##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-25141
 
 METROCORP BANCSHARES, INC.
  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
 (713) 776-3876
 þ o
 o þ
    1




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsItem 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART IIOTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEXHIBIT INDEXCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I
 FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements.
 METROCORP BANCSHARES, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 June 30,
    
    December 31,2005
    
    2004ASSETSCash and due from banks
    
    $
    29,067
    
    
    $
    26,285Federal funds sold and other temporary
investments
    
    
    13,536
    
    
    
    5,788Total cash and cash equivalents
    
    
    42,603
    
    
    
    32,073Securities available-for-sale, at fair value
    
    
    248,580
    
    
    
    273,720Loans, net of allowance for loan losses of $10,706 and $10,863,
respectively
    
    
    599,132
    
    
    
    581,774Loans, held-for-sale
    
    
    
    
    
    
    1,899Accrued interest receivable
    
    
    3,439
    
    
    
    3,308Premises and equipment, net
    
    
    6,347
    
    
    
    6,512Customers liability on acceptances
    
    
    1,626
    
    
    
    6,669Foreclosed assets, net
    
    
    
    
    
    
    1,566Other assets
    
    
    7,483
    
    
    
    6,429Total assets
    
    $
    909,210
    
    
    $
    913,950LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    172,706
    
    
    $
    163,191Interest-bearing
    
    
    602,303
    
    
    
    591,862Total deposits
    
    
    775,009
    
    
    
    755,053Other borrowings
    
    
    36,445
    
    
    
    60,849Accrued interest payable
    
    
    710
    
    
    
    649Acceptances outstanding
    
    
    1,626
    
    
    
    6,669Other liabilities
    
    
    6,541
    
    
    
    5,007Total liabilities
    
    
    820,331
    
    
    
    828,227Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1.00 par value, 20,000,000 shares authorized;
7,322,627 and 7,312,627 shares issued and 7,205,956 and
7,187,446 shares outstanding at June 30, 2005 and December 31,
2004, respectively
    
    
    7,323
    
    
    
    7,313Additional paid-in capital
    
    
    28,069
    
    
    
    27,859Retained earnings
    
    
    55,142
    
    
    
    50,976Accumulated other comprehensive (loss) income
    
    
    (587
    )
    
    
    710Treasury stock, at cost
    
    
    (1,068
    )
    
    
    (1,135
    )Total shareholders equity
    
    
    88,879
    
    
    
    85,723Total liabilities and shareholders equity
    
    $
    909,210
    
    
    $
    913,950
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##### Table of Contents



METROCORP BANCSHARES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Interest income:Loans
    
    $
    10,657
    
    
    $
    8,281
    
    
    $
    20,727
    
    
    $
    16,459Securities:Taxable
    
    
    2,359
    
    
    
    2,153
    
    
    
    4,781

    
    
    
    4,370Tax-exempt
    
    
    212
    
    
    
    232
    
    
    
    430
    
    
    
    466Federal funds sold and other temporary
investments
    
    
    82
    
    
    
    23
    
    
    
    136
    
    
    
    31Total interest income
    
    
    13,310
    
    
    
    10,689
    
    
    
    26,074
    
    
    
    21,326Interest expense:Time deposits
    
    
    2,685
    
    
    
    1,850
    
    
    
    5,060
    
    
    
    3,751Demand and savings deposits
    
    
    427
    
    
    
    294
    
    
    
    813
    
    
    
    590Other borrowings
    
    
    482
    
    
    
    440
    
    
    
    1,055
    
    
    
    876Total interest expense
    
    
    3,594
    
    
    
    2,584
    
    
    
    6,928
    
    
    
    5,217Net interest income
    
    
    9,716
    
    
    
    8,105
    
    
    
    19,146
    
    
    
    16,109Provision for loan losses
    
    
    500
    
    
    
    300
    
    
    
    900
    
    
    
    850Net interest income after provision for loan
losses
    
    
    9,216
    
    
    
    7,805
    
    
    
    18,246
    
    
    
    15,259Noninterest income:Service fees
    
    
    1,633
    
    
    
    1,627
    
    
    
    3,261
    
    
    
    3,286Other loan-related fees
    
    
    172
    
    
    
    169
    
    
    
    317
    
    
    
    377Letters of credit commissions and fees
    
    
    133
    
    
    
    124
    
    
    
    275
    
    
    
    239Gain on sale of loans
    
    
    23
    
    
    
    514
    
    
    
    31
    
    
    
    569Other noninterest income
    
    
    53
    
    
    
    11
    
    
    
    180
    
    
    
    22Total noninterest income
    
    
    2,014
    
    
    
    2,445
    
    
    
    4,064
    
    
    
    4,493Noninterest expenses:Salaries and employee benefits
    
    
    3,868
    
    
    
    3,699
    
    
    
    8,004
    
    
    
    7,513Occupancy and equipment
    
    
    1,398
    
    
    
    1,430
    
    
    
    2,736
    
    
    
    2,830Foreclosed assets, net
    
    
    14
    
    
    
    (251
    )
    
    
    424
    
    
    
    (914
    )Other noninterest expense
    
    
    1,947
    
    
    
    1,730
    
    
    
    3,813
    
    
    
    3,527Total noninterest expenses
    
    
    7,227
    
    
    
    6,608
    
    
    
    14,977
    
    
    
    12,956Income before provision for income
taxes
    
    
    4,003
    
    
    
    3,642
    
    
    
    7,333
    
    
    
    6,796Provision for income taxes
    
    
    1,233
    
    
    
    1,135
    
    
    
    2,303
    
    
    
    2,126Net income
    
    $
    2,770
    
    
    $
    2,507
    
    
    $
    5,030
    
    
    $
    4,670Earnings per common share:Basic
    
    $
    0.38
    
    
    $
    0.35
    
    
    $
    0.70
    
    
    $
    0.65Diluted
    
    $
    0.38
    
    
    $
    0.35
    
    
    $
    0.69
    
    
    $
    0.64Weighted average shares outstanding:Basic
    
    
    7,205
    
    
    
    7,172
    
    
    
    7,200
    
    
    
    7,167Diluted
    
    
    7,271
    
    
    
    7,262
    
    
    
    7,282
    
    
    
    7,258Dividends per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06
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METROCORP BANCSHARES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    2,770
    
    
    $
    2,507
    
    
    $
    5,030
    
    
    $
    4,670Other comprehensive income (loss), net of tax:Unrealized gain (loss) on investment securities, net:Unrealized holding gain (loss) arising during
the period
    
    
    456
    
    
    
    (4,788
    )
    
    
    (1,297
    )
    
    
    (3,423
    )Other comprehensive income (loss)
    
    
    456
    
    
    
    (4,788
    )
    
    
    (1,297
    )
    
    
    (3,423
    )Total comprehensive income (loss)
    
    $
    3,226
    
    
    $
    (2,281
    )
    
    $
    3,733
    
    
    $
    1,247
 METROCORP BANCSHARES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For the Six Months Ended June 30, 2005
(In thousands)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    Other
    
    TreasuryCommon Stock
    
    Paid-In
    
    Retained
    
    Comprehensive
    
    StockShares
    
    At Par
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    At Cost
    
    TotalBalance at December
31, 2004
    
    
    7,188
    
    
    $
    7,313
    
    
    $
    27,859
    
    
    $
    50,976
    
    
    $
    710
    
    
    $
    (1,135
    )
    
    $
    85,723Issuance of common
stock
    
    
    10
    
    
    
    10
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Re-issuance of
treasury stock
    
    
    8
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    182Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,030
    
    
    
    
    
    
    
    
    
    
    
    5,030Other comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,297
    )
    
    
    
    
    
    
    (1,297
    )Cash dividends
($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (864
    )
    
    
    
    
    
    
    
    
    
    
    (864
    )Balance at June 30,
2005
    
    
    7,206
    
    
    $
    7,323
    
    
    $
    28,069
    
    
    $
    55,142
    
    
    $
    (587
    )
    
    $
    (1,068
    )
    
    $
    88,879
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METROCORP
BANCSHARES, INC
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the Six Months EndedJune 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    5,030
    
    
    $
    4,670Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    701
    
    
    
    664Provision for loan losses
    
    
    900
    
    
    
    850Loss (gain) on foreclosed assets
    
    
    384
    
    
    
    (1,130
    )Loss on sale and disposal of premises and equipment
    
    
    100
    
    
    
    Gain on sale of loans
    
    
    (31
    )
    
    
    (569
    )Amortization of premiums and discounts on securities
    
    
    137
    
    
    
    1,490Amortization of net deferred loan fees
    
    
    (919
    )
    
    
    (411
    )Changes in:Loans held-for-sale
    
    
    1,899
    
    
    
    3,486Accrued interest receivable
    
    
    (131
    )
    
    
    135Other assets
    
    
    (388
    )
    
    
    (650
    )Accrued interest payable
    
    
    61
    
    
    
    (31
    )Other liabilities
    
    
    1,534
    
    
    
    733Net cash provided by operating activities
    
    
    9,277
    
    
    
    9,237Cash flows from investing activities:Purchases of securities available-for-sale
    
    
    (10,304
    )
    
    
    (83,851
    )Proceeds from sales, maturities and principal paydowns of securities
available-for-sale
    
    
    33,344
    
    
    
    53,854Net change in loans
    
    
    (17,308
    )
    
    
    (261
    )Proceeds from sale of foreclosed assets
    
    
    1,182
    
    
    
    3,113Proceeds from sale of premises and equipment
    
    
    4
    
    
    
    Purchases of premises and equipment
    
    
    (640
    )
    
    
    (1,448
    )Net cash provided by (used in) investing activities
    
    
    6,278
    
    
    
    (28,593
    )Cash flows from financing activities:Net change in:Deposits
    
    
    19,956
    
    
    
    (7,956
    )Other borrowings
    
    
    (24,404
    )
    
    
    20,678Proceeds from issuance of common stock
    
    
    105
    
    
    
    50Re-issuance of treasury stock
    
    
    182
    
    
    
    188Dividends paid
    
    
    (864
    )
    
    
    (860
    )Net cash provided by (used in) financing activities
    
    
    (5,025
    )
    
    
    12,100Net increase (decrease) in cash and cash equivalents
    
    
    10,530
    
    
    
    (7,256
    )Cash and cash equivalents at beginning of period
    
    
    32,073
    
    
    
    36,927Cash and cash equivalents at end of period
    
    $
    42,603
    
    
    $
    29,671
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METROCORP BANCSHARES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
     2. SIGNIFICANT ACCOUNTING POLICIES
 Stock-Based Compensation
 Accounting for
Stock-Based Compensation,
  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share amounts)Net income:As
reported
    
    $
    2,770
    
    
    $
    2,507
    
    
    $
    5,030
    
    
    $
    4,670Pro
forma
    
    
    2,676
    
    
    
    2,464
    
    
    
    4,843
    
    
    
    4,584Stock-based compensation cost, net of
income taxes:As
reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pro
forma
    
    
    94
    
    
    
    43
    
    
    
    187
    
    
    
    86Basic earnings per common share:As
reported
    
    
    0.38
    
    
    
    0.35
    
    
    
    0.70
    
    
    
    0.65Pro
forma
    
    
    0.37
    
    
    
    0.34
    
    
    
    0.67
    
    
    
    0.64Diluted earnings per common share:As
reported
    
    
    0.38
    
    
    
    0.35
    
    
    
    0.69
    
    
    
    0.64Pro
forma
    
    
    0.37
    
    
    
    0.34
    
    
    
    0.67
    
    
    
    0.63
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METROCORP BANCSHARES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Stock-Based Compensation (Continued)
  Share-Based Payment. Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Statement of Cash Flows
  New Accounting Pronouncements
 Accounting for Certain Loans or Debt Securities Acquired in a Transfer
 Accounting Changes and Error Corrections
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METROCORP BANCSHARES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 New Accounting Pronouncements (Continued)
 Implementation Guidance for the Application of
Paragraph 16 of EITF Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security
Whose Cost Exceeds Fair Value The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments Accounting for Certain Investments
in Debt and Equity Securities Accounting for Noncurrent
Marketable Equity Securities Equity Method of Accounting for
Investments in Common Stock.
 3. EARNINGS PER COMMON SHARE
  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share amounts)Net income available to common
shareholders
    
    $
    2,770
    
    
    $
    2,507
    
    
    $
    5,030
    
    
    $
    4,670Weighted average common shares outstanding:Basic
    
    
    7,205
    
    
    
    7,172
    
    
    
    7,200
    
    
    
    7,167Shares issuable under stock option
plans
    
    
    66
    
    
    
    90
    
    
    
    82
    
    
    
    91Diluted
    
    
    7,271
    
    
    
    7,262
    
    
    
    7,282
    
    
    
    7,258Earnings per common share:Basic
    
    $
    0.38
    
    
    $
    0.35
    
    
    $
    0.70
    
    
    $
    0.65Diluted
    
    $
    0.38
    
    
    $
    0.35
    
    
    $
    0.69
    
    
    $
    0.64
 4. AGREEMENT TO ACQUIRE FIRST UNITED BANK
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5. SECURITIES AVAILABLE-FOR-SALE
  As of June 30, 2005
    
    As of December 31, 2004Gross
    
    Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    Amortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gain
    
    Loss
    
    Value
    
    Cost
    
    Gain
    
    Loss
    
    Value(Dollars in thousands)U.S. Government agencies
    
    $
    33
    
    
    $
    1
    
    
    $
    
    
    
    $
    34
    
    
    $
    35
    
    
    $
    
    
    
    $
    
    
    
    $
    35U.S. Government sponsored entities
    
    
    14,905
    
    
    
    
    
    
    
    (50
    )
    
    
    14,855
    
    
    
    4,970
    
    
    
    
    
    
    
    (18
    )
    
    
    4,952Obligations of state and political
subdivisions
    
    
    17,161
    
    
    
    781
    
    
    
    (4
    )
    
    
    17,938
    
    
    
    18,105
    
    
    
    1,030
    
    
    
    
    
    
    
    19,135Mortgage-backed securities and
collateralized mortgage obligations
    
    
    191,624
    
    
    
    388
    
    
    
    (1,829
    )
    
    
    190,183
    
    
    
    222,977
    
    
    
    1,344
    
    
    
    (1,179
    )
    
    
    223,142Other debt securities
    
    
    1,547
    
    
    
    7
    
    
    
    (1
    )
    
    
    1,553
    
    
    
    1,979
    
    
    
    14
    
    
    
    
    
    
    
    1,993Investment in ARM and CRA funds
    
    
    19,074
    
    
    
    122
    
    
    
    (303
    )
    
    
    18,893
    
    
    
    18,772
    
    
    
    89
    
    
    
    (205
    )
    
    
    18,656FHLB/Federal Reserve Bank Stock
    
    
    5,124
    
    
    
    
    
    
    
    
    
    
    
    5,124
    
    
    
    5,807
    
    
    
    
    
    
    
    
    
    
    
    5,807Total securities
    
    $
    249,468
    
    
    $
    1,299
    
    
    $
    (2,187
    )
    
    $
    248,580
    
    
    $
    272,645
    
    
    $
    2,477
    
    
    $
    (1,402
    )
    
    $
    273,720
  Less Than 12 Months
    
    Greater Than 12 Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(Dollars in thousands)U.S. Government sponsored entities
    
    $
    14,855
    
    
    $
    (50
    )
    
    $
    
    
    
    $
    
    
    
    $
    14,855
    
    
    $
    (50
    )Obligations of state and political
subdivisions
    
    
    264
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    (4
    )Mortgage-backed securities and
collateralized
mortgage obligations
    
    
    79,958
    
    
    
    (677
    )
    
    
    57,398
    
    
    
    (1,152
    )
    
    
    137,356
    
    
    
    (1,829
    )Other debt securities
    
    
    200
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    (1
    )Investment in ARM and CRA funds
    
    
    
    
    
    
    
    
    
    
    14,566
    
    
    
    (303
    )
    
    
    14,566
    
    
    
    (303
    )Total securities
    
    $
    95,277
    
    
    $
    (732
    )
    
    $
    71,964
    
    
    $
    (1,455
    )
    
    $
    167,241
    
    
    $
    (2,187
    )
  6. LITIGATION
  9




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##### Table of Contents



7. OFF-BALANCE SHEET ACTIVITIES
   As of
    
    As ofJune 30, 2005
    
    December 31, 2004Unfunded loan commitments including unfunded lines of credit
    
    $
    95,804
    
    
    $
    105,975Standby letters of credit
    
    
    5,415
    
    
    
    3,852Commercial letters of credit
    
    
    7,280
    
    
    
    11,756Operating leases
    
    
    3,180
    
    
    
    4,060Total financial instruments with off-balance sheet risk
    
    $
    111,679
    
    
    $
    125,643
 8. ALLOWANCE FOR LOAN LOSSES
  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share amounts)Allowance for loan
losses at beginning
of period
    
    $
    11,075
    
    
    $
    10,850
    
    
    $
    10,863
    
    
    $
    10,448Provision for loan
losses
    
    
    500
    
    
    
    300
    
    
    
    900
    
    
    
    850Charge-offs
    
    
    (954
    )
    
    
    (807
    )
    
    
    (1,194
    )
    
    
    (1,175
    )Recoveries
    
    
    85
    
    
    
    690
    
    
    
    137
    
    
    
    910Allowance for loan
losses at end of
period
    
    $
    10,706
    
    
    $
    11,033
    
    
    $
    10,706
    
    
    $
    11,033
 10




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Cautionary Notice Regarding Forward-looking Statements
  
    
    changes in interest rates and market prices, which could reduce the Companys net
interest margins, asset valuations and expense expectations;
    
    changes in the levels of loan prepayments and the resulting effects on the value of the
Companys loan portfolio;
    
    changes in local economic and business conditions which adversely affect the ability of
the Companys customers to transact profitable business with the Company, including the
ability of borrowers to repay their loans according to their terms or a change in the value
of the related collateral;
    
    increased competition for deposits and loans adversely affecting rates and terms;
    
    the Companys ability to identify suitable acquisition candidates;
    
    the timing, impact and other uncertainties of the Companys ability to enter new markets
successfully and capitalize on growth opportunities;
    
    increased credit risk in the Companys assets and increased operating risk caused by a
material change in commercial, consumer and/or real estate loans as a percentage of the
total loan portfolio;
    
    the failure of assumptions underlying the establishment of and provisions made to the allowance for loan losses;
    
    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 our capital levels and regulatory capital ratios;
    
    the Companys ability to acquire, operate and maintain cost effective and efficient
systems without incurring unexpectedly difficult or expensive but necessary technological
changes;
    
    the loss of senior management or operating personnel and the potential inability to hire
qualified personnel at reasonable compensation levels; 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.
  11




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##### Table of Contents



Overview
    Results of Operations
 Net Interest Income and Net Interest Margin.
    12




---



##### Table of Contents



Total Interest Income.
 Interest Income from Loans.
   Interest Income from Investments.
  Total Interest Expense.
 Interest Expense on Deposits.
  13




---



##### Table of Contents



Interest Expense on Other Borrowed Funds.
 .
 14




---



##### Table of Contents



For The Three Months Ended June 30,2005
    
    2004Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    AverageOutstanding
    
    Earned/
    
    Yield/
    
    Outstanding
    
    Earned/
    
    Yield/Balance
    
    Paid
    
    Rate(1)
    
    Balance
    
    Paid
    
    Rate(1)(Dollars in thousands)AssetsInterest-earning assets:Total loans
    
    $
    596,615
    
    
    $
    10,657
    
    
    
    7.16
    %
    
    $
    555,274
    
    
    $
    8,281
    
    
    
    6.00
    %Taxable securities
    
    
    237,633
    
    
    
    2,359
    
    
    
    3.98
    
    
    
    236,764
    
    
    
    2,153
    
    
    
    3.66Tax-exempt securities
    
    
    17,161
    
    
    
    212
    
    
    
    4.96
    
    
    
    18,742
    
    
    
    232
    
    
    
    4.98Federal funds sold and other temporary investments
    
    
    11,856
    
    
    
    82
    
    
    
    2.77
    
    
    
    10,235
    
    
    
    23
    
    
    
    0.90Total interest-earning assets
    
    
    863,265
    
    
    
    13,310
    
    
    
    6.18
    
    
    
    821,015
    
    
    
    10,689
    
    
    
    5.24Less allowance for loan losses
    
    
    (11,263
    )
    
    
    
    
    
    
    
    
    
    
    (10,872
    )Total interest-earning assets, net of allowance
for loan losses
    
    
    852,002
    
    
    
    
    
    
    
    
    
    
    
    810,143Noninterest-earning assets
    
    
    44,890
    
    
    
    
    
    
    
    
    
    
    
    48,715Total assets
    
    $
    896,892
    
    
    
    
    
    
    
    
    
    
    $
    858,858Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    85,946
    
    
    
    172
    
    
    
    0.80
    %
    
    $
    75,915
    
    
    
    119
    
    
    
    0.63
    %Savings and money market accounts
    
    
    104,127
    
    
    
    255
    
    
    
    0.98
    
    
    
    106,850
    
    
    
    175
    
    
    
    0.66Time deposits
    
    
    385,755
    
    
    
    2,685
    
    
    
    2.79
    
    
    
    354,846
    
    
    
    1,850
    
    
    
    2.10Other borrowings
    
    
    47,813
    
    
    
    482
    
    
    
    4.04
    
    
    
    63,589
    
    
    
    440
    
    
    
    2.78Total interest-bearing liabilities
    
    
    623,641
    
    
    
    3,594
    
    
    
    2.31
    
    
    
    601,200
    
    
    
    2,584
    
    
    
    1.73Noninterest-bearing liabilities:Noninterest-bearing demand deposits
    
    
    178,249
    
    
    
    
    
    
    
    
    
    
    
    172,368Other liabilities
    
    
    6,968
    
    
    
    
    
    
    
    
    
    
    
    7,354Total liabilities
    
    
    808,858
    
    
    
    
    
    
    
    
    
    
    
    780,922Shareholders equity
    
    
    88,034
    
    
    
    
    
    
    
    
    
    
    
    77,936Total liabilities and shareholders equity
    
    $
    896,892
    
    
    
    
    
    
    
    
    
    
    $
    858,858Net interest income
    
    
    
    
    
    $
    9,716
    
    
    
    
    
    
    
    
    
    
    $
    8,105Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.87
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.51
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %
 
 (1)
    
    Annualized. 15




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##### Table of Contents



For The Six Months Ended June 30,2005
    
    2004Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    AverageOutstanding
    
    Earned/
    
    Yield/
    
    Outstanding
    
    Earned/
    
    Yield/Balance
    
    Paid
    
    Rate(1)
    
    Balance
    
    Paid
    
    Rate(1)(Dollars in thousands)AssetsInterest-earning assets:Total loans
    
    $
    596,214
    
    
    $
    20,727
    
    
    
    7.01
    %
    
    $
    559,292
    
    
    $
    16,459
    
    
    
    5.92
    %Taxable securities
    
    
    243,159
    
    
    
    4,781
    
    
    
    3.96
    
    
    
    236,435
    
    
    
    4,370
    
    
    
    3.72Tax-exempt securities
    
    
    17,411
    
    
    
    430
    
    
    
    4.98
    
    
    
    18,789
    
    
    
    466
    
    
    
    4.99Federal funds sold and other temporary investments
    
    
    10,603
    
    
    
    136
    
    
    
    2.59
    
    
    
    6,982
    
    
    
    31
    
    
    
    0.89Total interest-earning assets
    
    
    867,387
    
    
    
    26,074
    
    
    
    6.06
    
    
    
    821,498
    
    
    
    21,326
    
    
    
    5.22Less allowance for loan losses
    
    
    (11,153
    )
    
    
    
    
    
    
    
    
    
    
    (10,763
    )Total interest-earning assets, net of allowance
for loan losses
    
    
    856,234
    
    
    
    
    
    
    
    
    
    
    
    810,735Noninterest-earning assets
    
    
    46,300
    
    
    
    
    
    
    
    
    
    
    
    47,972Total assets
    
    $
    902,534
    
    
    
    
    
    
    
    
    
    
    $
    858,707Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand deposits
    
    $
    87,469
    
    
    
    347
    
    
    
    0.80
    %
    
    $
    74,028
    
    
    
    218
    
    
    
    0.59
    %Savings and money market accounts
    
    
    108,245
    
    
    
    466
    
    
    
    0.87
    
    
    
    112,212
    
    
    
    372
    
    
    
    0.67Time deposits
    
    
    383,422
    
    
    
    5,060
    
    
    
    2.66
    
    
    
    356,020
    
    
    
    3,751
    
    
    
    2.12Other borrowings
    
    
    56,949
    
    
    
    1,055
    
    
    
    3.74
    
    
    
    62,152
    
    
    
    876
    
    
    
    2.83Total interest-bearing liabilities
    
    
    636,085
    
    
    
    6,928
    
    
    
    2.20
    
    
    
    604,412
    
    
    
    5,217
    
    
    
    1.74Noninterest-bearing liabilities:Noninterest-bearing demand deposits
    
    
    171,989
    
    
    
    
    
    
    
    
    
    
    
    169,171Other liabilities
    
    
    6,966
    
    
    
    
    
    
    
    
    
    
    
    6,723Total liabilities
    
    
    815,040
    
    
    
    
    
    
    
    
    
    
    
    780,306Shareholders equity
    
    
    87,494
    
    
    
    
    
    
    
    
    
    
    
    78,401Total liabilities and shareholders equity
    
    $
    902,534
    
    
    
    
    
    
    
    
    
    
    $
    858,707Net interest income
    
    
    
    
    
    $
    19,146
    
    
    
    
    
    
    
    
    
    
    $
    16,109Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.86
    %
    
    
    
    
    
    
    
    
    
    
    3.48
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.45
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %
 
 (1)
    
    Annualized. 16




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2005 vs 2004
    
    2005 vs 2004Increase (Decrease)
    
    
    
    
    
    Increase (Decrease)Due to
    
    
    
    
    
    Due toVolume
    
    Rate
    
    Total
    
    Volume
    
    Rate
    
    Total(Dollars in thousands)Interest-earning assets:Loans (including loans held-for-sale)
    
    $
    641
    
    
    $
    1,735
    
    
    $
    2,376
    
    
    $
    1,038
    
    
    $
    3,230
    
    
    $
    4,268Taxable securities
    
    
    14
    
    
    
    192
    
    
    
    206
    
    
    
    112
    
    
    
    299
    
    
    
    411Tax-exempt securities
    
    
    (19
    )
    
    
    (1
    )
    
    
    (20
    )
    
    
    (35
    )
    
    
    (1
    )
    
    
    (36
    )Federal funds sold and other temporary
investments
    
    
    4
    
    
    
    55
    
    
    
    59
    
    
    
    16
    
    
    
    89
    
    
    
    105Total increase in interest income
    
    
    640
    
    
    
    1,981
    
    
    
    2,621
    
    
    
    1,131
    
    
    
    3,617
    
    
    
    4,748Interest-bearing liabilities:Interest-bearing demand deposits
    
    
    16
    
    
    
    37
    
    
    
    53
    
    
    
    39
    
    
    
    90
    
    
    
    129Savings and money market accounts
    
    
    (4
    )
    
    
    84
    
    
    
    80
    
    
    
    (14
    )
    
    
    108
    
    
    
    94Time deposits
    
    
    167
    
    
    
    668
    
    
    
    835
    
    
    
    278
    
    
    
    1,031
    
    
    
    1,309Other borrowings
    
    
    (108
    )
    
    
    150
    
    
    
    42
    
    
    
    (76
    )
    
    
    255
    
    
    
    179Total increase in interest expense
    
    
    71
    
    
    
    939
    
    
    
    1,010
    
    
    
    227
    
    
    
    1,484
    
    
    
    1,711Increase in net interest income
    
    $
    569
    
    
    $
    1,042
    
    
    $
    1,611
    
    
    $
    904
    
    
    $
    2,133
    
    
    $
    3,037
 Provision for Loan Losses.
 Noninterest Income.
  Noninterest Expense.
  17




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##### Table of Contents



Income Taxes.
 Financial Condition
 Loan Portfolio.
  As of June, 2005
    
    As of December 31, 2004Amount
    
    Percent
    
    Amount
    
    Percent(Dollars in thousands)Commercial and industrial
    
    $
    336,563
    
    
    
    54.98
    %
    
    $
    345,570
    
    
    
    57.88
    %Real estate mortgageResidential
    
    
    8,661
    
    
    
    1.42
    
    
    
    11,199
    
    
    
    1.87Commercial
    
    
    222,599
    
    
    
    36.36
    
    
    
    188,121
    
    
    
    31.51231,260
    
    
    
    37.78
    
    
    
    199,320
    
    
    
    33.38Real estate constructionResidential
    
    
    8,135
    
    
    
    1.33
    
    
    
    9,761
    
    
    
    1.64Commercial
    
    
    27,891
    
    
    
    4.55

    
    
    
    32,868
    
    
    
    5.5036,026
    
    
    
    5.88
    
    
    
    42,629
    
    
    
    7.14Consumer and other
    
    
    8,332
    
    
    
    1.36
    
    
    
    9,556
    
    
    
    1.60Gross loans
    
    
    612,181
    
    
    
    100.00
    %
    
    
    597,075
    
    
    
    100.00
    %Less: unearned discounts, interest
and deferred fees
    
    
    (2,343
    )
    
    
    
    
    
    
    (2,539
    )Total loans
    
    
    609,838
    
    
    
    
    
    
    
    594,536Less: allowance for loan losses
    
    
    (10,706
    )
    
    
    
    
    
    
    (10,863
    )Loans, net
    
    $
    599,132
    
    
    
    
    
    
    $
    583,673
 Nonperforming Assets.
   18




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##### Table of Contents



As of
    
    As ofJune 30, 2005
    
    December 31, 2004(Dollars in thousands)Nonaccrual
loans
    
    $
    19,259
    
    
    $
    16,504Accruing loans 90
days or more past
due
    
    
    108
    
    
    
    181Other real estate
(ORE) and other
assets repossessed
(OAR)
    
    
    
    
    
    
    1,566Total
nonperforming
assets
    
    
    19,367
    
    
    
    18,251Less: Nonperforming
loans guaranteed by
the SBA, Ex-Im Bank
and OCCGF
    
    
    (2,553
    )
    
    
    (3,032
    )Total net
nonperforming
assets
    
    $
    16,814
    
    
    $
    15,219Total nonperforming
assets to total
assets
    
    
    2.13
    %
    
    
    2.00
    %Total nonperforming
assets to total
loans and
ORE/OAR
    
    
    3.18
    %
    
    
    3.06
    %Net nonperforming
assets to total
assets
(1)
    
    
    1.85
    %
    
    
    1.67
    %Net nonperforming
assets to total
loans and ORE/OAR
(1)
    
    
    2.76
    %
    
    
    2.55
    %
 
 (1)
    
    Net nonperforming assets are net of the loan portions guaranteed by the SBA, Ex-Im Bank and OCCGF.   As of
    
    As ofJune 30, 2005
    
    December 31, 2004(Dollars in thousands)Impaired loans with no SFAS No. 114
valuation reserve
    
    $
    19,131
    
    
    $
    15,339Impaired loans with a SFAS No. 114
valuation reserve
    
    
    2,891
    
    
    
    3,967Total recorded investment in impaired
loans
    
    $
    22,022
    
    
    $
    19,306Valuation allowance related to
impaired loans
    
    $
    1,426
    
    
    $
    1,751
  Allowance for Loan Losses.
  19




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##### Table of Contents



As of and for theThree Months Ended June 30,2005
    
    2004(Dollars in thousands)Average
year-to-date total
loans
outstanding
    
    $
    596,615
    
    
    $
    555,274Total loans
outstanding at end
of
period
    
    $
    609,838
    
    
    $
    554,163Allowance for loan
losses at beginning
of period
    
    $
    11,075
    
    
    $
    10,850Provision for loan
losses
    
    
    500
    
    
    
    300Charge-offs:Commercial
and
industrial
    
    
    (889
    )
    
    
    (784
    )Real estate
mortgage
    
    
    
    
    
    
    Real estate
construction
    
    
    
    
    
    
    Consumer and
other
    
    
    (65
    )
    
    
    (23
    )Total
charge-offs
    
    
    (954
    )
    
    
    (807
    )Recoveries:Commercial
and
industrial
    
    
    58
    
    
    
    683Real estate
mortgage
    
    
    
    
    
    
    5Real estate
construction
    
    
    
    
    
    
    Consumer and
other
    
    
    27
    
    
    
    2Total
recoveries
    
    
    85
    
    
    
    690Net
charge-offs
    
    
    (869
    )
    
    
    (117
    )Allowance for loan
losses at end of
period
    
    $
    10,706
    
    
    $
    11,033Ratio of allowance
to end of period
total
loans
    
    
    1.76
    %
    
    
    1.99
    %Ratio of net
charge-offs to end
of period total
loans
    
    
    0.14
    %
    
    
    0.02
    %Ratio of allowance
to end of period
total nonperforming
loans (1)
    
    
    55.28
    %
    
    
    53.20
    %Ratio of allowance
to end of period
net nonperforming
loans (2)
    
    
    63.68
    %
    
    
    62.28
    %
 
 (1)
    
    Total nonperforming loans are nonaccrual loans plus loans over 90 days past due.(2)
    
    Net nonperforming loans are nonaccrual loans plus loans over 90 days past due,
and less loan portion guaranteed by the SBA, Ex-Im Bank and OCCGF. 20




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##### Table of Contents



As of and for theSix Months Ended June 30,2005
    
    2004(Dollars in thousands)Average
year-to-date total
loans
outstanding
    
    $
    596,214
    
    
    $
    559,292Total loans
outstanding at end
of
period
    
    $
    609,838
    
    
    $
    554,163Allowance for loan
losses at beginning
of period
    
    $
    10,863
    
    
    $
    10,448Provision for loan
losses
    
    
    900
    
    
    
    850Charge-offs:Commercial
and
industrial
    
    
    (1,014
    )
    
    
    (1,126
    )Real estate
mortgage
    
    
    
    
    
    
    Real estate
construction
    
    
    (5
    )Consumer and
other
    
    
    (175
    )
    
    
    (49
    )Total
charge-offs
    
    
    (1,194
    )
    
    
    (1,175
    )Recoveries:Commercial
and
industrial
    
    
    105
    
    
    
    796Real estate
mortgage
    
    
    1
    
    
    
    102Real estate
construction
    
    
    
    
    
    
    Consumer and
other
    
    
    31
    
    
    
    12Total
recoveries
    
    
    137
    
    
    
    910Net
charge-offs
    
    
    (1,057
    )
    
    
    (265
    )Allowance for loan
losses at end of
period
    
    $
    10,706
    
    
    $
    11,033Ratio of allowance
to end of period
total
loans
    
    
    1.76
    %
    
    
    1.99
    %Ratio of net
charge-offs to end
of period total
loans
    
    
    0.17
    %
    
    
    0.05
    %Ratio of allowance
to end of period
total nonperforming
loans (1)
    
    
    55.28
    %
    
    
    53.20
    %Ratio of allowance
to end of period
net nonperforming
loans (2)
    
    
    63.68
    %
    
    
    62.28
    %
 
 (1)
    
    Total nonperforming loans are nonaccrual loans plus loans over 90 days past due.(2)
    
    Net nonperforming loans are nonaccrual loans plus loans over 90 days past due,
and less loan portion guaranteed by the SBA, Ex-Im Bank and OCCGF. Securities.
 Deposits
 Other Borrowings.
 21




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##### Table of Contents



As of and for the
    
    As of and for theSix Months Ended
    
    Year EndedJune, 2005
    
    December 31, 2004(Dollars in thousands)Federal funds purchased:at end of period
    
    $
    
    
    
    $
    average during the period
    
    
    22
    
    
    
    maximum month-end balance during the period
    
    
    
    
    
    
    FHLB notes:at end of period
    
    $
    35,900
    
    
    $
    59,900average during the period
    
    
    56,231
    
    
    
    63,288maximum month-end balance during the period
    
    
    72,500
    
    
    
    74,300Interest rate at end of period
    
    
    4.45
    %
    
    
    3.46
    %Interest rate during the period
    
    
    3.74
    
    
    
    2.93Other short-term borrowings:at end of period
    
    $
    545
    
    
    $
    949average during the period
    
    
    695
    
    
    
    734maximum month-end balance during the period
    
    
    937
    
    
    
    1,057
 Liquidity.
 Capital Resources.
  Minimum
    
    To Be Categorized asRequired For
    
    Well Capitalized UnderCapital Adequacy
    
    Prompt Corrective
    
    Actual Ratio AtPurposes
    
    Action Provisions
    
    June 30, 2005The CompanyLeverage
ratio
    
    
    4.00
    %(1)
    
    
    N/A
    %
    
    
    9.87
    %Tier 1 risk-based
capital
ratio
    
    
    4.00
    
    
    
    N/A
    
    
    
    13.48Risk-based capital
ratio
    
    
    8.00
    
    
    
    N/A
    
    
    
    14.74The BankLeverage
ratio
    
    
    4.00
    %(2)
    
    
    5.00
    %
    
    
    9.61
    %Tier 1 risk-based
capital
ratio
    
    
    4.00
    
    
    
    6.00
    
    
    
    13.13Risk-based capital
ratio
    
    
    8.00
    
    
    
    10.00
    
    
    
    14.39
 
 (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. 22




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##### Table of Contents



Critical Accounting Policies.
 Allowance for Loan Losses
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 23




---



##### Table of Contents



PART II
 
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Director
    
    For
    
    WithheldHelen F. Chen
    
    
    6,132,244
    
    
    
    516,485Shirley L. Clayton
    
    
    6,596,015
    
    
    
    52,714George M. Lee
    
    
    6,585,275
    
    
    
    63,454John E. Peterson
    
    
    6,587,171
    
    
    
    61,558David Tai
    
    
    6,566,011
    
    
    
    82,718Daniel B. Wright
    
    
    6,574,775
    
    
    
    73,954
   
 Item 5. Other Information
  24




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit11
    
    - Computation of Earnings Per Common Share, included as Note (3)
to the unaudited Condensed Consolidated Financial Statements on
Page 8 of this Form 10-Q.31.1*
    
    - Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2*
    
    - Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1*
    
    - Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    - Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    Filed herewith. 25




---



##### Table of Contents



SIGNATURES
  METROCORP BANCSHARES, INC.By:
    /s/ George M. LeeDate: August 12, 2005
    
    George M. LeeChief Executive Office (principal executive officer)Date: August 12, 2005
    By:
    /s/ David C. ChoiDavid C. ChoiChief Financial Officer (principal financial officer/
principal accounting officer) 26




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Identification of Exhibit11
    
    -
    
    Computation of Earnings Per Common Share, included as
Note (3) to the unaudited Condensed Consolidated
Financial Statements on Page 8 of this Form 10-Q.31.1*
    
    -
    
    Certification of the Chief Executive Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.31.2*
    
    -
    
    Certification of the Chief Financial Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.32.1*
    
    -
    
    Certification of the Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    -
    
    Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    Filed herewith. 27