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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 JUNE 30, 2003
|  |  |                                                                                                                                     
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934                                            

Commission file number 000-25141



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METROCORP BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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 July 31, 2003, the number of outstanding shares of Common Stock, par
value $1.00 per share, was 7,147,055.



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TABLE OF CONTENTS



|                                                |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                   
|                                                | Item 1. Condensed Consolidated Financial Statements.                                         
|                                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                          
|                                                | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION                      
|                                                | Item 1. Legal Proceedings                                                                    
|                                                | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                | Item 3. Defaults Upon Senior Securities                                                      
|                                                | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                | Item 5. Other Information                                                                    
|                                                | Item 6A. Exhibits                                                                            
|                                                | Item 6B. Reports on Form 8-K                                                                 
|SIGNATURES                                     
|EXHIBIT INDEX                                  
|Certification of CEO pursuant to Rule 13a-14(a)
|Certification of CEF pursuant to Rule 13a-14(a)
|Certification of CEO pursuant to Section 906   
|Certification of CFO pursuant to Section 906   



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##### Table of Contents






PART I

FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements.

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

|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |              |         |  |  | 
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | -------- | ------- | ------------ | ------- |  |  | 
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         | June 30, |         | December 31,
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         | 2003     |         | 2002        
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      | ASSETS  |         |          |         |              |         |  |  | 
|Cash and due from banks                                                                            |                                                                                                                                                                                                                      | $                                          | 31,689                               |         |         | $        | 30,195  |             
|Federal funds sold and other temporary investments                                                 |                                                                                                                                                                                                                      |                                            | 7,653                                |         |         |          | 7,991   |             
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total cash and cash equivalents            |                                      |         | 39,342  |          |         |              | 38,186  | 
|Securities available-for-sale, at fair value                                                       |                                                                                                                                                                                                                      |                                            | 254,256                              |         |         |          | 260,038 |             
|Other investments                                                                                  |                                                                                                                                                                                                                      |                                            | 4,501                                |         |         |          | 4,380   |             
|Loans, held-for-investment (net of allowance for loan losses of
$10,250 and $10,150, respectively) |                                                                                                                                                                                                                      |                                            | 531,922                              |         |         |          | 517,609 |             
|Loans, held-for-sale                                                                               |                                                                                                                                                                                                                      |                                            | 13,073                               |         |         |          |        |             
|Premises and equipment, net                                                                        |                                                                                                                                                                                                                      |                                            | 5,641                                |         |         |          | 5,841   |             
|Accrued interest receivable                                                                        |                                                                                                                                                                                                                      |                                            | 2,628                                |         |         |          | 3,391   |             
|Customers liability on acceptances                                                                |                                                                                                                                                                                                                      |                                            | 4,507                                |         |         |          | 4,080   |             
|Foreclosed assets, net                                                                             |                                                                                                                                                                                                                      |                                            | 1,871                                |         |         |          | 1,190   |             
|Other assets                                                                                       |                                                                                                                                                                                                                      |                                            | 7,038                                |         |         |          | 5,350   |             
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total assets                               |                                      | $       | 864,779 |          |         | $            | 840,065 | 
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |          |         |              |         |  | 
|Deposits:                                                                                          |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   | Noninterest-bearing                                                                                                                                                                                                  |                                            | $                                    | 154,524 |         |          | $       | 144,544      |        
|                                                                                                   | Interest-bearing                                                                                                                                                                                                     |                                            |                                      | 561,968 |         |          |         | 546,817      |        
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total deposits                             |                                      |         | 716,492 |          |         |              | 691,361 | 
|Other borrowings                                                                                   |                                                                                                                                                                                                                      |                                            | 66,448                               |         |         |          | 65,774  |             
|Accrued interest payable                                                                           |                                                                                                                                                                                                                      |                                            | 613                                  |         |         |          | 717     |             
|Acceptances outstanding                                                                            |                                                                                                                                                                                                                      |                                            | 4,507                                |         |         |          | 4,080   |             
|Other liabilities                                                                                  |                                                                                                                                                                                                                      |                                            | 2,781                                |         |         |          | 3,670   |             
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total liabilities                          |                                      |         | 790,841 |          |         |              | 765,602 | 
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|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;
7,228,927 shares and 7,195,927 shares issued and 7,064,168 shares and
7,031,882 shares outstanding at June 30, 2003 and December 31, 2002,
respectively |                                            |                                      | 7,229   |         |          |         | 7,196        |        
|                                                                                                   | Additional paid-in-capital                                                                                                                                                                                           |                                            |                                      | 26,727  |         |          |         | 26,344       |        
|                                                                                                   | Retained earnings                                                                                                                                                                                                    |                                            |                                      | 39,647  |         |          |         | 39,938       |        
|                                                                                                   | Accumulated other comprehensive income                                                                                                                                                                               |                                            |                                      | 1,782   |         |          |         | 2,354        |        
|                                                                                                   | Treasury stock, at cost; 1,446,965 shares and 1,369,208 shares, respectively                                                                                                                                         |                                            |                                      | (1,447  | )       |          |         | (1,369       | )      
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total shareholders equity                 |                                      |         | 73,938  |          |         |              | 74,463  | 
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             
|                                                                                                   |                                                                                                                                                                                                                      | Total liabilities and shareholders equity |                                      | $       | 864,779 |          |         | $            | 840,065 | 
|                                                                                                   |                                                                                                                                                                                                                      |                                            |                                      |         |         |          |         |             

See accompanying notes to condensed consolidated financial statements

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

|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |        |       |        | 
|--------------------------------------------------- | -------------------------------------------------------- | ---------- | ------------------------- | ----- | -------------------- | ------ | ------------------ | ----- | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                                    |                                                          |            |                           |       | For the Three Months |        | For the Six Months
|                                                    |                                                          |            |                           |       | Ended June 30,       |        | Ended June 30,    
|                                                    |                                                          |            |                           |       |                      |        |                   
|                                                    |                                                          |            |                           |       | 2003                 |        | 2002               |       | 2003  |        | 2002  
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |       
|Interest income:                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Loans                                                    |            | $                         | 8,936 |                      |        | $                  | 9,705 |       |        | $      | 17,798 |       |        | $      | 19,184 |      
|                                                    | Securities:                                              |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |        |      
|                                                    |                                                          | Taxable    |                           |       | 1,680                |        |                    |       | 2,360 |        |        |        | 3,592 |        |        |        | 4,358 |       
|                                                    |                                                          | Tax-exempt |                           |       | 252                  |        |                    |       | 304   |        |        |        | 514   |        |        |        | 614   |       
|                                                    | Federal funds sold and other investments                 |            |                           | 98    |                      |        |                    | 98    |       |        |        | 153    |       |        |        | 216    |      
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    |                                                          |            | Total interest income     |       |                      | 10,966 |                    |       |       | 12,467 |        |        |       | 22,057 |        |        |       | 24,372 | 
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Interest expense:                                   |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Time deposits                                            |            |                           | 2,342 |                      |        |                    | 2,581 |       |        |        | 4,703  |       |        |        | 5,541  |      
|                                                    | Demand and savings deposits                              |            |                           | 373   |                      |        |                    | 580   |       |        |        | 756    |       |        |        | 1,181  |      
|                                                    | Other borrowings                                         |            |                           | 474   |                      |        |                    | 435   |       |        |        | 979    |       |        |        | 765    |      
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    |                                                          |            | Total interest expense    |       |                      | 3,189  |                    |       |       | 3,596  |        |        |       | 6,438  |        |        |       | 7,487  | 
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Net interest income                                 |                                                          |            | 7,777                     |       |                      |        | 8,871              |       |       |        | 15,619 |        |       |        | 16,885 |       
|Provision for loan losses                           |                                                          |            | 4,015                     |       |                      |        | 970                |       |       |        | 4,815  |        |       |        | 1,570  |       
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Net interest income after provision for loan losses |                                                          |            | 3,762                     |       |                      |        | 7,901              |       |       |        | 10,804 |        |       |        | 15,315 |       
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Noninterest income:                                 |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Service fees                                             |            |                           | 1,610 |                      |        |                    | 1,740 |       |        |        | 3,152  |       |        |        | 3,397  |      
|                                                    | Other loan-related fees                                  |            |                           | 402   |                      |        |                    | 213   |       |        |        | 830    |       |        |        | 581    |      
|                                                    | Letters of credit commissions and fees                   |            |                           | 131   |                      |        |                    | 153   |       |        |        | 265    |       |        |        | 279    |      
|                                                    | Gain on sale of securities, net                          |            |                           |      |                      |        |                    | 32    |       |        |        | 163    |       |        |        | 34     |      
|                                                    | Other noninterest income                                 |            |                           | 27    |                      |        |                    | 46    |       |        |        | 54     |       |        |        | 151    |      
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    |                                                          |            | Total noninterest income  |       |                      | 2,170  |                    |       |       | 2,184  |        |        |       | 4,464  |        |        |       | 4,442  | 
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Noninterest expense:                                |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Salaries and employee benefits                           |            |                           | 3,781 |                      |        |                    | 3,857 |       |        |        | 7,621  |       |        |        | 7,427  |      
|                                                    | Lower of cost or market adjustment  loans held-for-sale |            |                           | 1,325 |                      |        |                    |      |       |        |        | 1,325  |       |        |        |       |      
|                                                    | Occupancy and equipment                                  |            |                           | 1,317 |                      |        |                    | 1,241 |       |        |        | 2,599  |       |        |        | 2,476  |      
|                                                    | Foreclosed assets, net                                   |            |                           | (151  | )                    |        |                    | 155   |       |        |        | (152   | )     |        |        | 418    |      
|                                                    | Professional fees                                        |            |                           | 534   |                      |        |                    | 226   |       |        |        | 714    |       |        |        | 399    |      
|                                                    | Advertising                                              |            |                           | 47    |                      |        |                    | 77    |       |        |        | 119    |       |        |        | 167    |      
|                                                    | Other noninterest expense                                |            |                           | 1,175 |                      |        |                    | 1,336 |       |        |        | 2,322  |       |        |        | 2,628  |      
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    |                                                          |            | Total noninterest expense |       |                      | 8,028  |                    |       |       | 6,892  |        |        |       | 14,548 |        |        |       | 13,515 | 
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Income (loss) before provision for income tax       |                                                          |            | (2,096                    | )     |                      |        | 3,193              |       |       |        | 720    |        |       |        | 6,242  |       
|Provision (benefit) for income taxes                |                                                          |            | (742                      | )     |                      |        | 1,003              |       |       |        | 165    |        |       |        | 1,961  |       
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Net income (loss)                                   |                                                          | $          | (1,354                    | )     |                      | $      | 2,190              |       |       | $      | 555    |        |       | $      | 4,281  |       
|                                                    |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|Earnings (loss) per common share:                   |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Basic                                                    |            | $                         | (0.19 | )                    |        | $                  | 0.31  |       |        | $      | 0.08   |       |        | $      | 0.61   |      
|                                                    | Diluted                                                  |            | $                         | (0.19 | )                    |        | $                  | 0.31  |       |        | $      | 0.08   |       |        | $      | 0.60   |      
|Weighted average shares outstanding:                |                                                          |            |                           |       |                      |        |                    |       |       |        |        |        |       |        |        |       
|                                                    | Basic                                                    |            |                           | 7,037 |                      |        |                    | 7,020 |       |        |        | 7,035  |       |        |        | 7,020  |      
|                                                    | Diluted                                                  |            |                           | 7,037 |                      |        |                    | 7,140 |       |        |        | 7,197  |       |        |        | 7,140  |      
|Dividends per common share                          |                                                          | $          | 0.06                      |       |                      | $      | 0.06               |       |       | $      | 0.12   |        |       | $      | 0.12   |       

See accompanying notes to condensed consolidated financial statements

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

|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       |  |  |       | 
|---------------------------------------------- | ----------------------------------------------------- | - | ------------------------------------------------------------------ | - | -------------------- | ---- | ------------------ |  | ---- | ----- | ---- | - |  | ---- | ----- |  |  | ----- | 
|                                               |                                                       |   |                                                                    |   | For the Three Months |      | For the Six Months
|                                               |                                                       |   |                                                                    |   | Ended June 30,       |      | Ended June 30,    
|                                               |                                                       |   |                                                                    |   |                      |      |                   
|                                               |                                                       |   |                                                                    |   | 2003                 |      | 2002               |  | 2003 |       | 2002
|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |     
|Net income (loss)                              |                                                       | $ | (1,354                                                             | ) |                      | $    | 2,190              |  |      | $     | 555  |   |  | $    | 4,281 | 
|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       | 
|Other comprehensive income (loss), net of tax: |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       | 
|                                               | Unrealized gain (loss) on investment securities, net: |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       |  | 
|                                               |                                                       |   | Unrealized holding gain (loss) arising during the period           |   |                      | (208 | )                  |  |      | 2,200 |      |   |  | (466 | )     |  |  | 1,837 | 
|                                               |                                                       |   | Less: reclassification adjustment for gains included in net
income |   |                      |     |                    |  |      | 21    |      |   |  | 106  |       |  |  | 22    | 
|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       | 
|                                               |                                                       |   | Other comprehensive income (loss)                                  |   |                      | (208 | )                  |  |      | 2,179 |      |   |  | (572 | )     |  |  | 1,815 | 
|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       | 
|Total comprehensive income (loss)              |                                                       | $ | (1,562                                                             | ) |                      | $    | 4,369              |  |      | $     | (17  | ) |  | $    | 6,096 | 
|                                               |                                                       |   |                                                                    |   |                      |      |                    |  |      |       |      |   |  |      |       | 

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For The Six Months Ended June 30, 2003
(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, 2003    |  |              | 7,032 |            |  | $        | 7,196 |               |  | $      | 26,344 |          |  | $     | 39,938 |   |  | $           | 2,354 |   |  | $ | (1,369 | ) |  | $ | 74,463 |  
|Issuance of common stock      |  |              | 33    |            |  |          | 33    |               |  |        | 304    |          |  |       |       |   |  |             |      |   |  |   |       |   |  |   | 337    |  
|Repurchase of common stock    |  |              | (17   | )          |  |          |      |               |  |        |       |          |  |       |       |   |  |             |      |   |  |   | (212   | ) |  |   | (212   | )
|Re-issuance of treasury stock |  |              | 16    |            |  |          |      |               |  |        | 79     |          |  |       |       |   |  |             |      |   |  |   | 134    |   |  |   | 213    |  
|Other comprehensive loss      |  |              |      |            |  |          |      |               |  |        |       |          |  |       |       |   |  |             | (572  | ) |  |   |       |   |  |   | (572   | )
|Net income                    |  |              |      |            |  |          |      |               |  |        |       |          |  |       | 555    |   |  |             |      |   |  |   |       |   |  |   | 555    |  
|Dividend payment              |  |              |      |            |  |          |      |               |  |        |       |          |  |       | (846   | ) |  |             |      |   |  |   |       |   |  |   | (846   | )
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  |             |       |   |  |   |        |   |  |   |        |  
|Balance at June 30, 2003      |  |              | 7,064 |            |  | $        | 7,229 |               |  | $      | 26,727 |          |  | $     | 39,647 |   |  | $           | 1,782 |   |  | $ | (1,447 | ) |  | $ | 73,938 |  
|                              |  |              |       |            |  |          |       |               |  |        |        |          |  |       |        |   |  |             |       |   |  |   |        |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements

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

|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |         |        |       |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------- | ----------------------------------------- | ------ | ------------------ | ------- | ------- | ------ | ----- | ------- | -
|                                                     |                                                                                         |                                                          |                             |                                           |        | For The Six Months
|                                                     |                                                                                         |                                                          |                             |                                           |        | Ended June 30,    
|                                                     |                                                                                         |                                                          |                             |                                           |        |                   
|                                                     |                                                                                         |                                                          |                             |                                           |        | 2003               |         | 2002   
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|Cash flows from operating activities:                |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     | Net income                                                                              |                                                          | $                           | 555                                       |        |                    | $       | 4,281   |       
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities:       |                                                          |                             |                                           |        |                    |         |         |       
|                                                     |                                                                                         | Depreciation                                             |                             |                                           | 706    |                    |         |         | 709    |      
|                                                     |                                                                                         | Provision for loan losses                                |                             |                                           | 4,815  |                    |         |         | 1,570  |      
|                                                     |                                                                                         | Lower of cost or market adjustment  loans held-for-sale |                             |                                           | 1,325  |                    |         |         |       |      
|                                                     |                                                                                         | Amortization of premium/discount on securities           |                             |                                           | 1,316  |                    |         |         | 487    |      
|                                                     |                                                                                         | Gain on sale of securities, net                          |                             |                                           | (163   | )                  |         |         | (34    | )    
|                                                     |                                                                                         | (Gain) loss on sale of foreclosed assets, net            |                             |                                           | (194   | )                  |         |         | 390    |      
|                                                     |                                                                                         | Gain on sale of premises and equipment                   |                             |                                           |       |                    |         |         | (5     | )    
|                                                     |                                                                                         | Amortization of deferred loan fees and discounts         |                             |                                           | 26     |                    |         |         | 201    |      
|                                                     |                                                                                         | Changes in:                                              |                             |                                           |        |                    |         |         |        |      
|                                                     |                                                                                         |                                                          | Accrued interest receivable |                                           |        | 763                |         |         |        | 158   |        
|                                                     |                                                                                         |                                                          | Accrued interest payable    |                                           |        | (104               | )       |         |        | (163  | )      
|                                                     |                                                                                         |                                                          | Other liabilities           |                                           |        | (891               | )       |         |        | 1,380 |        
|                                                     |                                                                                         |                                                          | Other assets                |                                           |        | (1,429             | )       |         |        | 1,383 |        
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     |                                                                                         |                                                          |                             | Net cash provided by operating activities |        |                    | 6,725   |         |        |       | 10,357  |  
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|Cash flows from investing activities:                |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     | Purchases of securities available-for-sale                                              |                                                          |                             | (88,297                                   | )      |                    |         | (83,220 | )     
|                                                     | Proceeds from sales, maturities and principal paydowns of securities available-for-sale |                                                          |                             | 91,974                                    |        |                    |         | 40,766  |       
|                                                     | Net change in loans                                                                     |                                                          |                             | (35,930                                   | )      |                    |         | (13,477 | )     
|                                                     | Proceeds from sale of foreclosed assets                                                 |                                                          |                             | 1,891                                     |        |                    |         | 384     |       
|                                                     | Proceeds from sale of premises and equipment                                            |                                                          |                             |                                          |        |                    |         | 5       |       
|                                                     | Purchases of premises and equipment                                                     |                                                          |                             | (506                                      | )      |                    |         | (406    | )     
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     |                                                                                         |                                                          |                             | Net cash used in investing activities     |        |                    | (30,868 | )       |        |       | (55,948 | )
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|Cash flows from financing activities:                |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     | Net change in:                                                                          |                                                          |                             |                                           |        |                    |         |         |       
|                                                     |                                                                                         | Deposits                                                 |                             |                                           | 25,131 |                    |         |         | 2,998  |      
|                                                     |                                                                                         | Other borrowings                                         |                             |                                           | 674    |                    |         |         | 35,154 |      
|                                                     | Proceeds from issuance of common stock                                                  |                                                          |                             | 337                                       |        |                    |         |        |       
|                                                     | Re-issuance of treasury stock                                                           |                                                          |                             | 213                                       |        |                    |         | 211     |       
|                                                     | Repurchase of common stock                                                              |                                                          |                             | (212                                      | )      |                    |         | (162    | )     
|                                                     | Dividends paid                                                                          |                                                          |                             | (844                                      | )      |                    |         | (842    | )     
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|                                                     |                                                                                         |                                                          |                             | Net cash provided by financing activities |        |                    | 25,299  |         |        |       | 37,359  |  
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                         |                                                          | 1,156                       |                                           |        |                    | (8,232  | )      
|Cash and cash equivalents at beginning of period     |                                                                                         |                                                          | 38,186                      |                                           |        |                    | 58,106  |        
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        
|Cash and cash equivalents at end of period           |                                                                                         | $                                                        | 39,342                      |                                           |        | $                  | 49,874  |        
|                                                     |                                                                                         |                                                          |                             |                                           |        |                    |         |        

See accompanying notes to condensed consolidated financial statements

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METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

These financial statements and the notes thereto should be read in
conjunction with the Companys annual report on Form 10-K for the year ended
December 31, 2002.

Stock Compensation

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

|                                                    |             |  |                      |        |                    |  |      |       |      |  |   |      |  |  |   |       | 
|--------------------------------------------------- | ----------- |  | -------------------- | ------ | ------------------ |  | ---- | ----- | ---- |  | - | ---- |  |  | - | ----- | 
|                                                    |             |  | For The Three Months |        | For The Six Months
|                                                    |             |  | Ended June 30,       |        | Ended June 30,    
|                                                    |             |  |                      |        |                   
|                                                    |             |  | 2003                 |        | 2002               |  | 2003 |       | 2002
|                                                    |             |  |                      |        |                    |  |      |       |     
|Net income (loss):                                  |             |  |                      |        |                    |  |      |       |      |  |   |      |  |  |   |      
|                                                    | As reported |  | $                    | (1,354 | )                  |  | $    | 2,190 |      |  | $ | 555  |  |  | $ | 4,281 | 
|                                                    | Pro forma   |  | $                    | (1,393 | )                  |  | $    | 2,150 |      |  | $ | 477  |  |  | $ | 4,200 | 
|Stock-based compensation cost, net of income taxes: |             |  |                      |        |                    |  |      |       |      |  |   |      |  |  |   |      
|                                                    | As reported |  | $                    |       |                    |  | $    |      |      |  | $ |     |  |  | $ |      | 
|                                                    | Pro forma   |  | $                    | 39     |                    |  | $    | 40    |      |  | $ | 78   |  |  | $ | 81    | 
|Basic earnings (loss) per common share:             |             |  |                      |        |                    |  |      |       |      |  |   |      |  |  |   |      
|                                                    | As reported |  | $                    | (0.19  | )                  |  | $    | 0.31  |      |  | $ | 0.08 |  |  | $ | 0.61  | 
|                                                    | Pro forma   |  | $                    | (0.20  | )                  |  | $    | 0.31  |      |  | $ | 0.07 |  |  | $ | 0.60  | 
|Diluted earnings (loss) per common share:           |             |  |                      |        |                    |  |      |       |      |  |   |      |  |  |   |      
|                                                    | As reported |  | $                    | (0.19  | )                  |  | $    | 0.31  |      |  | $ | 0.08 |  |  | $ | 0.60  | 
|                                                    | Pro forma   |  | $                    | (0.19  | )                  |  | $    | 0.30  |      |  | $ | 0.07 |  |  | $ | 0.59  | 

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

2. EARNINGS PER COMMON SHARE

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

|                                                   |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |       | 
|-------------------------------------------------- | ---------------------------------------- | - | ---------------------------------------- | ----- | ------------------ | - | ----- | ----- | ---- | - | --- | ----- |  | - | ----- | ----- | 
|                                                   |                                          |   | For The Three Months                     |       | For The Six Months
|                                                   |                                          |   | Ended June 30,                           |       | Ended June 30,    
|                                                   |                                          |   |                                          |       |                   
|                                                   |                                          |   | 2003                                     |       | 2002               |   | 2003  |       | 2002
|                                                   |                                          |   |                                          |       |                    |   |       |       |     
|                                                   |                                          |   | (In thousands,
except per share amounts)
|                                                   |                                          |   |                                         
|Net income (loss) available to common shareholders |                                          | $ | (1,354                                   | )     |                    | $ | 2,190 |       |      | $ | 555 |       |  | $ | 4,281 |      
|                                                   |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |      
|Weighted-average common shares outstanding:        |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |      
|                                                   | Basic                                    |   |                                          | 7,037 |                    |   |       | 7,020 |      |   |     | 7,035 |  |   |       | 7,020 | 
|                                                   | Shares issuable under stock option plans |   |                                          |      |                    |   |       | 120   |      |   |     | 162   |  |   |       | 120   | 
|                                                   |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |      
|                                                   | Diluted                                  |   |                                          | 7,037 |                    |   |       | 7,140 |      |   |     | 7,197 |  |   |       | 7,140 | 
|                                                   |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |      
|Earnings (loss) per common share:                  |                                          |   |                                          |       |                    |   |       |       |      |   |     |       |  |   |       |      
|                                                   | Basic                                    |   | $                                        | (0.19 | )                  |   | $     | 0.31  |      |   | $   | 0.08  |  |   | $     | 0.61  | 
|                                                   | Diluted                                  |   | $                                        | (0.19 | )                  |   | $     | 0.31  |      |   | $   | 0.08  |  |   | $     | 0.60  | 

For the three months
ended June 30, 2003, 161,000 shares issuable under the stock option
plans have not been included in the calculation of diluted
earnings per share as to do so would be anti-dilutive since the
Company incurred a net loss for the period.

3. NEW ACCOUNTING PRONOUNCEMENTS

On October 24, 2002, the Financial Accounting Standards Board (FASB)
approved SFAS No. 147, Acquisitions of Certain Financial Institutions.SFAS
No. 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 impairment of core
deposits. It is effective for acquisitions after October 1, 2002. The
adoption of this standard has not had any effect on the Companys financial
condition or results of operations.

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

On May 15, 2003, the FASB approved SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
This statement changes the accounting for certain financial instruments that,
under previous guidance, could be classified as equity or mezzanine equity,
but now is requiring those instruments to be classified as liabilities (or assets
in some circumstances) in the statement of financial condition. Further, SFAS
No. 150 requires disclosure regarding the terms of those instruments and
settlement alternatives. This statement is generally effective for all such
financial instruments entered into or modified after May 31, 2003,

7



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and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of non-public entities. It is not expected that this
statement will have a material effect on the Companys financial condition or
results of operations.

On November 25, 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 considers standby
letters of credit, excluding commercial letters of credit and other lines of
credit, a guarantee of the Bank. The Bank enters into a standby letter of
credit to guarantee performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved is represented by the contractual
amounts of those instruments. Under the standby letters of credit, the Bank is
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary so long as all performance criteria have been met.
Most guarantees extend up to one year. The maximum potential amount of future
payments was approximately $6.2 million at June 30, 2003. The Company has
recorded a liability of approximately $8,236 at June 30, 2003, for the fair
value of the Companys potential obligations, which represents the unamortized
portion of the letter of credit fees.

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




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

Special Cautionary Notice Regarding Forward-looking Statements

The Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q 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;
|
| |  |  | Increased competition for deposits and loans adversely affecting rates and terms;                                                                                                                                                                                                                     
|
| |  |  | The timing, impact and other uncertainties of the Companys ability
to enter new markets successfully and capitalize on growth
opportunities;                                                                                                                                                         
|
| |  |  | Increased credit risk in the Companys assets and increased
operating risk caused by a material change in commercial, consumer
and/or real estate loans as a percentage of the total loan portfolio;                                                                                                  
|
| |  |  | The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses;                                                                                                                                                                                      

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| |  |  | Changes in the availability of funds resulting in increased costs
or reduced liquidity;                                                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Increased asset levels and changes in the composition of assets and
the resulting impact on the Companys capital levels and regulatory
capital ratios;                                                                     
|
| |  |  | The Companys ability to acquire, operate and maintain cost
effective and efficient systems without incurring unexpectedly
difficult or expensive but necessary technological changes;                                      
|
| |  |  | The loss of senior management or operating personnel and the
potential inability to hire qualified personnel at reasonable
compensation levels; and                                                                         
|
| |  |  | Changes in statutes and government regulations or their
interpretations applicable to bank holding companies and our present
and future banking and other subsidiaries, including changes in tax
requirements and tax rates.

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

Overview

For the three months
ended June 30, 2003, the Company had a net loss of $1.4 million, down
approximately $3.5 million from net income of $2.2 million for the same quarter
in 2002. The Companys diluted loss per share for the three months ended June
30, 2003 was $0.19, down $0.50 per diluted share from diluted earnings per
share (EPS) of $0.31 for the same quarter in 2002. This
decrease was primarily the
result of an increase in the provision for loan losses of $3.0 million, a lower
of cost or market adjustment of $1.3 million on loans that were reclassified as
held-for-sale, and continued pressure on the net interest margin.

Net income for the six months ended June 30, 2003 was $555,000, down
approximately $3.7 million from $4.3 million for the same period in 2002. The
Companys diluted earnings per share for the six months ended June 30, 2003 was
$0.08, down $0.52 from $0.60 for the same period in 2002. This was primarily
due to losses incurred during the second quarter 2003 for the reasons
discussed in the preceding paragraph.

At June 30, 2003, total assets were $864.8 million, up approximately $24.7
million or 2.9% from $840.1 million at December 31, 2002. This was primarily
the result of deposit growth during the period that contributed to new loan
funding. Investment securities at June 30, 2003 were $254.3 million, down
approximately $5.7 million or 2.2% from $260.0 million at December 31, 2002.
Net loans, both held-for-investment and held-for-sale at June 30, 2003, were
$545.0 million, up approximately $27.4 million or 5.3% from $517.6 million at
December 31, 2002. Total deposits at June 30, 2003 were $716.5 million, up
approximately $25.1 million or 3.6% from $691.4 million at December 31, 2002.
Other borrowings at June 30, 2003 were $66.4 million, up approximately $600,000
from other borrowings of $65.8 million at December 31, 2002. The Companys
return on average assets (ROAA) for the three months ended June 30, 2003 and
2002 was (0.64)% and 1.14%, respectively. The Companys ROAA for the six
months ended June 30, 2003 and 2002 was 0.13% and 1.14%, respectively.

Shareholders equity at June 30, 2003 was $73.9 million compared to $74.5
million at December 31, 2002, a decrease of approximately $525,000. This was
primarily the result of net income for the six months ended June 30, 2003 of
$555,000 and a net increase in common and treasury stock of approximately
$340,000, that was offset by a reduction in accumulated other comprehensive
income (unrealized gains in the market value of securities) of approximately
$570,000 and dividend payments of approximately $844,000. The Companys return
on average shareholders equity (ROAE) for the three months ended June 30,
2003 and 2002 was (7.13)% and 12.82%, respectively. The Companys ROAE for the
six months ended June 30, 2003 and 2002 was 1.48% and 12.73%, respectively.

Results of Operations

Net Interest Income and the Net Interest Margin.For the three months
ended June 30, 2003, net interest income, before the provision for loan losses,
was $7.8 million, down approximately $1.1 million or 12.3% from $8.9 million
for the same quarter in 2002. The decrease was primarily due to lower interest
income resulting from lower yields on higher interest-earning asset balances that was partially offset
by

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lower interest expense as a result of lower rates paid on higher
interest-bearing liability balances. Average interest-earning asset balances
for the three months ended June 30, 2003 were $815.7 million, up approximately
$87.0 million or 11.9% from $728.6 million for the same quarter in 2002. The
weighted average yield on interest-earning assets for the three months ended
June 30, 2003 was 5.39%, down 147 basis points from 6.86% for the same quarter
in 2002. Average interest-bearing liability balances for the three months
ended June 30, 2003 were $618.7 million, up approximately $58.3 million or
10.4% from $560.4 million for the same quarter in 2002. The weighted average
rate paid on interest-bearing liabilities for the three months ended June 30,
2003 was 2.07%, down 50 basis points from 2.57% for the same quarter in 2002.

For the six months ended June 30, 2003, net interest income, before the
provision for loan losses, was $15.6 million, down approximately $1.3 million
or 7.7% from $16.9 million for the same period in 2002. The decrease was
primarily due to lower interest income resulting from lower yields on higher
interest-earning asset balances that was partially offset by lower interest
expense as a result of lower rates paid on higher interest-bearing liability
balances. Average interest-earning asset balances for the six months ended
June 30, 2003 were $809.3 million, up approximately $97.7 million or 13.7% from
$711.6 million for the same period in 2002. The weighted average yield on
interest-earning assets for the six months ended June 30, 2003 was 5.50%, down
141 basis points from 6.91% for the same period in 2002. Average
interest-bearing liability balances for the six months ended June 30, 2003 were
$615.9 million, up approximately $65.8 million or 12.0% from $550.1 million for
the same period in 2002. The weighted average rate paid on interest-bearing
liabilities for the six months ended June 30, 2003 was 2.11%, down 63 basis
points from 2.74% for the same period in 2002.

The net interest margin for the three months ended June 30, 2003 was
3.82%, down 106 basis points from 4.88% for the same quarter in 2002 and was
primarily the result of a decrease in the yield on interest-earning assets of
147 basis points that was partially offset by a decrease in the cost of
earning-assets of 41 basis points. The net interest margin for the six months
ended June 30, 2003 was 3.89%, down 89 basis points from 4.78% for the same
period in 2002 and was primarily the result of a decrease in the yield on
earning-assets of 141 basis points that was partially offset by a decrease in
the cost of earning-assets of 52 basis points. The Companys net interest
margin may experience further pressure depending on the future interest rate
environment.

Total Interest Income.Total interest income for the three months ended
June 30, 2003 was $11.0 million, down approximately $1.5 million or 12.0% from
$12.5 million for the same quarter in 2002. Total interest income for the six
months ended June 30, 2003 was $22.1 million, down approximately $2.3 million
or 9.5% from $24.4 million for the same period in 2002. The lower interest
income for both periods in 2003, compared to 2002, was primarily the result of
lower yields on interest-earning assets that was partially offset by increases
in average interest-earning assets.

Interest Income from Loans.Interest income from loans for the three
months ended June 30, 2003 was $8.9 million, down approximately $800,000 or
7.9% from $9.7 million for the same quarter in 2002 primarily due to lower loan
yields as a result of the current interest rate environment that was partially
offset by higher average loan balances. Average total loans for the three
months ended June 30, 2003 were $551.4 million compared to average total loans
for the same quarter in 2002 of $497.0 million, an increase of approximately
$54.4 million or 10.9%. For the three months ended June 30, 2003, the average
yield on total loans was 6.50%, compared to 7.83% for the same quarter in 2002,
a decrease of 133 basis points.

Approximately $477.0 million or 84.9% of the loans in the loan portfolio
are variable rate loans that reprice as the prime rate moves and therefore, are
sensitive to interest rate movement. At June 30, 2003, the average yield on
the total loan portfolio was approximately 250 basis points above the prime
rate, which was supported by variable rate loans with interest rate floors that
consisted of approximately $331.0 million or 61.6% of the total loan portfolio.
These loans carried a weighted average interest rate of 6.16% at June 30, 2003
compared to 55.8% of the total loan portfolio with a weighted average interest
rate of 7.18% at June 30, 2002. Future increases in market interest rates,
especially the prime rate, will not be realized on the loan portfolio as
quickly as the declines in 2001, 2002, and 2003 because of the interest rate
floors already achieved on more than half of the loan portfolio. Other factors
that have impacted interest income from loans include refinancing pressures on
existing loans, increased nonaccrual loans, and new loans being added to the
portfolio at lower interest rates.

Interest income from loans for the six months ended June 30, 2003 was
$17.8 million, down approximately $1.4 million or 7.2% from $19.2 million for
the same period in 2002 primarily due to the lower loan yields as a result of
the interest rate environment that was partially offset by higher average loan
balances. Average total loans for the six months ended June 30, 2003 were
$545.9 million compared to average total loans for the same
period in 2002 of $493.4 million, an increase of approximately $52.5 million or
10.6%. For the six months ended June 30, 2003, the average yield on total
loans was 6.57%, compared to 7.84% for the same period in 2002, a decrease of
127 basis points.

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Interest Income from Investments.Interest income from investments (which
includes investment securities, Federal Funds sold, and other temporary
investments) for the three months ended June 30, 2003 was $2.0 million, down
approximately $700,000 or 26.5% compared to $2.8 million for the same quarter
in 2002, primarily due to a lower interest rate yield as a result of premium
amortization, prepayments in mortgage-backed securities, and the reinvestment
of funds at lower market interest rates that was partially offset by higher
average investment balances. Average total investments for the three months
ended June 30, 2002, were $264.3 million compared to average total investments
for the same quarter in 2002 of $231.7 million, and increase of approximately
$32.6 million or 14.1%. For the three months ended June 30, 2003, the average
yield on investments was 3.08% compared to 4.78% for the same quarter in 2002,
a decrease of 170 basis points.

Interest income from investments for the six months ended June 30, 2003
was $4.3 million, down approximately $900,000 or 17.9% compared to $5.2 million
for the same period in 2002, primarily due to a lower interest rate yield as a
result of premium amortization, prepayments in mortgage-backed securities, and
the reinvestment of funds at lower market interest rates that was partially
offset by higher average investment balances. Average total investments for
the six months ended June 30, 2002, were $263.4 million compared to average
total investments for the same period in 2002 of $218.2 million, an increase
of approximately $45.2 million or 20.7%. For the six months ended June 30,
2003, the average yield on investments was 3.26% compared to 4.79% for the same
period in 2002, a decrease of 153 basis points.

Total Interest Expense.Total interest expense for the three months ended
June 30, 2003 was $3.2 million, down approximately $400,000 or 11.3% compared
to $3.6 million for the same quarter in 2002. Total interest expense for the
six months ended June 30, 2003 was $6.4 million, down approximately $1.1
million or 14.0% from $7.5 million for the same period in 2002. The lower
interest expense for both periods in 2003, compared to 2002, was primarily the
result of lower interest rates paid on interest-bearing liabilities that was
partially offset by increases in average interest-bearing liabilities.

Interest Expense on Deposits.Interest paid on interest-bearing deposits
for the three months ended June 30, 2003 was $2.7 million, down approximately
$400,000 or 12.9% compared to $3.1 million for the same period in 2002 and was
primarily due to lower interest rates paid for interest-bearing deposits as a result of
the lower interest rate environment that was partially offset by higher
interest-bearing deposit balances. Average interest-bearing deposits for the
three months ended June 30, 2003 were $557.1 million compared to average
interest-bearing deposits for the same quarter in 2002 of $510.9 million, an
increase of $46.2 million or 9.0%. The average interest rate paid on interest-bearing
deposits for the three months ended June 30, 2003 was 1.96% compared to 2.48%
for the same quarter in 2002, a decrease of 52 basis points.

Interest paid on interest-bearing deposits for the six months ended June
30, 2003 was $5.5 million, down approximately $1.2 million or 17.9% compared to
$6.7 million for the same period in 2002 and was primarily due
to lower interest rates
paid for interest-bearing deposits as a result of the lower interest rate
environment that was partially offset by higher interest-bearing deposit
balances. Average interest-bearing deposits for the six months ended June 30,
2003 were $551.0 million compared to average interest-bearing deposits for the
same period in 2002 of $510.7 million, an increase of $40.3 million or 7.89%.
The average interest rate paid on interest-bearing deposits for the six months ended
June 30, 2003 was 1.99% compared to 2.66% for the same period in 2002, a
decrease of 67 basis points.

Interest Expense on Other Borrowed Funds.Interest paid on other
borrowed funds for the three months ended June 30, 2003 was $470,000, up
approximately $40,000 compared to $430,000 for the same period in 2002 and was
primarily due to higher borrowed funds balances that were partially offset by
lower interest rates paid for borrowed funds.Average borrowed funds for the
three months ended June 30, 2003 were $61.6 million compared to average
borrowed funds for the same quarter in 2002 of $49.5 million, an increase of
$12.1 million. The increase in borrowed funds reflected advances obtained from
the Federal Home Loan Bank (FHLB) to fund mortgage-related securities
investments to increase earning assets. The average interest rate paid on borrowed
funds for the three months ended June 30, 2003 was 3.09%, compared to 3.52% for
the same quarter in 2002, a decrease of 43 basis points.

Interest paid on other borrowed funds for the six months ended June 30,
2003 was $980,000, up approximately $220,000 compared to $760,000 million for
the same period in 2002 and was primarily due to higher borrowed funds balances
that were partially offset by lower interest rates paid for borrowed funds.
Average borrowed funds for the six months ended June 30, 2003
were $64.9 million compared to

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average borrowed funds for the same period in 2002 of $39.4
million, an increase of $25.5 million. The increase in borrowed funds
reflected advances obtained from the Federal Home Loan Bank (FHLB) to fund
mortgage-related securities investments to increase earning assets. The
average interest rate paid on borrowed funds for the six months ended June 30, 2003 was
3.04%, compared to 3.92% for the same period in 2002, a decrease of 88 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 June 30,
|                                                                |                                                    |                                            |         |         |                                    
|                                                                |                                                    |                                            |         |         | 2003                                |   | 2002    
|                                                                |                                                    |                                            |         |         |                                     |   |         
|                                                                |                                                    |                                            |         |         | 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                                        |                                            | $       | 551,414 |                                     |   | $        | 8,936 |         |  |             | 6.50 | %        |   | $       | 496,971 |         |   | $     | 9,705 |        |  |      | 7.83 | %   
|                                                                | Taxable securities                                 |                                            |         | 216,970 |                                     |   |          | 1,680 |         |  |             | 3.11 |          |   |         | 187,645 |         |   |       | 2,360 |        |  |      | 5.04 |     
|                                                                | Tax-exempt securities                              |                                            |         | 20,301  |                                     |   |          | 252   |         |  |             | 4.98 |          |   |         | 24,446  |         |   |       | 304   |        |  |      | 4.99 |     
|                                                                | Federal funds sold and other temporary investments |                                            |         | 26,986  |                                     |   |          | 98    |         |  |             | 1.46 |          |   |         | 19,571  |         |   |       | 98    |        |  |      | 2.01 |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                |                                                    | Total interest-earning assets              |         |         | 815,671                             |   |          |       | 10,966  |  |             |      | 5.39     | % |         |         | 728,633 |   |       |       | 12,467 |  |      |      | 6.86 | %
|                                                                | Less allowance for loan losses                     |                                            |         | (10,745 | )                                   |   |          |       |         |  |             |      |          |   |         | (8,848  | )       |   |       |       |        |  |      |      |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|Total interest-earning assets, net of allowance for
loan losses |                                                    |                                            | 804,926 |         |                                     |   |          |       |         |  |             |      |          |   | 719,785 |         |         |   |       |       |        |  |      |     
|Noninterest-earning assets                                      |                                                    |                                            | 44,787  |         |                                     |   |          |       |         |  |             |      |          |   | 50,903  |         |         |   |       |       |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                |                                                    | Total assets                               |         | $       | 849,713                             |   |          |       |         |  |             |      |          |   |         | $       | 770,688 |   |       |       |        |  |      |      |      |  
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|Liabilities and shareholders equity                            |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|Interest-bearing liabilities:                                   |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                | Interest-bearing demand deposits                   |                                            | $       | 72,524  |                                     |   |          | 129   |         |  |             | 0.71 | %        |   | $       | 70,271  |         |   |       | 216   |        |  |      | 1.23 | %   
|                                                                | Saving and money market accounts                   |                                            |         | 108,262 |                                     |   |          | 244   |         |  |             | 0.90 |          |   |         | 111,519 |         |   |       | 364   |        |  |      | 1.31 |     
|                                                                | Time deposits                                      |                                            |         | 376,333 |                                     |   |          | 2,342 |         |  |             | 2.50 |          |   |         | 329,074 |         |   |       | 2,581 |        |  |      | 3.15 |     
|                                                                | Other borrowings                                   |                                            |         | 61,575  |                                     |   |          | 474   |         |  |             | 3.09 |          |   |         | 49,498  |         |   |       | 435   |        |  |      | 3.52 |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                |                                                    | Total interest-bearing liabilities         |         |         | 618,694                             |   |          |       | 3,189   |  |             |      | 2.07     | % |         |         | 560,362 |   |       |       | 3,596  |  |      |      | 2.57 | %
|Noninterest-bearing liabilities:                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                | Noninterest-bearing demand deposits                |                                            |         | 146,362 |                                     |   |          |       |         |  |             |      |          |   |         | 132,524 |         |   |       |       |        |  |      |      |     
|                                                                | Other liabilities                                  |                                            |         | 8,467   |                                     |   |          |       |         |  |             |      |          |   |         | 9,264   |         |   |       |       |        |  |      |      |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                |                                                    | Total liabilities                          |         |         | 773,523                             |   |          |       |         |  |             |      |          |   |         |         | 702,150 |   |       |       |        |  |      |      |      |  
|Shareholders equity                                            |                                                    |                                            | 76,190  |         |                                     |   |          |       |         |  |             |      |          |   | 68,538  |         |         |   |       |       |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|                                                                |                                                    | Total liabilities and shareholders equity |         | $       | 849,713                             |   |          |       |         |  |             |      |          |   |         | $       | 770,688 |   |       |       |        |  |      |      |      |  
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|Net interest income                                             |                                                    |                                            |         |         |                                     | $ | 7,777    |       |         |  |             |      |          |   |         |         |         | $ | 8,871 |       |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                     |   |          |       |         |  |             |      |          |   |         |         |         |   |       |       |        |  |      |     
|Net interest spread                                             |                                                    |                                            |         |         |                                     |   |          |       |         |  | 3.33        | %    |          |   |         |         |         |   |       |       |        |  | 4.29 | %   
|Net interest margin                                             |                                                    |                                            |         |         |                                     |   |          |       |         |  | 3.82        | %    |          |   |         |         |         |   |       |       |        |  | 4.88 | %   



---

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

12



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##### Table of Contents



|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |      |      |   | 
|--------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------ | ------- | ------- | --------------------------------- | - | -------- | ------ | ------- |  | ----------- | ---- | -------- | - | ------- | ------- | ------- | - | ------ | ------ | ------ |  | ---- | ---- | ---- | - | 
|                                                                |                                                    |                                            |         |         | For The Six Months Ended June 30,
|                                                                |                                                    |                                            |         |         |                                  
|                                                                |                                                    |                                            |         |         | 2003                              |   | 2002    
|                                                                |                                                    |                                            |         |         |                                   |   |         
|                                                                |                                                    |                                            |         |         | 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                                        |                                            | $       | 545,911 |                                   |   | $        | 17,798 |         |  |             | 6.57 | %        |   | $       | 493,406 |         |   | $      | 19,184 |        |  |      | 7.84 | %   
|                                                                | Taxable securities                                 |                                            |         | 222,877 |                                   |   |          | 3,592  |         |  |             | 3.25 |          |   |         | 171,682 |         |   |        | 4,358  |        |  |      | 5.12 |     
|                                                                | Tax-exempt securities                              |                                            |         | 20,731  |                                   |   |          | 514    |         |  |             | 5.00 |          |   |         | 24,687  |         |   |        | 614    |        |  |      | 5.02 |     
|                                                                | Federal funds sold and other temporary investments |                                            |         | 19,836  |                                   |   |          | 153    |         |  |             | 1.56 |          |   |         | 21,874  |         |   |        | 216    |        |  |      | 1.99 |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                |                                                    | Total interest-earning assets              |         |         | 809,355                           |   |          |        | 22,057  |  |             |      | 5.50     | % |         |         | 711,649 |   |        |        | 24,372 |  |      |      | 6.91 | %
|                                                                | Less allowance for loan losses                     |                                            |         | (10,607 | )                                 |   |          |        |         |  |             |      |          |   |         | (8,902  | )       |   |        |        |        |  |      |      |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|Total interest-earning assets, net of allowance for
loan losses |                                                    |                                            | 798,748 |         |                                   |   |          |        |         |  |             |      |          |   | 702,747 |         |         |   |        |        |        |  |      |     
|Noninterest-earning assets                                      |                                                    |                                            | 44,328  |         |                                   |   |          |        |         |  |             |      |          |   | 52,298  |         |         |   |        |        |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                |                                                    | Total assets                               |         | $       | 843,076                           |   |          |        |         |  |             |      |          |   |         | $       | 755,045 |   |        |        |        |  |      |      |      |  
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|Liabilities and shareholders equity                            |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|Interest-bearing liabilities:                                   |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                | Interest-bearing demand deposits                   |                                            | $       | 73,399  |                                   |   |          | 263    |         |  |             | 0.72 | %        |   | $       | 68,554  |         |   |        | 443    |        |  |      | 1.30 | %   
|                                                                | Saving and money market accounts                   |                                            |         | 108,222 |                                   |   |          | 493    |         |  |             | 0.92 |          |   |         | 111,476 |         |   |        | 738    |        |  |      | 1.34 |     
|                                                                | Time deposits                                      |                                            |         | 369,343 |                                   |   |          | 4,703  |         |  |             | 2.57 |          |   |         | 330,717 |         |   |        | 5,541  |        |  |      | 3.38 |     
|                                                                | Other borrowings                                   |                                            |         | 64,946  |                                   |   |          | 979    |         |  |             | 3.04 |          |   |         | 39,400  |         |   |        | 765    |        |  |      | 3.92 |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                |                                                    | Total interest-bearing liabilities         |         |         | 615,910                           |   |          |        | 6,438   |  |             |      | 2.11     | % |         |         | 550,147 |   |        |        | 7,487  |  |      |      | 2.74 | %
|Noninterest-bearing liabilities:                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                | Noninterest-bearing demand deposits                |                                            |         | 143,862 |                                   |   |          |        |         |  |             |      |          |   |         | 128,202 |         |   |        |        |        |  |      |      |     
|                                                                | Other liabilities                                  |                                            |         | 7,497   |                                   |   |          |        |         |  |             |      |          |   |         | 8,869   |         |   |        |        |        |  |      |      |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                |                                                    | Total liabilities                          |         |         | 767,269                           |   |          |        |         |  |             |      |          |   |         |         | 687,218 |   |        |        |        |  |      |      |      |  
|Shareholders equity                                            |                                                    |                                            | 75,807  |         |                                   |   |          |        |         |  |             |      |          |   | 67,827  |         |         |   |        |        |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|                                                                |                                                    | Total liabilities and shareholders equity |         | $       | 843,076                           |   |          |        |         |  |             |      |          |   |         | $       | 755,045 |   |        |        |        |  |      |      |      |  
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|Net interest income                                             |                                                    |                                            |         |         |                                   | $ | 15,619   |        |         |  |             |      |          |   |         |         |         | $ | 16,885 |        |        |  |      |     
|                                                                |                                                    |                                            |         |         |                                   |   |          |        |         |  |             |      |          |   |         |         |         |   |        |        |        |  |      |     
|Net interest spread                                             |                                                    |                                            |         |         |                                   |   |          |        |         |  | 3.39        | %    |          |   |         |         |         |   |        |        |        |  | 4.16 | %   
|Net interest margin                                             |                                                    |                                            |         |         |                                   |   |          |        |         |  | 3.89        | %    |          |   |         |         |         |   |        |        |        |  | 4.78 | %   



---

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

13



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##### Table of Contents



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 six months
ended June 30, 2003 compared with the three and six months ended June 30, 2002.
For purposes of this table, changes attributable to both rate and volume have
been allocated to each accordingly.

|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |        |      |        |  
|----------------------------- | -------------------------------------------------- | --------------------------------- | --------------------------------------------- | ----- | ----------------------------------------- | ----- | ---- | ------ | ----- | ------ | - | ------ | ---- | ------ | -
|                              |                                                    |                                   |                                               |       | Three Months Ended June 30, 2003 vs. 2002
|                              |                                                    |                                   |                                               |       |                                          
|                              |                                                    |                                   |                                               |       | Increase (Decrease) Due To                |       |      |        |      
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |      
|                              |                                                    |                                   |                                               |       | Volume                                    |       | Rate |        | Total
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |      
|                              |                                                    |                                   |                                               |       | (Dollars in thousands)                   
|INTEREST- EARNING ASSETS:     |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|                              | Loans                                              |                                   | $                                             | 1,063 |                                           |       | $    | (1,832 | )     |        | $ | (769   | )   
|                              | Taxable securities                                 |                                   |                                               | 369   |                                           |       |      | (1,049 | )     |        |   | (680   | )   
|                              | Tax-exempt securities                              |                                   |                                               | (52   | )                                         |       |      |       |       |        |   | (52    | )   
|                              | Federal funds sold and other temporary investments |                                   |                                               | 37    |                                           |       |      | (37    | )     |        |   |       |     
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|                              |                                                    |                                   | Total increase (decrease) in interest income  |       |                                           | 1,417 |      |        |       | (2,918 | ) |        |      | (1,501 | )
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|INTEREST-BEARING LIABILITIES: |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|                              |                                                    | Interest-bearing demand deposits  |                                               |       | 7                                         |       |      |        | (94   | )      |   |        | (87  | )     
|                              |                                                    | Savings and money market accounts |                                               |       | (11                                       | )     |      |        | (109  | )      |   |        | (120 | )     
|                              |                                                    | Time deposits                     |                                               |       | 371                                       |       |      |        | (610  | )      |   |        | (239 | )     
|                              |                                                    | Other borrowings                  |                                               |       | 106                                       |       |      |        | (67   | )      |   |        | 39   |       
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|                              |                                                    |                                   | Total increase (decrease) in interest expense |       |                                           | 473   |      |        |       | (880   | ) |        |      | (407   | )
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       
|                              | Increase (decrease) in net interest income         |                                   | $                                             | 944   |                                           |       | $    | (2,038 | )     |        | $ | (1,094 | )   
|                              |                                                    |                                   |                                               |       |                                           |       |      |        |       |        |   |       

|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |        |      |        |  
|----------------------------- | -------------------------------------------------- | --------------------------------- | --------------------------------------------- | ----- | -------------------------------------- | ----- | ---- | ------ | ------ | ------ | - | ------ | ---- | ------ | -
|                              |                                                    |                                   |                                               |       | Six Months Ended June 30,2003 vs. 2002
|                              |                                                    |                                   |                                               |       |                                       
|                              |                                                    |                                   |                                               |       | Increase (Decrease) Due To             |       |      |        |       
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |       
|                              |                                                    |                                   |                                               |       | Volume                                 |       | Rate |        | Total 
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |       
|                              |                                                    |                                   |                                               |       | (Dollars in thousands)                
|INTEREST-EARNING ASSETS:      |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|                              | Loans                                              |                                   | $                                             | 2,041 |                                        |       | $    | (3,427 | )      |        | $ | (1,386 | )   
|                              | Taxable securities                                 |                                   |                                               | 1,300 |                                        |       |      | (2,066 | )      |        |   | (766   | )   
|                              | Tax-exempt securities                              |                                   |                                               | (98   | )                                      |       |      | (2     | )      |        |   | (100   | )   
|                              | Federal funds sold and other temporary investments |                                   |                                               | (20   | )                                      |       |      | (43    | )      |        |   | (63    | )   
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|                              |                                                    |                                   | Total increase (decrease) in interest income  |       |                                        | 3,223 |      |        |        | (5,538 | ) |        |      | (2,315 | )
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|INTEREST-BEARING LIABILITIES: |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|                              |                                                    | Interest-bearing demand deposits  |                                               |       | 31                                     |       |      |        | (211   | )      |   |        | (180 | )     
|                              |                                                    | Savings and money market accounts |                                               |       | (22                                    | )     |      |        | (223   | )      |   |        | (245 | )     
|                              |                                                    | Time deposits                     |                                               |       | 647                                    |       |      |        | (1,485 | )      |   |        | (838 | )     
|                              |                                                    | Other borrowings                  |                                               |       | 496                                    |       |      |        | (282   | )      |   |        | 214  |       
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|                              |                                                    |                                   | Total increase (decrease) in interest expense |       |                                        | 1,152 |      |        |        | (2,201 | ) |        |      | (1,049 | )
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       
|                              | Increase (decrease) in net interest income         |                                   | $                                             | 2,071 |                                        |       | $    | (3,337 | )      |        | $ | (1,266 | )   
|                              |                                                    |                                   |                                               |       |                                        |       |      |        |        |        |   |       

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 June 30,
2003 was $4.0 million, up approximately $3.0 million compared to $970,000 for
the same quarter in 2002. This increase was mainly due to net
charge-offs of $4.5 million, primarily related to deterioration in
hospitality related loans. According to industry sources, the overall
hospitality industry in the greater Houston metropolitan area for 2003 has
experienced a decline in revenues and occupancy levels of approximately 8.5%
and 5.9%, respectively, when compared to 2002, primarily due to the current
economic environment. See Financial Condition  Nonperforming Assets.

The provision for loan losses for the six months ended June 30, 2003 was
$4.8 million, up $3.2 million compared to $1.6 million for the same period in
2002 and was mainly due to net charge-offs of $4.7 million
primarily related to a deterioration in hospitality loans. The allowance for loan losses as a percent of total loans (net of unearned
interest, deferred fees, and discounts) at June 30, 2003 and December 31, 2002
was 1.85% and 1.92%, respectively.

14



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##### Table of Contents



Noninterest Income.Noninterest income for the three months ended June
30, 2003 was $2.2 million, down slightly when compared to noninterest income
for the same quarter in 2002. Service fees for the three months ended June 30,
2003 were $1.6 million, down approximately $130,000 compared to $1.7 million
for the same quarter in 2002 primarily due to less nonsufficient funds (NSF)
activity. Other loan-related fees for the three months ended June 30, 2003
were $400,000, up approximately $190,000 compared to $210,000 for the same
quarter in 2002 primarily due to an increase in late charge collections. All
other categories of noninterest income for the three months ended
June 30, 2003 were approximately $160,000, down approximately $70,000 compared to $230,000 for the
same quarter in 2002 primarily due to reduced international letters of credit
activity and the absence of a gain on sale of securities.

Noninterest income for the six months ended June 30, 2003 was $4.5
million, up slightly when compared to noninterest income for the same period in
2002. Service fees for the six months ended June 30, 2003 were $3.2 million,
down approximately $200,000 compared to $3.4 million for the same period in
2002 primarily due to less NSF related activity. Other loan-related fees for
the six months ended June 30, 2003 were $830,000, up approximately $250,000
compared to $580,000 for the same period in 2002 primarily due to an increase
in late charge collections. All other categories of noninterest income for the six months
ended June 30, 2003 were $480,000, up slightly from the same period in 2002.

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

|                                           |                          |   |                      |       |                    |   |                        |       |      |   |       |       |  |   |       |       | 
|------------------------------------------ | ------------------------ | - | -------------------- | ----- | ------------------ | - | ---------------------- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                           |                          |   | For The Three Months |       | For The Six Months
|                                           |                          |   | Ended June 30,       |       | Ended June 30,    
|                                           |                          |   |                      |       |                   
|                                           |                          |   | 2003                 |       | 2002               |   | 2003                   |       | 2002
|                                           |                          |   |                      |       |                    |   |                        |       |     
|                                           |                          |   |                      |       |                    |   | (Dollars in thousands) |       |      |   |      
|                                           |                          |   |                      |       |                    |   |                        |       |      |   |      
|Service fees                               |                          | $ | 1,610                |       |                    | $ | 1,740                  |       |      | $ | 3,152 |       |  | $ | 3,397 |      
|Other loan-related fees                    |                          |   | 402                  |       |                    |   | 213                    |       |      |   | 830   |       |  |   | 581   |      
|Letters of credit commissions and fees     |                          |   | 131                  |       |                    |   | 153                    |       |      |   | 265   |       |  |   | 279   |      
|Gain on sale of investment securities, net |                          |   |                     |       |                    |   | 32                     |       |      |   | 163   |       |  |   | 34    |      
|Other noninterest income                   |                          |   | 27                   |       |                    |   | 46                     |       |      |   | 54    |       |  |   | 151   |      
|                                           |                          |   |                      |       |                    |   |                        |       |      |   |       |       |  |   |       |      
|                                           | Total noninterest income |   | $                    | 2,170 |                    |   | $                      | 2,184 |      |   | $     | 4,464 |  |   | $     | 4,442 | 
|                                           |                          |   |                      |       |                    |   |                        |       |      |   |       |       |  |   |       |      

Noninterest Expense.Total noninterest expense for the three months ended
June 30, 2003 was $8.0 million, up approximately $1.1 million compared to $6.9
million for the same quarter in 2002. The higher noninterest expense was
primarily due to a $1.3 million lower of cost or market adjustment on the loans
held-for-sale. The net credit in foreclosed asset expense of $151,000 for the
three months ended June 30, 2003 was primarily the result of a gain on sale of
foreclosed assets. All other noninterest expense categories for the three months ended June
30, 2003, compared to the same quarter in 2002, were up approximately $117,000,
and was primarily the result of increased professional fees related to matters
concerning problem assets.

Noninterest expense for the six months ended June 30, 2003 was $14.5
million, up $1.0 million compared to $13.5 million for the same period in 2002.
The higher noninterest expense for the six months ended June 30, 2003,
compared to the same period in 2002, was primarily due to the $1.3 million
lower of cost or market adjustment mentioned above.

Salaries and benefits expense for the six months ended June 30, 2003 was
$7.6 million, up approximately $200,000 compared to $7.4 million for the same
period in 2002 primarily due to annual employee salary increases and higher
employee benefits costs. At June 30, 2003, the Companys employees, on a
full-time equivalent (FTE) basis, were 291 compared to FTE of 307 at June 30,
2002, a decrease of 16 FTE. While the number of FTE employees
decreased, the number of officer level employees increased, which
impacted the salary and benefits expense for the six months ended
June 30, 2003.

Occupancy and equipment expense for the six months ended June 30, 2003,
was $2.6 million, up approximately $120,000 compared to $2.5 million for the
same period in 2002 primarily due to additional leased space in the corporate
office. The net credit in foreclosed asset expense for the six months ended
June 30, 2003 was $152,000, down approximately $570,000 compared to foreclosed
asset expense of $418,000 for the same period in 2002. This was primarily due
to the gain on sale of foreclosed assets in the second quarter 2003 compared to

15



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##### Table of Contents



foreclosed asset expenses incurred in 2002. All
other noninterest expense categories for the six months ended
June 30, 2003 were $3.2 million, down slightly from other noninterest expense
for the same period in 2002.

The Companys efficiency ratio for the three months ended June 30, 2003
was 80.71%, an increase from 62.34% for the same quarter in 2002 and was
primarily due to lower net interest income as a result of lower interest rates
and higher noninterest expense primarily as a result of the lower of cost or
market adjustment on the loans held-for-sale. The Companys efficiency ratio
for the six months ended June 30, 2003 was 72.44%, an increase from 63.37% for
the same period in 2002 and was primarily due to the same reasons mentioned
above.

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

|                               |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |       |  | 
|------------------------------ | -------------------------------------------------------- | - | ----- | -------------------- | - | ------------------ | ----- | ---------------------- |  | ---- | ------ | ----- | - | - | ------ | ----- |  | 
|                               |                                                          |   |       | For The Three Months |   | For The Six Months
|                               |                                                          |   |       | Ended June 30,       |   | Ended June 30,    
|                               |                                                          |   |       |                      |   |                   
|                               |                                                          |   |       | 2003                 |   | 2002               |       | 2003                   |  | 2002
|                               |                                                          |   |       |                      |   |                    |       |                        |  |     
|                               |                                                          |   |       |                      |   |                    |       | (Dollars in thousands) |  |      |        |      
|                               |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |       |  | 
|Salaries and employee benefits |                                                          | $ | 3,781 |                      |   | $                  | 3,857 |                        |  | $    | 7,621  |       |   | $ | 7,427  |      
|Non-staff expenses:            |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |      
|                               | Lower of cost or market adjustment  loans held-for-sale |   |       | 1,325                |   |                    |       |                       |  |      |        | 1,325 |   |   |        |      | 
|                               | Occupancy and equipment                                  |   |       | 1,317                |   |                    |       | 1,241                  |  |      |        | 2,599 |   |   |        | 2,476 | 
|                               | Foreclosed assets, net                                   |   |       | (151                 | ) |                    |       | 155                    |  |      |        | (152  | ) |   |        | 418   | 
|                               | Professional fees                                        |   |       | 534                  |   |                    |       | 226                    |  |      |        | 714   |   |   |        | 399   | 
|                               | Advertising                                              |   |       | 47                   |   |                    |       | 77                     |  |      |        | 119   |   |   |        | 167   | 
|                               | Other noninterest expense                                |   |       | 1,175                |   |                    |       | 1,336                  |  |      |        | 2,322 |   |   |        | 2,628 | 
|                               |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |      
|                               | Total non-staff expenses                                 |   |       | 4,247                |   |                    |       | 3,035                  |  |      |        | 6,927 |   |   |        | 6,088 | 
|                               |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |      
|Total noninterest expenses     |                                                          | $ | 8,028 |                      |   | $                  | 6,892 |                        |  | $    | 14,548 |       |   | $ | 13,515 |      
|                               |                                                          |   |       |                      |   |                    |       |                        |  |      |        |       |   |   |        |      

Income Taxes.The Companys effective tax rate was 35.4% and 31.4% for
the three months ended June 30, 2003 and 2002, respectively. The Companys
effective tax rate was 22.9% and 31.4% for the six months ended June 30, 2003
and 2002, respectively. The primary reason for the difference between the
effective rate and the statutory rate for the six months ended June 30, 2003
is a higher proportion of non-taxable interest income on municipal
securities to pre-tax income.

Financial Condition

Loan Portfolio.Net loans at June 30, 2003 were $545.0 million, up $27.4
million or 5.3% from $517.6 million at December 31, 2002, primarily due to new
loan growth that has exceeded prepayments and scheduled repayments. Compared
to the loan level at December 31, 2002, during the six months ended June 30,
2003 commercial and industrial loans increased $19.8 million and real estate
loans increased $7.7 million. At June 30, 2003 and December 31, 2002, the
ratio of total loans to total deposits was 77.5% and 76.34%, respectively. At
the same dates, total loans represented 64.2% and 62.8% of total assets,
respectively.

During the second quarter 2003, nine hospitality-related loans with an
aggregate principal balance of $13.1 million were reclassified as loans
held-for-sale. These loans have been adjusted to the lower of cost or market
resulting in a $1.3 million charge to operations.

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##### Table of Contents



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

|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |       | 
|------------------------- | ---------------------------------------------------- | - | ------------------- | ------- | ----------------------- |  | ---------------------- | ----- | ------- | - | ------- | ------- | - |  | ------ | ----- | 
|                          |                                                      |   | As of June 30, 2003 |         | As of December 31, 2002
|                          |                                                      |   |                     |         |                        
|                          |                                                      |   | Amount              |         | Percent                 |  | Amount                 |       | Percent
|                          |                                                      |   |                     |         |                         |  |                        |       |        
|                          |                                                      |   |                     |         |                         |  | (Dollars in thousands) |       |         |   |        
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |       | 
|Commercial and industrial |                                                      | $ | 345,229             |         |                         |  | 61.48                  | %     |         | $ | 325,424 |         |   |  | 60.94  | %    
|Real estate mortgage:     |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|                          | Residential                                          |   |                     | 8,398   |                         |  |                        | 1.50  |         |   |         | 7,326   |   |  |        | 1.37  | 
|                          | Commercial, including loans held-for-sale            |   |                     | 168,387 |                         |  |                        | 29.99 |         |   |         | 165,608 |   |  |        | 31.01 | 
|Real estate construction: |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|                          | Residential                                          |   |                     | 12,889  |                         |  |                        | 2.30  |         |   |         | 10,589  |   |  |        | 1.98  | 
|                          | Commercial                                           |   |                     | 16,393  |                         |  |                        | 2.91  |         |   |         | 14,805  |   |  |        | 2.77  | 
|Consumer and other        |                                                      |   | 10,247              |         |                         |  | 1.82                   |       |         |   | 10,286  |         |   |  | 1.93   |      
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|Gross loans               |                                                      |   | 561,543             |         |                         |  | 100.00                 | %     |         |   | 534,038 |         |   |  | 100.00 | %    
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|                          | Less: unearned discounts, interest and deferred fees |   |                     | (6,298  | )                       |  |                        |       |         |   |         | (6,279  | ) |  |        |       | 
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|Total loans               |                                                      |   | 555,245             |         |                         |  |                        |       |         |   | 527,759 |         |   |  |        |      
|                          | Less: allowance for loan losses                      |   |                     | (10,250 | )                       |  |                        |       |         |   |         | (10,150 | ) |  |        |       | 
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      
|Loans, net                |                                                      | $ | 544,995             |         |                         |  |                        |       |         | $ | 517,609 |         |   |  |        |      
|                          |                                                      |   |                     |         |                         |  |                        |       |         |   |         |         |   |  |        |      

Nonperforming Assets.Net nonperforming assets at June 30, 2003 were
$20.7 million compared to $15.5 million at December 31, 2002, an increase of
$5.2 million, and mainly reflected additions to nonaccrual loans, primarily
in the hospitality industry. Approximately $13.1 million or 63.0% of the net
nonperforming assets at June 30, 2003 were loans collateralized by real estate.
While further deterioration in the loan portfolio is possible, management is
continuing its risk assessment and resolution program. In addition, management
is focusing its attention on minimizing the Banks credit risk through more
diversified business development. As of June 30, 2003, the Company had
approximately $86.2 million or 15.0% of the loan portfolio concentrated in the
hospitality industry, compared to $87.2 million or 21.2% of the
loan portfolio at June 30, 2002.

The ratios for net nonperforming assets to total loans and other real
estate at June 30, 2003 and December 31, 2002 were 3.71% and 2.92%,
respectively. The ratios for net nonperforming assets to total assets were
2.39% and 1.84% for the same periods, respectively. These ratios take into
consideration guarantees from the United States Department of Commerces Small
Business Administration (the SBA), the Export Import Bank of the United
States (the Ex-Im Bank), an independent agency of the United States
Government, and the Overseas Chinese Community Guaranty Fund (OCCGF), an
agency sponsored by the government of Taiwan, which were $4.9 million at June
30, 2003 compared to $3.3 million at December 31, 2002.

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

17



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##### Table of Contents



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

|                                                                      |                                |   |                        |        |                   |   |        |        | 
|--------------------------------------------------------------------- | ------------------------------ | - | ---------------------- | ------ | ----------------- | - | ------ | ------ | 
|                                                                      |                                |   | As of                  |        | As of            
|                                                                      |                                |   | June 30, 2003          |        | December 31, 2002
|                                                                      |                                |   |                        |        |                  
|                                                                      |                                |   | (Dollars in thousands)
|                                                                      |                                |   |                        |        |                   |   |        |        | 
|Nonaccrual loans                                                      |                                | $ | 23,624                 |        |                   | $ | 17,209 |       
|Accruing loans 90 days or more past due                               |                                |   | 77                     |        |                   |   | 380    |       
|Other real estate                                                     |                                |   | 1,871                  |        |                   |   | 1,185  |       
|Other assets repossessed                                              |                                |   |                       |        |                   |   | 5      |       
|                                                                      |                                |   |                        |        |                   |   |        |       
|                                                                      | Total nonperforming assets     |   |                        | 25,572 |                   |   |        | 18,779 | 
|Less: Nonperforming loans guaranteed by the SBA, Ex-Im Bank
and OCCGF |                                |   | (4,882                 | )      |                   |   | (3,310 | )     
|                                                                      |                                |   |                        |        |                   |   |        |       
|                                                                      | Total net nonperforming assets |   | $                      | 20,690 |                   |   | $      | 15,469 | 
|                                                                      |                                |   |                        |        |                   |   |        |       
|Total nonperforming assets to total assets                            |                                |   | 2.96                   | %      |                   |   | 2.24   | %     
|Total nonperforming assets to total loans and other real estate       |                                |   | 4.59                   | %      |                   |   | 3.55   | %     
|Net nonperforming assets to total assets (1)                          |                                |   | 2.39                   | %      |                   |   | 1.84   | %     
|Net nonperforming assets to total loans and other real estate (1)     |                                |   | 3.71                   | %      |                   |   | 2.92   | %     



---

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

Allowance for Loan Losses.At June 30, 2003 and December 31, 2002, the
allowance for loan losses was $10.3 million and $10.2 million, respectively, or
1.85% and 1.92% of total loans, respectively. Net charge-offs for the three
months ended June 30, 2003 were $4.5 million compared with $970,000 for the
same period in 2002. Net charge-offs for the six months ended June 30, 2003
were $4.7 million compared with $1.4 million for the same period in 2002. The
charge-offs in the second quarter 2003 were primarily related to the
hospitality industry with the largest charge-off being $1.9 million that is
related to a property scheduled for foreclosure in August 2003. Approximately
$1.2 million in charge-offs were related to six credit relationships that are
either in bankruptcy or liquidation. The remaining $1.4 million in charge-offs
were related to a motel and retail business. The charge-offs were made based
on revised appraisals, financial performance, cash flows, and other local
economic factors surrounding these loans. The Company seeks recovery of
charge-offs through all available channels.

The allowance for loan losses is established through a provision for loan
losses based on managements evaluation of known and inherent risk in the loan
portfolio. The allowance for loan losses is increased by provisions charged
against current earnings and is reduced by net charge-offs. Loans are charged
off when they are deemed to be uncollectable. Recoveries are recorded when
cash payments are received. The Company employs a systematic methodology for
determining the allowance for loan losses that includes a review of the changes
in the quality of the loan portfolio as determined by loan quality grades
assigned to each loan. The loan quality grades are administered by ongoing
reviews by loan officers, credit administration and the loan review department.
This includes an assessment of known problem loans, potential problem loans,
and other loans that exhibit weaknesses or deterioration. Specific review
factors include, but are not limited to, the general economic environment in
the Companys markets as well as the national economy, particularly the real
estate markets, value of the collateral securing loans, payment history, cash
flow analysis of borrowers and other historical information. After the
aforementioned assessment of the loan portfolio, the general economic
environment and other relevant factors, changes are implemented in the
allowance for loan losses. While this methodology is consistently followed,
future changes in circumstances, economic conditions or other factors could
cause management to reevaluate the level of the allowance for loan losses.

18



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##### Table of Contents



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

|                                                              |  |                            |                   |   |                        |        |                   |   |        |        |  
|------------------------------------------------------------- |  | -------------------------- | ----------------- | - | ---------------------- | ------ | ----------------- | - | ------ | ------ | -
|                                                              |  |                            |                   |   | As of and for the      |        | As of and for the
|                                                              |  |                            |                   |   | Six Months Ended       |        | Year Ended       
|                                                              |  |                            |                   |   | June 30, 2003          |        | December 31, 2002
|                                                              |  |                            |                   |   |                        |        |                  
|                                                              |  |                            |                   |   | (Dollars in thousands)
|                                                              |  |                            |                   |   |                        |        |                   |   |        |        |  
|Average year-to-date total loans outstanding                  |  | $                          | 545,911           |   |                        | $      | 505,495           |  
|                                                              |  |                            |                   |   |                        |        |                   |  
|Total loans outstanding at end of period                      |  | $                          | 555,246           |   |                        | $      | 527,759           |  
|                                                              |  |                            |                   |   |                        |        |                   |  
|Allowance for loan losses at beginning of period              |  | $                          | 10,150            |   |                        | $      | 8,903             |  
|Provision for loan losses                                     |  |                            | 4,815             |   |                        |        | 3,853             |  
|Charge-offs:                                                  |  |                            |                   |   |                        |        |                   |  
|                                                              |  | Commercial and industrial  |                   |   | (4,225                 | )      |                   |   | (2,721 | )     
|                                                              |  | Real estate  mortgage     |                   |   | (755                   | )      |                   |   | (271   | )     
|                                                              |  | Real estate  construction |                   |   |                       |        |                   |   |       |       
|                                                              |  | Consumer and other         |                   |   | (102                   | )      |                   |   | (132   | )     
|                                                              |  |                            |                   |   |                        |        |                   |  
|                                                              |  |                            | Total charge-offs |   |                        | (5,082 | )                 |   |        | (3,124 | )
|                                                              |  |                            |                   |   |                        |        |                   |  
|Recoveries:                                                   |  |                            |                   |   |                        |        |                   |  
|                                                              |  | Commercial and industrial  |                   |   | 301                    |        |                   |   | 450    |       
|                                                              |  | Real estate  mortgage     |                   |   | 40                     |        |                   |   | 20     |       
|                                                              |  | Real estate  construction |                   |   |                       |        |                   |   |       |       
|                                                              |  | Consumer and other         |                   |   | 26                     |        |                   |   | 48     |       
|                                                              |  |                            |                   |   |                        |        |                   |  
|                                                              |  |                            | Total recoveries  |   |                        | 367    |                   |   |        | 518    |  
|                                                              |  |                            |                   |   |                        |        |                   |  
|Net loan charge-offs                                          |  |                            | (4,715            | ) |                        |        | (2,606            | )
|                                                              |  |                            |                   |   |                        |        |                   |  
|Allowance for loan losses at end of period                    |  | $                          | 10,250            |   |                        | $      | 10,150            |  
|                                                              |  |                            |                   |   |                        |        |                   |  
|Ratio of allowance to end of period total loans               |  |                            | 1.85              | % |                        |        | 1.92              | %
|Ratio of net loan charge-offs to end of period total loans    |  |                            | 0.85              | % |                        |        | 0.49              | %
|Ratio of allowance to end of period total nonperforming loans |  |                            | 43.25             | % |                        |        | 57.71             | %
|Ratio of allowance to end of period net nonperforming loans   |  |                            | 54.47             | % |                        |        | 71.08             | %

Securities.At June 30, 2003, the securities portfolio was $254.3
million, reflecting a decrease of $5.7 million or 2.2% from $260.0 million at
December 31, 2002 primarily due to prepayments in mortgage-backed securities
that exceeded portfolio reinvestments. The securities portfolio is primarily
comprised of mortgage-backed securities, collateralized mortgage obligations,
tax-free municipal bonds, and U.S. government agency securities. The
securities portfolio has historically been funded primarily by the liquidity
created from deposit growth and loan prepayments in excess of loan funding
requirements. However, as of June 30, 2003 approximately $40.6 million in
short-term borrowings obtained from the FHLB have been utilized to fund
approximately the same amount of mortgage-backed securities to increase
interest-earning assets.

Deposits. At June 30, 2003, total deposits were $716.5 million, up $25.1
million or 3.6% from $691.4 million at December 31, 2002. Noninterest-bearing
demand deposits at June 30, 2003 increased $10.0 million or 6.9% to $154.5
million from $144.5 million at December 31, 2002. The Companys ratios of
noninterest-bearing demand deposits to total deposits at June 30, 2003 and
December 31, 2002 were 21.6% and 20.9%, respectively. Interest-bearing
deposits at June 30, 2003 increased $15.2 million or 2.8% to $562.0 million
from $546.8 million at December 31, 2002.

Other Borrowings.Other borrowings at June 30, 2003 were $66.4 million,
up approximately $600,000 compared to other borrowings of $65.8 million at
December 31, 2002. The Company has two ten-year loans totaling $25.0 million
from the FHLB to diversify its funding sources. The ten-year loans bear
interest at an average rate of 5.00% per annum until the fifth year anniversary
of the loans, September 2003, at which time the loans may be repaid or the
interest rate renegotiated at the discretion of the FHLB based upon a call
provision included in the borrowing agreement. The Company has several FHLB
advances totaling $40.6 million with weighted average fixed rates of 1.57%. Of
these advances, $32.6 million with fixed interest rates averaging 1.37% are
scheduled to mature in the third and fourth quarters of 2003. Advances in the
amount of $8.0 million with fixed rates averaging 2.39% are scheduled to mature
in 2004. These borrowings were part of a strategic plan to continue the growth
of interest-earning assets. The funds were invested primarily in
mortgage-related instruments with durations of approximately three years or
less. Other short-term borrowings at June 30, 2003 consisted of approximately
$850,000 in U.S. Treasury tax note option accounts.

19



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

|                             |                                                 |  |                        |        |              |  |   |        | 
|---------------------------- | ----------------------------------------------- |  | ---------------------- | ------ | ------------ |  | - | ------ | 
|                             |                                                 |  | June 30,               |        | December 31,
|                             |                                                 |  | 2003                   |        | 2002        
|                             |                                                 |  |                        |        |             
|                             |                                                 |  | (Dollars in thousands)
|Federal funds purchased:     |                                                 |  |                        |        |              |  |   |       
|                             | At end of period                                |  | $                      |       |              |  | $ |       | 
|                             | Average during the six months                   |  |                        |       |              |  |   | 162    | 
|                             | Maximum month-end balance during the six months |  |                        |       |              |  |   |       | 
|                             |                                                 |  |                        |        |              |  |   |        | 
|FHLB notes and advances:     |                                                 |  |                        |        |              |  |   |       
|                             | At end of period                                |  | $                      | 65,600 |              |  | $ | 65,200 | 
|                             | Average during the six months                   |  |                        | 64,452 |              |  |   | 52,343 | 
|                             | Maximum month-end balance during the six months |  |                        | 69,300 |              |  |   | 69,700 | 
|                             |                                                 |  |                        |        |              |  |   |        | 
|Other short-term borrowings: |                                                 |  |                        |        |              |  |   |       
|                             | At end of period                                |  | $                      | 848    |              |  | $ | 574    | 
|                             | Average during the six months                   |  |                        | 494    |              |  |   | 551    | 
|                             | Maximum month-end balance during the six months |  |                        | 848    |              |  |   | 713    | 

Liquidity.The Companys loan to deposit ratio at June 30, 2003 was
76.06%. As of this same date, the Company had commitments to fund loans in the
amount of $85.6 million. At June 30, 2003, the Company had stand-by letters of
credit of $6.2 million, of which, the Company has recorded a liability of
$8,236 at June 30, 2003, for the fair value of the Companys potential
obligations, which represented the unamortized portion of the letter of credit
fees. Available sources to fund these commitments and other cash demands of
the Company come from loan and investment securities repayments, deposit
inflows, and unsecured lines of credit. With its current level of collateral,
the Company has the ability to borrow an additional $127.4 million from the
FHLB. Additionally, the Company had several unused, unsecured lines of credit
with correspondent banks totaling $15.0 million at June 30, 2003 and December
31, 2002, respectively.

Capital Resources.Shareholders equity at June 30, 2003 was $73.9
million compared to $74.5 million at December 31, 2002, a decrease of
approximately $525,000 or 0.7%. This was primarily the result of net income
for the six months ended June 30, 2003 of $555,000 and a net increase in common
and treasury stock of approximately $340,000, that was offset by a reduction
in accumulated other comprehensive income (unrealized gains in the market value
of securities) of approximately $570,000 and dividend payments of approximately
$850,000.

The following table provides a comparison of the Companys and the Banks
leverage and risk-weighted capital ratios as of June 30, 2003 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 |  | June 30, 2003  
|            |                                 |  |                  |      |                   |  |                
|The Company |                                 |  |                  |      |                   |  |                 |       |   |  |  |      
|            | Leverage ratio                  |  |                  | 4.00 | %(1)              |  |                 | N/A   | % |  |  | 8.48  | %
|            | Tier 1 risk-based capital ratio |  |                  | 4.00 |                   |  |                 | N/A   |   |  |  | 12.13 |  
|            | Risk-based capital ratio        |  |                  | 8.00 |                   |  |                 | N/A   |   |  |  | 13.38 |  
|            |                                 |  |                  |      |                   |  |                 |       |   |  |  |       |  
|The Bank    |                                 |  |                  |      |                   |  |                 |       |   |  |  |      
|            | Leverage ratio                  |  |                  | 4.00 | %(2)              |  |                 | 5.00  | % |  |  | 8.07  | %
|            | Tier 1 risk-based capital ratio |  |                  | 4.00 |                   |  |                 | 6.00  |   |  |  | 11.54 |  
|            | Risk-based capital ratio        |  |                  | 8.00 |                   |  |                 | 10.00 |   |  |  | 12.79 |  

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

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

The Company believes the allowance for loan losses is a critical
accounting policy that requires the most significant judgments and estimates
used in the preparation of its consolidated financial statements. In
estimating the allowance for loan losses, management reviews effect of changes
in the local real estate market on collateral values, the effect of current
economic indicators on the loan portfolio and their probable impact on
borrowers and increases or decreases in nonperforming and impaired loans.
Changes in these factors may cause managements estimate of the allowance to
increase or decrease and result in adjustments to the Companys provision for
loan losses. SeeFinancial Condition  Allowance for Loan Losses.

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




Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in the market risk information
previously disclosed in the Companys Form 10-K for the year ended December 31,
2002. See Form 10-K, Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations  Financial Condition  Interest Rate
Sensitivity and Liquidity.




Item 4. Controls and Procedures

Evaluation of
Disclosure Controls and Procedures.As of June 30, 2003, 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 their evaluation,
there were no significant changes in the Companys internal controls or in
other factors known to the Company 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.

21



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##### Table of Contents






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

The Companys Annual Meeting of Shareholders was held on May 23, 2003. At the
meeting, the shareholders of the Company considered and acted upon the
proposals listed below.

1.     Don J. Wang, May P. Chu and John Lee were elected as Class II directors to
serve on the Board of Directors of the Company until the Companys 2006 Annual
Meeting of Shareholders and until their successors are duly elected and
qualified. The votes cast with respect to each director were as follows:

|                                |  |     |                               |          |  |  |                         | 
|------------------------------- |  | --- | ----------------------------- | -------- |  |  | ----------------------- | 
|Director                        |  | For |                               | Withheld
|                                |  |     |                               |         
|Don J. Wang
May P. Chu
John Lee |  |     | 6,079,754
6,132,921
6,132,921 |          |  |  | 246,287
193,120
193,120 | 

The other directors whose term of office as a director continued after the
meeting include Tiong L. Ang, Allen D. Brown, Helen F. Chen, Tommy F. Chen,
George M. Lee, David Tai and Joe Ting.

2.     The shareholders ratified the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the financial statements of the Company for the
year ending December 31, 2003. A total of 6,324,807 shares were voted in favor
of the proposal, 1,200 shares were voted against the proposal and 34 shares
abstained from voting on the proposal.






Item 5. Other Information

Not applicable




Item 6. (a) Exhibits

|        |  |   |  |                                                                                                                                                    
|------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                    
|Number  |  |   |  | Identification of Exhibit                                                                                                                          
|        |  |   |  |                                                                                                                                                    
|11      |  |  |  | Computation of Earnings Per Common Share, included as Note (2) to the Condensed Consolidated Financial Statements on
Page 7 of this Form 10-Q.     
|31.1    |  |  |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                        
|31.2    |  |  |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                        
|32.1    |  |  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|32.2    |  |  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.




(b)Reports
on Form 8-K

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



| | (1) |  | Current report on Form 8-K filed April 30, 2003 announcing the
release of the Companys earnings for the first quarter of 2003.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Current report on Form 8-K
filed June 17, 2003 announcing that the
Company recorded an additional provision for loan losses.   

22



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SIGNATURES

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

|                      |  |                            |  |                                                                                                                                       | 
|--------------------- |  | -------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- | 
|                      |  | METROCORP BANCSHARES, INC.
|                      |  |                            |  |                                                                                                                                       | 
|                      |  | By:                        |  | /s/ Allen D. Brown                                                                                                                    | 
|                      |  |                            |  |                                                                                                                                       | 
|Date: August 13, 2003 |  |                            |  | Allen D. Brown
President
(principal executive officer)                                                                               
|                      |  |                            |  |                                                                                                                                       | 
|Date: August 13, 2003 |  | By:                        |  | /s/ David D. Rinehart                                                                                                                 | 
|                      |  |                            |  |                                                                                                                                       | 
|                      |  |                            |  | David D. Rinehart
Executive Vice President and
Chief Financial Officer
(principal accounting officer and
principal financial officer)

23



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EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                     |  | 
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Exhibit |  |   |  |                                                                                                                                                     |  | 
|Number  |  |   |  | Identification of Exhibit                                                                                                                           |  | 
|        |  |   |  |                                                                                                                                                     |  | 
|11      |  |  |  | Computation of Earnings Per Common Share, included as Note (2) to the Condensed Consolidated Financial Statements on
Page 7 of this Form 10-Q.     
|        |  |   |  |                                                                                                                                                    
|31.1    |  |  |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                        
|        |  |   |  |                                                                                                                                                    
|31.2    |  |  |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                        
|        |  |   |  |                                                                                                                                                    
|32.1    |  |  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|        |  |   |  |                                                                                                                                                    
|32.2    |  |  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.