##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934




Commission file number: 0-25141





MetroCorp Bancshares, Inc.


(Exact name of registrant as specified in its charter)


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

9600 Bellaire Boulevard, Suite 252


Houston, Texas 77036


(Address of principal executive offices including zip
code)


(713) 776-3876


(Registrants telephone number, including area code)





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)





o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2




| |                               |                         |                             | 
| | ----------------------------- | ----------------------- | --------------------------- | 
| | Large Accelerated Filer     o | Accelerated Filer     þ | Non-accelerated Filer     o | 

12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE:


10-K.










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##### 










TABLE OF CONTENTS


|                                              |  |                                                                                                                         |    |      |    | 
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                              |  |                                                                                                                         |    | Page |   
|                                              |  |                                                                                                                         |    |      |   
|PART I                                       
|Item 1.                                       |  | Business                                                                                                                |    |      | 2  | 
|Item 1A.                                      |  | Risk Factors                                                                                                            |    |      | 15 | 
|Item 1B.                                      |  | Unresolved Staff Comments                                                                                               |    |      | 20 | 
|Item 2.                                       |  | Properties                                                                                                              |    |      | 20 | 
|Item 3.                                       |  | Legal Proceedings                                                                                                       |    |      | 20 | 
|Item 4.                                       |  | Submission of Matters to a Vote of Security
    Holders                                                                 |    |      | 20 | 
|PART II                                      
|Item 5.                                       |  | Market for Registrants Common Equity,
    Related Shareholder Matters and Issuer of Purchases of Equity
    Securities |    |      | 21 | 
|Item 6.                                       |  | Selected Consolidated Financial Data                                                                                    |    |      | 23 | 
|Item 7.                                       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                               |    |      | 25 | 
|Item 7A.                                      |  | Quantitative and Qualitative Disclosure
    About Market Risk                                                           |    |      | 60 | 
|Item 8.                                       |  | Financial Statements and Supplementary
    Data                                                                         |    |      | 61 | 
|Item 9.                                       |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                                |    |      | 61 | 
|Item 9A.                                      |  | Controls and Procedures                                                                                                 |    |      | 61 | 
|Item 9B.                                      |  | Other Information                                                                                                       |    |      | 63 | 
|PART III                                     
|Item 10.                                      |  | Directors and Executive Officers of the
    Company                                                                     |    |      | 63 | 
|Item 11.                                      |  | Executive Compensation                                                                                                  |    |      | 64 | 
|Item 12.                                      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Shareholder Matters                      |    |      | 64 | 
|Item 13.                                      |  | Certain Relationship and Related
    Transactions                                                                       |    |      | 64 | 
|Item 14.                                      |  | Principal Accountant Fees and Services                                                                                  |    |      | 64 | 
|PART IV                                      
|Item 15.                                      |  | Exhibits and Financial Statement
    Schedules                                                                          |    |      | 65 | 
|Signatures                                    |  |                                                                                                                         | 67 |     
|Subsidiaries of MetroCorp Bancshares, Inc.   
|Consent of PricewaterhouseCoopers LLP        
|Certification of CEO pursuant to Rule 13a-14a
|Certification of CFO pursuant to Rule 13a-14a
|Certification of CEO pursuant to Section 906 
|Certification of CFO pursuant to Section 906 



1



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PART I







|        |         
|------- | --------
|Item 1. | Business

General


776-3876. 10-K, 10-Q, 8-K








| |                                
| | -------------------------------
| | MetroBank, National Association



2



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| |                  
| | -----------------
| | First United Bank



Business








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Commercial and Industrial Loans. The Companys
    commercial lending emphasis includes loans to wholesalers,
    manufacturers and business service companies. The Company makes
    available to businesses a broad range of short and medium-term
    commercial lending products for working capital (including
    inventory and accounts receivable), purchases of equipment and
    machinery and business expansion (including acquisitions of real
    estate and improvements). As of December 31, 2005, the
    Companys commercial and industrial loan portfolio totaled
    $331.9 million or 42.8% of the gross loan portfolio.                                                                                                                                           
|
| | Commercial Mortgage Loans. The Company originates
    commercial mortgage loans to finance the purchase of real
    property, which generally consists of developed real estate. The
    Companys commercial mortgage loans are collateralized by
    first liens on real estate. For MetroBank, these loans typically
    have variable rates and amortize over a 15 to 20 year
    period, with balloon payments due at the end of five to seven
    years. For First United, these loans have both variable and
    fixed rates and amortize over a 25 to 30 year period, with
    balloon payments due at the end of five to ten years. As of
    December 31, 2005, the Company had a commercial mortgage
    portfolio of $368.5 million or 47.6% of the gross loan
    portfolio.
|
| | Construction Loans. The Company originates loans to
    finance the construction of residential and non-residential
    properties. The substantial majority of the Companys
    residential construction loans are for single-family dwellings
    that are pre-sold or are under earnest money contracts. The
    Company also originates loans to finance the construction of
    commercial properties such as multi-family, office, industrial,
    warehouse and retail centers. As                                                                                                                                                                                                                                                                                               

3



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | of December 31, 2005, the Company had a real estate
    construction portfolio of $56.4 million or 7.3% of the
    gross loan portfolio, of which, $12.1 million was
    residential and $44.3 million was commercial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Government Guaranteed Small Business Lending. The Company
    has developed an expertise in several government guaranteed
    lending programs in order to provide credit enhancement to its
    commercial and industrial and commercial mortgage portfolios. As
    a Preferred Lender under the United States Small Business
    Administration (the SBA) federally guaranteed
    lending program, MetroBanks pre-approved status allows it
    to quickly respond to customers needs. Depending upon
    prevailing market conditions, the Company may sell the
    guaranteed portion of these loans into the secondary market, yet
    retain servicing of these loans. MetroBank specializes in SBA
    loans to minority-owned businesses. As of December 31,
    2005, MetroBank had $60.7 million in the retained portion
    of its SBA loans, approximately $33.4 million of which was
    guaranteed by the SBA. For the SBAs fiscal year ended
    September 30, 2005, MetroBank was ranked as the sixth
    largest SBA loan originator in the 32-county Houston SBA
    District in terms of dollar volume produced. Another source of
    government guaranteed lending provided by the Company is
    Business and Industrial loans (B&I Loans) which
    are guaranteed by the U.S. Department of Agriculture (the
    USDA) and are available to borrowers in areas with a
    population of less than 50,000. As of December 31, 2005,
    the Companys USDA portfolio totaled $2.6 million. The
    Company also offers guaranteed loans through the Overseas
    Chinese Credit Guaranty Fund (OCCGF), which is
    sponsored by the government of Taiwan. As of December 31,
    2005, the Companys OCCGF portfolio was $2.8 million.
|
| | Trade Finance. Since its inception in 1987, the Company
    has originated trade finance loans and letters of credit to
    facilitate export and import transactions for small and
    medium-sized businesses. In this capacity, the Company has
    worked with the Export Import Bank of the United States (the
    Ex-Im Bank), an agency of the U.S. Government,
    which provides guarantees for trade finance loans. At
    December 31, 2005, the Companys aggregate trade
    finance portfolio commitments was approximately
    $9.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Residential Mortgage Brokerage and Lending. The Company
    uses its existing branch network to offer a complete line of
    single-family residential mortgage products through third party
    mortgage companies. The Company solicits and receives a fee to
    process residential mortgage loans, which are underwritten by
    and pre-sold to third party mortgage companies. The Company does
    not fund or service the loans underwritten by third party
    mortgage companies. The Company also originates five to seven
    year balloon residential mortgage loans, primarily
    collateralized by non-owner occupied residential properties,
    with a 15-year
    amortization, which are retained in the Companys
    residential mortgage portfolio. As of December 31, 2005,
    the residential mortgage portfolio was $7.7 million or 1.0%
    of the gross loan portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



Competition




4



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Employees




Supervision and Regulation








| |            
| | -----------
| | The Company





Regulatory Restrictions on Dividends; Source of Strength.




5



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Scope of Permissible Activities.








6



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Safe and Sound Banking Practices.




Anti-Tying Restrictions.


Capital Adequacy Requirements.






Imposition of Liability for Undercapitalized
Subsidiaries.


7



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Acquisitions by Bank Holding Companies.


Control Acquisitions.




Sarbanes-Oxley Act of 2002.




8



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| |                                                                      
| | ---------------------------------------------------------------------
| | The Banks  MetroBank, National Association and
    First United Bank





Financial Modernization.


Branching  MetroBank.


Branching  First United.


Restrictions on Transactions with Affiliates and
Insiders.




9



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Restrictions on Distribution of Subsidiary Bank Dividends and
Assets.


MetroBank.


First United.




10



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Examinations  MetroBank.


Examinations  First United.


Audit Reports.


Capital Adequacy Requirements.






Corrective Measures for Capital Deficiencies.


11



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Deposit Insurance Assessments.






12



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Enforcement Powers.


Brokered Deposit Restrictions.


Cross-Guarantee Provisions.


Community Reinvestment Act.


Consumer Laws and Regulations.


Privacy.


13



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USA Patriot Act of 2002. non-U.S.




| |                                    
| | -----------------------------------
| | Instability of Regulatory Structure





| |                                
| | -------------------------------
| | Expanding Enforcement Authority





| |                          
| | -------------------------
| | Effect of Monetary Policy



14



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Item 1A.     Risk
Factors


10-K


Risks Associated with the Companys Business




| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys business is subject to interest rate
    risk and fluctuations in interest rates may adversely affect its
    earnings and capital levels.







15



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| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A large percentage of the Companys loans are
    collateralized by real estate, and an adverse change in the real
    estate market may result in losses and adversely affect its
    profitability.





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The Company could be subject to environmental risks and
    associated costs on its foreclosed real estate assets.





| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys allowance for loan losses may not be
    sufficient to cover actual loan losses, which could adversely
    affect its earnings.







16



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| |                                                                                    
| | -----------------------------------------------------------------------------------
| | The Companys profitability depends significantly on
    local economic conditions.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys small to medium-sized business target
    market may have fewer financial resources to weather a downturn
    in the economy.





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Potential acquisitions may disrupt the Companys
    business and dilute shareholder value.





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Potential exposure to unknown or contingent liabilities of the
    target company;                                
|
| |  | Exposure to potential asset quality issues of the target company;                                                 
|
| |  | Difficulty and expense of integrating the operations,
    management, products and services of the target company;
|
| |  | Potential disruption to the Companys business;                                                                   
|
| |  | Potential diversion of the Company managements time and
    attention;                                           
|
| |  | The possible loss of key employees and customers of the target
    company; and                                   
|
| |  | Difficulty in estimating the value of the target company.                                                         



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | An interruption in or breach in security of the
    Companys information systems may result in a loss of
    customer business.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The business of the Company is dependent on technology and
    its inability to invest in technological improvements may
    adversely affect its results of operations and financial
    condition.





| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates in a highly regulated environment
    and, as a result, is subject to extensive regulation and
    supervision that could adversely affect its financial
    performance, and the Company may be adversely affected by
    changes in federal and local laws and regulations.



18



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Risks Associated with the Companys Common Stock




| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys corporate organizational documents and
    the provisions of Texas law to which it is subject may delay or
    prevent a change in control of the Company that you may
    favor.





| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a board of directors classified into three classes of directors
    with the directors, of each class having staggered, three year
    terms;                                                                                                                                                
|
| |  | a provision that any special meeting of the Companys
    shareholders may be called only by the chairman of the board,
    the president, the majority of the board of directors or the
    holders of at least 50% of the Companys outstanding shares
    entitled to vote at the meeting;
|
| |  | a provision establishing certain advance notice procedures for
    nomination of candidates for election as directors and for
    shareholder proposals to be considered at an annual or special
    meeting of shareholders; and                                                            
|
| |  | a provision that denies shareholders the right to amend the
    Companys bylaws.                                                                                                                                                                                                            





| |                                                                 
| | ----------------------------------------------------------------
| | The trading volume in the Company Common Stock has been
    low.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The holders of the Companys junior subordinated
    debentures have rights that are senior to those of the
    Companys shareholders.



19



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|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties



|                                             |  |       |   |  |        |  |    |       |  |  |    | 
|-------------------------------------------- |  | ----- | - |  | ------ |  | -- | ----- |  |  | -- | 
|                                             |  | Owned |   |  | Leased |  |    | Total | 
|                                             |  |       |   |  |        |  |    |       | 
|Banking offices in Houston metropolitan area |  |       | 5 |  |        |  | 6  |       |  |  | 11 | 
|Banking offices in Dallas metropolitan area  |  |       |  |  |        |  | 2  |       |  |  | 2  | 
|Banking offices in San Diego, California     |  |       |  |  |        |  | 1  |       |  |  | 1  | 
|Banking offices in Los Angeles, California   |  |       |  |  |        |  | 1  |       |  |  | 1  | 
|Corporate headquarters                       |  |       |  |  |        |  | 1  |       |  |  | 1  | 
|                                             |  |       |   |  |        |  |    |       | 
|Total                                        |  |       | 5 |  |        |  | 11 |       |  |  | 16 | 
|                                             |  |       |   |  |        |  |    |       | 








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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



20



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Shareholder Matters and Issuer Purchases of Equity
    Securities





|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2005           |  |      |       |  |     |   |       | 
|Fourth quarter |  | $    | 29.80 |  |     | $ | 23.19 | 
|Third quarter  |  |      | 25.05 |  |     |   | 20.63 | 
|Second quarter |  |      | 22.33 |  |     |   | 17.75 | 
|First quarter  |  |      | 25.24 |  |     |   | 21.05 | 
|2004           |  |      |       |  |     |   |       | 
|Fourth quarter |  | $    | 22.90 |  |     | $ | 18.81 | 
|Third quarter  |  |      | 19.00 |  |     |   | 14.00 | 
|Second quarter |  |      | 15.68 |  |     |   | 14.00 | 
|First quarter  |  |      | 16.00 |  |     |   | 14.65 | 

Dividends




|               |  |      |      |  |      |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | 
|               |  | 2005 |      |  | 2004 |  
|               |  |      |      |  |      |  
|Fourth quarter |  | $    | 0.06 |  |      | $ | 0.06 | 
|Third quarter  |  |      | 0.06 |  |      |   | 0.06 | 
|Second quarter |  |      | 0.06 |  |      |   | 0.06 | 
|First quarter  |  |      | 0.06 |  |      |   | 0.06 | 





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Recent Sales of Unregistered Securities




Issuer Purchases of Equity Securities




22



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data

10-K,


|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------------------------- | --------------------------------------------------- | --------------------------------------------- | --------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                    |                                                     | Years Ended December 31,                      |          
|                                                    |                                                     |                                               |          
|                                                    |                                                     | 2005                                          |           |        | 2004 |   |         | 2003   |  |   | 2002    |        |  | 2001 |        
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|                                                    |                                                     | (Dollars in thousands, except per share data) |          
|Income Statement Data:                              |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|Interest income                                     |                                                     | $                                             | 59,056    |        |      | $ | 45,304  |        |  | $ | 43,287  |        |  | $    | 47,980  |        |  | $ | 54,940  |       
|Interest expense                                    |                                                     |                                               | 17,538    |        |      |   | 11,349  |        |  |   | 12,134  |        |  |      | 14,628  |        |  |   | 23,799  |       
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|                                                    | Net interest income                                 |                                               |           | 41,518 |      |   |         | 33,955 |  |   |         | 31,153 |  |      |         | 33,352 |  |   |         | 31,141 | 
|Provision for loan losses                           |                                                     |                                               | 1,936     |        |      |   | 1,343   |        |  |   | 5,671   |        |  |      | 3,743   |        |  |   | 3,795   |       
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|                                                    | Net interest income after provision for loan losses |                                               |           | 39,582 |      |   |         | 32,612 |  |   |         | 25,482 |  |      |         | 29,609 |  |   |         | 27,346 | 
|Noninterest income                                  |                                                     |                                               | 8,109     |        |      |   | 8,251   |        |  |   | 8,927   |        |  |      | 8,967   |        |  |   | 8,660   |       
|Noninterest expense                                 |                                                     |                                               | 31,852    |        |      |   | 28,238  |        |  |   | 28,564  |        |  |      | 25,161  |        |  |   | 24,456  |       
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|                                                    | Income before provision for income taxes            |                                               |           | 15,839 |      |   |         | 12,625 |  |   |         | 5,845  |  |      |         | 13,415 |  |   |         | 11,550 | 
|Provision for income taxes                          |                                                     |                                               | 5,059     |        |      |   | 4,031   |        |  |   | 1,735   |        |  |      | 4,445   |        |  |   | 3,696   |       
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|Net income                                          |                                                     | $                                             | 10,780    |        |      | $ | 8,594   |        |  | $ | 4,110   |        |  | $    | 8,970   |        |  | $ | 7,854   |       
|                                                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |        
|Per Share Data:                                     |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|Earnings per share:                                 |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                                    | Basic                                               |                                               | $         | 1.50   |      |   | $       | 1.20   |  |   | $       | 0.58   |  |      | $       | 1.28   |  |   | $       | 1.12   | 
|                                                    | Diluted                                             |                                               |           | 1.48   |      |   |         | 1.19   |  |   |         | 0.57   |  |      |         | 1.25   |  |   |         | 1.11   | 
|Book value                                          |                                                     |                                               | 12.80     |        |      |   | 11.95   |        |  |   | 10.95   |        |  |      | 10.84   |        |  |   | 9.52    |       
|Tangible book value                                 |                                                     |                                               | 9.60      |        |      |   | 11.95   |        |  |   | 10.95   |        |  |      | 10.84   |        |  |   | 9.52    |       
|Cash dividends                                      |                                                     |                                               | 0.24      |        |      |   | 0.24    |        |  |   | 0.24    |        |  |      | 0.24    |        |  |   | 0.24    |       
|Weighted average shares outstanding (in thousands): |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                                    | Basic                                               |                                               |           | 7,208  |      |   |         | 7,175  |  |   |         | 7,089  |  |      |         | 7,024  |  |   |         | 6,998  | 
|                                                    | Diluted                                             |                                               |           | 7,306  |      |   |         | 7,230  |  |   |         | 7,213  |  |      |         | 7,154  |  |   |         | 7,059  | 
|Balance Sheet Data (Period End):                    |                                                     |                                               |           |        |      |   |         |        |  |   |         |        |  |      |         |       
|Total assets                                        |                                                     | $                                             | 1,128,204 |        |      | $ | 914,312 |        |  | $ | 867,156 |        |  | $    | 842,066 |        |  | $ | 743,717 |       
|Securities                                          |                                                     |                                               | 236,100   |        |      |   | 273,720 |        |  |   | 262,264 |        |  |      | 264,418 |        |  |   | 176,230 |       
|Loans(1)                                            |                                                     |                                               | 771,473   |        |      |   | 594,536 |        |  |   | 557,136 |        |  |      | 530,571 |        |  |   | 495,441 |       
|Allowance for loan losses                           |                                                     |                                               | 13,169    |        |      |   | 10,501  |        |  |   | 10,308  |        |  |      | 10,029  |        |  |   | 8,892   |       
|Goodwill and core deposit intangibles(3)            |                                                     |                                               | 23,035    |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |       
|Total deposits                                      |                                                     |                                               | 961,750   |        |      |   | 755,053 |        |  |   | 724,941 |        |  |      | 691,361 |        |  |   | 642,751 |       
|Junior subordinated debentures(4)                   |                                                     |                                               | 36,083    |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |       
|Other borrowings                                    |                                                     |                                               | 26,054    |        |      |   | 60,849  |        |  |   | 54,173  |        |  |      | 65,774  |        |  |   | 25,195  |       
|Total shareholders equity                          |                                                     |                                               | 92,228    |        |      |   | 85,723  |        |  |   | 78,373  |        |  |      | 76,224  |        |  |   | 66,809  |       

23



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|                                                                |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                |  | Years Ended December 31,                      |        
|                                                                |  |                                               |        
|                                                                |  | 2005                                          |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|                                                                |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                                                |  | (Dollars in thousands, except per share data) |        
|Balance Sheet Data (Average):                                   |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |  
|Total assets                                                    |  | $                                             | 963,952 |   |      | $ | 882,017 |      |  | $ | 852,946 |   |  | $    | 791,297 |   |  | $ | 728,607 |  
|Securities                                                      |  |                                               | 254,505 |   |      |   | 271,198 |      |  |   | 251,827 |   |  |      | 222,752 |   |  |   | 159,416 |  
|Loans(2)                                                        |  |                                               | 640,703 |   |      |   | 565,920 |      |  |   | 551,287 |   |  |      | 506,901 |   |  |   | 476,134 |  
|Allowance for loan losses                                       |  |                                               | 11,567  |   |      |   | 10,944  |      |  |   | 10,595  |   |  |      | 9,238   |   |  |   | 9,315   |  
|Goodwill and core deposit intangibles(3)                        |  |                                               | 5,580   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total deposits                                                  |  |                                               | 813,457 |   |      |   | 728,683 |      |  |   | 708,575 |   |  |      | 656,824 |   |  |   | 626,970 |  
|Junior subordinated debentures(4)                               |  |                                               | 8,897   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Other borrowings                                                |  |                                               | 42,877  |   |      |   | 64,022  |      |  |   | 60,310  |   |  |      | 53,056  |   |  |   | 25,570  |  
|Total shareholders equity                                      |  |                                               | 89,271  |   |      |   | 81,044  |      |  |   | 76,333  |   |  |      | 71,452  |   |  |   | 64,329  |  
|Performance Ratios:                                             |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                                        |  |                                               | 1.12    | % |      |   | 0.97    | %    |  |   | 0.48    | % |  |      | 1.13    | % |  |   | 1.08    | %
|Return on average equity                                        |  |                                               | 12.08   |   |      |   | 10.60   |      |  |   | 5.38    |   |  |      | 12.55   |   |  |   | 12.21   |  
|Net interest margin                                             |  |                                               | 4.51    |   |      |   | 4.02    |      |  |   | 3.81    |   |  |      | 4.44    |   |  |   | 4.56    |  
|Efficiency ratio(5)                                             |  |                                               | 64.18   |   |      |   | 66.91   |      |  |   | 71.27   |   |  |      | 59.46   |   |  |   | 61.45   |  
|Asset Quality Ratios:                                           |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total nonperforming assets to total loans and other real estate |  |                                               | 2.52    | % |      |   | 3.06    | %    |  |   | 5.05    | % |  |      | 3.53    | % |  |   | 1.11    | %
|Total nonperforming assets to total assets                      |  |                                               | 1.73    |   |      |   | 2.00    |      |  |   | 3.26    |   |  |      | 2.23    |   |  |   | 0.74    |  
|Net charge-offs to average total loans                          |  |                                               | 0.25    |   |      |   | 0.20    |      |  |   | 0.98    |   |  |      | 0.51    |   |  |   | 0.88    |  
|Allowance for loan losses to total loans                        |  |                                               | 1.71    |   |      |   | 1.77    |      |  |   | 1.85    |   |  |      | 1.89    |   |  |   | 1.79    |  
|Allowance for loan losses to nonperforming loans(6)             |  |                                               | 84.21   |   |      |   | 62.94   |      |  |   | 40.10   |   |  |      | 57.02   |   |  |   | 195.82  |  
|Capital Ratios:                                                 |  |                                               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Leverage ratio(7)                                               |  |                                               | 9.96    | % |      |   | 9.59    | %    |  |   | 9.08    | % |  |      | 8.78    | % |  |   | 9.11    | %
|Average shareholders equity to average total assets            |  |                                               | 9.26    |   |      |   | 9.19    |      |  |   | 8.95    |   |  |      | 9.03    |   |  |   | 8.83    |  
|Tier 1 risk-based capital ratio  period end                    |  |                                               | 11.18   |   |      |   | 12.82   |      |  |   | 12.73   |   |  |      | 12.98   |   |  |   | 12.77   |  
|Total risk-based capital ratio  period end                     |  |                                               | 13.73   |   |      |   | 14.07   |      |  |   | 13.98   |   |  |      | 14.24   |   |  |   | 14.03   |  






|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|(1) | Includes loans held-for-sale of $1.9 million and
    $6.0 million at December 31, 2004 and 2003,
    respectively.



|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes loans held-for-sale with an average balance of
    $621,000, $3.4 million, and $5.3 million for the years
    ended December 31, 2005, 2004, and 2003, respectively.
|   
|(3) | Goodwill and core deposits intangibles were recorded in October
    2005 in connection with the First United acquisition.                                                    



|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The Company issued junior subordinated debentures, MCBI
    Statutory Trust I, in October 2005 in connection with the
    First United acquisition.



|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Calculated by dividing total noninterest expense by net interest
    income plus noninterest income, excluding net securities
    gains/losses.
|   
|(6) | Nonperforming loans consist of nonaccrual loans, loans
    contractually past due 90 days or more and restructured
    loans.                  
|   
|(7) | The leverage ratio is calculated by dividing Tier 1 capital
    by average assets for the year.                                                

24



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Special Cautionary Notice Regarding Forward-Looking
Statements


10-K




| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                              



25



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Restatement of Previously Issued Financial Statements








Critical Accounting Policies






26



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For the Years Ended December 31, 2005, 2004 and 2003


Overview












27



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Results of Operations




| |                    
| | -------------------
| | Net Interest Income



2005 versus 2004.




28



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2004 versus 2003.




29



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|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |        |         |         |   |        |        |        |  |      |      |      |  
|------------------------------------ | --------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | -------- | - | ------ | ------- | ------ |  | ----------- | ---- | ---- | -------- | ------ | ------- | ------- | - | ------ | ----------- | ------ |  | -------- | ---- | ---- | ------- | ------ | ------- | ------- | - | ------ | ------ | ------ |  | ---- | ---- | ---- | -
|                                     |                                                                 | Year Ended December 31,                    |       
|                                     |                                                                 |                                            |       
|                                     |                                                                 | 2005                                       |        |         | 2004     |   |        | 2003    |       
|                                     |                                                                 |                                            |        |         |          |   |        |         |       
|                                     |                                                                 | Average                                    |        |         | Interest |   |        | Average |        |  | Average     |      |      | Interest |        |         | Average |   |        | Average     |        |  | Interest |      |      | Average |       
|                                     |                                                                 | Outstanding                                |        |         | Earned/  |   |        | Yield/  |        |  | Outstanding |      |      | Earned/  |        |         | Yield/  |   |        | Outstanding |        |  | Earned/  |      |      | Yield/  |       
|                                     |                                                                 | Balance                                    |        |         | Paid     |   |        | Rate    |        |  | Balance     |      |      | Paid     |        |         | Rate    |   |        | Balance     |        |  | Paid     |      |      | Rate    |       
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | (Dollars in thousands)                     |       
|Assets                              
|Interest-earning assets:             |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |        |         |         |   |        |        |        |  |      |     
|                                     | Loans (including loans held-for-sale)                           |                                            | $      | 640,703 |          |   | $      | 47,799  |        |  |             | 7.46 | %    |          | $      | 565,920 |         |   | $      | 34,711      |        |  |          | 6.13 | %    |         | $      | 551,287 |         |   | $      | 34,691 |        |  |      | 6.29 | %   
|                                     | Taxable securities                                              |                                            |        | 237,220 |          |   |        | 9,519   |        |  |             | 4.01 |      |          |        | 252,691 |         |   |        | 9,582       |        |  |          | 3.79 |      |         |        | 231,732 |         |   |        | 7,458  |        |  |      | 3.22 |     
|                                     | Tax-exempt securities                                           |                                            |        | 17,285  |          |   |        | 853     |        |  |             | 4.93 |      |          |        | 18,507  |         |   |        | 917         |        |  |          | 4.95 |      |         |        | 20,095  |         |   |        | 997    |        |  |      | 4.96 |     
|                                     | Federal funds sold and other temporary investments              |                                            |        | 25,354  |          |   |        | 885     |        |  |             | 3.49 |      |          |        | 7,566   |         |   |        | 94          |        |  |          | 1.24 |      |         |        | 14,176  |         |   |        | 141    |        |  |      | 0.99 |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | Total interest-earning assets              |        |         | 920,562  |   |        |         | 59,056 |  |             |      | 6.42 | %        |        |         | 844,684 |   |        |             | 45,304 |  |          |      | 5.36 | %       |        |         | 817,290 |   |        |        | 43,287 |  |      |      | 5.30 | %
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     | Less allowance for loan losses                                  |                                            |        | (11,567 | )        |   |        |         |        |  |             |      |      |          |        | (10,944 | )       |   |        |             |        |  |          |      |      |         |        | (10,595 | )       |   |        |        |        |  |      |      |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     | Total interest-earning assets, net of allowance for loan losses |                                            |        | 908,995 |          |   |        |         |        |  |             |      |      |          |        | 833,740 |         |   |        |             |        |  |          |      |      |         |        | 806,695 |         |   |        |        |        |  |      |      |     
|Noninterest earning assets           |                                                                 |                                            | 54,957 |         |          |   |        |         |        |  |             |      |      |          | 48,277 |         |         |   |        |             |        |  |          |      |      |         | 46,251 |         |         |   |        |        |        |  |      |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | Total assets                               |        | $       | 963,952  |   |        |         |        |  |             |      |      |          |        | $       | 882,017 |   |        |             |        |  |          |      |      |         |        | $       | 852,946 |   |        |        |        |  |      |      |      |  
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                    
|Liabilities and shareholders equity
|Interest-bearing liabilities:        |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |        |         |         |   |        |        |        |  |      |     
|                                     | Interest-bearing demand deposits                                |                                            | $      | 85,579  |          |   |        | 691     |        |  |             | 0.81 | %    |          | $      | 79,327  |         |   |        | 536         |        |  |          | 0.68 | %    |         | $      | 73,987  |         |   |        | 460    |        |  |      | 0.62 | %   
|                                     | Saving and money market accounts                                |                                            |        | 122,363 |          |   |        | 1,625   |        |  |             | 1.33 |      |          |        | 113,164 |         |   |        | 802         |        |  |          | 0.71 |      |         |        | 111,867 |         |   |        | 885    |        |  |      | 0.79 |     
|                                     | Time deposits                                                   |                                            |        | 428,909 |          |   |        | 12,948  |        |  |             | 3.02 |      |          |        | 367,424 |         |   |        | 8,133       |        |  |          | 2.21 |      |         |        | 371,500 |         |   |        | 8,942  |        |  |      | 2.41 |     
|                                     | Junior subordinated debentures                                  |                                            |        | 8,897   |          |   |        | 514     |        |  |             | 5.76 |      |          |        |        |         |   |        |            |        |  |          |     |      |         |        |        |         |   |        |       |        |  |      |     |     
|                                     | Other borrowings                                                |                                            |        | 42,877  |          |   |        | 1,760   |        |  |             | 4.10 |      |          |        | 64,022  |         |   |        | 1,878       |        |  |          | 2.93 |      |         |        | 60,310  |         |   |        | 1,847  |        |  |      | 3.06 |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | Total interest-bearing liabilities         |        |         | 688,625  |   |        |         | 17,538 |  |             |      | 2.55 | %        |        |         | 623,937 |   |        |             | 11,349 |  |          |      | 1.82 | %       |        |         | 617,664 |   |        |        | 12,134 |  |      |      | 1.96 | %
|Noninterest-bearing liabilities:     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |        |         |         |   |        |        |        |  |      |     
|                                     | Noninterest-bearing demand deposits                             |                                            |        | 176,606 |          |   |        |         |        |  |             |      |      |          |        | 168,768 |         |   |        |             |        |  |          |      |      |         |        | 151,221 |         |   |        |        |        |  |      |      |     
|                                     | Other liabilities                                               |                                            |        | 9,450   |          |   |        |         |        |  |             |      |      |          |        | 8,268   |         |   |        |             |        |  |          |      |      |         |        | 7,728   |         |   |        |        |        |  |      |      |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | Total liabilities                          |        |         | 874,681  |   |        |         |        |  |             |      |      |          |        |         | 800,973 |   |        |             |        |  |          |      |      |         |        |         | 776,613 |   |        |        |        |  |      |      |      |  
|Shareholders equity                 |                                                                 |                                            | 89,271 |         |          |   |        |         |        |  |             |      |      |          | 81,044 |         |         |   |        |             |        |  |          |      |      |         | 76,333 |         |         |   |        |        |        |  |      |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|                                     |                                                                 | Total liabilities and shareholders equity |        | $       | 963,952  |   |        |         |        |  |             |      |      |          |        | $       | 882,017 |   |        |             |        |  |          |      |      |         |        | $       | 852,946 |   |        |        |        |  |      |      |      |  
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|Net interest income                  |                                                                 |                                            |        |         |          | $ | 41,518 |         |        |  |             |      |      |          |        |         |         | $ | 33,955 |             |        |  |          |      |      |         |        |         |         | $ | 31,153 |        |        |  |      |     
|                                     |                                                                 |                                            |        |         |          |   |        |         |        |  |             |      |      |          |        |         |         |   |        |             |        |  |          |      |      |         |       
|Net interest spread                  |                                                                 |                                            |        |         |          |   |        |         |        |  | 3.87        | %    |      |          |        |         |         |   |        |             |        |  | 3.54     | %    |      |         |        |         |         |   |        |        |        |  | 3.34 | %   
|Net interest margin                  |                                                                 |                                            |        |         |          |   |        |         |        |  | 4.51        | %    |      |          |        |         |         |   |        |             |        |  | 4.02     | %    |      |         |        |         |         |   |        |        |        |  | 3.81 | %   

30



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|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |   |       |       |      |   |       |       |       |  
|------------------------------- | -------------------------------------------------- | --------------------------------------------- | ----- | ----- | ------------ | - | ------------------- | ----- | ----- | - | ------ | ------ | ------ | ---- | ----- | --- | ----- | - | ----- | ----- | ---- | - | ----- | ----- | ----- | -
|                                |                                                    | Years Ended December 31,                      |      
|                                |                                                    |                                               |      
|                                |                                                    | 2005 vs 2004                                  |       |       | 2004 vs 2003 |  
|                                |                                                    |                                               |       |       |              |  
|                                |                                                    | Increase (Decrease)                           |       |       |              |   | Increase (Decrease) |       |       |  
|                                |                                                    | Due to                                        |       |       |              |   | Due to              |       |       |  
|                                |                                                    |                                               |       |       |              |   |                     |       |       |  
|                                |                                                    | Volume                                        |       |       | Rate         |   |                     | Total |       |   | Volume |        |        | Rate |       |     | Total |  
|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |  
|                                |                                                    | (Dollars in thousands)                        |      
|Interest-earning assets:        |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |   |       |       |      |   |       |      
|                                | Loans (including loans held-for-sale)              |                                               | $     | 4,587 |              |   | $                   | 8,501 |       |   | $      | 13,088 |        |      | $     | 921 |       |   | $     | (901  | )    |   | $     | 20    |      
|                                | Taxable securities                                 |                                               |       | (587  | )            |   |                     | 524   |       |   |        | (63    | )      |      |       | 675 |       |   |       | 1,449 |      |   |       | 2,124 |      
|                                | Tax-exempt securities                              |                                               |       | (61   | )            |   |                     | (3    | )     |   |        | (64    | )      |      |       | (79 | )     |   |       | (1    | )    |   |       | (80   | )    
|                                | Federal funds sold and other temporary investments |                                               |       | 221   |              |   |                     | 570   |       |   |        | 791    |        |      |       | (66 | )     |   |       | 19    |      |   |       | (47   | )    
|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |  
|                                |                                                    | Total increase in interest income             |       |       | 4,160        |   |                     |       | 9,592 |   |        |        | 13,752 |      |       |     | 1,451 |   |       |       | 566  |   |       |       | 2,017 |  
|Interest-bearing liabilities:   |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |   |       |       |      |   |       |      
|                                | Interest-bearing demand deposits                   |                                               |       | 42    |              |   |                     | 113   |       |   |        | 155    |        |      |       | 33  |       |   |       | 43    |      |   |       | 76    |      
|                                | Saving and money market accounts                   |                                               |       | 65    |              |   |                     | 758   |       |   |        | 823    |        |      |       | 10  |       |   |       | (93   | )    |   |       | (83   | )    
|                                | Time deposits                                      |                                               |       | 1,361 |              |   |                     | 3,454 |       |   |        | 4,815  |        |      |       | (98 | )     |   |       | (711  | )    |   |       | (809  | )    
|                                | Junior subordinated debentures                     |                                               |       | 514   |              |   |                     |      |       |   |        | 514    |        |      |       |    |       |   |       |      |      |   |       |      |      
|                                | Other borrowings                                   |                                               |       | (620  | )            |   |                     | 502   |       |   |        | (118   | )      |      |       | 114 |       |   |       | (83   | )    |   |       | 31    |      
|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |  
|                                |                                                    | Total increase (decrease) in interest expense |       |       | 1,362        |   |                     |       | 4,827 |   |        |        | 6,189  |      |       |     | 59    |   |       |       | (844 | ) |       |       | (785  | )
|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |  
|Increase in net interest income |                                                    | $                                             | 2,798 |       |              | $ | 4,765               |       |       | $ | 7,563  |        |        | $    | 1,392 |     |       | $ | 1,410 |       |      | $ | 2,802 |      
|                                |                                                    |                                               |       |       |              |   |                     |       |       |   |        |        |        |      |       |     |       |  



| |                          
| | -------------------------
| | Provision for Loan Losses





31



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| |                   
| | ------------------
| | Noninterest Income





|                                       |                          |                          |       |       |      |   |       |       |  |   |       |       | 
|-------------------------------------- | ------------------------ | ------------------------ | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |                          | Years Ended December 31, |      
|                                       |                          |                          |      
|                                       |                          | 2005                     |       |       | 2004 |   |       | 2003  | 
|                                       |                          |                          |       |       |      |   |       |       | 
|                                       |                          | (Dollars in thousands)   |      
|Service fees                           |                          | $                        | 6,593 |       |      | $ | 6,701 |       |  | $ | 6,544 |      
|Loan-related fees                      |                          |                          | 1,179 |       |      |   | 977   |       |  |   | 1,525 |      
|Gain (loss) on sale of securities, net |                          |                          |      |       |      |   | (97   | )     |  |   | 165   |      
|Gain on sale of loans                  |                          |                          | 48    |       |      |   | 605   |       |  |   | 600   |      
|Other noninterest income               |                          |                          | 289   |       |      |   | 65    |       |  |   | 93    |      
|                                       |                          |                          |       |       |      |   |       |       | 
|                                       | Total noninterest income |                          | $     | 8,109 |      |   | $     | 8,251 |  |   | $     | 8,927 | 
|                                       |                          |                          |       |       |      |   |       |       | 



| |                    
| | -------------------
| | Noninterest Expense









32



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|                                                          |                            |                          |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------------------------------- | -------------------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                          |                            | Years Ended December 31, |       
|                                                          |                            |                          |       
|                                                          |                            | 2005                     |        |        | 2004 |   |        | 2003   | 
|                                                          |                            |                          |        |        |      |   |        |        | 
|                                                          |                            | (Dollars in thousands)   |       
|Salaries and employee benefits                            |                            | $                        | 17,555 |        |      | $ | 16,104 |        |  | $ | 14,109 |       
|Lower of cost or market adjustment on loans held-for-sale |                            |                          |       |        |      |   |       |        |  |   | 2,149  |       
|Occupancy and equipment                                   |                            |                          | 5,663  |        |      |   | 5,723  |        |  |   | 5,361  |       
|Foreclosed assets, net                                    |                            |                          | 312    |        |      |   | (728   | )      |  |   | 248    |       
|Legal and professional fees                               |                            |                          | 2,171  |        |      |   | 1,145  |        |  |   | 1,555  |       
|Printing and supplies                                     |                            |                          | 660    |        |      |   | 702    |        |  |   | 597    |       
|Telecommunications                                        |                            |                          | 517    |        |      |   | 463    |        |  |   | 500    |       
|Other noninterest expense                                 |                            |                          | 4,974  |        |      |   | 4,829  |        |  |   | 4,045  |       
|                                                          |                            |                          |        |        |      |   |        |        | 
|                                                          | Total noninterest expenses |                          | $      | 31,852 |      |   | $      | 28,238 |  |   | $      | 28,564 | 
|                                                          |                            |                          |        |        |      |   |        |        | 





| |             
| | ------------
| | Income Taxes



33



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##### Table of Contents







| |                    
| | -------------------
| | Impact of Inflation





| |                         
| | ------------------------
| | Business Segment Results



34



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##### Table of Contents





| |                                
| | -------------------------------
| | MetroBank, National Association



|                                           |                                                     |                        |         |        |      |   |         |        |  |   |         |        | 
|------------------------------------------ | --------------------------------------------------- | ---------------------- | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                           |                                                     | 2005                   |         |        | 2004 |   |         | 2003   | 
|                                           |                                                     |                        |         |        |      |   |         |        | 
|                                           |                                                     | (Dollars in thousands) |        
|Income Statement Data                      |                                                     |                        |         |        |      |   |         |        |  |   |         |       
|Net interest income                        |                                                     | $                      | 40,168  |        |      | $ | 33,955  |        |  | $ | 31,153  |       
|Provision for loan losses                  |                                                     |                        | 1,874   |        |      |   | 1,343   |        |  |   | 5,671   |       
|                                           |                                                     |                        |         |        |      |   |         |        | 
|                                           | Net interest income after provision for loan losses |                        |         | 38,294 |      |   |         | 32,612 |  |   |         | 25,482 | 
|Noninterest income                         |                                                     |                        | 7,984   |        |      |   | 8,251   |        |  |   | 8,927   |       
|Noninterest expense                        |                                                     |                        | 30,550  |        |      |   | 28,230  |        |  |   | 28,560  |       
|                                           |                                                     |                        |         |        |      |   |         |        | 
|                                           | Income before provision for income taxes            |                        |         | 15,728 |      |   |         | 12,633 |  |   |         | 5,849  | 
|Provision for income taxes                 |                                                     |                        | 4,935   |        |      |   | 4,031   |        |  |   | 1,735   |       
|                                           |                                                     |                        |         |        |      |   |         |        | 
|                                           | Net income                                          |                        | $       | 10,793 |      |   | $       | 8,602  |  |   | $       | 4,114  | 
|                                           |                                                     |                        |         |        |      |   |         |        | 
|Year-End Balance Sheet Data                |                                                     |                        |         |        |      |   |         |        |  |   |         |       
|Total assets                               |                                                     | $                      | 914,748 |        |      | $ | 914,221 |        |  | $ | 867,095 |       
|Total loans                                |                                                     |                        | 636,625 |        |      |   | 594,536 |        |  |   | 557,136 |       
|Allowance for loan losses                  |                                                     |                        | 10,800  |        |      |   | 10,501  |        |  |   | 10,308  |       
|Noninterest-bearing demand deposits        |                                                     |                        | 190,319 |        |      |   | 165,498 |        |  |   | 173,998 |       
|Total deposits                             |                                                     |                        | 793,451 |        |      |   | 757,360 |        |  |   | 729,842 |       
|Shareholders equity                       |                                                     |                        | 84,340  |        |      |   | 83,702  |        |  |   | 73,785  |       
|Performance Ratios                         |                                                     |                        |         |        |      |   |         |        |  |   |         |       
|Return on average assets                   |                                                     |                        | 1.19    | %      |      |   | 0.98    | %      |  |   | 0.48    | %     
|Return on average common equity            |                                                     |                        | 12.60   | %      |      |   | 10.98   | %      |  |   | 5.75    | %     
|Efficiency ratio                           |                                                     |                        | 63.44   | %      |      |   | 66.89   | %      |  |   | 71.26   | %     
|Net interest margin                        |                                                     |                        | 4.59    | %      |      |   | 4.13    | %      |  |   | 3.87    | %     
|Total nonperforming assets to total assets |                                                     |                        | 2.13    | %      |      |   | 2.00    | %      |  |   | 3.26    | %     
|Other Information                          |                                                     |                        |         |        |      |   |         |        |  |   |         |       
|Full-time equivalent employees             |                                                     |                        | 283     |        |      |   | 280     |        |  |   | 299     |       
|Full-service branches                      |                                                     |                        | 13      |        |      |   | 13      |        |  |   | 14      |       





35



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##### Table of Contents





| |                  
| | -----------------
| | First United Bank



|                                     |                                                     |                        |         |       | 
|------------------------------------ | --------------------------------------------------- | ---------------------- | ------- | ----- | 
|                                     |                                                     | 2005                   |        
|                                     |                                                     |                        |        
|                                     |                                                     | (Dollars in thousands) |        
|Income Statement Data                |                                                     |                        |         |      
|Net interest income                  |                                                     | $                      | 1,847   |      
|Provision for loan losses            |                                                     |                        | 62      |      
|                                     |                                                     |                        |        
|                                     | Net interest income after provision for loan losses |                        |         | 1,785 | 
|Noninterest income                   |                                                     |                        | 125     |      
|Noninterest expense                  |                                                     |                        | 1,150   |      
|                                     |                                                     |                        |        
|                                     | Income before provision for income taxes            |                        |         | 760   | 
|Provision for income taxes           |                                                     |                        | 299     |      
|                                     |                                                     |                        |        
|                                     | Net income                                          |                        | $       | 461   | 
|                                     |                                                     |                        |        
|Year-End Balance Sheet Data          |                                                     |                        |         |      
|Total assets                         |                                                     | $                      | 212,782 |      
|Total loans                          |                                                     |                        | 134,848 |      
|Allowance for loan losses            |                                                     |                        | 2,369   |      
|Goodwill, core deposit intangibles   |                                                     |                        | 23,035  |      
|Noninterest-bearing demand deposits  |                                                     |                        | 8,390   |      
|Total deposits                       |                                                     |                        | 171,587 |      
|Shareholders equity                 |                                                     |                        | 40,156  |      
|Performance Ratios                   |                                                     |                        |         |      
|Return on average assets             |                                                     |                        | 0.85    | %    
|Return on average common equity      |                                                     |                        | 4.70    | %    
|Efficiency ratio                     |                                                     |                        | 58.32   | %    
|Net interest margin                  |                                                     |                        | 3.89    | %    
|Nonperforming assets to total assets |                                                     |                        |        |      
|Other Information                    |                                                     |                        |         |      
|Full-time quivalent employees        |                                                     |                        | 32      |      
|Full-service branches                |                                                     |                        | 2       |      







36



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Financial Condition




| |               
| | --------------
| | Loan Portfolio







|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         |  |        |       |  |   |         |         |  |  |        |       | 
|---------------------------------------------------- | ----------- | ---------------------- | ------- | ------- | ------- |  | ------ | ------ |  | - | ------- | ------- |  | ------ | ------ | ----- | ------- | - | ------- | ------- |  |  | ------- | ----- |  | ------ | ------- | ------- | ------- |  | ------ | ----- |  | - | ------- | ------- |  |  | ------ | ----- | 
|                                                     |             | As of December 31,     |        
|                                                     |             |                        |        
|                                                     |             | 2005                   |         |         | 2004    |  |        | 2003   |  |   | 2002    |         |  | 2001   |       
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |       
|                                                     |             | Amount                 |         |         | Percent |  |        | Amount |  |   | Percent |         |  | Amount |        |       | Percent |   |         | Amount  |  |  | Percent |       |  | Amount |         |         | Percent | 
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|                                                     |             | (Dollars in thousands) |        
|Commercial and industrial                            |             | $                      | 331,869 |         |         |  | 42.84  | %      |  | $ | 345,570 |         |  |        | 57.88  | %     |         | $ | 332,480 |         |  |  | 59.36   | %     |  | $      | 325,424 |         |         |  | 60.94  | %     |  | $ | 312,899 |         |  |  | 62.67  | %    
|Real estate mortgage                                 |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         |  |        |       |  |   |         |         |  |  |        |      
|                                                     | Residential |                        |         | 7,739   |         |  |        | 1.00   |  |   |         | 11,199  |  |        |        | 1.87  |         |   |         | 14,315  |  |  |         | 2.56  |  |        |         | 7,326   |         |  |        | 1.37  |  |   |         | 7,833   |  |  |        | 1.57  | 
|                                                     | Commercial  |                        |         | 368,508 |         |  |        | 47.57  |  |   |         | 188,121 |  |        |        | 31.51 |         |   |         | 178,290 |  |  |         | 31.83 |  |        |         | 165,608 |         |  |        | 31.01 |  |   |         | 131,022 |  |  |        | 26.24 | 
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|                                                     |             |                        | 376,247 |         |         |  | 48.57  |        |  |   | 199,320 |         |  |        | 33.38  |       |         |   | 192,605 |         |  |  | 34.39   |       |  |        | 172,934 |         |         |  | 32.38  |       |  |   | 138,855 |         |  |  | 27.81  |      
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|Real estate construction                             |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         |  |        |       |  |   |         |         |  |  |        |      
|                                                     | Residential |                        |         | 12,095  |         |  |        | 1.56   |  |   |         | 9,761   |  |        |        | 1.64  |         |   |         | 12,652  |  |  |         | 2.26  |  |        |         | 10,589  |         |  |        | 1.99  |  |   |         | 5,962   |  |  |        | 1.19  | 
|                                                     | Commercial  |                        |         | 44,315  |         |  |        | 5.72   |  |   |         | 32,868  |  |        |        | 5.50  |         |   |         | 11,906  |  |  |         | 2.12  |  |        |         | 14,805  |         |  |        | 2.76  |  |   |         | 30,215  |  |  |        | 6.05  | 
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|                                                     |             |                        | 56,410  |         |         |  | 7.28   |        |  |   | 42,629  |         |  |        | 7.14   |       |         |   | 24,558  |         |  |  | 4.38    |       |  |        | 25,394  |         |         |  | 4.75   |       |  |   | 36,177  |         |  |  | 7.24   |      
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|Consumer and other                                   |             |                        | 10,172  |         |         |  | 1.31   |        |  |   | 9,556   |         |  |        | 1.60   |       |         |   | 10,447  |         |  |  | 1.87    |       |  |        | 10,286  |         |         |  | 1.93   |       |  |   | 11,364  |         |  |  | 2.28   |      
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|Gross loans                                          |             |                        | 774,698 |         |         |  | 100.00 | %      |  |   | 597,075 |         |  |        | 100.00 | %     |         |   | 560,090 |         |  |  | 100.00  | %     |  |        | 534,038 |         |         |  | 100.00 | %     |  |   | 499,295 |         |  |  | 100.00 | %    
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|Less: unearned discounts, interest and deferred fees |             |                        | (3,225  | )       |         |  |        |        |  |   | (2,539  | )       |  |        |        |       |         |   | (2,954  | )       |  |  |         |       |  |        | (3,467  | )       |         |  |        |       |  |   | (3,854  | )       |  |  |        |      
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 
|Total loans                                          |             | $                      | 771,473 |         |         |  |        |        |  | $ | 594,536 |         |  |        |        |       |         | $ | 557,136 |         |  |  |         |       |  | $      | 530,571 |         |         |  |        |       |  | $ | 495,441 |         |  |  |        |      
|                                                     |             |                        |         |         |         |  |        |        |  |   |         |         |  |        |        |       |         |   |         |         |  |  |         |       |  |        |         |         |         | 



Commercial and Industrial Loans.


37



---



##### Table of Contents





Commercial Mortgage Loans.


Construction Loans.


38



---



##### Table of Contents



Government Guaranteed Small Business Lending.




Trade Finance.


Residential Mortgage Brokerage and Lending. 15-year


Consumer Loans.


39



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##### Table of Contents









|                                       |             |                        |         |         |      |   |         |         |  |   |         |         | 
|-------------------------------------- | ----------- | ---------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |             | As of December 31,     |        
|                                       |             |                        |        
|                                       |             | 2005                   |         |         | 2004 |   |         | 2003    | 
|                                       |             |                        |         |         |      |   |         |         | 
|                                       |             | (Dollars in thousands) |        
|Convenience stores/gasoline stations   |             | $                      | 36,135  |         |      | $ | 42,404  |         |  | $ | 46,290  |        
|Hotels/ Motels                         |             |                        | 82,420  |         |      |   | 55,974  |         |  |   | 69,877  |        
|Nonresidential building for rent/lease |             |                        | 254,954 |         |      |   | 179,052 |         |  |   | 131,482 |        
|Restaurants                            |             |                        | 56,506  |         |      |   | 48,370  |         |  |   | 52,902  |        
|Wholesale trade                        |             |                        | 59,394  |         |      |   | 60,782  |         |  |   | 64,181  |        
|All other                              |             |                        | 285,289 |         |      |   | 210,493 |         |  |   | 195,358 |        
|                                       |             |                        |         |         |      |   |         |         | 
|                                       | Gross loans |                        | $       | 774,698 |      |   | $       | 597,075 |  |   | $       | 560,090 | 
|                                       |             |                        |         |         |      |   |         |         | 



40



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##### Table of Contents





|                                         |             |                         |         |           |            |   |         |            |  |   |         |        |  |   |         |         | 
|---------------------------------------- | ----------- | ----------------------- | ------- | --------- | ---------- | - | ------- | ---------- |  | - | ------- | ------ |  | - | ------- | ------- | 
|                                         |             | As of December 31, 2005 |        
|                                         |             |                         |        
|                                         |             |                         |         | After One |            |   |        
|                                         |             | One Year                |         |           | Through    |   |         | After      |  |   |        
|                                         |             | or Less                 |         |           | Five Years |   |         | Five Years |  |   | Total   |       
|                                         |             |                         |         |           |            |   |         |            |  |   |         |       
|                                         |             | (Dollars in thousands)  |        
|Commercial and industrial                |             | $                       | 87,180  |           |            | $ | 146,134 |            |  | $ | 98,555  |        |  | $ | 331,869 |        
|Real estate mortgage:                    |             |                         |         |           |            |   |         |            |  |   |         |        |  |   |         |        
|                                         | Residential |                         |         | 1,279     |            |   |         | 4,199      |  |   |         | 2,261  |  |   |         | 7,739   | 
|                                         | Commercial  |                         |         | 44,473    |            |   |         | 226,210    |  |   |         | 97,825 |  |   |         | 368,508 | 
|Real estate construction:                |             |                         |         |           |            |   |         |            |  |   |         |        |  |   |         |        
|                                         | Residential |                         |         | 10,618    |            |   |         | 1,477      |  |   |         |       |  |   |         | 12,095  | 
|                                         | Commercial  |                         |         | 8,634     |            |   |         | 16,219     |  |   |         | 19,462 |  |   |         | 44,315  | 
|Consumer                                 |             |                         | 3,282   |           |            |   | 5,864   |            |  |   | 1,026   |        |  |   | 10,172  |        
|                                         |             |                         |         |           |            |   |         |            |  |   |         |       
|Total                                    |             | $                       | 155,466 |           |            | $ | 400,103 |            |  | $ | 219,129 |        |  | $ | 774,698 |        
|                                         |             |                         |         |           |            |   |         |            |  |   |         |       
|Loans with a predetermined interest rate |             | $                       | 26,697  |           |            | $ | 67,500  |            |  | $ | 39,277  |        |  | $ | 133,474 |        
|Loans with a floating interest rate      |             |                         | 128,769 |           |            |   | 332,603 |            |  |   | 179,852 |        |  |   | 641,224 |        
|                                         |             |                         |         |           |            |   |         |            |  |   |         |       
|Total                                    |             | $                       | 155,466 |           |            | $ | 400,103 |            |  | $ | 219,129 |        |  | $ | 774,698 |        
|                                         |             |                         |         |           |            |   |         |            |  |   |         |       



| |                     
| | --------------------
| | Nonperforming Assets







41



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##### Table of Contents















2005 versus 2004.


42



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##### Table of Contents





2004 versus 2003.






|                                                                              |                            |                        |        |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |       | 
|----------------------------------------------------------------------------- | -------------------------- | ---------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ----- | 
|                                                                              |                            | As of December 31,     |       
|                                                                              |                            |                        |       
|                                                                              |                            | 2005                   |        |        | 2004 |   |        | 2003   |  |   | 2002   |        |  | 2001 |       
|                                                                              |                            |                        |        |        |      |   |        |        |  |   |        |        |  |      |       
|                                                                              |                            | (Dollars in thousands) |       
|Nonaccrual loans                                                              |                            | $                      | 15,606 |        |      | $ | 16,504 |        |  | $ | 25,442 |        |  | $    | 17,209 |        |  | $ | 3,758  |      
|Accruing loans 90 days or more past due                                       |                            |                        | 32     |        |      |   | 181    |        |  |   | 264    |        |  |      | 380    |        |  |   | 783    |      
|Other real estate (ORE) and other assets repossessed
    (OAR)            |                            |                        | 3,866  |        |      |   | 1,566  |        |  |   | 2,585  |        |  |      | 1,190  |        |  |   | 969    |      
|                                                                              |                            |                        |        |        |      |   |        |        |  |   |        |        |  |      |       
|                                                                              | Total nonperforming assets |                        |        | 19,504 |      |   |        | 18,251 |  |   |        | 28,291 |  |      |        | 18,779 |  |   |        | 5,510 | 
|Less: nonperforming loans guaranteed by the SBA, Ex-Im Bank, or
    the OCCGF |                            |                        | (2,210 | )      |      |   | (3,032 | )      |  |   | (3,323 | )      |  |      | (3,310 | )      |  |   | (1,833 | )    
|                                                                              |                            |                        |        |        |      |   |        |        |  |   |        |        |  |      |       
|                                                                              | Net nonperforming assets   |                        | $      | 17,294 |      |   | $      | 15,219 |  |   | $      | 24,968 |  |      | $      | 15,469 |  |   | $      | 3,677 | 
|                                                                              |                            |                        |        |        |      |   |        |        |  |   |        |        |  |      |       
|Total nonperforming assets to total loans and ORE/ OAR                        |                            |                        | 2.52   | %      |      |   | 3.06   | %      |  |   | 5.05   | %      |  |      | 3.53   | %      |  |   | 1.11   | %    
|Total nonperforming assets to total assets                                    |                            |                        | 1.73   |        |      |   | 2.00   |        |  |   | 3.26   |        |  |      | 2.23   |        |  |   | 0.74   |      
|Net nonperforming assets to total loans and ORE/ OAR                          |                            |                        | 2.23   |        |      |   | 2.55   |        |  |   | 4.46   |        |  |      | 2.91   |        |  |   | 0.74   |      
|Net nonperforming assets to total assets                                      |                            |                        | 1.53   |        |      |   | 1.66   |        |  |   | 2.88   |        |  |      | 1.84   |        |  |   | 0.49   |      

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| |                                                                           
| | --------------------------------------------------------------------------
| | Allowance for Loan Losses and Reserve for Unfunded Lending
    Commitments











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|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |        |        |  
|--------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                  |                            | As of and For the Years Ended December 31, |        
|                                                                                  |                            |                                            |        
|                                                                                  |                            | 2005                                       |         |        | 2004   |   |         | 2003   |        |   | 2002    |        |        | 2001 |        
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|                                                                                  |                            | (Dollars in thousands)                     |        
|Average total loans outstanding                                                   |                            | $                                          | 640,703 |        |        | $ | 565,920 |        |        | $ | 551,287 |        |        | $    | 506,901 |        |        | $ | 476,134 |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Total loans outstanding at end of period                                          |                            | $                                          | 771,473 |        |        | $ | 594,536 |        |        | $ | 557,136 |        |        | $    | 530,571 |        |        | $ | 495,441 |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Allowance for loan losses at beginning of period                                  |                            | $                                          | 10,501  |        |        | $ | 10,308  |        |        | $ | 10,029  |        |        | $    | 8,892   |        |        | $ | 9,264   |       
|Provision for loan losses                                                         |                            |                                            | 1,936   |        |        |   | 1,343   |        |        |   | 5,671   |        |        |      | 3,743   |        |        |   | 3,795   |       
|Allowance acquired through acquisition                                            |                            |                                            | 2,307   |        |        |   |        |        |        |   |        |        |        |      |        |        |        |   |        |       
|Charge-offs:                                                                      |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                  | Commercial and industrial  |                                            |         | (2,146 | )      |   |         | (2,660 | )      |   |         | (5,173 | )      |      |         | (2,721 | )      |   |         | (4,075 | )     
|                                                                                  | Real estate  mortgage     |                                            |         |       |        |   |         |       |        |   |         | (755   | )      |      |         | (271   | )      |   |         |       |       
|                                                                                  | Real estate  construction |                                            |         | (5     | )      |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       |       
|                                                                                  | Consumer and other         |                                            |         | (274   | )      |   |         | (175   | )      |   |         | (193   | )      |      |         | (132   | )      |   |         | (201   | )     
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|                                                                                  |                            | Total charge-offs                          |         |        | (2,425 | ) |         |        | (2,835 | ) |         |        | (6,121 | )    |         |        | (3,124 | ) |         |        | (4,276 | )
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Recoveries:                                                                       |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                  | Commercial and industrial  |                                            |         | 804    |        |   |         | 1,509  |        |   |         | 593    |        |      |         | 450    |        |   |         | 54     |       
|                                                                                  | Real estate  mortgage     |                                            |         | 6      |        |   |         | 104    |        |   |         | 100    |        |      |         | 20     |        |   |         | 11     |       
|                                                                                  | Consumer and other         |                                            |         | 40     |        |   |         | 72     |        |   |         | 36     |        |      |         | 48     |        |   |         | 44     |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|                                                                                  |                            | Total recoveries                           |         |        | 850    |   |         |        | 1,685  |   |         |        | 729    |      |         |        | 518    |   |         |        | 109    |  
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Net charge-offs                                                                   |                            |                                            | (1,575  | )      |        |   | (1,150  | )      |        |   | (5,392  | )      |        |      | (2,606  | )      |        |   | (4,167  | )     
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Allowance for loan losses at end of period                                        |                            |                                            | 13,169  |        |        |   | 10,501  |        |        |   | 10,308  |        |        |      | 10,029  |        |        |   | 8,892   |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Reserve for unfunded lending commitments at beginning of period                   |                            |                                            | 362     |        |        |   | 140     |        |        |   | 121     |        |        |      | 11      |        |        |   | 7       |       
|Provision for unfunded lending commitments                                        |                            |                                            | 174     |        |        |   | 222     |        |        |   | 19      |        |        |      | 110     |        |        |   | 4       |       
|Reserve acquired through acquisition                                              |                            |                                            | 10      |        |        |   |        |        |        |   |        |        |        |      |        |        |        |   |        |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Reserve for unfunded lending commitments at end of period                         |                            |                                            | 546     |        |        |   | 362     |        |        |   | 140     |        |        |      | 121     |        |        |   | 11      |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Allowance for credit losses                                                       |                            | $                                          | 13,715  |        |        | $ | 10,863  |        |        | $ | 10,448  |        |        | $    | 10,150  |        |        | $ | 8,903   |       
|                                                                                  |                            |                                            |         |        |        |   |         |        |        |   |         |        |        |      |        
|Ratio of allowance for loan losses to end of period total loans                   |                            |                                            | 1.71    | %      |        |   | 1.77    | %      |        |   | 1.85    | %      |        |      | 1.89    | %      |        |   | 1.79    | %     
|Ratio of net charge-offs to average total loans                                   |                            |                                            | 0.25    |        |        |   | 0.20    |        |        |   | 0.98    |        |        |      | 0.51    |        |        |   | 0.88    |       
|Ratio of allowance for loan losses to end of period total
    nonperforming loans |                            |                                            | 84.21   |        |        |   | 62.94   |        |        |   | 40.10   |        |        |      | 57.02   |        |        |   | 195.82  |       

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|                                                    |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |        |       |       |   |          |        |  |  |        |          |   |        |        |       |       |  |        |       |   |   |       |       |  |  |        |       |  
|--------------------------------------------------- | -------------------------- | ---------------------- | ------ | -------- | ----- |  | ------ | ------ | -------- | - | ------ | ----- |  | -------- | ------ | ----- | ----- | - | -------- | ------ |  |  | ------ | -------- | - | ------ | ------ | ----- | ----- |  | ------ | ----- | - | - | ----- | ----- |  |  | ------ | ----- | -
|                                                    |                            | As of December 31,     |       
|                                                    |                            |                        |       
|                                                    |                            | 2005                   |        |          | 2004  |  |        | 2003   |          |   | 2002   |       |  | 2001     |       
|                                                    |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |       
|                                                    |                            |                        |        | Percent  |       |  |        |        | Percent  |   |        |       |  | Percent  |        |       |       |   | Percent  |        |  |  |        | Percent  |  
|                                                    |                            |                        |        | of Loans |       |  |        |        | of Loans |   |        |       |  | of Loans |        |       |       |   | of Loans |        |  |  |        | of Loans |  
|                                                    |                            |                        |        | to Gross |       |  |        |        | to Gross |   |        |       |  | to Gross |        |       |       |   | to Gross |        |  |  |        | to Gross |  
|                                                    |                            | Amount                 |        |          | Loans |  |        | Amount |          |   | Loans  |       |  | Amount   |        |       | Loans |   |          | Amount |  |  | Loans  |          |   | Amount |        |       | Loans | 
|                                                    |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |        |       |       |   |          |        |  |  |        |          |   |        |        |       |       | 
|                                                    |                            | (Dollars in thousands) |       
|Balance of allowance for loan losses applicable to: |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |        |       |       |   |          |        |  |  |        |          |   |        |        |       |       |  |        |       |   |   |       |       |  |  |        |      
|                                                    | Commercial and industrial  |                        | $      | 5,349    |       |  |        | 42.84  | %        |   | $      | 6,119 |  |          |        | 57.88 | %     |   | $        | 6,281  |  |  |        | 59.36    | % |        | $      | 6,383 |       |  |        | 60.94 | % |   | $     | 5,054 |  |  |        | 62.67 | %
|                                                    | Real estate  mortgage     |                        |        | 6,361    |       |  |        | 48.57  |          |   |        | 2,669 |  |          |        | 33.38 |       |   |          | 2,460  |  |  |        | 34.39    |   |        |        | 2,285 |       |  |        | 32.38 |   |   |       | 1,947 |  |  |        | 27.81 |  
|                                                    | Real estate  construction |                        |        | 665      |       |  |        | 7.28   |          |   |        | 615   |  |          |        | 7.14  |       |   |          | 267    |  |  |        | 4.38     |   |        |        | 355   |       |  |        | 4.75  |   |   |       | 274   |  |  |        | 7.24  |  
|                                                    | Consumer and other         |                        |        | 114      |       |  |        | 1.31   |          |   |        | 79    |  |          |        | 1.60  |       |   |          | 101    |  |  |        | 1.87     |   |        |        | 136   |       |  |        | 1.93  |   |   |       | 686   |  |  |        | 2.28  |  
|                                                    | Unallocated                |                        |        | 680      |       |  |        |       |          |   |        | 1,019 |  |          |        |      |       |   |          | 1,199  |  |  |        |         |   |        |        | 870   |       |  |        |      |   |   |       | 931   |  |  |        |      |  
|                                                    |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |        |       |       |   |          |        |  |  |        |          |   |        |        |       |       | 
|Total allowance for loan losses                     |                            | $                      | 13,169 |          |       |  | 100.00 | %      |          | $ | 10,501 |       |  |          | 100.00 | %     |       | $ | 10,308   |        |  |  | 100.00 | %        |   | $      | 10,029 |       |       |  | 100.00 | %     |   | $ | 8,892 |       |  |  | 100.00 | %    
|                                                    |                            |                        |        |          |       |  |        |        |          |   |        |       |  |          |        |       |       |   |          |        |  |  |        |          |   |        |        |       |       | 



| |           
| | ----------
| | Securities

held-to




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held-to


|                   |                                                                        |                         |   |         |                         |  |       |            |     |  |       |        |        |           |   |         |            |  |   |            |         |  |       |       |       |  |   |        |        |   |   |         |         | 
|------------------ | ---------------------------------------------------------------------- | ----------------------- | - | ------- | ----------------------- |  | ----- | ---------- | --- |  | ----- | ------ | ------ | --------- | - | ------- | ---------- |  | - | ---------- | ------- |  | ----- | ----- | ----- |  | - | ------ | ------ | - | - | ------- | ------- | 
|                   |                                                                        | As of December 31, 2005 |   |         | As of December 31, 2004 | 
|                   |                                                                        |                         |   |         |                         | 
|                   |                                                                        |                         |   | Gross   |                         |  | Gross |            |     |  |       |        |        | Gross     |   |         | Gross      |  |   |           
|                   |                                                                        | Amortized               |   |         | Unrealized              |  |       | Unrealized |     |  | Fair  |        |        | Amortized |   |         | Unrealized |  |   | Unrealized |         |  | Fair  |      
|                   |                                                                        | Cost                    |   |         | Gain                    |  |       | Loss       |     |  | Value |        |        | Cost      |   |         | Gain       |  |   | Loss       |         |  | Value |      
|                   |                                                                        |                         |   |         |                         |  |       |            |     |  |       |        |        |           |   |         |            |  |   |            |         |  |       |      
|                   |                                                                        | (Dollars in thousands)  |  
|Available-for-Sale |                                                                        |                         |   |         |                         |  |       |            |     |  |       |        |        |           |   |         |            |  |   |            |         |  |       |       |       |  |   |        |        |   |   |        
|                   | U.S. Government agencies                                               |                         | $ | 32      |                         |  | $     |           |     |  | $     |       |        |           | $ | 32      |            |  | $ | 35         |         |  | $     |      |       |  | $ |       |        |   | $ | 35      |        
|                   | U.S. Government sponsored enterprises                                  |                         |   | 36,869  |                         |  |       |           |     |  |       | (526   | )      |           |   | 36,343  |            |  |   | 4,970      |         |  |       |      |       |  |   | (18    | )      |   |   | 4,952   |        
|                   | Obligations of state and political subdivisions                        |                         |   | 17,162  |                         |  |       | 551        |     |  |       |       |        |           |   | 17,713  |            |  |   | 18,105     |         |  |       | 1,030 |       |  |   |       |        |   |   | 19,135  |        
|                   | Mortgage-backed securities and collateralized mortgage
    obligations |                         |   | 162,294 |                         |  |       | 112        |     |  |       | (3,974 | )      |           |   | 158,432 |            |  |   | 222,977    |         |  |       | 1,344 |       |  |   | (1,179 | )      |   |   | 223,142 |        
|                   | Other debt securities                                                  |                         |   | 292     |                         |  |       | 3          |     |  |       |       |        |           |   | 295     |            |  |   | 1,979      |         |  |       | 14    |       |  |   |       |        |   |   | 1,993   |        
|                   | Investment in ARM and CRA funds                                        |                         |   | 19,419  |                         |  |       | 17         |     |  |       | (412   | )      |           |   | 19,024  |            |  |   | 18,772     |         |  |       | 89    |       |  |   | (205   | )      |   |   | 18,656  |        
|                   | FHLB/ Federal Reserve Bank Stock                                       |                         |   | 3,178   |                         |  |       |           |     |  |       |       |        |           |   | 3,178   |            |  |   | 5,807      |         |  |       |      |       |  |   |       |        |   |   | 5,807   |        
|                   | Investment in subsidiary trust                                         |                         |   | 1,083   |                         |  |       |           |     |  |       |       |        |           |   | 1,083   |            |  |   |           |         |  |       |      |       |  |   |       |        |   |   |        |        
|                   |                                                                        |                         |   |         |                         |  |       |            |     |  |       |        |        |           |   |         |            |  |   |            |         |  |       |      
|                   |                                                                        | Total securities        |   | $       | 240,329                 |  |       | $          | 683 |  |       | $      | (4,912 | )         |   | $       | 236,100    |  |   | $          | 272,645 |  |       | $     | 2,477 |  |   | $      | (1,402 | ) |   | $       | 273,720 | 
|                   |                                                                        |                         |   |         |                         |  |       |            |     |  |       |        |        |           |   |         |            |  |   |            |         |  |       |      

|                                                                       |                  |                         |         |         |            |   |       |            |  |   |        |        |   |   |         |         | 
|---------------------------------------------------------------------- | ---------------- | ----------------------- | ------- | ------- | ---------- | - | ----- | ---------- |  | - | ------ | ------ | - | - | ------- | ------- | 
|                                                                       |                  | As of December 31, 2003 |        
|                                                                       |                  |                         |        
|                                                                       |                  |                         |         | Gross   |            |   | Gross |            |  |  
|                                                                       |                  | Amortized               |         |         | Unrealized |   |       | Unrealized |  |   | Fair   |       
|                                                                       |                  | Cost                    |         |         | Gain       |   |       | Loss       |  |   | Value  |       
|                                                                       |                  |                         |         |         |            |   |       |            |  |   |        |       
|                                                                       |                  | (Dollars in thousands)  |        
|Available-for-Sale                                                     |                  |                         |         |         |            |   |       |            |  |   |        |        |   |   |         |        
|U.S. Government sponsored enterprises                                  |                  | $                       | 4,965   |         |            | $ |      |            |  | $ | (12    | )      |   | $ | 4,953   |        
|Obligations of state and political subdivisions                        |                  |                         | 18,925  |         |            |   | 1,249 |            |  |   |       |        |   |   | 20,174  |        
|Mortgage-backed securities and collateralized mortgage
    obligations |                  |                         | 209,323 |         |            |   | 1,170 |            |  |   | (1,254 | )      |   |   | 209,239 |        
|Other debt securities                                                  |                  |                         | 1,096   |         |            |   | 3     |            |  |   | (10    | )      |   |   | 1,089   |        
|Investment in an ARM and CRA funds                                     |                  |                         | 21,739  |         |            |   | 73    |            |  |   | (203   | )      |   |   | 21,609  |        
|FHLB/ Federal Reserve Bank Stock                                       |                  |                         | 5,200   |         |            |   |      |            |  |   |       |        |   |   | 5,200   |        
|                                                                       |                  |                         |         |         |            |   |       |            |  |   |        |       
|                                                                       | Total securities |                         | $       | 261,248 |            |   | $     | 2,495      |  |   | $      | (1,479 | ) |   | $       | 262,264 | 
|                                                                       |                  |                         |         |         |            |   |       |            |  |   |        |       

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|                                                                       |                  |                         |       |                |                 |  |                  |                |   |   |                 |        |  |        |      |      |       |   |        |        |  |  |       |      |   |        |         |         |       |  |      |      |   |   |         |         |  |  |      |      |  
|---------------------------------------------------------------------- | ---------------- | ----------------------- | ----- | -------------- | --------------- |  | ---------------- | -------------- | - | - | --------------- | ------ |  | ------ | ---- | ---- | ----- | - | ------ | ------ |  |  | ----- | ---- | - | ------ | ------- | ------- | ----- |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | -
|                                                                       |                  | As of December 31, 2005 |      
|                                                                       |                  |                         |      
|                                                                       |                  |                         |       | After One Year |                 |  | After Five Years |                |   |   |                 |       
|                                                                       |                  | Within One              |       |                | But Within Five |  |                  | But Within Ten |   |   | Non-maturing or |        |  |       
|                                                                       |                  | Year                    |       |                | Years           |  |                  | Years          |   |   | After Ten Years |        |  | Total  |     
|                                                                       |                  |                         |       |                |                 |  |                  |                |   |   |                 |        |  |        |     
|                                                                       |                  | Amount                  |       |                | Yield           |  |                  | Amount         |   |   | Yield           |        |  | Amount |      |      | Yield |   |        | Amount |  |  | Yield |      |   | Amount |         |         | Yield | 
|                                                                       |                  |                         |       |                |                 |  |                  |                |   |   |                 |        |  |        |      |      |       |   |        |        |  |  |       |      |   |        |         |         |       | 
|                                                                       |                  | (Dollars in thousands)  |      
|U.S. Government agencies                                               |                  | $                       |      |                |                 |  |                 |                |   | $ |                |        |  |        |     |      |       | $ | 32     |        |  |  | 6.88  | %    |   | $      |        |         |       |  |     |      |   | $ | 32      |         |  |  | 6.88 | %   
|U.S. Government sponsored enterprises                                  |                  |                         |      |                |                 |  |                 |                |   |   | 36,869          |        |  |        | 4.36 | %    |       |   |       |        |  |  |      |      |   |        |        |         |       |  |     |      |   |   | 36,869  |         |  |  | 4.36 |     
|Obligations of state and political subdivisions                        |                  |                         | 1,435 |                |                 |  | 5.09             | %              |   |   | 560             |        |  |        | 4.81 |      |       |   | 7,615  |        |  |  | 4.86  |      |   |        | 7,552   |         |       |  | 4.96 | %    |   |   | 17,162  |         |  |  | 4.92 |     
|Mortgage-backed securities and collateralized mortgage
    obligations |                  |                         |      |                |                 |  |                 |                |   |   | 10,625          |        |  |        | 4.13 |      |       |   | 38,528 |        |  |  | 4.25  |      |   |        | 113,141 |         |       |  | 3.95 |      |   |   | 162,294 |         |  |  | 4.03 |     
|Other debt securities                                                  |                  |                         |      |                |                 |  |                 |                |   |   | 292             |        |  |        | 6.88 |      |       |   |       |        |  |  |      |      |   |        |        |         |       |  |     |      |   |   | 292     |         |  |  | 6.88 |     
|Investment in ARM and CRA funds                                        |                  |                         |      |                |                 |  |                 |                |   |   |                |        |  |        |     |      |       |   |       |        |  |  |      |      |   |        | 19,419  |         |       |  | 3.56 |      |   |   | 19,419  |         |  |  | 3.56 |     
|FHLB/ Federal Reserve Bank stock                                       |                  |                         |      |                |                 |  |                 |                |   |   |                |        |  |        |     |      |       |   |       |        |  |  |      |      |   |        | 3,178   |         |       |  | 3.99 |      |   |   | 3,178   |         |  |  | 3.99 |     
|Investment in subsidiary trust                                         |                  |                         |      |                |                 |  |                 |                |   |   |                |        |  |        |     |      |       |   |       |        |  |  |      |      |   |        | 1,083   |         |       |  | 5.76 |      |   |   | 1,083   |         |  |  | 5.76 |     
|                                                                       |                  |                         |       |                |                 |  |                  |                |   |   |                 |        |  |        |      |      |       |   |        |        |  |  |       |      |   |        |         |         |       | 
|                                                                       | Total securities |                         | $     | 1,435          |                 |  |                  | 5.09           | % |   | $               | 48,346 |  |        |      | 4.33 | %     |   | $      | 46,175 |  |  |       | 4.35 | % |        | $       | 144,373 |       |  |      | 3.96 | % |   | $       | 240,329 |  |  |      | 4.12 | %
|                                                                       |                  |                         |       |                |                 |  |                  |                |   |   |                 |        |  |        |      |      |       |   |        |        |  |  |       |      |   |        |         |         |       | 







49



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Junior Subordinated Debentures.




| |         
| | --------
| | Deposits











50



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|                             |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |   |         |         |         |  |   |      |      |  
|---------------------------- | --------------------------------- | ------------------------------- | ------- | ------- | ------- |  | - | ------ | ---- | - | ------- | ------- | ------- | ------ | - | ---- | ---- | - | ------- | ------- | ------- |  | - | ---- | ---- | -
|                             |                                   | Years Ended December 31,        |        
|                             |                                   |                                 |        
|                             |                                   | 2005                            |         |         | 2004    |  |   | 2003   |     
|                             |                                   |                                 |         |         |         |  |   |        |     
|                             |                                   | Amount                          |         |         | Rate    |  |   | Amount |      |   | Rate    |         |         | Amount |   |      | Rate |  
|                             |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |  
|                             |                                   | (Dollars in thousands)          |        
|Interest-bearing deposits:   |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |   |         |         |         |  |   |     
|                             | NOW checking                      |                                 | $       | 85,579  |         |  |   | 0.81   | %    |   | $       | 79,327  |         |        |   | 0.68 | %    |   | $       | 73,987  |         |  |   | 0.62 | %   
|                             | Savings and money market deposits |                                 |         | 122,363 |         |  |   | 1.33   |      |   |         | 113,164 |         |        |   | 0.71 |      |   |         | 111,867 |         |  |   | 0.79 |     
|                             | Time deposits less than $100,000  |                                 |         | 198,189 |         |  |   | 2.82   |      |   |         | 173,675 |         |        |   | 1.99 |      |   |         | 169,314 |         |  |   | 2.19 |     
|                             | Time deposits $100,000 and over   |                                 |         | 230,720 |         |  |   | 3.19   |      |   |         | 193,749 |         |        |   | 2.41 |      |   |         | 202,186 |         |  |   | 2.59 |     
|                             |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |  
|                             |                                   | Total interest-bearing deposits |         |         | 636,851 |  |   |        | 2.40 |   |         |         | 559,915 |        |   |      | 1.69 |   |         |         | 557,354 |  |   |      | 1.85 |  
|Noninterest-bearing deposits |                                   |                                 | 176,606 |         |         |  |  |        |      |   | 168,768 |         |         |        |  |      |      |   | 151,221 |         |         |  |  |     
|                             |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |  
|                             |                                   | Total deposits                  |         | $       | 813,457 |  |   |        | 1.88 | % |         | $       | 728,683 |        |   |      | 1.30 | % |         | $       | 708,575 |  |   |      | 1.45 | %
|                             |                                   |                                 |         |         |         |  |   |        |      |   |         |         |         |        |   |      |      |  



|                              |  |                        |         | 
|----------------------------- |  | ---------------------- | ------- | 
|                              |  | December 31, 2005      |        
|                              |  |                        |        
|                              |  | (Dollars in thousands) |        
|Three months or less          |  | $                      | 65,616  | 
|Over three through six months |  |                        | 85,195  | 
|Over six through 12 months    |  |                        | 92,793  | 
|Over 12 months                |  |                        | 55,638  | 
|                              |  |                        |        
|Total                         |  | $                      | 299,242 | 
|                              |  |                        |        



| |                               
| | ------------------------------
| | Junior Subordinated Debentures



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3-month






| |                 
| | ----------------
| | Other Borrowings









|                         |                                           |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------ | ----------------------------------------- | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                         |                                           | As of and for the        |  
|                         |                                           | Years Ended December 31, |  
|                         |                                           |                          |  
|                         |                                           | 2005                     |   |        | 2004 |  |   | 2003   |  
|                         |                                           |                          |   |        |      |  |   |        |  
|                         |                                           | (Dollars in thousands)   |  
|Federal funds purchased: |                                           |                          |   |        |      |  |   |        |   |  |   |       
|                         | on December 31,                           |                          | $ |       |      |  | $ |       |   |  | $ |       |  
|                         | average during the year                   |                          |   | 11     |      |  |   |       |   |  |   | 55     |  
|                         | maximum month end balance during the year |                          |   |       |      |  |   |       |   |  |   |       |  
|FHLB notes and advances: |                                           |                          |   |        |      |  |   |        |   |  |   |       
|                         | on December 31,                           |                          | $ | 25,000 |      |  | $ | 59,900 |   |  | $ | 53,300 |  
|                         | average during the year                   |                          |   | 42,138 |      |  |   | 63,288 |   |  |   | 59,667 |  
|                         | maximum month end balance during the year |                          |   | 72,500 |      |  |   | 74,300 |   |  |   | 69,300 |  
|                         | Interest rate at end of period            |                          |   | 4.99   | %    |  |   | 3.46   | % |  |   | 3.15   | %
|                         | Interest rate during period               |                          |   | 4.23   |      |  |   | 2.93   |   |  |   | 3.06   |  
|Federal Reserve TT&L:    |                                           |                          |   |        |      |  |   |        |   |  |   |       
|                         | on December 31,                           |                          | $ | 1,054  |      |  | $ | 949    |   |  | $ | 873    |  
|                         | average during the year                   |                          |   | 728    |      |  |   | 734    |   |  |   | 588    |  
|                         | maximum month end balance during the year |                          |   | 1,054  |      |  |   | 1,057  |   |  |   | 873    |  

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| |                        
| | -----------------------
| | Contractual Obligations



|                                                                             |                               |                        |         |           |             |   |             |            |  |   |            |        |  |       |        |        |  |   |         |         | 
|---------------------------------------------------------------------------- | ----------------------------- | ---------------------- | ------- | --------- | ----------- | - | ----------- | ---------- |  | - | ---------- | ------ |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                                                                             |                               |                        |         | After One |             |   | After Three |            |  |   |            |       
|                                                                             |                               | Within                 |         |           | But Within  |   |             | But Within |  |   | After      |        |  |      
|                                                                             |                               | One Year               |         |           | Three Years |   |             | Five Years |  |   | Five Years |        |  | Total |       
|                                                                             |                               |                        |         |           |             |   |             |            |  |   |            |        |  |       |       
|                                                                             |                               | (Dollars in thousands) |        
|Certificates of deposit                                                      |                               | $                      | 444,944 |           |             | $ | 73,093      |            |  | $ | 21,253     |        |  | $     |       |        |  | $ | 539,290 |        
|Federal Reserve TT&L                                                         |                               |                        | 1,054   |           |             |   |            |            |  |   |           |        |  |       |       |        |  |   | 1,054   |        
|FHLB notes                                                                   |                               |                        |        |           |             |   | 25,000      |            |  |   |           |        |  |       |       |        |  |   | 25,000  |        
|Junior subordinated debentures                                               |                               |                        |        |           |             |   |            |            |  |   |           |        |  |       | 36,083 |        |  |   | 36,083  |        
|Interest on time deposits, junior subordinated debentures and
    borrowings |                               |                        | 14,751  |           |             |   | 10,385      |            |  |   | 5,299      |        |  |       | 51,897 |        |  |   | 82,332  |        
|                                                                             |                               |                        |         |           |             |   |             |            |  |   |            |        |  |       |       
|                                                                             | Total borrowing obligations   |                        | $       | 460,749   |             |   | $           | 108,478    |  |   | $          | 26,552 |  |       | $      | 87,980 |  |   | $       | 683,759 | 
|Operating lease obligations                                                  |                               |                        | 973     |           |             |   | 1,808       |            |  |   | 1,603      |        |  |       | 1,083  |        |  |   | 5,467   |        
|                                                                             |                               |                        |         |           |             |   |             |            |  |   |            |        |  |       |       
|                                                                             | Total contractual obligations |                        | $       | 461,722   |             |   | $           | 110,286    |  |   | $          | 28,155 |  |       | $      | 89,063 |  |   | $       | 689,226 | 
|                                                                             |                               |                        |         |           |             |   |             |            |  |   |            |        |  |       |       



| |                                          
| | -----------------------------------------
| | Interest Rate Sensitivity and Market Risk







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|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |         |   |  |   |         |    |  |   |           | 
|----------------------------- | --------------------------------------------------------------------------------- | ---------------------------- | - | ------- | ------ |  | - | -------- | -- |  | ----- | -------- | -- | ----- | - | ------- | ----- |  | - | -------- | - |  | ----- | ------- | - |  | - | ------- | -- |  | - | --------- | 
|                              |                                                                                   | Volumes Subject to Repricing |  
|                              |                                                                                   |                              |  
|                              |                                                                                   |                              |   | Greater |        |  |  
|                              |                                                                                   | 0-30                         |   |         | 31-180 |  |   | 181-365  |    |  | 1-3   |          |    | 3-5   |   |         | 5-10  |  |   | Than     |   |  |      
|                              |                                                                                   | Days                         |   |         | Days   |  |   | Days     |    |  | Years |          |    | Years |   |         | Years |  |   | 10 Years |   |  | Total |        
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              |                                                                                   | (Dollars in thousands)       |  
|Interest-earning assets:      |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |         |   |  |   |         |    |  |   |          
|                              | Securities                                                                        |                              | $ | 18,023  |        |  | $ | 24,211   |    |  | $     | 21,397   |    |       | $ | 97,451  |       |  | $ | 49,829   |   |  | $     | 21,832  |   |  | $ | 3,357   |    |  | $ | 236,100   | 
|                              | Total loans                                                                       |                              |   | 653,024 |        |  |   | 14,405   |    |  |       | 35,083   |    |       |   | 31,680  |       |  |   | 18,837   |   |  |       | 4,736   |   |  |   | 539     |    |  |   | 758,304   | 
|                              | Federal funds sold and other temporary investments                                |                              |   | 53,599  |        |  |   |         |    |  |       |         |    |       |   |        |       |  |   |         |   |  |       |        |   |  |   |        |    |  |   | 53,599    | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              | Total interest-bearing assets                                                     |                              |   | 724,646 |        |  |   | 38,616   |    |  |       | 56,480   |    |       |   | 129,131 |       |  |   | 68,666   |   |  |       | 26,568  |   |  |   | 3,896   |    |  |   | 1,048,003 | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|Interest-bearing liabilities: |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |         |   |  |   |         |    |  |   |          
|                              | Demand, money market and savings deposits                                         |                              |   | 227,038 |        |  |   |         |    |  |       |         |    |       |   |        |       |  |   |         |   |  |       |        |   |  |   |        |    |  |   | 227,038   | 
|                              | Time deposits                                                                     |                              |   | 48,427  |        |  |   | 236,711  |    |  |       | 159,960  |    |       |   | 72,939  |       |  |   | 21,253   |   |  |       |        |   |  |   |        |    |  |   | 539,290   | 
|                              | Other borrowings                                                                  |                              |   | 1,054   |        |  |   |         |    |  |       |         |    |       |   | 25,000  |       |  |   |         |   |  |       |        |   |  |   |        |    |  |   | 26,054    | 
|                              | Junior subordinated debentures                                                    |                              |   |        |        |  |   |         |    |  |       |         |    |       |   |        |       |  |   |         |   |  |       |        |   |  |   | 36,083  |    |  |   | 36,083    | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              | Total interest-bearing liabilities                                                |                              |   | 276,519 |        |  |   | 236,711  |    |  |       | 159,960  |    |       |   | 97,939  |       |  |   | 21,253   |   |  |       |        |   |  |   | 36,083  |    |  |   | 828,465   | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              | Period GAP                                                                        |                              | $ | 448,127 |        |  | $ | (198,095 | )  |  | $     | (103,480 | )  |       | $ | 31,192  |       |  | $ | 47,413   |   |  | $     | 26,568  |   |  | $ | (32,187 | )  |  | $ | 219,538   | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              | Cumulative GAP                                                                    |                              | $ | 448,127 |        |  | $ | 250,032  |    |  | $     | 146,552  |    |       | $ | 177,744 |       |  | $ | 225,157  |   |  | $     | 251,725 |   |  | $ | 219,538 |    |  |   |           | 
|                              |                                                                                   |                              |   |         |        |  |   |          |    |  |       |          |    |       |   |         |       |  |   |          |   |  |       |        
|                              | Period GAP to total assets                                                        |                              |   | 39.72   | %      |  |   | (17.56   | )% |  |       | (9.17    | )% |       |   | 2.76    | %     |  |   | 4.20     | % |  |       | 2.35    | % |  |   | (2.85   | )% |  |   |           | 
|                              | Cumulative GAP to total assets                                                    |                              |   | 39.72   | %      |  |   | 22.16    | %  |  |       | 12.99    | %  |       |   | 15.75   | %     |  |   | 19.96    | % |  |       | 22.31   | % |  |   | 19.46   | %  |  |   |           | 
|                              | Cumulative interest-earning assets to cumulative
    interest-bearing liabilities |                              |   | 262.06  | %      |  |   | 148.72   | %  |  |       | 121.77   | %  |       |   | 123.05  | %     |  |   | 128.42   | % |  |       | 131.77  | % |  |   | 126.50  | %  |  |   |           | 



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|                         |  |                      |        |   |                            |  |       |   
|------------------------ |  | -------------------- | ------ | - | -------------------------- |  | ----- | --
|                         |  | Net Interest         |        |   | Economic Value of          | 
|Change in Interest Rates |  | Income Volatility(1) |        |   | Equity (EVE) Volatility(2) | 
|                         |  |                      |        |   |                            | 
|+200 bp                  |  |                      | 17.44  | % |                            |  | (4.89 | )%
|+100 bp                  |  |                      | 8.74   |   |                            |  | (2.79 | ) 
|-100 bp                  |  |                      | (7.90  | ) |                            |  | 1.59  |   
|-200 bp                  |  |                      | (15.84 | ) |                            |  | (0.23 | ) 






|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net interest income volatility is measured as the percentage
    change in net interest income in the various rate scenarios from
    the net interest income in a stable interest rate environment.



|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | EVE volatility is measured as the percentage change in the EVE
    in the various interest rate scenarios from the EVE in a stable
    interest rate environment.



55



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| |          
| | ---------
| | Liquidity





one-to


56



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##### Table of Contents







| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements





|                                                             |                                                         |                        |        |           |             |   |             |            |  |   |            |        |  |       |        |        |  |   |         |         | 
|------------------------------------------------------------ | ------------------------------------------------------- | ---------------------- | ------ | --------- | ----------- | - | ----------- | ---------- |  | - | ---------- | ------ |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                                                             |                                                         |                        |        | After One |             |   | After Three |            |  |   |            |       
|                                                             |                                                         | Within                 |        |           | but Within  |   |             | but Within |  |   | After Five |        |  |      
|                                                             |                                                         | One Year               |        |           | Three Years |   |             | Five Years |  |   | Years      |        |  | Total |       
|                                                             |                                                         |                        |        |           |             |   |             |            |  |   |            |        |  |       |       
|                                                             |                                                         | (Dollars in thousands) |       
|Unfunded loan commitments including unfunded lines of credit |                                                         | $                      | 76,161 |           |             | $ | 12,762      |            |  | $ | 10,226     |        |  | $     | 53,041 |        |  | $ | 152,190 |        
|Standby letters of credit                                    |                                                         |                        | 4,589  |           |             |   |            |            |  |   |           |        |  |       |       |        |  |   | 4,589   |        
|Commercial letters of credit                                 |                                                         |                        | 6,593  |           |             |   |            |            |  |   |           |        |  |       |       |        |  |   | 6,593   |        
|Operating leases                                             |                                                         |                        | 973    |           |             |   | 1,808       |            |  |   | 1,603      |        |  |       | 1,083  |        |  |   | 5,467   |        
|                                                             |                                                         |                        |        |           |             |   |             |            |  |   |            |        |  |       |       
|                                                             | Total financial instruments with off-balance sheet risk |                        | $      | 88,316    |             |   | $           | 14,570     |  |   | $          | 11,829 |  |       | $      | 54,124 |  |   | $       | 168,839 | 
|                                                             |                                                         |                        |        |           |             |   |             |            |  |   |            |        |  |       |       





| |                  
| | -----------------
| | Capital Resources





57



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|             |                                 |                      |  |      |                              |  |  |                   |   |  |  |       |  
|------------ | ------------------------------- | -------------------- |  | ---- | ---------------------------- |  |  | ----------------- | - |  |  | ----- | -
|             |                                 | Minimum Required     |  |      | To Be Capitalized as Well    |  |  |                  
|             |                                 | For Capital Adequacy |  |      | Capitalized Under Prompt     |  |  | Actual Ratio At   |  
|             |                                 | Purposes             |  |      | Corrective Action Provisions |  |  | December 31, 2005 |  
|             |                                 |                      |  |      |                              |  |  |                   |  
|The Company  |                                 |                      |  |      |                              |  |  |                   |   |  |  |      
|             | Leverage ratio                  |                      |  | 4.00 | %(1)                         |  |  | N/A               | % |  |  | 9.96  | %
|             | Tier 1 risk-based capital ratio |                      |  | 4.00 |                              |  |  | N/A               |   |  |  | 11.18 |  
|             | Total risk-based capital ratio  |                      |  | 8.00 |                              |  |  | N/A               |   |  |  | 13.73 |  
|MetroBank    |                                 |                      |  |      |                              |  |  |                   |   |  |  |      
|             | Leverage ratio                  |                      |  | 4.00 | %(2)                         |  |  | 5.00              | % |  |  | 9.52  | %
|             | Tier 1 risk-based capital ratio |                      |  | 4.00 |                              |  |  | 6.00              |   |  |  | 12.13 |  
|             | Total risk-based capital ratio  |                      |  | 8.00 |                              |  |  | 10.00             |   |  |  | 13.38 |  
|First United |                                 |                      |  |      |                              |  |  |                   |   |  |  |      
|             | Leverage ratio                  |                      |  | 4.00 | %(3)                         |  |  | 5.00              | % |  |  | 9.02  | %
|             | Tier 1 risk-based capital ratio |                      |  | 4.00 |                              |  |  | 6.00              |   |  |  | 12.37 |  
|             | Total risk-based capital ratio  |                      |  | 8.00 |                              |  |  | 10.00             |   |  |  | 13.63 |  






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(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.



30-year


New Accounting Pronouncements


Share-Based Payment Accounting for Stock
Issued to Employees Accounting
for Stock-Based Compensation Statement of Cash Flows


59



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Accounting Changes and Error Corrections


03-1 Implementation Guidance for the Application of
Paragraph 16 of EITF Issue
No. 03-1 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 03-1 Accounting for Certain
Investments in Debt and Equity Securities Accounting for
Noncurrent Marketable Equity Securities Equity Method of Accounting for Investments
in Common Stock




|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About Market
    Risk



60



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

10-K,




| |                                     
| | ------------------------------------
| | Quarterly Financial Data (Unaudited)



|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |       | 
|------------------------------------ | --------------------------------------------------- | ------- | ------ | ------ | ------- | - | ------ | ------- |  | - | ------- | ----- |  | ------- | ------ | ----- | ------- | - | ------ | ------- |  | - | ------- | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                     |                                                     | 2005    |        |        | 2004    |  
|                                     |                                                     |         |        |        |         |  
|                                     |                                                     | Fourth  |        |        | Third   |   |        | Second  |  |   | First   |       |  | Fourth  |        |       | Third   |   |        | Second  |  |   | First   |      
|                                     |                                                     | Quarter |        |        | Quarter |   |        | Quarter |  |   | Quarter |       |  | Quarter |        |       | Quarter |   |        | Quarter |  |   | Quarter |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Interest income                      |                                                     | $       | 18,630 |        |         | $ | 14,352 |         |  | $ | 13,310  |       |  | $       | 12,764 |       |         | $ | 12,429 |         |  | $ | 11,549  |       |  | $ | 10,689 |       |  | $ | 10,637 |      
|Interest expense                     |                                                     |         | 6,395  |        |         |   | 4,215  |         |  |   | 3,594   |       |  |         | 3,334  |       |         |   | 3,202  |         |  |   | 2,930   |       |  |   | 2,584  |       |  |   | 2,633  |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|                                     | Net interest income                                 |         |        | 12,235 |         |   |        | 10,137  |  |   |         | 9,716 |  |         |        | 9,430 |         |   |        | 9,227   |  |   |         | 8,619 |  |   |        | 8,105 |  |   |        | 8,004 | 
|Provision for loan losses            |                                                     |         | 540    |        |         |   | 468    |         |  |   | 455     |       |  |         | 473    |       |         |   | 527    |         |  |   | 261     |       |  |   | 9      |       |  |   | 546    |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|                                     | Net interest income after provision for loan losses |         |        | 11,695 |         |   |        | 9,669   |  |   |         | 9,261 |  |         |        | 8,957 |         |   |        | 8,700   |  |   |         | 8,358 |  |   |        | 8,096 |  |   |        | 7,458 | 
|Noninterest income                   |                                                     |         | 1,958  |        |         |   | 2,087  |         |  |   | 2,014   |       |  |         | 2,050  |       |         |   | 1,919  |         |  |   | 1,839   |       |  |   | 2,445  |       |  |   | 2,048  |      
|Noninterest expense                  |                                                     |         | 9,255  |        |         |   | 7,648  |         |  |   | 7,272   |       |  |         | 7,677  |       |         |   | 7,156  |         |  |   | 7,831   |       |  |   | 6,899  |       |  |   | 6,352  |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|                                     | Income before income taxes                          |         |        | 4,398  |         |   |        | 4,108   |  |   |         | 4,003 |  |         |        | 3,330 |         |   |        | 3,463   |  |   |         | 2,366 |  |   |        | 3,642 |  |   |        | 3,154 | 
|Provision for income taxes           |                                                     |         | 1,484  |        |         |   | 1,272  |         |  |   | 1,233   |       |  |         | 1,070  |       |         |   | 1,143  |         |  |   | 762     |       |  |   | 1,135  |       |  |   | 991    |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Net income                           |                                                     | $       | 2,914  |        |         | $ | 2,836  |         |  | $ | 2,770   |       |  | $       | 2,260  |       |         | $ | 2,320  |         |  | $ | 1,604   |       |  | $ | 2,507  |       |  | $ | 2,163  |      
|                                     |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Earnings per share:                  |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |      
|                                     | Basic                                               |         | $      | 0.40   |         |   | $      | 0.39    |  |   | $       | 0.38  |  |         | $      | 0.31  |         |   | $      | 0.32    |  |   | $       | 0.22  |  |   | $      | 0.35  |  |   | $      | 0.30  | 
|                                     | Diluted                                             |         | $      | 0.40   |         |   | $      | 0.39    |  |   | $       | 0.38  |  |         | $      | 0.31  |         |   | $      | 0.32    |  |   | $       | 0.22  |  |   | $      | 0.35  |  |   | $      | 0.30  | 
|Weighted average shares outstanding: |                                                     |         |        |        |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |      
|                                     | Basic                                               |         |        | 7,223  |         |   |        | 7,209   |  |   |         | 7,205 |  |         |        | 7,194 |         |   |        | 7,186   |  |   |         | 7,180 |  |   |        | 7,175 |  |   |        | 7,161 | 
|                                     | Diluted                                             |         |        | 7,366  |         |   |        | 7,312   |  |   |         | 7,271 |  |         |        | 7,292 |         |   |        | 7,267   |  |   |         | 7,209 |  |   |        | 7,224 |  |   |        | 7,219 | 
|Dividends per common share           |                                                     | $       | 0.06   |        |         | $ | 0.06   |         |  | $ | 0.06    |       |  | $       | 0.06   |       |         | $ | 0.06   |         |  | $ | 0.06    |       |  | $ | 0.06   |       |  | $ | 0.06   |      






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Restatement of Financial Statements. 10-K,




61



---



##### Table of Contents





Evaluation of Disclosure Controls and Procedures. 13a-15(e) 15d-15(e)


Managements Report on Internal Control Over Financial
Reporting


13a-15(f)).








62



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##### Table of Contents











Remediation of Material Weakness




Changes in Internal Control Over Financial Reporting.







|                          | 
|------------------------- | 
|Item 9B.Other Information | 






PART III







|         |                                                
|-------- | -----------------------------------------------
|Item 10. | Directors and Executive Officers of the Company



63



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|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Shareholder Matters



Securities Authorized for Issuance Under Equity Compensation
Plans




EQUITY COMPENSATION PLAN INFORMATION


|                                                           |  |                      |         |  |                     |                      |                     |                          |  |  |         | 
|---------------------------------------------------------- |  | -------------------- | ------- |  | ------------------- | -------------------- | ------------------- | ------------------------ |  |  | ------- | 
|                                                           |  | (a)                  |         |  | (b)                 |                      |                     | (c)                      | 
|                                                           |  |                      |         |  |                     |                      |                     |                          | 
|                                                           |  |                      |         |  |                     | Number of Securities |                    
|                                                           |  | Number of Securities |         |  |                     |                      | Remaining Available |                         
|                                                           |  | to be Issued Upon    |         |  |                     |                      | for Future Issuance |                         
|                                                           |  | Exercise of          |         |  |                     |                      | Under Equity        |                         
|                                                           |  | Outstanding          |         |  | Weighted Average    |                      |                     | Compensation Plans       | 
|                                                           |  | Options, Warrants    |         |  | Exercise Price of   |                      |                     | (excluding securities    | 
|Plan category                                              |  | and Rights           |         |  | Outstanding Options |                      |                     | reflected in column (a)) | 
|                                                           |  |                      |         |  |                     |                      |                     |                          | 
|Equity compensation plans approved by security holders     |  |                      | 449,150 |  |                     | $                    | 18.18               |                          |  |  | 213,140 | 
|Equity compensation plans not approved by security holders |  |                      |        |  |                     |                      |                    |                          |  |  |        | 
|                                                           |  |                      |         |  |                     |                      |                     |                          | 
|Total                                                      |  |                      | 449,150 |  |                     | $                    | 18.18               |                          |  |  | 213,140 | 
|                                                           |  |                      |         |  |                     |                      |                     |                          | 






|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



64



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PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Consolidated Financial Statements and Financial Statement
Schedules


10-K.


|                                                                                                                     |  |  |  | 
|-------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Report of Independent Registered Public Accounting Firm                                                              |  |  |  | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                         |  |  |  | 
|Consolidated Statements of Income for the Years Ended
    December 31, 2005, 2004, and 2003                          |  |  |  | 
|Consolidated Statements of Comprehensive Income for the Years
    Ended December 31, 2005, 2004, and 2003            |  |  |  | 
|Consolidated Statements of Changes in Shareholders Equity
    for the Years Ended December 31, 2005, 2004, and 2003 |  |  |  | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004, and 2003                      |  |  |  | 
|Notes to Consolidated Financial Statements                                                                           |  |  |  | 



65



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##### Table of Contents



Exhibits


|          |    |      |  |             |  |                                                                                                                                                                                                                                                                     
|--------- | -- | ---- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |    |      |  |            
|Number(1) |    |      |  | Description
|          |    |      |  |            
|          | 2  | .1   |  |             |  | Agreement and Plan of Reorganization, dated as of June 7,
    2005, by and between MetroCorp Bancshares, Inc. and First United
    Bank (incorporated herein by reference to Exhibit 2.1 to
    the Companys Current Report on Form 8-K filed on
    June 9, 2005).
|          | 3  | .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   |  |             |  | 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).                                                                                                                     
|          | 10 | .1   |  |             |  | Agreement and Plan of Reorganization by and among MetroCorp
    Bancshares, Inc., MC Bancshares of Delaware, Inc. and MetroBank,
    N.A. (incorporated herein by reference to Exhibit 10.1 to
    the Registration Statement).                                     
|          | 10 | .2   |  |             |  | MetroCorp Bancshares, Inc. 1998 Employee Stock Purchase Plan
    (incorporated herein by reference to Exhibit 10.4 to the
    Registration Statement).                                                                                                              
|          | 10 | .3  |  |             |  | MetroCorp Bancshares, Inc. 1998 Stock Incentive Plan
    (incorporated herein by reference to Exhibit 10.5 to the
    Registration Statement).                                                                                                                      
|          | 10 | .4   |  |             |  | First Amendment to the MetroCorp Bancshares, Inc. 1998 Employee
    Stock Purchase Plan (incorporated herein by reference to
    Exhibit 10.6 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 1998).                                
|          | 10 | .5  |  |             |  | Employment Agreement between MetroCorp Bancshares, Inc. and
    George M. Lee                                                                                                                                                                                       
|          | 10 | .6  |  |             |  | Separation Agreement and Release between MetroBank, N.A. and
    Allen Cournyer (incorporated herein by reference to
    Exhibit 2.1 to the Companys Current Report on
    Form 8-K filed on February 2, 2006).                                                    
|          | 21 | .1*  |  |             |  | Subsidiaries of MetroCorp Bancshares, Inc.                                                                                                                                                                                                                          
|          | 23 | .1*  |  |             |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                              
|          | 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, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                       
|          | 32 | .2** |  |             |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002.                                                                                                          






|    |                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company has other long-term debt agreements that meet the
    exclusion set forth in Section 601(b)(4)(iii)(A) of
    Regulation S-K.
    The Company hereby agrees to furnish a copy of such agreements
    to Securities and Exchange Commission upon request.
|   
|*   | Filed herewith.                                                                                                                                                                                                                                                     
|   
|**  | Furnished herewith.                                                                                                                                                                                                                                                 
|   
|   | Management contract or compensatory plan or arrangement.                                                                                                                                                                                                            

66



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SIGNATURES






| |                           
| | --------------------------
| | Metrocorp Bancshares, Inc.



| |     |                  
| | --- | -----------------
| | By: | /s/ George M. Lee

| |                              
| | -----------------------------
| |                              
| | George M. Lee                
| | Chief Executive Officer      
| | (principal executive officer)



|                                                  |  |                                                                                            |  | 
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | 
|Signature                                         |  | Title                                                                                     
|                                                  |  |                                                                                           
|                                                 
|/s/ Don J. WangDon J. Wang                        |  | Chairman of the Board                                                                     
|                                                 
|/s/ George M. LeeGeorge M. Lee                    |  | Chief Executive Officer (principal executive officer)                                     
|                                                 
|/s/ David TaiDavid Tai                            |  | Director                                                                                  
|                                                 
|/s/ David C. ChoiDavid C. Choi                    |  | Chief Financial Officer (principal financial officer and
    principal accounting officer)
|                                                 
|/s/ Tiong L. AngTiong L. Ang                      |  | Director                                                                                  
|                                                 
|/s/ Helen F. ChenHelen F. Chen                    |  | Director                                                                                  
|                                                 
|/s/ Tommy F. ChenTommy F. Chen                    |  | Director                                                                                  
|                                                 
|/s/ May P. ChuMay P. Chu                          |  | Director                                                                                  
|                                                 
|/s/ Shirley L. ClaytonShirley L. Clayton          |  | Director                                                                                  
|                                                 
|/s/ John LeeJohn Lee                              |  | Director                                                                                  
|                                                 
|/s/ Edward A. MontoEdward A. Monto                |  | Director                                                                                  
|                                                 
|/s/ John E.
    Peterson Jr.John E. Peterson, Jr. |  | Director                                                                                  
|                                                 
|/s/ Charles L. RoffCharles L. Roff                |  | Director                                                                                  
|                                                 
|/s/ Joe TingJoe Ting                              |  | Director                                                                                  
|                                                 
|/s/ Daniel B. WrightDaniel B. Wright              |  | Director                                                                                  

67



---



##### 










INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


METROCORP BANCSHARES, INC. AND SUBSIDIARIES


|                                                                                                                         |  |  |    |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------ |  |  | -- |  |  |  |  | 
|Report of Independent Registered Public
    Accounting Firm                                                              |  |  | 69 |  |  |  |  | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                                         |  |  | 72 |  |  |  |  | 
|Consolidated Statements of Income for the
    Years Ended
    December 31, 2005, 2004, and 2003                          |  |  | 73 |  |  |  |  | 
|Consolidated Statements of Comprehensive
    Income for the Years Ended
    December 31, 2005, 2004, and 2003            |  |  | 74 |  |  |  |  | 
|Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended
    December 31, 2005, 2004, and 2003 |  |  | 75 |  |  |  |  | 
|Consolidated Statements of Cash Flows for
    the Years Ended
    December 31, 2005, 2004, and 2003                      |  |  | 76 |  |  |  |  | 
|Notes to Consolidated Financial
    Statements                                                                           |  |  | 77 |  |  |  |  | 



68



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Consolidated Financial Statements






Internal control over financial reporting


Internal Control 
Integrated Framework




69



---



##### Table of Contents













70



---



##### Table of Contents



Internal Control  Integrated Framework Internal Control 
Integrated Framework








71



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METROCORP BANCSHARES, INC.





CONSOLIDATED BALANCE SHEETS


(In thousands, except share amounts)


|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |   |         |         |         | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | --------- | - | ------- | ------- | ------- | 
|                                                                                 |                                                                                                                                                                                                                         | December 31,                               |        
|                                                                                 |                                                                                                                                                                                                                         |                                            |        
|                                                                                 |                                                                                                                                                                                                                         | 2005                                       |         |         | 2004      |  
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|ASSETS                                                                          
|Cash and due from banks                                                          |                                                                                                                                                                                                                         | $                                          | 28,213  |         |           | $ | 26,285  |        
|Federal funds sold and other short-term investments                              |                                                                                                                                                                                                                         |                                            | 53,599  |         |           |   | 5,788   |        
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 | Total cash and cash equivalents                                                                                                                                                                                         |                                            |         | 81,812  |           |   |         | 32,073  |        
|Securities available-for-sale, at fair value                                     |                                                                                                                                                                                                                         |                                            | 236,100 |         |           |   | 273,720 |        
|Loans, net of allowance for loan losses of $13,169 and $10,501,
    respectively |                                                                                                                                                                                                                         |                                            | 758,304 |         |           |   | 582,136 |        
|Loans, held-for-sale                                                             |                                                                                                                                                                                                                         |                                            |        |         |           |   | 1,899   |        
|Accrued interest receivable                                                      |                                                                                                                                                                                                                         |                                            | 4,835   |         |           |   | 3,308   |        
|Premises and equipment, net                                                      |                                                                                                                                                                                                                         |                                            | 6,196   |         |           |   | 6,512   |        
|Goodwill                                                                         |                                                                                                                                                                                                                         |                                            | 21,607  |         |           |   |        |        
|Core deposit intangibles                                                         |                                                                                                                                                                                                                         |                                            | 1,428   |         |           |   |        |        
|Deferred tax asset                                                               |                                                                                                                                                                                                                         |                                            | 8,531   |         |           |   | 5,201   |        
|Customers liability on acceptances                                              |                                                                                                                                                                                                                         |                                            | 3,148   |         |           |   | 6,669   |        
|Foreclosed assets, net                                                           |                                                                                                                                                                                                                         |                                            | 3,866   |         |           |   | 1,566   |        
|Other assets                                                                     |                                                                                                                                                                                                                         |                                            | 2,377   |         |           |   | 1,228   |        
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 |                                                                                                                                                                                                                         | Total assets                               |         | $       | 1,128,204 |   |         | $       | 914,312 | 
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                            
|Deposits:                                                                        |                                                                                                                                                                                                                         |                                            |         |         |           |   |         |        
|                                                                                 | Noninterest-bearing                                                                                                                                                                                                     |                                            | $       | 195,422 |           |   | $       | 163,191 |        
|                                                                                 | Interest-bearing                                                                                                                                                                                                        |                                            |         | 766,328 |           |   |         | 591,862 |        
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 |                                                                                                                                                                                                                         | Total deposits                             |         |         | 961,750   |   |         |         | 755,053 | 
|Junior subordinated debentures                                                   |                                                                                                                                                                                                                         |                                            | 36,083  |         |           |   |        |        
|Other borrowings                                                                 |                                                                                                                                                                                                                         |                                            | 26,054  |         |           |   | 60,849  |        
|Accrued interest payable                                                         |                                                                                                                                                                                                                         |                                            | 1,126   |         |           |   | 649     |        
|Acceptances outstanding                                                          |                                                                                                                                                                                                                         |                                            | 3,148   |         |           |   | 6,669   |        
|Other liabilities                                                                |                                                                                                                                                                                                                         |                                            | 7,815   |         |           |   | 5,369   |        
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 |                                                                                                                                                                                                                         | Total liabilities                          |         |         | 1,035,976 |   |         |         | 828,589 | 
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|Commitments and contingencies                                                    |                                                                                                                                                                                                                         |                                            |        |         |           |   |        |        
|Shareholders equity:                                                            |                                                                                                                                                                                                                         |                                            |         |         |           |   |         |        
|                                                                                 | Common stock, $1.00 par value, 20,000,000 shares
    authorized; 7,329,977 shares and 7,312,627 shares
    issued and 7,232,239 shares and 7,187,446 shares
    outstanding at December 31, 2005 and 2004, respectively |                                            |         | 7,330   |           |   |         | 7,313   |        
|Additional paid-in-capital                                                       |                                                                                                                                                                                                                         |                                            | 28,576  |         |           |   | 27,859  |        
|Retained earnings                                                                |                                                                                                                                                                                                                         |                                            | 60,023  |         |           |   | 50,976  |        
|Accumulated other comprehensive income (loss)                                    |                                                                                                                                                                                                                         |                                            | (2,783  | )       |           |   | 710     |        
|Treasury stock, at cost                                                          |                                                                                                                                                                                                                         |                                            | (918    | )       |           |   | (1,135  | )      
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 |                                                                                                                                                                                                                         | Total shareholders equity                 |         |         | 92,228    |   |         |         | 85,723  | 
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  
|                                                                                 |                                                                                                                                                                                                                         | Total liabilities and shareholders equity |         | $       | 1,128,204 |   |         | $       | 914,312 | 
|                                                                                 |                                                                                                                                                                                                                         |                                            |         |         |           |  



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METROCORP BANCSHARES, INC.





CONSOLIDATED STATEMENTS OF INCOME


(In thousands, except per share amounts)


|                                                    |                                                           |                          |                           |        |       |        |        |        |       |        |        |        |       |        | 
|--------------------------------------------------- | --------------------------------------------------------- | ------------------------ | ------------------------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                                    |                                                           | Years Ended December 31, |                          
|                                                    |                                                           |                          |                          
|                                                    |                                                           | 2005                     |                           |        | 2004  |        |        | 2003   |      
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Interest income:                                    |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Loans                                                     |                          | $                         | 47,799 |       |        | $      | 34,711 |       |        | $      | 34,691 |      
|                                                    | Securities:                                               |                          |                           |        |       |        |        |        |       |        |        |        |      
|                                                    |                                                           | Taxable                  |                           |        | 9,519 |        |        |        | 9,582 |        |        |        | 7,458 |       
|                                                    |                                                           | Tax-exempt               |                           |        | 853   |        |        |        | 917   |        |        |        | 997   |       
|                                                    | Federal funds sold and other short-term investments       |                          |                           | 885    |       |        |        | 94     |       |        |        | 141    |      
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|                                                    |                                                           |                          | Total interest income     |        |       | 59,056 |        |        |       | 45,304 |        |        |       | 43,287 | 
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Interest expense:                                   |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Time deposits                                             |                          |                           | 12,948 |       |        |        | 8,133  |       |        |        | 8,942  |      
|                                                    | Demand and savings deposits                               |                          |                           | 2,316  |       |        |        | 1,338  |       |        |        | 1,345  |      
|                                                    | Junior subordinated debentures                            |                          |                           | 514    |       |        |        |       |       |        |        |       |      
|                                                    | Other borrowings                                          |                          |                           | 1,760  |       |        |        | 1,878  |       |        |        | 1,847  |      
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|                                                    |                                                           |                          | Total interest expense    |        |       | 17,538 |        |        |       | 11,349 |        |        |       | 12,134 | 
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Net interest income                                 |                                                           |                          | 41,518                    |        |       |        | 33,955 |        |       |        | 31,153 |       
|Provision for loan losses                           |                                                           |                          | 1,936                     |        |       |        | 1,343  |        |       |        | 5,671  |       
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Net interest income after provision for loan losses |                                                           |                          | 39,582                    |        |       |        | 32,612 |        |       |        | 25,482 |       
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Noninterest income:                                 |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Service fees                                              |                          |                           | 6,593  |       |        |        | 6,701  |       |        |        | 6,544  |      
|                                                    | Loan-related fees                                         |                          |                           | 1,179  |       |        |        | 977    |       |        |        | 1,525  |      
|                                                    | Gain (loss) on sale of securities, net                    |                          |                           |       |       |        |        | (97    | )     |        |        | 165    |      
|                                                    | Gain on sale of loans                                     |                          |                           | 48     |       |        |        | 605    |       |        |        | 600    |      
|                                                    | Other noninterest income                                  |                          |                           | 289    |       |        |        | 65     |       |        |        | 93     |      
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|                                                    |                                                           |                          | Total noninterest income  |        |       | 8,109  |        |        |       | 8,251  |        |        |       | 8,927  | 
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Noninterest expense:                                |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Salaries and employee benefits                            |                          |                           | 17,555 |       |        |        | 16,104 |       |        |        | 14,109 |      
|                                                    | Lower of cost or market adjustment on loans held-for-sale |                          |                           |       |       |        |        |       |       |        |        | 2,149  |      
|                                                    | Occupancy and equipment                                   |                          |                           | 5,663  |       |        |        | 5,723  |       |        |        | 5,361  |      
|                                                    | Foreclosed assets, net                                    |                          |                           | 312    |       |        |        | (728   | )     |        |        | 248    |      
|                                                    | Other noninterest expense                                 |                          |                           | 8,322  |       |        |        | 7,139  |       |        |        | 6,697  |      
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|                                                    |                                                           |                          | Total noninterest expense |        |       | 31,852 |        |        |       | 28,238 |        |        |       | 28,564 | 
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Income before provision for income taxes            |                                                           |                          | 15,839                    |        |       |        | 12,625 |        |       |        | 5,845  |       
|Provision for income taxes                          |                                                           |                          | 5,059                     |        |       |        | 4,031  |        |       |        | 1,735  |       
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Net income                                          |                                                           | $                        | 10,780                    |        |       | $      | 8,594  |        |       | $      | 4,110  |       
|                                                    |                                                           |                          |                           |        |       |        |        |        |      
|Earnings per common share:                          |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Basic                                                     |                          | $                         | 1.50   |       |        | $      | 1.20   |       |        | $      | 0.58   |      
|                                                    | Diluted                                                   |                          | $                         | 1.48   |       |        | $      | 1.19   |       |        | $      | 0.57   |      
|Weighted average shares outstanding:                |                                                           |                          |                           |        |       |        |        |        |       |        |        |       
|                                                    | Basic                                                     |                          |                           | 7,208  |       |        |        | 7,175  |       |        |        | 7,089  |      
|                                                    | Diluted                                                   |                          |                           | 7,306  |       |        |        | 7,230  |       |        |        | 7,213  |      
|Dividends per common share                          |                                                           | $                        | 0.24                      |        |       | $      | 0.24   |        |       | $      | 0.24   |       



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METROCORP BANCSHARES, INC.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In thousands)


|                                      |                                                                 |                                                                                 |        |        |        |   |       |       |     |   |       |        |        |  
|------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ----- | ----- | --- | - | ----- | ------ | ------ | -
|                                      |                                                                 | 2005                                                                            |        |        | 2004   |   |       | 2003  |    
|                                      |                                                                 |                                                                                 |        |        |        |   |       |       |    
|Net income                            |                                                                 | $                                                                               | 10,780 |        |        | $ | 8,594 |       |     | $ | 4,110 |       
|Other comprehensive loss, net of tax: |                                                                 |                                                                                 |        |        |        |   |       |       |     |   |       |       
|                                      | Unrealized gains (losses) on investment securities, net of tax: |                                                                                 |        |        |        |   |       |       |     |   |       |        |       
|                                      |                                                                 | Unrealized holding losses arising during the period                             |        |        | (3,493 | ) |       |       | (24 | ) |       |        | (1,576 | )
|                                      |                                                                 | Less: reclassification adjustment for (losses) gains included in
    net income |        |        |       |   |       |       | (63 | ) |       |        | 107    |  
|                                      |                                                                 |                                                                                 |        |        |        |   |       |       |    
|                                      | Other comprehensive income (loss)                               |                                                                                 |        | (3,493 | )      |   |       | 39    |     |   |       | (1,683 | )     
|                                      |                                                                 |                                                                                 |        |        |        |   |       |       |    
|                                      | Total comprehensive income                                      |                                                                                 | $      | 7,287  |        |   | $     | 8,633 |     |   | $     | 2,427  |       
|                                      |                                                                 |                                                                                 |        |        |        |   |       |       |    



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METROCORP BANCSHARES, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY


Years Ended December 31, 2005, 2004 and 2003


(In thousands)


|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------ | ----- | - | ---------- | - | ----- | ----------- |  | ----- | ------------- |  | -------- | ------------- | ------ | - | ---- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                         |  |              |       |   |            |   |       | Accumulated |  |       |               |  |         
|                                         |  | Common Stock |       |   | Additional |   |       |             |  | Other |               |  | Treasury |               |        |  
|                                         |  |              |       |   | Paid-In    |   |       | Retained    |  |       | Comprehensive |  |          | Stock At      |        |   |     
|                                         |  | Shares       |       |   | At Par     |   |       | Capital     |  |       | Earnings      |  |          | Income (Loss) |        |   | Cost |   |        | Total | 
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Balance at December 31, 2002             |  |              | 7,032 |   |            | $ | 7,196 |             |  | $     | 26,344        |  |          | $             | 41,699 |   |      | $ | 2,354  |       |  | $ | (1,369 | ) |  | $ | 76,224 |  
|Issuance of common stock                 |  |              | 111   |   |            |   | 111   |             |  |       | 1,075         |  |          |               |       |   |      |   |       |       |  |   |       |   |  |   | 1,186  |  
|Re-issuance of treasury stock            |  |              | 32    |   |            |   |      |             |  |       | 146           |  |          |               |       |   |      |   |       |       |  |   | 251    |   |  |   | 397    |  
|Repurchase of common stock               |  |              | (18   | ) |            |   |      |             |  |       |              |  |          |               |       |   |      |   |       |       |  |   | (212   | ) |  |   | (212   | )
|Tax benefit from stock options exercised |  |              |      |   |            |   |      |             |  |       | 55            |  |          |               |       |   |      |   |       |       |  |   |       |   |  |   | 55     |  
|Net income                               |  |              |      |   |            |   |      |             |  |       |              |  |          |               | 4,110  |   |      |   |       |       |  |   |       |   |  |   | 4,110  |  
|Other comprehensive loss                 |  |              |      |   |            |   |      |             |  |       |              |  |          |               |       |   |      |   | (1,683 | )     |  |   |       |   |  |   | (1,683 | )
|Dividends ($0.24 per share)              |  |              |      |   |            |   |      |             |  |       |              |  |          |               | (1,704 | ) |      |   |       |       |  |   |       |   |  |   | (1,704 | )
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Balance at December 31, 2003             |  |              | 7,157 |   |            |   | 7,307 |             |  |       | 27,620        |  |          |               | 44,105 |   |      |   | 671    |       |  |   | (1,330 | ) |  |   | 78,373 |  
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Issuance of common stock                 |  |              | 6     |   |            |   | 6     |             |  |       | 44            |  |          |               |       |   |      |   |       |       |  |   |       |   |  |   | 50     |  
|Re-issuance of treasury stock            |  |              | 25    |   |            |   |      |             |  |       | 195           |  |          |               |       |   |      |   |       |       |  |   | 195    |   |  |   | 390    |  
|Net income                               |  |              |      |   |            |   |      |             |  |       |              |  |          |               | 8,594  |   |      |   |       |       |  |   |       |   |  |   | 8,594  |  
|Other comprehensive income               |  |              |      |   |            |   |      |             |  |       |              |  |          |               |       |   |      |   | 39     |       |  |   |       |   |  |   | 39     |  
|Dividends ($0.24 per share)              |  |              |      |   |            |   |      |             |  |       |              |  |          |               | (1,723 | ) |      |   |       |       |  |   |       |   |  |   | (1,723 | )
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Balance at December 31, 2004             |  |              | 7,188 |   |            |   | 7,313 |             |  |       | 27,859        |  |          |               | 50,976 |   |      |   | 710    |       |  |   | (1,135 | ) |  |   | 85,723 |  
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Issuance of common stock                 |  |              | 17    |   |            |   | 17    |             |  |       | 203           |  |          |               |       |   |      |   |       |       |  |   |       |   |  |   | 220    |  
|Re-issuance of treasury stock            |  |              | 27    |   |            |   |      |             |  |       | 369           |  |          |               |       |   |      |   |       |       |  |   | 217    |   |  |   | 586    |  
|Stock-based compensation                 |  |              |      |   |            |   |      |             |  |       | 145           |  |          |               |       |   |      |   |       |       |  |   |       |   |  |   | 145    |  
|Net income                               |  |              |      |   |            |   |      |             |  |       |              |  |          |               | 10,780 |   |      |   |       |       |  |   |       |   |  |   | 10,780 |  
|Other comprehensive income               |  |              |      |   |            |   |      |             |  |       |              |  |          |               |       |   |      |   | (3,493 | )     |  |   |       |   |  |   | (3,493 | )
|Dividends ($0.24 per share)              |  |              |      |   |            |   |      |             |  |       |              |  |          |               | (1,733 | ) |      |   |       |       |  |   |       |   |  |   | (1,733 | )
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 
|Balance at December 31, 2005             |  |              | 7,232 |   |            | $ | 7,330 |             |  | $     | 28,576        |  |          | $             | 60,023 |   |      | $ | (2,783 | )     |  | $ | (918   | ) |  | $ | 92,228 |  
|                                         |  |              |       |   |            |   |       |             |  |       |               |  |          |               |        |   |      |   |        |       | 



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METROCORP BANCSHARES, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |        |      |         |          |         |       |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------- | ----------------------------------------- | ------- | ------ | ----------- | -------- | ------ | ---- | ------- | -------- | ------- | ----- | ------- | -
|                                                     |                                                                                             | Years Ended December 31,                                  |                            
|                                                     |                                                                                             |                                                           |                            
|                                                     |                                                                                             | 2005                                                      |                             |                                           | 2004    |        |             | 2003     |       
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|                                                     |                                                                                             |                                                           |                             | (Restated                                |         |        | (Restated  |         
|                                                     |                                                                                             |                                                           |                             | Note 2)                                   |         |        | Note 2)     |         
|Cash flows from operating activities:                |                                                                                             |                                                           |                             |                                           |         |        |             |          |        |      |         |         
|                                                     | Net income                                                                                  |                                                           | $                           | 10,780                                    |         |        | $           | 8,594    |        |      | $       | 4,110    |        
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities:       |                                                           |                             |                                           |         |        |             |          |        |      |         |          |        
|                                                     |                                                                                             | Depreciation                                              |                             |                                           | 1,360   |        |             |          | 1,345  |      |         |          | 1,337   |      
|                                                     |                                                                                             | Provision for loan losses                                 |                             |                                           | 1,936   |        |             |          | 1,343  |      |         |          | 5,671   |      
|                                                     |                                                                                             | Lower of cost or market adjustment on loans held-for-sale |                             |                                           |        |        |             |          |       |      |         |          | 2,149   |      
|                                                     |                                                                                             | (Gain) loss on securities sales, net                      |                             |                                           |        |        |             |          | 97     |      |         |          | (165    | )    
|                                                     |                                                                                             | (Gain) loss on sale of foreclosed assets                  |                             |                                           | 316     |        |             |          | (1,108 | )    |         |          | (283    | )    
|                                                     |                                                                                             | (Gain) loss on sale of premises and equipment             |                             |                                           | 100     |        |             |          | (5     | )    |         |          |        |      
|                                                     |                                                                                             | Gain on sale of loans, net                                |                             |                                           | (48     | )      |             |          | (605   | )    |         |          | (600    | )    
|                                                     |                                                                                             | Amortization of premiums and discounts on securities      |                             |                                           | 228     |        |             |          | 547    |      |         |          | 2,251   |      
|                                                     |                                                                                             | Amortization of deferred loan fees and discounts          |                             |                                           | (1,870  | )      |             |          | (1,463 | )    |         |          | (1,086  | )    
|                                                     |                                                                                             | Amortization of core deposit intangibles                  |                             |                                           | 132     |        |             |          |       |      |         |          |        |      
|                                                     |                                                                                             | Stock-based compensation                                  |                             |                                           | 145     |        |             |          |       |      |         |          |        |      
|                                                     |                                                                                             | Deferred income taxes                                     |                             |                                           | (412    | )      |             |          | (115   | )    |         |          | (208    | )    
|                                                     |                                                                                             | Changes in; net of acquisition:                           |                             |                                           |         |        |             |          |        |      |         |          |         |      
|                                                     |                                                                                             |                                                           | Accrued interest receivable |                                           |         | (984   | )           |          |        | 144  |         |          |         | (61   | )      
|                                                     |                                                                                             |                                                           | Other assets                |                                           |         | 229    |             |          |        | (260 | )       |          |         | (614  | )      
|                                                     |                                                                                             |                                                           | Accrued interest payable    |                                           |         | 279    |             |          |        | 82   |         |          |         | (150  | )      
|                                                     |                                                                                             |                                                           | Other liabilities           |                                           |         | (2,276 | )           |          |        | (383 | )       |          |         | 1,888 |        
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|                                                     |                                                                                             |                                                           |                             | Net cash provided by operating activities |         |        | 9,915       |          |        |      | 8,213   |          |         |       | 14,239  |  
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|Cash flows from investing activities:                |                                                                                             |                                                           |                             |                                           |         |        |             |          |        |      |         |         
|                                                     | Purchases of securities available-for-sale                                                  |                                                           |                             | (27,159                                   | )       |        |             | (100,998 | )      |      |         | (182,039 | )      
|                                                     | Proceeds from sales, maturities and principal paydowns of
    securities available-for-sale |                                                           |                             | 65,829                                    |         |        |             | 88,957   |        |      |         | 179,591  |        
|                                                     | Net change in loans                                                                         |                                                           |                             | (44,482                                   | )       |        |             | (38,263  | )      |      |         | (36,925  | )      
|                                                     | Proceeds from sale of foreclosed assets                                                     |                                                           |                             | 2,450                                     |         |        |             | 3,908    |        |      |         | 3,391    |        
|                                                     | Proceeds from sale of premises and equipment                                                |                                                           |                             | 27                                        |         |        |             | 5        |        |      |         |         |        
|                                                     | Purchases of premises and equipment                                                         |                                                           |                             | (990                                      | )       |        |             | (2,183   | )      |      |         | (1,170   | )      
|                                                     | Investment in subsidiary trust                                                              |                                                           |                             | (1,083                                    | )       |        |             |         |        |      |         |         |        
|                                                     | Purchase of First United Bank, net of cash acquired of $35,877                              |                                                           |                             | 1,851                                     |         |        |             |         |        |      |         |         |        
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|                                                     |                                                                                             |                                                           |                             | Net cash used in investing activities     |         |        | (3,557      | )        |        |      | (48,574 | )        |         |       | (37,152 | )
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|Cash flows from financing activities:                |                                                                                             |                                                           |                             |                                           |         |        |             |          |        |      |         |         
|                                                     | Net change in:                                                                              |                                                           |                             |                                           |         |        |             |          |        |      |         |          |        
|                                                     |                                                                                             | Deposits                                                  |                             |                                           | 45,014  |        |             |          | 30,112 |      |         |          | 33,580  |      
|                                                     |                                                                                             | Other borrowings                                          |                             |                                           | (36,795 | )      |             |          | 6,676  |      |         |          | (11,601 | )    
|                                                     | Proceeds from issuance of junior subordinated debentures                                    |                                                           |                             | 36,083                                    |         |        |             |         |        |      |         |         |        
|                                                     | Proceeds from issuance of common stock                                                      |                                                           |                             | 220                                       |         |        |             | 50       |        |      |         | 1,186    |        
|                                                     | Re-issuance of treasury stock                                                               |                                                           |                             | 586                                       |         |        |             | 390      |        |      |         | 397      |        
|                                                     | Repurchase of common stock                                                                  |                                                           |                             |                                          |         |        |             |         |        |      |         | (212     | )      
|                                                     | Dividends paid                                                                              |                                                           |                             | (1,727                                    | )       |        |             | (1,721   | )      |      |         | (1,696   | )      
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|                                                     |                                                                                             |                                                           |                             | Net cash provided by financing activities |         |        | 43,381      |          |        |      | 35,507  |          |         |       | 21,654  |  
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|Net increase (decrease) in cash and cash equivalents |                                                                                             |                                                           | 49,739                      |                                           |         |        | (4,854      | )        |        |      | (1,259  | )       
|Cash and cash equivalents at beginning of period     |                                                                                             |                                                           | 32,073                      |                                           |         |        | 36,927      |          |        |      | 38,186  |         
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       
|Cash and cash equivalents at end of period           |                                                                                             | $                                                         | 81,812                      |                                           |         | $      | 32,073      |          |        | $    | 36,927  |         
|                                                     |                                                                                             |                                                           |                             |                                           |         |        |             |          |       



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METROCORP BANCSHARES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |         
| | --------
| | Business





| |                                          
| | -----------------------------------------
| | Basis of Financial Statement Presentation







| |                 
| | ----------------
| | Use of Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents



77



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |           
| | ----------
| | Securities

held-to




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Loans, Allowance for Loan Losses and Reserve for Unfunded
    Lending Commitments













78



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                                    
| | -------------------------------------------------------------------
| | Nonrefundable Fees and Costs Associated with Lending
    Activities







| |                       
| | ----------------------
| | Premises and Equipment





| |                                      
| | -------------------------------------
| | Goodwill and Core Deposit Intangibles



79



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Foreclosed Assets





| |                 
| | ----------------
| | Other Borrowings





| |                               
| | ------------------------------
| | Junior Subordinated Debentures





| |             
| | ------------
| | Income Taxes





| |                   
| | ------------------
| | Earnings Per Share





| |                   
| | ------------------
| | Stock Compensation



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Stock-Based
Compensation,




|                                                    |             |                          |   |        |      |  |   |       |  |  |   |       | 
|--------------------------------------------------- | ----------- | ------------------------ | - | ------ | ---- |  | - | ----- |  |  | - | ----- | 
|                                                    |             | Years Ended December 31, |  
|                                                    |             |                          |  
|                                                    |             | 2005                     |   |        | 2004 |  |   | 2003  | 
|                                                    |             |                          |   |        |      |  |   |       | 
|Net income:                                         |             |                          |   |        |      |  |   |       |  |  |   |      
|                                                    | As reported |                          | $ | 10,780 |      |  | $ | 8,594 |  |  | $ | 4,110 | 
|                                                    | Pro forma   |                          | $ | 10,538 |      |  | $ | 8,423 |  |  | $ | 4,000 | 
|Stock-based compensation cost, net of income taxes: |             |                          |   |        |      |  |   |       |  |  |   |      
|                                                    | As reported |                          | $ | 145    |      |  | $ |      |  |  | $ |      | 
|                                                    | Pro forma   |                          | $ | 387    |      |  | $ | 171   |  |  | $ | 110   | 
|Basic earnings per common share:                    |             |                          |   |        |      |  |   |       |  |  |   |      
|                                                    | As reported |                          | $ | 1.50   |      |  | $ | 1.20  |  |  | $ | 0.58  | 
|                                                    | Pro forma   |                          | $ | 1.46   |      |  | $ | 1.17  |  |  | $ | 0.56  | 
|Diluted earnings per common share:                  |             |                          |   |        |      |  |   |       |  |  |   |      
|                                                    | As reported |                          | $ | 1.48   |      |  | $ | 1.19  |  |  | $ | 0.57  | 
|                                                    | Pro forma   |                          | $ | 1.44   |      |  | $ | 1.16  |  |  | $ | 0.55  | 



Share-Based Payment. Accounting for Stock
Issued to Employees, Accounting
for Stock-Based Compensation Statement of Cash Flows.


81



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                              
| | -----------------------------
| | Off-Balance Sheet Instruments





| |                              
| | -----------------------------
| | New Accounting Pronouncements

Accounting Changes and Error Corrections,


03-1 Implementation Guidance for the Application of
Paragraph 16 of EITF Issue
No. 03-1 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 03-1 Accounting for Certain
Investments in Debt and Equity Securities, Accounting for
Noncurrent Marketable Equity Securities,


82



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Equity Method of Accounting for Investments in Common
Stock.




| |                  
| | -----------------
| | Reclassifications





|   |                                                      
|-- | -----------------------------------------------------
|2. | Restatement of Previously Issued Financial Statements





|                                          |                        |                |   |         |      |  |   |         |  
|----------------------------------------- | ---------------------- | -------------- | - | ------- | ---- |  | - | ------- | -
|                                          |                        | Years Ended    |  
|                                          |                        | December 31,   |  
|                                          |                        |                |  
|                                          |                        | 2004           |   |         | 2003 | 
|                                          |                        |                |   |         |      | 
|                                          |                        | (In thousands) |  
|Net cash provided by operating activities |                        |                |   |         |      |  |   |        
|                                          | As previously reported |                | $ | 12,692  |      |  | $ | 8,348   |  
|                                          | As restated            |                |   | 8,213   |      |  |   | 14,239  |  
|Net cash used by investing activities     |                        |                |   |         |      |  |   |        
|                                          | As previously reported |                | $ | (53,053 | )    |  | $ | (31,261 | )
|                                          | As restated            |                |   | (48,574 | )    |  |   | (37,152 | )



|   |                                 
|-- | --------------------------------
|3. | Acquisition of First United Bank





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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Goodwill and
Other Intangible Assets.


|                                                  |  |   |          |  
|------------------------------------------------- |  | - | -------- | -
|Cash and cash equivalents                         |  | $ | 35,877   |  
|Securities                                        |  |   | 5,474    |  
|Loans, net of allowance for loan losses of $2,307 |  |   | 134,871  |  
|Goodwill                                          |  |   | 21,607   |  
|Core deposit intangibles                          |  |   | 1,560    |  
|Other assets                                      |  |   | 3,820    |  
|Deposits                                          |  |   | (161,683 | )
|Borrowings                                        |  |   | (2,000   | )
|Deferred tax liabilities                          |  |   | (586     | )
|Other liabilities                                 |  |   | (4,914   | )
|                                                  |  |   |         
|Total                                             |  | $ | 34,026   |  
|                                                  |  |   |         





|                                   |  |                       |        |  |      |   |        | 
|---------------------------------- |  | --------------------- | ------ |  | ---- | - | ------ | 
|                                   |  | 2005                  |        |  | 2004 |  
|                                   |  |                       |        |  |      |  
|                                   |  | (In thousands, except |       
|                                   |  | per share amounts)    |       
|Net interest income                |  | $                     | 45,231 |  |      | $ | 37,614 | 
|Income before income taxes         |  |                       | 16,540 |  |      |   | 12,608 | 
|Net income                         |  |                       | 11,034 |  |      |   | 8,436  | 
|Earnings per common share, basic   |  | $                     | 1.53   |  |      | $ | 1.18   | 
|Earnings per common share, diluted |  |                       | 1.51   |  |      |   | 1.17   | 





|   |                          
|-- | -------------------------
|4. | Cash and Cash Equivalents





|   |           
|-- | ----------
|5. | Securities



84



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |                                                                        |                         |   |         |            |  |       |            |     |  |       |        |        |   |   |         |         | 
|------------------- | ---------------------------------------------------------------------- | ----------------------- | - | ------- | ---------- |  | ----- | ---------- | --- |  | ----- | ------ | ------ | - | - | ------- | ------- | 
|                    |                                                                        | As of December 31, 2005 |  
|                    |                                                                        |                         |  
|                    |                                                                        |                         |   | Gross   |            |  | Gross |            |     | 
|                    |                                                                        | Amortized               |   |         | Unrealized |  |       | Unrealized |     |  | Fair  |       
|                    |                                                                        | Cost                    |   |         | Gains      |  |       | Losses     |     |  | Value |       
|                    |                                                                        |                         |   |         |            |  |       |            |     |  |       |       
|Available-for-sale: |                                                                        |                         |   |         |            |  |       |            |     |  |       |        |        |   |   |        
|                    | U.S. Government agencies                                               |                         | $ | 32      |            |  | $     |           |     |  | $     |       |        |   | $ | 32      |        
|                    | U.S. Government sponsored enterprises                                  |                         |   | 36,869  |            |  |       |           |     |  |       | (526   | )      |   |   | 36,343  |        
|                    | Obligations of state and political subdivisions                        |                         |   | 17,162  |            |  |       | 551        |     |  |       |       |        |   |   | 17,713  |        
|                    | Mortgage-backed securities and collateralized mortgage
    obligations |                         |   | 162,294 |            |  |       | 112        |     |  |       | (3,974 | )      |   |   | 158,432 |        
|                    | Other debt securities                                                  |                         |   | 292     |            |  |       | 3          |     |  |       |       |        |   |   | 295     |        
|                    | Investment in ARM and CRA funds                                        |                         |   | 19,419  |            |  |       | 17         |     |  |       | (412   | )      |   |   | 19,024  |        
|                    | FHLB and Federal Reserve Bank stock(1)(2)                              |                         |   | 3,178   |            |  |       |           |     |  |       |       |        |   |   | 3,178   |        
|                    | Investment in subsidiary trust                                         |                         |   | 1,083   |            |  |       |           |     |  |       |       |        |   |   | 1,083   |        
|                    |                                                                        |                         |   |         |            |  |       |            |     |  |       |       
|                    |                                                                        | Total securities        |   | $       | 240,329    |  |       | $          | 683 |  |       | $      | (4,912 | ) |   | $       | 236,100 | 
|                    |                                                                        |                         |   |         |            |  |       |            |     |  |       |       

|                    |                                                                        |                         |   |         |            |  |       |            |       |  |       |        |        |   |   |         |         | 
|------------------- | ---------------------------------------------------------------------- | ----------------------- | - | ------- | ---------- |  | ----- | ---------- | ----- |  | ----- | ------ | ------ | - | - | ------- | ------- | 
|                    |                                                                        | As of December 31, 2004 |  
|                    |                                                                        |                         |  
|                    |                                                                        |                         |   | Gross   |            |  | Gross |            |       | 
|                    |                                                                        | Amortized               |   |         | Unrealized |  |       | Unrealized |       |  | Fair  |       
|                    |                                                                        | Cost                    |   |         | Gains      |  |       | Losses     |       |  | Value |       
|                    |                                                                        |                         |   |         |            |  |       |            |       |  |       |       
|Available-for-sale: |                                                                        |                         |   |         |            |  |       |            |       |  |       |        |        |   |   |        
|                    | U.S. Government agencies                                               |                         | $ | 35      |            |  | $     |           |       |  | $     |       |        |   | $ | 35      |        
|                    | U.S. Government sponsored enterprises                                  |                         |   | 4,970   |            |  |       |           |       |  |       | (18    | )      |   |   | 4,952   |        
|                    | Obligations of state and political subdivisions                        |                         |   | 18,105  |            |  |       | 1,030      |       |  |       |       |        |   |   | 19,135  |        
|                    | Mortgage-backed securities and collateralized mortgage
    obligations |                         |   | 222,977 |            |  |       | 1,344      |       |  |       | (1,179 | )      |   |   | 223,142 |        
|                    | Other debt securities                                                  |                         |   | 1,979   |            |  |       | 14         |       |  |       |       |        |   |   | 1,993   |        
|                    | Investment in ARM and CRA funds                                        |                         |   | 18,772  |            |  |       | 89         |       |  |       | (205   | )      |   |   | 18,656  |        
|                    | FHLB and Federal Reserve Bank stock(1)(2)                              |                         |   | 5,807   |            |  |       |           |       |  |       |       |        |   |   | 5,807   |        
|                    |                                                                        |                         |   |         |            |  |       |            |       |  |       |       
|                    |                                                                        | Total securities        |   | $       | 272,645    |  |       | $          | 2,477 |  |       | $      | (1,402 | ) |   | $       | 273,720 | 
|                    |                                                                        |                         |   |         |            |  |       |            |       |  |       |       






|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | FHLB stock held by MetroBank is subject to certain restrictions
    under a credit policy of the FHLB dated May 1, 1997.
    Redemption of FHLB stock is dependent upon repayment of
    borrowings from the FHLB.



|    |                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------
|(2) | Federal Reserve Bank stock held by MetroBank is subject to
    certain restrictions under Federal Reserve Bank Policy.

85



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                      |  |                          |   |      |  |   |       |  |  |   |        | 
|--------------------- |  | ------------------------ | - | ---- |  | - | ----- |  |  | - | ------ | 
|                      |  | Years Ended December 31, |  
|                      |  |                          |  
|                      |  | 2005                     |   | 2004 |  |   | 2003  | 
|                      |  |                          |   |      |  |   |       | 
|Amortized cost        |  | $                        |  |      |  | $ | 8,107 |  |  | $ | 19,818 | 
|Proceeds              |  |                          |  |      |  |   | 8,010 |  |  |   | 19,983 | 
|Gross realized gains  |  |                          |  |      |  |   | 7     |  |  |   | 165    | 
|Gross realized losses |  |                          |  |      |  |   | 104   |  |  |   |       | 





|                                                                       |                       |           |         |         |       |   |         |         | 
|---------------------------------------------------------------------- | --------------------- | --------- | ------- | ------- | ----- | - | ------- | ------- | 
|                                                                       |                       | Amortized |         |         | Fair  |  
|                                                                       |                       | Cost      |         |         | Value |  
|                                                                       |                       |           |         |         |       |  
|Within one year                                                        |                       | $         | 1,435   |         |       | $ | 1,437   |        
|Within two to five years                                               |                       |           | 37,429  |         |       |   | 36,904  |        
|Within six to ten years                                                |                       |           | 7,647   |         |       |   | 7,874   |        
|After ten years                                                        |                       |           | 7,552   |         |       |   | 7,873   |        
|Mortgage-backed securities and collateralized mortgage
    obligations |                       |           | 162,586 |         |       |   | 158,727 |        
|                                                                       |                       |           |         |         |       |  
|                                                                       | Total debt securities |           | $       | 216,649 |       |   | $       | 212,815 | 
|                                                                       |                       |           |         |         |       |  



86



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                        |                  |                         |         |         |              |   |        |        |   |   |            |        |  |       |        |        |            |   |         |         |  |   |        |        |  
|----------------------------------------------------------------------- | ---------------- | ----------------------- | ------- | ------- | ------------ | - | ------ | ------ | - | - | ---------- | ------ |  | ----- | ------ | ------ | ---------- | - | ------- | ------- |  | - | ------ | ------ | -
|                                                                        |                  | As of December 31, 2005 |        
|                                                                        |                  |                         |        
|                                                                        |                  | Less Than               |         |         | Greater Than |   |        |       
|                                                                        |                  | 12 Months               |         |         | 12 Months    |   |        | Total  |  
|                                                                        |                  |                         |         |         |              |   |        |        |  
|                                                                        |                  | Fair                    |         |         | Unrealized   |   |        | Fair   |   |   | Unrealized |        |  | Fair  |        |        | Unrealized |  
|                                                                        |                  | Value                   |         |         | Loss         |   |        | Value  |   |   | Loss       |        |  | Value |        |        | Loss       |  
|                                                                        |                  |                         |         |         |              |   |        |        |   |   |            |        |  |       |        |        |            |  
|U.S. Government sponsored enterprises                                   |                  | $                       | 31,500  |         |              | $ | (394   | )      |   | $ | 4,843      |        |  | $     | (132   | )      |            | $ | 36,343  |         |  | $ | (526   | )     
|Mortgaged-backed securities and collateralized mortgage
    obligations |                  |                         | 102,859 |         |              |   | (2,169 | )      |   |   | 50,108     |        |  |       | (1,805 | )      |            |   | 152,967 |         |  |   | (3,974 | )     
|Investment in ARM and CRA funds                                         |                  |                         |        |         |              |   |       |        |   |   | 14,717     |        |  |       | (412   | )      |            |   | 14,717  |         |  |   | (412   | )     
|                                                                        |                  |                         |         |         |              |   |        |        |   |   |            |        |  |       |        |        |            |  
|                                                                        | Total securities |                         | $       | 134,359 |              |   | $      | (2,563 | ) |   | $          | 69,668 |  |       | $      | (2,349 | )          |   | $       | 204,027 |  |   | $      | (4,912 | )
|                                                                        |                  |                         |         |         |              |   |        |        |   |   |            |        |  |       |        |        |            |  

|                                                                        |                  |                         |        |        |              |   |      |       |   |   |            |        |  |       |      |      |            |   |         |         |  |   |        |        |  
|----------------------------------------------------------------------- | ---------------- | ----------------------- | ------ | ------ | ------------ | - | ---- | ----- | - | - | ---------- | ------ |  | ----- | ---- | ---- | ---------- | - | ------- | ------- |  | - | ------ | ------ | -
|                                                                        |                  | As of December 31, 2004 |       
|                                                                        |                  |                         |       
|                                                                        |                  | Less Than               |        |        | Greater Than |   |      |      
|                                                                        |                  | 12 Months               |        |        | 12 Months    |   |      | Total |  
|                                                                        |                  |                         |        |        |              |   |      |       |  
|                                                                        |                  | Fair                    |        |        | Unrealized   |   |      | Fair  |   |   | Unrealized |        |  | Fair  |      |      | Unrealized |  
|                                                                        |                  | Value                   |        |        | Loss         |   |      | Value |   |   | Loss       |        |  | Value |      |      | Loss       |  
|                                                                        |                  |                         |        |        |              |   |      |       |   |   |            |        |  |       |      |      |            |  
|U.S. Government sponsored enterprises                                   |                  | $                       | 4,952  |        |              | $ | (18  | )     |   | $ |           |        |  | $     |     |      |            | $ | 4,952   |         |  | $ | (18    | )     
|Mortgaged-backed securities and collateralized mortgage
    obligations |                  |                         | 79,240 |        |              |   | (487 | )     |   |   | 33,861     |        |  |       | (692 | )    |            |   | 113,101 |         |  |   | (1,179 | )     
|Investment in ARM and CRA funds                                         |                  |                         |       |        |              |   |     |       |   |   | 14,453     |        |  |       | (205 | )    |            |   | 14,453  |         |  |   | (205   | )     
|                                                                        |                  |                         |        |        |              |   |      |       |   |   |            |        |  |       |      |      |            |  
|                                                                        | Total securities |                         | $      | 84,192 |              |   | $    | (505  | ) |   | $          | 48,314 |  |       | $    | (897 | )          |   | $       | 132,506 |  |   | $      | (1,402 | )
|                                                                        |                  |                         |        |        |              |   |      |       |   |   |            |        |  |       |      |      |            |  







87



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                    
|-- | -----------------------------------
|6. | Loans and Allowance for Loan Losses

held-for held-for held-for






|                                |               |                    |         |         |      |   |         |         | 
|------------------------------- | ------------- | ------------------ | ------- | ------- | ---- | - | ------- | ------- | 
|                                |               | As of December 31, |        
|                                |               |                    |        
|                                |               | 2005               |         |         | 2004 |  
|                                |               |                    |         |         |      |  
|Commercial and industrial       |               | $                  | 331,869 |         |      | $ | 345,570 |        
|Real estate-mortgage            |               |                    | 376,247 |         |      |   | 199,320 |        
|Real estate-construction        |               |                    | 56,410  |         |      |   | 42,629  |        
|Consumer and other              |               |                    | 10,172  |         |      |   | 9,556   |        
|                                |               |                    |         |         |      |  
|                                | Gross loans   |                    |         | 774,698 |      |   |         | 597,075 | 
|Unearned discounts and interest |               |                    | (204    | )       |      |   | (320    | )      
|Deferred loan fees              |               |                    | (3,021  | )       |      |   | (2,219  | )      
|                                |               |                    |         |         |      |  
|                                | Total loans   |                    |         | 771,473 |      |   |         | 594,536 | 
|Allowance for loan losses       |               |                    | (13,169 | )       |      |   | (10,501 | )      
|                                |               |                    |         |         |      |  
|                                | Loans, net(1) |                    | $       | 758,304 |      |   | $       | 584,035 | 
|                                |               |                    |         |         |      |  
|Variable rate loans             |               | $                  | 641,224 |         |      | $ | 530,424 |        
|Fixed rate loans                |               |                    | 133,474 |         |      |   | 66,651  |        
|                                |               |                    |         |         |      |  
|                                | Gross loans   |                    | $       | 774,698 |      |   | $       | 597,075 | 
|                                |               |                    |         |         |      |  






|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(1) | Includes $1.9 million in commercial loans held-for-sale as
    of December 31, 2004.



88



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |             |                    |         |         |      |   |         |         | 
|-------------------------------------- | ----------- | ------------------ | ------- | ------- | ---- | - | ------- | ------- | 
|                                       |             | As of December 31, |        
|                                       |             |                    |        
|                                       |             | 2005               |         |         | 2004 |  
|                                       |             |                    |         |         |      |  
|Convenience stores/gasoline stations   |             | $                  | 36,135  |         |      | $ | 42,404  |        
|Hotels/motels                          |             |                    | 82,420  |         |      |   | 55,974  |        
|Nonresidential building for rent/lease |             |                    | 254,954 |         |      |   | 179,052 |        
|Restaurants                            |             |                    | 56,506  |         |      |   | 48,370  |        
|Wholesale trade                        |             |                    | 59,394  |         |      |   | 60,782  |        
|All other                              |             |                    | 285,289 |         |      |   | 210,493 |        
|                                       |             |                    |         |         |      |  
|                                       | Gross loans |                    | $       | 774,698 |      |   | $       | 597,075 | 
|                                       |             |                    |         |         |      |  



|                                       |  |                    |        |   |      |   |        |      |  |   |        |  
|-------------------------------------- |  | ------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                       |  | As of December 31, |       
|                                       |  |                    |       
|                                       |  | 2005               |        |   | 2004 |   |        | 2003 | 
|                                       |  |                    |        |   |      |   |        |      | 
|Balance at beginning of year           |  | $                  | 10,501 |   |      | $ | 10,308 |      |  | $ | 10,029 |  
|Provision for loan losses              |  |                    | 1,936  |   |      |   | 1,343  |      |  |   | 5,671  |  
|Allowance acquired through acquisition |  |                    | 2,307  |   |      |   |       |      |  |   |       |  
|Charge-offs                            |  |                    | (2,425 | ) |      |   | (2,835 | )    |  |   | (6,121 | )
|Recoveries                             |  |                    | 850    |   |      |   | 1,685  |      |  |   | 729    |  
|                                       |  |                    |        |   |      |   |        |      | 
|Balance at end of year                 |  | $                  | 13,169 |   |      | $ | 10,501 |      |  | $ | 10,308 |  
|                                       |  |                    |        |   |      |   |        |      | 







|                                                      |                                             |                    |        |        |      |   |        |        | 
|----------------------------------------------------- | ------------------------------------------- | ------------------ | ------ | ------ | ---- | - | ------ | ------ | 
|                                                      |                                             | As of December 31, |       
|                                                      |                                             |                    |       
|                                                      |                                             | 2005               |        |        | 2004 |  
|                                                      |                                             |                    |        |        |      |  
|Impaired loans with no SFAS No. 114 valuation reserve |                                             | $                  | 11,865 |        |      | $ | 15,339 |       
|Impaired loans with SFAS No. 114 valuation reserve    |                                             |                    | 6,468  |        |      |   | 3,967  |       
|                                                      |                                             |                    |        |        |      |  
|                                                      | Total recorded investment in impaired loans |                    | $      | 18,333 |      |   | $      | 19,306 | 
|                                                      |                                             |                    |        |        |      |  
|Valuation allowance related to impaired loans         |                                             | $                  | 1,783  |        |      | $ | 1,751  |       



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                       
|-- | ----------------------
|7. | Premises and Equipment



|                                  |  |                  |      |                    |      |   |         |      |  |   |         |  
|--------------------------------- |  | ---------------- | ---- | ------------------ | ---- | - | ------- | ---- |  | - | ------- | -
|                                  |  |                  |      | As of December 31, |     
|                                  |  | Estimated useful |      |                    |      |  
|                                  |  | lives (in years) |      |                    | 2005 |   |         | 2004 | 
|                                  |  |                  |      |                    |      |   |         |      | 
|Furniture, fixtures and equipment |  |                  | 3-10 |                    |      | $ | 14,264  |      |  | $ | 13,233  |  
|Building and improvements         |  |                  | 3-20 |                    |      |   | 4,800   |      |  |   | 4,769   |  
|Land                              |  |                  |     |                    |      |   | 1,679   |      |  |   | 1,679   |  
|Leasehold improvements            |  |                  | 5    |                    |      |   | 3,372   |      |  |   | 3,232   |  
|                                  |  |                  |      |                    |      |   |         |      | 
|                                  |  |                  |      |                    |      |   | 24,115  |      |  |   | 22,913  |  
|Accumulated depreciation          |  |                  |      |                    |      |   | (17,919 | )    |  |   | (16,401 | )
|                                  |  |                  |      |                    |      |   |         |      | 
|Premises and equipment, net       |  |                  |      |                    |      | $ | 6,196   |      |  | $ | 6,512   |  
|                                  |  |                  |      |                    |      |   |         |      | 



|   |                                      
|-- | -------------------------------------
|8. | Goodwill and Core Deposit Intangibles



|                            |  |                    |        |              |             |   |       |  
|--------------------------- |  | ------------------ | ------ | ------------ | ----------- | - | ----- | -
|                            |  | For the Year ended |       
|                            |  | December 31, 2005  |       
|                            |  |                    |       
|                            |  |                    |        | Core Deposit |            
|                            |  | Goodwill           |        |              | Intangibles |  
|                            |  |                    |        |              |             |  
|Balance, beginning of year  |  | $                  |       |              |             | $ |      |  
|Acquisition of First United |  |                    | 21,607 |              |             |   | 1,560 |  
|Amortization                |  |                    |       |              |             |   | (132  | )
|                            |  |                    |        |              |             |  
|Balance, end of year        |  | $                  | 21,607 |              |             | $ | 1,428 |  
|                            |  |                    |        |              |             |  



|   |                          
|-- | -------------------------
|9. | Interest-Bearing Deposits



|                                  |  |                    |         |  |      |   |         | 
|--------------------------------- |  | ------------------ | ------- |  | ---- | - | ------- | 
|                                  |  | As of December 31, |        
|                                  |  |                    |        
|                                  |  | 2005               |         |  | 2004 |  
|                                  |  |                    |         |  |      |  
|Interest-bearing demand deposits  |  | $                  | 87,784  |  |      | $ | 91,188  | 
|Savings and money market accounts |  |                    | 139,254 |  |      |   | 117,248 | 
|Time deposits less than $100,000  |  |                    | 240,048 |  |      |   | 178,553 | 
|Time deposits $100,000 and over   |  |                    | 299,242 |  |      |   | 204,873 | 
|                                  |  |                    |         |  |      |  
|Interest-bearing deposits         |  | $                  | 766,328 |  |      | $ | 591,862 | 
|                                  |  |                    |         |  |      |  

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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |  |   |         | 
|---- |  | - | ------- | 
|2006 |  | $ | 444,944 | 
|2007 |  |   | 46,782  | 
|2008 |  |   | 26,311  | 
|2009 |  |   | 7,581   | 
|2010 |  |   | 13,672  | 
|     |  |   |        
|     |  | $ | 539,290 | 
|     |  |   |        





|    |                               
|--- | ------------------------------
|10. | Junior Subordinated Debentures







3-month


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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                 
|--- | ----------------
|11. | Other Borrowings



|              |  |                    |        |  |      |   |        | 
|------------- |  | ------------------ | ------ |  | ---- | - | ------ | 
|              |  | As of December 31, |       
|              |  |                    |       
|              |  | 2005               |        |  | 2004 |  
|              |  |                    |        |  |      |  
|FHLB loans    |  | $                  | 25,000 |  |      | $ | 25,000 | 
|FHLB advances |  |                    |       |  |      |   | 34,900 | 
|TT&L payments |  |                    | 1,054  |  |      |   | 949    | 
|              |  |                    |        |  |      |  
|              |  | $                  | 26,054 |  |      | $ | 60,849 | 
|              |  |                    |        |  |      |  





|           |  |        |        | 
|---------- |  | ------ | ------ | 
|Year       |  | Amount |       
|           |  |        |       
|2006       |  | $      |       | 
|2007       |  |        |       | 
|2008       |  |        | 25,000 | 
|2009       |  |        |       | 
|2010       |  |        |       | 
|After 2010 |  |        |       | 
|           |  |        |       
|           |  | $      | 25,000 | 
|           |  |        |       





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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|12. | Income Taxes



|                                                                  |                        |                    |       |       |      |   |       |       | 
|----------------------------------------------------------------- | ---------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ----- | 
|                                                                  |                        | As of December 31, |      
|                                                                  |                        |                    |      
|                                                                  |                        | 2005               |       |       | 2004 |  
|                                                                  |                        |                    |       |       |      |  
|Deferred tax assets:                                              |                        |                    |       |       |      |   |       |      
|Allowance for loan losses                                         |                        | $                  | 4,791 |       |      | $ | 3,693 |      
|Deferred loan fees                                                |                        |                    | 851   |       |      |   | 754   |      
|Premises and equipment                                            |                        |                    | 1,223 |       |      |   | 915   |      
|Interest on nonaccrual loans                                      |                        |                    | 716   |       |      |   | 661   |      
|Unrealized losses on investment securities available-for-sale     |                        |                    | 1,446 |       |      |   |      |      
|Net operating loss carryforward                                   |                        |                    | 476   |       |      |   |      |      
|                                                                  |                        |                    |       |       |      |  
|Gross deferred tax assets                                         |                        |                    | 9,503 |       |      |   | 6,023 |      
|                                                                  |                        |                    |       |       |      |  
|Deferred tax liabilities:                                         |                        |                    |       |       |      |   |       |      
|Unrealized gains on investment securities available-for-sale, net |                        |                    |      |       |      |   | 365   |      
|Core deposit intangibles                                          |                        |                    | 556   |       |      |   |      |      
|FHLB stock dividends                                              |                        |                    | 250   |       |      |   | 432   |      
|Other                                                             |                        |                    | 166   |       |      |   | 25    |      
|                                                                  |                        |                    |       |       |      |  
|Gross deferred tax liabilities                                    |                        |                    | 972   |       |      |   | 822   |      
|                                                                  |                        |                    |       |       |      |  
|                                                                  | Net deferred tax asset |                    | $     | 8,531 |      |   | $     | 5,201 | 
|                                                                  |                        |                    |       |       |      |  





|                                                |                                  |                          |       |       |      |   |       |       |  |   |       |       | 
|----------------------------------------------- | -------------------------------- | ------------------------ | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                |                                  | Years Ended December 31, |      
|                                                |                                  |                          |      
|                                                |                                  | 2005                     |       |       | 2004 |   |       | 2003  | 
|                                                |                                  |                          |       |       |      |   |       |       | 
|Current provision for federal income taxes      |                                  | $                        | 5,471 |       |      | $ | 4,146 |       |  | $ | 1,943 |      
|Deferred federal income tax provision (benefit) |                                  |                          | (412  | )     |      |   | (115  | )     |  |   | (208  | )    
|                                                |                                  |                          |       |       |      |   |       |       | 
|                                                | Total provision for income taxes |                          | $     | 5,059 |      |   | $     | 4,031 |  |   | $     | 1,735 | 
|                                                |                                  |                          |       |       |      |   |       |       | 

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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                             |                            |                          |       |       |         |  |    |        |   |   |         |       |  |        |    |    |         |   |       |       |  |  |    |    |  
|-------------------------------------------- | -------------------------- | ------------------------ | ----- | ----- | ------- |  | -- | ------ | - | - | ------- | ----- |  | ------ | -- | -- | ------- | - | ----- | ----- |  |  | -- | -- | -
|                                             |                            | Years Ended December 31, |      
|                                             |                            |                          |      
|                                             |                            | 2005                     |       |       | 2004    |  |    | 2003   |  
|                                             |                            |                          |       |       |         |  |    |        |  
|                                             |                            | Amount                   |       |       | Percent |  |    | Amount |   |   | Percent |       |  | Amount |    |    | Percent |  
|                                             |                            |                          |       |       |         |  |    |        |   |   |         |       |  |        |    |    |         |  
|Federal income tax expense at statutory rate |                            | $                        | 5,544 |       |         |  | 35 | %      |   | $ | 4,293   |       |  |        | 34 | %  |         | $ | 1,987 |       |  |  | 34 | % 
|Tax-exempt interest income                   |                            |                          | (274  | )     |         |  | (2 | )      |   |   | (312    | )     |  |        | (2 | )  |         |   | (315  | )     |  |  | (6 | ) 
|State income tax                             |                            |                          | 130   |       |         |  | 1  |        |   |   |        |       |  |        |   |    |         |   |      |       |  |  |   |   
|Other, net                                   |                            |                          | (341  | )     |         |  | (2 | )      |   |   | 50      |       |  |        |   |    |         |   | 63    |       |  |  | 1  |   
|                                             |                            |                          |       |       |         |  |    |        |   |   |         |       |  |        |    |    |         |  
|                                             | Provision for income taxes |                          | $     | 5,059 |         |  |    | 32     | % |   | $       | 4,031 |  |        |    | 32 | %       |   | $     | 1,735 |  |  |    | 29 | %
|                                             |                            |                          |       |       |         |  |    |        |   |   |         |       |  |        |    |    |         |  



|                                                                                |                            |                          |        |        |      |   |     |      |  |   |      |      |  
|------------------------------------------------------------------------------- | -------------------------- | ------------------------ | ------ | ------ | ---- | - | --- | ---- |  | - | ---- | ---- | -
|                                                                                |                            | Years Ended December 31, |       
|                                                                                |                            |                          |       
|                                                                                |                            | 2005                     |        |        | 2004 |   |     | 2003 | 
|                                                                                |                            |                          |        |        |      |   |     |      | 
|Unrealized gains (losses) arising during the period                             |                            | $                        | (1,799 | )      |      | $ | (15 | )    |  | $ | (775 | )   
|Less: Reclassification adjustment for gains (losses)
    realized in net income |                            |                          |       |        |      |   | (34 | )    |  |   | 58   |     
|                                                                                |                            |                          |        |        |      |   |     |      | 
|                                                                                | Other comprehensive income |                          | $      | (1,799 | )    |   | $   | 19   |  |   | $    | (833 | )
|                                                                                |                            |                          |        |        |      |   |     |      | 



|    |                           
|--- | --------------------------
|13. | 401(k) Profit Sharing Plan







|    |                     
|--- | --------------------
|14. | Shareholders Equity





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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                   
|--- | ------------------
|15. | Regulatory Matters







95



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |       |  
|------------------------------- | -------------------------- | ------ | - | ---------------- | -------- | ------------ | ----------------- | ----------------- | ------------------- |  | ----- | ------ |  | ------ |  | ---- | ----- |  | - | ------ |  |  |  | ----- | -
|                                |                            |        |   |                  |          |              |                   | To be Categorized |                    
|                                |                            |        |   |                  |          | Minimum      |                   |                   | as Well Capitalized | 
|                                |                            |        |   |                  |          | Required For |                   |                   | under Prompt        | 
|                                |                            |        |   | Capital Adequacy |          |              | Corrective Action |                  
|                                |                            | Actual |   |                  | Purposes |              |                   | Provisions        |                    
|                                |                            |        |   |                  |          |              |                   |                   |                    
|                                |                            | Amount |   |                  | Ratio    |              |                   | Amount            |                     |  | Ratio |        |  | Amount |  |      | Ratio | 
|                                |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       | 
|As of December 31, 2005         |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|Total risk-based capital ratio  |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        | $ | 117,439          |          |              |                   | 13.73             | %                   |  | $     | 68,447 |  |        |  | 8.00 | %     |  | $ | N/A    |  |  |  | N/A   | %
|                                | MetroBank, N.A.            |        |   | 95,764           |          |              |                   | 13.38             |                     |  |       | 57,242 |  |        |  | 8.00 |       |  |   | 71,552 |  |  |  | 10.00 |  
|                                | First United Bank          |        |   | 19,010           |          |              |                   | 13.63             |                     |  |       | 11,161 |  |        |  | 8.00 |       |  |   | 13,951 |  |  |  | 10.00 |  
|Tier 1 risk-based capital ratio |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        |   | 95,620           |          |              |                   | 11.18             |                     |  |       | 34,223 |  |        |  | 4.00 |       |  |   | N/A    |  |  |  | N/A   |  
|                                | MetroBank, N.A.            |        |   | 86,792           |          |              |                   | 12.13             |                     |  |       | 28,621 |  |        |  | 4.00 |       |  |   | 42,931 |  |  |  | 6.00  |  
|                                | First United Bank          |        |   | 17,258           |          |              |                   | 12.37             |                     |  |       | 5,580  |  |        |  | 4.00 |       |  |   | 8,371  |  |  |  | 6.00  |  
|Leverage ratio                  |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        |   | 95,620           |          |              |                   | 9.96              |                     |  |       | 38,396 |  |        |  | 4.00 |       |  |   | N/A    |  |  |  | N/A   |  
|                                | MetroBank, N.A.            |        |   | 86,792           |          |              |                   | 9.52              |                     |  |       | 36,448 |  |        |  | 4.00 |       |  |   | 45,561 |  |  |  | 5.00  |  
|                                | First United Bank          |        |   | 17,258           |          |              |                   | 9.02              |                     |  |       | 7,655  |  |        |  | 4.00 |       |  |   | 9,569  |  |  |  | 5.00  |  
|                               
|As of December 31, 2004         |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|Total risk-based capital ratio  |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        | $ | 93,082           |          |              |                   | 14.07             | %                   |  | $     | 52,914 |  |        |  | 8.00 | %     |  | $ | N/A    |  |  |  | N/A   | %
|                                | MetroBank, N.A.            |        |   | 91,061           |          |              |                   | 13.77             |                     |  |       | 52,912 |  |        |  | 8.00 |       |  |   | 66,140 |  |  |  | 10.00 |  
|Tier 1 risk-based capital ratio |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        |   | 84,782           |          |              |                   | 12.82             |                     |  |       | 26,457 |  |        |  | 4.00 |       |  |   | N/A    |  |  |  | N/A   |  
|                                | MetroBank, N.A.            |        |   | 82,761           |          |              |                   | 12.51             |                     |  |       | 26,456 |  |        |  | 4.00 |       |  |   | 39,684 |  |  |  | 6.00  |  
|Leverage ratio                  |                            |        |   |                  |          |              |                   |                   |                     |  |       |        |  |        |  |      |       |  |   |        |  |  |  |      
|                                | MetroCorp Bancshares, Inc. |        |   | 84,782           |          |              |                   | 9.59              |                     |  |       | 35,352 |  |        |  | 4.00 |       |  |   | N/A    |  |  |  | N/A   |  
|                                | MetroBank, N.A.            |        |   | 82,761           |          |              |                   | 9.37              |                     |  |       | 35,348 |  |        |  | 4.00 |       |  |   | 44,185 |  |  |  | 5.00  |  



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




30-year five-year one-fifth




|    |              
|--- | -------------
|16. | Stock Options





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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |             |         |          |          |   |       |             |          |   |          |   |  |             |       |  |          |   |          |   |  |   |       | 
|-------------------------------------------------- |  | ----------- | ------- | -------- | -------- | - | ----- | ----------- | -------- | - | -------- | - |  | ----------- | ----- |  | -------- | - | -------- | - |  | - | ----- | 
|                                                   |  | 2005        |         |          | 2004     |   |       | 2003        |         
|                                                   |  |             |         |          |          |   |       |             |         
|                                                   |  |             |         | Weighted |          |   |       |             | Weighted |   |          |   |  | Weighted    |      
|                                                   |  | # Shares of |         |          | Average  |   |       | # Shares of |          |   | Average  |   |  | # Shares of |       |  | Average  |  
|                                                   |  | Underlying  |         |          | Exercise |   |       | Underlying  |          |   | Exercise |   |  | Underlying  |       |  | Exercise |  
|                                                   |  | Options     |         |          | Prices   |   |       | Options     |          |   | Prices   |   |  | Options     |       |  | Prices   |  
|                                                   |  |             |         |          |          |   |       |             |          |   |          |   |  |             |       |  |          |  
|Outstanding at beginning of the year               |  |             | 271,000 |          |          | $ | 14.49 |             |          |   | 212,000  |   |  | $           | 11.10 |  |          |   | 300,200  |   |  | $ | 10.81 | 
|Granted                                            |  |             | 205,250 |          |          |   | 22.72 |             |          |   | 200,000  |   |  |             | 15.91 |  |          |   | 22,500   |   |  |   | 13.07 | 
|Exercised                                          |  |             | (17,350 | )        |          |   | 12.71 |             |          |   | (6,000   | ) |  |             | 8.31  |  |          |   | (110,700 | ) |  |   | 10.71 | 
|Canceled                                           |  |             | (9,750  | )        |          |   | 20.89 |             |          |   | (135,000 | ) |  |             | 11.56 |  |          |   |         |   |  |   |      | 
|                                                   |  |             |         |          |          |   |       |             |          |   |          |   |  |             |       |  |          |  
|Outstanding at end of the year                     |  |             | 449,150 |          |          | $ | 18.18 |             |          |   | 271,000  |   |  | $           | 14.49 |  |          |   | 212,000  |   |  | $ | 11.10 | 
|                                                   |  |             |         |          |          |   |       |             |          |   |          |   |  |             |       |  |          |  
|Exercisable at end of the year                     |  |             | 336,350 |          |          | $ | 16.88 |             |          |   | 51,750   |   |  | $           | 10.13 |  |          |   | 92,500   |   |  | $ | 10.40 | 
|                                                   |  |             |         |          |          |   |       |             |          |   |          |   |  |             |       |  |          |  
|Weighted average fair value of all options granted |  | $           | 5.92    |          |          |   |       |             |          | $ | 3.39     |   |  |             |       |  |          | $ | 2.64     |   |  |   |       | 



|                        |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Assumptions             |  | 2005 |         |   | 2004 |   |         | 2003 | 
|                        |  |      |         |   |      |   |         |      | 
|Expected term           |  |      | 3 years |   |      |   | 3 years |      |  |   | 3 years |  
|Expected volatility     |  |      | 26.35   | % |      |   | 22.00   | %    |  |   | 19.00   | %
|Expected dividend       |  | $    | 0.24    |   |      | $ | 0.24    |      |  | $ | 0.24    |  
|Risk-free interest rate |  |      | 4.41    | % |      |   | 3.25    | %    |  |   | 2.28    | %



|                         |  |                     |         |          |                     |   |       |                  |  |  |             |  |  |                |         |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | -------- | ------------------- | - | ----- | ---------------- |  |  | ----------- |  |  | -------------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |         |          |                    
|                         |  |                     |         |          | Options Exercisable |  
|                         |  |                     |         | Weighted |                     |   |       |                 
|                         |  | Number              |         |          | Weighted            |   |       | Average          |  |  | Number      |  |  | Weighted       |        
|                         |  | Outstanding         |         |          | Average             |   |       | Remaining        |  |  | Outstanding |  |  | Average        |        
|Range of Exercise Prices |  | at 12/31/05         |         |          | Exercise Price      |   |       | Contractual Life |  |  | at 12/31/05 |  |  | Exercise Price |        
|                         |  |                     |         |          |                     |   |       |                  |  |  |             |  |  |                |        
|$7.25 - $8.31            |  |                     | 17,900  |          |                     | $ | 7.90  |                  |  |  | 1.03 years  |  |  |                | 11,150  |  |  | $ | 8.31  | 
|$10.50 - $19.08          |  |                     | 246,500 |          |                     |   | 15.37 |                  |  |  | 5.65 years  |  |  |                | 236,750 |  |  |   | 15.21 | 
|$21.05 - $24.04          |  |                     | 184,750 |          |                     |   | 22.92 |                  |  |  | 6.66 years  |  |  |                | 88,450  |  |  |   | 22.40 | 



|    |                   
|--- | ------------------
|17. | Earnings Per Share



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                       |                               |                          |        |      |      |   |       |      |  |   |       |      | 
|-------------------------------------------------------------------------------------- | ----------------------------- | ------------------------ | ------ | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                                       |                               | Years Ended December 31, |       
|                                                                                       |                               |                          |       
|                                                                                       |                               | 2005                     |        |      | 2004 |   |       | 2003 | 
|                                                                                       |                               |                          |        |      |      |   |       |      | 
|Net income                                                                             |                               | $                        | 10,780 |      |      | $ | 8,594 |      |  | $ | 4,110 |     
|                                                                                       |                               |                          |        |      |      |   |       |      | 
|Weighted average common shares in basic EPS                                            |                               |                          | 7,208  |      |      |   | 7,175 |      |  |   | 7,089 |     
|                                                                                       | Effect of dilutive securities |                          |        | 98   |      |   |       | 55   |  |   |       | 124  | 
|                                                                                       |                               |                          |        |      |      |   |       |      | 
|Weighted average common and potentially dilutive common shares
    used in diluted EPS |                               |                          | 7,306  |      |      |   | 7,230 |      |  |   | 7,213 |     
|                                                                                       |                               |                          |        |      |      |   |       |      | 
|Earnings per common share:                                                             |                               |                          |        |      |      |   |       |      |  |   |       |     
|                                                                                       | Basic                         |                          | $      | 1.50 |      |   | $     | 1.20 |  |   | $     | 0.58 | 
|                                                                                       | Diluted                       |                          | $      | 1.48 |      |   | $     | 1.19 |  |   | $     | 0.57 | 



|    |                             
|--- | ----------------------------
|18. | Off-Balance Sheet Activities





|                                                             |  |      |         |  |      |   |         | 
|------------------------------------------------------------ |  | ---- | ------- |  | ---- | - | ------- | 
|                                                             |  | 2005 |         |  | 2004 |  
|                                                             |  |      |         |  |      |  
|Unfunded loan commitments including unfunded lines of credit |  | $    | 152,190 |  |      | $ | 105,975 | 
|Standby letters of credit                                    |  |      | 4,589   |  |      |   | 3,852   | 
|Commercial letters of credit                                 |  |      | 6,593   |  |      |   | 11,756  | 
|Operating leases                                             |  |      | 5,467   |  |      |   | 4,060   | 
|                                                             |  |      |         |  |      |  
|Total financial instruments with off-balance sheet risk      |  | $    | 168,839 |  |      | $ | 125,643 | 
|                                                             |  |      |         |  |      |  

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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                    
|--- | -----------------------------------
|19. | Fair Value of Financial Instruments

Disclosures About Fair Value of
Financial Instruments






|                      |                                          |                      |                |         |            |         |             |          |         |         |            |         |         |         |   |         |         |         | 
|--------------------- | ---------------------------------------- | -------------------- | -------------- | ------- | ---------- | ------- | ----------- | -------- | ------- | ------- | ---------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                      |                                          | As of December 31,   |               
|                      |                                          |                      |               
|                      |                                          | 2005                 |                |         | 2004       |        
|                      |                                          |                      |                |         |            |        
|                      |                                          | Carrying or          |                |         |            |         | Carrying or |          |         |        
|                      |                                          | Contract             |                |         | Estimated  |         |             | Contract |         |         | Estimated  |        
|                      |                                          | Amount               |                |         | Fair Value |         |             | Amount   |         |         | Fair Value |        
|                      |                                          |                      |                |         |            |         |             |          |         |         |            |        
|Financial Assets      |                                          |                      |                |         |            |         |             |          |         |         |            |         |         |         |   |        
|                      | Cash and cash equivalents                |                      | $              | 81,812  |            |         | $           | 81,812   |         |         | $          | 32,073  |         |         | $ | 32,073  |        
|                      | Investment securities available-for-sale |                      |                | 236,100 |            |         |             | 236,100  |         |         |            | 273,720 |         |         |   | 273,720 |        
|                      | Loans held-for-investment, net           |                      |                | 758,304 |            |         |             | 756,392  |         |         |            | 582,136 |         |         |   | 583,624 |        
|                      | Loans, held-for-sale                     |                      |                |        |            |         |             |         |         |         |            | 1,899   |         |         |   | 1,899   |        
|                      | Accrued interest receivable              |                      |                | 4,835   |            |         |             | 4,835    |         |         |            | 3,308   |         |         |   | 3,308   |        
|Financial Liabilities |                                          |                      |                |         |            |         |             |          |         |         |            |         |         |         |   |        
|                      | Deposits                                 |                      |                |         |            |         |             |          |         |         |            |         |         |         |   |         |        
|                      |                                          | Transaction accounts |                |         | 422,460    |         |             |          | 422,460 |         |            |         | 371,627 |         |   |         | 371,627 |        
|                      |                                          | Time deposits        |                |         | 539,290    |         |             |          | 537,636 |         |            |         | 383,426 |         |   |         | 383,275 |        
|                      |                                          |                      |                |         |            |         |             |          |         |         |            |        
|                      |                                          |                      | Total deposits |         |            | 961,750 |             |          |         | 960,096 |            |         |         | 755,053 |   |         |         | 754,902 | 
|                      |                                          |                      |                |         |            |         |             |          |         |         |            |        
|                      | Other borrowings                         |                      |                | 26,054  |            |         |             | 26,177   |         |         |            | 60,849  |         |         |   | 61,712  |        
|                      | Junior subordinated debentures           |                      |                | 36,083  |            |         |             | 37,507   |         |         |            |        |         |         |   |        |        
|                      | Accrued interest payable                 |                      |                | 1,126   |            |         |             | 1,126    |         |         |            | 649     |         |         |   | 649     |        

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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                            
| | -----------------------------------------------------------
| | Assets for Which Fair Value Approximates Carrying
    Value





| |                      
| | ---------------------
| | Investment Securities





| |      
| | -----
| | Loans





| |                                                                 
| | ----------------------------------------------------------------
| | Liabilities for Which Fair Value Approximates Carrying
    Value





| |              
| | -------------
| | Time Deposits





| |                 
| | ----------------
| | Other Borrowings





| |                               
| | ------------------------------
| | Junior Subordinated Debentures



101



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                   
| | --------------------------------------------------
| | Commitments to Extend Credit and Letters of Credit





|    |                              
|--- | -----------------------------
|20. | Commitments and Contingencies



| |           
| | ----------
| | Litigation





| |       
| | ------
| | Leases



|           |  |        |       | 
|---------- |  | ------ | ----- | 
|Year       |  | Amount |      
|           |  |        |      
|2006       |  | $      | 973   | 
|2007       |  |        | 922   | 
|2008       |  |        | 885   | 
|2009       |  |        | 843   | 
|2010       |  |        | 761   | 
|Thereafter |  |        | 1,083 | 
|           |  |        |      
|           |  | $      | 5,467 | 
|           |  |        |      



|    |                              
|--- | -----------------------------
|21. | Operating Segment Information



102



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |      |   |   |           |        | 
|------------------------------------- | --------------------------------------------------- | --------- | ------- | ------ | ------------ | - | ------- | ------------ |  | - | ------- | ---- | - | - | --------- | ------ | 
|                                      |                                                     |           |         |        |              |   |         | Consolidated | 
|                                      |                                                     | MetroBank |         |        | First United |   |         | Other        |  |   | Company |     
|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |     
|Net interest income                   |                                                     | $         | 40,168  |        |              | $ | 1,847   |              |  | $ | (497    | )    |   | $ | 41,518    |       
|Provision for loan losses             |                                                     |           | 1,874   |        |              |   | 62      |              |  |   |        |      |   |   | 1,936     |       
|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |     
|                                      | Net interest income after provision for loan losses |           |         | 38,294 |              |   |         | 1,785        |  |   |         | (497 | ) |   |           | 39,582 | 
|Noninterest income                    |                                                     |           | 7,984   |        |              |   | 125     |              |  |   |        |      |   |   | 8,109     |       
|Noninterest expense                   |                                                     |           | 30,550  |        |              |   | 1,150   |              |  |   | 152     |      |   |   | 31,852    |       
|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |     
|                                      | Income before income tax provision                  |           |         | 15,728 |              |   |         | 760          |  |   |         | (649 | ) |   |           | 15,839 | 
|Provision for income taxes            |                                                     |           | 4,935   |        |              |   | 299     |              |  |   | (175    | )    |   |   | 5,059     |       
|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |     
|                                      | Net income                                          |           | $       | 10,793 |              |   | $       | 461          |  |   | $       | (474 | ) |   | $         | 10,780 | 
|                                      |                                                     |           |         |        |              |   |         |              |  |   |         |     
|Assets                                |                                                     | $         | 914,748 |        |              | $ | 212,782 |              |  | $ | 674     |      |   | $ | 1,128,204 |       
|Net loans                             |                                                     |           | 625,825 |        |              |   | 132,479 |              |  |   |        |      |   |   | 758,304   |       
|Goodwill and core deposit intangibles |                                                     |           |        |        |              |   | 23,035  |              |  |   |        |      |   |   | 23,035    |       
|Deposits                              |                                                     |           | 793,451 |        |              |   | 171,587 |              |  |   | (3,288  | )    |   |   | 961,750   |       
|Shareholders equity                   |                                                     |           | 84,340  |        |              |   | 40,156  |              |  |   | (32,268 | )    |   |   | 92,228    |       



|    |                                                
|--- | -----------------------------------------------
|22. | Supplemental Statement of Cash Flow Information

|                                                           |                             |                          |        |        |      |  |     |        |  |  |        |        | 
|---------------------------------------------------------- | --------------------------- | ------------------------ | ------ | ------ | ---- |  | --- | ------ |  |  | ------ | ------ | 
|                                                           |                             | Years Ended December 31, |       
|                                                           |                             |                          |       
|                                                           |                             | 2005                     |        |        | 2004 |  |     | 2003   | 
|                                                           |                             |                          |        |        |      |  |     |        | 
|                                                           |                             | (In thousands)           |       
|Cash payments during the year for:                         |                             |                          |        |        |      |  |     |        |  |  |        |       
|                                                           | Interest                    |                          | $      | 17,259 |      |  | $   | 11,267 |  |  | $      | 12,284 | 
|                                                           | Income taxes                |                          |        | 4,550  |      |  |     | 3,850  |  |  |        | 2,000  | 
|Noncash investing and financing activities:                |                             |                          |        |        |      |  |     |        |  |  |        |       
|                                                           | Dividends declared not paid |                          |        | 437    |      |  |     | 431    |  |  |        | 429    | 
|                                                           | Foreclosed assets acquired  |                          |        | 5,066  |      |  |     | 1,781  |  |  |        | 4,583  | 
|Loans to facilitate the sale of foreclosed assets          |                             |                          |       |        |      |  | 505 |        |  |  | 300    |       
|Transfer of loans receivable to (from) loans held-for-sale |                             |                          | (1,899 | )      |      |  |    |        |  |  | 18,322 |       

103



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|23. | Parent Company Financial Information



Condensed Balance Sheets


(In thousands, except share amounts)


|                                           |                                                                                                                                                                                                           |                    |         |         |      |   |        |        | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ------- | ---- | - | ------ | ------ | 
|                                           |                                                                                                                                                                                                           | As of December 31, |        
|                                           |                                                                                                                                                                                                           |                    |        
|                                           |                                                                                                                                                                                                           | 2005               |         |         | 2004 |  
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|Assets                                    
|Cash and due from subsidiary banks         |                                                                                                                                                                                                           | $                  | 3,367   |         |      | $ | 2,372  |       
|Investment in subsidiary trust             |                                                                                                                                                                                                           |                    | 1,083   |         |      |   |       |       
|Investment in bank subsidiaries            |                                                                                                                                                                                                           |                    | 124,514 |         |      |   | 83,728 |       
|Other assets                               |                                                                                                                                                                                                           |                    | 3       |         |      |   |       |       
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|                                           | Total assets                                                                                                                                                                                              |                    | $       | 128,967 |      |   | $      | 86,100 | 
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|                                          
|Liabilities and Shareholders Equity      
|Accrued interest payable                   |                                                                                                                                                                                                           | $                  | 98      |         |      | $ |       |       
|Junior subordinated debentures             |                                                                                                                                                                                                           |                    | 36,083  |         |      |   |       |       
|Other liabilities                          |                                                                                                                                                                                                           |                    | 558     |         |      |   | 377    |       
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|                                           | Total liabilities                                                                                                                                                                                         |                    |         | 36,739  |      |   |        | 377    | 
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|Shareholders equity:                      |                                                                                                                                                                                                           |                    |         |         |      |   |        |       
|                                           | Common stock, $1.00 par value, 20,000,000 shares
    authorized; 7,329,977 and 7,132,627 shares issued and
    7,232,239 and 7,187,446 shares outstanding at
    December 31, 2005 and 2004, respectively |                    |         | 7,330   |      |   |        | 7,313  | 
|Additional paid-in-capital                 |                                                                                                                                                                                                           |                    | 28,576  |         |      |   | 27,859 |       
|Retained earnings                          |                                                                                                                                                                                                           |                    | 60,023  |         |      |   | 50,976 |       
|Other comprehensive income                 |                                                                                                                                                                                                           |                    | (2,783  | )       |      |   | 710    |       
|Treasury stock, at cost                    |                                                                                                                                                                                                           |                    | (918    | )       |      |   | (1,135 | )     
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|                                           | Total shareholders equity                                                                                                                                                                                |                    |         | 92,228  |      |   |        | 85,723 | 
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  
|Total liabilities and shareholders equity |                                                                                                                                                                                                           | $                  | 128,967 |         |      | $ | 86,100 |       
|                                           |                                                                                                                                                                                                           |                    |         |         |      |  

104



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Statements of Income


(In thousands)


|                                                   |            |                          |        |        |      |   |       |       |  |   |       |       | 
|-------------------------------------------------- | ---------- | ------------------------ | ------ | ------ | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                   |            | Years Ended December 31, |       
|                                                   |            |                          |       
|                                                   |            | 2005                     |        |        | 2004 |   |       | 2003  | 
|                                                   |            |                          |        |        |      |   |       |       | 
|Income                                            
|Equity in undistributed income of subsidiaries     |            | $                        | 4,513  |        |      | $ | 6,872 |       |  | $ | 2,406 |      
|Interest income on deposits                        |            |                          | 2      |        |      |   |      |       |  |   |      |      
|Dividends received from subsidiary trust           |            |                          | 15     |        |      |   |      |       |  |   |      |      
|Dividends received from bank subsidiaries          |            |                          | 6,734  |        |      |   | 1,722 |       |  |   | 1,704 |      
|                                                   |            |                          |        |        |      |   |       |       | 
|Total income                                       |            |                          | 11,264 |        |      |   | 8,594 |       |  |   | 4,110 |      
|                                                   |            |                          |        |        |      |   |       |       | 
|                                                  
|Expense                                           
|Interest expense on junior subordinated debentures |            |                          | 514    |        |      |   |      |       |  |   |      |      
|Stock-based compensation                           |            |                          | 145    |        |      |   |      |       |  |   |      |      
|                                                   |            |                          |        |        |      |   |       |       | 
|Total expense                                      |            |                          | 659    |        |      |   |      |       |  |   |      |      
|                                                   |            |                          |        |        |      |   |       |       | 
|Income before taxes                                |            |                          | 10,605 |        |      |   | 8,594 |       |  |   | 4,110 |      
|Income tax benefit                                 |            |                          | 175    |        |      |   |      |       |  |   |      |      
|                                                   |            |                          |        |        |      |   |       |       | 
|                                                   | Net income |                          | $      | 10,780 |      |   | $     | 8,594 |  |   | $     | 4,110 | 
|                                                   |            |                          |        |        |      |   |       |       | 

105



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METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Condensed Statements of Cash Flows


(In thousands)


|                                                     |                                                       |                                                     |       |         |         |   |        |        |        |   |       |        |       |  
|---------------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------- | ----- | ------- | ------- | - | ------ | ------ | ------ | - | ----- | ------ | ----- | -
|                                                     |                                                       | Years Ended December 31,                            |      
|                                                     |                                                       |                                                     |      
|                                                     |                                                       | 2005                                                |       |         | 2004    |   |        | 2003   |       
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Cash flow from operating activities:                 |                                                       |                                                     |       |         |         |   |        |        |        |   |       |       
|                                                     | Net income                                            |                                                     | $     | 10,780  |         |   | $      | 8,594  |        |   | $     | 4,110  |      
|                                                     | Stock-based compensation                              |                                                     |       | 145     |         |   |        |       |        |   |       |       |      
|                                                     | Equity in undistributed income of subsidiaries        |                                                     |       | (4,513  | )       |   |        | (6,872 | )      |   |       | (2,406 | )    
|                                                     | Increase in other assets                              |                                                     |       | (3      | )       |   |        |       |        |   |       |       |      
|                                                     | Increase (decrease) in other liabilities              |                                                     |       | (68     | )       |   |        | 2      |        |   |       |       |      
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|                                                     |                                                       | Net cash provided by operating activities           |       |         | 6,341   |   |        |        | 1,724  |   |       |        | 1,704 |  
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Cash flow from investment activities:                |                                                       |                                                     |       |         |         |   |        |        |        |   |       |       
|                                                     | Investment in bank subsidiaries                       |                                                     |       | (39,425 | )       |   |        | (3,025 | )      |   |       | (12    | )    
|                                                     | Investment in subsidiary trust                        |                                                     |       | (1,083  | )       |   |        |       |        |   |       |       |      
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|                                                     |                                                       | Net cash used in investing activities               |       |         | (40,508 | ) |        |        | (3,025 | ) |       |        | (12   | )
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Cash flow from financing activities:                 |                                                       |                                                     |       |         |         |   |        |        |        |   |       |       
|                                                     | Proceeds from issuance junior subordinated debentures |                                                     | $     | 36,083  |         |   | $      |       |        |   | $     |       |      
|                                                     | Proceeds from issuance of common stock                |                                                     |       | 220     |         |   |        | 50     |        |   |       | 1,186  |      
|                                                     | Re-issuance of treasury stock                         |                                                     |       | 586     |         |   |        | 390    |        |   |       | 397    |      
|                                                     | Repurchase of common stock                            |                                                     |       |        |         |   |        |       |        |   |       | (212   | )    
|                                                     | Dividends                                             |                                                     |       | (1,727  | )       |   |        | (1,721 | )      |   |       | (1,696 | )    
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|                                                     |                                                       | Net cash provided by (used in) financing activities |       |         | 35,162  |   |        |        | (1,281 | ) |       |        | (325  | )
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Net increase (decrease) in cash and cash equivalents |                                                       |                                                     | 995   |         |         |   | (2,582 | )      |        |   | 1,367 |       
|Cash and cash equivalents at beginning of year       |                                                       |                                                     | 2,372 |         |         |   | 4,954  |        |        |   | 3,587 |       
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Cash and cash equivalents at end of year             |                                                       | $                                                   | 3,367 |         |         | $ | 2,372  |        |        | $ | 4,954 |       
|                                                     |                                                       |                                                     |       |         |         |   |        |        |       
|Dividends declared but not paid                      |                                                       | $                                                   | 437   |         |         | $ | 431    |        |        | $ | 429   |       



|    |                           
|--- | --------------------------
|24. | Related Party Transactions



106



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##### Table of Contents



METROCORP BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |                        |      |     |       |      |   |       |        |  
|----------------------- | ---------------------- | ---- | --- | ----- | ---- | - | ----- | ------ | -
|                        |                        | 2005 |     |       | 2004 |  
|                        |                        |      |     |       |      |  
|Balance at January 1,   |                        | $    | 265 |       |      | $ | 2,532 |       
|                        | New loans and advances |      |     | 1,077 |      |   |       | 497    |  
|                        | Repayments             |      |     | (584  | )    |   |       | (2,764 | )
|                        |                        |      |     |       |      |  
|Balance at December 31, |                        | $    | 758 |       |      | $ | 265   |       
|                        |                        |      |     |       |      |  







|                        |                                             |      |        |        |      |   |        |        |  
|----------------------- | ------------------------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | -
|                        |                                             | 2005 |        |        | 2004 |  
|                        |                                             |      |        |        |      |  
|Gross balance           |                                             | $    | 17,018 |        |      | $ | 11,511 |       
|                        | Less: participation portion sold to New Era |      |        | (6,691 | )    |   |        | (4,226 | )
|                        |                                             |      |        |        |      |  
|Net balance outstanding |                                             | $    | 10,327 |        |      | $ | 7,285  |       
|                        |                                             |      |        |        |      |  





107



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##### Table of Contents



EXHIBIT INDEX


|          |    |             |  |                                                                                                                                                                                                                                                                     
|--------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |    |            
|Number(1) |    | Description
|          |    |            
|          | 2  | .1          |  | Agreement and Plan of Reorganization, dated as of June 7,
    2005, by and between MetroCorp Bancshares, Inc. and First United
    Bank (incorporated herein by reference to Exhibit 2.1 to
    the Companys Current Report on Form 8-K filed on
    June 9, 2005).
|          | 3  | .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          |  | 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).                                                                                                                     
|          | 10 | .1          |  | Agreement and Plan of Reorganization by and among MetroCorp
    Bancshares, Inc., MC Bancshares of Delaware, Inc. and MetroBank,
    N.A. (incorporated herein by reference to Exhibit 10.1 to
    the Registration Statement).                                     
|          | 10 | .2          |  | MetroCorp Bancshares, Inc. 1998 Employee Stock Purchase Plan
    (incorporated herein by reference to Exhibit 10.4 to the
    Registration Statement).                                                                                                              
|          | 10 | .3         |  | MetroCorp Bancshares, Inc. 1998 Stock Incentive Plan
    (incorporated herein by reference to Exhibit 10.5 to the
    Registration Statement).                                                                                                                      
|          | 10 | .4          |  | First Amendment to the MetroCorp Bancshares, Inc. 1998 Employee
    Stock Purchase Plan (incorporated herein by reference to
    Exhibit 10.6 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 1998).                                
|          | 10 | .5         |  | Employment Agreement between MetroCorp Bancshares, Inc. and
    George M. Lee                                                                                                                                                                                       
|          | 10 | .6         |  | Separation Agreement and Release between MetroBank, N.A. and
    Allen Cournyer (incorporated herein by reference to
    Exhibit 2.1 to the Companys Current Report on
    Form 8-K filed on February 2, 2006).                                                    
|          | 21 | .1*         |  | Subsidiaries of MetroCorp Bancshares, Inc.                                                                                                                                                                                                                          
|          | 23 | .1*         |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                              
|          | 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, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|          | 32 | .2**        |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002.                                                                                                          






|    |                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company has other long-term debt agreements that meet the
    exclusion set forth in Section 601(b)(4)(iii)(A) of
    Regulation S-K.
    The Company hereby agrees to furnish a copy of such agreements
    to Securities and Exchange Commission upon request.



| |   |                
| | - | ---------------
| | * | Filed herewith.



|   |                    
|-- | -------------------
|** | Furnished herewith.



| |   |                                                         
| | - | --------------------------------------------------------
| |  | Management contract or compensatory plan or arrangement.