credit risk in the Companys assets and increased
operating risk caused by a material change in commercial, consumer
and/or real estate loans as a percentage of the total loan portfolio;                        
| 
| |  | The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses;                                                                                                            
| 
| |  | Changes in the availability of funds resulting in increased costs
or reduced liquidity;                                                                                                                                     
| 
| |  | Increased asset levels and changes in the composition of assets and
the resulting impact on 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

Net income for the three months ended September 30, 2002 was $2.5 million,
up approximately $200,000 or 9.6% from the same quarter in 2001. The Companys
basic and diluted earnings per share (EPS) for the three months ended
September 30, 2002 was $0.36 and $0.35, respectively, compared
to $0.33 for both basic and diluted EPS for the
same quarter in 2001.

Net income for the nine months ended September 30, 2002 was $6.8 million,
up approximately $300,000 or 4.6% from the same period in 2001. The Companys
basic and diluted EPS for the nine months ended September 30, 2002 was $0.97
and $0.95, respectively, compared to $0.93 for both basic and diluted EPS for
the same period in 2001.

At September 30, 2002, total assets were $840.9 million, up $98.7 million
or 13.3% from $742.2 million at December 31, 2001. This was primarily due to
increased deposits and other borrowings as part of the Companys strategy to
maintain earning asset growth during the period. Investment securities at
September 30, 2002 were $257.1 million, up $84.0 million or 48.5% from $173.1
million at December 31, 2001. Net loans at September 30, 2002 were $508.1
million, up $23.9 million or 4.9% from $484.2 at December 31, 2001. Total
deposits at September 30, 2002 were $687.8 million, up $45.0 million or 7.0%
from $642.8 million at December 31, 2001. Other borrowings at September 30,
2002 were $68.6 million, up $43.4 million from $25.2 million at December 31,
2001. The Companys return on average assets (ROAA) for the three months
ended September 30, 2002 and 2001 was 1.24% and 1.25%, respectively. The
Companys ROAA for the nine months ended September 30, 2002
and 2001 was 1.18% and 1.20%, respectively.

Shareholders equity at September 30, 2002 was $73.2 million compared with
$65.2 million at December 31, 2001, an increase of $8.0 million or 12.2%, and
was primarily the result of year to date 2002 net income and an increase in
accumulated other comprehensive income (unrealized gains in the market value of
securities) that was

7



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##### 



partially offset by dividend payments and common stock
repurchases. The Companys return on average shareholders equity (ROAE) for
the three months ended September 30, 2002 and 2001 was 13.86% and 14.23%,
respectively. The Companys ROAE for the nine months ended
September 30, 2002 and 2001 was 13.13% and 13.97%, respectively.

Results of Operations

Net Interest Income and the Net Interest Margin.For the three months
ended September 30, 2002, net interest income, before the provision for loan
losses, was $8.7 million, up approximately $800,000 or 10.3% from $7.9 million
for the same quarter in 2001. The $800,000 increase in net interest income for
the quarter ended September 30, 2002 was primarily the combined result of $1.9
million in lower interest expense that was partially offset by $1.1 million in
lower interest income due to lower interest rates in 2002. The net interest
margin for the quarter ended September 30, 2002 was 4.46%, down 10 basis points
from 4.56% for the same quarter in 2001. The lower net interest margin for the
quarter ended September 30, 2002, compared to the same quarter in 2001, was
primarily the result of lower yields on average earning assets that were
partially offset by lower costs on average interest-bearing liabilities.

For the nine months ended September 30, 2002, net interest income, before
the provision for loan losses, was $25.2 million, up approximately $1.6 million
or 7.1% from $23.6 million for the same period in 2001. The $1.6 million
increase in net interest income for the nine months ended September 30, 2002
was primarily the combined result of $8.0 million in lower interest expense,
partially offset by a decrease of $6.4 million in interest income due to lower
interest rates in 2002. The net interest margin for the nine months ended
September 30, 2002 was 4.61%, down 4 basis points from 4.65% for the same
period in 2001. The slightly lower net interest margin for the nine months
ended September 30, 2002, compared to the same period in 2001, was primarily
the result of lower average earning asset yields, although on higher average
earning asset volumes, that was partially offset by lower costs on average
interest-bearing liabilities.

Total Interest Income.Total interest income for the three months ended
September 30, 2002 was $12.3 million, down approximately $1.1 million or 8.4%
from $13.4 million for the same quarter in 2001. The decrease was primarily
due to lower interest rate yield in 2002 compared to 2001 that was partially
softened by higher earning asset volume, both in loans and investment
securities. The loan portfolio is heavily weighted toward variable rate loans
that reprice as the market prime rate moves, and therefore, is sensitive to
interest rate movement. At September 30, 2002, $437.8 million or 83.2% of the
total loan portfolio was comprised of variable rate loans. In addition, higher
deposit volumes and Federal Home Loan Bank borrowings have provided added
investment opportunities to increase interest income.

Total interest income for the nine months ended September 30, 2002 was
$36.3 million, down approximately $6.4 million or 14.9% from $42.7 million for
the same period in 2001. The decrease was primarily due to lower overall
interest rate yield on the loan portfolio in 2002, compared to 2001, that was
partially softened by higher interest income on the investment portfolio as a
result of higher investment securities volume.

Interest Income from Loans.Interest income from loans for the three
months ended September 30, 2002 was $9.4 million, down $1.2 million or 11.3%
from $10.6 million for the same period in 2001. For the three months ended
September 30, 2002, the average yield on loans was 7.30%, compared to 8.89% for
the same period in 2001. The average yield on loans for the three months ended
September 30, 2002 of 7.30%, which was 255 basis points above the prime rate,
was supported by loans with interest rate floors that represented approximately
$317.7 million or 59.8% of the total loan portfolio and carried a weighted
average yield of 6.89% at September 30, 2002.

Interest income from loans for the nine months ended September 30, 2002
was $28.2 million, down approximately $5.6 million or 16.5% from $33.8 million
for the same period in 2001. For the nine months ended September 30, 2002, the
average yield on loans was 7.56%, compared to 9.57% for the same period in
2001. The lower interest income from loans in 2002, compared to 2001, was
primarily the result of significantly lower market interest rates in 2002.
Additional factors included an increase in nonaccrual loans (primarily in the
first and third quarters of 2002), refinancing of existing loans, and lower
interest rates on new loan production.

Interest Income from Investments.Interest income from investments for
the three months ended September 30, 2002 was $2.9 million, up approximately
$70,000 or 2.5% compared to $2.8 million for the same period in 2001, primarily
due to the combined effect of higher investment securities volume and lower
interest rate yield. For the three months ended September 30, 2002, the
average yield on investments (securities, Federal Funds

8



---



##### 



sold and other
temporary investments) was 4.41% compared to 5.32% for the same period in 2001,
a decline of 91 basis points.

Interest income from investments for the nine months ended September 30,
2002 was $8.1 million, down approximately $800,000 or 9.0% compared to $8.9
million for the same period in 2001, primarily due to lower interest rate yield
in 2002 partially softened by higher investment securities volume. For the
nine months ended September 30, 2002, the average yield on investments was
4.65% compared to 5.80% for the same period in 2001, a decline of 115 basis
points.

Earning Assets.For the three months ended September 30, 2002, total
earning assets averaged $772.6 million with an average yield of 6.31%, compared
to $684.8 million with an average yield of 7.78% for the same period in 2001.
This represented an increase in average earning assets of $87.8 million for the
three months ended September 30, 2002 compared with the same period in 2001,
and a decrease in average yield of 147 basis points.

For the nine months ended September 30, 2002, total earning assets
averaged $732.2 million with an average yield of 6.64%, compared to $677.1
million with an average yield of 8.43% for the same period in 2001. This
represented an increase in average earning assets of $55.1 million for the nine
months ended September 30, 2002 compared with the same period in 2001, and a
decrease in average yield of 179 basis points.

Total Interest Expense.Total interest expense for the three months ended
September 30, 2002 was $3.6 million, down approximately $1.9 million or 34.9%
compared to $5.5 million for the same period in 2001. The decrease in total
interest expense for the three months ended September 30, 2002 compared to the
same period in 2001 was primarily the result of lower market interest rates in
2002 that contributed to lower rates paid for interest-bearing deposits in
addition to lower certificate of deposit volumes.

Total interest expense for the nine months ended September 30, 2002 was
$11.1 million, down approximately $8.0 million or 41.9% compared to $19.1
million for the same period in 2001. The decrease in total interest expense
for the nine months ended September 30, 2002 compared to the same period in
2001 was primarily the result of lower interest rates paid for maturing
certificates of deposit as well as new deposits and lower certificates of
deposit balances with shorter terms and at lower rates. Many of these deposits
renewed at the lower rates with terms of six-months to one-year or converted to
transaction-based non-maturing accounts.

Interest Expense on Deposits.Interest paid on interest-bearing deposits
for the three months ended September 30, 2002 was $3.1 million, down
approximately $2.1 million or 41.0% compared to $5.2 million for the same
period in 2001. This was primarily due to decreases in the rates paid for
interest-bearing deposits reflecting the lower interest rate environment in
2002. Average interest-bearing deposits for the three months ended September
30, 2002 were $527.9 million compared with average interest-bearing deposits
for the same period in 2001 of $514.7 million, an increase of $13.2 million or
2.6%. The average rate paid on interest-bearing deposits for the three months
ended September 30, 2002 was 2.32% compared with the average rate for the same
three months in 2001 at 4.03%, a decrease of 171 basis points.

Interest paid on interest-bearing deposits for the nine months ended
September 30, 2002 was $9.8 million, down approximately $8.4 million or 46.0%
compared to $18.2 million for the same period in 2001. This was primarily due
to decreases in the rates paid for interest-bearing deposits in addition to
decreases in certificate of deposit balances. Average interest-bearing
deposits for the nine months ended September 30, 2002 were $516.5 million
compared with average interest-bearing deposits for the same period in 2001 of
$517.7 million, a decrease of $1.2 million or 0.2%. The average rate paid on
interest-bearing deposits for the nine months ended September 30, 2002 was
2.54% compared with the average rate for the same nine months in 2001 at 4.69%,
a decrease of 215 basis points.

Interest Expense on Borrowed Funds.Interest paid on borrowed funds for
the three months ended September 30, 2002 was $522,000 compared to $319,000 for
the same period in 2001, an increase of $203,000. Average borrowed funds for
the three months ended September 30, 2002 were $65.1 million compared with
average borrowed funds for the same period in 2001 of $25.5 million, an
increase of $39.5 million. The increase in borrowed funds reflected advances
obtained from the Federal Home Loan Bank of Dallas (FHLB) to fund
mortgage-related securities investments to increase earning assets. The
average rate paid on borrowed funds for the three months ended September 30,
2002 was 3.18%, compared to the same three months in 2001 at 4.96%, a decrease
of 178 basis points.

9



---



##### 



Interest paid on borrowed funds for the nine months ended September 30,
2002 was $1.3 million compared to $900,000 for the same period in 2001, an
increase of approximately $400,000 or 36.0%. Average borrowed funds for the
nine months ended September 30, 2002 were $48.0 million compared with average
borrowed funds for the same period in 2001 of $25.6 million, an increase of
$22.4 million or 87.5%. The average rate paid on borrowed funds for the nine
months ended September 30, 2002 was 3.58%, compared to the same nine months in
2001 at 4.94%, a decrease of 136 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,
|                                                                |                                                    |              |                                            |                               |         |                                         
|                                                                |                                                    |              |                                            |                               |         | 2002                                     |         | 2001    
|                                                                |                                                    |              |                                            |                               |         |                                          |         |         
|                                                                |                                                    |              |                                            |                               |         | Average                                  |         | Interest |  | Average |        | Average     |   | Interest |         | Average
|                                                                |                                                    |              |                                            |                               |         | Outstanding                              |         | Earned/  |  | Yield/  |        | Outstanding |   | Earned/  |         | Yield/ 
|                                                                |                                                    |              |                                            |                               |         | Balance                                  |         | Paid     |  | Rate(1) |        | Balance     |   | Paid     |         | Rate(1)
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |        
|                                                                |                                                    |              |                                            |                               |         | (Dollars in thousands)                  
|Assets                                                          |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Interest-earning assets:                                        |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                | Total loans                                        |              | $                                          | 509,837                       |         |                                          | $       | 9,375    |  |         |        | 7.30        | % |          | $       | 472,111 |         |         | $       | 10,573 |  |       |        | 8.89 | %
|                                                                | Taxable securities                                 |              |                                            | 212,923                       |         |                                          |         | 2,511    |  |         |        | 4.68        |   |          |         | 124,812 |         |         |         | 2,008  |  |       |        | 6.38 |  
|                                                                | Tax-exempt securities                              |              |                                            | 22,058                        |         |                                          |         | 273      |  |         |        | 4.91        |   |          |         | 24,542  |         |         |         | 305    |  |       |        | 4.93 |  
|                                                                | Federal funds sold and other temporary investments |              |                                            | 27,812                        |         |                                          |         | 139      |  |         |        | 1.98        |   |          |         | 63,374  |         |         |         | 539    |  |       |        | 3.37 |  
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              |                                            | Total interest-earning assets |         |                                          | 772,630 |          |  |         | 12,298 |             |   |          | 6.31    | %       |         |         | 684,839 |        |  |       | 13,425 |      |   |      | 7.78 | %
|                                                                | Less allowance for loan losses                     |              |                                            | (9,392                        | )       |                                          |         |          |  |         |        |             |   |          |         | (9,332  | )       |         |         |        |  |       |        |      |  
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Total interest-earning assets, net of allowance for
loan losses |                                                    |              | 763,238                                    |                               |         |                                          |         |          |  |         |        |             |   |          | 675,507 |         |         |         |         |        |  |       |        |     
|Noninterest-earning assets                                      |                                                    |              | 47,844                                     |                               |         |                                          |         |          |  |         |        |             |   |          | 54,456  |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                |                                                    | Total assets |                                            | $                             | 811,082 |                                          |         |          |  |         |        |             |   |          |         | $       | 729,963 |         |         |        |  |       |        |      |   |     
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Liabilities and shareholders equity                            |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Interest-bearing liabilities:                                   |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                | Interest-bearing demand deposits                   |              | $                                          | 72,379                        |         |                                          |         | 218      |  |         |        | 1.19        | % |          | $       | 56,059  |         |         |         | 282    |  |       |        | 2.00 | %
|                                                                | Saving and money market accounts                   |              |                                            | 110,135                       |         |                                          |         | 347      |  |         |        | 1.25        |   |          |         | 104,018 |         |         |         | 540    |  |       |        | 2.06 |  
|                                                                | Time deposits                                      |              |                                            | 345,421                       |         |                                          |         | 2,523    |  |         |        | 2.90        |   |          |         | 354,672 |         |         |         | 4,408  |  |       |        | 4.93 |  
|                                                                | Other borrowings                                   |              |                                            | 65,068                        |         |                                          |         | 522      |  |         |        | 3.18        |   |          |         | 25,540  |         |         |         | 319    |  |       |        | 4.96 |  
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              | Total interest-bearing liabilities         |                               |         | 593,003                                  |         |          |  | 3,610   |        |             |   | 2.42     | %       |         |         | 540,289 |         |        |  | 5,549 |        |      |   | 4.07 | %   
|Noninterest-bearing liabilities:                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                | Noninterest-bearing demand deposits                |              |                                            | 134,552                       |         |                                          |         |          |  |         |        |             |   |          |         | 113,251 |         |         |         |        |  |       |        |      |  
|                                                                | Other liabilities                                  |              |                                            | 11,092                        |         |                                          |         |          |  |         |        |             |   |          |         | 12,067  |         |         |         |        |  |       |        |      |  
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              | Total liabilities                          |                               |         | 738,647                                  |         |          |  |         |        |             |   |          |         |         |         | 665,607 |         |        |  |       |        |      |   |      |     
|Shareholders equity                                            |                                                    |              | 72,435                                     |                               |         |                                          |         |          |  |         |        |             |   |          | 64,356  |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|                                                                |                                                    |              | Total liabilities and shareholders equity |                               | $       | 811,082                                  |         |          |  |         |        |             |   |          |         |         | $       | 729,963 |         |        |  |       |        |      |   |      |     
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Net interest income                                             |                                                    |              |                                            |                               |         | $                                        | 8,688   |          |  |         |        |             |   |          |         |         |         | $       | 7,876   |        |  |       |        |     
|                                                                |                                                    |              |                                            |                               |         |                                          |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |       |        |     
|Net interest spread                                             |                                                    |              |                                            |                               |         |                                          |         |          |  |         | 3.89   | %           |   |          |         |         |         |         |         |        |  |       | 3.71   | %   
|Net interest margin                                             |                                                    |              |                                            |                               |         |                                          |         |          |  |         | 4.46   | %           |   |          |         |         |         |         |         |        |  |       | 4.56   | %   



---

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

10



---



##### 



|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |      |   |      |      |  
|--------------------------------------------------------------- | -------------------------------------------------- | ------------ | ------------------------------------------ | ----------------------------- | ------- | --------------------------------------- | ------- | -------- |  | ------- | ------ | ----------- | - | -------- | ------- | ------- | ------- | ------- | ------- | ------ |  | ------ | ------ | ---- | - | ---- | ---- | -
|                                                                |                                                    |              |                                            |                               |         | For The Nine Months Ended September 30,
|                                                                |                                                    |              |                                            |                               |         |                                        
|                                                                |                                                    |              |                                            |                               |         | 2002                                    |         | 2001    
|                                                                |                                                    |              |                                            |                               |         |                                         |         |         
|                                                                |                                                    |              |                                            |                               |         | Average                                 |         | Interest |  | Average |        | Average     |   | Interest |         | Average
|                                                                |                                                    |              |                                            |                               |         | Outstanding                             |         | Earned/  |  | Yield/  |        | Outstanding |   | Earned/  |         | Yield/ 
|                                                                |                                                    |              |                                            |                               |         | Balance                                 |         | Paid     |  | Rate(1) |        | Balance     |   | Paid     |         | Rate(1)
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |        
|                                                                |                                                    |              |                                            |                               |         | (Dollars in thousands)                 
|Assets                                                          |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Interest-earning assets:                                        |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                | Total loans                                        |              | $                                          | 498,943                       |         |                                         | $       | 28,228   |  |         |        | 7.56        | % |          | $       | 472,355 |         |         | $       | 33,799 |  |        |        | 9.57 | %
|                                                                | Taxable securities                                 |              |                                            | 185,580                       |         |                                         |         | 6,869    |  |         |        | 4.95        |   |          |         | 125,721 |         |         |         | 6,236  |  |        |        | 6.63 |  
|                                                                | Tax-exempt securities                              |              |                                            | 23,801                        |         |                                         |         | 887      |  |         |        | 4.98        |   |          |         | 22,958  |         |         |         | 865    |  |        |        | 5.04 |  
|                                                                | Federal funds sold and other temporary investments |              |                                            | 23,875                        |         |                                         |         | 355      |  |         |        | 1.99        |   |          |         | 56,109  |         |         |         | 1,784  |  |        |        | 4.25 |  
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              |                                            | Total interest-earning assets |         |                                         | 732,199 |          |  |         | 36,339 |             |   |          | 6.64    | %       |         |         | 677,143 |        |  |        | 42,684 |      |   |      | 8.43 | %
|                                                                | Less allowance for loan losses                     |              |                                            | (9,067                        | )       |                                         |         |          |  |         |        |             |   |          |         | (9,297  | )       |         |         |        |  |        |        |      |  
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Total interest-earning assets, net of allowance for
loan losses |                                                    |              | 723,132                                    |                               |         |                                         |         |          |  |         |        |             |   |          | 667,846 |         |         |         |         |        |  |        |        |     
|Noninterest-earning assets                                      |                                                    |              | 50,797                                     |                               |         |                                         |         |          |  |         |        |             |   |          | 55,859  |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                |                                                    | Total assets |                                            | $                             | 773,929 |                                         |         |          |  |         |        |             |   |          |         | $       | 723,705 |         |         |        |  |        |        |      |   |     
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Liabilities and shareholders equity                            |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Interest-bearing liabilities:                                   |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                | Interest-bearing demand deposits                   |              | $                                          | 69,843                        |         |                                         |         | 661      |  |         |        | 1.27        | % |          | $       | 52,575  |         |         |         | 974    |  |        |        | 2.48 | %
|                                                                | Saving and money market accounts                   |              |                                            | 111,024                       |         |                                         |         | 1,085    |  |         |        | 1.31        |   |          |         | 100,479 |         |         |         | 1,977  |  |        |        | 2.63 |  
|                                                                | Time deposits                                      |              |                                            | 335,672                       |         |                                         |         | 8,064    |  |         |        | 3.21        |   |          |         | 364,654 |         |         |         | 15,219 |  |        |        | 5.58 |  
|                                                                | Other borrowings                                   |              |                                            | 48,050                        |         |                                         |         | 1,287    |  |         |        | 3.58        |   |          |         | 25,611  |         |         |         | 946    |  |        |        | 4.94 |  
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              | Total interest-bearing liabilities         |                               |         | 564,589                                 |         |          |  | 11,097  |        |             |   | 2.63     | %       |         |         | 543,319 |         |        |  | 19,116 |        |      |   | 4.70 | %   
|Noninterest-bearing liabilities:                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                | Noninterest-bearing demand deposits                |              |                                            | 130,342                       |         |                                         |         |          |  |         |        |             |   |          |         | 106,523 |         |         |         |        |  |        |        |      |  
|                                                                | Other liabilities                                  |              |                                            | 9,618                         |         |                                         |         |          |  |         |        |             |   |          |         | 11,543  |         |         |         |        |  |        |        |      |  
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              | Total liabilities                          |                               |         | 704,549                                 |         |          |  |         |        |             |   |          |         |         |         | 661,385 |         |        |  |        |        |      |   |      |     
|Shareholders equity                                            |                                                    |              | 69,380                                     |                               |         |                                         |         |          |  |         |        |             |   |          | 62,320  |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|                                                                |                                                    |              | Total liabilities and shareholders equity |                               | $       | 773,929                                 |         |          |  |         |        |             |   |          |         |         | $       | 723,705 |         |        |  |        |        |      |   |      |     
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Net interest income                                             |                                                    |              |                                            |                               |         | $                                       | 25,242  |          |  |         |        |             |   |          |         |         |         | $       | 23,568  |        |  |        |        |     
|                                                                |                                                    |              |                                            |                               |         |                                         |         |          |  |         |        |             |   |          |         |         |         |         |         |        |  |        |        |     
|Net interest spread                                             |                                                    |              |                                            |                               |         |                                         |         |          |  |         | 4.01   | %           |   |          |         |         |         |         |         |        |  |        | 3.73   | %   
|Net interest margin                                             |                                                    |              |                                            |                               |         |                                         |         |          |  |         | 4.61   | %           |   |          |         |         |         |         |         |        |  |        | 4.65   | %   



---

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

11



---



##### 



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, 2002 compared with the three and nine months ended
September 30, 2001. For purposes of this table, changes attributable to both
rate and volume have been allocated to rate.

|                              |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |     |        |        |  
|----------------------------- | ------------------------------------------ | -------------------------------------------------- | --------------------------------------------- | ----- | -------------------------------- | ----- | ---- | ---- | ------ | ------ | - | --- | ------ | ------ | -
|                              |                                            |                                                    |                                               |       | Three Months Ended September 30,
|                              |                                            |                                                    |                                               |       | 2002 vs. 2001                   
|                              |                                            |                                                    |                                               |       |                                 
|                              |                                            |                                                    |                                               |       | Increase (Decrease)              |       |      |      |       
|                              |                                            |                                                    |                                               |       | Due To                           |       |      |      |       
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |       
|                              |                                            |                                                    |                                               |       | Volume                           |       | Rate |      | Total 
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |       
|                              |                                            |                                                    |                                               |       | (Dollars in thousands)          
|INTEREST-EARNING ASSETS:      |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    
|                              |                                            | Loans                                              |                                               | $     | 845                              |       |      | $    | (2,043 | )      |   | $   | (1,198 | )     
|                              |                                            | Securities                                         |                                               |       | 1,492                            |       |      |      | (1,021 | )      |   |     | 471    |       
|                              |                                            | Federal funds sold and other temporary investments |                                               |       | (302                             | )     |      |      | (98    | )      |   |     | (400   | )     
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    
|                              |                                            |                                                    | Total increase (decrease) in interest income  |       |                                  | 2,035 |      |      |        | (3,162 | ) |     |        | (1,127 | )
|INTEREST-BEARING LIABILITIES: |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    
|                              |                                            | Interest-bearing demand deposits                   |                                               |       | 82                               |       |      |      | (146   | )      |   |     | (64    | )     
|                              |                                            | Saving and money market accounts                   |                                               |       | 32                               |       |      |      | (225   | )      |   |     | (193   | )     
|                              |                                            | Time deposits                                      |                                               |       | (68                              | )     |      |      | (1,817 | )      |   |     | (1,885 | )     
|                              |                                            | Other borrowings                                   |                                               |       | 494                              |       |      |      | (291   | )      |   |     | 203    |       
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    
|                              |                                            |                                                    | Total increase (decrease) in interest expense |       |                                  | 540   |      |      |        | (2,479 | ) |     |        | (1,939 | )
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    
|                              | Increase (decrease) in net interest income |                                                    | $                                             | 1,495 |                                  |       | $    | (683 | )      |        | $ | 812 |       
|                              |                                            |                                                    |                                               |       |                                  |       |      |      |        |        |   |    

|                              |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |       |        |        |  
|----------------------------- | ------------------------------------------ | -------------------------------------------------- | --------------------------------------------- | ----- | ------------------------------- | ----- | ---- | ------ | ------ | ------- | - | ----- | ------ | ------ | -
|                              |                                            |                                                    |                                               |       | Nine Months Ended September 30,
|                              |                                            |                                                    |                                               |       | 2002 vs. 2001                  
|                              |                                            |                                                    |                                               |       |                                
|                              |                                            |                                                    |                                               |       | Increase (Decrease)             |       |      |        |       
|                              |                                            |                                                    |                                               |       | Due To                          |       |      |        |       
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |       
|                              |                                            |                                                    |                                               |       | Volume                          |       | Rate |        | Total 
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |       
|                              |                                            |                                                    |                                               |       | (Dollars in thousands)         
|INTEREST-EARNING ASSETS:      |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      
|                              |                                            | Loans                                              |                                               | $     | 1,902                           |       |      | $      | (7,473 | )       |   | $     | (5,571 | )     
|                              |                                            | Securities                                         |                                               |       | 3,377                           |       |      |        | (2,722 | )       |   |       | 655    |       
|                              |                                            | Federal funds sold and other temporary investments |                                               |       | (1,025                          | )     |      |        | (404   | )       |   |       | (1,429 | )     
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      
|                              |                                            |                                                    | Total increase (decrease) in interest income  |       |                                 | 4,254 |      |        |        | (10,599 | ) |       |        | (6,345 | )
|INTEREST-BEARING LIABILITIES: |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      
|                              |                                            | Interest-bearing demand deposits                   |                                               |       | 320                             |       |      |        | (633   | )       |   |       | (313   | )     
|                              |                                            | Saving and money market accounts                   |                                               |       | 207                             |       |      |        | (1,099 | )       |   |       | (892   | )     
|                              |                                            | Time deposits                                      |                                               |       | (696                            | )     |      |        | (6,459 | )       |   |       | (7,155 | )     
|                              |                                            | Other borrowings                                   |                                               |       | 829                             |       |      |        | (488   | )       |   |       | 341    |       
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      
|                              |                                            |                                                    | Total increase (decrease) in interest expense |       |                                 | 660   |      |        |        | (8,679  | ) |       |        | (8,019 | )
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      
|                              | Increase (decrease) in net interest income |                                                    | $                                             | 3,594 |                                 |       | $    | (1,920 | )      |         | $ | 1,674 |       
|                              |                                            |                                                    |                                               |       |                                 |       |      |        |        |         |   |      

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, 2002 was $750,000, up $343,000 compared with $407,000 for the same quarter
in 2001. The provision for loan losses for the nine months ended September 30,
2002 was $2.3 million, up approximately $1.1 million compared with $1.2 million
for the same period in 2001. The increased provisions were the result of
continued asset quality assessment coupled with a recently established loan
grading system and an increase in nonaccrual loans. The allowance for loan
losses as a percent of total loans (net of unearned interest, deferred fees,
and discounts) at September 30, 2002 and December 31, 2001 was 1.88% and 1.81%,
respectively.

12



---



##### 



Noninterest Income.Total noninterest income for the three months ended
September 30, 2002 was $2.4 million, up approximately $300,000 or 15.5%
compared to $2.1 million for the same quarter in 2001. For the three months
ended September 30, 2002, service fees were $1.7 million, up approximately
$100,000 compared to $1.6 million for the same period in 2001 primarily due to
increased transaction accounts that have provided additional service charge and
NSF fee income. For the three months ended September 30, 2002, all other
noninterest income was $755,000, up $238,000 from $517,000 for the same quarter
in 2001, and was primarily due to higher loan-related fees as a result of loan
growth, increased letters of credit income, and gains on the sale
of SBA loans.

Total noninterest income for the nine months ended September 30, 2002 was
$7.2 million, up approximately $700,000 or 10.1% from $6.5 million for the same
period in 2001. For the nine months ended September 30, 2002, service fees
were $5.1 million, up approximately $400,000 compared to $4.7 million for the
same period in 2001 primarily due to increased transaction accounts. For the
nine months ended September 30, 2002, all other noninterest income was $2.1
million, up approximately $300,000 from $1.8 million for the same period in
2001, and was primarily due to higher loan-related fees as a result of loan
growth, gains on sale of SBA loans, and higher other noninterest income that
was partially offset by a decreased letters of credit income and lower gains on
sale of securities. Depending on the overall level of loan production, SBA
loans will either be retained in the portfolio or sold into the secondary
market. Additionally, management has discouraged the waiving of loan late
fees, NSF fees, and other service-related fees to maximize noninterest income.

The following table presents, for the periods indicated, the major
categories of noninterest income:

|                                           |                          |   |                        |       |                     |   |       |       |      |   |       |       |  |   |       |       | 
|------------------------------------------ | ------------------------ | - | ---------------------- | ----- | ------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                           |                          |   | For The Three Months   |       | For The Nine Months
|                                           |                          |   | Ended September 30,    |       | Ended September 30,
|                                           |                          |   |                        |       |                    
|                                           |                          |   | 2002                   |       | 2001                |   | 2002  |       | 2001
|                                           |                          |   |                        |       |                     |   |       |       |     
|                                           |                          |   | (Dollars in thousands)
|Service fees                               |                          | $ | 1,685                  |       |                     | $ | 1,595 |       |      | $ | 5,082 |       |  | $ | 4,737 |      
|Other loan-related fees                    |                          |   | 257                    |       |                     |   | 236   |       |      |   | 775   |       |  |   | 735   |      
|Letters of credit commissions and fees     |                          |   | 176                    |       |                     |   | 149   |       |      |   | 455   |       |  |   | 498   |      
|Gain on sale of investment securities, net |                          |   |                       |       |                     |   | 13    |       |      |   | 34    |       |  |   | 189   |      
|Gain on sale of SBA loans                  |                          |   | 126                    |       |                     |   |      |       |      |   | 209   |       |  |   |      |      
|Other noninterest income                   |                          |   | 196                    |       |                     |   | 119   |       |      |   | 658   |       |  |   | 395   |      
|                                           |                          |   |                        |       |                     |   |       |       |      |   |       |       |  |   |       |      
|                                           | Total noninterest income |   | $                      | 2,440 |                     |   | $     | 2,112 |      |   | $     | 7,213 |  |   | $     | 6,554 | 
|                                           |                          |   |                        |       |                     |   |       |       |      |   |       |       |  |   |       |      

Noninterest Expense.Total noninterest expense for the three months ended
September 30, 2002 was $6.5 million, up approximately $300,000 or 5.7% compared
to $6.2 million for the same quarter in 2001. The increased noninterest
expense for the three months ended September 30, 2002 was primarily due to
higher salaries and employee benefits as a result of increased staffing levels
in lending operations and compliance functions, increased occupancy due to
expansion of space in the corporate office, and depreciation on acquisition of
premises and equipment. This was partially offset by all other operating
expenses that were lower in this quarter, primarily in professional fees,
compared to the same quarter in 2001.

Total noninterest expense for the nine months ended September 30, 2002 was
$20.0 million, up approximately $800,000 or 4.2% compared to $19.2 million for
the same period in 2001. The increased noninterest expense for the nine months
ended September 30, 2002 was primarily due to higher salaries and employee
benefits mentioned above in addition to a 20% increase in the cost of medical
and dental benefits and normal annual salary increases that became effective in
May 2002. With the exception of losses incurred in foreclosed assets and
higher data processing expense, most of the other operating expenses,
including occupancy, professional fees, and advertising, decreased in the
nine-month period ended September 30, 2002.

Salaries and employee benefits expense for the three months ended
September 30, 2002 was $3.9 million, up approximately $700,000 or 21.4% from
$3.2 million for the same quarter in 2001. Salaries and employee benefits
expense for the nine months ended September 30, 2002 was $11.4 million, up $1.3
million or 12.9% from $10.1 million for the same period in 2001.
The increases during both periods were primarily the result of additional
higher paid positions and less part-time and temporary FTE. The full-time
equivalent (FTE) employees at September 30, 2002 were 299.2 compared with FTE
of 310.1 at September 30, 2001.

13



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##### 



The Companys efficiency ratio for the three months ended September 30,
2002 was 58.58%, an improvement from 61.77% for the same quarter in 2001. The
Companys efficiency ratio for the nine months ended September 30, 2002 was
61.73%, an improvement from 63.84% for the same period in 2001. The efficiency
ratio improvement in both periods was primarily due to higher net interest
income (as a result of significantly lower interest expense) and higher
noninterest income that was partially offset by higher noninterest expense.

The following table presents, for the periods indicated, the major
categories of noninterest expense:

|                               |                           |                            |       |                        |       |                     |       |       |       |      |        |       |        |   |        |       |        | 
|------------------------------ | ------------------------- | -------------------------- | ----- | ---------------------- | ----- | ------------------- | ----- | ----- | ----- | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                               |                           |                            |       | For The Three Months   |       | For The Nine Months
|                               |                           |                            |       | Ended September 30,    |       | Ended September 30,
|                               |                           |                            |       |                        |       |                    
|                               |                           |                            |       | 2002                   |       | 2001                |       | 2002  |       | 2001
|                               |                           |                            |       |                        |       |                     |       |       |       |     
|                               |                           |                            |       | (Dollars in thousands)
|Salaries and employee benefits |                           | $                          | 3,934 |                        |       | $                   | 3,240 |       |       | $    | 11,361 |       |        | $ | 10,063 |      
|Non-staff expenses:            |                           |                            |       |                        |       |                     |       |       |       |      |        |       |        |   |        |      
|                               | Occupancy and equipment   |                            | 1,320 |                        |       |                     | 1,265 |       |       |      | 3,796  |       |        |   | 3,952  |      
|                               | Foreclosed assets, net    |                            | 65    |                        |       |                     | 88    |       |       |      | 483    |       |        |   | 85     |      
|                               | Data processing           |                            |       | 20                     |       |                     |       | 15    |       |      |        | 69    |        |   |        | 53    |       
|                               | Other noninterest expense |                            |       | 1,180                  |       |                     |       | 1,562 |       |      |        | 4,325 |        |   |        | 5,076 |       
|                               |                           |                            |       |                        |       |                     |       |       |       |      |        |       |        |   |        |      
|                               |                           | Total non-staff expenses   |       |                        | 2,585 |                     |       |       | 2,930 |      |        |       | 8,673  |   |        |       | 9,166  | 
|                               |                           | Total noninterest expenses |       | $                      | 6,519 |                     |       | $     | 6,170 |      |        | $     | 20,034 |   |        | $     | 19,229 | 
|                               |                           |                            |       |                        |       |                     |       |       |       |      |        |       |        |   |        |      

Financial Condition

Loan Portfolio.Net loans at September 30, 2002 were $508.1 million, up
$23.9 million or 4.9% from $484.2 million at December 31, 2001, primarily due
to loan growth that has exceeded prepayments and scheduled repayments. The
majority of the loan growth during the nine months ended September 30, 2002 was
in the commercial real estate mortgage category that grew $18.8 million.
Commercial and industrial loans grew $6.8 million during the same period.
Historically, the Company has experienced slower loan demand in the first and
second quarters with loan demand increasing in the latter half of the year. At
September 30, 2002 and December 31, 2001, the ratio of total loans to total
deposits was 75.28% and 76.72%, respectively. At the same dates, total loans
represented 61.6% and 66.4% of total assets, respectively.

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

|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |       | 
|------------------------- | ---------------------------------------------------- | - | ------------------------ | ------- | ----------------------- |  | ------ | ----- | ------- | - | ------- | ------- | - |  | ------ | ----- | 
|                          |                                                      |   | As of September 30, 2002 |         | As of December 31, 2001
|                          |                                                      |   |                          |         |                        
|                          |                                                      |   | Amount                   |         | Percent                 |  | Amount |       | Percent
|                          |                                                      |   |                          |         |                         |  |        |       |        
|                          |                                                      |   | (Dollars in thousands)  
|Commercial and industrial |                                                      | $ | 319,717                  |         |                         |  | 60.99  | %     |         | $ | 312,899 |         |   |  | 62.67  | %    
|Real estate mortgage:     |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|                          | Residential                                          |   |                          | 6,917   |                         |  |        | 1.32  |         |   |         | 7,833   |   |  |        | 1.57  | 
|                          | Commercial                                           |   |                          | 149,787 |                         |  |        | 28.57 |         |   |         | 131,022 |   |  |        | 26.24 | 
|Real estate construction: |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|                          | Residential                                          |   |                          | 10,537  |                         |  |        | 2.01  |         |   |         | 5,962   |   |  |        | 1.19  | 
|                          | Commercial                                           |   |                          | 28,747  |                         |  |        | 5.48  |         |   |         | 30,215  |   |  |        | 6.05  | 
|Consumer and other        |                                                      |   | 8,523                    |         |                         |  | 1.63   |       |         |   | 11,364  |         |   |  | 2.28   |      
|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|Gross loans               |                                                      |   | 524,228                  |         |                         |  | 100.00 | %     |         |   | 499,295 |         |   |  | 100.00 | %    
|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|                          | Less: unearned discounts, interest and deferred fees |   |                          | (6,464  | )                       |  |        |       |         |   |         | (6,150  | ) |  |        |       | 
|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|Total loans               |                                                      |   | 517,764                  |         |                         |  |        |       |         |   | 493,145 |         |   |  |        |      
|                          | Less: allowance for loan losses                      |   |                          | (9,710  | )                       |  |        |       |         |   |         | (8,903  | ) |  |        |       | 
|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      
|Loans, net                |                                                      | $ | 508,054                  |         |                         |  |        |       |         | $ | 484,242 |         |   |  |        |      
|                          |                                                      |   |                          |         |                         |  |        |       |         |   |         |         |   |  |        |      

14



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##### 



Nonperforming Assets.Net nonperforming assets at September 30, 2002 were
$15.3 million, an increase of $11.6 million from net nonperforming assets of
$3.7 million at December 31, 2001. The $11.6 million increase in net
nonperforming assets was primarily due to an increase of $12.2 million in
nonaccrual loans, an increase of $720,000 in loans accruing 90 days or more
past due, that was partially offset by a $430,000 decrease in foreclosed
assets, and an increase in the government guaranteed portions on loans of $1.0
million. The increase in nonperforming assets primarily occurred during the
first quarter of 2002 with approximately $9.0 million added to nonaccrual loans
as part of an identification process that represented an integral part of an
overall effort to improve credit quality. Facilitating this process, loan
review and problem resolution personnel were added during the first and second
quarters of 2002. Some loans have paid off during the nine-month period,
however, a commercial loan of approximately $5.5 million was added to
nonaccrual loans in September 2002. The $5.5 million loan is in the process of
being restructured. While further deterioration in the loan portfolio is
possible, management is continuing its risk assessment and resolution program
to identify problem loans earlier. In addition, management is focusing its
attention on minimizing the Banks credit risk through more diversified
business development channels.

The ratios for net nonperforming assets to total loans and other real
estate were 2.94% and 0.76% at September 30, 2002 and December 31, 2001,
respectively. The ratios for net nonperforming assets to total assets were
1.81% and 0.50% for the same periods, respectively. These ratios take into
consideration guarantees from the United States Department of Commerces Small
Business Administration (the SBA), the Export Import Bank of the United
States (the Ex-Im Bank), an independent agency of the United States
Government, and the Overseas Chinese Community Guaranty Fund (OCCGF), an
agency sponsored by the government of Taiwan, which were $2.8 million at
September 30, 2002 compared to $1.8 million at December 31, 2001.

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 which 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.

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

|                                                                 |                                                                 |   |                        |        |                   |   |       |        |  
|---------------------------------------------------------------- | --------------------------------------------------------------- | - | ---------------------- | ------ | ----------------- | - | ----- | ------ | -
|                                                                 |                                                                 |   | As of                  |        | As of            
|                                                                 |                                                                 |   | September 30, 2002     |        | December 31, 2001
|                                                                 |                                                                 |   |                        |        |                  
|                                                                 |                                                                 |   | (Dollars in thousands)
|Nonaccrual loans                                                 |                                                                 | $ | 15,996                 |        |                   | $ | 3,758 |       
|Accruing loans 90 days or more past due                          |                                                                 |   | 1,504                  |        |                   |   | 783   |       
|Other real estate                                                |                                                                 |   | 592                    |        |                   |   | 969   |       
|Other assets repossessed                                         |                                                                 |   | 4                      |        |                   |   | 56    |       
|                                                                 |                                                                 |   |                        |        |                   |   |       |       
|                                                                 | Total nonperforming assets                                      |   |                        | 18,096 |                   |   |       | 5,566  |  
|Less:                                                            |                                                                 |   |                        |        |                   |   |       |       
|                                                                 | Nonperforming loans guaranteed by the SBA, Ex-Im Bank
and OCCGF |   |                        | (2,841 | )                 |   |       | (1,833 | )
|                                                                 |                                                                 |   |                        |        |                   |   |       |       
|                                                                 | Total net nonperforming assets                                  |   | $                      | 15,255 |                   |   | $     | 3,733  |  
|                                                                 |                                                                 |   |                        |        |                   |   |       |       
|Total nonperforming assets to total assets                       |                                                                 |   | 2.15                   | %      |                   |   | 0.75  | %     
|Total nonperforming assets to total loans and other real estate  |                                                                 |   | 3.49                   | %      |                   |   | 1.13  | %     
|Net nonperforming assets to total assets(1)                      |                                                                 |   | 1.81                   | %      |                   |   | 0.50  | %     
|Net nonperforming assets to total loans and other real estate(1) |                                                                 |   | 2.94                   | %      |                   |   | 0.76  | %     



---

|(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, 2002 and December 31, 2001,
the allowance for loan losses was $9.7 million and $8.9 million, respectively,
or 1.88% and 1.81% of total loans, respectively. For the nine months ended
September 30, 2002, net loan charge-offs were $1.5 million or 0.29% of total
loans outstanding. The Company seeks recovery of charge-offs through all
available channels.

The allowance for loans 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 increased by provisions charged against current earnings
and 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.

15



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##### 



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 the
|                                                              |                            |                   |         | Nine Months Ended      |        | Year Ended       
|                                                              |                            |                   |         | September 30, 2002     |        | December 31, 2001
|                                                              |                            |                   |         |                        |        |                  
|                                                              |                            |                   |         | (Dollars in thousands)
|Average year-to-date total loans outstanding                  |                            | $                 | 498,943 |                        |        | $                 | 474,986 |       
|                                                              |                            |                   |         |                        |        |                   |         |       
|Total loans outstanding at end of period                      |                            | $                 | 517,764 |                        |        | $                 | 493,145 |       
|                                                              |                            |                   |         |                        |        |                   |         |       
|Allowance for loan losses at beginning of period              |                            | $                 | 8,903   |                        |        | $                 | 9,271   |       
|Provision for loan losses                                     |                            |                   | 2,320   |                        |        |                   | 3,799   |       
|Charge-offs:                                                  |                            |                   |         |                        |        |                   |         |       
|                                                              | Commercial and industrial  |                   |         | (1,832                 | )      |                   |         | (4,075 | )     
|                                                              | Real estate  mortgage     |                   |         | (21                    | )      |                   |         |       |       
|                                                              | Real estate  construction |                   |         |                       |        |                   |         |       |       
|                                                              | Consumer and other         |                   |         | (113                   | )      |                   |         | (201   | )     
|                                                              |                            |                   |         |                        |        |                   |         |       
|                                                              |                            | Total charge-offs |         |                        | (1,966 | )                 |         |        | (4,276 | )
|                                                              |                            |                   |         |                        |        |                   |         |       
|Recoveries:                                                   |                            |                   |         |                        |        |                   |         |       
|                                                              | Commercial and industrial  |                   |         | 404                    |        |                   |         | 54     |       
|                                                              | Real estate  mortgage     |                   |         | 5                      |        |                   |         | 11     |       
|                                                              | Real estate  construction |                   |         |                       |        |                   |         |       |       
|                                                              | Consumer and other         |                   |         | 44                     |        |                   |         | 44     |       
|                                                              |                            |                   |         |                        |        |                   |         |       
|                                                              |                            | Total recoveries  |         |                        | 453    |                   |         |        | 109    |  
|                                                              |                            |                   |         |                        |        |                   |         |       
|Net loan charge-offs                                          |                            |                   | (1,513  | )                      |        |                   | (4,167  | )     
|                                                              |                            |                   |         |                        |        |                   |         |       
|Allowance for loan losses at end of period                    |                            | $                 | 9,710   |                        |        | $                 | 8,903   |       
|                                                              |                            |                   |         |                        |        |                   |         |       
|Ratio of allowance to end of period total loans               |                            |                   | 1.88    | %                      |        |                   | 1.81    | %     
|Ratio of net loan charge-offs to end of period total loans    |                            |                   | 0.29    | %                      |        |                   | 0.84    | %     
|Ratio of allowance to end of period total nonperforming loans |                            |                   | 55.49   | %                      |        |                   | 196.06  | %     
|Ratio of allowance to end of period net nonperforming loans   |                            |                   | 66.24   | %                      |        |                   | 328.77  | %     

Securities.At September 30, 2002, the securities portfolio was $257.1
million, reflecting an increase of $84.0 million or 48.5% from $173.1 million
at December 31, 2001. 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, during the nine months ended September 30, 2002, approximately $43.0
million in short-term borrowings obtained from the FHLB were utilized to purchase approximately the same amount of
mortgage-backed securities to increase earning assets.

Deposits. At September 30, 2002, total deposits were $687.8 million, up
$45.0 million or 7.0% from $642.8 million at December 31, 2001.
Noninterest-bearing demand deposits at September 30, 2002 increased by $13.6
million or 10.7% to $140.9 million from $127.3 million at December 31, 2001.
The Companys ratios of noninterest-bearing demand deposits to total deposits
at September 30, 2002 and December 31, 2001 were 20.5% and 19.8%, respectively.
Interest-bearing deposits at September 30, 2002 increased by $31.4 million or
6.1% to $546.9 million from $515.5 million at December 31, 2001.

Other Borrowings.Other borrowings at September 30, 2002 were $68.6
million, an increase of $43.4 million, from $25.2 million at December 31, 2001.
The increase in other borrowings was primarily the result of short-term
advances obtained from the FHLB to fund mortgage-related securities
investments. The Company has two ten-year loans totaling $25.0 million from
the FHLB to further leverage its balance sheet and diversify its funding
sources. The ten-year loans bear interest at an average rate of 4.99% per
annum until the fifth year anniversary of the loans, September 2003, at which
time the loans may be repaid or the interest rate may be renegotiated. FHLB
notes in the amount of $25.2 million with fixed interest rates averaging 1.80%
are scheduled to mature within 90 days. Notes in the amount of $9.8 million
maturing in 2003 and $8.0 million maturing in 2004 have fixed rates averaging
2.60% and 2.44%, respectively. The borrowings were part of a strategic plan to
continue the growth of interest-earning assets that began in February 2002 and
concluded in August 2002. The funds were invested primarily in
mortgage-related instruments with durations of approximately three years or
less. Other short-term borrowings principally consist of U.S. Treasury tax
note option accounts.

16



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##### 



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

|                             |                                                  |  |                        |        |      |  |   |        | 
|---------------------------- | ------------------------------------------------ |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                             |                                                  |  | September 30,         
|                             |                                                  |  |                       
|                             |                                                  |  | 2002                   |        | 2001
|                             |                                                  |  |                        |        |     
|                             |                                                  |  | (Dollars in thousands)
|Federal funds purchased:     |                                                  |  |                        |        |      |  |   |       
|                             | on September 30                                  |  | $                      |       |      |  | $ |       | 
|                             | average during the nine months                   |  |                        | 216    |      |  |   |       | 
|                             | maximum month-end balance during the nine months |  |                        |       |      |  |   |       | 
|FHLB notes:                  |                                                  |  |                        |        |      |  |   |       
|                             | on September 30                                  |  | $                      | 68,000 |      |  | $ | 25,000 | 
|                             | average during the nine months                   |  |                        | 47,288 |      |  |   | 25,000 | 
|                             | maximum month-end balance during the nine months |  |                        | 69,700 |      |  |   | 25,000 | 
|Other short-term borrowings: |                                                  |  |                        |        |      |  |   |       
|                             | on September 30                                  |  | $                      | 581    |      |  | $ | 538    | 
|                             | average during the nine months                   |  |                        | 546    |      |  |   | 611    | 
|                             | maximum month-end balance during the nine months |  |                        | 713    |      |  |   | 555    | 

Liquidity.The Companys loan to deposit ratio at September 30, 2002 was
75.8%. As of this same date, the Company had commitments to fund loans in the
amount of $83.3 million and had stand-by letters of credit of $13.5 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. With its current level of collateral, the Company has the
ability to borrow an additional $144.0 million from the FHLB. Additionally,
the Company had several unused, unsecured lines of credit with correspondent
banks totaling $15.0 million at September 20, 2002 and at December 31, 2001.

Capital Resources.Shareholders equity at September 30, 2002 was $73.2
million, up $8.0 million or 12.2% from $65.2 million at December 31, 2001. The
increase for the nine months ended September 30, 2002 was primarily due to net
income of $6.8 million, and increase in other comprehensive income and the
unrealized gains on investment securities of $2.4 million, that was partially
offset by dividend payments of $1.3 million, and a net change in treasury stock
of $120,000 that was the result of common stock repurchases. During the first
quarter 2002, the Company announced a plan to repurchase up to 350,000 shares
of its common stock on the open market or in privately negotiated block
transactions. As of September 30, 2002, the Company had repurchased 29,990
shares.

The following table provides a comparison of the Companys and the Banks
leverage and risk-weighted capital ratios as of September 30, 2002 to the
minimum and well-capitalized regulatory standards:

|            |                                 |  |                  |      |                   |  |                    |       |   |  |  |       |  
|----------- | ------------------------------- |  | ---------------- | ---- | ----------------- |  | ------------------ | ----- | - |  |  | ----- | -
|            |                                 |  | Minimum          |      | To Be Well        |  |                    |       |  
|            |                                 |  | Required For     |      | Capitalized Under |  |                    |       |  
|            |                                 |  | Capital Adequacy |      | Prompt Corrective |  | Actual Ratio At   
|            |                                 |  | Purposes         |      | Action Provisions |  | September 30, 2002
|            |                                 |  |                  |      |                   |  |                   
|The Company |                                 |  |                  |      |                   |  |                    |       |   |  |  |      
|            | Leverage ratio                  |  |                  | 4.00 | %(1)              |  |                    | N/A   |   |  |  | 9.10  | %
|            | Tier 1 risk-based capital ratio |  |                  | 4.00 |                   |  |                    | N/A   |   |  |  | 12.53 |  
|            | Risk-based capital ratio        |  |                  | 8.00 |                   |  |                    | N/A   |   |  |  | 13.79 |  
|The Bank    |                                 |  |                  |      |                   |  |                    |       |   |  |  |      
|            | Leverage ratio                  |  |                  | 4.00 | %(2)              |  |                    | 5.00  | % |  |  | 8.71  | %
|            | Tier 1 risk-based capital ratio |  |                  | 4.00 |                   |  |                    | 6.00  |   |  |  | 11.99 |  
|            | Risk-based capital ratio        |  |                  | 8.00 |                   |  |                    | 10.00 |   |  |  | 13.24 |  



---

|(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.                     

17



---



##### 



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 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.




|        |  |                                                           
|------- |  | ----------------------------------------------------------
|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,
2001. 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.Within 90 days prior to
the date of this report, the Company carried out an evaluation, under the
supervision and with the participation of our management, including our
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
the Companys President and Chief Financial Officer concluded that the
Companys disclosure controls and procedures (as defined in
Rule 13a-14(c) 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 Controls.Subsequent to the date of the Company's most
recent evaluation,
there were no significant changes in the Companys internal controls or in
other factors that could significantly affect the Companys disclosure controls
and procedures, and there were no corrective actions with regard to significant
deficiencies and material weaknesses based on such evaluation.

18



---



##### 






PART II

OTHER INFORMATION



















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

Not applicable

|        |  |                                          
|------- |  | -----------------------------------------
|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 6A. |  | Exhibits

|        |  |   |  |                                                                                                                                                   
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  | Identification                                                                                                                                    
|Number  |  |   |  | of Exhibit                                                                                                                                        
|        |  |   |  |                                                                                                                                                   
|11      |  |  |  | Computation of Earnings Per Common Share, included as Note (2)
to the Condensed Consolidated Financial Statements on Page 6 of
this Form 10-Q.    
|        |  |   |  |                                                                                                                                                   
|99.1    |  |  |  | Certification of
President pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.              
|        |  |   |  |                                                                                                                                                   
|99.2    |  |  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

|         |  |                    
|-------- |  | -------------------
|Item 6B. |  | Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter ended
September 30, 2002:



|(1) |  | Current report on Form 8-K filed July 25, 2002 announcing the
release of the Companys earnings for the second quarter of 2002.                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Current report on Form 8-K filed August 27, 2002 to report the
dismissal of Deloitte & Touche LLP and the engagement of
PricewaterhouseCoopers LLP as its independent accountants for the
fiscal year ended December 31, 2002.
|   
|(3) |  | Current report on Form 8-K/A filed September 5, 2002 amending the
Form 8-K filed on August 27, 2002.                                                                                                                          

19



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##### 






SIGNATURES

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

|                        |  |                            |  |                                                                                                                                      
|----------------------- |  | -------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|                        |  | METROCORP BANCSHARES, INC.
|                        |  |                            |  |                                                                                                                                      
|                        |  |                            |  |                                                                                                                                      
|Date: November 12, 2002 |  | By:                        |  | /s/ Allen D. Brown                                                                                                                   
|                        |  |                            |  |                                                                                                                                      
|                        |  |                            |  | Allen D. Brown
President
(principal executive officer)                                                                               
|                        |  |                            |  |                                                                                                                                      
|                        |  |                            |  |                                                                                                                                      
|Date: November 12, 2002 |  | By:                        |  | /s/ David D. Rinehart                                                                                                                
|                        |  |                            |  |                                                                                                                                      
|                        |  |                            |  | David D. Rinehart
Executive Vice President and
Chief Financial Officer
(principal accounting officer and
principal financial officer)

20



---



##### 






CERTIFICATIONS

I, Allen D. Brown, President of the registrant, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of MetroCorp
Bancshares, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

(c)  presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|       |                   |  |                   
|------ | ----------------- |  | ------------------
|Dated: | November 12, 2002 |  | /s/ Allen D. Brown
|       |                   |  |                   

21



---



##### 



I, David D. Rinehart, Chief Financial Officer of the registrant, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of MetroCorp
Bancshares, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

(c)  presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|       |                   |  |                      
|------ | ----------------- |  | ---------------------
|Dated: | November 12, 2002 |  | /s/ David D. Rinehart
|       |                   |  |                      

22



---



##### 






EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                   
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  | Identification                                                                                                                                    
|Number  |  |   |  | of Exhibit                                                                                                                                        
|        |  |   |  |                                                                                                                                                   
|11      |  |  |  | Computation of Earnings Per Common Share, included as Note (2)
to the Condensed Consolidated Financial Statements on Page 6 of
this Form 10-Q.    
|        |  |   |  |                                                                                                                                                   
|99.1    |  |  |  | Certification of
President pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.              
|        |  |   |  |                                                                                                                                                   
|99.2    |  |  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.