MetroCorp Bancshares 10-Q/A 2005 Q1 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-25141

METROCORP BANCSHARES, INC.

(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)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No o.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filer o Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Noþ

     As of May 9, 2005, the number of outstanding shares of Common Stock, par value $1.00 per share, was 7,322,627.

Explanatory Note

     The purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of MetroCorp Bancshares, Inc. (the “Company”) for the quarter ended March 31, 2005 (the “Original Form 10-Q”) is to restate the Company’s interim consolidated financial statements as of and for the three months ended March 31, 2005 and 2004 to correct the amounts on the Company’s consolidated statements of cash flows related to cash receipts from sales and repayments of loans held-for-sale as more fully discussed in Note 8 to the accompanying interim consolidated financial statements. Specifically, the amounts presented in the Company’s consolidated statements of cash flows for the three months ended March 31, 2005 and 2004 in this Amendment No. 1 reflect a correction in the presentation of the Company’s cash receipts from sales and repayments of loans held-for-sale that were acquired for investment which were previously reported as operating cash flows in the consolidated statements of cash flows. Because these loans were acquired by the Company for investment, cash receipts from sales and repayments of these loans should have been classified as investing cash flows in the consolidated statements of cash flows. This correction resulted in a reclassification of cash receipts from loans held-for-sale from operating cash flows to investing cash flows in the consolidated statements of cash flows. There was no change in the total increase or decrease in cash and cash equivalents. Further, these changes had no effect on the Company’s consolidated statements of income, consolidated balance sheets or consolidated statements of changes in shareholders’ equity.

     In addition, the Company has amended Item 4, Controls and Procedures, to update the disclosure regarding disclosure controls and procedures and internal control over financial reporting.

     As a result of the restatement, the Company has determined it to be necessary to amend the Original Form 10-Q. This Amendment No. 1 amends and restates in its entirety Part I, Items 1 and 4 and Part II, Item 6 of the Original Form 10-Q. This Amendment No. 1 continues to reflect circumstances as of the date of the filing of the Original Form 10-Q and does not reflect events occurring after the filing of the Original Form 10-Q, or modify or update those disclosures in any way, except as required to reflect the effect of the restatement as described in Note 8 to the accompanying interim consolidated financial statements.

2

TABLE OF CONTENTS

PART I
	Item 1. Condensed Consolidated Financial Statements
	Item 4. Controls and Procedures
PART II
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
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

PART I

FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements.

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

	March 31,			December 31,
	2005			2004
ASSETS
Cash and due from banks	$	22,104		$	26,285
Federal funds sold and other short-term investments		10,802			5,788
Total cash and cash equivalents		32,906			32,073
Securities available-for-sale, at fair value		255,656			273,720
Loans, net of allowance for loan losses of $11,075 and $10,863, respectively		581,016			581,774
Loans, held-for-sale		1,886			1,899
Accrued interest receivable		3,185			3,308
Premises and equipment, net		6,460			6,512
Customers’ liability on acceptances		974			6,669
Foreclosed assets, net		1,175			1,566
Other assets		7,283			6,429
Total assets	$	890,541		$	913,950
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	172,463		$	163,191
Interest-bearing		569,603			591,862
Total deposits		742,066			755,053
Other borrowings		55,137			60,849
Accrued interest payable		687			649
Acceptances outstanding		974			6,669
Other liabilities		5,682			5,007
Total liabilities		804,546			828,227
Commitments and contingencies		—			—
Shareholders’ equity:
Common stock, $1.00 par value, 20,000,000 shares authorized; 7,322,627 and 7,312,627 shares issued and 7,201,576 and 7,187,446 shares outstanding at March 31, 2005 and December 31, 2004, respectively		7,323			7,313
Additional paid-in capital		28,012			27,859
Retained earnings		52,805			50,976
Accumulated other comprehensive (loss) income		(1,043	)		710
Treasury stock, at cost		(1,102	)		(1,135	)
Total shareholders’ equity		85,995			85,723
Total liabilities and shareholders’ equity	$	890,541		$	913,950

See accompanying notes to condensed consolidated financial statements

3

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

	For the Three Months
	Ended March 31,
	2005		2004
Interest income:
Loans	$	10,070	$	8,178
Securities:
Taxable		2,422		2,187
Tax-exempt		218		234
Federal funds sold and other short-term investments		54		38
Total interest income		12,764		10,637
Interest expense:
Time deposits		2,375		1,901
Demand and savings deposits		386		296
Other borrowings		573		436
Total interest expense		3,334		2,633
Net interest income		9,430		8,004
Provision for loan losses		400		550
Net interest income after provision for loan losses		9,030		7,454
Noninterest income:
Service fees		1,628		1,659
Other loan-related fees		145		208
Letters of credit commissions and fees		142		115
Gain on sale of loans		8		55
Other noninterest income		127		11
Total noninterest income		2,050		2,048
Noninterest expenses:
Salaries and employee benefits		4,136		3,814
Occupancy and equipment		1,338		1,400
Foreclosed assets, net		410		(663	)
Other noninterest expense		1,866		1,797
Total noninterest expenses		7,750		6,348
Income before provision for income taxes		3,330		3,154
Provision for income taxes		1,070		991
Net income	$	2,260	$	2,163
Earnings per common share:
Basic	$	0.31	$	0.30
Diluted	$	0.31	$	0.30
Weighted average shares outstanding:
Basic		7,194		7,161
Diluted		7,292		7,254
Dividends per common share	$	0.06	$	0.06

See accompanying notes to condensed consolidated financial statements

4

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

	For the Three Months
	Ended March 31,
	2005			2004
Net income	$	2,260		$	2,163
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investment securities, net:
Unrealized holding (loss) gain arising during the period		(1,753	)		1,365
Less: reclassification adjustment for gain included in net income		—			—
Other comprehensive (loss) income		(1,753	)		1,365
Total comprehensive income	$	507		$	3,528

METROCORP BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended March 31, 2005
(In thousands)
(Unaudited)

					Additional					Accumulated Other			Treasury
	Common Stock				Paid-In		Retained			Comprehensive			Stock, At
	Shares		At Par		Capital		Earnings			Income (Loss)			Cost			Total
Balance at December 31, 2004		7,188	$	7,313	$	27,859	$	50,976		$	710		$	(1,135	)	$	85,723
Issuance of common stock		10		10		95		—			—			—			105
Re-issuance of treasury stock		4		—		58		—			—			33			91
Net income		—		—		—		2,260			—			—			2,260
Other comprehensive loss		—		—		—		—			(1,753	)		—			(1,753	)
Cash dividends ($0.06 per share)		—		—		—		(431	)		—			—			(431	)
Balance at March 31, 2005		7,202	$	7,323	$	28,012	$	52,805		$	(1,043	)	$	(1,102	)	$	85,995

See accompanying notes to condensed consolidated financial statements

5

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

	For the Three Months Ended
	March 31,
	2005			2004
	Restated - see			Restated - see
	Note 8			Note 8
Cash flows from operating activities:
Net Income	$	2,260		$	2,163
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		347			328
Provision for loan losses		400			550
Loss (gain) on foreclosed assets		391			(892	)
Loss on sale and disposal of premises and equipment		99			—
Gain on sale of loans		(8	)		(55	)
Amortization of premiums and discounts on securities		75			166
Amortization of net deferred loan fees		(498	)		(191	)
Changes in:
Accrued interest receivable		123			244
Other assets		47			118
Accrued interest payable		38			(34	)
Other liabilities		675			(317	)
Net cash provided by operating activities		3,949			2,080
Cash flows from investing activities:
Purchases of securities available-for-sale		(185	)		(6,818	)
Proceeds from sales, maturities and principal paydowns of securities available-for-sale		15,520			25,299
Net change in loans		877			(18,630	)
Proceeds from sale of foreclosed assets		—			2,700
Proceeds from sale of premises and equipment		4			—
Purchases of premises and equipment		(398	)		(1,007	)
Net cash provided by investing activities		15,818			1,544
Cash flows from financing activities:
Net change in:
Deposits		(12,987	)		(16,148	)
Other borrowings		(5,712	)		4,620
Proceeds from issuance of common stock		105			—
Re-issuance of treasury stock		91			94
Dividends paid		(431	)		(429	)
Net cash used in financing activities		(18,934	)		(11,863	)
Net increase (decrease) in cash and cash equivalents		833			(8,239	)
Cash and cash equivalents at beginning of period		32,073			36,927
Cash and cash equivalents at end of period	$	32,906		$	28,688

See accompanying notes to condensed consolidated financial statements

6

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

     The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the Company’s financial position at March 31, 2005, results of operations for the three months ended March 31, 2005 and 2004, and cash flows for the three months ended March 31, 2005 and 2004. Interim period results are not necessarily indicative of results for a full-year period.

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

     These financial statements and the notes thereto should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2004.

Stock Compensation

     The Company grants stock options under several stock-based incentive compensation plans. The Company utilizes the intrinsic value method for its stock compensation plans. No compensation cost is recognized for fixed stock options in which the exercise price is equal to or greater than the estimated market price on the date of grant. In 1995, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123Accounting for Stock-Based Compensation,which if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the plans. Adoption of the expense recognition provisions of SFAS No. 123 is optional and the Company has decided not to elect these provisions of SFAS No. 123. However, pro forma disclosures as if the Company adopted the expense recognition provisions of SFAS No. 123 are required.

     If the fair value based method of accounting under SFAS No. 123 had been applied, the Company’s net income available for common shareholders and earnings per common share would have been reduced to the pro forma amounts indicated below (assuming that the fair value of options granted during the year are amortized over the vesting period) (in thousands, except per share amounts):

	For the Three Months
	Ended March 31,
	2005		2004
Net income:
As reported	$	2,260	$	2,163
Pro forma	$	2,166	$	2,120
Stock-based compensation cost, net of income taxes:
As reported	$	—	$	—
Pro forma	$	94	$	43
Basic earnings per common share:
As reported	$	0.31	$	0.30
Pro forma	$	0.30	$	0.30
Diluted earnings per common share:
As reported	$	0.31	$	0.30
Pro forma	$	0.30	$	0.29

7

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock Compensation (Continued)

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

     In December 2004, the FASB replaced the guidance in SFAS No. 123 with the issuance of SFAS No. 123R,Share-Based Payment.Of greatest significance to the Company, the revised standard establishes the fair value-based method as the exclusive method of accounting for stock-based compensation, with only limited exceptions, and eliminates the option of following APB No. 25. Under SFAS No. 123R, the grant-date fair value of equity instruments awarded to employees establishes the cost of the services received in exchange, and the cost associated with awards that are expected to vest is recognized over the required service period. The revised standard also clarifies and expands existing guidance on measuring fair value, including considerations for selecting and applying an option-pricing model, on classifying an award as equity or a liability, and on attributing compensation cost to reporting periods.

     Under the Securities and Exchange Commission’s rule, SFAS No. 123R is now effective for public companies for annual, rather than interim, periods that begins after June 15, 2005. The effect for the Company is a six-month deferral of the new standard. Until SFAS No. 123R’s amended effective date, the provisions of SFAS No. 123 remain in effect, which permit the continued use of the intrinsic value method of APB No. 25. The Company has no current plans to modify, repurchase or cancel existing awards.

2. EARNINGS PER COMMON SHARE

     Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Stock options can be dilutive common shares and are therefore considered in the earnings per share calculation, if dilutive. Stock options that are antidilutive are excluded from earnings per share calculation. Stock options are antidilutive when the exercise price is higher than the current market price of the Company’s common stock. As of March 31, 2005, there are no antidilutive stock options. The number of potentially dilutive common shares is determined using the treasury stock method.

	For the Three Months
	Ended March 31,
	2005		2004
	(In thousands, except per share amounts)
Net income available to common shareholders	$	2,260	$	2,163
Weighted average common shares outstanding:
Basic		7,194		7,161
Shares issuable under stock option plans		98		93
Diluted		7,292		7,254
Earnings per common share:
Basic	$	0.31	$	0.30
Diluted	$	0.31	$	0.30

8

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SECURITIES AVAILABLE-FOR-SALE

     The amortized cost and approximate fair value of securities classified as available-for-sale is as follows:

	As of March 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. Treasury securities and obligations of U.S.
Government agencies	$	5,005	$	1	$	(98	)	$	4,908	$	5,005	$	—	$	(18	)	$	4,987
Obligations of state and political subdivisions		17,160		777		—			17,937		18,105		1,030		—			19,135
Mortgage-backed securities and collateralized mortgage obligations		208,557		475		(2,520	)		206,512		222,977		1,344		(1,179	)		223,142
Other debt securities		1,749		12		(1	)		1,760		1,979		14		—			1,993
Investment in ARM and CRA funds		18,922		34		(260	)		18,696		18,772		89		( 205	)		18,656
FHLB/Federal Reserve Bank Stock		5,843		—		—			5,843		5,807		—		—			5,807
Total Securities	$	257,236	$	1,299	$	(2,879	)	$	255,656	$	272,645	$	2,477	$	(1,402	)	$	273,720

     The following table displays the gross unrealized losses and fair value of investments as of March 31, 2005 that were in a continuous unrealized loss position for the periods indicated:

	Less Than 12 Months					Greater Than 12 Months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
						(Dollars in thousands)
U.S. Treasury securities and obligations of U.S. Government agencies	$	4,873	$	(98	)	$	—	$	—		$	4,873	$	(98	)
Mortgage-backed securities and collateralized mortgage obligations		99,329		(1,224	)		49,054		(1,296	)		148,383		(2,520	)
Other debt securities		364		(1	)		—		—			364		(1	)
Investment in ARM and CRA funds		—		—			14,496		(260	)		14,496		(260	)
Total securities	$	104,566	$	(1,323	)	$	63,550	$	(1,556	)	$	168,116	$	(2,879	)

     Declines in the fair value of individual securities below their cost that are other than temporary would result in write-downs, as a realized loss, of the individual securities to their fair value. Management believes that based upon the credit quality of the equity and debt securities and the Company’s intent and ability to hold the securities until their recovery, none of the unrealized losses on securities should be considered other than temporary.

9

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LITIGATION

     In September 2003, Advantage Finance Corporation (“AFC”), a subsidiary of the Company that is no longer active, was served as co-defendant in connection with a lawsuit based on alleged “malicious prosecution” and “conspiracy”. The lawsuit did not seek a specified amount. Also included, as defendants in the lawsuit, were BDO Seidman LLP and the CIT Group/ Commercial Services, Inc. The plaintiff had filed this case in both Federal and State courts. The U.S. Bankruptcy Court ruled in favor of the defendants. The plaintiff filed an appeal with the U.S. Fifth Circuit Court of Appeals which upheld the U.S. Bankruptcy Court’s ruling. As of March 29, 2005, the plaintiff’s period to re-appeal to the U.S. Fifth Circuit Court of Appeals expired, thereby, upholding and re-affirming the ruling of the U.S. Bankruptcy Court in favor of the defendants. The Agreed Final Judgment ordered, adjudged and decreed that this case and all claims and causes of action of Plaintiffs against Defendants, in both Federal and State of Texas courts, are dismissed with prejudice to the refiling of same or any part thereof. As of March 31, 2005, this lawsuit was dismissed.

5. OFF-BALANCE SHEET ACTIVITIES

     The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include various guarantees, commitments to extend credit and standby letters of credit. Additionally, these instruments may involve, to varying degrees, credit risk in excess of the amount recognized in the statement of financial condition. The Bank’s maximum exposure to credit loss under such arrangements is represented by the contractual amount of those instruments. The Bank applies the same credit policies and collateralization guidelines in making commitments and conditional obligations as it does for on-balance sheet instruments. Off-balance sheet financial instruments include commitments to extend credit and guarantees under standby and other letters of credit. Unfunded loan commitments including unfunded lines of credit at March 31, 2005 and December 31, 2004 totaled $88.8 million and $106.0 million, respectively. Commitments under standby and commercial letters of credit at March 31, 2005 and December 31, 2004 totaled $11.2 million and $15.6 million, respectively.

     The contractual amount of the Company’s financial instruments with off-balance sheet risk at March 31, 2005 and December 31, 2004 is presented below (in thousands):

	As of		As of
	March 31, 2005		December 31, 2004
Unfunded loan commitments including unfunded lines of credit	$	88,832	$	105,975
Standby letters of credit		4,253		3,852
Commercial letters of credit		6,977		11,756
Operating leases		3,423		4,060
Total financial instruments with off-balance sheet risk	$	103,485	$	125,643

6. ALLOWANCE FOR LOAN LOSSES

     The following table presents an analysis of the allowance for loan losses for the periods indicated:

	As of and for the
	Three Months Ended March 31,
	2005			2004
	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	10,863		$	10,448
Provision for loan losses		400			550
Charge-offs		(240	)		(368	)
Recoveries		52			220
Allowance for loan losses at end of period	$	11,075		$	10,850

10

METROCORP BANCSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. NEW ACCOUNTING PRONOUNCEMENTS

     On December 16, 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 provides guidance on the accounting for differences between contractual and expected cash flows from the purchaser’s initial investment in loans or debt securities acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3: (1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss accrual, or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be recognized prospectively through an adjustment of yield; and (3) requires the subsequent decreases in expected cash flows be recognized as an impairment. In addition, SOP 03-3 prohibits the creation or carrying over of a valuation allowance in the initial accounting of all loans within its scope that are acquired in a transfer. SOP 03-3 becomes effective for loans or debt securities acquired in fiscal years beginning after December 15, 2004. The Company does not expect the requirements of SOP 03-3 to have a material impact on its financial condition or results of operations.

8. RESTATEMENT OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

     Subsequent to the issuance of the Company’s interim consolidated financial statements as of and for the three months ended March 31, 2005, the Company restated its historical consolidated financial statements for the three months ended March 31, 2005 and 2004 to correct the classification of cash receipts from sales and repayments of loans held-for-sale on the consolidated statements of cash flows. The Company previously reported the cash receipts from sales and repayments of loans held-for-sale that were acquired for investment as operating cash flows in the consolidated statements of cash flows. Because these loans were acquired by the Company for investment, cash receipts from sales and repayments of these loans should be classified as investing cash flows in the consolidated statements of cash flows.

     The restatement does not impact the total increase or decrease in cash and cash equivalents. Further, the restatement has no impact on the Company’s consolidated statements of income, consolidated balance sheets or consolidated statements of changes in shareholders’ equity. The effect of the restatement on the Company’s previously reported consolidated statements of cash flows for the three months ended March 31, 2005 and 2004 is as follows:

	Three months ended		Three months ended
	March 31, 2005		March 31, 2004
	(Dollars in thousands)
Net cash provided by operating activities
As previously reported	$	3,962	$	3,790
As restated		3,949		2,080
Net cash provided by (used in) investing activities
As previously reported	$	15,805	$	(166	)
As restated		15,818		1,544

Item 4.Controls and Procedures

     Evaluation of Disclosure Controls and Procedures.The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2005. As defined in Rules 13a-15(e) and 15d–15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, as appropriate, to allow timely decisions

11

regarding required financial disclosure. Based upon that evaluation and the subsequent restatement of the Company’s interim consolidated financial statements that management determined resulted from the material weakness described below, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2005, the Company’s disclosure controls and procedures were not effective.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management identified the following material weakness in its assessment as of December 31, 2005. The Company did not maintain effective controls over the classification and presentation of cash receipts from sales and repayments of loans held-for-sale in the consolidated statement of cash flows. Specifically, the Company recorded the cash receipts from sales and repayments of loans held-for-sale that were acquired for investment as operating activities instead of investing activities as required by generally accepted accounting principles. This control deficiency resulted in the restatement of the Company’s consolidated financial statements for the years ended December 31, 2004 and 2003 and the interim consolidated financial statements for the three months ended March 31, 2005, the six months ended June 30, 2005, and the nine months ended September 30, 2005, as well as an audit adjustment to the Company’s consolidated financial statements for the year ended December 31, 2005. Because this control deficiency could result in a misstatement of operating and investing cash flows that would result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected, management determined that this control deficiency constitutes a material weakness.

     Remediation of Material Weakness. In order to address the above material weakness in the Company’s internal control over financial reporting, during the first quarter of 2006 management implemented controls to aid in correctly classifying amounts related to cash receipts from sales and repayments of loans held-for-sale reflected in the consolidated statements of cash flows, including a more detailed cash flow statement preparation checklist. The Company will continue to monitor, evaluate and test the operating effectiveness of these controls.

     Changes in Internal Control Over Financial Reporting.There have been no changes in the Company’s internal control over financial reporting during the first quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 6.Exhibits

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

*	Filed herewith.
**	Furnished herewith.

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SIGNATURES

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

	METROCORP BANCSHARES, INC.
	By:	/s/ George M. Lee
Date: March 14, 2006		George M. Lee
		Chief Executive Office (principal executive officer)
Date: March 14, 2006	By:	/s/ David C. Choi
		David C. Choi
		Chief Financial Officer (principal financial officer/
		principal accounting officer)

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EXHIBIT INDEX

Exhibit
Number		Identification of Exhibit
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).
11	-	Computation of Earnings Per Common Share, included as Note (3) to the unaudited Condensed Consolidated Financial Statements on Page 7 of this Form 10-Q.
31.1*	-	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	-	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**	-	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	-	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.
**	Furnished herewith.