##### 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 MARCH 31, 2006
 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  )
 
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of class)
 
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-accelerated Filer o
 o þ




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TABLE OF CONTENTS  PART IItem 1. Condensed Consolidated Financial StatementsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 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. ExhibitsSIGNATURESArticles of Amendment to Amended Articles of IncorporationCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350    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)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCash and due from banks
    
    $
    25,570
    
    
    $
    28,213Federal funds sold and other short-term investments
    
    
    67,046
    
    
    
    53,599Total cash and cash equivalents
    
    
    92,616
    
    
    
    81,812Securities available-for-sale, at fair value
    
    
    224,310
    
    
    
    236,100Loans, net of allowance for loan losses of $13,729 and $13,169,
respectively
    
    
    772,964
    
    
    
    758,304Accrued interest receivable
    
    
    4,763
    
    
    
    4,835Premises and equipment, net
    
    
    6,125
    
    
    
    6,196Goodwill
    
    
    21,607
    
    
    
    21,607Core deposit intangibles
    
    
    1,310
    
    
    
    1,428Customers liability on acceptances
    
    
    4,007
    
    
    
    3,148Foreclosed assets, net
    
    
    4,286
    
    
    
    3,866Other assets
    
    
    11,466
    
    
    
    10,908Total assets
    
    $
    1,143,454
    
    
    $
    1,128,204LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    183,859
    
    
    $
    195,422Interest-bearing
    
    
    788,007
    
    
    
    766,328Total deposits
    
    
    971,866
    
    
    
    961,750Junior subordinated debentures
    
    
    36,083
    
    
    
    36,083Other borrowings
    
    
    25,575
    
    
    
    26,054Accrued interest payable
    
    
    1,115
    
    
    
    1,126Acceptances outstanding
    
    
    4,007
    
    
    
    3,148Other liabilities
    
    
    9,829
    
    
    
    7,815Total liabilities
    
    
    1,048,475
    
    
    
    1,035,976Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1.00 par value, 20,000,000 shares authorized;
7,329,977 shares issued and 7,256,461 and 7,232,239 shares outstanding
at March 31, 2006 and December 31, 2005, respectively
    
    
    7,330
    
    
    
    7,330Additional paid-in capital
    
    
    28,835
    
    
    
    28,576Retained earnings
    
    
    62,821
    
    
    
    60,023Accumulated other comprehensive loss
    
    
    (3,264
    )
    
    
    (2,783
    )Treasury stock, at cost
    
    
    (743
    )
    
    
    (918
    )Total shareholders equity
    
    
    94,979
    
    
    
    92,228Total liabilities and shareholders equity
    
    $
    1,143,454
    
    
    $
    1,128,204
  1




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METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 For the Three MonthsEnded March 31,2006
    
    
    2005Interest income:Loans
    
    $
    16,423
    
    
    $
    10,070Securities:Taxable
    
    
    2,264
    
    
    
    2,422Tax-exempt
    
    
    206
    
    
    
    218Federal funds sold and other short-term investments
    
    
    638
    
    
    
    54Total interest income
    
    
    19,531
    
    
    
    12,764Interest expense:Time deposits
    
    
    5,027
    
    
    
    2,375Demand and savings deposits
    
    
    916
    
    
    
    386Junior subordinated debentures
    
    
    520
    
    
    
    Other borrowings
    
    
    323
    
    
    
    573Total interest expense
    
    
    6,786
    
    
    
    3,334Net interest income
    
    
    12,745
    
    
    
    9,430Provision for loan losses
    
    
    258
    
    
    
    474Net interest income after provision for loan
losses
    
    
    12,487
    
    
    
    8,956Noninterest income:Service fees
    
    
    1,461
    
    
    
    1,628Loan-related fees
    
    
    211
    
    
    
    145Letters of credit commissions and fees
    
    
    171
    
    
    
    142Other noninterest income
    
    
    76
    
    
    
    135Total noninterest income
    
    
    1,919
    
    
    
    2,050Noninterest expenses:Salaries and employee benefits
    
    
    5,290
    
    
    
    4,136Occupancy and equipment
    
    
    1,544
    
    
    
    1,338Foreclosed assets, net
    
    
    43
    
    
    
    410Other noninterest expense
    
    
    2,634
    
    
    
    1,792Total noninterest expenses
    
    
    9,511
    
    
    
    7,676Income before provision for income taxes
    
    
    4,895
    
    
    
    3,330Provision for income taxes
    
    
    1,664
    
    
    
    1,070Net income
    
    $
    3,231
    
    
    $
    2,260Earnings per common share:Basic
    
    $
    0.45
    
    
    $
    0.31Diluted
    
    $
    0.44
    
    
    $
    0.31Weighted average shares outstanding:Basic
    
    
    7,245
    
    
    
    7,194Diluted
    
    
    7,353
    
    
    
    7,292Dividends per common share
    
    $
    0.06
    
    
    $
    0.06
  2




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METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 For the Three MonthsEnded March 31,2006
    
    
    2005Net income
    
    $
    3,231
    
    
    $
    2,260Other comprehensive loss, net of tax:Unrealized loss on investment securities, net:Unrealized holding loss arising during
the period
    
    
    (480
    )
    
    
    (1,753
    )Less: reclassification adjustment for
gain included in net income
    
    
    1
    
    
    
    Other comprehensive loss
    
    
    (481
    )
    
    
    (1,753
    )Total comprehensive income
    
    $
    2,750
    
    
    $
    507
 METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For the Three Months Ended March 31, 2006
(In thousands)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TreasuryCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock, AtShares
    
    
    At Par
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Cost
    
    
    TotalBalance at December 31, 2005
    
    
    7,232
    
    
    $
    7,330
    
    
    $
    28,576
    
    
    $
    60,023
    
    
    $
    (2,783
    )
    
    $
    (918
    )
    
    $
    92,228Re-issuance of treasury stock
    
    
    24
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    394Stock-based compensation
expense recognized in
earnings
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Tax benefit related to stock-
based compensation
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,231
    
    
    
    
    
    
    
    
    
    
    
    3,231Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (481
    )
    
    
    
    
    
    
    (481
    )Cash dividends ($0.06 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (433
    )
    
    
    
    
    
    
    
    
    
    
    (433
    )Balance at March 31, 2006
    
    
    7,256
    
    
    $
    7,330
    
    
    $
    28,835
    
    
    $
    62,821
    
    
    $
    (3,264
    )
    
    $
    (743
    )
    
    $
    94,979
  3




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METROCORP BANCSHARES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net Income
    
    $
    3,231
    
    
    $
    2,260Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    326
    
    
    
    347Provision for loan losses
    
    
    258
    
    
    
    474Gain on sale of securities, net
    
    
    (2
    )
    
    
    Loss on foreclosed assets
    
    
    
    
    
    
    391Loss on sale and disposal of premises and equipment
    
    
    
    
    
    
    99Gain on sale of loans
    
    
    (8
    )
    
    
    (8
    )Amortization of premiums and discounts on securities
    
    
    24
    
    
    
    75Amortization of deferred loan fees and discounts
    
    
    (574
    )
    
    
    (498
    )Amortization of core deposit intangibles
    
    
    118
    
    
    
    Stock-based compensation
    
    
    28
    
    
    
    Excess tax benefits from stock-based compensation
    
    
    (12
    )
    
    
    Changes in:Accrued interest receivable
    
    
    72
    
    
    
    123Other assets
    
    
    (302
    )
    
    
    47Accrued interest payable
    
    
    (11
    )
    
    
    38Other liabilities
    
    
    2,030
    
    
    
    601Net cash provided by operating activities
    
    
    5,178
    
    
    
    3,949Cash flows from investing activities:Purchases of securities available-for-sale
    
    
    (235
    )
    
    
    (185
    )Proceeds from sales, maturities and principal paydowns of securities
available-for-sale
    
    
    11,266
    
    
    
    15,520Net change in loans
    
    
    (14,756
    )
    
    
    877Proceeds from sale of premises and equipment
    
    
    
    
    
    
    4Purchases of premises and equipment
    
    
    (255
    )
    
    
    (398
    )Net cash (used in) provided by investing activities
    
    
    (3,980
    )
    
    
    15,818Cash flows from financing activities:Net change in:Deposits
    
    
    10,116
    
    
    
    (12,987
    )Other borrowings
    
    
    (479
    )
    
    
    (5,712
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    105Re-issuance of treasury stock
    
    
    394
    
    
    
    91Dividends paid
    
    
    (437
    )
    
    
    (431
    )Excess tax benefits from stock-based compensation
    
    
    12
    
    
    
    Net cash provided by (used in) financing activities
    
    
    9,606
    
    
    
    (18,934
    )Net increase in cash and cash equivalents
    
    
    10,804
    
    
    
    833Cash and cash equivalents at beginning of period
    
    
    81,812
    
    
    
    32,073Cash and cash equivalents at end of period
    
    $
    92,616
    
    
    $
    32,906
  4




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METROCORP BANCSHARES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
      2. STOCK-BASED COMPENSATION
 Adoption
of SFAS No. 123R
   5




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For the ThreeMonths EndedMarch 31, 2005Net income:As reported
    
    $
    2,260Pro forma
    
    $
    2,166Stock-based compensation cost, net of
income taxes:As reported
    
    $
    Pro forma
    
    $
    94Basic earnings per common share:As reported
    
    $
    0.31Pro forma
    
    $
    0.30Diluted earnings per common share:As reported
    
    $
    0.31Pro forma
    
    $
    0.30
   Stock
Incentive Plan
   6




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##### Table of Contents



WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOutstanding
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding options at December 31, 2005
    
    
    449,150
    
    
    $
    18.18Options granted
    
    
    
    
    
    
    Options exercised
    
    
    20,750
    
    
    
    14.14Options forfeited
    
    
    4,500
    
    
    
    24.04Outstanding options at March 31, 2006
    
    
    423,900
    
    
    $
    18.32
    
    
    
    5.07
    
    
    $
    3,681Exercisable options at March 31, 2006
    
    
    315,600
    
    
    $
    16.84
    
    
    
    4.38
    
    
    $
    3,208
  Stock Purchase Plan
  7




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##### Table of Contents



3. SECURITIES AVAILABLE-FOR-SALE
  As of March 31, 2006
    
    
    As of December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossAmortized
    
    
    Gross
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Gross
    
    
    Unrealized
    
    
    FairCost
    
    
    Unrealized Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Unrealized Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)U.S. Government
agencies
    
    $
    31
    
    
    $
    2
    
    
    $
    
    
    
    $
    33
    
    
    $
    32
    
    
    $
    
    
    
    $
    
    
    
    $
    32U.S. Government sponsored
enterprises
    
    
    36,878
    
    
    
    
    
    
    
    (574
    )
    
    
    36,304
    
    
    
    36,869
    
    
    
    
    
    
    
    (526
    )
    
    
    36,343Obligations of state and
political
subdivisions
    
    
    15,625
    
    
    
    496
    
    
    
    
    
    
    
    16,121
    
    
    
    17,162
    
    
    
    551
    
    
    
    
    
    
    
    17,713Mortgage-backed securities
and collateralized
mortgage
obligations
    
    
    152,557
    
    
    
    88
    
    
    
    (4,458
    )
    
    
    148,187
    
    
    
    162,294
    
    
    
    112
    
    
    
    (3,974
    )
    
    
    158,432Other debt securities
    
    
    270
    
    
    
    2
    
    
    
    
    
    
    
    272
    
    
    
    292
    
    
    
    3
    
    
    
    
    
    
    
    295Investment in ARM and CRA
funds
    
    
    19,513
    
    
    
    
    
    
    
    (521
    )
    
    
    18,992
    
    
    
    19,419
    
    
    
    17
    
    
    
    (412
    )
    
    
    19,024FHLB/Federal Reserve Bank
stock
    
    
    3,318
    
    
    
    
    
    
    
    
    
    
    
    3,318
    
    
    
    3,178
    
    
    
    
    
    
    
    
    
    
    
    3,178Investment in subsidiary
trust
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    1,083
    
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    1,083Total securities
    
    $
    229,275
    
    
    $
    588
    
    
    $
    (5,553
    )
    
    $
    224,310
    
    
    $
    240,329
    
    
    $
    683
    
    
    $
    (4,912
    )
    
    $
    236,100
  Less Than 12 Months
    
    
    Greater Than 12 Months
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(Dollars in thousands)U.S. Government sponsored
enterprises
    
    $
    26,084
    
    
    $
    (318
    )
    
    $
    10,220
    
    
    $
    (256
    )
    
    $
    36,304
    
    
    $
    (574
    )Mortgage-backed securities and
collateralized mortgage
obligations
    
    
    68,827
    
    
    
    (1,742
    )
    
    
    73,506
    
    
    
    (2,716
    )
    
    
    142,333
    
    
    
    (4,458
    )Investment in ARM and CRA funds
    
    
    4,270
    
    
    
    (66
    )
    
    
    14,722
    
    
    
    (455
    )
    
    
    18,992
    
    
    
    (521
    )Total securities
    
    $
    99,181
    
    
    $
    (2,126
    )
    
    $
    98,448
    
    
    $
    (3,427
    )
    
    $
    197,629
    
    
    $
    (5,553
    )
  8




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4. ALLOWANCE FOR LOAN LOSSES
  As of and for the three
    
    
    As of and for the threemonths ended
    
    
    months endedMarch 31, 2006
    
    
    March 31, 2005(Dollars in thousands)Allowance for loan
losses at beginning
of period
    
    $
    13,169
    
    
    $
    10,501Provision for loan
losses
    
    
    258
    
    
    
    474Charge-offs
    
    
    (1,097
    )
    
    
    (240
    )Recoveries
    
    
    1,399
    
    
    
    52Allowance for loan
losses at end of
period
    
    $
    13,729
    
    
    $
    10,787
 5. EARNINGS PER COMMON SHARE
  For the Three MonthsEnded March 31,2006
    
    
    2005(In thousands, except per share amounts)Net income available to common
shareholders
    
    $
    3,231
    
    
    $
    2,260Weighted average common shares in basic EPS
    
    
    7,245
    
    
    
    7,194Effect of dilutive securities
    
    
    108
    
    
    
    98Weighted average common and potentially dilutive
common shares used in diluted EPS
    
    
    7,353
    
    
    
    7,292Earnings per common share:Basic
    
    $
    0.45
    
    
    $
    0.31Diluted
    
    $
    0.44
    
    
    $
    0.31
 6. LITIGATION
  9




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7. OFF-BALANCE SHEET ACTIVITIES
   As of
    
    
    As ofMarch 31, 2006
    
    
    December 31, 2005Unfunded loan commitments including unfunded lines of credit
    
    $
    159,927
    
    
    $
    152,190Standby letters of credit
    
    
    4,825
    
    
    
    4,589Commercial letters of credit
    
    
    13,747
    
    
    
    6,593Operating leases
    
    
    6,824
    
    
    
    5,467Total financial instruments with off-balance sheet risk
    
    $
    185,323
    
    
    $
    168,839
 8. OPERATING SEGMENT INFORMATION
   MetroBank
    
    
    First United
    
    
    Other
    
    
    Consolidated CompanyTotal interest income
    
    $
    16,176
    
    
    $
    3,338
    
    
    $
    17
    
    
    $
    19,531Total interest expense
    
    
    4,759
    
    
    
    1,507
    
    
    
    520
    
    
    
    6,786Net interest income
    
    
    11,417
    
    
    
    1,831
    
    
    
    (503
    )
    
    
    12,745Provision for loan losses
    
    
    205
    
    
    
    53
    
    
    
    
    
    
    
    258Net interest income after provision
for loan losses
    
    
    11,212
    
    
    
    1,778
    
    
    
    (503
    )
    
    
    12,487Noninterest income
    
    
    1,842
    
    
    
    77
    
    
    
    
    
    
    
    1,919Noninterest expense
    
    
    7,990
    
    
    
    1,115
    
    
    
    406
    
    
    
    9,511Income before income tax
provision
    
    
    5,064
    
    
    
    740
    
    
    
    (909
    )
    
    
    4,895Provision for income taxes
    
    
    1,731
    
    
    
    246
    
    
    
    (313
    )
    
    
    1,664Net income
    
    $
    3,333
    
    
    $
    494
    
    
    $
    (596
    )
    
    $
    3,231Net loans
    
    $
    633,856
    
    
    $
    139,108
    
    
    $
    
    
    
    $
    772,964Assets
    
    
    930,017
    
    
    
    212,232
    
    
    
    1,205
    
    
    
    1,143,454Deposits
    
    
    804,114
    
    
    
    170,544
    
    
    
    (2,792
    )
    
    
    971,866
 9. SIGNIFICANT ACCOUNTING POLICIES
 New Accounting Pronouncements
  10




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##### Table of Contents



11




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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.
  12




---



##### Table of Contents



Overview
     Results of Operations
 Net Interest Income and Net Interest Margin.
  Total Interest Income.
 Interest Income from Loans.
  13




---



##### Table of Contents



Interest Income from Investments.
 Total Interest Expense.
 Interest Expense on Deposits.
 Interest Expense on Other Borrowings.
 14




---



##### Table of Contents



For The Three Months Ended March 31,2006
    
    
    2005Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    AverageOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate(1)
    
    
    Balance
    
    
    Paid
    
    
    Rate(1)(Dollars in thousands)AssetsInterest-earning assets:Loans (2)
    
    $
    772,913
    
    
    $
    16,423
    
    
    
    8.62
    %
    
    $
    595,808
    
    
    $
    10,070
    
    
    
    6.85
    %Taxable securities
    
    
    214,470
    
    
    
    2,264
    
    
    
    4.28
    
    
    
    248,746
    
    
    
    2,422
    
    
    
    3.95Tax-exempt securities
    
    
    16,685
    
    
    
    206
    
    
    
    5.01
    
    
    
    17,664
    
    
    
    218
    
    
    
    5.01Federal funds sold and other
short-term investments
    
    
    60,411
    
    
    
    638
    
    
    
    4.28
    
    
    
    9,336
    
    
    
    54
    
    
    
    2.35Total interest-earning
assets
    
    
    1,064,479
    
    
    
    19,531
    
    
    
    7.44
    
    
    
    871,554
    
    
    
    12,764
    
    
    
    5.94Allowance for loan losses
    
    
    (13,811
    )
    
    
    
    
    
    
    
    
    
    
    (11,042
    )Total interest-earning assets, net of
allowance for loan
losses
    
    
    1,050,668
    
    
    
    
    
    
    
    
    
    
    
    860,512Noninterest-earning assets
    
    
    81,789
    
    
    
    
    
    
    
    
    
    
    
    47,726Total assets
    
    $
    1,132,457
    
    
    
    
    
    
    
    
    
    
    $
    908,238Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand
deposits
    
    $
    80,918
    
    
    $
    169
    
    
    
    0.85
    %
    
    $
    89,009
    
    
    $
    175
    
    
    
    0.80
    %Savings and money market
accounts
    
    
    143,532
    
    
    
    747
    
    
    
    2.11
    
    
    
    112,409
    
    
    
    211
    
    
    
    0.76Time deposits
    
    
    549,036
    
    
    
    5,027
    
    
    
    3.71
    
    
    
    381,063
    
    
    
    2,375
    
    
    
    2.53Junior subordinated debentures
    
    
    36,083
    
    
    
    520
    
    
    
    5.76
    
    
    
    
    
    
    
    
    
    
    
    Other borrowings
    
    
    26,659
    
    
    
    323
    
    
    
    4.91
    
    
    
    66,187
    
    
    
    573
    
    
    
    3.51Total interest-bearing
liabilities
    
    
    836,228
    
    
    
    6,786
    
    
    
    3.29
    
    
    
    648,668
    
    
    
    3,334
    
    
    
    2.08Noninterest-bearing liabilities:Noninterest-bearing demand
deposits
    
    
    188,767
    
    
    
    
    
    
    
    
    
    
    
    165,659Other liabilities
    
    
    12,845
    
    
    
    
    
    
    
    
    
    
    
    6,963Total liabilities
    
    
    1,037,840
    
    
    
    
    
    
    
    
    
    
    
    821,290Shareholders equity
    
    
    94,617
    
    
    
    
    
    
    
    
    
    
    
    86,948Total liabilities and
shareholders equity
    
    $
    1,132,457
    
    
    
    
    
    
    
    
    
    
    $
    908,238Net interest income
    
    
    
    
    
    $
    12,745
    
    
    
    
    
    
    
    
    
    
    $
    9,430Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.15
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.86
    %
    
    
    
    
    
    
    
    
    
    
    4.39
    %
 
 (1)
    
    Annualized.(2)
    
    Including loans held-for-sale with an average balance of $1.9 million for the three months ended March 31, 2005. 15




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##### Table of Contents



Three Months Ended March 31,2006 vs 2005Increase (Decrease)Due toVolume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans (1)
    
    $
    2,993
    
    
    $
    3,360
    
    
    $
    6,353Taxable
securities
    
    
    (334
    )
    
    
    176
    
    
    
    (158
    )Tax-exempt
securities
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Federal funds sold and other
short-term investments
    
    
    295
    
    
    
    289
    
    
    
    584Total increase in interest
income
    
    
    2,942
    
    
    
    3,825
    
    
    
    6,767Interest-bearing liabilities:Interest-bearing demand
deposits
    
    
    (16
    )
    
    
    10
    
    
    
    (6
    )Savings and money market
accounts
    
    
    58
    
    
    
    478
    
    
    
    536Time deposits
    
    
    1,047
    
    
    
    1,605
    
    
    
    2,652Junior subordinated
debentures
    
    
    520
    
    
    
    
    
    
    
    520Other
borrowings
    
    
    (342
    )
    
    
    92
    
    
    
    (250
    )Total increase in interest
expense
    
    
    1,267
    
    
    
    2,185
    
    
    
    3,452Increase in net interest
income
    
    $
    1,675
    
    
    $
    1,640
    
    
    $
    3,315
 
 (1)
    
    Including loans held-for-sale of $1.9 million for the three months ended March 31, 2005. Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
  16




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##### Table of Contents



Income Taxes.
 Financial Condition
 Loan Portfolio.
  As of March 31, 2006
    
    
    As of December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Commercial and
industrial
    
    $
    331,889
    
    
    
    42.02
    %
    
    $
    331,869
    
    
    
    42.84
    %Real estate mortgageResidential
    
    
    7,493
    
    
    
    0.95
    
    
    
    7,739
    
    
    
    1.00Commercial
    
    
    390,892
    
    
    
    49.49
    
    
    
    368,508
    
    
    
    47.57398,385
    
    
    
    50.44
    
    
    
    376,247
    
    
    
    48.57Real estate constructionResidential
    
    
    12,572
    
    
    
    1.59
    
    
    
    12,095
    
    
    
    1.56Commercial
    
    
    38,729
    
    
    
    4.90
    
    
    
    44,315
    
    
    
    5.7251,301
    
    
    
    6.49
    
    
    
    56,410
    
    
    
    7.28Consumer and other
    
    
    8,272
    
    
    
    1.05
    
    
    
    10,172
    
    
    
    1.31Gross loans
    
    
    789,847
    
    
    
    100.00
    %
    
    
    774,698
    
    
    
    100.00
    %Unearned discounts, interest
and deferred fees
    
    
    (3,154
    )
    
    
    
    
    
    
    (3,225
    )Total loans
    
    
    786,693
    
    
    
    
    
    
    
    771,473Allowance for loan losses
    
    
    (13,729
    )
    
    
    
    
    
    
    (13,169
    )Loans, net
    
    $
    772,964
    
    
    
    
    
    
    $
    758,304
 Nonperforming Assets.
   17




---



##### Table of Contents



As of
    
    
    As ofMarch 31, 2006
    
    
    December 31, 2005(Dollars in thousands)Nonaccrual
loans
    
    $
    11,002
    
    
    $
    15,606Accruing loans 90
days or more past
due
    
    
    519
    
    
    
    32Other real estate
(ORE) and other
assets repossessed
(OAR)
    
    
    4,286
    
    
    
    3,866Total
nonperforming
assets
    
    
    15,807
    
    
    
    19,504Nonperforming loans
guaranteed by the
SBA, Ex-Im Bank and
OCCGF
    
    
    (2,110
    )
    
    
    (2,210
    )Total net
nonperforming
assets
    
    $
    13,697
    
    
    $
    17,294Total nonperforming
assets to total
assets
    
    
    1.38
    %
    
    
    1.73
    %Total nonperforming
assets to total
loans and
ORE/OAR
    
    
    2.00
    %
    
    
    2.52
    %Net nonperforming
assets to total
assets
(1)
    
    
    1.20
    %
    
    
    1.53
    %Net nonperforming
assets to total
loans and ORE/OAR
(1)
    
    
    1.73
    %
    
    
    2.23
    %
 
 (1)
    
    Net nonperforming assets are net of the loan portions guaranteed by the SBA, Ex-Im Bank and OCCGF.   As of
    
    
    As ofMarch 31, 2006
    
    
    December 31, 2005(Dollars in thousands)Impaired loans with
no SFAS No. 114
valuation
reserve
    
    $
    8,333
    
    
    $
    11,865Impaired loans with a
SFAS No. 114
valuation
reserve
    
    
    5,443
    
    
    
    6,468Total recorded
investment in
impaired
loans
    
    $
    13,776
    
    
    $
    18,333Valuation allowance
related to impaired
loans
    
    $
    2,265
    
    
    $
    1,783
  Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.
   18




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19




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##### Table of Contents



As of and for theThree Months Ended March 31,2006
    
    
    2005(Dollars in thousands)Average total loans outstanding for the period
    
    $
    772,913
    
    
    $
    595,808Total loans outstanding at end of period
    
    $
    786,693
    
    
    $
    593,977Allowance for loan losses at beginning of period
    
    $
    13,169
    
    
    $
    10,501Provision for loan losses
    
    
    258
    
    
    
    474Charge-offs:Commercial and industrial
    
    
    (997
    )
    
    
    (125
    )Real estate mortgage
    
    
    (21
    )
    
    
    Real estate construction
    
    
    
    
    
    
    (5
    )Consumer and other
    
    
    (79
    )
    
    
    (110
    )Total charge-offs
    
    
    (1,097
    )
    
    
    (240
    )Recoveries:Commercial and industrial
    
    
    486
    
    
    
    47Real estate mortgage
    
    
    851
    
    
    
    1Real estate construction
    
    
    
    
    
    
    Consumer and other
    
    
    62
    
    
    
    4Total recoveries
    
    
    1,399
    
    
    
    52Net recoveries (charge-offs)
    
    
    302
    
    
    
    (188
    )Allowance for loan losses at end of period
    
    
    13,729
    
    
    
    10,787Reserve for unfunded lending commitments at beginning of period
    
    
    546
    
    
    
    362Provision for unfunded lending commitments
    
    
    (7
    )
    
    
    (74
    )Reserve for unfunded lending commitments at end of period
    
    
    539
    
    
    
    288Allowance
for credit losses at end of period
    
    $
    14,268
    
    
    $
    11,075Ratio of allowance for loan losses to end of period total loans
    
    
    1.75
    %
    
    
    1.82
    %Ratio of net recoveries (charge-offs) to average total loans
    
    
    0.04
    %
    
    
    (0.03
    )%Ratio of allowance for loan losses to end of period total
nonperforming loans (1)
    
    
    119.17
    %
    
    
    54.08
    %Ratio of allowance for loan losses to end of period net nonperforming
loans (2)
    
    
    145.88
    %
    
    
    63.43
    %
 
 (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, net of the loan portions guaranteed by
the SBA, Ex-Im Bank and OCCGF. Securities.
 Deposits
 20




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##### Table of Contents



Junior Subordinated Debentures.
 Other Borrowings.
  As of and for the
    
    As of and for theThree Months Ended
    
    Year EndedMarch 31, 2006
    
    December 31, 2005(Dollars in thousands)Federal funds purchased:at end of period
    
    $
    
    
    
    $
    average during the period
    
    
    
    
    
    
    11maximum month-end balance during the period
    
    
    
    
    
    
    FHLB notes:at end of period
    
    $
    25,000
    
    
    $
    25,000average during the period
    
    
    25,999
    
    
    
    42,138maximum month-end balance during the period
    
    
    25,000
    
    
    
    72,500Interest rate at end of period
    
    
    4.99
    %
    
    
    4.99
    %Interest rate during the period
    
    
    5.04
    
    
    
    4.23Other short-term borrowings:at end of period
    
    $
    575
    
    
    $
    1,054average during the period
    
    
    660
    
    
    
    705maximum month-end balance during the period
    
    
    645
    
    
    
    1,054
 Liquidity.
 Capital Resources.
 21




---



##### Table of Contents



Minimum
    
    To Be Categorized asRequired For
    
    Well Capitalized UnderCapital Adequacy
    
    Prompt Corrective
    
    Actual Ratio AtPurposes
    
    Action Provisions
    
    March 31, 2006The CompanyLeverage
ratio
    
    
    4.00
    %(1)
    
    
    N/A
    %
    
    
    9.01
    %Tier 1 risk-based
capital
ratio
    
    
    4.00
    
    
    
    N/A
    
    
    
    11.46Risk-based capital
ratio
    
    
    8.00
    
    
    
    N/A
    
    
    
    13.98MetroBankLeverage
ratio
    
    
    4.00
    %(2)
    
    
    5.00
    %
    
    
    9.75
    %Tier 1 risk-based
capital
ratio
    
    
    4.00
    
    
    
    6.00
    
    
    
    12.32Risk-based capital
ratio
    
    
    8.00
    
    
    
    10.00
    
    
    
    13.58First UnitedLeverage
ratio
    
    
    4.00
    %(3)
    
    
    5.00
    %
    
    
    9.37
    %Tier 1 risk-based
capital
ratio
    
    
    4.00
    
    
    
    6.00
    
    
    
    12.27Risk-based capital
ratio
    
    
    8.00
    
    
    
    10.00
    
    
    
    13.52
 
 (1)
    
    The Federal Reserve Board may require the Company to maintain a leverage ratio above the required minimum.(2)
    
    The OCC may require MetroBank to maintain a leverage ratio above the required minimum.(3)
    
    The FDIC may require First United to maintain a leverage ratio above the required minimum. Critical Accounting Policies
  Allowance for Loan Losses and Reserve for Unfunded Lending
Commitments.
   22




---



##### Table of Contents



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 1A. Risk Factors
  
 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
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Identification of Exhibit3.1
    
    - Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 (Registration No. 333-62667) (the
Registration Statement)).3.2*
    
    - Articles of Amendment to Amended and Restated Articles of Incorporation.3.3
    
    - Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Registration Statement).4
    
    - Specimen form of certificate evidencing the Common Stock (incorporated
herein by reference to Exhibit 4 to the Registration Statement).11
    
    - Computation of Earnings Per Common Share, included as Note (2) to the
unaudited 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.
 24




---



##### Table of Contents



ExhibitNumber
    
    Identification of Exhibit31.2*
    
    - 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: May 9, 2006
    
    
    
    George M. LeeChief Executive Officer (principal
executive officer)Date: May 9, 2006
    
    By:
    
    /s/ David C. ChoiDavid C. ChoiChief Financial Officer (principal
financial officer/ principal
accounting officer)
 27




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Identification of Exhibit3.1
    
    
    
    Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 (Registration No. 333-62667) (the
Registration Statement)).3.2*
    
    
    
    Articles of Amendment to Amended and Restated Articles of Incorporation.3.3
    
    
    
    Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Registration Statement).4
    
    
    
    Specimen form of certificate evidencing the Common Stock (incorporated
herein by reference to Exhibit 4 to the Registration Statement).11
    
    
    
    Computation of Earnings Per Common Share, included as Note (3) to the
unaudited Condensed Consolidated Financial Statements on Page 7 of this
Form 10-Q.31.1*
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.31.2*
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.32.1*
    
    
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.32.2*
    
    
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 
 *
    
    Filed herewith.